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VARIABLE
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ANNUITY III
1995
ANNUAL
REPORT
[SBLIC LOGO]
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A LETTER FROM THE PRESIDENT
The key to Security Benefit's record-setting year was our ability to focus
on building value for our policyholders and customers by offering an array of
competitive and innovative products backed by service that we believe is
second-to-none.
We have grown into a diverse financial services organization with $5.7
billion in assets under management and statutory equity exceeding $200 million.
Security Benefit is a leader in the variable annuity and 403(b) market, and
is ranked among the top 25 variable annuity providers in the country, according
to Variable Annuity Research and Data Services (September 30, 1995).
SERVICE, STRENGTH and STABILITY are fundamental to our success, and
distinguish us from our competitors in the financial field.
SERVICE. We use the power of advanced technology to provide our associates
with the necessary tools to deliver fast, accurate, personalized service to our
customers.
STRENGTH. Security Benefit's financial strength is reflected in the
consistently strong ratings we receive from the financial analysts who study our
industry.
STABILITY. Investment strategies have risen and fallen. Products have come
into vogue and gone out just as fast. But we haven't varied from our original
purpose -- to care for and protect others.
In the coming year our focus will continue to be on equity-oriented
products -- variable annuities, mutual funds and variable life insurance. As we
go forward, we will continue to build financial strength and provide service
that exceeds the expectations of our customers.
HOWARD R. FRICKE
Howard R. Fricke
Chairman of the Board,
President and Chief Executive Officer
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BOARD OF DIRECTORS
HOWARD R. FRICKE WILLIAM W. HANNA
Chairman of the Board, President & Chief
President & CEO Operating Officer
The Security Benefit Koch Industries
Group of Companies Wichita, Kansas
Topeka, Kansas
JOHN E. HAYES, JR.
THOMAS R. CLEVENGER Chairman of the Board,
Wichita, Kansas President & CEO
Western Resources, Inc.
SISTER LORETTO MARIE COLWELL Topeka, Kansas
President
St. Francis Hospital and LAIRD G. NOLLER
Medical Center President
Topeka, Kansas Noller Enterprises
Topeka, Kansas
JOHN C. DICUS
Chairman of the Board FRANK SABATINI
Capitol Federal Savings Chairman of the Board
& Loan Association and President
Topeka, Kansas Capital City Bank
Topeka, Kansas
MELANIE S. FANNIN
President ROBERT C. WHEELER
Kansas - Southwestern President
Bell Telephone Hill's Pet Nutrition, Inc.
Topeka, Kansas Topeka, Kansas
NOTICE OF POLICYOWNERS' MEETING
We encourage you to attend the annual meeting of policyowners to be held on
Tuesday, June 4, 1996 at Security Benefit Life, 700 SW Harrison St., Topeka,
Kansas at 2:00 p.m. Each policyowner is entitled to vote, either in person or by
proxy, on all matters coming before the meeting. Proxies are available from the
corporate secretary and must be returned at least 30 days prior to the annual
meeting.
This report is submitted only for the general information of Security Benefit
Life Variable Annuity contractowners and participants and is not authorized for
distribution to the public.
For More Information Call
1-800-888-2461
[SBLIC LOGO]
700 SW Harrison St., Topeka, Kansas 66636-0001
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Report of Independent Auditors
The Contractowners of SBL Variable
Annuity Account III and The Board of Directors
Security Benefit Life Insurance Company
We have audited the accompanying balance sheet of SBL Variable Annuity Account
III (the Company) as of December 31, 1995, and the related statement of
operations and changes in net assets for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of investments owned as of December 31, 1995, by correspondence
with the custodian. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SBL Variable Annuity Account
III at December 31, 1995, and the results of its operations and changes in its
net assets for the year then ended in conformity with generally accepted
accounting principles.
Ernst & Young LLP
February 2, 1996
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SBL VARIABLE ANNUITY ACCOUNT III
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BALANCE SHEET DECEMBER 31, 1995
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ASSETS (DOLLARS IN THOUSANDS)
Investments:
SBL Fund:
Series A (Growth Series) - 369,159 shares at net
asset value of $21.03 per share (cost, $6,465) $ 7,763
Series B (Growth-Income Series) - 67,195 shares at
net asset value of $33.95 per share (cost, $1,916) 2,281
Series C (Money Market Series) - 206,880 shares at
net asset value of $12.34 per share (cost, $2,565) 2,553
Series D (Worldwide Equity Series) - 75,853 shares
at net asset value of $5.56 per share (cost, $382) 422
Series E (High Grade Income Series) - 43,652 shares
at net asset value of $12.86 per share (cost, $567) 561
Series S (Social Awareness Series) - 2,217 shares
at net asset value of $16.49 per share (cost, $31) 37
Series J (Emerging Growth Series) - 10,603 shares at
net asset value of $16.06 per share (cost, $145) 170
Series K (Global Aggressive Bond Series) - 51,433 shares
at net asset value of $10.22 per share (cost, $515) 526
Series M (Specialized Asset Allocation Series) - 50,000
shares at net asset value of $10.71 per share (cost, $501) 536
Series N (Managed Asset Allocation Series) - 115,000
shares at net asset value of $10.73 per share (cost, $1,150) 1,234
Series O (Equity Income Series) - 25,000 shares at net
asset value of $11.70 per share (cost, $249) 292
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Total assets $16,375
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LIABILITIES AND NET ASSETS
Mortality guarantee payable $ 7
Net assets are represented by (NOTE 3):
NUMBER
OF UNITS UNIT VALUE AMOUNT
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Series A3:
Accumulation units 127,779 $ 59.85 $7,648
Annuity reserves 1,926 59.85 115 7,763
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Series B3:
Accumulation units 37,775 59.00 2,229
Annuity reserves 797 59.00 47 2,276
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Series C3:
Accumulation units 95,621 25.61 2,449
Annuity reserves 4,084 25.61 104 2,553
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Series D3:
Accumulation units 27,426 14.37 394
Annuity reserves 1,790 14.37 26 420
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Series E3:
Accumulation units 22,239 25.14 561
Series S3:
Accumulation units 2,166 16.87 37
Series J3:
Accumulation units 10,139 16.06 163
Annuity reserves 461 16.06 7 170
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Series K3:
Accumulation units 48,847 10.76 526
Series M3:
Accumulation units 50,000 10.71 536
Series N3:
Accumulation units 115,000 10.73 1,234
Series O3:
Accumulation units 25,000 11.70 292
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Total liabilities and net assets $16,375
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SEE ACCOMPANYING NOTES.
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SBL VARIABLE ANNUITY ACCOUNT III
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STATEMENT OF OPERATIONS AND
CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 1995
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(IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES SERIES SERIES SERIES SERIES SERIES SERIES SERIES SERIES SERIES SERIES
A3 B3 C3 D3 E3 S3 J3 K3 M3 N3 O3
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend distributions $ 55 $ 37 $ 119 $ - $ 34 $ - $ - $ 25 $ - $ - $ -
Expenses (NOTE 2):
Mortality and expense risk fee (58) (25) (38) - (5) - - (12) - - -
Administrative fee (5) (1) (2) - - - - - - - -
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Net investment income (loss) (8) 11 79 - 29 - - 13 - - -
Capital gains distributions 233 - - 5 - - - 2 - - -
Realized gain (loss) on investments 129 78 117 2 (13) 9 26 - 1 - -
Unrealized appreciation
(depreciation) on investments 1,736 425 (87) 46 76 - 23 11 35 84 43
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Net realized and unrealized gain
on investments 2,098 503 30 53 63 9 49 13 36 84 43
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Net increase in net assets
resulting from operations 2,090 514 109 53 92 9 49 26 36 84 43
Net assets at beginning of year 4,117 1,846 5,758 410 622 45 306 - - - -
Variable annuity deposits
(NOTES 2 AND 3) 3,530 483 1,634 277 42 12 129 500 500 1,150 249
Terminations and withdrawals
(NOTES 2 AND 3) (1,955) (558) (4,910) (317) (195) (29) (313) - - - -
Annuity payments (NOTES 2 AND 3) (19) (4) (37) (2) - - (1) - - - -
Net mortality guarantee transfer - (5) (1) (1) - - - - - - -
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Net assets at end of year $7,763 $2,276 $2,553 $420 $561 $37 $170 $526 $536 $1,234 $292
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SEE ACCOMPANYING NOTES.
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SBL VARIABLE ANNUITY ACCOUNT III
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NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - SBL Variable Annuity Account III (the Account) is a separate
account of Security Benefit Life Insurance Company (SBL). The Account is
registered as a unit investment trust under the Investment Company Act of 1940,
as amended. All deposits received by the Account have been invested in the SBL
Fund, a mutual fund not otherwise available to the public. As directed by the
owners, amounts deposited may be invested in shares of Series A (Growth Series
emphasis on capital appreciation), Series B (Growth-Income Series - emphasis on
capital appreciation with secondary emphasis on income), Series C (Money Market
Series - emphasis on capital preservation while generating interest income),
Series D (Worldwide Equity Series - emphasis on long-term capital growth through
investment in foreign and domestic common stocks and equivalents), Series E
(High Grade Income Series - emphasis on current income with security of
principal), Series S (Social Awareness Series - emphasis on high total return),
Series J (Emerging Growth Series - emphasis on capital appreciation), and the
following new series introduced on June 1, 1995:
Series K (Global Aggressive Bond Series), with emphasis on high current
income and secondary emphasis on capital appreciation by investing in a
combination of foreign and domestic high yield securities.
Series M (Specialized Asset Allocation Series), with emphasis on high total
return consisting of capital appreciation and current income through
investment in a wide range of investment categories and market sectors, both
domestic and foreign.
Series N (Managed Asset Allocation Series), with emphasis on high level of
total return by investing primarily in a diversified portfolio of debt and
equity securities.
Series O (Equity Income Series), with emphasis on substantial dividend
income and capital appreciation by investing primarily in dividend-paying
common stocks of established companies.
Under the terms of the investment advisory contracts, portfolio investments of
the underlying mutual fund are made by Security Management Company (SMC), a
wholly-owned subsidiary of Security Benefit Group, Inc. (SBG), a wholly-owned
subsidiary of SBL. SMC has engaged Lexington Management Corporation to provide
sub-advisory services for the Worldwide Equity Series and Global Aggressive Bond
Series and has engaged T. Rowe Price Associates, Inc. to provide sub-advisory
services for the Managed Asset Allocation Series and the Equity Income Series.
SMC has also entered into agreements with Templeton Quantitative Advisors, Inc.
and Meridian Investment Management Corporation to provide certain quantitative
research services with respect to the Specialized Asset Allocation Series.
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SBL VARIABLE ANNUITY ACCOUNT III
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NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENT VALUATION - Investments in mutual fund shares are carried in the
balance sheet at market value (net asset value of the underlying mutual fund).
The first-in, first-out cost method is used to determine gains and losses.
Security transactions are accounted for on the trade date.
The cost of investments purchased and proceeds from investments sold were as
follows:
COST OF PROCEEDS COST OF PROCEEDS
PURCHASES FROM SALES PURCHASES FROM SALES
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(IN THOUSANDS) (IN THOUSANDS)
Series A $3,911 $2,130 Series J 155 340
Series B 520 588 Series K 1,027 512
Series C 1,866 5,101 Series M 1,001 501
Series D 283 319 Series N 1,150 -
Series E 78 202 Series O 249 -
Series S 37 54
SBG's investment in the subaccounts represented the following number of units
and contract value of SBL Variable Annuity Account III contracts owned at
December 31, 1995 (DOLLARS IN THOUSANDS):
NUMBER CONTRACT
OF UNITS VALUE
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Series K3 (Global Aggressive Bond Series) 48,847 $ 526
Series M3 (Specialized Asset Allocation Series) 50,000 536
Series N3 (Managed Asset Allocation Series) 115,000 1,234
Series O3 (Equity Income Series) 25,000 292
ANNUITY RESERVES - Annuity reserves relate to contracts which have matured and
are in the payout stage. Such reserves are computed on the basis of published
mortality tables, using assumed interest rates that will provide reserves as
prescribed by law. In cases where the payout option selected is life contingent,
SBL periodically recalculates the required annuity reserves, and any resulting
adjustment is either charged or credited to SBL and not to the Account.
REINVESTMENT OF DIVIDENDS - Dividends and capital gains distributions paid by
the mutual fund to the Account are reinvested in additional shares of each
respective Series. Dividend income and capital gains distributions are recorded
as income on the ex-dividend date.
FEDERAL INCOME TAXES - Under current law, no federal income taxes are payable
with respect to the Account.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
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SBL VARIABLE ANNUITY ACCOUNT III
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NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
2. VARIABLE ANNUITY CONTRACT CHARGES
SBL deducts an administrative fee of $30 per year for each contract. Mortality
and expense risks assumed by SBL are compensated for by a fee equivalent to an
annual rate ranging from 0.85% to 1.2% of the asset value of each contract, of
which 0.7% is for assuming mortality risks and the remainder is for assuming
expense risks.
When applicable, an amount for state premium taxes is deducted as provided by
pertinent state law, either from purchase payments or from the amount applied to
effect an annuity at the time annuity payments commence.
A contingent deferred sales charge is assessed against certain withdrawals
during the first eight years of the contract, declining from 8% in the first
year to 1% in the eighth year. There were no such surrender charges in 1995.
3. SUMMARY OF UNIT TRANSACTIONS
UNITS UNITS
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(IN THOUSANDS) (IN THOUSANDS)
Series A3:
Variable annuity deposits 75 Series J3:
Terminations, withdrawals Variable annuity deposits 9
and annuity payments 39 Terminations, withdrawals
Series B3: and annuity payments 21
Variable annuity deposits 9 Series K3:
Terminations, withdrawals Variable annuity deposits 50
and annuity payments 11 Terminations, withdrawals
Series C3: and annuity payments 1
Variable annuity deposits 66 Series M3:
Terminations, withdrawals Variable annuity deposits 50
and annuity payments 203 Series N3:
Series D3: Variable annuity deposits 115
Variable annuity deposits 22 Series O3:
Terminations, withdrawals Variable annuity deposits 25
and annuity payments 24
Series E3:
Variable annuity deposits 2
Terminations, withdrawals
and annuity payments 9
Series S3:
Variable annuity deposits 1
Terminations, withdrawals
and annuity payments 2
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[THE SECURITY BENEFIT GROUP OF COMPANIES LOGO] BULK RATE
700 SW Harrison St., Topeka, Kansas 66636-0001 U.S. POSTAGE PAID
TOPEKA, KS
PERMIT NO. 428
