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VARIABLE ANNUITY III
1996 ANNUAL REPORT
[SBL LOGO]
Security Benefit Life Insurance Company
A Member of The Security Benefit
Group of Companies
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A LETTER FROM THE PRESIDENT
Security Benefit is one company dedicated to the successful mastery of our
mission: MAINTAINING A STRONG FINANCIAL POSITION AND CONSISTENT GROWTH FOR THE
PROTECTION AND SECURITY OF ALL OF OUR POLICYHOLDERS AND CUSTOMERS. All of us at
Security Benefit renew our commitment to this mission every day. We want to be
the best and do our best for you. As a member of the Security Benefit team, I am
especially proud that mastering successful growth is an achievement we have come
to expect as a team.
It is my pleasure to report that 1996 was again a record year of outstanding
achievements for Security Benefit.
* Sales surpassed 1995 results by 48%
* Profits are up 18% over last year
* Revenues and deposit funds exceeded 1995 results by 28%
* Company assets rose 17% over 1995 figures
These accomplishments would just be facts on paper without the efforts of the
people who work at Security Benefit. They are the heart of our company, and I am
proud to be part of their team.
My wish for 1997 is to have another record year for our company. Last year's
accomplishments will be difficult to top but all of us at Security Benefit have
our sights and goals set high. We are well positioned with new, creative
products designed in response to our customers' changing investment goals and
lifestyle requirements. We know true mastery does not come easily. With
perseverance and attention to constantly improving what we do best, I know we
can do it.
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
CHAIRMAN OF THE BOARD, PRESIDENT & CEO
Security Benefit Life Insurance Company
Topeka, Kansas
THOMAS R. CLEVENGER
Wichita, Kansas
SISTER LORETTO MARIE COLWELL
PRESIDENT
St. Francis Hospital and Medical Center
Topeka, Kansas
JOHN C. DICUS
CHAIRMAN OF THE BOARD
Capitol Federal Savings & Loan Association
Topeka, Kansas
MELANIE S. FANNIN
PRESIDENT
Kansas - Southwestern Bell Telephone
Topeka, Kansas
WILLIAM W. HANNA
PRESIDENT & CHIEF OPERATING OFFICER
Koch Industries
Wichita, Kansas
JOHN E. HAYES, JR.
CHAIRMAN OF THE BOARD, PRESIDENT & CEO
Western Resources, Inc.
Topeka, Kansas
LAIRD G. NOLLER
PRESIDENT
Noller Enterprises
Topeka, Kansas
FRANK SABATINI
CHAIRMAN OF THE BOARD AND PRESIDENT
Capital City Bank
Topeka, Kansas
ROBERT C. WHEELER
PRESIDENT
Hill's Pet Nutrition, Inc.
Topeka, Kansas
NOTICE OF POLICYOWNERS' MEETING
We encourage you to attend the annual meeting of policyowners to be held on
Tuesday, June 3, 1997 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
www.securitybenefit.com
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Report of Independent Auditors
The Contractowners of SBL Variable
Annuity Account III and The Board of Directors
of Security Benefit Life Insurance Company
We have audited the accompanying balance sheet of SBL Variable Annuity Account
III (the Company) as of December 31, 1996, 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, 1996, by correspondence
with the custodian. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our 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, 1996, 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 7, 1997
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SBL VARIABLE ANNUITY ACCOUNT III
BALANCE SHEET
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
ASSETS
Investments:
SBL Fund:
Series A (Growth Series) - 345,897 shares at net asset
value of $24.31 per share (cost, $7,011) ................ $ 8,409
Series B (Growth-Income Series) - 76,701 shares at net
asset value of $35.40 per share (cost, $2,513)........... 2,715
Series C (Money Market Series) - 182,637 shares at net
asset value of $12.56 per share (cost, $2,293)........... 2,294
Series D (Worldwide Equity Series) - 64,954 shares at net
asset value of $6.14 per share (cost, $359).............. 399
Series E (High Grade Income Series) - 45,995 shares at net
asset value of $12.00 per share (cost, $588)............. 552
Series J (Emerging Growth Series) - 16,097 shares at net
asset value of $18.25 per share (cost, $276)............. 294
Series K (Global Aggressive Bond Series) - 55,207 shares at
net asset value of $10.72 per share (cost, $558)......... 592
Series M (Specialized Asset Allocation Series) - 2,092 shares
at net asset value of $12.05 per share (cost, $24)....... 25
Series N (Managed Asset Allocation Series) - 116,554 shares
at net asset value of $12.02 per share (cost, $1,167).... 1,401
Series O (Equity Income Series) - 678 shares at net asset
value of $14.01 per share (cost, $7)..................... 9
Series S (Social Awareness Series) - 2,270 shares at net asset
value of $19.08 per share (cost, $32).................... 43
Mortality guarantee receivable.................................. 1
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Total assets.................................................... $16,734
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See accompanying notes.
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- --------------------------------------------------------------------------------
NET ASSETS
Net assets are represented by (Note 3):
NUMBER UNIT
OF UNITS VALUE AMOUNT
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Growth Series:
Accumulation units................ 112,588 $73.43 $8,267
Annuity reserves.................. 1,927 73.43 142 $ 8,409
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Growth-Income Series:
Accumulation units................ 38,183 69.95 2,671
Annuity reserves.................. 640 69.95 45 2,716
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Money Market Series:
Accumulation units.............. 82,640 26.91 2,224
Annuity reserves................ 2,616 26.91 70 2,294
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Worldwide Equity Series:
Accumulation units................ 21,833 16.96 370
Annuity reserves.................. 1,685 16.96 29 399
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High Grade Income Series:
Accumulation units................ 22,003 24.96 549
Annuity reserves.................. 110 24.96 3 552
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Emerging Growth Series:
Accumulation units................ 14,656 18.96 278
Annuity reserves.................. 839 18.96 16 294
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Global Aggressive Bond Series:
Accumulation units................ 48,373 12.23 592
Specialized Asset Allocation Series:
Accumulation units.............. 2,060 12.23 25
Managed Asset Allocation Series:
Accumulation units.............. 115,753 12.10 1,401
Equity Income Series:
Accumulation units.............. 676 14.04 9
Social Awareness Series:
Accumulation units.............. 2,160 20.05 43
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Total net assets.................... $16,734
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SBL Variable Annuity Account III
Statement of Operations and Changes in Net Assets
Year ended December 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
HIGH
GROWTH- MONEY WORLDWIDE GRADE EMERGING
GROWTH INCOME MARKET EQUITY INCOME GROWTH
SERIES SERIES SERIES SERIES SERIES SERIES
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Dividend distributions....................... $ 43 $ 55 $ 158 $ 16 $ 33 $ 1
Expenses (Note 2):
Mortality and expense risk fee........... (61) (31) (33) - (5) -
Administrative fee....................... (4) (2) (2) - - -
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Net investment income (loss)................. (22) 22 123 16 28 1
Capital gains distribution................... 264 266 - 16 - 16
Realized gain (loss) on investments.......... 860 264 20 44 (7) 65
Unrealized appreciation (depreciation) on
investments.............................. 100 (163) 13 - (30) (7)
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Net realized and unrealized gain (loss) on
investments.............................. 1,224 367 33 60 (37) 74
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Net increase (decrease) in net assets
resulting from operations................ 1,202 389 156 76 (9) 75
Net assets at beginning of year.............. 7,763 2,276 2,553 420 561 170
Variable annuity deposits (Notes 2 and 3).... 3,390 1,321 5,419 142 55 414
Terminations and withdrawals (Notes 2 and 3). (3,941) (1,267) (5,776) (235) (55) (364)
Annuity payments (Notes 2 and 3)............. (5) (4) (58) (3) - (1)
Net mortality guarantee transfer............. - 1 - (1) - -
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Net assets at end of year.................... $8,409 $2,716 $2,294 $399 $522 $294
===================================================================
</TABLE>
See accompanying notes.
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<TABLE>
<CAPTION>
GLOBAL SPECIALIZED MANAGED
AGGRESSIVE ASSET ASSET EQUITY SOCIAL
BOND ALLOCATION ALLOCATION INCOME AWARENESS
SERIES SERIES SERIES SERIES SERIES
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<S> <C> <C> <C> <C> <C>
Dividend distributions....................... $ 40 $ - $ 8 $ - $ -
Expenses (Note 2):
Mortality and expense risk fee........... (21) (1) - - -
Administrative fee....................... - - - - -
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Net investment income (loss)................. 19 (1) 8 - -
Capital gains distributions.................. 7 - 1 - 1
Realized gain on investments................. 3 56 - 60 -
Unrealized appreciation (depreciation) on
investments.............................. 23 (34) 150 (41) 5
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Net realized and unrealized gain on
investments.............................. 33 22 151 19 6
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Net increase in net assets
resulting from operations................ 52 21 159 19 6
Net assets at beginning of year.............. 526 536 1,234 292 37
Variable annuity deposits (Notes 2 and 3).... 24 25 8 8 -
Terminations and withdrawals (Notes 2 and 3). (10) (557) - (310) -
Annuity payments (Notes 2 and 3)............. - - - - -
Net mortality guarantee transfer............. - - - - -
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Net assets at end of year.................... $592 $ 25 $1,401 $ 9 $43
===============================================================
</TABLE>
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SBL Variable Annuity Account III
Notes to Financial Statements
December 31, 1996
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. Deposits received by the Account are invested in the SBL Fund, a
mutual fund not otherwise available to the public. As directed by the owners,
amounts deposited may be invested in shares of Series A (Growth Series -
emphasis on capital appreciation), Series B (Growth-Income Series emphasis on
capital appreciation with secondary emphasis on income), Series C (Money Market
Series - emphasis on capital preservation while generating interest income),
Series D (Worldwide Equity Series - emphasis on long-term capital growth through
investment in foreign and domestic common stocks and equivalents), Series E
(High Grade Income Series - emphasis on current income with security of
principal), Series J (Emerging Growth Series - emphasis on capital
appreciation), Series K (Global Aggressive Bond Series - emphasis on high
current income with secondary emphasis on capital appreciation), Series M
(Specialized Asset Allocation Series - emphasis on high total return consisting
of capital appreciation and current income), Series N (Managed Asset Allocation
Series - emphasis on high level of total return), Series O (Equity Income Series
- - emphasis on substantial dividend income and capital appreciation) and Series S
(Social Awareness Series - emphasis on high total return).
Under the terms of the investment advisory contracts, portfolio investments of
the underlying mutual fund are made by Security Management Company, LLC (SMC),
which is owned 50% by SBL and 50% by Security Benefit Group, Inc. (SBG), a
wholly-owned subsidiary of SBL. SMC has engaged Lexington Management Corporation
to provide sub-advisory services for the Worldwide Equity Series and Global
Aggressive Bond Series and has engaged T. Rowe Price Associates, Inc. to provide
sub-advisory services for the Managed Asset Allocation Series and the Equity
Income Series. SMC has also entered into agreements with Templeton Quantitative
Advisors, Inc. and Meridian Investment Management Corporation to provide certain
quantitative research services with respect to the Specialized Asset Allocation
Series.
INVESTMENT VALUATION - Investments in mutual fund shares are carried in the
balance sheet at market value (net asset value of the underlying mutual fund).
The first-in, first-out cost method is used to determine gains and losses.
Security transactions are accounted for on the trade date.
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1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The cost of investments purchased and proceeds from investments sold during 1996
were as follows (In Thousands):
COST OF PROCEEDS
PURCHASES FROM SALES
Growth Series................................. $3,799 $4,113
Growth-Income Series.......................... 1,644 1,311
Money Market Series........................... 5,652 5,944
Worldwide Equity Series....................... 175 242
High Grade Income Series...................... 89 61
Emerging Growth Series........................ 431 365
Global Aggressive Bond Series................. 71 31
Specialized Asset Allocation Series........... 25 558
Managed Asset Allocation Series............... 17 -
Equity Income Series.......................... 8 310
Social Awareness Series....................... 1 -
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, 1996 (DOLLARS IN THOUSANDS):
NUMBER CONTRACT
OF UNITS VALUE
Global Aggressive Bond Series.................... 47,195 $ 577
Managed Asset Allocation Series.................. 115,000 1,392
ANNUITY RESERVES - Annuity reserves relate to contracts that 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
Notes to Financial Statements
December 31, 1996
2. VARIABLE ANNUITY CONTRACT CHARGES
SBL deducts an administrative fee of $30 per year for each contract, except for
certain contracts based on a minimum account value and the period of time the
contract has been in force. 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 by SBL 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 surrender charges in
1996.
3. SUMMARY OF UNIT TRANSACTIONS (IN THOUSANDS)
UNITS
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Growth Series:
Variable annuity deposits........................................... 48
Terminations, withdrawals and annuity payments ..................... 63
Growth-Income Series:
Variable annuity deposits........................................... 21
Terminations, withdrawals and annuity payments...................... 20
Money Market Series:
Variable annuity deposits........................................... 207
Terminations, withdrawals and annuity payments...................... 222
Worldwide Equity Series:
Variable annuity deposits........................................... 9
Terminations, withdrawals and annuity payments...................... 15
High Grade Income Series:
Variable annuity deposits........................................... 2
Terminations, withdrawals and annuity payments...................... 2
Emerging Growth Series:
Variable annuity deposits........................................... 25
Terminations, withdrawals and annuity payments...................... 20
Global Aggressive Bond Series:
Variable annuity deposits........................................... 2
Terminations, withdrawals and annuity payments...................... 3
Specialized Asset Allocation Series:
Variable annuity deposits........................................... 2
Terminations, withdrawals and annuity payments...................... 50
Managed Asset Allocation Series:
Variable annuity deposits........................................... 1
Terminations, withdrawals and annuity payment....................... -
Equity Income Series:
Variable annuity deposits........................................... 1
Terminations, withdrawals and annuity payments...................... 25
Social Awareness Series:
Variable annuity deposits........................................... -
Terminations, withdrawals and annuity payments...................... -
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[SBG LOGO] BULK RATE
The Security Benefit Group of Companies U.S. POSTAGE PAID
700 SW Harrison St., TOPEKA, KS
Topeka, Kansas 66636-0001 PERMIT NO. 428
