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VARIABLE ANNUITY IV
1997 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
At Security Benefit we strive for the optimum in financial integrity,
operational excellence and core values. Our dedication to providing quality
products and services is a never-ending quest. It's through these commitments
that we maintain a strong financial position and consistent growth for the
protection and security of our policyholders and customers.
Capitalizing on opportunities and challenges, 1997 was a year of milestones for
Security Benefit.
* Sales were up 5%
* Profits were up 17%
* Company assets rose 11%
* Statutory equity rose 29%
We have long been positioned to meet the demand for flexible annuities. And we
took that one step further in 1997 by unveiling Variflex Signature. Our new
variable annuity offers opportunities for investors tired of low interest rates
and lack of control over their insurance investments.
Another milestone for 1997 was FORTUNE magazine citing Security Benefit as "One
of the Best 100 Companies To Work for in America." FORTUNE has discovered what
our associates already know--that Security Benefit is a quality, caring and
well-managed place to work and grow. We understand that satisfied people are
more productive people, and that translates to higher quality service to our
customers.
When it comes to quality service, 1997 was a banner season for Security Benefit.
DALBAR, an independent research firm that rates the service standards of
financial services organizations, awarded us the first Quality Tested Service
Seal. The award places Security Benefit at the pinnacle of superior customer
service in the variable annuity industry.
As we move forward, our sights are set high to continue as a leader in the
financial services industry. By anticipating evolving needs and developing
appropriate solutions, we anticipate a prosperous and successful 1998.
HOWARD R. FRICKE
Howard R. Fricke
Chairman of the Board
and Chief Executive Officer
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BOARD OF DIRECTORS
Howard R. Fricke
Chairman of the Board and CEO
Security Benefit Life Insurance Company
Topeka, Kansas
Thomas R. Clevenger
Wichita, Kansas
Sister Loretto Marie Colwell
President and CEO
St. Francis Hospital and Medical Center
Topeka, Kansas
John C. Dicus
Chairman of the Board
Capitol Federal Savings & Loan Association
Topeka, Kansas
Stephen J. Douglass
Chairman and CEO
Payless ShoeSource
Topeka, Kansas
William W. Hanna
President & Chief Operating Officer
Koch Industries
Wichita, Kansas
John E. Hayes, Jr.
Chairman of the Board and CEO
Western Resources, Inc.
Topeka, Kansas
Laird G. Noller
President
Noller Enterprises
Topeka, Kansas
Frank Sabatini
Chairman of the Board and CEO
Capital City Bank
Topeka, Kansas
Robert C. Wheeler
Chairman and CEO
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 2, 1998 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 IV and
The Board of Directors of Security Benefit Life Insurance Company
We have audited the accompanying balance sheet of SBL Variable Annuity Account
IV (the Account) as of December 31, 1997, and the related statement of
operations and changes in net assets for the year 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 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, 1997, 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 IV
at December 31, 1997, 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 6, 1998
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SBL Variable Annuity Account IV
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Balance Sheet December 31, 1997
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ASSETS (DOLLARS IN THOUSANDS - EXCEPT PER SHARE AND UNIT VALUES)
Investments:
SBL Fund:
Series A (Growth Series) - 3,579,973 shares at net asset
value of $29.39 per share (cost, $75,856)...................... $105,215
Series B (Growth-Income Series) - 1,277,102 shares at net
asset value of $41.60 per share (cost, $40,123)................ 53,127
Series C (Money Market Series) - 697,364 shares at net asset
value of $12.53 per share (cost, $8,916)....................... 8,738
Series D (Worldwide Equity Series) - 1,138,118 shares at net
asset value of $6.14 per share (cost, $6,378).................. 6,988
Series E (High Grade Income Series) - 220,755 shares at net
asset value of $12.25 per share (cost, $2,697)................. 2,704
Series J (Emerging Growth Series) - 816,723 shares at net
asset value of $21.33 per share (cost, $15,447)................ 17,421
Series K (Global Aggressive Bond Series) - 8,783 shares at
net asset value of $10.07 per share (cost, $93)................ 88
Series M (Specialized Asset Allocation Series) - 24,367 shares
at net asset value of $12.29 per share (cost, $274)............ 299
Series N (Managed Asset Allocation Series) - 15,789 shares
at net asset value of $13.88 per share (cost, $191)............ 219
Series O (Equity Income Series) - 62,541 shares at net asset
value of $17.62 per share (cost, $941)......................... 1,102
Series S (Social Awareness Series) - 52,349 shares at net
asset value of $22.25 per share (cost, $966)................... 1,165
Mortality guarantee receivable....................................... 3
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Total assets......................................................... $197,069
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LIABILITIES AND NET ASSETS
Actuarial risk fee payable........... $ 1,116
Net assets are represented by (NOTE 3):
NUMBER UNIT
OF UNITS VALUE AMOUNT
-------- ----- ------
Growth Series:
Accumulation units................. 1,106,052 $93.85 $103,803
Annuity reserves................... 6,780 93.85 636 104,439
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Growth-Income Series:
Accumulation units................. 589,723 88.63 52,267
Annuity reserves................... 9,247 88.63 820 53,087
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Money Market Series:
Accumulation units................. 296,657 28.12 8,342
Annuity reserves................... 11,841 28.12 333 8,675
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Worldwide Equity Series:
Accumulation units................. 383,760 17.91 6,873
Annuity reserves................... 3,243 17.91 58 6,931
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High Grade Income Series:
Accumulation units................. 98,241 27.25 2,677
Annuity reserves................... 217 27.25 6 2,683
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Emerging Growth Series:
Accumulation units................. 754,327 22.58 17,033
Annuity reserves................... 11,195 22.58 253 17,286
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Global Aggressive Bond Series:
Accumulation units................. 6,874 12.77 88
Specialized Asset Allocation Series:
Accumulation units................. 23,056 12.88 297
Managed Asset Allocation Series:
Accumulation units................. 15,245 14.26 217
Equity Income Series:
Accumulation units................. 61,107 17.90 1,094
Social Awareness Series:
Accumulation units................. 46,640 24.40 1,138
Annuity reserves................... 726 24.40 18 1,156
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Total liabilities and net assets..... $197,069
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See accompanying notes.
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SBL Variable Annuity Account IV
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Statement of Operations and
Changes in Net Assets Year ended December 31, 1997
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(IN THOUSANDS)
<TABLE>
<CAPTION>
GROWTH- MONEY WORLDWIDE HIGH GRADE EMERGING
GROWTH INCOME MARKET EQUITY INCOME GROWTH
SERIES SERIES SERIES SERIES SERIES SERIES
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<S> <C> <C> <C> <C> <C> <C>
Dividend distributions...................................... $ 589 $ 1,056 $ 937 $ 155 $ 199 $ 34
Expenses (Note 2):
Mortality and expense risk fee............................ (834) (95) (91) (61) (30) (134)
Administrative fee........................................ 6 16 6 --- 3 ---
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Net investment income (loss)................................ (239) 977 852 94 172 (100)
Capital gains distributions................................. 5,508 2,620 --- 334 --- 297
Realized gain (loss) on investments......................... 6,449 2,809 (1) 624 (13) 2,228
Unrealized appreciation (depreciation) on investments....... 11,392 5,178 (292) (537) 78 1,365
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Net realized and unrealized gain (loss) on investments...... 23,349 10,607 (293) 421 65 3,890
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Net increase in net assets resulting from operations........ 23,110 11,584 559 515 237 3,790
Net assets at beginning of year............................. 82,171 46,122 19,565 7,728 4,979 8,533
Variable annuity deposits (Notes 2 and 3)................... 19,017 3,450 23,056 857 251 19,997
Terminations and withdrawals (Notes 2 and 3)................ (19,700) (7,987) (33,988) (2,148) (2,735) (14,770)
Annuity payments (Notes 2 and 3)............................ (153) (74) (519) (21) (49) (264)
Net mortality guarantee transfer............................ (6) (8) 2 --- --- ---
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Net assets at end of year................................... $104,439 $53,087 $ 8,675 $ 6,931 $ 2,683 $ 17,286
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</TABLE>
See accompanying notes.
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<TABLE>
<CAPTION>
GLOBAL SPECIALIZED MANAGED ASSET EQUITY SOCIAL
AGGRESSIVE ASSET ALLOCATION ALLOCATION INCOME AWARENESS
BOND SERIES SERIES SERIES SERIES SERIES
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<S> <C> <C> <C> <C> <C>
Dividend distributions...................................... $ 7 $ 7 $ 3 $ 7 $ 2
Expenses (Note 2):
Mortality and expense risk fee............................ (5) (2) (2) (9) (9)
Administrative fee........................................ --- --- --- --- ---
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Net investment income (loss)................................ 2 5 1 (2) (7)
Capital gains distributions................................. 3 7 2 10 57
Realized gain on investments................................ 42 16 270 33 95
Unrealized appreciation (depreciation) on investments....... (18) (9) (217) 127 71
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Net realized and unrealized gain on investments............. 27 14 55 170 223
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Net increase in net assets resulting from operations........ 29 19 56 168 216
Net assets at beginning of year............................. 636 319 1,507 389 831
Variable annuity deposits (Notes 2 and 3)................... 74 50 114 666 303
Terminations and withdrawals (Notes 2 and 3)................ (651) (91) (1,460) (129) (194)
Annuity payments (Notes 2 and 3)............................ --- --- --- --- ---
Net mortality guarantee transfer............................ --- --- --- --- ---
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Net assets at end of year................................... $ 88 $297 $ 217 $1,094 $1,156
==================================================================
</TABLE>
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SBL VARIABLE ANNUITY ACCOUNT IV
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - SBL Variable Annuity Account IV (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 capital appreciation).
Under the terms of the investment advisory contracts, portfolio investments of
the underlying mutual fund are made by Security Management Company, LLC (SMC), a
limited liability company controlled by its members, SBL and 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, T. Rowe Price Associates, Inc. to
provide sub-advisory services for the Managed Asset Allocation Series and the
Equity Income Series and Meridian Investment Management Corporation to provide
sub-advisory services for 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 were as
follows (In Thousands):
COST OF PROCEEDS
PURCHASES FROM SALES
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Growth Series......................... $26,651 $21,447
Growth-Income Series.................. 7,835 8,800
Money Market Series................... 24,389 34,923
Worldwide Equity Series............... 1,463 2,290
High Grade Income Series.............. 584 2,924
Emerging Growth Series................ 20,832 15,537
Global Aggressive Bond Series......... 86 658
Specialized Asset Allocation Series... 74 101
Managed Asset Allocation Series....... 123 1,464
Equity Income Series.................. 699 146
Social Awareness Series............... 428 260
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 - Dividend and capital gains distributions paid by the
mutual fund to the Account are reinvested in additional shares of each
respective Series. Dividend income and capital gains distributions are recorded
as income on the ex-dividend date.
FEDERAL INCOME TAXES - Under current law, no federal income taxes are payable
with respect to the Account.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
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SBL VARIABLE ANNUITY ACCOUNT IV
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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 1.1%
of the net 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 10 years of the contract, declining from 9% in the first year
to 1% in the tenth year. There were no such surrender charges.
3. SUMMARY OF UNIT TRANSACTIONS (IN THOUSANDS)
UNITS
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Growth Series:
Variable annuity deposits............................................. 235
Terminations, withdrawals, annuity payments and expense charges....... 241
Growth-Income Series:
Variable annuity deposits............................................. 43
Terminations, withdrawals, annuity payments and expense charges....... 101
Money Market Series:
Variable annuity deposits............................................. 834
Terminations, withdrawals, annuity payments and expense charges....... 1,252
Worldwide Equity Series:
Variable annuity deposits............................................. 46
Terminations, withdrawals, annuity payments and expense charges....... 115
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3. SUMMARY OF UNIT TRANSACTIONS (CONTINUED)
UNITS
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High Grade Income Series:
Variable annuity deposits............................................. 10
Terminations, withdrawals, annuity payments and expense charges....... 111
Emerging Growth Series:
Variable annuity deposits............................................. 1,023
Terminations, withdrawals, annuity payments and expense charges....... 707
Global Aggressive Bond Series:
Variable annuity deposits............................................. 6
Terminations, withdrawals, annuity payments and expense charges....... 51
Specialized Asset Allocation Series:
Variable annuity deposits............................................. 4
Terminations, withdrawals, annuity payments and expense charges....... 7
Managed Asset Allocation Series:
Variable annuity deposits............................................. 9
Terminations, withdrawals, annuity payments and expense charges....... 118
Equity Income Series:
Variable annuity deposits............................................. 41
Terminations, withdrawals, annuity payments and expense charges....... 8
Social Awareness Series:
Variable annuity deposits............................................. 16
Terminations, withdrawals, annuity payments and expense charges....... 10
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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
