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VARIABLE
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ANNUITY IV
1998 ANNUAL REPORT
[SBL LOGO]
SECURITY BENEFIT LIFE
INSURANCE COMPANY
A Member of The Security Benefit
Group of Companies
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A MESSAGE FROM THE CHAIRMAN OF THE BOARD
Security Benefit is poised on the brink of exciting change. Over the past year,
we have aggressively focused on relationship management and forging new
strategic partnerships. As good as the Security Benefit team is, as strong as
our management, research and fundamentals are, we still recognize opportunities
to bring more talent to the table. Making certain our cultures are compatible
and our goals are aligned, we've formed relationships that bring value to both
our customers and those who represent us.
Our successful team led the company to a record year of profits and sales.
* Sales totaled $1.1 billion, a 35% increase from 1997
* Profits were up 13.6%
* Assets under management rose 12% to $8.8 billion
* GAAP Equity rose 14.4%
In 1998, WORKING MOTHER magazine again selected Security Benefit as one of the
100 Best Companies for working mothers. We are very proud of the continued
recognition we receive for Security Benefit and believe that it directly affects
the quality of our service to our customers.
Security Benefit's financial strength and stability also continue to be
recognized. During 1998, Security Benefit was upgraded to an AA- (very strong)
rating from Standard & Poor's. We are also rated:
* AA- (very high) by Duff & Phelps
* A+ (superior) by A. M. Best
The strides we are making now shape our strategies and vision for the future. By
providing more products that offer choices to our customers, we position our
organization as one of the most responsive and flexible in the industry. This
combination of innovative products and service-oriented associates enables us to
continue meeting the needs of sophisticated customers well into the next
millennium.
HOWARD R. FRICKE
Howard R. Fricke
Chairman of the Board
and Chief Executive Officer
Rating information applies to Security Benefit Life Insurance Company. The
ratings should not be considered as bearing on the investment performance of
assets held in any separate account.
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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
Investments
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
STEVEN 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 (Ret.)
Western Resources, Inc.
Topeka, Kansas
LAIRD G. NOLLER
President
Noller Automotive Group
Lawrence, 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 MEETING OF MEMBERS
The annual meeting of members of Security Benefit Mutual Holding Company (the
"Mutual Holding Company") will be held on Tuesday, June 1, 1999, at 700 SW
Harrison St., Topeka, Kansas, at 1:00 p.m. Each owner of an insurance policy
issued by Security Benefit Life Insurance Company is a member of the Mutual
Holding Company and 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 no later than May 31, 1999.
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 Contract Owners 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) (comprised of the individual series as indicated therein) as of
December 31, 1998, and the related statements 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, 1998, by correspondence
with the transfer agent. 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 the individual series of the
SBL Variable Annuity Account IV at December 31, 1998, and the results of their
operations and changes in their net assets for the year then ended in conformity
with generally accepted accounting principles.
Ernst & Young LLP
February 5, 1999
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VARIABLE ANNUITY ACCOUNT IV
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BALANCE SHEET DECEMBER 31, 1998
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ASSETS (DOLLARS IN THOUSANDS EXCEPT PER SHARE AND UNIT VALUES)
Investments:
SBL Fund:
Series A (Growth Series) - 3,351,153 shares at net asset value
of $34.27 per share (cost, $80,845)............................ $114,844
Series B (Growth-Income Series) - 1,230,438 shares at net asset
value of $39.68 per share (cost, $42,424)...................... 48,824
Series C (Money Market Series) - 1,034,326 shares at net asset
value of $12.53 per share (cost, $12,864)...................... 12,960
Series D (Worldwide Equity Series) - 1,533,851 shares at net
asset value of $6.74 per share (cost, $9,406).................. 10,338
Series E (High-Grade Income Series) - 198,701 shares at net
asset value of $12.42 per share (cost, $2,384)................. 2,468
Series J (Emerging Growth Series) - 812,276 shares at net asset
value of $22.51 per share (cost, $15,975)...................... 18,284
Series K (Global Aggressive Bond Series) - 7,478 shares at net
asset value of $9.56 per share (cost, $78)..................... 72
Series M (Specialized Asset Allocation Series) - 24,792 shares
at net asset value of $12.87 per share (cost, $286)............ 319
Series N (Managed Asset Allocation Series) - 34,815 shares at
net asset value of $16.01 per share (cost, $530)............... 557
Series O (Equity Income Series) - 84,876 shares at net asset
value of $18.35 per share (cost, $1,495)....................... 1,558
Series S (Social Awareness Series) - 61,737 shares at net asset
value of $28.40 per share (cost, $1,339)....................... 1,753
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Total assets $211,977
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LIABILITIES AND NET ASSETS
Actuarial risk fee payable............. $ 7
Net assets are represented by (NOTE 3):
NUMBER UNIT
OF UNITS VALUE AMOUNT
-----------------------------
Growth Series:
Accumulation units................... 963,449 $118.58 $114,244
Annuity reserves..................... 5,093 118.58 604 114,848
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Growth-Income Series:
Accumulation units................... 503,314 95.37 48,003
Annuity reserves..................... 8,503 95.37 811 48,814
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Money Market Series:
Accumulation units................... 422,512 29.77 12,577
Annuity reserves..................... 12,827 29.77 382 12,959
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Worldwide Equity Series:
Accumulation units................... 471,402 21.68 10,221
Annuity reserves..................... 5,394 21.68 117 10,338
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High-Grade Income Series:
Accumulation units................... 83,073 29.67 2,465
Annuity reserves..................... 115 29.67 3 2,468
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Emerging Growth Series:
Accumulation units................... 672,589 26.84 18,054
Annuity reserves..................... 8,566 26.84 230 18,284
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Global Aggressive Bond Series:
Accumulation units................... 5,200 13.75 72
Specialized Asset Allocation Series:
Accumulation units................... 21,810 14.63 319
Managed Asset Allocation Series:
Accumulation units................... 32,796 17.00 557
Equity Income Series:
Accumulation units................... 79,218 19.66 1,558
Social Awareness Series:
Accumulation units................... 53,521 32.32 1,730
Annuity reserves..................... 726 32.32 23 1,753
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Total net assets....................... 211,970
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Total liabilities and net assets....... $211,977
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See accompanying notes.
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VARIABLE ANNUITY ACCOUNT IV
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STATEMENT OF OPERATIONS AND
CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 1998
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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............................. $ 569 $ 876 $ 858 $ 96 $ 159 $ 87
Expenses (NOTE 2):
Mortality and expense risk fee.................. (217) (1,268) (698) 45 (143) 128
Administrative fee.............................. (12) (9) (4) - (1) -
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Net investment income (loss)....................... 340 (401) 156 141 15 215
Capital gains distributions........................ 7,257 5,566 1 547 - 1,455
Realized gain (loss) on investments................ 12,424 3,967 (542) 728 (41) 1,971
Unrealized appreciation (depreciation) on
investments..................................... 4,640 (6,604) 274 322 77 335
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Net realized and unrealized gain (loss) on
investments..................................... 24,321 2,929 (267) 1,597 36 3,761
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Net increase (decrease) in net assets resulting
from operations................................. 24,661 2,528 (111) 1,738 51 3,976
Net assets at beginning of year.................... 104,439 53,087 8,675 6,931 2,683 17,286
Variable annuity deposits (NOTES 2 AND 3).......... 10,990 3,412 28,123 5,360 871 9,756
Terminations and withdrawals (NOTES 2 AND 3)....... (25,036) (10,085) (23,480) (3,649) (1,135) (12,518)
Annuity payments (NOTES 2 AND 3)................... (206) (111) (249) (42) (2) (216)
Net mortality guarantee transfer................... - (17) 1 - - -
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Net assets at end of year.......................... $114,848 $48,814 $ 12,959 $10,338 $ 2,468 $ 18,284
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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............................. $ 7 $ 7 $ 5 $ 25 $ 3
Expenses (NOTE 2):
Mortality and expense risk fee.................. (3) (2) (6) (22) 7
Administrative fee.............................. - - - - -
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Net investment income (loss)....................... 4 5 (1) 3 10
Capital gains distributions........................ 1 16 3 60 35
Realized gain (loss) on investments................ (1) 7 41 171 132
Unrealized appreciation (depreciation) on
investments..................................... (1) 8 (1) (98) 215
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Net realized and unrealized gain (loss) on
investments..................................... (1) 31 43 133 382
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Net increase (decrease) in net assets resulting
from operations................................. 3 36 42 136 392
Net assets at beginning of year.................... 88 297 217 1,094 1,156
Variable annuity deposits (NOTES 2 AND 3).......... 29 13 616 1,201 572
Terminations and withdrawals (NOTES 2 AND 3)....... (48) (27) (318) (873) (367)
Annuity payments (NOTES 2 AND 3)................... - - - - -
Net mortality guarantee transfer................... - - - - -
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Net assets at end of year.......................... $ 72 $319 $ 557 $1,558 $1,753
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VARIABLE ANNUITY ACCOUNT IV
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NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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., a wholly-owned subsidiary of SBL. SMC has
engaged T. Rowe Price Associates, Inc. to provide subadvisory services for
the Managed Asset Allocation Series and the Equity Income Series; Meridian
Investment Management Corporation to provide subadvisory services for the
Specialized Asset Allocation Series and Strong Capital Management, Inc. to
provide subadvisory services to the Small Cap Series. Lexington Management
Corporation (LMC) served as subadvisor for the Worldwide Equity Series until
November 1, 1998, when LMC was replaced by OppenheimerFunds, Inc. Effective
December 31, 1998, LMC resigned as subadvisor for Global Aggressive Bond
Series, which will be advised by SMC.
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 realized
gains and losses. Security transactions are accounted for on the trade date.
The cost of investments purchased and proceeds from investments sold for the
year ended December 31 were as follows (In Thousands):
COST OF PROCEEDS
PURCHASES FROM SALES
--------- ----------
Growth Series............................... $21,019 $28,454
Growth-Income Series........................ 11,297 12,963
Money Market Series......................... 29,773 25,283
Worldwide Equity Series..................... 6,156 3,856
High-Grade Income Series.................... 1,178 1,450
Emerging Growth Series...................... 11,435 12,878
Global Aggressive Bond Series............... 40 54
Specialized Asset Allocation Series......... 43 38
Managed Asset Allocation Series............. 629 331
Equity Income Series........................ 1,313 930
Social Awareness Series..................... 632 391
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 - The operations of the Account are a part of the
operations of SBL. Under current law, no federal income taxes are allocated
by SBL to the operations of the Account.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
2. VARIABLE ANNUITY CONTRACT CHARGES
SBL deducts an administrative fee 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 charges during 1998.
3. SUMMARY OF UNIT TRANSACTIONS (IN THOUSANDS)
UNITS
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Growth Series:
Variable annuity deposits............................................. 107
Terminations, withdrawals, annuity payments and expense charges....... 251
Growth-Income Series:
Variable annuity deposits............................................. 38
Terminations, withdrawals, annuity payments and expense charges....... 125
Money Market Series:
Variable annuity deposits............................................. 967
Terminations, withdrawals, annuity payments and expense charges....... 840
Worldwide Equity Series:
Variable annuity deposits............................................. 277
Terminations, withdrawals, annuity payments and expense charges....... 188
High-Grade Income Series:
Variable annuity deposits............................................. 30
Terminations, withdrawals, annuity payments and expense charges....... 45
Emerging Growth Series:
Variable annuity deposits............................................. 435
Terminations, withdrawals, annuity payments and expense charges....... 519
Global Aggressive Bond Series:
Variable annuity deposits............................................. 2
Terminations, withdrawals, annuity payments and expense charges....... 4
Specialized Asset Allocation Series:
Variable annuity deposits............................................. 1
Terminations, withdrawals, annuity payments and expense charges....... 2
Managed Asset Allocation Series:
Variable annuity deposits............................................. 39
Terminations, withdrawals, annuity payments and expense charges....... 21
Equity Income Series:
Variable annuity deposits............................................. 65
Terminations, withdrawals, annuity payments and expense charges....... 47
Social Awareness Series:
Variable annuity deposits............................................. 20
Terminations, withdrawals, annuity payments and expense charges....... 13
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