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VARIFLEX
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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
<PAGE>
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. FRANNIN
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 Variflex Variable
Annuity contractowners and participants. This report is not authorized for
distribution to prospective purchasers of Variflex unless it is preceded or
accompanied by an effective prospectus.
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 VARIFLEX
and The Board of Directors
Security Benefit Life Insurance Company
We have audited the accompanying balance sheet of VARIFLEX (the Company) as of
December 31, 1995, and the related statements 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 VARIFLEX 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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VARIFLEX
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BALANCE SHEET DECEMBER 31, 1995
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ASSETS (DOLLARS IN THOUSANDS)
Investments:
SBL Fund:
Series A (Growth Series) -- 20,734,283 shares at net asset
value of $21.03 per share (cost, $376,479) $ 436,042
Series B (Income-Growth Series) -- 21,959,051 shares at net
asset value of $33.95 per share (cost, $626,642) 745,510
Series C (Money Market Series) -- 6,376,526 shares at net
asset value of $12.34 per share (cost, $79,025) 78,686
Series D (Worldwide Equity Series) -- 30,116,971 shares at
net asset value of $5.56 per share (cost, $155,283) 167,450
Series E (High Grade Income Series) -- 9,046,994 shares at
net asset value of $12.86 per share (cost, $110,504) 116,344
Series S (Social Awareness Series) -- 2,158,665 shares at net
asset value of $16.49 per share (cost, $29,306) 35,596
Series J (Emerging Growth Series) -- 5,437,676 shares at net
asset value of $16.06 per share (cost, $75,775) 87,329
Series K (Global Aggressive Bond Series) -- 214,109 shares
at net asset value of $10.22 per share (cost, $2,179) 2,188
Series M (Specialized Asset Allocation Series) -- 904,641
shares at net asset value of $10.71 per share (cost, $9,435) 9,689
Series N (Managed Asset Allocation Series) -- 521,633
shares at net asset value of $10.73 per share (cost, $5,340) 5,597
Series O (Equity Income Series)-- 833,838 shares at net
asset value of $11.70 per share (cost, $9,055) 9,756
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Total assets $1,694,187
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LIABILITIES AND NET ASSETS
Mortality guarantee payable
Net assets are represented by (NOTE 3): $ 35
NUMBER
OF UNITS UNIT VALUE AMOUNT
---------------------------------
Growth Series:
Accumulation units 11,509,495 $37.75 $434,492
Annuity reserves 41,081 37.75 1,551 436,043
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Growth-Income Series:
Accumulation units 18,632,514 39.87 742,846
Annuity reserves 66,129 39.87 2,636 745,482
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Money Market Series:
Accumulation units 4,458,963 17.59 78,440
Annuity reserves 13,973 17.59 246 78,686
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Worldwide Equity Series:
Accumulation units 13,376,835 12.51 167,279
Annuity reserves 13,714 12.51 171 167,450
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High Grade Income Series:
Accumulation units 5,237,205 22.11 115,787
Annuity reserves 25,215 22.11 557 116,344
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Social Awareness Series:
Accumulation units 2,228,080 15.97 35,587
Annuity reserves 583 15.97 9 35,596
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Emerging Growth Series:
Accumulation units 5,636,725 15.46 87,158
Annuity reserves 11,087 15.46 171 87,329
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Global Aggressive Bond Series:
Accumulation units 204,118 10.69 2,181
Annuity reserves 641 10.69 7 2,188
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Specialized Asset Allocation Series:
Accumulation units 909,619 10.64 9,676
Annuity reserves 1,219 10.64 13 9,689
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Managed Asset Allocation Series:
Accumulation units 521,608 10.64 5,551
Annuity reserves 3,642 10.64 39 5,590
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Equity Income Series
Accumulation units 838,567 11.62 9,745
Annuity reserves 897 11.62 10 9,755
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Total liabilities and net assets $1,694,187
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SEE ACCOMPANYING NOTES.
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VARIFLEX
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STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 1995
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(IN THOUSANDS)
HIGH
GROWTH- MONEY WORLDWIDE GRADE SOCIAL
GROWTH INCOME MARKET EQUITY INCOME AWARENESS
SERIES SERIES SERIES SERIES SERIES SERIES
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Dividend distributions $ 2,960 $ 11,576 $ 3,092 $ 27 $ 7,165 $ 154
Expenses (NOTE 2):
Mortality and
expense risk fee (4,280) (7,839) (921) (1,848) (1,330) (350)
Administrative fee (340) (1,520) (136) (73) (303) (27)
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Net investment income
(loss) (1,660) 2,217 2,035 (1,894) 5,532 (223)
Capital gains
distributions 12,476 --- --- 1,732 --- ---
Realized gain (loss)
on investments 1,019 16,514 1,623 3,960 (6,221) 1,049
Unrealized appreciation
(depreciation) on
investments 92,456 141,783 (700) 11,265 17,866 5,855
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Net realized and
unrealized gain
on investments 105,951 158,297 923 16,597 11,645 6,904
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Net increase in net
assets resulting
from operations 104,291 160,514 2,958 15,063 17,177 6,681
Net assets at
beginning of year 260,963 555,314 102,451 139,186 100,185 23,889
Variable annuity
deposits
(NOTES 2 AND 3) 156,379 132,721 132,678 70,832 50,070 9,024
Terminations and
withdrawals
(NOTES 2 AND 3) (85,337) (102,434) (159,213) (57,355) (50,939) (3,992)
Annuity payments
(NOTES 2 AND 3) (264) (642) (189) (277) (149) (6)
Net mortality
guarantee transfer 11 9 1 1 --- ---
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Net assets at end of
year $436,043 $ 745,482 $ 78,686 $167,450 $116,344 $35,596
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SEE ACCOMPANYING NOTES.
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VARIFLEX
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STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 1995
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(IN THOUSANDS)
GLOBAL SPECIALIZED MANAGED
EMERGING AGGRESSIVE ASSET ASSET EQUITY
GROWTH BOND ALLOCATION ALLOCATION INCOME
SERIES SERIES SERIES SERIES SERIES
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Dividend distributions $ --- $ 100 $ --- $ --- $ ---
Expenses (NOTE 2):
Mortality and
expense risk fee (935) (10) (32) (25) (28)
Administrative fee (21) (3) (6) (2) (11)
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Net investment income
(loss) (956) 87 (38) (27) (39)
Capital gains
distributions --- 9 --- --- ---
Realized gain
on investments 2,488 7 44 11 60
Unrealized appreciation
on investments 10,991 9 254 257 701
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Net realized and
unrealized gain
on investments 13,479 25 298 268 761
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Net increase in net
assets resulting
from operations 12,523 112 260 241 722
Net assets at
beginning of year 67,668 --- --- --- ---
Variable annuity
deposits
(NOTES 2 AND 3) 39,149 2,207 9,955 5,539 9,395
Terminations and
withdrawals
(NOTES 2 AND 3) (31,968) (130) (526) (182) (362)
Annuity payments
(NOTES 2 AND 3) (44) (1) --- (1) ---
Net mortality
guarantee transfer 1 --- --- (7) ---
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Net assets at end of
year $ 87,329 $2,188 $9,689 $5,590 $9,755
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NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - VARIFLEX (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) and 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.
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VARIFLEX
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NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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
--------- ---------- --------- ----------
(IN THOUSANDS) (IN THOUSANDS)
Series A $177,876 $ 96,275 Series J $40,723 $34,541
Series B 152,642 120,749 Series K 3,363 1,191
Series C 139,143 163,831 Series M 11,354 1,963
Series D 74,933 61,894 Series N 5,594 265
Series E 59,080 54,565 Series O 9,546 551
Series S 9,710 4,907
SBG's investment in the subaccounts represented the following number of
units and contract value of VARIFLEX contracts owned at December 31, 1995
(DOLLARS IN THOUSANDS):
NUMBER CONTRACT
OF UNITS VALUE
-------- -----
Global Aggressive Bond Series 99,997 $1,069
Specialized Asset Allocation Series 100,000 1,064
Managed Asset Allocation Series 230,000 2,447
Equity Income Series 50,000 581
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 - 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.
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VARIFLEX
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NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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 of 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 the 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. Such surrender charges and other contract
charges totaled $1,182,819 and $881,215 during 1995.
3. SUMMARY OF UNIT TRANSACTIONS
UNITS
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(IN THOUSANDS)
Growth Series:
Variable annuity deposits 4,863
Terminations, withdrawals and annuity payments 2,655
Growth-Income Series:
Variable annuity deposits 3,787
Terminations, withdrawals and annuity payments 2,989
Money Market Series:
Variable annuity deposits 7,695
Terminations, withdrawals and annuity payments 9,288
Worldwide Equity Series:
Variable annuity deposits 6,154
Terminations, withdrawals and annuity payments 4,955
High Grade Income Series:
Variable annuity deposits 2,466
Terminations, withdrawals and annuity payments 2,514
Social Awareness Series:
Variable annuity deposits 626
Terminations, withdrawals and annuity payments 285
Emerging Growth Series:
Variable annuity deposits 2,712
Terminations, withdrawals and annuity payments 2,231
Global Aggressive Bond Series:
Variable annuity deposits 218
Terminations, withdrawals and annuity payments 13
Specialized Asset Allocation Series:
Variable annuity deposits 962
Terminations, withdrawals and annuity payments 51
Managed Asset Allocation Series:
Variable annuity deposits 543
Terminations, withdrawals and annuity payments 18
Equity Income Series:
Variable annuity deposits 873
Terminations, withdrawals and annuity payments 34
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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
