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[SBG LOGO]
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Security Benefit Life Insurance Company 700 SW Harrison St.
Security Benefit Group, Inc. Topeka, Kansas 66636-0001
Security Distributors, Inc. (913) 295-3000
Security Management Company, LLC
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.
For More Information Call
1-800-888-2461
This report is submitted only for the general information of Varilife Insurance
policyowners and is not authorized for distribution to the public.
Enclosed are December 1996 financial reports for the variable life insurance
separate account.
www.securitybenefit.com
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FINANCIAL STATEMENTS
VARILIFE
YEARS ENDED DECEMBER 31, 1996 AND 1995
WITH REPORT OF INDEPENDENT AUDITORS
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VARILIFE
FINANCIAL STATEMENTS
Years ended December 31, 1996 and 1995
CONTENTS
Report of Independent Auditors........................................... 1
Audited Financial Statements
Balance Sheet....................................................... 2
Statements of Operations and Changes in Net Assets.................. 3
Notes to Financial Statements....................................... 4
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[E&Y LOGO]
ERNST & YOUNG LLP One Kansas City Place Phone: 816 474 5200
1200 Main Street
Kansas City
Missouri 64105-2143
REPORT OF INDEPENDENT AUDITORS
The Contract Owners of Varilife and
The Board of Directors of Security
Benefit Life Insurance Company
We have audited the accompanying balance sheet of Varilife (the Company) as of
December 31, 1996, and the related statements of operations and changes in net
assets for each of the two years in the period 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 audits.
We conducted our audits 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 at 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 audits provide 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 Varilife at December 31, 1996,
and the results of its operations and changes in its net assets for each of the
two years in the period then ended in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
February 7, 1997
Ernst & Young LLP is a member of Ernst & Young International, Ltd.
1
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VARILIFE
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
Investments:
SBL Fund:
Series A (Growth Series) - 3,722 shares at net asset
value of $24.31 per share (cost, $79,410).............. $ 90,484
Series B (Growth-Income Series) - 3,239 shares at net
asset value of $35.40 per share (cost, $84,430)........ 114,652
Series C (Money Market Series) - 2,655 shares at net asset
value of $12.56 per share (cost, $32,980)............... 33,352
Series D (Worldwide Equity Series) - 315 shares at net asset
value of $6.14 per share (cost, $1,820)................. 1,932
Series E (High Grade Income Series) - 248 shares at net asset
value of $12.00 per share (cost, $2,925)................ 2,979
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Total assets................................................... $243,399
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NET ASSETS
Net assets are represented by (NOTE 3):
Growth Series:
Accumulation units - 3,254 units at $27.80 per unit....... $ 90,484
Growth-Income Series:
Accumulation units - 4,097 units at $27.98 per unit....... 114,652
Money Market Series:
Accumulation units - 2,172 units at $15.35 per unit....... 33,352
Worldwide Equity Series:
Accumulation units - 157 units at $12.28 per unit......... 1,932
High Grade Income Series:
Accumulation units - 160 units at $18.56 per unit......... 2,979
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Total net assets............................................... $243,399
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SEE ACCOMPANYING NOTES.
2
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Varilife
Statements of Operations and Changes in Net Assets
Years ended December 31, 1996 and 1995
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<CAPTION>
1996 1995
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High High
Growth- Money Worldwide Grade Growth- Money Worldwide Grade
Growth Income Market Equity Income Growth Income Market Equity Income
Series Series Series Series Series Series Series Series Series Series
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend distributions $ 694 $ 3,618 $ 1,091 $ 973 $ 178 $512 $ 2,825 $ 2,275 $ 6 $1,082
Expenses (NOTE 2):
Mortality and expense
risk fee (722) (1,579) (386) (281) (62) (703) (1,455) (480) (317) (163)
Administrative fee
and insurance costs (687) (1,694) (646) (455) (117) (873) (2,290) (838) (610) (303)
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Net investment income
(loss) (715) 345 59 237 (1) (1,064) (920) 957 (921) 616
Capital gains distributions 4,292 17,492 - 919 - 2,162 - - 388 -
Realized gain (loss) on
investments 12,989 44,419 1,523 11,755 897 4,335 3,246 (1,676) (315) 17
Unrealized appreciation
(depreciation) on
investments (2,350) (34,547) (504) (8,563) (1.159) 17,597 36,030 2,190 3,605 1.969
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Net realized and unrealized
gain (loss) on
investments 14,931 27,364 1,019 4,111 (692) 24,094 39,276 514 3,678 1,986
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Net increase (decrease) in
net assets resulting
from operations 14,216 27,709 1,078 4,348 (693) 23,030 38,356 1,471 2,757 2,602
Net assets at beginning of
year 76,105 179,374 46,875 37,296 19,303 49,866 144,825 80,567 34,539 16,701
Varilife deposits (NOTES
2 AND 3) 47,979 - 47,817 - - 34,983 - - - -
Terminations and withdrawals
(NOTES 2 AND 3) (47,816) (92,431) (62,418) (39,712) (15,631) (31,774) (3,807) (35,163) - -
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Net assets at end of year $90,484 $114,652 $33,352 $ 1,932 $ 2,979 $76,105 $179,374 $46,875 $37,296 $19,303
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SEE ACCOMPANYING NOTES
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VARILIFE
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Varilife (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 are 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 stock
and equivalents) and Series E (High Grade Income Series - emphasis on current
income with security of principal).
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 50% owned by SBL and 50% owned by Security Benefit Group, Inc., a
wholly-owned subsidiary of SBL. SMC has engaged Lexington Management Corporation
to provide sub-advisory services for the Worldwide Equity 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:
1996 1995
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COST OF PROCEEDS FROM COST OF PROCEEDS FROM
PURCHASES SALES PURCHASES SALES
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Growth Series.......... $52,965 $49,225 $37,657 $33,350
Growth-Income
Series............ 21,110 95,704 2,825 7,552
Money Market
Series............ 48,907 63,449 2,275 36,481
Worldwide Equity
Series............ 1,892 40,448 394 927
High Grade
Income Series..... 178 15,810 1,082 466
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VARILIFE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REINVESTMENT OF DIVIDENDS
Dividend and capital gains distributions paid by the mutual funds 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.
2. VARILIFE SEPARATE ACCOUNT CONTRACT CHARGES
SBL deducts an administrative fee of $20 per month for the first 12 months and
$5 per month thereafter. A deduction for insurance costs also is made monthly
and is based on the insured's attained age, sex, rating class and policy value.
A surrender charge is assessed against full surrenders of a policy during the
first eight years of the policy, declining from 8% in the first year to 1% in
the eighth year. Mortality and expense risks assumed by SBL are compensated for
by a fee equivalent to an annual rate of 0.9% of the asset value of each
contract.
When applicable, an amount for state premium taxes is deducted as provided by
pertinent state law from each premium.
5
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VARILIFE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF UNIT TRANSACTIONS
UNITS
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1996 1995
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Growth Series:
Varilife deposits............................... 1,731 1,941
Terminations, withdrawals
and expense charges........................... 1,804 1,569
Growth-Income Series:
Terminations, withdrawals and
expense charges............................... 3,416 306
Money Market Series:
Varilife deposits............................... 3,144 -
Terminations, withdrawals and
expense charges............................... 4,151 2,527
Worldwide Equity Series:
Terminations, withdrawals and
expense charges............................... 3,380 62
High Grade Income Series:
Terminations, withdrawals and
expense charges............................... 861 18
6
