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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. (785) 431-3000
Security Management Company, LLC
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.
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 1997 financial reports for the variable life insurance
separate account.
www.securitybenefit.com
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Financial Statements
Varilife
Years ended December 31, 1997 and 1996
With Report of Independent Auditors
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Varilife
Financial Statements
Years ended December 31, 1997 and 1996
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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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 Account) as of
December 31, 1997, 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 Account'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, 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 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, 1997,
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
Kansas City, Missouri
February 6, 1998
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Varilife
Balance Sheet
December 31, 1997
ASSETS
Investments:
SBL Fund:
Series A (Growth Series) - 2,311 shares at net asset value of
$29.39 per share (cost, $68,580) .............................. $ 67,928
Series B (Growth-Income Series) - 3,440 shares at net asset
value of $41.60 per share (cost, $93,060) ..................... 143,103
Series C (Money Market Series) - 763 shares at net asset value
of $12.53 per share (cost, $9,744) ............................ 9,563
Series D (Worldwide Equity Series) - 326 shares at net asset
value of $6.14 per share (cost, $1,904) ....................... 2,001
Series E (High Grade Income Series) - 260 shares at net asset
value of $12.25 per share (cost, $3,069) ...................... 3,190
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Total assets ........................................................ $225,785
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NET ASSETS
Net assets are represented by (Note 3):
Growth Series:
Accumulation units - 1,916 units at $35.46 per unit ............. $ 67,928
Growth-Income Series:
Accumulation units - 4,079 units at $35.08 per unit ............. 143,103
Money Market Series:
Accumulation units - 597 units at $16.01 per unit ............... 9,563
Worldwide Equity Series:
Accumulation units - 155 units at $12.95 per unit ............... 2,001
High Grade Income Series:
Accumulation units - 158 units at $20.24 per unit ............... 3,190
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Total net assets .................................................... $225,785
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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, 1997 and 1996
<TABLE>
<CAPTION>
1997
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GROWTH- MONEY WORLDWIDE HIGH GRADE
GROWTH INCOME MARKET EQUITY INCOME
SERIES SERIES SERIES SERIES SERIES
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<S> <C> <C> <C> <C> <C>
Dividend distributions......................................... $ 673 $ 2,760 $ 491 $ 41 $ 223
Expenses (NOTE 2):
Mortality and expense risk fee.............................. (784) (1,172) (236) (18) (27)
Administrative fee and insurance costs...................... (619) (569) (391) (37) (56)
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Net investment income (loss)................................... (730) 1,019 (136) (14) 140
Capital gain distributions..................................... 6,295 6,849 --- 89 ---
Realized gain on investments................................... 23,152 762 1,366 9 4
Unrealized appreciation (depreciation) on investments.......... (11,726) 19,821 (553) (15) 67
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Net realized and unrealized gain (loss) on investments......... 17,721 27,432 813 83 71
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Net increase (decrease) in net assets resulting from operations 16,991 28,451 677 69 211
Net assets at beginning of year................................ 90,484 114,652 33,352 1,932 2,979
Varilife deposits (NOTES 2 AND 3).............................. 61,090 --- 52,417 --- ---
Terminations and withdrawals (NOTES 2 AND 3)................... (100,637) --- (76,883) --- ---
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Net assets at end of year...................................... $ 67,928 $143,103 $ 9,563 $2,001 $3,190
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</TABLE>
<TABLE>
<CAPTION>
1996
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GROWTH- MONEY WORLDWIDE HIGH GRADE
GROWTH INCOME MARKET EQUITY INCOME
SERIES SERIES SERIES SERIES SERIES
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<S> <C> <C> <C> <C> <C>
Dividend distributions......................................... $ 694 $ 3,618 $ 1,091 $ 973 $ 178
Expenses (NOTE 2):
Mortality and expense risk fee.............................. (722) (1,579) (386) (281) (62)
Administrative fee and insurance costs...................... (687) (1,694) (646) (455) (117)
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Net investment income (loss)................................... (715) 345 59 237 (1)
Capital gain distributions..................................... 4,292 17,492 --- 919 ---
Realized gain on investments................................... 12,989 44,419 1,523 11,755 897
Unrealized appreciation (depreciation) on investments.......... (2,350) (34,547) (504) (8,563) (1,589)
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Net realized and unrealized gain (loss) on investments......... 14,931 27,364 1,019 4,111 (692)
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Net increase (decrease) in net assets resulting from operations 14,216 27,709 1,078 4,348 (693)
Net assets at beginning of year................................ 76,105 179,374 46,875 37,296 19,303
Varilife deposits (NOTES 2 AND 3).............................. 47,979 --- 47,817 --- ---
Terminations and withdrawals (NOTES 2 AND 3)................... (47,816) (92,431) (62,418) (39,712) (15,631)
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Net assets at end of year...................................... $ 90,484 $114,652 $ 33,352 $ 1,932 $ 2,979
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</TABLE>
SEE ACCOMPANYING NOTES.
3
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Varilife
Notes to Financial Statements
December 31, 1997 and 1996
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. All activity in the account relates
to a variable life product sold by SBL. 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), a
limited liability company controlled by its members, SBL and Security Benefit
Group, Inc., a wholly-owned subsidiary of SBL. SMC has engaged Lexington
Management Corporation to provide subadvisory 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:
1997 1996
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COST OF PROCEEDS COST OF PROCEEDS
PURCHASES FROM SALES PURCHASES FROM SALES
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Growth Series.................... $68,052 $102,034 $52,965 $49,225
Growth-Income Series............. 9,609 1,741 21,110 95,704
Money Market Series.............. 52,902 77,504 48,907 63,449
Worldwide Equity Series.......... 131 56 1,892 40,448
High Grade Income Series......... 223 83 178 15,810
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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 net asset value of each
contract.
When applicable, an amount for state premium taxes is deducted from each premium
as provided by pertinent state law.
5
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Varilife
Notes to Financial Statements (continued)
3. SUMMARY OF UNIT TRANSACTIONS
Units
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1997 1996
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Growth Series:
Varilife deposits........................................... 1,799 1,731
Terminations, withdrawals and expense charges............... 3,137 1,804
Growth-Income Series:
Terminations, withdrawals and expense charges............... 18 3,416
Money Market Series:
Varilife deposits........................................... 3,362 3,144
Terminations, withdrawals and expense charges............... 4,937 4,151
Worldwide Equity Series:
Terminations, withdrawals and expense charges............... 2 3,380
High Grade Income Series:
Terminations, withdrawals and expense charges............... 2 861
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