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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
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 sale:
* 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 Varilife insurance
policyowners and is not authorized for distribution to the public.
For More Information Call
1-800-888-2461
www.securitybenefit.com
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FINANCIAL STATEMENTS
VARILIFE
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
WITH REPORT OF INDEPENDENT AUDITORS
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Varilife
Financial Statements
Years ended December 31, 1998, 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)
(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
each of the three 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, 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 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 the individual series of
Varilife at December 31, 1998, and the results of their operations and changes
in their net assets for each of the three years in the period then ended in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Kansas City, Missouri
February 5, 1999
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Varilife
Balance Sheet
December 31, 1998
ASSETS
Investments:
SBL Fund:
Series A (Growth Series) - 2,112 shares at net asset
value of $34.27 per share (cost, $64,583)...................... $ 72,379
Series B (Growth-Income Series) - 3,608 shares at net
asset value of $39.68 per share (cost, $104,537)............... 143,180
Series C (Money Market Series) - 772 shares at net
asset value of $12.53 per share (cost, $9,829)................. 9,674
Series D (Worldwide Equity Series) - 348 shares at net
asset value of $6.74 per share (cost, $2,051).................. 2,343
Series E (High-Grade Income Series) - 271 shares at net
asset value of $12.42 per share (cost, $3,188)................. 3,359
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Total assets......................................................... $230,935
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NET ASSETS
Net assets are represented by (NOTE 3):
Growth Series:
Accumulation units - 1,642 units at $44.09 per unit.............. $ 72,379
Growth-Income Series:
Accumulation units - 3,830 units at $37.39 per unit.............. 143,180
Money Market Series:
Accumulation units - 580 units at $16.68 per unit................ 9,674
Worldwide Equity Series:
Accumulation units - 152 units at $15.41 per unit................ 2,343
High-Grade Income Series:
Accumulation units - 155 units at $21.67 per unit................ 3,359
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Total net assets..................................................... $230,935
=======
See accompanying notes.
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Varilife
Statements of Operations and Changes in Net Assets
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998
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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........................................ $ 338 $ 2,296 $ 469 $ 29 $ 197
Expenses (NOTE 2):
Mortality and expense risk fee............................. (589) (1,275) (87) (20) (30)
Administrative fee and insurance costs..................... (384) (507) (285) (36) (53)
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Net investment income (loss).................................. (635) 514 97 (27) 114
Capital gain distributions.................................... 4,314 14,583 --- 168 ---
Realized gain (loss) on investments........................... 1,244 4,290 (12) 6 5
Unrealized appreciation (depreciation) on investments......... 8,448 (11,400) 26 195 50
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Net realized and unrealized gain (loss) on investments........ 14,006 7,473 14 369 55
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Net increase (decrease) in net
assets resulting from operations........................... 13,371 7,987 111 342 169
Net assets at beginning of year............................... 67,928 143,103 9,563 2,001 3,190
Varilife deposits (NOTES 2 AND 3)............................. --- --- --- --- ---
Terminations and withdrawals (NOTES 2 AND 3).................. (8,920) (7,910) --- --- ---
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Net assets at end of year..................................... $72,379 $143,180 $9,674 $2,343 $3,359
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</TABLE>
<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 (loss) 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 (loss) 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.
<PAGE>
Varilife
Notes to Financial Statements
December 31, 1998, 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 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 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 engaged Lexington Management
Corporation (LMC) to serve as subadvisor for the Worldwide Equity Series.
Effective November 1, 1998, LMC was replaced by OppenheimerFunds, Inc.
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 was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
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COST OF PROCEEDS COST OF PROCEEDS COST OF PROCEEDS
PURCHASES FROM SALES PURCHASES FROM SALES PURCHASES FROM SALES
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<S> <C> <C> <C> <C> <C> <C>
Growth Series....................... $ 4,652 $9,893 $68,052 $102,034 $52,965 $49,225
Growth-Income Series................ 16,879 9,692 9,609 1,741 21,110 95,704
Money Market Series................. 469 372 52,902 77,504 48,907 63,449
Worldwide Equity Series............. 196 55 131 56 1,892 40,448
High-Grade Income Series............ 197 83 223 83 178 15,810
</TABLE>
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
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. 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.
3. SUMMARY OF UNIT TRANSACTIONS
UNITS
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YEAR ENDED DECEMBER 31
1998 1997 1996
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Growth Series:
Varilife deposits................................. - 1,799 1,731
Terminations, withdrawals and expense charges..... 274 3,137 1,804
Growth-Income Series:
Terminations, withdrawals and expense charges..... 249 18 3,416
Money Market Series:
Varilife deposits................................. - 3,362 3,144
Terminations, withdrawals and expense charges..... 17 4,937 4,151
Worldwide Equity Series:
Terminations, withdrawals and expense charges..... 3 2 3,380
High-Grade Income Series:
Terminations, withdrawals and expense charges..... 3 2 861
