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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 MESSAGE FROM SECURITY BENEFIT
In 1999, Security Benefit Life Insurance Company had another year of outstanding
financial results. The driving forces behind our tremendous financial
performance were consumers' demand for individual retirement products and the
extension of our money management and customer service competencies.
As consumers focus on their future, they look to Security Benefit as a partner
for developing personal retirement strategies. Our core competencies--money
management and customer service--are very solid and the cornerstone of our
stronghold in the market segments.
SBG IS A CLEAR CHOICE
There are many qualities that make partnering with Security Benefit a clear
choice:
* variety of retirement products
* cutting edge service
* pool of flexible and responsive employees
* rich heritage of innovation and creativity
* a rock solid financial foundation
* a strong risk management philosophy
However, if we were asked to capture what makes partnering with Security Benefit
a clear choice in one sentence, here's what we'd say--Security Benefit knows
Wall Street and Main Street.
Wall Street and Main Street are among the most famous streets in America, but
they're known better for their characteristics rather than their location.
Everyone knows that Wall Street is in New York, but Wall Street is more of an
adjective today than it is a noun. What are the characteristics of something
that's Wall Street-like? It's fast paced, risky and high stress.
Likewise, Main Street has become an adjective. The characteristics of something
that's Main Street-like are being friendly, courteous, relaxed, and having a
real interest and concern for your neighbor.
Knowledge of both streets is one of our competitive advantages and it's why we
are positioned for strong growth in the future.
SBG KNOWS WALL STREET
Even though Security Benefit operates out of America's Heartland in Topeka,
Kansas--the exact opposite of the Wall Street-like atmosphere--we know Wall
Street because of our experience, technology and people.
EXPERIENCE. We've been in the equities business for a long time. Security
Benefit was one of the first in the industry to introduce a variable annuity and
we were on the front end of the mutual fund explosion.* We're as interested in
the return of customers' investments as we are in the return on customers'
investments.
TECHNOLOGY. In today's computer age, we receive financial news and information
at the same time as any other Wall Street professional. When that one important
announcement comes across the wire, we receive the information in real time and
our money managers can react appropriately.
PEOPLE. There's an abundance of investment talent and expertise grown in
America's breadbasket and Security Benefit attracts its fair share. Here, our
talent is moderately insulated from the steady stream of Wall Street noise, so
they can focus on what they do best--manage money.
SECURITY BENEFIT KNOWS MAIN STREET
In order to survive in the financial services industry today, you need to be
good at providing three things:
* products with good performance
* competitive product pricing
* good customer service
But, in order to thrive in the industry, you need to be great at one of those
things.
At Security Benefit, we've got good products with good performance and
competitively priced. But, we've made a conscious decision to be great at
customer service. In 1999, Dalbar, Inc. recognized Security Benefit for its
great customer service--again.
Where does our ability to provide outstanding service stem from? It stems from
everyone at Security Benefit having a deep knowledge of Main Street. Main Street
is part of Americana. Our goal is to provide customers the high-touch,
personalized service you receive when you enter an establishment on Main Street,
USA.
In the year 2000 and beyond, we will invest in initiatives that enhance the
value we offer to customers and make partnering with Security Benefit an even
clearer choice. Thanks for choosing Security Benefit in 1999.
*Variable annuities and mutual funds distributed by Security Distributors, Inc.
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BOARD OF DIRECTORS
HOWARD R. FRICKE
CHAIRMAN OF THE BOARD AND CEO
Security Benefit Life Insurance Company
Topeka, Kansas
KRIS A. ROBBINS
PRESIDENT AND COO
Security Benefit Life Insurance Company
Topeka, 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
VICE CHAIRPERSON
Koch Industries
Wichita, Kansas
JOHN E. HAYES, JR.
CHAIRMAN OF THE BOARD AND CEO (Ret.)
Western Resources, Inc.
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 MEETING OF MEMBERS
The annual meeting of members of Security Benefit Mutual Holding Company (the
"Mutual Holding Company") will be held on Tuesday, June 6, 2000 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, 2000.
For More Information Call 1-800-888-2461
This report is submitted only for the general information of Varilife insurance
policyowners and and is not authorized for distribution to the public.
Enclosed are December 1999 financial reports for the variable life insurance
separate account.
www.securitybenefit.com
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FINANCIAL STATEMENTS
VARILIFE
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
WITH REPORT OF INDEPENDENT AUDITORS
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Varilife
Financial Statements
Years ended December 31, 1999, 1998 and 1997
CONTENTS
Report of Independent Auditors.................................................1
Audited Financial Statements
Balance Sheets.................................................................2
Statements of Operations and Changes in Net Assets.............................3
Notes to Financial Statements..................................................6
<PAGE>
Report of Independent Auditors
The Contract Owners
Varilife
and
The Board of Directors
Security Benefit Life Insurance Company
We have audited the accompanying individual and combined balance sheets of
Varilife comprised of the individual series as indicated therein) as of December
31, 1999, 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 Security Benefit Life Insurance 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 auditing standards generally accepted
in the United States. 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, 1999, 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 individual and combined financial position of the
individual series of Varilife at December 31, 1999, and the individual and
combined results of their operations and changes in their net assets for each of
the three years in the period then ended in conformity with accounting
principles generally accepted in the United States.
Ernst & Young LLP
February 4, 2000
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Varilife
Balance Sheets
December 31, 1999
ASSETS
Investments:
SBL Fund:
Series A (Growth Series) - 2,134 shares at net
asset value of $35.51 per share (cost, $72,373)............... $ 75,785
Series B (Growth-Income Series) - 5,904 shares at
net asset value of $24.39 per share (cost, $158,252).......... 144,004
Series C (Money Market Series) - 808 shares at net
asset value of $12.04 per share (cost, $10,056)............... 9,734
Series D (Worldwide Equity Series) - 387 shares at
net asset value of $9.08 per share (cost, $2,344)............. 3,513
Series E (High Grade Income Series) - 299 shares at
net asset value of $10.55 per share (cost, $3,496)............ 3,153
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Combined assets...................................................... $236,189
=======
NET ASSETS
Net assets are represented by (NOTE 3):
Growth Series:
Accumulation units - 1,604 units at $47.25 per unit............. $ 75,785
Growth-Income Series:
Accumulation units - 3,817 units at $37.73 per unit............. 144,004
Money Market Series:
Accumulation units - 561 units at $17.32 per unit............... 9,734
Worldwide Equity Series:
Accumulation units - 150 units at $23.47 per unit............... 3,513
High Grade Income Series:
Accumulation units - 153 units at $20.66 per unit............... 3,153
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Combined net assets.................................................. $236,189
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SEE ACCOMPANYING NOTES.
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<TABLE>
Varilife
Statement of Operations and Changes in Net Assets
Year ended December 31, 1999
<CAPTION>
GROWTH GROWTH-INCOME MONEY MARKET WORLDWIDE HIGH GRADE
SERIES SERIES SERIES EQUITY SERIES INCOME SERIES COMBINED
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<S> <C> <C> <C> <C> <C> <C>
Dividend distributions.............. $ 241 $ 3,061 $ 3,276 $ --- $ 389 $ 6,967
Expenses (NOTE 2):
Mortality and expense risk fee... (195) (1,360) (545) (24) (29) (2,153)
Administrative fee and
insurance costs................ (178) (496) (532) (41) (52) (1,299)
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Net investment income (loss)........ (132) 1,205 2,199 (65) 308 3,515
Capital gain distributions.......... 218 52,180 --- 347 --- 52,745
Realized gain (loss) on investments. 8,090 330 (386) 10 --- 8,044
Unrealized appreciation
(depreciation) on investments..... (4,384) (52,891) (167) 877 (514) (57,079)
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Net realized and unrealized gain
(loss) on investments............. 3,924 (381) (553) 1,234 (514) 3,710
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Net increase (decrease) in net
assets resulting from operations. 3,792 824 1,646 1,169 (206) 7,225
Net assets at beginning of year..... 72,379 143,180 9,674 2,343 3,359 230,935
Varilife deposits (NOTES 2 AND 3)... 66,350 --- 64,764 1 --- 131,115
Terminations and withdrawals
(NOTES 2 AND3).................... (66,736) --- (66,350) --- --- (133,086)
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Net assets at end of year........... $ 75,785 $144,004 $ 9,734 $3,513 $3,153 $ 236,189
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</TABLE>
SEE ACCOMPANYING NOTES.
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<TABLE>
Varilife
Statement of Operations and Changes in Net Assets
Year ended December 31, 1998
<CAPTION>
GROWTH GROWTH-INCOME MONEY MARKET WORLDWIDE HIGH GRADE
SERIES SERIES SERIES EQUITY SERIES INCOME SERIES COMBINED
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<S> <C> <C> <C> <C> <C> <C>
Dividend distributions.............. $ 338 $ 2,296 $ 469 $ 29 $ 197 $ 3,329
Expenses (NOTE 2):
Mortality and expense risk fee... (589) (1,275) (87) (20) (30) (2,001)
Administrative fee and
insurance costs................ (384) (507) (285) (36) (53) (1,265)
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Net investment income (loss)........ (635) 514 97 (27) 114 63
Capital gain distributions.......... 4,314 14,583 --- 168 --- 19,065
Realized gain (loss) on investments. 1,244 4,290 (12) 6 5 5,533
Unrealized appreciation
(depreciation) on investments.... 8,448 (11,400) 26 195 50 (2,681)
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Net realized and unrealized gain
(loss) on investments............ 14,006 7,473 14 369 55 21,917
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Net increase in net assets
resulting from operations........ 13,371 7,987 111 342 169 21,980
Net assets at beginning of year..... 67,928 143,103 9,563 2,001 3,190 225,785
Varilife deposits (NOTES 2 AND 3)... --- --- --- --- --- ---
Terminations and withdrawals
(NOTES 2 AND 3)................... (8,920) (7,910) --- --- --- (16,830)
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Net assets at end of year........... $72,379 $143,180 $9,674 $2,343 $3,359 $230,935
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</TABLE>
SEE ACCOMPANYING NOTES.
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<TABLE>
Varilife
Statement of Operations and Changes in Net Assets
Year ended December 31, 1997
<CAPTION>
GROWTH GROWTH-INCOME MONEY MARKET WORLDWIDE HIGH GRADE
SERIES SERIES SERIES EQUITY SERIES INCOME SERIES COMBINED
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<S> <C> <C> <C> <C> <C> <C>
Dividend distributions ............. $ 673 $ 2,760 $ 491 $ 41 $ 223 $ 4,188
Expenses (NOTE 2):
Mortality and expense risk fee .. (784) (1,172) (236) (18) (27) (2,237)
Administrative fee and
insurance costs ............... (619) (569) (391) (37) (56) (1,672)
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Net investment income (loss) ....... (730) 1,019 (136) (14) 140 279
Capital gain distributions ......... 6,295 6,849 --- 89 --- 13,233
Realized gain on investments ....... 23,152 762 1,366 9 4 25,293
Unrealized appreciation
(depreciation) on investments ... (11,726) 19,821 (553) (15) 67 7,594
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Net realized and unrealized gain
on investments .................. 17,721 27,432 813 83 71 46,120
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Net increase in net assets
resulting from operations ....... 16,991 28,451 677 69 211 46,399
Net assets at beginning of year .... 90,484 114,652 33,352 1,932 2,979 243,399
Varilife deposits (NOTES 2 AND 3) .. 61,090 --- 52,417 --- --- 113,507
Terminations and withdrawals
(NOTES 2 AND 3) ................. (100,637) --- (76,883) --- --- (177,520)
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Net assets at end of year .......... $ 67,928 $143,103 $ 9,563 $2,001 $3,190 $ 225,785
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</TABLE>
SEE ACCOMPANYING NOTES.
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Varilife
Notes to Financial Statements
December 31, 1999, 1998 and 1997
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 Oppenheimer Funds,
Inc. to serve as subadvisor 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 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
years ended December 31 was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------ ------------------------ ------------------------
COST OF PROCEEDS COST OF PROCEEDS COST OF PROCEEDS
PURCHASES FROM SALES PURCHASES FROM SALES PURCHASES FROM SALES
------------------------ ------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
Growth Series .............. $66,810 $67,110 $ 4,652 $9,893 $68,052 $102,034
Growth-Income Series ....... 55,241 1,856 16,879 9,692 9,609 1,741
Money Market Series ........ 68,040 67,427 469 372 52,902 77,504
Worldwide Equity Series .... 348 65 196 55 131 56
High Grade Income Series ... 388 80 197 83 223 83
</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 accounting principles
generally accepted in the United States 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
------------------------
YEAR ENDED DECEMBER 31
1999 1998 1997
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Growth Series:
Varilife deposits ................................ 1,460 --- 1,799
Terminations, withdrawals and expense charges .... 1,498 274 3,137
Growth-Income Series:
Varilife deposits ................................ --- --- ---
Terminations, withdrawals and expense charges .... 13 249 18
Money Market Series:
Varilife deposits ................................ 3,863 --- 3,362
Terminations, withdrawals and expense charges .... 3,882 17 4,937
Worldwide Equity Series:
Varilife deposits ................................ --- --- ---
Terminations, withdrawals and expense charges .... 3 3 2
High Grade Income Series:
Varilife deposits ................................ --- --- ---
Terminations, withdrawals and expense charges .... 3 3 2
