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VARIABLE ANNUITY
1997 ANNUAL REPORT
[SBL LOGO]
Security Benefit Life Insurance Company
A Member of The Security Benefit
Group of Companies
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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.
This report is submitted only for the general information of Security Benefit
Life Variable Annuity contractowners and participants and is not authorized for
distribution to the public.
For More Information Call 1-800-888-2461
www.securitybenefit.com
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REPORT OF INDEPENDENT AUDITORS
The Contractowners of SBL Variable Annuity Account and
The Board of Directors of Security Benefit Life Insurance Company
We have audited the accompanying balance sheet of SBL Variable Annuity Account
(the Account) as of December 31, 1997, and the related statement of operations
and changes in net assets for the year 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 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, 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 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 SBL Variable Annuity Account at
December 31, 1997, 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 6, 1998
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SBL VARIABLE ANNUITY ACCOUNT
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BALANCE SHEET DECEMBER 31, 1997
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ASSETS (DOLLARS IN THOUSANDS - EXCEPT PER SHARE AND UNIT VALUES)
Investments:
Security Equity Fund (Series E) - 13,483,634 shares at net
asset value of $8.47 per share (cost, $85,950)................... $114,206
Security Growth and Income Fund (Series I) - 4,181,554 shares
at net asset value of $8.49 per share (cost, $32,439)............ 35,501
Security Income Fund - Corporate Bond (Series B) - 585,059 shares
at net asset value of $7.05 per share (cost, $4,072)............. 4,125
Security Ultra Fund (Series U) - 31,308 shares at net asset
value of $8.49 per share (cost, $233)............................ 266
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Total assets......................................................... $154,098
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LIABILITIES AND NET ASSETS
Actuarial risk fees payable.......... $ 22
Mortality guarantee payable.......... 16
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Total liabilities 38
Net assets are represented by (Note 3):
NUMBER UNIT
OF UNITS VALUE AMOUNT
--------- ----- -------
Series E:
Accumulation units................ 12,930,950 $8.47 $109,526
Annuity reserves.................. 549,508 8.47 4,654 114,180
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Series I:
Accumulation units................ 3,939,905 8.49 33,450
Annuity reserves.................. 240,336 8.49 2,040 35,490
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Series B:
Accumulation units................ 568,219 7.05 4,006
Annuity reserves.................. 16,792 7.05 118 4,124
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Series U:
Accumulation units................ 30,969 8.49 263
Annuity reserves.................. 333 8.49 3 266
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Total liabilities and net assets..... $154,098
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See accompanying notes.
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STATEMENT OF OPERATIONS AND
CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 1997
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(IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES E SERIES I SERIES B SERIES U
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<S> <C> <C> <C> <C>
Dividend distributions............................................ $ 359 $ 453 $ 290 $---
Expenses (Note 2):
Mortality and expense risk fee.................................. (828) (253) (36) (2)
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Net investment income (loss)...................................... (469) 200 254 (2)
Capital gains distributions....................................... 9,846 8,262 --- 14
Realized gain (loss) on investments............................... 5,093 1,521 (235) 2
Unrealized appreciation (depreciation) on investments............. 11,916 (1,151) 348 26
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Net realized and unrealized gain on investments................... 26,855 8,632 113 42
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Net increase in net assets resulting from operations.............. 26,386 8,832 367 40
Net assets at beginning of year................................... 96,924 29,929 4,915 249
Variable annuity deposits (Notes 2 and 3)......................... 5,879 910 301 ---
Terminations and withdrawals (Notes 2 and 3)...................... (14,250) (3,937) (1,437) (23)
Annuity payments (Notes 2 and 3).................................. (760) (260) (23) ---
Net mortality guarantee transfer.................................. 1 16 1 ---
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Net assets at end of year......................................... $114,180 $35,490 $ 4,124 $266
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See accompanying notes.
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SBL VARIABLE ANNUITY ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - SBL Variable Annuity Account (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, as directed by the owners, in
either Security Equity Fund (Series E), Security Growth and Income Fund (Series
I), Security Income Fund - Corporate Bond (Series B) or Security Ultra Fund
(Series U).
Under the terms of the investment advisory contracts, portfolio investments of
the underlying mutual fund are made by Security Management Company, LLC, a
limited liability company controlled by its members, SBL and Security Benefit
Group, Inc., a wholly-owned subsidiary of SBL.
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 (In Thousands):
COST OF PROCEEDS
PURCHASES FROM SALES
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Security Equity Fund (Series E)...................... $16,769 $16,473
Security Growth and Income Fund (Series I)........... 9,977 4,753
Security Income Fund - Corporate Bond (Series B)..... 600 1,503
Security Ultra Fund (Series U)....................... 16 27
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1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ANNUITY RESERVES - Annuity reserves relate to contracts that 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.
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
Mortality and expense risks assumed by SBL are compensated for by a fee
equivalent to an annual rate of 0.795% of the net asset value of each contract,
of which 0.675% 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 purchase payments or from the amount applied to
effect an annuity at the time annuity payments commence.
Contract charges retained by SBL from the proceeds of sales of annuity contracts
were not significant.
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SBL VARIABLE ANNUITY ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
3. SUMMARY OF UNIT TRANSACTIONS (IN THOUSANDS)
UNITS
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Series E:
Variable annuity deposits............................................. 693
Terminations, withdrawals and annuity payments........................ 1,835
Dividends and capital gains distributions, net of expenses paid....... 1,161
Series I:
Variable annuity deposits............................................. 77
Terminations, withdrawals and annuity payments........................ 405
Dividends and capital gains distributions, net of expenses paid....... 1,028
Series B:
Variable annuity deposits............................................. 44
Terminations, withdrawals and annuity payments........................ 211
Dividends and capital gains distributions, net of expenses paid....... 37
Series U:
Terminations, withdrawals and annuity payments........................ 2
Dividends and capital gains distributions, net of expenses paid....... 1
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[SBG LOGO] BULK RATE
The Security Benefit Group of Companies U.S. POSTAGE PAID
700 SW Harrison St., TOPEKA, KS
Topeka, Kansas 66636-0001 PERMIT NO. 428
