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VARIABLE
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ANNUITY
1998 ANNUAL REPORT
[SBL LOGO]
SECURITY BENEFIT LIFE
INSURANCE COMPANY
A Member of The Security Benefit
Group of Companies
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A MESSAGE FROM THE CHAIRMAN OF THE BOARD
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 sales.
* 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 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 CONTRACT OWNERS 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) (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 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, 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
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 the individual series of the
SBL Variable Annuity Account at December 31, 1998, and the results of their
operations and changes in their net assets for the year then ended in conformity
with generally accepted accounting principles.
Ernst & Young LLP
February 5, 1999
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SBL VARIABLE ANNUITY ACCOUNT
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BALANCE SHEET DECEMBER 31, 1998
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ASSETS (DOLLARS IN THOUSANDS - EXCEPT PER SHARE AND UNIT VALUES)
Investments:
Security Equity Fund (Series E) - 13,119,642 shares at net asset
value of $9.98 per share (cost, $91,904)......................... $130,934
Security Growth and Income Fund (Series I) - 4,509,321 shares at
net asset value of $6.96 per share (cost, $34,847)............... 31,385
Security Income Fund - Corporate Bond (Series B) - 623,604 shares
at net asset value of $7.14 per share (cost, $4,388)............. 4,453
Security Ultra Fund (Series U) - 35,804 shares at net asset value
of $7.89 per share (cost, $266).................................. 282
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Total assets $167,054
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LIABILITIES AND NET ASSETS
Actuarial risk fees payable........................................... $ 14
Mortality guarantee payable........................................... 4
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Total liabilities..................................................... 18
Net assets are represented by (NOTE 3):
NUMBER UNIT
OF UNITS VALUE AMOUNT
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Series E:
Accumulation units............ 12,608,844 $9.98 $125,834
Annuity reserves.............. 510,617 9.98 5,096 130,930
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Series I:
Accumulation units............ 4,257,581 6.96 29,621
Annuity reserves.............. 251,627 6.96 1,751 31,372
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Series B:
Accumulation units............ 610,025 7.14 4,355
Annuity reserves.............. 13,584 7.14 97 4,452
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Series U:
Accumulation units............ 35,439 7.89 279
Annuity reserves.............. 364 7.89 3 282
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Total net assets................ 167,036
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Total liabilities and net assets $167,054
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See accompanying notes.
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STATEMENT OF OPERATIONS AND
CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 1998
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(IN THOUSANDS)
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<CAPTION>
SERIES E SERIES I SERIES B SERIES U
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<S> <C> <C> <C> <C>
Dividend distributions..................................................... $ 431 $ 599 $ 267 $ -
Expenses (NOTE 2):
Mortality and expense risk fee.......................................... (941) (259) (34) (2)
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Net investment income (loss)............................................... (510) 340 233 (2)
Capital gains distributions................................................ 8,384 5,067 - 56
Realized gain (loss) on investments........................................ 9,221 763 39 3
Unrealized appreciation (depreciation) on investments...................... 10,774 (6,524) 12 (17)
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Net realized and unrealized gain (loss) on investments..................... 28,379 (694) 51 42
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Net increase (decrease) in net assets resulting from operations............ 27,869 (354) 284 40
Net assets at beginning of year............................................ 114,180 35,490 4,124 266
Variable annuity deposits (NOTES 2 AND 3).................................. 10,176 979 830 -
Terminations and withdrawals (NOTES 2 AND 3)............................... (20,422) (4,506) (757) (24)
Annuity payments (NOTES 2 AND 3)........................................... (933) (268) (29) -
Net mortality guarantee transfer........................................... 60 31 - -
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Net assets at end of year.................................................. $130,930 $31,372 $4,452 $282
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See accompanying notes.
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SBL VARIABLE ANNUITY ACCOUNT
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NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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 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 (In Thousands):
COST OF PROCEEDS
PURCHASES FROM SALES
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Security Equity Fund (Series E).................... $22,382 $25,649
Security Growth and Income Fund (Series I)......... 7,138 5,493
Security Income Fund - Corporate Bond (Series B)... 2,602 2,325
Security Ultra Fund (Series U)..................... 55 25
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
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. 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 during 1998.
3. SUMMARY OF UNIT TRANSACTIONS (IN THOUSANDS)
UNITS
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Series E:
Variable annuity deposits......................................... 1,100
Terminations, withdrawals and annuity payments.................... 2,275
Dividends and capital gains distributions, net of expenses paid... 814
Series I:
Variable annuity deposits......................................... 125
Terminations, withdrawals and annuity payments.................... 574
Dividends and capital gains distributions, net of expenses paid... 777
Series B:
Variable annuity deposits......................................... 117
Terminations, withdrawals and annuity payments.................... 111
Dividends and capital gains distributions, net of expenses paid... 32
Series U:
Terminations, withdrawals and annuity payments.................... 3
Dividends and capital gains distributions, net of expenses paid... 7
