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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. (913) 295-3000
Security Management Company
A LETTER FROM THE PRESIDENT
The key to Security Benefit's record-setting year was our ability to focus
on building value for our policyholders and customers by offering an array of
competitive and innovative products backed by service that we believe is
second-to-none.
We have grown into a diverse financial services organization with $5.7
billion in assets under management and statutory equity exceeding $200 million.
Security Benefit is a leader in the variable annuity and 403(b) market, and
is ranked among the top 25 variable annuity providers in the country, according
to Variable Annuity Research and Data Services (September 30, 1995).
SERVICE, STRENGTH and STABILITY are fundamental to our success, and
distinguish us from our competitors in the financial field.
SERVICE. We use the power of advanced technology to provide our associates
with the necessary tools to deliver fast, accurate, personalized service to our
customers.
STRENGTH. Security Benefit's financial strength is reflected in the
consistently strong ratings we receive from the financial analysts who study our
industry.
STABILITY. Investment strategies have risen and fallen. Products have come
into vogue and gone out just as fast. But we haven't varied from our original
purpose -- to care for and protect others.
In the coming year our focus will continue to be on equity-oriented
products -- variable annuities, mutual funds and variable life insurance. As we
go forward, we will continue to build financial strength and provide service
that exceeds the expectations of our customers.
HOWARD R. FRICKE
Howard R. Fricke
Chairman of the Board,
President and Chief Executive Officer
BOARD OF DIRECTORS
HOWARD R. FRICKE WILLIAM W. HANNA
Chairman of the Board, President President and Chief Operating
and Chief Executive Officer Officer
The Security Benefit Group Koch Industries
of Companies Wichita, Kansas
Topeka, Kansas
JOHN E. HAYES, JR.
THOMAS R. CLEVENGER Chairman of the Board, President
Wichita, Kansas and Chief Executive Officer
Western Resources, Inc.
SISTER LORETTO MARIE COLWELL Topeka, Kansas
President
St. Francis Hospital and LAIRD G. NOLLER
Medical Center President
Topeka, Kansas Noller Enterprises
Topeka, Kansas
JOHN C. DICUS
Chairman of the Board FRANK SABATINI
Capitol Federal Savings Chairman of the Board and
& Loan Association President
Topeka, Kansas Capital City Bank
Topeka, Kansas
MELANIE S. FANNIN
President ROBERT C. WHEELER
Kansas - Southwestern President
Bell Telephone Hill's Pet Nutrition, Inc.
Topeka, Kansas Topeka, Kansas
This report is submitted only for the general information of Security Varilife
insurance policyowners and is not authorized for distribution to the public.
Enclosed are December 1995 financial reports for the variable life insurance
separate account.
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FINANCIAL STATEMENTS
SECURITY VARILIFE ACCOUNT
YEAR ENDED DECEMBER 31, 1995
AND THE PERIOD FROM AUGUST 15, 1994
(INCEPTION) TO DECEMBER 31, 1994
WITH REPORT OF INDEPENDENT AUDITORS
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SECURITY VARILIFE ACCOUNT
Financial Statements
Year ended December 31, 1995
and the period from August 15, 1994
(inception) to December 31, 1994
CONTENTS
Report of Independent Auditors............................................... 1
Audited Financial Statements
Balance Sheet................................................................ 2
Statement of Operations and Changes in Net Assets (1995)..................... 4
Statement of Operations and Changes in Net Assets (1994)..................... 5
Notes to Financial Statements................................................ 6
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[E&Y Logo] One Kansas City Place Phone: 816 474 5200
1200 Main Street
Kansas City
Missouri 64105-2143
Report of Independent Auditors
The Contract Owners of Security Varilife
Account and The Board of Directors of
Security Benefit Life Insurance Company
We have audited the accompanying balance sheet of Security Varilife Account (the
Company) as of December 31, 1995, and the related statements of operations and
changes in net assets for the year then ended and for the period from August 15,
1994 (inception) to December 31, 1994. These financial statements are the
responsibility of the 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 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, 1995, 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 Security Varilife Account at
December 31, 1995, and the results of its operations and changes in its net
assets for the year then ended and for the period from August 15, 1994
(inception) to December 31, 1994, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
February 2, 1996
1
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Security Varilife Account
Balance Sheet
December 31, 1995
ASSETS
Investments:
SBL Fund:
Series A (Growth Series) - 9,542 shares at net asset value of
$21.03 per share (cost, $188,265) $200,674
Series B (Growth-Income Series) - 1,786 shares at net asset
value of $33.95 per share (cost, $51,626) 60,637
Series C (Money Market Series) - 11,884 shares at net asset
value of $12.34 per share (cost, $146,444) 146,644
Series D (Worldwide Equity Series) - 3,050 shares at net
asset value of $5.56 per share (cost, $16,409) 16,956
Series E (High Grade Income Series) - 3,030 shares at net
asset value of $12.86 per share (cost, $37,070) 38,971
Series S (Social Awareness Series) - 194 shares at net asset
value of $16.49 per share (cost, $3,172) 3,191
Series J (Emerging Growth Series) - 3,310 shares at net asset
value of $16.06 per share (cost, $53,075) 53,164
Series M (Specialized Asset Allocation Series) - 121 shares at net
asset value of $10.71 per share (cost, $1,282) 1,296
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Total assets $521,533
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2
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LIABILITIES AND NET ASSETS
Mortality guarantee payable $ 3,864
Net assets are represented by (NOTE 3):
NUMBER UNIT
OF UNITS VALUE
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Growth Series:
Accumulation units 15,410 $13.03 200,788
Growth-Income Series:
Accumulation units 4,874 12.41 60,488
Money Market Series:
Accumulation units 13,609 10.51 143,030
Worldwide Equity Series:
Accumulation units 1,630 10.38 16,923
High Grade Income Series:
Accumulation units 3,324 11.72 38,952
Social Awareness Series:
Accumulation units 256 12.45 3,191
Emerging Growth Series:
Accumulation units 4,518 11.73 53,001
Specialized Asset Allocation Series:
Accumulation units 122 10.63 1,296
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Total liabilities and net assets $521,533
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SEE ACCOMPANYING NOTES.
3
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Security Varilife Account
Statement of Operations and Changes in Net Assets
Year ended December 31, 1995
<TABLE>
<CAPTION>
HIGH SPECIALIZED
GROWTH- MONEY WORLDWIDE GRADE SOCIAL EMERGING ASSET
GROWTH INCOME MARKET EQUITY INCOME AWARENESS GROWTH ALLOCATION
SERIES SERIES SERIES SERIES SERIES SERIES SERIES SERIES
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend distributions $ 517 $ 696 $ 745 $ 6 $ 130 $ -- $ -- $ --
Expenses (NOTE 2):
Mortality and expense risk fee (3,396) (2,008) (5,196) (1,312) (526) (31) (2,876) (50)
Administrative fee (173) (118) (95) (54) (28) (3) (106) (1)
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Net investment loss (3,052) (1,430) (4,546) (1,360) (424) (34) (2,982) (51)
Capital gains distributions 2,178 -- -- 363 -- -- -- --
Realized gain on investments 4,625 673 680 1,866 46 2 6,854 --
Unrealized appreciation
(depreciation) on investments 12,377 9,011 (41) 544 1,900 19 58 14
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Net realized and unrealized gain on
investments 19,180 9,684 639 2,773 1,946 21 6,912 14
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Net increase (decrease) in net assets
resulting from operations 16,128 8,254 (3,907) 1,413 1,522 (13) 3,930 (37)
Net assets at beginning of year 1,277 -- 98,819 885 774 -- 804 --
Variable account deposits
(NOTES 2 AND 3) 203,389 54,110 596,751 44,727 36,669 3,718 92,563 1,333
Terminations and withdrawals
(NOTES 2 AND 3) (20,006) (1,876) (548,633) (30,102) (13) (514) (44,296) --
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Net assets at end of year $200,788 $60,488 $143,030 $16,923 $38,952 $3,191 $53,001 $1,296
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SEE ACCOMPANYING NOTES.
4
</TABLE>
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Security Varilife Account
Statement of Operations and Changes in Net Assets
Period from August 15, 1994 (inception) to December 31, 1994
<TABLE>
<CAPTION>
MONEY WORLDWIDE HIGH GRADE EMERGING
GROWTH MARKET EQUITY INCOME GROWTH
SERIES SERIES SERIES SERIES SERIES
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<S> <C> <C> <C> <C> <C>
Expenses (NOTE 2):
Mortality and expense risk fee $ (4) $ (92) $ (4) $ (2) $ (1)
Administrative fee (10) (236) (10) (4) (4)
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Net investment loss (14) (328) (14) (6) (5)
Realized gain on investments - 6 - - -
Unrealized appreciation on investments 32 241 3 1 31
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Net realized and unrealized gain on
investments 32 247 3 1 31
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Net increase (decrease) in net assets resulting
from operations 18 (81) (11) (5) 26
Net assets at beginning of period - - - - -
Variable account deposits (NOTES 2 AND 3) 1,259 98,900 896 779 778
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Net assets at end of period $1,277 $98,819 $885 $774 $804
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SEE ACCOMPANYING NOTES.
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</TABLE>
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Security Varilife Account
Notes to Financial Statements
December 31, 1995 and 1994
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Security Varilife 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. All
activity in the account relates to Security Elite Benefit, a variable life
product sold by SBL. All deposits received by the Account have been 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 stocks and
equivalents), Series E (High Grade Income Series - emphasis on current income
with security of principal), Series S (Social Awareness Series - emphasis on
high total return), Series J (Emerging Growth Series - emphasis on capital
appreciation), and the following new series introduced on June 1, 1995:
Series K (Global Aggressive Bond Series), with emphasis on high current
income and secondary emphasis on capital appreciation by investing in a
combination of foreign and domestic high yield securities.
Series M (Specialized Asset Allocation Series), with emphasis on high total
return consisting of capital appreciation and current income through
investment in a wide range of investment categories and market sectors, both
domestic and foreign.
Series N (Managed Asset Allocation Series), with emphasis on high level of
total return by investing primarily in a diversified portfolio of debt and
equity securities.
Series O (Equity Income Series), with emphasis on substantial dividend
income and capital appreciation by investing primarily in dividend-paying
common stocks of established companies.
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Security Varilife Account
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Under the terms of the investment advisory contracts, portfolio investments of
the underlying mutual fund are made by Security Management Company (SMC), a
wholly-owned subsidiary of Security Benefit Group, Inc., which is a wholly-owned
subsidiary of SBL. SMC has engaged Lexington Management Corporation to provide
sub-advisory services for the Worldwide Equity Series and Global Aggressive Bond
Series and has engaged T. Rowe Price Associates, Inc. to provide sub-advisory
services for the Managed Asset Allocation Series and the Equity Income Series.
SMC has also entered into agreements with Templeton Quantitative Advisors, Inc.
and Meridian Investment Management Corporation to provide certain quantitative
research services with respect to the Specialized Asset Allocation 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 during the
year ended December 31, 1995 and the period from August 15, 1994 (inception) to
December 31, 1994 were as follows:
1995 1994
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COST OF PROCEEDS COST OF PROCEEDS
PURCHASES FROM SALES PURCHASES FROM SALES
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Series A $205,969 $ 23,574 $ 1,260 $ 15
Series B 54,955 4,002 - -
Series C 601,111 553,925 102,311 3,739
Series D 45,130 31,469 897 15
Series E 36,818 567 778 5
Series S 3,718 548 - -
Series J 92,726 47,278 778 5
Series M 1,334 52 - -
7
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Security Varilife Account
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REINVESTMENT OF DIVIDENDS
Dividend and capital gains distributions paid by the mutual fund to the Account
are reinvested in additional shares of each respective Fund. 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. SECURITY VARILIFE ACCOUNT CONTRACT CHARGES
SBL deducts a daily administrative charge equal to an annual rate of .35% of the
average daily net assets of each account. Mortality and expense risks assumed by
SBL are compensated for by a fee equivalent to an annual rate of .90% of the
average daily net assets of each account.
A deduction for cost of insurance and cost of any riders is also made monthly
and is equal to a current cost of insurance rate multiplied by the net amount at
risk under a policy at the beginning of the policy month. The net amount at risk
for these purposes is equal to the amount of death benefit payable at the
beginning of the policy month divided by 1.0032737 less the accumulated value at
the beginning of the month. These charges were insignificant during 1995 and
1994.
When applicable, an amount for state and local premium taxes is deducted from
each premium payment, as provided by pertinent state law.
8
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Security Varilife Account
Notes to Financial Statements (continued)
3. SUMMARY OF UNIT TRANSACTIONS
Unit transactions for the year ended December 31, 1995 and for the period from
August 15, 1994 (inception) to December 31, 1994 were as follows:
1995 1994
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Growth Series:
Account deposits 16,861 132
Terminations and withdrawals 1,583 -
Growth-Income Series:
Account deposits 5,030 -
Terminations and withdrawals 156 -
Money Market Series:
Account deposits 40,855 7,847
Terminations and withdrawals 35,093 -
Worldwide Equity Series:
Account deposits 4,059 93
Terminations and withdrawals 2,522 -
High Grade Income Series:
Account deposits 3,285 77
Terminations and withdrawals 38 -
Social Awareness Series:
Account deposits 299 -
Terminations and withdrawals 43 -
Emerging Growth Series:
Account deposits 5,148 81
Terminations and withdrawals 711 -
Specialized Asset Allocation Series:
Account deposits 126 -
Terminations and withdrawals 4 -
9
