<PAGE>
A LETTER FROM THE PRESIDENT
Security Benefit is one company dedicated to the successful mastery of our
mission: MAINTAINING A STRONG FINANCIAL POSITION AND CONSISTENT GROWTH FOR THE
PROTECTION AND SECURITY OF ALL OF OUR POLICYHOLDERS AND CUSTOMERS. All of us at
Security Benefit renew our commitment to this mission every day. We want to be
the best and do our best for you. As a member of the Security Benefit team, I am
especially proud that mastering successful growth is an achievement we have come
to expect as a team.
It is my pleasure to report that 1996 was again a record year of outstanding
achievements for Security Benefit.
* Sales surpassed 1995 results by 48%
* Profits are up 18% over last year
* Revenues and deposit funds exceeded 1995 results by 28%
* Company assets rose 17% over 1995 figures
These accomplishments would just be facts on paper without the efforts of the
people who work at Security Benefit. They are the heart of our company, and I am
proud to be part of their team.
My wish for 1997 is to have another record year for our company. Last year's
accomplishments will be difficult to top but all of us at Security Benefit have
our sights and goals set high. We are well positioned with new, creative
products designed in response to our customers' changing investment goals and
lifestyle requirements. We know true mastery does not come easily. With
perseverance and attention to constantly improving what we do best, I know we
can do it.
HOWARD R. FRICKE
Howard R. Fricke
Chairman of the Board
President and Chief Executive Officer
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS
HOWARD R. FRICKE
CHAIRMAN OF THE BOARD, PRESIDENT & CEO
Security Benefit Life Insurance Company
Topeka, Kansas
THOMAS R. CLEVENGER
Wichita, Kansas
SISTER LORETTO MARIE COLWELL
PRESIDENT
St. Francis Hospital and Medical Center
Topeka, Kansas
JOHN C. DICUS
CHAIRMAN OF THE BOARD
Capitol Federal Savings & Loan Association
Topeka, Kansas
MELANIE S. FANNIN
PRESIDENT
Kansas - Southwestern Bell Telephone
Topeka, Kansas
WILLIAM W. HANNA
PRESIDENT & CHIEF OPERATING OFFICER
Koch Industries
Wichita, Kansas
JOHN E. HAYES, JR.
CHAIRMAN OF THE BOARD, PRESIDENT & CEO
Western Resources, Inc.
Topeka, Kansas
LAIRD G. NOLLER
PRESIDENT
Noller Enterprises
Topeka, Kansas
FRANK SABATINI
CHAIRMAN OF THE BOARD AND PRESIDENT
Capital City Bank
Topeka, Kansas
ROBERT C. WHEELER
PRESIDENT
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 3, 1997 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.
For More Information Call
1-800-888-2461
This report is submitted only for the general information of Varilife insurance
policyowners and is not authorized for distribution to the public.
Enclosed are December 1996 financial reports for the variable life insurance
separate account.
www.securitybenefit.com
V8835 (R4-97) 32-88352-00
<PAGE>
Financial Statements
Security Varilife Separate Account
Years ended December 31, 1996 and 1995
with Report of Independent Auditors
<PAGE>
SECURITY VARILIFE SEPARATE ACCOUNT
FINANCIAL STATEMENTS
Years ended December 31, 1996 and 1995
CONTENTS
Report of Independent Auditors ........................................ 1
Audited Financial Statements
Balance Sheet ......................................................... 2
Statements of Operations and Changes in Net Assets .................... 4
Notes to Financial Statements ......................................... 6
<PAGE>
Report of Independent Auditors
The Contract Owners of Security Varilife
Separate Account and The Board of Directors
of Security Benefit Life Insurance Company
We have audited the accompanying balance sheet of Security Varilife Separate
Account (the Company) as of December 31, 1996, and the related statements of
operations and changes in net assets for each of the two years in the period
then ended. 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, 1996, 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 Separate
Account at December 31, 1996, and the results of its operations and changes in
its net assets for each of the two years in the period then ended in conformity
with generally accepted accounting principles.
Ernst & Young LLP
February 7, 1997
1
<PAGE>
Security Varilife Separate Account
Balance Sheet
December 31, 1996
(DOLLARS IN THOUSANDS)
ASSETS
Investments:
SBL Fund:
Series A (Growth Series)
20,658 shares at net asset value of $24.31 per share (cost, $458)..... $ 502
Series B (Growth-Income Series)
3,201 shares at net asset value of $35.40 per share (cost, $107)...... 113
Series C (Money Market Series)
2,441 shares at net asset value of $12.56 per share (cost, $32)....... 31
Series D (Worldwide Equity Series)
24,407 shares at net asset value of $6.14 per share (cost, $147)...... 150
Series E (High Grade Income Series)
5,728 shares at net asset value of $12.00 per share (cost, $70)....... 69
Series J (Emerging Growth Series)
8,579 shares at net asset value of $18.25 per share (cost, $149)...... 157
Series K (Global Aggressive Bond Series)
1,207 shares at net asset value of $10.72 per share (cost, $12)....... 13
Series M (Specialized Asset Allocation Series)
3,029 shares at net asset value of $12.05 per share (cost, $34)....... 36
Series N (Managed Asset Allocation Series)
1,878 shares at net asset value of $12.02 per share (cost, $21)....... 23
Series O (Equity Income Series)
10,047 shares at net asset value of $14.01 per share (cost, $127)..... 141
Series S (Social Awareness Series)
636 shares at net asset value of $19.08 per share (cost, $12)......... 12
-----
Total assets............................................................. $1,247
=====
2
<PAGE>
NET ASSETS
Net assets are represented by (NOTE 3):
NUMBER
OF UNITS UNIT VALUE
Growth Series:
Accumulation units.................. 31,819 $15.78 $ 502
Growth-Income Series:
Accumulation units.................. 7,821 14.49 113
Money Market Series:
Accumulation units.................. 2,809 10.91 31
Worldwide Equity Series:
Accumulation units.................. 12,449 12.04 150
High Grade Income Series:
Accumulation units.................. 5,982 11.49 69
Emerging Growth Series:
Accumulation units.................. 11,450 13.67 157
Global Aggressive Bond Series:
Accumulation units.................. 1,079 11.99 13
Specialized Asset Allocation Series:
Accumulation units.................. 3,044 11.99 36
Managed Asset Allocation Series:
Accumulation units.................. 1,903 11.86 23
Equity Income Series:
Accumulation units................... 10,226 13.77 141
Social Awareness Series:
Accumulation units................... 830 14.62 12
------
Total net assets.......................... $1,247
======
SEE ACCOMPANYING NOTES.
3
<PAGE>
Security Varilife Separate Account
Statement of Operations and Changes in Net Assets
Year ended December 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
HIGH SPECIALIZED MANAGED
GROWTH- MONEYE WORLDWIDE GRADE EMERGING GLOBAL ASSET ASSET EQUITY SOCIAL
GROWTH INCOME MARKET EQUITY INCOME GROWTH AGGRESSIVE ALLOCATION ALLOCATION INCOME AWARENESS
SERIES SERIES SERIES SERIES SERIES SERIES BOND SERIES SERIES SERIES SERIES SERIES
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend distributions....... $ 3 $ 2 $ 1 $ 3 $ 3 $ - $ 1 $ - $ - $ - $ -
Expenses (NOTE 2):
Mortality and expense
risk fee................... (3) (1) (1) (1) - (1) - - - (1)
Administrative fee and
insurance costs........... (31) (10) (7) (9) (4) (15) (1) (1) - (2) -
-------------------------------------------------------------------------------------------------------
Net investment loss.......... (31) (9) (7) (7) (1) (16) - (1) - (3) -
Capital gains distributions.. 19 9 - 3 - 4 - - - - -
Realized gain on investments. 14 5 3 2 - 2 - - - - 1
Unrealized appreciation
(depreciation) on
investments............... 32 (3) (1) 3 (3) 8 1 3 2 14
-----------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 65 11 2 8 (3) 14 1 3 2 14 1
-----------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
operations................ 34 2 (5) 1 (4) (2) 1 2 2 11
Net assets at beginning of
year...................... 201 61 143 17 39 53 - 1 - -
Variable account deposits
(NOTES 2 AND 3)............ 278 57 401 133 34 112 12 34 21 130 13
Terminations and withdrawals
(NOTES 2 AND 3)............ (11) (7) (508) (1) - (6) - (1) - - (5)
-----------------------------------------------------------------------------------------------------
Net assets at end of year... $502 $113 $ 31 $150 $69 $157 $13 $36 $23 $141 $12
=====================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
Security Varilife Separate Account
Statement of Operations and Changes in Net Assets
Year ended December 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
HIGH SPECIALIZED
GROWTH- MONEY WORLDWIDE GRADE EMERGING ASSET SOCIAL
GROWTH INCOME MARKET EQUITY INCOME GROWTH ALLOCATION AWARENESS
SERIES SERIES SERIES SERIES SERIES SERIES SERIES SERIES
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend distributions................. $ 1 $ 1 $ 1 $ - $ - $ - $ - $ -
Expenses (NOTE 2):
Mortality and expense risk fee...... (2) (1) (2) (1) (1) (2) - -
Administrative fee and insurance (2) (1) (3) - - (1) - -
costs...............................
-------------------------------------------------------------------------------------------
Net investment loss.................... (3) (1) (4) (1) (1) (3) - -
Capital gains distributions............ 2 - - - - - - -
Realized gain on investments........... 5 1 1 2 - 7 - -
Unrealized appreciation on investments. 12 9 - - 2 - - -
-------------------------------------------------------------------------------------------
Net realized and unrealized gain on
investments......................... 19 10 1 2 2 7 - -
-------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations........... 16 9 (3) 1 1 4 - -
Net assets at beginning of year........ 1 - 99 1 1 1 - -
Variable account deposits
(NOTES 2 AND 3)..................... 204 54 596 45 37 92 1 4
Terminations and withdrawals
(NOTES 2 AND 3)..................... (20) (2) (549) (30) - (44) - (1)
-------------------------------------------------------------------------------------------
Net assets at end of year.............. $201 $61 $143 $17 $39 $53 $ 1 $ 3
===========================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
Security Varilife Separate Account
Notes to Financial Statements
December 31, 1996 and 1995
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Security Varilife Separate 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. 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 stocks and equivalents), Series E
(High Grade Income Series - emphasis on current income with security of
principal), Series J (Emerging Growth Series - emphasis on capital
appreciation), Series K (Global Aggressive Bond Series - emphasis on high
current income with secondary emphasis on capital appreciation), Series M
(Specialized Asset Allocation Series - emphasis on high total return consisting
of capitol appreciation and current income), Series N (Managed Asset Allocation
Series - emphasis on high level of total return), Series O (Equity Income Series
- - emphasis on substantial dividend income and capital appreciation) and Series S
(Social Awareness Series - emphasis on high total return).
Under the terms of the investment advisory contracts, portfolio investments of
the underlying mutual fund are made by Security Management Company, LLC (SMC),
which is 50% owned by SBL and 50% owned by Security Benefit Group, Inc., 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.
6
<PAGE>
Security Varilife Separate Account
Notes to Financial Statements (Continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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:
1996 1995
-------------------------------------------
COST OF PR0CEEDS COST OF PROCEEDS
PURCHASES FROM SALES PURCHASES FROM SALES
-------------------------------------------
(IN THOUSANDS)
Growth Series........................ $312 $ 56 $206 $ 24
Growth-Income Series................. 70 20 55 4
Money Market Series.................. 426 543 601 554
Worldwide Equity Series.............. 144 15 45 31
High Grade Income Series............. 38 5 37 1
Emerging Growth Series............... 124 30 93 47
Global Aggressive Bond Series........ 13 1 - -
Specialized Asset Allocation Series.. 35 2 1 -
Managed Asset Allocation Series...... 22 1 - -
Equity Income Series................. 131 4 - -
Social Awareness Series.............. 14 6 4 1
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.
7
<PAGE>
Security Varilife Separate Account
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 SEPARATE 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 also is 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 amounted to $78,000 during 1996 and
were insignificant during 1995.
When applicable, an amount for state and local premium taxes is deducted from
each premium payment, as provided by pertinent state law.
8
<PAGE>
Security Varilife Separate Account
Notes to Financial Statements (continued)
3. SUMMARY OF UNIT TRANSACTIONS
UNITS
----------------------
1996 1995
----------------------
Growth Series:
Account deposits..................................... 19,119 16,861
Terminations and withdrawals......................... 2,710 1,583
Growth-Income Series:
Account deposits..................................... 4,216 5,030
Terminations and withdrawals......................... 1,269 156
Money Market Series:
Account deposits..................................... 37,476 40,855
Terminations and withdrawals......................... 48,276 35,093
Worldwide Equity Series:
Account deposits..................................... 11,684 4,059
Terminations and withdrawals......................... 865 2,522
High Grade Income Series:
Account deposits..................................... 2,973 3,285
Terminations and withdrawals......................... 315 38
Emerging Growth Series:
Account deposits..................................... 8,517 5,148
Terminations and withdrawals......................... 1,585 711
Global Aggressive Bond Series:
Account deposits..................................... 1,114 -
Terminations and withdrawals......................... 35 -
Specialized Asset Allocation Series:
Account deposits..................................... 3,118 126
Terminations and withdrawals......................... 196 4
Managed Asset Allocation Series:
Account deposits..................................... 1,960 -
Terminations and withdrawals......................... 57 -
Equity Income Series:
Account deposits..................................... 10,444 -
Terminations and withdrawals......................... 218 -
Social Awareness Series:
Account deposits..................................... 877 299
Terminations and withdrawals......................... 303 43
9
