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PARKSTONE
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%
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 CONTRACT OWNERS OF PARKSTONE VARIABLE ANNUITY ACCOUNT AND
THE BOARD OF DIRECTORS OF SECURITY BENEFIT LIFE INSURANCE COMPANY
We have audited the accompanying balance sheet of Parkstone 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 Parkstone 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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PARKSTONE 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:
Parkstone Advantage Fund:
Prime Obligations Fund - 1,459,520 shares at net asset value of
$1.00 per share (cost, $1,459)................................ $ 1,459
Bond Fund - 880,618 shares at net asset value of $10.70 per
share (cost, $9,039).......................................... 9,422
Mid Capitalization Fund - 1,951,223 shares at net asset value
of $14.23 per share (cost, $25,446)........................... 27,766
International Discovery Fund - 1,007,884 shares at net asset
value of $12.44 per share (cost, $11,666)..................... 12,538
Small Capitalization Fund - 1,332,821 shares at net asset value
of $17.12 per share (cost, $22,035)........................... 22,818
Keyport Variable Investment Trust:
Colonial U.S. Stock Fund - 7,525 shares at net asset value of
$16.29 per share (cost, $133)................................. 123
Colonial Strategic Income Fund - 22,370 shares at net asset
value of $11.15 per share (cost, $267)........................ 249
Newport Tiger Fund - 6,853 shares at net asset value of $1.71
per share (cost, $12)......................................... 12
SBL Fund:
Money Market Series (Series C) - 3,560 shares at net asset value
of $12.53 per share (cost, $45)............................... 45
Global Aggressive Bond Series (Series K) - 1,677 shares at net
asset value of $10.07 per share (cost, $18)................... 17
Equity Income Series (Series O) - 16,260 shares at net asset
value of $17.62 per share (cost, $283)........................ 287
Social Awareness Series (Series S) - 322 shares at net asset
value of $22.25 per share (cost, $7).......................... 7
------
Total assets.......................................................... $74,743
======
See accompanying notes.
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NET ASSETS
Net assets are represented by (Note 3):
NUMBER UNIT
OF UNITS VALUE AMOUNT
--------------------------------
NON-TRUST CONTRACTS
Prime Obligations Subaccount:
Accumulation units................... 113,674 $10.86 $ 1,235
Bond Subaccount:
Accumulation units................... 738,886 11.42 8,435
Mid Capitalization Subaccount:
Accumulation units................... 1,742,779 15.51 27,026
International Discovery Subaccount:
Accumulation units................... 1,035,408 11.76 12,177
Small Capitalization Subaccount:
Accumulation units................... 1,230,077 18.15 22,330
Colonial U.S. Stock Subaccount:
Accumulation units................... 12,046 10.18 123
Colonial Strategic Income Subaccount:
Accumulation units................... 24,738 10.08 249
Newport Tiger Subaccount:
Accumulation units................... 1,290 9.09 12
Money Market Subaccount:
Accumulation units................... 4,451 10.02 45
Global Aggressive Bond Subaccount:
Accumulation units................... 1,681 10.05 17
Equity Income Subaccount:
Accumulation units................... 26,894 10.06 271
Social Awareness Subaccount:
Accumulation units................... 723 9.89 7
TRUST CONTRACTS
Prime Obligations Subaccount:
Accumulation units................... 20,698 10.85 224
Bond Subaccount:
Accumulation units................... 84,703 11.66 987
Mid Capitalization Subaccount:
Accumulation units................... 46,087 16.05 740
International Discovery Subaccount:
Accumulation units................... 29,672 12.17 361
Small Capitalization Subaccount:
Accumulation units................... 25,898 18.85 488
Equity Income Subaccount:
Accumulation units................... 1,574 10.07 16
------
Total net assets............................. $74,743
======
See accompanying notes.
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PARKSTONE VARIABLE ANNUITY ACCOUNT
STATEMENT OF OPERATIONS AND
CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 1997
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(IN THOUSANDS)
<TABLE>
<CAPTION>
PRIME MID INTERNATIONAL SMALL
OBLIGATIONS BOND CAPITALIZATION DISCOVERY CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NON-TRUST CONTRACTS
Dividend distributions................................. $ 37 $ 288 $ --- $ --- $ ---
Expenses (Note 2):
Mortality and expense risk fee....................... (13) (92) (289) (147) (254)
Administrative fee................................... (4) (23) (83) (24) (36)
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Net investment income (loss)........................... 20 173 (372) (171) (290)
Capital gains distributions............................ --- --- 3,386 --- 111
Realized gain on investments........................... --- 115 1,210 546 1,475
Unrealized appreciation (depreciation) on investments.. --- 151 (1,689) (379) (2,449)
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Net realized and unrealized gain (loss) on investments. --- 266 2,907 167 (863)
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Net increase (decrease) in net assets resulting from
operations........................................... 20 439 2,535 (4) (1,153)
Net assets at beginning of year........................ 1,059 6,605 19,425 9,919 18,737
Variable annuity deposits (Notes 2 and 3).............. 2,630 2,509 7,720 4,670 7,524
Terminations and withdrawals (Notes 2 and 3)........... (2,474) (1,118) (2,654) (2,408) (2,778)
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Net assets at end of year.............................. $ 1,235 $ 8,435 $27,026 $12,177 $22,330
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TRUST CONTRACTS
Dividend distributions................................. $ 10 $ 40 $ --- $ --- $ ---
Expenses (Note 2):
Mortality and expense risk fee ...................... (1) (7) (11) (6) (10)
Administrative fee................................... --- (1) (1) (1) ---
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Net investment income (loss)........................... 9 32 (12) (7) (10)
Capital gains distributions............................ --- --- 249 --- 7
Realized gain (loss) on investments.................... --- 1 (71) 40 (243)
Unrealized appreciation (depreciation) on investments.. --- 34 (31) (41) 92
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Net realized and unrealized gain (loss) on investments. --- 35 (147) (1) (144)
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Net increase (decrease) in net assets resulting from
operations........................................... 9 67 135 (8) (154)
Net assets at beginning of year........................ 298 921 1,699 967 1,514
Variable annuity deposits (Notes 2 and 3).............. 347 96 126 104 71
Terminations and withdrawals (Notes 2 and 3)........... (430) (97) (1,220) (702) (943)
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Net assets at end of year.............................. $ 224 $987 $ 740 $ 361 $ 488
==========================================================================
</TABLE>
See accompanying notes.
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PARKSTONE VARIABLE ANNUITY ACCOUNT
STATEMENT OF OPERATIONS AND
CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 1997
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(IN THOUSANDS)
<TABLE>
<CAPTION>
COLONIAL GLOBAL
COLONIAL STRATEGIC NEWPORT MONEY AGGRESSIVE EQUITY SOCIAL
U.S. STOCK INCOME TIGER MARKET BOND INCOME AWARENESS
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NON-TRUST CONTRACTS
Dividend distributions..................... $ 1 $ 17 $--- $--- $ 1 $--- $---
Expenses (Note 2):
Mortality and expense risk fee........... --- --- --- --- --- --- ---
Administrative fee....................... --- --- --- --- --- --- ---
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Net investment income (loss)............... 1 17 --- --- 1 --- ---
Capital gains distributions................ 12 1 --- --- --- --- ---
Realized gain on investments............... --- --- --- --- --- --- ---
Unrealized appreciation (depreciation)
on investments........................... (10) (18) --- --- (1) 4 ---
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Net realized and unrealized gain (loss) on
investments.............................. 2 (17) --- --- (1) 4 ---
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Net increase (decrease) in net assets
resulting from operations................ 3 --- --- --- --- 4 ---
Net assets at beginning of year............ --- --- --- --- --- --- ---
Variable annuity deposits (Notes 2 and 3).. 120 249 12 45 17 267 7
Terminations and withdrawals
(Notes 2 and 3).......................... --- --- --- --- --- --- ---
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Net assets at end of year.................. $123 $249 $12 $45 $17 $271 $ 7
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TRUST CONTRACTS
Dividend distributions..................... $--- $--- $--- $--- $--- $--- $---
Expenses (Note 2):
Mortality and expense risk fee........... ---
Administrative fee....................... ---
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Net investment income (loss)............... ---
Capital gains distributions................ ---
Realized gain (loss) on investments........ ---
Unrealized appreciation (depreciation)
on investments........................... ---
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Net realized and unrealized gain (loss) on
investments.............................. ---
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Net increase (decrease) in net assets
resulting from operations................ ---
Net assets at beginning of year............ ---
Variable annuity deposits (Notes 2 and 3).. 16
Terminations and withdrawals
(Notes 2 and 3).......................... ---
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Net assets at end of year.................. $--- $--- $--- $--- $--- $ 16 $---
========================================================================================
</TABLE>
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PARKSTONE VARIABLE ANNUITY ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - Parkstone 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 in the Parkstone
Advantage Fund, Keyport Variable Investment Trust or SBL Fund, mutual funds not
otherwise available to the public. As directed by the owners, amounts deposited
are invested in shares of Prime Obligations Fund - emphasis on current income
with liquidity and stability of principal, Bond Fund - emphasis on current
income as well as preservation of capital, Mid Capitalization Fund - emphasis on
capital appreciation, International Discovery Fund - emphasis on long-term
capital growth through investment in foreign and domestic common stocks, Small
Capitalization Fund - emphasis on capital appreciation through investment in
small- to medium-sized companies, Colonial U.S. Stock Fund - emphasis on seeking
growth over time through investment in common stock of U.S. companies, Colonial
Strategic Income Fund - emphasis on high current income through investment in
U.S. and foreign government securities and high yield, high risk corporate debt
securities, Newport Tiger Fund - emphasis on long-term capital growth through
investment in equity securities of companies located in East Asia, Series C
(Money Market Series) - emphasis on capital preservation while generating
interest income, Series K (Global Aggressive Bond Series) - emphasis on high
current income with secondary emphasis on capital appreciation, Series O (Equity
Income Series) - emphasis on substantial dividend income and capital
appreciation and Series S (Social Awareness Series) - emphasis on capital
appreciation.
Two types of investment contracts are offered--one for individuals (the
Non-Trust Contracts) and one for trusts and customers of financial institutions'
trust departments (the Trust Contracts).
Under the terms of the investment advisory contracts, portfolio investments of
the Parkstone Advantage Fund are made by First of America Investment
Corporation, a wholly-owned subsidiary of First of America Bank - Michigan,
N.A., which is a wholly-owned subsidiary of First of America Bank Corporation.
Portfolio investments of the Keyport Variable Investment Trust are made by
Liberty Advisory Services Corp. with Colonial Management Associates, Inc.
providing sub-advisory services to the Colonial U.S. Stock Fund and the Colonial
Strategic Income Fund and Newport Fund Management, Inc. providing sub-advisory
services to the Newport Tiger Fund. Portfolio investments of SBL fund are made
by Security Management Company, LLC with Lexington Management Corporation
providing sub-advisory services to Series K and T. Rowe Price Associates, Inc.
providing sub-advisory services to Series O.
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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):
NON-TRUST CONTRACTS TRUST CONTRACTS
---------------------- ----------------------
COST OF PROCEEDS COST OF PROCEEDS
PURCHASES FROM SALES PURCHASES FROM SALES
--------- ---------- --------- ----------
Prime Obligations Fund......... $ 2,749 $2,573 $ 422 $ 496
Bond Fund...................... 2,860 1,297 140 108
Mid Capitalization Fund........ 11,776 3,696 2,445 3,302
International Discovery Fund... 4,883 2,793 1,366 1,970
Small Capitalization Fund...... 8,253 3,687 1,815 2,689
Colonial U.S. Stock Fund....... 141 8 --- ---
Colonial Strategic Income Fund. 301 34 --- ---
Newport Tiger Fund............. 20 8 --- ---
Money Market Series............ 46 1 --- ---
Global Aggressive Bond Series.. 18 --- --- ---
Equity Income Series........... 284 17 16 ---
Social Awareness Series........ 7 --- --- ---
ANNUITY RESERVES - As of December 31, 1997, annuity reserves have not been
established because there are no contracts that have matured and are in the
payout stage. Such reserves would be computed on the basis of published
mortality tables using assumed interest rates that would 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 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.
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PARKSTONE VARIABLE ANNUITY ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
2. VARIABLE ANNUITY CONTRACT CHARGES
SBL deducts a maintenance fee of $30 per year for each individual contract. An
administrative fee is deducted equal to an annual rate of 0.15% and 0.05% of
each subaccount's average daily net assets which funds the Non-Trust and Trust
Contracts, respectively. Mortality and expense risks assumed by SBL are
compensated for by a fee equivalent to an annual rate of 1.25% and 0.65% of the
net asset value of each Non-Trust and Trust Contract, respectively, of which
0.6% is for assuming mortality risks and the remainder is for assuming expense
risks.
A contingent deferred sales charge is assessed against certain withdrawals
during the first seven years of the contract, declining from 5% in each of the
first four years to 2% in the seventh year. Such surrender charges and other
contract charges totaled $81,447.
When applicable, an amount for state premium taxes is deducted as provided by
pertinent state law either from the purchase payments or from the amount applied
to effect an annuity at the time annuity payments commence.
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3. SUMMARY OF UNIT TRANSACTIONS (IN THOUSANDS)
NON-TRUST TRUST
CONTRACTS CONTRACTS
--------- ---------
Prime Obligations Subaccount:
Variable annuity deposits.............................. 242 33
Terminations, withdrawals and expense charges.......... 227 41
Bond Subaccount:
Variable annuity deposits.............................. 217 9
Terminations, withdrawals and expense charges.......... 93 9
Mid Capitalization Subaccount:
Variable annuity deposits.............................. 535 8
Terminations, withdrawals and expense charges.......... 184 80
International Discovery Subaccount:
Variable annuity deposits.............................. 383 8
Terminations, withdrawals and expense charges.......... 197 58
Small Capitalization Subaccount:
Variable annuity deposits.............................. 429 3
Terminations, withdrawals and expense charges.......... 161 52
Colonial U.S. Stock Subaccount:
Variable annuity deposits.............................. 12 ---
Terminations, withdrawals and expense charges.......... --- ---
Colonial Strategic Income Subaccount:
Variable annuity deposits.............................. 25 ---
Terminations, withdrawals and expense charges.......... --- ---
Newport Tiger Subaccount:
Variable annuity deposits.............................. 1 ---
Terminations, withdrawals and expense charges.......... --- ---
Money Market Subaccount:
Variable annuity deposits.............................. 4 ---
Terminations, withdrawals and expense charges.......... --- ---
Global Aggressive Bond Subaccount:
Variable annuity deposits.............................. 2 ---
Terminations, withdrawals and expense charges.......... --- ---
Equity Income Subaccount:
Variable annuity deposits.............................. 27 2
Terminations, withdrawals and expense charges.......... --- ---
Social Awareness Subaccount:
Variable annuity deposits.............................. 1 ---
Terminations, withdrawals and expense charges.......... --- ---
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The Security Benefit Group of Companies U.S. POSTAGE
700 SW Harrison St., PAID
Topeka, Kansas 66636-0001 SECURITY BENEFIT
