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PARKSTONE
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VARIABLE 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 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) (comprised of the individual subaccounts as indicated
therein) as of December 31, 1998, 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, 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 subaccounts of
the Parkstone 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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PARKSTONE VARIABLE ANNUITY ACCOUNT
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BALANCE SHEET DECEMBER 31, 1998
- --------------------------------------------------------------------------------
ASSETS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND UNIT VALUES)
Investments:
Parkstone Advantage Fund:
Bond Fund - 873,303 shares at net asset value of $10.92 per share
(cost, $9,194).................................................. $ 9,537
Mid-Capitalization Fund - 1,623,530 shares at net asset value of
$15.70 per share (cost, $23,067)................................ 25,489
International Discovery Fund - 825,192 shares at net asset value
of $13.83 per share (cost, $10,088)............................. 11,412
Small Capitalization Fund - 1,112,446 shares at net asset value
of $16.69 per share (cost, $19,193)............................. 18,567
Liberty Variable Investment Trust:
Colonial U.S. Stock Fund - 216,001 shares at net asset value of
$18.79 per share (cost, $3,852)................................. 4,059
Colonial Strategic Income Fund - 315,997 shares at net asset
value of $11.08 per share (cost, $3,605)........................ 3,501
Newport Tiger Fund - 285,893 shares at net asset value of $1.57
per share (cost, $421).......................................... 449
SBL Fund:
Money Market Series (Series C) - 159,257 shares at net asset
value of $12.53 per share (cost, $1,951)........................ 1,996
Global Aggressive Bond Series (Series K) - 51,888 shares at net
asset value of $9.56 per share (cost, $530)..................... 496
Equity Income Series (Series O) - 378,218 shares at net asset
value of $18.35 per share (cost, $6,826)........................ 6,940
Social Awareness Series (Series S) - 9,346 shares at net asset
value of $28.40 per share (cost, $226).......................... 265
------
Total assets........................................................... $82,711
======
See accompanying notes.
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NET ASSETS
Net assets are represented by (NOTE 3):
NUMBER UNIT
OF UNITS VALUE AMOUNT
-------- ----- ------
NONTRUST CONTRACTS
Bond Subaccount:
Accumulation units....................... 725,767 $12.08 $ 8,767
Mid-Capitalization Subaccount:
Accumulation units....................... 1,465,771 16.92 24,795
International Discovery Subaccount:
Accumulation units....................... 845,793 12.95 10,956
Small Capitalization Subaccount:
Accumulation units....................... 1,040,808 17.50 18,210
Colonial U.S. Stock Subaccount:
Accumulation units....................... 339,229 11.67 3,957
Colonial Strategic Income Subaccount:
Accumulation units....................... 320,486 10.49 3,362
Newport Tiger Subaccount:
Accumulation units....................... 52,874 8.49 449
Money Market Subaccount:
Accumulation units....................... 188,180 10.39 1,955
Global Aggressive Bond Subaccount:
Accumulation units....................... 33,660 10.59 356
Equity Income Subaccount:
Accumulation units....................... 590,001 10.78 6,361
Social Awareness Subaccount:
Accumulation units....................... 20,703 12.82 265
TRUST CONTRACTS
Bond Subaccount:
Accumulation units....................... 61,385 12.54 770
Mid-Capitalization Subaccount:
Accumulation units....................... 39,474 17.58 694
International Discovery Subaccount:
Accumulation units....................... 33,817 13.49 456
Small Capitalization Subaccount:
Accumulation units....................... 19,585 18.22 357
Colonial U.S. Stock Fund Subaccount:
Accumulation units....................... 8,609 11.79 102
Colonial Strategic Income Subaccount:
Accumulation units....................... 13,107 10.61 139
Money Market Subaccount:
Accumulation units....................... 3,916 10.43 41
Global Aggressive Bond Subaccount:
Accumulation units....................... 13,095 10.67 140
Equity Income Subaccount:
Accumulation units....................... 53,104 10.90 579
------
Total net assets.............................. $82,711
======
See accompanying notes.
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PARKSTONE VARIABLE ANNUITY ACCOUNT
STATEMENT OF OPERATIONS AND
CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 1998
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(IN THOUSANDS)
<TABLE>
<CAPTION>
PRIME MID- INTERNATIONAL SMALL COLONIAL
OBLIGATIONS BOND CAPITALIZATION DISCOVERY CAPITALIZATION U.S. STOCK
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
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<S> <C> <C> <C> <C> <C> <C>
NONTRUST CONTRACTS
Dividend distributions...................... $ 7 $ 419 $ --- $ --- $ --- $ 25
Expenses (NOTE 2):
Mortality and expense risk fee........... (2) (112) (322) (146) (251) (37)
Administrative fee....................... --- (13) (39) (18) (30) (4)
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Net investment income (loss)................ 5 294 (361) (164) (281) (16)
Capital gains distributions................. --- --- --- 50 --- 132
Realized gain (loss) on investments......... --- 221 2,332 774 870 101
Unrealized appreciation (depreciation) on
investments............................... --- (36) 72 426 (1,371) 215
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Net realized and unrealized gain (loss)
on investments............................ --- 185 2,404 1,250 (501) 448
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Net increase (decrease) in net assets
resulting from operations................. 5 479 2,043 1,086 (782) 432
Net assets at beginning of year............. 1,235 8,435 27,026 12,177 22,330 123
Variable annuity deposits (NOTES 2 AND 3)... 272 2,592 3,356 1,290 2,838 4,311
Terminations and withdrawals (NOTES 2 AND 3) (1,512) (2,739) (7,630) (3,597) (6,176) (909)
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Net assets at end of year................... $ --- $ 8,767 $24,795 $10,956 $18,210 $3,957
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</TABLE>
<TABLE>
<CAPTION>
PRIME MID- INTERNATIONAL SMALL COLONIAL
OBLIGATIONS BOND CAPITALIZATION DISCOVERY CAPITALIZATION U.S. STOCK
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
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<S> <C> <C> <C> <C> <C> <C>
TRUST CONTRACTS
Dividend distributions...................... $ 2 $ 35 $ --- $--- $ --- $ 1
Expenses (NOTE 2):
Mortality and expense risk fee........... --- (5) (4) (3) (3) ---
Administrative fee....................... --- (1) (1) --- --- ---
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Net investment income (loss)................ 2 29 (5) (3) (3) 1
Capital gains distributions................. --- --- --- 2 --- 3
Realized gain (loss) on investments......... --- 26 45 14 39 ---
Unrealized appreciation (depreciation) on
investments............................... --- (4) 30 26 (38) 2
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Net realized and unrealized gain (loss) on
investments............................... --- 22 75 42 1 5
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Net increase (decrease) in net assets
resulting from operations................. 2 51 70 39 (2) 6
Net assets at beginning of year............. 224 987 740 361 488 ---
Variable annuity deposits (NOTES 2 AND 3)... 1 123 89 103 150 100
Terminations and withdrawals (NOTES 2 AND 3) (227) (391) (205) (47) (279) (4)
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Net assets at end of year................... $ --- $ 770 $ 694 $456 $ 357 $102
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</TABLE>
See accompanying notes.
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<TABLE>
<CAPTION>
COLONIAL GLOBAL
STRATEGIC NEWPORT MONEY AGGRESSIVE EQUITY SOCIAL
INCOME TIGER MARKET BOND INCOME AWARENESS
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
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<S> <C> <C> <C> <C> <C> <C>
NONTRUST CONTRACTS
Dividend distributions...................... $ 209 $ 8 $ 78 $ 34 $ 61 $---
Expenses (NOTE 2):
Mortality and expense risk fee........... (36) (4) (19) (4) (62) (1)
Administrative fee....................... (4) --- (2) --- (8) ---
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Net investment income (loss)................ 169 4 57 30 (9) (1)
Capital gains distributions................. --- --- --- 6 149 3
Realized gain (loss) on investments......... 5 (14) (47) --- 46 2
Unrealized appreciation (depreciation) on
investments............................... (81) 28 45 (21) 101 39
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Net realized and unrealized gain (loss) on
investments............................... (76) 14 (2) (15) 296 44
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Net increase (decrease) in net assets
resulting from operations................. 93 18 55 15 287 43
Net assets at beginning of year............. 249 12 45 17 271 7
Variable annuity deposits (NOTES 2 AND 3)... 3,919 675 3,991 386 7,281 237
Terminations and withdrawals (NOTES 2 AND 3) (899) (256) (2,136) (62) (1,478) (22)
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Net assets at end of year................... $3,362 $ 449 $ 1,955 $356 $ 6,361 $265
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</TABLE>
<TABLE>
<CAPTION>
COLONIAL GLOBAL
STRATEGIC NEWPORT MONEY AGGRESSIVE EQUITY SOCIAL
INCOME TIGER MARKET BOND INCOME AWARENESS
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
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<S> <C> <C> <C> <C> <C> <C>
TRUST CONTRACTS
Dividend distributions...................... $ 9 $--- $ 11 $ 13 $--- $---
Expenses (NOTE 2):
Mortality and expense risk fee........... (1) (1) --- (2)
Administrative fee....................... --- --- --- ---
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Net investment income (loss)................ 8 10 13 (2)
Capital gains distributions................. --- --- 2 1
Realized gain (loss) on investments......... --- (4) --- ---
Unrealized appreciation (depreciation) on
investments............................... (5) --- (12) 9
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Net realized and unrealized gain (loss) on
investments............................... (5) (4) (10) 10
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Net increase (decrease) in net assets
resulting from operations................. 3 6 3 8
Net assets at beginning of year............. --- --- --- 16
Variable annuity deposits (NOTES 2 AND 3)... 145 225 145 544
Terminations and withdrawals (NOTES 2 AND 3) (9) (190) (8) 11
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Net assets at end of year................... $139 $--- $ 41 $140 $579 $---
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</TABLE>
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PARKSTONE VARIABLE ANNUITY
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NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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, Liberty 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 the following
accounts of the Parkstone Advantage Fund: 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, and the Small Capitalization Fund -
emphasis on capital appreciation through investment in small- to
medium-sized companies; the following accounts of the Liberty Variable
Investment Trust: 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, and the Newport Tiger Fund - emphasis on
long-term capital growth through investment in equity securities of
companies located in East Asia; and the following accounts of Security
Management Company, LLC (SMC), a limited liability company controlled by its
members, SBL and Security Benefit Group, Inc., a wholly-owned subsidiary of
SBL: Money Market Series (Series C) - emphasis on capital preservation while
generating interest income, Global Aggressive Bond Series (Series K) -
emphasis on high current income with secondary emphasis on capital
appreciation, Equity Income Series (Series O) - emphasis on substantial
dividend income and capital appreciation and Social Awareness Series (Series
S) - emphasis on capital appreciation.
Effective March 20, 1998, investments in the Prime Obligations Fund were no
longer permitted in the contract and all previous deposits remaining in the
fund were transferred to Money Market Series (Series C).
Two types of investment contracts are offered - one for individuals (the
Nontrust 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, with Gulfstream Global Investors, Ltd. providing subadvisory
services to the International Discovery Fund. First of America Investment
Corp., a wholly-owned subsidiary of First of America Bank, N.A., which is a
wholly-owned subsidiary of National City Corporation, holds a 72% interest
in Gulfstream Global Investors, Ltd. Portfolio investments of the Liberty
Variable Investment Trust are made by Liberty Advisory Services Corp. with
Colonial Management Associates, Inc. providing subadvisory services to the
Colonial U.S. Stock Fund and the Colonial Strategic Income Fund, and Newport
Fund Management, Inc. providing subadvisory services to the Newport Tiger
Fund. Portfolio investments of SBL Fund are made by SMC. SMC has engaged T.
Rowe Price Associates, Inc. to provide subadvisory services for the Equity
Income Series. Lexington Management Corporation provided subadvisory
services to the Global Aggressive Bond Series (Series K) until December 31,
1998. Series K will now be advised by SMC.
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 were as
follows:
NONTRUST CONTRACTS TRUST CONTRACTS
--------------------- ---------------------
COST OF PROCEEDS COST OF PROCEEDS
PURCHASES FROM SALES PURCHASES FROM SALES
--------- ---------- --------- ----------
(IN THOUSANDS)
Prime Obligations Fund......... $ 279 $1,514 $ 2 $226
Bond Fund...................... 3,158 3,011 112 351
Mid-Capitalization Fund........ 3,551 8,186 105 226
International Discovery Fund... 1,552 3,973 105 50
Small Capitalization Fund...... 3,135 6,753 149 282
Colonial U.S. Stock Fund....... 4,676 1,157 104 5
Colonial Strategic Income Fund. 4,252 1,063 154 10
Newport Tiger Fund............. 706 283 --- ---
Money Market Series............ 3,991 2,079 236 191
Global Aggressive Bond Series.. 432 71 160 9
Equity Income Series........... 7,759 1,816 569 15
Social Awareness Series........ 240 23 --- --
ANNUITY RESERVES -- As of December 31, 1998, annuity reserves have not been
established because there are no contracts that have matured and are in the
payout stage.
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 -- The operations of the Account are 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
For contracts issued prior to December 1, 1997 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 Nontrust 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 Nontrust 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, from the date a purchase
payment is made. For contracts issued prior to December 1, 1997 the charge
began at 5%, declining to 2% in the seventh year. For contracts issued on or
after the date, the charge began at 7%, declining to 1% in the seventh year.
Such charges and other contract charges totaled $234,177 during 1998.
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.
3. SUMMARY OF UNIT TRANSACTIONS (IN THOUSANDS)
NON-TRUST TRUST
CONTRACTS CONTRACTS
--------- ---------
Prime Obligations Subaccount:
Variable annuity deposits....................... 25 ---
Terminations, withdrawals and expense charges... 138 21
Bond Subaccount:
Variable annuity deposits....................... 191 5
Terminations, withdrawals and expense charges... 204 29
Mid-Capitalization Subaccount:
Variable annuity deposits....................... 148 6
Terminations, withdrawals and expense charges... 425 13
International Discovery Subaccount:
Variable annuity deposits....................... 72 8
Terminations, withdrawals and expense charges... 262 3
Small Capitalization Subaccount:
Variable annuity deposits....................... 135 7
Terminations, withdrawals and expense charges... 325 14
Colonial U.S. Stock Subaccount:
Variable annuity deposits....................... 397 9
Terminations, withdrawals and expense charges... 70 ---
Colonial Strategic Income Subaccount:
Variable annuity deposits....................... 350 14
Terminations, withdrawals and expense charges... 54 1
Newport Tiger Subaccount:
Variable annuity deposits....................... 74 ---
Terminations, withdrawals and expense charges... 23 ---
Money Market Subaccount:
Variable annuity deposits....................... 372 22
Terminations, withdrawals and expense charges... 188 18
Global Aggressive Bond Subaccount:
Variable annuity deposits....................... 34 14
Terminations, withdrawals and expense charges... 2 1
Equity Income Subaccount:
Variable annuity deposits....................... 660 53
Terminations, withdrawals and expense charges... 96 1
Social Awareness Subaccount:
Variable annuity deposits....................... 22 ---
Terminations, withdrawals and expense charges... 2 ---
