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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. (785) 431-3000
Security Management Company, LLC
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%
We have long been positioned to meet the demand for flexible annuities. And we
took that one step further in 1997 by unveiling Variflex Signature. Our new
variable annuity offers opportunities for investors tired of low interest rates
and lack of control over their insurance investments.
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.
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 1997 financial reports for the variable life insurance
separate account.
www.securitybenefit.com
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Financial Statements
Security Varilife Separate Account
Years ended December 31, 1997 and 1996
With Report of Independent Auditors
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Security Varilife Separate Account
Financial Statements
Years Ended December 31, 1997 and 1996
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
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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 Account) as of December 31, 1997, 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 Account'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, 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 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, 1997, 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
Kansas City, Missouri
February 6, 1998
1
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Security Varilife Separate Account
Balance Sheet
December 31, 1997
(DOLLARS IN THOUSANDS - EXCEPT PER SHARE AND UNIT VALUES)
ASSETS
Investments:
SBL Fund:
Series A (Growth Series) - 44,927 shares at net asset value of
$29.39 per share (cost, $1,187).................................. $1,320
Series B (Growth-Income Series) - 6,689 shares at net asset
value of $41.60 per share (cost, $262)........................... 278
Series C (Money Market Series) - 3,708 shares at net asset
value of $12.53 per share (cost, $47)............................ 46
Series D (Worldwide Equity Series) - 37,006 shares at net
asset value of $6.14 per share (cost, $237)...................... 227
Series E (High Grade Income Series) - 7,043 shares at net
asset value of $12.25 per share (cost, $85)...................... 86
Series J (Emerging Growth Series) - 10,429 shares at net
asset value of $21.33 per share (cost, $198)..................... 222
Series K (Global Aggressive Bond Series) - 2,400 shares at
net asset value of $10.07 per share (cost, $24).................. 24
Series M (Specialized Asset Allocation Series) - 4,656 shares
at net asset value of $12.29 per share (cost, $54)............... 57
Series N (Managed Asset Allocation Series) - 2,250 shares at
net asset value of $13.88 per share (cost, $25).................. 31
Series O (Equity Income Series) - 17,137 shares at net asset
value of $17.62 per share (cost, $242)........................... 302
Series S (Social Awareness Series) - 1,101 shares at net
asset value of $22.25 per share (cost, $22)...................... 24
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Total assets........................................................... $2,617
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2
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NET ASSETS
Net assets are represented by (NOTE 3):
NUMBER OF UNITS UNIT VALUE AMOUNT
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Growth Series:
Accumulation units.................. 65,826 $20.06 $1,320
Growth-Income Series:
Accumulation units.................. 15,376 18.10 278
Money Market Series:
Accumulation units.................. 4,103 11.32 46
Worldwide Equity Series:
Accumulation units.................. 17,958 12.65 227
High Grade Income Series:
Accumulation units.................. 6,911 12.49 86
Emerging Growth Series:
Accumulation units.................. 13,733 16.20 222
Global Aggressive Bond Series:
Accumulation units.................. 1,937 12.48 24
Specialized Asset Allocation Series:
Accumulation units.................. 4,552 12.57 57
Managed Asset Allocation Series:
Accumulation units.................. 2,251 13.87 31
Equity Income Series:
Accumulation units.................. 17,299 17.46 302
Social Awareness Series:
Accumulation units.................. 1,384 17.70 24
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Total net assets....................... $2,617
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SEE ACCOMPANYING NOTES.
3
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Security Varilife Separate Account
Statement of Operations and Changes in Net Assets
Year ended December 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
GROWTH- MONEY WORLDWIDE HIGH GRADE EMERGING
GROWTH INCOME MARKET EQUITY INCOME GROWTH
SERIES SERIES SERIES SERIES SERIES SERIES
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<S> <C> <C> <C> <C> <C> <C>
Dividend distributions............................................. $ 5 $ 5 $ 3 $ 4 $ 5 $ 1
Expenses (NOTE 2):
Mortality and expense risk fee................................... (7) (2) --- (2) (1) (2)
Administrative fee and insurance costs........................... (77) (21) (10) (28) (5) (31)
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Net investment gain (loss)......................................... (79) (18) (7) (26) (1) (32)
Capital gain distributions......................................... 49 13 --- 10 --- 5
Realized gain (loss) on investments................................ 43 11 (1) 8 --- 15
Unrealized appreciation (depreciation) on investments.............. 89 10 --- (13) 2 16
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Net realized and unrealized gain (loss) on investments............. 181 34 (1) 5 2 36
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Net increase (decrease) in net assets resulting from operations.... 102 16 (8) (21) 1 4
Net assets at beginning of year.................................... 502 113 31 150 69 157
Variable account deposits (NOTES 2 AND 3).......................... 752 153 426 124 18 108
Terminations and withdrawals (NOTES 2 AND 3)....................... (36) (4) (403) (26) (2) (47)
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Net assets at end of year.......................................... $1,320 $278 $ 46 $227 $86 $222
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</TABLE>
<TABLE>
<CAPTION>
SPECIALIZED
GLOBAL ASSET MANAGED ASSET EQUITY SOCIAL
AGGRESSIVE ALLOCATION ALLOCATION INCOME AWARENESS
BOND SERIES SERIES SERIES SERIES SERIES
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<S> <C> <C> <C> <C> <C>
Dividend distributions............................................. $ 2 $ 1 $--- $ 2 $---
Expenses (NOTE 2):
Mortality and expense risk fee................................... --- --- --- (2) ---
Administrative fee and insurance costs........................... (1) (3) (1) (13) (1)
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Net investment gain (loss)......................................... 1 (2) (1) (13) (1)
Capital gain distributions......................................... 1 1 --- 3 1
Realized gain (loss) on investments................................ --- --- --- 4 ---
Unrealized appreciation (depreciation) on investments.............. (1) 1 4 46 2
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Net realized and unrealized gain (loss) on investments............. --- 2 4 53 3
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Net increase (decrease) in net assets resulting from operations.... 1 --- 3 40 2
Net assets at beginning of year.................................... 13 36 23 141 12
Variable account deposits (NOTES 2 AND 3).......................... 10 21 5 121 13
Terminations and withdrawals (NOTES 2 AND 3)....................... --- --- --- --- (3)
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Net assets at end of year.......................................... $ 24 $ 57 $ 31 $302 $ 24
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</TABLE>
SEE ACCOMPANYING NOTES.
4
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Security Varilife Separate Account
Statement of Operations and Changes in Net Assets
Year ended December 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
GROWTH- MONEY WORLDWIDE HIGH GRADE EMERGING
GROWTH INCOME MARKET EQUITY INCOME GROWTH
SERIES SERIES SERIES SERIES SERIES SERIES
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<S> <C> <C> <C> <C> <C> <C>
Dividend distributions............................................. $ 3 $ 2 $ 1 $ 3 $ 3 $---
Expenses (NOTE 2):
Mortality and expense risk fee................................... (3) (1) (1) (1) --- (1)
Administrative fee and insurance costs........................... (31) (10) (7) (9) (4) (15)
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Net investment loss................................................ (31) (9) (7) (7) (1) (16)
Capital gains distributions........................................ 19 9 --- 3 --- 4
Realized gain on investments....................................... 14 5 3 2 --- 2
Unrealized appreciation (depreciation) on investments.............. 32 (3) (1) 3 (3) 8
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Net realized and unrealized gain (loss) on investments............. 65 11 2 8 (3) 14
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Net increase (decrease) in net assets resulting from operations.... 34 2 (5) 1 (4) (2)
Net assets at beginning of year.................................... 201 61 143 17 39 53
Variable account deposits (NOTES 2 AND 3).......................... 278 57 401 133 34 112
Terminations and withdrawals (NOTES 2 AND 3)....................... (11) (7) (508) (1) --- (6)
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Net assets at end of year.......................................... $502 $113 $ 31 $150 $ 69 $157
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</TABLE>
<TABLE>
<CAPTION>
SPECIALIZED
GLOBAL ASSET MANAGED ASSET EQUITY SOCIAL
AGGRESSIVE ALLOCATION ALLOCATION INCOME AWARENESS
BOND SERIES SERIES SERIES SERIES SERIES
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<S> <C> <C> <C> <C> <C>
Dividend distributions............................................. $ 1 $--- $--- $--- $---
Expenses (NOTE 2):
Mortality and expense risk fee................................... --- --- --- (1) ---
Administrative fee and insurance costs........................... (1) (1) --- (2) ---
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Net investment loss................................................ --- (1) --- (3) ---
Capital gains distributions........................................ --- --- --- --- ---
Realized gain on investments....................................... --- --- --- --- 1
Unrealized appreciation (depreciation) on investments.............. 1 3 2 14 ---
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Net realized and unrealized gain (loss) on investments............. 1 3 2 14 1
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Net increase (decrease) in net assets resulting from operations.... 1 2 2 11 1
Net assets at beginning of year.................................... --- 1 --- --- 3
Variable account deposits (NOTES 2 AND 3).......................... 12 34 21 130 13
Terminations and withdrawals (NOTES 2 AND 3)....................... --- (1) --- --- (5)
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Net assets at end of year.......................................... $ 13 $ 36 $ 23 $141 $ 12
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</TABLE>
SEE ACCOMPANYING NOTES.
5
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Security Varilife Separate Account
Notes to Financial Statements
December 31, 1997 and 1996
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 capital 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 capital appreciation).
Under the terms of the investment advisory contracts, portfolio investments of
the underlying mutual fund are made by 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. SMC has engaged Lexington
Management Corporation to provide sub-advisory services for the Worldwide Equity
Series and Global Aggressive Bond Series, T. Rowe Price Associates, Inc. to
provide sub-advisory services for the Managed Asset Allocation Series and the
Equity Income Series and Meridian Investment Management Corporation to provide
sub-advisory services for the Specialized Asset Allocation Series.
6
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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:
1997 1996
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COST OF PROCEEDS COST OF PROCEEDS
PURCHASES FROM SALES PURCHASES FROM SALES
--------- ---------- --------- ----------
(IN THOUSANDS)
Growth Series....................... $847 $161 $312 $ 56
Growth-Income Series................ 186 42 70 20
Money Market Series................. 436 420 426 543
Worldwide Equity Series............. 156 74 144 15
High Grade Income Series............ 24 9 38 5
Emerging Growth Series.............. 127 93 124 30
Global Aggressive Bond Series....... 14 2 13 1
Specialized Asset Allocation Series. 24 4 35 2
Managed Asset Allocation Series..... 5 1 22 1
Equity Income Series................ 128 17 131 4
Social Awareness Series............. 17 7 14 6
REINVESTMENT OF DIVIDENDS
Dividend and capital gain distributions paid by the mutual fund to the Account
are reinvested in additional shares of each respective Series. Dividend income
and capital gain 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
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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 $185,000 and $78,000
during 1997 and 1996, respectively.
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 Separate Account
Notes to Financial Statements (continued)
3. SUMMARY OF UNIT TRANSACTIONS
UNITS
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1997 1996
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(IN THOUSANDS)
Growth Series:
Account deposits......................................... 40 19
Terminations, withdrawals and expenses................... 6 3
Growth-Income Series:
Account deposits......................................... 10 4
Terminations, withdrawals and expenses................... 2 1
Money Market Series:
Account deposits......................................... 38 37
Terminations, withdrawals and expenses................... 37 48
Worldwide Equity Series:
Account deposits......................................... 10 12
Terminations, withdrawals and expenses................... 4 1
High Grade Income Series:
Account deposits......................................... 2 3
Terminations, withdrawals and expenses................... 1 --
Emerging Growth Series:
Account deposits......................................... 7 9
Terminations, withdrawals and expenses................... 5 2
Global Aggressive Bond Series:
Account deposits......................................... 1 1
Terminations, withdrawals and expenses................... -- --
Specialized Asset Allocation Series:
Account deposits......................................... 2 3
Terminations, withdrawals and expenses................... -- --
Managed Asset Allocation Series:
Account deposits......................................... -- 2
Terminations, withdrawals and expenses................... -- --
Equity Income Series:
Account deposits......................................... 8 10
Terminations, withdrawals and expenses................... 1 --
Social Awareness Series:
Account deposits......................................... 1 1
Terminations, withdrawals and expenses................... -- --
9
