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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
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.
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 1998 financial reports for the variable life insurance
separate account.
www.securitybenefit.com
<PAGE>
Financial Statements
Security Varilife Separate Account
Years ended December 31, 1998, 1997 and 1996
With Report of Independent Auditors
<PAGE>
Security Varilife Separate Account
Financial Statements
Years Ended December 31, 1998, 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............................................. 7
<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 Account) (comprised of the individual series indicated therein) as
of December 31, 1998, and the related statements of operations and changes in
net assets for each of the three 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, 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 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 the individual series of the
Security Varilife Separate Account at December 31, 1998, and the results of
their operations and changes in their net assets for each of the three years in
the period then ended in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Kansas City, Missouri
February 5, 1999
<PAGE>
Security Varilife Separate Account
Balance Sheet
December 31, 1998
(DOLLARS IN THOUSANDS - EXCEPT PER SHARE AND UNIT VALUES)
ASSETS
Investments:
SBL Fund:
Series A (Growth Series) - 60,613 shares at net asset value of
$34.27 per share (cost, $1,729) ................................. $2,077
Series B (Growth-Income Series) - 8,586 shares at net asset value
of $39.68 per share (cost, $348) ................................ 341
Series C (Money Market Series) - 5,669 shares at net asset value of
$12.53 per share (cost, $72) .................................... 71
Series D (Worldwide Equity Series) - 46,709 shares at net asset
value of $6.74 per share (cost, $301) ........................... 315
Series E (High Grade Income Series) - 8,488 shares at net asset
value of $12.42 per share (cost, $103) .......................... 105
Series J (Emerging Growth Series) - 12,365 shares at net asset
value of $22.51 per share (cost, $248) .......................... 278
Series K (Global Aggressive Bond Series) - 3,619 shares at net
asset value of $9.56 per share (cost, $37) ...................... 35
Series M (Specialized Asset Allocation Series) - 6,341 shares at
net asset value of $12.87 per share (cost, $75) ................. 82
Series N (Managed Asset Allocation Series) - 2,442 shares at net
asset value of $16.01 per share (cost, $29) ..................... 39
Series O (Equity Income Series) - 20,227 shares at net asset value
of $18.35 per share (cost, $313) ................................ 371
Series S (Social Awareness Series) - 1,003 shares at net asset
value of $28.40 per share (cost, $22) ........................... 29
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Total assets $3,743
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<PAGE>
NET ASSETS
Net assets are represented by (NOTE 3):
NUMBER UNIT
OF UNITS VALUE AMOUNT
------------------------------
Growth Series:
Accumulation units .......................... 83,617 $24.84 $2,077
Growth-Income Series:
Accumulation units .......................... 17,727 19.22 341
Money Market Series:
Accumulation units .......................... 6,041 11.76 71
Worldwide Equity Series:
Accumulation units .......................... 20,982 15.00 315
High Grade Income Series:
Accumulation units .......................... 7,916 13.32 105
Emerging Growth Series:
Accumulation units .......................... 14,754 18.87 278
Global Aggressive Bond Series:
Accumulation units .......................... 2,627 13.17 35
Specialized Asset Allocation Series:
Accumulation units .......................... 5,836 13.98 82
Managed Asset Allocation Series:
Accumulation units .......................... 2,409 16.22 39
Equity Income Series:
Accumulation units .......................... 19,752 18.79 371
Social Awareness Series:
Accumulation units .......................... 1,277 22.97 29
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Total net assets $3,743
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SEE ACCOMPANYING NOTES.
<PAGE>
Security Varilife Separate Account
Statement of Operations and Changes in Net Assets
Year ended December 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
HIGH
GROWTH- MONEY WORLDWIDE 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...................................... $ 8 $ 5 $ 1 $ 4 $ 5 $ 2
Expenses (NOTE 2):
Mortality and expense risk fee............................ - - - - - -
Administrative fee and insurance costs.................... (132) (38) (11) (48) (5) (47)
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Net investment gain (loss).................................. (124) (33) (10) (44) - (45)
Capital gain distributions.................................. 104 30 - 21 1 24
Realized gain on investments................................ 59 7 2 1 - 8
Unrealized appreciation (depreciation) on investments....... 215 (23) - 24 1 6
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Net realized and unrealized gain (loss) on investments...... 378 14 2 46 2 38
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Net increase (decrease) in net assets resulting from
operations................................................ 254 (19) (8) 2 2 (7)
Net assets at beginning of year ............................ 1,320 278 46 227 86 222
Variable account deposits (NOTES 2 AND 3)................... 547 101 199 102 20 83
Terminations and withdrawals (NOTES 2 AND 3)................ (29) (16) (165) (13) (2) (18)
Mortality adjustment........................................ (15) (3) (1) (3) (1) (2)
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Net assets at end of year................................... $2,077 $341 $ 71 $315 $105 $278
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</TABLE>
<TABLE>
<CAPTION>
GLOBAL SPECIALIZED MANAGED
AGGRESSIVE ASSET ASSET EQUITY SOCIAL
BOND ALLOCATION ALLOCATION INCOME AWARENESS
SERIES SERIES SERIES SERIES SERIES
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<S> <C> <C> <C> <C> <C>
Dividend distributions...................................... $ 3 $ 2 $ 1 $ 5 $ -
Expenses (NOTE 2):
Mortality and expense risk fee............................ - - - - -
Administrative fee and insurance costs.................... (1) (4) (2) (18) (1)
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Net investment gain (loss).................................. 2 (2) (1) (13) (1)
Capital gain distributions.................................. 1 4 - 12 1
Realized gain on investments................................ - - 1 17 1
Unrealized appreciation (depreciation) on investments....... (2) 4 4 (2) 5
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Net realized and unrealized gain (loss) on investments...... (1) 8 5 27 7
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Net increase (decrease) in net assets resulting from
operations................................................ 1 6 4 14 6
Net assets at beginning of year............................. 24 57 31 302 24
Variable account deposits (NOTES 2 AND 3)................... 12 20 4 91 3
Terminations and withdrawals (NOTES 2 AND 3)................ (2) - - (33) (4)
Mortality adjustment........................................ - (1) - (3) -
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Net assets at end of year................................... $35 $82 $39 $371 $29
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</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
Security Varilife Separate Account
Statement of Operations and Changes in Net Assets
Year ended December 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HIGH
GROWTH- MONEY WORLDWIDE 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>
GLOBAL SPECIALIZED MANAGED
AGGRESSIVE ASSET ASSET EQUITY SOCIAL
BOND ALLOCATION ALLOCATION INCOME AWARENESS
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.
<PAGE>
Security Varilife Separate Account
Statement of Operations and Changes in Net Assets
Year ended December 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
HIGH
GROWTH- MONEY WORLDWIDE GRADE EMERGING
GROWTH INCOME MARKET EQUITY INCOME GROWTH
SERIES SERIES SERIES SERIES SERIES SERIES
---------------------------------------------------------------------
<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 gain 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>
GLOBAL SPECIALIZED MANAGED
AGGRESSIVE ASSET ASSET EQUITY SOCIAL
BOND ALLOCATION ALLOCATION INCOME AWARENESS
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 gain 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>
<PAGE>
Security Varilife Separate Account
Notes to Financial Statements
December 31, 1998, 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 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, and Strong Capital Management, Inc. to provide
sub-advisory services to the Small Cap Series. Lexington Management Corporation
(LMC) served as sub-advisor for the Worldwide Equity Series until November 1,
1998, when LMC was replaced by OppenheimerFunds, Inc. Effective December 31,
1998, LMC resigned as sub-advisor for Global Aggressive Bond Series, which
thereafter will 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 during the
year ended December 31 were as follows
<TABLE>
<CAPTION>
1998 1997 1996
---------------------- ---------------------- ----------------------
COST OF PROCEEDS COST OF PROCEEDS COST OF PROCEEDS
PURCHASES FROM SALES PURCHASES FROM SALES PURCHASES FROM SALES
---------------------- ---------------------- ----------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Growth Series ..................... $694 $211 $847 $161 $312 $ 56
Growth-Income Series .............. 155 76 186 42 70 20
Money Market Series ............... 263 240 436 420 426 543
Worldwide Equity Series ........... 131 68 156 74 144 15
High Grade Income Series .......... 25 7 24 9 38 5
Emerging Growth Series ............ 147 105 127 93 124 30
Global Aggressive Bond Series ..... 15 2 14 2 13 1
Specialized Asset Allocation Series 26 5 24 4 35 2
Managed Asset Allocation Series ... 5 2 5 1 22 1
Equity Income Series .............. 109 55 128 17 131 4
Social Awareness Series ........... 4 5 17 7 14 6
</TABLE>
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
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. 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 $297,000, $185,000 and
$78,000 during 1998, 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.
3. SUMMARY OF UNIT TRANSACTIONS
UNITS
--------------------------
YEAR ENDED DECEMBER 31
1998 1997 1996
--------------------------
(IN THOUSANDS)
Growth Series:
Account deposits ............................... 25 40 19
Terminations, withdrawals and expenses ......... 7 6 3
Growth-Income Series:
Account deposits ............................... 5 10 4
Terminations, withdrawals and expenses ......... 3 2 1
Money Market Series:
Account deposits ............................... 17 38 37
Terminations, withdrawals and expenses ......... 15 37 48
Worldwide Equity Series:
Account deposits ............................... 7 10 12
Terminations, withdrawals and expenses ......... 4 4 1
High Grade Income Series:
Account deposits ............................... 2 2 3
Terminations, withdrawals and expenses ......... 1 1 -
Emerging Growth Series:
Account deposits ............................... 5 7 9
Terminations, withdrawals and expenses ......... 4 5 2
Global Aggressive Bond Series:
Account deposits ............................... 1 1 1
Terminations, withdrawals and expenses ......... - - -
Specialized Asset Allocation Series:
Account deposits ............................... 2 2 3
Terminations, withdrawals and expenses ......... - - -
Managed Asset Allocation Series:
Account deposits ............................... - - 2
Terminations, withdrawals and expenses ......... - - -
Equity Income Series:
Account deposits ............................... 5 8 10
Terminations, withdrawals and expenses ......... 3 1 -
Social Awareness Series:
Account deposits ............................... - 1 1
Terminations, withdrawals and expenses ......... - - -
