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VARIFLEX LS AND VARIFLEX SIGNATURE
ANNUITY VIII
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%
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.
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 Variable Annuity Account VIII and
The Board of Directors of Security Benefit Life Insurance Company
We have audited the accompanying balance sheet of Variable Annuity Account VIII
(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 Variable Annuity Account VIII
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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VARIABLE ANNUITY ACCOUNT VIII
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Balance Sheet December 31, 1997
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ASSETS (DOLLARS IN THOUSANDS - EXCEPT PER SHARE AND UNIT VALUES)
Investments:
SBL Fund:
Series A (Growth Series) - 2,378,259 shares at net asset
value of $29.39 per share (cost, $66,101) ................... $ 69,897
Series B (Growth-Income Series) - 1,141,243 shares at net
asset value of $41.60 per share (cost, $43,680) ............. 47,476
Series C (Money Market Series) - 1,556,165 shares at net
asset value of $12.53 per share (cost, $19,383) ............. 19,499
Series D (Worldwide Equity Series) - 4,146,884 shares at
net asset value of $6.14 per share (cost, $26,708) .......... 25,462
Series E (High Grade Income Series) - 1,609,075 shares at
net asset value of $12.25 per share (cost, $19,487) ......... 19,711
Series J (Emerging Growth Series) - 947,036 shares at net
asset value of $21.33 per share (cost, $18,758) ............. 20,200
Series K (Global Aggressive Bond Series) - 472,096 shares
at net asset value of $10.07 per share (cost, $5,097) ....... 4,754
Series M (Specialized Asset Allocation Series) - 1,482,455
shares at net asset value of $12.29 per share (cost, $17,690) 18,219
Series N (Managed Asset Allocation Series) - 1,206,492 shares
at net asset value of $13.88 per share (cost, $15,166) ...... 16,746
Series O (Equity Income Series) - 3,073,718 shares at net
asset value of $17.62 per share (cost, $46,198) ............. 54,159
Series P (High Yield Series) - 212,877 shares at net asset
value of $17.60 per share (cost, $3,704) .................... 3,747
Series S (Social Awareness Series) - 432,410 shares at net
asset value of $22.25 per share (cost, $8,931) .............. 9,621
Series V (Value Series) - 369,212 shares at net asset value
of $13.13 per share (cost, $4,730) .......................... 4,848
Series X (Small Cap Series) - 25,109 shares at net asset
value of $9.58 per share (cost, $238) ....................... 241
-------
Total net assets .................................................... $314,580
=======
See accompanying notes.
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NET ASSETS
Net assets are represented by (Note 3):
NUMBER UNIT
OF UNITS VALUE AMOUNT
-------- ----- ------
Growth Series:
Accumulation units........................ 3,449,970 $20.26 $ 69,897
Growth-Income Series:
Accumulation units........................ 2,571,374 18.46 47,476
Money Market Series:
Accumulation units........................ 1,754,200 11.12 19,499
Worldwide Equity Series:
Accumulation units........................ 1,835,594 13.87 25,462
High Grade Income Series:
Accumulation units........................ 1,607,065 12.27 19,711
Emerging Growth Series:
Accumulation units........................ 1,234,228 16.37 20,200
Global Aggressive Bond Series:
Accumulation units........................ 382,445 12.43 4,754
Specialized Asset Allocation Series:
Accumulation units........................ 1,454,825 12.52 18,219
Managed Asset Allocation Series:
Accumulation units........................ 1,213,323 13.82 16,746
Equity Income Series:
Accumulation units........................ 3,117,060 17.38 54,159
High Yield Series:
Accumulation units........................ 316,416 11.84 3,747
Social Awareness Series:
Accumulation units........................ 541,120 17.78 9,621
Value Series:
Accumulation units........................ 372,693 13.01 4,848
Small Cap Series:
Accumulation units........................ 25,182 9.55 241
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Total net assets............................. $314,580
=======
See accompanying notes.
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VARIABLE ANNUITY ACCOUNT VIII
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STATEMENT OF OPERATIONS AND
CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 1997
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(IN THOUSANDS)
<TABLE>
<CAPTION>
GLOBAL
GROWTH- MONEY WORLDWIDE HIGH GRADE EMERGING AGGRESSIVE
GROWTH INCOME MARKET EQUITY INCOME GROWTH BOND
SERIES SERIES SERIES SERIES SERIES SERIES SERIES
------ ------- ------ --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Dividend distributions ........................ $ 331 $ 759 $ 893 $ 466 $ 1,148 $ 49 $ 376
Expenses (Note 2):
Mortality and expense risk fee .............. (609) (410) (228) (278) (210) (194) (56)
Administrative fee .......................... (75) (49) (27) (33) (25) (23) (7)
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Net investment income (loss) .................. (353) 300 638 155 913 (168) 313
Capital gains distributions ................... 3,092 1,883 --- 1,006 --- 424 113
Realized gain (loss) on investments ........... 5,030 745 3 769 (47) 1,118 (11)
Unrealized appreciation (depreciation) on
investments ................................. 2,769 4,015 21 (1,388) 449 1,253 (236)
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Net realized and unrealized gain (loss) on
investments ................................. 10,891 6,643 24 387 402 2,795 (134)
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Net increase in net assets resulting from
operations .................................. 10,538 6,943 662 542 1,315 2,627 179
Net assets at beginning of year ............... 31,719 20,552 16,299 15,630 18,459 10,687 3,925
Variable annuity deposits (Notes 2 and 3) ..... 58,190 28,181 62,829 20,102 15,897 19,212 5,137
Terminations and withdrawals (Notes 2 and 3) .. (30,550) (8,200) (60,291) (10,812) (15,960) (12,326) (4,487)
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Net assets at end of year ..................... $ 69,897 $47,476 $ 19,499 $ 25,462 $ 19,711 $ 20,200 $ 4,754
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</TABLE>
See accompanying notes.
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<TABLE>
<CAPTION>
SPECIALIZED MANAGED
ASSET ASSET EQUITY HIGH SOCIAL SMALL
ALLOCATION ALLOCATION INCOME YIELD AWARENESS VALUE CAP
SERIES SERIES SERIES SERIES SERIES SERIES SERIES
----------- ---------- ------ ------ --------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Dividend distributions ........................ $ 381 $ 197 $ 369 $ 17 $ 13 $ --- $---
Expenses (Note 2):
Mortality and expense risk fee .............. (229) (146) (474) (10) (78) (10) ---
Administrative fee .......................... (27) (18) (57) (1) (9) (1) ---
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Net investment income (loss) .................. 125 33 (162) 6 (74) (11) ---
Capital gains distributions ................... 366 129 526 3 354 --- ---
Realized gain on investments .................. 852 555 2,793 19 249 16 ---
Unrealized appreciation (depreciation) on
investments ................................. (576) 978 5,601 43 620 118 3
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Net realized and unrealized gain on investments 642 1,662 8,920 65 1,223 134 3
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Net increase in net assets resulting from
operations .................................. 767 1,695 8,758 71 1,149 123 3
Net assets at beginning of year ............... 16,285 8,463 24,214 --- 3,239 --- ---
Variable annuity deposits (Notes 2 and 3) ..... 7,004 9,515 30,843 5,058 7,085 4,871 239
Terminations and withdrawals (Notes 2 and 3) .. (5,837) (2,927) (9,656) (1,382) (1,852) (146) (1)
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Net assets at end of year ..................... $18,219 $16,746 $54,159 $ 3,747 $ 9,621 $4,848 $241
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</TABLE>
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VARIABLE ANNUITY ACCOUNT VIII
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - Variable Annuity Account VIII (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 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), Series P (High Yield Series - emphasis on high
current income with secondary emphasis on capital appreciation through
investment in higher yielding, higher risk debt securities), Series S (Social
Awareness Series - emphasis on capital appreciation), Series V (Value Series -
emphasis on long-term growth of capital) and Series X (Small Cap Series -
emphasis on long-term growth of capital).
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. (SBG), 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, and Strong
Capital Management, Inc. to provide sub-advisory services to the Small Cap
Series.
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.
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1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The cost of investments purchased and proceeds from investments sold were as
follows (In Thousands):
COST OF PROCEEDS
PURCHASES FROM SALES
--------- ----------
Growth Series......................... $68,072 $37,693
Growth-Income Series.................. 32,751 10,587
Money Market Series................... 68,764 65,588
Worldwide Equity Series............... 22,686 12,235
High Grade Income Series.............. 18,198 17,348
Emerging Growth Series................ 20,611 13,469
Global Aggressive Bond Series......... 5,837 4,761
Specialized Asset Allocation Series... 8,157 6,499
Managed Asset Allocation Series....... 10,263 3,513
Equity Income Series.................. 32,959 11,408
High Yield Series..................... 5,127 1,442
Social Awareness Series............... 8,082 2,569
Value Series.......................... 5,281 567
Small Cap Series...................... 239 1
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 Series. Dividend income and capital gains distributions are recorded
as income on the ex-dividend date.
FEDERAL INCOME TAXES - Under current law, no federal income taxes are payable
with respect to the Account.
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.
9
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VARIABLE ANNUITY ACCOUNT VIII
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
2. VARIABLE ANNUITY CONTRACT CHARGES
SBL deducts an administrative fee equivalent to an annual rate of 0.15% of the
average daily net asset value of each account. Mortality and expense risks
assumed by SBL are compensated for by a fee equivalent to an annual rate of
1.25% of the net asset value of each contract, of which 0.7% is for assuming
mortality risks and the remainder is for assuming expense risks.
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)
Growth Series:
Variable annuity deposits .................................. 3,142
Terminations, withdrawals and expense charges .............. 1,679
Growth-Income Series:
Variable annuity deposits .................................. 1,672
Terminations, withdrawals and expense charges .............. 489
Money Market Series:
Variable annuity deposits .................................. 5,746
Terminations, withdrawals and expense charges .............. 5,512
Worldwide Equity Series:
Variable annuity deposits .................................. 1,411
Terminations, withdrawals and expense charges .............. 758
High Grade Income Series:
Variable annuity deposits .................................. 1,362
Terminations, withdrawals and expense charges .............. 1,386
Emerging Growth Series:
Variable annuity deposits .................................. 1,285
Terminations, withdrawals and expense charges .............. 823
Global Aggressive Bond Series:
Variable annuity deposits .................................. 424
Terminations, withdrawals and expense charges .............. 370
Specialized Asset Allocation Series:
Variable annuity deposits .................................. 560
Terminations, withdrawals and expense charges .............. 466
Managed Asset Allocation Series:
Variable annuity deposits .................................. 727
Terminations, withdrawals and expense charges .............. 229
Equity Income Series:
Variable annuity deposits .................................. 1,964
Terminations, withdrawals and expense charges .............. 611
High Yield Series:
Variable annuity deposits .................................. 434
Terminations, withdrawals and expense charges .............. 117
Social Awareness Series:
Variable annuity deposits .................................. 436
Terminations, withdrawals and expense charges .............. 115
Value Series:
Variable annuity deposits .................................. 384
Terminations, withdrawals and expense charges .............. 11
Small Cap Series:
Variable annuity deposits .................................. 25
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
