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VARIFLEX LS AND VARIFLEX SIGNATURE
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ANNUITY VIII
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 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) (comprised of the individual series as indicated therein) as of
December 31, 1998 and the related statements 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 series of
Variable Annuity Account VIII 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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VARIABLE ANNUITY ACCOUNT VIII
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BALANCE SHEET DECEMBER 31, 1998
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ASSETS (DOLLARS IN THOUSANDS - EXCEPT PER SHARE AND UNIT VALUES)
Investments:
SBL Fund:
Series A (Growth Series) - 3,495,543 shares at net asset value of
$34.27 per share (cost, $106,832).............................. $119,792
Series B (Growth-Income Series) - 1,561,830 shares at net asset
value of $39.68 per share (cost, $63,175)...................... 61,973
Series C (Money Market Series) - 1,928,989 shares at net asset
value of $12.53 per share (cost, $23,996)...................... 24,170
Series D (Worldwide Equity Series) - 5,595,076 shares at net
asset value of $6.74 per share (cost, $35,499)................. 37,711
Series E (High Grade Income Series) - 2,543,247 shares at net
asset value of $12.42 per share (cost, $30,870)................ 31,587
Series J (Emerging Growth Series) - 1,242,678 shares at net asset
value of $22.51 per share (cost, $25,105)...................... 27,973
Series K (Global Aggressive Bond Series) - 500,668 shares at net
asset value of $9.56 per share (cost, $5,110).................. 4,786
Series M (Specialized Asset Allocation Series) - 1,154,461 shares
at net asset value of $12.87 per share (cost, $14,393)......... 14,858
Series N (Managed Asset Allocation Series) - 1,948,794 shares at
net asset value of $16.01 per share (cost, $27,734)............ 31,200
Series O (Equity Income Series) - 3,637,233 shares at net asset
value of $18.35 per share (cost, $62,566)...................... 66,743
Series P (High Yield Series) - 699,609 shares at net asset value
of $16.80 per share (cost, $12,243)............................ 11,753
Series S (Social Awareness Series) - 925,545 shares at net asset
value of $28.40 per share (cost, $22,396)...................... 26,286
Series V (Value Series) - 1,120,393 shares at net asset value of
$14.83 per share (cost, $15,496)............................... 16,616
Series X (Small Cap Series) - 276,392 shares at net asset value
of $10.67 per share (cost, $2,670)............................. 2,949
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Total assets $478,397
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See accompanying notes.
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LIABILITIES AND NET ASSETS
Mortality guarantee payable $ 13
NET ASSETS
Net assets are represented by (NOTE 3):
-------------------------------------------
NUMBER UNIT
OF UNITS VALUE AMOUNT
-------------------------------------------
Growth Series:
Accumulation units................ 4,778,310 $25.06 $119,750
Annuity units..................... 1,688 25.06 42 119,792
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Growth-Income Series:
Accumulation units................ 3,161,657 19.58 61,905
Annuity units..................... 3,481 19.58 68 61,973
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Money Market Series:
Accumulation units................ 2,099,523 11.51 24,170
Worldwide Equity Series:
Accumulation units................ 2,293,514 16.43 37,686
Annuity units..................... 1,514 16.43 25 37,711
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High Grade Income Series:
Accumulation units................ 2,409,250 13.07 31,485
Annuity units..................... 7,577 13.07 99 31,584
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Emerging Growth Series:
Accumulation units................ 1,468,017 19.04 27,954
Annuity units..................... 1,000 19.04 19 27,973
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Global Aggressive Bond Series:
Accumulation units................ 364,793 13.10 4,779
Annuity units..................... 552 13.10 7 4,786
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Specialized Asset Allocation Series:
Accumulation units................ 1,063,148 13.90 14,782
Annuity units..................... 5,189 13.90 72 14,854
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Managed Asset Allocation Series:
Accumulation units................ 1,927,318 16.14 31,102
Annuity units..................... 5,903 16.14 95 31,197
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Equity Income Series:
Accumulation units................ 3,562,159 18.69 66,571
Annuity units..................... 9,060 18.69 169 66,740
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High Yield Series:
Accumulation units................ 945,133 12.36 11,680
Annuity units..................... 5,958 12.36 74 11,754
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Social Awareness Series:
Accumulation units................ 1,140,285 23.04 26,276
Annuity units..................... 421 23.04 10 26,286
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Value Series:
Accumulation units................ 1,108,840 14.96 16,587
Annuity units..................... 1,885 14.96 28 16,615
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Small Cap Series:
Accumulation units................ 280,763 10.50 2,949
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Total net assets.................... 478,384
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Total liabilities and net assets.... $478,397
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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, 1998
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(IN THOUSANDS)
<TABLE>
<CAPTION>
HIGH GLOBAL
GROWTH- MONEY WORLDWIDE GRADE EMERGING AGGRESSIVE
GROWTH INCOME MARKET EQUITY INCOME GROWTH BOND
SERIES SERIES SERIES SERIES SERIES SERIES SERIES
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<S> <C> <C> <C> <C> <C> <C> <C>
Dividend distributions ..................... $ 440 $ 917 $ 984 $ 405 $ 1,364 $ 151 $ 454
Expenses (NOTE 2):
Mortality and expense risk fee ........... (1,133) (733) (327) (402) (319) (297) (64)
Administrative fee ....................... (141) (88) (39) (48) (38) (36) (8)
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Net investment income (loss) ............... (834) 96 618 (45) 1,007 (182) 382
Capital gains distributions ................ 5,587 5,825 - 2,317 - 2,528 83
Realized gain (loss) on investments ........ 5,998 1,868 264 (468) 36 104 (247)
Unrealized appreciation (depreciation) on
investments .............................. 9,164 (4,998) 58 3,458 493 1,426 19
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Net realized and unrealized gain (loss)
on investments ........................... 20,749 2,695 322 5,307 529 4,058 (145)
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Net increase in net assets resulting from
operations ............................... 19,915 2,791 940 5,262 1,536 3,876 237
Net assets at beginning of year ............ 69,897 47,476 19,499 25,462 19,711 20,200 4,754
Variable annuity deposits (NOTES 2 AND 3) .. 81,141 28,688 96,514 22,634 27,927 22,014 3,045
Terminations and withdrawals (NOTES 2 AND 3) (51,154) (16,975) (92,783) (15,647) (17,584) (18,116) (3,247)
Annuity payments (NOTES 2 AND 3) ........... (7) (7) - - (3) (1) (3)
Mortality adjustment ....................... - - - - (3) - -
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Net assets at end of year .................. $119,792 $ 61,973 $ 24,170 $ 37,711 $ 31,584 $ 27,973 $ 4,786
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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
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<S> <C> <C> <C> <C> <C> <C> <C>
Dividend distributions ..................... $ 327 $ 331 $ 847 $ 872 $ 32 $ 71 $ 1
Expenses (NOTE 2):
Mortality and expense risk fee ........... (196) (296) (790) (100) (190) (138) (17)
Administrative fee ....................... (24) (35) (95) (12) (23) (17) (2)
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Net investment income (loss) ............... 107 - (38) 760 (181) (84) (18)
Capital gains distributions ................ 817 207 2,049 76 348 316 -
Realized gain (loss) on investments ........ 864 1,621 6,030 (9) 1,082 201 (9)
Unrealized appreciation (depreciation) on
investments .............................. (64) 1,886 (3,784) (533) 3,200 1,002 276
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Net realized and unrealized gain (loss) on
investments .............................. 1,617 3,714 4,295 (466) 4,630 1,519 267
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Net increase in net assets resulting from
operations ............................... 1,724 3,714 4,257 294 4,449 1,435 249
Net assets at beginning of year ............ 18,219 16,746 54,159 3,747 9,621 4,848 241
Variable annuity deposits (NOTES 2 AND 3) .. 3,260 16,210 29,699 12,360 17,562 12,363 2,785
Terminations and withdrawals (NOTES 2 AND 3) (8,344) (5,468) (21,370) (4,645) (5,346) (2,029) (326)
Annuity payments (NOTES 2 AND 3) ........... (1) (2) (2) (2) - (2) -
Mortality adjustment ....................... (4) (3) (3) - - - -
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Net assets at end of year .................. $14,854 $31,197 $ 66,740 $11,754 $26,286 $16,615 $2,949
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</TABLE>
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VARIABLE ANNUITY ACCOUNT VIII
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NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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., 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 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 gains and
losses. Security transactions are accounted for on the trade date.
The cost of investments purchased and proceeds from investments sold were as
follows (In Thousands):
COST OF PROCEEDS
PURCHASES FROM SALES
--------- ----------
Growth Series........................ $94,708 $59,975
Growth-Income Series................. 39,563 21,936
Money Market Series.................. 6,261 1,912
Worldwide Equity Series.............. 28,719 19,460
High Grade Income Series............. 32,178 20,831
Emerging Growth Series............... 26,358 20,115
Global Aggressive Bond Series........ 4,204 3,944
Specialized Asset Allocation Series.. 5,037 9,198
Managed Asset Allocation Series...... 18,300 7,353
Equity Income Series................. 35,664 25,326
High Yield Series.................... 14,705 6,157
Social Awareness Series.............. 19,191 6,808
Value Series......................... 13,581 3,016
Small Cap Series..................... 3,023 581
ANNUITY RESERVES - Annuity reserves relate to contracts that have matured
and are in the payout stage. Such reserves are computed on the basis of
published mortality tables using assumed interest rates that will 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 - The operations of the Account are a 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
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 ........................................ 3,638
Terminations, withdrawals and expense charges .................... 2,308
Growth-Income Series:
Variable annuity deposits ........................................ 1,482
Terminations, withdrawals and expense charges .................... 889
Money Market Series:
Variable annuity deposits ........................................ 8,530
Terminations, withdrawals and expense charges .................... 8,185
Worldwide Equity Series:
Variable annuity deposits ........................................ 1,485
Terminations, withdrawals and expense charges .................... 1,025
High Grade Income Series:
Variable annuity deposits ........................................ 2,189
Terminations, withdrawals and expense charges .................... 1,379
Emerging Growth Series:
Variable annuity deposits ........................................ 1,322
Terminations, withdrawals and expense charges .................... 1,087
Global Aggressive Bond Series:
Variable annuity deposits ........................................ 241
Terminations, withdrawals and expense charges .................... 258
Specialized Asset Allocation Series:
Variable annuity deposits ........................................ 240
Terminations, withdrawals and expense charges .................... 626
Managed Asset Allocation Series:
Variable annuity deposits ........................................ 1,084
Terminations, withdrawals and expense charges .................... 364
Equity Income Series:
Variable annuity deposits ........................................ 1,641
Terminations, withdrawals and expense charges .................... 1,187
High Yield Series:
Variable annuity deposits ........................................ 1,015
Terminations, withdrawals and expense charges .................... 380
Social Awareness Series:
Variable annuity deposits ........................................ 875
Terminations, withdrawals and expense charges .................... 276
Value Series:
Variable annuity deposits ........................................ 886
Terminations, withdrawals and expense charges .................... 148
Small Cap Series:
Variable annuity deposits ........................................ 292
Terminations, withdrawals and expense charges .................... 36
