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Registration No. 811-2753
Registration No. 2-59353
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |_|
Post-Effective Amendment No. 36 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |_|
Post-Effective Amendment No. 36 |X|
(Check appropriate box or boxes
SBL FUND
(Exact Name of Registrant as Specified in Charter)
700 HARRISON STREET, TOPEKA, KANSAS 66636-0001
(Address of Principal Executive Offices/Zip Code)
Registrant's Telephone Number, including area code:
(785) 431-3127
Copies To:
John D. Cleland, President Amy J. Lee, Secretary
SBL Fund SBL Fund
700 Harrison Street 700 Harrison Street
Topeka, KS 66636-0001 Topeka, KS 66636-0001
(Name and address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
|_| immediately upon filing pursuant to paragraph(b)
|_| on January 28, 1999,pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph (a)(1)
|_| on January 28, 1999, pursuant to paragraph (a)(1)
|_| 75 days after filing pursuant to paragraph (a)(2)
|X| on January 28, 1999, pursuant to paragraph (a)(2)of rule 485
If appropriate, check the following box:
|_| this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Title of Securities being Registered: Shares of common stock, par value $1.00.
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SBL FUND
FORM N-1A
CROSS REFERENCE SHEET
Form N-1A
Item Number Caption
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Part A PROSPECTUS
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1. Cover Page
2. Table of Contents
2a. Not Applicable
3. Financial Highlights; Performance Information
4. Investment Objectives and Policies of the Series
5. Management of the Fund; Portfolio Management; Custodian, Transfer
Agent and Dividend-Paying Agent; Year 2000 Compliance
6. General Information; Organization; Contractowner Inquiries;
Distributions and Federal Income Tax Considerations; Foreign
Taxes
7. Sale and Redemption of Shares; Determination of Net Asset Value;
Trading Practices and Brokerage
8. Sale and Redemption of Shares
9. Not Applicable
This Post-Effective Amendment No. 36 ("the Amendment") to the
Registrant's Registration Statement on Form N-1A (File Nos.
2-59353 and 811-2753) is being filed solely for the purpose of
adding a new series of shares of the Registrant, Series I (which
will be offered by means of a separate prospectus from the
Registrant's other prospectuses). As a result, the Amendment does
not affect the Registrant's currently effective prospectuses for
Series A, B, C, D, E, J, K, M, N, O, P, S, V and X, which
prospectuses are hereby incorporated by reference as most
recently filed pursuant to Rule 497 under the Securities Act of
1933, as amended.
Part B STATEMENT OF ADDITIONAL INFORMATION
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10. Cover Page
11. Table of Content
12. What is SBL Fund?
13. Investment Objectives and Policies of the Series; Investment
Policy Limitations
14. Officers and Directors; Ownership and Management
15. Remuneration of Directors and Others
16. Investment Management; Portfolio Management; Custodian, Transfer
Agent and Dividend-Paying Agent
17. Portfolio Transactions; Portfolio Turnover
18. Capital Stock and Voting
19. Sale and Redemption of Shares; Determination of Net Asset Value
20. Distributions and Federal Income Tax Considerations; Foreign
Taxation
21. Not Applicable
22. Performance Information
23. Financial Statements; Independent Auditors
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SBL FUND
Member of the Security Benefit Group of Companies
700 SW Harrison Street, Topeka, Kansas 66636-0001
PROSPECTUS
JANUARY 31, 1999
SBL Fund (the "Fund") is an open-end, diversified management investment
company of the series type offering portfolios with different investment
objectives and strategies.
SERIES I (INTERNATIONAL SERIES) seeks long-term capital appreciation from
investment in foreign equity securities (or other securities with equity
characteristics); the production of any current income is incidental to this
objective.
The Fund's shares are sold to Security Benefit Life Insurance Company
("SBL") for allocation to one or more separate accounts established for funding
variable life insurance policies and variable annuity contracts issued by SBL.
This Prospectus sets forth concisely the information that a prospective
investor should know about SBL Fund. It should be read and retained for future
reference. A Statement of Additional Information about the Fund, dated January
31, 1999, has been filed with the Securities and Exchange Commission. The
Statement of Additional Information, as it may be supplemented from time to
time, is incorporated by reference in this Prospectus. It is available at no
charge by writing Security Distributors, Inc., 700 SW Harrison Street, Topeka,
Kansas 66636-0001, or by calling (785) 431-3127 or (800) 888-2461.
The Securities and Exchange Commission maintains a web site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference and other information regarding companies
that file electronically with the Securities and Exchange Commission.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
AN INVESTMENT IN THE FUND INVOLVES RISK, INCLUDING LOSS OF PRINCIPAL, AND IS NOT
A DEPOSIT OR OBLIGATION OF, OR GUARANTEED BY ANY BANK. THE FUND IS NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER AGENCY.
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SBL FUND CONTENTS
Page
SBL Fund.................................................................. 3
Investment Objectives and Policies of the Series.......................... 3
Series I (International Series)...................................... 3
Investment Methods and Risk Factors....................................... 5
Management of the Fund.................................................... 11
Portfolio Management...................................................... 12
Year 2000 Compliance...................................................... 12
Sale and Redemption of Shares............................................. 13
Distributions and Federal Income Tax Considerations....................... 13
Foreign Taxes............................................................. 14
Determination of Net Asset Value.......................................... 14
Trading Practices and Brokerage........................................... 14
Performance Information................................................... 15
General Information....................................................... 15
Organization......................................................... 15
Custodian, Transfer Agent and Dividend-Paying Agent.................. 15
Contractowner Inquiries.............................................. 16
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SBL FUND
SBL Fund (the "Fund"), a Kansas corporation, was organized on May 26, 1977,
to serve as the investment vehicle for certain of Security Benefit Life
Insurance Company's ("SBL") variable annuity and variable life separate
accounts. Shares of the Fund will be sold to SBL for allocation to such separate
accounts established for the purpose of funding variable annuity and variable
life insurance contracts issued by SBL. The Fund reserves the right to expand
the class of persons eligible to purchase shares of any Series of the Fund.
The Fund is subject to certain investment policy limitations which may not
be changed without stockholder approval. Among these limitations, the more
important ones are that the Fund will not, with respect to 75 percent of its
total assets, invest more than 5 percent of the value of its assets in any one
issuer other than the U.S. Government or its agencies or instrumentalities, or
purchase more than 10 percent of the outstanding voting securities of any
issuer. In addition, the Series will not invest more than 25 percent of its
total assets in any one industry. The full text of the investment policy
limitations is set forth in the Fund's "Statement of Additional Information."
It is conceivable that in the future it may be disadvantageous for variable
life insurance separate accounts and variable annuity separate accounts to
invest in the Fund simultaneously. Although neither SBL nor SBL Fund currently
foresee any such disadvantages, either to variable life insurance policyowners
or to variable annuity contractowners, the Fund's Board of Directors intends to
monitor events in order to identify any material conflicts between such
policyowners and contractowners resulting from changes in state insurance law,
changes in federal income tax regulations, changes in the investment management
of any portfolio of the underlying fund, and the differences between voting
instructions given by policyowners and contractowners. The Board will determine
what action, if any, should be taken in response to any such conflicts. If the
Board of Directors were to conclude that separate funds should be established
for variable life and variable annuity separate accounts, SBL would bear the
attendant expenses, but variable life insurance policyowners and variable
annuity contractowners would no longer have the economies of scale resulting
from a larger combined fund.
INVESTMENT OBJECTIVES AND POLICIES OF THE SERIES
The investment objective of Series I (the "Series") is described below.
There are risks inherent in the ownership of any security and there can be no
assurance that such investment objective will be achieved. Some of the risks
involved are described below and in the Statement of Additional Information. The
investment objective and policies of the Series may be modified at any time
without stockholder approval. However, the Series is subject to certain
investment policy limitations set forth in the Statement of Additional
Information, which may not be changed without stockholder approval. The Series
may borrow money from banks as a temporary measure for emergency purposes, to
facilitate redemption requests, or for other purposes consistent with the
Series' investment objective and policies. See the discussion of borrowing under
"Investment Methods and Risk Factors." Pending investment in other securities or
to meet potential redemptions or expenses, the Series may invest in certificates
of deposit issued by banks, bank demand accounts, repurchase agreements and high
quality money market instruments.
SERIES I (INTERNATIONAL SERIES
The investment objective of the Series is long-term capital appreciation
from investment in foreign equity securities (or other securities with equity
characteristics); the production of any current income is incidental to this
objective. The Series invests primarily in established companies based in
developed countries outside the United States, but may also invest in emerging
market securities. There can be no assurance that the investment objective of
the Series will be achieved.
The Series is designed for investors who are willing to accept short-term
domestic and/or foreign stock market fluctuations in pursuit of potentially
higher long-term returns.
The Series is not itself a balanced investment plan. Investors should
consider their investment objective and tolerance for risk when making an
investment decision.
The value of the Series' investments varies based on many factors. Stock
values fluctuate, sometimes dramatically, in response to the activities of
individual companies and general market and economic conditions. Over time,
however, stocks have shown greater long-term growth potential than other types
of securities. Lower quality securities offer higher yields, but also carry more
risk. Because many foreign investments are denominated in foreign currencies,
changes in the value of these currencies can significantly affect the Series'
share price. General economic factors in the various world markets can also
impact the value of an investor's investment. When an investor sells his or her
shares, they may be worth more or less than what the investor paid for them. See
"Investment Methods and Risk Factors" for more information.
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No dealer, salesperson, or other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus and in the "Statement of Additional Information," in connection with
the offer contained in this Prospectus, and, if given or made, such other
information or representation must not be relied upon as having been authorized
by the Fund, the investment adviser, or the distributor.
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The following is a discussion of the various investments of and techniques
employed by the Series. Additional information about the investment policies of
the Series appears in "Investment Methods and Risk Factors".
Under normal circumstances, the Series will invest at least 65 percent of
the value of its total assets in the equity securities of foreign issuers,
consisting of common stock and other securities with equity characteristics.
These issuers are primarily established companies based in developed countries
outside the United States. However the Series may also invest in securities of
issuers based in underdeveloped countries. Investments in these countries will
be based upon what the Sub-Adviser, Bankers Trust Company ("Bankers Trust"),
believes to be an acceptable degree of risk in anticipation of superior returns.
The Series will at all times be invested in the securities of issuers based in a
least three countries other than the United States. For further discussion of
the unique risks associated with investing in foreign securities in both
developed and underdeveloped countries, see "Investment Objectives and Risk
Factors" - "Foreign Investment Risks".
The Series' investment will generally be diversified among several
geographic regions and countries. Criteria for determining the appropriate
distribution of investments among various countries and regions include the
prospects for relative growth among foreign countries, expected levels of
inflation, government policies influencing business conditions, the outlook for
currency relationships and the range of alternative opportunities available to
international investors.
In countries and regions with well-developed capital markets where more
information is available, Bankers Trust will seek to select individual
investments for the Series. Criteria for selection of individual securities
include the issuer's competitive position, prospects for growth, management
strength, earnings quality, underlying asset value, relative market value and
overall marketability. The Series may invest in securities of companies having
various levels of net worth, including smaller companies whose securities may be
more volatile than securities offered by larger companies with higher levels of
net worth.
In other countries and regions where capital markets are underdeveloped or
not easily accessed and information is difficult to obtain, the Series may
choose to invest only at the market level. Here the Series may seek to achieve
country exposure through use of options or futures based on an established index
of securities of locally based issuers. Similarly, country exposure may also be
achieved through investments in other registered investment companies.
Restrictions on both these types of investment are discussed in this prospectus
and in the Statement of Additional Information.
The remainder of the Series' assets will be invested in dollar and
non-dollar denominated short-term instruments. "Short-term Instruments" are
discussed more fully below.
The Series invests primarily in common stocks and other securities with
equity characteristics. For purposes of the Series' policy of investing at least
65 percent of the value of its total assets in the equity securities of foreign
issuers, "equity securities" are defined as common stock, preferred stock, trust
or limited partnership interests, rights and warrants, and convertible
securities (consisting of debt securities or preferred stock that may be
converted into common stock or that carry the right to purchase common stock).
The Series invests in securities listed on foreign or domestic securities
exchanges and securities traded in foreign or domestic over-the-counter markets
and may invest in restricted or unlisted securities.
The Series may also utilize the following investments and investment
techniques and practices: American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs"), European Depositary Receipts ("EDRs"), Rule 144A
securities, when-issued and delayed delivery securities, securities lending,
repurchase agreements, foreign currency exchange transactions, options on
stocks, options on foreign stock indices, futures contracts on foreign stock
indices, and options on futures contracts. See "Investment Methods and Risk
Factors" for further information.
The Series intends to stay invested in the securities described above to
the extent practical in light of its objective and long-term investment
perspective. However the Series' assets may be invested in short-term
instruments with remaining maturities of 397 days or less (or in money market
mutual funds) to meet anticipated redemptions and expenses or for day-to-day
operating purposes and when, in the Sub-Adviser's opinion, it is advisable to
adopt a temporary defensive position because of unusual or adverse conditions
affecting the equity markets. In addition, when the Series experiences large
cash inflows through the sale of securities, and desirable equity securities
that are consistent with the Series' investment objective are unavailable in
sufficient quantities or at attractive prices, the Series may hold short-term
investments for a limited time pending availability of such equity securities.
For a discussion of short-term instruments see, "Management Practices" --
"Short-Term Instruments."
No more than 15 percent of the Series' net assets may be invested in
illiquid or not readily marketable securities (including repurchase agreements
and time deposits maturing in more than seven calendar days).
INVESTMENT METHODS AND RISK FACTORS
Some of the risk factors related to certain securities, instruments and
techniques used by the Series are described in the "Investment Objectives and
Policies" section of this Prospectus and in the Fund's Statement of Additional
Information. The following is a description of certain additional risk factors
related to various securities, instruments and techniques. Also included is a
general description of some of the investment instruments, techniques and
methods used by the Series. Although the Series may employ the techniques,
instruments and methods described below, consistent with its investment
objective and policies and any applicable law, the Series will not be required
to do so.
INVESTMENT VEHICLES
CONVERTIBLE SECURITIES -- The Series may invest in convertible securities.
A convertible security is a fixed income security or a preferred stock that may
be converted at either a stated price or stated rate into underlying shares of
common stock. Convertible securities have general characteristics similar to
both debt obligations and equity securities. Although to a lesser extent than
with debt obligations generally, the market value of convertible securities
tends to decline as interest rates increase and, conversely, tends to increase
as interest rates decline. In addition, because of the conversion feature, the
market value of convertible securities tends to vary with fluctuations in the
market value of the underlying common stock, and therefore, also will react to
variations in the general market for equity securities. A unique feature of
convertible securities is that as the market price of the underlying common
stock declines, convertible securities tend to trade increasingly on a yield
basis, and so may not experience market value declines to the same extent as the
underlying common stock. When the market price of the underlying common stock
increases, the prices of the convertible securities tend to rise as a reflection
of the value of the underlying common stock. While no securities investments are
without risk, investments in convertible securities generally entail less risk
than investments in common stock of the same issuer.
As debt obligations, convertible securities are investments that provide
for a stable stream of income with generally higher yields than common stocks.
Of course, like all debt obligations, there can be no assurance of current
income because the issuers of the convertible securities may default on their
obligations. Convertible securities, however, generally offer lower interest or
dividend yields than non-convertible securities of similar quality because of
the potential for capital appreciation. A convertible security, in addition to
providing fixed income, offers the potential for capital appreciation through
the conversion feature, which enables the holder to benefit from increases in
the market price of the underlying common stock. There can be no assurance of
capital appreciation, however, because the market value of securities will
fluctuate.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock of the
same issuer. Because of the subordination feature, however, convertible
securities typically have lower ratings than similar non-convertible securities.
WARRANTS -- Warrants are options to buy a stated number of shares of common
stock at a specified price any time during the life of the warrants (generally
two or more years).
U.S. GOVERNMENT SECURITIES -- The Series may invest in U.S. Government
securities which include obligations issued or guaranteed (as to principal and
interest) by the United States Government or its agencies (such as the Small
Business Administration, the Federal Housing Administration, and Government
National Mortgage Association), or instrumentalities (such as Federal Home Loan
Banks and Federal Land Banks), and instruments fully collateralized with such
obligations such as repurchase agreements. Some U.S. Government securities, such
as Treasury bills and bonds, are supported by the full faith and credit of the
U.S. Treasury; others are supported by the right of the issuer to borrow from
the Treasury; others, such as those of the Federal National Mortgage
Association, are supported by the discretionary authority of the U.S. Government
to purchase the agency's obligations; still others, such as those of the Student
Loan Marketing Association, are supported only by the credit of the
instrumentality. Government National Mortgage Association (GNMA) certificates
are mortgage-backed securities representing part ownership of a pool of mortgage
loans on which timely payment of interest and principal is guaranteed by the
full faith and credit of the U.S. Government. Although U.S. Government
securities are guaranteed by the U.S. Government, its agencies or
instrumentalities, shares of the Series are not so guaranteed in any way.
WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES -- Purchase or sale of
securities on a "forward commitment" basis may be used to hedge against
anticipated changes in interest rates and prices. The price, which is generally
expressed in yield terms, is fixed at the time the commitment is made, but
delivery and payment for the securities take place at a later date. When-issued
securities and forward commitments may be sold prior to the settlement date, but
the Series will enter into when-issued and forward commitments only with the
intention of actually receiving or delivering the securities, as the case may
be; however, the Series may dispose of a commitment prior to settlement if the
Sub-Adviser deems it appropriate to do so. No income accrues on securities which
have been purchased pursuant to a forward commitment or on a when-issued basis
prior to delivery of the securities. If the Series disposes of the right to
acquire a when-issued security prior to its acquisition or disposes of its right
to deliver or receive against a forward commitment, it may incur a gain or loss.
At the time the Series enters into a transaction on a when-issued or forward
commitment basis, a segregated account consisting of cash or liquid securities
equal to the value of the when-issued or forward commitment securities will be
established and maintained with its custodian and will be marked to market
daily. There is a risk that the securities may not be delivered and that the
Series may incur a loss.
RESTRICTED SECURITIES -- Restricted securities are acquired through private
placement transactions, directly from the issuer or from security holders,
generally at higher yields or on terms more favorable to investors than
comparable publicly traded securities. However, the restrictions on resale of
such securities may make it difficult for the Series to dispose of such
securities at the time considered most advantageous, and/or may involve expenses
that would not be incurred in the sale of securities that were freely
marketable. Restricted securities cannot be sold to the public without
registration under the Securities Act of 1933 ("1933 Act"). Unless registered
for sale, restricted securities can be sold only in privately negotiated
transactions or pursuant to an exemption from registration. Restricted
securities are generally considered illiquid and, therefore, subject to the
Series' limitation on illiquid securities.
Trading restricted securities pursuant to Rule 144A may enable the Series
to dispose of restricted securities at a time considered to be advantageous
and/or at a more favorable price than would be available if such securities were
not traded pursuant to Rule 144A. However, the Rule 144A market is relatively
new and liquidity of the Series' investment in such market could be impaired if
trading does not develop or declines. Risks associated with restricted
securities include the potential obligation to pay all or part of the
registration expenses in order to sell certain restricted securities. A
considerable period of time may elapse between the time of the decision to sell
a security and the time the Series may be permitted to sell it under an
effective registration statement. If, during a period, adverse conditions were
to develop, the Series might obtain a less favorable price than prevailing when
it decided to sell.
Non-publicly traded securities (including Rule 144A Securities) may involve
a high degree of business and financial risk which may result in substantial
losses. The securities may be less liquid than publicly traded securities.
Although these securities may be resold in privately negotiated transactions,
the prices realized from these sales could be less than those originally paid by
the Series. In particular, Rules 144A Securities may be resold only to qualified
institutional buyers in accordance with Rules 144A under the Securities Act of
1933. Unregistered securities may also be sold abroad pursuant to Regulation S
under the 1933 Act. Companies whose securities are not publicly traded are not
subject to the disclosure and other investor protection requirements that would
be applicable if their securities were publicly traded. Acting pursuant to
guidelines established by the Board of Directors, some restricted securities and
Rule 144A Securities may be considered liquid.
The Board of Directors is responsible for developing and establishing
guidelines and procedures for determining the liquidity of Rule 144A securities.
As permitted by Rule 144A, the Board of Directors has delegated this
responsibility to the Sub-Adviser. In making the determination regarding the
liquidity of Rule 144A securities, the Sub-Adviser will consider trading markets
for the specific security taking into account the unregistered nature of a Rule
144A security. In addition, the Sub-Adviser may consider: (1) the frequency of
trades and quotes; (2) the number of dealers and potential purchasers; (3)
dealer undertakings to make a market; and (4) the nature of the security and of
the market place trades (e.g., the time needed to dispose of the security, the
method of soliciting offers and the mechanics of transfer). Investing in Rule
144A securities could have the effect of increasing the amount of the Series'
assets invested in illiquid securities to the extent that qualified
institutional buyers become uninterested, for a time, in purchasing these
securities.
ADRS, GDRS AND EDRS -- ADRs, GDRs and EDRs are certificates evidencing
ownership of shares of a foreign-based issuer held in trust by a bank or similar
financial institution. Designed for use in U.S., international and European
securities markets, respectively, ADRs, GDRs and EDRs are alternatives to the
purchase of the underlying securities in their national markets and currencies.
ADRs, GDRs and EDRs are subject to the same risks as the foreign securities to
which they relate. See "Foreign Investment Risks," page 10
REPURCHASE AGREEMENTS -- A repurchase agreement is a contract under which
the Series would acquire a security for a relatively short period (usually not
more than 7 days) subject to the obligation of the seller to repurchase and the
Series to resell such security at a fixed time and price. The resale price is in
excess of the purchase price and reflects an agreed-upon market rate unrelated
to the coupon rate of the purchased security. Repurchase agreements will be
fully collateralized including interest earned thereon during the entire term of
the agreement. If the institution defaults on the repurchase agreement, the
Series will retain possession of the underlying securities. If bankruptcy
proceedings are commenced with respect to the seller, realization on the
collateral by the Series may be delayed or limited and the Series may incur
additional costs. In such case, the Series will be subject to risks associated
with changes in market value of the collateral securities. The Series may enter
into repurchase agreements only with issuers who, individually or with issuer's
parent, have outstanding debt rated AA or higher by S&P of Aa or higher by
Moody's or outstanding commercial paper or bank obligations rated A-1 by S&P or
Prime-1 by Moody's; or if no such ratings are available, the instrument must be
of comparable quality in the opinion of the Sub-Adviser.
MANAGEMENT PRACTICES
SHORT-TERM INSTRUMENTS -- The Series' assets may be invested in short-term
instruments with remaining maturities of 397 days or less (or in money market
mutual funds) to meet anticipated redemptions and expenses or for day-to-day
operating purposes and when, in the Sub-Adviser's opinion, it is advisable to
adopt a temporary defensive position because of unusual or adverse conditions
affecting the equity markets. In addition, when the Series experiences large
cash inflows through the sale of securities, and desirable equity securities
that are consistent with the Series' investment objective are unavailable in
sufficient quantities or at attractive prices, the Series may hold short-term
investments for a limited time pending availability of such equity securities.
Short-term instruments consist of foreign and domestic: (i) short-term
obligations of sovereign governments, their agencies, instrumentalities,
authorities or political subdivisions; (ii) other short-term debt securities
rated Aa or higher by Moody's Investors Service, Inc. ("Moody's") or AA or
higher by Standard & Poor's Ratings Services ("S&P") or, if unrated, of
comparable quality in the opinion of the Sub-Adviser; (iii) commercial paper;
(iv) bank obligations, including negotiable certificates of deposit, time
deposits and bankers' acceptances; and (v) repurchase agreements. At the time
the Series invests in commercial paper, bank obligations or repurchase
agreements, the issuer or the issuer's parent must have outstanding commercial
paper or bank obligations rated Prime-1 by Moody's or A-1 by S&P; or, if no such
rating are available, the instrument must be of comparable quality in the
opinion of the Sub-Adviser. These instrument may be denominated in U.S. dollars
or in foreign currencies that have been determined to be of high quality by a
nationally recognized statistical rating organization, or if unrated, by the
Sub-Adviser. For more information on these rating categories see the Appendix to
the Fund's Statement of Additional Information.
SHARES OF OTHER INVESTMENT COMPANIES -- The Series may invest in shares of
other investment companies. The Series' investment in shares of other investment
companies may not, immediately after purchase, exceed 10 percent of the Series'
total assets and no more than 5 percent of its total assets may be invested in
the shares of any one investment company. Investment in the shares of other
investment companies has the effect of requiring shareholders to pay the
operating expenses of two mutual funds.
BORROWING -- The Series may borrow money from banks as a temporary measure
for emergency purposes, to facilitate redemption requests, or for other purposes
consistent with the Series' investment objective and program. Such borrowings
may be collateralized with Series assets. Borrowings will not exceed 33 1/3
percent of the Series' total assets. To the extent that the Series purchases
securities while it has outstanding borrowings, it is using leverage, i.e.,
using borrowed funds for investment. Leveraging will exaggerate the effect on
net asset value of any increase or decrease in the market value of the Series'
portfolio. Money borrowed for leveraging will be subject to interest costs that
may or may not be recovered by appreciation of the securities purchased; in
certain cases, interest costs may exceed the return received on the securities
purchased. The Series also may be required to maintain minimum average balances
in connection with such borrowing or to pay a commitment or other fee to
maintain a line of credit; either of these requirements would increase the cost
of borrowing over the stated interest rate.
LENDING OF PORTFOLIO SECURITIES -- The Series may lend securities to
broker-dealers, institutional investors, or other persons to earn additional
income. The principal risk of such loans is the potential insolvency of the
broker-dealer or other borrower. In this event, the Series could experience
delays in recovering its securities and possibly capital losses. Any loan will
be continuously secured by collateral at least equal in value to the value of
the security loaned. Such lending could result in delays in receiving additional
collateral or in the recovery of the securities or possible loss of rights in
the collateral should the borrower fail financially.
FORWARD CURRENCY TRANSACTIONS -- In seeking to protect against currency
exchange rate or interest rate changes that are adverse to its present or
prospective positions, the Series may employ certain risk management practices
involving the use of forward currency contracts and options contracts, futures
contracts and options on futures contracts on U.S. and foreign government
securities, currencies and indices. There can be no assurance that such risk
management practices will succeed. Only a limited market, if any, currently
exists for forward currency contracts and options and futures instruments
relating to currencies of most emerging markets, to securities denominated in
such currencies or to securities of issuers domiciled or principally engaged in
business in such emerging markets. To the extent that such a market does not
exist, the Sub-Adviser may not be able to effectively hedge its investment in
such emerging markets.
To attempt to hedge against adverse movements in exchange rates between
currencies, the Series may enter into forward currency contracts for the
purchase or sale of a specified currency at a specified future date. Such
contracts may involve the purchase or sale of a foreign currency against the
U.S. dollar or may involve two foreign currencies. The Series may enter into
forward currency contracts either with respect to specific transactions or with
respect to the Series' portfolio positions. For example, when the Series
anticipates making a purchase or sale of a security, it may enter into a forward
currency contract in order to set the rate (either relative to the U.S. dollar
or another currency) at which a currency exchange transaction related to the
purchase or sale will be made. Furthermore, if the Sub-Adviser believes that a
particular currency may decline compared to the U.S. dollar or another currency,
the Series may enter into a forward contract to sell the currency the
Sub-Adviser expects to decline in an amount up to the value of the portfolio
securities held by the Series which is denominated in that foreign currency.
The Series use of forward currency contracts or options and futures
transactions involve certain investment risks and transaction costs to which it
might not otherwise be subject. These risks include: dependence on the
Sub-Adviser's ability to predict movements in exchange rates; imperfect
correlation between movements in exchange rates and movements in the currency
hedged; and the fact that the skills needed to effectively hedge against the
Series currency risks are different from those needed to select the securities
in which the Series invests. The Series also may conduct foreign currency
exchange transactions on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market.
OPTIONS -- A call option on a security gives the purchaser of the option,
in return for a premium paid to the writer (seller), the right to buy the
underlying security at the exercise price at any time during the option period.
Upon exercise by the purchaser, the writer (seller) of a call option has the
obligation to sell the underlying security at the exercise price. When the
Series purchases a call option, it will pay a premium to the party writing the
option and a commission to the broker selling the option. If the option is
exercised by the Series, the amount of the premium and the commission paid may
be greater than the amount of the brokerage commission that would be charged if
the security were to be purchased directly. By writing a call option, the Series
assumes the risk that it may be required to deliver the security having a market
value higher than its market value at the time the option was written. The
Series will write call options in order to obtain a return on its investments
from the premiums received and will retain the premiums whether or not the
options are exercised. Any decline in the market value of the Series portfolio
securities will be offset to the extent of the premiums received (net of
transaction costs). If an option is exercised, the premium received on the
option will effectively increase the exercise price.
The Series may write only covered call options. This means that the Series
will own the security or currency subject to the option or an option to purchase
the same underlying security or currency, having an exercise price equal to or
less than the exercise price of the "covered" option, or will establish and
maintain with its custodian for the term of the option, an account consisting of
cash or liquid securities having a value equal to the fluctuating market value
of the optioned securities or currencies. During the option period the writer of
a call option has given up the opportunity for capital appreciation above the
exercise price should the market price of the underlying security increase, but
has retained the risk of loss should the price of the underlying security
decline. Writing call options also involves the risk of the Series' inability to
close out options it has written.
A call option on a stock index is similar to a call option on an individual
security, except that the value of the option depends on the weighted value of
the group of securities comprising the index and all settlements are made in
cash. A call option may be terminated by the writer (seller) by entering into a
closing purchase transaction in which it purchases an option of the same series
as the option previously written.
A put option on a security gives the purchaser of the option, in return for
premium paid to the writer (seller), the right to sell the underlying security
at the exercise price at any time during the option period. Upon exercise by the
purchaser, the writer of a put option has the obligation to purchase the
underlying security at the exercise price. The Series may write only covered put
options, which means that the Series will maintain in a segregated account cash
or liquid securities in an amount not less than the exercise price or the Series
will own an option to sell the underlying security or currency subject to the
option having an exercise price equal to or greater than the exercise price of
the "covered" option at all times which the put option is outstanding. By
writing a put option, the Series assumes the risk that it may be required to
purchase the underlying security at a price in excess of its current market
value.
A put option on a stock index is similar to a put option on an individual
security, except that the value of the option depends on the weighted value of
the group of securities comprising the index and all settlements are made in
cash.
The Series may sell a call option or a put option which it has previously
purchased prior to purchase (in the case of a call) or the sale (in the case of
a put) of the underlying security. Any such sale would result in a net gain or
loss depending upon whether the amount received on the sale is more or less than
the premium and other transaction costs paid on the call or put which is sold.
FUTURES CONTRACTS AND RELATED OPTIONS -- The Series may buy and sell
futures contracts (and options on such contracts) to manage exposure to changes
in securities prices and foreign currencies and as an efficient means of
adjusting overall exposure to certain markets. A financial futures contract
calls for delivery of a particular security at a certain time in the future. The
seller of the contract agrees to make delivery of the type of security called
for in the contract and the buyer agrees to take delivery at a specified future
time. The Series may also write call options and purchase put options on
financial futures contracts as a hedge to attempt to protect the Series'
securities from a decrease in value. When the Series writes a call option on a
futures contract, it is undertaking the obligation of selling a futures contract
at a fixed price at any time during a specified period if the option is
exercised. Conversely, the purchaser of a put option on a futures contract is
entitled (but not obligated) to sell a futures contract at a fixed price during
the life of the option.
Financial futures contracts include interest rate futures contracts and
stock index futures contracts. An interest rate futures contract obligates the
seller of the contract to deliver, and the purchaser to take delivery of,
interest rate securities called for in a contract at a specified future time at
a specified price. A stock index assigns relative values to common stocks
included in the index and the index fluctuates with changes in the market values
of the common stocks included. A stock index futures contract is a bilateral
contract pursuant to which two parties agree to take or make delivery of an
amount of cash equal to a specified dollar amount times the difference between
the stock index value at the close of the last trading day of the contract and
the price at which the futures contract is originally struck. An option on a
financial futures contract gives the purchaser the right to assume a position in
the contract (a long position if the option is a call and a short position if
the option is a put) at a specified exercise price at any time during the period
of the option.
REGULATORY MATTERS RELATED TO FUTURES AND OPTIONS -- In connection with its
proposed futures and options transactions, the Fund has filed for the Series
with the Commodity Futures Trading Commission (the "CFTC") a notice of
eligibility for exemption from the definition of (and therefore from CFTC
regulation as) a "commodity pool operator" under the Commodity Exchange Act. The
Fund represents in its notice of eligibility that: (i) it will not purchase or
sell futures or options on futures contracts or stock indices if as a result the
sum of the initial margin deposits on its existing futures contracts and related
options positions and premiums paid for options on futures contracts or stock
indices would exceed 5 percent of the Series' assets; and (ii) with respect to
each futures contract purchased or long position in an option contract, the
Series will set aside in a segregated account cash or liquid securities in an
amount equal to the market value of such contract less the initial margin
deposit.
The Staff of the Securities and Exchange Commission ("SEC") has taken the
position that the purchase and sale of futures contracts and the writing of
related options may involve senior securities for purposes of the restrictions
contained in Section 18 of the Investment Company Act of 1940 (the "1940 Act")on
investment companies' issuing senior securities. However, the Staff has issued
letters declaring that it will not recommend enforcement action under Section 18
if an investment company: (i) sells futures contracts to offset expected
declines in the value of the investment company's securities, provided the value
of such futures contracts does not exceed the total market value of those
securities (plus such additional amount as may be necessary because of
differences in the volatility factor of the securities vis-a-vis the futures
contracts); (ii) writes call options on futures contracts, stock indexes or
other securities, provided that such options are covered by the investment
company's holding of a corresponding long futures position, by its ownership of
securities which correlate with the underlying stock index, or otherwise; (iii)
purchases futures contracts, provided the investment company establishes a
segregated account consisting of cash or liquid securities in an amount equal to
the total market value of such futures contracts less the initial margin
deposited therefor; and (iv) writes put options on futures contracts, stock
indexes or other securities, provided that such options are covered by the
investment company's holding of a corresponding short futures position, by
establishing a cash segregated account in an amount equal to the value of its
obligation under the option, or otherwise.
The Series will conduct its purchases and sales of any futures contracts
and writing of related options transactions in accordance with the foregoing.
RISK FACTORS
GENERAL -- The Series' net asset value will fluctuate, reflecting
fluctuations in the market value of its portfolio positions and its net currency
exposure. The value of fixed income securities generally fluctuates inversely
with interest rate movements. Longer term bonds held by the Series are subject
to greater interest rate risk. There is no assurance that the Series will
achieve its investment objective.
FUTURES AND OPTIONS RISK -- Futures contracts and options can be highly
volatile and could result in reduction of the Series' total return, and the
Series' attempt to use such investments for hedging purposes may not be
successful. Successful futures strategies require the ability to predict future
movements in securities prices, interest rates and other economic factors.
Losses from options and futures could be significant if a Series is unable to
close out its position due to distortions in the market or lack of liquidity.
The Series' risk of loss from the use of futures extends beyond its initial
investment and could potentially be unlimited.
The use of futures, options and forward contracts involves investment risks
and transaction costs to which the Series would not be subject absent the use of
these strategies. If the Sub-Adviser seeks to protect the Series against
potential adverse movements in the securities, foreign currency or interest rate
markets using these instruments, and such markets do not move in a direction
adverse to the Series, the Series could be left in a less favorable position
than if such strategies had not been used. Risks inherent in the use of futures,
options and forward contracts include: (a) the risk that interest rates,
securities prices and currency markets will not move in the directions
anticipated; (b) imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; (c) the fact that skills needed to use these strategies are
different from those needed to select portfolio securities; (d) the possible
absence of a liquid secondary market for any particular instrument at any time;
and (e) the possible need to defer closing out certain hedged positions to avoid
adverse tax consequences. The Series ability to terminate option positions
established in the over-the-counter market may be more limited than in the case
of exchange-traded options and may also involve the risk that securities dealers
participating in such transactions would fail to meet their obligations to the
Series.
The use of options and futures involves the risk of imperfect correlation
between movements in options and futures prices and movements in the price of
securities which are the subject of a hedge. Such correlation, particularly with
respect to options on stock indices and stock index futures, is imperfect, and
such risk increases as the composition of the Series diverges from the
composition of the relevant index. The successful use of these strategies also
depends on the ability of the or Sub-Adviser to correctly forecast interest rate
movements and general stock market price movements.
FOREIGN INVESTMENT RISKS -- Investment in foreign securities involves risks
and considerations not present in domestic investments. Foreign companies
generally are not subject to uniform accounting, auditing and financial
reporting standards, practices and requirements comparable to those applicable
to U.S. companies. The securities of non-U.S. issuers generally are not
registered with the SEC, nor are the issuers thereof usually subject to the
SEC's reporting requirements. Accordingly, there may be less publicly available
information about foreign securities and issuers than is available with respect
to U.S. securities and issuers.
Foreign securities markets, while growing in volume, have for the most part
substantially less volume than United States securities markets and securities
for foreign companies are generally less liquid and at times their prices may be
more volatile than prices of comparable United States companies. Foreign stock
exchanges, brokers and listed companies generally are subject to less government
supervision and regulation than in the United States. The customary settlement
time for foreign securities may be longer than the customary settlement time for
United States securities.
The Series' income and gains from foreign issuers may be subject to
non-U.S. withholding or other taxes, thereby reducing its income and gains. In
addition, with respect to some foreign countries, there is the increased
possibility of expropriation or confiscatory taxation, limitations on the
removal of funds or other assets of the Series, political or social instability,
or diplomatic developments which could affect the investments of the Series in
those countries. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, rate of savings and capital reinvestment, resource
self-sufficiency and balance of payments positions.
RISKS OF CONVERSION TO EURO -- On January 1, 1999, eleven countries in the
European Monetary Union will adopt the euro as their official currency. However,
their current currencies (for example, the franc, the mark, and the lire) will
also continue in use until January 1, 2002. After that date, it is expected that
only the euro will be used in those countries. A common currency is expected to
confer some benefits in those markets, by consolidating the government debt
market for those countries and reducing some currency risks and costs. But the
conversion to the new currency will affect the Series operationally and also has
potential risks, some of which are listed below. Among other things, the
conversion will affect:
* issuers in which the Series invest, because of changes in the competitive
environment from a consolidated currency market and greater operational costs
from converting to the new currency. This might depress stock values.
* vendors the Series depend on to carry out their business, such as the
custodian bank (which holds the foreign securities the Series buy), the
Investment Manager (which prices the Series' investments to deal with the
conversion to the euro) and brokers, foreign markets and securities
depositories. If they are not prepared, there could be delays in settlements
and additional costs to the Series.
* exchange contracts and derivatives that are outstanding during the transition
to the euro. The lack of currency rate calculations between the affected
currencies and the need to update the Funds' contracts could pose extra costs
to the Series.
The Investment Manager is upgrading its computer and bookkeeping systems to
deal with the conversion. The Series' custodian bank has advised the Investment
Manager of its plans to deal with the conversion, including how it will update
its record keeping systems and handle the redenomination of outstanding foreign
debt. The possible effect of these factors on the Series' investments cannot be
determined with certainty at this time, but they may reduce the value of some of
the Series' holdings and increase its operational costs.
CURRENCY RISK -- The Series will be affected favorably or unfavorably by
exchange control regulations or changes in the exchange rates between foreign
currencies and the U.S. dollar. Changes in currency exchange rates will
influence the value of the Series' shares, and also may affect the value of
dividends and interest earned by the Series and gains and losses realized by the
Series. In addition, the Series may incur costs in connection with the
conversion or transfer of foreign currencies. Currencies generally are evaluated
on the basis of fundamental economic criteria (e.g., relative inflation and
interest rate levels and trends, growth rate forecasts, balance of payments
status and economic policies) as well as technical and political data. The
exchange rates between the U.S. dollar and other currencies are determined by
supply and demand in the currency exchange markets, the international balance of
payments, governmental intervention, speculation and other economic and
political conditions. If the currency in which a security is denominated
appreciates against the U.S. dollar, the dollar value of the security will
increase. Conversely, a decline in the exchange rate of the currency would
adversely affect the value of the security expressed in U.S. dollars.
EMERGING MARKETS RISKS -- Because the Series may invest in emerging
markets, investors are strongly advised to consider carefully the special risks
involved in such markets, which are in addition to the usual risks of investing
in developed foreign markets around the world. Investing in emerging markets
involves risks relating to potential political and economic instability within
such markets and the risks of expropriation, nationalization, confiscation of
assets and property or the imposition of restrictions on foreign investment and
on repatriation of capital invested. In the event of such expropriation,
nationalization or other confiscation in any emerging market, the Series could
lose its entire investment in that market. Many emerging market countries have
experienced substantial, and in some periods extremely high, rates of inflation
for many years. Inflation and rapid fluctuations in inflation rates have had and
may continue to have negative effects on the economies and securities markets of
certain emerging market countries. Economies in emerging markets generally are
dependent heavily upon international trade and, accordingly, have been and may
continue to be affected adversely by trade barriers, exchange controls, managed
adjustments in relative currency values and other protectionist measures imposed
or negotiated by the countries with which they trade. These economies also have
been and may continue to be affected adversely by economic conditions in the
countries with which they trade.
The securities markets of emerging countries are substantially smaller,
less developed, less liquid and more volatile than the securities markets of the
United States and other more developed countries. Disclosure and regulatory
standards in many respects are less stringent than in the United States and
other major markets. There also may be a lower level of monitoring and
regulation of emerging securities markets and the activities of investors in
such markets, and enforcement of existing regulations has been extremely
limited. Emerging markets may include former communist countries. There is a
possibility that these countries may revert back to communism. In addition,
brokerage commissions, custodial services and other costs relating to investment
in foreign markets generally are more expensive than in the United States,
particularly with respect to emerging markets. Such markets have different
settlement and clearance procedures. In certain markets there have been times
when settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. The inability of
the Series to make intended securities purchases due to settlement problems
could cause the Series to forego attractive investment opportunities. Inability
to dispose of a portfolio security caused by settlement problems could result
either in losses to the Series due to subsequent declines in value of the
portfolio security or, if the Series has entered into a contract to sell the
security, could result in possible liability to the purchaser.
The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading of securities may cease or may be
substantially curtailed and prices for the Series' portfolio securities in such
markets may not be readily available. Section 22(e) of the 1940 Act permits a
registered investment company to suspend redemption of its shares for any period
during which an emergency exists, as determined by the SEC. Accordingly, when
the Fund believes that appropriate circumstances warrant, it will promptly apply
to the SEC for a determination that an emergency exists within the meaning of
Section 22(e) of the 1940 Act. During the period commencing from the Fund's
identification of such conditions until the date of SEC action, the portfolio
securities of the Series in the affected markets will be valued at fair value as
determined in good faith by or under the direction of the Fund's Board of
Directors.
MANAGEMENT OF THE FUND
The management of the Fund's business and affairs is the responsibility of
the Fund's Board of Directors. Security Management Company, LLC (the "Investment
Manager"), 700 SW Harrison Street, Topeka, Kansas 66636-0001, is responsible for
selection and management of the Fund's portfolio investments. The Investment
Manager is a limited liability company, which is ultimately controlled by
Security Benefit Life Insurance Company, a life insurance company organized
under the laws of the State of Kansas. The Investment Manager also acts as
investment adviser to Security Growth and Income Fund, Security Ultra Fund,
Security Income Fund, Security Cash Fund, Security Equity Fund, and Security
Municipal Bond Fund. The Investment Manager currently manages $4.6 billion in
assets.
The Investment Manager has engaged Bankers Trust Company ("Bankers Trust"),
One Bankers Trust Plaza, New York, New York 10006, to provide investment
advisory services to Series I of the Fund. Pursuant to the agreement, Bankers
Trust furnishes investment advisory, statistical and research facilities,
supervises and arranges for the purchase and sale of securities on behalf of
Series I and provides for the compilation and maintenance of records pertaining
to such investment advisory services, subject to the control and supervision of
the Board of Directors of the Fund and the Investment Manager.
The Investment Manager supervises the management of Series I by Bankers
Trust in accordance with the Series' investment objective and policies. As
compensation for its management services, the Investment Manager receives on an
annual basis, an amount equal to 1.10 percent of the average net assets of
Series I computed on a daily basis and payable monthly. The Investment Manager,
as part of the investment advisory agreement with SBL Fund, has agreed to cap
the total annual expenses of Series I to 2.25%, exclusive of interest, taxes,
extraordinary expenses, brokerage fees and commissions.
The Investment Manager pays Bankers Trust with respect to Series I, an
annual fee based on the combined average net assets of Series I and another fund
to which Bankers Trust provides advisory services. The fee is equal to .60
percent of the combined average net assets under $200 million, and .45 percent
of the combined average net assets at or above $200 million.
The Investment Manager also acts as administrative agent for the Series of
the Fund, and as such performs administrative functions, bookkeeping, accounting
and pricing functions for the Fund. For providing these services, the Investment
Manager receives on an annual basis a fee of .045 percent of the average daily
net assets of the Series, plus the greater of .10 percent or $30,000 in the
period-ended January 31, 2000, $45,000 in the period-ended January 31, 2001 and
$60,000 thereafter.
PORTFOLIO MANAGEMENT
Michael Levy, Managing Director of Bankers Trust, has been co-lead manager
of Series I (International Series) since its inception in January 1999. He has
been a portfolio manager of other investment products with similar investment
objectives since joining Bankers Trust in 1993. Mr. Levy is Bankers Trust's
International Equity Strategist and is head of the international equity team. He
has served in each of these capacities since 1993. The international equity team
is responsible for the day-to-day management of the Fund as well as other
international equity portfolios managed by Bankers Trust. Mr. Levy's experience
prior to joining Bankers Trust includes serving as senior equity analyst with
Oppenheimer & Company, as well as positions in investment banking, technology
and manufacturing enterprises. He has 27 years of business experience, of which
17 years have been in the investment industry.
Robert Reiner, Principal at Bankers Trust, has been co-lead manager of
Series I (International Series) since its inception in January 1999. He has been
a portfolio manager of other investment products with similar investment
objectives since joining Bankers Trust in 1994. At Bankers Trust, he has been
involved in developing analytical and investment tools for the group's
international equity team; his primary focus has been on Japanese and European
markets. Prior to joining Bankers Trust, he was an equity analyst and also
provided macroeconomic coverage for Scudder, Stevens & Clark from 1993 to 1994.
He previously served as Senior Analyst at Sanford C. Bernstein & Co. from 1991
to 1992, and was instrumental in the development of Bernstein's International
Value Fund. Mr. Reiner spent more than nine years at Standard & Poor's
Corporation, where he was a member of its international ratings group. His
tenure included managing the day-to-day operations of the Standard & Poor's
Corporation Tokyo office for three years.
Julie Wang, Principal at Bankers Trust, has been co-lead manager of Series
I (International Series) since its inception in January 1999. She has been a
manager of other investment products with similar investment objectives since
joining Bankers Trust in 1994. Ms. Wang has primary focus on the Asia-Pacific
region and the Fund's emerging market exposure. Prior to joining Bankers Trust,
Ms. Wang was an investment manager at American International Group, where she
advised in the management of $7 billion of assets in Southeast Asia, including
private and listed equities, bonds, loans and structured products. Ms. Wang
received her B.A. degree in economics from Yale University and her M.B.A. from
the Wharton School.
YEAR 2000 COMPLIANCE
Like other mutual funds, as well as other financial and business
organizations around the world, the Fund could be adversely affected if the
computer systems used by the Investment Manager, and other service providers, in
performing their administrative functions do not properly process and calculate
date-related information and data before, during and after January 1, 2000. Some
computer software and hardware systems currently cannot distinguish between the
year 2000 and the year 1900 or some other date because of the way date fields
were encoded. This is commonly known as the "Year 2000 Problem." If not
addressed, the Year 2000 Problem could impact the management services provided
to the Fund by the Investment Manager, as well as transfer agency, accounting,
custody, distribution and other services provided to the Fund and its
shareholders.
The Investment Manager has adopted a plan to be "Year 2000 Compliant" with
respect to both its internally built systems as well as systems provided by
external vendors. "Year 2000 Compliant" means that systems and programs which
require modification will have the date fields expanded to include the century
information and that for interfaces to external organizations as well as new
systems development the year portion of the date field will be expanded to four
digits using the format YYYYMMDD. The Investment Manager's overall approach to
addressing the Year 2000 issue is as follows: (1) to inventory its internal and
external hardware, software, telecommunications and data transmissions to
customers and conduct a risk assessment with respect to the impact that a
failure on any such system would have on its business operations; (2) to modify
or replace its internal systems and obtain vendor certifications of Year 2000
compliance for systems provided by vendors or replace such systems that are not
Year 2000 Compliant; and (3) to implement and test its systems for Year 2000
compliance. The Investment Manager has completed the inventory of its internal
and external systems and has made substantial progress toward completing the
modification/replacement of its internal systems as well as towards obtaining
Year 2000 Compliant certifications from its external vendors. Overall systems
testing is scheduled to commence in December 1998 and extend into the first six
months of 1999.
Although the Investment Manager has taken steps to ensure that its systems
will function properly before, during and after the Year 2000, its key operating
systems and information sources are provided by or through external vendors
which creates uncertainty to the extent the Investment Manager is relying on the
assurance of such vendors as to whether their systems will be Year 2000
Compliant. The costs or consequences of incomplete or untimely resolution of the
Year 2000 issue are unknown to the Investment Manager at this time but could
have a material adverse impact on the operations of the Fund and the Investment
Manager.
The Year 2000 Problem is also expected to impact companies, which may include
issuers of portfolio securities held by the Fund, to varying degrees based upon
various factors, including, but not limited to, the company's industry sector
and degree of technological sophistication. The Fund and the Investment Manager
are unable to predict what impact, if any, the Year 2000 Problem will have on
issuers of the portfolio securities held by the Fund.
SALE AND REDEMPTION OF SHARES
Shares of the Fund will be sold to SBL for allocation to variable annuity
or variable life separate accounts. Shares are sold and redeemed at their net
asset value next determined after receipt of a purchase or redemption order. No
sales or redemption charge is made. The value of shares redeemed may be more or
less than the stockholder's cost, depending upon the market value of the
portfolio securities at the time of redemption. Payment for shares redeemed will
be made as soon as practicable after receipt, but in no event later than seven
days after tender, except that the Fund may suspend the right of redemption
during any period when trading on the New York Stock Exchange is restricted or
such Exchange is closed for other than weekends or holidays, or any emergency is
deemed to exist by the Securities and Exchange Commission.
DISTRIBUTIONS AND FEDERAL INCOME TAX CONSIDERATIONS
The following summarizes certain federal income tax considerations
generally affecting the Series. See the Statement of Additional Information for
further details. No attempt is made to present a detailed explanation of the tax
treatment of the Series or their shareholders, and the discussion here and in
the Statement of Additional Information is not intended as a substitute for
careful tax planning. The discussion is based upon present provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), the regulations
promulgated thereunder, and judicial and administrative ruling authorities, all
of which are subject to change, which change may be retroactive.
The Series intends to qualify and elect to be treated each year as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
(the "Code") and, therefore, generally will not be liable for federal income
taxes to the extent its net investment income and capital gains are distributed.
The Fund expects to distribute, at least once a year, substantially all of the
Series' net investment income and net realized capital gains. Such distributions
will be reinvested on the payable date in additional shares of the Series at the
net asset value thereof as of the record date (reduced by an amount equal to the
amount of the distribution), unless the shareholder elects to receive cash. The
Series will be treated separately from the other Series of the Fund in
determining the amounts of income and capital gains distributions to the
variable life insurance accounts and the variable annuity accounts. For this
purpose, each Series will reflect only the income and gains, net of losses, of
that Series.
To comply with regulations under Code section 817(h), the Series is
required to diversify its investments. Generally, the Series will be required to
diversify its investments so that on the last day of each quarter of the
calendar year no more than 55 percent of the value of the total assets is
represented by any one investment, no more than 70 percent is represented by any
two investments, no more than 80 percent is represented by any three
investments, and no more than 90 percent is represented by any four investments.
If the Series fails to meet the diversification requirements under Code section
817(h), income with respect to life insurance policies and annuity contracts
invested in the Series at any time during the calendar quarter in which the
failure occurred could become currently taxable to the owners of such policies
and contracts and income for prior periods with respect to the policies and
contracts also could be taxable, most likely in the year of the failure to
achieve the required diversification. Other adverse tax consequences could also
ensue. If the Series fails to qualify as a regulated investment company, the
results would be substantially the same as a failure to meet the diversification
requirements under Code section 817(h).
Certain requirements relating to the qualification of the Series as a
regulated investment company and to the satisfaction of the Code section 817(h)
diversification requirements may limit the extent to which the Series will be
able to engage in certain investment practices, including transactions in
options, futures contracts, forwards, swaps and other types of derivative
securities transactions. In addition, if the Series were unable to dispose of
portfolio securities due to settlement problems relating to foreign investments
or due to the holding of illiquid securities, the Series ability to qualify as a
regulated investment company and to satisfy the Code section 817(h)
diversification requirements might be affected.
See "Distributions and Federal Income Tax Considerations" in the Statement
of Additional Information for more information on taxes, including information
on the taxation of distributions from the Series. The federal tax consequences
to purchasers of SBL's variable annuity contracts and variable life insurance
policies registered under the Securities Act of 1933 are described in the
prospectus applicable to such contracts and such policies, respectively.
FOREIGN TAXES
Investment income and gains received from sources within foreign countries
may be subject to foreign income and other taxes. In this regard, withholding
tax rates in countries with which the United States does not have a tax treaty
are often as high as 30 percent or more. The United States has entered into tax
treaties with many foreign countries which entitle certain investors to a
reduced tax rate (generally 10 to 15 percent) or to certain exemptions from tax.
The Series intends to operate so as to qualify for such reduced tax rates or tax
exemptions whenever possible. Although policyholders and contractowners will
indirectly bear the cost of such foreign taxes, they will not be able to claim
foreign tax credits or deductions for taxes paid by the Series.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Series is determined as of the close
of regular trading hours on the New York Stock Exchange on each day that the
Exchange is open for trading (normally 3:00 p.m. Central time). The
determination is made by dividing the value of the portfolio securities of the
Series, plus any cash or other assets, less all liabilities, by the number of
shares of the Series outstanding. Securities listed or traded on a recognized
securities exchange will be valued on the basis of the last sales price. If
there are no sales on a particular day, then the securities are valued at the
last bid price. If a security is traded on multiple exchanges, its value will be
based on prices from the principal exchange where it is traded. All other
securities for which market quotations are available are valued on the basis of
the last current bid price. If there is no bid price or if the bid price is
deemed unsatisfactory by the Board of Directors or by the Investment Manager,
then the securities are valued in good faith by such method as the Board of
Directors determines will reflect the fair market value.
The Fund will generally value short-term securities at prices based on
market quotations for securities of similar type, yield, quality and duration,
except that securities with 60 days or less to maturity may be valued on the
basis of the amortized cost valuation technique. The amortized cost valuation
technique involves valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument.
A similar procedure may be used for portfolio instruments when they reach
60 days to maturity, with the value of the instrument on the 61st day being used
rather than cost. While this method provides certainty in valuation, it may
result in periods during which value (as determined by amortized cost) is higher
or lower than the price the Fund would receive if the security were sold.
Generally, trading in foreign securities markets is substantially completed
each day at various times prior to the close of the New York Stock Exchange. The
values of foreign securities used in computing the net asset value of the shares
of the Series generally is determined as of the close of such foreign markets or
the close of the New York Stock Exchange if earlier. Foreign currency exchange
rates are generally determined prior to the close of the New York Stock
Exchange. Trading on foreign exchanges and in foreign currencies may not take
place on every day the New York Stock Exchange is open. Conversely trading in
various foreign markets may take place on days when the New York Stock Exchange
is not open and on other days when the Fund's net asset values are not
calculated. Consequently, the calculation of the net asset value may not occur
contemporaneously with the determination of the most current market prices for
the securities included in such calculation, and events affecting the value of
such securities and such exchange rates that occur between the times at which
they are determined and the close of the New York Stock Exchange will not be
reflected in the computation of net asset value. If during such periods, events
occur that materially affect the value of such securities, the securities will
be valued at their fair market value as determined in good faith by the Board of
Directors.
For purposes of determining the net asset value per share of the Fund, all
assets and liabilities initially expressed in foreign currencies will be
converted into United States dollars at the mean between the bid and offer
prices of such currencies against United States dollars quoted by any major U.S.
bank.
TRADING PRACTICES AND BROKERAGE
The portfolio turnover of Series I is not expected to exceed 65 percent.
Higher portfolio turnover subjects the Series to increased brokerage costs
and may in some cases, have adverse tax effects on the Series or its
stockholders.
The rates of portfolio turnover may be substantially higher during any
period when changing market or economic conditions suggest a shift in portfolio
emphasis. Thus, a portfolio turnover rate in excess of 100 percent will not
necessarily indicate a variation from the stated investment policy.
Transactions in portfolio securities are effected in the manner deemed to
be in the best interest of the Series. In selecting a broker to execute a
specific transaction, all relevant factors will be considered such as the
broker's ability to obtain the best execution of a particular transaction.
Portfolio transactions may be directed to affiliates of teh sub-adviser (who
will receive brokerage commissions on such transactions), brokers who furnish
investment information or research services to the Investment Manager or who
sell shares of the Series. Although the Sub-Adviser may consider sales of shares
of the Series in the selection of a broker, this will not be a qualifying or
disqualifying factor.
Securities held by the Series may also be held by other investment advisory
clients of the Sub-Adviser, including other investment companies. Purchases or
sales of the same security occurring on the same day may be aggregated and
executed as a single transaction, subject to the Sub-Adviser's obligation to
seek best execution. Aggregated purchases or sales are allocated in the manner
the Sub-Adviser considers to be the most equitable and consistent with its
fiduciary obligation to its respective clients.
PERFORMANCE INFORMATION
The Fund may, from time to time, include the average annual total return
and total return of the Series in advertisements or reports to stockholders or
prospective investors. Quotations of average annual total return for any Series
will be expressed in terms of the average annual compounded rate of return on a
hypothetical investment in the Series over a period of 1, 5, and 10 years (up to
the life of the Series), and will assume that all dividends and distributions
are reinvested when paid.
Quotations of total return for the Series will be based on a hypothetical
investment in the Series for a certain period, and will assume that all
dividends and distributions are reinvested when paid. The net increase or
decrease in the value of the investment over the period will be divided by its
beginning value to arrive at total return for the period. Total return
calculated in this manner will differ from the average annual total return in
that it is not expressed in terms of an average rate of return.
Performance information for the Series may be compared, in reports and
promotional literature, to: (i) The Standard & Poor's 500 Stock Index ("S&P
500"), Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so that
investors may compare a Series' results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; (ii) other groups of mutual funds tracked by Lipper
Analytical Services, a widely used independent research firm which ranks mutual
funds by overall performance, investment objectives, and assets, or tracked by
other services, companies, publications, or persons who rank mutual funds on
overall performance or other criteria; and (iii) the Consumer Price Index
(measure for inflation) to assess the real rate of return from an investment in
the Series. Unmanaged indices may assume the reinvestment of dividends but
generally do not reflect deductions for administrative and management costs and
expenses.
Quotations of average annual total return or total return for the Fund will
not take into account charges or deductions against the Separate Accounts to
which the Fund shares are sold or charges and deductions against the Contracts
issued by Security Benefit Life Insurance Company. Performance information for
any Series reflects only the performance of a hypothetical investment in the
Series during a particular time period on which the calculations are based.
Performance information should be considered in light of the Series' investment
objectives and policies, characteristics and quality of the portfolios, and the
market conditions during the given time period, and should not be considered as
a representation of what may be achieved in the future. For a description of the
methods used to determine average annual total return and total return for the
Series, see the Statement of Additional Information.
GENERAL INFORMATION
ORGANIZATION
SBL Fund has authorized the issuance of an indefinite number of shares of
capital stock of $1.00 par value. The Fund's shares are currently issued in
fifteen Series A, B, C, D, E, I, J, K, M, N, O, P, S, V and X. The shares of
each Series represent a pro rata beneficial interest in that Series' net assets
and in the earnings and profits or losses derived from the investment of such
assets.
Upon issuance and sale, such shares will be fully paid, nonassessable and
redeemable. These shares have no preemptive rights, but the shareholders of each
Series are entitled to receive dividends as declared for that Series by the
Board of Directors of the Fund.
The shares of each Series have cumulative voting rights for the election of
directors. On matters affecting a particular Series, each share of that Series
has equal voting rights with each other share and there are no preferences as to
conversion, exchange, retirement or liquidation. On other matters, all shares
(irrespective of Series) are entitled to one vote each. Pursuant to the rules
and regulations of the Securities and Exchange Commission, in certain instances
a vote of the outstanding shares of the combined Series may not modify the
rights of holders of a particular Series without the approval of a majority of
the shares of that Series.
The Fund does not generally hold annual meetings of stockholders and will
do so only when required by law. Stockholders may remove directors from office
by votes cast in person or by proxy at a meeting of stockholders. Such a meeting
will be called at the written request of the holders of 10 percent of the Fund's
outstanding shares.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND-PAYING AGENT
The Chase Manhattan Bank, 4 Chase MetroTech Center, Brooklyn, New York
11245 acts as custodian for the portfolio securities of Series I, including
those held by foreign banks and foreign securities depositories which qualify as
eligible foreign custodians under rules adopted by the Securities and Exchange
Commission. Security Management Company, LLC acts as the Fund's transfer and
dividend-paying agent.
CONTRACTOWNER INQUIRIES
Contractowners who have questions concerning the Fund or wish to obtain
additional information, may write to SBL Fund at 700 SW Harrison Street, Topeka,
Kansas 66636-0001, or call (785) 431-3127 or 1-800-888-2461, extension 3127.
<PAGE>
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SBL FUND
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 31, 1999
RELATING TO THE SBL FUND PROSPECTUS DATED JANUARY 31, 1999
AS IT MAY BE SUPPLEMENTED FROM TIME TO TIME
(785) 431-3127
(800) 888-2461
- --------------------------------------------------------------------------------
INVESTMENT MANAGER
Security Management Company, LLC
700 SW Harrison Street
Topeka, Kansas 66636-0001
CUSTODIANS
UMB Bank, N.A.
928 Grand Avenue
Kansas City, Missouri 64106
The Chase Manhattan Bank
4 Chase MetroTech Center
Brooklyn, New York 11245
INDEPENDENT AUDITORS
Ernst & Young LLP
One Kansas City Place
1200 Main Street
Kansas City, Missouri 64105-2143
<PAGE>
SBL FUND
A Member of The Security Benefit Group of Companies
700 SW Harrison Street, Topeka, Kansas 66636-0001
STATEMENT OF
ADDITIONAL INFORMATION
JANUARY 31, 1999
(RELATING TO THE PROSPECTUS DATED JANUARY 31, 1999,
AS IT MAY BE SUPPLEMENTED FROM TIME TO TIME)
This Statement of Additional Information is not a Prospectus. It should be
read in conjunction with the SBL Fund Prospectus dated January 31, 1999, as it
may be supplemented from time to time. A Prospectus may be obtained by writing
the Fund, 700 SW Harrison, Topeka, Kansas 66636-0001, or by calling (785)
431-3127 or (800) 888-2461, ext. 3127.
TABLE OF CONTENTS
Page
What is SBL Fund?....................................... 1
Investment Objectives and Policies of the Series........ 1
Series A (Growth Series)............................. 2
Series B (Growth-Income Series)...................... 2
Series C (Money Market Series)....................... 3
Series D (Worldwide Equity Series)................... 5
Series E (High Grade Income Series).................. 7
Series I (International Series)...................... 8
Series J (Emerging Growth Series).................... 10
Series K (Global Aggressive Bond Series)............. 11
Series M (Specialized Asset Allocation Series)....... 16
Series N (Managed Asset Allocation Series)........... 17
Series O (Equity Income Series)...................... 21
Series P (High Yield Series)......................... 23
Series S (Social Awareness Series)................... 24
Series V (Value Series).............................. 25
Series X (Small Cap Series).......................... 26
Investment Methods and Risk Factors..................... 27
Investment Policy Limitations........................... 52
Officers and Directors.................................. 55
Remuneration of Directors and Others.................... 57
Sale and Redemption of Shares........................... 57
Investment Management................................... 57
Portfolio Management................................. 61
Code of Ethics....................................... 64
Portfolio Turnover...................................... 64
Determination of Net Asset Value........................ 65
Portfolio Transactions.................................. 66
Distributions and Federal Income Tax Considerations..... 67
Ownership and Management................................ 71
Capital Stock and Voting................................ 71
Custodian, Transfer Agent and Dividend-Paying Agent..... 71
Independent Auditors.................................... 71
Distribution of Variable Insurance Products............. 71
Performance Information................................. 71
Financial Statements.................................... 73
Appendix................................................ 74
<PAGE>
WHAT IS SBL FUND?
SBL Fund (the "Fund"), a Kansas corporation, was organized by Security
Benefit Life Insurance Company ("SBL") on May 26, 1977, and serves as the
investment vehicle for certain SBL variable annuity and variable life insurance
separate accounts. Shares of the Fund will be sold to SBL for allocation to such
separate accounts which are established for the purpose of funding variable
annuity and variable life insurance contracts issued by SBL. The Fund reserves
the right to expand the class of persons eligible to purchase shares of any
Series of the Fund or to reject any offer.
The Fund is a diversified, open-end management investment company of the
series type registered under the Investment Company Act of 1940, which currently
issues its shares in fifteen series: Series A, Series B, Series C, Series D,
Series E, Series I, Series J, Series K, Series M, Series N, Series O, Series P,
Series S, Series V and Series X ("Series"). The assets of each Series are held
separate from the assets of the other Series and each Series has investment
objectives which differ from those of the other Series.
SBL, organized originally as a fraternal benefit society under the laws of
the State of Kansas, commenced business February 22, 1892, and became a mutual
life insurance company under its present name on January 2, 1950. It became a
stock company under a mutual holding company structure on July 31, 1998. Its
home office is located at 700 SW Harrison Street, Topeka, Kansas. SBL is
licensed in the District of Columbia and all states except New York.
All investment companies are required to operate within the limitations
imposed by their fundamental investment policies. (See "Investment Objectives
and Policies of the Series," this page, and "Investment Policy Limitations,"
page 52.)
As an open-end investment company, the Fund provides an arrangement by
which investors may invest in a company which itself invests in securities. Each
Series represents a diversified securities portfolio under professional
management, and the value of shares held by SBL's separate accounts will
fluctuate with changes in the value of the Series' portfolio securities. As an
open-end company, the Fund is obligated to redeem its shares upon demand at
current net asset value. ( See "Sale and Redemption of Shares," page 57.)
Professional investment advice is provided to the Fund and to each Series
by Security Management Company, LLC (the "Investment Manager"), which is
ultimately controlled by SBL. The Investment Manager has engaged
OppenheimerFunds, Inc. ("Oppenheimer") to provide investment advisory services
to Series D of the Fund. The Investment Manager has engaged Bankers Trust
Company ("Bankers Trust") to provide investment advisory services to Series I of
the Fund. The Investment Manager has engaged Lexington Management Corporation
("Lexington") to provide investment advisory services to Series K of the Fund.
Lexington has entered into a sub-advisory contract with MFR Advisors, Inc.
("MFR") to provide Series K with investment and economic research services. The
Investment Manager has engaged T. Rowe Price Associates, Inc. ("T. Rowe Price")
to provide investment advisory services to Series N and O. The Investment
Manager has engaged Meridian Investment Management Corporation ("Meridian") to
provide investment advisory services to Series M and Strong Capital Management,
Inc. ("Strong") to provide investment advisory services to Series X.
Pursuant to an investment advisory contract with the Fund, the Investment
Manager is paid an annual advisory fee of .75% of the average net assets of
Series A, Series B, Series E, Series S, Series J, Series K, Series P and Series
V; .5% of the average net assets of Series C; 1.00% of the average net assets of
Series D, Series M, Series N, Series O and Series X; and 1.10% of the average
net assets of Series I, computed daily and payable monthly. The Investment
Manager has agreed that the total annual expenses of each Series (including the
management compensation but excluding brokerage commissions, interest, taxes and
extraordinary expenses) will not exceed any expense limitation imposed by any
state. (See page 57 for a discussion of the Investment Manager and the
Investment Advisory Contract.) The Fund also receives administrative, accounting
and transfer agency services from the Investment Manager for which the Fund pays
a fee.
INVESTMENT OBJECTIVES AND POLICIES OF THE SERIES
The investment objective and policies of each Series are described below.
There are risks inherent in the ownership of any security and there can be no
assurance that such objectives will be achieved. The objectives and policies,
except those enumerated under "Investment Policy Limitations," page 52, may be
modified at any time without stockholder approval.
To comply with regulations under Section 817(h) of the Internal Revenue
Code, each Series of the SBL Fund is required to diversify its investments so
that on the last day of each quarter of a calendar year no more than 55% of the
value of its assets is represented by securities of any one issuer, no more than
70% is represented by securities of any two issuers, no more than 80% is
represented by securities of any three issuers, and no more than 90% is
represented by securities of any four issuers. As to U.S. Government securities,
each U.S. Government agency and instrumentality is to be treated as a separate
issuer.
SERIES A (GROWTH SERIES)
The investment objective of Series A is to seek long-term capital growth by
investing in those securities which, in the opinion of the Investment Manager,
have the most long-term capital growth potential. Series A seeks to achieve its
objective by investing primarily in a broadly diversified portfolio of common
stocks (which may include American Depositary Receipts (ADRs) or securities with
common stock characteristics, such as securities convertible into common stocks.
See the discussion of ADRs and the risks associated with investing in ADRs under
"Investment Methods and Risk Factors." Series A may also invest in preferred
stocks, bonds and other debt securities. Income potential will be considered to
the extent doing so is consistent with Series A's investment objective of
long-term capital growth. Series A may invest its assets temporarily in cash and
money market instruments for defensive purposes. Series A invests for long-term
growth of capital and does not intend to place emphasis upon short-term trading
profits.
From time to time, Series A may purchase securities on a "when-issued" or
"delayed delivery basis" in excess of customary settlement periods for the type
of security involved. Securities purchased on a when-issued basis are subject to
market fluctuation and no interest or dividends accrue to the Series prior to
the settlement date. Series A will establish a segregated account with its
custodian bank in which it will maintain cash or liquid securities equal in
value to commitments for such when-issued or delayed delivery securities. Series
A may also invest up to 5% of its total assets in warrants (other than those
attached to other securities) which entitle the holder to buy equity securities
at a specific price during or at the end of a particular period. A warrant
ceases to have value if it is not exercised prior to its expiration date.
SERIES B (GROWTH-INCOME SERIES)
The investment objective of Series B is to provide long-term growth of
capital with secondary emphasis on income. Assets of the Series may be invested
in various types of securities, which may include (i) securities convertible
into common stocks; (ii) preferred stocks; (iii) debt securities issued by U.S.
corporations; (iv) securities issued by the U.S. Government or any of its
agencies or instrumentalities, including Treasury bills, certificates of
indebtedness, notes and bonds; (v) securities issued by foreign governments,
their agencies, and instrumentalities, and foreign corporations, provided that
such securities are denominated in U.S. dollars; (vi) higher yielding, high risk
debt securities (commonly referred to as "junk bonds") and zero coupon
securities. In the selection of securities for investment, the potential for
appreciation and future dividends is given more weight than current dividends.
See the discussion of ADRs and the risks associated with investing in ADRs under
"Investment Methods and Risk Factors." From time to time, Series B may purchase
government bonds or commercial notes on a temporary basis for defensive
purposes.
With respect to its investment in debt securities, there is no percentage
limitation on the amount of Series B's assets that may be invested within any
particular rating classification. Series B may invest in higher yielding,
longer-term fixed-income securities in the lower rating (higher risk) categories
of the recognized rating services (commonly referred to as "junk bonds"). These
include securities rated Ba or lower by Moody's Investors Service, Inc. or BB or
lower by Standard & Poor's Corporation. Securities rated Ba or lower by Moody's
or BB or lower by Standard & Poor's are regarded as predominantly speculative
with respect to the ability of the issuer to meet principal and interest
payments. (See the Appendix for a description of the various bond ratings
utilized by the rating services.) However, the Investment Manager will not rely
principally on the ratings assigned by the rating services. Because Series B
will invest in lower rated securities and unrated securities of comparable
quality, the achievement of the Series' investment objective may be more
dependent on the Investment Manager's own credit analysis than would be true if
investing in higher rated securities.
To the extent that Series B invests in the high yield, high risk bonds
described above, its share price and yield are expected to fluctuate more than
the share price and yield of a fund investing in higher quality, shorter-term
securities. High yield bonds may be more susceptible to real or perceived
adverse economic and competitive industry conditions than investment grade
bonds. A projection of an economic downturn, or higher interest rates, for
example, could cause a decline in high yield bond prices because an advent of
such events could lessen the ability of highly leveraged companies to make
principal and interest payments on its debt securities. In addition, the
secondary trading market for high yield bonds may be less liquid than the market
for higher grade bonds, which can adversely affect the ability of the Series to
dispose of its portfolio securities. Bonds for which there is only a "thin"
market can be more difficult to value inasmuch as objective pricing data may be
less available and judgment may play a greater role in the valuation process.
See the discussion of the risks associated with investing in high yield bonds
under "Investment Methods and Risk Factors" - "Special Risks Associated with
Low-Rated and Comparable Unrated Bonds." The Series may purchase securities that
are restricted as to disposition under the federal securities laws, provided
that such securities are eligible for resale to qualified institutional
investors pursuant to Rule 144A under the Securities Act of 1933 and subject to
the Series' policy that not more than 10% of its total assets will be invested
in illiquid securities. See "Investment Methods and Risk Factors" - "Restricted
Securities."
The Series may enter into futures contracts (a type of derivative) (or
options thereon) to hedge all or a portion of the portfolio, or as an efficient
means of adjusting its exposure to the stock market. The Series will not use
futures contracts for leveraging purposes. The Series will limit its use of
futures contracts so that initial margin deposits or premiums on such contracts
used for non-hedging purposes will not equal more than 5% of the Series' net
asset value. The Series may also write call and put options on a covered basis
and purchase put and call options on securities and financial indices. Futures
contracts, options and the risks associated with such instruments are described
in further detail under "Investment Methods and Risk Factors."
The Series may invest in real estate investment trusts ("REITs") and other
real estate industry investments. See the discussion of real estate securities
under "Investment Methods and Risk Factors."
The Series also may invest in zero coupon securities which are debt
securities that pay no cash income but are sold at substantial discounts from
their face value. Certain zero coupon securities also are sold at substantial
discounts but provide for the commencement of regular interest payments at a
deferred date. See "Investment Methods and Risk Factors" for a discussion of
zero coupon securities.
As discussed above, Series B may invest in foreign debt securities that are
denominated in U.S. dollars. Such foreign debt securities may include debt of
foreign governments, including Brady Bonds, and debt of foreign corporations.
The Series expects to limit its investment in foreign debt securities, excluding
Canadian securities, to not more than 15% of its total assets and its investment
in debt securities of issuers in emerging markets, excluding Brady Bonds, to not
more than 5% of its net assets. Many emerging market debt securities are not
rated by United States rating agencies such as Moody's and S&P and the majority
of emerging market debt securities are considered to have a credit quality below
investment grade. The Series' ability to achieve its investment objective is
thus more dependent on the credit analysis of the Series' Investment Manager
than would be the case if the Series were to invest only in higher quality
bonds. See the discussion of the risks associated with investing in foreign
securities, emerging markets, and Brady Bonds under "Investment Methods and Risk
Factors."
SERIES C (MONEY MARKET SERIES)
The investment objective of Series C is to seek as high a level of current
income as is consistent with preservation of capital. The Series will attempt to
achieve its objective by investing at least 95% of its total assets, measured at
the time of investment, in a diversified portfolio of highest quality money
market instruments. The Series may also invest up to 5% of its total assets,
measured at the time of investment, in money market instruments that are in the
second-highest rating category for short-term debt obligations. The Series may
invest in money market instruments with maturities of not longer than thirteen
months, consisting of the following:
U.S. GOVERNMENT SECURITIES. Obligations issued or guaranteed (as to
principal or interest) by the United States Government or its agencies (such as
the Small Business Administration, the Federal Housing Administration and
Government National Mortgage Association), or instrumentalities (such as Federal
Home Loan Banks and Federal Land Banks), and instruments fully collateralized
with such obligations, such as repurchase agreements.
Some U.S. Government securities, such as treasury bills and bonds, are
supported by the full faith and credit of the U.S. Treasury; others are
supported by the right of the issuer to borrow from the Treasury; others, such
as those of the Federal National Mortgage Association, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality.
BANK OBLIGATIONS. Obligations of banks or savings and loan associations
that are members of the Federal Deposit Insurance Corporation, and instruments
fully collateralized with such obligations, such as repurchase agreements.
CORPORATE OBLIGATIONS. Commercial paper issued by corporations and rated
Prime-1 or Prime-2 by Moody's Investors Service, Inc. or A-1 or A-2 by Standard
& Poor's Corporation, or other corporate debt instruments rated Aaa or Aa or
better by Moody's or AAA or AA or better by Standard & Poor's, subject to the
limitations on investment in instruments in the second-highest rating category,
discussed below. (See the Appendix for a description of the commercial paper and
corporate bond ratings.)
Series C may invest in instruments having rates of interest that are
adjusted periodically according to a specified market rate for such investments
("Variable Rate Instruments"). The interest rate on a Variable Rate Instrument
is ordinarily determined by reference to, or is a percentage of, an objective
standard such as a bank's prime rate or the 91-day U.S. Treasury Bill rate. The
Series does not purchase certain Variable Rate Instruments that have a preset
cap above which the rate of interest may not rise. Generally, the changes in the
interest rate on Variable Rate Instruments reduce the fluctuation in the market
value of such securities. Accordingly, as interest rates decrease or increase,
the potential for capital appreciation or depreciation is less than for
fixed-rate obligations. Series C determines the maturity of Variable Rate
Instruments in accordance with Rule 2a-7 under the Investment Company Act of
1940 which generally allows the Series to consider the maturity date of such
instruments to be the period remaining until the next readjustment of the
interest rate rather than the maturity date on the face of the instrument.
Series C may also invest in guaranteed investment contracts ("GICs") issued
by insurance companies subject to the Series' policy that not more than 10% of
the total assets will be invested in illiquid securities. See "Investment
Methods and Risk Factors" for a discussion of GICs.
Certain of the securities acquired by Series C may be restricted as to
disposition under federal securities laws, provided that such restricted
securities are eligible for resale pursuant to Rule 144A under the Securities
Act of 1933. Rule 144A, adopted by the Securities and Exchange Commission in
1990, provides a nonexclusive safe harbor exemption from the registration
requirements of the Securities Act for the resale of certain securities to
certain qualified buyers. One of the primary purposes of the Rule is to create
resale liquidity for certain securities that would otherwise be treated as
illiquid investments. In accordance with its investment policies, the Fund is
not permitted to invest more than 10% of its total net assets in illiquid
securities. The Investment Manager, under procedures adopted by the Board of
Directors, will determine whether securities eligible for resale under Rule 144A
are liquid or not. Investing in Rule 144A securities may have the effect of
increasing the amount of the Series' assets invested in illiquid assets. See
"Investment Methods and Risk Factors" - "Restricted Securities."
Series C may invest only in U.S. dollar denominated money market
instruments that present minimal credit risk and, with respect to 95% of its
total assets, measured at the time of investment, that are of the highest
quality. The Investment Manager will determine whether a security presents
minimal credit risk under procedures adopted by the Fund's Board of Directors. A
security will be considered to be highest quality (1) if rated in the highest
rating category, (e.g., Aaa or Prime-1 by Moody's or AAA or A-1 by Standard &
Poor's) by (i) any two nationally recognized statistical rating organizations
("NRSRO's") or, (ii) if rated by only one NRSRO, by that NRSRO; (2) if issued by
an issuer that has short-term debt obligations of comparable maturity, priority,
and security and that are rated in the highest rating category by (i) any two
NRSRO's or, (ii) if rated by only one NRSRO, by that NRSRO; or (3) an unrated
security that is of comparable quality to a security in the highest rating
category as determined by the Investment Manager and whose acquisition is
approved or ratified by the Board of Directors. With respect to 5% of its total
assets, measured at the time of investment, the Series may also invest in money
market instruments that are in the second-highest rating category for short-term
debt obligations (e.g., rated Aa or Prime-2 by Moody's or AA or A-2 by S&P). A
money market instrument will be considered to be in the second-highest rating
category under the criteria described above with respect to instruments
considered highest quality, as applied to instruments in the second-highest
rating category.
Series C may not invest more than 5% of its total assets, measured at the
time of investment, in the securities of any one issuer that are of the highest
quality or more than the greater of 1% of its total assets or $1,000,000,
measured at the time of investment, in securities of any one issuer that are in
the second-highest rating category, except that these limitations shall not
apply to U.S. Government securities. The Series may exceed the 5% limitation for
up to three business days after the purchase of the securities of any one issuer
that are of the highest quality, provided that the Series has no more than one
such investment outstanding at any time. In the event that an instrument
acquired by the Series is downgraded, the Investment Manager, under procedures
approved by the Board of Directors, (or the Board of Directors itself if the
Investment Manager becomes aware that a security has been downgraded below the
second-highest rating category and the Investment Manager does not dispose of
the security within five business days) shall promptly reassess whether such
security presents minimal credit risk and determine whether or not to retain the
instrument. In the event that an instrument is acquired by the Series that
ceases to be eligible for the Series, the Investment Manager will promptly
dispose of such security in an orderly manner, unless the Board of Directors
determines that this would not be in the best interests of the Series.
While Series C does not intend to engage in short-term trading, portfolio
securities may be sold without regard to the length of time that they have been
held. A portfolio security could be sold prior to maturity to take advantage of
new investment opportunities or yield differentials, or to preserve gains or
limit losses due to changed economic conditions or the financial condition of
the issuer, or for other reasons.
Series C will invest in money market instruments of varying maturities (but
no longer than 13 months) in an effort to earn as high a level of current income
as is consistent with preservation of capital and liquidity. While investing
only in high quality money market instruments, investment in Series C is not
without risk. The market value of fixed income securities is generally affected
by changes in the level of interest rates. An increase in interest rates will
generally reduce the market value of fixed income investments, and a decline in
interest rates will generally increase their value. Instruments with longer
maturities are subject to greater fluctuations in value from general interest
rate changes than are shorter term issues. Such market value changes could cause
changes in the net asset value per share. (See "Determination of Net Asset
Value," page 65.) To reduce the effect of fluctuating interest rates on the net
asset value of its shares, Series C intends to maintain a weighted average
maturity in its portfolio of not more than 90 days. In addition to general
market risks, Series C's investments in non-government obligations are subject
to the ability of the issuer to satisfy its obligations. See the Appendix for a
description of the principal types of securities and instruments in which Series
C will invest.
SERIES D (WORLDWIDE EQUITY SERIES)
The investment objective of Series D is to seek long-term growth of capital
primarily through investment in common stocks and equivalents of companies
domiciled in foreign countries and the United States. Series D will seek to
achieve its objective through investment in a diversified portfolio of
securities which will consist primarily of all types of common stocks, which may
include ADRs, and equivalents (the following constitute equivalents: convertible
debt securities, warrants and options). See "Investment Methods and Risk
Factors" - "American Depositary Receipts." Series D may also invest in preferred
stocks, bonds and other debt obligations, which include money market instruments
of foreign and domestic companies and U.S. Government and foreign governments,
governmental agencies and international organizations. The Series may also
invest in real estate investment trusts (REITs). For a full description of the
Series' investment objective and policies, see the Prospectus.
Certain of the securities purchased by Series D may be restricted as to
disposition under the federal securities laws, provided that such restricted
securities are eligible for resale to qualified institutional investors pursuant
to Rule 144A under the Securities Act of 1933 and subject to the Fund's policy
that not more than 10% of total assets will be invested in illiquid securities.
The Investment Manager, under procedures adopted by the Board of Directors, will
determine whether securities eligible for resale under Rule 144A are liquid or
not. In making this determination, the Investment Manager, under the supervision
of the Board of Directors, will consider trading markets for the specific
security taking into account the unregistered nature of a Rule 144A security. In
addition, the Investment Manager may consider: (1) the frequency of trades and
quotes; (2) the number of dealers and potential purchasers; (3) dealer
undertakings to make a market; and (4) the nature of the security and of the
marketplace trades (e.g. the time needed to dispose of the security, the method
of soliciting offers and the mechanics of transfer). The liquidity of Rule 144A
securities will be monitored and if as a result of changed conditions it is
determined that a Rule 144A security is no longer liquid, Series D's holdings of
illiquid securities will be reviewed to determine what, if any, steps are
required to assure that it does not invest more than 10% of its assets in
illiquid securities. Investing in Rule 144A securities could have the effect of
increasing the amount of the Series' assets invested in illiquid securities, and
there may be undesirable delays in selling illiquid securities. See "Investment
Methods and Risk Factors" - "Restricted Securities."
In seeking to achieve its investment objective, Series D may from time to
time engage in the following investment practices:
TRANSACTION HEDGING. When Series D enters into contracts for purchase or
sale of a portfolio security denominated in a foreign currency, it may be
required to settle a purchase transaction in the relevant foreign currency or
receive the proceeds of a sale in that currency. In either event, Series D will
be obligated to acquire or dispose of such foreign currency as is represented by
the transaction by selling or buying an equivalent amount of United States
dollars. Furthermore, the Series may wish to "lock in" the United States dollar
value of the transaction at or near the time of a purchase or sale of portfolio
securities at the exchange rate or rates then prevailing between the United
States dollar and the currency in which the foreign security is denominated.
Therefore, Series D may, for a fixed amount of United States dollars, enter into
a forward foreign exchange contract for the purchase or sale of the amount of
foreign currency involved in the underlying securities transaction. In so doing,
Series D will attempt to insulate itself against possible losses and gains
resulting from a change in the relationship between the United States dollar and
the foreign currency during the period between the date a security is purchased
or sold and the date on which payment is made or received. This process is known
as "transaction hedging." To effect the translation of the amount of foreign
currencies involved in the purchase and sale of foreign securities and to effect
the "transaction hedging" described above, Series D may purchase or sell foreign
currencies on a "spot" (i.e. cash) basis or on a forward basis whereby the
Series purchases or sells a specific amount of foreign currency, at a price set
at the time of the contract, for receipt of delivery at a specified date which
may be any fixed number of days in the future.
Such spot and forward foreign exchange transactions may also be utilized to
reduce the risk inherent in fluctuations in the exchange rate between the United
States dollar and the relevant foreign currency when foreign securities are
purchased or sold for settlement beyond customary settlement time (as described
below). Neither type of foreign currency transaction will eliminate fluctuations
in the prices of Series D's portfolio or securities or prevent loss if the price
of such securities should decline.
PORTFOLIO HEDGING. Some or all of Series D's portfolio will be denominated
in foreign currencies. As a result, in addition to the risk of change in the
market value of portfolio securities, the value of the portfolio in United
States dollars is subject to fluctuations in the exchange rate between such
foreign currencies and the United States dollar. When, in the opinion of the
Series' Sub-Adviser, OppenheimerFunds, Inc. ("Oppenheimer"), it is desirable to
limit or reduce exposure in a foreign currency in order to moderate potential
changes in the United States dollar value of the portfolio, Series D may enter
into a forward foreign currency exchange contract by which the United States
dollar value of the underlying foreign portfolio securities can be approximately
matched by an equivalent United States dollar liability. This technique is known
as "portfolio hedging" and moderates or reduces the risk of change in the United
States dollar value of the Series' portfolio only during the period before the
maturity of the forward contract (which will not be in excess of one year).
Series D, for hedging purposes only, may also enter into forward currency
exchange contracts to increase its exposure to a foreign currency that
Oppenheimer expects to increase in value relative to the United States dollar.
Series D will not attempt to hedge all of its foreign portfolio positions and
will enter into such transactions only to the extent, if any, deemed appropriate
by Oppenheimer. Hedging against a decline in the value of currency does not
eliminate fluctuations in the prices of portfolio securities or prevent losses
if the prices of such securities decline. Series D intends to limit transactions
as described in this paragraph to not more than 70% of total Series assets.
FORWARD COMMITMENTS. Series D may make contracts to purchase securities for
a fixed price at a future date beyond customary settlement time ("forward
commitments") because new issues of securities are typically offered to
investors, such as Series D, on that basis. Forward commitments involve a risk
of loss if the value of the security to be purchased declines prior to the
settlement date. This risk is in addition to the risk of decline in value of
Series D's other assets. Although the Series will enter into such contracts with
the intention of acquiring the securities, Series D may dispose of a commitment
prior to settlement if Oppenheimer deems it appropriate to do so. Series D may
realize short-term profits or losses upon the sale of forward commitments.
COVERED CALL OPTIONS. Call options may also be used as a means of
participating in an anticipated price increase of a security on a more limited
basis than would be possible if the security itself were purchased. Series D may
write only covered call options. Since it can be expected that a call option
will be exercised if the market value of the underlying security increases to a
level greater than the exercise price, this strategy will generally be used when
Oppenheimer believes that the call premium received by the Series, plus
anticipated appreciation in the price of the underlying security, up to the
exercise price of the call, will be greater than the appreciation in the price
of the security. Series D will not purchase put and call options written by
others. Also, Series D will not write any put options. Series D intends to limit
transactions as described in this paragraph to less than 5% of total Series
assets. See the discussion of writing covered call options under "Investment
Methods and Risk Factors."
SERIES E (HIGH GRADE INCOME SERIES)
The investment objective of Series E is to provide current income with
security of principal. In pursuing its investment objective, the Series will
invest in a broad range of debt securities, including (i) securities issued by
U.S. and Canadian corporations; (ii) securities issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities, including Treasury
bills, certificates of indebtedness, notes and bonds; (iii) securities issued or
guaranteed by the Dominion of Canada or provinces thereof; (iv) securities
issued by foreign governments, their agencies and instrumentalities, and foreign
corporations, provided that such securities are denominated in U.S. dollars; (v)
higher yielding, high risk debt securities (commonly referred to as "junk
bonds"); (vi) certificates of deposit issued by a U.S. branch of a foreign bank
("Yankee CDs"); and (vii) investment grade mortgage-backed securities ("MBSs")
and (viii) zero coupon securities. Under normal circumstances, the Series will
invest at least 65% of its assets in U.S. Government securities and securities
rated A or higher by Moody's or S&P at the time of purchase, or if unrated, of
equivalent quality as determined by the Investment Manager.
Series E may invest in corporate debt securities rated Baa or higher by
Moody's or BBB or higher by S&P at the time of purchase, or if unrated, of
equivalent quality as determined by the Investment Manager. See Appendix A for a
description of corporate bond ratings. Included in such securities may be
convertible bonds or bonds with warrants attached which are rated at least Baa
or BBB at the time of purchase, or if unrated, of equivalent quality as
determined by the Investment Manager. A "convertible bond" is a bond, debenture
or preferred share which may be exchanged by the owner for common stock or
another security, usually of the same company, in accordance with the terms of
the issue. A "warrant" confers upon its holder the right to purchase an amount
of securities at a particular time and price. Securities rated Baa by Moody's or
BBB by S&P have speculative characteristics.
Series E may invest up to 25% of its net assets in higher yielding debt
securities in the lower rating (higher risk) categories of the recognized rating
services (commonly referred to as "junk bonds"). Such securities include
securities rated Ba or lower by Moody's or BB or lower by S&P and are regarded
as predominantly speculative with respect to the ability of the issuer to meet
principal and interest payments. The Series will not invest in junk bonds which
are rated in default at the time of purchase. See "Investment Methods and Risk
Factors" for a discussion of the risks associated with investing in such
securities.
U.S. Government securities are obligations of or guaranteed by the U.S.
Government, its agencies or instrumentalities. These include bills, certificates
of indebtedness, notes and bonds issued by the Treasury or by agencies in
instrumentalities of the U.S. Government. Some U.S. Government securities, such
as Treasury bills and bonds, are supported by the full faith and credit of the
U.S. Treasury, others are supported by the right of the issuer to borrow from
the Treasury; others, such as those of the Federal National Mortgage
Association, are supported by the discretionary authority of the U.S. Government
to purchase the agency's obligations; still others, such as those of the Student
Loan Marketing Association, are supported only by the credit of the
instrumentality. Although U.S. Government securities are guaranteed by the U.S.
Government, its agencies or instrumentalities, shares of the Fund are not so
guaranteed in any way. The diversification rules under Section 817(h) of the
Internal Revenue Code limit the ability of Series E to invest more than 55% of
its assets in the securities of any one U.S. Government agency or
instrumentality.
Series E may purchase securities which are obligations of, or guaranteed
by, the Dominion of Canada or provinces thereof, and Canadian corporate debt
securities. Canadian securities would not be purchased if subject to the foreign
interest equalization tax and unless payable in U.S. dollars.
For fixed-income securities such as corporate debt securities or U.S.
Government securities, the market value is generally affected by changes in the
level of interest rates. An increase in interest rates will tend to reduce the
market value of fixed-income investments, and a decline in interest rates will
tend to increase their value. In addition, debt securities with longer
maturities, which tend to produce higher yields, are subject to potentially
greater capital appreciation and depreciation than obligations with shorter
maturities.
Series E may invest in Yankee CDs which are certificates of deposit issued
by a U.S. branch of a foreign bank denominated in U.S. dollars and held in the
U.S. Yankee CDs are subject to somewhat different risks than are the obligations
of domestic banks. The Series also may invest in debt securities issued by
foreign governments, their agencies and instrumentalities and foreign
corporations, provided that such securities are denominated in U.S. dollars. The
Series' investments in foreign securities, including Canadian securities, will
not exceed 25% of the Series' net assets. See "Investment Methods and Risk
Factors" for a discussion of the risks associated with investing in foreign
securities.
Series E may invest in investment grade mortgage-backed securities (MBSs),
including mortgage pass-through securities and collateralized mortgage
obligations (CMOs). The Series may invest up to 10% of its net assets in
securities known as "inverse floating obligations," "residual interest bonds,"
or "interest-only" (IO) or "principal-only" (PO) bonds, the market values of
which generally will be more volatile than the market values of most MBSs. The
Series will hold less than 25% of its net assets in MBSs. For a discussion of
MBSs and the risks associated with such securities, see "Investment Methods and
Risk Factors."
The Series may invest in zero coupon securities which are debt securities
that pay no cash income but are sold at substantial discounts from their face
value. Certain zero coupon securities also are sold at substantial discounts but
provide for the commencement of regular interest payments at a deferred date.
See "Investment Methods and Risk Factors" for a discussion of zero coupon
securities.
Series E may acquire certain securities that are restricted as to
disposition under the federal securities laws, including securities that are
eligible for resale to qualified institutional investors pursuant to Rule 144A
under the Securities Act of 1933, subject to the Series' policy that not more
than 15% of the Series' net assets will be invested in illiquid assets. See
"Investment Methods and Risk Factors" for a discussion of restricted securities.
Series E may purchase securities on a "when-issued" or "delayed delivery
basis" in excess of customary settlement periods for the types of security
involved. For a discussion of such securities, see "Investment Methods and Risk
Factors" - "When-Issued Securities."
Series E may, for defensive purposes, invest part or all of its assets in
money market instruments such as those appropriate for investment by Series C.
SERIES I (INTERNATIONAL SERIES)
The investment objective of the Series is long-term capital appreciation
from investment in foreign equity securities (or other securities with equity
characteristics); the production of any current income is incidental to this
objective. The Series invests primarily in established companies based in
developed countries outside the United States, but may also invest in emerging
market securities. There can be no assurance that the investment objective of
the Series will be achieved.
The Series is designed for investors who are willing to accept short-term
domestic and/or foreign stock market fluctuations in pursuit of potentially
higher long-term returns.
The Series is not itself a balanced investment plan. Investors should
consider their investment objective and tolerance for risk when making an
investment decision.
The value of the Series' investments varies based upon many factors. Stock
values fluctuate, sometimes dramatically, in response to the activities of
individual companies and general market and economic conditions. Over time,
however, stocks have shown greater long-term growth potential than other types
of securities. Lower quality securities offer higher yields, but also carry more
risk. Because many foreign investments are denominated in foreign currencies,
changes in the value of these currencies can significantly affect the Series'
share price. General economic factors in the various world markets can also
impact the value of an investor's investment. When an investor sells his or her
shares, they may be worth more or less than what the investor paid for them.
The following is a discussion of the various investments of and techniques
employed by the Series. Additional information about the investment policies of
the Series appears in "Investment Methods and Risk Factors" herein.
Under normal circumstances, the Series will invest at least 65% of the
value of its total assets in the equity securities of foreign issuers,
consisting of common stock and other securities with equity characteristics.
These issuers are primarily established companies based in developed countries
outside the United States. However the Series may also invest in securities of
issuers in underdeveloped countries. Investments in these countries will be
based upon what the Sub-Adviser, Bankers Trust Company ("Bankers Trust"),
believes to be an acceptable degree of risk in anticipation of superior returns.
The Series will at all times be invested in the securities of issuers based in a
least three countries other than the United States. For further discussion of
the unique risks associated with investing in foreign securities in both
developed and underdeveloped countries, see "Investment Objectives and Risk
Factors" - "Certain Risks of Foreign Investing" herein.
The Series' investments will generally be diversified among several
geographic regions and countries. Criteria for determining the appropriate
distribution of investments among various countries and regions include the
prospects for relative growth among foreign countries, expected levels of
inflation, government policies influencing business conditions, the outlook for
currency relationships and the range of alternative opportunities available to
international investors.
In countries and regions with well-developed capital markets where more
information is available, Bankers Trust will seek to select individual
investments for the Fund. Criteria for selection of individual securities
include the issuer's competitive position, prospects for growth, management
strength, earnings quality, underlying asset value, relative market value and
overall marketability. The Series may invest in securities of companies having
various levels of net worth, including smaller companies whose securities may be
more volatile than securities offered by larger companies with higher levels of
net worth.
In other countries and regions where capital markets are underdeveloped or
not easily accessed and information is difficult to obtain, the Series may
choose to invest only at the market level. Here the Series may seek to achieve
country exposure through use of options or futures based upon an established
local index of securities issued by local issuers. Similarly, country exposure
may also be achieved through investments in other registered investment
companies. Restrictions on both these types of investments are more fully
described below.
The remainder of the Series' assets will be invested in dollar and
non-dollar denominated short-term instruments. These investments are subject to
the conditions discussed in more detail below.
The Series invests primarily in common stocks and other securities with
equity characteristics. For purposes of the Series' policy of investing at least
65% of the value of its total assets in the equity securities of foreign
issuers, "equity securities" are defined as common stock, preferred stock, trust
or limited partnership interests, rights and warrants, and convertible
securities (consisting of debt securities or preferred stock that may be
converted into common stock or that carry the right to purchase common stock).
The Series invests in securities listed on foreign or domestic securities
exchanges and securities traded in foreign or domestic over-the-counter markets
and may invest in restricted or unlisted securities.
The Series may also utilize the following investments and investment
techniques and practices: American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRS"), European Depositary Receipts ("EDRs"), Rule 144A
securities, when-issued and delayed deliver securities, securities lending,
repurchase agreements, foreign currency exchange transactions, options on
stocks, options on foreign stock indices, futures contracts on foreign stock
indices, and options on futures contracts. See "Investment Methods and Risk
Factors" for further information.
The Series intends to stay invested in the securities described above to
the extent practical in light of its objective and long-term investment
perspective. However, the Series' assets may be invested in short-term
instruments with remaining maturities of 397 days or less (or in money market
mutual funds) to meet anticipated redemptions and expenses or for day-to-day
operating purposes and when, in Banker Trust's opinion, it is advisable to adopt
a temporary defensive position because of unusual or adverse conditions
affecting the equity markets. In addition, when the Series experiences large
cash inflows through the sale of securities, and desirable equity securities
that are consistent with the Series' investment objective are unavailable in
sufficient quantities or at attractive prices, the Series may hold short-term
investments for a limited time pending availability of such equity securities.
Short-term instruments consist of foreign and domestic: (i) short-term
obligations of sovereign governments, their agencies, instrumentalities,
authorities or political subdivisions; (ii) other short-term debt securities
rated Aa or higher by Moody's Investors Service, Inc. ("Moody's") or AA or
higher by Standard & Poor's Rating Group("S&P") or, if unrated, of comparable
quality in the opinion of Bankers Trust; (iii) commercial paper; (iv) bank
obligations, including negotiable certificates of deposit, time deposits and
bankers' acceptances; and (v) repurchase agreements. At the time the Series
invests in commercial paper, bank obligations or repurchase agreements, the
issuer or the issuer's parent must have outstanding commercial paper or bank
obligations rated Prime-1 by Moody's or A-1 by S&P; or, if no such rating are
available, the instrument must be of comparable quality in the opinion of
Bankers Trust. These instrument may be denominated in U.S. dollars or in foreign
currencies that have been determined to be of high quality by a nationally
recognized statistical rating organization, or if unrated, by Bankers Trust. For
more information on these rating categories see the "Appendix".
As a diversified mutual fund, no more than 5% of the assets of the Series
may be invested in the securities of one issuer (other than U.S. government
securities), except that up to 25% of the Series' assets may be invested without
regard to this limitation. The Series will not invest more than 25% of its
assets in the securities of issuers in any one industry. These are fundamental
investment policies of the Series which may not be changed without shareholder
approval. No more than 15% of the Series' net assets may be invested in illiquid
or not readily marketable securities (including repurchase agreements and time
deposits maturing in more than seven calendar days).
SERIES J (EMERGING GROWTH SERIES)
The investment objective of Series J is to seek capital appreciation by
investing in a diversified portfolio of common stocks (which may include ADRs),
preferred stocks, debt securities, and securities convertible into common
stocks. See "Investment Methods and Risk Factors" - "American Depositary
Receipts." On a temporary basis, there may be times when Series J may invest its
assets in cash or money market instruments for defensive purposes.
Securities selected for their appreciation possibilities will be primarily
common stocks or other securities having the investment characteristics of
common stocks, such as securities convertible into common stocks. Securities
will be selected on the basis of their appreciation and growth potential.
Current income will not be a factor in selecting investments, and any such
income should be considered incidental. Securities considered to have capital
appreciation and growth potential will often include securities of smaller and
less mature companies. These companies often have a unique proprietary product
or profitable market niche and the potential to grow very rapidly. Such
companies may present greater opportunities for capital appreciation because of
high potential earnings growth, but may also involve greater risk. They may have
limited product lines, markets or financial resources, and they may be dependent
on a small or inexperienced management team. Their securities may trade less
frequently and in limited volume, and only in the over-the-counter market or on
smaller securities exchanges. As a result, the securities of smaller companies
may have limited marketability and may be subject to more abrupt or erratic
changes in value than securities of larger, more established companies.
Series J may also invest in larger companies where opportunities for
above-average capital appreciation appear favorable.
Series J may purchase securities on a "when-issued" or "delayed delivery
basis" in excess of customary settlement periods for the type of security
involved. Securities purchased on a when-issued basis are subject to market
fluctuation and no interest or dividends accrue to the Series prior to the
settlement date. Series J will establish a segregated account with its custodian
bank in which it will maintain cash or liquid securities equal in value to
commitments for such when-issued or delayed delivery securities. See "Investment
Methods and Risk Factors" - "When-Issued Securities."
The Series may enter into futures contracts (or options thereon) to hedge
all or a portion of its portfolio, or as an efficient means of adjusting its
exposure to the stock market. The Series will not use futures contracts for
leveraging purposes. The Series will limit its use of futures contracts so that
initial margin deposits or premiums on such contracts used for non-hedging
purposes will not equal more than 5% of the Series' net asset value. Futures
contracts (and options thereon) and the risks associated with such instruments
are described in further detail under "Investment Methods and Risk Factors."
In seeking capital appreciation, Series J may, during certain periods,
trade to a substantial degree in securities for the short term. That is, the
Series may be engaged essentially in trading operations based on short-term
market considerations, as distinct from long-term investments based on
fundamental evaluations of securities. This investment policy is speculative and
involves substantial risk.
SERIES K (GLOBAL AGGRESSIVE BOND SERIES)
The primary investment objective of Series K is to provide high current
income. Capital appreciation is a secondary objective. The Series, under normal
circumstances, invests substantially all of its assets in debt securities of
issuers in the United States, developed foreign countries and emerging markets.
For purposes of its investment objective, the Series considers an emerging
country to be any country whose economy and market the World Bank or United
Nations considers to be emerging or developing. The Series may also invest in
debt securities traded in any market, of companies that derive 50% or more of
their total revenue from either goods or services produced in such emerging
countries and emerging markets or sales made in such countries. Determinations
as to eligibility will be made by the Series' Sub-Advisers, Lexington and MFR
Advisors, Inc. ("MFR") based on publicly available information and inquiries
made to the companies. It is possible in the future that sufficient numbers of
emerging country or emerging market debt securities would be traded on
securities markets in industrialized countries so that a major portion, if not
all, of the Series' assets would be invested in securities traded on such
markets, although such a situation is unlikely at present.
Currently, investing in many of the emerging countries and emerging markets
is not feasible or may involve political risks. Accordingly, Lexington currently
intends to consider investments only in those countries in which it believes
investing is feasible. The list of acceptable countries will be reviewed by
Lexington and MFR and approved by the Board of Directors on a periodic basis and
any additions or deletions with respect to such list will be made in accordance
with changing economic and political circumstances involving such countries.
Lexington is the Sub-Adviser of the Series. Lexington has entered into a
sub-advisory contract with MFR to provide Series K with investment and economic
research services. In determining the appropriate distribution of investments
among various countries and geographic regions for the Series, Lexington and MFR
ordinarily consider the following factors: prospects for relative economic
growth among the different countries in which the Series may invest; expected
levels of inflation; government policies influencing business conditions; the
outlook for currency relationships; and the range of the individual investment
opportunities available to international investors.
Although the Series values assets daily in terms of U.S. dollars, the
Series does not intend to convert holdings of foreign currencies into U.S.
dollars on a daily basis. The Series will do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference ("spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to the Series at one rate, while offering a lesser rate of exchange should the
Series desire to sell that currency to the dealer.
The Series may invest in the following types of money market instruments
(i.e., debt instruments with less than 12 months remaining until maturity)
denominated in U.S. dollars or other currencies: (a) obligations issued or
guaranteed by the U.S. or foreign governments, their agencies, instrumentalities
or municipalities; (b) obligations of international organizations designed or
supported by multiple foreign governmental entities to promote economic
reconstruction or development; (c) finance company obligations, corporate
commercial paper and other short-term commercial obligations; (d) bank
obligations (including certificates of deposit, time deposits, demand deposits
and bankers' acceptances), subject to the restriction that the Series may not
invest more than 25% of its total assets in bank securities; (e) repurchase
agreements with respect to the foregoing; and (f) other substantially similar
short-term debt securities with comparable characteristics.
SAMURAI AND YANKEE BONDS. Subject to its respective fundamental investment
restrictions, the Series may invest in yen-denominated bonds sold in Japan by
non-Japanese issuers ("Samurai bonds"), and may invest in dollar-denominated
bonds sold in the United States by non-U.S. issuers ("Yankee bonds"). It is the
policy of the Series to invest in Samurai or Yankee bond issues only after
taking into account considerations of quality and liquidity, as well as yield.
COMMERCIAL BANK OBLIGATIONS. For the purposes of the Series' investment
policies with respect to bank obligations, obligations of foreign branches of
U.S. banks and of foreign banks are obligations of the issuing bank and may be
general obligations of the parent bank. Such obligations, however, may be
limited by the terms of a specific obligation and by government regulation. As
with investment in non-U.S. securities in general, investments in the
obligations of foreign branches of U.S. banks and of foreign banks may subject
the Series to investment risks that are different in some respect from those of
investments in obligations of domestic issuers. Although the Series typically
will acquire obligations issued and supported by the credit of U.S. or foreign
banks having total assets at the time of purchase in excess of $1 billion, this
$1 billion figure is not a fundamental investment policy or restriction of the
Series. For the purposes of calculation with respect to the $1 billion figure,
the assets of a bank will be deemed to include the assets of its U.S. and
non-U.S. branches.
REPURCHASE AGREEMENTS, REVERSE REPURCHASE AGREEMENTS AND ROLL TRANSACTIONS.
Although repurchase agreements carry certain risks not associated with direct
investments in securities, the Series intends to enter into repurchase
agreements only with banks and broker/dealers believed by Lexington and MFR to
present minimal credit risks in accordance with guidelines approved by the
Fund's Board of Directors. Lexington and MFR will review and monitor the
creditworthiness of such institutions, and will consider the capitalization of
the institution, Lexington and MFR's prior dealings with the institution, any
rating of the institution's senior long-term debt by independent rating agencies
and other relevant factors.
The Series will invest only in repurchase agreements collateralized at all
times in an amount at least equal to the repurchase price plus accrued interest.
To the extent that the proceeds from any sale of such collateral upon a default
in the obligation to repurchase were less than the repurchase price, the Series
would suffer a loss. If the financial institution which is party to the
repurchase agreement petitions for bankruptcy or otherwise becomes subject to
bankruptcy or other liquidation proceedings there may be restrictions on the
Series' ability to sell the collateral and the Series could suffer a loss. The
Series will not enter into a repurchase agreement with a maturity of more than
seven days if, as a result, more than 15% of the value of its total net assets
would be invested in such repurchase agreements and other illiquid investments
and securities for which no readily available market exists.
The Series may enter into reverse repurchase agreements. A reverse
repurchase agreement is a borrowing transaction in which the Series transfers
possession of a security to another party, such as a bank or broker/dealer, in
return for cash, and agrees to repurchase the security in the future at an
agreed upon price, which includes an interest component. The Series also may
engage in "roll" borrowing transactions which involve the Series' sale of fixed
income securities together with a commitment (for which the Series may receive a
fee) to purchase similar, but not identical, securities at a future date. The
Series will maintain, in a segregated account with a custodian, cash or liquid
securities in an amount sufficient to cover its obligation under "roll"
transactions and reverse repurchase agreements.
BORROWING. The Series' operating policy on borrowing provides that the
Series will not borrow money in order to purchase securities and the Series may
borrow up to 5% of its total assets for temporary or emergency purposes and to
meet redemptions. This policy may be changed by the Fund's Board of Directors.
Any borrowing by the Series may cause greater fluctuation in the value of its
shares than would be the case if the Series did not borrow.
SHORT SALES. The Series is authorized to make short sales of securities,
although it has no current intention of doing so. A short sale is a transaction
in which the Series sells a security in anticipation that the market price of
that security will decline. The Series may make short sales as a form of hedging
to offset potential declines in long positions in securities it owns and in
order to maintain portfolio flexibility. The Series only may make short sales
"against the box." In this type of short sale, at the time of the sale, the
Series owns the security it has sold short or has the immediate and
unconditional right to acquire the identical security at no additional cost.
In a short sale, the seller does not immediately deliver the securities
sold and does not receive the proceeds from the sale. To make delivery to the
purchaser, the executing broker borrows the securities being sold short on
behalf of the seller. The seller is said to have a short position in the
securities sold until it delivers the securities sold, at which time it receives
the proceeds of the sale. To secure its obligation to deliver securities sold
short, the Series will deposit in a separate account with its custodian an equal
amount of the securities sold short or securities convertible into or
exchangeable for such securities at no cost. The Series could close out a short
position by purchasing and delivering an equal amount of the securities sold
short, rather than by delivering securities already held by the Series, because
the Series might want to continue to receive interest and dividend payments on
securities in its portfolio that are convertible into the securities sold short.
The Series might make a short sale "against the box" in order to hedge
against market risks when Lexington and MFR believe that the price of a security
may decline, causing a decline in the value of a security owned by the Series or
a security convertible into or exchangeable for such security. In such case, any
future losses in the Series' long position should be reduced by a gain in the
short position. Conversely, any gain in the long position should be reduced by a
loss in the short position. The extent to which such gains or losses in the long
position are reduced will depend upon the amount of the securities sold short
relative to the amount of the securities the Series owns, either directly or
indirectly, and, in the case where a Series owns convertible securities, changes
in the investment values or conversion premiums of such securities. There will
be certain additional transaction costs associated with short sales "against the
box," but the Series will endeavor to offset these costs with income from the
investment of the cash proceeds of short sales.
ILLIQUID SECURITIES. The Series may invest up to 15% of total net assets in
illiquid securities. Securities may be considered illiquid if the Series cannot
reasonably expect to receive approximately the amount at which the Series values
such securities within seven days. The sale of illiquid securities, if they can
be sold at all, generally will require more time and result in higher brokerage
charges or dealer discounts and other selling expenses than will the sale of
liquid securities, such as securities eligible for trading on U.S. securities
exchanges or in the over-the-counter markets. Moreover, restricted securities,
which may be illiquid for purposes of this limitation often sell, if at all, at
a price lower than similar securities that are not subject to restrictions on
resale.
With respect to liquidity determinations generally, the Fund's Board of
Directors has the ultimate responsibility for determining whether specific
securities, including restricted securities pursuant to Rule 144A under the
Securities Act of 1933, are liquid or illiquid. The Board has delegated the
function of making day-to-day determinations of liquidity to Lexington and MFR
in accordance with procedures approved by the Fund's Board of Directors.
Lexington and MFR take into account a number of factors in reaching liquidity
decisions, including, but not limited to: (i) the frequency of trading in the
security; (ii) the number of dealers that make quotes for the security; (iii)
the number of dealers that have undertaken to make a market in the security;
(iv) the number of other potential purchasers; and (v) the nature of the
security and how trading is effected (e.g., the time needed to sell the
security, how offers are solicited and the mechanics of transfer). Lexington and
MFR will monitor the liquidity of securities held by the Series and report
periodically on such decisions to the Board of Directors.
OPTIONS, FUTURES AND FORWARD CURRENCY STRATEGIES
WRITING COVERED CALL OPTIONS. The Series may write (sell) covered call
options and purchase options to close out options previously written by the
Series. Covered call options generally will be written on securities and
currencies which in the opinion of Lexington and MFR are not expected to make
any major price moves in the near future but which, over the long term, are
deemed to be attractive investments for the Series. Lexington, MFR and the
Series believe that writing of covered call options is less risky than writing
uncovered or "naked" options, which the Series will not do. For more information
about writing covered call options, see the discussion under "Investment Methods
and Risk Factors."
WRITING COVERED PUT OPTIONS. The Series may write covered put options and
purchase options to close out options previously written by the Series. A put
option gives the purchaser of the option the right to sell, and the writer
(seller) the obligation to buy, the underlying security or currency at the
exercise price during the option period. The option may be exercised at any time
prior to its expiration date. The operation of put options in other respects,
including their related risks and rewards, is substantially identical to that of
call options. See the discussion of writing covered put options under
"Investment Methods and Risk Factors."
PURCHASING PUT OPTIONS. The Series may purchase put options. As the holder
of a put option, the Series would have the right to sell the underlying security
or currency at the exercise price at any time during the option period. The
Series may enter into closing sale transactions with respect to such options,
exercise them or permit them to expire. See the discussion of purchases of put
options under "Investment Methods and Risk Factors."
The premium paid by the Series when purchasing a put option will be
recorded as an asset in the Series' statement of assets and liabilities. This
asset will be adjusted daily to the option's current market value, which will be
the latest sale price at the time at which the net asset value per share of the
Series is computed (at the close of regular trading on the NYSE), or, in the
absence of such sale, the latest bid price. The asset will be extinguished upon
expiration of the option, the writing of an identical option in a closing
transaction, or the delivery of the underlying security or currency upon the
exercise of the option.
PURCHASING CALL OPTIONS. The Series may purchase call options. As the
holder of a call option, the Series would have the right to purchase the
underlying security or currency at the exercise price at any time during the
option period. The Series may enter into closing sale transactions with respect
to such options, exercise them or permit them to expire. Call options may be
purchased by the Series for the purpose of acquiring the underlying security or
currency for its portfolio. For a discussion of purchases of call options, see
"Investment Methods and Risk Factors."
The Series may attempt to accomplish objectives similar to those involved
in using Forward Contracts (defined below), as described in the Prospectus, by
purchasing put or call options on currencies. A put option gives the Series as
purchaser the right (but not the obligation) to sell a specified amount of
currency at the exercise price until the expiration of the option. A call option
gives the Series as purchaser the right (but not the obligation) to purchase a
specified amount of currency at the exercise price until its expiration. The
Series might purchase a currency put option, for example, to protect itself
during the contract period against a decline in the dollar value of a currency
in which it holds or anticipates holding securities. If the currency's value
should decline against the dollar, the loss in currency value should be offset,
in whole or in part, by an increase in the value of the put. If the value of the
currency instead should rise against the dollar, any gain to the Series would be
reduced by the premium it had paid for the put option. A currency call option
might be purchased, for example, in anticipation of, or to protect against, a
rise in the value against the dollar of a currency in which the Series
anticipates purchasing securities.
Currency options may be either listed on an exchange or traded
over-the-counter ("OTC options"). Listed options are third-party contracts
(i.e., performance of the obligations of the purchaser and seller is guaranteed
by the exchange or clearing corporation), and have standardized strike prices
and expiration dates. OTC options are two-party contracts with negotiated strike
prices and expiration dates. The Securities and Exchange Commission ("SEC")
staff considers OTC options to be illiquid securities. The Series will not
purchase an OTC option unless the Series believes that daily valuations for such
options are readily obtainable. OTC options differ from exchange-traded options
in that OTC options are transacted with dealers directly and not through a
clearing corporation (which guarantees performance). Consequently, there is a
risk of non-performance by the dealer. Since no exchange is involved, OTC
options are valued on the basis of a quote provided by the dealer. In the case
of OTC options, there can be no assurance that a liquid secondary market will
exist for any particular option at any specific time.
INTEREST RATE AND CURRENCY FUTURES CONTRACTS. The Series may enter into
interest rate or currency futures contracts ("Futures" or "Futures Contracts")
as a hedge against changes in prevailing levels of interest rates or currency
exchange rates in order to establish more definitely the effective return on
securities or currencies held or intended to be acquired by the Series. The
Series' hedging may include sales of Futures as an offset against the effect of
expected increases in interest rates or currency exchange rates, and purchases
of Futures as an offset against the effect of expected declines in interest
rates or currency exchange rates.
The Series will enter only into Futures Contracts which are traded on
national futures exchanges and are standardized as to maturity date and
underlying financial instrument. The principal interest rate and currency
Futures exchanges in the United States are the Board of Trade of the City of
Chicago and the Chicago Mercantile Exchange. Futures exchanges and trading are
regulated under the Commodity Exchange Act by the Commodity Futures Trading
Commission ("CFTC"). Futures are exchanged in London at the London International
Financial Futures Exchange.
Although techniques other than sales and purchases of Futures Contracts
could be used to reduce the Series' exposure to interest rate and currency
exchange rate fluctuations, the Series may be able to hedge exposure more
effectively and at a lower cost through using Futures Contracts.
The Series will not enter into a Futures Contract if, as a result thereof,
more than 5% of the Series' total assets (taken at market value at the time of
entering into the contract) would be committed to "margin" (down payment)
deposits on such Futures Contracts.
Futures Contract provides for the future sale by one party and purchase by
another party of a specified amount of a specific financial instrument (debt
security or currency) for a specified price at a designated date, time and
place. Brokerage fees are incurred when a Futures Contract is bought or sold,
and margin deposits must be maintained at all times the Futures Contract is
outstanding. For a discussion of Futures Contracts and the risks associated with
investing in Futures Contracts, see "Investment Methods and Risk Factors."
In the case of a Futures Contract sale, the Series either will set aside
amounts, as in the case of a Futures Contract purchase, own the security
underlying the contract or hold a call option permitting the Series to purchase
the same Futures Contract at a price no higher than the contract price. Assets
used as cover cannot be sold while the position in the corresponding Futures
Contract is open, unless they are replaced with similar assets. As a result, the
commitment of a significant portion of the Series' assets to cover could impede
portfolio management or the Series' ability to meet redemption requests or other
current obligations.
OPTIONS ON FUTURES CONTRACTS. Options on Futures Contracts are similar to
options on securities or currencies except that options on Futures Contracts
give the purchaser the right, in return for the premium paid, to assume a
position in a Futures Contract (a long position if the option is a call and a
short position if the option is a put), rather than to purchase or sell the
Futures Contract, at a specified exercise price at any time during the period of
the option. Upon exercise of the option, the delivery of the Futures position by
the writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer's Futures margin account which
represents the amount by which the market price of the Futures Contract, at
exercise, exceeds (in the case of a call) or is less than (in the case of a put)
the exercise price of the option on the Futures Contract. If an option is
exercised on the last trading day prior to the expiration date of the option,
the settlement will be made entirely in cash equal to the difference between the
exercise price of the option and the closing level of the securities, currencies
or index upon which the Futures Contracts are based on the expiration date.
Purchasers of options who fail to exercise their options prior to the exercise
date suffer a loss of the premium paid.
As an alternative to purchasing call and put options on Futures, the Series
may purchase call and put options on the underlying securities or currencies
themselves. Such options would be used in a manner identical to the use of
options on Futures Contracts.
To reduce or eliminate the leverage then employed by the Series, or to
reduce or eliminate the hedge position then currently held by the Series, the
Series may seek to close out an option position by selling an option covering
the same securities or contract and having the same exercise price and
expiration date. Trading in options on Futures Contracts began relatively
recently. The ability to establish and close out positions on such options will
be subject to the development and maintenance of a liquid secondary market. It
is not certain that this market will develop. For a discussion of options on
Futures Contracts and associated risks, see "Investment Methods and Risk
Factors."
FORWARD CURRENCY CONTRACTS AND OPTIONS ON CURRENCY. A forward currency
contract ("Forward Contract") is an obligation, generally arranged with a
commercial bank or other currency dealer, to purchase or sell a currency against
another currency at a future date and price as agreed upon by the parties. The
Series may accept or make delivery of the currency at the maturity of the
Forward Contract or, prior to maturity, enter into a closing transaction
involving the purchase or sale of an offsetting contract. The Series may enter
into Forward Contracts either with respect to specific transactions or with
respect to the Series' portfolio positions. The Series will utilize Forward
Contracts only on a covered basis. See the discussion of such contracts and
related options under "Investment Methods and Risk Factors."
INTEREST RATE AND CURRENCY SWAPS. The Series usually will enter into
interest rate swaps on a net basis if the contract so provides, that is, the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Series receiving or paying, as the case
may be, only the net amount of the two payments. Inasmuch as swaps, caps, floors
and collars are entered into for good faith hedging purposes, Lexington, MFR and
the Series believe that they do not constitute senior securities under the 1940
Act if appropriately covered and, thus, will not treat them as being subject to
the Series' borrowing restrictions. Interest rate swaps involve the exchange by
the Series with another party of their respective commitments to pay or receive
interest (for example, an exchange of floating rate payments for fixed rate
payments) with respect to a notional amount of principal. A currency swap is an
agreement to exchange cash flows on a notional amount based on changes in the
values of the reference indices. The purchase of a cap entitles the purchaser to
receive payments on a notional principal amount from the party selling the cap
to the extent that a specified index exceeds a predetermined interest rate. The
purchase of an interest rate floor entitles the purchaser to receive payments on
a notional principal amount from the party selling the floor to the extent that
a specified index falls below a predetermined interest rate or amount. A collar
is a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values.
The Series will not enter into any swap, cap, floor, collar or other
derivative transaction unless, at the time of entering into the transaction, the
unsecured long-term debt rating of the counterparty combined with any credit
enhancements is rated at least A by Moody's Investors Service, Inc. ("Moody's")
or Standard & Poor's Ratings Group ("S&P") or has an equivalent rating from a
nationally recognized statistical rating organization or is determined to be of
equivalent credit quality by Lexington and MFR. If a counterparty defaults, the
Series may have contractual remedies pursuant to the agreements related to the
transactions. The swap market has grown substantially in recent years, with a
large number of banks and investment banking firms acting both as principals and
as agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid. Caps, floors and collars are more recent
innovations for which standardized documentation has not yet been fully
developed and, for that reason, they are less liquid than swaps.
SERIES M (SPECIALIZED ASSET ALLOCATION SERIES)
The investment objective of Series M is to seek high total return,
consisting of capital appreciation and current income. The Series seeks this
objective by following an asset allocation strategy that contemplates shifts
among a wide range of investment categories and market sectors. The Series will
invest in the following investment categories: equity securities of domestic and
foreign issuers, including common stocks, preferred stocks, convertible
securities and warrants; debt securities of domestic and foreign issuers,
including mortgage-related and other asset-backed securities; exchange-traded
real estate investment trusts (REITs); equity securities of companies involved
in the exploration, mining, development, production and distribution of gold
("gold stocks"); zero coupon securities and domestic money market instruments.
See "Investment Methods and Risk Factors" in the Prospectus and this Statement
of Additional Information for a discussion of the additional risks associated
with investment in foreign securities, and see the discussion of the risks
associated with investment in gold stocks below.
Investment in gold stocks presents risks, because the prices of gold have
fluctuated substantially over short periods of time. Prices may be affected by
unpredictable monetary and political policies, such as currency devaluations or
revaluations, economic and social conditions within an individual country, trade
imbalances, or trade or currency restrictions between countries. The unstable
political and social conditions in South Africa and unsettled political
conditions prevailing in neighboring countries may have disruptive effects on
the market prices of securities of South African companies.
The Series is not required to maintain a portion of its assets in each of
the permitted investment categories. The Series, however, under normal
circumstances maintains a minimum of 35% of its total assets in equity
securities and 10% in debt securities. The Series will not invest more than 55%
of its total assets in money market instruments (except when in a temporary
defensive position), more than 80% of its total assets in foreign securities,
nor more than 20% of its total assets in gold stocks.
The Series' Sub-Adviser, Meridian Investment Management Company
("Meridian"), conducts quantitative investment research and uses the research to
strategically allocate the Series' assets among the investment categories
identified above, primarily on the basis of a quantitative asset allocation
model. With respect to equity securities, the model analyzes a large number of
equity securities based on the following factors: current earnings, earnings
history, long-term earnings projections, current price, and price momentum.
Meridian then determines which sectors within an identified investment category
are deemed to be the most attractive relative to other sectors. For example, the
model may indicate that a portion of the Series' assets should be invested in
the domestic equity category of the market and within this category that
pharmaceutical stocks represent a sector with an attractive total return
potential.
Meridian identifies sectors of the domestic and international economy in
which the Series will invest and then determines which equity securities to
purchase within the identified sectors.
With respect to the selection of debt securities for the Series, the asset
allocation model provided by Meridian, analyzes the prices of commodities and
finished goods to arrive at an interest rate projection. The Investment Manager
will determine the portion of the portfolio to allocate to debt securities and
the duration of those securities based on the model's interest rate projections.
Gold stocks and REITs will be analyzed in a manner similar to that used for
equity securities. Money market instruments will be analyzed based on current
returns and the current yield curve. The asset allocation model used by the
Series may evolve over time or be replaced by other stock selection techniques.
There is no assurance that the model will correctly predict market trends or
enable the Series to achieve its investment objective.
The debt securities in which the Series may invest will, at the time of
investment, consist of "investment grade" bonds, which are bonds rated BBB or
better by S&P or Baa or better by Moody's or that are unrated by S&P and Moody's
but considered by the Investment Manager to be of equivalent credit quality.
Securities rated BBB by S&P or Baa by Moody's have speculative characteristics
and may be more susceptible than higher grade bonds to adverse economic
conditions or other adverse circumstances which may result in a weakened
capacity to make principal and interest payments.
The Series may invest in investment grade mortgage-backed securities
(MBSs), including mortgage pass-through securities and collateralized mortgage
obligations (CMOs). The Series will not invest in an MBS if, as a result of such
investment, more than 25% of its total assets would be invested in MBSs,
including CMOs and mortgage pass-through securities. For a discussion of MBSs
and the risks associated with such securities, see "Investment Methods and Risk
Factors" - "Mortgage-Backed Securities" in the Prospectus and this Statement of
Additional Information.
The Series may invest in zero coupon securities which are debt securities
that pay no cash income but are sold at substantial discounts from their face
value. Certain zero coupon securities also are sold at substantial discounts but
provide for the commencement of regular interest payments at a deferred date.
See "Investment Methods and Risk Factors" for a discussion of zero coupon
securities.
The Series may write covered call options and purchase put options on
securities, financial indices and foreign currencies and may enter into futures
contracts. The Series may buy and sell futures contracts (and options on such
contracts) to manage exposure to changes in securities prices and foreign
currencies and as an efficient means of adjusting overall exposure to certain
markets. It is the Series' operating policy that initial margin deposits and
premiums on options used for non-hedging purposes will not equal more than 5% of
the Series' net assets. The total market value of securities against which the
Series has written call options may not exceed 25% of its total assets. The
Series will not commit more than 5% of its total assets to premiums when
purchasing put options. Futures contracts and options may not always be
successful hedges and their prices can be highly volatile. Using futures
contracts and options could lower the Series' total return and the potential
loss from the use of futures can exceed the Series' initial investment in such
contracts. Futures contracts and options and the risks associated with such
instruments are described in further detail under "Investment Methods and Risk
Factors."
SERIES N (MANAGED ASSET ALLOCATION SERIES)
The investment objective of Series N is to seek a high level of total
return by investing primarily in a diversified group of fixed income and equity
securities.
The Series is designed to balance the potential appreciation of common
stocks with the income and principal stability of bonds over the long term. Over
the long term, the Series expects to allocate its assets so that approximately
40% of such assets will be in the fixed income sector (as defined below) and
approximately 60% in the equity sector (as defined below). This mix may vary
over shorter time periods within the ranges set forth below:
RANGE
Fixed Income Sector 30-50%
Equity Sector 50-70%
The primary consideration in varying from the 60-40 allocation will be the
outlook of the Series' Sub-Adviser, T. Rowe Price Associates, Inc. ("T. Rowe
Price"), for the different markets in which the Series invests. Shifts between
the fixed income and equity sectors will normally be done gradually and T. Rowe
Price will not attempt to precisely "time" the market. There is, of course no
guarantee that T. Rowe Price's gradual approach to allocating the Series' assets
will be successful in achieving the Series' objective. The Series will maintain
cash reserves to facilitate the Series' cash flow needs (redemptions, expenses
and purchases of Series securities) and it may invest in cash reserves without
limitation for temporary defensive purposes.
Assets allocated to the fixed income portion of the Series primarily will
be invested in U.S. and foreign investment grade bonds, high yield bonds,
short-term investments and currencies, as needed to gain exposure to foreign
markets. Assets allocated to the equity portion of the Series will be allocated
among U.S. and non-dollar large- and small-cap companies, currencies and
futures.
The Series' fixed income sector will be allocated among investment grade,
high yield, U.S. and non-dollar debt securities and currencies generally within
the ranges indicated below:
RANGE
Investment Grade 50-100%
High Yield 0-30%
Non-dollar 0-30%
Cash Reserves 0-20%
Investment grade debt securities include long, intermediate and short-term
investment grade debt securities (e.g., AAA, AA, A or BBB by S&P or if not
rated, of equivalent investment quality as determined by T. Rowe Price). The
weighted average maturity for this portion (investment grade debt securities) of
the Series' portfolio is generally expected to be intermediate (3-10 years),
although it may vary significantly. Non-dollar debt securities include
non-dollar denominated government and corporate debt securities or currencies of
at least three countries. See "Investment Methods and Risk Factors" - "Certain
Risks of Foreign Investing" for a discussion of the risks involved in foreign
investing. High-yield securities include high-yielding, income-producing debt
securities in the lower rating categories (commonly referred to as "junk bonds")
and preferred stocks including convertible securities. High yield bonds may be
purchased without regard to maturity; however, the average maturity is expected
to be approximately 10 years, although it may vary if market conditions warrant.
Quality will generally range from lower-medium to low and the Series may also
purchase bonds in default if, in the opinion of T. Rowe Price, there is
significant potential for capital appreciation. Lower-rated debt obligations are
generally considered to be high risk investments. See "Investment Methods and
Risk Factors" for a discussion of the risks involved in investing in high-yield,
lower-rated debt securities. Securities which may be held as cash reserves
include liquid short-term investments of one year or less having the highest
ratings by at least one established rating organization, or if not rated, of
equivalent investment quality as determined by T. Rowe Price. The Series may use
currencies to gain exposure to an international market prior to investing in
non-dollar securities.
The Series' equity sector will be allocated among large and small capital
("Large Cap" and "Small Cap" respectively), U.S. and non-dollar equity
securities, currencies and futures, generally within the ranges indicated below:
Large Cap 45-100%
Small Cap 0-30%
Non-dollar 0-35%
Large Cap securities generally include stocks of well-established companies
with capitalization over $1 billion which can produce increasing dividend
income.
Non-dollar securities include foreign currencies and common stocks of
established non-U.S. companies. Investments may be made solely for capital
appreciation or solely for income or any combination of both for the purpose of
achieving a higher overall return. T. Rowe Price intends to diversify the
non-dollar portion of the Series' portfolio broadly among countries and to
normally have at least three different countries represented. The countries of
the Far East and Western Europe as well as South Africa, Australia, Canada, and
other areas (including developing countries) may be included. Under unusual
circumstances, however, investment may be substantially in one or two countries.
Futures may be used to gain exposure to equity markets where there is
insufficient cash to purchase a diversified portfolio of stocks. Currencies may
also be held to gain exposure to an international market prior to investing in a
non-dollar stock.
Small Cap securities include common stocks of small companies or companies
which offer the possibility of accelerated earnings growth because of
rejuvenated management, new products or structural changes in the economy.
Current income is not a factor in the selection of these stocks. Higher risks
are often associated with small companies. These companies may have limited
product lines, markets and financial resources, or they may be dependent on a
small or inexperienced management group. In addition, their securities may trade
less frequently and in limited volume and move more abruptly than securities of
larger companies. However, securities of smaller companies may offer greater
potential for capital appreciation since they are often overlooked or
undervalued by investors.
Until the Series reaches approximately $30 million in assets, the
composition of the Series' portfolio may vary significantly from the percent
limitations and ranges above. This might occur because, at lower asset levels,
the Series may be unable to prudently achieve diversification among the
described asset classes. During this initial period, the Series may use futures
contracts and purchase foreign currencies to a greater extent than it will once
the start-up period is over.
The Series may invest up to 35% of its total assets in U.S.
dollar-denominated and non-U.S. dollar-denominated securities issued by foreign
issuers. Some of the countries in which the Series may invest may be considered
to be developing and may involve special risks. For a discussion of the risks
involved in investment in foreign securities, see "Investment Methods and Risk
Factors" - "Certain Risks of Foreign Investing."
The Series' foreign investments are also subject to currency risk described
under "Investment Methods and Risk Factors" - "Currency Fluctuations." To manage
this risk and facilitate the purchase and sale of foreign securities, the Series
may engage in foreign currency transactions involving the purchase and sale of
forward foreign currency exchange contracts. Although forward currency
transactions will be used primarily to protect the Series from adverse currency
movements, they also involve the risk that anticipated currency movements will
not be accurately predicted and the Series' total return could be adversely
affected as a result. For a discussion of forward currency transactions and the
risks associated with such transactions, see "Investment Methods and Risk
Factors" - "Forward Currency Contracts and Related Options" and "Purchase and
Sale of Currency Futures Contracts and Related Options." Purchases by the Series
of currencies in substitution of purchases of stocks and bonds will subject the
Series to risks different from a fund invested solely in stocks and bonds.
The Series' investments include, but are not limited to, equity and fixed
income securities of any type and the Series may utilize the investment methods
and investment vehicles described below.
The Series may enter into futures contracts (a type of derivative) (or
options thereon) to hedge all or a portion of its portfolio, as a hedge against
changes in prevailing levels of interest rates or currency exchange rates, or as
an efficient means of adjusting its exposure to the bond, stock, and currency
markets. The Series will not use futures contracts for leveraging purposes. The
Series will limit its use of futures contracts so that initial margin deposits
or premiums on such contracts used for non-hedging purposes will not equal more
than 5% of the Series' net asset value. The Series may also write call and put
options and purchase put and call options on securities, financial indices, and
currencies. The aggregate market value of the Series' portfolio securities or
currencies covering call or put options will not exceed 25% of the Series' net
assets. The Series may enter into foreign futures and options transactions. As
part of its investment program and to maintain greater flexibility, the Series
may invest in instruments which have the characteristics of futures, options and
securities, known as "hybrid instruments." For a discussion of such instruments
and the risks involved in investing therein, see "Investment Methods and Risk
Factors" -- "Hybrid Instruments."
The Series may acquire illiquid securities in an amount not exceeding 15%
of net assets. Because an active trading market does not exist for such
securities the sale of such securities may be subject to delay and additional
costs. The Series will not invest more than 5% of its total assets in restricted
securities (other than securities eligible for resale under Rule 144A of the
Securities Act of 1933). Series N may invest in securities on a "when-issued" or
"delayed delivery basis" in excess of customary settlement periods for the type
of security involved. For a discussion of restricted and when-issued securities,
see "Investment Methods and Risk Factors."
The Series may invest in asset-backed securities, which securities involve
certain risks. For a discussion of asset-backed securities and the risks
involved in investment in such securities, see the discussion under "Investment
Methods and Risk Factors." The Series may invest in mortgage-backed securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
or institutions such as banks, insurance companies and savings and loans. Some
of these securities, such as GNMA certificates, are backed by the full faith and
credit of the U.S. Treasury while others, such as Freddie Mac certificates, are
not. The Series may also invest in collateralized mortgage obligations (CMOs)
and stripped mortgage securities (a type of derivative). Stripped mortgage
securities are created by separating the interest and principal payments
generated by a pool of mortgage-backed bonds to create two classes of
securities, "interest only" (IO) and "principal only" (PO) bonds. There are
risks involved in mortgage-backed securities, CMOs and stripped mortgage
securities. See "Investment Methods and Risk Factors" for an additional
discussion of such securities and the risks involved therein.
The Series may invest in zero coupon securities which are debt securities
that pay no cash income but are sold at substantial discounts from their face
value. Certain zero coupon securities also are sold at substantial discounts but
provide for the commencement of regular interest payments at a deferred date.
See "Investment Methods and Risk Factors" for a discussion of zero coupon
securities.
While the Series will remain invested in primarily common stocks and bonds,
it may, for temporary defensive purposes, invest in cash reserves without
limitation. The Series may establish and maintain reserves as T. Rowe Price
believes is advisable to facilitate the Series' cash flow needs. Cash reserves
include money market instruments, including repurchase agreements, in the two
highest categories. Short-term securities may be held in the equity sector as
collateral for futures contracts. These securities are segregated and may not be
available for the Series' cash flow needs.
The Series may invest in debt or preferred equity securities convertible
into or exchangeable for equity securities and warrants. As a fundamental
policy, for the purpose of realizing additional income, the Series may lend
securities with a value of up to 33 1/3% of its total assets to broker-dealers,
institutional investors, or other persons. Any such loan will be continuously
secured by collateral at least equal to the value of the securities loaned. For
a discussion of the limitations on lending and risks of lending, see "Investment
Methods and Risk Factors" - "Lending of Portfolio Securities." The Series may
also invest in real estate investment trusts (REITs). For a discussion of REITs
and certain risks involved therein, see this Statement of Additional Information
and the Fund's Prospectus under "Investment Methods and Risk Factors."
FIXED INCOME SECURITIES. Fixed income securities in which the Series may
invest include, but are not limited to,those described below.
U.S. GOVERNMENT OBLIGATIONS. Bills, notes, bonds and other debt securities
issued by the U.S. Treasury. These are direct obligations of the U.S. Government
and differ mainly in the length of their maturities.
U.S. GOVERNMENT AGENCY SECURITIES. Issued or guaranteed by U.S. Government
sponsored enterprises and federal agencies. These include securities issued by
the Federal National Mortgage Association, Government National Mortgage
Association, Federal Home Loan Bank, Federal Land Banks, Farmers Home
Administration, Banks for Cooperatives, Federal Intermediate Credit Banks,
Federal Financing Bank, Farm Credit Banks, the Small Business Association, and
the Tennessee Valley Authority. Some of these securities are supported by the
full faith and credit of the U.S. Treasury, and the remainder are supported only
by the credit of the instrumentality, which may or may not include the right of
the issuer to borrow from the Treasury.
BANK OBLIGATIONS. Certificates of deposit, bankers' acceptances, and other
short-term debt obligations. Certificates of deposit are short-term obligations
of commercial banks. A bankers' acceptance is a time draft drawn on a commercial
bank by a borrower, usually in connection with international commercial
transactions. Certificates of deposits may have fixed or variable rates. The
Series may invest in U.S. banks, foreign branches of U.S. banks, U.S. branches
of foreign banks and foreign branches of foreign banks.
SAVINGS AND LOAN OBLIGATIONS. Negotiable certificates of deposit and other
short-term debt obligations of savings and loan associations.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS). CMOs are obligations fully
collateralized by a portfolio of mortgages or mortgage-related securities.
Payments of principal and interest on the mortgages are passed through to the
holders of the CMOs on the same schedule as they are received, although certain
classes of CMOs have priority over others with respect to the receipt of
prepayments on the mortgages. Therefore, depending on the type of CMOs in which
a Series invests, the investment may be subject to a greater or lesser risk of
prepayment than other types of mortgage-related securities.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities are securities
representing interest in a pool of mortgages. After purchase by the Series, a
security may cease to be rated or its rating may be reduced below the minimum
required for purchase by the Series. Neither event will require a sale of such
security by the Series. However, T. Rowe Price will consider such event in its
determination of whether the Series should continue to hold the security. To the
extent that the ratings given by Moody's or S&P may change as a result of
changes in such organizations or their rating systems, the Series will attempt
to use comparable ratings as standards for investments in accordance with the
investment policies contained in the Fund's Prospectus.
The Series may also invest in the securities of certain supranational
entities, such as the International Development Bank.
For a discussion of mortgage-backed securities and certain risks involved
therein, see this Statement of Additional Information and the Fund's Prospectus
under "Investment Methods and Risk Factors."
ASSET-BACKED SECURITIES. The Series may invest a portion of its assets in
debt obligations known as asset-backed securities. The credit quality of most
asset-backed securities depends primarily on the credit quality of the assets
underlying such securities, how well the entity issuing the security is
insulated from the credit risk of the originator or any other affiliated
entities and the amount and quality of any credit support provided to the
securities. The rate of principal payment on asset-backed securities generally
depends on the rate of principal payments received on the underlying assets
which in turn may be affected by a variety of economic and other factors. As a
result, the yield on any asset-backed security is difficult to predict with
precision and actual yield to maturity may be more or less than the anticipated
yield to maturity.
AUTOMOBILE RECEIVABLE SECURITIES. The Series may invest in asset-backed
securities which are backed by receivables from motor vehicle installment sales
contracts or installment loans secured by motor vehicles ("Automobile Receivable
Securities").
CREDIT CARD RECEIVABLE SECURITIES. The Series may invest in asset-backed
securities backed by receivables from revolving credit card agreements ("Credit
Card Receivable Securities").
OTHER ASSETS. T. Rowe Price anticipates that asset-backed securities backed
by assets other than those described above will be issued in the future. The
Series may invest in such securities in the future if such investment is
otherwise consistent with its investment objective and policies. For a
discussion of these securities, see this Statement of Additional Information and
the Fund's Prospectus under "Investment Methods and Risk Factors."
In addition to the investments described in the Fund's Prospectus, the
Series may invest in the following:
ADDITIONAL FUTURES AND OPTIONS CONTRACTS. Although the Series has no
current intention of engaging in financial futures or options transactions other
than those described above, it reserves the right to do so. Such futures or
options trading might involve risks which differ from those involved in the
futures and options described above.
SERIES O (EQUITY INCOME SERIES)
The investment objective of Series O is to seek to provide substantial
dividend income and also capital appreciation by investing primarily in
dividend-paying common stocks of established companies. In pursuing its
objective, the Series emphasizes companies with favorable prospects for
increasing dividend income, and secondarily, capital appreciation. Over time,
the income component (dividends and interest earned) of the Series' investments
is expected to be a significant contributor to the Series' total return. The
Series' income yield is expected to be significantly above that of the Standard
and Poor's 500 Stock Index ("S&P 500"). Total return is expected to consist
primarily of dividend income and secondarily of capital appreciation (or
depreciation).
The Series may invest up to 35% of its total assets in U.S. dollar
denominated and non U.S. dollar denominated securities issued by foreign
issuers. For a discussion of the risks involved in foreign securities
investments, see this Statement of Additional Information and the Prospectus
under "Investment Methods and Risk Factors."
The investment program of the Series is based on several premises. First,
the Series' Sub-Adviser, T. Rowe Price, believes that, over time, dividend
income can account for a significant component of the total return from equity
investments. Second, dividends are normally a more stable and predictable source
of return than capital appreciation. While the price of a company's stock
generally increases or decreases in response to short-term earnings and market
fluctuations, its dividends are generally less volatile. Finally, T. Rowe Price
believes that stocks which distribute a high level of current income tend to
have less price volatility than those which have below average dividends.
To achieve its objective, the Series, under normal circumstances, will
invest at least 65% of its assets in income-producing common stocks, whose
prospects for dividend growth and capital appreciation are considered favorable
by T. Rowe Price. To enhance capital appreciation potential, the Series also
uses a value-oriented approach, which means it invests in stocks it believes are
currently undervalued in the market place. The Series' investments will
generally be made in companies which share some of the following
characteristics: established operating histories; above-average current dividend
yields relative to the S&P 500; low price-earnings ratios relative to the S&P
500; sound balance sheets and other financial characteristics; and low stock
price relative to company's underlying value as measured by assets, earnings,
cash flow or business franchises.
The Series may also invest its assets in fixed income securities
(corporate, government, and municipal bonds of various maturities). The Series
would invest in municipal bonds when the expected total return from such bonds
appears to exceed the total returns obtainable from corporate or government
bonds of similar credit quality.
Series O may invest in debt securities of any type without regard to
quality or rating. Such securities would be purchased in companies which meet
the investment criteria for the Series. Such securities may include securities
rated below investment grade (e.g., securities rated Ba or lower by Moody's or
BB or lower by S&P). The Series will not purchase such a security (commonly
referred to as a "junk bond") if immediately after such purchase the Series
would have more than 10% of its total assets invested in such securities. See
"Investment Methods and Risk Factors" - "Special Risks Associated with Low-Rated
and Comparable Unrated Debt Securities" for a discussion of the risks associated
with investing in such securities.
Although the Series will invest primarily in U.S. common stocks, it may
also purchase other types of securities, for example, foreign securities,
convertible securities, real estate investment trusts (REITs) and warrants, when
considered consistent with the Series' investment objective and program. The
Series' investments in foreign securities include non-dollar denominated
securities traded outside of the U.S. and dollar denominated securities traded
in the U.S. (such as ADRs). The Series may invest up to 25% of its total assets
in foreign securities. See the discussions of the risks associated with
investing in foreign securities under "American Depositary Receipts," "Currency
Fluctuations" and "Certain Risks of Foreign Investing."
The Series may also engage in a variety of investment management practices,
such as buying and selling futures and options. The Series may buy and sell
futures contracts (and options on such contracts) to manage its exposure to
changes in securities prices and foreign currencies and as an efficient means of
adjusting its overall exposure to certain markets. The Series may purchase or
write (sell) call and put options on securities, financial indices, and foreign
currencies. It is the Series' operating policy that initial margin deposits and
premiums on options used for non-hedging purposes will not equal more than 5% of
the Series' net asset value and, with respect to options on securities, the
total market value of securities against which the Series has written call or
put options may not exceed 25% of its total assets. The Series will not commit
more than 5% of its total assets to premiums when purchasing call or put
options. The Series may also invest up to 10% of its total assets in hybrid
instruments which are described under "Investment Methods and Risk Factors" -
"Hybrid Instruments." Also see the discussions of futures, options and forward
currency transactions under "Investment Methods and Risk Factors."
The Series may also invest in restricted securities described under
"Investment Methods and Risk Factors." The Series' investment in such
securities, other than Rule 144A securities, is limited to 5% of its net assets.
Series O may invest in securities on a "when-issued" or "delayed delivery basis"
as discussed in "Invesetment Methods and Risk Factors." The Series may borrow up
to 33 1/3% of its total assets; however, the Series may not purchase securities
when borrowings exceed 5% of its total assets. The Series may hold a certain
portion of its assets in money market securities, including repurchase
agreements, in the two highest rating categories, maturing in one year or less.
For temporary, defensive purposes, the Series may invest without limitation in
such securities. The Series may lend securities to broker-dealers, other
institutions, or other persons to earn additional income. The value of loaned
securities may not exceed 33 1/3% of the Series' total assets. See "Investment
Methods and Risk Factors" - "Lending of Portfolio Securities" for a discussion
of the risks associated with securities lending.
SERIES P (HIGH YIELD SERIES)
The investment objective of Series P is to seek high current income.
Capital appreciation is a secondary objective. Under normal circumstances, the
Series will seek its investment objective by investing primarily in a broad
range of income producing securities, including (i) higher yielding, higher
risk, debt securities (commonly referred to as "junk bonds"); (ii) preferred
stock; (iii) securities issued by foreign governments, their agencies and
instrumentalities, and foreign corporations, provided that such securities are
denominated in U.S. dollars; (iv) mortgage-backed securities ("MBSs"); (v)
asset-backed securities; (vi) securities issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities, including Treasury
bills, certificates of indebtedness, notes and bonds; (vii) securities issued or
guaranteed by, the Dominion of Canada or provinces thereof; and (viii) zero
coupon securities. Series P may also invest up to 35% of its assets in common
stocks (which may include ADRs), warrants and rights. Under normal
circumstances, at least 65% of the Series' total assets will be invested in
high-yielding, high risk debt securities.
Series P may invest up to 100% of its assets in debt securities that, at
the time of purchase, are rated below investment grade ("high yield securities"
or "junk bonds"), which involve a high degree of risk and are predominantly
speculative. For a description of debt ratings and a discussion of the risks
associated with investing in junk bonds, see "Investment Methods and Risk
Factors." Included in the debt securities which the Series may purchase are
convertible bonds, or bonds with warrants attached. A "convertible bond" is a
bond, debenture, or preferred share which may be exchanged by the owner for
common stock or another security, usually of the same company, in accordance
with the terms of the issue. A "warrant" confers upon the holder the right to
purchase an amount of securities at a particular time and price. See "Investment
Methods and Risk Factors" for a discussion of the risks associated with such
securities.
The Series may purchase securities which are obligations of, or guaranteed
by, the Dominion of Canada or provinces thereof and debt securities issued by
Canadian corporations. Canadian securities will not be purchased if subject to
the foreign interest equalization tax and unless payable in U.S. dollars. The
Series may also invest in debt securities issued by foreign governments
(including Brady Bonds), their agencies and instrumentalities and foreign
corporations (including those in emerging markets), provided such securities are
denominated in U.S. dollars. The Series' investment in foreign securities,
excluding Canadian securities, will not exceed 25% of the Series' net assets.
See "Investment Methods and Risk Factors" for a discussion of the risks
associated with investing in foreign securities, Brady Bonds and emerging
markets.
The Series may invest in MBSs, including mortgage pass-through securities
and collateralized mortgage obligations (CMOs). The Series may invest in
securities known as "inverse floating obligations," "residual interest bonds,"
and "interest only" (IO) and "principal only" (PO) bonds, the market values of
which generally will be more volatile than the market values of most MBSs. This
is due to the fact that such instruments are more sensitive to interest rate
changes and to the rate of principal prepayments than are most other MBSs. The
Series will hold less than 25% of its net assets in MBSs. For a discussion of
MBSs and the risks associated with such securities, see "Investment Methods and
Risk Factors."
The Series may also invest in asset-backed securities. These include
secured debt instruments backed by automobile loans, credit card loans, home
equity loans, manufactured housing loans and other types of secured loans
providing the source of both principal and interest payments. Asset-backed
securities are subject to risks similar to those discussed with respect to MBSs.
See "Investment Methods and Risk Factors."
The Series may invest in U.S. Government securities. U.S. Government
securities include bills, certificates of indebtedness, notes and bonds issued
by the Treasury or by agencies or instrumentalities of the U.S. Government.
The Series may invest in zero coupon securities which are debt securities
that pay no cash income but are sold at substantial discounts from their face
value. Certain zero coupon securities also are sold at substantial discounts but
provide for the commencement of regular interest payments at a deferred date.
See "Investment Methods and Risk Factors" for a discussion of zero coupon
securities.
Series P may acquire certain securities that are restricted as to
disposition under federal securities laws, including securities eligible for
resale to qualified institutional investors pursuant to Rule 144A under the
Securities Act of 1933, subject to the Series' policy that not more than 15% of
the Series' net assets will be invested in illiquid assets. See "Investment
Methods and Risk Factors" for a discussion of restricted securities.
Series P may purchase securities on "when-issued" or "delayed delivery
basis" in excess of customary settlement periods for the type of security
involved. The Series may also purchase or sell securities on a "forward
commitment" basis and may enter into "repurchase agreements," "reverse
repurchase agreements" and "roll transactions." The Series may lend securities
to broker/dealers, other institutions or other persons to earn additional
income. The value of loaned securities may not exceed 33 1/3% of the Series'
total assets. In addition, the Series may purchase loans, loan participations
and other types of direct indebtedness.
The Series may enter into futures contracts (a type of derivative) (or
options thereon) to hedge all or a portion of its portfolio, as a hedge against
changes in prevailing levels of interest rates or as an efficient means of
adjusting its exposure to the bond market. The Series will not use futures
contracts for leveraging purposes. The Series will limit its use of futures
contracts so that initial margin deposits or premiums on such contracts used for
non-hedging purposes will not equal more than 5% of the Series' net asset value.
The Series may purchase call and put options and write such options on a
"covered" basis. The Series may also enter into interest rate and index swaps
and purchase or sell related caps, floors and collars. The aggregate market
value of the Series' portfolio securities covering call or put options will not
exceed 25% of the Series' net assets. See "Investment Methods and Risk Factors"
for a discussion of the risks associated with these types of investments.
The Series' investment in warrants, valued at the lower of cost or market,
will not exceed 5% of the Series' net assets. Included within this amount, but
not to exceed 2% of the Series' net assets, may be warrants which are not listed
on the New York or American Stock Exchange. Warrants acquired by the Series in
units or attached to securities may be deemed to be without value.
From time to time, Series P may invest part or all of its assets in U.S.
Government securities, commercial notes or money market instruments. It is
anticipated that the weighted average maturity of the Series portfolio will
range from 5 to 15 years under normal circumstances.
SERIES S (SOCIAL AWARENESS SERIES)
The investment objective of Series S is to seek capital appreciation. In
seeking its objective, Series S will invest in various types of securities which
meet certain social criteria established for the Series. Series S will invest in
a diversified portfolio of common stocks (which may include ADRs), convertible
securities, preferred stocks and debt securities. See "Investment Methods and
Risk Factors" - "American Depositary Receipts." From time to time, the Series
may purchase government bonds or commercial notes on a temporary basis for
defensive purposes.
Series S will seek investments that comply with the Series' social criteria
and that offer investment potential. Because of the limitations on investment
imposed by the social criteria, the availability of investment opportunities for
the Series may be limited as compared to those of similar funds which do not
impose such restrictions on investment.
Securities selected for their appreciation possibilities will be primarily
common stocks or other securities having the investment characteristics of
common stocks, such as securities convertible into common stocks. Securities
will be selected on the basis of their appreciation and growth potential.
Securities considered to have capital appreciation and growth potential will
often include securities of smaller and less mature companies. Such companies
may present greater opportunities for capital appreciation because of high
potential earnings growth, but may also involve greater risk. They may have
limited product lines, markets or financial resources, and they may be dependent
on a limited management group. Their securities may trade less frequently and in
limited volume, and only in the over-the-counter market or on smaller securities
exchanges. As a result, the securities of smaller companies may have limited
marketability and may be subject to more abrupt or erratic changes in value than
securities of larger, more established companies. The Series may also invest in
larger companies where opportunities for above-average capital appreciation
appear favorable and the Series' social criteria are satisfied.
Series S may enter into futures contracts (a type of derivative) (or
options thereon) to hedge all or a portion of its portfolio or as an efficient
means of adjusting its exposure to the stock market. The Series will limit its
use of futures contracts so that initial margin deposits or premiums on such
contracts used for non-hedging purposes will not equal more than 5% of the
Series' net assets. The Series may also write call and put options on a covered
basis and purchase put and call options on securities and financial indices. The
aggregate market value of the Series' portfolio securities covering call or put
options will not exceed 25% of the Series' net assets. See the discussion of
options and futures contracts under "Investment Methods and Risk Factors."
Series S will not invest in securities of companies that engage in the
production of nuclear energy, alcoholic beverages or tobacco products.
In addition, the Series will not invest in securities of companies that
significantly engage in: (1) the manufacture of weapon systems; (2) practices
that, on balance, have a detrimental effect on the environment; or (3) the
gambling industry. Series S will monitor the activities identified above to
determine whether they are significant to an issuer's business. Significance may
be determined on the basis of the percentage of revenue generated by, or the
size of operations attributable to, such activities. The Series may invest in an
issuer that engages in the activities set forth above, in a degree that is not
deemed significant by the Investment Manager. In addition, the Series will seek
out companies that have contributed substantially to the communities in which
they operate, have a positive record on employment relations, have made
substantial progress in the promotion of women and minorities or in the
implementation of benefit policies that support working parents, or have taken
notably positive steps in addressing environmental challenges.
The Investment Manager will evaluate an issuer's activities to determine
whether it engages in any practices prohibited by the Series' social criteria.
In addition to its own research with respect to an issuer's activities, the
Investment Manager will also rely on other organizations that publish
information for investors concerning the social policy implications of corporate
activities. The Investment Manager may rely upon information provided by
advisory firms that provide social research on U.S. corporations, such as
Kinder, Lydenberg, Domini & Co., Inc., Franklin Insight, Inc. and
Prudential-Bache Capital Funding. Investment selection on the basis of social
attributes is a relatively new practice and the sources for this type of
information are not well established. The Investment Manager will continue to
identify and monitor sources of such information to screen issuers which do not
meet the social investment restrictions of the Series.
If after purchase of an issuer's securities by Series S, it is determined
that such securities do not comply with the Series' social criteria, the
securities will be eliminated from the Series' portfolio within a reasonable
time. This requirement may cause the Series to dispose of a security at a time
when it may be disadvantageous to do so.
SERIES V (VALUE SERIES)
The investment objective of Series V is to seek long-term growth of
capital. Series V will seek to achieve its objective through investment in a
diversified portfolio of securities. Under normal circumstances the Series will
consist primarily of various types of common stock, which may include ADRs, and
securities convertible into common stocks which the Investment Manager believes
are undervalued relative to assets, earnings, growth potential or cash flows.
See the discussion of ADRs under "Investment Methods and Risk Factors." Under
normal circumstances, the Series will invest at least 65% of its assets in the
securities of companies which the Investment Manager believes are undervalued.
Series V may also invest in (i) preferred stocks; (ii) warrants; and (iii)
investment grade debt securities (or unrated securities of comparable quality).
The Series may purchase securities on a "when-issued" or "delayed delivery
basis" in excess of customary settlement periods for the type of security
involved. The Series may purchase securities which are restricted as to
disposition under the federal securities laws, provided that such securities are
eligible for resale to qualified institutional investors pursuant to Rule 144A
under the Securities Act of 1933 and subject to the Series' policy that not more
than 15% of its total assets will be invested in illiquid securities. Series V
reserves the right to invest its assets temporarily in cash and money market
instruments when, in the opinion of the Investment Manager, it is advisable to
do so on account of current or anticipated market conditions. The Series may
utilize repurchase agreements on an overnight basis or bank demand accounts,
pending investment in securities or to meet potential redemptions or expenses.
See the discussion of when-issued securities, Rule 144A securities and
repurchase agreements under "Investment Methods and Risk Factors."
SERIES X (SMALL CAP SERIES)
The investment objective of Series X is to seek long-term growth of
capital. The Series invests primarily in equity securities of small market
capitalization companies ("small company stocks"). Market capitalization means
the total market value of a company's outstanding common stock. The Series
anticipates that under normal market conditions, the Series will invest at least
65% of its assets in equity securities of domestic and foreign companies with
market capitalizations of less than $1 billion at the time of purchase. The
equity securities in which the Series may invest include common stocks,
preferred stocks (both convertible and non-convertible), warrants and rights. It
is anticipated that the Series will invest primarily in companies whose
securities are traded on foreign or domestic stock exchanges or in the
over-the-counter market ("OTC"). The Series also may invest in securities of
emerging growth companies, some of which may have market capitalizations over $1
billion. Emerging growth companies are companies which have passed their
start-up phase and which show positive earnings and prospects of achieving
significant profit and gain in a relatively short period of time.
Under normal conditions, the Series intends to invest primarily in small
company stocks; however, the Series is also permitted to invest up to 35% of its
assets in equity securities of domestic and foreign issuers with a market
capitalization of more than $1 billion at the time of purchase, debt obligations
and domestic and foreign money market instruments, including bankers
acceptances, certificates of deposit and discount notes of U.S. Government
securities. Debt obligations in which the Series may invest will be investment
grade debt obligations, although the Series may invest up to 5% of its assets in
non-investment grade debt obligations. In addition, for temporary or emergency
purposes, the Series can invest up to 100% of total assets in cash, cash
equivalents, U.S. Government securities, commercial paper and certain other
money market instruments, as well as repurchase agreements collateralized by
these types of securities. The Series also may invest in reverse repurchase and
agreements and shares of other non-affiliated investment companies. See the
discussion of such securities under "Investment Methods and Risk Factors."
The Series may purchase an unlimited number of foreign securities,
including securities of companies in emerging markets. The Series may invest in
foreign securities, either directly or indirectly through the use of depositary
receipts. Depositary receipts, including American Depositary Receipts ("ADRs"),
European Depository Receipts and American Depository Shares are generally issued
by banks or trust companies and evidence ownership of underlying foreign
securities. The Series also may invest in securities of foreign investment funds
or trusts (including passive foreign investment companies). See the discussion
of foreign securities, emerging growth stocks, currency risk and ADRs under
"Investment Methods and Risk Factors."
Some of the countries in which the Series may invest may not permit direct
investment by outside investors. Investment in such countries may only be
permitted through foreign government-approved or government-authorized
investment vehicles, which may include other investment companies. Investing
through such vehicles may involve frequent or layered fees or expenses and may
also be subject to limitation under the Investment Company Act of 1940. See
"Investment Methods and Risk Factors" - "Shares of Other Investment Companies"
in the Prospectus for more information.
The Series may purchase and sell foreign currency on a spot basis and may
engage in forward currency contracts, currency options and futures transactions
for hedging or risk management purposes. See the discussion of such transactions
and currency risk under "Investment Methods and Risk Factors."
At various times the Series may invest in derivative instruments for
hedging or risk management purposes or for any other permissible purpose
consistent with the Series' investment objective. Derivative transactions in
which the Series may engage include the writing of covered put and call options
on securities and the purchase of put and call options thereon, the purchase of
put and call options on securities indexes and exchange-traded options on
currencies and the writing of put and call options on securities indexes. The
Series may enter into spread transactions and swap agreements. The Series also
may buy and sell financial futures contracts which may include interest-rate
futures, futures on currency exchanges, and stock and bond index futures
contracts. The Series may enter into any futures contracts and related options
without limit for "bona fide hedging" purposes (as defined in the Commodity
Futures Trading Commission regulations) and for other permissible purposes,
provided that aggregate initial margin and premiums on positions engaged in for
purposes other than "bona fide hedging" will not exceed 5% of its net asset
value, after taking into account unrealized profits and losses on such
contracts. See "Investment Methods and Risk Factors" for more information on
options, futures and other derivative instruments.
The Series may acquire warrants which are securities giving the holder the
right, but not the obligation, to buy the stock of an issuer at a given price
(generally higher than the value of the stock at the time of issuance), on a
specified date, during a specified period, or perpetually. Warrants may be
acquired separately or in connection with the acquisition of securities. The
Series may purchase warrants, valued at the lower of cost or market value, of up
to 5% of the Series' net assets. Included in that amount, but not to exceed 2%
of the Series' net assets, may be warrants that are not listed on any recognized
U.S. or foreign stock exchange. Warrants acquired by the Series in units or
attached to securities are not subject to these restrictions.
The Series may engage in short selling against the box, provided that no
more that 15% of the value of the Series' net assets is in deposits on short
sales against the box at any one time. The Series also may invest in real estate
investment trusts ("REITs") and other real estate industry companies or
companies with substantial real estate investments. See the discussion of real
estate securities under "Investment Methods and Risk Factors."
The Series may invest in restricted securities, including Rule 144A
securities. See the discussion of restricted securities under "Investment
Methods and Risk Factors." The Series also may invest without limitation in
securities purchased on a when-issued or delayed delivery basis as discussed
under "Investment Methods and Risk Factors."
While there is careful selection and constant supervision by the Series'
Sub-Adviser, Strong Capital Management, Inc. ("Strong"), there can be no
guarantee that the Series' objective will be achieved. Strong invests in
companies whose earnings are believed to be in a relatively strong growth trend,
and, to a lesser extent, in companies in which significant further growth is not
anticipated but which are perceived to be undervalued. In identifying companies
with favorable growth prospects, Strong considers factors such as prospects for
above-average sales and earnings growth; high return on invested capital;
overall financial strength; competitive advantages, including innovative
products and services; effective research, product development and marketing;
and stable, capable management.
Investing in securities of small-sized and emerging growth companies may
involve greater risks than investing in larger, more established issuers since
these securities may have limited marketability and, thus, they may be more
volatile than securities of larger, more established companies or the market
averages in general. Because small-sized companies normally have fewer shares
outstanding than larger companies, it may be more difficult for the Series to
buy or sell significant numbers of such shares without an unfavorable impact on
prevailing prices. Small-sized companies may have limited product lines, markets
or financial resources and may lack management depth. In addition, small-sized
companies are typically subject to wider variations in earnings and business
prospects than are larger, more established companies. There is typically less
publicly available information concerning small-sized companies than for larger,
more established ones.
Securities of issuers in "special situations" also may be more volatile,
since the market value of these securities may decline in value if the
anticipated benefits do not materialize. Companies in "special situations"
include, but are not limited to, companies involved in an acquisition or
consolidation; reorganization; recapitalization; merger, liquidation or
distribution of cash, securities or other assets; a tender or exchange offer, a
breakup or workout of a holding company; litigation which, if resolved
favorably, would improve the value of the companies' securities; or a change in
corporate control.
Although investing in securities of emerging growth companies or issuers in
"special situations" offers potential for above-average returns if the companies
are successful, the risk exists that the companies will not succeed and the
prices of the companies' shares could significantly decline in value. Therefore,
an investment in the Series may involve a greater degree of risk than an
investment in other mutual funds that seek long-term growth of capital by
investing in better-known, larger companies.
INVESTMENT METHODS AND RISK FACTORS
Some of the risk factors related to certain securities, instruments and
techniques that may be used by one or more of the Series are described in the
"Investment Objectives and Policies" and "Investment Methods and Risk Factors"
sections of the Prospectus and in this Statement of Additional Information. The
following is a description of certain additional risk factors related to various
securities, instruments and techniques. The risks so described only apply to
those Series which may invest in such securities and instruments or which use
such techniques. Also included is a general description of some of the
investment instruments, techniques and methods which may be used by one or more
of the Series. The methods described only apply to those Series which may use
such methods. Although a Series may employ the techniques, instruments and
methods described below, consistent with its investment objective and policies
and any applicable law, no Series will be required to do so.
AMERICAN DEPOSITARY RECEIPTS. Each of the Series (except Series C and E) of
the Fund may purchase American Depositary Receipts ("ADRs") which are issued
generally by U.S. banks and which represent the deposit with the bank of a
foreign company's securities. ADRs are publicly traded on exchanges or
over-the-counter in the United States. Investors should consider carefully the
substantial risks involved in investing in securities issued by companies of
foreign nations, which are in addition to the usual risks inherent in domestic
investments. ADRs and European Depositary Receipts ("EDRs") or other securities
convertible into securities of issuers based in foreign countries are not
necessarily denominated in the same currency as the securities into which they
may be converted. Generally, ADRs, in registered form, are denominated in U.S.
dollars and are designed for use in the U.S. securities markets, while EDRs
(also referred to as Continental Depositary Receipts ("CDRs"), in bearer form,
may be denominated in other currencies and are designed for use in European
securities markets. ADRs are receipts typically issued by a U.S. bank or trust
company evidencing ownership of the underlying securities. EDRs are European
receipts evidencing a similar arrangement and GDRs are global receipts
evidencing a similar arrangement. For purposes of the Series' investment
policies, ADRs, EDRs and GDRs are deemed to have the same classification as the
underlying securities they represent. Thus, an ADR, EDR or GDR representing
ownership of common stock will be treated as common stock.
Depositary receipts are issued through "sponsored" or "unsponsored"
facilities. A sponsored facility is established jointly by the issuer of the
underlying security and a depositary, whereas a depositary may establish an
unsponsored facility without participation by the issuer of the deposited
security. Holders of unsponsored depositary receipts generally bear all the cost
of such facilities and the depositary of an unsponsored facility frequently is
under no obligation to distribute shareholder communications received from the
issuer of the deposited security or to pass through voting rights to the holders
of such receipts in respect of the deposited securities.
SHARES OF OTHER INVESTMENT COMPANIES. Certain of the Series may invest in
shares of other investment companies. The Series' investment in shares of other
investment companies may not exceed immediately after purchase 10% of the
Series' total assets and no more than 5% of its total assets may be invested in
the shares of any one investment company. Investment in the shares of other
investment companies has the effect of requiring shareholders to pay the
operating expenses of two mutual funds.
REPURCHASE AGREEMENTS. A repurchase agreement involves a purchase by the
Series of a security from a selling financial institution (such as a bank,
savings and loan association or broker-dealer) which agrees to repurchase such
security at a specified price and at a fixed time in the future, usually not
more than seven days from the date of purchase. The resale price is in excess of
the purchase price and reflects an agreed upon yield effective for the period of
time the Series' money is invested in the security.
Currently, Series A, B, C, E, S, J, P and V may enter into repurchase
agreements only with federal reserve system member banks with total assets of at
least one billion dollars and equity capital of at least one hundred million
dollars and "primary" dealers in U.S. Government securities. These Series may
enter into repurchase agreements, fully collateralized by U.S. Government or
agency securities, only on an overnight basis.
Repurchase agreements are considered to be loans by the Fund under the
Investment Company Act of 1940. Engaging in any repurchase transaction will be
subject to any rules or regulations of the Securities and Exchange Commission or
other regulatory authorities. Not more than 10% of the assets of Series A, B, C,
D, E, S and J will be invested in illiquid assets, which include repurchase
agreements with maturities of over seven days.
Series D and K may enter into repurchase agreements only with (a)
securities dealers that have a total capitalization of at least $40,000,000 and
a ratio of aggregate indebtedness to net capital of no more than 4 to 1, or,
alternatively, net capital equal to 6% of aggregate debit balances, or (b) banks
that have at least $1,000,000,000 in assets and a net worth of at least
$100,000,000 as of its most recent annual report. In addition, the aggregate
repurchase price of all repurchase agreements held by each Series with any
broker shall not exceed 15% of the total assets of the Series or $5,000,000,
whichever is greater. The Series will not enter into repurchase agreements
maturing in more than seven days if the aggregate of such repurchase agreements
and other illiquid investments would exceed 10% of total assets for Series D or
15% of net assets for Series K.
Series I may enter into repurchase agreements only with issuers who,
individually or with issuer's parent, have outstanding debt rated AA or higher
by S&P of Aa or higher by Moody's or outstanding commercial paper or bank
obligations rated A-1 by S&P or Prime-1 by Moody's; or if no such ratings are
available, the instrument must be of comparable quality in the opinion of the
Sub-Adviser.
Series M and X may enter into repurchase agreements with (a)
well-established securities dealers or (b) banks that are members of the Federal
Reserve System. Any such dealer or bank will have a credit rating with respect
to its short-term debt of at least A1 by Standard & Poor's Corporation, P1 by
Moody's Investors Service, Inc., or the equivalent rating by the Investment
Manager or relevant Sub-Adviser. Series M and X may enter into repurchase
agreements with maturities of over seven days, provided that neither may invest
more than 15% of its total assets in illiquid securities.
Series N and O may enter into repurchase agreements only with (a)
securities dealers that have a net capital in excess of $50,000,000, are
reasonably leveraged, and are otherwise considered as appropriate entities with
which to enter into repurchase agreements, or (b) banks that are included on T.
Rowe Price's list of established banks. To determine whether a dealer or bank
qualifies under these criteria, T. Rowe Price's Credit Committee will conduct a
thorough examination to determine that the applicable financial and
profitability standards have been met. Series N and O will not under any
circumstances enter into a repurchase agreement of a duration of more than seven
business days if, as a result, more than 15% of the value of the Series' total
assets would be so invested or invested in illiquid securities. Generally, the
Series will not commit more than 50% of its gross assets to repurchase
agreements or more than 5% of its total assets to repurchase agreements of any
one vendor.
In the event of a bankruptcy or other default of a seller of a repurchase
agreement, the Series could experience both delays in liquidating the underlying
securities and losses, including (a) possible decline in the value of the
underlying security during the period while the Series seeks to enforce its
rights thereto; (b) possible subnormal levels of income and lack of access to
income during this period; and (c) expenses of enforcing its rights. The Board
of Directors of the Fund has promulgated guidelines with respect to repurchase
agreements.
REAL ESTATE SECURITIES. Certain Series may invest in equity securities of
real estate investment trusts ("REITs") and other real estate industry companies
or companies with substantial real estate investments and therefore, such Series
may be subject to certain risks associated with direct ownership of real estate
and with the real estate industry in general. These risks include, among others:
possible declines in the value of real estate; possible lack of availability of
mortgage funds; extended vacancies of properties; risks related to general and
local economic conditions; overbuilding; increases in competition, property
taxes and operating expenses; changes in zoning laws; costs resulting from the
clean-up of, and liability to third parties for damages resulting from,
environmental problems; casualty or condemnation losses; uninsured damages from
floods, earthquakes or other natural disasters; limitations on and variations in
rents; and changes in interest rates.
REITs are pooled investment vehicles which invest primarily in income
producing real estate or real estate related loans or interests. REITs are
generally classified as equity REITs, mortgage REITs or hybrid REITs. Equity
REITs invest the majority of their assets directly in real property and derive
income primarily from the collection of rents. Equity REITs can also realize
capital gains by selling properties that have appreciated in value. Mortgage
REITs invest the majority of their assets in real estate mortgages and derive
income from the collection of interest payments. REITs are not taxed on income
distributed to shareholders provided they comply with several requirements of
the Internal Revenue Code, as amended ( the "Code"). Certain REITs may be
self-liquidating in that a specific term of existence is provided for in the
trust document. Such trusts run the risk of liquidating at an economically
inopportune time.
DEBT OBLIGATIONS. Yields on short, intermediate, and long-term securities
are dependent on a variety of factors, including the general conditions of the
money and bond markets, the size of a particular offering, the maturity of the
obligation, and the rating of the issue. Debt securities with longer maturities
tend to produce higher yields and are generally subject to potentially greater
capital appreciation and depreciation than obligations with shorter maturities
and lower yields. The market prices of debt securities usually vary, depending
upon available yields. An increase in interest rates will generally reduce the
value of portfolio investments, and a decline in interest rates will generally
increase the value of portfolio investments. The ability of the Series to
achieve its investment objectives is also dependent on the continuing ability of
the issuers of the debt securities in which the Series invest to meet their
obligations for the payment of interest and principal when due.
SPECIAL RISKS ASSOCIATED WITH LOW-RATED AND COMPARABLE UNRATED DEBT
SECURITIES. Low-rated and comparable unrated securities, while generally
offering higher yields than investment-grade securities with similar maturities,
involve greater risks, including the possibility of default or bankruptcy. They
are regarded as predominantly speculative with respect to the issuer's capacity
to pay interest and repay principal. The special risk considerations in
connection with such investments are discussed below. See the Appendix of this
Statement of Additional Information for a discussion of securities ratings.
The low-rated and comparable unrated securities market is relatively new,
and its growth paralleled a long economic expansion. As a result, it is not
clear how this market may withstand a prolonged recession or economic downturn.
Such a prolonged economic downturn could severely disrupt the market for and
adversely affect the value of such securities.
All interest-bearing securities typically experience appreciation when
interest rates decline and depreciation when interest rates rise. The market
values of low-rated and comparable unrated securities tend to reflect individual
corporate developments to a greater extent than do higher-rated securities,
which react primarily to fluctuations in the general level of interest rates.
Low-rated and comparable unrated securities also tend to be more sensitive to
economic conditions than are higher-rated securities. As a result, they
generally involve more credit risks than securities in the higher-rated
categories. During an economic downturn or a sustained period of rising interest
rates, highly leveraged issuers of low-rated and comparable unrated securities
may experience financial stress and may not have sufficient revenues to meet
their payment obligations. The issuer's ability to service its debt obligations
may also be adversely affected by specific corporate developments, the issuer's
inability to meet specific projected business forecasts, or the unavailability
of additional financing. The risk of loss due to default by an issuer of
low-rated and comparable unrated securities is significantly greater than
issuers of higher-rated securities because such securities are generally
unsecured and are often subordinated to other creditors. Further, if the issuer
of a low-rated and comparable unrated security defaulted, a Series might incur
additional expenses to seek recovery. Periods of economic uncertainty and
changes would also generally result in increased volatility in the market prices
of low-rated and comparable unrated securities and thus in a Series' net asset
value.
As previously stated, the value of such a security will decrease in a
rising interest rate market and accordingly, so will a Series' net asset value.
If a Series experiences unexpected net redemptions in such a market, it may be
forced to liquidate a portion of its portfolio securities without regard to
their investment merits. Due to the limited liquidity of high-yield securities
(discussed below) a Series may be forced to liquidate these securities at a
substantial discount. Any such liquidation would reduce a Series' asset base
over which expenses could be allocated and could result in a reduced rate of
return for a Series.
Low-rated and comparable unrated securities typically contain redemption,
call, or prepayment provisions which permit the issuer of such securities
containing such provisions to, at their discretion, redeem the securities.
During periods of falling interest rates, issuers of high-yield securities are
likely to redeem or prepay the securities and refinance them with debt
securities with a lower interest rate. To the extent an issuer is able to
refinance the securities or otherwise redeem them, a Series may have to replace
the securities with a lower-yielding security, which would result in a lower
return for a Series.
Credit ratings issued by credit-rating agencies evaluate the safety of
principal and interest payments of rated securities. They do not, however,
evaluate the market value risk of low-rated and comparable unrated securities
and, therefore, may not fully reflect the true risks of an investment. In
addition, credit-rating agencies may or may not make timely changes in a rating
to reflect changes in the economy or in the condition of the issuer that affect
the market value of the security. Consequently, credit ratings are used only as
a preliminary indicator of investment quality. Investments in low-rated and
comparable unrated securities will be more dependent on the Investment Manager
or relevant Sub-Adviser's credit analysis than would be the case with
investments in investment-grade debt securities. The Investment Manager or
relevant Sub-Adviser employs its own credit research and analysis, which
includes a study of existing debt, capital structure, ability to service debt
and to pay dividends, the issuer's sensitivity to economic conditions, its
operating history, and the current trend of earnings. The Investment Manager or
relevant Sub-Adviser continually monitors the investments in a Series' portfolio
and carefully evaluates whether to dispose of or to retain low-rated and
comparable unrated securities whose credit ratings or credit quality may have
changed.
A Series may have difficulty disposing of certain low-rated and comparable
unrated securities because there may be a thin trading market for such
securities. Because not all dealers maintain markets in all low-rated and
comparable unrated securities, there is no established retail secondary market
for many of these securities. A Series anticipates that such securities could be
sold only to a limited number of dealers or institutional investors. To the
extent a secondary trading market does exist, it is generally not as liquid as
the secondary market for higher-rated securities. The lack of a liquid secondary
market may have an adverse impact on the market price of the security. As a
result, a Series' asset value and a Series' ability to dispose of particular
securities, when necessary to meet a Series' liquidity needs or in response to a
specific economic event, may be impacted. The lack of a liquid secondary market
for certain securities may also make it more difficult for the Fund to obtain
accurate market quotations for purposes of valuing a Series. Market quotations
are generally available on many low-rated and comparable unrated issues only
from a limited number of dealers and may not necessarily represent firm bids of
such dealers or prices for actual sales. During periods of thin trading, the
spread between bid and asked prices is likely to increase significantly. In
addition, adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of low-rated and
comparable unrated securities, especially in a thinly-traded market.
Recent legislation has been adopted and from time to time, proposals have
been discussed regarding new legislation designed to limit the use of certain
low-rated and comparable unrated securities by certain issuers. An example of
legislation is a recent law which requires federally insured savings and loan
associations to divest their investment in these securities over time. New
legislation could further reduce the market because such legislation, generally,
could negatively affect the financial condition of the issuers of high-yield
securities, and could adversely affect the market in general. It is not
currently possible to determine the impact of the recent legislation on this
market. However, it is anticipated that if additional legislation is enacted or
proposed, it could have a material effect on the value of low-rated and
comparable unrated securities and the existence of a secondary trading market
for the securities.
PUT AND CALL OPTIONS:
WRITING (SELLING) COVERED CALL OPTIONS. A call option gives the holder
(buyer) the "right to purchase" a security or currency at a specified price (the
exercise price), at expiration of the option (European style) or at any time
until a certain date (the expiration date) (American style). So long as the
obligation of the writer of a call option continues, he may be assigned an
exercise notice by the broker-dealer through whom such option was sold,
requiring him to deliver the underlying security or currency against payment of
the exercise price. This obligation terminates upon the expiration of the call
option, or such earlier time at which the writer effects a closing purchase
transaction by repurchasing an option identical to that previously sold.
Certain Series may write (sell) "covered" call options and purchase options
to close out options previously written by the Series. In writing covered call
options, the Series expects to generate additional premium income which should
serve to enhance the Series' total return and reduce the effect of any price
decline of the security or currency involved in the option. Covered call options
will generally be written on securities or currencies which, in the opinion of
the Investment Manager or relevant Sub-Adviser, are not expected to have any
major price increases or moves in the near future but which, over the long term,
are deemed to be attractive investments for the Series.
The Series will write only covered call options. This means that the Series
will own the security or currency subject to the option or an option to purchase
the same underlying security or currency, having an exercise price equal to or
less than the exercise price of the "covered" option, or will establish and
maintain with its custodian for the term of the option, an account consisting of
cash or liquid securities having a value equal to the fluctuating market value
of the optioned securities or currencies. In order to comply with the
requirements of several states, the Series will not write a covered call option
if, as a result, the aggregate market value of all Series securities or
currencies covering call or put options exceeds 25% of the market value of the
Series' net assets. Should these state laws change or should the Series obtain a
waiver of their application, the Series reserve the right to increase this
percentage. In calculating the 25% limit, the Series will offset, against the
value of assets covering written calls and puts, the value of purchased calls
and puts on identical securities or currencies with identical maturity dates.
Series securities or currencies on which call options may be written will
be purchased solely on the basis of investment considerations consistent with
the Series' investment objectives. The writing of covered call options is a
conservative investment technique believed to involve relatively little risk (in
contrast to the writing of naked or uncovered options, which the Series will not
do), but capable of enhancing the Series' total return. When writing a covered
call option, the Series, in return for the premium, gives up the opportunity for
profit from a price increase in the underlying security or currency above the
exercise price, but conversely, retains the risk of loss should the price of the
security or currency decline. Unlike one who owns securities or currencies not
subject to an option, the Series has no control over when it may be required to
sell the underlying securities or currencies, since it may be assigned an
exercise notice at any time prior to the expiration of its obligations as a
writer. If a call option which the Series has written expires, the Series will
realize a gain in the amount of the premium; however, such gain may be offset by
a decline in the market value of the underlying security or currency during the
option period. If the call option is exercised, the Series will realize a gain
or loss from the sale of the underlying security or currency.
Call options written by the Series will normally have expiration dates of
less than nine months from the date written. The exercise price of the options
may be below, equal to, or above the current market values of the underlying
securities or currencies at the time the options are written. From time to time,
the Series may purchase an underlying security or currency for delivery in
accordance with an exercise notice of a call option assigned to it, rather than
delivering such security or currency from its portfolio. In such cases,
additional costs may be incurred.
The premium received is the market value of an option. The premium the
Series will receive from writing a call option will reflect, among other things,
the current market price of the underlying security or currency, the
relationship of the exercise price to such market price, the historical price
volatility of the underlying security or currency, and the length of the option
period. Once the decision to write a call option has been made, the Investment
Manager or relevant Sub-Adviser, in determining whether a particular call option
should be written on a particular security or currency, will consider the
reasonableness of the anticipated premium and the likelihood that a liquid
secondary market will exist for those options. The premium received by the
Series for writing covered call options will be recorded as a liability of the
Series. This liability will be adjusted daily to the option's current market
value, which will be the latest sale price at the time at which the net asset
value per share of the Series is computed (close of the New York Stock
Exchange), or, in the absence of such sale, the latest asked price. The option
will be terminated upon expiration of the option, the purchase of an identical
option in a closing transaction, or delivery of the underlying security or
currency upon the exercise of the option.
The Series will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from the writing of the option. Because increases in the market price
of a call option will generally reflect increases in the market price of the
underlying security or currency, any loss resulting from the repurchase of a
call option is likely to be offset in whole or in part by appreciation of the
underlying security or currency owned by the Series.
WRITING (SELLING) COVERED PUT OPTIONS. A put option gives the purchaser of
the option the right to sell, and the writer (seller) has the obligation to buy,
the underlying security or currency at the exercise price during the option
period (American style) or at the expiration of the option (European style). So
long as the obligation of the writer continues, he may be assigned an exercise
notice by the broker-dealer through whom such option was sold, requiring him to
make payment of the exercise price against delivery of the underlying security
or currency. The operation of put options in other respects, including their
related risks and rewards, is substantially identical to that of call options.
Certain Series may write American or European style covered put options and
purchase options to close out options previously written by the Series.
Certain Series may write put options on a covered basis, which means that
the Series would either (i) maintain in a segregated account cash or liquid
securities in an amount not less than the exercise price at all times while the
put option is outstanding; (ii) sell short the security or currency underlying
the put option at the same or higher price than the exercise price of the put
option; or (iii) purchase an option to sell the underlying security or currency
subject to the option having an exercise price equal to or greater than the
exercise price of the "covered" option at all times while the put option is
outstanding. (The rules of a clearing corporation currently require that such
assets be deposited in escrow to secure payment of the exercise price.) The
Series would generally write covered put options in circumstances where the
Investment Manager or relevant Sub-Adviser wishes to purchase the underlying
security or currency for the Series' portfolio at a price lower than the current
market price of the security or currency. In such event the Series would write a
put option at an exercise price which, reduced by the premium received on the
option, reflects the lower price it is willing to pay. Since the Series would
also receive interest on debt securities or currencies maintained to cover the
exercise price of the option, this technique could be used to enhance current
return during periods of market uncertainty. The risk in such a transaction
would be that the market price of the underlying security or currency would
decline below the exercise price less the premiums received. Such a decline
could be substantial and result in a significant loss to the Series. In
addition, the Series, because it does not own the specific securities or
currencies which it may be required to purchase in the exercise of the put, can
not benefit from appreciation, if any, with respect to such specific securities
or currencies. In order to comply with the requirements of several states, the
Series will not write a covered put option if, as a result, the aggregate market
value of all portfolio securities or currencies covering put or call options
exceeds 25% of the market value of the Series' net assets. Should these state
laws change or should the Series obtain a waiver of their application, the
Series reserve the right to increase this percentage. In calculating the 25%
limit, the Series will offset against the value of assets covering written puts
and calls, the value of purchased puts and calls on identical securities or
currencies.
PREMIUM RECEIVED FROM WRITING CALL OR PUT OPTIONS. A Series will receive a
premium from writing a put or call option, which increases such Series' return
in the event the option expires unexercised or is closed out at a profit. The
amount of the premium will reflect, among other things, the relationship of the
market price of the underlying security to the exercise price of the option, the
term of the option and the volatility of the market price of the underlying
security. By writing a call option, a Series limits its opportunity to profit
from any increase in the market value of the underlying security above the
exercise price of the option. By writing a put option, a Series assumes the risk
that it may be required to purchase the underlying security for an exercise
price higher than its then current market value, resulting in a potential
capital loss if the purchase price exceeds the market value plus the amount of
the premium received, unless the security subsequently appreciates in value.
CLOSING TRANSACTIONS. Closing transactions may be effected in order to
realize a profit on an outstanding call option, to prevent an underlying
security or currency from being called, or to permit the sale of the underlying
security or currency. A Series may terminate an option that it has written prior
to its expiration by entering into a closing purchase transaction in which it
purchases an option having the same terms as the option written. A Series will
realize a profit or loss from such transaction if the cost of such transaction
is less or more than the premium received from the writing of the option. In the
case of a put option, any loss so incurred may be partially or entirely offset
by the premium received from a simultaneous or subsequent sale of a different
put option. Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying security, any
loss resulting from the purchase of a call option is likely to be offset in
whole or in part by unrealized appreciation of the underlying security owned by
such Series.
Furthermore, effecting a closing transaction will permit the Series to
write another call option on the underlying security or currency with either a
different exercise price or expiration date or both. If the Series desires to
sell a particular security or currency from its portfolio on which it has
written a call option, or purchased a put option, it will seek to effect a
closing transaction prior to, or concurrently with, the sale of the security or
currency. There is, of course, no assurance that the Series will be able to
effect such closing transactions at a favorable price. If the Series cannot
enter into such a transaction, it may be required to hold a security or currency
that it might otherwise have sold. When the Series writes a covered call option,
it runs the risk of not being able to participate in the appreciation of the
underlying securities or currencies above the exercise price, as well as the
risk of being required to hold on to securities or currencies that are
depreciating in value. This could result in higher transaction costs. The Series
will pay transaction costs in connection with the writing of options to close
out previously written options. Such transaction costs are normally higher than
those applicable to purchases and sales of portfolio securities.
PURCHASING CALL OPTIONS. Certain Series may purchase American or European
call options. The Series may enter into closing sale transactions with respect
to such options, exercise them or permit them to expire. The Series may purchase
call options for the purpose of increasing its current return.
Call options may also be purchased by a Series for the purpose of acquiring
the underlying securities or currencies for its portfolio. Utilized in this
fashion, the purchase of call options enables the Series to acquire the
securities or currencies at the exercise price of the call option plus the
premium paid. At times the net cost of acquiring securities or currencies in
this manner may be less than the cost of acquiring the securities or currencies
directly. This technique may also be useful to a Series in purchasing a large
block of securities or currencies that would be more difficult to acquire by
direct market purchases. So long as it holds such a call option rather than the
underlying security or currency itself, the Series is partially protected from
any unexpected decline in the market price of the underlying security or
currency and in such event could allow the call option to expire, incurring a
loss only to the extent of the premium paid for the option.
To the extent required by the laws of certain states, a Series may not be
permitted to commit more than 5% of its assets to premiums when purchasing call
and put options. Should these state laws change or should the Series obtain a
waiver of their application, the Series may commit more than 5% of its assets to
premiums when purchasing call and put options. The Series may also purchase call
options on underlying securities or currencies it owns in order to protect
unrealized gains on call options previously written by it. Call options may also
be purchased at times to avoid realizing losses. For example, where the Series
has written a call option on an underlying security or currency having a current
market value below the price at which such security or currency was purchased by
the Series, an increase in the market price could result in the exercise of the
call option written by the Series and the realization of a loss on the
underlying security or currency with the same exercise price and expiration date
as the option previously written.
PURCHASING PUT OPTIONS. Certain Series may purchase American or European
style put options. The Series may enter into closing sale transactions with
respect to such options, exercise them or permit them to expire. A Series may
purchase a put option on an underlying security or currency (a "protective put")
owned by the Series as a defensive technique in order to protect against an
anticipated decline in the value of the security or currency. Such hedge
protection is provided only during the life of the put option when the Series,
as the holder of the put option, is able to sell the underlying security or
currency at the put exercise price regardless of any decline in the underlying
security's market price or currency's exchange value. The premium paid for the
put option and any transaction costs would reduce any capital gain otherwise
available for distribution when the security or currency is eventually sold.
A Series may purchase put options at a time when the Series does not own
the underlying security or currency. By purchasing put options on a security or
currency it does not own, the Series seeks to benefit from a decline in the
market price of the underlying security or currency. If the put option is not
sold when it has remaining value, and if the market price of the underlying
security or currency remains equal to or greater than the exercise price during
the life of the put option, the Series will lose its entire investment in the
put option. In order for the purchase of a put option to be profitable, the
market price of the underlying security or currency must decline sufficiently
below the exercise price to cover the premium and transaction costs, unless the
put option is sold in a closing sale transaction.
DEALER OPTIONS. Certain Series may engage in transactions involving dealer
options. Certain risks are specific to dealer options. While the Series would
look to a clearing corporation to exercise exchange-traded options, if the
Series were to purchase a dealer option, it would rely on the dealer from whom
it purchased the option to perform if the option were exercised. Exchange-traded
options generally have a continuous liquid market while dealer options have
none. Consequently, the Series will generally be able to realize the value of a
dealer option it has purchased only by exercising it or reselling it to the
dealer who issued it. Similarly, when the Series writes a dealer option, it
generally will be able to close out the option prior to its expiration only by
entering into a closing purchase transaction with the dealer to which the Series
originally wrote the option. While the Series will seek to enter into dealer
options only with dealers who will agree to and which are expected to be capable
of entering into closing transactions with the Series, there can be no assurance
that the Series will be able to liquidate a dealer option at a favorable price
at any time prior to expiration. Failure by the dealer to do so would result in
the loss of the premium paid by the Series as well as loss of the expected
benefit of the transaction. Until the Series, as a covered dealer call option
writer, is able to effect a closing purchase transaction, it will not be able to
liquidate securities (or other assets) used as cover until the option expires or
is exercised. In the event of insolvency of the contra party, the Series may be
unable to liquidate a dealer option. With respect to options written by the
Series, the inability to enter into a closing transaction may result in material
losses to the Series. For example, since the Series must maintain a secured
position with respect to any call option on a security it writes, the Series may
not sell the assets which it has segregated to secure the position while it is
obligated under the option. This requirement may impair the Series' ability to
sell portfolio securities at a time when such sale might be advantageous.
The Staff of the SEC has taken the position that purchased dealer options
and the assets used to secure the written dealer options are illiquid
securities. The Series may treat the cover used for written OTC options as
liquid if the dealer agrees that the Series may repurchase the OTC option it has
written for a maximum price to be calculated by a predetermined formula. In such
cases, the OTC option would be considered illiquid only to the extent the
maximum repurchase price under the formula exceeds the intrinsic value of the
option. To this extent, the Series will treat dealer options as subject to the
Series' limitation on illiquid securities. If the SEC changes its position on
the liquidity of dealer options, the Series will change its treatment of such
instruments accordingly.
CERTAIN RISK FACTORS IN WRITING CALL OPTIONS AND IN PURCHASING CALL AND PUT
OPTIONS: During the option period, a Series, as writer of a call option has, in
return for the premium received on the option, given up the opportunity for
capital appreciation above the exercise price should the market price of the
underlying security increase, but has retained the risk of loss should the price
of the underlying security decline. The writer has no control over the time when
it may be required to fulfill its obligation as a writer of the option. The risk
of purchasing a call or put option is that the Series may lose the premium it
paid plus transaction costs. If the Series does not exercise the option and is
unable to close out the position prior to expiration of the option, it will lose
its entire investment.
An option position may be closed out only on an exchange which provides a
secondary market. There can be no assurance that a liquid secondary market will
exist for a particular option at a particular time and that the Series can close
out its position by effecting a closing transaction. If the Series is unable to
effect a closing purchase transaction, it cannot sell the underlying security
until the option expires or the option is exercised. Accordingly, the Series may
not be able to sell the underlying security at a time when it might otherwise be
advantageous to do so. Possible reasons for the absence of a liquid secondary
market include the following: (i) insufficient trading interest in certain
options; (ii) restrictions on transactions imposed by an exchange; (iii) trading
halts, suspensions or other restrictions imposed with respect to particular
classes or series of options or underlying securities; (iv) inadequacy of the
facilities of an exchange or the clearing corporation to handle trading volume;
and (v) a decision by one or more exchanges to discontinue the trading of
options or impose restrictions on orders. In addition, the hours of trading for
options may not conform to the hours during which the underlying securities are
traded. To the extent that the options markets close before the markets for the
underlying securities, significant price and rate movements can take place in
the underlying markets that cannot be reflected in the options markets. The
purchase of options is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary Series
securities transactions.
Each exchange has established limitations governing the maximum number of
call options, whether or not covered, which may be written by a single investor
acting alone or in concert with others (regardless of whether such options are
written on the same or different exchanges or are held or written on one or more
accounts or through one or more brokers). An exchange may order the liquidation
of positions found to be in violation of these limits and it may impose other
sanctions or restrictions.
OPTIONS ON STOCK INDICES. Options on stock indices are similar to options
on specific securities except that, rather than the right to take or make
delivery of the specific security at a specific price, an option on a stock
index gives the holder the right to receive, upon exercise of the option, an
amount of cash if the closing level of that stock index is greater than, in the
case of a call, or less than, in the case of a put, the exercise price of the
option. This amount of cash is equal to such difference between the closing
price of the index and the exercise price of the option expressed in dollars
multiplied by a specified multiple. The writer of the option is obligated, in
return for the premium received, to make delivery of this amount. Unlike options
on specific securities, all settlements of options on stock indices are in cash
and gain or loss depends on general movements in the stocks included in the
index rather than price movements in particular stocks. A stock index futures
contract is an agreement in which one party agrees to deliver to the other an
amount of cash equal to a specific amount multiplied by the difference between
the value of a specific stock index at the close of the last trading day of the
contract and the price at which the agreement is made. No physical delivery of
securities is made.
RISK FACTORS IN OPTIONS ON INDICES. Because the value of an index option
depends upon the movements in the level of the index rather than upon movements
in the price of a particular security, whether the Series will realize a gain or
a loss on the purchase or sale of an option on an index depends upon the
movements in the level of prices in the market generally or in an industry or
market segment rather than upon movements in the price of the individual
security. Accordingly, successful use of positions will depend upon the ability
of the Investment Manager or relevant Sub-Adviser to predict correctly movements
in the direction of the market generally or in the direction of a particular
industry. This requires different skills and techniques than predicting changes
in the prices of individual securities.
Index prices may be distorted if trading of securities included in the
index is interrupted. Trading in index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number of
securities in the index. If this occurred, a Series would not be able to close
out options which it had written or purchased and, if restrictions on exercise
were imposed, might be unable to exercise an option it purchased, which would
result in substantial losses.
Price movements in Series securities will not correlate perfectly with
movements in the level of the index and therefore, a Series bears the risk that
the price of the securities may not increase as much as the level of the index.
In this event, the Series would bear a loss on the call which would not be
completely offset by movements in the prices of the securities. It is also
possible that the index may rise when the value of the Series' securities does
not. If this occurred, a Series would experience a loss on the call which would
not be offset by an increase in the value of its securities and might also
experience a loss in the market value of its securities.
Unless a Series has other liquid assets which are sufficient to satisfy the
exercise of a call on the index, the Series will be required to liquidate
securities in order to satisfy the exercise.
When a Series has written a call on an index, there is also the risk that
the market may decline between the time the Series has the call exercised
against it, at a price which is fixed as of the closing level of the index on
the date of exercise, and the time the Series is able to sell securities. As
with options on securities, the Investment Manager or relevant Sub-Adviser will
not learn that a call has been exercised until the day following the exercise
date, but, unlike a call on securities where the Series would be able to deliver
the underlying security in settlement, the Series may have to sell part of its
securities in order to make settlement in cash, and the price of such securities
might decline before they could be sold.
If a Series exercises a put option on an index which it has purchased
before final determination of the closing index value for the day, it runs the
risk that the level of the underlying index may change before closing. If this
change causes the exercised option to fall "out-of-the-money" the Series will be
required to pay the difference between the closing index value and the exercise
price of the option (multiplied by the applicable multiplier) to the assigned
writer. Although the Series may be able to minimize this risk by withholding
exercise instructions until just before the daily cutoff time or by selling
rather than exercising an option when the index level is close to the exercise
price, it may not be possible to eliminate this risk entirely because the cutoff
time for index options may be earlier than those fixed for other types of
options and may occur before definitive closing index values are announced.
TRADING IN FUTURES. Certain Series may enter into financial futures
contracts, including stock and bond index, interest rate and currency futures
("futures or futures contracts"). A futures contract provides for the future
sale by one party and purchase by another party of a specified amount of a
specific financial instrument (e.g., units of a stock index) for a specified
price, date, time and place designated at the time the contract is made.
Brokerage fees are incurred when a futures contract is bought or sold and margin
deposits must be maintained. Entering into a contract to buy is commonly
referred to as buying or purchasing a contract or holding a long position.
Entering into a contract to sell is commonly referred to as selling a contract
or holding a short position.
Unlike when the Series purchases or sells a security, no price would be
paid or received by the Series upon the purchase or sale of a futures contract.
Upon entering into a futures contract, and to maintain the Series' open
positions in futures contracts, the Series would be required to deposit with its
custodian in a segregated account in the name of the futures broker an amount of
cash or liquid securities, known as "initial margin." The margin required for a
particular futures contract is set by the exchange on which the contract is
traded, and may be significantly modified from time to time by the exchange
during the term of the contract. Futures contracts are customarily purchased and
sold on margins that may range upward from less than 5% of the value of the
contract being traded.
Margin is the amount of funds that must be deposited by the Series with its
custodian in a segregated account in the name of the futures commission merchant
in order to initiate futures trading and to maintain the Series' open position
in futures contracts. A margin deposit is intended to ensure the Series'
performance of the futures contract. The margin required for a particular
futures contract is set by the exchange on which the futures contract is traded,
and may be significantly modified from time to time by the exchange during the
term of the futures contract.
If the price of an open futures contract changes (by increase in the case
of a sale or by decrease in the case of a purchase) so that the loss on the
futures contract reaches a point at which the margin on deposit does not satisfy
margin requirements, the broker will require an increase in the margin. However,
if the value of a position increases because of favorable price changes in the
futures contract so that the margin deposit exceeds the required margin, the
broker will pay the excess to the Series.
These subsequent payments, called "variation margin," to and from the
futures broker, are made on a daily basis as the price of the underlying assets
fluctuate making the long and short positions in the futures contract more or
less valuable, a process known as "marking to the market." The Series expects to
earn interest income on its margin deposits. Although certain futures contracts,
by their terms, require actual future delivery of and payment for the underlying
instruments, in practice most futures contracts are usually closed out before
the delivery date. Closing out an open futures contract purchase or sale is
effected by entering into an offsetting futures contract purchase or sale,
respectively, for the same aggregate amount of the identical securities and the
same delivery date. If the offsetting purchase price is less than the original
sale price, the Series realizes a gain; if it is more, the Series realizes a
loss. Conversely, if the offsetting sale price is more than the original
purchase price, the Series realizes a gain; if it is less, the Series realizes a
loss. The transaction costs must also be included in these calculations. There
can be no assurance, however, that the Series will be able to enter into an
offsetting transaction with respect to a particular futures contract at a
particular time. If the Series is not able to enter into an offsetting
transaction, the Series will continue to be required to maintain the margin
deposits on the futures contract.
For example, the Standard & Poor's 500 Stock Index is composed of 500
selected common stocks, most of which are listed on the New York Stock Exchange.
The S&P 500 Index assigns relative weightings to the common stocks included in
the Index, and the Index fluctuates with changes in the market values of those
common stocks. In the case of the S&P 500 Index, contracts are to buy or sell
500 units. Thus, if the value of the S&P 500 Index were $150, one contract would
be worth $75,000 (500 units x $150). The stock index futures contract specifies
that no delivery of the actual stock making up the index will take place.
Instead, settlement in cash occurs. Over the life of the contract, the gain or
loss realized by the Fund will equal the difference between the purchase (or
sale) price of the contract and the price at which the contract is terminated.
For example, if the Fund enters into a futures contract to buy 500 units of the
S&P 500 Index at a specified future date at a contract price of $150 and the S&P
500 Index is at $154 on that future date, the Fund will gain $2,000 (500 units x
gain of $4). If the Fund enters into a futures contract to sell 500 units of the
stock index at a specified future date at a contract price of $150 and the S&P
500 Index is at $152 on that future date, the Fund will lose $1,000 (500 units x
loss of $2).
Options on futures are similar to options on underlying instruments except
that options on futures give the purchaser the right, in return for the premium
paid, to assume a position in a futures contract (a long position if the option
is a call and a short position if the option is a put), rather than to purchase
or sell the futures contract, at a specified exercise price at any time during
the period of the option. Upon exercise of the option, the delivery of the
futures position by the writer of the option to the holder of the option will be
accompanied by the delivery of the accumulated balance in the writer's futures
margin account which represents the amount by which the market price of the
futures contract, at exercise, exceeds (in the case of a call) or is less than
(in the case of a put) the exercise price of the option on the futures contract.
Alternatively, settlement may be made totally in cash. Purchasers of options who
fail to exercise their options prior to the exercise date suffer a loss of the
premium paid.
The writer of an option on a futures contract is required to deposit margin
pursuant to requirements similar to those applicable to futures contracts. Upon
exercise of an option on a futures contract, the delivery of the futures
position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's margin
account. This amount will be equal to the amount by which the market price of
the futures contract at the time of exercise exceeds, in the case of a call, or
is less than, in the case of a put, the exercise price of the option on the
futures contract.
Commissions on financial futures contracts and related options transactions
may be higher than those which would apply to purchases and sales of securities
directly. From time to time, a single order to purchase or sell futures
contracts (or options thereon) may be made on behalf of the Series and other
mutual funds or portfolios of mutual funds for which the Investment Manager or
relevant Sub-Adviser serves as adviser or sub-adviser. Such aggregated orders
would be allocated among the Series and such other mutual funds or series of
mutual funds in a fair and non-discriminatory manner.
A public market exists in interest rate futures contracts covering
primarily the following financial instruments: U.S. Treasury bonds; U.S.
Treasury notes; Government National Mortgage Association ("GNMA") modified
pass-through mortgage-backed securities; three-month U.S. Treasury bills; 90-day
commercial paper; bank certificates of deposit; and Eurodollar certificates of
deposit. It is expected that Futures contracts trading in additional financial
instruments will be authorized. The standard contract size is generally $100,000
for Futures contracts in U.S. Treasury bonds, U.S. Treasury notes, and GNMA pass
through securities and $1,000,000 for the other designated Futures contracts. A
public market exists in Futures contracts covering a number of indexes,
including, but not limited to, the Standard & Poor's 500 Index, the Standard &
Poor's 100 Index, the NASDAQ 100 Index, the Value Line Composite Index and the
New York Stock Exchange Composite Index.
Stock index futures contracts may be used to provide a hedge for a portion
of the Series' portfolio, as a cash management tool, or as an efficient way for
the Investment Manager or relevant Sub-Adviser to implement either an increase
or decrease in portfolio market exposure in response to changing market
conditions. Stock index futures contacts are currently traded with respect to
the S&P 500 Index and other broad stock market indices, such as the New York
Stock Exchange Composite Stock Index and the Value Line Composite Stock Index.
The Series may, however, purchase or sell futures contracts with respect to any
stock index. Nevertheless, to hedge the Series' portfolio successfully, the
Series must sell futures contracts with respect to indexes or subindexes whose
movements will have a significant correlation with movements in the prices of
the Series' securities.
Interest rate or currency futures contracts may be used as a hedge against
changes in prevailing levels of interest rates or currency exchange rates in
order to establish more definitely the effective return on securities or
currencies held or intended to be acquired by the Series. In this regard, the
Series could sell interest rate or currency futures as an offset against the
effect of expected increases in interest rates or currency exchange rates and
purchase such futures as an offset against the effect of expected declines in
interest rates or currency exchange rates.
The Series may enter into futures contracts which are traded on national or
foreign futures exchanges and are standardized as to maturity date and
underlying financial instrument. The principal financial futures exchanges in
the United States are the Board of Trade of the City of Chicago, the Chicago
Mercantile Exchange, the New York Futures Exchange, and the Kansas City Board of
Trade. Futures exchanges and trading in the United States are regulated under
the Commodity Exchange Act by the Commodity Futures Trading Commission ("CFTC").
Futures are traded in London at the London International Financial Futures
Exchange, in Paris at the MATIF and in Tokyo at the Tokyo Stock Exchange.
Although techniques other than the sale and purchase of futures contracts could
be used for the above-referenced purposes, futures contracts offer an effective
and relatively low cost means of implementing the Series' objectives in these
areas.
CERTAIN RISKS RELATING TO FUTURES CONTRACTS AND RELATED OPTIONS. There are
special risks involved in futures transactions.
VOLATILITY AND LEVERAGE. The prices of futures contracts are volatile and
are influenced, among other things, by actual and anticipated changes in the
market and interest rates, which in turn are affected by fiscal and monetary
policies and national and international policies and economic events.
Most United States futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. The daily
limit establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage (although the Series' use of futures will not
result in leverage, as is more fully described below). As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss, as well as gain, to the investor. For example, if at the time
of purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit, if the contract were closed
out. Thus, a purchase or sale of a futures contract may result in losses in
excess of the amount invested in the futures contract. However, the Series would
presumably have sustained comparable losses if, instead of the futures contract,
it had invested in the underlying instrument and sold it after the decline.
Furthermore, in the case of a futures contract purchase, in order to be certain
that the Series has sufficient assets to satisfy its obligations under a futures
contract, the Series earmarks to the futures contract cash or liquid securities
equal in value to the current value of the underlying instrument less the margin
deposit.
LIQUIDITY. The Series may elect to close some or all of its futures
positions at any time prior to their expiration. The Series would do so to
reduce exposure represented by long futures positions or increase exposure
represented by short futures positions. The Series may close its positions by
taking opposite positions which would operate to terminate the Series' position
in the futures contracts. Final determinations of variation margin would then be
made, additional cash would be required to be paid by or released to the Series,
and the Series would realize a loss or a gain.
Futures contracts may be closed out only on the exchange or board of trade
where the contracts were initially traded. Although the Series intends to
purchase or sell futures contracts only on exchanges or boards of trade where
there appears to be an active market, there is no assurance that a liquid market
on an exchange or board of trade will exist for any particular contract at any
particular time. In such event, it might not be possible to close a futures
contract, and in the event of adverse price movements, the Series would continue
to be required to make daily cash payments of variation margin. However, in the
event futures contracts have been used to hedge the underlying instruments, the
Series would continue to hold the underlying instruments subject to the hedge
until the futures contracts could be terminated. In such circumstances, an
increase in the price of the underlying instruments, if any, might partially or
completely offset losses on the futures contract. However, as described below,
there is no guarantee that the price of the underlying instruments will, in
fact, correlate with the price movements in the futures contract and thus
provide an offset to losses on a futures contract.
HEDGING RISK. A decision of whether, when, and how to hedge involves skill
and judgment, and even a well-conceived hedge may be unsuccessful to some degree
because of unexpected market behavior, market or interest rate trends. There are
several risks in connection with the use by the Series of futures contracts as a
hedging device. One risk arises because of the imperfect correlation between
movements in the prices of the futures contracts and movements in the prices of
the underlying instruments which are the subject of the hedge. The Investment
Manager or relevant Sub-Adviser will, however, attempt to reduce this risk by
entering into futures contracts whose movements, in its, judgment, will have a
significant correlation with movements in the prices of the Series' underlying
instruments sought to be hedged.
Successful use of futures contracts by the Series for hedging purposes is
also subject to the Investment Manager or relevant Sub-Adviser's ability to
correctly predict movements in the direction of the market. It is possible that,
when the Series has sold futures to hedge its portfolio against a decline in the
market, the index, indices, or underlying instruments on which the futures are
written might advance and the value of the underlying instruments held in the
Series' portfolio might decline. If this were to occur, the Series would lose
money on the futures and also would experience a decline in value in its
underlying instruments. However, while this might occur to a certain degree, it
is believed that over time the value of the Series' portfolio will tend to move
in the same direction as the market indices which are intended to correlate to
the price movements of the underlying instruments sought to be hedged. It is
also possible that if the Series were to hedge against the possibility of a
decline in the market (adversely affecting the underlying instruments held in
its portfolio) and prices instead increased, the Series would lose part or all
of the benefit of increased value of those underlying instruments that it has
hedged, because it would have offsetting losses in its futures positions. In
addition, in such situations, if the Series had insufficient cash, it might have
to sell underlying instruments to meet daily variation margin requirements. Such
sales of underlying instruments might be, but would not necessarily be, at
increased prices (which would reflect the rising market). The Series might have
to sell underlying instruments at a time when it would be disadvantageous to do
so.
In addition to the possibility that there might be an imperfect
correlation, or no correlation at all, between price movements in the futures
contracts and the portion of the portfolio being hedged, the price movements of
futures contracts might not correlate perfectly with price movements in the
underlying instruments due to certain market distortions. First, all
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors might close futures contracts through offsetting transactions which
could distort the normal relationship between the underlying instruments and
futures markets. Second, the margin requirements in the futures market are less
onerous than margin requirements in the securities markets, and as a result the
futures market might attract more speculators than the securities markets do.
Increased participation by speculators in the futures market might also cause
temporary price distortions. Due to the possibility of price distortion in the
futures market and also because of the imperfect correlation between price
movements in the underlying instruments and movements in the prices of futures
contracts, even a correct forecast of general market trends by the Investment
Manager or relevant Sub-Adviser might not result in a successful hedging
transaction over a very short time period.
CERTAIN RISKS OF OPTIONS ON FUTURES CONTRACTS: The Series may seek to close
out an option position by writing or buying an offsetting option covering the
same index, underlying instruments, or contract and having the same exercise
price and expiration date. The ability to establish and close out positions on
such options will be subject to the maintenance of a liquid secondary market.
Reasons for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options, or underlying instruments; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (v) the facilities of an exchange or
a clearing corporation may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of options (or a particular class or series of options), in which event the
secondary market on that exchange (or in the class or series of options) would
cease to exist, although outstanding options on the exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms. There is no assurance
that higher than anticipated trading activity or other unforeseen events might
not, at times, render certain of the facilities of any of the clearing
corporations inadequate, and thereby result in the institution by an exchange of
special procedures which may interfere with the timely execution of customers'
orders.
REGULATORY LIMITATIONS. The Series will engage in transactions in futures
contracts and options thereon only for bona fide hedging, yield enhancement and
risk management purposes, in each case in accordance with the rules and
regulations of the CFTC.
The Series may not enter into futures contracts or options thereon if, with
respect to positions which do not qualify as bona fide hedging under applicable
CFTC rules, the sum of the amounts of initial margin deposits on the Series'
existing futures and premiums paid for options on futures would exceed 5% of the
net asset value of the Series after taking into account unrealized profits and
unrealized losses on any such contracts it has entered into; provided, however,
that in the case of an option that is in-the-money at the time of purchase, the
in-the-money amount may be excluded in calculating the 5% limitation.
The Series' use of futures contracts will not result in leverage.
Therefore, to the extent necessary, in instances involving the purchase of
futures contracts or call options thereon or the writing of put options thereon
by the Series, an amount of cash or liquid securities, equal to the market value
of the futures contracts and options thereon (less any related margin deposits),
will be identified in an account with the Series' custodian to cover the
position, or alternative cover will be employed.
In addition, CFTC regulations may impose limitations on the Series' ability
to engage in certain yield enhancement and risk management strategies. If the
CFTC or other regulatory authorities adopt different (including less stringent)
or additional restrictions, the Series would comply with such new restrictions.
FOREIGN FUTURES AND OPTIONS. Participation in foreign futures and foreign
options transactions involves the execution and clearing of trades on or subject
to the rules of a foreign board of trade. Neither the National Futures
Association nor any domestic exchange regulates activities of any foreign boards
of trade, including the execution, delivery and clearing of transactions, or has
the power to compel enforcement of the rules of a foreign board of trade or any
applicable foreign law. This is true even if the exchange is formally linked to
a domestic market so that a position taken on the market may be liquidated by a
transaction on another market. Moreover, such laws or regulations will vary
depending on the foreign country in which the foreign futures or foreign options
transaction occurs. For these reasons, customers who trade foreign futures or
foreign options contracts may not be afforded certain of the protective measures
provided by the Commodity Exchange Act, the CFTC's regulations and the rules of
the National Futures Association and any domestic exchange, including the right
to use reparations proceedings before the Commission and arbitration proceedings
provided by the National Futures Association or any domestic futures exchange.
In particular, funds received from the Series for foreign futures or foreign
options transactions may not be provided the same protections as funds received
in respect of transactions on United States futures exchanges. In addition, the
price of any foreign futures or foreign options contract and, therefore, the
potential profit and loss thereon may be affected by any variance in the foreign
exchange rate between the time an order is placed and the time it is liquidated,
offset or exercised.
FORWARD CURRENCY CONTRACTS AND RELATED OPTIONS. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the Contract.
These contracts are principally traded in the interbank market conducted
directly between currency traders (usually large, commercial banks) and their
customers. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for trades.
Depending on the investment policies and restrictions applicable to a
Series, a Series will generally enter into forward foreign currency exchange
contracts under two circumstances. First, when a Series enters into a contract
for the purchase or sale of a security denominated in a foreign currency, it may
desire to "lock in" the U.S. dollar price of the security. By entering into a
forward contract for the purchase or sale, for a fixed amount of dollars, of the
amount of foreign currency involved in the underlying security transactions, the
Series will be able to protect itself against a possible loss resulting from an
adverse change in the relationship between the U.S. dollar and the subject
foreign currency during the period between the date the security is purchased or
sold and the date on which payment is made or received.
Second, when the Investment Manager or relevant Sub-Adviser believes that
the currency of a particular foreign country may suffer or enjoy a substantial
movement against another currency, including the U.S. dollar, it may enter into
a forward contract to sell or buy the amount of the former foreign currency,
approximating the value of some or all of the Series' portfolio securities
denominated in such foreign currency. Alternatively, where appropriate, the
Series may hedge all or part of its foreign currency exposure through the use of
a basket of currencies or a proxy currency where such currencies or currency act
as an effective proxy for other currencies. In such a case, the Series may enter
into a forward contract where the amount of the foreign currency to be sold
exceeds the value of the securities denominated in such currency. The use of
this basket hedging technique may be more efficient and economical than entering
into separate forward contracts for each currency held in the Series. The
precise matching of the forward contract amounts and the value of the securities
involved will not generally be possible since the future value of such
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of short-term currency
market movement is extremely difficult, and the successful execution of a
short-term hedging strategy is highly uncertain.
The Series will also not enter into such forward contracts or maintain a
net exposure to such contracts where the consummation of the contracts would
obligate the Series to deliver an amount of foreign currency in excess of the
value of the Series' portfolio securities or other assets denominated in that
currency. The Series, however, in order to avoid excess transactions and
transaction costs, may maintain a net exposure to forward contracts in excess of
the value of the Series' portfolio securities or other assets to which the
forward contracts relate (including accrued interest to the maturity of the
forward contract on such securities) provided the excess amount is "covered" by
liquid securities, denominated in any currency, at least equal at all times to
the amount of such excess. For these purposes "the securities or other assets to
which the forward contracts relate may be securities or assets denominated in a
single currency, or where proxy forwards are used, securities denominated in
more than one currency. Under normal circumstances, consideration of the
prospect for currency parities will be incorporated into the longer term
investment decisions made with regard to overall diversification strategies.
However, the Investment Manager and relevant Sub-Advisers believe that it is
important to have the flexibility to enter into such forward contracts when it
determines that the best interests of the Series will be served.
At the maturity of a forward contract, the Series may either sell the
portfolio security and make delivery of the foreign currency, or it may retain
the security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract obligating it to purchase, on
the same maturity date, the same amount of the foreign currency.
As indicated above, it is impossible to forecast with absolute precision
the market value of portfolio securities at the expiration of the forward
contract. Accordingly, it may be necessary for a Series to purchase additional
foreign currency on the spot market (and bear the expense of such purchase) if
the market value of the security is less than the amount of foreign currency the
Series is obligated to deliver and if a decision is made to sell the security
and make delivery of the foreign currency. Conversely, it may be necessary to
sell on the spot market some of the foreign currency received upon the sale of
the portfolio security if its market value exceeds the amount of foreign
currency the Series is obligated to deliver. However, as noted, in order to
avoid excessive transactions and transaction costs, the Series may use liquid
securities, denominated in any currency, to cover the amount by which the value
of a forward contract exceeds the value of the securities to which it relates.
If the Series retains the portfolio security and engages in an offsetting
transaction, the Series will incur a gain or a loss (as described below) to the
extent that there has been movement in forward contract prices. If the Series
engages in an offsetting transaction, it may subsequently enter into a new
forward contract to sell the foreign currency. Should forward prices decline
during the period between the Series entering into a forward contract for the
sale of a foreign currency and the date it enters into an offsetting contract
for the purchase of the foreign currency, the Series will realize a gain to the
extent the price of the currency it has agreed to sell exceeds the price of the
currency it has agreed to purchase. Should forward prices increase, the Series
will suffer a loss to the extent the price of the currency it has agreed to
purchase exceeds the price of the currency it has agreed to sell.
The Series' dealing in forward foreign currency exchange contracts will
generally be limited to the transactions described above. However, the Series
reserve the right to enter into forward foreign currency contracts for different
purposes and under different circumstances. Of course, the Series are not
required to enter into forward contracts with regard to their foreign
currency-denominated securities and will not do so unless deemed appropriate by
the Investment Manager or relevant Sub-Adviser. It also should be realized that
this method of hedging against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities. It simply
establishes a rate of exchange at a future date. Additionally, although such
contracts tend to minimize the risk of loss due to a decline in the value of the
hedged currency, at the same time, they tend to limit any potential gain which
might result from an increase in the value of that currency.
Although the Series value their assets daily in terms of U.S. dollars, they
do not intend to convert their holdings of foreign currencies into U.S. dollars
on a daily basis. They will do so from time to time, and investors should be
aware of the costs of currency conversion. Although foreign exchange dealers do
not charge a fee for conversion, they do realize a profit based on the
difference (the "spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to a Series at one rate, while offering a lesser rate of exchange should the
Series desire to resell that currency to the dealer.
PURCHASE AND SALE OF CURRENCY FUTURES CONTRACTS AND RELATED OPTIONS. As
noted above, a currency futures contract sale creates an obligation by a Series,
as seller, to deliver the amount of currency called for in the contract at a
specified future time for a specified price. A currency futures contract
purchase creates an obligation by a Series, as purchaser, to take delivery of an
amount of currency at a specified future time at a specified price. Although the
terms of currency futures contracts specify actual delivery or receipt, in most
instances the contracts are closed out before the settlement date without the
making or taking of delivery of the currency. Closing out of a currency futures
contract is effected by entering into an offsetting purchase or sale
transaction. Unlike a currency futures contract, which requires the parties to
buy and sell currency on a set date, an option on a currency futures contract
entitles its holder to decide on or before a future date whether to enter into
such a contract. If the holder decides not to enter into the contract, the
premium paid for the option is fixed at the point of sale.
SWAPS, CAPS, FLOORS AND COLLARS. Certain Series may enter into interest
rate, securities index, commodity, or security and currency exchange rate swap
agreements for any lawful purpose consistent with the Series' investment
objective, such as for the purpose of attempting to obtain or preserve a
particular desired return or spread at a lower cost to the Series than if the
Series had invested directly in an instrument that yielded that desired return
or spread. The Series also may enter into swaps in order to protect against an
increase in the price of, or the currency exchange rate applicable to,
securities that the Series anticipates purchasing at a later date. Swap
agreements are two-party contracts entered into primarily by institutional
investors for periods ranging from a few weeks to several years. In a standard
"swap" transaction, two parties agree to exchange the returns (or differentials
in rates of return) earned or realized on particular predetermined investments
or instruments. The gross returns to be exchanged or "swapped" between the
parties are calculated with respect to a "notional amount," i.e., the return on
or increase in value of a particular dollar amount invested at a particular
interest rate, in a particular foreign currency, or in a "basket" of securities
representing a particular index. Swap agreements may include interest rate caps,
under which, in return for a premium, one party agrees to make payments to the
other to the extent that interests rates exceed a specified rate, or "cap";
interest rate floors under which, in return for a premium, one party agrees to
make payments to the other to the extent that interest rates fall below a
specified level, or "floor"; and interest rate collars, under which a party
sells a cap and purchases a floor, or vice versa, in an attempt to protect
itself against interest rate movements exceeding given minimum or maximum
levels.
The "notional amount" of the swap agreement is the agreed upon basis for
calculating the obligations that the parties to a swap agreement have agreed to
exchange. Under most swap agreements entered into by the Series, the obligations
of the parties would be exchanged on a "net basis." Consequently, the Series'
obligation (or rights) under a swap agreement will generally be equal only to
the net amount to be paid or received under the agreement based on the relative
value of the positions held by each party to the agreement (the "net amount").
The Series' obligation under a swap agreement will be accrued daily (offset
against amounts owed to the Series) and any accrued but unpaid net amounts owed
to a swap counterparty will be covered by the maintenance of a segregated
account consisting of cash or liquid securities.
Whether a Series' use of swap agreements will be successful in furthering
its investment objective will depend, in part, on the Investment Manager or
relevant Sub-Adviser's ability to predict correctly whether certain types of
investments are likely to produce greater returns than other investments. Swap
agreements may be considered to be illiquid. Moreover, the Series bears the risk
of loss of the amount expected to be received under a swap agreement in the
event of the default or bankruptcy of a swap agreement counterparty. Certain
restrictions imposed on the Series by the Internal Revenue Code may limit a
Series' ability to use swap agreements. The swaps market is largely unregulated.
The Series will enter swap agreements only with counterparties that the
Investment Manager or relevant Sub-Adviser reasonably believes are capable of
performing under the swap agreements. If there is a default by the other party
to such a transaction, the Series will have to rely on its contractual remedies
(which may be limited by bankruptcy, insolvency or similar laws) pursuant to the
agreements related to the transaction.
SPREAD TRANSACTIONS. Certain Series may purchase covered spread options
from securities dealers. Such covered spread options are not presently
exchange-listed or exchange-traded. The purchase of a spread option gives the
Series the right to put, or sell, a security that it owns at a fixed dollar
spread or fixed yield spread in relationship to another security that the Series
does not own, but which is used as a benchmark. The risk to the Series in
purchasing covered spread options is the cost of the premium paid for the spread
option and any transaction costs. In addition, there is no assurance that
closing transactions will be available. The purchase of spread options will be
used to protect the Series against adverse changes in prevailing credit quality
spreads, i.e., the yield spread between high quality and lower quality
securities. Such protection is only provided during the life of the spread
option.
HYBRID INSTRUMENTS. Hybrid instruments combine the elements of futures
contracts or options with those of debt, preferred equity or a depository
instrument ("Hybrid Instruments"). Often these Hybrid Instruments are indexed to
the price of a commodity or particular currency or a domestic or foreign debt or
equity securities index. Hybrid Instruments may take a variety of forms,
including, but not limited to, debt instruments with interest or principal
payments or redemption terms determined by reference to the value of a currency
or commodity at a future point in time, preferred stock with dividend rates
determined by reference to the value of a currency, or convertible securities
with the conversion terms related to a particular commodity. The risks of
investing in Hybrid Instruments reflect a combination of the risks from
investing in securities, futures and currencies, including volatility and lack
of liquidity. Reference is made to the discussion of futures and forward
contracts in this Statement of Additional Information for a discussion of these
risks. Further, the prices of the Hybrid Instrument and the related commodity or
currency may not move in the same direction or at the same time. Hybrid
Instruments may bear interest or pay preferred dividends at below market (or
even relatively nominal) rates. In addition, because the purchase and sale of
Hybrid Instruments could take place in an over-the-counter market or in a
private transaction between the Series and the seller of the Hybrid Instrument,
the creditworthiness of the contract party to the transaction would be a risk
factor which the Series would have to consider. Hybrid Instruments also may not
be subject to regulation of the CFTC, which generally regulates the trading of
commodity futures by U.S. persons, the SEC, which regulates the offer and sale
of securities by and to U.S. persons, or any other governmental regulatory
authority.
LENDING OF PORTFOLIO SECURITIES. For the purpose of realizing additional
income, certain of the Series may make secured loans of Series securities
amounting to not more than 33 1/3% of its total assets. Securities loans are
made to broker/dealers, institutional investors, or other persons pursuant to
agreements requiring that the loans be continuously secured by collateral at
least equal at all times to the value of the securities lent marked to market on
a daily basis. The collateral received will consist of cash, U.S. Government
securities, letters of credit or such other collateral as may be permitted under
its investment program. While the securities are being lent, the Series will
continue to receive the equivalent of the interest or dividends paid by the
issuer on the securities, as well as interest on the investment of the
collateral or a fee from the borrower. The Series has a right to call each loan
and obtain the securities on five business days' notice or, in connection with
securities trading on foreign markets, within such longer period of time which
coincides with the normal settlement period for purchases and sales of such
securities in such foreign markets. The Series will not have the right to vote
securities while they are being lent, but it will call a loan in anticipation of
any important vote. The risks in lending portfolio securities, as with other
extensions of secured credit, consist of possible delay in receiving additional
collateral or in the recovery of the securities or possible loss of rights in
the collateral should the borrower fail financially. Loans will only be made to
persons deemed by the Investment Manager or relevant Sub-Adviser to be of good
standing and will not be made unless, in the judgment of the Investment Manager
or relevant Sub-Adviser, the consideration to be earned from such loans would
justify the risk.
OTHER LENDING/BORROWING. Subject to approval by the Securities and Exchange
Commission, Series N and O may make loans to, or borrow funds from, other mutual
funds or portfolios of mutual funds sponsored or advised by T. Rowe Price or
Rowe Price-Fleming International, Inc. The Series have no intention of engaging
in these practices at this time.
ZERO COUPON SECURITIES. Zero coupon securities pay no cash income and are
sold at substantial discounts from their value at maturity. When held to
maturity, their entire income, which consists of accretion of discount, comes
from the difference between the issue price and their value at maturity. Zero
coupon securities are subject to greater market value fluctuations from changing
interest rates than debt obligations of comparable maturities which make current
distributions of interest (cash). Zero coupon securities which are convertible
into common stock offer the opportunity for capital appreciation as increases
(or decreases) in market value, of such securities closely follows the movements
in the market value of the underlying common stock. Zero coupon convertible
securities generally are expected to be less volatile than the underlying common
stocks, as they usually are issued with maturities of 15 years or less and are
issued with options and/or redemption features exercisable by the holder of the
obligation entitling the holder to redeem the obligation and receive a defined
cash payment.
Zero coupon securities include securities issued directly by the U.S.
Treasury, and U.S. Treasury bonds or notes and their unmatured interest coupons
and receipts for their underlying principal ("coupons") which have been
separated by their holder, typically a custodian bank or investment brokerage
firm. A holder will separate the interest coupons from the underlying principal
(the "corpus") of the U.S. Treasury security. A number of securities firms and
banks have stripped the interest coupons and receipts and then resold them in
custodial receipt programs with a number of different names, including "Treasury
Income Growth Receipts" (TIGRSTM) and Certificate of Accrual on Treasuries
(CATSTM). The underlying U.S. Treasury bonds and notes themselves are held in
book-entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof. Counsel to the
underwriters of these certificates or other evidences of ownership of the U.S.
Treasury securities have stated that, for federal tax and securities purposes,
in their opinion purchasers of such certificates, such as the Series, most
likely will be deemed the beneficial holder of the underlying U.S. Government
securities.
The U. S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record keeping system. The Federal Reserve program as
established by the Treasury Department is known as "STRIPS" or "Separate Trading
of Registered Interest and Principal of Securities." Under the STRIPS program,
the Series will be able to have its beneficial ownership of zero coupon
securities recorded directly in the book-entry recordkeeping system in lieu of
having to hold certificates or other evidences of ownership of the underlying
U.S. Treasury securities.
When U.S. Treasury obligations have been stripped of their unmatured
interest coupons by the holder, the principal or corpus is sold at a deep
discount because the buyer receives only the right to receive a future fixed
payment in the security and does not receive any rights to periodic interest
(cash) payments. Once stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold bundled in such form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself.
WHEN-ISSUED SECURITIES. Certain Series may from time to time purchase
securities on a "when-issued" basis. At the time the Series makes the commitment
to purchase a security on a when-issued basis, it will record the transaction
and reflect the value of the security in determining its net asset value. The
Series do not believe that net asset value or income will be adversely affected
by purchase of securities on a when-issued basis. The Series will maintain cash
and marketable securities equal in value to commitments for when-issued
securities.
The price of when-issued securities, which may be expressed in yield terms,
is fixed at the time the commitment to purchase is made, but delivery and
payment for the when-issued securities take place at a later date. Normally, the
settlement date occurs within 90 days of the purchase. During the period between
purchase and settlement no payment is made by the Series to the issuer and no
interest accrues to the Series. Forward commitments involve a risk of loss if
the value of the security to be purchased declines prior to the settlement date,
which risk is in addition to the risk of decline in value of the Series' other
assets. While when-issued securities may be sold prior to the settlement date,
the Series intends to purchase such securities for the purpose of actually
acquiring them unless a sale appears desirable for investment reasons.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities (MBSs), including
mortgage pass-through securities and collateralized mortgage obligations (CMOs),
include certain securities issued or guaranteed by the United States Government
or one of its agencies or instrumentalities, such as the Government National
Mortgage Association (GNMA), Federal National Mortgage Association (FNMA), or
Federal Home Loan Mortgage Corporation (FHLMC); securities issued by private
issuers that represent an interest in or are collateralized by mortgage-backed
securities issued or guaranteed by the U.S. Government or one of its agencies or
instrumentalities; and securities issued by private issuers that represent an
interest in or are collateralized by mortgage loans. A mortgage pass-through
security is a pro rata interest in a pool of mortgages where the cash flow
generated from the mortgage collateral is passed through to the security holder.
CMOs are obligations fully collateralized by a portfolio of mortgages or
mortgage-related securities.
Certain Series may invest in securities known as "inverse floating
obligations," "residual interest bonds," and "interest-only" (IO) and
"principal-only" (PO) bonds, the market values of which will generally be more
volatile than the market values of most MBSs due to the fact that such
instruments are more sensitive to interest rate charges and to the rate of
principal prepayments than are most other MBSs. An inverse floating obligation
is a derivative adjustable rate security with interest rates that adjust or vary
inversely to changes in market interest rates. The term "residual interest" bond
is used generally to describe those instruments in collateral pools, such as
CMOs, which receive excess cash flow generated by the pool once all other
bondholders and expenses have been paid. IOs and POs are created by separating
the interest and principal payments generated by a pool of mortgage-backed bonds
to create two classes of securities. Generally, one class receives interest only
payments (IO) and the other class principal only payments (PO). MBSs have been
referred to as "derivatives" because the performance of MBSs is dependent upon
and derived from underlying securities.
Investment in MBSs poses several risks, including prepayment, market and
credit risks. Prepayment risk reflects the chance that borrowers may prepay
their mortgages faster than expected, thereby affecting the investment's average
life and perhaps its yield. Borrowers are most likely to exercise their
prepayment options at a time when it is least advantageous to investors,
generally prepaying mortgages as interest rates fall, and slowing payments as
interest rates rise. Certain classes of CMOs may have priority over others with
respect to the receipt of prepayments on the mortgages and the Series may invest
in CMOs which are subject to greater risk of prepayment. Market risk reflects
the chance that the price of the security may fluctuate over time. The price of
MBSs may be particularly sensitive to prevailing interest rates, the length of
time the security is expected to be outstanding and the liquidity of the issue.
In a period of unstable interest rates, there may be decreased demand for
certain types of MBSs, and a Series invested in such securities wishing to sell
them may find it difficult to find a buyer, which may in turn decrease the price
at which they may be sold. IOs and POs are acutely sensitive to interest rate
changes and to the rate of principal prepayments. They are very volatile in
price and may have lower liquidity than most mortgage-backed securities. Certain
CMOs may also exhibit these qualities, especially those which pay variable rates
of interest which adjust inversely with and more rapidly than short-term
interest rates. Credit risk reflects the chance that the Fund may not receive
all or part of its principal because the issuer or credit enhancer has defaulted
on its obligations. Obligations issued by U.S. Government-related entities are
guaranteed by the agency or instrumentality, and some, such as GNMA
certificates, are supported by the full faith and credit of the U.S. Treasury;
others are supported by the right of the issuer to borrow from the Treasury;
others, such as those of the FNMA, are supported by the discretionary authority
of the U.S. Government to purchase the agency's obligations; still others, are
supported only by the credit of the instrumentality. Although securities issued
by U.S. Government-related agencies are guaranteed by the U.S. Government, its
agencies or instrumentalities, shares of the Series are not so guaranteed in any
way. The performance of private label MBSs, issued by private institutions, is
based on the financial health of those institutions. There is no guarantee the
Series' investment in MBSs will be successful, and the Series' total return
could be adversely affected as a result.
ASSET-BACKED SECURITIES: Asset-backed securities directly or indirectly
represent a participation interest in, or are secured by and payable from, a
stream of payments generated by particular assets such as motor vehicle or
credit card receivables. Payments of principal and interest may be guaranteed up
to certain amounts and for a certain time period by a letter of credit issued by
a financial institution unaffiliated with the entities issuing the securities.
Asset-backed securities may be classified as pass-through certificates or
collateralized obligations.
Pass-through certificates are asset-backed securities which represent an
undivided fractional ownership interest in an underlying pool of assets.
Pass-through certificates usually provide for payments of principal and interest
received to be passed through to their holders, usually after deduction for
certain costs and expenses incurred in administering the pool. Because
pass-through certificates represent an ownership interest in the underlying
assets, the holders thereof bear directly the risk of any defaults by the
obligors on the underlying assets not covered by any credit support. See "Types
of Credit Support."
Asset-backed securities issued in the form of debt instruments, also known
as collateralized obligations, are generally issued as the debt of a special
purpose entity organized solely for the purpose of owning such assets and
issuing such debt. Such assets are most often trade, credit card or automobile
receivables. The assets collateralizing such asset-backed securities are pledged
to a trustee or custodian for the benefit of the holders thereof. Such issuers
generally hold no assets other than those underlying the asset-backed securities
and any credit support provided. As a result, although payments on such
asset-backed securities are obligations of the issuers, in the event of defaults
on the underlying assets not covered by any credit support (see "Types of Credit
Support"), the issuing entities are unlikely to have sufficient assets to
satisfy their obligations on the related asset-backed securities.
METHODS OF ALLOCATING CASH FLOWS. While many asset-backed securities are
issued with only one class of security, many asset-backed securities are issued
in more than one class, each with different payment terms. Multiple class
asset-backed securities are issued for two main reasons. First, multiple classes
may be used as a method of providing credit support. This is accomplished
typically through creation of one or more classes whose right to payments on the
asset-backed security is made subordinate to the right to such payments of the
remaining class or classes. See "Types of Credit Support". Second, multiple
classes may permit the issuance of securities with payment terms, interest rates
or other characteristics differing both from those of each other and from those
of the underlying assets. Examples include so-called "strips" (asset-backed
securities entitling the holder to disproportionate interests with respect to
the allocation of interest and principal of the assets backing the security),
and securities with a class or classes having characteristics which mimic the
characteristics of non-asset-backed securities, such as floating interest rates
(i.e., interest rates which adjust as a specified benchmark changes) or
scheduled amortization of principal.
Asset-backed securities in which the payment streams on the underlying
assets are allocated in a manner different than those described above may be
issued in the future. The Series may invest in such asset-backed securities if
such investment is otherwise consistent with its investment objectives and
policies and with the investment restrictions of the Series.
TYPES OF CREDIT SUPPORT. Asset-backed securities are often backed by a pool
of assets representing the obligations of a number of different parties. To
lessen the effect of failures by obligors on underlying assets to make payments,
such securities may contain elements of credit support. Such credit support
falls into two classes: liquidity protection and protection against ultimate
default by an obligor on the underlying assets. Liquidity protection refers to
the provision of advances, generally by the entity administering the pool of
assets, to ensure that scheduled payments on the underlying pool are made in a
timely fashion. Protection against ultimate default ensures ultimate payment of
the obligations on at least a portion of the assets in the pool. Such protection
may be provided through guarantees, insurance policies or letters of credit
obtained from third parties, through various means of structuring the
transaction or through a combination of such approaches. Examples of
asset-backed securities with credit support arising out of the structure of the
transaction include "senior-subordinated securities" (multiple class
asset-backed securities with certain classes subordinate to other classes as to
the payment of principal thereon, with the result that defaults on the
underlying assets are borne first by the holders of the subordinated class) and
asset-backed securities that have "reserve Portfolios" (where cash or
investments, sometimes funded from a portion of the initial payments on the
underlying assets, are held in reserve against future losses) or that have been
"over collateralized" (where the scheduled payments on, or the principal amount
of, the underlying assets substantially exceeds that required to make payment of
the asset-backed securities and pay any servicing or other fees). The degree of
credit support provided on each issue is based generally on historical
information respecting the level of credit risk associated with such payments.
Delinquency or loss in excess of that anticipated could adversely affect the
return on an investment in an asset-backed security. Additionally, if the letter
of credit is exhausted, holders of asset-backed securities may also experience
delays in payments or losses if the full amounts due on underlying sales
contracts are not realized.
AUTOMOBILE RECEIVABLE SECURITIES. Asset-Backed Securities may be backed by
receivables from motor vehicle installment sales contracts or installment loans
secured by motor vehicles ("Automobile Receivable Securities"). Since
installment sales contracts for motor vehicles or installment loans related
thereto ("Automobile Contracts") typically have shorter durations and lower
incidences of prepayment, Automobile Receivable Securities generally will
exhibit a shorter average life and are less susceptible to prepayment risk.
Most entities that issue Automobile Receivable Securities create an
enforceable interest in their respective Automobile Contracts only by filing a
financing statement and by having the servicer of the Automobile contracts,
which is usually the originator of the Automobile Contracts, take custody
thereof. In such circumstances, if the servicer of the Automobile Contracts were
to sell the same Automobile Contracts to another party, in violation of its
obligation not to do so, there is a risk that such party could acquire an
interest in the Automobile Contracts superior to that of the holders of
Automobile Receivable Securities. Also although most Automobile Contracts grant
a security interest in the motor vehicle being financed, in most states the
security interest in a motor vehicle must be noted on the certificate of title
to create an enforceable security interest against competing claims of other
parties. Due to the large number of vehicles involved, however, the certificate
of title to each vehicle financed, pursuant to the Automobile Contracts
underlying the Automobile Receivable Security, usually is not amended to reflect
the assignment of the seller's security interest for the benefit of the holders
of the Automobile Receivable Securities. Therefore, there is the possibility
that recoveries on repossessed collateral may not, in some cases, be available
to support payments on the securities. In addition, various state and federal
securities laws give the motor vehicle owner the right to assert against the
holder of the owner's Automobile Contract certain defenses such owner would have
against the seller of the motor vehicle. The assertion of such defenses could
reduce payments on the Automobile Receivable Securities.
CREDIT CARD RECEIVABLE SECURITIES. Asset-Backed Securities may be backed by
receivables from revolving credit card agreements ("Credit Card Receivable
Securities"). Credit balances on revolving credit card agreements ("Accounts")
are generally paid down more rapidly than are Automobile Contracts. Most of the
Credit Card Receivable Securities issued publicly to date have been Pass-Through
Certificates. In order to lengthen the maturity of Credit Card Receivable
Securities, most such securities provide for a fixed period during which only
interest payments on the underlying Accounts are passed through to the security
holder and principal payments received on such Accounts are used to fund the
transfer to the pool of assets supporting the related Credit Card Receivable
Securities of additional credit card charges made on an Account. The initial
fixed period usually may be shortened upon the occurrence of specified events
which signal a potential deterioration in the quality of the assets backing the
security, such as the imposition of a cap on interest rates. The ability of the
issuer to extend the life of an issue of Credit Card Receivable Securities thus
depends upon the continued generation of additional principal amounts in the
underlying accounts during the initial period and the non-occurrence of
specified events. An acceleration in cardholders' payment rates or any other
event which shortens the period during which additional credit card charges on
an Account may be transferred to the pool of assets supporting the related
Credit Card Receivable Security could shorten the weighted average life and
yield of the Credit Card Receivable Security.
Credit cardholders are entitled to the protection of a number of state and
federal consumer credit laws, many of which give such holders the right to set
off certain amounts against balances owed on the credit card, thereby reducing
amounts paid on Accounts. In addition, unlike most other Asset Backed
Securities, Accounts are unsecured obligations of the cardholder.
GUARANTEED INVESTMENT CONTRACTS ("GICS"). Certain Series may invest in
GICs. When investing in GICs, the Series makes cash contributions to a deposit
fund of an insurance company's general account. The insurance company then
credits guaranteed interest to the deposit fund on a monthly basis. The GICs
provide that this guaranteed interest will not be less than a certain minimum
rate. The insurance company may assess periodic charges against a GIC for
expenses and service costs allocable to it, and the charges will be deducted
from the value of the deposit fund. Series C may invest only in GICs that have
received the requisite ratings by one or more NRSROs. Because a Series may not
receive the principal amount of a GIC from the insurance company on 7 days'
notice or less, the GIC is considered an illiquid investment. In determining
average portfolio maturity, GICs will be deemed to have a maturity equal to the
period of time remaining until the next readjustment of the guaranteed interest
rate.
RESTRICTED SECURITIES. Restricted securities may be sold only in privately
negotiated transactions or in a public offering with respect to which a
registration statement is in effect under the Securities Act of 1933 (the "1933
Act"). Where registration is required, the Series may be obligated to pay all or
part of the registration expenses and a considerable period may elapse between
the time of the decision to sell and the time the Series may be permitted to
sell a security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, the Series might obtain a
less favorable price than prevailed when it decided to sell. Restricted
securities will be priced at fair value as determined in accordance with
procedures prescribed by the Board of Directors. If through the appreciation of
restricted securities or the depreciation of unrestricted securities or the
depreciation of liquid securities, the Series should be in a position where more
than the percentage of its net assets permitted under the respective Series
operating policy are invested in illiquid assets, including restricted
securities, the Series will take appropriate steps to protect liquidity.
The Series may purchase securities which while privately placed, are
eligible for purchase and sale under Rule 144A under the 1933 Act. This rule
permits certain qualified institutional buyers, such as the Series, to trade in
privately placed securities even though such securities are not registered under
the 1933 Act. The Investment Manager or relevant Sub-Adviser, under the
supervision of the Fund's Board of Directors, will consider whether securities
purchased under Rule 144A are illiquid and thus subject to the Series'
restriction on investment of its assets in illiquid securities. A determination
of whether a Rule 144A security is liquid or not is a question of fact. In
making this determination, the Investment Manager or relevant Sub-Adviser will
consider the trading markets for the specific security taking into account the
unregistered nature of a Rule 144A security. In addition the Investment Manager
or relevant Sub-Adviser could consider the (1) frequency of trades and quotes,
(2) number of dealers and potential purchasers, (3) dealer undertakings to make
a market, and (4) the nature of the security and of marketplace trades (e.g.,
the time needed to dispose of the security, the method of soliciting offers and
the mechanics of transfer). The liquidity of Rule 144A securities would be
monitored, and if as a result of changed conditions it is determined that a Rule
144A security is no longer liquid, the Series' holdings of illiquid securities
would be reviewed to determine what, if any, steps are required to assure that
the Series does not invest more than permitted in illiquid securities. Investing
in Rule 144A securities could have the effect of increasing the amount of the
Series' assets invested in illiquid securities if qualified institutional buyers
are unwilling to purchase such securities.
WARRANTS. Investment in warrants is pure speculation in that they have no
voting rights, pay no dividends, and have no rights with respect to the assets
of the corporation issuing them. Warrants basically are options to purchase
equity securities at a specific price valid for a specific period of time. They
do not represent ownership of the securities but only the right to buy them.
Warrants differ from call options in that warrants are issued by the issuer of
the security which may be purchased on their exercise, whereas call options may
be written or issued by anyone. The prices of warrants do not necessarily move
parallel to the prices of the underlying securities, and a warrant ceases to
have value if it is not exercised prior to its expiration date.
CERTAIN RISKS OF FOREIGN INVESTING
RISKS OF CONVERSION TO EURO -- On January 1, 1999, eleven countries in the
European Monetary Union will adopt the euro as their official currency. However,
their current currencies (for example, the franc, the mark, and the lire) will
also continue in use until January 1, 2002. After that date, it is expected that
only the euro will be used in those countries. A common currency is expected to
confer some benefits in those markets, by consolidating the government debt
market for those countries and reducing some currency risks and costs. But the
conversion to the new currency will affect the Series operationally and also has
potential risks, some of which are listed below. Among other things, the
conversion will affect:
* issuers in which the Series invest, because of changes in the competitive
environment from a consolidated currency market and greater operational costs
from converting to the new currency. This might depress stock values.
* vendors the Series depend on to carry out their business, such as the
custodian bank (which holds the foreign securities the Series buy), the
Investment Manager (which prices the Series' investments to deal with the
conversion to the euro) and brokers, foreign markets and securities
depositories. If they are not prepared, there could be delays in settlements
and additional costs to the Series.
* exchange contracts and derivatives that are outstanding during the transition
to the euro. The lack of currency rate calculations between the affected
currencies and the need to update the Funds' contracts could pose extra costs
to the Series.
The Investment Manager is upgrading its computer and bookkeeping systems to
deal with the conversion. The Series' custodian bank has advised the Investment
Manager of its plans to deal with the conversion, including how it will update
its record keeping systems and handle the redenomination of outstanding foreign
debt. The possible effect of these factors on the Series' investments cannot be
determined with certainty at this time, but they may reduce the value of some of
the Series' holdings and increase its operational costs.
BRADY BONDS. Certain Series may invest in "Brady Bonds," which are debt
restructurings that provide for the exchange of cash and loans for newly issued
bonds. Brady Bonds are securities created through the exchange of existing
commercial bank loans to public and private entities in certain emerging markets
for new bonds in connection with debt restructuring under a debt restructuring
plan introduced by former U.S. Secretary of the Treasury, Nicholas F. Brady.
Brady Bonds have been issued by the governments of Argentina, Brazil, Bulgaria,
Costa Rica, Dominican Republic, Ecuador, Jordan, Mexico, Nigeria, Panama, Peru,
The Philippines, Uruguay, Venezuela, and are expected to be issued by other
emerging market countries. Approximately $150 billion in principal amount of
Brady Bonds has been issued to date. Investors should recognize that Brady Bonds
have been issued only recently and, accordingly, do not have a long payment
history. Brady Bonds may be collateralized or uncollateralized, are issued in
various currencies (primarily the U.S. dollar) and are actively traded in the
secondary market for Latin American debt. The Salomon Brothers Brady Bond Index
provides a benchmark that can be used to compare returns of emerging market
Brady Bonds with returns in other bond markets, e.g., the U.S. bond market.
Series K may invest in either collateralized or uncollateralized Brady
Bonds denominated in various currencies, while Series B and Series P may invest
only in collateralized bonds denominated in U.S. dollars. U.S.
dollar-denominated, collateralized Brady Bonds, which may be fixed rate par
bonds or floating rate discount bonds, are collateralized in full as to
principal by U.S. Treasury zero coupon bonds having the same maturity as the
bonds. Interest payments on such bonds generally are collateralized by cash or
securities in an amount that, in the case of fixed rate bonds, is equal to at
least one year of rolling interest payments or, in the case of floating rate
bonds, initially is equal to at least one year's rolling interest payments based
on the applicable interest rate at the time and is adjusted at regular intervals
thereafter.
EMERGING COUNTRIES. Certain Series may invest in debt securities in
emerging markets. Investing in securities in emerging countries may entail
greater risks than investing in debt securities in developed countries. These
risks include (i) less social, political and economic stability; (ii) the small
current size of the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of liquidity and in
greater price volatility; (iii) certain national policies which may restrict a
Series' investment opportunities, including restrictions on investment in
issuers or industries deemed sensitive to national interests; (iv) foreign
taxation; and (v) the absence of developed structures governing private or
foreign investment or allowing for judicial redress for injury to private
property.
POLITICAL AND ECONOMIC RISKS. Investing in securities of non-U.S. companies
may entail additional risks due to the potential political and economic
instability of certain countries and the risks of expropriation,
nationalization, confiscation or the imposition of restrictions on foreign
investment and on repatriation of capital invested. In the event of such
expropriation, nationalization or other confiscation by any country, a Series
could lose its entire investment in any such country.
An investment in a Series which invests in non-U.S. companies is subject to
the political and economic risks associated with investments in emerging
markets. Even though opportunities for investment may exist in emerging markets,
any change in the leadership or policies of the governments of those countries
or in the leadership or policies of any other government which exercises a
significant influence over those countries, may halt the expansion of or reverse
the liberalization of foreign investment policies now occurring and thereby
eliminate any investment opportunities which may currently exist.
Investors should note that upon the accession to power of authoritarian
regimes, the governments of a number of emerging market countries previously
expropriated large quantities of real and personal property similar to the
property which will be represented by the securities purchased by the Series.
The claims of property owners against those governments were never finally
settled. There can be no assurance that any property represented by securities
purchased by a Series will not also be expropriated, nationalized, or otherwise
confiscated. If such confiscation were to occur, the Series could lose a
substantial portion of its investments in such countries. The Series'
investments would similarly be adversely affected by exchange control regulation
in any of those countries.
RELIGIOUS AND ETHNIC INSTABILITY. Certain countries in which a Series may
invest may have vocal minorities that advocate radical religious or
revolutionary philosophies or support ethnic independence. Any disturbance on
the part of such individuals could carry the potential for wide-spread
destruction or confiscation of property owned by individuals and entities
foreign to such country and could cause the loss of the Series' investment in
those countries.
FOREIGN INVESTMENT RESTRICTIONS. Certain countries prohibit or impose
substantial restrictions on investments in their capital markets, particularly
their equity markets, by foreign entities such as the Series. As illustrations,
certain countries require governmental approval prior to investments by foreign
persons, or limit the amount of investment by foreign persons in a particular
company, or limit the investments by foreign persons to only a specific class of
securities of a company that may have less advantageous terms than securities of
the company available for purchase by nationals. Moreover, the national policies
of certain countries may restrict investment opportunities in issuers or
industries deemed sensitive to national interests. In addition, some countries
require governmental approval for the repatriation of investment income, capital
or the proceeds of securities sales by foreign investors. A Series could be
adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation, as well as by the application to it of
other restrictions on investments.
NON-UNIFORM CORPORATE DISCLOSURE STANDARDS AND GOVERNMENTAL REGULATION.
Foreign companies are subject to accounting, auditing and financial standards
and requirements that differ, in some cases significantly, from those applicable
to U.S. companies. In particular, the assets, liabilities and profits appearing
on the financial statements of such a company may not reflect its financial
position or results of operations in the way they would be reflected had such
financial statements been prepared in accordance with U.S. generally accepted
accounting principles. Most of the securities held by the Series will not be
registered with the SEC or regulators of any foreign country, nor will the
issuers thereof be subject to the SEC's reporting requirements. Thus, there will
be less available information concerning foreign issuers of securities held by
the Series than is available concerning U.S. issuers. In instances where the
financial statements of an issuer are not deemed to reflect accurately the
financial situation of the issuer, the Investment Manager and relevant
Sub-Adviser will take appropriate steps to evaluate the proposed investment,
which may include on-site inspection of the issuer, interviews with its
management and consultations with accountants, bankers and other specialists.
There is substantially less publicly available information about foreign
companies than there are reports and ratings published about U.S. companies and
the U.S. Government. In addition, where public information is available, it may
be less reliable than such information regarding U.S. issuers.
CURRENCY FLUCTUATIONS. Because a Series, under normal circumstances, may
invest substantial portions of its total assets in the securities of foreign
issuers which are denominated in foreign currencies, the strength or weakness of
the U.S. dollar against such foreign currencies will account for part of the
Series' investment performance. A decline in the value of any particular
currency against the U.S. dollar will cause a decline in the U.S. dollar value
of the Series' holdings of securities denominated in such currency and,
therefore, will cause an overall decline in the Series' net asset value and any
net investment income and capital gains to be distributed in U.S. dollars to
shareholders of the Series.
The rate of exchange between the U.S. dollar and other currencies is
determined by several factors including the supply and demand for particular
currencies, central bank efforts to support particular currencies, the movement
of interest rates, the pace of business activity in certain other countries and
the U.S., and other economic and financial conditions affecting the world
economy.
Although the Series values its assets daily in terms of U.S. dollars, the
Series does not intend to convert holdings of foreign currencies into U.S.
dollars on a daily basis. The Series will do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference ("spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to the Series at one rate, while offering a lesser rate of exchange should the
Series desire to sell that currency to the dealer.
ADVERSE MARKET CHARACTERISTICS. Securities of many foreign issuers may be
less liquid and their prices more volatile than securities of comparable U.S.
issuers. In addition, foreign securities exchanges and brokers generally are
subject to less governmental supervision and regulation than in the U.S., and
foreign securities exchange transactions usually are subject to fixed
commissions, which generally are higher than negotiated commissions on U.S.
transactions. In addition, foreign securities exchange transactions may be
subject to difficulties associated with the settlement of such transactions.
Delays in settlement could result in temporary periods when assets of the Series
are uninvested and no return is earned thereon. The inability of the Series to
make intended security purchases due to settlement problems could cause it to
miss attractive opportunities. Inability to dispose of a portfolio security due
to settlement problems either could result in losses to the Series due to
subsequent declines in value of the portfolio security or, if the Series has
entered into a contract to sell the security, could result in possible liability
to the purchaser. The Investment Manager or relevant Sub-Adviser will consider
such difficulties when determining the allocation of the Series' assets.
NON-U.S. WITHHOLDING TAXES. A Series' investment income and gains from
foreign issuers may be subject to non-U.S. withholding and other taxes, thereby
reducing the Series' investment income and gains.
INVESTMENT AND REPATRIATION RESTRICTIONS. Foreign investment in the
securities markets of certain foreign countries is restricted or controlled in
varying degrees. These restrictions may at times limit or preclude investment in
certain of such countries and may increase the costs and expenses of a Series.
Investments by foreign investors are subject to a variety of restrictions in
many developing countries. These restrictions may take the form of prior
governmental approval, limits on the amount or type of securities held by
foreigners, and limits on the types of companies in which foreigners may invest.
Additional or different restrictions may be imposed at any time by these or
other countries in which a Series invests. In addition, the repatriation of both
investment income and capital from several foreign countries is restricted and
controlled under certain regulations, including in some cases the need for
certain government consents. These restrictions may in the future make it
undesirable to invest in these countries.
MARKET CHARACTERISTICS. Foreign securities may be purchased in
over-the-counter markets or on stock exchanges located in the countries in which
the respective principal offices of the issuers of the various securities are
located, if that is the best available market. Foreign stock markets are
generally not as developed or efficient as, and may be more volatile than, those
in the United States. While growing in volume, they usually have substantially
less volume than U.S. markets and a Series' portfolio securities may be less
liquid and more volatile than securities of comparable U.S. companies. Equity
securities may trade at price/earnings multiples higher than comparable United
States securities and such levels may not be sustainable. Fixed commissions on
foreign stock exchanges are generally higher than negotiated commissions on
United States exchanges, although a Series will endeavor to achieve the most
favorable net results on its portfolio transactions. There is generally less
government supervision and regulation of foreign stock exchanges, brokers and
listed companies than in the United States. Moreover, settlement practices for
transactions in foreign markets may differ from those in United States markets,
and may include delays beyond periods customary in the United States.
INFORMATION AND SUPERVISION. There is generally less publicly available
information about foreign companies comparable to reports and ratings that are
published about companies in the United States. Foreign companies are also
generally not subject to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those applicable to United
States companies.
COSTS. Investors should understand that the expense ratio of the Series
that invest in foreign securities can be expected to be higher than investment
companies investing in domestic securities since the cost of maintaining the
custody of foreign securities and the rate of advisory fees paid by the Series
are higher.
OTHER. With respect to certain foreign countries, especially developing and
emerging ones, there is the possibility of adverse changes in investment or
exchange control regulations, expropriation or confiscatory taxation,
limitations on the removal of funds or other assets of the Series, political or
social instability, or diplomatic developments which could affect investments by
U.S. persons in those countries.
EASTERN EUROPE. Changes occurring in Eastern Europe and Russia today could
have long-term potential consequences. As restrictions fail, this could result
in rising standards of living, lower manufacturing costs, growing consumer
spending, and substantial economic growth. However, investment in the countries
of Eastern Europe and Russia is highly speculative at this time. Political and
economic reforms are too recent to establish a definite trend away from
centrally-planned economies and state owned industries. In many of the countries
of Eastern Europe and Russia, there is no stock exchange or formal market for
securities. Such countries may also have government exchange controls,
currencies with no recognizable market value relative to the established
currencies of western market economies, little or no experience in trading in
securities, no financial reporting standards, a lack of a banking and securities
infrastructure to handle such trading, and a legal tradition which does not
recognize rights in private property. In addition, these countries may have
national policies which restrict investments in companies deemed sensitive to
the country's national interest. Further, the governments in such countries may
require governmental or quasi-governmental authorities to act as custodian of
the Series' assets invested in such countries and these authorities may not
qualify as a foreign custodian under the Investment Company Act of 1940 and
exemptive relief from such Act may be required. All of these considerations are
among the factors which could cause significant risks and uncertainties to
investment in Eastern Europe and Russia.
INVESTMENT POLICY LIMITATIONS
The Series operate within certain investment limitations which cannot be
changed without the approval of the holders of a majority of the outstanding
shares of the respective Series. Pursuant thereto, none of the Series (except
Series D and I) will:
1. Purchase a security if, as a result, with respect to 75% of the value of
its total assets, more than 5% of the value of its total assets would be
invested in the securities of any one issuer (other than obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities).
2. Purchase more than 10% of the outstanding voting securities of any one
issuer.
3. Purchase securities for the purpose of exercising control over the issuers
thereof.
4. Underwrite securities of other issuers.
5. Borrow money or securities for any purposes except that borrowing up to 5%
of the Fund's total assets from commercial banks is permitted for
emergency or temporary purposes; provided, however, that this investment
limitation does not apply to Series K, M, N, O, P, V and X which may
borrow up to 33 1/3% of total assets. The Fund may also obtain such
short-term credits as are necessary for the clearance of portfolio
transactions.
6. Make loans to other persons, except by entry into repurchase agreements or
by the purchase, upon original issuance or otherwise, of a portion of an
issue of publicly distributed bonds, notes, debentures or other
securities; provided, however, that this investment limitation does not
apply to Series K, M, N, O, P, V or X.
7. Effect short sales of securities or buy securities on margin (except such
short-term credits as are necessary for the clearance of portfolio
transactions); provided, however, that this limitation does not apply to
Series K, M, N, O, P, V or X.
8. Invest in the securities of other investment companies; provided, however,
that this investment limitation does not apply to Series K, M, N, O, P, V
or X.
9. Concentrate investments in particular industries or make an investment in
any one industry if, when added to its other investments, total
investments in the same industry then held by the Series would exceed 25%
of the value of its assets.
10. Purchase or sell interests in real estate except as are represented by
securities of companies, including real estate trusts whose assets consist
substantially of interests in real estate, including obligations secured
by real estate or interests therein and which therefore may represent
indirect interest in real estate.
11. Own, buy, sell or otherwise deal in commodities or commodities contracts;
provided, however, that Series K, M, N, O, P, V and X may enter into
forward currency contracts and other forward commitments and transactions
in futures, options and options on futures.
12. Issue senior securities, except as permitted under the Investment Company
Act of 1940.
The following notes should be read in connection with the above-described
fundamental policies. The notes are not fundamental policies.
With respect to investment restrictions 7 and 11, the Fund does not
interpret these restrictions as prohibiting transactions in currency contracts,
hybrid instruments, options, financial futures contracts or options on financial
futures contracts or from investing in securities or other instruments backed by
physical commodities.
For purposes of investment restriction 9, U.S., state or local governments,
or related agencies or instrumentalities, are not considered an industry.
Industries are determined by reference to the classifications of industries set
forth in the Series' semiannual and annual reports.
For purposes of investment restriction 6, the Series will consider the
acquisition of a debt security to include the execution of a note or other
evidence of an extension of credit with a term of more than nine months.
Series D and Series I's investment limitations are as follows:
1. No Series will purchase a security if, as a result, with respect to 75% of
the value of its total assets, more than 5% of the value of its total
assets would be invested in the securities of any one issuer (other than
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities).
2. No Series will purchase more than 10% of the outstanding voting securities
of any one issuer.
3. No Series will purchase securities for the purpose of exercising control
over the issuers thereof.
4. No Series may act as underwriter of securities issued by others, except to
the extent that the Series may be considered an underwriter within the
meaning of the Securities Act of 1933 in the disposition of restricted
securities.
5. No Series may borrow in excess of 33 1/3% of its total assets.
6. No Series may lend any security or make any other loan if, as a result,
more than 33 1/3% of the Series' total assets would be lent to other
parties, except (i) through the purchase of a portion of an issue of debt
securities in accordance with its investment objective and policies, or
(ii) by engaging in repurchase agreements with respect to portfolio
securities.
7. No Series may concentrate investments in particular industries or make an
investment in any one industry if, when added to its other investments,
total investments in the same industry then held by the Series would
exceed 25% of the value of its assets.
8. No Series may purchase or sell interests in real estate except as are
represented by securities of companies, including real estate trusts whose
assets consist substantially of interests in real estate, including
obligations secured by real estate or interests therein and which
therefore may represent indirect interest in real estate.
9. No Series may invest in commodities, except that as consistent with its
investment objective and policies, a Series may: (a) purchase and sell
options, forward contracts and futures contracts, including without
limitation those relating to indices; (b) purchase and sell options on
futures contracts or indices; and (c) purchase publicly traded securities
of companies engaging in such activities.
10. No Series may issue senior securities, except as permitted under the
Investment Company Act of 1940.
The following operating policies of Series D are not fundamental policies
and may be changed by a vote of a majority of the Fund's Board of Directors
without shareholder approval.
1. The Series may borrow money or securities for any purpose except that
borrowing up to 5% of the Series' total assets from commercial banks is
permitted for emergency or temporary purposes.
2. The Series does not currently intend to lend assets other than securities
to other parties. (This limitation does not apply to purchases of debt
securities or to repurchase agreements.)
3. The Series does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount
to the securities sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities
short. In addition, the Series does not currently intend to purchase
securities on margin, except that the Series may obtain such short-term
credits as are necessary for the clearance of transactions, and provided
that margin payments in connection with futures contracts and options on
futures contracts shall not constitute purchasing securities on margin.
4. The Series may not, except in connection with a merger, consolidation,
acquisition, or reorganization, invest in the securities of other
investment companies, including investment companies advised by the
Investment Manager, if, immediately after such purchase or acquisition,
more than 10% of the value of the Series; total assets would be invested
in such securities, more than 5% of the value of the Series' total assets
would be invested in the securities of any one investment company, or the
Series would own more than 3% of the total outstanding voting stock of
another investment company.
The following investment policies of Series K are not fundamental policies
and may be changed by a vote of a majority of the Series' Board of Directors
without shareholder approval. Series K may purchase and sell futures contracts
and related options under the following conditions: (a) the then current
aggregate futures market prices of financial instruments required to be
delivered and purchased under open futures contracts shall not exceed 30% of the
Series' total assets, at market value; and (b) no more than 5% of the Series'
total assets, at market value at the time of entering into a contract, shall be
committed to margin deposits in relation to futures contracts.
As a matter of operating policy, Series O may not:
1. Purchase additional securities when money borrowed exceeds 5% of its total
assets;
2. Purchase a futures contract or an option thereon if, with respect to
positions in futures or options on futures which do not represent bona
fide hedging, the aggregate initial margin and premiums on such options
would exceed 5% of the Series' net asset value;
3. Purchase illiquid securities and securities of unseasoned issuers if, as a
result, more than 15% of its net assets would be invested in such
securities, provided that the Series will not invest more than 10% of its
total assets in restricted securities and not more than 5% in securities
of unseasoned issuers. Securities eligible for resale under Rule 144A of
the Securities Act of 1933 are not included in the 10% limitation but are
subject to the 15% limitation;
4. Purchase securities of open-end or closed-end investment companies except
in compliance with the Investment Company Act of 1940 and applicable state
law. Duplicate fees may result from such purchases;
5. Purchase securities on margin except (i) for use of short-term credit
necessary for clearance of purchases of portfolio securities and (ii) it
may make margin deposits in connection with futures contracts or other
permissible investments;
6. Mortgage, pledge, hypothecate or, in any manner, transfer any security
owned by the Series as security for indebtedness except as may be
necessary in connection with permissible borrowings or investments and
then such mortgaging, pledging or hypothecating may not exceed 33 1/3% of
the Series' total assets at the time of borrowing or investment;
7. Purchase participations or other direct interests in or enter into leases
with respect to, oil, gas, or other mineral exploration or development
programs;
8. Invest in puts, calls, straddles, spreads, or any combination thereof,
except to the extent permitted by the Prospectus and Statement of
Additional Information;
9. Purchase or retain the securities of any issuer if those officers and
directors of the Series, and of its investment manager, who each owns
beneficially more than .5% of the outstanding securities of such issuer,
together own beneficially more than 5% of such securities;
10. Effect short sales of securities;
11. Purchase a security (other than obligations issued or guaranteed by the
U.S., any foreign, state or local government, their agencies or
instrumentalities) if, as a result, more than 5% of the value of the
Series' total assets would be invested in the securities of issuers which
at the time of purchase had been in operation for less than three years
(for this purpose, the period of operation of any issuer shall include the
period of operation of any predecessor or unconditional guarantor of such
issuer). This restriction does not apply to securities of pooled
investment vehicles or mortgage or asset-backed securities; or
12. Invest in warrants if, as a result thereof, more than 2% of the value of
the net assets of the Series would be invested in warrants which are not
listed on the New York Stock Exchange, the American Stock Exchange, or a
recognized foreign exchange, or more than 5% of the value of the net
assets of the Series would be invested in warrants whether or not so
listed. For purposes of these percentage limitations, the warrants will be
valued at the lower of cost or market and warrants acquired by the Series
in units or attached to securities may be deemed to be without value.
OFFICERS AND DIRECTORS
The directors and officers of the Fund and their principal occupations for
at least the last five years are as follows. Unless otherwise noted, the address
of each officer and director is 700 Harrison Street, Topeka, Kansas 66636-0001.
<TABLE>
<CAPTION>
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NAME, ADDRESS AND POSITIONS HELD WITH THE FUND PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
JOHN D. CLELAND,* President and Director Senior Vice President and Managing Member Representative,
Security Management Company, LLC; Senior Vice President,
Security Benefit Group, Inc. and Security Benefit Life
Insurance Company.
DONALD A. CHUBB, JR.,** Director Business broker, Griffith & Blair Realtors. Prior to 1997,
2222 SW 29th Street President, Neon Tube Light Company, Inc.
Topeka, Kansas 66611
PENNY A. LUMPKIN,** Director Vice President, Palmer Companies (Wholesalers, Retailers
3616 Canterbury Town Road and Developers) and Bellairre Shopping Center (Leasing and
Topeka, Kansas 66610 Shopping Center Management); President, Vivian's (Corporate Sales).
MARK L. MORRIS, JR.,** Director Retired. Former General Partner, Mark Morris Associates
5500 SW 7th Street (Veterinary Research and Education).
Topeka, Kansas 66606
MAYNARD F. OLIVERIUS, Director President and Chief Executive Officer, Stormont-Vail
1500 SW 10th Avenue HealthCare.
Topeka, Kansas 66604
JAMES R. SCHMANK,* Vice President and Director President and Managing Member Representative, Security
Management Company, LLC; Senior Vice President, Security
Benefit Group, Inc. and Security Benefit Life Insurance Company.
MARK E. YOUNG, Vice President Vice President, Security Management Company, LLC; Second
Vice President, Security Benefit Group, Inc. and Security
Benefit Life Insurance Company.
JANE A. TEDDER, Vice President Vice President and Senior Economist, Security Management
Company, LLC; Vice President, Security Benefit Group, Inc.
and Security Benefit Life Insurance Company.
TERRY A. MILBERGER, Vice President Senior Vice President and Senior Portfolio Manager,
Security Management Company, LLC; Senior Vice President,
Security Benefit Group, Inc. and Security Benefit Life
Insurance Company.
AMY J. LEE, Secretary Secretary, Security Management Company, LLC; Vice
President, Associate General Counsel and Assistant
Secretary, Security Benefit Group, Inc. and Security
Benefit Life Insurance Company.
BRENDA M. HARWOOD, Treasurer Assistant Vice President and Treasurer, Security Management
Company, LLC; Assistant Vice President, Security Benefit
Group, Inc. and Security Benefit Life Insurance Company.
CINDY L. SHIELDS, Vice President Assistant Vice President and Portfolio Manager, Security
Management Company, LLC; Assistant Vice President, Security
Benefit Group, Inc. and Security Benefit Life Insurance
Company. Prior to August 1994, Junior Portfolio Manager,
Research Analyst, Junior Research Analyst and Portfolio
Assistant, Security Management Company.
THOMAS A. SWANK, Vice President Vice President and Portfolio Manager, Security Management
Company, LLC; Vice President, Security Benefit Group, Inc.
and Security Benefit Life Insurance Company.
STEVEN M. BOWSER, Vice President Second Vice President and Portfolio Manager, Security
Management Company, LLC; Second Vice President, Security
Benefit Life Insurance Company and Security Benefit Group,
Inc. Prior to October 1992, Assistant Vice President and
Portfolio Manager, Federal Home Loan Bank.
JIM P. SCHIER, Vice President Assistant Vice President and Portfolio Manager, Security
Management Company, LLC, Security Benefit Group, Inc. and
Security Benefit Life Insurance Company. Prior to February
1997, Assistant Vice President and Senior Research Analyst,
Security Management Company, LLC. Prior to August 1995,
Portfolio Manager, Mitchell Capital Management. Prior to
March 1993, Vice President and Portfolio Manager, Fourth
Financial.
DAVID ESHNAUR, Vice President Assistant Vice President and Portfolio Manager, Security
Management Company, LLC. Prior to July 1997, Assistant
Vice President and Assistant Portfolio Manager, Waddell & Reed.
MICHAEL A. PETERSEN, Vice President Vice President and Senior Portfolio Manager, Security
Management Company, LLC; Vice President, Security Benefit
Group, Inc. and Security Benefit Life Insurance Company.
Prior to November 1997, Director of Equity Research and
Fund Management, Old Kent Bank and Trust Corporation.
CHRISTOPHER D. SWICKARD, Assistant Secretary Assistant Secretary, Security Management Company, LLC;
Assistant Vice President and Assistant Counsel, Security
Benefit Group, Inc. and Security Benefit Life Insurance Company.
- ----------------------------------------------------------------------------------------------------------------------
*These directors are deemed to be "interested persons" of the Fund under the Investment Company Act of 1940, as
amended.
**These directors serve on the Fund's audit committee, the purpose of which is to meet with the independent auditors,
to review the work of the auditors, and to oversee the handling by Security Management Company, LLC of the
accounting functions for the Fund.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The officers of the Fund hold identical offices in the other Funds in the
Security Group of Funds, except Ms. Tedder and Messrs. Milberger and Schier. Ms.
Tedder is also Vice President of Security Income Fund and Security Equity Fund;
Mr. Milberger is also Vice President of Security Equity Fund; Mr. Schier is also
Vice President of Security Equity Fund; Ms. Shields is also Vice President of
Security Ultra Fund and Security Equity Fund; Mr. Bowser is also Vice President
of Security Municipal Bond Fund and Security Income Fund; Mr. Swank is also Vice
President of Security Growth and Income Fund, Security Municipal Bond Fund and
Security Income Fund; and Mr. Eshnaur is also Vice President of Security Equity
Fund. The directors of the Fund are also directors of each of the other Funds in
the Security Group of Funds. See the table under "Investment Management," page
61, for positions held by such persons with the Investment Manager. Ms. Lee is
also Secretary and Ms. Harwood is Treasurer of Security Distributors, Inc.
("SDI"). Messrs. Cleland, Schmank and Young are also director and Vice President
of SDI.
REMUNERATION OF DIRECTORS AND OTHERS
The Fund pays each of its directors, except those directors who are
"interested persons" of the Fund, an annual retainer of $10,000 and a fee of
$1,000 per meeting, plus reasonable travel costs, for each meeting of the board
attended. The Fund pays a fee of $1,000 per meeting and reasonable travel costs
for each meeting of the Fund's audit committee attended by those directors who
serve on the committee. The meeting fee (including the Audit Committee meeting)
and travel costs are paid proportionately by each of the seven registered
investment companies to which the Adviser provides investment advisory services
(collectively, the "Security Fund Complex") based on the Fund's net assets. Such
fees and travel costs are paid by the Fund pursuant to the Fund's Administrative
Services Agreement dated April 1, 1987, as amended.
The Fund does not pay any fees to, or reimburse expenses of, its Directors
who are considered "interested persons" of the Fund. The aggregate compensation
paid by the Fund to each of the Directors during its fiscal year ended December
31, 1997, and the aggregate compensation paid to each of the Directors during
calendar year 1997 by the Security Fund Complex are set forth below. Each of the
Directors is a director of each of the other registered investment companies in
the Security Fund Complex, except Mr. Schmank is not a director of Security
Income Fund.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
PENSION OR TOTAL COMPENSATION
AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL FROM THE SECURITY
NAME OF DIRECTOR COMPENSATION ACCRUED AS PART OF BENEFITS UPON FUND COMPLEX,
OF THE FUND FROM SBL FUND FUND EXPENSES RETIREMENT INCLUDING THE FUND
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Willis A. Anton $ 2,363 $0 $0 $ 4,725
Donald A. Chubb, Jr. 11,888 0 0 23,650
John D. Cleland 0 0 0 0
Donald L. Hardesty 10,725 0 0 21,450
Penny A. Lumpkin 11,888 0 0 23,650
Mark L. Morris, Jr. 11,888 0 0 23,650
Hugh L. Thompson 10,725 0 0 21,450
James R. Schmank 0 0 0 0
Harold G. Worswick* 0 0 0 0
- ------------------------------------------------------------------------------------------------
*Mr. Worswick retired as a fund director February 1996. The amount of deferred compensation
accrued for Mr. Worswick as of December 31, 1997, was $22,560. Mr. Worswick received deferred
compensation in the amount of $15,266 during the year ended December 31, 1997.
- ------------------------------------------------------------------------------------------------
</TABLE>
Security Management Company, LLC compensates its officers and directors who
may also serve as officers or directors of the Fund. On ________________, the
Fund's officers and directors (as a group) beneficially owned less than 1% of
the outstanding shares of the Fund.
SALE AND REDEMPTION OF SHARES
Shares of the Fund are sold and redeemed at their net asset value next
determined after receipt of a purchase or redemption order. No sales or
redemption charge is made. The value of shares redeemed may be more or less than
the shareholder's cost, depending upon the market value of the portfolio
securities at the time of redemption. Payment for shares redeemed will be made
as soon as practicable after receipt, but in no event later than seven days
after tender, except that the Fund may suspend the right of redemption during
any period when trading on the New York Stock Exchange is restricted or such
Exchange is closed for other than weekends or holidays, or any emergency is
deemed to exist by the Securities and Exchange Commission.
INVESTMENT MANAGEMENT
Security Management Company, LLC (the "Investment Manager"), 700 Harrison
Street, Topeka, Kansas, serves as investment adviser to the Fund. The Investment
Manager also acts as investment adviser to the following mutual funds: Security
Equity Fund, Security Growth and Income Fund, Security Ultra Fund, Security
Income Fund, Security Cash Fund, and Security Municipal Bond Fund.
The Investment Manager is controlled by its members, Security Benefit Life
Insurance Company and Security Benefit Group, Inc. ("SBG"). SBG is an insurance
and financial services holding company wholly-owned by Security Benefit Life
Insurance Company, 700 Harrison Street, Topeka, Kansas 66636-0001. Security
Benefit Life, a life insurance company, is incorporated under the laws of
Kansas.
The Investment Manager serves as investment adviser to the Fund under an
Investment Advisory Contract dated June 20, 1977, which was renewed by the board
of directors of the Fund at a regular meeting held on February 6, 1998. The
contract may be terminated without penalty at any time by either party on 60
days' written notice and is automatically terminated in the event of its
assignment.
Pursuant to the Investment Advisory Contract, the Investment Manager
furnishes investment advisory, statistical and research facilities, supervises
and arranges for the purchase and sale of securities on behalf of the Fund, and
provides for the compilation and maintenance of records pertaining to the
investment advisory function. For such services, the Investment Manager is
entitled to receive compensation on an annual basis equal to .75% of the average
net assets of Series A, Series B, Series E, Series S, Series J, Series K, Series
P and Series V; .5% of the average net assets of Series C; 1.00% of the average
net assets of Series D, Series M, Series N, Series O and Series X; and 1.10% of
the average net assets of Series I, computed on a daily basis and payable
monthly. During the last three fiscal years, SBL Fund paid the following amounts
to the Investment Manager for its services: 1997 - $22,864,309; 1996 -
$17,145,558; and 1995 - $12,436,327. For the fiscal year ended December 31, 1997
the Investment Manager waived its entire advisory fee for Series K and P in the
amounts of $110,691 and $29,276, respectively. For the period May 1, 1997 (date
of inception) to December 31, 1997, the Investment Manager waived its entire
advisory fee for Series V in the amount of $13,412. For the period October 15,
1997 (date of inception) to February 28, 1998, the Investment Manager waived its
entire advisory fee for Series X in the amount of $9,712. For the fiscal year
ended December 31, 1997, the Investment Manager agreed to waive the investment
advisory fees of Series K, P, V and X. For the fiscal year ending December 31,
1998, the Investment Manager agreed to waive the investment advisory fees of
Series K, P, and X, and for the period January 1, 1998 to April 30, 1998, the
Investment Manager agreed to waive the investment advisory fees of Series V.
The Investment Manager has entered into a sub-advisory agreement with
OppenheimerFunds, Inc. ("Oppenheimer"), Two World Trade Center, New York, New
York 10048-0203, to provide investment advisory services to Series D. Pursuant
to this agreement, Oppenheimer furnishes investment advisory, statistical and
research facilities, supervises and arranges for the purchase and sale of
securities on behalf of Global Fund and provides for the compilation and
maintenance of records pertaining to such investment advisory services, subject
to the control and supervision of the Fund's Board of Directors and the
Investment Manager. For such services, the Investment Manager pays Oppenheimer
an annual fee equal to a percentage of the average daily closing value of the
combined net assets of Series D and another series managed by the Investment
Manager, Security Equity Fund, Global Series, computed on a daily basis as
follows: 0.35% of the combined average daily net assets up to $300 million, plus
0.30% of such assets over $300 million up to $750 million and 0.25% of such
assets over $750 million.
Oppenheimer is owned by Oppenheimer Acquisition Corp., a holding company
that is owned in part by senior officers of Oppenheimer and controlled by
Massachusetts Mutual Life Insurance Company. Oppenheimer has been providing
investment advice since 1959. In addition, Oppenheimer and its subsidiaries
currently manage investment companies with assets of more than $85 billion, and
more than 4 million shareholder accounts.
The Investment Manager has retained Lexington Management Corporation
("Lexington"), Park 80 West, Plaza Two, Saddle Brook, New Jersey 07663, to
furnish investment advisory services to Series K of the Fund pursuant to
Sub-Advisory Agreement, dated May 1, 1995. Pursuant to the agreement, Lexington
furnishes investment advisory, statistical and research facilities, supervises
and arranges for the purchase and sale of securities on behalf of Series K and
provides for the compilation and maintenance of records pertaining to such
investment advisory services, subject to the control and supervision of the
Board of Directors of the Fund and the Investment Manager. For such services,
the Investment Manager pays Lexington an amount equal to .35% of the average net
assets of Series K, computed on a daily basis and payable monthly. The Lexington
Sub-Advisory Agreement may be terminated without penalty at any time by either
party on 60 days' written notice and are automatically terminated in the event
of assignment or in the event that the Investment Advisory Contract between the
Investment Manager and the Fund is terminated, assigned or not renewed.
Lexington is a wholly-owned subsidiary of Lexington Global Asset Managers,
Inc., a Delaware corporation with offices at Park 80 West, Plaza Two, Saddle
Brook, New Jersey 07663. Descendants of Lunsford Richardson, Sr., their spouses,
trusts and other related entities have a majority voting control of the
outstanding shares of Lexington Global Asset Managers, Inc. Lexington which was
established in 1938 currently serves as investment adviser, sub-adviser and/or
sponsor to 21 investment companies with varying objectives and manages over $3.8
billion in assets.
Lexington has entered into a sub-advisory contract with MFR Advisors, Inc.
("MFR"), One Liberty Plaza, New York, New York 10006, to provide investment and
economic research services to Series K, subject to the control and supervision
of the Board of Directors of SBL Fund For such services, Lexington pays MFR an
amount equal to .15% of the average net assets of Series K, computed on a daily
basis and payable monthly.
MFR is a subsidiary of Maria Fiorini Ramirez, Inc. ("Ramirez") which was
established in August of 1992 to provide global economic consulting, investment
advisory and broker/dealer services. Ramirez owns 80% of the outstanding common
stock of MFR. Maria Fiorini Ramirez owns 100% of the outstanding capital stock
of Ramirez, and Freedom Securities Corporation owns preferred securities which
would under certain circumstances be convertible to 20% of Ramirez's common
stock. Security Benefit Life Insurance Company ("SBL") owns the remaining 20% of
the outstanding common stock of MFR and has stock rights that would enable SBL
in the future to acquire up to 100% of the ownership in MFR. MFR currently acts
as investment adviser to the Global High Yield Fund (formerly Global Aggressive
Bond Fund), Global Asset Allocation Fund and Emerging Markets Total Return Fund,
as sub-adviser to the Lexington Ramirez Global Income Fund, and also serves as
an institutional manager for private clients.
The Investment Manager has entered into a sub-advisory agreement with
Bankers Trust Company, One Bankers Trust Plaza, New York, New York 10006, to
provide investment advisory services to Series I. Pursuant to the agreement,
Bankers Trust furnishes investment advisory, statistical and research
facilities, supervises and arranges for the purchase and sale of securities on
behalf of Series I and provides for the compilation and maintenance of records
pertaining to such investment advisory services, subject to the control and
supervision of the Fund's Board of Directors and the Investment Manager. For
such services, the Investment Manager pays Bankers Trust an annual fee equal to
a percentage of the average daily closing value of the combined net assets of
Series I and another series managed by the Investment Manager, Security Equity
Fund, International Series, computed on a daily basis as follows: 0.60% of the
combined average daily net assets of $200 million or less and 0.45% of the
combined average daily net assets of more than $200 million.
Bankers Trust is wholly owned by Bankers Trust Corporation. As of March 31,
1998, Bankers Trust New York Corporation was the seventh largest bank holding
company in the United States with total assets of over $150 billion. Bankers
Trust is dedicated to servicing the needs of corporations, governments,
financial institutions and private clients through a global network of over 90
offices in more than 50 countries. Investment management is a core business of
Bankers Trust, built on a tradition of excellence from its roots as a trust bank
founded in 1903. The scope of Bankers Trust's investment management capability
is unique due to its leadership positions in both active and passive
quantitative management and its presence in major equity and fixed income
markets around the world. Bankers Trust is one of the nation's largest and most
experienced investment managers with over $300 billion in assets under
management globally.
The Investment Manager has entered into a sub-advisory agreement with
Meridian Investment Management Corporation ("Meridian"), 12835 East Arapahoe
Road, Tower II, 7th Floor, Englewood, Colorado 80112, to provide research and
investment advisory services to Series M. Pursuant to the agreement, Meridian
furnishes investment advisory, statistical and research facilities, supervises
and arranges for the purchase and sale of equity securities on behalf of Series
M and provides for the compilation and maintenance of records pertaining to such
investment advisory services, subject to the control and supervision of the
Board of Directors of the Fund and the Investment Manager. Meridian is a
wholly-owned subsidiary of Meridian Management and Research Corporation which is
controlled by its two stockholders, Michael J. Hart and Craig T. Callahan. The
Investment Manager pays Meridian an annual fee equal to a percentage of the
average daily closing value of the net assets of Series M, computed on a daily
basis according to the following schedule:
AVERAGE DAILY NET ASSETS OF THE SERIES ANNUAL FEE
Less than $100 million............................ .40%, plus
$100 million but less than $200 million........... .35%, plus
$200 million but less than $400 million........... .30%, plus
$400 million or more.............................. .25%
The Investment Manager has engaged T. Rowe Price Associates, Inc. ("T. Rowe
Price"), 100 East Pratt Street, Baltimore, Maryland 21202, organized in 1937
under the laws of the State of Maryland by the late Thomas Rowe Price, Jr., to
provide investment advisory services to Series N and O. Pursuant to the
agreements, T. Rowe Price furnishes investment advisory services, supervises and
arranges for the purchase and sale of securities on behalf of Series N and O and
provides for the compilation and maintenance of records pertaining to such
investment advisory services, subject to the control and supervision of the
Board of Directors of the Fund and the Investment Manager. T. Rowe Price is
presently a publicly held company which with its affiliates manages over $124
billion in assets for over 6 million individuals and institutional investor
accounts. The Investment Manager pays T. Rowe Price, on an annual basis, an
amount equal to .50% of the average net assets of Series N which are less than
$50,000,000, and .40% of the average net assets of Series N of $50,000,000 and
over, for management services provided to Series N, provided, however, that the
Investment Manager has agreed to pay T. Rowe Price a minimum fee of $100,000 for
the 12 months ended June 30, 1996. The Investment Manager pays T. Rowe Price, on
an annual basis, an amount equal to .50% of the first $20,000,000 of average
daily net assets of Series O and .40% of such assets in excess of $20,000,000
for management services provided to Series O. For any month in which the average
daily net assets of Series O exceed $50,000,000, T. Rowe Price will waive .10%
of its fee on the first $20,000,000 of Series O's average daily net assets. T.
Rowe Price's fees for investment management services are calculated daily and
payable monthly.
The Investment Manager has engaged Strong Capital Management, Inc.
("Strong"), 900 Heritage Reserve, Menomonee Falls, Wisconsin 53051, to provide
investment advisory services to Series X. Strong is a privately held corporation
which is controlled by Richard S. Strong. Strong was established in 1974 and as
of September 30, 1998 manages over $30 billion in assets. The Investment Manager
pays Strong with respect to Series X, an annual fee based on the combined
average net assets of Series X and another fund to which Strong provides
advisory services. The fee is equal to .50% of the combined average net assets
under $150 million, .45% of the combined average net assets at or above $150
million but less than $500 million, and .40% of the combined average net assets
at or above $500 million.
The Investment Manager has agreed that the total annual expenses of any
Series, including its compensation from such Series, but excluding brokerage
commissions, interest, taxes, and extraordinary expenses, will not exceed the
level of expenses which the Fund is permitted to bear under the most restrictive
expense limitation imposed by any state in which shares of the Fund are then
offered for sale and, with respect to Series I, has agreed to cap the total
annual expenses of Series I to 2.25%, (excluding of interest, taxes,
extraordinary expenses, brokerage fees and commissions). (The Investment Manager
is not aware of any state that currently imposes limits on the level of mutual
fund expenses.) The Investment Manager will, on a monthly basis, contribute such
funds or waive such portion of its management fee as may be necessary to insure
that the aggregate expenses of any Series will not exceed any such limitation.
Pursuant to an Administrative Services Agreement, dated April 1, 1987, as
amended, the Investment Manager also acts as the administrative agent for the
Fund and as such performs administrative functions and the bookkeeping,
accounting and pricing functions for the Fund. For this service the Investment
Manager receives, on an annual basis, a fee of .045% of the average net assets
of each Series, except that with respect to Series X the Investment Manager
receives on an annual basis, a fee of .09%. For the services identified above,
the Investment Manager also receives, with respect to Series D, K, M and N, an
annual fee equal to the greater of .10% of each series' average net assets or
$60,000 and with respect to Series I, the Investment Manager receives the
greater of 0.10% or (i) $30,000 for the year ending January 31, 2000, (ii)
$45,000 for the year ending January 31, 2001, and (iii) $60,000 thereafter. The
administrative fees paid by the Fund during its fiscal years ended December 31,
1997, 1996 and 1995, were $1,774,347, $1,346,653 and $786,425, respectively. For
the period October 15, 1997 (date of inception) to February 28, 1998, Series X
paid the Investment Manager $874 for administrative fees.
Under the same Agreement, the Investment Manager acts as the transfer agent
for the Fund. As such, it processes purchase and redemption transactions and
acts as the dividend disbursing agent for the separate accounts of Security
Benefit Life Insurance Company to which shares of the Fund are sold. For this
service, the Investment Manager receives an annual maintenance fee of $8.00 per
account, and a transaction fee of $1.00 per transaction. The transfer agency
fees paid by the Fund during its fiscal years ended December 31, 1997, 1996 and
1995, were $36,972, $30,787 and $18,750, respectively. For the period October
15, 1997 (date of inception) to February 28, 1998, Series X paid the Investment
Manager $261 for transfer agency fees.
The expense ratio of each Series for the fiscal year end December 31, 1997,
was as follows: Series A - .81%; Series B - .83%; Series C - .58%; Series D -
1.24%; Series E - .83%; Series J - .82%; Series K - .64%; Series M - 1.26%;
Series N - 1.35%; Series O - 1.09%; Series P - .31%; and Series S - .83%. The
annualized expense ratio of Series V for the period May 1, 1997 (date of
inception) to December 31, 1997, was .40%. The annualized expense ratio of
Series X for the period October 15, 1997 (date of inception) to February 28,
1998, was 1.37%. During the fiscal year ended December 31, 1997, the Investment
Manager waived the management fee of Series K, P, V and X, and during the fiscal
year ending December 31, 1998, the Investment Manager will waive the management
fee of Series K, P and X. For the period January 1, 1998 to April 30, 1998, the
Investment Manager will also waive the management fee of Series V. In the
absence of such waivers, the expense ratios for Series K, P, V and X would have
been higher.
The Fund will pay all its expenses not assumed by the Investment Manager
including directors' fees; fees and expenses of custodian; taxes and
governmental fees; interest charges; any membership dues; brokerage commissions;
reports, proxy statements, and notices to stockholders; costs of stockholder and
other meetings; and legal, auditing and accounting expenses. The Fund will also
pay all expenses in connection with the Fund's registration under the Investment
Company Act of 1940 and the registration of its capital stock under the
Securities Act of 1933.
The following persons are affiliated with the Fund and also with the
Investment Manager in the capacities indicated:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
NAME POSITION WITH SBL FUND POSITIONS WITH SECURITY MANAGEMENT COMPANY, LLC
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
James R. Schmank Vice President and Director President and Managing Member Representative
John D. Cleland President and Director Senior Vice President and Managing Member Representative
Jane A. Tedder Vice President Vice President and Senior Economist
Terry A. Milberger Vice President Senior Vice President and Senior Portfolio Manager
James P. Schier Vice President Assistant Vice President and Portfolio Manager
Cindy L. Shields Vice President Assistant Vice President and Portfolio Manager
Mark E. Young Vice President Vice President
Amy J. Lee Secretary Secretary
Brenda M. Harwood Treasurer Assistant Vice President and Treasurer
Thomas A. Swank Vice President Vice President and Portfolio Manager
Steven M. Bowser Vice President Second Vice President and Portfolio Manager
David Eshnaur Vice President Assistant Vice President and Portfolio Manager
Michael A. Petersen Vice President Vice President and Senior Portfolio Manager
Christopher D. Swickard Assistant Secretary Assistant Secretary
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
PORTFOLIO MANAGEMENT
Steve Bowser, Second Vice President and Portfolio Manager of the Investment
Manager, has co-managed SERIES E (HIGH GRADE INCOME SERIES) since June 1997 and
the fixed-income portion of SERIES M'S (SPECIALIZED ASSET ALLOCATION SERIES)
portfolio since January 1998. Prior to joining the Investment Manager in 1992,
he was Assistant Vice President and Portfolio Manager with the Federal Home Loan
Bank of Topeka from 1989 to 1992. He was employed at the Federal Reserve Bank of
Kansas City in 1988 and began his career with the Farm Credit System from 1982
to 1987, serving as Senior Financial Analyst and Assistant Controller. He
graduated with a Bachelor of Science degree from Kansas State University in
1982. He is a Chartered Financial Analyst.
Pat Boyle, Portfolio Manager at Meridian, has managed the equity portion of
SERIES M'S (SPECIALIZED ASSET ALLOCATION SERIES) portfolio since August 1997. He
has five years of investment experience and is a Chartered Financial Analyst.
Mr. Boyle graduated from the University of Denver with a B.S.B.A. degree and an
M.S. degree in Finance.
David Eshnaur, Assistant Vice President and Portfolio Manager of the
Investment Manager, has co-managed Series E (High Grade Income Series) and the
fixed-income portion of SERIES M'S (SPECIALIZED ASSET ALLOCATION SERIES)
portfolio since January 1998 and SERIES P (HIGH YIELD SERIES) since July 1997.
Mr. Eshnaur has 15 years of investment experience. Prior to joining the
Investment Manager in 1997, he worked at Waddell & Reed in the positions of
Assistant Vice President, Assistant Portfolio Manager, Senior Analyst, Industry
Analyst and Account Administrator. Mr. Eshnaur earned a Bachelor of Arts degree
in Business Administration from Coe College and an M.B.A. degree in Finance from
the University of Missouri-Kansas City.
Denis P. Jamison, CFA, Senior Vice President, Director Fixed Income
Strategy of Lexington, has co-managed SERIES K (GLOBAL AGGRESSIVE BOND SERIES)
since its inception in 1995. He is responsible for fixed-income portfolio
management for Lexington. He is a member of the New York Society of Security
Analysts. Mr. Jamison has more than 20 years investment experience. Prior to
joining Lexington in 1981, Mr. Jamison had spent nine years at Arnold Bernhard &
Company, an investment counseling and financial services organization. At
Bernhard, he was a Vice President supervising the security analyst staff and
managing investment portfolios. He is a specialist in government, corporate and
municipal bonds. Mr. Jamison is a graduate of the City College of New York with
a B.A. in Economics.
Michael Levy, Managing Director of Bankers Trust, has been co-lead manager
of SERIES I (INTERNATIONAL SERIES) since its inception in January 1999. He has
been a portfolio manager of other investment products with similar investment
objectives since joining Bankers Trust in 1993. Mr. Levy is Bankers Trust's
International Equity Strategist and is head of the international equity team. He
has served in each of these capacities since 1993. The international equity team
is responsible for the day-to-day management of the Fund as well as other
international equity portfolios managed by Bankers Trust. Mr. Levy's experience
prior to joining Bankers Trust includes serving as senior equity analyst with
Oppenheimer & Company, as well as positions in investment banking, technology
and manufacturing enterprises. He has 27 years of business experience, of which
17 years have been in the investment industry.
Terry A. Milberger, Senior Vice President and Senior Portfolio Manager of
the Investment Manager, has managed SERIES A (GROWTH SERIES) since 1989. Mr.
Milberger has more than 20 years of investment experience. He began his career
as an investment analyst in the insurance industry and from 1974 through 1978 he
served as an assistant portfolio manager for the Investment Manager. He was then
employed as Vice President of Texas Commerce Bank and managed its pension fund
assets until he returned to the Investment Manager in 1981. Mr. Milberger holds
a bachelor's degree in business and an M.B.A. from the University of Kansas and
is a Chartered Financial Analyst. His investment philosophy is based on patience
and opportunity for the long-term investor.
Edmund M. Notzon, Managing Director of T. Rowe Price and a Senior Portfolio
Manager in the firm's Taxable Bond Department, has managed SERIES N (MANAGED
ASSET ALLOCATION SERIES) since its inception in 1995. He joined T. Rowe Price in
1989 and has been managing investments since 1991. Prior to joining T. Rowe
Price, Mr. Notzon was Director of the Analysis and Evaluation Division at the
U.S. Environmental Protection Agency.
Ronald C. Ognar, Portfolio Manager of Strong, has managed SERIES X (SMALL
CAP SERIES) since its inception in 1997. He is a Chartered Financial Analyst
with more than 25 years of investment experience. Mr. Ognar joined Strong in
April 1993 after two years as a principal and portfolio manager with RCM Capital
Management. For approximately 3 years prior to his position at RCM Capital
Management, he was a portfolio manager at Kemper Financial Services in Chicago.
Mr. Ognar began his investment career in 1968 at LaSalle National Bank. He is a
graduate of the University of Illinois with a bachelor's degree in accounting.
Michael Petersen, Vice President and Senior Portfolio Manager of the
Investment Manager, has managed SERIES B (GROWTH-INCOME SERIES) since December
1997. Mr. Petersen has 15 years of investment experience. Prior to joining the
Investment Manager in 1997, he was Director of Equity Research and Fund
Management at Old Kent Bank and Trust Corporation from 1988 to 1997. Prior to
1988, he was an Investment Officer at First Asset Management. Mr. Petersen
earned a Bachelor of Science degree in Accounting from the University of
Minnesota. He is a Chartered Financial Analyst.
Maria Fiorini Ramirez, President and Chief Executive Officer of MFR, has
managed SERIES K (GLOBAL AGGRESSIVE BOND SERIES) since its inception in 1995.
She began her career as a credit analyst with American Express International
Banking Corporation in 1968. In 1972, she moved to Banco Nazionale De Lavoro in
New York. The following year, she started a ten year association with Merrill
Lynch, serving as Vice President and Senior Money Market Economist. She joined
Becker Paribas in 1984 as Vice President and Senior Money Market Economist
before joining Drexel Burnham Lambert that same year as First Vice President and
Money Market Economist. She was promoted to Managing Director of Drexel in 1986.
From April 1990 to August 1992, Ms. Ramirez was the President and Chief
Executive Officer of Maria Ramirez Capital Consultants, Inc., a subsidiary of
John Hancock Freedom Securities Corporation. Ms. Ramirez established MFR in
August 1992. She is known in international financial, banking and economic
circles for her assessment of the interaction between global economic policy and
political trends and their effect on investments. Ms. Ramirez holds a B.A. in
Business Administration/Economics from Pace University.
Robert Reiner, Principal at Bankers Trust, has been co-lead manager of
SERIES I (INTERNATIONAL SERIES) since its inception in January 1999. He has been
a portfolio manager of other investment products with similar investment
objectives since joining Bankers Trust in 1994. At Bankers Trust, he has been
involved in developing analytical and investment tools for the group's
international equity team; his primary focus has been on Japanese and European
markets. Prior to joining Bankers Trust, he was an equity analyst and also
provided macroeconomic coverage for Scudder, Stevens & Clark from 1993 to 1994.
He previously served as Senior Analyst at Sanford C. Bernstein & Co. from 1991
to 1992, and was instrumental in the development of Bernstein's International
Value Fund. Mr. Reiner spent more than nine years at Standard & Poor's
Corporation, where he was a member of its international ratings group. His
tenure included managing the day-to-day operations of the Standard & Poor's
Corporation Tokyo office for three years.
Brian C. Rogers, Managing Director and Portfolio Manager for T. Rowe Price,
has managed SERIES O (EQUITY INCOME SERIES) since its inception in 1995. He
joined T. Rowe Price in 1982 and has been managing investments since 1983.
James P. Schier, Assistant Vice President and Portfolio Manager of the
Investment Manager, has managed SERIES J (EMERGING GROWTH SERIES) since January
1998 and SERIES V (VALUE SERIES) since its inception in 1997. He has 13 years
experience in the investment field and is a Chartered Financial Analyst. While
employed by the Investment Manager, he also served as a research analyst. Prior
to joining the Investment Manager in 1995, he was a portfolio manager for
Mitchell Capital Management from 1993 to 1995. From 1988 to 1995 he served as
Vice President and Portfolio Manager for Fourth Financial. Prior to 1988, Mr.
Schier served in various positions in the investment field for Stifel Financial,
Josepthal & Company and Mercantile Trust Company. Mr. Schier earned a Bachelor
of Business degree from the University of Notre Dame and an M.B.A. from
Washington University.
Cindy L. Shields, Assistant Vice President and Portfolio Manager of the
Investment Manager, has managed SERIES S (SOCIAL AWARENESS SERIES) since 1994.
She has eight years experience in the securities field. Ms. Shields has been a
portfolio manager since 1994, and prior to that time, she served as a research
analyst for the Investment Manager. She is a Chartered Financial Analyst. Ms.
Shields graduated from Washburn University with a Bachelor of Business
Administration degree, majoring in finance and economics. She joined the
Investment Manager in 1989.
Tom Swank, Vice President and Portfolio Manager of the Investment Manager
has co-managed SERIES P (HIGH YIELD SERIES) since its inception in 1996. He has
over ten years of experience in the investment field. He is a Chartered
Financial Analyst. Prior to joining the Investment Manager in 1992, he was an
Investment Underwriter and Portfolio Manager for U.S. West Financial Services,
Inc. from 1986 to 1992. From 1984 to 1986, he was a Commercial Credit Officer
for United Bank of Denver. From 1982 to 1984, he was employed as a Bank Holding
Company examiner for the Federal Reserve Bank of Kansas City - Denver Branch.
Mr. Swank graduated from Miami University in Ohio with a Bachelor of Science
degree in Finance in 1982 and earned a Master of Business Administration degree
from the University of Colorado.
Julie Wang, Principal at Bankers Trust, has been co-lead manager of SERIES
I (INTERNATIONAL SERIES) since its inception in January 1999. She has been a
manager of other investment products with similar investment objectives since
joining Bankers Trust in 1994. Ms. Wang has primary focus on the Asia-Pacific
region and the Fund's emerging market exposure. Prior to joining Bankers Trust,
Ms. Wang was an investment manager at American International Group, where she
advised in the management of $7 billion of assets in Southeast Asia, including
private and listed equities, bonds, loans and structured products. Ms. Wang
received her B.A. degree in economics from Yale University and her M.B.A. from
the Wharton School.
William L. Wilby, Senior Vice President of Oppenheimer, became manager of
SERIES D (WORLDWIDE EQUITY SERIES) in November 1998. Prior to joining
Oppenheimer in 1991, he was an international managing investment strategist at
Brown Brothers Harriman & Co. Prior to Brown Brothers, Mr. Wilby was a managing
director and portfolio manager at AIG Global Investors. He joined AIG from
Northern Trust Bank in Chicago, where he was an international pension manager.
Before starting his career in portfolio management, Mr. Wilby was an
international financial economist at Northern Trust Bank and at the Federal
Reserve Bank in Chicago. Mr. Wilby is a graduate of the United States Military
Academy and holds an M.A. and a Ph.D. in International Monetary Economics from
the University of Colorado. He is a Chartered Financial Analyst.
CODE OF ETHICS
The Fund, the Investment Manager and the Distributor have a written code of
ethics (the "Code of Ethics") which requires all access persons to obtain prior
clearance before engaging in any personal securities transactions. Access
persons include officers and directors of the Fund and Investment Manager and
employees that participate in, or obtain information regarding, the purchase or
sale of securities by the fund or whose job relates to the making of any
recommendations with respect to such purchases or sales. All access persons must
report their personal securities transactions within ten days of the end of each
calendar quarter. Access persons will not be permitted to effect transactions in
a security if it: (a) is being considered for purchase or sale by the Fund; (b)
is being purchased or sold by the Fund; or (c) is being offered in an initial
public offering. Portfolio managers are also prohibited from purchasing or
selling a security within seven calendar days before or after a Fund that he or
she manages trades in that security. Any material violation of the Code of
Ethics is reported to the Board of the Fund. The Board also reviews the
administration of the Code of Ethics on an annual basis. In addition, each
Sub-Adviser has its own code of ethics to which its portfolio managers and other
access persons are subject.
PORTFOLIO TURNOVER
Generally, long-term rather than short-term investments will be made by the
Fund for Series A, B, D, E, J, P, S and V. Series J, however, reserves the right
during certain periods to trade to a substantial degree for the short term.
Although portfolio securities generally will be purchased with a view to
long-term potential, subsequent changes in the circumstances of a particular
company or industry, or in general economic conditions, may indicate that sale
of a portfolio security is desirable without regard to the length of time it has
been held or to the tax consequences thereof. The annual portfolio turnover rate
of Series A, J, M, S and V may exceed 100% and at times may exceed 150%. The
annual turnover rate of Series E, K and P may exceed 100%. The annual turnover
rate of Series B, D, N and O are not generally expected to exceed 100%. The
annual portfolio turnover rate of Series X is not expected to exceed 200%. The
annual portfolio turnover rate of Series I is not expected to exceed 65%.
Portfolio turnover is defined as the lesser of purchases or sales of
portfolio securities divided by the average market value of portfolio securities
owned during the year, determined monthly. The annual portfolio turnover rates
for Series A, B, D, E, J, K, M, N, O, P, S and V for the fiscal years ended
December 31, 1997, 1996 and 1995, are as follows:
- --------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------
Series A..................... 61% 57% 83%
Series B..................... 62% 58% 94%
Series D..................... 129% 115% 169%
Series E..................... 106% 232% 180%
Series J..................... 107% 123% 202%
Series K..................... 85% 86% 127%*
Series M..................... 64% 40% 181%*
Series N..................... 28% 41% 26%*
Series O..................... 21% 22% 3%*
Series P..................... 77% 151%** ---
Series S..................... 49% 67% 122%
Series V..................... 79%*** --- ---
- --------------------------------------------------------------
*Annualized portfolio turnover rates for the period June 1,
1995 (date of inception) to December 31, 1995.
**Annualized portfolio turnover rate for the period August 5,
1996 (date of inception) to December 31, 1996.
***Annualized portfolio turnover rate for the period May 1,
1997 (date of inception) to December 31, 1997.
- --------------------------------------------------------------
For this purpose the term "securities" does not include government
securities or debt securities maturing within one year after acquisition. Since
Series C's investment policies require a maturity shorter than 13 months, the
portfolio turnover rate will generally be 0%, although the portfolio will turn
over many times during a year. The annualized portfolio turnover rate for Series
X for the period October 15, 1997 (date of inception) to February 28, 1998 was
136%. Portfolio turnover rate for Series I is not available because it did not
begin operations until January 1999.
DETERMINATION OF NET ASSET VALUE
As discussed in the Prospectus for the Fund, the net asset value per share
of each Series is determined as of the close of regular trading hours on the New
York Stock Exchange (normally 3:00 p.m. Central time) on each day that the
Exchange is open for trading (other than a day on which no shares of a Series
are tendered for redemption and no order to purchase shares of a Series is
received). The New York Stock Exchange is open for trading Monday through Friday
except when closed in observance of the following holidays: New Year's Day,
Martin Luther King, Jr. Day, President's Day, Good Friday, Memorial Day, July
Fourth, Labor Day, Thanksgiving Day and Christmas. The determination is made by
dividing the value of the portfolio securities of each Series, plus any cash or
other assets (including dividends accrued but not collected), less all
liabilities (including accrued expenses but excluding capital and surplus), by
the number of shares of each Series outstanding. In determining asset value,
securities listed or traded on a recognized securities exchange are valued on
the basis of the last sale price. If there are no sales on a particular day,
then the securities shall be valued at the last bid price. All other securities
for which market quotations are available are valued on the basis of the last
current bid price. If there is no bid price, or if the bid price is deemed to be
unsatisfactory by the board of directors or the Fund's Investment Manager, then
the securities shall be valued in good faith by such method as the board of
directors determines will reflect their fair market value. Circumstances under
which the board of directors or the Fund's Investment Manager may consider the
bid price include instances in which the spread between the bid and the asked
prices is substantial, trades have been infrequent or the size of the trades
which have occurred are not representative of the Fund's holdings.
As stated in the Prospectus, the Fund's short-term debt securities may be
valued by the amortized cost method. As a result of using this method, during
periods of declining interest rates, the yield on shares of these Series
(computed by dividing the annualized income of the Fund by the net asset value
computed as described above) may tend to be higher than a like computation made
by a fund with identical investments utilizing a method of valuation based upon
market prices and estimates of market prices for all of its portfolio
instruments. Thus, if the use of amortized cost by the Fund for instruments with
remaining maturities of 60 days or less resulted in a lower aggregate portfolio
value on a particular day, a prospective investor would be able to obtain a
somewhat higher yield than would result from investment in a fund utilizing
solely market values and existing investors in these Series would receive less
investment income. The converse would apply in a period of rising interest
rates. To the extent that, in the opinion of the board of directors, the
amortized cost value of a portfolio instrument or instruments does not represent
fair value thereof as determined in good faith, the board of directors will take
appropriate action which would include a revaluation of all or an appropriate
portion of the portfolio based upon current market factors.
Generally, trading in foreign securities markets is substantially completed
each day at various times prior to the close of the New York Stock Exchange. The
values of foreign securities used in computing the net asset value of the shares
of certain Series of the Fund generally are determined as of the close of such
foreign markets or the close of the New York Stock Exchange if earlier. Foreign
currency exchange rates are generally determined prior to the close of the New
York Stock Exchange. Trading on foreign exchanges and in foreign currencies may
not take place on every day the New York Stock Exchange is open. Conversely
trading in various foreign markets may take place on days when the New York
Stock Exchange is not open and on other days when the Fund's net asset values
are not calculated. Therefore, the shares of a Series which invests in foreign
securities may be significantly affected on days when investors have no access
to the Series. The calculation of the net asset value for Series that invest in
foreign securities may not occur contemporaneously with the determination of the
most current market prices for the securities included in such calculation, and
events affecting the value of such securities and such exchange rates that occur
between the times at which they are determined and the close of the New York
Stock Exchange will not be reflected in the computation of net asset value. If
during such periods, events occur that materially affect the value of such
securities, the securities will be valued at their fair market value as
determined in good faith by the directors.
For purposes of determining the net asset value per share of the Fund, all
assets and liabilities initially expressed in foreign currencies will be
converted into United States dollars at the mean between the bid and offer
prices of such currencies against United States dollars quoted by any major U.S.
bank.
PORTFOLIO TRANSACTIONS
Transactions in portfolio securities shall be effected in such manner as
deemed to be in the best interests of the Fund and the respective Series. In
reaching a judgment relative to the qualifications of a broker-dealer ("broker")
to obtain the best execution of a particular transaction, all relevant factors
and circumstances will be taken into account by the Investment Manager or
relevant Sub-Adviser, including the overall reasonableness of commissions paid
to the broker, the firm's general execution and operational capabilities and its
reliability and financial condition. The execution of portfolio transactions may
be directed to brokers who furnish investment information or research services
to the Investment Manager or relevant Sub-Adviser. Such information and research
services include advice as to the value of securities, the advisability of
investing in, purchasing, or selling securities, the availability of securities
or purchasers or sellers of securities, and furnishing analyses and reports
concerning issues, industries, securities, economic factors and trends,
portfolio strategy, and performance of accounts. Such investment information and
research services may be furnished by brokers in many ways, including: (1)
on-line data base systems, the equipment for which is provided by the broker,
that enable registrant to have real-time access to market information, including
quotations; (2) economic research services, such as publications, chart services
and advice from economists concerning macroeconomic information; and (3)
analytical investment information concerning particular corporations. If a
transaction is directed to a broker supplying such information or services, the
commission paid for such transaction may be in excess of the commission another
broker would have charged for effecting that transaction, provided that the
Investment Manager shall have determined in good faith that the commission is
reasonable in relation to the value of the investment information or research
services provided, viewed in terms of either that particular transaction or the
overall responsibilities of the Investment Manager with respect to all accounts
as to which it exercises investment discretion. The Investment Manager may use
all, none or some of such information and services in providing investment
advisory services to the mutual funds under its management, including the Fund.
Portfolio transactions, including options, futures contracts and options on
futures transactions and the purchase or sale of underlying securities upon the
exercise of options, for Series I may also be executed through Bankers Trust or
any subsidiary or affiliate to the extent and in the manner permitted by
applicable law.
In addition, brokerage transactions may be placed with brokers who sell
variable contracts offered by SBL or shares of the Funds managed by the
Investment Manager and who may or may not also provide investment information
and research services. The Investment Manager may, consistent with the NASD
Rules of Fair Practice, consider sales of shares of the Fund in the selection of
a broker. The Fund may also buy securities from, or sell securities to, dealers
acting as principals or market makers.
Securities held by the Series may also be held by other investment advisory
clients of the Investment Manager or relevant Sub-Adviser, including other
investment companies. In addition, Security Benefit Life Insurance Company
("SBL"), may also hold some of the same securities as the Series. When selecting
securities for purchase or sale for a Series, the Investment Manager may at the
same time be purchasing or selling the same securities for one or more of such
other accounts. Subject to the Investment Manager's obligation to seek best
execution, such purchases or sales may be executed simultaneously or "bunched."
It is the policy of the Investment Manager not to favor one account over the
other. Any purchase or sale orders executed simultaneously (which may also
include orders from SBL) are allocated at the average price and as nearly as
practicable on a pro rata basis (transaction costs will also generally be shared
on a pro rata basis) in proportion to the amounts desired to be purchased or
sold by each account. In those instances where it is not practical to allocate
purchase or sale orders on a pro rata basis, then the allocation will be made on
a rotating or other equitable basis. While it is conceivable that in certain
instances this procedure could adversely affect the price or number of shares
involved in a Series' transaction, it is believed that the procedure generally
contributes to better overall execution of the Series' portfolio transactions.
With respect to the allocation of initial public offerings ("IPOs"), the
Investment Manager may determine not to purchase such offerings for certain of
its clients (including investment company clients) due to the limited number of
shares typically available to the Investment Manager in an IPO.
The following table sets forth the brokerage fees paid by the Fund during
the last three fiscal years and certain other information:
- ----------------------------------------------------------------------------
TRANSACTIONS DIRECTED
TO AND COMMISSIONS PAID
TO BROKER-DEALERS WHO
TOTAL BROKERAGE COMMISSIONS ALSO PERFORMED SERVICES
BROKERAGE PAID TO SECURITY ----------------------------
COMMISSIONS DISTRIBUTORS INC., BROKERAGE
YEAR PAID THE UNDERWRITER TRANSACTIONS COMMISSIONS
- ----------------------------------------------------------------------------
1997 $5,230,854 $0 $879,465,514 $3,471,380
1996 4,458,407 0 561,547,687 906,003
1995 4,345,806 0 402,404,593 738,594
- ----------------------------------------------------------------------------
DISTRIBUTIONS AND FEDERAL INCOME TAX CONSIDERATIONS
The following summarizes certain federal income tax considerations
generally affecting the Series. No attempt is made to present a detailed
explanation of the tax treatment of the Series or their shareholders. The
discussion is based upon present provisions of the Internal Revenue Code of
1986, as amended (the "Code"), the regulations promulgated thereunder, and
judicial and administrative ruling authorities, all of which are subject to
change, which change may be retroactive.
Each Series intends to qualify annually and to elect to be treated as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code").
To qualify as a regulated investment company, each Series must, among other
things: (i) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to certain securities loans, and
gains from the sale or other disposition of stock, securities or foreign
currencies, or other income derived with respect to its business of investing in
such stock, securities, or currencies ("Qualifying Income Test"); (ii) diversify
its holdings so that, at the end of each quarter of the taxable year, (a) at
least 50% of the market value of the Series' assets is represented by cash, cash
items, U.S. Government securities, the securities of other regulated investment
companies, and other securities, with such other securities of any one issuer
limited for the purposes of this calculation to an amount not greater than 5% of
the value of the Series' total assets and 10% of the outstanding voting
securities of such issuer, and (b) not more than 25% of the value of its total
assets is invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies), or of two or more issuers which the Series controls (as that term is
defined in the relevant provisions of the Code) and which are determined to be
engaged in the same or similar trades or businesses or related trades or
businesses; and (iii) distribute at least 90% of the sum of its investment
company taxable income (which includes, among other items, dividends, interest,
and net short-term capital gains in excess of any net long-term capital losses)
and its net tax-exempt interest each taxable year. The Treasury Department is
authorized to promulgate regulations under which foreign currency gains would
constitute qualifying income for purposes of the Qualifying Income Test only if
such gains are directly related to investing in securities (or options and
futures with respect to securities). To date, no such regulations have been
issued.
A Series qualifying as a regulated investment company generally will not be
subject to U.S. federal income tax on its investment company taxable income and
net capital gains (any net long-term capital gains in excess of the net
short-term capital losses), if any, that it distributes to shareholders. Each
Series intends to distribute to its shareholders, at least annually,
substantially all of its investment company taxable income and any net capital
gains.
Generally, regulated investment companies, like the Series, must distribute
amounts on a timely basis in accordance with a calendar year distribution
requirement in order to avoid a nondeductible 4% excise tax. Generally, to avoid
the tax, a regulated investment company must distribute during each calendar
year, (i) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year, (ii) at least 98% of its capital
gains in excess of its capital losses (adjusted for certain ordinary losses) for
the 12-month period ending on October 31 of the calendar year, and (iii) all
ordinary income and capital gains for previous years that were not distributed
during such years. To avoid application of the excise tax, each Series intends
to make its distributions in accordance with the calendar year distribution
requirement. A distribution is treated as paid on December 31 of the calendar
year if it is declared by a Series in October, November or December of that year
to shareholders of record on a date in such a month and paid by the Series
during January of the following calendar year. Such distributions are taxable to
shareholders in the calendar year in which the distributions are declared,
rather than the calendar year in which the distributions are received. The
excise tax provisions described above do not apply to a regulated investment
company, like a Series, all of whose shareholders at all times during the
calendar year are segregated asset accounts of life insurance companies where
the shares are held in connection with variable contracts. (For this purpose,
any shares of a Series attributable to an investment in the Series not exceeding
$250,000 made in connection with the organization of the Series shall not be
taken into account.) Accordingly, if this condition regarding the ownership of
shares of a Series is met, the excise tax will be inapplicable to that Series.
If, as a result of exchange controls or other foreign laws or restrictions
regarding repatriation of capital, a Series were unable to distribute an amount
equal to substantially all of its investment company taxable income (as
determined for U.S. tax purposes) within applicable time periods, the Series
would not qualify for the favorable federal income tax treatment afforded
regulated investment companies, or, even if it did so qualify, it might become
liable for federal taxes on undistributed income. In addition, the ability of a
Series to obtain timely and accurate information relating to its investments is
a significant factor in complying with the requirements applicable to regulated
investment companies, in making tax-related computations, and in complying with
the Code Section 817(h) diversification requirements. Thus, if a Series were
unable to obtain accurate information on a timely basis, it might be unable to
qualify as a regulated investment company, its tax computations might be subject
to revisions (which could result in the imposition of taxes, interest and
penalties), or it might be unable to satisfy the Code Section 817(h)
diversification requirements.
CODE SECTION 817(H) DIVERSIFICATION. To comply with regulations under
Section 817(h) of the Code, each Series will be required to diversify its
investments so that on the last day of each quarter of a calendar year, no more
than 55% of the value of its assets is represented by any one investment, no
more than 70% is represented by any two investments, no more than 80% is
represented by any three investments, and no more than 90% is represented by any
four investments. Generally, securities of a single issuer are treated as one
investment and obligations of each U.S. Government agency and instrumentality
are treated for purposes of Section 817(h) as issued by separate issuers.
In connection with the issuance of the diversification regulations, the
Treasury Department announced that it would issue future regulations or rulings
addressing the circumstances in which a variable contractowner's control of the
investments of a separate account may cause the contractowner, rather than the
insurance company, to be treated as the owner of the assets held by the separate
account. If the variable contractowner is considered the owner of the securities
underlying the separate account, income and gains produced by those securities
would be included currently in the contractowner's gross income. These future
rules and regulations proscribing investment control may adversely affect the
ability of certain Series of the Fund to operate as described herein. There is,
however, no certainty as to what standards, if any, Treasury will ultimately
adopt. In the event that unfavorable rules or regulations are adopted, there can
be no assurance that the Series will be able to operate as currently described
in the Prospectus, or that a Series will not have to change its investment
objective or objectives, investment policies, or investment restrictions.
PASSIVE FOREIGN INVESTMENT COMPANIES. Some of the Series may invest in
stocks of foreign companies that are classified under the Code as passive
foreign investment companies ("PFICs"). In general, a foreign company is
classified as a PFIC if at least one half of its assets constitutes
investment-type assets or 75% or more of its gross income is investment-type
income. Under the PFIC rules, an "excess distribution" received with respect to
PFIC stock is treated as having been realized ratably over a period during which
the Series held the PFIC stock. The Series itself will be subject to tax on the
portion, if any, of the excess distribution that is allocated to the Series'
holding period in prior taxable years (an interest factor will be added to the
tax, as if the tax had actually been payable in such prior taxable years) even
though the Series distributes the corresponding income to shareholders. Excess
distributions include any gain from the sale of PFIC stock as well as certain
distributions from a PFIC. All excess distributions are taxable as ordinary
income.
A Series may be able to elect alternative tax treatment with respect to
PFIC stock. Under an election that currently may be available, a Series
generally would be required to include in its gross income its share of the
earnings of a PFIC on a current basis, regardless of whether any distributions
are received from the PFIC. If this election is made, the special rules,
discussed above, relating to the taxation of excess distributions, would not
apply. In addition, another election may be available that would involve marking
to market a Series' PFIC stock at the end of each taxable year (and on certain
other dates prescribed in the Code), with the result that unrealized gains are
treated as though they were realized. If this election were made, tax at the
Series level under the PFIC rules would be eliminated, but a Series could, in
limited circumstances, incur nondeductible interest charges. A Series' intention
to qualify annually as a regulated investment company may limit the Series'
elections with respect to PFIC stock.
Because the application of the PFIC rules may affect, among other things,
the character of gains, the amount of gain or loss and the timing of the
recognition of income with respect to PFIC stock, as well as subject a Series
itself to tax on certain income from PFIC stock, the amount that must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not invest in PFIC stock.
OPTIONS, FUTURES AND FORWARD CONTRACTS AND SWAP AGREEMENTS. Certain
options, futures contracts, and forward contracts in which a Series may invest
may be "Section 1256 contracts." Gains or losses on Section 1256 contracts
generally are considered 60% long-term and 40% short-term capital gains or
losses; however, foreign currency gains or losses arising from certain Section
1256 contracts may be treated as ordinary income or loss. Also, Section 1256
contracts held by a Series at the end of each taxable year (and at certain other
times as prescribed pursuant to the Code) are "marked to market" with the result
that unrealized gains or losses are treated as though they were realized.
Generally, the hedging transactions undertaken by a Series may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by a Series. In addition, losses
realized by a Series on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which such losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences of transactions in options, futures, forward
contracts, swap agreements and other financial contracts to a Series are not
entirely clear. The transactions may increase the amount of short-term capital
gain realized by a Series which is taxed as ordinary income when distributed to
shareholders.
A Series may make one or more of the elections available under the Code
which are applicable to straddles. If a Series makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of gains
or losses, defer losses and/or accelerate the recognition of gains or losses
from the affected straddle positions, the amount which must be distributed to
shareholders, and which will be taxed to shareholders as ordinary income or
long-term capital gain, may be increased or decreased as compared to a fund that
did not engage in such hedging transactions.
Because only a few regulations regarding the treatment of swap agreements,
and related caps, floors and collars, have been implemented, the tax
consequences of such transactions are not entirely clear. The Series intend to
account for such transactions in a manner deemed by them to be appropriate, but
the Internal Revenue Service might not necessarily accept such treatment. If it
did not, the status of a Series as a regulated investment company, and the
Series' ability to satisfy the Code Section 817(h) diversification requirements,
might be affected.
The requirements applicable to a Series' qualification as a regulated
investment company may limit the extent to which a Series will be able to engage
in transactions in options, futures contracts, forward contracts, swap
agreements and other financial contracts.
MARKET DISCOUNT. If a Series purchases a debt security at a price lower
than the stated redemption price of such debt security, the excess of the stated
redemption price over the purchase price is "market discount". If the amount of
market discount is more than a DE MINIMIS amount, a portion of such market
discount must be included as ordinary income (not capital gain) by the Series in
each taxable year in which the Series owns an interest in such debt security and
receives a principal payment on it. In particular, the Series will be required
to allocate that principal payment first to the portion of the market discount
on the debt security that has accrued but has not previously been includable in
income. In general, the amount of market discount that must be included for each
period is equal to the lesser of (i) the amount of market discount accruing
during such period (plus any accrued market discount for prior periods not
previously taken into account) or (ii) the amount of the principal payment with
respect to such period. Generally, market discount accrues on a daily basis for
each day the debt security is held by a Series at a constant rate over the time
remaining to the debt security's maturity or, at the election of the Series, at
a constant yield to maturity which takes into account the semi-annual
compounding of interest. Gain realized on the disposition of a market discount
obligation must be recognized as ordinary interest income (not capital gain) to
the extent of the "accrued market discount."
ORIGINAL ISSUE DISCOUNT. Certain debt securities acquired by the Series may
be treated as debt securities that were originally issued at a discount. Very
generally, original issue discount is defined as the difference between the
price at which a security was issued and its stated redemption price at
maturity. Although no cash income on account of such discount is actually
received by a Series, original issue discount that accrues on a debt security in
a given year generally is treated for federal income tax purposes as interest
and, therefore, such income would be subject to the distribution requirements
applicable to regulated investment companies.
Some debt securities may be purchased by the Series at a discount that
exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for federal income tax purposes
(see above).
CONSTRUCTIVE SALES. Recently enacted rules may affect the timing and
character of gain if a Series engages in transactions that reduce or eliminate
its risk of loss with respect to appreciated financial positions. If the Series
enters into certain transactions in property while holding substantially
identical property, the Series would be treated as if it had sold and
immediately repurchased the property and would be taxed on any gain (but not
loss) from the constructive sale. The character of gain from a constructive sale
would depend upon the Series' holding period in the property. Loss from a
constructive sale would be recognized when the property was subsequently
disposed of, and its character would depend on the Series' holding period and
the application of various loss deferral provisions of the Code.
FOREIGN TAXATION. Income received by a Series from sources within a foreign
country may be subject to withholding and other taxes imposed by that country.
Tax conventions between certain countries and the U.S. may reduce or eliminate
such taxes. The payment of such taxes will reduce the amount of dividends and
distributions paid to shareholders.
FOREIGN CURRENCY TRANSACTIONS. Under the Code, gains or losses attributable
to fluctuations in exchange rates which occur between the time a Series accrues
income or other receivables or accrues expenses or other liabilities denominated
in a foreign currency and the time that Series actually collects such
receivables or pays such liabilities generally are treated as ordinary income or
ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency and on disposition of certain futures contracts, forward
contracts and options, gains or losses attributable to fluctuations in the value
of foreign currency between the date of acquisition of the security or contract
and the date of disposition also are treated as ordinary gain or loss. These
gains or losses, referred to under the Code as "Section 988" gains or losses,
may increase or decrease the amount of a Series' investment company taxable
income to be distributed to its shareholders as ordinary income.
DISTRIBUTIONS. Distributions of any investment company taxable income by a
Series are taxable to the shareholders as ordinary income. Net capital gains
designated by a Series as capital gain dividends will be treated, to the extent
distributed, as long-term capital gains in the hands of the shareholders,
regardless of the length of time the shareholders may have held the shares. Any
distributions that are not from a Series' investment company taxable income or
net capital gains may be characterized as a return of capital to shareholders
or, in some cases, as capital gain. A distribution will be treated as paid on
December 31 of the calendar year if it is declared by a Series in October,
November or December of that year to shareholders of record on a date in such a
month and paid by the Series during January of the following calendar year. Such
distributions will be taxable to shareholders in the calendar year in which they
are declared, rather than the calendar year in which they are received.
OTHER TAXES. The foregoing discussion is general in nature and is not
intended to provide an exhaustive presentation of the tax consequences of
investing in a Series. Distributions may also be subject to additional state,
local and foreign taxes, depending on each shareholder's particular situation.
Depending upon the nature and extent of a Series' contacts with a state or local
jurisdiction, the Series may be subject to the tax laws of such jurisdiction if
it is regarded under applicable law as doing business in, or as having income
derived from, the jurisdiction. Shareholders are advised to consult their own
tax advisers with respect to the particular tax consequences to them of an
investment in a Series.
OWNERSHIP AND MANAGEMENT
As of ____________________, SBL controls the Fund by virtue of its indirect
ownership of 100% of the outstanding shares of the Fund as custodian of SBL
Variable Annuity Account III, SBL Variable Annuity Account IV, Variflex,
Variflex LS, Variflex Signature, Security Elite Benefit and Varilife.
CAPITAL STOCK AND VOTING
The Fund has authorized the issuance of an indefinite number of shares of
capital stock of $1.00 par value. Its shares are currently issued in fifteen
Series: Series A, Series B, Series C, Series D, Series E, Series I, Series J,
Series K, Series M, Series N, Series O, Series P, Series S, Series V and Series
X. The shares of each Series represent pro rata beneficial interest in that
Series' assets and in the earnings and profits or losses derived from the
investment of such assets. Upon issuance and sale, such shares will be fully
paid and nonassessable. They are fully transferable and redeemable. These shares
have no preemptive rights, but the stockholders of each Series are entitled to
receive dividends as declared for that Series by the board of directors of the
Fund.
The shares of each Series have cumulative voting rights for the election of
directors. Within each respective Series, each share has equal voting rights
with each other share and there are no preferences as to conversion, exchange,
retirement or liquidation. On other matters, all shares, (irrespective of
Series) are entitled to one vote each. Pursuant to the rules and regulations of
the Securities and Exchange Commission, in certain instances, a vote of the
outstanding shares of the combined Series may not modify the rights of holders
of a particular Series without the approval of a majority of the shares of that
Series.
CUSTODIANS, TRANSFER AGENT AND DIVIDEND-PAYING AGENT
UMB Bank, N.A., 928 Grand Avenue, Kansas City, Missouri 64106, acts as the
custodian for the portfolio securities of each Series of the Fund, except Series
D, I, K, M, N and O. The Chase Manhattan Bank, 4 Chase MetroTech Center,
Brooklyn, New York 11245 acts as custodian for the portfolio securities of
Series D, I, K, M, N and O, including those held by foreign banks and foreign
securities depositories which qualify as eligible foreign custodians under the
rules adopted by the SEC. Security Management Company, LLC is the Fund's
transfer and dividend-paying agent.
INDEPENDENT AUDITORS
The firm of Ernst & Young LLP, One Kansas City Place, 1200 Main Street,
Kansas City, Missouri 64105-2143, has been approved by the Fund's stockholders
to serve as the Fund's independent auditors, and as such, the firm will perform
the annual audit of the Fund's financial statements.
PERFORMANCE INFORMATION
The Fund may, from time to time, include the yield for Series C and the
average annual total return and the total return of the Series in advertisements
or reports to shareholders or prospective investors.
For Series C, the current yield will be based upon the seven calendar days
ending on the date of calculation ("the base period"). The total net investment
income earned, exclusive of realized capital gains and losses or unrealized
appreciation and depreciation, during the base period, on a hypothetical
pre-existing account having a balance of one share will be divided by the value
of the account at the beginning of that period. The resulting figure ("the base
period return") will then be multiplied by 365/7 to obtain the current yield.
Series C's current yield for the seven-day period ended December 31, 1997 was
4.44%.
Series C's effective (or compound) yield for the same period was 4.54%. The
effective yield reflects the compounding of the current yield by reinvesting all
dividends and will be computed by compounding the base period return by adding 1
to the base period return, raising the sum to a power equal to 365 divided by 7,
and subtracting 1 from the result.
Quotations of average annual total return for a Series will be expressed in
terms of the average annual compounded rate of return of a hypothetical
investment in the Series over certain periods that will include periods of 1, 5
and 10 years (up to the life of the Series), calculated pursuant to the
following formula:
P(1-T)^n=ERV
(where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years, and ERV = the ending redeemable value of
a hypothetical $1,000 payment made at the beginning of the period). All total
return figures assume that all dividends and distributions are reinvested when
paid.
For the 1-, 5- and 10-year periods ended December 31, 1997, the average
annual total return was the following:
- ----------------------------------- ------------ -------------- ------------
1 YEAR 5 YEARS 10 YEARS
- ----------------------------------- ------------ -------------- ------------
Series A.......................... 28.7% 19.3% 17.2%
Series B.......................... 26.5% 15.6% 16.1%
Series C.......................... 5.2% 3.7% 5.9%
Series D.......................... 6.5% 13.4% 4.3%
Series E.......................... 10.0% 6.3% 8.1%
Series J.......................... 20.0% 12.8% 16.9%(1)
Series K.......................... 5.4% 10.3%(2) ---
Series M.......................... 6.2% 10.6%(2) ---
Series N.......................... 18.4% 14.9%(2) ---
Series O.......................... 28.4% 25.6%(2) ---
Series P.......................... 13.4% 14.3%(3) ---
Series S.......................... 22.7% 14.9% 14.4%(4)
Series V.......................... 31.3%(5) --- ---
Series X.......................... 1.6%(6) --- ---
- ----------------------------------- ------------ -------------- ------------
1 For the period October 1, 1992 (date of inception) to December 31,1997.
2 For the period June 1, 1995 (date of inception) to December 31, 1997.
3 For the period August 5, 1996 (date of inception) to December 31, 1997.
4 For the period May 1, 1991 (date of inception) to December 31, 1997.
5 For the period May 1, 1997 (date of inception) to December 31, 1997.
6 For the period October 15, 1997 (date of inception) to February 28, 1998.
- ----------------------------------------------------------------------------
Quotations of total return for any Series will also be based on a
hypothetical investment in the Series for a certain period, and will assume that
all dividends and distributions are reinvested when paid. The total return is
calculated by subtracting the value of the investment at the beginning of the
period from the ending value and dividing the remainder by the beginning value.
The Investment Manager has waived the management fee for Series K, P, V and X,
and in the absence of such waiver, the performance quoted would be reduced.
The aggregate total return on an investment made in shares of Series A
calculated as described above for the period from December 31, 1987 to December
31, 1997 was 389.4%.
Performance information for Series I is not available because it did not
begin operations until January 1999.
Performance information for a Series may be compared, in reports and
promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S&P
500"), Dow Jones Industrial Average ("DJIA"), or other unmanaged indices so that
investors may compare a Series' results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; (ii) other groups of mutual funds tracked by Lipper
Analytical Services, a widely used independent research firm which ranks mutual
funds by overall performance, investment objectives, and assets, or tracked by
other services, companies, publications, or persons who rank mutual funds on
overall performance or other criteria; and (iii) the Consumer Price Index
(measure for inflation) to assess the real rate of return from an investment in
the Series. Unmanaged indices may assume the reinvestment of dividends but
generally do not reflect deductions for administrative and management costs and
expenses.
Such mutual fund rating services include the following: Lipper Analytical
Services; Morningstar, Inc.; Investment Company Data; Schabacker Investment
Management; Wiesenberger Investment Companies Service; ComputerDirections
Advisory (CDA); and Johnson's Charts.
Quotations of average annual total return or total return for the Fund will
not take into account charges and deductions against the Separate Accounts to
which the Fund shares are sold or charges and deductions against the Contracts
issued by Security Benefit Life Insurance Company. Performance information for
any Series reflects only the performance of a hypothetical investment in the
Series during the particular time period on which the calculations are based.
Performance information should be considered in light of the Series' investment
objectives and policies, characteristics and quality of the portfolios and the
market conditions during the given time period, and should not be considered as
a representation of what may be achieved in the future.
FINANCIAL STATEMENTS
The audited financial statements of the Fund for the fiscal year ended
December 31, 1997, which are contained in the Annual Report of SBL Fund and the
unaudited financial statements of SBL Fund for the six-month period June 30,
1998, which are contained in the Semiannual Report of SBL Fund, are incorporated
herein by reference. Copies of the Annual Report and the Semiannual Report are
provided to every person requesting a copy of the Statement of Additional
Information.
<PAGE>
APPENDIX
DESCRIPTION OF SHORT-TERM INSTRUMENTS
U.S. GOVERNMENT SECURITIES. Federal agency securities are debt obligations
which principally result from lending programs of the U.S. Government. Housing
and agriculture have traditionally been the principal beneficiaries of federal
credit programs, and agencies involved in providing credit to agriculture and
housing account for the bulk of the outstanding agency securities.
Some U.S. Government securities, such as treasury bills and bonds, are
supported by the full faith and credit of the U.S. Treasury, others are
supported by the right of the issuer to borrow from the Treasury; others, such
as those of the Federal National Mortgage Association, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality.
U.S. Treasury bills are issued with maturities of any period up to one
year. Three-month bills are currently offered by the Treasury on a 13-week cycle
and are auctioned each week by the Treasury. Bills are issued in bearer form
only and are sold only on a discount basis, and the difference between the
purchase price and the maturity value (or the resale price if they are sold
before maturity) constitutes the interest income for the investor.
CERTIFICATES OF DEPOSIT. A certificate of deposit is a negotiable receipt
issued by a bank or savings and loan association in exchange for the deposit of
funds. The issuer agrees to pay the amount deposited plus interest to the bearer
of the receipt on the date specified on the certificate.
COMMERCIAL PAPER. Commercial paper is generally defined as unsecured
short-term notes issued in bearer form by large well-known corporations and
finance companies. Maturities on commercial paper range from a few days to nine
months. Commercial paper is also sold on a discount basis.
BANKERS' ACCEPTANCES. A banker's acceptance generally arises from a
short-term credit arrangement designed to enable businesses to obtain funds to
finance commercial transactions. Generally, an acceptance is a time draft drawn
on a bank by an exporter or an importer to obtain a stated amount of funds to
pay for specific merchandise. The draft is then "accepted" by a bank that, in
effect, unconditionally guarantees to pay the face value of the instrument on
its maturity date.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
A Prime rating is the highest commercial paper rating assigned by Moody's
Investors Service, Inc. ("Moody's"). Issuers rated Prime are further referred to
by use of numbers 1, 2 and 3 to denote relative strength within this highest
classification. Among the factors considered by Moody's in assigning ratings are
the following: (1) evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of 10 years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations.
Commercial paper rated "A" by Standard & Poor's Corporation ("S&P") has the
highest rating and is regarded as having the greatest capacity for timely
payment. Commercial paper rated A-1 by S&P has the following characteristics.
Liquidity ratios are adequate to meet cash requirements. Long-term senior debt
is rated "A" or better. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances. Typically, the issuer's industry is
well established and the issuer has a strong position within the industry. The
reliability and quality of management are unquestioned. Relative strength or
weakness of the above factors determine whether the issuer's commercial paper is
rated A-1, A-2 or A-3.
DESCRIPTION OF CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.
AAA - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
AA - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
BAA - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
STANDARD & POOR'S CORPORATION
AAA - Bonds rated AAA have the highest rating assigned by Standard & Poor's
to debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
BB, B, CCC, CC - Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominately speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
C - The rating C is reserved for income bonds on which no interest is being
paid.
D - Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
<PAGE>
SBL Fund
Annual Report
December 31, 1997
o Series A
(Growth Series)
o Series B
(Growth-Income Series)
o Series C
(Money Market Series)
o Series D
(Worldwide Equity Series)
o Series E
(High Grade Income Series)
o Series J
(Emerging Growth Series)
o Series K
(Global Aggressive Bond Series)
o Series M
(Specialized Asset Allocation Series)
o Series N
(Managed Asset Allocation Series)
o Series O
(Equity Income Series)
o Series P
(High Yield Series)
o Series S
(Social Awareness Series)
o Series V
(Value Series)
o Series X
(Small Cap Series)
[SECURITY ] Security Distributors, Inc.
[DISTRIBUTORS,] A Member of The Security Benefit
[INC. LOGO ] Group of Companies
<PAGE>
President's Letter
February 15, 1998
A LOOK BACK AT 1997
1997 was another incredible year for performance in the large cap sector of U.S.
equity markets. For the third consecutive year, the Dow Jones Industrial Average
generated a total return in excess of 20%. The SBL Fund with its 14 series
reflected these results, with the large cap portfolios producing the best
returns. The fixed income portfolios in the SBL Fund also turned in strong
results for the year, as interest rates moved from their highs of 7.12% in April
as measured by the 30-year Treasury bond to a low of 5.92% at year-end.
The year was also one of turmoil in international markets. Economic difficulties
in southeast Asia produced chaotic conditions in global markets during the year.
We expect this to continue to have an effect on securities markets in 1998.
Portfolio investment strategies which underweighted exposure to U.S. equities
resulted in returns substantially below the Dow Jones Industrial Average and the
S&P 500 Index. Investors should keep this in mind when comparing our Series'
returns with those indexes.
WHAT TO LOOK FOR IN 1998
This year, earnings growth rates should slow and it is our view that it is
highly unlikely that returns from common stocks in 1998 will approximate those
of the last three years. We believe that markets will return to more historic
levels of 8% to 10% for equities, with volatility continuing to be very high.
Investors should temper their expectations. The long-term outlook is still
favorable but we will experience some ups and downs in the short term.
NEW INVESTMENT OPTIONS AND
ADDITIONS TO MANAGEMENT TEAM
We added the Value Series and Small Cap Series to our offerings late in 1997.
These are additional investment options for the Variflex LS and Variflex
Signature variable annuities. The Small Cap series is sub-advised for us by
Strong Capital Management, Inc. with Ron Ognar of Strong as lead portfolio
manager.
Additions we have made to the Security Funds Investment Group have enabled us to
add expertise and strength to our SBL Fund investment team. This expertise
allows us to maximize our resources and shift management responsibilities for
some of the series.
ON THE EQUITY SIDE
Mike Petersen, another addition to our investment team, joins us as portfolio
manager for the GROWTH-INCOME SERIES. Mike brings to us ten years of experience
in managing a growth and income fund with an exemplary track record.
Jim Schier takes the helm of the EMERGING GROWTH SERIES, while maintaining
responsibility as manager for the new VALUE SERIES where he has focused on mid-
to large-cap stocks. Jim brings years of experience in managing both growth and
value oriented investments and is developing a great track record in managing
the VALUE SERIES. This change has also enabled Cindy Shields to devote her
full-time attention to our growing SOCIAL AWARENESS SERIES.
ON THE FIXED INCOME SIDE
Dave Eshnaur joined the Security Fixed Income Investment Group in 1997 bringing
15 years of high-yield bond experience to this team. He will join Steve Bowser
as co-manager for the HIGH GRADE INCOME SERIES. Steve and David will also
co-manage the domestic fixed income holdings in the SPECIALIZED ASSET ALLOCATION
SERIES which is sub-advised by Meridian Management Investment Corporation.
We are confident that these management enhancements will continue to provide you
with solid investment performance. As always, we welcome your questions and
comments at any time.
/s/ JOHN CLELAND
John Cleland, President
The Security Funds
1
<PAGE>
Series A (Growth Series)
February 15, 1998
The Growth Series of the SBL Fund returned a strong 28.72% in 1997, compared
with its Lipper peer group average of 25.36%.1 Although the Growth Series'
return was below the 33.35% generated by the S&P 500, it provided an excellent
investment vehicle throughout the year for its shareholders.
PERFORMANCE VERSUS THE BENCHMARK INDEX
The portfolio's total return lagged that of its benchmark, the S&P 500 Index, in
the second half of 1997 primarily because of its lack of exposure to
telecommunications and utilities stocks. These two sectors make up about 10% of
the S&P index. In addition, an underweighting in more prominent S&P names such
as General Electric Company hurt performance versus the index. Despite these
weaknesses compared with the index, the Series was well above the median when
compared with other growth funds in its peer group.
CONTRIBUTORS TO POSITIVE PERFORMANCE
An overweighting in financial companies boosted returns in a period of declining
interest rates. Issues such as insurance company Allstate Corporation and
mortgage lender Fannie Mae were outstanding performers in 1997. We avoided
multi-national banks, which were hurt by the turn of events in southeast Asia.
We chose instead regional banks and those which concentrate on fee-based
services. These include Bank of New York Company Inc. and Northern Trust
Corporation, both of which generated solid returns over the year.
An emphasis on retailers also contributed positively to total return in the
second half of the year. Investors concerned about the effects of southeast
Asian problems on U.S. stocks sought out companies with a focus on domestic
markets. Dayton Hudson Corporation was such a company, realizing strong earnings
from its Target division. Target also is among discount retailers, which as a
group realized strong sales in 1998. Payless ShoeSource Inc., a retailer
headquartered in our own Topeka, Kansas also was a standout performer as
investors looked for firms with domestic sales targets. Payless had been ignored
by analysts early in the year, and gained momentum as those analysts sought
companies to recommend after the Asian crisis erupted.
A LOOK INTO 1998
Because we believe that earnings in coming quarters will slow from the pace of
the past three years, we anticipate keeping a strong emphasis on issues that
have exhibited above-average earnings growth. Currently some of these companies
include Gillette Company, which should benefit from the product cycle of its new
razor system, and Bristol-Myers Squibb Company and Schering-Plough Corporation,
pharmaceutical companies with excellent new product outlooks.
Other companies which should perform well include those that are less sensitive
to economic downturns. Publishers such as Tribune Company and Gannett Company,
Inc. have domestic markets and have exhibited consistent growth. Tyco
International Ltd., a diversified manufacturer with a growing presence in home
security systems, has excellent prospects for outperformance as well.
Overall, we expect to increase the number of holdings in the portfolio from the
current level of about ninety to somewhere between 100 and 150. This will reduce
the impact on the portfolio of an earnings disappointment in any one name. A
volatile market climate will make careful stock selection more important than in
periods such as the last three years, where just being in the stock market was
generally profitable.
Terry Milberger
Senior Portfolio Manager
2
<PAGE>
Series A (Growth Series)
February 15, 1998
SERIES A vs. S&P 500
[LINEAR GRAPH PLOTTED FROM POINTS IN TABLE BELOW]
SBL Fund S&P
Date Series A 500
- ---------- ---------- ----------
12/31/1987 .................. $10,000.00 $10,000.00
03/31/1988 .................. 10,580.88 10,587.37
06/30/1988 .................. 11,224.31 11,285.62
09/30/1988 .................. 10,875.78 11,329.24
12/31/1988 .................. 11,015.22 11,680.93
03/31/1989 .................. 12,079.19 12,501.82
06/30/1989 .................. 13,366.69 13,601.57
09/30/1989 .................. 15,471.66 15,050.15
12/31/1989 .................. 14,859.01 15,359.35
03/31/1990 .................. 14,282.94 14,895.29
06/30/1990 .................. 15,124.18 15,832.19
09/30/1990 .................. 12,430.38 13,650.11
12/31/1990 .................. 13,396.15 14,872.05
03/31/1991 .................. 15,753.46 17,037.36
06/30/1991 .................. 15,753.46 17,002.10
09/30/1991 .................. 16,690.94 17,917.31
12/31/1991 .................. 18,233.27 19,415.38
03/31/1992 .................. 18,455.11 18,919.91
06/30/1992 .................. 18,212.14 19,291.77
09/30/1992 .................. 18,250.12 19,889.97
12/31/1992 .................. 20,261.94 20,904.58
03/31/1993 .................. 21,289.96 21,800.30
06/30/1993 .................. 21,057.83 21,912.45
09/30/1993 .................. 22,342.65 22,472.87
12/31/1993 .................. 23,040.13 22,992.91
03/31/1994 .................. 22,249.65 22,115.78
06/30/1994 .................. 21,877.66 22,206.08
09/30/1994 .................. 22,956.35 22,299.42
12/31/1994 .................. 22,659.35 22,293.50
03/31/1995 .................. 24,741.18 25,561.27
06/30/1995 .................. 27,092.08 27,986.75
09/30/1995 .................. 29,192.13 30,211.75
12/31/1995 .................. 30,989.93 32,012.14
03/31/1996 .................. 33,259.28 33,752.19
06/30/1996 .................. 34,703.41 35,275.99
09/30/1996 .................. 36,065.04 36,355.23
12/31/1996 .................. 38,019.99 39,398.68
03/31/1997 .................. 38,051.27 40,429.42
06/30/1997 .................. 44,400.97 47,501.74
09/30/1997 .................. 47,876.34 51,074.69
12/31/1997 .................. 48,704.94 52,543.03
$10,000 OVER TEN YEARS
The chart above assumes a hypothetical $10,000 investment in Series A (Growth
Series) on December 31, 1987, and reflects the fees and expenses of Series A. On
December 31, 1997, the value of the investment (assuming reinvestment of all
dividends and distributions) would have grown to $48,705. By comparison, the
same $10,000 investment would have grown to $52,543 based on the S&P 500 Index's
performance.
AVERAGE ANNUAL TOTAL RETURN
AS OF DECEMBER 31, 1997
1 Year 5 Years 10 Years
-------- --------- ---------
Series A ............... 28.7% 19.3% 17.2%
(1) Performance figures do not reflect fees and expenses associated with an
investment in variable insurance products offered by Security Benefit Life
Insurance Company. Shares of a Series of SBL Fund are available only
through the purchase of such products.
The performance data quoted above represents past performance. Past
performance is not predictive of future performance. The investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
3
<PAGE>
Series B (Growth-income Series)
February 15, 1998
In 1997 the Growth-Income Series of the SBL Fund generated a rewarding 26.49%
total return, close to its Lipper peer group average of 27.21%.(1) In this, the
third year in a row of equity returns in excess of 20%, the S&P 500 Index had a
total return of 33.35%. Although these returns have been excellent for
investors, we realize that they can't continue forever. We expect that 1998 will
bring results which are much closer to the historic norms.
STOCK SELECTION HELPS PERFORMANCE
Three major factors have contributed to successful stock selection this year.
First, we have sought companies whose earnings have been growing faster than the
average S&P 500 company, and which have good prospects for continued earnings
acceleration.
Second, we looked for valuations which as measured by such standards as
price/earnings and price/book ratios were more attractive than the average S&P
stock. Valuations of this type may be seen in stocks of companies which have had
problems with their growth rates in the past, but are showing signs of
improving. If analysts haven't recognized and reported on the trend yet, there
may be an opportunity to buy the stocks cheaply.
Third, in monitoring risk in the portfolio, we sought issues with lower
volatility than the average stock in that industry. We looked at stocks' betas,
the most widely recognized measure of risk, as well as the standard deviation of
their monthly returns. We focused on consistency, avoiding those issues whose
returns fluctuate dramatically.
RISK LEVELS WILL BE MORE IMPORTANT IN 1998
We expect that the volatility in the stock markets will continue in the months
to come as equity investors sort out the implications of southeast Asia's
problems on U.S. companies. Because of this, we will concentrate on minimizing
risk as much as maximizing returns. We plan to continue the risk-monitoring
outlined above, selecting less volatile stocks with attractive valuations in
order to reduce exposure to negative earnings reports. In addition, the
portfolio's industry concentrations will be spread across a number of sectors to
help avoid shocks in any one industry. The target average beta for the portfolio
will be about .9, slightly lower than the market average 1.0.
INCOME PORTION OF THE PORTFOLIO
We plan to reduce holdings of corporate bonds in the portfolio to nearly zero,
using short to intermediate maturity government securities instead. We
anticipate that government bonds will make up 5% to 10% of the total portfolio.
We also plan to add income-generating stocks, particularly in the energy,
utility, and auto sectors. Currently some attractive names in these areas
include Mobil Corporation, Amoco Corporation, and Texaco Inc., in the energy
area, Kansas City Power and Light Company, American Electric Power Company, Inc.
and Peco Energy Company in the utility group.
LOOKING FORWARD TO 1998
We expect earnings growth rates to slow in the months to come, and to remain at
low single-digit levels perhaps for the next two years. This is a normal
adjustment after several years of double-digit growth and in light of probable
effects of the Asian crisis. We believe overall appreciation will average 10% or
below, closer to the historical norms. This is an investment climate ideally
suited for growth and income funds.
Michael A. Petersen
Senior Portfolio Manager
4
<PAGE>
Series B (Growth-income Series)
February 15, 1998
SERIES B vs. S&P 500
[LINEAR GRAPH PLOTTED FROM POINTS IN TABLE BELOW]
SBL Fund S&P
Date Series B 500
- ---------- ---------- ----------
12/31/1987 .................. $10,000.00 $10,000.00
03/31/1988 .................. 10,865.69 10,587.37
06/30/1988 .................. 11,686.82 11,285.62
09/30/1988 .................. 11,616.80 11,329.24
12/31/1988 .................. 11,927.47 11,680.93
03/31/1989 .................. 12,799.90 12,501.82
06/30/1989 .................. 13,857.01 13,601.57
09/30/1989 .................. 14,975.04 15,050.15
12/31/1989 .................. 15,316.16 15,359.35
03/31/1990 .................. 15,043.27 14,895.29
06/30/1990 .................. 15,411.67 15,832.19
09/30/1990 .................. 14,208.75 13,650.11
12/31/1990 .................. 14,636.02 14,872.05
03/31/1991 .................. 16,591.36 17,037.36
06/30/1991 .................. 16,938.97 17,002.10
09/30/1991 .................. 18,686.94 17,917.31
12/31/1991 .................. 20,158.47 19,415.38
03/31/1992 .................. 19,993.30 18,919.91
06/30/1992 .................. 19,212.49 19,291.77
09/30/1992 .................. 20,176.22 19,889.97
12/31/1992 .................. 21,426.62 20,904.58
03/31/1993 .................. 22,321.97 21,800.30
06/30/1993 .................. 22,553.52 21,912.45
09/30/1993 .................. 23,435.01 22,472.87
12/31/1993 .................. 23,482.40 22,992.91
03/31/1994 .................. 22,787.33 22,115.78
06/30/1994 .................. 21,973.78 22,206.08
09/30/1994 .................. 22,780.25 23,299.42
12/31/1994 .................. 22,780.25 23,293.50
03/31/1995 .................. 24,256.59 25,561.27
06/30/1995 .................. 26,359.52 27,986.75
09/30/1995 .................. 28,268.05 30,211.75
12/31/1995 .................. 29,629.52 32,012.14
03/31/1996 .................. 31,505.92 33,752.19
06/30/1996 .................. 32,561.93 35,275.99
09/30/1996 .................. 33,938.81 36,355.23
12/31/1996 .................. 35,037.44 39,398.68
03/31/1997 .................. 35,334.37 40,429.42
06/30/1997 .................. 40,451.42 47,501.74
09/30/1997 .................. 42,755.74 51,074.69
12/31/1997 .................. 44,321.92 52,543.03
$10,000 OVER TEN YEARS
The chart above assumes a hypothetical $10,000 investment in Series B
(Growth-Income Series) on December 31, 1987, and reflects the fees and expenses
of Series B. On December 31, 1997, the value of the investment (assuming
reinvestment of all dividends and distributions) would have grown to $44,322. By
comparison, the same $10,000 investment would have grown to $52,543 based on the
S&P 500 Index's performance.
AVERAGE ANNUAL TOTAL RETURN
AS OF DECEMBER 31, 1997
1 Year 5 Years 10 Years
-------- --------- ---------
Series B..................... 26.5% 15.6% 16.1%
(1) Performance figures do not reflect fees and expenses associated with an
investment in variable insurance products offered by Security Benefit Life
Insurance Company. Shares of a Series of SBL Fund are available only
through the purchase of such products.
The performance data quoted above represents past performance. Past
performance is not predictive of future performance. The investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
5
<PAGE>
Series C (Money Market Series)
February 15, 1998
Short-term fixed income investment vehicles such as money market funds saw their
interest rates increase during 1997, unlike their longer-term counterparts which
experienced declining rates. The Money Market Series returned 5.17% for the
year, in line with its Lipper peer group average of 5.13%.(1)
RISING SHORT-TERM RATES
In March the Federal Reserve Board's policy-making arm, the Federal Open Market
Committee, raised its target rate on Federal Funds to 5.50%. The Fed Funds rate,
the rate at which banks loan overnight funds to each other, is a strong
influence on rate levels for short-term investments such as those used in money
market funds.
The purpose of this rate hike was to keep inflation in the U.S. from escalating.
Investors in long-term bonds watched interest rates decline as the inflation
specter waned. But the Federal Reserve, remaining diligent in its inflation
fight, kept short-term rates at the same level. Investors in the Money Market
Series thus experienced increased returns over those of the previous year.
MATURITY STRUCTURE OF THE PORTFOLIO
As in the past, we strive to maintain an average maturity within ten days more
or less than that of the benchmark Money Fund Report published by IBC Donoghue.
We avoid trying to outguess the markets by dramatically lengthening or
shortening the average maturity of the fund. Because of the "laddered" structure
of maturities--issues coming due at regular intervals over the life of the
portfolio--we have holdings maturing frequently and can adjust quickly should
there be a sharp change in short-term interest rates.
ASSET SECTORS REPRESENTED IN THE PORTFOLIO
At the end of 1997 the assets in SBL Fund's Money Market Series consisted of 71%
commercial paper, 11% federal agency securities, and 18% Small Business
Administration issues. As of year-end, the commercial paper in the portfolio was
entirely in the "top tier" of rating agency classifications, rated at least A1
by Standard and Poor's rating agency or P1 by Moody's Investor Services. The
federal agency holdings at year end were primarily short-term securities issued
by The Federal Home Loan Bank.
The Small Business Administration (SBA) issues are fully guaranteed by the
federal government as to timely payment of both principal and interest. These
issues, while bearing stated maturities in the twenty- to thirty-year range, are
considered to be short maturity paper because their interest rates reset
periodically (usually monthly or quarterly). This enables the issues to carry
coupons representing recent market levels, staying competitive with other
short-term investment options.
OUTLOOK FOR 1998
The interest rate outlook for short-term fixed income investments in 1998 is
uncertain. Although the U.S. economy has exhibited several signs of strength in
recent months, the Federal Reserve Open Market Committee may be reluctant to
raise interest rates because the impact of the Asian crisis on the U.S. is as
yet unknown. We will continue to monitor markets carefully, and will remain
ready to adjust portfolio holdings as economic conditions warrant.
Fixed Income Team
Series C is neither insured nor guaranteed by the U.S. Government and does not
maintain a stable net asset value of $1.00 per share.
AVERAGE ANNUAL TOTAL RETURN
AS OF DECEMBER 31, 1997
1 Year 5 Years 10 Years
-------- --------- ---------
Series C................... 5.2% 3.7% 5.9%
(1) Performance figures do not reflect fees and expenses associated with an
investment in variable insurance products offered by Security Benefit Life
Insurance Company. Shares of a Series of SBL Fund are available only
through the purchase of such products.
The performance data quoted above represents past performance. Past
performance is not predictive of future performance. The investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
6
<PAGE>
Series D (Worldwide Equity Series)
February 15, 1998
[Lexington] Subadvisor, Lexington Management Corporation
[ Logo ] Portfolio Managers, Richard Saler And Alan Wapnick
The year just completed was a disappointing one for investors in global markets.
In a year in which the U.S. markets displayed returns in the 20% to 30% range,
the Morgan Stanley World Index generated 14.17%. The Worldwide Equity Series,
primarily because of its underweighting in the U.S. markets, returned 6.45% for
the year.(1)
CONTRIBUTORS TO 1997 PERFORMANCE
The Series maintained a relatively light weighting of 22% in the U.S. stock
market most of the year. The Morgan Stanley Capital International U.S. Index
appreciated 33.4% over the same period. Our portfolio held an overweight
position in European equities, which performed extremely well in local
currencies, but saw the gains muted by the strong dollar.
Financial turmoil in Asia had a particularly damaging impact on cyclical stocks,
of which the series had a high percentage. On a positive note, however, low
weightings in Japan and in the emerging markets helped avoid sharp losses in
those areas.
THE CURRENT INTERNATIONAL MARKET PICTURE
The current investment environment is quite volatile. The Asian contagion has
not been resolved and the situation remains very serious, with many economies in
the region likely to experience a depression in 1998. Compounding the problem is
a weak Japanese economy, which is bordering on slipping into a recession. China,
also very important, may see a sharp slowdown caused by its relatively strong
currency and shrinking export markets.
The risks to global markets elsewhere have increased. Emerging markets around
the world are now suffering from high real interest rates, which alone will slow
these economies. The U.S. economy is likely to slow in 1998 for several reasons.
The traded goods sector, representing over 20% of the economy, could slow due to
the decrease in demand for our exports in Asia. Conversely, lower-cost foreign
exports can be expected to flood the U.S., and may lead to greater protectionism
in the U.S. Congress. Profits here are likely to disappoint as the economy slows
and competition accelerates.
PLANS FOR THE PORTFOLIO IN 1998
The Series remains underweighted in U.S. equities as valuations are high and
earnings are likely to disappoint. Europe continues to be attractive due to
restructuring by the corporate sector, which will drive earnings even if sales
growth is weak. However, European equities will be vulnerable to any sharp fall
in U.S. stocks.
Sector selection will be especially important this year. The portfolio currently
has a low cyclical weighting, as we expect world growth to slow and lead to
profit downgrades. Favored industries are the more defensive ones such as
utilities, foods and pharmaceuticals.
The economic outlook for Asia remains poor. However, there are many cheap stocks
in Asia with large gains likely to come from this region for the next few years.
Japanese stocks with strong balance sheets and trading at steep discounts to
book value, look compelling. Therefore, weightings are likely to be increased in
Japan and the rest of Asia over the next several months.
The international arena was a difficult environment in which to invest in 1997.
Markets, however, can get oversold as well as overbought. Asia offers great
value currently because sentiment is very negative. Now may be the time to look
into this region and begin to buy.
Richard Saler
Portfolio Manager
Alan Wapnick
Portfolio Manager
7
<PAGE>
Series D (Worldwide Equity Series)
February 15, 1998
SERIES D vs. MSCI WORLD INDEX AND
LEHMAN BROTHERS HIGH YIELD INDEX
[LINEAR GRAPH PLOTTED FROM POINTS IN TABLE BELOW]
Lehman Brothers
SBL Fund MSCI World High-Yield
Date Series D Index Index
- ---------- ---------- ---------- ---------------
12/31/1987 ............... $10,000.00 $10,000.00 $ 10,000.00
03/31/1988 ............... 10,541.21 11,171.89 10,557.87
06/30/1988 ............... 10,492.00 11,077.45 10,809.61
09/30/1988 ............... 10,479.70 11,124.28 11,001.53
12/31/1988 ............... 10,492.00 12,395.08 11,252.98
03/31/1989 ............... 10,455.10 12,687.12 11,386.71
06/30/1989 ............... 10,504.31 12,525.06 11,800.91
09/30/1989 ............... 10,262.98 13,993.70 11,626.97
12/31/1989 ............... 9,560.23 14,526.22 11,346.83
03/31/1990 ............... 8,725.73 12,460.00 11,159.06
06/30/1990 ............... 8,798.93 13,484.07 11,629.88
09/30/1990 ............... 8,131.52 11,039.54 10,440.97
12/31/1990 ............... 7,387.21 12,126.27 10,258.61
03/31/1991 ............... 7,982.66 13,335.88 12,382.64
06/30/1991 ............... 7,740.76 12,902.16 13,295.77
09/30/1991 ............... 8,179.50 13,829.85 14,231.94
12/31/1991 ............... 8,328.61 14,427.43 14,996.65
03/31/1992 ............... 8,115.60 13,267.21 16,105.25
06/30/1992 ............... 8,243.41 13,525.04 16,584.50
09/30/1992 ............... 7,857.10 13,769.93 17,192.03
12/31/1992 ............... 8,116.12 13,754.40 17,358.85
03/31/1993 ............... 8,979.54 14,954.42 18,412.90
06/30/1993 ............... 9,432.84 15,881.69 19,188.79
09/30/1993 ............... 10,093.28 16,646.59 19,588.46
12/31/1993 ............... 10,676.84 16,935.64 20,329.07
03/31/1994 ............... 10,763.29 17,059.24 19,933.13
06/30/1994 ............... 10,957.80 17,592.00 19,868.89
09/30/1994 ............... 11,357.49 17,990.48 20,182.06
12/31/1994 ............... 10,968.09 17,880.95 20,123.41
03/31/1995 ............... 10,859.93 18,741.32 21,324.56
06/30/1995 ............... 11,162.79 19,565.59 22,622.32
09/30/1995 ............... 11,765.91 20,683.48 23,261.00
12/31/1995 ............... 12,159.57 21,692.56 23,981.88
03/31/1996 ............... 12,968.75 22,601.38 24,406.39
06/30/1996 ............... 13,690.45 23,282.36 24,811.08
09/30/1996 ............... 13,887.87 23,620.28 25,801.59
12/31/1996 ............... 14,283.34 24,728.66 26,703.36
03/31/1997 ............... 14,655.54 24,826.56 27,001.57
06/30/1997 ............... 16,097.84 28,592.22 28,256.36
09/30/1997 ............... 16,665.90 29,437.79 29,540.18
12/31/1997 ............... 15,204.85 28,741.41 30,113.29
$10,000 OVER TEN YEARS
The chart above assumes a hypothetical $10,000 investment in Series D (Worldwide
Equity Series) on December 31, 1987, and reflects the fees and expenses of
Series D. On December 31, 1997, the value of the investment (assuming
reinvestment of all dividends and distributions) would have been $15,205. By
comparison, the same $10,000 investment would have grown to $28,741 based on the
MSCI Index's performance.
For the period of December 31, 1985 through April 30, 1991, the investment
objective of Series D was to seek high current income by investing primarily in
higher yielding, higher risk debt securities. For this period the Lehman
Brothers High yield index was the appropriate benchmark index. Effective May 1,
1991, the investment objective of Series D was changed to seek long-term growth
of capital primarily through investment in common stocks and equivalents of
companies domiciled in foreign countries and the United States. The appropriate
benchmark index from that date is the Morgan Stanley Capital International World
Index.
AVERAGE ANNUAL TOTAL RETURN
AS OF DECEMBER 31, 1997
1 Year 5 Years 10 Years
-------- --------- ---------
Series D.................... 6.5% 13.4% 4.3%
(1) Performance figures do not reflect fees and expenses associated with an
investment in variable insurance products offered by Security Benefit Life
Insurance Company. Shares of a Series of SBL Fund are available only
through the purchase of such products.
The performance data quoted above represents past performance. Past
performance is not predictive of future performance. The investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
8
<PAGE>
Series E (High Grade Income Series)
February 15, 1998
The High Grade Income Series completed a successful year in 1997, generating a
total return of 10.03%, besting its Lipper peer group average of 9.16% and
ranking in the top quartile of its peers.(1) The return for the Series was
narrowly behind its benchmark, the Lehman Corporate Bond Index, which returned
10.23% for the year.
RESTRUCTURING STEPS IN 1997
After a disappointing first quarter, we took steps to restructure the portfolio
with an overall emphasis on spreading the risk by sector and by size of
individual holdings. The average quality in the high yield portion of the Series
was upgraded, and issues providing a yield premium over Treasury bonds were
sought.
During the fall months, yield spreads between Treasuries and corporate bond
issues tightened considerably, reducing the attractiveness of corporates. When
the reward for accepting a lower quality was minimal, we chose to buy Treasury
issues instead. This helped overall performance in the fourth quarter, when
Treasury bond prices increased dramatically as investors moved funds from Asian
countries in a "flight to quality."
CURRENT PORTFOLIO STRUCTURE
We were fortunate to have eliminated our Asian exposure in mid-summer, selling
such "Yankee bond" issues as Petronas, Bangkok Bank, and Malayan Bank before the
Asian markets met disaster. (Yankee bonds are issues brought by foreign
corporations, but denominated in dollars for U.S. investors.) We also sold
issues in the troubled hospital care sector. We broadened our high yield
position, emphasizing the better quality issues, in order to gain additional
yield.
At the end of 1997 the portfolio consisted of 35% investment grade corporate
bonds, 18% high yield issues, 17% Yankee bonds, 16% Treasuries, and 13%
mortgage-backed securities, with the remaining 1% in cash. At year-end, the
average duration of the Series was six years, with an overall mid-A credit
quality average. Our target is to have no more than 2% of the assets invested in
any one company, with high yield issues being 1% or less per name.
PLANS FOR THE YEAR AHEAD
We believe this formula of diversification by sector and security will serve us
well in the volatile investment climate we expect in 1998. We will continue to
look for areas in which we can upgrade credit
quality and increase yield. If interest rates begin to reverse direction and
move up, we will keep our portfolio average duration close to that of the
benchmark index in order to reduce volatility. Our sizeable position in very
liquid U.S. Treasury issues allows us to adjust quickly to changes in economic
conditions.
We will continue to use the talents of our expanded analytical team to add value
in the portfolio holdings. At this particular stage in the economic cycle, it is
important to excel in individual security selection in order to compete with our
peers.
Steven M. Bowser
Portfolio Manager
9
<PAGE>
Series E (High Grade Income Series)
February 15, 1998
SERIES E vs. LEHMAN BROTHERS
GOVERNMENT/CORPORATE INDEX
AND LEHMAN BROTHERS
CORPORATE BOND INDEX
[LINEAR GRAPH PLOTTED FROM POINTS IN TABLE BELOW]
Lehman Brothers
Government/ Lehman Brothers
SBL Fund Corporate Corporate
Date Series E Index Bond Index
- ---------- ---------- --------------- ---------------
12/31/1987 ............... $10,000.00 $10,000.00 $ 10,000.00
03/31/1988 ............... 10,257.63 10,358.37 10,444.00
06/30/1988 ............... 10,381.68 10,460.48 10,560.00
09/30/1988 ............... 10,582.06 10,656.26 10,809.00
12/31/1988 ............... 10,725.19 10,758.79 10,922.00
03/31/1989 ............... 10,801.53 10,877.45 11,053.00
06/30/1989 ............... 11,679.39 11,752.34 11,928.00
09/30/1989 ............... 11,713.00 11,862.81 12,084.00
12/31/1989 ............... 12,001.45 12,290.81 12,461.00
03/31/1990 ............... 11,877.83 12,150.31 12,352.00
06/30/1990 ............... 12,372.31 12,588.32 12,834.00
09/30/1990 ............... 12,278.25 12,663.87 12,831.00
12/31/1990 ............... 12,804.93 13,310.04 13,340.00
03/31/1991 ............... 13,232.86 13,668.52 13,909.00
06/30/1991 ............... 13,463.28 13,875.41 14,186.00
09/30/1991 ............... 14,217.22 14,673.80 15,019.00
12/31/1991 ............... 14,976.56 15,456.34 15,811.00
03/31/1992 ............... 14,789.65 15,224.10 15,695.00
06/30/1992 ............... 15,350.39 15,842.07 16,377.00
09/30/1992 ............... 15,980.11 16,615.16 17,150.00
12/31/1992 ............... 16,091.34 16,627.38 17,184.00
03/31/1993 ............... 17,042.98 17,402.21 18,052.00
06/30/1993 ............... 17,636.21 17,925.31 18,655.00
09/30/1993 ............... 18,412.44 18,519.55 19,304.00
12/31/1993 ............... 18,123.11 18,466.25 19,275.00
03/31/1994 ............... 17,294.55 17,885.44 18,596.00
06/30/1994 ............... 16,781.63 17,664.34 18,303.00
09/30/1994 ............... 16,778.47 17,752.66 18,438.00
12/31/1994 ............... 16,866.32 17,818.04 18,518.00
03/31/1995 ............... 17,671.57 18,705.96 19,615.00
06/30/1995 ............... 18,564.66 19,918.73 21,074.00
09/30/1995 ............... 18,977.35 20,299.98 21,570.00
12/31/1995 ............... 20,004.00 21,246.06 22,636.00
03/31/1996 ............... 19,304.01 20,748.81 22,052.00
06/30/1996 ............... 19,304.01 20,846.26 22,150.00
09/30/1996 ............... 19,711.74 21,215.08 22,592.00
12/31/1996 ............... 19,860.67 21,863.44 23,379.00
03/31/1997 ............... 19,645.54 21,674.61 23,143.00
06/30/1997 ............... 20,406.87 22,461.92 24,098.00
09/30/1997 ............... 21,211.06 23,249.36 25,041.00
12/31/1997 ............... 21,853.28 23,995.88 25,771.00
$10,000 OVER TEN YEARS
The chart above assumes a hypothetical $10,000 investment in Series E (High
Grade Income Series) on December 31, 1987, and reflects the fees and expenses of
Series E. On December 31, 1997, the value of the investment (assuming
reinvestment of all dividends and distributions) would have been $21,853. By
comparison, the same $10,000 investment would have grown to $23,996 based on the
Lehman Brothers Government/Corporate Index's performance, and $25,771 based on
the Lehman Brothers Corporate Bond Index.
AVERAGE ANNUAL TOTAL RETURN
AS OF DECEMBER 31, 1997
1 Year 5 Years 10 Years
-------- --------- ---------
Series E................... 10.0% 6.3% 8.1%
(1) Performance figures do not reflect fees and expenses associated with an
investment in variable insurance products offered by Security Benefit Life
Insurance Company. Shares of a Series of SBL Fund are available only
through the purchase of such products.
The performance data quoted above represents past performance. Past
performance is not predictive of future performance. The investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
10
<PAGE>
Series J (Emerging Growth Series)
February 15, 1998
The Emerging Growth Series performed very well in 1997, returning 19.95%
compared with the average return of 16.95% for its Lipper peer group of
funds.(1) Although the large cap stocks were the stars of the year, midcaps made
up substantial ground in the second half of 1997 after getting off to a slow
start.
GROWTH VERSUS VALUE IN THE EARLY MONTHS
In the first quarter of 1997 the portfolio suffered from its emphasis on
consistent-growth companies. During this period, when interest rates were rising
and corporate earnings were uncertain, value stocks rather than growth companies
were the strong performers. As we moved into the second quarter of the year,
growth issues came back into favor regaining some ground that was lost earlier.
During this time holdings in the portfolio such as Dell Computer, Franklin
Resources, Inc. and State Street Research turned in strong performances.
CHANGES IN HOLDINGS LATE IN THE YEAR
As we moved through the second half of 1997 we sold some stocks which had high
relative valuations and which had experienced significant insider selling. These
included issues in the oil service industry as well as in retailing. The
proceeds from these sales were reinvested in part in technology issues, as well
as in some health care holdings. We also reduced our weighting in the finance
sector, selling some of the brokerage firm holdings.
STYLE CHANGES GOING FORWARD
With a new portfolio manager come some gradual changes in management style. We
anticipate that the size of the average company in the portfolio will decline as
smaller companies will be considered. Most holdings will have market
capitalizations within the range of $200 million to $5 billion. The number of
holdings may decline as a weighting of 1.5% to 2% in each issue will be
targeted.
While the primary emphasis in past months has been on companies with a growth
orientation, going forward we plan to put slightly more weight on relative
valuation when selecting holdings. The Series will still be a growth fund, but
the value emphasis will skew selection toward "growth at a reasonable price."
We expect that total returns for the average stock in 1998 will move toward
levels closer to historical averages, in the 8% to 10% range.
However, we believe opportunities remain more abundant in smaller to
mid-capitalization issues. In a slowing economic environment, successful stock
selection in this area of the market could produce far better returns.
James P. Schier
Portfolio Manager
11
<PAGE>
Series J (Emerging Growth Series)
February 15, 1998
SERIES J vs. S&P MIDCAP
[LINEAR GRAPH PLOTTED FROM POINTS IN TABLE BELOW]
SBL Fund S&P
Date Series J Midcap
- ---------- ---------- ----------
10/01/1992 .................. $10,000.00 $10,000.00
12/31/1992 .................. 12,470.00 11,175.00
03/31/1993 .................. 13,040.00 11,541.00
06/30/1993 .................. 12,980.00 11,810.00
09/30/1993 .................. 13,811.04 12,405.00
12/31/1993 .................. 14,171.07 12,735.00
03/31/1994 .................. 13,190.99 12,252.00
06/30/1994 .................. 12,110.91 11,806.00
09/30/1994 .................. 13,267.95 12,605.00
12/31/1994 .................. 13,448.05 12,280.00
03/31/1995 .................. 13,858.30 13,285.00
06/30/1995 .................. 14,708.81 14,444.00
09/30/1995 .................. 16,489.88 15,853.00
12/31/1995 .................. 16,069.63 16,080.00
03/31/1996 .................. 17,270.35 17,070.00
06/30/1996 .................. 18,611.15 17,561.00
09/30/1996 .................. 19,073.06 18,071.00
12/31/1996 .................. 18,969.12 19,165.00
03/31/1997 .................. 17,472.38 18,881.00
06/30/1997 .................. 20,102.07 21,655.00
09/30/1997 .................. 23,179.99 25,137.00
12/31/1997 .................. 22,753.30 25,346.00
$10,000 SINCE INCEPTION
The chart above assumes a hypothetical $10,000 investment in Series J (Emerging
Growth Series) on October 1, 1992 (date of inception), and reflects the fees and
expenses of Series J. On December 31, 1997, the value of the investment
(assuming reinvestment of all dividends and distributions) would have been
$22,753. By comparison, the same $10,000 investment would have grown to $25,346
based on the S&P Midcap Index's performance.
AVERAGE ANNUAL TOTAL RETURN
AS OF DECEMBER 31, 1997
1 Year 5 Years Since Inception
(10-1-92)
------- -------- ----------------
Series J......... 20.0% 12.8% 16.9%
(1) Performance figures do not reflect fees and expenses associated with an
investment in variable insurance products offered by Security Benefit Life
Insurance Company. Shares of a Series of SBL Fund are available only
through the purchase of such products.
The performance data quoted above represents past performance. Past
performance is not predictive of future performance. The investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
12
<PAGE>
Series K (Global Aggressive Bond Series)
February 15, 1998
[Lexington] [MFR] Subadvisors, Mfr Advisors, Inc., and Lexington Management
[ Logo ] [Logo] Corporation
Portfolio Managers, Maria Fiorini Ramirez and Denis Jamison
1997 was a mixed year for global bond investors. While interest rates fell in
almost all developed countries, the Series' total return was limited by a strong
U.S. dollar and widening yield spreads on emerging market debt relative to U.S.
Treasury bonds due to the problems in southeast Asia.
PERFORMANCE OF THE GLOBAL AGGRESSIVE BOND SERIES
Despite the problems for the global bond sector, the Global Aggressive Bond
Series returned 5.37% for the year, comparing favorably with the Lipper peer
group average of 4.31%.(1) Performance was also very strong versus the benchmark
Lehman Global Bond Index return of 1.04% for all of 1997.
OUTLOOK FOR EMERGING MARKETS
We expect 1998 to be a much better year for global bonds for a number of
reasons. First, we believe that emerging market countries and companies will be
evaluated more on an individual basis than being painted
with the negative broad brush they received in 1997 due to the Asian crisis.
Sound macroeconomic research and credit skills should be well rewarded in these
markets. We continue to favor such countries as Greece, Hungary, Poland, and
Mexico, because each has a relatively stable political framework and is headed
in the right direction with fiscal and monetary policies.
Second, we believe that much of the good news that has propelled the U.S. dollar
versus its European counterparts has now been factored into its value. This is
supported by the fact that the U.S. dollar rose over 11% versus the Deutsche
mark in the first half of 1997, but only 3% during the second half. For 1998 we
forecast a further 3% to 5% rise in the U.S. dollar early in the new year,
followed by a declining dollar as European growth accelerates and U.S. growth
slows. Therefore, as opposed to 1997, we believe foreign currencies will be a
positive for the total return of the Series in 1998.
BENEFITS OF THE ASIAN CRISIS
Finally, we expect inflation to remain subdued. Despite all the questions and
uncertainties the Asian crisis has raised, one thing is fairly certain: the
damage that the currency devaluations and resulting crisis have caused to the
economies of Asia will benefit the rest of the world's inflation outlook in two
ways. First, the Asian economies will slow dramatically and so will their demand
for commodities. We are already seeing a slowing in the demand for oil from
Asia. And second, many imported goods produced in Asia will be cheaper due to
the dramatic decline in many Asian currencies. All in all, we look forward to a
rewarding year for global bond markets in 1998.
Maria Fiorini Ramirez
Portfolio Manager
Denis Jamison
Portfolio Manager
13
<PAGE>
Series K (Global Aggressive Bond Series)
February 15, 1998
SERIES K vs. LEHMAN BROTHERS
GLOBAL BOND INDEX
[LINEAR GRAPH PLOTTED FROM POINTS IN TABLE BELOW]
SBL Fund Lehman Brothers
Date Series K Global Bond Index
- ---------- ---------- -----------------
06/01/1995 .................. $10,000.00 $10,000.00
06/30/1995 .................. 9,960.00 10,069.00
09/30/1995 .................. 10,360.00 10,131.16
12/31/1995 .................. 10,761.06 10,521.00
03/31/1996 .................. 10,824.24 10,338.86
06/30/1996 .................. 11,182.24 10,428.48
09/30/1996 .................. 11,761.35 10,731.15
12/31/1996 .................. 12,234.12 11,059.48
03/31/1997 .................. 12,119.99 10,592.85
06/30/1997 .................. 12,530.84 10,885.08
09/30/1997 .................. 12,899.89 11,076.34
12/31/1997 .................. 12,890.97 11,173.42
$10,000 SINCE INCEPTION
The chart above assumes a hypothetical $10,000 investment in Series K (Global
Aggressive Bond Series) on June 1, 1995 (date of inception), and reflects the
fees and expenses of Series K. On December 31, 1997, the value of the investment
(assuming reinvestment of all dividends and distributions) would have been
$12,891. By comparison, the same $10,000 investment would have grown to $11,173
based on the Lehman Brothers Global Bond Index's performance.
AVERAGE ANNUAL TOTAL RETURN
AS OF DECEMBER 31, 1997(1)
1 Year Since Inception
(6-1-95)
--------- ----------------
Series K..................... 5.4% 10.3%
(1) Performance figures do not reflect fees and expenses associated with an
investment in variable insurance products offered by Security Benefit Life
Insurance Company. Shares of a Series of SBL Fund are available only
through the purchase of such products. The Investment Manager waived its
advisory fee for the fiscal year ended December 31, 1997, and in the
absence of such waiver, the performance quoted would be reduced.
The performance data quoted above represents past performance. Past
performance is not predictive of future performance. The investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
14
<PAGE>
Series M (Specialized Asset Allocation Series)
February 15, 1998
[Meridian] Managed By Security Management Company
[ LOGO ] Research Provided By Meridian Investment Management Corporation
Relative to the S&P 500 most asset allocation portfolios have underperformed for
the last three years. This was highlighted in 1997 when an Asian currency
crisis, a strong dollar, and falling gold prices made the U.S. market a refuge
for worried investors. Large capitalization U.S. stocks outperformed all other
investment alternatives in 1997. Despite the turbulence in global financial
markets and the recent dominance of U.S. stocks, we believe that active asset
allocation remains a sound investment strategy. Active asset allocation offers
investors risk reduction through diversification, as well as opportunities to
access higher growth markets outside of the U.S.
PERFORMANCE IN 1997
The Specialized Asset Allocation Series returned 6.16% in 1997, relative to a
Lipper peer group average of 11.55%.(1) As some of the investments within the
Specialized Asset Allocation portfolio remain undervalued, we are very
optimistic for 1998.
In 1997 the portfolio overweighted stock markets outside of the U.S. including
Italy, Germany, Belgium, and Denmark. These four markets posted excellent local
currency returns in 1997, and we continue to favor them. The Japanese market has
also been emphasized in the Series. This market has been riddled by bad economic
and political news; however, market valuations suggest that this bad news has
now been factored into the price of stocks in Japan. Currently the Japanese
market looks extremely undervalued, and we expect it to be a strong contributor
to portfolio performance in the coming year.
THE PORTFOLIO HEDGING POLICY
The Specialized Asset Allocation Series is currently unhedged against foreign
currency movements. Our research on currencies suggests that for the long-term
investor the benefits of currency hedging are outweighed by the costs. During
shorter periods of time, however, currency movements can have an adverse effect
on a portfolio. In 1997 the returns of the Specialized Asset Allocation
portfolio were hurt by a strong dollar, which appreciated approximately 15%
versus most major currencies. As the dollar strengthens, returns earned in
foreign markets are reduced to U.S. investors. In 1997 the strong dollar
diminished the returns of the Series' portfolio by approximately 6%. Although we
are disappointed with the strong dollar's impact on the Series in the short
term, we are confident that our current strategy of not hedging foreign
currencies is the best long-term policy for our shareholders.
LOOKING FORWARD INTO 1998
With interest rates low and declining in recent months, valuations for the U.S.
market have improved. Leisure and technology stocks are currently our favorite
groups in the U.S. market. The selloff in technology stocks in the fourth
quarter of 1997 created good buying opportunities. This sector will likely be
further emphasized in the portfolio in the coming months.
Despite better valuations due to lower interest rates, we expect above average
volatility from the U.S. stock market in the coming year. Investors are
beginning to question the longevity of the current bull market. This market
volatility and associated investment environment should prove beneficial to
asset allocation portfolios.
Patrick S. Boyle
Portfolio Manager
15
<PAGE>
Series M (Specialized Asset Allocation Series)
February 15, 1998
SERIES M vs. BLENDED INDEX AND S&P 500
[LINEAR GRAPH PLOTTED FROM POINTS IN TABLE BELOW]
SBL Fund Blended
Date Series M S&P 500 Index
- ---------- ---------- ---------- ----------
06/01/1995 ............... $10,000.00 $10,000.00 $10,000.00
06/30/1995 ............... 10,080.00 10,235.00 10,083.00
09/30/1995 ............... 10,490.00 11,049.00 10,607.00
12/31/1995 ............... 10,710.00 11,707.00 11,109.00
03/31/1996 ............... 11,140.00 12,343.00 11,445.00
06/30/1996 ............... 11,450.00 12,901.00 11,784.00
09/30/1996 ............... 11,605.27 13,295.00 12,052.00
12/31/1996 ............... 12,234.78 14,408.00 12,800.00
03/31/1997 ............... 12,275.39 14,785.00 12,909.00
06/30/1997 ............... 13,138.43 17,372.00 14,391.00
09/30/1997 ............... 13,865.47 18,679.00 15,084.00
12/31/1997 ............... 12,988.31 19,216.00 15,024.00
$10,000 SINCE INCEPTION
The chart above assumes a hypothetical $10,000 investment in Series M
(Specialized Asset Allocation Series) on June 1, 1995 (date of inception), and
reflects the fees and expenses of Series M. On December 31, 1997, the value of
the investment (assuming reinvestment of all dividends and distributions) would
have been $12,988. By comparison, the same $10,000 investment would have grown
to $19,216 based on the S&P 500 Index's performance. Comparison is also made to
a blended index of 40% S&P 500, 25% Financial Times World Index, 20% Lehman
Brothers Aggregate Bond Index, 10% Wilshire Real Estate Securities Index and 5%
91-Day Treasury Bill Yield. The same $10,000 investment would have grown to
$15,024 based on the blended index.
AVERAGE ANNUAL TOTAL RETURN
AS OF DECEMBER 31, 1997
1 Year Since Inception
(6-1-95)
-------- ---------------
Series M 6.2% 10.6%
(1) Performance figures do not reflect fees and expenses associated with an
investment in variable insurance products offered by Security Benefit Life
Insurance Company. Shares of a Series of SBL Fund are available only
through the purchase of such products.
The performance data quoted above represents past performance. Past
performance is not predictive of future performance. The investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
SHAREHOLDER'S MEETING
A special meeting of the shareholders of the Specialized Asset Allocation Series
of SBL Fund was held on August 1, 1997. At this meeting, shareholders voted to
approve a sub-advisory contract between SMC and Meridian Investment Management
Corporation. The total number of eligible votes were 3,607,717. The results of
the votes are as follows: 2,977,177 in favor, 514,926 against and 115,614 votes
abstained.
16
<PAGE>
Series N (Managed Asset Allocation Series)
February 15, 1998
[T.Rowe Price] Subadvisor, T. Rowe Price Associates, Inc.
[ Logo ] Portfolio Manager, Ned Notzon
The Managed Asset Allocation Series returned 18.43% for the year ended December
31, 1997, near its Lipper peer group average return of 18.43%.(1) Unfortunately,
the defensive posture of the Series earlier in the year and its foreign exposure
caused the Series to underperform its weighted benchmark. This tailored
benchmark, consisting of 60% S&P 500 Index and 40% Lehman Brothers Aggregate
Bond Index, had a twelve-month total return of 23.62%.
A REVIEW OF THE MARKETS IN 1997
The domestic stock market was off to another stellar year until the mid-October
currency crisis in Asia which affected many global markets, including the U.S.
The U.S. stock market faltered a bit in the last quarter of 1997, but not enough
to diminish a strong year overall. As measured by the S&P 500 Index, stocks
gained 33.4% in 1997.
On the international front, 1997 ended on a disappointing note. The Japanese
market suffered a loss of 23.6%, and other Asian markets declined even more
steeply. On the brighter side, however, Europe and Latin America withstood the
shock waves of the Asian crisis and enjoyed returns of 24.2% and 31.6%
respectively. When measured as a whole, international markets in general were up
a disappointing 2% as measured by the Morgan Stanley Capital International EAFE
Index.
The problems in Asia benefited the U.S. Treasury bond market, however, as
investors searched for safe, liquid investments. In general the domestic bond
market enjoyed strong returns for the year. After the federal funds lending rate
increase in March, interest rates were stable to decreasing the rest of the
year, pushing bond prices up. As measured by the Lehman Brothers Aggregate Bond
Index, the domestic bond market returned 9.7% for the year. International bonds,
however, were weakened by both the Asian crisis and the subsequent strengthening
of the U.S. dollar. The J.P. Morgan Non-U.S. Dollar World Government Bond Index
lost 3.8% for the year.
PORTFOLIO HIGHLIGHTS
The sector exposures of the Series have changed slightly from last year. We
added to our defensive posture throughout the year by decreasing the exposure to
equity markets and increasing exposure to the bond markets or cash equivalents.
We moved about 3.5% from stocks to bonds last year resulting in an allocation of
54.5% in stocks, 38% in bonds, and 7.5% in cash equivalents at year end. In the
fourth quarter of 1997 this posture benefited the Series as bonds outperformed
stocks.
Given that the equity market is at the higher end of several valuation measures,
we have expected that stocks would moderate and earnings growth would slow. We
believed the international exposure would add value to the Series since many
foreign securities were undervalued.
OUTLOOK
The U.S. economy remains healthy. Growth is slowing a bit and inflation remains
at low levels despite tight labor markets. The Federal Reserve is likely to stay
on hold for awhile, especially in the wake of the Asian crisis. Both the stock
and bond markets should fare well under these conditions. We expect the U.S.
equity market to deliver positive returns in 1998, though not at the pace of the
last few years. Overseas, however, there could be further turmoil or sharp
rebounds. The uncertainty is sure to increase the volatility of markets around
the world, including the U.S. However, the drop in international markets is also
presenting buying opportunities at lower valuations. Based on the
unpredictability of financial markets, we continue to believe that investors
should maintain a long-term, diversified strategy as offered by the Managed
Asset Allocation Series.
Edmund M. Notzon
Portfolio Manager
17
<PAGE>
Series N (Managed Asset Allocation Series)
February 15, 1998
SERIES N vs. S&P 500 INDEX AND BLENDED INDEX
[LINEAR GRAPH PLOTTED FROM POINTS IN TABLE BELOW]
SBL Fund Blended
Date Series N S&P 500 Index
- ---------- ---------- ---------- ----------
06/01/1995 ............... $10,000.00 $10,000.00 $10,000.00
06/30/1995 ............... $10,070.00 $10,235.00 $10,170.00
09/30/1995 ............... 10,440.00 11,049.00 10,734.00
12/31/1995 ............... 10,730.00 11,707.00 11,302.00
03/31/1996 ............... 10,970.00 12,343.00 11,585.00
06/30/1996 ............... 11,160.00 12,901.00 11,925.00
09/30/1996 ............... 11,448.68 13,295.00 12,238.00
12/31/1996 ............... 12,103.18 14,408.00 13,001.00
03/31/1997 ............... 12,203.87 14,785.00 13,181.00
06/30/1997 ............... 13,512.87 17,372.00 14,741.00
09/30/1997 ............... 14,117.22 18,679.00 15,612.00
12/31/1997 ............... 14,334.09 19,216.00 16,073.00
$10,000 SINCE INCEPTION
The chart above assumes a hypothetical $10,000 investment in Series N (Managed
Asset Allocation Series) on June 1, 1995 (date of inception), and reflects the
fees and expenses of Series N. On December 31, 1997, the value of the investment
(assuming reinvestment of all dividends and distributions) would have been
$14,334. By comparison, the same $10,000 investment would have grown to $19,216
based on the S&P 500 Index's performance. Comparison is also made to a blended
index of 60% S&P 500 and 40% Lehman Brothers Aggregate Bond Index. The same
$10,000 investment would have grown to $16,073 based on the blended index.
AVERAGE ANNUAL TOTAL RETURN
AS OF DECEMBER 31, 1997
1 Year Since Inception
(6-1-95)
--------- -----------------
Series N.................... 18.4% 14.9%
(1) Performance figures do not reflect fees and expenses associated with an
investment in variable insurance products offered by Security Benefit Life
Insurance Company. Shares of a Series of SBL Fund are available only
through the purchase of such products.
The performance data quoted above represents past performance. Past
performance is not predictive of future performance. The investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
18
<PAGE>
Series O (Equity Income Series)
February 15, 1998
[T.Rowe Price] Subadvisor, T. Rowe Price Associates, Inc.
[ Logo ] Portfolio Manager, Brian C. Rogers
The U.S. equity markets performed well in 1997 as good corporate earnings
results, continued low inflation, and a supportive interest rate environment
provided ample fuel to feed the advance. The performance of stocks in the second
half was particularly impressive in light of the market's October jitters and
concern over the volatility of the Asian markets.
For the twelve months ended December 31, 1997, the Equity Income Series returned
28.40%, roughly in line with the 29.13% average return for its Lipper peer
group. It trailed the S&P 500, which had a total return of 33.35%.(1)
THE MARKETS IN 1997
The past year was characterized by tremendous stock market volatility. Equities
struggled in the first quarter, particularly in the small capitalization sector.
Then prices rebounded sharply in the second and third quarters. The fourth
quarter returned to a pattern of mixed results as weakness in October,
culminating with the decline of 554 points for the Dow Jones Industrial Average
on October 27, was more than offset by steady gains in November and December.
PORTFOLIO STRATEGY
In this volatile environment we tried to tune out as much short-term noise as
possible by doing what we have always done in the Equity Income Series. We
concentrate on identifying reasonably valued investment opportunities with
attractive yields and price-to-earnings ratios, good upside potential, and
limited downside risk.
No example demonstrates the fickle nature of investor behavior better than AT&T.
Through the end of 1996, the price of AT&T's stock had languished for several
years. The company's problems were analyzed in the media almost daily. Few Wall
Street brokerage firms found anything positive to say about the firm or its
shares, which in our opinion represented an attractive investment opportunity.
Today new management is in place, investor sentiment has turned positive, and
the stock price has rebounded strongly. We are naturally attracted to situations
fraught with controversy like this one. As long as investor psychology ebbs and
flows, there will be ample opportunities to uncover promising investment
selections.
We executed a number of transactions over the last several months, adding major
new holdings such as Norfolk Southern Corporation, Eastman Kodak Company, Olin
Corporation, and PPG Industries, Inc. These companies, in our opinion, possess
interesting valuation characteristics and the potential for price gains in the
year ahead. The largest sales during the second half were securities whose
prices had advanced to the point where we no longer felt comfortable with their
relative valuations. One of the largest sales was Tambrands, which was acquired
by Procter & Gamble last summer. Another acquisition related sale was ITT
Corporation, which was being bought by Starwood Lodging at a significant premium
to our cost.
Electric utility and telephone company stocks performed well in the last six
months after a lengthy period of underperformance. Strong price appreciation in
stocks such as Bell Atlantic Corporation, BellSouth Corporation, Baltimore Gas &
Electric Company, and Unicom Corporation helped the Series' total return in the
latter part of the year.
SUMMARY AND OUTLOOK
The equity market has provided investors with three unprecedented years of
prosperity, culminating with the gains of the last six months, and the
investment environment has been exceptionally conducive to good returns. As
prices have advanced, the market's valuation appeal and likely near term upside
potential have diminished.
We are mindful of how virtually impossible it is to make market predictions, and
we never try to manage your portfolio based on someone else's market forecasts.
However, we do question how long the "delinkage" between the underlying rate of
corporate earnings and dividend growth and the more rapid advance of security
prices can continue. The volatility we experienced in the ending weeks of 1997,
due in part to the turmoil in Asia, is a reminder that investing entails risks
that sometimes get in the way of positive returns. While our emphasis is solely
on uncovering interesting investment values, we believe it is prudent to have
more modest expectations for equity market performance in the year ahead.
Brian C. Rogers
Portfolio Manager
19
<PAGE>
Series O (Equity Income Series)
February 15, 1998
SERIES O vs. S&P 500
[LINEAR GRAPH PLOTTED FROM POINTS IN TABLE BELOW]
SBL Fund
Date Series O S&P 500
- ---------- ---------- ----------
06/01/1995 ............... $10,000.00 $10,000.00
06/30/1995 ............... $10,060.00 $10,235.00
09/30/1995 ............... 10,790.00 11,049.00
12/31/1995 ............... 11,700.00 11,707.00
03/31/1996 ............... 12,270.00 12,343.00
06/30/1996 ............... 12,630.00 12,901.00
09/30/1996 ............... 13,082.68 13,295.00
12/31/1996 ............... 14,044.54 14,408.00
03/31/1997 ............... 14,445.53 14,785.00
06/30/1997 ............... 16,079.54 17,372.00
09/30/1997 ............... 17,337.60 18,679.00
12/31/1997 ............... 18,033.56 19,216.00
$10,000 SINCE INCEPTION
The chart above assumes a hypothetical $10,000 investment in Series O (Equity
Income Series) on June 1, 1995 (date of inception), and reflects the fees and
expenses of Series O. On December 31, 1997, the value of the investment
(assuming reinvestment of all dividends and distributions) would have been
$18,034. By comparison, the same $10,000 investment would have grown to $19,216
based on the S&P 500 Index's performance.
AVERAGE ANNUAL TOTAL RETURN
AS OF DECEMBER 31, 1997
1 Year Since Inception
(6-1-95)
-------- ---------------
Series O................. 28.4% 25.6%
(1) Performance figures do not reflect fees and expenses associated with an
investment in variable insurance products offered by Security Benefit Life
Insurance Company. Shares of a Series of SBL Fund are available only
through the purchase of such products.
The performance data quoted above represents past performance. Past
performance is not predictive of future performance. The investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
20
<PAGE>
Series P (High Yield Series)
February 15, 1998
The year just completed was an excellent one for the high yield bond markets.
Declining interest rates helped generate record inflows of cash into high yield
funds. Buyers such as pension funds, insurance companies, and other investment
grade bond buyers moved to the high yield markets in their search for greater
returns.
PORTFOLIO PERFORMANCE IN 1997
The High Yield Series of the SBL Fund produced a total return of 13.37% for the
year, outperforming the 12.76% return of the benchmark Lehman High Yield Index
and staying very close to the 13.41% average yield of its Lipper peer group.(1)
Although our emphasis on the upper tier of ratings within the high yield
universe may subtract modestly from the portfolio's overall return in periods of
strong bond market performance, we believe that the incremental reduction in
risk justifies the practice.
CONTRIBUTORS TO STRONG PERFORMANCE
Contributing positively to total return, our overweighting in media, finance,
and textile issues served us well. Our media holdings such as Cablevision
Systems Corporation, Comcast Corporation, and Adelphia Communications
Corporation turned in strong performances. Finance industry bonds including
Dollar Financial Group, Inc. and Salomon, Inc. were beneficiaries of falling
interest rates. The textile industry overall was a performance laggard, but our
holdings in Westpoint Stevens, Pillowtex Corporation, and Dyersburg Corporation
bucked the trend and contributed strongly to the portfolio's total return.
Throughout the year we had no direct investment in bonds issued by the
governments of emerging market countries nor of corporations located in those
regions. In the latter half of the year those issues declined rapidly in value
as the problems in southeast Asian countries erupted. The portfolio also was
underweighted in bonds of companies operating in the basic industry arenas such
as paper and chemicals. These sectors suffered as commodity prices fell in the
third and fourth quarters of 1997.
The cash holdings in the portfolio increased as we approached year end,
reflecting the overall market's experience of greater cash inflows. We are
putting this money to work carefully, as opportunities to select undervalued
issues arise. One area in which we have begun building a position is the
homebuilding industry, with names such as Toll Brothers, Inc. and Hovnanian
Enterprises. This industry is experiencing increasing strength as interest rates
on home mortgage loans decline.
OUTLOOK FOR 1998
Our outlook for the high yield bond market for the year ahead is positive.
Declining interest rates make the high yield bond market appealing for fixed
income investors as they search for greater yield than that provided by
investment-grade issues. The high yield bond market frequently exhibits lower
volatility than the stock markets, which may attract equity investors to the
arena as well.
Continuing economic stability in the U.S. should keep defaults in high yield
bond issues at or below their historical averages. Individual selection in this
market remains very important, however, in order to reduce risk. We have
expanded our fixed income analytical staff to aid in research in the high yield
market and will continue to use their abilities to the fullest extent to select
the more creditworthy names for the portfolio.
David Eshnaur
Portfolio Manager
Tom Swank
Portfolio Manager
21
<PAGE>
Series P (High Yield Series)
February 15, 1998
SERIES P vs. LEHMAN BROTHERS HIGH YIELD INDEX
[LINEAR GRAPH PLOTTED FROM POINTS IN TABLE BELOW]
SBL Fund
Date Series P S&P 500
- ---------- ---------- ----------
08/05/1996 ............... $10,000.00 $10,000.00
08/31/1996 ............... 10,013.33 10,108.00
09/30/1996 ............... 10,246.66 10,352.00
10/31/1996 ............... 10,320.00 10,431.00
11/30/1996 ............... 10,526.66 10,637.00
12/31/1996 ............... 10,660.00 10,713.00
01/31/1997 ............... 10,773.33 10,818.00
02/28/1997 ............... 10,960.00 10,997.00
03/31/1997 ............... 10,846.67 10,833.00
04/30/1997 ............... 10,906.67 10,947.00
05/31/1997 ............... 11,126.67 11,181.00
06/30/1997 ............... 11,320.00 11,336.00
07/31/1997 ............... 11,540.00 11,648.00
08/31/1997 ............... 11,580.00 11,621.00
09/30/1997 ............... 11,754.45 11,852.00
10/31/1997 ............... 11,816.21 11,862.00
11/30/1997 ............... 11,932.86 11,976.00
12/31/1997 ............... 12,076.72 12,081.00
$10,000 SINCE INCEPTION
The chart above assumes a hypothetical $10,000 investment in Series P (High
Yield Series) on August 5, 1996 (date of inception), and reflects the fees and
expenses of Series P. On December 31, 1997, the value of the investment
(assuming reinvestment of all dividends and distributions) would have been
$12,077. By comparison, the same $10,000 investment would have grown to $12,081
based on the Lehman Brothers High Yield Index.
AVERAGE ANNUAL TOTAL RETURN
AS OF DECEMBER 31, 1997
1 Year Since Inception
(8-5-96)
------- ---------------
Series P..................... 12.4% 14.3%
(1) Performance figures do not reflect fees and expenses associated with an
investment in variable insurance products offered by Security Benefit Life
Insurance Company. Shares of a Series of SBL Fund are available only
through the purchase of such products. The Investment Manager waived its
advisory fee for the fiscal year ended December 31, 1997, and in the
absence of such waiver the performance quoted would be reduced.
The performance data quoted above represents past performance. Past
performance is not predictive of future performance. The investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
22
<PAGE>
Series S (Social Awareness Series)
February 15, 1998
The Social Awareness Series turned in a strong performance in 1997, generating a
total return of 22.65% for its investors, just slightly below the 24.84% average
of its Lipper peer group.(1) The Series has experienced rapid growth this year
as more investors have been attracted to socially conscious investing. A study
done recently by the Social Investment Forum showed that the social market grew
from about $639 billion in 1995 to over $1.185 trillion in 1997.
A LOOK BACK AT 1997
The Social Awareness Series struggled early in the year, as performance of
large-cap stocks was much stronger than that of the mid- and small-cap issues.
The Series' overweighting in the smaller names hurt throughout the first quarter
because of this. A shift in March to larger cap names turned performance around.
Over the second half of the year the portfolio performed in line with its peer
group, nearly overcoming the damage done in the first quarter.
CONTRIBUTORS TO POSITIVE PERFORMANCE
The communications services sector was the best performing industry represented
in the portfolio in 1997. Many companies in this field had underperformed the
general market averages for the past two years, and had low relative valuations
combined with good earnings prospects. Such names as Sprint Corporation, AT&T
Corporation, and Ameritech Corporation stood out with strong upside movements in
their stock prices. For most of the year we maintained about a 2% weighting in
this sector of the market, and increased the representation to nearly 8% during
the fourth quarter.
As interest rates declined during the second half of the year, the financial
sector also made steady gains. Many companies in this industry were reaping the
benefits as well from consolidation and cost cutting efforts that had been
underway for some time. Our focus on regional banks, multi-line insurance
companies, and diversified financial companies protected us from the late-year
selloff in money center banks as the southeast Asian crisis raised questions
about their earnings prospects.
THOUGHTS ABOUT THE YEAR AHEAD
We expect 1998 to be a more difficult year in terms of total return on stocks.
The past three years have been exceptionally strong; total returns are now more
likely to fall back to historical averages in the 8% to 10% range in our view.
Corporate profits may be reduced by the impact on sales of the weak Asian
economies, the strong U.S. dollar, inventory overstocks, and excess capacity.
Because of the potential for these problems, we plan to take a more defensive
posture as we enter 1998. We will be selecting those quality larger-cap names
which have a higher degree of liquidity and which are domestically oriented in
their revenue streams. We actively seek companies with consistent earnings
records that are growing faster than the S&P 500 average. We expect that the
second half of the year will be better, once earnings estimates have been fully
adjusted for the problems mentioned above. We will monitor the markets carefully
and adjust portfolio holdings as market conditions warrant.
Cindy Shields
Portfolio Manager
23
<PAGE>
Series S (Social Awareness Series)
February 15, 1998
SERIES S vs. S&P 500 AND DOMINI SOCIAL INDEX
[LINEAR GRAPH PLOTTED FROM POINTS IN TABLE BELOW]
SBL Fund Domini Social
Date Series S Index S&P 500
- ---------- ---------- ------------- ----------
05/01/1991 ............... $10,000.00 $ 10,000.00 $10,000.00
06/30/1991 ............... 9,560.00 9,906.93 9,951.00
09/30/1991 ............... 10,330.00 10,596.63 10,487.00
12/31/1991 ............... 10,550.00 11,697.27 11,364.00
03/31/1992 ............... 11,130.00 10,473.58 11,074.00
06/30/1992 ............... 10,050.00 11,463.42 11,292.00
09/30/1992 ............... 10,230.90 12,077.81 11,642.00
12/31/1992 ............... 12,275.07 13,111.45 12,236.00
03/31/1993 ............... 12,184.89 13,705.57 12,760.00
06/30/1993 ............... 12,525.59 13,507.89 12,826.00
09/30/1993 ............... 13,479.82 13,982.35 13,154.00
12/31/1993 ............... 13,730.56 14,230.82 13,458.00
03/31/1994 ............... 13,319.35 13,695.55 12,945.00
06/30/1994 ............... 12,807.84 13,678.17 12,997.00
09/30/1994 ............... 13,294.67 14,307.87 13,637.00
12/31/1994 ............... 13,213,17 14,255.71 13,634.00
03/31/1995 ............... 13,997.60 15,722.26 14,961.00
06/30/1995 ............... 15,026.54 17,276.28 16,381.00
09/30/1995 ............... 16,571.69 18,652.28 17,683.00
12/31/1995 ............... 16,878.77 19,704.04 18,737.00
03/31/1996 ............... 18,025.17 20,719.75 19,755.00
06/30/1996 ............... 19,366.05 21,686.75 20,647.00
09/30/1996 ............... 20,287.00 22,584.65 21,279.00
12/31/1996 ............... 20,055.75 24,375.58 23,060.00
03/31/1997 ............... 19,277.90 25,206.04 23,664.00
06/30/1997 ............... 22,263.14 29,697.51 27,803.00
09/30/1997 ............... 24,001.61 32,190.95 29,895.00
12/31/1997 ............... 24,598.61 33,700.55 30,755.00
$10,000 SINCE INCEPTION
The chart above assumes a hypothetical $10,000 investment in Series S (Social
Awareness Series) on May 1, 1991 (date of inception), and reflects the fees and
expenses of Series S. On December 31, 1997, the value of the investment
(assuming reinvestment of all dividends and distributions) would have been
$24,599. By comparison, the same $10,000 investment would have grown to $30,755
based on the S&P 500 Index's performance and $33,701 based on the Domini Social
Index.
AVERAGE ANNUAL TOTAL RETURN
AS OF DECEMBER 31, 1997
1 Year 5 Year Since Inception
(5-1-91)
------ ------- ---------------
Series S..................... 22.7% 14.9% 14.4%
(1) Performance figures do not reflect fees and expenses associated with an
investment in variable insurance products offered by Security Benefit Life
Insurance Company. Shares of a Series of SBL Fund are available only
through the purchase of such products.
The performance data quoted above represents past performance. Past
performance is not predictive of future performance. The investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
24
<PAGE>
Series V (Value Series)
February 15, 1998
The Value Series turned in an excellent performance in 1997 even though it
existed only for part of the year. Since its inception May 1, the Series
generated a total return of 31.3%, ranking in the top 5% of its Lipper peer
group, which in contrast achieved a 21.49% return for the full year.1 An
emphasis on small-cap and midsize companies early in its existence got the
portfolio off to a strong start.
INVESTMENT STRATEGIES THAT HELPED
We used a "barbell" approach to market sectors to help keep the Series' return
stable through changes in performance of various market-cap groups during the
year. An overweighting in technology and health, combined with an overweighting
in the utility sector, generated steady returns. Early in the life of the Series
the midcap stocks, which included many of the technology and health companies
which we owned, were the strong performers. Late in the year these industries
weakened and the utility sector became a star.
Among the technology stocks we owned were Tandem Computers, which nearly doubled
in value after being bought by Compaq Computers in mid year. Computer Sciences
Corporation had excellent performance in the second half of the year as investor
psychology shifted to favor steady growth technology names. In the health care
area Mylan Laboratories, Inc., the largest producer of generic drugs in the
U.S., overcame the markets' perception that competition in the generic
pharmaceuticals industry would erode earnings.
CHANGES LATE IN THE YEAR
The utility sector experienced a strong rally in the fourth quarter as bonds
strengthened and interest rates fell. We took advantage of the upswing in
utility stock prices to realize gains in many issues we held, and brought this
sector weighting down almost to zero. We put the proceeds from these sales
largely into the technology software industry, buying undervalued companies such
as Comverse Technology, Inc., a manufacturer of voice messaging systems. Another
purchase in this area was Rational Software Corporation, manufacturer of
programs used in the design of software tools. Rational Software had completed
several acquisitions recently, depressing its stock price. A third name we added
was Electronics For Imaging, Inc., maker of products used in communication
between computers and printers. We purchased this stock at a price of $13; at
the time of purchase the company was holding nearly $6 per share in cash.
PLANS FOR 1998
The stock selection process in the Value Series is a "bottom-up" approach; that
is, first consideration is given to the fundamentals of a company and the price
of its stock. It is becoming more difficult to find undervalued companies that
have the potential to grow at a rate that exceeds general market expectations.
This can in part be explained from a "top down" perspective. In a
disinflationary environment such as we believe will exist in 1998, corporations
will have greater difficulty increasing revenues and will be forced to rely more
extensively on cost cutting or margin expansion to meet bottom line goals.
From a "bottom-up" perspective, however, many companies--especially larger
ones--have been boosting profitability dramatically over the last ten years. It
remains to be seen how much more can be done in this endeavor as clearly those
companies that have gone a long way to exhausting easy cost reduction
opportunities may be at a severe disadvantage in the stock market for 1998.
James P. Schier
Portfolio Manager
25
<PAGE>
Series V (Value Series)
February 15, 1998
SERIES V vs. S&P 500 AND BARRA VALUE INDEX
[LINEAR GRAPH PLOTTED FROM POINTS IN TABLE BELOW]
SBL Fund BARRA Value
Date Series V Index S&P 500
- ---------- ---------- ----------- ----------
05/01/1997 ............... $10,000.00 $ 10,000.00 $10,000.00
06/30/1997 ............... 11,140.00 10,980.00 11,087.00
09/30/1997 ............... 13,030.00 11,922.00 11,922.00
12/31/1997 ............... 13,130.00 12,125.00 12,264.00
$10,000 SINCE INCEPTION
The chart above assumes a hypothetical $10,000 investment in Series V (Value
Series) on May 1, 1997 (date of inception), and reflects the fees and expenses
of Series V. On December 31, 1997, the value of the investment (assuming
reinvestment of all dividends and distributions) would have been $13,130. By
comparison, the same $10,000 investment would have grown to $12,264 based on the
S&P 500, and $12,125 based on the BARRA Value index's performance.
AVERAGE ANNUAL TOTAL RETURN
AS OF DECEMBER 31, 1997
Since Inception
(5-1-97)
---------------
Series V....................... 31.3%*
(1) Performance figures do not reflect fees and expenses associated with an
investment in variable insurance products offered by Security Benefit Life
Insurance Company. Shares of a Series of SBL Fund are available only
through the purchase of such products. The Investment Manager waived its
advisory fee for the fiscal year ended December 31, 1997 and in the absence
of such waiver the performance quoted would be reduced.
The performance data quoted above represents past performance. Past
performance is not predictive of future performance. The investment return
and principal value of an investment will fluctuate so that an investor's
shares when redeemed, may be worth more or less than their original cost.
* Total return has not been annualized.
26
<PAGE>
Series X (Small Cap Series)
February 15, 1998
Moderate economic growth, low unemployment and inflation, and strong corporate
earnings set the stage for the market's strong gains in 1997. However, the
so-called Asian flu, which began with Thailand's devaluation of its currency
last summer and ballooned into a regionwide crisis, rattled the financial
markets here and abroad creating a wave of market volatility throughout the
fourth quarter.
PERFORMANCE OF THE SERIES SINCE INCEPTION
The performance of the Small Cap Series benefited from its holdings in sectors
oriented to the domestic economy as the stocks of U.S. media companies, regional
banks, and retailers outperformed other parts of the market. Although we reduced
our holdings in companies with southeast Asian exposure, the Series was
nonetheless negatively impacted as investor concern led to sharp selloffs in
small- and mid-cap stocks and in much of the technology and energy sectors. As a
result, as of December 31, 1997, the Small Cap Series was off -4.00% since its
inception date of October 15, 1997, as compared to the Russell 2000 Growth Funds
Index, which returned -10.34% for the same time period.(1)
1998 OUTLOOK
What do we expect in the months ahead? We anticipate that during 1998 the market
will benefit from continued economic growth, modest inflationary pressure and
stable interest rates. Concerns about market instability in Asia could create
additional volatility, particularly as currency devaluations abroad make U.S.
products and services much more expensive for Asian buyers. The degree to which
U.S. companies will be impacted is uncertain, but we may see some earnings
growth held back by reduced demand from abroad. Therefore, we have sold
companies that have risk to earnings from overseas. We have preferred to invest
in small companies that do most of their business in the U.S. and benefit from
the strong position of the U.S. consumer, which includes lower interest rates
and cheaper foreign goods.
While we are cautious for the near term, we remain bullish over the long run,
and expect to see attractive but modest gains ahead for the market. With stock
market returns returning to more "normal" ranges, savvy stock selection will
become even more important. As a result, we will continue to look carefully at
the fundamentals and valuations of all our companies.
Ronald C. Ognar
Portfolio Manager
27
<PAGE>
Series X (Small Cap Series)
February 15, 1998
SERIES X vs. RUSSELL 200 GROWTH FUNDS INDEX
AND RUSSELL 2000 INDEX
[LINEAR GRAPH PLOTTED FROM POINTS IN TABLE BELOW]
Russell 2000
SBL Fund Growth Funds Russell 2000
Date Series X Index Index
- ---------- ---------- ------------ ------------
10/15/1997 ............... $10,000.00 $ 10,000.00 $ 10,000.00
10/31/1997 ............... 9,700.00 9,180,00 9,363.00
11/30/1997 ............... 9,480.00 8,962.00 9,291.00
12/31/1997 ............... 9,580.00 8,967.00 9,444.00
$10,000 SINCE INCEPTION
The chart above assumes a hypothetical $10,000 investment in Series X (Small Cap
Series) on October 15, 1997 (date of inception), and reflects the fees and
expenses of Series X. On December 31, 1997, the value of the investment
(assuming reinvestment of all dividends and distributions) would have been
$9,580. By comparison, the same $10,000 investment would have been $8,967 based
on the Russell 2000 Growth Funds Index, and $9,444 based on the Russell 2000
Index.
AVERAGE ANNUAL TOTAL RETURN
AS OF DECEMBER 31, 1997
Since Inception
(10-15-97)
---------------
Series X...................... -4.00%*
(1) Performance figures do not reflect fees and expenses associated with an
investment in variable insurance products offered by Security Benefit Life
Insurance Company. Shares of a Series of SBL Fund are available only
through the purchase of such products.
The Investment Manager waived its advisory fee for the period ended
December 31, 1997 and in the absence of such waiver the performance quoted
would be reduced.
The performance data quoted above represents past performance. Past
performance is not predictive of future performance. The investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
* Total return has not been annualized.
28
<PAGE>
Schedule of Investments
December 31, 1997
<TABLE>
<CAPTION>
SERIES A (Growth)
- ------------------------------------------------------------------------------------------------------------------------------------
Number Market
COMMON STOCKS of Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ALUMINUM - 1.1%
Aluminum Company of America ........................................................ 150,000 $10,556,250
AUTOMOBILES - 1.1%
Chrysler Corporation ............................................................... 300,000 10,556,250
BANKS - MAJOR REGIONAL - 4.2%
Bank of New York Company, Inc. ..................................................... 200,000 11,562,500
Northern Trust Corporation ......................................................... 200,000 13,950,000
Norwest Corporation ................................................................ 240,000 9,270,000
Wells Fargo & Company .............................................................. 20,000 6,788,750
----------
41,571,250
BANKS - MONEY CENTER - 2.0%
BankAmerica Corporation ............................................................ 100,000 7,300,000
Chase Manhattan Corporation ........................................................ 120,000 13,140,000
----------
20,440,000
BEVERAGES - SOFT DRINK - 1.1%
PepsiCo, Inc. ...................................................................... 300,000 10,931,250
CHEMICALS - BASIC - 2.8%
du Pont (E.I.) de Nemours & Company ................................................ 150,000 9,009,375
Imperial Chemical Industries PLC ADR ............................................... 140,000 9,091,250
Praxair, Inc. ...................................................................... 225,000 10,125,000
----------
28,225,625
CHEMICALS - DIVERSIFED - 0.8%
B.F. Goodrich Company .............................................................. 200,000 8,287,500
COMPUTER HARDWARE - 1.3%
Compaq Computer Corporation ........................................................ 45,000 2,539,688
International Business Machines Corporation ........................................ 100,000 10,456,250
----------
12,995,938
COMPUTERS - NETWORKING - 0.8%
Cisco Systems, Inc.* ............................................................... 150,000 8,362,500
COMPUTER SOFTWARE/SERVICES - 3.1%
BMC Software, Inc.* ................................................................ 150,000 9,843,750
Computer Sciences Corporation* ..................................................... 100,000 8,350,000
Microsoft Corporation* ............................................................. 100,000 12,925,000
Wang Laboratories, Inc. Warrants ................................................... 639 4,393
----------
31,123,143
ELECTRICAL EQUIPMENT - 2.5%
Emerson Electric Company ........................................................... 180,000 10,158,750
General Electric Company ........................................................... 200,000 14,675,000
----------
24,833,750
ELECTRONICS - INSTRUMENTATION - 0.9%
Perkin-Elmer Corporation ........................................................... 120,000 8,527,500
ELECTRONICS - SEMICONDUCTORS - 0.7%
Intel Corporation .................................................................. 100,000 $7,025,000
EQUIPMENT - SEMICONDUCTORS - 0.3%
Teradyne, Inc.* .................................................................... 80,000 2,560,000
FINANCIAL - DIVERSE - 2.6%
Fannie Mae ......................................................................... 240,000 13,695,000
Federal Home Loan Mortgage Corporation ............................................. 300,000 12,581,250
----------
26,276,250
FOODS - 2.5%
ConAgra, Inc. ...................................................................... 360,000 11,812,500
CPC International, Inc. ............................................................ 120,000 12,930,000
----------
24,742,500
GAMING & LOTTERY - 0.8%
Circus Circus Enterprises, Inc.* ................................................... 400,000 8,200,000
HEALTH CARE - DIVERSE - 2.9%
American Home Production Corporation ............................................... 150,000 11,475,000
Bristol-Myers Squibb Company ....................................................... 180,000 17,032,500
----------
28,507,500
HOUSEHOLD FURNISHINGS & APPLIANCES - 1.8%
Leggett & Platt, Inc. .............................................................. 260,000 10,887,500
Sunbeam Corporation ................................................................ 160,000 6,740,000
----------
17,627,500
HOUSEHOLD PRODUCTS - 4.5%
Colgate-Palmolive Company .......................................................... 150,000 11,025,000
Dial Corporation ................................................................... 600,000 12,487,500
Fort James Corporation ............................................................. 250,000 9,562,500
Procter & Gamble Company ........................................................... 150,000 11,971,875
----------
45,046,875
INSURANCE - LIFE/HEALTH - 1.2%
Equitable Companies, Inc. .......................................................... 250,000 12,437,500
INSURANCE - MULTI-LINE - 3.3%
American International Group, Inc. ................................................. 112,500 12,234,375
Hartford Financial Services Group, Inc. ............................................ 100,000 9,356,250
Lincoln National Corporation ....................................................... 150,000 11,718,750
----------
33,309,375
INSURANCE - PROPERTY - 2.8%
Allstate Corporation ............................................................... 175,000 15,903,125
Chubb Corporation .................................................................. 160,000 12,100,000
----------
28,003,125
LODGING - HOTELS - 1.3%
Carnival Corporation (CI. A) ....................................................... 240,000 13,290,000
See accompanying notes.
29
<PAGE>
Schedule of Investments
December 31, 1997
SERIES A (Growth)(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Number Market
COMMON STOCKS (Continued) of Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
MANUFACTURING - DIVERSIFIED - 8.0%
AlliedSignal, Inc. ................................................................. 320,000 $12,460,000
Cooper Industries, Inc. ............................................................ 120,000 5,880,000
Crane Company ...................................................................... 225,000 9,759,375
Textron, Inc. ...................................................................... 165,000 10,312,500
Tyco International, Ltd. ........................................................... 370,000 16,673,125
U.S. Industries, Inc. .............................................................. 525,000 15,815,625
United Technologies Corporation .................................................... 130,000 9,465,625
----------
80,366,250
MANUFACTURING - SPECIALIZED - 0.7%
U.S. Filter Corporation* ........................................................... 225,000 6,735,937
MEDICAL PRODUCTS & SUPPLIES - 3.4%
Baxter International, Inc. ......................................................... 200,000 10,087,500
Becton, Dickinson & Company ........................................................ 200,000 10,000,000
Medtronic, Inc. .................................................................... 220,000 11,508,750
Stryker Corporation ................................................................ 50,000 1,862,500
----------
33,458,750
NATURAL GAS - 1.1%
Coastal Corporation ................................................................ 170,000 10,529,375
OFFICE EQUIPMENT & SUPPLIES - 0.8%
Corporate Express, Inc.* ........................................................... 600,000 7,725,000
OIL & GAS - DRILLING & EQUIPMENT - 1.0%
Halliburton Company ................................................................ 40,000 2,077,500
Schlumberger, Ltd. ................................................................. 100,000 8,050,000
----------
10,127,500
OIL & GAS - EXPLORATION & PRODUCTION - 1.4%
Burlington Resources, Inc. ......................................................... 259,250 11,617,641
YPF Sociedad Anonima ADR ........................................................... 70,000 2,393,125
----------
14,010,766
OIL - INTERNATIONAL - 3.3%
Mobil Corporation .................................................................. 160,000 11,550,000
Royal Dutch Petroleum Company ...................................................... 200,000 10,837,500
Texaco, Inc. ....................................................................... 200,000 10,875,000
----------
33,262,500
PERSONAL CARE - 1.0%
Gillette Company ................................................................... 100,000 10,043,750
PHARMACEUTICALS - 3.9%
Elan Corporation PLC ADR* .......................................................... 200,000 10,237,500
Schering-Plough Corporation ........................................................ 240,000 14,910,000
SmithKline Beecham PLC ADR ......................................................... 200,000 10,287,500
Teva Pharmaceuticals Industries,
Ltd. ADR ........................................................................... 75,000 3,548,437
----------
38,983,437
PHOTOGRAPHY/IMAGING - 0.9%
Xerox Corporation .................................................................. 125,000 9,226,563
PUBLISHING - 1.1%
McGraw-Hill Companies, Inc. ........................................................ 150,000 $11,100,000
PUBLISHING - NEWSPAPER - 2.2%
Gannett Company, Inc. .............................................................. 180,000 11,126,250
Tribune Company .................................................................... 180,000 11,205,000
----------
22,331,250
RAILROADS - 1.1%
Canadian Pacific, Ltd. ............................................................. 400,000 10,900,000
RETAIL - APPAREL - 0.9%
TJX Companies, Inc. ................................................................ 270,000 9,281,250
RETAIL - BUILDING SUPPLIES - 1.2%
Home Depot, Inc. ................................................................... 45,000 2,649,375
Sherwin-Williams Company ........................................................... 350,000 9,712,500
----------
12,361,875
RETAIL - DEPARTMENT STORES - 2.0%
Federated Department Stores, Inc.* ................................................. 200,000 8,612,500
Proffitt's, Inc.* .................................................................. 400,000 11,375,000
----------
19,987,500
RETAIL - DRUG STORES - 2.2%
Rite Aid Corporation ............................................................... 200,000 11,737,500
Walgreen Company ................................................................... 320,000 10,040,000
----------
21,777,500
RETAIL - FOOD CHAINS - 1.1%
Safeway, Inc.* ..................................................................... 170,000 10,752,500
RETAIL - GENERAL MERCHANDISE - 0.5%
Dayton Hudson Corporation .......................................................... 80,000 5,400,000
RETAIL - SPECIALTY - 2.8%
Payless ShoeSource, Inc.* .......................................................... 225,000 15,103,125
Staples, Inc.* ..................................................................... 300,000 8,325,000
Woolworth Corporation .............................................................. 215,000 4,380,625
----------
27,808,750
SERVICES - ADVERTISING/MARKETING - 1.7%
Omnicom Group, Inc. ................................................................ 400,000 16,950,000
SERVICES - COMMERCIAL & CONSUMER - 0.3%
Viad Corporation ................................................................... 160,000 3,090,000
TELECOMMUNICATIONS - LONG DISTANCE - 1.2%
LCI International, Inc.* ........................................................... 400,000 12,300,000
WASTE MANAGEMENT - 1.0%
Republic Industries, Inc.* ......................................................... 300,000 6,993,750
U.S.A. Waste Service, Inc.* ........................................................ 80,000 3,140,000
-----------
10,133,750
-----------
Total common stocks - 91.2% ................................................................................. 912,080,784
See accompanying notes.
30
<PAGE>
Schedule Of Investments
December 31, 1997
SERIES A (Growth)(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Principal
Amount or
Number Market
COMMERICAL PAPER of Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
Bay State Gas Company, 6.025% - 1-08-98 ............................................ $ 2,000,000 $1,997,657
Central Louisiana Electric Company, Inc., 5.725% - 1-12-98 ......................... $ 760,000 758,670
Fluor Corporation,
6.125% - 1-06-98 .............................................................. $ 1,000,000 999,149
6.175% - 1-06-98 .............................................................. $ 1,000,000 999,143
Merrill Lynch & Company, Inc. 5.605% - 2-06-98 ..................................... $ 650,000 646,357
PHH Corporation, 5.875% - 1-30-98 .................................................. $ 170,000 169,195
The Walt Disney Company 6.075% - 1-02-98 ........................................... $ 500,000 499,916
Winn-Dixie Stores, Inc., 6.175% - 1-06-98 .......................................... $ 2,100,000 2,098,199
------------
Total commercial paper - 0.8% ............................................................................... 8,168,286
------------
Total investments - 92.0% ................................................................................... 920,249,070
Cash and other assets, less liabilities - 8.0% .............................................................. 79,679,897
------------
Total net assets - 100.0% .............................................................................. $999,928,967
============
SERIES B (Growth-Income)
- ------------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS
- ----------------
BANKING AND CREDIT - 0.6%
California Federal Bank, 11.50% .................................................... 60,000 $6,780,000
CABLE TELEVISION - 0.2%
Cablevision Systems Corporation .................................................... 20,739 2,385,008
PUBLISHING - 0.2%
Primedia, Inc., 10.0% .............................................................. 30,000 3,157,500
----------
Total preferred stocks - 1.0% .......................................................................... 12,322,508
TRUST PREFERRED SECURITIES(8)
- -----------------------------
FINANCE - 0.3%
S I Financing, Inc. ................................................................ 134,000 3,618,000
CORPORATE BONDS
- ---------------
AEROSPACE/DEFENSE - 0.0%
Burke Industries, Inc., 10.0% - 2007 ............................................... $ 350,000 363,125
BANKS & CREDIT - 0.1%
Bay View Capital Corporation, 9.125% - 2007 ........................................ $ 750,000 770,625
BROADCAST MEDIA - 0.1%
Allbritton Communications Company, 9.75% - 2007 .................................... $ 950,000 $ 971,375
BUILDING MATERIALS - 0.3%
Sequa Corporation, 9.375% - 2003 ................................................... 3,000,000 3,127,500
BUSINESS SERVICES - 0.1%
Heritage Media Corporation, 8.75% - 2006 ........................................... 1,200,000 1,284,000
CABLE SYSTEMS - 0.2%
Rogers Cablesystems Ltd., 9.625% - 2002 ............................................ 2,000,000 2,125,000
CHEMICALS - 0.3%
Envirodyne Industries, Inc., 12.00% - 2000 ......................................... 3,500,000 3,749,375
COAL MINING - 0.1%
AEI Holding Company, 10.0% - 2007 .................................................. 1,500,000 1,537,500
COMMUNICATIONS - 0.5%
CF Cable TV, Inc., 11.625% - 2005 .................................................. 1,390,000 1,596,762
Comcast Corporation, 9.125% - 2006 ................................................. 2,750,000 2,921,875
Roger's Communications, Inc. 9.125% - 2006 ......................................... 2,000,000 2,030,000
----------
6,548,637
FINANCE - 0.3%
Dollar Financial Group, Inc., 10.875% - 2006 ....................................... 1,550,000 1,656,563
Homeside, Inc., 11.25% - 2003 ...................................................... 1,335,000 1,581,975
----------
3,238,538
FOOD & BEVERAGE TRADE - 0.4%
Cott Corporation, 9.375% - 2005 .................................................... 2,000,000 2,090,000
Delta Beverage Group, 9.75% - 2003 ................................................. 2,600,000 2,743,000
----------
4,833,000
MANUFACTURING - 0.2%
AGCO Corporation, 8.50% - 2006 ..................................................... 2,200,000 2,255,000
OIL & GAS COMPANIES - 0.4%
Seagull Energy Corporation, 8.625% - 2005 .......................................... 4,800,000 5,004,000
PUBLISHING & PRINTING - 0.5%
Golden Books Publishing, Inc., 7.65% - 2002 ........................................ 3,500,000 3,368,750
Hollinger International Publishing, Inc., 8.625% - 2005 ............................ 2,050,000 2,119,188
----------
5,487,938
See accompanying notes.
31
<PAGE>
Schedule Of Investments
December 31, 1997
SERIES B (Growth-Income)(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Principal
Amount or
Number Market
CORPORATE BONDS (continued) of Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE - 0.3%
BF Saul REIT, 11.625% - 2002 ....................................................... $ 3,100,000 $3,309,250
RECREATION - 0.3%
AMF Bowling Worldwide, Inc., 10.875% - 2006 ........................................ 2,725,000 2,987,281
RESTAURANTS - 0.4%
Carrols Corporation, 11.50% - 2003 ................................................. 3,050,000 3,240,625
Foodmaker Corporation, 9.75% - 2003 ................................................ 2,000,000 2,120,000
----------
5,360,625
RETAIL - SPECIALTY - 0.1%
Southland Corporation, 4.50% -2004 ................................................. 900,000 729,000
Zale's Corporation, 8.50% - 2007 ................................................... 650,000 641,875
----------
1,370,875
STEEL & METAL PRODUCTS - 0.2%
AK Steel Corporation, 9.125% - 2006 ................................................ 1,400,000 1,438,500
Wheeling-Pittsburgh Corporation, 9.25% - 2007 ...................................... 1,000,000 980,000
----------
2,418,500
TELECOMMUNICATIONS - 0.2%
Comcast Cellular Holdings, Inc., 9.50% - 2007 ...................................... 2,025,000 2,116,125
TEXTILES - 0.1%
Delta Mills, Inc., 9.625% - 2007 ................................................... 1,000,000 1,017,500
Worldtex, Inc., 9.625% - 2007 ...................................................... 650,000 667,875
----------
1,685,375
TOBACCO PRODUCTS - 0.3%
Dimon, Inc., 8.875% - 2006 ......................................................... 2,650,000 2,862,000
Standard Commercial Tobacco Corporation, 8.875% - 2005 ............................. 350,000 352,187
----------
3,214,187
TRANSPORTATION - 0.3%
Teekay Shipping Corporation, 8.32% - 2008 .......................................... 4,000,000 4,070,000
----------
Total corporate bonds - 5.7% ........................................................................... 67,827,831
COMMON STOCKS
- -------------
AEROSPACE & DEFENSE - 0.2%
Lockheed Martin Corporation ........................................................ 30,000 $2,955,000
AGRICULTURAL PRODUCTS - 0.9%
Archer-Daniels-Midland Company ..................................................... 490,000 10,626,875
ALUMINUM - 0.9%
Aluminum Company of America ........................................................ 160,000 11,260,000
AUTO PARTS & EQUIPMENT - 0.8%
Genuine Parts Company .............................................................. 150,000 5,090,625
TRW, Inc. .......................................................................... 94,000 5,017,250
----------
10,107,875
AUTOMOBILES - 1.2%
General Motors Corporation ......................................................... 250,000 15,156,250
BANKS - MAJOR REGIONAL - 3.5%
Banc One Corporation ............................................................... 130,000 7,060,625
Bank of New York Company, Inc. ..................................................... 100,000 5,781,250
Northern Trust Corporation ......................................................... 225,000 15,693,750
Wells Fargo & Company .............................................................. 40,000 13,577,500
----------
42,113,125
BANKS - MONEY CENTER - 1.3%
Chase Manhattan Corporation ........................................................ 140,000 15,330,000
BEVERAGES - SOFT DRINK - 1.1%
Coca-Cola Company .................................................................. 200,000 13,325,000
CHEMICALS - BASIC - 1.1%
Praxair, Inc. ...................................................................... 300,000 13,500,000
CHEMICALS - DIVERSIFIED - 1.1%
Monsanto Company ................................................................... 300,000 12,600,000
COMMUNICATION EQUIPMENT - 1.6%
Harris Corporation ................................................................. 55,000 2,523,125
Motorola, Inc. ..................................................................... 300,000 17,118,750
----------
19,641,875
COMPUTER HARDWARE - 1.8%
Compaq Computer Corporation ........................................................ 180,000 10,158,750
Hewlett-Packard Company ............................................................ 60,000 3,750,000
International Business Machines Corporation ........................................ 70,000 7,319,375
----------
21,228,125
COMPUTER SOFTWARE/SERVICES - 3.5%
BMC Software, Inc.* ................................................................ 200,000 13,125,000
Computer Sciences Corporation ...................................................... 150,000 12,525,000
Microsoft Corporation* ............................................................. 130,000 16,802,500
----------
42,452,500
COMPUTERS NETWORKING - 0.5%
Cisco Systems, Inc. ................................................................ 100,000 5,575,000
CONTAINERS & PACKAGING - 0.4%
Union Camp Corporation ............................................................. 100,000 5,368,750
See accompanying notes.
32
<PAGE>
Schedule of Investments
December 31, 1997
SERIES B (Growth-Income)(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Number Market
COMMON STOCKS (Continued) of Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRIC COMPANIES - 6.5%
Allegheny Energy, Inc. ............................................................. 171,000 $5,557,500
American Electric Power Company, Inc. .............................................. 201,400 10,397,275
Baltimore Gas & Electric Company ................................................... 86,200 2,936,188
Carolina Power & Light Company ..................................................... 68,000 2,885,750
Consolidated Edison Company of New York, Inc. ...................................... 67,100 2,751,100
Delmarva Power & Light Company ..................................................... 10,500 242,156
Dominion Resources, Inc. ........................................................... 64,500 2,745,281
Edison International ............................................................... 93,500 2,542,031
GPU, Inc. .......................................................................... 64,100 2,700,213
Kansas City Power & Light Company .................................................. 173,000 5,114,313
KU Energy Corporation .............................................................. 6,200 243,350
Long Island Lighting Company ....................................................... 8,100 244,012
Midamerican Energy Holdings Company ................................................ 131,600 2,895,200
New York State Electric & Gas Company .............................................. 12,300 436,650
Northern States Power Company ...................................................... 46,100 2,685,325
Peco Energy Company ................................................................ 210,000 5,092,500
Potomac Electric Power Company ..................................................... 250,000 6,453,125
Public Service Enterprise Group, Inc. .............................................. 170,000 5,386,875
Southern Company ................................................................... 310,000 8,021,250
Texas Utilities Company ............................................................ 214,500 8,915,156
----------
78,245,250
ELECTRICAL EQUIPMENT - 3.3%
AMP, Inc. .......................................................................... 250,000 10,500,000
Emerson Electric Company ........................................................... 220,000 12,416,250
General Electric Company ........................................................... 230,000 16,876,250
----------
39,792,500
ELECTRONICS - DEFENSE - 0.9%
Raytheon Company - (CI. A) ......................................................... 9,566 471,699
Raytheon Company - (CI. B) ......................................................... 200,000 10,100,000
----------
10,571,699
ELECTRONICS - INSTRUMENTATION - 0.5%
E G & G, Inc. ...................................................................... 250,000 5,203,125
Perkin-Elmer Corporation ........................................................... 9,000 639,562
----------
5,842,687
ELECTRONICS - SEMICONDUCTORS - 0.7%
Intel Corporation .................................................................. 120,000 8,430,000
ENTERTAINMENT - 1.0%
The Walt Disney Company ............................................................ 120,000 11,887,500
FINANCIAL - DIVERSE - 2.0%
Federal Home Loan Mortgage Corporation ............................................. 250,000 10,484,375
Federal National Mortgage Association .............................................. 230,000 13,124,375
----------
23,608,750
FOODS - 2.4%
CPC International, Inc.* ........................................................... 150,000 $16,162,500
ConAgra, Inc. ...................................................................... 300,000 9,843,750
Sara Lee Corporation ............................................................... 50,000 2,815,625
----------
28,821,875
GAMING & LOTTERY - 0.1%
Circus Circus Enterprises, Inc.* ................................................... 60,000 1,230,000
HEALTH CARE - DIVERSE - 2.7%
American Home Products Corporation ................................................. 200,000 15,300,000
Bristol-Myers Squibb Company ....................................................... 175,000 16,559,375
----------
31,859,375
HEALTH CARE - LONG TERM CARE - 0.1%
Integrated Health Services, Inc. ................................................... 40,000 1,247,500
HEALTH CARE - MANAGED CARE - 0.7%
Humana, Inc.* ...................................................................... 150,000 3,112,500
United Healthcare Corporation ...................................................... 100,000 4,968,750
----------
8,081,250
HOUSEHOLD FURNISHINGS & APPLIANCES - 0.2%
Leggett & Platt, Inc. .............................................................. 30,000 1,256,250
The Rival Company .................................................................. 46,000 603,750
----------
1,860,000
HOUSEHOLD PRODUCTS - 3.1%
Colgate-Palmolive Company .......................................................... 165,000 12,127,500
Fort James Corporation ............................................................. 350,000 13,387,500
Procter & Gamble Company ........................................................... 150,000 11,971,875
----------
37,486,875
INSURANCE - LIFE/HEALTH - 0.8%
Equitable Corporation .............................................................. 200,000 9,950,000
INSURANCE - MULTI-LINE - 1.9%
Hartford Financial Services
Group, Inc. ........................................................................ 120,000 11,227,500
Lincoln National Corporation ....................................................... 150,000 11,718,750
----------
22,946,250
INSURANCE - PROPERTY - 3.7%
Allstate Corporation ............................................................... 175,000 15,903,125
Chubb Corporation .................................................................. 200,000 15,125,000
St. Paul Companies, Inc. ........................................................... 155,000 12,719,687
----------
43,747,812
LEISURE TIME PRODUCTS - 0.9%
Hasbro, Inc. ....................................................................... 40,000 1,260,000
Mattel, Inc. ....................................................................... 270,000 10,057,500
----------
11,317,500
See accompanying notes.
33
<PAGE>
Schedule of Investments
December 31, 1997
SERIES B (Growth-Income)(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Number Market
COMMON STOCKS (continued) of Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
LODGINGS - HOTELS - 1.1%
Carnival Corporation - (CI. A) ..................................................... 200,000 $11,075,000
La Quinta Inns, Inc. ............................................................... 90,000 1,738,125
----------
12,813,125
MACHINERY - DIVERSE - 0.1%
Cincinnati Milacron, Inc. .......................................................... 48,800 1,265,750
MANUFACTURING - DIVERSIFIED - 5.0%
AlliedSignal, Inc. ................................................................. 350,000 13,628,125
Tenneco, Inc. ...................................................................... 270,000 10,665,000
Textron, Inc. ...................................................................... 180,000 11,250,000
Tyco International, Ltd. ........................................................... 300,000 13,518,750
United Technologies Corporation .................................................... 150,000 10,921,875
----------
59,983,750
MEDICAL PRODUCTS & SUPPLIES - 2.4%
Baxter International, Inc. ......................................................... 250,000 12,609,375
Boston Scientific Corporation* ..................................................... 150,000 6,881,250
Medtronic, Inc. .................................................................... 170,000 8,893,125
----------
28,383,750
NATURAL GAS - 2.7%
Coastal Corporation ................................................................ 225,000 13,935,938
El Paso Natural Gas Company ........................................................ 280,000 18,620,000
----------
32,555,938
OFFICE EQUIPMENT & SUPPLIES - 0.1%
Corporate Express, Inc.* ........................................................... 60,000 772,500
OIL - DOMESTIC - 1.1%
Phillips Petroleum Company ......................................................... 100,000 4,862,500
Unocal Corporation ................................................................. 200,000 7,762,500
----------
12,625,000
OIL - INTERNATIONAL - 5.1%
Amoco Corporation .................................................................. 140,000 11,917,500
Chevron Corporation ................................................................ 180,000 13,860,000
Mobil Corporation .................................................................. 230,000 16,603,125
Texaco, Inc. ....................................................................... 350,000 19,031,250
----------
61,411,875
OIL & GAS DRILLING & EQUIPMENT - 1.9%
Halliburton Company ................................................................ 210,000 10,906,875
Schlumberger, Ltd. ................................................................. 150,000 12,075,000
----------
22,981,875
OIL & GAS EXPLORATION & PRODUCTION - 0.4%
Enron Oil & Gas Company ............................................................ 250,000 5,296,875
PAPER & FOREST PRODUCTS - 1.8%
Champion International Corporation ................................................. 150,000 6,796,875
International Paper Company ........................................................ 143,500 6,188,438
Louisiana-Pacific Corporation ...................................................... 300,000 5,700,000
Rayonier, Inc. ..................................................................... 56,500 2,404,781
----------
21,090,094
PERSONAL CARE - 1.7%
Gillette Company ................................................................... 200,000 $20,087,500
PHARMACEUTICALS - 4.0%
Elan Corporation PLC ADR* .......................................................... 200,000 10,237,500
Merck & Company, Inc. .............................................................. 120,000 12,750,000
Mylan Laboratories, Inc. ........................................................... 140,000 2,931,250
Schering Plough Corporation ........................................................ 100,000 6,212,500
SmithKline Beecham PLC ADR ......................................................... 300,000 15,431,250
----------
47,562,500
PHOTOGRAPHY/IMAGING - 0.9%
Xerox Corporation .................................................................. 150,000 11,071,875
PUBLISHING - 1.1%
McGraw-Hill Companies, Inc. ........................................................ 180,000 13,320,000
PUBLISHING - NEWSPAPER - 2.3%
Gannett Company, Inc. .............................................................. 150,000 9,271,875
Tribune Company .................................................................... 300,000 18,675,000
----------
27,946,875
RAILROADS - 1.1%
Canadian Pacific, Ltd. ............................................................. 500,000 13,625,000
RESTAURANTS & FOOD SERVICE - 0.8%
McDonald's Corporation ............................................................. 200,000 9,550,000
RETAIL - DEPARTMENT STORES - 1.2%
Federated Department Stores, Inc.* ................................................. 330,000 14,210,625
RETAIL - FOOD CHAINS - 0.1%
Giant Food, Inc.* .................................................................. 41,200 1,387,925
RETAIL - GENERAL MERCHANDISE - 0.6%
Dayton Hudson Corporation .......................................................... 100,000 6,750,000
RETAIL SPECIALTY - 2.4%
Staples, Inc.* ..................................................................... 300,000 8,325,000
Toys "R" Us, Inc.* ................................................................. 330,000 10,374,375
Woolworth Corporation * ............................................................ 500,000 10,187,500
----------
28,886,875
SERVICES - ADVERTISING/MARKETING - 1.1%
Omnicom Group, Inc. ................................................................ 300,000 12,712,500
SERVICES - COMMERCIAL & CONSUMER - 0.2%
Angelica Corporation ............................................................... 80,000 1,810,000
SERVICES - DATA PROCESSING - 0.2%
First Data Corporation ............................................................. 67,000 1,959,750
TELECOMMUNICATION - LONG DISTANCE - 0.8%
LCI International, Inc.* ........................................................... 300,000 9,225,000
TELEPHONE - 0.2%
U.S. West Communications Group ..................................................... 56,200 2,536,025
----------
See accompanying notes.
34
<PAGE>
Schedule of Investments
December 31, 1997
SERIES B (Growth-Income)(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Principal Market
COMMON STOCKS (continued) Amount Value
- ------------------------------------------------------------------------------------------------------------------------------------
Total common stocks - 91.8% ............................................................................. $1,099,990,180
--------------
Total investments - 98.8% ............................................................................... 1,183,758,519
Cash and other assets, less liabilities - 1.2% .......................................................... 14,543,902
--------------
Total net assets - 100.0% ............................................................................... $1,198,302,421
==============
SERIES C (Money Market)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL PAPER
- ----------------
BEVERAGES - 2.0%
Coca-Cola Company, The
5.70% - 1-13-98 ............................................................... $ 2,000,000 $1,996,200
BROKERAGE - 12.0%
Bear Stearns Companies, Inc.,
5.57% - 2-12-98 ............................................................... 5,000,000 4,967,000
Merrill Lynch & Company, Inc., ..................................................... 6,700,000
5.53% - 1-05-98 ............................................................... 2,398,776
5.57% - 1-06-98 ............................................................... 1,698,844
5.56% - 1-12-98 ............................................................... 998,300
5.62% - 1-30-98 ............................................................... 1,194,624
5.55% - 2-05-98 ............................................................... 397,824
----------
11,655,368
BUSINESS SERVICES - 3.3%
General Electric Capital Corporation, .............................................. 3,250,000
5.75% - 1-15-98 ............................................................... 498,882
5.67% - 1-30-98 ............................................................... 1,742,160
5.59% - 2-11-98 ............................................................... 993,600
----------
3,234,642
CHEMICALS - BASIC - 3.0%
du Pont (E.I.) de Nemours & Company,
5.52% - 1-29-98 ............................................................... 3,000,000 2,987,040
COMPUTER SYSTEMS - 6.1%
International Business Machines Corporation,
5.51% - 1-07-98 ............................................................... 6,000,000 5,994,840
ELECTRIC UTILITIES - 9.0%
Central Louisiana Electric Company Inc.,
5.55% - 1-12-98 ............................................................... $ 1,940,000 $1,936,683
Idaho Power Company,
6.0% - 1-20-98 ................................................................ 1,000,000 996,833
Interstate Power Company, .......................................................... 3,910,000
5.75% - 1-26-98 ............................................................... 796,807
5.85% - 1-26-98 ............................................................... 109,552
5.78% - 1-27-98 ............................................................... 2,987,477
Progress Capital Holdings, Inc., ................................................... 2,000,000
5.78% - 1-14-98 ............................................................... 1,696,372
5.91% - 1-16-98 ............................................................... 299,207
----------
8,822,931
ELECTRICAL EQUIPMENT - 5.6%
General Electric Company,
5.54% - 1-12-98 ............................................................... 5,500,000 5,490,650
ELECTRONICS - 4.8%
Avent, Inc., ....................................................................... 4,700,000
5.62% - 1-16-98 ............................................................... 1,895,402
5.63% - 1-16-98 ............................................................... 1,296,950
5.63% - 1-23-98 ............................................................... 996,520
5.85% - 2-19-98 ............................................................... 496,019
----------
4,684,891
ENGINEERING - 1.9%
Fluor Corporation,
5.71% - 1-16-98 ............................................................... 1,900,000 1,895,458
ENTERTAINMENT - 2.6%
The Walt Disney Company, ........................................................... 2,600,000
5.70% - 1-14-98 ............................................................... 1,995,883
5.63% - 3-27-98 ............................................................... 591,948
----------
2,587,831
HARDWARE & TOOLS - 5.1%
Stanley Works, ..................................................................... 5,000,000
5.59% - 1-21-98 ............................................................... 3,389,237
5.61% - 1-21-98 ............................................................... 1,595,013
----------
4,984,250
LEASING - 6.1%
International Lease Finance Corporation,
5.54% - 1-20-98 ............................................................... 1,000,000 997,020
PHH Corporation, ................................................................... 4,957,000
5.50% - 1-08-98 ............................................................... 1,155,808
5.50% - 1-09-98 ............................................................... 1,997,600
5.53% - 1-23-98 ............................................................... 1,793,736
----------
5,944,164
See accompanying notes.
35
<PAGE>
Schedule of Investments
December 31, 1997
SERIES C (Money Market)(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Principal
Amount or
Number Market
COMMERICAL PAPER (continued) of Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
NATURAL GAS - 4.2%
Bay State Gas Company, ............................................................. $ 2,175,000
5.70% - 1-15-98 ............................................................... $ 798,227
5.71% - 1-22-98 ............................................................... 498,334
6.05% - 1-29-98 ............................................................... 870,883
Questar Corporation,
5.95% - 2-03-98 ............................................................... 1,975,000 1,964,228
----------
4,131,672
RETAIL - GROCERY - 1.9%
Winn-Dixie Stores, Inc., ........................................................... 1,900,000
5.50% - 1-06-98 ............................................................... 1,399,034
5.57% - 1-13-98 ............................................................... 499,060
----------
1,898,094
TELECOMMUNICATIONS - 3.5%
AT&T Company,
5.65% - 3-30-98 ............................................................... 1,000,000 986,220
Bell Atlantic Network Funding Corporation,
5.90% - 1-08-98 ............................................................... 2,400,000 2,397,247
----------
3,383,467
----------
Total commercial paper - 71.1% .............................................................................. 69,691,498
U.S. GOVERNMENT & AGENCIES
- --------------------------
FEDERAL HOME LOAN MORTGAGES - 11.2%
5.87% - 1-30-98 ............................................................... 2,000,000 2,000,040
5.70% - 3-04-98 ............................................................... 2,000,000 2,000,360
5.885% - 3-30-98 .............................................................. 2,000,000 2,001,260
5.90% - 9-30-98 ............................................................... 3,000,000 2,997,300
5.95% - 11-12-98 .............................................................. 2,000,000 1,999,300
----------
10,998,260
SMALL BUSINESS ASSOCIATION POOLS - 17.7%
#502406, 6.25%, 2006(3) ....................................................... 414,347 414,347
#502163, 6.50%, 2012(3) ....................................................... 785,959 785,958
#502353, 6.25%, 2018(3) ....................................................... 129,289 129,289
#503176, 6.125%, 2020(3) ...................................................... 720,960 724,565
#503459, 6.00%, 2021(3) ....................................................... 1,955,361 1,948,028
#503283, 6.00%, 2021(3) ....................................................... 1,943,158 1,934,960
#503295, 6.00%, 2021(3) ....................................................... 1,484,401 1,484,401
#503303, 6.00%, 2021(4) ....................................................... 1,455,751 1,455,751
#503308, 6.00%, 2021(4) ....................................................... 1,264,372 1,264,372
#503343, 6.125%, 2021(3 ....................................................... 2,004,800 2,004,800
#503347, 6.125%, 2021(3) ...................................................... 5,178,367 5,178,367
------------
17,324,838
------------
Total U.S. government & agencies - 28.9% ............................................................... $ 28,323,098
------------
Total investments - 100.0% ............................................................................. 98,014,596
Cash and other assets, less liabilities - 0.00% ........................................................ 234
------------
Total net assets - 100.0% .............................................................................. $ 98,014,830
============
SERIES D (Worldwide Equity)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS
- -------------
AUSTRALIA - 3.3%
Foster's Brewing Group, Ltd. ....................................................... 3,302,000 $6,282,298
QBE Insurance Group, Ltd. .......................................................... 722,938 3,253,485
----------
9,535,783
AUSTRIA - 1.6%
Boehler - Uddeholm AG .............................................................. 30,900 1,808,690
Wienerberger Baustoffindustrie AG .................................................. 15,000 2,875,302
----------
4,683,992
BELGIUM - 1.6%
Electrabel S.A ..................................................................... 20,400 4,718,718
CANADA - 5.6%
Bombardier, Inc. "B" ............................................................... 112,800 2,317,452
Hudson's Bay Company ............................................................... 112,100 2,494,993
Imax Corporation ADR* .............................................................. 268,300 5,902,600
Tarragon Oil & Gas, Ltd.* .......................................................... 207,500 1,624,017
Yogen Fruz World-Wide, Inc.* ....................................................... 735,000 3,621,019
----------
15,960,081
CHILE - 0.5%
Banco Santander ADR ................................................................ 93,700 1,323,513
FRANCE - 3.9%
Alcatel Alsthom .................................................................... 21,900 2,784,888
AXA-UAP ............................................................................ 32,600 2,523,632
Elf Aquitaine S.A. ADR ............................................................. 68,100 3,992,363
Sidel S.A .......................................................................... 25,960 1,721,788
----------
11,022,671
GERMANY - 4.5%
Allianz AG ......................................................................... 21,600 5,574,062
Deutsche Bank AG ................................................................... 76,600 5,359,318
Hoechst AG ......................................................................... 26,300 911,263
Rofin-Sinar Technologies, Inc. ADR* ................................................ 95,900 1,162,788
----------
13,007,431
See accompanying notes.
36
<PAGE>
Schedule of Investments
December 31, 1997
SERIES D (Worldwide Equity)(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Number Market
COMMON STOCKS (continued) of Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
GREECE - 0.0%
Hellenic Tellecommunication Organization S.A ....................................... 200 $ 4,103
HONG KONG - 0.5%
JCG Holdings, Ltd. ................................................................. 3,552,000 1,524,263
HUNGARY - 0.3%
Zalakeramia Rt ..................................................................... 16,535 767,568
INDONESIA - 1.0%
PT Hanjaya Mandala Sampoerna ....................................................... 693,000 523,391
PT Tambang Timah ................................................................... 2,072,500 2,225,315
----------
2,748,706
IRELAND - 3.4%
Allied Irish Banks PLC ............................................................. 401,500 3,891,434
Elan Corporation PLC ADR ........................................................... 88,700 4,540,331
Ryanair Holdings PLC ............................................................... 297,610 1,412,560
----------
9,844,325
ITALY - 1.0%
Telecom Italia SpA ................................................................. 434,900 2,779,627
JAPAN - 4.8%
Acom Company, Ltd. ................................................................. 38,300 2,120,887
Amway Japan, Ltd. .................................................................. 60,300 1,159,427
Doutor Coffee Company, Ltd. ........................................................ 54,800 1,411,925
Maruko Company, Ltd. ............................................................... 20,500 111,943
Mitsubishi Estate Company, Ltd. .................................................... 169,000 1,845,701
Mitsui Fudosan Company, Ltd. ....................................................... 239,000 2,316,086
Nippon Steel Corporation ........................................................... 695,000 1,031,640
Sony Corporation ................................................................... 27,600 2,462,370
Tiemco, Ltd. ....................................................................... 27,900 283,246
Yamato Kogyo Company, Ltd. ......................................................... 184,000 1,110,897
----------
13,854,122
MALAYSIA - 0.8%
Highlands and Lowlands Berhad ...................................................... 454,000 464,221
Kuala Lumpur Kepong Berhad ......................................................... 615,000 1,319,313
Magnum Corporation Berhad .......................................................... 639,000 384,152
----------
2,167,686
NETHERLANDS - 0.1%
Koninklijke Ahrend Group N.V ....................................................... 13,100 411,631
NEW ZEALAND - 1.4%
Brierley Investments, Ltd. ......................................................... 2,844,100 2,031,270
Fletcher Challenge Building ........................................................ 908,900 1,857,704
----------
3,888,974
NORWAY - 1.5%
Saga Petroleum ASA "A" ............................................................. 257,800 4,441,096
PHILIPPINES - 0.5%
C & P Homes, Inc. .................................................................. 11,450,150 $ 677,272
Ionics Circuit, Inc. ............................................................... 1,448,100 598,856
----------
1,276,128
POLAND - 0.2%
E. Wedel S.A ....................................................................... 9,050 464,706
SINGAPORE - 0.4%
Keppek Fels, Ltd. .................................................................. 398,000 1,110,188
SPAIN - 2.1%
Adolfo Dominguez S.A.* ............................................................. 57,600 1,672,272
Banco Popular Espanol S.A .......................................................... 28,400 1,984,445
Tele Pizza S.A.* ................................................................... 28,900 2,332,245
----------
5,988,962
SWEDEN - 4.7%
Castellum AB* ...................................................................... 277,200 2,759,995
Fastighets AB Hufvudstaden "A" ..................................................... 506,700 1,947,775
Industrial & Financial Systems "B"* ................................................ 370,200 2,542,851
Skandinaviska Enskilda Banken ...................................................... 116,500 1,475,638
Swedish Match AB ................................................................... 1,414,000 4,722,623
----------
13,448,882
SWITZERLAND - 5.0%
Nestle S.A ......................................................................... 1,870 2,806,506
Novartis AG ........................................................................ 3,230 5,248,430
Saurer AG .......................................................................... 4,500 3,270,370
Schweizerische Lebensversicherungs-und Rentenstalt ................................. 3,830 3,011,901
----------
14,337,207
UNITED KINGDOM - 15.6%
Aegis Group PLC .................................................................... 1,695,000 1,910,433
Beazer Group PLC ................................................................... 198,900 528,541
Capita Group PLC ................................................................... 355,500 2,158,428
D.F.S. Furniture Company PLC ....................................................... 250,700 2,128,509
George Wimpey PLC .................................................................. 1,764,100 3,076,809
Glaxo Wellcome PLC ................................................................. 205,700 4,867,037
Harvey Nichols PLC ................................................................. 196,200 621,443
Oriflame International S.A ......................................................... 105,000 768,813
PizzaExpress PLC ................................................................... 215,400 2,658,144
Polypipe PLC ....................................................................... 692,000 2,015,352
Provident Financial PLC ............................................................ 247,600 3,246,986
Regent Inns PLC .................................................................... 517,600 2,784,925
Rio Tinto PLC ...................................................................... 131,800 1,529,973
Royal Bank of Scotland Group PLC ................................................... 217,800 2,788,104
Tomkins PLC ........................................................................ 573,800 2,681,331
United Utilities PLC ............................................................... 186,200 2,405,032
Vodafone Group PLC ................................................................. 477,600 3,485,214
Whitbread PLC ...................................................................... 333,500 4,848,126
----------
44,503,200
See accompanying notes.
37
<PAGE>
Schedule of Investments
December 31, 1997
SERIES D (Worldwide Equity)(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Number Market
COMMON STOCKS (continued) of Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
UNITED STATES - 22.8%
Ace Ltd. ........................................................................... 17,000 $1,640,500
AlliedSignal, Inc. ................................................................. 38,800 1,510,775
Allstate Corporation ............................................................... 22,200 2,017,425
BJ Services Company* ............................................................... 20,800 1,496,300
Borders Group, Inc.* ............................................................... 44,900 1,405,931
Bristol-Myers Squibb Company ....................................................... 16,800 1,589,700
Cardinal Health, Inc. .............................................................. 24,900 1,870,612
Computer Associates International .................................................. 25,600 1,353,600
Conseco, Inc. ...................................................................... 25,100 1,140,481
Costco Companies, Inc.* ............................................................ 41,400 1,847,475
Cymer, Inc.* ....................................................................... 37,500 562,500
Diamond Offshore Drilling, Inc. .................................................... 24,900 1,198,313
Dover Corporation .................................................................. 33,200 1,199,350
Ecolab, Inc. ....................................................................... 23,800 1,319,412
Eli Lilly & Company ................................................................ 22,900 1,594,412
EMC Corporation* ................................................................... 52,000 1,426,750
Federal National Mortgage Association .............................................. 29,900 1,706,169
Fort James Corporation ............................................................. 30,800 1,178,100
Gap, Inc. .......................................................................... 40,200 1,424,588
Global Industries, Ltd.* ........................................................... 74,600 1,268,200
Home Depot, Inc. ................................................................... 20,800 1,224,600
Ingersoll-Rand Company ............................................................. 26,550 1,075,275
Medtronic, Inc. .................................................................... 24,600 1,286,888
Mobil Corporation .................................................................. 25,600 1,848,000
NAC Re Corporation ................................................................. 32,400 1,581,525
NationsBank Corporation ............................................................ 25,100 1,526,394
Norwest Corporation ................................................................ 54,600 2,108,925
PepsiCo, Inc. ...................................................................... 32,000 1,166,000
Pfizer, Inc. ....................................................................... 17,100 1,275,019
Praxair, Inc. ...................................................................... 24,400 1,098,000
Procter & Gamble Company ........................................................... 17,200 1,372,775
Rite Aid Corporation ............................................................... 27,000 1,584,563
Safeway, Inc.* ..................................................................... 20,400 1,290,300
Sealed Air Corporation* ............................................................ 29,200 1,803,100
Sungard Data Systems, Inc.* ........................................................ 43,600 1,351,600
Texaco, Inc. ....................................................................... 20,000 1,087,500
TJX Companies, Inc. ................................................................ 27,800 955,625
Tosco Corporation .................................................................. 41,700 1,576,781
Tyco International, Ltd. ........................................................... 42,800 1,928,675
Unilever NV ........................................................................ 20,900 1,304,944
Union Planters Corporation ......................................................... 21,800 1,481,038
United Healthcare Corporation ...................................................... 20,400 1,013,625
Unum Corporation ................................................................... 38,000 2,066,250
Walt Disney Company, The ........................................................... 15,400 1,525,563
Warner-Lambert Company ............................................................. 7,400 917,600
Williams Companies, Inc., The ...................................................... 34,400 976,100
----------
65,177,258
----------
Total common stocks - 87.1% ............................................................................ 248,990,821
PREFERRED STOCKS
- ----------------
GERMANY - 0.9%
Sto Ag Vorzug ...................................................................... 6,990 $2,526,915
----------
Total investments - 88.0% .............................................................................. 251,517,736
Cash and other assets, less liabilities - 12.0% ........................................................ 34,263,925
----------
Total net assets - 100.0% .............................................................................. $285,781,661
==========
At December 31, 1997, Series D's investment concentration by industry was as follows:
Banking ................................................................................................ 8.1%
Capital Equipment ...................................................................................... 3.4%
Chemicals .............................................................................................. 0.4%
Construction & Housing ................................................................................. 0.2%
Consumer Durables ...................................................................................... 4.4%
Consumer Nondurables ................................................................................... 8.0%
Electrical and Electronics ............................................................................. 3.8%
Energy Sources ......................................................................................... 6.7%
Financial Services ..................................................................................... 10.7%
Health & Personal Care ................................................................................. 7.3%
Materials .............................................................................................. 12.2%
Merchandising .......................................................................................... 1.8%
Multi-industry ......................................................................................... 2.8%
Real Estate ............................................................................................ 3.1%
Services ............................................................................................... 8.3%
Telecommunications ..................................................................................... 3.2%
Trade .................................................................................................. 0.6%
Transportation ......................................................................................... 0.5%
Utilities .............................................................................................. 2.5%
Cash, short-term instruments and other assets, less liabilities ........................................ 12.0%
----------
Total net assets ....................................................................................... 100.0%
==========
See accompanying notes.
38
<PAGE>
Schedule of Investments
December 31, 1997
SERIES E (High Grade Income)
- ------------------------------------------------------------------------------------------------------------------------------------
Principal Market
CORPORATE BONDS Amount Value
- ------------------------------------------------------------------------------------------------------------------------------------
AIR TRANSPORTATION - 3.8%
Southwest Airlines Company, 7.875% - 2007 .......................................... $ 2,550,000 $2,820,938
United Airlines, 11.21% - 2014 ..................................................... 1,825,000 2,527,625
----------
5,348,563
BANKS - 14.8%
ABN AMRO Bank NV,
7.55% - 2006 .................................................................. 1,050,000 1,123,500
7.30% - 2026 .................................................................. 1,500,000 1,524,375
Abbey National PLC, 6.69% - 2005 ................................................... 2,750,000 2,808,437
Argentaria Capital Funding, 6.375% - 2006 .......................................... 2,000,000 1,953,590
BCH Cayman Islands, 7.70% - 2006 ................................................... 2,500,000 2,650,000
Bank of New York, Inc., 6.50% - 2003 ............................................... 3,275,000 3,291,375
Den Danske Bank, 7.40% - 2010 ...................................................... 2,000,000 2,107,500
PNC Funding Corporation, 7.75% - 2004 .............................................. 2,300,000 2,463,875
Santander Financial Issuances, Ltd., 7.00% - 2006 .................................. 2,800,000 2,873,500
----------
20,796,152
BROKERS, DEALERS & SERVICES - 5.4%
Lehman Brothers, Inc., 7.25% - 2003 ................................................ 2,250,000 2,325,938
Merrill Lynch, 7.375% - 2006 ....................................................... 2,500,000 2,662,500
Morgan Stanley Group, Inc., 7.25% - 2023 ........................................... 2,500,000 2,559,374
----------
7,547,812
CABLE SYSTEMS - 0.8%
Rogers Cablesystems, Ltd., 9.625% - 2002 ........................................... 1,100,000 1,168,750
COMMUNICATIONS - 5.0%
Centennial Cellular, 8.875% - 2001 ................................................. 800,000 815,000
Comcast Corporation, 9.125% - 2006 ................................................. 1,000,000 1,062,500
New Jersey Bell, 6.625% - 2008 ..................................................... 1,000,000 1,006,250
Paramount Communications, 7.50% - 2023 ............................................. 1,000,000 947,500
Rogers Communication, Inc., 9.125% - 2006 .......................................... 900,000 913,500
Valassis Communications, 9.55% - 2003 .............................................. 2,000,000 2,247,500
----------
6,992,250
ELECTRONIC COMPANIES - 0.8%
Cal Energy Company, Inc., 9.50% - 2006 ............................................. 1,000,000 1,087,500
ENTERTAINMENT - 0.6%
Speedway Motorsports Inc., 8.50% - 2007 ............................................ $ 775,000 $ 792,438
FINANCE - 5.1%
Associates Corporation, N.A., 7.55% - 2006 ......................................... 1,000,000 1,077,500
GE Capital Corporation, 8.625% - 2008 .............................................. 1,750,000 2,058,438
Homeside, Inc., 11.25% - 2003 ...................................................... 1,250,000 1,481,250
US West Capital Funding, Inc., 7.30% - 2007 ........................................ 2,500,000 2,575,000
----------
7,192,188
FOOD & BEVERAGES - 6.0%
Anheuser-Busch Companies, Inc., 7.10% - 2007 ....................................... 2,425,000 2,518,968
Carrols Corporation, Inc., 11.50% - 2003 ........................................... 1,750,000 1,859,375
Chiquita Brands International, Inc., 10.25% - 2006 ................................. 1,750,000 1,911,875
Panamerican Beverage, Inc., 8.125% - 2003 .......................................... 2,050,000 2,139,688
----------
8,429,906
FUNERAL HOMES - 1.7%
Loewen Group International, Inc., 8.25% - 2003 ..................................... 2,275,000 2,402,968
HOSPITAL MANAGEMENT - 1.5%
Tenet Healthcare, 10.125% - 2005 ................................................... 2,000,000 2,180,000
MEDIA - 2.4%
Time Warner Entertainment, 10.15% - 2012 ........................................... 1,790,000 2,302,388
Westinghouse Electric Company, 8.375% - 2002 ....................................... 1,050,000 1,098,563
----------
3,400,951
MANUFACTURING - 0.7%
Agrium, Inc., 7.00% - 2004 ......................................................... 1,000,000 1,020,000
MOTOR VEHICLES & EQUIPMENT - 2.6%
Chrysler Corporation, 7.45% - 2027 ................................................. 2,375,000 2,559,063
Ford Motor Company, 7.25% - 2008 ................................................... 1,000,000 1,061,250
----------
3,620,313
See accompanying notes.
39
<PAGE>
Schedule of Investments
December 31, 1997
SERIES E (High Grade Income) (continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Principal Market
CORPORATE BONDS (continued) Amount Value
- ------------------------------------------------------------------------------------------------------------------------------------
OIL & GAS COMPANIES - 5.0%
Petroleum Geo-Services, 7.50% - 2007 ............................................... $ 2,050,000 $2,167,875
Seagull Energy Corporation, 8.625% - 2005 .......................................... 1,500,000 1,563,750
Transocean Offshore, Inc., 8.00% - 2027 ............................................ 2,000,000 2,272,500
Union Pacific Resources, 7.50% - 2026 .............................................. 1,000,000 1,073,750
----------
7,077,875
PUBLISHING & PRINTING - 2.2%
K-III Communications Corporation, 10.25% - 2004 .................................... 555,000 596,625
Quebecor Printing Capital, 7.25% - 2007 ............................................ 2,350,000 2,479,250
----------
3,075,875
RETAIL TRADE - 2.4%
Sears, 6.41% - 2001 ................................................................ 2,350,000 2,361,750
Zale's Corporation, 8.50% - 2007 ................................................... 1,000,000 987,500
----------
3,349,250
STEEL & METAL PRODUCTS - 0.9%
AK Steel, 10.75% - 2004 ............................................................ 1,250,000 1,334,375
TOBACCO PRODUCTS - 1.5%
Dimon, Inc., 8.875% - 2006 ......................................................... 500,000 540,000
Phillip Morris Company, Inc., 6.80% - 2003 ......................................... 1,075,000 1,088,438
Standard Commercial Tobacco Corporation, 8.875% - 2005 ............................. 500,000 503,125
----------
2,131,563
UTILITIES - 1.3%
Tennessee Gas Pipeline, 7.50% - 2017 ............................................... 1,700,000 1,821,124
----------
Total corporate bonds - 64.5 % ......................................................................... 90,769,853
TRUST PREFERRED SECURITIES(8)
- -----------------------------
FINANCE - 4.0%
Countrywide Capital Industries, Inc., 8.00% - 2026 ................................ 1,000,000 1,053,750
Washington Mutual Capital, 8.375% - 2002 ........................................... 2,000,000 2,195,000
SI Financing, Inc., 9.50% - 2027 ................................................... 88,940 2,401,380
----------
5,650,130
INSURANCE - 1.2%
Travelers Capital Trust, 7.75% - 2036 .............................................. 1,650,000 1,740,750
----------
Total trust preferred securities - 5.2% ..................................................................... 7,390,880
MORTGAGE BACKED SECURITIES
- --------------------------
U.S. GOVERNMENT AGENCIES - 7.4%
Federal Home Loan Mortgage Corporation,
FHR 1339 C, 8.00% - 2006 ...................................................... $ 1,000,000 $1,051,495
FHR 112 H, 8.80% - 2020 ....................................................... 758,063 773,539
FHR 1311 J, 7.50% - 2021 ...................................................... 3,325,000 3,421,803
FHR 1930 AB, 7.50% - 2023 ..................................................... 2,390,671 2,437,985
Federal National Mortgage Association,
FNR 1994-79 B, 7.00% - 2019 ................................................... 1,700,000 1,717,604
FNR 1992-88 L, 8.00% - 2021 ................................................... 1,000,000 1,048,334
----------
10,450,760
U.S. GOVERNMENT SECURITIES - 4.4%
Government National Mortgage Association,
GNMA 39238, 9.50% - 2009 ...................................................... 356,395 382,911
GNR 1997-10 B, 7.5% - 2019 .................................................... 2,500,000 2,552,888
GNMA II 181907, 9.50% - 2020 .................................................. 319,068 341,172
GNMA 305617, 9.00% - 2021 ..................................................... 292,163 311,009
GNMA 301465, 9.00% - 2021 ..................................................... 223,541 237,960
GNMA II 2445, 8.00% - 2027 .................................................... 2,311,361 2,386,202
----------
6,212,142
NON-AGENCY SECURITIES - 1.1%
Chase Capital Mortgage Securities Company, 1997-1B, 7.37% - 2007 ................... 1,500,000 1,573,125
----------
Total mortgage backed securities - 12.9% ............................................................... 18,236,027
GOVERNMENT SECURITIES
- ---------------------
U.S. GOVERNMENT SECURITIES - 16.0%
U.S. Treasury Notes,
6.50% - 2006 .................................................................. 5,600,000 5,862,751
7.00% - 2006 .................................................................. 4,700,000 5,072,381
U.S. Treasury Bonds,
6.00% - 2026 .................................................................. 3,000,000 2,993,820
6.625% - 2027 ................................................................. 4,100,000 4,447,803
----------
18,376,755
Federal National Mortgage Association, 6.59% - 2007 ................................ 1,000,000 1,034,130
Private Export Funding Corporation, 7.11% - 2007 ................................... 3,000,000 3,206,250
----------
Total U.S. government securities - 16.0% ............................................................... 22,617,135
See accompanying notes.
40
<PAGE>
Schedule of Investments
December 31, 1997
SERIES E (High Grade Income)(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Principal
Amount or
Number Market
GOVERNMENT SECURITIES (continued) of Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
CANADIAN GOVERNMENT AGENCIES - 0.4%
British Columbia Province, 6.50% - 2026 ............................................ $ 500,000 $ 501,250
------------
Total government securities - 16.4% .................................................................... 23,118,385
------------
Total investments - 99.0% .............................................................................. 139,515,145
Cash and other assets, less liabilities - 1.0% ......................................................... 1,393,390
------------
Total net assets - 100.0% .............................................................................. $140,908,535
============
SERIES J (Emerging Growth)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS
- -------------
AEROSPACE/DEFENSE - 0.7%
Sundstrand Corporation ............................................................. 33,000 $1,662,375
AIR FREIGHT - 0.7%
Expeditors International of Washington, Inc. ....................................... 38,000 1,463,000
AIRLINES - 0.2%
ASA Holdings, Inc. ................................................................. 17,000 483,437
AUTO PARTS & EQUIPMENT - 1.0%
Snap-On Tools ...................................................................... 50,300 2,194,338
BANKS - MAJOR REGIONAL - 3.0%
Northern Trust Corporation ......................................................... 60,000 4,185,000
State Street Corporation ........................................................... 40,500 2,356,594
Wilmington Trust Corporation ....................................................... 4,000 249,500
----------
6,791,094
BEVERAGES - SOFT DRINK - 3.3%
Coca-Cola Enterprises, Inc. ........................................................ 210,200 7,475,238
BIOTECHNOLOGY - 1.7%
BioChem Pharma, Inc.* .............................................................. 62,500 1,304,688
Biogen, Inc.* ...................................................................... 32,800 1,193,100
Centocor, Inc.* .................................................................... 39,000 1,296,750
----------
3,794,538
CHEMICALS - BASIC - 1.9%
Praxair, Inc. ...................................................................... 55,500 2,497,500
Solutia, Inc. ...................................................................... 64,100 1,710,669
----------
4,208,169
CHEMICALS - SPECIALTY - 2.9%
Betz Dearborn, Inc. ................................................................ 16,000 977,000
Crompton, & Knowles Corporation .................................................... 40,000 1,060,000
Cytec Industries, Inc.* ............................................................ 24,000 1,126,500
M.A. Hanna Company ................................................................. 38,300 967,075
Sigma-Aldrich Corporation .......................................................... 59,000 2,345,250
----------
6,475,825
COMMUNICATIONS - EQUIPMENT - 5.0%
ADC Telecommunications, Inc.* ...................................................... 70,500 $2,943,375
Ciena Corporation* ................................................................. 21,000 1,283,625
Comverse Technology, Inc.* ......................................................... 84,000 3,276,000
Harris Corporation ................................................................. 50,000 2,293,750
Tellabs, Inc.* ..................................................................... 30,500 1,612,688
----------
11,409,438
COMPUTER SOFTWARE/SERVICES - 6.7%
America OnLine, Inc.* .............................................................. 52,500 4,682,344
BMC Software, Inc.* ................................................................ 28,000 1,837,500
Computer Sciences Corporation* ..................................................... 29,000 2,421,500
Electronics For Imaging, Inc.* ..................................................... 95,000 1,579,375
PeopleSoft, Inc.* .................................................................. 84,000 3,276,000
Rational Software Corporation* ..................................................... 110,000 1,251,250
----------
15,047,969
CONTAINERS - METAL/GLASS - 1.9%
Crown Cork & Seal Company, Inc. .................................................... 87,500 4,385,937
DISTRIBUTION - FOOD & HEALTH - 1.0%
Cardinal Health, Inc. .............................................................. 30,900 2,321,362
ELECTRIC COMPANIES - 1.6%
AES Corporation* ................................................................... 77,500 3,613,438
ELECTRICAL EQUIPMENT - 2.3%
Samnina Corporation* ............................................................... 33,000 2,235,750
SCI Systems, Inc.* ................................................................. 66,000 2,875,125
----------
5,110,875
ELECTRONICS - INSTRUMENTATION - 1.7%
EG & G, Inc. ....................................................................... 120,000 2,497,500
The Perkin-Elmer Corporation ....................................................... 18,700 1,328,869
----------
3,826,369
ELECTRONICS - SEMICONDUCTORS - 3.7%
Altera Corporation* ................................................................ 47,000 1,556,875
Analog Devices, Inc.* .............................................................. 80,500 2,228,844
Atmel Corporation* ................................................................. 53,300 989,381
Linear Technology Corporation ...................................................... 41,000 2,362,625
Xilinx, Inc.* ...................................................................... 37,000 1,297,313
----------
8,435,038
FINANCIAL - DIVERSE - 1.1%
Sunamerica, Inc. ................................................................... 59,000 2,522,250
FOODS - 2.1%
Dole Food Company, Inc. ............................................................ 33,200 1,518,900
Interstate Bakeries ................................................................ 87,000 3,251,625
----------
4,770,525
GAMING & LOTTERY - 1.5%
Circus Circus Enterprises, Inc.* ................................................... 160,000 3,280,000
See accompanying notes.
41
<PAGE>
Schedule of Investments
December 31, 1997
SERIES J (Emerging Growth)(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Number Market
COMMON STOCKS (continued) of Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE - LONG TERM CARE - 1.5%
Integrated Health Services, Inc. ................................................... 110,000 $3,430,625
HEALTH CARE - SPECIALIZED SERVICES - 0.7%
Quintiles Transnational Corporation* ............................................... 43,800 1,675,350
HOUSEHOLD FURNISHINGS & APPLIANCES - 1.0%
Leggett & Platt, Inc. .............................................................. 51,300 2,148,188
HOUSEHOLD PRODUCTS - 0.5%
Dial Corporation ................................................................... 50,000 1,040,625
INSURANCE - LIFE/HEALTH - 2.4%
AFLAC, Inc. ........................................................................ 105,000 5,368,125
INSURANCE - PROPERTY - 1.1%
Progressive Corporation (Ohio) ..................................................... 21,000 2,517,375
INVESTMENT BANK/BROKERAGE - 1.3%
Franklin Resources, Inc. ........................................................... 35,000 3,042,812
LEISURE TIME - 0.5%
Callaway Golf Company .............................................................. 41,200 1,176,775
LODGING - HOTELS - 0.9%
La Quinta Inns, Inc. ............................................................... 101,000 1,950,562
MANUFACTURING - DIVERSIFIED - 1.8%
Carlisle Companies, Inc. ........................................................... 16,400 701,100
Illinois Tool Works, Inc. .......................................................... 57,000 3,427,125
----------
4,128,225
MANUFACTURING - SPECIALIZED - 2.6%
Diebold, Inc. ...................................................................... 37,500 1,898,437
Sealed Air Corporation* ............................................................ 39,700 2,451,475
US Filter Corporation* ............................................................. 49,750 1,489,391
----------
5,839,303
MEDICAL PRODUCTS & SUPPLIES - 2.0%
ATL Ultrasound, Inc.* .............................................................. 53,500 2,461,000
Stryker Corporation ................................................................ 43,500 1,620,375
Sunrise Medical, Inc.* ............................................................. 30,200 466,213
----------
4,547,588
NATURAL GAS - 0.8%
Sonat, Inc. ........................................................................ 42,000 1,921,500
OFFICE EQUIPMENT & SUPPLIES - 1.6%
Corporate Express, Inc.* ........................................................... 176,000 2,266,000
Herman Miller, Inc. ................................................................ 25,000 1,364,062
----------
3,630,062
OIL & GAS - DRILLING & EQUIPMENT - 2.1%
ENSCO International, Inc. .......................................................... 77,000 2,579,500
Smith International, Inc.* ......................................................... 34,500 2,117,437
----------
4,696,937
OIL & GAS EXPLORATION & PRODUCTION - 4.4%
Anadarko Petroleum Corporation ..................................................... 32,600 $1,978,412
Apache Corporation ................................................................. 135,000 4,733,438
Forcenergy, Inc.* .................................................................. 126,000 3,299,625
----------
10,011,475
PHARMACEUTICALS - 4.8%
Dura Pharmaceuticals, Inc.* ........................................................ 77,500 3,555,313
Jones Medical Industries, Inc. ..................................................... 40,000 1,530,000
Mylan Laboratories, Inc. ........................................................... 105,400 2,206,812
Teva Pharmaceutical
Industries, Ltd. ADR ............................................................... 75,000 3,548,438
----------
10,840,563
RAILROADS - 0.5%
Illinois Central Corporation ....................................................... 33,000 1,124,063
RETAIL - COMPUTERS & ELECTRONICS - 0.6%
Comp USA, Inc.* .................................................................... 47,000 1,457,000
RETAIL - DEPARTMENT STORES - 0.4%
Family Dollar Stores, Inc. ......................................................... 31,000 908,687
RETAIL - GENERAL MERCHANDISE - 1.2%
Dollar Tree Stores, Inc.* .......................................................... 67,500 2,792,811
RETAIL - SPECIALTY - 4.7%
Bed Bath & Beyond, Inc.* ........................................................... 32,500 1,251,250
General Nutrition Companies, Inc.* ................................................. 77,000 2,618,000
Payless Shoesource, Inc.* .......................................................... 39,000 2,617,875
Staples, Inc.* ..................................................................... 119,250 3,309,187
Tiffany & Company .................................................................. 19,500 703,219
----------
10,499,531
SERVICES - ADVERTISING/MARKETING - 1.8%
Acxiom Corporation* ................................................................ 22,000 423,500
Omnicom Group, Inc. ................................................................ 85,000 3,601,875
----------
4,025,375
SERVICES - COMMERCIAL & CONSUMER - 4.7%
Angelica Corporation ............................................................... 16,500 373,312
Apollo Group, Inc.* ................................................................ 56,000 2,646,000
Cintas Corporation ................................................................. 52,000 2,028,000
Manpower, Inc. ..................................................................... 43,000 1,515,750
Robert Half International, Inc.* ................................................... 47,250 1,890,000
Stewart Enterprises, Inc. (CI. A) .................................................. 49,000 2,284,625
----------
10,737,687
SERVICES - COMPUTER SYSTEMS - 0.6%
Sungard Data Systems, Inc.* ........................................................ 45,000 1,395,000
SERVICES - DATA PROCESSING - 1.8%
Fiserv, Inc.* ...................................................................... 25,500 1,252,687
Paychex, Inc. ...................................................................... 56,100 2,840,063
----------
4,092,750
TELECOMMUNICATION - LONG DISTANCE - 1.1%
LCI International, Inc.* ........................................................... 83,200 2,558,400
See accompanying notes.
42
<PAGE>
Schedule of Investments
December 31, 1997
SERIES J (Emerging Growth)(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Principal
Amount or
Number Market
COMMON STOCKS (continued) of Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
WASTE MANAGEMENT - 1.6%
U.S.A. Waste Services, Inc.* ....................................................... 92,200 $ 3,618,850
------------
Total common stocks - 93.0% ............................................................................ 210,447,459
Cash and other assets, less liabilities - 7.0% ......................................................... 15,849,981
------------
Total net assets - 100.0% .............................................................................. $226,297,440
============
SERIES K (Global Aggressive Bond)
- ------------------------------------------------------------------------------------------------------------------------------------
GOVERNMENT OBLIGATIONS
- ----------------------
ARGENTINA - 5.0%
Republic of Argentina, 5.50% - 2023(5) ............................................. $ 1,000,000 $ 733,750
BRAZIL - 4.9%
Government of Brazil "C", 4.50% - 2014(6) .......................................... $ 912,208 716,083
COSTA RICA - 2.6%
Banco Costa Rica, 6.25% - 2010 ..................................................... $ 459,015 380,982
DOMINICAN REPUBLIC - 4.6%
Central Bank of Dominican Republic, 6.875% - 2024(7) ............................... $ 850,000 680,000
ECUADOR - 2.6%
Republic of Ecuador, 6.6875% - 2025(7) ............................................. $ 500,000 377,604
GREECE - 7.2%
Hellenic Republic, 11.00% - 2003(2) ................................................ 310,000,000 1,056,640
HUNGARY - 6.0%
Government of Hungary,
21.00% - 1999(2) .............................................................. 40,000,000 204,173
23.00% - 1999(2) .............................................................. 130,000,000 670,947
----------
875,120
MEXICO - 2.8%
United Mexican States, 6.25% - 2019 ................................................ $ 500,000 417,188
PHILIPPINES - 3.5%
Central Bank Philippines, 6.00% - 2008 ............................................. $ 600,000 521,836
POLAND - 3.0%
Government of Poland, 16.00% - 1998(2) ............................................. 1,675,000 443,541
SOUTH AFRICA - 6.3%
Electricity Supply Commission, 11.00% - 2008(2) .................................... 2,600,000 $ 450,692
Republic of South Africa, 12.00% - 2005(2) ......................................... 2,500,000 474,386
----------
925,078
UNITED KINGDOM - 4.2%
United Kingdom Treasury Bond, 7.50% - 2006(2) ...................................... 350,000 620,162
----------
Total government obligations - 52.7% ................................................................... 7,747,984
CORPORATE BONDS
- ---------------
CANADA - 7.4%
CHC Helicopter, 11.50% - 2002 ...................................................... $ 500,000 533,750
Roger's Communication, Inc., 10.50% - 2006 ......................................... $ 500,000 377,276
Stelco, Inc., 10.40% - 2009 ........................................................ $ 200,000 180,903
----------
1,091,929
CZECH REPUBLIC - 3.7%
CEZ, a.s., 11.30% - 2005(2) ........................................................ 13,000,000 325,071
Skofin, S.R.O., a.s., 11.625% - 1998(2) ............................................ 7,700,000 218,902
----------
543,973
DENMARK - 9.9%
Nykredit, 7.00% - 2026(2) .......................................................... 3,454,609 504,780
Realkredit Danmark, 7.00% - 2026(2) ................................................ 3,458,412 506,346
Unikredit Realkredit, 7.00% - 2026(2) .............................................. 2,982,500 437,321
----------
1,448,447
UNITED STATES - 15.5%
Archibald Candy Corporation, 10.25% - 2004 ......................................... $ 500,000 522,500
BA Mortgage Securities 1997-2 B4, 7.25% - 2027 ..................................... $ 499,002 356,007
Chiquita Brands International, Inc., 10.25% - 2006 ................................. $ 250,000 273,125
Citicorp Mortgage Securities, Inc., 7.25% - 2027 ................................... $ 408,448 287,270
Countrywide Home Loans, 7.50% - 2027 ............................................... $ 701,717 650,843
Residential Asset Securitization Trust, 7.50% - 2011 ............................... $ 231,709 184,453
----------
2,274,198
----------
Total corporate bonds - 36.5% .......................................................................... 5,358,547
See accompanying notes.
43
<PAGE>
Schedule of Investments
December 31, 1997
SERIES K (Global Aggresive Bond)(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Principal
Amount or
Number Market
SHORT TERM INVESTMENTS of Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
MEXICO - 2.9%
Mexican Cetes, 0% - 3-5-98(2) ...................................................... 3,600,000 $ 432,169
TURKEY - 2.7%
Government of Turkey Treasury Bill, 0% -5-27-98(2) ................................. 110,000,000,000 393,945
UNITED STATES - 0.6%
United States Treasury Bill, 0% - 01-22-98 ......................................... $ 100,000 99,717
----------
Total short-term investments - 6.2% .................................................................... 925,831
----------
Total investments - 95.4% .............................................................................. 14,032,362
WRITTEN OPTIONS
- ---------------
Call option on Government of Brazil "C" Bond, strike price
77.8125 USD - January 1998 (premium $19,300) - 0.0% ................................................... (25,186)
Cash and other assets, less liabilities - 4.6% ........................................................ 671,495
------------
Total net assets - 100% ............................................................................... $ 14,678,671
============
SERIES M (Specialized Asset Allocation)
- ------------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS
- ---------------
BANKS & CREDITS - 4.2%
Citicorp, 7.125% - 2003 ............................................................ $ 1,000,000 $1,033,750
Star Bank Cincinnati, 6.375% - 2004 ................................................ $ 1,000,000 1,000,000
----------
2,033,750
BROKERAGE - 0.6%
Merrill Lynch & Company, Inc., 8.00% - 2007 ........................................ $ 250,000 277,188
COMMUNICATIONS - 0.1%
News America Holdings, 8.625% - 2003 ............................................... $ 40,000 43,700
FINANCIAL SERVICES - 0.3%
MCN Investment Corporation, 6.32% - 2003 ........................................... $ 125,000 124,375
INDUSTRIAL SERVICES - 4.1%
Black & Decker, 7.50% - 2003 ....................................................... $ 1,000,000 1,045,000
Rite Aid Corporation, 6.70% - 2001 ................................................. $ 400,000 406,000
Xerox Corporation, 8.125% - 2002 ................................................... $ 500,000 535,000
----------
1,986,000
INSURANCE - 2.3%
Hartford Life, Inc., 7.10% - 2007 .................................................. $ 1,100,000 1,131,625
PETROLEUM - 0.2%
Occidental Petroleum Corporation, 6.24% - 2000 ..................................... $ 110,000 $ 110,137
RENTAL AUTO/EQUIPMENT - 2.3%
Hertz Corporation, 7.00% - 2004 .................................................... $ 1,100,000 1,128,875
TELECOMMUNICATIONS - 1.1%
U.S. West Capital Funding, Inc., 7.30% - 2007 ...................................... $ 500,000 515,000
TRANSPORTATION - NON-RAIL - 1.1%
Airborne Freight Corporation, 7.35% - 2005 ......................................... $ 500,000 511,250
----------
Total corporate bonds - 16.3% .......................................................................... 7,861,900
COMMON STOCKS
- -------------
BIOTECHNOLOGY - 1.5%
Amgen, Inc.* ....................................................................... 2,800 151,550
Centocor, Inc.* .................................................................... 3,300 109,725
Chiron Corporation* ................................................................ 7,400 125,800
Genome Therapeutics Corporation* ................................................... 16,800 106,050
Genzyme Corporation* ............................................................... 2,600 72,150
Intercardia, Inc.* ................................................................. 3,100 55,413
Millennium Pharmaceutical, Inc.* ................................................... 3,400 64,600
NeXstar Pharmaceuticals, Inc.* ..................................................... 5,100 58,012
----------
743,300
BROADCAST MEDIA - 1.3%
TCI Satellite Entertainment, Inc.* ................................................. 1,200 8,250
Tele-Communications, Inc.* ......................................................... 12,000 335,250
U.S. West Media Group* ............................................................. 10,000 288,750
----------
632,250
COMPUTERS - NETWORKING - 1.8%
Bay Networks, Inc.* ................................................................ 9,400 240,288
3Com Corporation* .................................................................. 6,600 230,587
Cabletron Systems, Inc.* ........................................................... 9,800 147,000
Cisco Systems, Inc.* ............................................................... 4,950 275,963
----------
893,838
COMPUTERS - PERIPHERALS - 1.9%
EMC Corporation* ................................................................... 6,000 64,625
Iomega Corporation* ................................................................ 8,600 106,963
Lexmark International Group, Inc.* ................................................. 4,900 186,200
Quantum Corporation* ............................................................... 7,000 140,437
Read-Rite Corporation* ............................................................. 4,200 66,150
Seagate Technology, Inc.* .......................................................... 2,400 46,200
Storage Technology Corporation* .................................................... 3,300 204,394
----------
914,969
See accompanying notes.
44
<PAGE>
Schedule of Investments
December 31, 1997
SERIES M (Specialized Asset Allocation)(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Principal
Amount or
Number Market
COMMON STOCKS (continued) of Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE - 1.5%
Beneficial Corporation ............................................................. 1,600 $ 133,000
Capital One Financial Corporation .................................................. 2,600 140,888
Contifinancial Corporation* ........................................................ 4,200 105,787
Greentree Financial Corporation .................................................... 2,800 73,325
Household International, Inc. ...................................................... 1,100 140,319
MBNA Corporation ................................................................... 4,500 122,906
----------
716,225
ENTERTAINMENT - 1.9%
King World Productions, Inc. ....................................................... 4,300 248,325
Time Warner, Inc. .................................................................. 5,000 310,000
Viacom, Inc.* ...................................................................... 6,000 245,250
The Walt Disney Company ............................................................ 1,200 118,875
----------
922,450
GAMING & LOTTERY - 2.2%
Circus Circus Enterprises, Inc.* ................................................... 8,900 182,450
Harrah's Entertainment, Inc.* ...................................................... 13,300 251,038
International Game Technology ...................................................... 14,400 363,600
Mirage Resorts, Inc.* .............................................................. 10,900 247,975
----------
1,045,063
GOLD COMPANIES - 5.5%
Barrick Gold Corporation ........................................................... 24,400 454,450
Battle Mountain Gold Company ....................................................... 90,000 528,750
Echo Bay Mines, Ltd.* .............................................................. 99,000 241,313
Hecla Mining Company* .............................................................. 24,500 120,969
Homestake Mining Company ........................................................... 39,000 346,125
Newmont Mining Corporation ......................................................... 14,700 431,812
Placer Dome, Inc. .................................................................. 34,400 436,450
Stillwater Mining Company* ......................................................... 6,600 110,550
----------
2,670,419
LEISURE TIME PRODUCTS - 0.7%
Brunswick Corporation .............................................................. 6,400 194,000
Callaway Golf Company .............................................................. 5,300 151,381
----------
345,381
LONG-TERM HEALTH CARE - 1.9%
Beverly Enterprises* ............................................................... 6,900 89,700
Genesis Health Ventures, Inc.* ..................................................... 6,400 168,800
Healthsouth Corporation* ........................................................... 9,675 268,481
Health Care and Retirements Corporation* ........................................... 3,100 124,775
Integrated Health Services, Inc. ................................................... 4,300 134,106
Mariner Health Group, Inc.* ........................................................ 9,000 146,250
PharMerica, Inc.* .................................................................. 1 2
----------
932,114
MANAGED HEALTH CARE - 1.2%
Express Scripts, Inc.* ............................................................. 3,100 186,000
Healthcare Compare Corporation* .................................................... 3,100 158,488
Oxford Health Plans* ............................................................... 2,100 32,681
Pacificare Health Systems, Inc.* ................................................... 1,600 83,800
United Healthcare Corporation ...................................................... 2,600 129,187
----------
590,156
RESTAURANTS - 2.1%
Applebees International, Inc. ...................................................... 3,000 $ 54,188
Brinker International, Inc.* ....................................................... 12,000 192,000
CKE Restaurants, Inc. .............................................................. 2,750 115,844
Cracker Barrel Old Country
Store, Inc. ........................................................................ 5,000 166,875
McDonald's Corporation ............................................................. 2,500 119,375
Outback Steakhouse, Inc.* .......................................................... 5,000 143,750
Ryan's Family Steak House, Inc.* ................................................... 10,000 85,625
Wendy's International, Inc. ........................................................ 5,000 120,312
----------
997,969
RETAIL - SPECIALTY - 1.4%
AutoZone, Inc.* .................................................................... 3,500 101,500
Claire's Stores .................................................................... 4,100 79,693
OfficeMax, Inc.* ................................................................... 7,200 102,600
The Pep Boys - Manny, Moe & Jack ................................................... 3,800 90,725
Staples, Inc.* ..................................................................... 3,600 99,900
Toys "R" Us, Inc.* ................................................................. 2,900 91,169
Viking Office Products, Inc.* ...................................................... 4,300 93,794
----------
659,381
TELECOMMUNICATIONS - 1.8%
Ameritech Corporation .............................................................. 2,200 177,100
Bell Atlantic Corporation .......................................................... 1,804 164,164
Bellsouth Corporation .............................................................. 2,900 163,306
GTE Corporation .................................................................... 3,100 161,975
SBC Communication, Inc. ............................................................ 2,560 187,520
----------
854,065
TRUCKING - 1.6%
Caliber System, Inc. ............................................................... 4,200 204,487
Rollins Truck Leasing Corporation .................................................. 9,500 169,813
Ryder System, Inc. ................................................................. 4,000 131,000
USFreightways Corporation .......................................................... 4,800 156,000
Werner Enterprises, Inc. ........................................................... 6,600 135,300
----------
796,600
TRUCKING PARTS & SUPPLIES - 2.1%
Cummins Engine Company, Inc. ....................................................... 3,700 218,531
Navistar International Corporation* ................................................ 18,900 468,956
PACCAR, Inc. ....................................................................... 6,200 325,500
----------
1,012,987
----------
Total common stocks - 30.4% ............................................................................ 14,727,167
U.S. GOVERNMENT AGENCIES
- ------------------------
FEDERAL HOME LOAN MORTGAGES - 0.8%
6.00% - 2006 .................................................................. $ 57,863 57,348
7.00% - 2020 .................................................................. $ 250,000 250,598
7.00% - 2021 .................................................................. $ 100,000 99,784
----------
407,730
See accompanying notes.
45
<PAGE>
Schedule of Investments
December 31, 1997
SERIES M (Specialized Asset Allocation)(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Principal
Amount or
Number Market
U.S. GOVERNMENT AGENCIES (continued) of Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 2.0%
7.17% - 2007 .................................................................. $ 500,000 $ 507,950
6.50% - 2018 .................................................................. $ 140,000 138,250
6.95% - 2020 .................................................................. $ 170,000 169,609
7.50% - 2020 .................................................................. $ 160,000 162,683
----------
978,492
U.S. TREASURY NOTE - 1.7%
6.875% - 1999 ................................................................. $ 800,000 815,016
----------
Total U.S. government & government agencies - 4.5% ..................................................... 2,201,238
REAL ESTATE INVESTMENT TRUSTS
- -----------------------------
American Health Properties, Inc. ................................................... 4,600 126,787
Avalon Properties, Inc. ............................................................ 4,000 123,750
CBL & Associates Properties Trust .................................................. 4,600 113,562
Duke Realty Investment, Inc. ....................................................... 5,700 138,225
Equity Residential Properties, Inc. ................................................ 2,300 116,294
Federal Realty Investment Trust .................................................... 4,350 112,012
General Growth Property, Inc. ...................................................... 3,550 128,244
Glimcher Realty Trust .............................................................. 5,550 125,222
Health Care Property Investors, Inc. ............................................... 3,200 121,000
Kimco Realty Corporation ........................................................... 3,600 126,900
Merry Land & Investment Company .................................................... 5,200 118,950
New Plan Realty Trust .............................................................. 5,100 130,050
Post Properties, Inc. .............................................................. 2,850 115,781
Public Storage, Inc. ............................................................... 3,800 111,625
Security Capital Pacific Trust ..................................................... 5,100 123,675
Security Capital Pacific Trust - Warrants .......................................... 268 1,407
Simon Debartolo Group, Inc. ........................................................ 3,700 120,944
Spieker Properties, Inc. ........................................................... 3,200 137,200
United Realty Trust Dominion ....................................................... 7,700 107,319
Washington Real Estate Investment Trust ............................................ 6,400 107,200
Weingarten Realty Investors ........................................................ 2,700 120,994
----------
Total real estate investment trusts - 5.0% ............................................................. 2,427,141
FOREIGN STOCKS
- --------------
BELGIUM - 5.8%
Bekaert SA ......................................................................... 50 29,757
Cementbedrijven Cimenteries ........................................................ 600 53,927
Compagnie Benelux Paribas SA (COBEPA) .............................................. 900 40,931
Delhaize - Le Lion ................................................................. 1,550 78,651
Electrabel ......................................................................... 1,900 439,488
Fortis AG .......................................................................... 1,750 365,116
Gevaert Photo Productions .......................................................... 900 41,296
Groupe Bruxelles Lambert ........................................................... 700 101,269
Kredietbank ........................................................................ 1,050 440,689
Petrofina SA ....................................................................... 1,050 $ 387,552
Royale Belgium ..................................................................... 650 185,088
Solvay SA .......................................................................... 5,000 314,441
Tractebel Investment International ................................................. 3,500 305,129
Union Miniere* ..................................................................... 500 34,683
----------
2,818,017
DENMARK - 5.6%
A/S Dampskibssellskabet Svendborg .................................................. 4 261,712
A/S Forsikringsselskabet Codan ..................................................... 514 72,440
Aktieselskabet Potagua ............................................................. 1,605 42,661
Bang & Olufsen Holding A/S ......................................................... 927 55,236
BG Bank A/S ........................................................................ 1,515 102,000
Carlsberg A/S ...................................................................... 2,240 121,163
Cheminova Holding A/S .............................................................. 2,433 57,208
D/S Norden A/S ..................................................................... 398 47,954
Danisco A/S ........................................................................ 2,768 153,616
Danske Traelast .................................................................... 616 54,878
Den Danske Bank .................................................................... 2,779 370,549
Finansierings Instituttet for Industri og Handvaerk A/S ............................ 2,146 56,414
Finansieringsselskabet Gefion A/S .................................................. 2,728 51,395
FLS Industries A/S ................................................................. 2,409 57,488
ISS International Service System A/S* .............................................. 1,682 61,903
J. Lauritzen Holding A/S* .......................................................... 1,007 84,564
Jyske Bank A/S ..................................................................... 692 84,388
Korn-OG Foderstof Kompangniet A/S .................................................. 1,736 48,171
Novo Nordisk A/S ................................................................... 2,989 427,797
Radiometer A/S ..................................................................... 1,067 43,321
Sophus Berendsen A/S ............................................................... 996 164,371
Sydbank A/S ........................................................................ 1,224 69,716
Tele Danmark A/S ................................................................... 1,073 66,600
Topdanmark A/S* .................................................................... 345 65,501
Tryg-Baltica Forsikring A/S ........................................................ 1,449 94,266
----------
2,715,312
GERMANY - 8.1%
Allianz AG ......................................................................... 2,140 552,245
BASF AG ............................................................................ 7,919 282,752
Bayer AG ........................................................................... 5,365 199,169
Bayerische Motoren Werke (BMW) AG .................................................. 300 224,411
Continental AG ..................................................................... 1,198 26,984
Daimler-Benz AG .................................................................... 2,850 201,302
Degussa AG ......................................................................... 860 42,569
Deutsche Bank AG ................................................................... 5,108 357,381
Deutsche Telekom AG ................................................................ 18,700 346,327
Dresdner Bank AG ................................................................... 4,589 208,772
Friedrich Grohe AG- Vorzugsak ...................................................... 43 10,762
Heidelberger Zement AG ............................................................. 518 36,328
Hochtief AG ........................................................................ 1,070 44,037
Linde AG ........................................................................... 86 52,182
See accompanying notes.
46
<PAGE>
Schedule of Investments
December 31, 1997
SERIES M (Specialized Asset Allocation)(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Number Market
FOREIGN STOCKS (continued) of Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
GERMANY (continued)
Merck KGAA ......................................................................... 1,113 $ 37,450
Muenchener Rueckversicherungs-Gesellschaft AG ...................................... 430 163,578
Preussag AG ........................................................................ 428 131,634
SAP AG ............................................................................. 728 220,864
Siemens AG ......................................................................... 7,662 462,351
Veba AG ............................................................................ 4,766 324,706
----------
3,925,804
ITALY - 7.1%
Assicurazioni Gererali ............................................................. 12,650 310,884
Banco Ambrosiano Veneto ............................................................ 9,000 34,463
Banco Commerciale Italiane ......................................................... 37,000 128,705
Benetton Group SPA ................................................................. 2,600 42,574
Credito Italiano ................................................................... 37,500 115,703
Edison SPA ......................................................................... 19,000 114,989
ENI SPA ............................................................................ 32,600 184,943
Fiat SPA ........................................................................... 77,000 224,076
Ina-Instituto Naz Assicuraz ........................................................ 115,977 235,169
Instituto Bancario San Paolo di Torino ............................................. 12,500 119,485
Instituto Mobiliare Italiano ....................................................... 11,441 135,894
Mediobanca ......................................................................... 23,000 180,696
Montedison SPA ..................................................................... 51,800 46,556
Olivetti Group* .................................................................... 27,200 16,446
Pirelli SPA ........................................................................ 85,000 227,404
Ras-Riun Adriat Di Sicurta ......................................................... 4,500 44,160
Sirti SPA .......................................................................... 4,000 24,208
Telecom Italia Mobile SPA - RNC .................................................... 27,614 78,563
Telecom Italia Mobile SPA .......................................................... 138,200 638,238
Telecom Italia SPA - RNC ........................................................... 11,625 51,287
Telecom Italia SPA ................................................................. 72,220 461,588
----------
3,416,031
JAPAN - 12.2%
All Nippon Airways Company, Ltd .................................................... 16,000 61,529
Asahi Glass Company, Ltd. .......................................................... 16,000 76,295
Bank of Tokyo-Mitsubishi, Ltd. ..................................................... 16,000 221,503
Bank of Yokohama, Ltd. ............................................................. 9,000 23,812
Bridgestone Corporation ............................................................ 4,000 87,063
Canon, Inc. ........................................................................ 4,000 93,523
Chubu Electric Power Company, Inc. ................................................. 4,800 73,465
Dai Nippon Printing Company, Ltd. .................................................. 5,000 94,215
Daiei, Inc. ........................................................................ 8,000 33,225
East Japan Railway Company ......................................................... 10 45,300
Fanuc, Ltd. ........................................................................ 900 34,194
Fuji Bank, Ltd. .................................................................... 15,000 60,913
Fuji Photo Film Company ............................................................ 2,000 76,911
Fujitsu, Ltd. ...................................................................... 9,000 96,907
Hitachi, Ltd. ...................................................................... 17,000 121,596
Honda Motor Company, Ltd. .......................................................... 5,000 184,201
Industrial Bank of Japan, Ltd. ..................................................... 13,000 92,985
Ito-Yokado Company, Ltd. ........................................................... 1,000 51,146
Japan Airlines Company, Ltd.* ...................................................... 16,000 43,685
Kansai Electric Power Company ...................................................... 5,000 $ 84,986
Kawasaki Heavy Industries .......................................................... 16,000 24,858
Kawasaki Steel Corporation ......................................................... 49,000 67,081
Kinki Nippon Railway Company, Ltd. ................................................. 20,000 107,213
Kirin Brewery Company, Ltd. ........................................................ 10,000 73,065
Komatsu, Ltd. ...................................................................... 8,000 40,301
Kyocera Corporation ................................................................ 2,000 91,062
Marubeni Corporation ............................................................... 24,000 42,270
Marui Company, Ltd. ................................................................ 3,000 46,839
Matsushita Electric Industrial Company, Ltd. ....................................... 12,000 176,279
Mitsubishi Corporation ............................................................. 21,000 166,358
Mitsubishi Estate Company, Ltd ..................................................... 8,000 87,370
Mitsubishi Heavy Industrial, Ltd. .................................................. 26,000 108,782
Mitsubishi Motors Corporation ...................................................... 17,000 57,529
Mitsui Fudosan Company, Ltd. ....................................................... 9,000 87,217
NEC Corporation .................................................................... 10,000 106,906
Nippon Oil Company, Ltd. ........................................................... 16,000 41,470
Nippon Steel Corporation ........................................................... 47,000 69,766
Nippon Telegraph & Telephone Corporation ........................................... 30 258,420
Nippondenso Company, Ltd. .......................................................... 5,000 90,370
Nissan Motor Company, Ltd. ......................................................... 16,000 66,451
Normura Securities Company, Ltd. ................................................... 12,000 160,589
Sankyo Company, Ltd. ............................................................... 3,000 68,066
Secom Company, Ltd. ................................................................ 1,000 64,143
Seibu Railway, Ltd. ................................................................ 4,000 175,356
Sekisui House, Ltd. ................................................................ 18,000 116,150
Seven-Eleven Japan Company, Ltd. ................................................... 2,000 142,131
Sharp Corporation .................................................................. 8,000 55,253
Shin-Etsu Chemical Company ......................................................... 5,000 95,754
Sony Corporation ................................................................... 1,600 142,746
Sumitomo Bank, Ltd. ................................................................ 20,000 229,194
Sumitomo Chemical Company .......................................................... 23,000 53,068
Taisho Pharmaceutical Company, Ltd. ................................................ 3,000 76,834
Takeda Chemical Industries ......................................................... 4,000 114,443
Tokai Bank, Ltd. ................................................................... 9,000 42,085
Tokio Marine & Fire Insurance Company .............................................. 10,000 113,828
Tokyo Electric Power Company ....................................................... 14,500 265,418
Tokyu Corporation .................................................................. 25,000 96,907
Toshiba Corporation ................................................................ 17,000 70,996
Toyoda Automatic Loom Works, Ltd. .................................................. 3,000 55,376
Toyota Motor Corporation ........................................................... 10,000 287,646
----------
5,893,044
----------
Total foreign stocks - 38.8% ........................................................................... 18,768,208
See accompanying notes.
47
<PAGE>
Schedule of Investments
December 31, 1997
SERIES M (Specialized Asset Allocation)(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Principal
Amount or
Number Market
FOREIGN WARRANTS of Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
Gevaert NV, Warrants - 2000 ........................................................ 900 $ 4,032
Tractebel Warrants - 1999 .......................................................... 600 1,539
----------
Total foreign warrants - 0.0% .......................................................................... 5,571
TEMPORARY CASH INVESTMENTS
- --------------------------
FEDERAL MORTGAGE CORPORATION DISCOUNT NOTE - 3.1%
5.59% - 2-20-98 ............................................................... $ 1,500,000 1,488,523
MONEY MARKET FUND - 1.6%
Vista Federal Money Market Fund .................................................... 765,000 765,000
------------
Total temporary cash investments - 4.7% ..................................................................... 2,253,523
------------
Total investments - 99.7% .............................................................................. 48,244,748
Cash and other assets, less liabilities - 0.3% ......................................................... 134,062
------------
Total net assets - 100% ................................................................................ $ 48,378,810
============
SERIES N (Managed Asset Allocation)
- ------------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS
- ---------------
ADVERTISING - 0.1%
ITT Publimedia, 9.375% - 2007 ...................................................... $ 50,000 $ 52,625
AEROSPACE/DEFENSE - 0.4%
B.E. AeroSpace, 9.875% - 2006 ...................................................... $ 35,000 36,925
Raytheon Company, 6.50% - 2005 ..................................................... $ 100,000 100,625
----------
137,550
AUTOMOBILES - 0.1%
Venture Holdings Trust, 9.50% - 2005 ............................................... $ 50,000 50,375
BANKS & CREDIT - 0.4%
B.F. Saul Reit, 11.625% - 2002 ..................................................... $ 50,000 53,375
Banker's Trust - NY, 7.25% - 2003 .................................................. $ 100,000 103,375
----------
156,750
BROADCAST MEDIA - 0.1%
American Radio Systems, 9.00% - 2006 ............................................... $ 50,000 53,375
BUILDING/CONSTRUCTION PRODUCTS - 0.1%
Synthetic Industries, 9.25% - 2007 ................................................. $ 50,000 52,875
BUILDING MATERIALS - 0.1%
Falcon Building, 9.50% - 2007 ...................................................... $ 50,000 $ 51,500
CABLE SYSTEMS - 0.8%
Comcast Cable Communications, 8.125% - 2004 ........................................ 100,000 107,625
Frontiervision, 11.00% - 2006 ...................................................... 50,000 55,625
Fundy Cable, Ltd., 11.00% - 2005 ................................................... 50,000 53,875
Marcus Cable Operating Company, 0.00% - 2004(1)..................................... 50,000 46,500
Northland Cable Television, 10.25% - 2007 .......................................... 50,000 52,688
----------
316,313
CHEMICALS - SPECIALTY - 0.3%
Agricultural Minerals & Chemicals, 10.75% - 2003 ................................... 50,000 53,625
Sterling Chemicals, Inc., 11.25% - 2007 ............................................ 50,000 52,750
----------
106,375
COAL MINING - 0.1%
AEI Holdings, 10.00% - 2007 ........................................................ 50,000 51,250
COMMERCIAL SERVICES - 0.1%
Dyncorp, Inc., 9.50% - 2007 ........................................................ 50,000 50,750
CONSUMER GOODS & SERVICES - 0.6%
Coinmach Corporation Series B, 11.75% - 2005 ....................................... 50,000 55,250
Doane Products Company, 10.625% - 2006 ............................................. 50,000 53,313
Revlon Consumer Products Company, 10.50% - 2003 .................................... 75,000 79,031
Windy Hill Pet Food Company, 9.75% - 2007 .......................................... 50,000 52,000
----------
239,594
COSMETICS - 0.3%
American Safety Razor Company, 9.875% - 2005 ....................................... 100,000 106,625
ELECTRIC UTILITIES - 1.3%
Florida Power & Light Company, 5.70% - 1998 ........................................ 100,000 100,000
Midwest Power System, 7.125% - 2003 ................................................ 140,000 145,425
Monongahela Power, 8.50% - 2022 .................................................... 100,000 105,125
Southern California Edison, 6.50% - 2001 ........................................... 50,000 50,438
Texas Utilities, 5.875% - 1998 ..................................................... 110,000 110,000
----------
510,988
See accompanying notes.
48
<PAGE>
Schedule of Investments
December 31, 1997
SERIES N (Managed Asset Allocation)(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Principal Market
CORPORATE BONDS (continued) Amount Value
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRONICS - 0.5%
Celestica International, 10.50% - 2006 ............................................. $ 25,000 $ 27,062
Communications & Power Industry, 12.00% - 2005 ..................................... 50,000 55,625
Fairchild Semiconductor, 10.125% - 2007 ............................................ 50,000 52,750
Viasystems, Inc., 9.75% - 2007 ..................................................... 50,000 51,563
----------
187,000
ENTERTAINMENT - 0.8%
AMC Entertainment, Inc., 9.50% - 2009 .............................................. 50,000 51,688
Six Flags Theme Parks, 0.00% - 2005(1).............................................. 75,000 78,281
Time Warner Entertainment, 7.25% - 2008 ............................................ 100,000 104,625
United Artists Theatre, 9.30% - 2015 ............................................... 48,706 49,741
----------
284,335
ENVIRONMENTAL - 0.2%
Allied Waste North America, 10.25% - 2006 .......................................... 50,000 54,687
FINANCIAL SERVICES - 1.2%
Conseco, Inc., 8.125% - 2003 ....................................................... 100,000 105,750
Intertek Finance PLC, 10.25% - 2006 ................................................ 50,000 52,250
New York Life Insurance, 7.50% - 2023 .............................................. 100,000 103,875
Ocwen Capital Trust, 10.875% - 2027 ................................................ 100,000 108,125
Salomon, Inc., 6.75% - 2003 ........................................................ 100,000 101,125
----------
471,125
FOOD & BEVERAGES - 0.4%
Ameriserve Food Distributors, 10.125% - 2007 ....................................... 50,000 52,375
Archibald Candy Corporation, 10.25% - 2004 ......................................... 50,000 52,250
Aurora Foods, Inc., 9.875% - 2007 .................................................. 50,000 52,625
----------
157,250
FOOD WHOLESALERS - 0.3%
Price/Costco, Inc., 7.125% - 2005 .................................................. 100,000 104,500
HEALTH CARE - SERVICES - 0.1%
Vencor, Inc., 8.625% - 2007 ........................................................ 50,000 50,000
HOTEL/MOTEL - 0.6%
Courtyard by Marriott, 10.75% - 2008 ............................................... 50,000 54,938
Grand Casinos, 10.125% - 2003 ...................................................... 50,000 53,937
Host Marriott Travel Plaza, 9.50% - 2005 ........................................... 50,000 53,125
Rio Hotel & Casino, Inc.,
10.625% - 2005 ................................................................ 30,000 32,400
9.50% - 2007 .................................................................. 25,000 26,500
----------
220,900
LEASING - 0.3%
Penske Truck Leasing, 6.65% - 2000 ................................................. 100,000 101,500
MANUFACTURING - 0.2%
International Wire Group, 11.75% - 2005 ............................................ 50,000 54,625
MEDICAL - 0.2%
Owens & Minor, Inc., 10.875% - 2006 ................................................ 25,000 27,562
Quest Diagnostic, Inc., 10.75% - 2006 .............................................. 25,000 27,375
----------
54,937
METALS & MINERALS - 0.4%
Freeport McMoran Resources, 7.00% - 2008 ........................................... 50,000 50,063
Haynes International, Inc., 11.625% - 2004 ......................................... 50,000 57,625
Maxxam Group, Inc., 11.25% - 2003 .................................................. 50,000 53,000
----------
160,688
MISCELLANEOUS - 0.3%
Energy Corporation of America, 9.50% - 2007 ........................................ 50,000 50,000
McDonald's Corporation, 6.625% - 2005 .............................................. 50,000 51,000
----------
101,000
OIL - 0.3%
Kelley Oil & Gas Corporation, 10.375% - 2006 ....................................... 50,000 53,250
Pride Petroleum Services, Inc., 9.375% - 2007 ...................................... 50,000 53,750
----------
107,000
PACKAGING & CONTAINERS - 0.6%
Bway Corporation, 10.25% - 2007 .................................................... 50,000 54,063
Container Corporation of America, 10.75% - 2002 .................................... 100,000 109,000
Plastic Containers, Inc., 10.00% - 2006 ............................................ 25,000 26,312
U.S. Can Corporation, 10.125% - 2006 ............................................... 50,000 52,750
----------
242,125
See accompanying notes.
49
<PAGE>
Schedule of Investments
December 31, 1997
SERIES N (Managed Asset Allocation)(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Principal
Amount or
Number Market
CORPORATE BONDS (continued) of Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
PUBLISHING - 0.1%
Sun Media Corporation, 9.50% - 2007 ................................................ $ 50,000 $ 53,625
RETAIL - SPECIALTY - 0.3%
Safelite Glass Corporation, 9.875% - 2006 .......................................... $ 49,693 54,414
Specialty Retailers, 8.50% - 2005 .................................................. $ 50,000 50,875
----------
105,289
TELECOMMUNICATIONS - 0.7%
Lucent Technologies, Inc., 6.90% - 2001 ............................................ $ 100,000 102,500
Sprint Spectrum LP, 11.00% - 2006 .................................................. $ 100,000 112,250
Telewest Communication PLC, 0.00% - 2007(1) ........................................ $ 50,000 39,000
----------
253,750
TEXTILES - 0.3%
Dan River, Inc., 10.125% - 2003 .................................................... $ 50,000 53,375
Dyersburg Corporation, 9.75% - 2007 ................................................ $ 50,000 52,375
----------
105,750
TRANSPORTATION - 0.1%
Stena AB, 8.75% - 2007 ............................................................. $ 50,000 50,625
TRANSPORTATION - MISCELLANEOUS - 0.1%
Sea Containers, Ltd., 12.50% - 2004 ................................................ $ 30,000 34,012
----------
Total corporate bonds - 12.8% .......................................................................... 4,891,668
COMMON STOCKS
- -------------
AEROSPACE/DEFENSE - 0.5%
Boeing Company ..................................................................... 2,515 123,058
Lockheed Martin Corporation ........................................................ 500 49,250
Northrop Grumman Corporation ....................................................... 200 23,000
Raytheon Company (CI. A)* .......................................................... 121 5,975
----------
201,283
AGRICULTURAL PRODUCTS - 0.1%
Archer-Daniels-Midland Company ..................................................... 1,801 39,059
AIRLINES - 0.3%
AMR Corporation* ................................................................... 400 51,400
Delta Air Lines, Inc. .............................................................. 200 23,800
KLM Royal Dutch Air Lines NV ADR ................................................... 800 30,200
----------
105,400
ALUMINUM - 0.1%
Aluminum Company of America ........................................................ 600 42,225
AUTO PARTS & EQUIPMENT - 0.2%
Eaton Corporation .................................................................. 200 $ 17,850
Genuine Parts Company .............................................................. 1,150 39,028
TRW, Inc. .......................................................................... 700 37,363
----------
94,241
AUTOMOBILES - 1.0%
Chrysler Corporation ............................................................... 700 24,631
Echlin, Inc. ....................................................................... 800 28,950
Ford Motor Company ................................................................. 3,000 146,063
General Motors Corporation ......................................................... 1,900 115,188
Honda Motor Company, Ltd. ADR ...................................................... 700 51,712
----------
366,544
BANKS - MAJOR REGIONAL - 3.6%
Banc One Corporation ............................................................... 1,600 86,900
Banco Frances Del Rio De La Plata ADR .............................................. 805 22,037
Bankamerica Corporation ............................................................ 1,800 131,400
Citicorp ........................................................................... 1,100 139,081
Corestates Financial Corporation ................................................... 900 72,056
Fifth Third Bancorp ................................................................ 750 61,313
First Chicago NBD Corporation ...................................................... 800 66,800
First Union Corporation ............................................................ 1,600 82,000
Fleet Financial Group, Inc. ........................................................ 800 59,950
Huntington Bancshares, Inc. ........................................................ 700 25,200
Keycorp ............................................................................ 700 49,569
Mellon Bank Corporation ............................................................ 900 54,563
J.P. Morgan & Company, Inc. ........................................................ 500 56,438
NationsBank Corporation ............................................................ 1,800 109,463
Norwest Corporation ................................................................ 2,000 77,250
PNC Bank Corporation ............................................................... 915 52,212
State Street Boston Corporation .................................................... 600 34,912
U.S. Bancorp ....................................................................... 777 86,975
Wells Fargo & Company .............................................................. 300 101,831
----------
1,369,950
BANKS - MONEY CENTER - 0.3%
Chase Manhattan Corporation ........................................................ 1,112 121,764
BEVERAGES - ALCOHOLIC - 0.3%
Anheuser-Busch Companies, Inc. ..................................................... 1,200 52,800
Diageo PLC ADR ..................................................................... 900 34,087
LVMH Moet Hennessy Lou ADR ......................................................... 1,000 33,125
----------
120,012
BEVERAGES - SOFT DRINK - 1.3%
Coca-Cola Company .................................................................. 5,700 379,762
PepsiCo, Inc. ...................................................................... 3,600 131,175
----------
510,937
BIOTECHNOLOGY - 0.1%
Amgen, Inc.* ....................................................................... 800 43,300
See accompanying notes.
50
<PAGE>
Schedule of Investments
December 31, 1997
SERIES N (Managed Asset Allocation)(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Number Market
COMMON STOCKS (continued) of Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
BROADCAST MEDIA - 0.5%
Clear Channel Communications, Inc.* ................................................ 400 $ 31,775
Comcast Corporation (CI. A) ........................................................ 1,100 34,719
U.S. West Media Group .............................................................. 1,800 51,975
Viacom, Inc. (CI. B)* .............................................................. 1,400 58,012
----------
176,481
BUILDING MATERIALS - 0.1%
Masco Corporation .................................................................. 700 35,613
CHEMICALS - BASIC - 1.2%
Akzo Nobel NV ADR .................................................................. 1,300 112,938
Dow Chemical Company ............................................................... 700 71,050
du Pont (E.I.) de Nemours & Company ................................................ 2,800 168,175
FMC Corporation* ................................................................... 300 20,194
Great Lakes Chemical Corporation ................................................... 700 31,413
Morton International, Inc. ......................................................... 900 30,937
Solutia, Inc. ...................................................................... 280 7,472
----------
442,179
CHEMICALS - DIVERSIFIED - 0.2%
Monsanto Company ................................................................... 1,600 67,200
CHEMICALS - SPECIALTY - 0.3%
Minnesota Mining & Manufacturing Company ........................................... 1,100 90,269
Rohm & Haas Company ................................................................ 400 38,300
----------
128,569
COMMUNICATIONS EQUIPMENT - 0.9%
Lucent Technologies ................................................................ 1,486 118,694
Motorola, Inc. ..................................................................... 1,600 91,300
Oy Nokia AB Corporation ADR ........................................................ 300 21,000
Northern Telecom, Ltd. ............................................................. 800 71,200
Tellabs, Inc.* ..................................................................... 700 37,013
----------
339,207
COMPUTER HARDWARE - 1.6%
Compaq Computer Company* ........................................................... 1,800 101,588
Dell Computer Corporation* ......................................................... 1,200 100,800
Hewlett-Packard Company ............................................................ 2,300 143,750
International Business Machines Corporation ........................................ 2,100 219,581
Sun Microsystems, Inc.* ............................................................ 1,100 43,862
----------
609,581
COMPUTER SOFTWARE/SERVICES - 1.4%
Adobe Systems, Inc. ................................................................ 100 4,125
Ceridian Corporation* .............................................................. 600 27,487
Computer Associates International, Inc. ............................................ 1,500 79,313
Microsoft Corporation* ............................................................. 2,700 348,975
Novell, Inc.* ...................................................................... 3,000 22,500
Oracle Corporation* ................................................................ 2,150 47,972
Parametric Technology Company* ..................................................... 400 18,950
----------
549,322
COMPUTERS - NETWORKING - 0.3%
Bay Networks, Inc.* ................................................................ 400 $ 10,225
Cisco Systems, Inc.* ............................................................... 2,100 117,075
----------
127,300
COMPUTERS - PERIPHERALS - 0.1%
Seagate Technology* ................................................................ 1,100 21,175
CONSUMER FINANCE - 0.2%
Greentree Financial Corporation .................................................... 600 15,712
Household International, Inc. ...................................................... 400 51,025
----------
66,737
CONTAINERS & PACKAGING - 0.1%
Bemis Company, Inc. ................................................................ 500 22,031
Owens-Illinois, Inc.* .............................................................. 600 22,763
----------
44,794
ELECTRIC COMPANIES - 1.2%
Duke Energy Corporation ............................................................ 1,100 60,913
Edison International ............................................................... 1,700 46,219
Empresa Nacional Electricidad S.A. ADR ............................................. 2,400 43,650
Empresa Nacional de Electricidad Chile S.A. ADR .................................... 500 8,844
Entergy Corporation ................................................................ 1,100 32,931
FPL Group, Inc. .................................................................... 700 41,431
Niagra Mohawk Power Corporation* ................................................... 2,400 25,200
P G & E Corporation ................................................................ 1,600 48,700
Southern Company ................................................................... 2,300 59,513
Texas Utilities Company ............................................................ 1,000 41,562
Unicom Corporation ................................................................. 1,100 33,825
----------
442,788
ELECTRICAL EQUIPMENT - 1.7%
Emerson Electric Company ........................................................... 1,300 73,369
General Electric Company ........................................................... 7,500 550,312
Rockwell International Corporation ................................................. 700 36,575
----------
660,256
ELECTRONIC EQUIPMENT - 0.4%
Hitachi, Ltd. ADR .................................................................. 300 20,756
Phillips Electronics NV ADR ........................................................ 2,000 121,000
----------
141,756
ELECTRONICS - DEFENSE - 0.1%
Raytheon Company (CI. B) ........................................................... 500 25,250
ELECTRONICS - INSTRUMENTATION - 0.1%
Honeywell, Inc. .................................................................... 500 34,250
See accompanying notes.
51
<PAGE>
Schedule of Investments
December 31, 1997
SERIES N (Managed Asset Allocation)(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Number Market
COMMON STOCKS (continued) of Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRONICS - SEMICONDUCTORS - 1.0%
Altera Corporation* ................................................................ 600 $ 19,875
Analog Devices, Inc.* .............................................................. 667 18,467
Applied Materials, Inc.* ........................................................... 1,300 39,163
Intel Corporation .................................................................. 3,800 266,950
Texas Instruments, Inc. ............................................................ 600 27,000
Xilinx, Inc.* ...................................................................... 400 14,025
----------
385,480
ENTERTAINMENT - 0.6%
The Walt Disney Company ............................................................ 1,614 159,887
Time Warner, Inc. .................................................................. 1,300 80,600
----------
240,487
FINANCIAL - DIVERSE - 2.0%
American Express Company ........................................................... 1,000 89,250
American General Corporation ....................................................... 800 43,250
Banco Bilbao Viz ADR ............................................................... 3,000 96,937
Fannie Mae ......................................................................... 2,700 154,069
Federal Home Loan Mortgage Corporation ............................................. 1,800 75,487
H & R Block, Inc. .................................................................. 500 22,406
Merrill Lynch & Company, Inc. ...................................................... 400 29,175
Morgan Stanley, Dean Witter, Discover and Company .................................. 1,230 72,724
Sunamerica, Inc. ................................................................... 500 21,375
Travelers Group, Inc. .............................................................. 2,947 158,770
----------
763,443
FOODS - 1.3%
CPC International, Inc. ............................................................ 500 53,875
Conagra, Inc. ...................................................................... 1,400 45,937
Earthgrains Company ................................................................ 64 3,008
General Mills ...................................................................... 700 50,138
Heinz (H.J.) Company ............................................................... 1,100 55,894
Kellogg Company .................................................................... 1,200 59,550
Ralston Purina Group ............................................................... 400 37,175
Sara Lee Corporation ............................................................... 1,300 73,206
Unilever NY ADR .................................................................... 1,600 99,900
----------
478,683
FOOTWEAR - 0.1%
Nike, Inc. (CI. B) ................................................................. 800 31,400
GAMING & LOTTERY - 0.0%
Mirage Resorts, Inc.* .............................................................. 300 6,825
GOLD COMPANIES - 0.1%
Barrick Gold Corporation ........................................................... 1,600 29,800
Placer Dome, Inc. .................................................................. 1,500 19,031
----------
48,831
HARDWARE & TOOLS - 0.1%
Black & Decker Corporation ......................................................... 500 19,531
HEALTH CARE - DIVERSE - 1.7%
Abbott Laboratories ................................................................ 1,800 $ 118,012
American Home Products Corporation ................................................. 1,700 130,050
Bristol-Myers Squibb Company ....................................................... 2,200 208,175
Johnson & Johnson .................................................................. 3,100 204,213
----------
660,450
HEALTH CARE - LONG-TERM CARE - 0.1%
HEALTHSOUTH Corporation* ........................................................... 1,400 38,850
HEALTH CARE - MANAGED CARE - 0.1%
United Healthcare Corporation ...................................................... 700 34,781
HEALTH CARE - PHARMACEUTICALS - 2.5%
Glaxo Wellcome PLC ADR ............................................................. 900 43,087
Eli Lilly & Company ................................................................ 2,600 181,025
Merck & Company, Inc. .............................................................. 2,600 276,250
Pfizer, Inc. ....................................................................... 2,800 208,775
Pharmacia & Upjohn, Inc. ........................................................... 1,600 58,600
Schering-Plough Corporation ........................................................ 1,800 111,825
Warner Lambert Company ............................................................. 700 86,800
----------
966,362
HOMEBUILDING - 0.1%
PPG Industries, Inc. ............................................................... 700 39,988
HOSPITAL MANAGEMENT - 0.2%
Columbia/HCA Healthcare Corporation ................................................ 2,000 59,250
HOUSEHOLD PRODUCTS - 1.0%
Colgate-Palmolive Company .......................................................... 900 66,150
Kimberly-Clark Corporation ......................................................... 1,600 78,900
Procter & Gamble Company ........................................................... 3,200 255,400
----------
400,450
INSURANCE - LIFE/HEALTH - 0.3%
Aetna, Inc. ........................................................................ 544 38,386
Torchmark Corporation .............................................................. 600 25,237
Unum Corporation ................................................................... 800 43,500
----------
107,123
INSURANCE - MULTI-LINE - 0.9%
American International Group, Inc. ................................................. 1,800 195,750
Cigna Corporation .................................................................. 300 51,919
General Re Corporation ............................................................. 300 63,600
Loews Corporation .................................................................. 400 42,450
----------
353,719
INSURANCE - PROPERTY - 0.6%
Allstate Corporation ............................................................... 1,200 109,050
Chubb Corporation .................................................................. 800 60,500
Progressive Corporation Ohio ....................................................... 300 35,962
Selective Insurance Group .......................................................... 800 21,600
----------
227,112
See accompanying notes.
52
<PAGE>
Schedule of Investments
December 31, 1997
SERIES N (Managed Asset Allocation)(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Number Market
COMMON STOCKS (continued) of Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT BANK/BROKERAGE - 0.1%
Schwab (Charles) Corporation ....................................................... 750 $ 31,453
IRON & STEEL - 0.1%
Nucor Corporation .................................................................. 500 24,156
LEISURE TIME PRODUCTS - 0.1%
Brunswick Corporation .............................................................. 600 18,187
Mattel, Inc. ....................................................................... 600 22,350
----------
40,537
LODGING - HOTELS - 0.1%
ITT Corporation* ................................................................... 400 33,150
MACHINERY - DIVERSE - 0.2%
Caterpillar, Inc. .................................................................. 1,100 53,419
Deere & Company .................................................................... 600 34,987
----------
88,406
MANUFACTURING - DIVERSIFIED - 0.6%
AlliedSignal, Inc. ................................................................. 1,700 66,194
Corning, Inc. ...................................................................... 1,000 37,125
Illinois Tool Works, Inc. .......................................................... 600 36,075
Tyco International, Ltd. ........................................................... 800 36,050
United Technologies Corporation .................................................... 700 50,969
----------
226,413
MANUFACTURING - SPECIALIZED - 0.4%
CBS Corporation .................................................................... 900 26,494
Goodyear Tire & Rubber Company ..................................................... 300 19,087
Pall Corporation ................................................................... 1,300 26,894
Thermo Electron Corporation* ....................................................... 500 22,250
Tomkins PLC ADR .................................................................... 2,000 38,250
----------
132,975
MEDICAL PRODUCTS & SUPPLIES - 0.5%
Baxter International, Inc. ......................................................... 1,000 50,437
Becton, Dickinson & Company ........................................................ 500 25,000
Boston Scientific Corporation* ..................................................... 600 27,525
Guidant Corporation ................................................................ 600 37,350
Medtronic, Inc. .................................................................... 1,200 62,775
----------
203,087
MISCELLANEOUS BUSINESS SERVICES - 0.0%
Equifax, Inc. ...................................................................... 500 17,719
NATURAL GAS - 0.1%
Sonat, Inc. ........................................................................ 500 22,875
OFFICE EQUIPMENT & SUPPLIES - 0.1%
Ikon Office Solutions, Inc. ........................................................ 600 16,875
Pitney-Bowes, Inc. ................................................................. 400 35,975
----------
52,850
OIL - DOMESTIC - 0.1%
Atlantic-Richfield Company ......................................................... 600 48,075
OIL - INTERNATIONAL - 3.2%
Amoco Corporation .................................................................. 1,300 $ 110,663
British Petroleum PLC ADR .......................................................... 600 47,812
Chevron Corporation ................................................................ 1,600 123,200
Exxon Corporation .................................................................. 5,900 361,006
Mobil Corporation .................................................................. 1,700 122,719
Occidental Petroleum Corporation ................................................... 1,200 35,175
Royal Dutch Petroleum Company NY Shares ............................................ 6,100 330,544
Texaco, Inc. ....................................................................... 1,400 76,125
USX Marathon Group ................................................................. 800 27,000
----------
1,234,244
OIL & GAS - DRILLING & EQUIPMENT - 0.6%
B.J. Services Company* ............................................................. 700 50,356
Halliburton Company ................................................................ 800 41,550
Repsol S.A. ADR .................................................................... 400 17,025
Schlumberger, Ltd. ................................................................. 1,000 80,500
Union Pacific Resources Group, Inc. ................................................ 1,138 27,597
----------
217,028
OIL & GAS - EXPLORATION & PRODUCTION - 0.8%
Amerada Hess Corporation ........................................................... 1,000 54,875
Anadarko Petroleum Corporation ..................................................... 100 6,069
Apache Corporation ................................................................. 500 17,531
Enron Corporation .................................................................. 1,100 45,719
Ente Nazionale Idroncarburi S.p.a. ADR ............................................. 400 22,825
Helmerich & Payne, Inc. ............................................................ 200 13,575
Phillips Petroleum Company ......................................................... 800 38,900
Shell Transport & Trading Company ADR .............................................. 900 39,375
Total S.A. ADR ..................................................................... 1,000 55,500
Unocal Corporation ................................................................. 700 27,169
----------
321,538
PAPER & FOREST PRODUCTS - 0.3%
Georgia-Pacific Corporation (GP Group) ............................................. 400 24,300
Georgia-Pacific Corporation (Timber Group)* ........................................ 400 9,075
International Paper Company ........................................................ 1,100 47,437
Weyerhaeuser Company ............................................................... 400 19,625
----------
100,437
PERSONAL CARE - 0.5%
Gillette Company ................................................................... 1,500 150,656
International Flavors & Fragrances, Inc. ........................................... 500 25,750
----------
176,406
PHOTOGRAPHY/IMAGING - 0.3%
Eastman Kodak Company .............................................................. 700 42,569
Xerox Corporation .................................................................. 800 59,050
----------
101,619
See accompanying notes.
53
<PAGE>
Schedule of Investments
December 31, 1997
SERIES N (Managed Asset Allocation)(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Number Market
COMMON STOCKS (continued) of Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
PUBLISHING - 0.2%
Dun & Bradstreet Corporation ....................................................... 400 $ 12,375
McGraw-Hill Companies, Inc. ........................................................ 600 44,400
----------
56,775
PUBLISHING - NEWSPAPER - 0.2%
Gannett Company, Inc. .............................................................. 1,000 61,813
RAILROADS - 0.3%
Burlington Northern Santa Fe
Corporation ........................................................................ 400 37,175
CSX Corporation .................................................................... 600 32,400
Norfolk Southern Corporation ....................................................... 600 18,487
Union Pacific Corporation .......................................................... 600 37,463
----------
125,525
RESTAURANTS - 0.3%
Brinker International, Inc.* ....................................................... 1,500 24,000
Darden Restaurants, Inc. ........................................................... 1,400 17,500
McDonald's Corporation ............................................................. 1,100 52,525
Tricon Global Restaurants* ......................................................... 340 9,881
----------
103,906
RETAIL - APPAREL - 0.1%
GAP, Inc. .......................................................................... 750 26,578
TJX Companies, Inc. ................................................................ 400 13,750
----------
40,328
RETAIL - DEPARTMENT STORES - 0.3%
Federated Department Stores, Inc.* ................................................. 800 34,450
May Department Stores Company ...................................................... 700 36,881
J.C. Penney Company, Inc. .......................................................... 800 48,250
----------
119,581
RETAIL - DRUG STORES - 0.2%
CVS Corporation .................................................................... 400 25,625
Rite Aid Corporation ............................................................... 300 17,606
Walgreen Company ................................................................... 1,600 50,200
----------
93,431
RETAIL - FOOD CHAINS - 0.2%
Albertson's, Inc. .................................................................. 900 42,638
American Stores Company* ........................................................... 600 12,337
Kroger Company* .................................................................... 1,000 36,938
----------
91,913
RETAIL - GENERAL MERCHANDISE - 0.8%
Costco Companies, Inc.* ............................................................ 1,000 44,625
Dayton Hudson Corporation .......................................................... 700 47,250
Wal-Mart Stores, Inc. .............................................................. 5,500 216,906
----------
308,781
RETAIL - SPECIALTY - 0.4%
Circuit City Stores - Circuit City Group ........................................... 400 $ 14,225
Home Depot, Inc. ................................................................... 1,500 88,313
Payless Shoesource, Inc.* .......................................................... 144 9,666
Tandy Corporation .................................................................. 600 23,137
Toys "R" Us, Inc.* ................................................................. 900 28,294
----------
163,635
SAVINGS & LOANS - 0.1%
Washington Mutual, Inc. ............................................................ 600 38,288
SERVICES - ADVERTISING/MARKETING - 0.0%
Omnicom Group, Inc. ................................................................ 400 16,950
SERVICES - COMMERCIAL & CONSUMER - 0.4%
Cendant Corporation* ............................................................... 2,592 89,095
Cognizant Corporation .............................................................. 800 35,650
Service Corporation International .................................................. 600 22,163
----------
146,908
SERVICES - COMPUTER SYSTEMS - 0.1%
Digital Equipment Corporation* ..................................................... 600 22,200
SERVICES - DATA PROCESSING - 0.2%
Automatic Data Processing .......................................................... 900 55,237
First Data Corporation ............................................................. 1,300 38,025
----------
93,262
TELECOMMUNICATIONS - 3.0%
Airtouch Communications, Inc.* ..................................................... 1,100 45,719
Ameritech Corporation .............................................................. 1,400 112,700
Bell Atlantic Corporation .......................................................... 1,837 167,167
BellSouth Corporation .............................................................. 2,300 129,519
British Telecom Plc ADR ............................................................ 400 32,125
Ericsson (L.M.) Telecom Company ADR (Cl. B) ........................................ 1,200 44,775
GTE Corporation .................................................................... 2,400 125,400
Hong Kong Telecommunications, Ltd. ADR ............................................. 800 16,500
MCI Communications Corporation ..................................................... 1,800 77,063
SBC Communications, Inc. ........................................................... 2,177 159,465
Telecom Braxileiras S.A. ADR ....................................................... 700 81,506
Telecom New Zealand ADR ............................................................ 400 15,500
Telefonica De Espana ADR ........................................................... 400 36,425
Vodafone Group PLC ADR ............................................................. 500 36,250
Worldcom, Inc.* .................................................................... 2,500 75,625
----------
1,155,739
TELECOMMUNICATIONS - LONG DISTANCE - 0.8%
AT&T Corporation ................................................................... 3,800 232,750
Sprint Corporation ................................................................. 1,100 64,488
----------
297,238
See accompanying notes.
54
<PAGE>
Schedule of Investments
December 31, 1997
SERIES N (Managed Asset Allocation)(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Principal
Amount or
Number Market
COMMON STOCKS (continued) of Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
TELEPHONE - 0.5%
Cia De Telecomunicaciones De
Chile S.A. ADR ..................................................................... 425 $ 12,697
Telefonos De Mexico ADR ............................................................ 1,800 100,912
U.S. West Communications Group ..................................................... 1,400 63,175
----------
176,784
TEXTILES - APPAREL - 0.2%
Benetton Group S.p.a. ADR .......................................................... 2,080 67,860
Springs Industries, Inc. (CI. A) ................................................... 300 15,600
----------
83,460
TOBACCO - 0.8%
Fortune Brands, Inc. ............................................................... 500 18,531
Gallaher Group PLC ADR ............................................................. 500 10,688
Phillip Morris Companies, Inc. ..................................................... 6,000 271,875
----------
301,094
WASTE MANAGEMENT - 0.1%
Browning-Ferris Industries ......................................................... 374 13,838
Waste Management, Inc. ............................................................. 1,396 38,390
----------
52,228
----------
Total common stocks - 48.2% ................................................................................. 18,412,745
U.S. GOVERNMENT & GOVERNMENT AGENCY SECURITIES
- ----------------------------------------------
U.S. GOVERNMENT AGENCIES - 6.3%
Government National Mortgage Association,
#67365, 11.50% - 2013 ......................................................... $ 29,168 32,715
#353937, 6.00% - 2023 ......................................................... $ 300,877 292,648
#410777, 7.00% - 2025 ......................................................... $ 115,979 116,916
#780057, 7.50% - 2025 ......................................................... $ 76,401 78,520
#2102, 8.00% - 2025 ........................................................... $ 48,311 49,851
#412429, 8.50% - 2025 ......................................................... $ 166,854 174,874
#410891, 7.00% - 2026 ......................................................... $ 257,051 259,121
#426384, 7.00% - 2026 ......................................................... $ 335,741 338,451
#424476, 7.50% - 2026 ......................................................... $ 392,696 402,368
#432891, 7.50% - 2026 ......................................................... $ 97,558 99,959
#402684, 8.00% - 2026 ......................................................... $ 203,229 210,576
#427029, 8.50% - 2026 ......................................................... $ 227,535 238,853
#435589, 8.50% - 2026 ......................................................... $ 114,505 120,173
----------
2,415,025
U.S. GOVERNMENT SECURITIES - 17.2%
U.S. Treasury Bonds,
6.875% - 2025 ................................................................. $ 35,000 39,030
6.75% - 2026 .................................................................. $ 2,025,000 2,230,011
6.625% - 2027 ................................................................. $ 400,000 433,932
----------
2,702,973
U.S. Treasury Notes,
6.00% - 1999 .................................................................. $ 175,000 $ 175,887
6.375% - 1999 ................................................................. 300,000 302,799
5.625% - 2000 ................................................................. 75,000 74,826
6.25% - 2000 .................................................................. 475,000 480,776
6.25% - 2002 .................................................................. 380,000 387,494
5.875% - 2005 ................................................................. 75,000 75,391
6.50% - 2005 .................................................................. 100,000 104,198
5.625% - 2006 ................................................................. 100,000 98,873
6.50% - 2006 .................................................................. 175,000 183,211
6.125% - 2007 ................................................................. 900,000 924,687
6.25% - 2007 .................................................................. 1,000,000 1,031,530
----------
3,839,672
----------
Total U.S. government & government agency securities - 23.5% ........................................... 8,957,670
MISCELLANEOUS ASSETS
- --------------------
ASSET-BACKED SECURITIES - 0.2%
Airplanes Pass-Through Trust (CI. D), 10.875% - 2019 ............................... 50,000 56,251
FOREIGN CORPORATE BONDS
- -----------------------
JAPAN - 0.7%
European Investment Bank,
4.625% - 2003(2) .............................................................. 17,000,000 151,831
3.00% - 2006(2) ............................................................... 7,000,000 58,716
Interamer Development Bank, 6.00% - 2001(2) ........................................ 5,000,000 45,522
KFW International Finance, 6.00% - 1999(2) ......................................... 3,000,000 25,409
----------
Total foreign bonds - 0.7% ............................................................................. 281,478
FOREIGN GOVERNMENT ISSUES
- -------------------------
CANADA - 0.2%
Government Bond,
8.50% - 2002 .................................................................. 60,000 46,773
6.50% - 2004 .................................................................. 60,000 44,122
----------
90,895
FRANCE - 0.3%
O.A.T. Government Bond,
8.50% - 2002(2) ............................................................... 430,000 82,857
5.50% - 2007(2) ............................................................... 214,000 36,106
----------
118,963
See accompanying notes.
55
<PAGE>
Schedule of Investments
December 31, 1997
SERIES N (Managed Asset Allocation)(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Principal
Amount or
Number Market
FOREIGN GOVERNMENT ISSUES (continued) of Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
GERMANY - 0.5%
Bundesrepub Deutschland,
8.375% - 2001(2) .............................................................. 130,000 $ 80,687
7.375% - 2005(2) .............................................................. 125,000 78,537
Deutschland Republic Government Bond, 6.00% - 2007(2) .............................. 62,000 36,220
----------
195,444
UNITED KINGDOM - 0.2%
Treasury Bonds,
8.00% - 2003 .................................................................. 29,000 50,952
7.50% - 2006 .................................................................. 12,000 21,263
----------
72,215
----------
Total foreign government issues - 1.2% ................................................................. 477,517
FOREIGN STOCKS
- --------------
AUSTRALIA - 0.0%
Rio Tinto, Ltd. .................................................................... 1,000 11,665
BELGIUM - 0.2%
Electrabel ......................................................................... 50 11,566
Kredietbank ........................................................................ 100 41,970
Societe Generale de Belgique ....................................................... 200 18,300
----------
71,836
DENMARK - 0.2%
Danisco A/S ........................................................................ 1,000 55,497
FRANCE - 0.6%
Axa ................................................................................ 500 38,706
Eridania Beghin-Say S.A ............................................................ 200 31,284
L'Air Liquide ...................................................................... 210 32,883
Pinault-Printemps-Redoute S.A ...................................................... 100 53,376
Societe Generale de Paris .......................................................... 308 41,982
Societe Technip .................................................................... 400 42,222
----------
240,453
GERMANY - 0.9%
Altana AG .......................................................................... 300 19,805
Bank of Berlin ..................................................................... 2,000 43,937
Bayer AG ........................................................................... 2,000 74,247
Ckag Colonia Konzern AG ............................................................ 300 28,698
Deutsche Bank AG ................................................................... 500 34,983
M.A.N. AG .......................................................................... 200 57,785
Siemens AG ......................................................................... 400 24,137
Veba AG ............................................................................ 600 40,878
----------
324,470
HONG KONG - 0.4%
Cheung Kong Holdings ............................................................... 5,000 32,749
Hong Kong Electric Holdings, Ltd. .................................................. 9,000 34,208
Hutchinson Whampoa, Ltd. ........................................................... 14,000 87,813
----------
154,770
ITALY - 0.2%
Banco Commerciale Italiane ......................................................... 13,000 $ 45,221
Telecom Italia S.p.a ............................................................... 5,555 35,504
----------
80,725
JAPAN - 1.0%
Bridgestone Corporation ............................................................ 3,000 65,297
Canon, Inc. ........................................................................ 1,000 23,381
Dai Nippon Printing, Ltd. .......................................................... 2,000 37,686
Kao Corporation .................................................................... 4,000 57,837
Kuraray Company, Ltd. .............................................................. 3,000 24,919
Marui Company, Ltd. ................................................................ 2,000 31,226
Mitsubishi Electric Corporation .................................................... 4,000 10,275
Mitsubishi Heavy Industries, Ltd. .................................................. 4,000 16,736
Ricoh Corporation, Ltd. ............................................................ 4,000 49,838
Sharp Corporation .................................................................. 2,000 13,813
Takeda Chemical Industries ......................................................... 2,000 57,221
----------
388,229
MALAYSIA - 0.0%
Malayan Cement Berhad .............................................................. 12,500 8,510
Sime Darby Berhad .................................................................. 8,000 7,687
United Engineers (Malaysia), Ltd. .................................................. 3,000 2,497
----------
18,694
NETHERLANDS - 0.3%
CSM NV ............................................................................. 600 26,637
Ing Groep NV ....................................................................... 1,500 63,190
Oce NV ............................................................................. 300 32,705
----------
122,532
NEW ZEALAND - 0.1%
Lion Nathan, Ltd. .................................................................. 10,000 22,413
SINGAPORE - 0.0%
Cycle & Carriage, Ltd. ............................................................. 3,000 12,374
SOUTH AFRICA - 0.1%
Anglo American Platinum ............................................................ 2,000 26,714
SWEDEN - 0.1%
Astra AB -B ........................................................................ 3,200 53,842
SWITZERLAND - 0.8%
ABB AG-Bearer ...................................................................... 20 25,162
Nestle S.A ......................................................................... 20 30,016
Novartis AG ........................................................................ 26 42,247
Sig Schweizland .................................................................... 30 82,274
UBS-Bearer (Union Bank of Switzerland) ............................................. 80 115,841
----------
295,540
See accompanying notes.
56
<PAGE>
Schedule of Investments
December 31, 1997
SERIES N (Managed Asset Allocation)(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Principal
Amount or
Number Market
FOREIGN STOCKS (continued) of Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM - 1.1%
Abbey National PLC ................................................................. 3,600 $ 62,137
BAA PLC ............................................................................ 2,300 18,449
Barclays PLC ....................................................................... 3,000 79,720
Blue Circle Industries PLC ......................................................... 3,845 22,507
GKN PLC ............................................................................ 2,000 41,036
HSBC Holdings PLC .................................................................. 3,000 77,548
Lonrho, Ltd. ....................................................................... 22,000 33,665
Tesco PLC .......................................................................... 10,000 80,624
----------
415,686
----------
Total foreign stocks - 6.0% ............................................................................ 2,295,440
TEMPORARY CASH INVESTMENTS
- --------------------------
MONEY MARKET FUND - 1.9%
Vista Treasury International Money Market Fund ..................................... 721,408 721,408
COMMERCIAL PAPER
- ----------------
FINANCIAL SERVICES - 4.6%
Ciesco L.P., 6.40% - 1-02-98 ....................................................... $ 1,744,000 1,743,690
----------
Total investments - 99.1% .............................................................................. 37,837,867
Liabilities, less cash and other assets - 0.9% ......................................................... 343,935
----------
Total net assets - 100.0% .............................................................................. $ 38,181,802
==========
SERIES O (Equity Income)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS
- -------------
AEROSPACE/DEFENSE - 0.0%
Raytheon Company (CI. A)* .......................................................... 969 $ 47,799
ALUMINUM - 0.5%
Reynolds Metals Company ............................................................ 12,500 750,000
AUTO PARTS & EQUIPMENT - 0.7%
Genuine Parts Company .............................................................. 30,100 1,021,519
AUTOMOBILES - 1.0%
Echlin, Inc. ....................................................................... 18,400 665,850
General Motors Corporation ......................................................... 15,200 921,500
----------
1,587,350
BANKS - MAJOR REGIONAL - 8.1%
Banc One Corporation ............................................................... 21,470 $1,166,089
BankBoston Corporation ............................................................. 9,400 883,013
Bankers Trust New York Corporation ................................................. 11,100 1,248,056
Fleet Financial Group, Inc. ........................................................ 14,000 1,049,125
First Union Corporation ............................................................ 16,980 870,225
Mellon Bank Corporation ............................................................ 45,400 2,752,375
Mercantile Bankshares Corporation .................................................. 17,900 700,338
J.P. Morgan & Company, Inc. ........................................................ 10,600 1,196,475
National City Corporation .......................................................... 11,600 762,700
PNC Bank Corporation ............................................................... 11,900 679,044
Wells Fargo & Company .............................................................. 2,700 916,481
----------
12,223,921
BANKS - MONEY CENTER - 0.9%
Chase Manhattan Corporation ........................................................ 12,708 1,391,526
BEVERAGES - ALCOHOLIC - 1.6%
Anheuser-Busch Companies, Inc. ..................................................... 35,700 1,570,800
Brown-Forman Corporation (CI. B) ................................................... 15,000 828,750
----------
2,399,550
BIOTECHNOLOGY - 0.3%
Amgen, Inc.* ....................................................................... 9,500 514,188
BUILDING MATERIALS - 0.4%
Armstrong World Industries, Inc. ................................................... 8,800 657,800
CHEMICALS - BASIC - 4.1%
Dow Chemical Company ............................................................... 24,000 2,436,000
du Pont (E.I.) de Nemours & Company ................................................ 23,600 1,417,475
Great Lakes Chemical Company ....................................................... 24,200 1,265,475
Olin Corporation ................................................................... 21,700 1,017,187
----------
6,136,137
CHEMICALS - SPECIALTY - 2.7%
Eastman Chemical Company ........................................................... 9,500 565,844
Imperial Chemical Industries PLC ADR ............................................... 11,500 746,781
Lubrizol Corporation ............................................................... 13,600 501,500
Minnesota Mining & Manufacturing Company ........................................... 4,800 393,900
Nalco Chemical Company ............................................................. 17,300 684,431
Witco Corporation .................................................................. 30,000 1,224,375
----------
4,116,831
See accompanying notes.
57
<PAGE>
Schedule of Investments
December 31, 1997
SERIES O (Equity Income)(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Number Market
COMMON STOCKS (continued) of Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRIC COMPANIES - 8.3%
Baltimore Gas & Electric Company ................................................... 18,400 $ 626,750
Central & Southwest Corporation .................................................... 18,200 492,538
DQE, Inc. .......................................................................... 21,900 769,238
Dominion Resources, Inc. ........................................................... 18,000 766,125
Duke Energy Corporation ............................................................ 25,500 1,412,063
Entergy Corporation ................................................................ 18,800 562,825
FirstEnergy Corporation ............................................................ 37,658 1,092,067
GPU, Inc. .......................................................................... 9,000 379,125
Houston Industries, Inc. ........................................................... 31,200 832,650
Peco Energy Company ................................................................ 25,800 625,650
P G & E Corporation ................................................................ 13,600 413,950
Pacificorp ......................................................................... 25,200 688,275
Public Service Enterprise Group, Inc. .............................................. 14,200 449,962
Southern Company ................................................................... 42,900 1,110,038
Teco Energy, Inc. .................................................................. 21,300 599,062
Unicom Corporation ................................................................. 31,800 977,850
Western Resources, Inc. ............................................................ 15,800 679,400
----------
12,477,568
ELECTRICAL EQUIPMENT - 2.7%
Amp, Inc. .......................................................................... 24,000 1,008,000
Cooper Industries, Inc. ............................................................ 14,988 734,412
General Electric Company ........................................................... 20,800 1,526,200
Hubbell, Inc. (Cl. B) .............................................................. 15,100 744,619
----------
4,013,231
FINANCIAL - DIVERSE - 4.2%
American Express Company ........................................................... 8,300 740,775
American General Corporation ....................................................... 21,100 1,140,719
Federal National Mortgage Association .............................................. 24,500 1,398,031
H & R Block, Inc. .................................................................. 22,700 1,017,244
Transamerica Corporation ........................................................... 8,500 905,250
Travelers Group, Inc. .............................................................. 17,700 1,077,500
----------
6,279,519
FOODS - 3.8%
General Mills ...................................................................... 17,800 1,274,925
Heinz (H.J.) Company ............................................................... 18,750 952,734
McCormick & Company, Inc. (Non-Voting) ............................................. 34,600 968,800
Quaker Oats Company ................................................................ 23,400 1,234,350
Sara Lee Corporation ............................................................... 10,800 608,175
Unilever NY ADR .................................................................... 11,500 718,031
----------
5,757,015
GOLD COMPANIES - 0.5%
Newmont Mining Corporation ......................................................... 26,200 769,625
HEALTH CARE - DIVERSE - 1.9%
Abbott Laboratories ................................................................ 12,700 832,644
American Home Products Corporation ................................................. 26,300 2,011,950
----------
2,844,594
HEALTH CARE - PHARMACEUTICALS - 1.0%
Pharmacia & Upjohn, Inc. ........................................................... 41,995 $1,538,067
HOMEBUILDING - 0.5%
PPG Industries, Inc. ............................................................... 12,400 731,200
HOUSEHOLD FURNISHINGS & APPLIANCES - 0.7%
Whirlpool Corporation .............................................................. 18,300 1,006,500
HOUSEHOLD PRODUCTS - 0.7%
Colgate-Palmolive Company .......................................................... 2,900 213,150
Kimberly-Clark Corporation ......................................................... 5,400 266,287
Tupperware Corporation ............................................................. 20,800 579,800
----------
1,059,237
HOUSEWARES - 0.1%
Rubbermaid, Inc. ................................................................... 3,600 90,000
INSURANCE - BROKERS - 0.3%
Hilb, Rogal & Hamilton Company ..................................................... 2,100 40,556
Willis Corroon Group Plc ADR ....................................................... 37,100 456,794
----------
497,350
INSURANCE - MULTI-LINE - 1.4%
Lincoln National Corporation ....................................................... 9,700 757,813
Safeco Corporation ................................................................. 15,700 765,375
USF&G Corporation .................................................................. 26,200 578,037
----------
2,101,225
INSURANCE - PROPERTY - 1.5%
Exel Limited ....................................................................... 14,000 887,250
St. Paul Companies, Inc. ........................................................... 16,900 1,386,856
----------
2,274,106
IRON & STEEL - 0.4%
USX - U.S. Steel Group, Inc. ....................................................... 17,900 559,375
LODGING - HOTELS - 0.7%
Hilton Hotels Corporation .......................................................... 16,900 502,775
ITT Corporation* ................................................................... 5,800 480,675
----------
983,450
MACHINERY - DIVERSE - 0.3%
Gatx Corporation ................................................................... 5,900 428,119
MANUFACTURING - SPECIALIZED - 0.5%
Pall Corporation ................................................................... 36,200 748,888
MANUFACTURING - DIVERSIFIED - 0.3%
AlliedSignal, Inc. ................................................................. 9,100 385,481
MEDICAL PRODUCTS & SUPPLIES - 1.9%
Bard (C.R.), Inc. .................................................................. 13,000 407,062
Bausch & Lomb, Inc. ................................................................ 17,200 681,550
Baxter International, Inc. ......................................................... 12,000 605,250
United States Surgical Corporation ................................................. 39,500 1,157,844
----------
2,851,706
MINING & METALS - 0.2%
Inco, Ltd. ......................................................................... 15,400 261,800
See accompanying notes.
58
<PAGE>
Schedule of Investments
December 31, 1997
SERIES O (Equity Income)(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Number Market
COMMON STOCKS (continued) of Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
OIL - DOMESTIC - 1.4%
Atlantic-Richfield Company ......................................................... 26,000 $2,083,250
OIL - INTERNATIONAL - 7.4%
Amoco Corporation .................................................................. 15,500 1,319,438
British Petroleum PLC ADR .......................................................... 12,100 964,219
Chevron Corporation ................................................................ 18,000 1,386,000
Exxon Corporation .................................................................. 27,100 1,658,181
Mobil Corporation .................................................................. 20,600 1,487,063
Occidental Petroleum Company ....................................................... 31,300 917,481
Royal Dutch Petroleum Company NY Shares ............................................ 22,300 1,208,381
Texaco, Inc. ....................................................................... 26,000 1,413,750
USX Marathon Group ................................................................. 22,700 766,125
----------
11,120,638
OIL & GAS - DRILLING & EQUIPMENT - 0.4%
Repsol S.A. ADR .................................................................... 12,800 544,800
OIL & GAS - EXPLORATION & PRODUCTION - 1.7%
Amerada Hess Corporation ........................................................... 17,700 971,287
Enron Corporation .................................................................. 17,100 860,344
Phillips Petroleum Company ......................................................... 15,400 748,825
----------
2,580,456
PAPER & FOREST PRODUCTS - 2.3%
Consolidated Papers, Inc. .......................................................... 14,600 779,275
Georgia-Pacific Corporation (GP Group) ............................................. 6,800 413,100
Georgia-Pacific Corporation (Timber Group)* ........................................ 6,800 154,275
International Paper Company ........................................................ 17,800 767,625
Union Camp Corporation ............................................................. 23,300 1,406,612
----------
3,520,887
PERSONAL CARE - 1.0%
International Flavors & Fragrances, Inc. ........................................... 28,000 1,586,200
PHOTOGRAPHY/IMAGING - 0.8%
Eastman Kodak Company .............................................................. 20,700 1,258,819
PUBLISHING - 3.9%
Deluxe Corporation ................................................................. 11,100 382,950
R.R. Donnelley & Sons Company ...................................................... 26,500 987,125
Dow Jones & Company, Inc. .......................................................... 19,000 1,020,063
Dun & Bradstreet Corporation ....................................................... 26,900 832,219
Knight-Ridder, Inc. ................................................................ 25,400 1,320,800
McGraw-Hill Companies, Inc. ........................................................ 11,100 821,400
Readers Digest Association, Inc. (CI. A) ........................................... 20,400 481,950
Readers Digest Association, Inc. (CI. B) ........................................... 1,300 31,687
----------
5,878,194
RAILROADS - 2.8%
Burlington Northern Santa Fe Corporation ........................................... 10,600 $ 985,137
Norfolk Southern Corporation ....................................................... 41,800 1,287,963
Union Pacific Corporation .......................................................... 30,600 1,910,588
----------
4,183,688
REAL ESTATE - 0.2%
Rouse Company ...................................................................... 7,800 255,450
RETAIL - DEPARTMENT STORES - 1.4%
May Department Stores Company ...................................................... 11,100 584,831
J.C. Penney Company, Inc. .......................................................... 26,100 1,574,156
----------
2,158,987
TELECOMMUNICATIONS - LONG DISTANCE - 2.3%
AT&T Corporation ................................................................... 46,600 2,854,250
Sprint Corporation ................................................................. 11,200 656,600
----------
3,510,850
TELECOMMUNICATIONS - 6.6%
Alltel Corporation ................................................................. 49,000 2,012,063
BCE, Inc. .......................................................................... 22,200 739,537
Bell Atlantic Corporation .......................................................... 15,200 1,383,200
BellSouth Corporation .............................................................. 20,500 1,154,406
Frontier Corporation ............................................................... 23,300 560,656
GTE Corporation .................................................................... 32,500 1,698,125
SBC Communications, Inc. ........................................................... 22,819 1,671,492
Southern New England Telecommunications ............................................ 13,500 679,219
----------
9,898,698
TELEPHONE - 0.4%
U.S. West Communications Group ..................................................... 12,000 541,500
TEXTILES - APPAREL - 0.1%
Unifi, Inc. ........................................................................ 2,700 109,856
TOBACCO - 3.1%
Fortune Brands, Inc. ............................................................... 19,300 715,306
Philip Morris Companies, Inc. ...................................................... 36,200 1,640,312
RJR Nabisco Holdings ............................................................... 19,800 742,500
UST, Inc. .......................................................................... 41,700 1,540,294
----------
4,638,412
TRANSPORTATION - MISCELLANEOUS (BUS/TRUCKING) - 0.2%
Alexander & Baldwin, Inc. .......................................................... 10,800 294,975
WASTE MANAGEMENT - 0.5%
Waste Management, Inc. ............................................................. 26,400 726,000
----------
Total common stocks - 88.7% ............................................................................ 133,396,337
See accompanying notes.
59
<PAGE>
Schedule of Investments
December 31, 1997
SERIES O (Equity Income)(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Principal
Amount or
Number Market
U.S. GOVERNMENT & GOVERNMENT AGENCY SECURITIES of Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES - 1.2%
U.S. Treasury Bond, 6.00% - 2026 ................................................... $ 400,000 $ 399,172
U.S. Treasury Notes,
6.125% - 1998 ................................................................. $ 100,000 100,243
5.875% - 1999 ................................................................. $ 100,000 100,349
6.25% - 2000 .................................................................. $ 100,000 101,216
6.50% - 2001 .................................................................. $ 400,000 409,396
5.75% - 2003 .................................................................. $ 400,000 400,092
5.625% - 2006 ................................................................. $ 200,000 197,746
7.00% - 2006 .................................................................. $ 100,000 107,922
----------
1,416,964
----------
Total U.S. government & government agency securities - 1.2% ............................................ 1,816,136
REAL ESTATE INVESTMENT TRUSTS
- -----------------------------
REAL ESTATE - 1.2%
Security Capital Pacific Trust ..................................................... 12,200 295,850
Simon DeBartolo Group, Inc. ........................................................ 36,336 1,187,733
Weingarten Realty Investors ........................................................ 7,000 313,688
----------
1,797,271
FOREIGN STOCKS
- --------------
UNITED KINGDOM - 1.4%
Cadbury Schweppes PLC .............................................................. 41,600 414,114
Lonrho, Ltd. ....................................................................... 145,200 222,188
Smith & Nephew PLC ................................................................. 192,100 570,527
Tomkins PLC ........................................................................ 197,400 922,437
----------
2,129,266
TEMPORARY CASH INVESTMENTS
- --------------------------
MONEY MARKET FUND - 0.9%
Vista Treasury Institutional Money Market Fund ..................................... 1,291,783 1,291,783
COMMERCIAL PAPER
- ----------------
FINANCIAL SERVICES - 3.6%
Preferred Receivables Funding, 6.05% - 1-13-98 ..................................... $ 5,375,000 5,364,160
MEDICAL - 3.6%
Merck & Company, 6.10% - 1-05-98 ................................................... $ 5,500,000 $5,496,273
----------
Total commercial paper - 7.2% .......................................................................... 10,860,433
----------
Total investments - 100.6% ............................................................................. 151,291,226
Liabilities, less cash and other assets - 0.6% ......................................................... (899,923)
----------
Total net assets - 100.0% .............................................................................. $150,391,303
==========
SERIES P (High Yield)
- ------------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS
- ---------------
AEROSPACE/DEFENSE - 1.1%
Burke Industries, Inc., 10.0% - 2007 ............................................... $ 75,000 $ 77,813
BANKS & CREDIT - 1.5%
Bay View Capital Corporation, 9.125% - 2007 ........................................ 100,000 102,750
BEVERAGES - 1.6%
Cott Corporation, 9.375% - 2005 .................................................... 50,000 52,750
Delta Beverage Group, 9.75% - 2003 ................................................. 50,000 52,250
----------
105,000
BROADCAST MEDIA - 2.6%
Allbritton Communications Company, 9.75% - 2007 .................................... 75,000 76,688
Young Broadcasting, 8.75% - 2007 ................................................... 100,000 99,000
----------
175,688
BUILDING MATERIALS - 2.1%
AAF-McQuay, Inc., 8.875% - 2003 .................................................... 50,000 49,563
Johns Manville International Group, Inc., 10.875% - 2004 ........................... 35,000 38,763
Sequa Corporation, 9.375% - 2003 ................................................... 50,000 52,125
----------
140,451
BUSINESS SERVICES - 0.8%
Heritage Media Corporation, 8.75% - 2006 ........................................... 50,000 53,500
See accompanying notes.
60
<PAGE>
Schedule of Investments
December 31, 1997
SERIES P (High Yield)(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Principal Market
CORPORATE BONDS (continued) Amount Value
- ------------------------------------------------------------------------------------------------------------------------------------
CABLE SYSTEMS - 1.8%
Adelphia Communications Corporation, 9.875 - 2007 .................................. $ 50,000 $ 52,875
Adelphia Communications Corporation, 12.50% - 2002 ................................. 13,000 13,650
Rogers Cablesystems, 9.625% - 2002 ................................................. 50,000 53,125
----------
119,650
CHEMICALS - 0.8%
Envirodyne Industries, Inc., 12.00% - 2000 ......................................... 50,000 53,563
COAL MINING - 1.5%
AEI Holdings, 10.0% - 2007 ......................................................... 100,000 102,500
COMMUNICATIONS - 1.6%
Century Communication Corporation, 8.375% - 2007 ................................... 75,000 75,000
Rogers Communications, Inc., 9.125% - 2006 ......................................... 30,000 30,450
----------
105,450
COMMUNICATION SERVICES - 5.2%
CF Cable TV, Inc., 11.625% - 2005 .................................................. 100,000 114,875
Cablevision Systems Corporation, 7.875% - 2007 ..................................... 75,000 76,594
Century Communications Corporation, 9.50% - 2005 ................................... 100,000 105,250
Comcast Corporation, 9.125% - 2006 ................................................. 50,000 53,125
----------
349,844
ELECTRIC UTILITIES - 1.9%
AES Corporation, 10.25% - 2006 ..................................................... 65,000 70,525
Cal Energy Company, Inc., 9.50% - 2006 ............................................. 50,000 54,375
----------
124,900
FINANCIAL SERVICES - 2.8%
Dollar Financial Group, Inc., 10.875% - 2006 ....................................... 50,000 53,438
Emergent Group Inc., 10.75% - 2004 ................................................. 75,000 75,000
Homeside, Inc., 11.25% - 2003 ...................................................... 50,000 59,250
----------
187,688
FOOD & BEVERAGES - 2.0%
Chiquita Brands International, Inc., 10.25% - 2006 ................................. 25,000 27,313
Pilgrims Pride Corporation, 10.875% - 2003 ......................................... 100,000 105,000
----------
132,313
GAMING - 5.4%
Boyd Gaming Corporation, 9.50% - 2007 .............................................. $ 100,000 $ 105,000
Harrahs Operating Company, Inc., 8.75% - 2000 ...................................... 50,000 51,188
Rio Hotel & Casino, Inc., 9.50% - 2007 ............................................. 100,000 106,000
Station Casinos, 9.625% - 2003 ..................................................... 100,000 103,500
----------
365,688
HEALTH CARE SERVICES - 2.2%
Genesis Eldercare Acquisitions, 9.00% - 2007 ....................................... 75,000 73,500
Tenet Healthcare Corporation, 10.125% - 2005 ....................................... 70,000 76,300
----------
149,800
MANUFACTURING - 4.2%
AGCO Corporation, 8.50% - 2006 ..................................................... 100,000 102,500
DESA International, Inc., 9.875% - 2007 ............................................ 100,000 102,500
Shop Vac Corporation, 10.625% - 2003 ............................................... 50,000 54,313
Titan Wheel International, Inc., 8.75% - 2007 ...................................... 25,000 26,188
----------
285,501
MISCELLANEOUS - 0.6%
Packard Bioscience Company, 9.375% - 2007 .......................................... 45,000 43,312
OIL - 7.1%
COHO Energy, Inc., 8.875% - 2007 ................................................... 100,000 100,250
Crown Central Petroleum, 10.875% - 2005 ............................................ 125,000 132,812
Giant Industries, 9.0% - 2007 ...................................................... 100,000 99,500
Seagull Energy Corporation, 8.625% - 2005 .......................................... 50,000 52,125
Southwest Royalties, Inc., 10.50% - 2004 ........................................... 100,000 98,750
----------
483,437
OFFICE EQUIPMENT & SUPPLIES - 1.0%
Knoll, Inc., 10.875% - 2006 ........................................................ 63,000 70,402
PACKAGING & CONTAINERS - 2.0%
Huntsman Packaging Corporation, 9.125% - 2007 ...................................... 75,000 77,250
Plastic Containers, Inc., 10.00% - 2006 ............................................ 50,000 52,625
----------
129,875
See accompanying notes.
61
<PAGE>
Schedule of Investments
December 31, 1997
SERIES P (High Yield)(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Principal
Amount or
Number of Market
CORPORATE BONDS (continued) Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
PUBLISHING - 3.2%
Big Flower Press Holdings, 8.875% - 2007 ........................................... $ 50,000 $ 50,375
Golden Books Publishing, 7.65% - 2002 .............................................. 50,000 48,125
Hollinger International Publishing, 8.625% - 2005 .................................. 50,000 51,687
K-III Communications Corporation, 10.25% - 2004 .................................... 20,000 21,500
Valissis Communications, 9.55% - 2003 .............................................. 40,000 44,950
----------
216,637
REAL ESTATE - 1.6%
B.F. Saul REIT, 11.625% - 2002 ..................................................... 100,000 106,750
RECREATION - 3.1%
AMF Bowling Worldwide, Inc., 10.875% - 2006 ........................................ 50,000 54,812
Premier Parks, 9.75% - 2007 ........................................................ 100,000 106,250
Speedway Motorsports, Inc., 8.50% - 2007 ........................................... 50,000 51,125
----------
212,187
RESTAURANTS - 2.7%
Carrols Corporation, 11.50% - 2003 ................................................. 100,000 106,250
Friendly Ice Cream, 10.50% - 2007 .................................................. 75,000 75,375
----------
181,625
RETAIL - GROCERY - 1.1%
Marsh Supermarket, Inc., 8.875% - 2007 ............................................. 75,000 75,937
RETAIL - GENERAL MERCHANDISING - 0.4%
Cole National Group, 9.875% - 2006 ................................................. 25,000 26,687
RETAIL - SPECIALTY - 0.7%
Zale's Corporation, 8.50% - 2007 ................................................... 50,000 49,375
SERVICES - 0.8%
Iron Mountain, Inc., 10.125% - 2006 ................................................ 50,000 55,000
STEEL - 1.8%
AK Steel Corporation, 9.125% - 2006 ................................................ 25,000 25,687
Wheeling-Pittsburgh Corporation, 9.25% - 2007 ...................................... 100,000 98,000
----------
123,687
TELECOMMUNICATIONS - 6.4%
Centennial Cellular, 8.875% - 2001 ................................................. 100,000 101,875
Comcast Cellular Holdings, Inc., 9.50% - 2007 ...................................... 100,000 104,500
Intermedia Communications, 8.50% - 2008 ............................................ 125,000 125,000
RCN Corporation, 10.0% - 2007 ...................................................... 100,000 103,000
----------
434,375
TEXTILES - 7.6%
Delta Mills, Inc., 9.625% - 2007 ................................................... $ 100,000 $ 101,750
Dyersburg Corporation, 9.75% - 2007 ................................................ $ 75,000 78,562
Pillowtex Corporation, 9.00% - 2007 ................................................ $ 125,000 127,656
Westpoint Stevens, 9.375% - 2005 ................................................... $ 100,000 104,750
Worldtex, Inc., 9.625% - 2007 ...................................................... $ 100,000 102,750
----------
515,468
TOBACCO 0.8%
Dimon, Inc., 8.875% - 2006 ......................................................... $ 25,000 27,000
Standard Commercial Tobacco, 8.875% - 2005 ......................................... $ 25,000 25,156
----------
52,156
TRANSPORTATION - 2.1%
Allied Holdings, Inc., 8.625% - 2007 ............................................... $ 75,000 76,875
Teekay Shipping Corporation, 8.32% - 2008 .......................................... $ 65,000 66,137
----------
143,012
----------
Total corporate bonds - 82.1% .......................................................................... 5,552,021
TRUST PREFERRED SECURITIES(8)
- -----------------------------
FINANCE - 1.4%
SI Financing, Inc. 9.50% - 2026 .................................................... 3,500 94,500
PREFERRED STOCKS
BANKS & CREDIT - 0.8%
California Federal Bank, 11.50% .................................................... 500 56,500
COMMUNICATIONS - 1.3%
Cablevision Systems ................................................................ 784 90,185
ENTERTAINMENT - 1.8%
Time Warner, Inc., ................................................................. 108 122,306
PUBLISHING - 1.3%
PRIMEDIA, Inc., 10.0% .............................................................. 800 84,200
----------
Total preferred stocks - 5.2% .......................................................................... 353,191
----------
Total investments - 88.7% .............................................................................. 5,999,712
Cash and other assets, less liabilities - 11.3% ........................................................ 767,455
----------
Total net assets - 100.0% .............................................................................. $ 6,767,167
==========
See accompanying notes.
62
<PAGE>
Schedule of Investments
December 31, 1997
SERIES S (Social Awareness)
- ------------------------------------------------------------------------------------------------------------------------------------
Number Market
COMMON STOCKS of Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
AUTO PARTS & EQUIPMENT - 1.3%
Snap-On Tools ...................................................................... 25,500 $1,112,437
BANKS - MAJOR REGIONAL - 5.7%
Banc One Corporation ............................................................... 20,600 1,118,838
Bank of New York Company, Inc. ..................................................... 24,600 1,422,188
Northern Trust Corporation ......................................................... 22,200 1,548,450
Wells Fargo & Company .............................................................. 3,000 1,018,313
----------
5,107,789
BANKS - MONEY CENTER - 1.1%
First Chicago NBD Corporation ...................................................... 11,000 918,500
BEVERAGES - SOFT DRINK - 4.3%
Coca-Cola Company .................................................................. 40,200 2,678,325
PepsiCo, Inc. ...................................................................... 31,900 1,162,356
----------
3,840,681
BROADCAST MEDIA - 1.0%
Comcast Corporation (CI. A) ........................................................ 14,400 454,500
Tele-Communications, Inc.* ......................................................... 15,700 438,619
----------
893,119
CHEMICALS - BASIC - 0.9%
Praxair, Inc. ...................................................................... 18,800 846,000
CHEMICALS - SPECIALTY - 1.0%
Sigma-Aldrich Corporation .......................................................... 22,200 882,450
COMMUNICATIONS EQUIPMENT - 0.8%
Tellabs, Inc.* ..................................................................... 14,300 756,113
COMPUTER HARDWARE - 2.7%
Hewlett-Packard Company ............................................................ 17,600 1,100,000
International Business Machines Corporation ........................................ 12,700 1,327,944
----------
2,427,944
COMPUTER SOFTWARE/SERVICES - 4.1%
Microsoft Corporation* ............................................................. 18,600 2,404,050
PeopleSoft, Inc.* .................................................................. 32,800 1,279,200
----------
3,683,250
DATA PROCESSING SERVICES - 1.2%
Automatic Data Processing, Inc. .................................................... 17,000 1,043,375
DISTRIBUTION - FOOD & HEALTH - 1.2%
Cardinal Health, Inc. .............................................................. 13,800 1,036,725
ELECTRONIC COMPANIES - 0.4%
New Century Energies, Inc. ......................................................... 8,300 397,881
ELECTRONICS - SEMICONDUCTORS - 3.5%
Analog Devices, Inc.* .............................................................. 33,000 913,688
Intel Corporation .................................................................. 31,200 2,191,800
----------
3,105,488
ENTERTAINMENT - 1.3%
Viacom, Inc. (CI. B)* .............................................................. 26,900 $1,114,669
FINANCIAL - DIVERSE - 5.4%
Fannie Mae ......................................................................... 22,000 1,255,375
Federal Home Loan Mortgage Corporation ............................................. 28,800 1,207,800
Finova Group, Inc. ................................................................. 24,400 1,212,375
SunAmerica, Inc. ................................................................... 27,600 1,179,900
----------
4,855,450
FOODS - 2.4%
Campbell Soup Company .............................................................. 16,000 930,000
Interstate Bakeries ................................................................ 33,400 1,248,325
----------
2,178,325
HEALTH CARE - DIVERSE - 1.8%
Johnson & Johnson .................................................................. 24,832 1,635,808
HEALTH CARE - LONG TERM CARE - 0.8%
HEALTHSOUTH Corporation* ........................................................... 25,000 693,750
HEALTH CARE - SPECIALIZED SERVICES - 0.7%
Quintiles Transnational Corporation* ............................................... 17,000 650,250
HOUSEHOLD FURNISHING & APPLIANCES - 1.3%
Leggett & Platt, Inc. .............................................................. 28,100 1,176,687
HOUSEHOLD PRODUCTS - 4.7%
Colgate-Palmolive Company .......................................................... 16,000 1,176,000
Kimberly-Clark Corporation ......................................................... 16,000 789,000
Procter & Gamble Company ........................................................... 27,400 2,186,862
----------
4,151,862
INSURANCE - MULTI-LINE - 3.4%
American International Group, Inc. ................................................. 15,450 1,680,188
Lincoln National Company ........................................................... 17,900 1,398,437
----------
3,078,625
INSURANCE - PROPERTY - 1.4%
Chubb Corporation .................................................................. 17,000 1,285,625
LEISURE TIME PRODUCTS - 1.0%
Mattel, Inc. ....................................................................... 24,000 894,000
MACHINERY - DIVERSE - 1.3%
Deere & Company .................................................................... 19,200 1,119,600
MANUFACTURING - DIVERSIFIED - 1.2%
Illinois Tool Works, Inc. .......................................................... 17,200 1,034,150
MANUFACTURING - SPECIALIZED - 1.1%
Sealed Air Corporation* ............................................................ 15,400 950,950
MEDICAL PRODUCTS & SUPPLIES - 2.2%
ATL Ultrasound, Inc.* .............................................................. 9,500 437,000
Guidant Corporation ................................................................ 24,300 1,512,675
----------
1,949,675
See accompanying notes.
63
<PAGE>
Schedule of Investments
December 31, 1997
Series S (Social Awareness)(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Number Market
COMMON STOCKS (continued) of Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
NATURAL GAS - 1.3%
Consolidated Natural Gas ........................................................... 8,000 $ 484,000
Sonat, Inc. ........................................................................ 14,900 681,675
----------
1,165,675
NETWORKING - 1.4%
Cisco Systems, Inc.* ............................................................... 22,350 1,246,013
OFFICE EQUIPMENT & SUPPLIES - 0.6%
Corporate Express, Inc.* ........................................................... 44,500 572,937
OIL & GAS - EXPLORATION/PRODUCTION - 1.7%
Anadarko Petroleum Corporation ..................................................... 12,000 728,250
Apache Corporation ................................................................. 22,000 771,375
----------
1,499,625
PHARMACEUTICALS - 5.4%
Dura Pharmaceuticals, Inc.* ........................................................ 18,500 848,688
Merck & Company, Inc. .............................................................. 21,800 2,316,250
Schering-Plough Corporation ........................................................ 26,600 1,652,525
----------
4,817,463
RESTAURANTS - 1.6%
McDonald's Corporation ............................................................. 15,200 725,800
Starbucks Corporation* ............................................................. 18,500 709,937
----------
1,435,737
RETAIL - DEPARTMENT STORES - 3.2%
Dollar General Corporation ......................................................... 24,375 883,594
Kohl's Corporation* ................................................................ 13,500 919,687
Proffitt's, Inc.* .................................................................. 38,000 1,080,625
----------
2,883,906
RETAIL - DRUG STORES - 1.5%
Walgreen Company ................................................................... 42,600 1,336,575
RETAIL - FOOD CHAINS - 1.7%
American Stores Company ............................................................ 30,500 627,156
Kroger Company* .................................................................... 24,500 904,969
----------
1,532,125
RETAIL - GENERAL MERCHANDISE - 1.6%
Dayton Hudson Corporation .......................................................... 21,400 1,444,500
RETAIL - SPECIALTY - 1.9%
Staples, Inc.* ..................................................................... 41,075 1,139,831
Woolworth Corporation* ............................................................. 29,000 590,875
----------
1,730,706
SAVINGS & LOAN - 1.7%
Ahmanson (H.F.) & Company .......................................................... 22,200 1,486,013
SERVICES - ADVERTISING/MARKETING - 1.7%
Omnicom Group, Inc. ................................................................ 35,000 1,483,125
SERVICES - COMMERCIAL & CONSUMER - 3.4%
Apollo Group, Inc.* ................................................................ 26,000 $1,228,500
Service Corporation International .................................................. 23,800 879,112
Sylvan Learning Systems, Inc.* ..................................................... 24,500 955,500
----------
3,063,112
TELEPHONE - 5.1%
Ameritech Corporation .............................................................. 12,000 966,000
Bell Atlantic Corporation .......................................................... 10,100 919,100
Bellsouth Corporation .............................................................. 22,600 1,272,662
SBC Communications ................................................................. 19,100 1,399,075
----------
4,556,837
TELECOMMUNICATIONS - LONG DISTANCE - 3.2%
AT&T Corporation ................................................................... 28,100 1,721,125
Sprint Corporation ................................................................. 19,500 1,143,187
----------
2,864,312
----------
Total common stocks - 96.2% ............................................................................ 85,939,839
Cash and other assets, less liabilities - 3.8% ......................................................... 3,391,819
----------
Total net assets - 100.0% .............................................................................. $ 89,331,658
==========
SERIES V (VALUE)
- ------------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS
- ----------------
COMPUTER SOFTWARE - 2.9%
Unisys Corporation ................................................................. 4,200 $ 189,262
COMMON STOCKS
- -------------
AEROSPACE/DEFENSE - 3.0%
Lockheed Martin Corporation ........................................................ 2,000 197,000
ALUMINUM - 0.8%
Easco, Inc. ........................................................................ 4,000 53,000
BANKS - MAJOR REGIONAL - 2.1%
Wells Fargo & Company .............................................................. 400 135,775
CHEMICALS - BASIC - 1.4%
Praxair, Inc. ...................................................................... 2,000 90,000
CHEMICALS - SPECIALTY - 0.7%
Dexter Corporation ................................................................. 1,100 47,506
COMMUNICATION EQUIPMENT - 5.1%
Antec Corporation* ................................................................. 7,500 117,188
Comverse Technology, Inc.* ......................................................... 2,400 93,600
Harris Corporation ................................................................. 2,600 119,275
----------
330,063
COMPUTER SOFTWARE/SERVICES - 7.2%
Computer Sciences Corporation* ..................................................... 2,400 200,400
DST Systems, Inc.* ................................................................. 3,000 128,063
Electronics For Imaging, Inc.* ..................................................... 6,400 106,400
Rational Software Corporation* ..................................................... 3,000 34,125
----------
468,988
See accompanying notes.
64
<PAGE>
Schedule of Investments
December 31, 1997
SERIES V (Value)(Continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Number Market
COMMON STOCKS (continued) of Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
CONTAINERS - METALS/GLASS - 1.5%
Crown Cork & Seal Company, Inc. .................................................... 2,000 $ 100,250
CONTAINERS - PACKAGING - 1.1%
Sealright Company, Inc. ............................................................ 6,000 74,250
ELECTRIC COMPANIES - 2.8%
Cipsco, Inc. ....................................................................... 1,200 53,100
Empire District Electric Company ................................................... 2,500 49,062
Scana Corporation .................................................................. 2,600 77,838
----------
180,000
ELECTRONICS - INSTRUMENTATION - 3.4%
EG&G, Inc. ......................................................................... 10,500 218,531
FINANCIAL - DIVERSE - 0.8%
American Express Company ........................................................... 600 53,550
FOODS - 3.4%
Chiquita Brands International, Inc. ................................................ 5,000 81,563
Hormel Foods Corporation ........................................................... 4,200 137,550
----------
219,113
GAMING & LOTTERY - 2.2%
Circus Circus Enterprises, Inc.* ................................................... 7,000 143,500
HEALTH CARE - LONG TERM CARE - 2.9%
Integrated Health Services, Inc. ................................................... 6,000 187,125
HEALTH CARE - SPECIALIZED SERVICES - 1.3%
Allegiance Corporation ............................................................. 2,300 81,506
HOUSEHOLD FURNISHINGS & APPLIANCES - 3.6%
Meadowcraft, Inc.* ................................................................. 6,500 76,375
O'Sullivan Industries Holdings, Inc.* .............................................. 16,000 160,000
----------
236,375
HOUSEHOLD PRODUCTS - 1.4%
Kimberly-Clark Corporation ......................................................... 1,900 93,694
INSURANCE - LIFE/HEALTH - 2.4%
Aflac, Inc. ........................................................................ 3,000 153,375
INSURANCE - PROPERTY - 2.1%
Leucadia National Corporation ...................................................... 3,900 134,550
IRON & STEEL - 1.2%
Cleveland-Cliffs, Inc. ............................................................. 1,700 77,881
LEISURE TIME PRODUCTS - 1.5%
Hasbro, Inc. ....................................................................... 3,000 94,500
LODGING - HOTELS - 1.8%
La Quinta Inns, Inc. ............................................................... 6,000 115,875
MANUFACTURING - DIVERSIFIED - 1.6%
U.S. Industries, Inc. .............................................................. 3,500 105,437
MEDICAL PRODUCTS & SUPPLIES - 2.9%
ATL Ultrasound, Inc.* .............................................................. 1,700 $ 78,200
Sunrise Medical, Inc.* ............................................................. 7,000 108,063
----------
186,263
NATURAL GAS - 5.0%
Equitable Resources, Inc. .......................................................... 4,500 159,188
Peoples Energy Corporation ......................................................... 2,000 78,750
Questar Corporation ................................................................ 2,000 89,250
----------
327,188
OFFICE EQUIPMENT & SUPPLIES - 1.6%
Corporate Express, Inc.* ........................................................... 8,300 106,862
OIL & GAS - EXPLORATION & PRODUCTION - 6.1%
Apache Corporation ................................................................. 4,000 140,250
Forcenergy, Inc.* .................................................................. 4,000 104,750
YFP Sociedad Anomima ADR ........................................................... 4,500 153,844
----------
398,844
PHARMACEUTICALS - 4.6%
Mylan Laboratories, Inc. ........................................................... 5,000 104,687
R.P. Scherer Corporation* .......................................................... 1,000 61,000
Teva Pharmaceutical Industries, Ltd. ADR ........................................... 2,800 132,475
----------
298,162
PUBLISHING - NEWSPAPER - 5.2%
E.W. Scripps Company ............................................................... 4,200 203,437
News Corporation, Ltd. ADR ......................................................... 6,000 133,875
----------
337,312
RAILROADS - 1.5%
Railamerica, Inc.* ................................................................. 15,000 96,563
RESTAURANTS - 2.2%
The Cheesecake Factory* ............................................................ 4,700 143,350
RETAIL - SPECIALTY - 1.6%
Payless ShoeSource, Inc.* .......................................................... 1,500 100,687
SERVICES - COMMERCIAL & CONSUMER - 3.6%
Angelica Corporation ............................................................... 9,000 203,625
Vari-Lite International, Inc.* ..................................................... 2,500 29,844
----------
233,469
SERVICES - DATA PROCESSING - 1.8%
First Data Corporation ............................................................. 3,900 114,075
----------
Total common stocks - 91.4% ................................................... 5,934,619
----------
Total investments - 94.3% ..................................................... 6,123,881
Cash and other assets, less liabilities - 5.7% ................................ 367,116
----------
Total net assets - 100.0% ..................................................... $ 6,490,997
==========
See accompanying notes
65
<PAGE>
Schedule of Investments
December 31, 1997
SERIES X (Small Cap)
- ------------------------------------------------------------------------------------------------------------------------------------
Number Market
COMMON STOCKS (continued) of Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
AEROSPACE/DEFENSE - 0.4%
Orbital Sciences Corporation* ...................................................... 400 $ 11,900
AIRLINES - 3.1%
Alaska Air Group, Inc.* ............................................................ 300 11,625
America West Holdings Corporation* ................................................. 700 13,037
Midwest Express Holdings, Inc.* .................................................... 1,500 58,219
----------
82,881
BANKING - MAJOR REGIONAL - 1.6%
Friedman, Billings, Ramsey Group, Inc.* ............................................ 500 8,969
Western Bancorp .................................................................... 1,000 33,000
----------
41,969
BIOTECHNOLOGY - 1.0%
Incyte Pharmaceuticals, Inc.* ...................................................... 600 27,000
BROADCAST MEDIA - 4.6%
Cox Radio, Inc.* ................................................................... 600 24,150
Heftel Broadcasting Corporation* ................................................... 1,000 46,750
Sinclair Broadcast Group, Inc.* .................................................... 1,100 51,287
----------
122,187
BUILDING MATERIALS - 1.1%
Calmat Company ..................................................................... 1,000 27,875
COMMUNICATION EQUIPMENT - 0.4%
Anicom, Inc.* ...................................................................... 700 11,112
COMPUTER SOFTWARE/SERVICES - 9.4%
CBT Group PLC ADR* ................................................................. 300 24,637
Concord Communications, Inc.* ...................................................... 3,000 62,250
Crystal Systems Solutions* ......................................................... 600 15,300
HNC Software, Inc.* ................................................................ 600 25,800
Information Management Resources, Inc.* ............................................ 1,000 37,500
PRT Group, Inc.* ................................................................... 1,400 15,925
Sykes Enterprises, Inc.* ........................................................... 1,200 23,400
Veritas Software Corporation* ...................................................... 400 20,400
Visio Corporation* ................................................................. 600 23,025
----------
248,237
CONTAINERS & PACKAGING - 1.8%
Mail-Well, Inc.* ................................................................... 1,200 48,600
DISTRIBUTION - FOOD/HEALTH - 3.1%
Suiza Foods Corporation* ........................................................... 1,370 81,601
ELECTRONICS - SEMICONDUCTORS - 1.7%
Sipex Corporation* ................................................................. 500 15,125
Uniphase Corporation* .............................................................. 700 28,962
----------
44,087
HEALTH CARE - LONG TERM CARE - 1.3%
Atria Communities, Inc.* ........................................................... 2,000 34,250
HEALTH CARE - MANAGED CARE - 1.6%
National Surgery Centers, Inc.* .................................................... 1,600 42,000
HEALTH CARE - SPECIALIZED SERVICES - 1.8%
Advance Paradigm, Inc.* ............................................................ 800 $ 25,400
Parexel International* ............................................................. 600 22,200
----------
47,600
HOSPITAL MANAGEMENT - 1.3%
Transition Systems, Inc.* .......................................................... 1,600 35,400
INSURANCE - MULTILINE - 1.1%
ESG RE Limited* .................................................................... 1,200 28,200
INSURANCE - PROPERTY - 2.4%
Executive Risk, Inc. ............................................................... 900 62,831
LODGING - HOTELS - 4.9%
Capstar Hotel Company* ............................................................. 2,000 68,625
Wyndham Hotel Corporation* ......................................................... 1,500 60,563
----------
129,188
MEDICAL PRODUCTS & SUPPLIES - 0.8%
Respironics, Inc.* ................................................................. 1,000 22,375
OIL & GAS - DRILLING & EQUIPMENT - 1.0%
Key Energy Group, Inc.* ............................................................ 1,200 26,025
PERSONAL CARE - 0.3%
Windmere-Durable Holdings, Inc. .................................................... 400 9,025
PHARMACEUTICALS - 2.3%
Amerisource Health Corporation* .................................................... 500 29,375
Biovail Corporation International* ................................................. 500 19,531
Pathogenesis Corporation* .......................................................... 300 11,138
----------
60,044
REAL ESTATE INVESTMENT TRUST - 6.3%
Boston Properties, Inc. ............................................................ 400 13,225
CCA Prison Realty Trust, Inc. ...................................................... 800 35,700
Glenborough Realty Trust, Inc. ..................................................... 2,000 59,250
Laser Mortgage Management, Inc. .................................................... 2,500 36,250
Patriot American Hospitality, Inc. ................................................. 800 23,050
----------
167,475
RESTAURANTS - 1.0%
Landry's Seafood Restaurants, Inc.* ................................................ 400 9,600
Rainforest Cafe, Inc. .............................................................. 500 16,500
----------
26,100
RETAIL - APPAREL - 1.5%
Abercrombie & Fitch Company* ....................................................... 400 12,500
Stage Stores, Inc.* ................................................................ 700 26,163
----------
38,663
RETAIL - BUILDING SUPPLIES - 1.5%
Rental Service Corporation* ........................................................ 1,600 39,300
RETAIL - DEPARTMENT STORES - 2.4%
99 Cents Only Stores* .............................................................. 2,125 62,688
See accompanying notes.
66
<PAGE>
Schedule of Investments
December 31, 1997
SERIES X (Small Cap)(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Number Market
COMMON STOCKS of Shares Value
- ------------------------------------------------------------------------------------------------------------------------------------
RETAIL - FOOD CHAINS - 4.1%
Dominick's Supermarkets, Inc.* ..................................................... 1,500 $ 54,750
Wild Oats Market, Inc.* ............................................................ 1,500 54,094
----------
108,844
RETAIL - GENERAL MERCHANDISE - 4.4%
Dollar Tree Stores, Inc.* .......................................................... 1,200 49,650
Linens `N Things, Inc.* ............................................................ 1,500 65,437
----------
115,087
RETAIL - SPECIALTY - 1.7%
Michaels' Stores, Inc.* ............................................................ 1,500 43,875
SAVINGS & LOANS - 3.1%
Sterling Financial Corporation* .................................................... 1,000 21,750
Webster Financial Corporation ...................................................... 900 59,850
----------
81,600
SERVICES - ADVERTISING/MARKETING - 5.2%
Acxiom Corporation* ................................................................ 700 13,475
Lamar Advertising Company* ......................................................... 2,100 83,475
Universal Outdoor Holdings, Inc.* .................................................. 800 41,600
----------
138,550
SERVICES - COMMERCIAL & CONSUMER - 8.9%
Corestaff, Inc.* ................................................................... 700 18,550
Hall, Kinion & Associates, Inc. .................................................... 1,500 32,813
International Telecommunication Data Systems, Inc.* ................................ 500 16,000
Lamalie Associates, Inc.* .......................................................... 1,300 26,000
Mac-Gray Corporation* .............................................................. 3,500 54,688
Romac International, Inc.* ......................................................... 3,000 73,312
Select Appointments Holdings Public Limited ........................................ 800 14,600
----------
235,963
SERVICES - DATA PROCESSING - 2.4%
Billing Information Concepts Corporation* .......................................... 1,300 62,400
SPECIALTY PRINTING - 1.6%
Consolidated Graphics, Inc.* ....................................................... 600 27,975
Valassis Communications, Inc.* ..................................................... 400 14,800
----------
42,775
TELECOMMUNICATION - LONG DISTANCE - 1.6%
Saville Systems Ireland PLC-ADR* ................................................... 1,000 41,500
WASTE MANAGEMENT - 2.0%
Superior Services, Inc.* ........................................................... 1,800 51,975
----------
Total common stocks - 94.7% ............................................................................ $ 2,501,182
----------
Cash and other assets, less liabilities - 5.3% ......................................................... 138,802
----------
Total net assets - 100.0% .............................................................................. $ 2,639,984
==========
</TABLE>
The identified cost of investments owned at December 31,1997 was the same for
federal income tax and financial statement purposes for Series A, B, C, K, P, S
and V. The identified cost of investments for federal income tax purposes for
Series D, E, J, M, N, O and X was $237,723,065, $135,226,629, $169,156,921,
$46,697,879, $31,029,368, $116,904,806 and $2,389,970, respectively.
* Securities on which no cash dividend was paid during the preceding twelve
months.
ADR (American Depositary Receipt)
(1) Deferred interest obligations currently zero under terms of initial
offering.
(2) Principal amount on foreign bond is reflected in local currency (e.g.,
Danish krone) while market value is reflected in U.S. dollars.
(3) Variable rate security which may be reset the first of each month.
(4) Variable rate security which may be reset the first of each quarter.
(5) Step rate security in which rate may change over the life of the bond.
(6) Variable rate security which may be reset every two years.
(7) Floating rate security which may be reset the first of each semi-annual
payment.
(8) Trust preferred securities - Securities issued by financial institutions to
augment their Tier 1 capital base. Issued on a subordinate basis relative
to senior notes or debentures. Institutions may defer cash payments for up
to 10 pay periods.
See accompanying notes.
67
<PAGE>
BALANCE SHEETS
December 31, 1997
<TABLE>
<CAPTION>
Series B Series C Series D Series E
Series A (Growth- (Money (Worldwide (High Grade
(Growth) Income) Market) Equity) Income)
-------------- -------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments, at value (identified cost $603,391,167,
$872,131,276, $28,326,675, $237,186,466 and
$135,172,724 respectively) ........................ $ 912,080,784 $1,183,758,519 $ 28,323,098 $251,517,736 $139,515,145
Short-term commercial paper, at market or at
amortized cost which approximates market
value (identified cost $8,168,286, $0, $69,691,751,
$0, $0 and $0,respectively) ........................ 8,168,286 -- 69,691,498 -- --
Cash ............................................... 92,923,438 70,198,702 523,384 31,136,775 --
Receivables:
Fund shares sold .................................. 790,904 774,375 795,552 279,609 117,395
Securities sold ................................... 239,782 16,074,375 160,709 3,081,482 --
Forward foreign exchange contracts ................ -- -- -- 869,934 --
Interest .......................................... 363,124 1,906,258 550,734 92,159 2,270,132
Dividends ......................................... 1,003,697 1,236,593 -- 241,176 --
Foreign taxes recoverable ......................... -- -- -- 199,872 --
Prepaid Expenses ................................... 9,168 13,423 251 -- 2,173
-------------- -------------- ------------ ------------ -------------
Total assets .................................... $1,015,579,183 $1,273,962,245 $100,045,226 $287,418,743 $ 141,904,845
============== ============== ============ ============ =============
LIABILITIES AND NET ASSETS
Liabilities:
Payable for:
Securities purchased ............................. $ 12,565,196 $ 71,933,442 $ -- $ 880,057 $ --
Fund shares redeemed ............................. 2,315,949 2,647,702 1,964,602 361,889 394,931
Other liabilities:
Management fees .................................. 665,832 796,934 45,265 258,653 93,937
Custodian fees ................................... 5,365 8,640 6,132 29,458 1,102
Transfer and administration fees ................. 40,707 48,529 4,767 12,290 6,217
Professional fees ................................ 21,051 33,398 5,152 41,225 7,163
Miscellaneous .................................... 36,116 191,179 4,478 53,510 9,750
Cash overdraft ..................................... -- -- -- -- 483,210
-------------- -------------- ------------ ------------ -------------
Total liabilities ............................... 15,650,216 75,659,824 2,030,396 1,637,082 996,310
Net Assets:
Paid in capital .................................... 612,155,500 737,234,131 91,896,653 247,185,030 142,031,247
Undistributed net investment income ................ 5,458,278 20,257,353 6,122,007 3,265,920 8,351,464
Accumulated undistributed net realized
gain (loss) on sale of investments
and foreign currency transactions ................ 73,625,572 129,183,694 -- 20,120,431 (13,816,597)
Net unrealized appreciation (depreciation)
in value of investments and translation of assets
and liabilities in foreign currency ............... 308,689,617 311,627,243 (3,830) 15,210,280 4,342,421
-------------- -------------- ------------ ------------ -------------
Net assets ....................................... 999,928,967 1,198,302,421 98,014,830 285,781,661 140,908,535
-------------- -------------- ------------ ------------ -------------
Total liabilities and net assets ................ $1,015,579,183 $1,273,962,245 $100,045,226 $287,418,743 $ 141,904,845
============== ============== ============ ============ =============
Capital shares authorized .......................... Indefinite Indefinite Indefinite Indefinite Indefinite
Capital shares outstanding ......................... 34,020,629 28,805,295 7,821,762 46,544,062 11,506,869
Net asset value per share (net assets
divided by shares outstanding) ................... $ 29.39 $ 41.60 $ 12.53 $ 6.14 $ 12.25
============== ============== ============ ============ =============
</TABLE>
See accompanying notes.
68
<PAGE>
BALANCE SHEETS (continued)
December 31, 1997
<TABLE>
<CAPTION>
Series K Series M Series N
Series J (Global (Specialized (Managed Series O
(Emerging Aggressive Asset Asset (Equity
Growth) Bond) Allocation) Allocation) Income)
------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments, at value (identified cost $169,140,358,
$14,455,267, $46,908,630, $31,015,284
and $116,881,844, respectively) .............................. $210,447,459 $ 14,032,362 $48,244,748 $36,094,177 $140,430,793
Short-term commercial paper, at market or at
amortized cost which approximates market
value (identified cost $0, $0, $0, $1,743,690
and $10,860,433, respectively) ............................... -- -- -- 1,743,690 10,860,433
Cash .......................................................... 11,668,852 122,474 971 627 --
Receivables:
Fund shares sold ............................................. 281,060 262,899 27,368 108,696 375,537
Securities sold .............................................. 9,822,635 727,746 -- -- --
Forward foreign exchange contracts ........................... -- 16,331 -- -- --
Interest ..................................................... 57,413 314,404 162,739 269,008 35,737
Dividends .................................................... 96,488 -- 29,718 25,676 341,844
Prepaid Expenses .............................................. 3,736 420 1,166 943 1,874
Foreign taxes recoverable ..................................... -- 13,189 10,424 2,547 2,780
------------ ------------ ----------- ----------- ------------
Total assets ................................................ $232,377,643 $ 15,489,825 $48,477,134 $38,245,364 $152,048,998
============ ============ =========== =========== ============
LIABILITIES AND NET ASSETS
Liabilities:
Payable for:
Securities purchased ........................................ $ 5,825,026 $ 730,735 $-- $-- $ 794,888
Fund shares redeemed ........................................ 82,346 21,822 38,370 17,324 712,676
Written call options outstanding ............................ -- 25,186 -- -- --
Other liabilities:
Management fees ............................................. 149,785 -- 43,254 33,481 131,536
Custodian fees .............................................. 3,918 18,160 3,370 1,459 2,764
Transfer and administration fees ............................ 9,624 6,044 2,417 6,966 6,504
Professional fees ........................................... 3,716 2,455 8,004 3,016 4,472
Miscellaneous ............................................... 5,788 6,752 2,909 1,316 4,855
------------ ------------ ----------- ----------- ------------
Total liabilities .......................................... 6,080,203 811,154 98,324 63,562 1,657,695
Net Assets:
Paid in capital ............................................... 159,873,252 15,069,823 43,929,258 31,946,406 118,634,208
Undistributed net investment income ........................... 1,387,623 -- 735,292 724,004 2,386,728
Accumulated undistributed net realized
gain (loss) on sale of investments, futures, options
and foreign currency transactions ........................... 23,729,464 25,258 2,378,672 433,323 5,821,380
Net unrealized appreciation (depreciation)
in value of investments, futures, options and
translation of assets and liabilities in
foreign currency ............................................. 41,307,101 (416,410) 1,335,588 5,078,069 23,548,987
------------ ------------ ----------- ----------- ------------
Net assets .................................................. 226,297,440 14,678,671 48,378,810 38,181,802 150,391,303
------------ ------------ ----------- ----------- ------------
Total liabilities and net assets ........................... $232,377,643 $ 15,489,825 $48,477,134 $38,245,364 $152,048,998
============ ============ =========== =========== ============
Capital shares authorized ..................................... Indefinite Indefinite Indefinite Indefinite Indefinite
Capital shares outstanding .................................... 10,608,091 1,459,082 3,934,927 2,750,073 8,533,609
Net asset value per share (net assets
divided by shares outstanding) ............................... $ 21.33 $ 10.06 $ 12.29 $ 13.88 $ 17.62
============ ============ =========== =========== ============
</TABLE>
See accompanying notes.
69
<PAGE>
BALANCE SHEETS (continued)
December 31, 1997
<TABLE>
<CAPTION>
Series S
Series P (Social- Series V Series X
(High Yeild) Awareness) (Value) (Small Cap)
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
ASSETS
Investments, at value
(identified cost $5,869,673, $62,423,030,
$5,778,444, and $2,382,250, respectively) .................. $5,999,712 $85,939,839 $6,123,881 $ 2,501,182
Cash ........................................................ 619,440 4,427,439 334,639 385,353
Receivables:
Fund shares sold ........................................... 20,000 120,440 31,785 15,339
Securities sold ............................................ -- -- -- 57,249
Interest ................................................... 130,203 20,410 1,440 2,089
Dividends .................................................. -- 90,324 9,957 1,098
Prepaid Expenses ............................................ 2,386 1,718 184 180
---------- ----------- ---------- -----------
Total assets .............................................. $6,771,741 $90,600,170 $6,501,886 $ 2,962,490
========== =========== ========== ===========
LIABILITIES AND NET ASSETS
Liabilities:
Payable for:
Securities purchased ...................................... $-- $ 1,123,151 $ 7,210 $ 319,680
Fund shares redeemed ...................................... 1,864 75,725 407 9
Other liabilities:
Management fees ........................................... -- 58,866 -- --
Custodian fees ............................................ -- -- 376 --
Transfer and administration fees .......................... 377 4,071 357 270
Professional fees ......................................... 2,083 -- 2,200 2,100
Miscellaneous ............................................. 250 6,699 339 447
---------- ----------- ---------- -----------
Total liabilities ........................................ 4,574 1,268,512 10,889 322,506
Net Assets:
Paid in capital ............................................. 6,267,942 63,114,415 5,964,107 2,737,785
Undistributed net investment income ......................... 302,736 252,844 28,106 3,766
Accumulated undistributed net realized
gain (loss) on sale of investments ......................... 66,450 2,447,590 153,347 (220,499)
Net unrealized appreciation in value
of investments ............................................. 130,039 23,516,809 345,437 118,932
---------- ----------- ---------- -----------
Net assets ................................................ 6,767,167 89,331,658 6,490,997 2,639,984
---------- ----------- ---------- -----------
Total liabilities and net assets ......................... $6,771,741 $90,600,170 $6,501,886 $ 2,962,490
========== =========== ========== ===========
Capital shares authorized ................................... Indefinite Indefinite Indefinite Indefinite
Capital shares outstanding .................................. 384,425 4,014,387 494,222 275,119
Net asset value per share (net assets
divided by shares outstanding) ............................ $ 17.60 $ 22.25 $ 13.13 $ 9.60
========== =========== ========== ===========
</TABLE>
See accompanying notes.
70
<PAGE>
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
Series B Series C Series D Series E
Series A (Growth- (Money (Worldwide (High Grade
(Growth) Income) Market) Equity) Income)
------------- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ............................................... $ 10,100,325 $ 13,392,289 $ -- $ 5,278,469 $ --
Interest ................................................ 2,471,310 16,087,081 7,066,438 943,624 9,448,009
------------- ------------- ---------- ------------ ------------
12,571,635 29,479,370 7,066,438 6,222,093 9,448,009
Less foreign tax expense ................................ -- -- -- (530,606) --
------------- ------------- ---------- ------------ ------------
Total investment income ............................. 12,571,635 29,479,370 7,066,438 5,691,487 9,448,009
EXPENSES:
Management fees ......................................... 6,408,123 8,119,740 629,177 2,834,657 945,220
Custodian fees .......................................... 25,866 37,383 12,129 214,135 10,913
Transfer/maintenance fees ............................... 4,305 3,880 3,726 3,887 3,182
Administration fees ..................................... 384,487 487,184 56,626 418,521 56,713
Directors' fees ......................................... 19,332 65,999 4,219 3,892 1,759
Professional fees ....................................... 23,360 47,880 8,136 35,556 11,075
Reports to shareholders ................................. 50,340 174,999 5,493 34,929 10,452
Registration fees ....................................... 708 947 296 -- 133
Other expenses .......................................... 42,388 45,811 9,300 19,030 5,459
------------- ------------- ---------- ------------ ------------
Total expenses ...................................... 6,958,909 8,983,823 729,102 3,564,607 1,044,906
Less earnings credits ................................... (392) (1,382) -- -- --
------------- ------------- ---------- ------------ ------------
Net expenses ............................................ 6,958,517 8,982,441 729,102 3,564,607 1,044,906
------------- ------------- ---------- ------------ ------------
Net investment income ............................... 5,613,118 20,496,929 6,337,336 2,126,880 8,403,103
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) during the period on:
Investments ............................................ 74,245,595 129,262,529 -- 21,241,886 (1,539,646)
Foreign currency transactions .......................... -- -- -- 1,218,889 --
------------- ------------- ---------- ------------ ------------
Net realized gain (loss) ............................ 74,245,595 129,262,529 -- 22,460,775 (1,539,646)
Net change in unrealized appreciation
(depreciation) during the period on:
Investments ............................................ 126,638,845 101,905,973 49,687 (9,320,639) 4,991,204
Translation of assets and liabilities
in foreign currencies ............................... -- -- -- 998,330 --
------------- ------------- ---------- ------------ ------------
Net unrealized appreciation (depreciation) ....... 126,638,845 101,905,973 49,687 (8,322,309) 4,991,204
------------- ------------- ---------- ------------ ------------
Net gain ............................................ 200,884,440 231,168,502 49,687 14,138,466 3,451,558
------------- ------------- ---------- ------------ ------------
Net increase in net assets resulting
from operations .................................. $ 206,497,558 $ 251,665,431 $6,387,023 $ 16,265,346 $ 11,854,661
============= ============= ========== ============ ============
</TABLE>
See accompanying notes.
71
<PAGE>
STATEMENTS OF OPERATIONS (continued)
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
Series K Series M Series N
Series J (Global (Specialized (Managed SERIES O
(Emerging Aggressive Asset Asset (EQUITY
Growth) Bond) Allocation) Allocation) INCOME)
------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ............................................ $ 581,639 $ -- $ 511,945 $ 283,810 $ 2,834,713
Interest ............................................. 786,728 1,550,616 890,830 829,324 716,095
------------ ----------- ----------- ----------- ------------
1,368,367 1,550,616 1,402,775 1,113,134 3,550,808
Less foreign tax expense ............................. -- (8,517) (36,002) (9,940) (5,812)
------------ ----------- ----------- ----------- ------------
Total investment income .......................... 1,368,367 1,542,099 1,366,773 1,103,194 3,544,996
EXPENSES:
Management fees ...................................... 1,450,833 110,691 457,703 268,813 1,038,791
Custodian fees ....................................... 11,205 20,075 24,281 18,166 31,025
Transfer/maintenance fees ............................ 3,834 2,396 2,613 2,486 3,028
Administration fees .................................. 87,050 60,360 74,533 65,972 46,871
Directors' fees ...................................... 3,188 69 1,017 698 2,523
Professional fees .................................... 10,307 6,205 6,444 5,684 3,712
Reports to shareholders .............................. 12,151 1,095 8,712 2,469 8,860
Registration fees .................................... 401 2,493 -- -- --
Other expenses ....................................... 7,920 1,455 3,582 1,050 3,844
------------ ----------- ----------- ----------- ------------
Total expenses ................................... 1,586,889 204,839 578,885 365,338 1,138,654
Less:
Reimbursement of expenses ........................... -- (110,691) -- -- --
Earnings credits .................................... (106) -- -- -- --
------------ ----------- ----------- ----------- ------------
Net expenses ......................................... 1,586,783 94,148 578,885 365,338 1,138,654
------------ ----------- ----------- ----------- ------------
Net investment income (loss) ..................... (218,416) 1,447,951 787,888 737,856 2,406,342
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) during the period on:
Investments ......................................... 25,352,614 482,704 2,382,531 438,148 5,864,127
Foreign currency transactions ....................... (386,391) 10,191 (6,359) (11,784)
------------ ----------- ----------- ----------- ------------
Net realized gain ................................ 25,352,614 96,313 2,392,722 431,789 5,852,343
Net change in unrealized appreciation
(depreciation) during the period on:
Investments ......................................... 13,543,690 (741,932) (608,635) 3,326,020 17,563,867
Translation of assets and liabilities
in foreign currencies ............................ -- 4,615 (390) 85 122
------------ ----------- ----------- ----------- ------------
Net unrealized appreciation
(depreciation) ................................ 13,543,690 (737,317) (609,025) 3,226,105 17,563,989
------------ ----------- ----------- ----------- ------------
Net gain (loss) .................................. 38,896,304 (641,004) 1,783,697 3,657,894 23,416,332
------------ ----------- ----------- ----------- ------------
Net increase in net assets resulting
from operations ............................... $ 38,677,888 $ 806,947 $ 2,571,585 $ 4,395,750 $ 25,822,674
============ =========== =========== =========== ============
</TABLE>
See accompanying notes.
72
<PAGE>
STATEMENTS OF OPERATIONS (continued)
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
Series S
Series P (Social- Series V* Series X**
(High Yield) Awareness) (Value) (Small Cap)
--------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Investment Income:
Dividends .................................................... $ 10,198 $ 569,297 $ 28,785 $ 8,804
Interest ..................................................... 303,858 298,204 6,595 --
--------- ----------- --------- ---------
Total investment income .................................. 314,056 867,501 35,380 8,804
Expenses:
Management fees .............................................. 29,276 552,725 13,412 5,148
Custodian fees ............................................... 1,077 3,894 1,678 521
Transfer/maintenance fees .................................... 322 2,865 340 108
Administration fees .......................................... 1,589 33,163 815 463
Directors' fees .............................................. 13 1,007 167 52
Professional fees ............................................ 7,067 10,000 3,500 3,500
Reports to shareholders ...................................... 58 4,738 37 41
Registration fees ............................................ 69 157 -- 104
Other expenses ............................................... 701 3,596 737 249
--------- ----------- --------- ---------
Total expenses ........................................... 40,172 612,145 20,686 10,186
Less reimbursement of expenses ............................... (29,276) -- (13,412) (5,148)
--------- ----------- --------- ---------
Net expenses ................................................. 10,896 612,145 7,274 5,038
--------- ----------- --------- ---------
Net investment income .................................... 303,160 255,356 28,106 3,766
Net Realized and Unrealized Gain (Loss):
Net realized gain (loss) during the period on investments .... 66,450 2,451,272 153,347 220,499
--------- ----------- --------- ---------
Net realized gain (loss) ................................. 66,450 2,451,272 153,347 (220,499)
Net change in unrealized appreciation
(depreciation) during the period on investments .............. 67,808 12,331,938 345,437 118,932
--------- ----------- --------- ---------
Net unrealized appreciation .............................. 67,808 12,331,938 345,437 118,932
--------- ----------- --------- ---------
Net gain (loss) .......................................... 134,258 14,783,210 498,784 (101,567)
--------- ----------- --------- ---------
Net increase (decrease) in net assets
resulting from operations ............................. $ 437,418 $15,038,566 $ 526,890 ($ 97,801)
========= =========== ========= =========
</TABLE>
* Period May 1, 1997 (inception) through December 31, 1997.
** Period October 15, 1997 (inception) through December 31, 1997.
See accompanying notes.
73
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
Series B Series C Series D Series E
Series A (Growth- (Money (Worldwide (High Grade
(Growth) Income) Market) Equity) Income)
------------- --------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income ........................... $ 5,613,118 $ 20,496,929 $ 6,337,336 $ 2,126,880 $ 8,403,103
Net realized gain (loss) ........................ 74,245,595 129,262,529 -- 22,460,775 (1,539,646)
Unrealized appreciation (depreciation)
during the period .............................. 126,638,845 101,905,973 49,687 (8,322,309) 4,991,204
------------- --------------- ------------- ------------- -------------
Net increase in net assets resulting
from operations .............................. 206,497,558 251,665,431 6,387,023 16,265,346 11,854,661
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ........................... (5,518,886) (23,074,486) (6,976,237) (5,800,374) (8,745,211)
Net realized gain ............................... (51,595,242) (57,256,924) -- (12,516,597) --
------------- --------------- ------------- ------------- -------------
Total distributions to shareholders ........... (57,114,128) (80,331,410) (6,976,237) (18,316,971) (8,745,211)
CAPITAL SHARE TRANSACTIONS (a):
Proceeds from sale of shares .................... 349,498,897 206,586,968 334,627,234 104,379,832 66,408,884
Dividends reinvested ............................ 57,114,128 80,331,410 6,976,237 18,316,971 8,745,211
Shares redeemed ................................. (270,658,046) (216,536,285) (371,671,540) (81,889,098) (71,396,121)
------------- --------------- ------------- ------------- -------------
Net increase (decrease) from capital share
transactions ................................. 135,954,979 70,382,093 (30,068,069) 40,807,705 3,757,974
------------- --------------- ------------- ------------- -------------
Total increase (decrease) in net assets ..... 285,338,409 241,716,114 (30,657,283) 38,756,080 6,867,424
NET ASSETS:
Beginning of year ............................... 714,590,558 956,586,307 128,672,113 247,025,581 134,041,111
------------- --------------- ------------- ------------- -------------
End of year ..................................... $ 999,928,967 $ 1,198,302,421 $ 98,014,830 $ 285,781,661 $ 140,908,535
============= =============== ============= ============= =============
Undistributed net investment income at
end of year ................................... $ 5,458,278 $ 20,257,353 $ 6,122,007 $ 3,265,920 $ 8,351,464
============= =============== ============= ============= =============
(a) Shares issued and redeemed
Shares sold .................................. 12,677,122 5,260,534 26,333,439 16,054,895 5,467,675
Dividends reinvested ......................... 1,995,844 2,051,364 565,336 2,813,667 744,273
Shares redeemed .............................. (10,042,899) (5,527,086) (29,322,870) (12,578,379) (5,876,034)
------------- --------------- ------------- ------------- -------------
Net increase (decrease) .................. 4,630,067 1,784,812 (2,424,095) 6,290,183 335,914
============= =============== ============= ============= =============
</TABLE>
See accompanying notes.
74
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (continued)
For the Year Ended December 31,1997
<TABLE>
<CAPTION>
Series K Series M Series N
Series J (Global (Specialized (Manager Series O
(Emerging Aggressive Asset Asset (Equity
Growth) Bond) Allocation) Allocation) Income)
------------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income (loss) .................... $ (218,416) $ 1,447,951 $ 787,888 $ 737,856 $ 2,406,342
Net realized gain ............................... 25,352,614 96,313 2,392,722 431,789 5,852,343
Unrealized appreciation (depreciation)
during the period .............................. 13,543,690 (737,317) (609,025) 3,226,105 17,563,989
------------- ------------ ------------ ------------ -------------
Net increase in net assets resulting
from operations .............................. 38,677,888 806,947 2,571,585 4,395,750 25,822,674
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ........................... (549,249) (1,187,593) (989,376) (463,492) (1,036,083)
Net realized gain ............................... (4,737,130) (360,640) (951,614) (302,277) (1,478,050)
------------- ------------ ------------ ------------ -------------
Total distributions to shareholders ........... (5,286,379) (1,548,233) (1,940,990) (765,769) (2,514,133)
CAPITAL SHARE TRANSACTIONS (a):
Proceeds from sale of shares .................... 133,668,974 12,401,810 20,640,318 22,521,114 89,058,294
Dividends reinvested ............................ 5,286,379 1,548,233 1,940,990 765,769 2,514,133
Shares redeemed ................................. (94,470,710) (11,249,981) (13,229,016) (12,079,640) (26,866,727)
------------- ------------ ------------ ------------ -------------
Net increase from capital share
transactions ................................. 44,484,643 2,700,062 9,352,292 11,207,243 64,705,700
------------- ------------ ------------ ------------ -------------
Total increase in net assets ................ 77,876,152 1,958,776 9,982,887 14,837,224 88,014,241
NET ASSETS:
Beginning of year ............................... 148,421,288 12,719,895 38,395,923 23,344,578 62,377,062
------------- ------------ ------------ ------------ -------------
End of year ..................................... $ 226,297,440 $ 14,678,671 $ 48,378,810 $ 38,181,802 $ 150,391,303
============= ============ ============ ============ =============
Undistributed net investment income at
End of year ................................... $ 1,387,623 $ -- $ 735,292 $ 724,004 $ 2,386,728
============= ============ ============ ============ =============
(a) Shares issued and redeemed
Shares sold .................................. 6,939,060 1,143,221 1,648,855 1,701,526 5,601,731
Dividends reinvested ......................... 248,954 153,633 154,292 57,361 151,820
Shares redeemed .............................. (4,713,562) (1,023,875) (1,055,108) (951,637) (1,670,956)
------------- ------------ ------------ ------------ -------------
Net increase .............................. 2,474,452 272,979 748,039 807,250 4,082,595
============= ============ ============ ============ =============
</TABLE>
See accompanying notes.
75
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (continued)
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
Series S
Series P (Social- Series V* Series X**
(High Yield) Awareness) (Value) (Small Cap)
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income .................................... $ 303,160 $ 255,356 $ 28,106 $ 3,766
Net realized gain (loss) ................................. 66,450 2,451,272 153,347 (220,499)
Unrealized appreciation during the period ................ 67,808 12,331,938 345,437 118,932
----------- ------------ ----------- -----------
Net increase (decrease) in net assets
resulting from operations ............................. 437,418 15,038,566 526,890 (97,801)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income .................................... (86,463) (140,591) -- --
Net realized gain ........................................ (16,835) (3,817,588) -- --
----------- ------------ ----------- -----------
Total distributions to shareholders .................... (103,298) (3,958,179) -- --
CAPITAL SHARE TRANSACTION (a):
Proceeds from sale of shares ............................. 5,106,583 31,437,717 6,530,970 2,739,040
Dividends reinvested ..................................... 103,298 3,958,179 -- --
Shares redeemed .......................................... (1,441,939) (14,641,340) (566,863) (1,255)
----------- ------------ ----------- -----------
Net increase from capital share
transactions .......................................... 3,767,942 20,754,556 5,964,107 2,737,785
----------- ------------ ----------- -----------
Total increase in net assets ......................... 4,102,062 31,834,943 6,490,997 2,639,984
NET ASSETS:
Beginning of period ...................................... 2,665,105 57,496,715 -- --
----------- ------------ ----------- -----------
End of period ............................................ $ 6,767,167 $ 89,331,658 $ 6,490,997 $ 2,639,984
=========== ============ =========== ===========
Undistributed net investment income at end of period ..... $ 302,736 $ 252,844 $ 28,106 $ 3,766
=========== ============ =========== ===========
(a) Shares issued and redeemed
Shares sold ........................................... 294,241 1,523,304 538,647 275,255
Dividends reinvested .................................. 6,087 186,619 -- --
Shares redeemed ....................................... (82,570) (708,502) (44,425) (136)
----------- ------------ ----------- -----------
Net increase ....................................... 217,758 1,001,421 494,222 275,119
=========== ============ =========== ===========
</TABLE>
* Period May 1, 1997 (inception) through December 31, 1997.
** Period October 15, 1997 (inception) through December 31, 1997.
See accompanying notes.
76
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Series B Series C
Series A (Growth- (Money
(Growth) Income) Market)
------------- ------------- -------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income ....................... $ 5,466,761 $ 22,733,680 $ 6,921,208
Net realized gain (loss) .................... 51,089,074 57,472,747 --
Unrealized appreciation (depreciation)
during the period ...................... 62,940,793 65,772,214 (41,770)
------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations ......... 119,496,628 145,978,641 6,879,438
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ....................... (4,858,702) (18,421,256) (5,014,558)
Net realized gain ........................... (30,078,874) (89,075,535) --
------------- ------------- -------------
Total distributions to shareholders .... (34,937,576) (107,496,791) (5,014,558)
CAPITAL SHARE TRANSACTIONS (a):
Proceeds from sale of shares ................ 272,735,836 195,756,138 300,770,030
Dividends reinvested ........................ 34,937,576 107,496,791 5,014,558
Shares redeemed ............................. (197,533,006) (180,261,174) (284,413,035)
------------- ------------- -------------
Net increase from capital share
transactions ....................... 110,140,406 122,991,755 21,371,553
------------- ------------- -------------
Total increase in net assets 194,699,458 161,473,605 23,236,433
NET ASSETS:
Beginning of year ........................... 519,891,100 795,112,702 105,435,680
------------- ------------- -------------
End of year ................................. $ 714,590,558 $ 956,586,307 $ 128,672,113
============= ============= =============
Undistributed net investment
income at end of year .................. $ 5,364,046 $ 22,620,615 $ 6,760,908
============= ============= =============
(a) Shares issued and redeemed
Shares sold ....................... 11,815,669 5,479,920 23,991,955
Dividends reinvested .............. 1,535,718 3,174,743 405,053
Shares redeemed ................... (8,682,010) (5,055,630) (22,692,246)
------------- ------------- -------------
Net increase .................. 4,669,377 3,599,033 1,704,762
============= ============= =============
SERIES D SERIES E SERIES J
(WORLDWIDE (HIGH GRADE (EMERGING
EQUITY) INCOME) GROWTH)
------------- ------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income ....................... $ 1,588,321 $ 8,664,351) $ (270,043)
Net realized gain (loss) .................... 18,196,752 (2,164,110) 5,574,826
Unrealized appreciation (depreciation)
during the period ...................... 13,347,522 (7,551,691) 16,151,675
------------- ------------- -------------
Net increase (decrease) in net assets
resulting from operations ........ 33,132,595 (1,051,450) 21,456,458
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ....................... (6,982,410) (7,686,321) (236,747)
Net realized gain ........................... (6,588,531) -- (5,477,835)
------------- ------------- -------------
Total distributions to shareholders .... (13,570,941) (7,686,321) (5,714,582)
CAPITAL SHARE TRANSACTIONS (a):
Proceeds from sale of shares ................ 95,984,267 71,870,139 93,417,694
Dividends reinvested ........................ 13,570,941 7,686,321 5,714,582
Shares redeemed ............................. (59,872,380) (62,429,363) (59,832,305)
------------- ------------- -------------
Net increase from capital share
transactions ....................... 49,682,828 17,127,097 39,299,971
------------- ------------- -------------
Total increase in net assets 69,244,482 8,389,326 55,041,847
NET ASSETS:
Beginning of year ........................... 177,781,099 125,651,785 93,379,441
------------- ------------- -------------
End of year ................................. $ 247,025,581 $ 134,041,111 $ 148,421,288
============= ============= =============
Undistributed net investment
income at end of year .................. $ 5,665,264 $ 8,629,443 $ 541,285
============= ============= =============
(a) Shares issued and redeemed
Shares sold ....................... 15,951,967 5,820,235 5,392,420
Dividends reinvested .............. 2,280,830 649,731 316,597
Shares redeemed ................... (9,930,879) (5,068,479) (3,388,952)
------------- ------------- -------------
Net increase .................. 8,301,918 1,401,487 2,320,065
============= ============= =============
</TABLE>
See accompanying notes.
77
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS (continued)
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Series K Series M Series N
(Global (Specialized (Managed Series O Series P Series S
Aggressive Asset Asset (Equity (High (Social
Bond) Allocation) Allocation) Income) Yield) Awareness)
------------ ------------ ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income .................... $ 995,530 $ 785,362 $ 467,411 $ 1,031,187 $ 85,799 $ 142,884
Net realized gain ........................ 34,262 1,112,952 290,614 1,435,648 17,075 3,818,240
Unrealized appreciation
during the period ........................ 236,546 1,834,039 1,466,480 4,978,876 62,231 3,541,342
------------ ------------ ------------ ------------ ---------- ------------
Net increase in net assets
resulting from operations ........ 1,266,338 3,732,353 2,224,505 7,445,711 165,105 7,502,466
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income .................... (844,106) (332,910) (112,833) (108,567) -- (217,556)
Net realized gain ........................ (141,415) (154,426) (22,914) (7,238) -- (1,127,096)
------------ ------------ ------------ ------------ ---------- ------------
Total distribution to shareholders .... (985,521) (487,336) (135,747) (115,805) -- (1,344,652)
CAPITAL SHARE TRANSACTIONS (a):
Proceeds from sale of shares ............. 10,501,775 27,932,031 14,703,728 54,553,040 2,500,000 20,989,370
Dividends reinvested ..................... 985,521 487,336 135,747 115,805 -- 1,344,652
Shares redeemed .......................... (4,726,579) (9,244,884) (4,163,794) (13,149,311) -- (7,825,379)
------------ ------------ ------------ ------------ ---------- ------------
Net increase from capital
share transactions ................... 6,760,717 19,174,483 10,675,681 41,519,534 2,500,000 14,508,643
------------ ------------ ------------ ------------ ---------- ------------
Total increase in net assets .......... 7,041,534 22,419,500 12,764,439 48,849,440 2,665,105 20,666,457
NET ASSETS:
Beginning of year ........................ 5,678,361 15,976,423 10,580,139 13,527,622 -- 36,830,258
------------ ------------ ------------ ------------ ---------- ------------
End of year .............................. $ 12,719,895 $ 38,395,923 $ 23,344,578 $ 62,377,062 $2,665,105 $ 57,496,715
============ ============ ============ ============ ========== ============
Undistributed net investment income
at end of year ......................... $ -- $ 925,207 $ 455,499 $ 1,028,253 $ 85,799 $ 138,079
============ ============ ============ ============ ========== ============
(a) Shares issued and redeemed
Shares sold ..................... 968,131 2,471,114 1,317,755 4,318,273 166,667 1,144,145
Dividends reinvested ............ 91,933 42,899 12,013 8,922 -- 70,585
Shares redeemed ................. (429,302) (818,625) (372,924) (1,032,400) -- (435,648)
------------ ------------ ------------ ------------ ---------- ------------
Net increase ................. 630,762 1,695,388 956,844 3,294,795 166,667 779,082
============ ============ ============ ============ ========== ============
</TABLE>
See accompanying notes.
78
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SERIES A (Growth) Fiscal Period Ended December 31
----------------------------------------------------------------------------
1997(e) 1996(e) 1995(e) 1994 1993
------------ ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD .......... $ 24.31 $ 21.03 $ 16.00 $ 19.82 $ 18.33
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income ........................ 0.16 0.18 0.18 0.20 0.39
Net Gain (Loss) on Securities
(realized and unrealized) ................... 6.75 4.50 5.65 (0.44) 2.08
------------ ------------ ------------- ------------ -----------
Total from investment operations ............. 6.91 4.68 5.83 (0.24) 2.47
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) ....... (0.18) (0.20) (0.15) (0.38) (0.23)
Distributions (from Capital Gains) ........... (1.65) (1.20) (0.65) (3.20) (0.75)
------------ ------------ ------------- ------------ -----------
Total Distributions ....................... (1.83) (1.40) (0.80) (3.58) (0.98)
------------ ------------ ------------- ------------ -----------
NET ASSET VALUE END OF PERIOD ................ $ 29.39 $ 24.31 $ 21.03 $ 16.00 $ 19.82
============ ============ ============= ============ ===========
TOTAL RETURN (b) ............................. 28.7% 22.7% 36.8% (1.7% 13.7%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ......... $ 999,929 $ 714,591 $ 519,891 $ 332,288 $ 317,407
Ratio of Expenses to Average Net Assets ...... 0.81% 0.83% 0.83% 0.84% 0.86%
Ratio of Net Investment Income (Loss)
to Average Net Assets ...................... 0.66% 0.90% 1.13% 1.13% 2.01%
Portfolio Turnover Rate ...................... 61% 57% 83% 90% 108%
Average Commission Paid Per Equity
Share Traded (i) ........................... $ 0.0600 $ 0.0598 N/A N/A N/A
SERIES B (GROWTH & INCOME) FISCAL PERIOD ENDED DECEMBER 31
----------------------------------------------------------------------------
1997(e) 1996(e) 1995(e) 1994 1993
------------ ------------ ------------- ------------ -----------
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD .......... $ 35.40 $ 33.95 $ 26.54 $ 29.73 $ 27.76
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income ........................ 0.72 0.83 0.79 0.51 0.64
Net Gain (Loss) on Securities
(realized and unrealized) ................... 8.47 5.16 7.16 (1.34) 2.01
------------ ------------ ------------- ------------ -----------
Total from investment operations ............. 9.19 5.99 7.95 (0.83) 2.65
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) ....... (0.86) (0.78) (0.54) (0.68) (0.68)
Distributions (from Capital Gains) ........... (2.13) (3.76) -- (1.68) --
------------ ------------ ------------- ------------ -----------
Total Distributions ....................... (2.99) (4.54) (0.54) (2.36) (0.68)
------------ ------------ ------------- ------------ -----------
NET ASSET VALUE END OF PERIOD ................ $ 41.60 $ 35.40 $ 33.95 $ 26.54 $ 29.73
============ ============ ============= ============ ===========
TOTAL RETURN (b) ............................. 26.5% 18.3% 30.1% (3.0% 9.6%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ......... $ 1,198,302 $ 956,586 $ 795,113 $ 595,154 $ 583,599
Ratio of Expenses to Average Net Assets ...... 0.83% 0.84% 0.83% 0.84% 0.86%
Ratio of Net Investment Income (Loss)
to Average Net Assets ...................... 1.89% 2.56% 2.70% 2.07% 2.63%
Portfolio Turnover Rate ...................... 62% 58% 94% 43% 95%
Average Commission Paid Per Equity
Share Traded (i) ........................... $ 0.0600 $ 0.0602 N/A N/A N/A
</TABLE>
79
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
SERIES C (Money Market) Fiscal Period Ended December 31
----------------------------------------------------------------------
1997(e) 1996(a)(e) 1995(e) 1994 1993
----------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD .................. $ 12.56 $ 12.34 $ 12.27 $ 12.09 $ 12.21
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income ................................ 0.79 0.61 0.74 0.41 0.29
Net Gain (Loss) on Securities
(realized and unrealized) ........................... (0.15) 0.01 (0.08) 0.04 0.03
----------- ---------- ---------- ---------- ---------
Total from investment operations ..................... 0.64 0.62 0.66 0.45 0.32
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) ............... (0.67) (0.40) (0.59) (0.27) (0.44)
Distributions (from Capital Gains) ................... -- -- -- -- --
----------- ---------- ---------- ---------- ---------
Total Distributions ............................... (0.67) (0.40) (0.59) (0.27) (0.44)
----------- ---------- ---------- ---------- ---------
NET ASSET VALUE END OF PERIOD ........................ $ 12.53 $ 12.56 $ 12.34 $ 12.27 $ 12.09
=========== ========== ========== ========== =========
TOTAL RETURN (b) ..................................... 5.2% 5.1% 5.4% 3.7% 2.6%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ................. $ 98,015 $ 128,672 $ 105,436 $ 118,668 $ 99,092
Ratio of Expenses to Average Net Assets .............. 0.58% 0.58% 0.60% 0.61% 0.61%
Ratio of Net Investment Income (Loss) to Average
Net Assets ......................................... 5.04% 4.89% 5.27% 3.70% 2.65%
Portfolio Turnover Rate .............................. -- -- -- -- --
Average Commission Paid Per Equity
Share Traded (i) ................................... N/A N/A N/A N/A N/A
SERIES D (Worldwide Equity) Fiscal Period Ended December 31
----------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ---------- ---------- ---------- ---------
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD .................. $ 6.14 $ 5.56 $ 5.07 $ 4.94 $ 3.76
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income ................................ 0.04 0.03 0.05 0.02 0.02
Net Gain (Loss) on Securities
(realized and unrealized) ........................... 0.38 0.93 0.50 0.12 1.17
----------- ---------- ---------- ---------- ---------
Total from investment operations ..................... 0.42 0.96 0.55 0.14 1.19
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) ............... (0.13) (0.20) -- (0.01) (0.01)
Distributions (from Capital Gains) ................... (0.29) (0.18) (0.06) -- --
----------- ---------- ---------- ---------- ---------
Total Distributions ............................... (0.42) (0.38) (0.06) (0.01) (0.01)
----------- ---------- ---------- ---------- ---------
NET ASSET VALUE END OF PERIOD ........................ $ 6.14 $ 6.14 $ 5.56 $ 5.07 $ 4.94
=========== ========== ========== ========== =========
TOTAL RETURN (b) ..................................... 6.5% 17.5% 10.9% 2.7% 31.6%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ................. $ 285,782 $ 247,026 $ 177,781 $ 147,033 $ 98,252
Ratio of Expenses to Average Net Assets .............. 1.24% 1.30% 1.31% 1.34% 1.42%
Ratio of Net Investment Income (Loss) to Average
Net Assets ......................................... 0.74% 0.74% 0.90% 0.50% 0.38%
Portfolio Turnover Rate .............................. 129% 115% 169% 82% 70%
Average Commission Paid Per Equity
Share Traded (i) ................................... $ 0.0163 $ 0.0276 N/A N/A N/A
</TABLE>
80
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
SERIES E (High Grade Income) Fiscal Period Ended December 31
-------------------------------------------------------------------
1997(e) 1996(e) 1995(e) 1994 1993
---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD ................. $ 12.00 $ 12.86 $ 11.52 $ 13.78 $ 13.02
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income ............................... 0.86 0.75 0.74 0.76 0.64
Net Gain (Loss) on Securities
(realized and unrealized) .......................... 0.31 (0.85) 1.36 (1.71) 1.02
---------- ---------- ---------- --------- ----------
Total from investment operations .................... 1.17 (0.10) 2.10 (0.95) 1.66
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) .............. (0.92) (0.76) (0.76) (0.69) (0.79)
Distributions (from Capital Gains) .................. -- -- -- (0.62) (0.11)
---------- ---------- ---------- --------- ----------
Total Distributions .............................. (0.92) (0.76) (0.76) (1.31) (0.90)
---------- ---------- ---------- --------- ----------
NET ASSET VALUE END OF PERIOD ....................... $ 12.25 $ 12.00 $ 12.86 $ 11.52 $ 13.78
========== ========== ========== ========= ==========
TOTAL RETURN (b) .................................... 10.0% (0.7%) 18.6% (6.9%) 12.6%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ................ $ 140,909 $ 134,041 $ 125,652 $ 107,078 $ 112,900
Ratio of Expenses to Average Net Assets ............. 0.83% 0.83% 0.85% 0.85% 0.86%
Ratio of Net Investment Income (Loss) to Average
Net Assets ........................................ 6.67% 6.77% 6.60% 6.74% 6.21%
Portfolio Turnover Rate ............................. 106% 232% 180% 185% 151%
Average Commission Paid Per Equity
Share Traded (i) .................................. N/A N/A N/A N/A N/A
SERIES J (Emerging Growth) Fiscal Period Ended December 31
-------------------------------------------------------------------
1997(e) 1996(e) 1995(e) 1994 1993
---------- ---------- ---------- --------- ----------
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD ................. $ 18.25 $ 16.06 $ 13.44 $ 14.17 $ 12.47
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income ............................... (0.03) (0.04) 0.04 (0.01) (0.01)
Net Gain (Loss) on Securities
(realized and unrealized) .......................... 3.67 2.93 2.58 (0.71) 1.71
---------- ---------- ---------- --------- ----------
Total from investment operations .................... 3.64 2.89 2.62 (0.72) 1.70
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) .............. (0.06) (0.03) -- -- --
Distributions (from Capital Gains) .................. (0.50) (0.67) -- (0.01) --
---------- ---------- ---------- --------- ----------
Total Distributions .............................. (0.56) (0.70) -- (0.01) --
---------- ---------- ---------- --------- ----------
NET ASSET VALUE END OF PERIOD ....................... $ 21.33 $ 18.25 $ 16.06 $ 13.44 $ 14.17
========== ========== ========== ========= ==========
TOTAL RETURN (b) .................................... 20.0% 18.0% 19.5% (5.1%) 13.6%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ................ $ 226,297 $ 148,421 $ 93,379 $ 76,940 $ 42,096
Ratio of Expenses to Average Net Assets ............. 0.82% 0.84% 0.84% 0.88% 0.91%
Ratio of Net Investment Income (Loss) to Average
Net Assets ........................................ (0.11%) (0.21%) 0.26% (0.11%) (0.14%)
Portfolio Turnover Rate ............................. 107% 123% 202% 91% 117%
Average Commission Paid Per Equity
Share Traded (i) .................................. $ 0.0590 $ 0.0601 N/A N/A N/A
</TABLE>
81
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
SERIES K (Global Aggressive) Fiscal Period Ended December 31
----------------------------------------------------
1997(d) 1996(d) 1995(a)(c)(d)
------------ ------------ ------------
<S> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD .................................... $ 10.72 $ 10.22 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income .................................................. 1.12 0.90 0.54
Net Gain (Loss) on Securities (realized and unrealized) ................ (0.56) 0.50 0.22
------------ ------------ ------------
Total from investment operations ....................................... 0.56 1.40 0.76
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) ................................. (.94) (0.77) (0.47)
Distributions (from Capital Gains) ..................................... (.28) (0.13) (0.04)
Return of Capital ...................................................... -- -- (0.03)
------------ ------------ ------------
Total Distributions ................................................. (1.22) (0.90) (0.54)
------------ ------------ ------------
NET ASSET VALUE END OF PERIOD .......................................... $ 10.06 $ 10.72 $ 10.22
============ ============ ============
TOTAL RETURN (b) ....................................................... 5.4% 13.7% 7.6%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ................................... $ 14,679 $ 12,720 $ 5,678
Ratio of Expenses to Average Net Assets ................................ 0.64% 0.84% 1.63%
Ratio of Net Investment Income (Loss) to Average Net Assets ............ 9.81% 10.79% 11.03%
Portfolio Turnover Rate ................................................ 85% 86% 127%
Average Commission Paid Per Equity Share Traded (i) .................... N/A N/A N/A
SERIES M (Specialized Asset Allocation) Fiscal Period Ended December 31
----------------------------------------------------
1997(j) 1996 1995(a)(c)
------------ ------------ ------------
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD .................................... $ 12.05 $ 10.71 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income .................................................. 0.16 0.15 0.17
Net Gain (Loss) on Securities (realized and unrealized) ................ 0.59 1.36 0.54
------------ ------------ ------------
Total from investment operations ....................................... 0.75 1.51 0.71
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) ................................. (0.26) (0.12) --
Distributions (from Capital Gains) ..................................... (0.25) (0.05) --
------------ ------------ ------------
Total Distributions ................................................. (0.51) (0.17) --
------------ ------------ ------------
NET ASSET VALUE END OF PERIOD .......................................... $ 12.29 $ 12.05 $ 10.71
============ ============ ============
TOTAL RETURN (b) ....................................................... 6.2% 14.2% 7.1%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ................................... $ 48,379 $ 38,396 $ 15,976
Ratio of Expenses to Average Net Assets ................................ 1.26% 1.34% 1.94%
Ratio of Net Investment Income (Loss) to Average Net Assets ............ 1.71% 2.73% 3.20%
Portfolio Turnover Rate ................................................ 64% 40% 181%
Average Commission Paid Per Equity Share Traded (i) .................... $ 0.0413 $ 0.0266 N/A
</TABLE>
82
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
SERIES N (Managed Asset Allocation) Fiscal Period Ended December 31
------------------------------------------------------
1997 1996 1995(a)(c)
------------- ------------- -------------
<S> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD .................................. $ 12.02 $ 10.73 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income ................................................ 0.24 0.19 0.16
Net Gain (Loss) on Securities (realized and unrealized) .............. 1.96 1.18 0.57
------------- ------------- -------------
Total from investment operations ..................................... 2.20 1.37 0.73
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) ............................... (0.21) (0.07) --
Distributions (from Capital Gains) ................................... (0.13) (0.01) --
------------- ------------- -------------
Total Distributions ............................................... (0.34) (0.08) --
------------- ------------- -------------
NET ASSET VALUE END OF PERIOD ........................................ $ 13.88 $ 12.02 $ 10.73
============= ============= =============
TOTAL RETURN (b) ..................................................... 18.4% 12.8% 7.3%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ................................. $ 38,182 $ 23,345 $ 10,580
Ratio of Expenses to Average Net Assets .............................. 1.35% 1.45% 1.90%
Ratio of Net Investment Income (Loss) to Average Net Assets .......... 2.71% 2.67% 2.80%
Portfolio Turnover Rate .............................................. 28% 41% 26%
Average Commission Paid Per Equity Share Traded (i) .................. $ 0.0270 $ 0.0393 N/A
SERIES O (Equity Income) Fiscal Period Ended December 31
------------------------------------------------------
1997 1996 1995(a)(c)
------------- ------------- -------------
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD .................................. $ 14.01 $ 11.70 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income ................................................ 0.19 0.17 0.17
Net Gain (Loss) on Securities (realized and unrealized) .............. 3.77 2.17 1.53
------------- ------------- -------------
Total from investment operations ..................................... 3.96 2.34 1.70
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) ............................... (0.14) (0.03) --
Distributions (from Capital Gains) ................................... (0.21) -- --
------------- ------------- -------------
Total Distributions ............................................... (0.35) (0.03) --
------------- ------------- -------------
NET ASSET VALUE END OF PERIOD ........................................ $ 17.62 $ 14.01 $ 11.70
============= ============= =============
TOTAL RETURN (b) ..................................................... 28.4% 20.0% 17.0%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ................................. $ 150,391 $ 62,377 $ 13,528
Ratio of Expenses to Average Net Assets .............................. 1.09% 1.15% 1.40%
Ratio of Net Investment Income (Loss) to Average Net Assets .......... 2.31% 2.62% 3.00%
Portfolio Turnover Rate .............................................. 21% 22% 3%
Average Commission Paid Per Equity Share Traded (i) .................. $ 0.0341 $ 0.0385 N/A
</TABLE>
83
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
SERIES P (High Yield) Fiscal Period Ended December 31
----------------------------
1997(d) 1996(d)(f)
------------ ------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD ....................... $ 15.99 $ 15.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income ..................................... 0.68 0.51
Net Gain (Loss) on Securities (realized and unrealized) ... 1.43 0.48
------------ ------------
Total from investment operations .......................... 2.11 0.99
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) .................... (0.42) --
Distributions (from Capital Gains) ........................ (0.08) --
------------ ------------
Total Distributions .................................... (0.50) --
------------ ------------
NET ASSET VALUE END OF PERIOD ............................. $ 17.60 $ 15.99
============ ============
TOTAL RETURN (b) .......................................... 13.4% 6.6%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ...................... $ 6,767 $ 2,665
Ratio of Expenses to Average Net Assets ................... 0.31% 0.28%
Ratio of Net Investment Income (Loss) to Average Net Assets 8.58% 8.24%
Portfolio Turnover Rate ................................... 77% 151%
Average Commission Paid Per Equity Share Traded (i) ....... N/A N/A
SERIES S (Social Awareness) Fiscal Period Ended December 31
------------------------------------------------------------------
1997(e) 1996(e) 1995(e) 1994 1993
------------ ------------ ---------- ---------- ----------
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD ....................... $ 19.08 $ 16.49 $ 12.97 $ 13.69 $ 12.25
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income ..................................... 0.06 0.03 0.09 0.08 0.02
Net Gain (Loss) on Securities
(realized and unrealized) ................................ 4.21 3.07 3.51 (0.59) 1.43
------------ ------------ ---------- ---------- ----------
Total from investment operations .......................... 4.27 3.10 3.60 (0.51) 1.45
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) .................... (0.04) (0.08) (0.08) (0.02) (0.01)
Distributions (from Capital Gains) ........................ (1.06) (0.43) -- (0.19) --
------------ ------------ ---------- ---------- ----------
Total Distributions .................................... (1.10) (0.51) (0.08) (0.21) (0.01)
------------ ------------ ---------- ---------- ----------
NET ASSET VALUE END OF PERIOD ............................. $ 22.25 $ 19.08 $ 16.49 $ 12.97 $ 13.69
============ ============ ========== ========== ==========
TOTAL RETURN (b) .......................................... 22.7% 18.8% 27.7% (3.7%) 11.9%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ...................... $ 89,332 $ 57,497 $ 36,830 $ 24,539 $ 19,490
Ratio of Expenses to Average Net Assets ................... 0.83% 0.84% 0.86% 0.90% 0.90%
Ratio of Net Investment Income (Loss) to Average Net Assets 0.35% 0.30% 0.75% 0.75% 0.23%
Portfolio Turnover Rate ................................... 49% 67% 122% 67% 105%
Average Commission Paid Per Equity Share Traded (i) ....... $ 0.0600 $ 0.0602 N/A N/A N/A
</TABLE>
84
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
Fiscal Period Ended
December 31
SERIES V (Value) 1997(a)(d)(g)
-----------
PER SHARE DATA
Net Asset Value Beginning of Period ........................ $ 10.00
Income from Investment Operations:
Net Investment Income ...................................... 0.12
Net Gain (Loss) on Securities (realized and unrealized) .... 3.01
-----------
Total from investment operations ........................... 3.13
Less Distributions
Dividends (from Net Investment Income) ..................... --
Distributions (from Capital Gains) ......................... --
-----------
Total Distributions ..................................... --
-----------
NET ASSET VALUE END OF PERIOD .............................. $ 13.13
===========
TOTAL RETURN (b) ........................................... 31.3%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ....................... $ 6,491
Ratio of Expenses to Average Net Assets .................... 0.40%
Ratio of Net Investment Income (Loss) to Average Net Assets 1.55%
Portfolio Turnover Rate .................................... 79%
Average Commission Paid Per Equity Share Traded (i) ........ $ 0.0602
Fiscal Period Ended
December 31
SERIES X (Small Cap) 1997(d)(h)
--------
PER SHARE DATA
Net Asset Value Beginning of Period ........................ $ 10.00
Income from Investment Operations:
Net Investment Income ...................................... 0.01
Net Gain (Loss) on Securities (realized and unrealized) .... (0.41)
-----------
Total from investment operations ........................... (0.40)
Less Distributions
Dividends (from Net Investment Income) ..................... --
Distributions (from Capital Gains) ......................... --
Total Distributions ..................................... --
-----------
NET ASSET VALUE END OF PERIOD .............................. $ 9.60
===========
TOTAL RETURN (b) ........................................... (4.0%)
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ....................... $ 2,640
Ratio of Expenses to Average Net Assets .................... 0.98%
Ratio of Net Investment Income (Loss) to Average Net Assets 0.73%
Portfolio Turnover Rate .................................... 402%
Average Commission Paid Per Equity Share Traded (i) ........ $ 0.0663
(a) Net investment income per share has been calculated using the weighted
monthly average number of capital shares outstanding.
(b) Total return does not take into account any of the expenses associated with
an investment in variable insurance products offered by Security Benefit
Life Insurance Company. Shares of a series of SBL Fund are available only
through the purchase of such products.
(c) Series K, M, N and O were initially capitalized on June 1, 1995 with net
asset values of $10.00 per share. Percentage amounts for the period have
been annualized, except for total return.
(d) Fund expenses for Series K, P, V and X were reduced by the Investment
Manager during the period. Expense ratios absent such reimbursement would
have been as follows:
1995 1996 1997
---- ---- ----
Series K 2.03% 1.59% 1.39%
Series P -- 1.11% 1.14%
Series V -- -- 1.14%
Series X -- -- 1.98%
(e) Expense ratios were calculated without the reduction for custodian fees
earnings credits beginning February 1, 1995. Expense ratios with such
reductions would have been as follows:
1995 1996 1997
------- ------- -------
Series A 0.83% 0.83% 0.81%
Series B 0.83% 0.84% 0.83%
Series C 0.60% 0.58% 0.58%
Series E 0.85% 0.83% 0.83%
Series J 0.83% 0.84% 0.82%
Series S 0.84% 0.84% 0.83%
(f) Series P was initially capitalized on August 5, 1996, with a net asset
value of $15 per share. Percentage amounts for the period have been
annualized, except for total return.
(g) Series V was initially capitalized on May 1, 1997, with a net asset value
of $10 per share. Percentage amounts for the period have been annualized,
except for total return.
(h) Series X was initially capitalized on October 15, 1997, with a net asset
value of $10 per share. Percentage amounts for the period have been
annualized, except for total return.
(i) Brokerage commissions paid on portfolio transactions increase the cost of
securities purchased or reduce the proceeds of securities sold and are not
reflected in the Fund's statement of operations. Shares traded on a
principal basis, such as most over-the-counter and fixed-income
transactions, pay a "spread" or "mark-up" rather than a commission and are
therefore excluded from this calculation. Generally, non-U. S. commissions
are lower than U. S. commissions when expressed as cents per share but
higher when expressed as a percentage of transactions because of the lower
per-share prices of many non-U. S. securities. Prior to 1996, average
commission information was not required to be disclosed.
(j) Meridian Investment Management Corporation (Meridian) became the
sub-advisor of Series M (Specialized Asset Allocation) effective August 1,
1997. Prior to August 1, 1997 SMC paid Templeton/Franklin Investment
Services, Inc. and Meridian for research services provided to Series M.
85
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
The Fund is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company of the series
type. Each series, in effect, represents a separate fund. The Fund is required
to account for the assets of each series separately and to allocate general
liabilities of the Fund to each series based on the net asset value of each
series. Shares of the Fund will be sold only to Security Benefit Life Insurance
Company (SBL) separate accounts. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements. These policies are in conformity with generally accepted accounting
principles.
A. SECURITIES VALUATION - Valuations of the Fund's securities are supplied
by pricing services approved by the Board of Directors. Securities listed or
traded on a recognized securities exchange are valued on the basis of the last
sales price. If there are no sales on a particular day, then the securities are
valued at the last bid price. If a security is traded on multiple exchanges, its
value will be based on the price from the principal exchange where it is traded.
All other securities for which market quotations are available are valued on the
basis of the current bid price. If there is no bid price or if the bid price is
deemed to be unsatisfactory by the Board of Directors or by the Fund's
investment manager, then the securities are valued in good faith by such method
as the Board of Directors determines will reflect the fair value. The Fund
generally will value short-term debt securities at prices based on market
quotations for such securities or securities of similar type, yield, quality and
duration, except those securities purchased with 60 days or less to maturity are
valued on the basis of amortized cost which approximates market value.
Generally, trading in foreign securities markets is substantially completed
each day at various times prior to the close of the New York Stock Exchange. The
values of foreign securities are determined as of the close of such foreign
markets or the close of the New York Stock Exchange, if earlier. All investments
quoted in foreign currency are valued in U.S. dollars on the basis of the
foreign currency exchange rates prevailing at the close of business. Investment
in foreign securities may involve risks not present in domestic investments.
Since foreign securities may be denominated in a foreign currency and involve
settlement and pay interest or dividends in foreign currencies, changes in the
relationship of these foreign currencies to the U.S. dollar can significantly
affect the value of the investments and earnings of the Fund. Foreign
investments may also subject the Fund to foreign government exchange
restrictions, expropriation, taxation or other political, social or economic
developments, all of which could affect the market and/or credit risk of the
investments.
B. FOREIGN CURRENCY TRANSACTIONS - The accounting records of the Fund are
maintained in U.S. dollars. All assets and liabilities initially expressed in
foreign currencies are converted into U.S. dollars at prevailing exchange rates.
Purchases and sales of investment securities, dividend and interest income, and
certain expenses are translated at the rates of exchange prevailing on the
respective dates of such transactions.
Except for Series K, the funds which invest in foreign securities and
currencies do not isolate that portion of the results of operations resulting
from changes in the foreign exchange rates on investments from the fluctutation
arising from changes in the market prices of securities held. Such fluctuations
are included with the net realized and unrealized gain or loss on investments.
Series K isolates its portion of the results of operations resulting from
foreign exchange rates on investment from the fluctuation arising from changes
in the market prices of securities held.
Net realized foreign exchange gains or losses arise from sales of portfolio
securities, sales of foreign currencies, and the difference between asset and
liability amounts initially stated in foreign currencies and the U.S. dollar
value of the amounts actually received or paid. Net unrealized foreign exchange
gains or losses arise from changes in the value of portfolio securities and
other assets and liabilities at the end of the reporting period, resulting from
changes in the exchange rates.
C. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS - Series D, K, M, N, O and X
may enter into forward foreign exchange contracts in connection with foreign
currency risk from purchase or sale of securities denominated in foreign
currency. These Series may also enter into such contracts to manage the effect
of changes in foreign currency exchange rates on portfolio positions. These
contracts are marked to market daily, by recognizing the difference between the
contract exchange rate and the current market rate as unrealized gains or
losses. Realized gains or losses are recognized when contracts are settled and
are reflected in the Statement of Operations. These contracts involve market
risk in excess of the amount reflected in the Balance Sheet. The face or
contract amount in U.S. dollars reflects the total exposure the Series have in
that particular currency contract. Losses may arise due to changes in the value
of the foreign currency or if the counterparty does not perform under the
contract.
D. FUTURES - The Fund may utilize futures contracts to a limited extent,
with the objectives of maintaining full exposure to the underlying stock
markets, enhancing returns, maintaining liquidity, and minimizing transaction
costs. Series J and M may purchase futures contracts to immediately position
incoming cash in the market, thereby simulating a fully invested position in the
underlying index while maintaining a cash balance for liquidity. Returns may be
enhanced by purchasing futures contracts instead of the underlying securitites
when futures are believed to be priced more attractively than the underlying
securities. The primary risks associated with the use of futures contracts are
imperfect correlation between changes in market values of stocks contained in
the indices and the prices of futures contracts, and the possibility of an
illiquid market. Futures contracts are valued based on their quoted daily
settlement prices. Upon entering into a futures contract, the Series is required
to deposit cash or liquid securities, representing the initial margin, equal to
a certain percentage of the contract value. Subsequent changes in the value of
the contract, or variation margin, are recorded as unrealized gains or losses.
The variation margin is paid or received in cash daily by the Series. The Series
realizes a gain or loss when the contract is closed or expires. There were no
futures contracts held by the Fund at December 31, 1997.
86
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
E. OPTIONS WRITTEN - The Fund may purchase put and call options and write
such options on a covered basis on securities that are traded on recognized
securities exchanges and over-the-counter markets. Call and put options on
securities give the holder the right to purchase or sell respectively, (and the
writer the obligation to sell or purchase) a security at a specified price,
until a certain date. The primary risks associated with the use of options are
an imperfect correlation between the change in market value of the securities
held by the Series and the price of the option, the possibility of an illiquid
market, and the inability of the counter-party to meet the terms of the
contract.
The premium received for a written option is recorded as an asset with an
equal liability which is marked to market based on the option's quoted daily
settlement price. Fluctuations in the value of such instruments are recorded as
unrealized appreciation (depreciation) until terminated, at which time realized
gains and losses are recognized.
F. SECURITY TRANSACTIONS AND INVESTMENT INCOME - Security transactions are
accounted for on the date the securities are purchased or sold. Realized gains
and losses are reported on an identified cost basis. Dividend income less
foreign taxes withheld (if any) are recorded on the ex-dividend date. Interest
income is recognized on the accrual basis. Premium and discounts (except
original issue discounts) on debt securities are not amortized, except for
Series K, which does amortize premiums and discounts on debt securities.
G. DISTRIBUTIONS TO SHAREHOLDERS - Distributions to shareholders are
recorded on the ex-dividend date. The character of distributions made during the
year from net investment income or net realized gains may differ from their
ultimate characterization for federal income tax purposes. These differences are
primarily due to differing treatments for expiration of net operating losses and
recharacterization of foreign currency gains and losses.
H. TAXES - The Fund complied with the requirements of the Internal Revenue
Code applicable to regulated investment companies and distributed all of its
taxable net income and net realized gains sufficient to relieve it from all, or
substantially all, federal income, excise and state income taxes. Therefore, no
provision for federal or state income tax is required.
I. EARNINGS CREDITS - Under the fee schedule with the custodian, the Fund
earns credits based on overnight custody cash balances. These credits are
utilized to reduce related custodial expenses. The custodian fees disclosed in
the Statement of Operations do not reflect the reduction in expense from the
related earnings credits.
2. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Management fees are payable to Security Management Company, LLC (SMC) (the
Investment Manager) under an investment advisory contract at an annual rate of
.50% of the average daily net assets for Series C, .75% for Series A, B, E, J,
K, P, S and V and 1.00% for Series D, M, N, O and X. SMC pays Lexington
Management Corporation (LMC), an amount equal to .50% of the average daily net
assets of Series D and .35% of the average net assets for Series K, for
management services. SMC has agreed to waive all of the management fees for
Series P, V and X through December 31, 1997. SMC & LMC have agreed to waive all
of the management fees for Series K through December 31, 1997. The Investment
Manager pays T. Rowe Price Associates, Inc. an annual fee equal to .50% of the
first $50,000,000 of average net assets of Series N and .40% of the average net
assets of Series N in excess of $50,000,000 for management services provided to
that Series. The Investment Manager pays T. Rowe Price Associates, Inc. an
annual fee equal to .50% of the first $20,000,000 of average net assets of
Series O and .40% of the average assets in excess of $20,000,000 for management
services provided to Series O. For the period January 1, 1997 to July 31, 1997,
the Investment Manager paid Templeton Franklin Investment Services, Inc., for
research provided to Series M, an annual fee equal to .30% of the first
$50,000,000 of the average net assets of Series M invested in equity securities
and .25% of the average net assets invested in equity securities in excess of
$50,000,000. For this same time period, the Investment Manager also paid
Meridian Investment Management Corporation, for research provided to Series M,
an annual fee equal to .20% of the average net assets of that Series. The
Investment Manager pays Strong Capital Management, Inc. ("Strong") with respect
to Series X, an annual fee based on the combined average net assets of the
Series and another fund within the Security Funds to which Strong provides
advisory services. The fee is equal to .50% of the combined average net assets
under $150,000,000, .45% of the combined average net assets at or above
$150,000,000 but less than $500,000,000, and .40% of the combined average net
assets at or above $500,000,000.
Shareholders of Series M voted to approve a new subadvisory agreement,
effective August 1, 1997, with Meridian Investment Management Corporation, which
replaced all existing research agreements. Under this agreement, Meridian
furnishes investment advisory, statistical and research facilities, supervises
and arranges for the purchase and sale of securities on behalf of Series M, and
for such services receives an annual fee equal to the following schedule:
Average Daily Net Assets of the Series Annual Fees
--------------------------------------------- ------------
Less Than $100 Million ...................... .40%, plus
$100 Million but less than $200 Million ..... .35%, plus
$200 Million but less than $400 Million ..... .30%, plus
$400 Million or more ........................ .25%
The investment advisory contract provides that the total annual expenses of
each Series (including management fees, but excluding interest, taxes, brokerage
commissions and extraordinary expenses) will not exceed the level of expenses
which the Series is permitted to bear under the most restrictive expense
limitation imposed by any state in which shares of the Fund are then offered for
sale. For the period ended December 31, 1997, SMC agreed to limit the total
expenses for Series K, M, P, V and X to an annual rate of 2% of the average
daily net asset value of each respective Series.
87
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
The Fund has entered into a contract with SMC for transfer agent services
and administrative services which SMC provides to the Fund. The charges paid by
the Fund under the contract for transfer agent services are insignificant. The
administrative services provided by SMC principally include all fund and
portfolio accounting and regulatory filings. For providing these services, SMC
receives a fee at the annual rate of .045% of the average daily net assets of
the Fund (except Series X), plus the greater of .10% of the average net assets
of Series D, K, M and N, or $60,000. With respect to Series X, SMC receives a
fee at the annual rate of .09% of the average daily net assets of the Series.
Certain officers and directors of the Fund are also officers and/or
directors of SBL and its subsidiaries, which include SMC.
3. FEDERAL INCOME TAX MATTERS
The amounts of unrealized appreciation (depreciation) for income tax
purposes at December 31, 1997, for all securities and foreign currency holdings
(including foreign currency receivables and payables) were as follows:
Aggregate Aggregate
gross gross Net unrealized
unrealized unrealized appreciation
appreciation depreciation (depreciation)
------------ ------------ --------------
SERIES A
(Growth) .................. $317,616,093 ($ 8,926,476) $ 308,689,617
SERIES B
(Growth Income) ........... 316,277,798 (4,650,555) 311,627,243
SERIES C
(Money Market) ............ 2,854 (6,684) (3,830)
SERIES D
(Worldwide Equity) ........ 35,830,715 (21,157,034) 14,673,681
SERIES E
(High Grade Income) ....... 4,370,216 (81,701) 4,288,515
SERIES J
(Emerging Growth) ......... 44,728,222 (3,437,684) 41,290,538
SERIES K
(Global Aggressive) ....... 540,965 (957,355) (416,410)
SERIES M
(Specialized Asset
Allocation) .............. 5,089,050 (3,964,213) 1,124,837
SERIES N
(Managed Asset
Allocation) .............. 5,595,477 (531,492) 5,063,985
SERIES O
(Equity Income) ........... 24,591,700 (1,065,675) 23,526,025
SERIES P
(High Yield) .............. 144,700 (14,661) 130,039
SERIES S
(Social Awareness) ........ 24,120,018 (603,209) 23,516,809
SERIES V
(Value) ................... 504,330 (158,893) 345,437
SERIES X
(Small Cap) ............... 170,749 (59,537) 111,212
4. INVESTMENT TRANSACTIONS
Investment transactions for the period ended December 31, 1997, (excluding
overnight investments and short-term debt securities) are as follows:
Proceeds
Purchases from sales
------------ ------------
SERIES A
(Growth) .................. $543,405,349 $490,877,226
SERIES B
(Growth Income) ........... 711,536,854 633,345,960
SERIES C
(Money Market) ............ -- --
SERIES D
(Worldwide Equity) ........ 339,150,807 343,205,545
SERIES E
(High Grade Income) ....... 142,953,492 129,342,529
SERIES J
(Emerging Growth) ......... 217,260,264 181,827,078
SERIES K
(Global Aggressive) ....... 15,464,196 11,639,442
SERIES M
(Specialized Asset
Allocation) .............. 35,923,686 25,452,436
SERIES N
(Managed Asset
Allocation) .............. 16,649,560 7,051,201
SERIES O
(Equity Income) ........... 78,239,841 19,583,073
SERIES P
(High Yield) .............. 6,036,822 2,549,940
SERIES S
(Social Awareness) ........ 52,415,716 33,331,042
SERIES V
(Value) ................... 7,167,542 1,542,445
SERIES X
(Small Cap) ............... 4,476,544 1,873,795
Realized gains and losses are determined on an identified cost basis for
federal income tax purposes. For federal income tax purposes, Series A, B, D, J,
K, M and S hereby designate $35,819,321, $37,294,810, $2,136,980, $4,737,130,
$152,921, $460,633 and $3,817,583 respectively as capital gains dividends. At
December 31, 1997, Series E and X have capital loss carryforwards of $13,762,691
and $74,414, respectively which are available to offset future taxable gains and
expires beginning in 2002 and 2005 respectively.
88
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
5. FORWARD FOREIGN EXCHANGE CONTRACTS
At December 31, 1997, Series D and K had the following open forward foreign
exchange contracts to sell currency (excluding foreign currency contracts used
for purchase and sale settlements):
<TABLE>
<CAPTION>
CURRENCY TYPE SETTLEMENT DATE FOREIGN AMOUNT U. S. AMOUNT UNREALIZED GAIN (LOSS)
- --------------------------------- ------- --------------- ------------- ------------ -----------------------
<S> <C> <C> <C> <C> <C>
SERIES D
Australian Dollar ............... Sell 5/04/98 $ 10,836,356 $ 7,618,500 $ 517,793
Austrian Schilling .............. Sell 1/07/98 115,033,319 9,337,878 236,409
Austrian Schilling .............. Buy 1/07/98 115,033,319 8,969,879 131,590
Canadian Dollar ................. Sell 6/01/98 12,736,397 9,010,539 100,217
German Deutsche Mark ............ Sell 1/07/98 10,899,047 6,225,252 158,924
German Deutsche Mark ............ Buy 1/07/98 10,899,047 6,118,935 (52,606)
New Zealand Dollar .............. Sell 4/06/98 7,688,752 4,904,271 458,697
New Zealand Dollar .............. Buy 4/06/98 348,466 215,857 (14,377)
New Zealand Dollar .............. Buy 4/06/98 670,460 405,360 (17,706)
British Pound ................... Sell 4/01/98 9,775,669 15,637,649 (460,771)
British Pound ................... Buy 4/01/98 9,775,669 16,286,656 (188,236)
---------
$ 869,934
=========
SERIES K
Danish Kroner ................... Sell 1/12/98 $ 9,500,000 $ 1,406,012 $ 16,331
</TABLE>
6. FEDERAL TAX STATUS OF DIVIDENDS
The income dividends paid by the Funds are taxable as ordinary income on
the shareholders' tax return. The portion of ordinary income of dividends
(including net short-term capital gains) attributed to fiscal year ended
December 31, 1997, that qualified for the dividends received deduction for
corporate shareholders in accordance with the provisions of the Internal Revenue
Code for each Series was: Series A, 64%; Series B, 45%; Series C, 0%; Series D,
7%; Series E, 0%; Series J, 42%; Series K, 0%; Series M, 12%; Series N, 21%;
Series O, 60%; Series P, 3%; Series S, 100%, Series V, 16%, and Series X, 100%.
7. TRANSACTIONS IN WRITTEN CALL OPTIONS
Transactions in written covered call options for Series K were as follows:
SERIES K
-------------------------
Number of
Premium Contracts
--------- -----------
Balance at December 31, 1996 . $ 9,147 826,027
Options written ............ 175,436 12,587,154
Excercised ................. (95,245) (7,436,057)
Expiration ................. (70,038) (5,064,916)
--------- -----------
Balance at December 31, 1997 . $ 19,300 912,208
========= ===========
89
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Contract Owners and Board of Directors SBL Fund
We have audited the accompanying balance sheets, including the schedules of
investments, of SBL Fund (comprised of Series A, B, C, D, E, J, K M, N, O, P, S,
V and X portfolios) (the Fund) as of December 31, 1997, and the related
statements of operations, statements of changes in net assets and the financial
highlights for each of the periods indicated therein. These financial statements
and the financial highlights are the responsibility of the Fund's management.
Our responsibility is to express an opinion on these financial statements and
financial highlights 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 and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
investments owned as of December 31, 1997, by correspondence with the custodian.
As to securities relating to uncompleted transactions, we performed other
auditing procedures. 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 and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the respective portfolios constituting the SBL Fund at December 31,
1997, and the results of their operations, the changes in their net assets and
their financial highlights for the periods indicated therein in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Kansas City, Missouri
February 6, 1998
NOTICE:
In the future, you will receive only one copy per address of the prospectus,
semi-annual and annual reports. If you wish to continue receiving one for each
primary owner of record, we ask that you please send your request in writing to
Security Benefit, Attn: Pat Rippberger, 700 SW Harrison St., Topeka, KS
66636-0001
90
<PAGE>
SECURITY FUNDS OFFICERS AND DIRECTORS
DIRECTORS
- ---------
Donald A. Chubb, Jr.
John D. Cleland
Donald L. Hardesty
Penny A. Lumpkin
Mark L. Morris, Jr., D.V.M.
Hugh L. Thompson, Ph.D.
OFFICERS
- --------
John D. Cleland, President
James R. Schmank, Vice President and Treasurer
Terry A. Milberger, Vice President
Jane A. Tedder, Vice President
Mark E. Young, Vice President
Barbara J. Davison, Assistant Vice President
Cindy L. Shields, Assistant Vice President
Thomas A. Swank, Vice President and Chief Investment Officer
Amy J. Lee, Secretary
Christopher D. Swickard, Assistant Secretary
Brenda M. Harwood, Assistant Treasurer and Assistant Secretary
This report is submitted for the general information of the shareholders of the
Funds. The report is not authorized for distribution to prospective investors in
the Funds unless preceded or accompanied by an effective prospectus which
contains details concerning the sales charges and other pertinent information.
- -----------------------------------
[Logo] Security Distributors, Inc.
- -----------------------------------
700 SW Harrison St.
Topeka, KS 66636-0001
(785) 431-3112
(800) 888-2461
<PAGE>
SBL FUND
================================================================================
SEMI-ANNUAL REPORT
JUNE 30, 1998
- Series A
(Growth Series)
- Series B
(Growth-Income Series)
- Series C
(Money Market Series)
- Series D
(Worldwide Equity
Series)
- Series E
(High Grade Income
Series)
- Series J
(Emerging Growth
Series)
- Series K
(Global Aggressive
Bond Series)
- Series M
(Specialized Asset
Allocation Series)
- Series N
(Managed Asset
Allocation Series)
- Series O
(Equity Income Series)
- Series P
(High Yield Series)
- Series S
(Social Awareness Series)
- Series V
(Value Series)
- Series X
(Small Cap Series)
[LOGO] SECURITY DISTRIBUTORS, INC.
A Member of The Security Benefit
Group of Companies
<PAGE> 2
PRESIDENT'S LETTER
August 15, 1998
[ A PHOTO ]
John Cleland
President
TO OUR CONTRACTHOLDERS:
The past six months have been especially rewarding for investors in large-cap
equities, as evidenced by the 14.14% return for the Dow Jones Industrial Average
and 17.71% increase in the S&P 500 Stock Index. The returns in mid-cap and small
cap stocks and in fixed income instruments have also been positive, although
closer to historical norms. The S&P Midcap 400 Index rose 8.01% and the Russell
2000, representing small stocks, was up 5.27%. The bellwether thirty-year U.S.
Treasury Bond generated a total return of 7.1% over the period, rewarding fixed
income investors as well.
TWO FACTORS HELPING MARKET PERFORMANCE
Two principal dynamics have been at work in the financial markets throughout the
first half of 1998, pushing up stock and bond prices and reinforcing the high
levels of consumer confidence. The first of these is the continued absence of
any inflationary pressures and the accompanying positive impact that absence has
had on the Federal Reserve Open Market Committee as policymakers deliberate the
future direction of interest rates. The second is the continuation of incredible
money flows into the financial markets.
The ongoing financial crisis in Pacific Rim countries has played a major role in
the low inflation rate in the U.S. As many of these countries try to export
their way out of their problems, the cheap imports flooding U.S. markets keep
prices on U.S.-manufactured goods from rising. If U.S. goods are to sell, they
must remain price-competitive. Additionally, increased productivity on the part
of U.S. manufacturers is helping to offset the potentially inflationary
pressures of rising nominal wages.
SUPPLY AND DEMAND AT WORK
One of the oldest economic laws in existence, the law of supply and demand, is
supporting equity markets now. The universe of equity shares outstanding is
shrinking because of continuing strong merger and acquisition activity and
through buybacks by corporations of their own stock. Despite a record number of
initial public offerings, the overall number of shares of stock available to the
public continues to decline.
Keep in mind, however, that the "raging bull" markets we have been experiencing
for over three years can't continue forever. Although we remain positive in our
market outlook, we advise our shareholders to ratchet down their expections to
more normal historical levels of return. We believe it is highly unlikely that
we will experience another six months of 20%-plus annualized growth.
SYSTEMATIC INVESTING A WISE PLAN
A sound investment strategy in periods such as these, in which volatility and
the potential for market corrections rule, is to dollar-cost average. Investing
on a regular, systematic basis helps to even out the effects of market
fluctuations and increases the likelihood of meeting long-term investment
goals.*
As always, we appreciate your continuing investments in Security products. We
invite your questions and comments at any time.
Sincerely,
/s/ John Cleland
John Cleland, President
Security Funds
*Dollar cost averaging does not assure profits or protect against loss in a
declining market.
- --------------------------------------------------------------------------------
1
<PAGE> 3
SERIES A (GROWTH SERIES)
August 15, 1998
[ A PHOTO ]
Terry Milberger
Senior Portfolio Manager
TO OUR CONTRACTHOLDERS:
Performance was strong in the Growth Series in the first half of 1998. The
portfolio returned 18.06%, comparing favorably with the 17.71% return of the
benchmark Standard and Poor's 500 Stock Index and with the Lipper peer group
average return of 16.23%.(1) The six-month period strongly favored large-cap
growth stocks, which make up the major portion of the portfolio.
CONTRIBUTORS TO STRONG PERFORMANCE
Although the technology sector underperformed the overall market, we were
underweighted in technology issues and so were damaged less by their weakness.
Two of the companies we did own, however, did very well. Cisco Systems, Inc. and
Microsoft Corporation both increased over 60% in value during the period on
strong earnings outlooks and new product development.
We sought strong exposure to the financial sector, believing that low interest
rates would benefit companies in this area. Insurance companies generally
presented better relative value than banks, since many bank stocks had run up
dramatically in price in previous months. Our holdings in American General
Corporation rose 32%, American International Group, Inc., was up 30%, and The
Equitable Companies, Inc., performed best, rising over 46%.
The consumer cyclicals were a mixed group. The weakest was Sunbeam Corporation,
which reported inventory problems and weak sales in their appliance business.
The stock declined over 60%, culminating in the company's firing of its chief
executive officer. In direct contrast, Chrysler Corporation in the automobile
portion of the consumer cyclicals group rose over 64% in the first half after
reporting better-than-expected earnings and the announcement of a buyout by
Mercedes.
AVOIDING ECONOMICALLY SENSITIVE COMPANIES
Like many others, we have been expecting an economic slowdown for some time and
consequently have sought out less economically sensitive companies. This
strategy led us to the health care sector. Two of our holdings in this group
have performed well not only because of their low economic sensitivity, but also
due to good new product outlooks. Schering-Plough Corporation increased 50% in
the past six months, and Bristol-Myers Squibb Company was up about 24% in the
same period.
- --------------------------------------------------------------------------------
2
<PAGE> 4
SERIES A (GROWTH SERIES)
August 15, 1998
We also benefited from an underweighting in the energy sector. This group has
been a poor performer for some time as oil and gas prices continue to decline.
Given the weak demand from Asian markets and the tendency of oil-producing
companies to be unwilling to cut output, we will continue to stay away from
these stocks.
STAYING THE COURSE FOR THE COMING MONTHS
At this point we see no reason to change investment strategy in the coming
months. Although there is evidence of some slowing in the industrial sector of
the economy, we still believe that overall there will be moderate growth. We
expect to continue our strategy of avoiding economically sensitive companies and
seeking those firms which exhibit high quality, above average earnings growth.
Terry Milberger
Senior Portfolio Manager
TOP 5 EQUITY HOLDINGS**
SERIES A - GROWTH SERIES
Microsoft Corporation............................... 1.9%
Tyco International, Ltd............................. 1.9%
Omnicom Group, Inc.................................. 1.7%
Schering-Plough Corporation......................... 1.6%
Bristol-Myers Squibb Company........................ 1.6%
** At June 30, 1998
AVERAGE ANNUAL TOTAL RETURN
AS OF JUNE 30, 1998(1)
1 Year 5 Years 10 Years
Series A 30.12% 22.37% 17.80%
(1) Performance figures do not reflect fees and expenses associated with an
investment in variable insurance products offered by Security Benefit Life
Insurance Company. Shares of a Series of SBL Fund are available only through
the purchase of such products.
The performance data quoted above represents past performance. Past
performance is not predictive of future performance. The investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
- --------------------------------------------------------------------------------
3
<PAGE> 5
SERIES B (GROWTH-INCOME SERIES)
August 15, 1998
[ A PHOTO ]
Mike A. Petersen
Senior Portfolio Manager
TO OUR CONTRACTHOLDERS:
In a period which did not favor the traditional income-oriented holdings of
growth and income portfolios, the Growth/Income Series returned 7.74% compared
with the benchmark Standard & Poor's 500 Stock Index return of 17.71%.(1) It
also lagged the Lipper peer group average return of 12.26%.
GOALS FOR PORTFOLIO STRUCTURE
We began the year with three overall goals for the Growth/Income Series. These
included a targeted portfolio yield of 150% of that of the S&P 500 Index,
earnings per share growth equal to or greater than those of the S&P 500, and a
lower overall portfolio risk than the index. Because valuations of large-cap
stocks had run up to unprecedented highs, the more attractive values and higher
dividends were available in midcap issues. Historically, the growth potential of
such midcap stocks has been similar to that of large cap issues. Although this
strategy is sound for the longer term, as yet in 1998 the market movements have
been concentrated in larger-cap companies.
STRONG PERFORMERS IN THE PORTFOLIO
Nonetheless, we have had some strong performers in the portfolio in the first
half. The best known of all, Microsoft Corporation, rose nearly 61% over the six
months. Health care company Humana, Inc., moved up 52% after announcement of a
takeover by United HealthCare Corporation. Another well-known favorite,
McDonald's Corporation, climbed 47% on improving store sales growth
(particularly in their overseas operations) and after introducing a program to
cut costs and simplify product lines.
The economic weakness in Asia damaged performance of Sawtek Inc., a company
which manufactures components for cellular phones and the cellular
infrastructure. Although we purchased the issue after its initial round of
Asia-related price decline, a major customer canceled an order subsequent to our
purchase, causing the price to drop further. We also experienced a sharp loss in
our Sunbeam Corporation holding after the company reported inventory problems
and weak sales in its appliance business.
- --------------------------------------------------------------------------------
4
<PAGE> 6
SERIES B (GROWTH-INCOME SERIES)
August 15, 1998
PLANS FOR THE REST OF 1998
Going forward, we believe that the sizes of returns we have experienced in the
broad markets will in all likelihood begin to slow. Many large cap growth
companies have earnings multiples of thirty to sixty times; these companies
would have to increase earnings at very high rates to maintain these levels.
This will be harder to accomplish in light of the slowdown resulting from the
Pacific Rim economic crisis.
Our emphasis on the importance of income as a portion of total return will be a
plus in a slower growth, lower return environment. The attractiveness of income
in a traditional growth and income portfolio could draw investors if the economy
slows as we expect it to. In the months ahead we plan to actively seek those
stocks that exhibit strong growth potential and pay higher than average
dividends.
Michael A. Petersen
Senior Portfolio Manager
TOP 5 EQUITY HOLDINGS**
SERIES B - GROWTH-INCOME SERIES
Texaco, Inc......................................... 1.7%
SBC Communications, Inc............................. 1.5%
PepsiCo, Inc........................................ 1.5%
Amoco Corporation................................... 1.4%
Mobil Corporation................................... 1.4%
** At June 30, 1998
AVERAGE ANNUAL TOTAL RETURN
AS OF JUNE 30, 1998(1)
1 Year 5 Years 10 Years
Series B 18.04% 16.19% 15.11%
(1) Performance figures do not reflect fees and expenses associated with an
investment in variable insurance products offered by Security Benefit Life
Insurance Company. Shares of a Series of SBL Fund are available only through
the purchase of such products.
The performance data quoted above represents past performance. Past
performance is not predictive of future performance. The investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
- --------------------------------------------------------------------------------
5
<PAGE> 7
SERIES C (MONEY MARKET SERIES)
August 15, 1998
TO OUR CONTRACTHOLDERS:
Short-term interest rates on U.S. Treasury Bills generally declined about 0.25%
between the beginning of the year and the end of June, although the descent was
not a smooth one. The Money Market Series has held its yield well despite the
volatility, generating a 2.54% return for the six-month period.1 This is in line
with the 2.54% average of its Lipper peer group.
CHARACTERISTICS OF THE PORTFOLIO
As usual, during the period we bought only investments which are rated in the
top tier by the major rating agencies, or which are Federal government or
government agency issues. We target an average maturity for the portfolio which
is within approximately ten days of that of the benchmark Money Fund Report
published by IBC Donoghue. At June 30, 1998, that benchmark maturity was 58
days, while the Series had an average of 47 days. We believe that the best
strategy is not to try to outguess the markets by dramatically lengthening or
shortening the average maturity. Instead, we maintain a "laddered" structure,
with holdings maturing at regular intervals over the life of the portfolio. This
allows us to adjust quickly should short-term interest rates change quickly.
ASSET SECTORS REPRESENTED IN THE PORTFOLIO
At June 30, 1998, the assets in the Money Market Series consisted of 83.8%
commercial paper, 8.6% Small Business Administration issues, and 7.6% Federal
agency securities. We have received approval from the Board of Directors of the
SBL Fund to purchase securities known as "funding agreements" (also known as
guaranteed investment contracts). These agreements are contracts which are
issued by insurance companies, and are liabilities backed by the issuing
company's general account assets. These contracts are ranked on the same level
as insurance policies. The Series will only purchase funding agreements which
are in the top tier of ratings by major rating agencies. The advantage to these
agreements is that their yields generally will be from ten to thirteen basis
points (0.10% to 0.13%) higher than those of commercial paper. We believe that
their high quality and favorable yield will be advantageous for use in the
portfolio.
AVERAGE ANNUAL TOTAL RETURN
AS OF JUNE 30, 1998(1)
1 Year 5 Years 10 Years
Series C 5.17% 3.97% 5.08%
(1) Performance figures do not reflect fees and expenses associated with an
investment in variable insurance products offered by Security Benefit Life
Insurance Company. Shares of a Series of SBL Fund are available only through
the purchase of such products.
The performance data quoted above represents past performance. Past
performance is not predictive of future performance. The investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
OUTLOOK FOR THE SECOND HALF
We expect interest rates on short-term investments to remain close to their
present levels for the coming months. We believe the Federal Reserve Open Market
Committee will be reluctant to raise rates because of the still-weak Asian
economies, but we feel that the U.S. economy remains too strong to allow rates
to go down. As usual, we will continue to monitor market conditions carefully,
and will remain ready to adjust portfolio holdings should economic conditions
warrant.
Fixed Income Team
- --------------------------------------------------------------------------------
6
<PAGE> 8
SERIES D (WORLDWIDE EQUITY SERIES)
August 15, 1998
[LOGO] SUBADVISOR, LEXINGTON MANAGEMENT CORPORATION
PORTFOLIO MANAGERS, RICHARD SALER AND ALAN WAPNICK
[ A PHOTO ] [ A PHOTO ]
Richard Saler Alan Wapnick
Portfolio Manager Portfolio Manager
TO OUR CONTRACTHOLDERS:
The Worldwide Equity Series advanced an attractive 13.49% through the first half
of 1998, although it underperformed the Lipper peer group average of 15.44%.(1)
The benchmark Morgan Stanley World Index increased 15.92% in the same time
period.
SECOND QUARTER DIFFICULTIES
The Series performed well in the first quarter of the year, but lost ground in
the second quarter due to three primary factors. First, the portfolio is
overweight versus the benchmark index in the United Kingdom, which declined
1.01% in the second quarter as earnings disappointments accelerated and
inflation fears forced the Bank of England to raise base interest rates. Second,
on a relative basis versus the benchmark the portfolio is underweight in U.S.
stocks, which as measured by the Standard and Poor's 500 Stock Index rose 3.30%
during the three months. Finally, large company stocks continued to outperform
midsized and small company equities despite the better value offered by smaller
stocks.
EFFECTS OF THE ASIAN CRISIS
Shock waves from Asia are still being felt around the world. The U.S. economy is
beginning to show signs of slowing, particularly in the manufacturing sector.
However, due to low unemployment, rising stock prices and low interest rates the
American consumer remains strong. Corporate earnings growth has weakened and is
now growing at a low rate. U.S. profits are likely to remain under pressure due
to a strong dollar, rising wage pressures, and weakening demand overseas.
European economies have generally improved, although Europe remains a mixed bag.
The U.K. appears headed for a recession. The yield curve there is inverted due
to continued interest rate hikes by the Bank of England. A strong currency has
damaged the manufacturing sector, which is now in recession. Recent retail sales
reports suggest that consumer spending may be slowing as well.
On the European continent the news is somewhat better. Unemployment remains high
but is finally showing signs of improving. Consumption has also picked up,
perhaps due to rising stock prices and falling unemployment. The export sector,
however, which has been the driver of most of the growth, may now be catching
the Asian flu. Continental Europe is likely to have its growth recovery muted
due to weakening demand elsewhere.
We expect that Asia will continue to be the primary trouble spot. Many Asian
economies have seen demand collapse. Certainly Japan remains an important
variable, but is currently suffering its worst recession since World War II. The
economy is fundamentally sick due to the massive bad loans held by Japanese
banks. Signs of greater political resolve to address the economic problems are
emerging, but the problems will not be resolved overnight. World growth is
decelerating and this trend is likely to continue, with interest rates staying
low and corporate profits facing increasing pressure.
- --------------------------------------------------------------------------------
7
<PAGE> 9
SERIES D (WORLDWIDE EQUITY SERIES)
August 15, 1998
THE PORTFOLIO FOCUS
Our stock selection process remains focused on companies which are able to meet
investor earnings expectations. Defensive issues such as drugs and food will be
less affected by global economic slowing than manufacturing-related stocks.
Europe remains attractive due to corporate restructuring; however, given strong
price moves and potentially slower economic activity the risk is rising. Because
of our belief in a poor profit outlook for U.S. equities, we will maintain an
underweight position there.
Finally, despite Japan's economic woes, the best values currently can be found
in Japanese markets. Our focus in Japan remains on cash-rich companies which are
trading at deep discounts to book value. Although the Japanese economy is
unlikely to recover soon, current prices of some equities suggest much of the
bad news is already discounted. Further positive political developments or news
of serious corporate restructuring could provide substantial returns in selected
cheap Japanese stocks.
Richard Saler
Portfolio Manager
Alan Wapnick
Portfolio Manager
Investing in foreign countries may involve risks, such as currency fluctuations
and political instability, not associated with investing exclusively in the U.S.
TOP 5 EQUITY HOLDINGS**
SERIES D - WORLDWIDE EQUITY SERIES
Wienerberger Baustoffindustrie AG.................. 2.0%
Imax Corporation................................... 1.9%
Novartis AG........................................ 1.8%
Elan Corporation PLC ADR........................... 1.8%
Yogen Fruz World-Wide, Inc......................... 1.6%
** At June 30, 1998
AVERAGE ANNUAL TOTAL RETURN
AS OF JUNE 30, 1998(1)
1 Year 5 Years 10 Years
Series D 7.20% 12.84% 5.10%
(1) Performance figures do not reflect fees and expenses associated with an
investment in variable insurance products offered by Security Benefit Life
Insurance Company. Shares of a Series of SBL Fund are available only through
the purchase of such products.
The performance data quoted above represents past performance. Past
performance is not predictive of future performance. The investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
- --------------------------------------------------------------------------------
8
<PAGE> 10
SERIES E (HIGH GRADE INCOME SERIES)
August 15, 1998
[ A PHOTO ]
Steven M. Bowser
Portfolio Manager
TO OUR SHAREHOLDERS:
Interest rates during the first half of the year traded in a fairly narrow
range, with the bellwether thirty-year Treasury bond beginning the year at 5.92%
and ending June at 5.63%. Within the time period, however, volatility reigned as
rates rose and fell frequently depending on whether the news story of the moment
related to Asian-induced economic weakness or to consumer-led strength in our
economy. The High Grade Income Series returned 3.83% for the six months,
slightly underperforming the Lipper peer group average of 3.97%.(1) The
benchmark Lehman Brothers Corporate Bond Index rose 4.15% over the same time
period.
MORTGAGE-BACKED SECURITIES HOLDINGS INCREASED
In the second quarter we increased the percentage of mortgage-backed securities
in the portfolio to 16%. These bonds generally will lose less of their value in
periods of rising interest rates than Treasury or corporate issues, because in
periods of higher rates fewer homeowners are inclined to refinance their
mortgages. As the risk of prepayment on the securities falls, their prices
become more stable. The mortgage-backed pools we select for the portfolio
generally have been outstanding for five years or more (so-called "seasoned
collateral" pools), which also tends to lower their prepayment speeds.
CORPORATE SECTOR PERFORMANCE
Performance of the investment grade corporate bonds, which make up over half of
the portfolio, was mixed. Industrial issues performed well because of the
strength in the U.S. economy. Our U.S. West bonds were added in this sector when
the company tendered for the bonds at a premium over our cost as a part of
reorganization of their corporate structure.
On the negative side, our gaming sector bonds issued by MGM Grand, Inc. and by
Mirage Resorts, Inc., weakened because of the "Asian effect"--part of their
revenue, especially in their casino operations, comes from guests from Asian
countries. The Asian crisis also forced spreads on Yankee bonds to widen. We
felt this primarily in our banks with Asian exposure, including ABN Amro Bank NV
and Santander Financial Issuances, Ltd. A third, Banco Central Hispanoamericano,
was also a negative as the emerging market countries felt the pain of the Asian
situation. Overall, however, we believe all of these companies provide good long
term potential for the portfolio.
- --------------------------------------------------------------------------------
9
<PAGE> 11
SERIES E (HIGH GRADE INCOME SERIES)
August 15, 1998
During the period we added some railroad bonds, issued by such companies as
Burlington Northern and Norfolk Southern. The railroad sector was beaten down by
Union Pacific's operating problems, and many of these issues were unfairly
undervalued in our estimation.
THE HIGH YIELD HOLDINGS
The high yield corporate bonds, at nearly 20% of portfolio assets, performed
well in three of the six months, and were neutral in the remaining months. The
additional yield provided by this sector makes it attractive for inclusion in
the portfolio.
LOOKING AHEAD
With interest rates on U.S. Treasury notes and bonds being at historic low
levels, we expect to look to other sectors such as corporate bonds and
mortgage-backed securities for their additional incremental return. We continue
to keep our average duration close to that of the benchmark index, refraining
from making interest rate bets with our maturity structure at this time.
Steven M. Bowser
Portfolio Manager
ASSET MIX**
SERIES E - HIGH GRADE INCOME SERIES
U.S. Government & Agencies......................... 4.5%
Mortgage Backed Securities......................... 16.0%
Corporate Bonds.................................... 78.0%
Cash & Equivalents................................. 1.5%
** At June 30, 1998
AVERAGE ANNUAL TOTAL RETURN
AS OF JUNE 30, 1998(1)
1 Year 5 Years 10 Years
Series E 11.19% 5.17% 8.13%
(1) Performance figures do not reflect fees and expenses associated with an
investment in variable insurance products offered by Security Benefit Life
Insurance Company. Shares of a Series of SBL Fund are available only through
the purchase of such products.
The performance data quoted above represents past performance. Past
performance is not predictive of future performance. The investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
- --------------------------------------------------------------------------------
10
<PAGE> 12
SERIES J (EMERGING GROWTH SERIES)
August 15, 1998
[ A PHOTO ]
James P. Schier
Portfolio Manager
TO OUR CONTRACTHOLDERS:
In the first six months of 1998 the Emerging Growth Series rose 8.84%,
outperforming its benchmark S&P 400 Midcap Index which returned 8.01% over the
period.(1) The Series, however, underperformed its Lipper peer group average of
13.40%. Those funds in the peer group which included more large-cap companies
led as stocks of the larger firms benefited from investors' search for
liquidity.
SECTORS WITH FAVORABLE PERFORMANCE
One of our strongest performing sectors was technology, led by America Online,
Inc. stock which rose over 135% in the first half of the year. This internet and
interactive services company was a direct beneficiary of the "internet mania"
which swept through the markets in recent months. Solid advances in our other
computer services and software names were offset by negative performance among
the semiconductors, which are more economically sensitive and also rely on Asian
markets for growth.
Our health care holdings were also very favorable overall, although with mixed
results within the sector. Mylan Laboratories, Inc., a manufacturer and marketer
of generic drugs, rose about 45% on strong earnings reports. Unfortunately, part
of this positive result in the portfolio was offset by declines in Dentsply
International, Inc., and Dura Pharmaceuticals, Inc., as both companies reported
disappointing earnings.
Positive performance also came from Quaker State Corporation in the energy
sector, which rose 41% on news of a buyout by Pennzoil Company. Within the
consumer staples group, three companies--Cardinal Health, Inc., The Cheesecake
Factory Inc., and Dial Corporation--all rose over 40%.
WEAKER PERFORMING ISSUES
On the negative side of the performance coin, Callaway Golf Company, a leading
manufacturer of golf clubs, dropped about 25% and hotel/casino operator Circus
Circus Enterprises, Inc. lost nearly 17% as a result of disappointing earnings
announcements. Other weak performers included SCI Systems, Inc., a contract
manufacturer of personal computers, and Sealed Air Corporation, which
manufactures and sells specialty packaging products. In the technology sector,
Transcrypt International, Inc., (a manufacturer of information security products
which prevent unauthorized access to sensitive data), lost over three-quarters
of its value because of alleged improper accounting practices.
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<PAGE> 13
SERIES J (EMERGING GROWTH SERIES)
August 15, 1998
NO MAJOR CHANGES PLANNED
Looking forward, we expect to keep our sector weightings close to their current
levels for the next few months. Midcap and small-cap stocks continue to offer
very good risk/reward potential since their prices in general have not
experienced the outsized runups seen in the large capitalization issues. Studies
have shown that historically when the valuation spread between large-cap and
smaller-cap issues is as wide as it is now, the smaller issues have about a 75%
chance of outperforming over the following six months to one year.
James P. Schier
Portfolio Manager
TOP 5 INDUSTRIES**
SERIES J - EMERGING GROWTH SERIES
Computer Software/Services......................... 13.0%
Pharmaceuticals.................................... 8.7%
Communication Equipment............................ 6.0%
Medical Products & Supplies........................ 5.3%
Foods.............................................. 4.6%
** At June 30, 1998
AVERAGE ANNUAL TOTAL RETURN
AS OF JUNE 30, 1998(1)
1 Year 5 Years Since
Inception
(10-1-92)
Series J 23.19% 13.79% 17.09%
(1) Performance figures do not reflect fees and expenses associated with an
investment in variable insurance products offered by Security Benefit Life
Insurance Company. Shares of a Series of SBL Fund are available only through
the purchase of such products.
The performance data quoted above represents past performance. Past
performance is not predictive of future performance. The investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
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<PAGE> 14
SERIES K (GLOBAL AGGRESSIVE BOND SERIES)
August 15, 1998
[LOGO] SUBADVISORS, MFR ADVISORS, INC., AND LEXINGTON MANAGEMENT
CORPORATION
PORTFOLIO MANAGERS, MARIA FIORINI RAMIREZ AND DENIS JAMISON
[ A PHOTO ]
Maria Ramirez
Portfolio Manager
TO OUR CONTRACTHOLDERS:
In general the first six months of 1998 produced mediocre returns for global
bond funds. The Global Aggressive Bond Series returned 3.48%, comparing
favorably with its Lipper peer group average of 2.31%.(1) However, the fund
underperformed the benchmark Lehman Global Bond Index, which returned 3.54% over
the period.
The difference in the relative performance of the Series and the peer group
versus the index is telling. Both the Series and the majority of portfolios in
the peer group have substantially more invested in emerging market debt than the
index. With financial turmoil continuing in Asia and spreading to Russia, most
emerging market debt (even that of fundamentally sound countries) performed
poorly on a relative basis.
INTEREST RATES AROUND THE WORLD
Interest rates in developed countries continued their downward path, basically
declining a quarter to half a percent in ten-year maturities. Ten year rates are
now near historic lows in many developed countries and do not appear to have a
lot of room to move down further from current levels. Some examples of ten year
government bond levels at June 30, 1998 were:
United States 5.45%
Germany 4.78%
United Kingdom 5.86%
Japan 1.62%
Strong economic growth in many developed countries combined with declining
levels of unemployed workers, especially in the bellwether U.S., is enough to
keep many bond market participants nervous. However, the prevailing worldwide
low level of inflation remains a constant and allays much of the fear of the
need for higher interest rates.
EVENTS OF THE PAST SIX MONTHS
Looking back at our forecasts for the first half of 1998, we were correct on two
of three calls. First, we predicted that the U.S. dollar's rise against
non-Asian currencies was nearing an end. In fact, the dollar was basically
unchanged against continental European currencies. Second, we expected inflation
to continue at low levels due to the Asian crisis. This also proved correct and
is evidenced by the drop in many commodity prices during the six months.
Unfortunately, our third prediction has not yet happened except on a limited
basis: we thought that the markets would begin to differentiate "good" emerging
market countries and companies from the "bad" ones.
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<PAGE> 15
SERIES K (GLOBAL AGGRESSIVE BOND SERIES)
August 15, 1998
COUNTRY FAVORITES FOR THE MONTHS AHEAD
We believe that the best value in global bonds remains in fundamentally sound
emerging market countries and companies. Our favorite countries at this time are
Poland, Greece, and Hungary. While we are somewhat disappointed with our first
half performance, we believe that as emerging markets start to settle down our
performance for the full year will be rewarding.
Maria Fiorini Ramirez
Portfolio Manager
Denis Jamison
Portfolio Manager
Investing in foreign countries may involve risks, such as currency fluctuations
and political instability, not associated with investing exclusively in the U.S.
TOP 5 COUNTRIES*
SERIES K - GLOBAL AGRESSIVE BOND SERIES
United States...................................... 24.6%
Denmark............................................ 11.5%
Greece............................................. 6.9%
Argentina.......................................... 6.6%
Poland............................................. 6.5%
* At June 30, 1998
AVERAGE ANNUAL TOTAL RETURN
AS OF JUNE 30, 1998(1)
1 Year Since Inception
(6-1-95)
Series K -1.2% 9.80%
(1) Performance figures do not reflect fees and expenses associated with an
investment in variable insurance products offered by Security Benefit Life
Insurance Company. Shares of a Series of SBL Fund are available only through
the purchase of such products.
The performance data quoted above represents past performance. Past
performance is not predictive of future performance. The investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
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<PAGE> 16
SERIES M (SPECIALIZED ASSET ALLOCATION SERIES)
August 15, 1998
[LOGO] MERIDIAN MANAGED BY SECURITY MANAGEMENT COMPANY
INVESTMENT SUBADVISOR, MERIDIAN INVESTMENT MANAGEMENT CORPORATION
MANAGEMENT
[ A PHOTO ] [ A PHOTO ]
Patrick S. Boyle Steven M. Bowser
Portfolio Manager Portfolio Manager
TO OUR CONTRACTHOLDERS:
In the first half of 1998, the Specialized Asset Allocation Series reaped the
benefits of international investing. Year to date the portfolio has appreciated
10.97%, ahead of its Lipper peer group average return of 9.24%.(1)
EUROPEAN MARKETS SET THE PACE
European equity markets have led the global securities rally. Equities in
Germany, Italy, and Belgium have far outpaced the returns of the U.S. stock
market. For the first six months of 1998 these three European markets were all
up in excess of 30%. Including Denmark, European markets have comprised
approximately 25% of the portfolio. Italian equities, which have been a part of
the allocation since May 1996, were sold during the second quarter just prior to
a market correction. Profit taking in these stocks, which doubled in value since
their initial purchase, was dictated by their lofty valuations.
Currency markets have been more neutral so far in 1998 than in the previous few
years. This has been a positive for the foreign equity holdings in the
portfolio, which were adversely affected by the strong dollar in 1996 and 1997.
U.S. STOCK APPRECIATION LED BY LARGE COMPANIES
For much of the last three and a half years, the U.S. market's advance has been
led by a narrow group of large capitalization stocks as global investors sought
the safety of highly liquid investments. As a result many of these large stocks
now appear very expensive. Microsoft Corporation and Coca-Cola Company, with
market capitalizations in excess of $200 billion, have price/earnings ratios
above fifty. We find their recent outperformance temporary and believe value,
and not liquidity, will drive investment performance in the long run. In times
of market volatility we advocate asset allocation as the preferred alternative
to buying expensive, liquid stocks.
SECTOR EMPHASIS
The Specialized Asset Allocation Series has emphasized three domestic sectors
this year: technology, leisure, and health care. Technology stocks, leaders of
the markets in the first quarter, were poor performers in the second quarter as
fears of the Asian impact on U.S. technology company earnings hurt their share
prices. The sell-off in these stocks, however, has once again created a very
attractive buying opportunity.
According to our valuation measures, many of the industries we own within the
technology sector are selling at twenty to thirty percent below their fair
value. We expect these stocks to rebound and to contribute positively to
performance in the remainder of 1998.
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15
<PAGE> 17
SERIES M (SPECIALIZED ASSET ALLOCATION SERIES)
August 15, 1998
A second area of emphasis in the domestic market has been the leisure sector.
Entertainment stocks, including Time Warner, Inc. and Viacom, Inc., have been
market leaders recently. Time Warner has been helped by the market's resurrected
belief in cable related shares. Viacom, out of favor for much of the recent bull
market, has posted a well documented turnaround, nearly doubling thus far in
1998. Restaurant stocks, the largest holding in the leisure sector, have
benefited from a rebound at McDonald's Corporation and improving macroeconomic
trends within the industry. In the health care sector we favor long term care
stocks, which generally have excellent valuations and are participating in the
market's advance.
CAUTIOUS OPTIMISM
Despite the extended global securities rally, we believe investment
opportunities still exist and we remain cautiously optimistic for the remainder
of 1998. With the bond market rally in the second quarter, lower interest rates
have improved the potential for both domestic and foreign stock markets. Other
asset categories, including U.S. bonds, provide additional return potential as
well as the benefit of diversification.
Patrick S. Boyle
Portfolio Manager--Equity component
and Sector Allocation
Steven M. Bowser
Portfolio Manager--Fixed income portion
MERIDIAN TARGET ALLOCATION*
SERIES M - SPECIALIZED ASSET ALLOCATION SERIES
U.S. Equities...................................... 31.0%
International Equities............................. 34.0%
U.S. Bonds......................................... 20.0%
International Bonds................................ 0.0%
Gold............................................... 4.0%
Real Estate........................................ 5.0%
Cash............................................... 6.0%
* At June 30, 1998
AVERAGE ANNUAL TOTAL RETURN
AS OF JUNE 30, 1998(1)
1 Year Since Inception
(6-1-95)
Series M 9.70% 12.59%
(1) Performance figures do not reflect fees and expenses associated with an
investment in variable insurance products offered by Security Benefit Life
Insurance Company. Shares of a Series of SBL Fund are available only through
the purchase of such products.
The performance data quoted above represents past performance. Past
performance is not predictive of future performance. The investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
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16
<PAGE> 18
SERIES N (MANAGED ASSET ALLOCATION SERIES)
August 15, 1998
T. ROWE PRICE [LOGO] SUBADVISOR, T. ROWE PRICE ASSOCIATES, INC.
Invest With Confidence PORTFOLIO MANAGER, NED NOTZON
[ A PHOTO ]
Edmund M. Notzon
Portfolio Manager
TO OUR CONTRACTHOLDERS:
The Managed Asset Allocation Series had an excellent first half of 1998,
increasing 11.25% in value and outperforming its peer group average of 9.61%.(1)
Because of the defensive nature of the portfolio it lagged its benchmark, which
is made up of 60% S&P 500 Stock Index and 40% Lehman Brothers Government/
Corporate Bond Index and returned 12.30% over the period.
SOLID GLOBAL MARKET RETURNS
After enjoying strong returns in the first three months of 1998, global markets
faltered a bit in the second quarter but still managed to end the first half
with solid returns. The domestic market soared in the first quarter and
international markets began to rebound, but again the economic crisis in Asia
spoiled the party. International markets suffered and domestic stocks stalled
due to lower demand for American products. Still, the 17.7% gain of large-cap
stocks in the first half, as measured by the S&P 500 Stock Index, was nothing
short of blistering. International stocks as a group rose 15.92% in the half, as
measured by the MSCI World Index in U.S. dollar terms.
PORTFOLIO STRATEGY
The sector exposures of the fund have changed slightly from year end. We
maintained our defensive posture by underweighting stocks. The equity market is
at the higher end of several valuation measures, and we expected the stock
market to moderate and earnings growth to slow. We also expected the
international exposure to add value to the fund, since many foreign securities
are undervalued. We invested about 2% of the cash equivalents in the bond
component and another 1% in the stock component. At the end of June, the
portfolio's allocation was about 4% in cash equivalents, 40% in bonds, and 56%
in stocks.
OUTLOOK FOR THE COMING MONTHS
The economy seems to be slowing a bit but remains healthy. The Federal Reserve
is likely to keep rates unchanged, especially with the continuation of the Asian
crisis. This environment is very favorable for the bond market. The U.S. equity
market may stall a bit if the decrease in demand results in lower corporate
earnings. We continue to expect the U.S. stock market to deliver positive
returns, though not at the pace of the last few years.
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<PAGE> 19
SERIES N (MANAGED ASSET ALLOCATION SERIES)
August 15, 1998
Overseas, market returns have been highly volatile and region-specific. We still
believe, however, that foreign markets provide a good opportunity to find
undervalued securities. The diversified strategy available through the Managed
Asset Allocation Series should continue to deliver attractive returns over the
long term.
Edmund M. Notzon
Portfolio Manager
Investing in foreign countries may involve risks, such as currency fluctuations
and political instability, not associated with investing exclusively in the U.S.
TOP 5 EQUITY SECTORS*
SERIES N - MANAGED ASSET ALLOCATION SERIES
Financial.......................................... 9.1%
Consumer Staples................................... 7.5%
Technology......................................... 7.5%
Health Care........................................ 5.8%
Consumer Cyclicals................................. 4.9%
* At June 30, 1998
AVERAGE ANNUAL TOTAL RETURN
AS OF JUNE 30, 1998(1)
1 Year Since Inception
(6-1-95)
Series N 18.01% 16.35%
(1) Performance figures do not reflect fees and expenses associated with an
investment in variable insurance products offered by Security Benefit Life
Insurance Company. Shares of a Series of SBL Fund are available only through
the purchase of such products.
The performance data quoted above represents past performance. Past
performance is not predictive of future performance. The investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
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<PAGE> 20
SERIES O (EQUITY INCOME SERIES)
August 15, 1998
T. ROWE PRICE [LOGO] SUBADVISOR, T. ROWE PRICE ASSOCIATES, INC.
Invest With Confidence PORTFOLIO MANAGER, BRIAN C. ROGERS
[ A PHOTO ]
Brian C. Rogers
Portfolio Manager
TO OUR CONTRACTHOLDERS:
The equity markets performed very well in the first half of 1998 as low
inflation, a benign interest rate environment, and generally healthy corporate
earnings provided fuel for the advance. As the first half progressed and signs
of a deceleration in economic growth became visible, the environment grew
increasingly challenging for value funds. The Equity Income Series rose 6.23%
over the six months, compared with the Lipper peer group average of 10.64% and
the S&P 500 Stock Index return of 17.71%.(1)
THE STRUGGLES OF EQUITY INCOME FUNDS
During the first half of the year, company size and the predictability of
earnings growth emerged as critical requirements of investment success.
Characteristics such as low stock valuations and above-average yield were viewed
as something to avoid rather than to seek. As the above figures reflect, the
Equity Income Series' results lagged the broad market because of its focus on
precisely the type of investment approach that has recently been out of favor.
Equity income funds in general struggled during the period, and we struggled
more than most for reasons explained below. Given the conservative nature of the
fund, it is difficult to keep up with the broad market in times of powerful
market advances.
PORTFOLIO STRATEGY
In light of the portfolio's first half performance, it helps to review exactly
how we invest and why. We follow a value approach, meaning that we invest in
companies that our analysis suggests are undervalued on the basis of earnings,
dividends, cash flow, asset value, or some combination of these measures. There
is a contrarian element to this approach in that many companies carrying these
measures of undervaluation are often out of favor for a variety of company- or
industry-related reasons. We invest in them in the belief that the market's
short-term sentiment is often too negative, and that investors will view our
companies more favorably in the future. Generally, this is a relatively
conservative style of equity investing with reasonable return potential and an
emphasis on risk control.
Without doubt we have been out of sync with the market even though we did
nothing differently in the last six months than we have been doing since the
inception of the fund. We made our investment decisions for the same reasons we
always have over the years. However, despite the consistency of our investment
approach, several factors combined to hurt results so far in 1998. First, the
fund had little exposure to the strong technology sector and too much exposure
to the weaker energy and utility sectors. We deliberately avoided many of the
fifty or so S&P 500 stocks that have accounted for so much of the broad market
advance, since many had very high price/earnings ratios and low or nonexistent
dividend yields. Some individual holdings impaired the first half return as
well, including Union Pacific Corporation, with its well-publicized problems,
and more cyclical stocks such as Dow Chemical Company and Norfolk Southern
Corporation, all of which were among our largest positions.
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<PAGE> 21
SERIES O (EQUITY INCOME SERIES)
August 15, 1998
SUMMARY AND OUTLOOK
In short, some unfortunate short-term sector decisions, a handful of laggards
among our major stocks, and our avoidance of many large-capitalization growth
companies that do not meet our investment criteria restrained results during the
first six months. Since our focus has always been on the long term, we remain
confident that our investment approach will continue to reward shareholders over
time.
At some point stock market returns should begin to moderate from their
unsustainable levels. Investor expectations are currently very high, signs of
speculative activity are rising, and investors appear more focused on return
than on risk. Nevertheless, despite lofty valuations and the volatile twists and
turns that are likely to occur along the way, we are confident that our
investment approach will continue to reward investors over time.
Brian C. Rogers
Portfolio Manager
TOP 5 EQUITY HOLDINGS*
SERIES O - EQUITY INCOME SERIES
Mellon Bank Corporation............................. 1.8%
American Home Products Corporation.................. 1.5%
Exxon Corporation................................... 1.4%
Alltel Corporation.................................. 1.4%
Amoco Corporation................................... 1.3%
* At June 30, 1998
AVERAGE ANNUAL TOTAL RETURN
AS OF JUNE 30, 1998(1)
1 Year Since Inception
(6-1-95)
Series O 19.14% 23.48%
(1) Performance figures do not reflect fees and expenses associated with an
investment in variable insurance products offered by Security Benefit Life
Insurance Company. Shares of a Series of SBL Fund are available only through
the purchase of such products.
The performance data quoted above represents past performance. Past
performance is not predictive of future performance. The investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
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<PAGE> 22
SERIES P (HIGH YIELD SERIES)
August 15, 1998
[ A PHOTO ]
David Eshnaur
Portfolio Manager
TO OUR SHAREHOLDERS:
High yield bonds were the best performing sector of the U.S. fixed income
markets in the first half of 1998. The strong upward movement relative to other
sectors was largely a result of an inflow of $11.5 billion in new cash. This is
27% more than in the same period last year, which was a record year. The high
yield market has now topped the $400 billion level, 33% above the 1997 year end
total.
PORTFOLIO PERFORMANCE
The High Yield Series performed in line with its peers, returning 4.57% over the
six months versus the Lipper peer group average of 4.58%.(1) The benchmark
Lehman Brothers High Yield Index rose 4.50% in the same period. We maintain an
emphasis on higher quality BB and upper B rated issues in our portfolio. In
periods of declining interest rates lower-quality issues often outperform, but
when rates rise the higher-rated bonds are expected to hold their value better.
POSITIVE CONTRIBUTORS TO TOTAL RETURN
Our overweighting in sectors which performed well worked in our favor. In the
capital goods sector our Plastic Containers, Inc., bonds rose in price when the
company tendered for them as part of their overall refinancing process. Knoll,
Inc., a manufacturer of office furniture, saw its bond prices climb as the
company benefited from a strong business environment.
The cable industry also fared well in the first half. We hold bonds issued by
Cablevision Systems, Comcast Corporation, Adelphia Communications Corporation,
and Diamond Cable U.S. in this sector. These companies, many of which have heavy
borrowings, gain when interest rates fall. Mergers and acquisitions such as the
AT&T/Telecommunications, Inc. union also drive up the sector as a whole.
AVERAGE ANNUAL TOTAL RETURN
AS OF JUNE 30, 1998(1)
1 Year Since Inception
(8-5-96)
Series P 11.64% 13.04%
(1) Performance figures do not reflect fees and expenses associated with an
investment in variable insurance products offered by Security Benefit Life
Insurance Company. Shares of a Series of SBL Fund are available only through
the purchase of such products. Fee waivers reduced expenses of the Series
and in the absence of such waivers, the performance quoted would be reduced.
The performance data quoted above represents past performance. Past
performance is not predictive of future performance. The investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
WHAT WE DIDN'T OWN HELPED, TOO
The High Yield Series was helped overall by having only small positions in some
sectors. Energy-related securities generally underperformed as oil prices
continued to fall. Some telecommunications bonds lost value, along with their
corresponding stock issues, as a result of the weak Asian economies. Many
chemicals declined as well, in sympathy with the closely-related energy sector.
THE HIGH YIELD MARKET OUTLOOK
We believe that the high yield market will continue to be volatile, since it
reacts to swings in both the bond and stock markets. Adding to the wide
fluctuations in the high yield arena as a whole is the volatility in emerging
markets-related issues, as world economies suffer the effects of the Asian
crisis. Fortunately, our portfolio has no exposure to emerging markets at this
time.
We plan to maintain our emphasis on the higher-quality issues. We note that
defaults on high yield issues moved up to 0.85% of total market value in the
first half, compared with 0.80% at the end of 1997. We believe the risk that
this implies justifies our somewhat more conservative approach to high yield
investing.
David Eshnaur
Portfolio Manager
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<PAGE> 23
SERIES S (SOCIAL AWARENESS SERIES)
August 15, 1998
[ A PHOTO ]
Cindy L. Shields
Portfolio Manager
TO OUR CONTRACTHOLDERS:
The Social Awareness Series returned 15.79% in the first half of 1998, strongly
outperforming its Lipper peer group average of 10.43%.(1) Large capitalization
stocks dominated performance in the period, and with its large-cap orientation
the benchmark Domini Social 400 Index rose an even greater 18.93%.
ADDING MID-CAP ISSUES TO THE PORTFOLIO
Because the large-cap sector of the stock market has outperformed for many
months, we believe there are better values to be found in the mid-cap arena. In
our view, the medium sized companies have potential for greater appreciation and
accordingly we have been purchasing some midcap companies in recent months.
Although they have lagged the overall market to date, we expect them to return
to favor when investors realize that valuations in many large-cap companies have
reached unreasonably high levels. The portfolio still maintains an average
large-cap orientation, although less than that of the benchmark index. We note
that in the Domini Social 400 Index, Microsoft Corporation makes up nearly 5% of
the total and other large companies such as Coca-Cola Company, Merck & Conpany,
Inc., Intel Corporation, IBM, and Procter & Gamble Company are also large
positions.
CONTRIBUTORS TO TOTAL RETURN IN THE FIRST HALF
The strongest-performing sector in the portfolio in the first half of the year
was technology, with performance led by Microsoft Corporation and Cisco Systems,
Inc. Both of these companies returned over 60% for the period because of strong
earnings outlooks and excellent prospects for new product development. Our
holdings in Peoplesoft, Inc. and Tellabs, Inc., also did very well, each rising
over 30%.
The second-best sector was consumer staples. McDonald's Corporation led in this
area, climbing 45% on improving store sales growth (especially in overseas
operations) and after introducing a program to cut costs and simplify product
lines. Consumer staples sector performance was followed closely by health care.
Schering-Plough Corporation was the leader, rising 48% on promising new
products.
On the negative side, Corporate Express, a company which markets office goods
and furniture to corporations and organizations, lost 34% after announcing early
in the year that it expected profit growth to slow over the next two years.
Developer and marketer of prescription pharmaceutical products Dura
Pharmaceuticals, Inc. fell sharply in February when it announced that profits
would be well below expectations this year because of disappointing antibiotic
sales and higher costs.
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22
<PAGE> 24
SERIES S (SOCIAL AWARENESS SERIES)
August 15, 1998
A SOCIAL INVESTMENT NEWS UPDATE
As many socially-oriented investors are aware, last September the Securities and
Exchange Commission (SEC) proposed new rules which would have made it much more
difficult for shareholders to place resolutions on proxy ballots. A large
coalition of over 400 socially concerned businesses, investment companies,
religious organizations, and other groups united to protest these proposed
rules. We are pleased to report that the two top advisers on shareholder issues
appointed to make recommendations to the SEC on the proposals essentially sided
with the coalition and recommended reverting to the existing rules. It is widely
expected that the SEC will adopt these recommendations in the near future.
Cindy L. Shields
Portfolio Manager
TOP 5 EQUITY HOLDINGS*
SERIES S - SOCIAL AWARENESS SERIES
Microsoft Corporation............................... 3.6%
Coca-Cola Company................................... 3.1%
Merck & Company, Inc................................ 2.6%
International Business
Machines Corporation............................. 2.3%
Procter & Gamble Company............................ 2.2%
* At June 30, 1998
AVERAGE ANNUAL TOTAL RETURN
AS OF JUNE 30, 1998(1)
1 Year 5 Year Since Inception
(10-1-92)
Series S 27.94% 17.86% 15.72%
(1) Performance figures do not reflect fees and expenses associated with an
investment in variable insurance products offered by Security Benefit Life
Insurance Company. Shares of a Series of SBL Fund are available only through
the purchase of such products.
The performance data quoted above represents past performance. Past
performance is not predictive of future performance. The investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
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<PAGE> 25
SERIES V (VALUE SERIES)
August 15, 1998
[ A PHOTO ]
James P. Schier
Portfolio Manager
TO OUR CONTRACTHOLDERS:
In the first half of 1998 the Value Series continued the pattern of strong
performance it has exhibited since its inception in May of last year. The total
return for the past six months was 14.09% compared with the Lipper peer group of
funds' average 12.26% return.(1) The benchmark S&P 500/Barra Value Index rose
12.13% over the same period.
STOCK SELECTION OUTSTANDING
The greatest factor contributing to strong performance was outstanding stock
selection in the technology sector. Two stocks in the software and services
areas of the sector, Antec Corporation and Computer Sciences Corporation, both
increased approximately 50% in value during the six-month period. Antec, which
provides equipment to the cable industry, rose on expectations that the business
of one of its major customers, Telecommunications, Inc. (TCI), would accelerate.
This perception was reinforced when AT&T announced a buyout of TCI. Computer
Sciences was also a takeover story, receiving a bid from Computer Associates
which it then successfully blocked. Its stock is now trading higher than the
proposed takeover price.
Several other sectors in the portfolio outperformed their parallel sectors in
the benchmark index. In health care, our position in Mylan Laboratories, Inc.,
rose about 45% on evidence of strong earnings for the generic drug manufacturer
and marketer. Within the transportation sector Monaco Coach Corporation, a
manufacturer of recreational vehicles and motor homes, climbed 66% on strong
earnings reports as well.
Also helping the portfolio outperform the benchmark index was positive stock
selection within the raw materials sector, a group which generally performed
poorly over the six months. Our positions in Cleveland-Cliffs, Inc., a producer
of iron ore in the U.S. and Canada, and in Engelhard Corporation, which provides
products and services to the mining industry, beat the sector trends by
increasing between 15% and 20% in value.
A FEW NEGATIVES
On the negative side, two stocks in the consumer cyclicals sector hurt
performance. Callaway Golf Company, a leading manufacturer of golf clubs,
dropped about 25% and hotel/casino operator Circus Circus Enterprises, Inc.,
lost nearly 17% after reporting disappointing earnings.
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<PAGE> 26
SERIES V (VALUE SERIES)
August 15, 1998
BETTER VALUES IN MEDIUM AND SMALL COMPANIES
Overall market performance so far this year has been dominated by the large-cap
companies. The S&P 500/Barra Value Index, as we mentioned earlier, rose 12.13%
while the S&P 500 Stock Index rose 17.71%. The value of highly liquid large-cap
growth names has been pushed to unprecedented levels. Medium- and small-cap
companies have lagged; we believe that they represent better values for purchase
now than their larger counterparts.
The markets continue to be worried about a possible economic slowdown, a concern
which we share. For this reason we plan to focus on companies which are less
economically sensitive as we move through the next few months.
James P. Schier
Portfolio Manager
TOP 5 EQUITY HOLDINGS*
SERIES V - VALUE SERIES
Mylan Laboratories, Inc............................. 3.3%
Comverse Technology, Inc............................ 3.1%
Hasbro, Inc......................................... 2.9%
Angelica Corporation................................ 2.7%
Pinkerton's, Inc.................................... 2.7%
* At June 30, 1998
AVERAGE ANNUAL TOTAL RETURN
AS OF JUNE 30, 1998(1)
1 Year Since Inception
(5-1-97)
Series V 34.47% 41.38%
(1) Performance figures do not reflect fees and expenses associated with an
investment in variable insurance products offered by Security Benefit Life
Insurance Company. Shares of a Series of SBL Fund are available only through
the purchase of such products. Fee waivers reduced expenses of the Series
and in the absence of such waivers, the performance quoted would be reduced.
The performance data quoted above represents past performance. Past
performance is not predictive of future performance. The investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
- --------------------------------------------------------------------------------
25
<PAGE> 27
SERIES X (SMALL CAP SERIES)
August 15, 1998
[ A PHOTO ]
Ronald C. Ognar
Portfolio Manager
TO OUR CONTRACTHOLDERS:
The Small Cap Series returned 8.61% in the first half of 1998, outperforming its
Lipper peer group average of 7.06%.(1) The Standard and Poor's Midcap 400 Index
returned 8.01% over the six-month period, while our benchmark Russell 2000
Growth Index of small-cap growth stocks rose only 5.46%.
MARKET MOVEMENTS IN THE FIRST HALF
The year began with negative sentiment as the markets became pessimistic about
the effects of the Asian slowdown on the domestic economy. When the results of
fourth quarter earnings reports generally met expectations, buyers returned to
the market and propelled the major indexes to new highs. Worries about profit
margin squeezes abounded in an environment of tight labor markets and increased
price competition from Asian imports. However, these concerns were offset by
strong cash flows into equities and the absence of inflation at both the
producer and consumer levels.
The rally lasted until mid-April, when investors began to worry about the Fed
tightening and the Japanese recession. Investors shunned small- and mid-cap
stocks and fled to the relative safety and liquidity of the blue-chip "mega-cap"
stocks. Thus, the gap which began in 1995 between the performance of the
largest-cap stocks and the rest of the market widened further.
Returns during the period were also remarkable in their wide disparity across
the value-growth spectrum. Despite the already stretched valuations in the
market, money flows strongly favored growth stocks for their ability to sustain
earnings momentum in the face of a slowing economy. Higher market volatility was
also evident, with swings of 1% or more on two-thirds of the trading days.
PORTFOLIO PERFORMANCE FOR THE SIX MONTHS
The Small Cap Series outperformed the benchmark Russell 2000 Growth Index both
in the second quarter and for the first half of the year. The portfolio
benefited from an emphasis on commercial service stocks, which make up a large
portion of our capital equipment sector holdings. Specialty retailers gained on
strong consumer spending due to low inflation and increased real wages. Software
and data networking companies continued to advance as a result of the Internet
explosion and the consolidation of the telecommunications hardware and
networking industries. Food stocks also contributed to positive results. Poor
performance came from energy holdings due to depressed oil prices, and from
semiconductor and telecom service issues.
- --------------------------------------------------------------------------------
26
<PAGE> 28
SERIES X (SMALL CAP SERIES)
August 15, 1998
Since January specialty retail holdings have been increased significantly to
capture growth in this strong consumer environment. We believe technology is
driving productivity enhancement and have increased holdings of software and
telecommunications equipment stocks. Financial stocks were trimmed as the market
digested the latest round of mega-mergers. Media stocks and underperforming real
estate holdings were also reduced.
OUR OUTLOOK FOR THE MARKET
Over the long term we believe the bull market is sustainable, although earnings
growth is decelerating. We continue to monitor the Asian situation for potential
negative impact on our holdings. The drive for expanded computer capabilities
and the Internet will likely cause technology and telecommunications companies
to dominate over the next few years. As the baby boom generation nears
retirement, we expect holdings in healthcare to outperform. We remain committed
to finding the best capably managed long term small-cap growth companies selling
at reasonable valuations.
Ronald C. Ognar
Portfolio Manager
TOP 5 EQUITY HOLDINGS*
SERIES X - SMALL CAP SERIES
Romac International, Inc............................ 2.8%
American Italian Pasta Company (Cl.A)............... 2.7%
Lamar Advertising Company........................... 2.6%
Metris Companies, Inc............................... 2.5%
International Telecommunication Data
Systems, Inc..................................... 2.3%
* At June 30, 1998
AVERAGE ANNUAL TOTAL RETURN
AS OF JUNE 30, 1998(1)
Since Inception
(10-15-97)
Series X 4.05%*
(1) Performance figures do not reflect fees and expenses associated with an
investment in variable insurance products offered by Security Benefit Life
Insurance Company. Shares of a Series of SBL Fund are available only through
the purchase of such products. Fee waivers reduced expenses of the Series
and in the absence of such waivers, the performance quoted would be reduced.
The performance data quoted above represents past performance. Past
performance is not predictive of future performance. The investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
* The return has not been annualized.
- --------------------------------------------------------------------------------
27
<PAGE> 29
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
SERIES A (GROWTH)
NUMBER MARKET
COMMON STOCKS OF SHARES VALUE
- ------------------------------------------------------------------
AUTOMOBILES - 1.0%
Chrysler Corporation.................... 200,000 $ 11,275,000
BANKS - MAJOR REGIONAL - 3.9%
BankAmerica Corporation................. 100,000 8,643,750
Bank of New York Company, Inc........... 200,000 12,137,500
Northern Trust Corporation.............. 200,000 15,250,000
Norwest Corporation..................... 240,000 8,970,000
------------
45,001,250
BANKS - MONEY CENTER - 1.6%
Chase Manhattan Corporation............. 240,000 18,120,000
BEVERAGES - SOFT DRINK - 1.4%
Coca-Cola Enterprises, Inc.............. 110,000 4,317,500
PepsiCo, Inc............................ 300,000 12,356,250
------------
16,673,750
BROADCAST MEDIA - 0.7%
Chancellor Media Corporation*........... 160,000 7,945,000
CHEMICALS - BASIC - 0.9%
Praxair, Inc............................ 225,000 10,532,813
CHEMICALS - DIVERSIFED - 0.9%
B.F. Goodrich Company................... 200,000 9,925,000
CHEMICALS - SPECIALTY - 0.8%
Imperial Chemical Industries PLC ADR.... 140,000 9,030,000
COMPUTER HARDWARE - 1.6%
Compaq Computer Corporation............. 90,000 2,553,750
International Business Machines
Corporation.......................... 100,000 11,481,250
Sun Microsystems, Inc.*................. 50,000 2,171,875
------------
16,206,875
COMPUTERS - NETWORKING - 1.2%
Cisco Systems, Inc.*.................... 150,000 13,809,375
COMPUTER SOFTWARE/SERVICES - 3.9%
BMC Software, Inc.*..................... 300,000 15,581,250
Computer Sciences Corporation*.......... 120,000 7,680,000
Microsoft Corporation*.................. 200,000 21,675,000
Wang Laboratories, Inc. Warrants........ 639 5,591
------------
44,941,841
ELECTRICAL EQUIPMENT - 3.3%
Emerson Electric Company................ 180,000 10,856,250
General Electric Company................ 200,000 18,200,000
Honeywell, Inc.......................... 100,000 8,356,250
------------
37,412,500
ENTERTAINMENT - 0.5%
Time Warner, Inc........................ 65,000 5,553,437
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- ------------------------------------------------------------------
FINANCIAL - DIVERSE - 3.3%
American General Corporation............ 125,000 $ 8,898,438
Fannie Mae.............................. 240,000 14,580,000
Federal Home Loan Mortgage
Corporation.......................... 300,000 14,118,750
------------
37,597,188
FOODS - 3.1%
Bestfoods............................... 240,000 13,935,000
ConAgra, Inc............................ 360,000 11,407,500
Ralston-Ralston Purina Group............ 85,000 9,929,062
------------
35,271,562
HEALTH CARE - DIVERSE - 2.9%
American Home Products
Corporation.......................... 300,000 15,525,000
Bristol-Myers Squibb Company............ 160,000 18,390,000
------------
33,915,000
HEALTH CARE - MANAGED CARE - 0.3%
MedPartners, Inc.*...................... 400,000 3,200,000
HOUSEHOLD FURNISHINGS &
APPLIANCES - 1.1%
Leggett & Platt, Inc.................... 520,000 13,000,000
HOUSEHOLD PRODUCTS - 4.7%
Colgate-Palmolive Company............... 150,000 13,200,000
Dial Corporation........................ 600,000 15,562,500
Fort James Corporation.................. 250,000 11,125,000
Procter & Gamble Company, The........... 150,000 13,659,375
------------
53,546,875
INSURANCE - LIFE/HEALTH - 1.6%
Equitable Companies, Inc................ 160,000 11,990,000
Unum Corporation........................ 115,000 6,382,500
------------
18,372,500
INSURANCE - MULTILINE - 3.6%
American International Group, Inc....... 112,500 16,425,000
Hartford Financial Services Group, Inc.. 100,000 11,437,500
Lincoln National Corporation............ 150,000 13,706,250
------------
41,568,750
INSURANCE - PROPERTY - 1.3%
Allstate Corporation.................... 160,000 14,650,000
LEISURE TIME PRODUCTS - 1.0%
Hasbro, Inc............................. 300,000 11,793,750
LODGING - HOTELS - 1.5%
Carnival Corporation.................... 440,000 17,435,000
MACHINERY - DIVERSE - 0.2%
Cooper Industries, Inc.................. 40,000 2,197,500
MANUFACTURING - DIVERSIFIED - 7.2%
AlliedSignal, Inc....................... 320,000 14,200,000
Crane Company........................... 225,000 10,926,563
Textron, Inc............................ 165,000 11,828,437
- --------------------------------------------------------------------------------
28 See accompanying notes.
<PAGE> 30
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
SERIES A (GROWTH) (CONTINUED)
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- ----------------------------------------------------------------------
MANUFACTURING - DIVERSIFIED (CONTINUED)
Tyco International, Ltd...................... 340,000 $21,420,000
U.S. Industries, Inc......................... 500,000 12,375,000
United Technologies Corporation.............. 130,000 12,025,000
-------------
82,775,000
MEDICAL PRODUCTS & SUPPLIES - 4.8%
Baxter International, Inc.................... 200,000 10,762,500
Becton, Dickinson & Company.................. 200,000 15,525,000
Boston Scientific Corporation*............... 100,000 7,162,500
Medtronic, Inc............................... 200,000 12,750,000
Stryker Corporation.......................... 250,000 9,593,750
-------------
55,793,750
NATURAL GAS - 1.0%
Coastal Corporation.......................... 170,000 11,868,125
OIL & GAS - DRILLING & EQUIPMENT - 0.4%
Schlumberger, Ltd............................ 75,000 5,123,438
OIL & GAS - EXPLORATION & PRODUCTION - 1.8%
Burlington Resources, Inc.................... 300,000 12,918,750
Enron Corporation............................ 70,000 3,784,375
YPF Sociedad Anonima ADR..................... 150,000 4,509,375
-------------
21,212,500
OIL & GAS - REFINING & MARKETING - 0.8%
Williams Companies, Inc...................... 260,000 8,775,000
OIL - INTERNATIONAL - 4.2%
Chevron Corporation.......................... 90,000 7,475,625
Mobil Corporation............................ 160,000 12,260,000
Royal Dutch Petroleum Company................ 200,000 10,962,500
Texaco, Inc.................................. 200,000 11,937,500
USX-Marathon Group........................... 175,000 6,004,687
-------------
48,640,312
PAPER & FOREST PRODUCTS - 0.6%
Bowater, Inc................................. 140,000 6,615,000
PERSONAL CARE - 1.0%
Gillette Company............................. 200,000 11,337,500
PHARMACEUTICALS - 5.2%
Elan Corporation PLC ADR*.................... 200,000 12,862,500
Forest Laboratories, Inc.*................... 180,000 6,435,000
Schering-Plough Corporation.................. 205,000 18,783,125
SmithKline Beecham PLC ADR................... 200,000 12,100,000
Watson Pharmaceuticals, Inc.*................ 200,000 9,337,500
-------------
59,518,125
PHOTOGRAPHY/IMAGING - 1.1%
Xerox Corporation............................ 125,000 12,703,125
PUBLISHING - 1.0%
McGraw-Hill Companies, Inc................... 140,000 11,418,750
PUBLISHING - NEWSPAPER - 2.1%
Gannett Company, Inc......................... 180,000 12,791,250
Tribune Company.............................. 170,000 11,698,125
-------------
24,489,375
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- ----------------------------------------------------------------------
RAILROADS - 0.7%
Canadian Pacific, Ltd........................ 300,000 $ 8,512,500
RETAIL - APPAREL - 1.1%
TJX Companies, Inc........................... 540,000 13,027,500
RETAIL - BUILDING SUPPLIES - 1.0%
Sherwin-Williams Company..................... 350,000 11,593,750
RETAIL DEPARTMENT STORES - 2.3%
Federated Department Stores, Inc.*........... 200,000 10,762,500
Proffitt's, Inc.*............................ 400,000 16,150,000
-------------
26,912,500
RETAIL - DRUG STORES - 2.4%
Rite Aid Corporation......................... 400,000 15,025,000
Walgreen Company............................. 320,000 13,220,000
-------------
28,245,000
RETAIL - FOOD CHAINS - 1.9%
Kroger Company*.............................. 200,000 8,575,000
Safeway, Inc.*............................... 340,000 13,833,750
-------------
22,408,750
RETAIL - GENERAL MERCHANDISE - 0.7%
Dayton Hudson Corporation.................... 160,000 7,760,000
RETAIL - SPECIALTY - 2.4%
Payless ShoeSource, Inc.*.................... 225,000 16,579,688
Staples, Inc.*............................... 400,000 11,575,000
-------------
28,154,688
SERVICES - ADVERTISING/MARKETING - 1.6%
Omnicom Group, Inc........................... 380,000 18,952,500
SERVICES - COMMERCIAL & CONSUMER - 0.9%
Viad Corporation............................. 380,000 10,545,000
TELECOMMUNICATIONS - LONG DISTANCE - 2.8%
AT&T Corporation............................. 60,000 3,427,500
GTE Corporation.............................. 80,000 4,450,000
Sprint Corporation........................... 175,000 12,337,500
WorldCom, Inc.*.............................. 250,000 12,109,375
-------------
32,324,375
WASTE MANAGEMENT - 0.7%
U.S.A. Waste Service, Inc.*.................. 160,000 7,900,000
-------------
Total common stocks - 96.0%........................ 1,105,581,529
Cash and other assets,
less liabilities - 4.0%............................ 45,508,458
-------------
Total net assets - 100.0%.......................... $1,151,089,987
=============
- --------------------------------------------------------------------------------
29 See accompanying notes.
<PAGE> 31
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
SERIES B (GROWTH-INCOME)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
NUMBER MARKET
PREFERRED STOCKS OF SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
MEDIA - NONCABLE - 0.2%
Primedia, Inc. ............................. 30,000 $ 3,165,000
CORPORATE BONDS
AEROSPACE - 0.2%
Sequa Corporation, 9.375% - 2003 ........... $ 3,000,000 3,123,750
BANKING - 0.1%
Homeside, Inc., 11.25% - 2003 .............. $ 1,335,000 1,581,975
BROKERAGE - 0.3%
S I Financing, Inc., 9.50% - 2026(1)........ 134,000 3,609,625
CHEMICALS - 0.1%
Envirodyne Industries, Inc.,
12.00% - 2000 ........................... $ 600,000 637,500
FINANCIAL COMPANIES - 0.1%
Dollar Financial Group, Inc.,
10.875% - 2006 ......................... $ 1,550,000 1,670,125
FOODS - 0.4%
Carrols Corporation, 11.50% - 2003 ......... $ 3,050,000 3,198,688
Foodmaker Corporation,
9.75% - 2003 ............................ $ 2,000,000 2,105,000
-----------
5,303,688
MEDIA - CABLE - 0.3%
CF Cable TV, Inc., 11.625% - 2005 .......... $ 1,390,000 1,577,650
Rogers Cablesystems Ltd.,
9.625% - 2002 ........................... $ 1,500,000 1,601,250
-----------
3,178,900
MEDIA - NONCABLE - 0.2%
Golden Books Publishing, Inc.,
7.65% - 2002 ............................ $ 3,500,000 2,730,000
METALS - 0.1%
Wheeling-Pittsburgh Corporation
9.25% - 2007 ............................ $ 1,000,000 1,025,000
TOBACCO - 0.0%
Standard Commercial Tobacco,
8.875% - 2005 ........................... $ 350,000 350,000
-----------
Total corporate bonds - 1.8% .................................... 23,210,563
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS OF SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
AGRICULTURAL PRODUCTS - 0.9%
Archer-Daniels-Midland Company ............. 600,000 $11,625,000
ALUMINUM - 0.8%
Aluminum Company of America ................ 160,000 10,550,000
AUTO PARTS & EQUIPMENT - 1.1%
Genuine Parts Company ...................... 250,000 8,640,625
TRW, Inc. .................................. 94,000 5,134,750
-----------
13,775,375
AUTOMOBILES - 0.9%
General Motors Corporation ................. 163,000 10,890,438
BANKS - MAJOR REGIONAL - 2.4%
Banc One Corporation ....................... 143,000 7,981,187
J.P. Morgan & Company, Inc. ................ 125,000 14,640,625
Wells Fargo & Company ...................... 20,000 7,380,000
-----------
30,001,812
BEVERAGES - ALCOHOLIC - 0.9%
Anheuser-Busch Companies, Inc. ............. 250,000 11,796,875
BEVERAGES - SOFT DRINK - 1.5%
PepsiCo, Inc. .............................. 450,000 18,534,375
CHEMICALS - BASIC - 0.9%
Praxair, Inc. .............................. 240,000 11,235,000
COMMUNICATION EQUIPMENT - 1.0%
Motorola, Inc. ............................. 250,000 13,140,625
COMPUTER HARDWARE - 0.5%
Sequent Computer Systems, Inc.* ............ 500,000 6,031,250
COMPUTER SOFTWARE/SERVICES - 0.4%
Microsoft Corporation* ..................... 50,000 5,418,750
CONTAINERS & PACKAGING - 1.2%
Crown Cork & Seal Company, Inc. ............ 225,000 10,687,500
Union Camp Corporation ..................... 100,000 4,962,500
-----------
15,650,000
ELECTRIC COMPANIES - 7.0%
Allegheny Energy, Inc. ..................... 171,000 5,151,375
American Electric Power
Company, Inc. ........................... 250,000 11,343,750
Baltimore Gas & Electric Company ........... 250,000 7,765,625
Carolina Power & Light Company ............. 68,000 2,949,500
Dominion Resources, Inc. ................... 64,500 2,628,375
GPU, Inc. .................................. 64,100 2,423,781
Kansas City Power & Light Company .......... 223,000 6,467,000
LG&E Energy Corporation .................... 100,000 2,706,250
MidAmerican Energy Holdings
Company ................................. 131,600 2,845,850
Northern States Power Company .............. 92,200 2,639,225
Peco Energy Company ........................ 340,000 9,923,750
- --------------------------------------------------------------------------------
</TABLE>
30 See accompanying notes.
<PAGE> 32
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
SERIES B (GROWTH-INCOME)(CONTINUED)
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS(CONTINUED) OF SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
ELECTRIC COMPANIES (CONTINUED)
Potomac Electric Power Company ............... 250,000 $ 6,265,625
Public Service Enterprise Group, Inc. ........ 170,000 5,854,375
Southern Company ............................. 310,000 8,583,125
Texas Utilities Company ...................... 275,000 11,446,875
-----------
88,994,481
ELECTRICAL EQUIPMENT - 2.8%
AMP, Inc. .................................... 250,000 8,593,750
Emerson Electric Company ..................... 220,000 13,268,750
General Electric Company ..................... 70,000 6,370,000
Hubbell, Inc. (Cl.B) ......................... 180,000 7,492,500
-----------
35,725,000
ELECTRONICS - DEFENSE - 1.0%
Raytheon Company (Cl.A) ...................... 9,565 551,183
Raytheon Company (Cl.B) ...................... 200,000 11,825,000
-----------
12,376,183
ELECTRONICS - DISTRIBUTION - 0.7%
W.W. Grainger, Inc. .......................... 188,800 9,404,600
ELECTRONICS - INSTRUMENTATION - 0.5%
Sawtek, Inc.* ................................ 400,000 5,900,000
ELECTRONICS - SEMICONDUCTORS - 0.4%
Intel Corporation ............................ 70,000 5,188,750
FINANCIAL - DIVERSE - 0.5%
Federal Home Loan Mortgage
Corporation ............................... 100,000 6,075,000
FOODS - 3.6%
Bestfoods, Inc. .............................. 100,000 5,806,250
Chiquita Brands International, Inc. .......... 500,000 7,031,250
ConAgra, Inc. ................................ 400,000 12,675,000
General Mills, Inc. .......................... 160,000 10,940,000
Tyson Foods, Inc. (Cl.A) ..................... 400,000 8,675,000
-----------
45,127,500
FOOTWEAR - 0.2%
Nike, Inc. (Cl.B) ............................ 50,000 2,434,375
GAMING & LOTTERY - 0.7%
Circus Circus Enterprises, Inc.* ............. 500,000 8,468,750
GOLD & PRECIOUS METALS MINING - 1.5%
Barrick Gold Corporation ..................... 600,000 11,512,500
Newmont Mining Corporation ................... 308,600 7,290,675
-----------
18,803,175
HEALTH CARE - LONG TERM CARE - 0.2%
Integrated Health Services, Inc. ............. 67,800 2,542,500
HEALTH CARE - MANAGED CARE - 1.9%
Humana, Inc.* ................................ 150,000 4,678,125
Oxford Health Plans, Inc.* ................... 500,000 7,656,250
United Healthcare Corporation ................ 190,000 12,065,000
-----------
24,399,375
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS(CONTINUED) OF SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
HOUSEHOLD FURNISHINGS & APPLIANCES - 0.9%
Sunbeam Corporation .......................... 500,000 $ 5,187,500
Whirlpool Corporation ........................ 88,000 6,050,000
-----------
11,237,500
HOUSEHOLD PRODUCTS - 0.8%
Kimberly-Clark Corporation ................... 230,000 10,551,250
INSURANCE - LIFE/HEALTH - 0.6%
Aetna, Inc. .................................. 100,000 7,612,500
INSURANCE - PROPERTY - 2.7%
Chubb Corporation ............................ 125,000 10,046,875
Safeco Corporation ........................... 250,000 11,359,375
St. Paul Companies, Inc. ..................... 310,000 13,039,375
-----------
34,445,625
LEISURE TIME PRODUCTS - 0.7%
Callaway Golf Company ........................ 450,000 8,859,375
MACHINERY - DIVERSE - 0.4%
Cincinnati Milacron, Inc. .................... 200,000 4,862,500
MANUFACTURING - DIVERSIFIED - 1.7%
AlliedSignal, Inc. ........................... 150,000 6,656,250
Tenneco, Inc. ................................ 400,000 15,225,000
-----------
21,881,250
MEDICAL PRODUCTS & SUPPLIES - 2.6%
Baxter International, Inc. ................... 300,000 16,143,750
Dentsply International, Inc. ................. 100,000 2,500,000
St. Jude Medical, Inc.* ...................... 300,000 11,043,750
Stryker Corporation .......................... 70,000 2,686,250
-----------
32,373,750
NATURAL GAS - 2.7%
Consolidated Natural Gas Company ............. 200,000 11,775,000
Equitable Resources, Inc. .................... 300,000 9,150,000
People's Energy Corporation .................. 350,000 13,518,750
-----------
34,443,750
OFFICE EQUIPMENT & SUPPLIES - 0.6%
Corporate Express, Inc.* ..................... 560,000 7,105,000
OIL - DOMESTIC - 0.6%
Unocal Corporation ........................... 200,000 7,150,000
OIL - INTERNATIONAL - 6.5%
Amoco Corporation ............................ 430,000 17,898,750
Chevron Corporation .......................... 180,000 14,951,250
Mobil Corporation ............................ 230,000 17,623,750
Royal Dutch Petroleum Company ................ 200,000 10,962,500
Texaco, Inc. ................................. 350,000 20,890,625
-----------
82,326,875
OIL & GAS DRILLING & EQUIPMENT - 1.1%
Halliburton Company .......................... 160,000 7,130,000
Schlumberger, Ltd. ........................... 100,000 6,831,250
-----------
13,961,250
- --------------------------------------------------------------------------------
</TABLE>
31 See accompanying notes.
<PAGE> 33
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
SERIES B (GROWTH-INCOME)(CONTINUED)
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS(CONTINUED) OF SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
OIL & GAS EXPLORATION & PRODUCTION - 4.0%
Burlington Resources, Inc. ................... 150,000 $ 6,459,375
Enron Oil & Gas Company ...................... 500,000 10,125,000
Forcenergy, Inc. ............................. 250,000 4,453,125
Kerr-McGee Corporation ....................... 175,000 10,128,125
MCN Energy Group, Inc. ....................... 300,000 7,462,500
Phillips Petroleum Company ................... 250,000 12,046,875
-----------
50,675,000
OIL & GAS REFINING & MARKETING - 0.8%
Ashland, Inc. ................................ 200,000 10,325,000
PAPER & FOREST PRODUCTS - 2.9%
Champion International Corporation ........... 150,000 7,378,125
International Paper Company .................. 325,000 13,975,000
Louisiana-Pacific Corporation ................ 500,000 9,125,000
Rayonier, Inc. ............................... 130,000 5,980,000
-----------
36,458,125
PHARMACEUTICALS - 1.3%
Mylan Laboratories, Inc. ..................... 100,000 3,006,250
Pharmacia & Upjohn, Inc. ..................... 100,000 4,612,500
Teva Pharmaceutical
Industries, Ltd., ADR ..................... 250,000 8,796,875
-----------
16,415,625
PHOTOGRAPHY / IMAGING - 0.9%
Eastman Kodak Company ........................ 150,000 10,959,375
PUBLISHING - 1.4%
Dow Jones & Company, Inc. .................... 200,000 11,150,000
McGraw-Hill Companies, Inc. .................. 80,000 6,525,000
-----------
17,675,000
RAILROADS - 2.3%
Burlington Northern Santa Fe
Corporation ............................... 90,000 8,836,875
Canadian Pacific, Ltd. ....................... 300,000 8,512,500
Norfolk Southern Corporation ................. 100,000 2,981,250
Union Pacific Corporation .................... 200,000 8,825,000
-----------
29,155,625
REAL ESTATE INVESTMENT TRUSTS - 3.4%
Camden Property Trust ........................ 200,000 5,950,000
Health And Retirement Property Trust.......... 300,000 5,643,750
Highwoods Properties, Inc. ................... 120,000 3,877,500
Hospitality Properties Trust ................. 300,000 9,637,500
Liberty Property Trust ....................... 310,000 7,924,375
Simon DeBartolo Group, Inc. .................. 137,800 4,478,500
United Dominion Realty Trust, Inc. ........... 400,000 5,550,000
-----------
43,061,625
RESTAURANTS - 2.0%
Landry's Seafood Restaurants, Inc.* .......... 375,000 6,785,156
McDonald's Corporation ....................... 135,000 9,315,000
Wendy's International, Inc. .................. 400,000 9,400,000
-----------
25,500,156
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
NUMBER MARKET
COMMON STOCKS(CONTINUED) OF SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
RETAIL - DEPARTMENT STORES - 1.0%
Dillard's Inc. ............................. 210,000 $ 8,701,875
Federated Department Stores, Inc.* ......... 70,000 3,766,875
--------------
12,468,750
RETAIL - FOOD CHAINS - 0.8%
Giant Food, Inc. (Cl.A) .................... 250,000 10,765,625
RETAIL SPECIALTY - 1.1%
Toys "R" Us, Inc.* ......................... 330,000 7,775,625
Venator Group, Inc.* ....................... 300,000 5,737,500
--------------
13,513,125
SERVICES - COMMERCIAL & CONSUMER - 0.8%
Angelica Corporation ....................... 80,000 1,680,000
Laidlaw, Inc. .............................. 650,000 7,921,875
--------------
9,601,875
SERVICES - DATA PROCESSING - 1.7%
Electronic Data Systems Corporation ........ 250,000 10,000,000
First Data Corporation ..................... 350,000 11,659,375
--------------
21,659,375
TELECOMMUNICATIONS - 5.2%
AT&T Corporation ........................... 200,000 11,425,000
ALLTEL Corporation ......................... 300,000 13,950,000
Bell Atlantic Corporation .................. 360,000 16,425,000
GTE Corporation ............................ 100,000 5,562,500
SBC Communications, Inc. ................... 470,000 18,800,000
--------------
66,162,500
TOBACCO - 1.9%
Philip Morris Corporation .................. 400,000 15,750,000
UST, Inc. .................................. 300,000 8,100,000
--------------
23,850,000
TRUCKING - 0.4%
Werner Enterprises, Inc. ................... 275,000 5,242,188
WASTE MANAGEMENT - 0.8%
Browning-Ferris Industries ................. 300,000 10,425,000
--------------
Total common stocks - 88.1% ................................ 1,114,813,783
--------------
COMMERCIAL PAPER
COMPUTER SYSTEMS - 0.1%
International Business Machines
Corporation, 5.525% - 7-13-98 ........... $ 1,300,000 1,298,407
ELECTRIC UTILITIES - 0.0%
Florida Power Corporation,
5.515% - 7-9-98 ......................... $ 300,000 299,447
--------------
Total commercial paper - 0.1% .............................. 1,597,854
--------------
Total investments - 90.2% .................................. 1,142,787,200
Cash and other assets,
less liabilities - 9.8% ................................. 124,030,958
--------------
Total net assets - 100.0% .................................. $1,266,818,158
==============
- --------------------------------------------------------------------------------
</TABLE>
32 See accompanying notes.
<PAGE> 34
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
SERIES C (MONEY MARKET)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
COMMERCIAL PAPER AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
AEROSPACE/DEFENSE - 0.6%
Rockwell International Corporation,
5.50% - 7-31-98 ........................... $ 1,100,000 $ 1,094,958
BROKERAGE - 5.7%
Bear Stearns, Inc.,
5.50% - 9-10-98 ........................... 3,700,000 3,659,633
Merrill Lynch & Company, Inc., 7,000,000
5.51% - 9-30-98 ........................... 986,140
5.51% - 10-30-98 .......................... 2,954,736
5.52% - 10-30-98 .......................... 1,266,316
5.52% - 11-20-98 .......................... 1,663,382
-----------
10,530,207
BUSINESS SERVICES - 4.7%
General Electric Capital Corporation, 8,732,000
5.53% - 7-7-98 ............................ 532,509
5.53% - 7-22-98 ........................... 697,711
5.54% - 7-30-98 ........................... 2,289,735
5.50% - 8-18-98 ........................... 3,830,675
5.50% - 9-2-98 ............................ 336,726
5.51% - 9-18-98 ........................... 987,970
-----------
8,675,326
COMPUTER SYSTEMS - 4.7%
International Business Machines
Corporation, 8,741,000
5.49% - 7-13-98 ........................... 7,186,824
5.50% - 7-21-98 ........................... 1,536,291
-----------
8,723,115
ELECTRIC UTILITIES - 18.9%
Carolina Power & Light Company, 7,250,000
5.51% - 7-6-98 ............................ 1,998,420
5.49% - 7-24-98 ........................... 5,231,100
Duke Energy Corporation,
5.50% - 7-30-98 ........................... 1,300,000 1,294,240
Florida Power Corporation, 9,260,000
5.50% - 7-9-98 ............................ 6,651,860
5.50% - 7-17-98 ........................... 1,197,066
5.52% - 8-11-98 ........................... 1,391,199
Georgia Power Company,
5.52% - 7-20-98 ........................... 4,000,000 3,988,347
Idaho Power Company,
5.51% - 7-2-98 ............................ 1,085,000 1,084,834
New England Power Company, 3,680,000
5.53% - 7-10-98 ........................... 2,196,959
5.52% - 7-17-98 ........................... 1,476,369
Progress Capital Holdings, Inc., 8,509,000
5.52% - 7-7-98 ............................ 3,505,772
5.52% - 7-16-98 ........................... 1,795,849
5.54% - 7-16-98 ........................... 3,192,624
-----------
35,004,639
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
COMMERCIAL PAPER (CONTINUED) AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
ELECTRONICS - 6.0%
Avent, Inc., $7,645,000
5.50% - 7-8-98 .......................... $ 251,271
5.54% - 7-8-98 .......................... 393,013
5.53% - 7-23-98 ......................... 996,621
5.52% - 8-14-98 ......................... 4,767,263
5.53% - 8-21-98 ......................... 1,190,592
Emerson Electric Company,
5.50% - 7-29-98 ......................... 3,500,000 3,485,028
----------
11,083,788
HARDWARE & TOOLS - 9.5%
Sherwin-Williams Company (PP), 9,050,000
5.51% - 7-2-98 .......................... 349,946
5.51% - 7-6-98 .......................... 5,095,971
5.50% - 8-14-98 ......................... 3,575,448
Stanley Works, 8,505,000
5.50% - 7-7-98 .......................... 2,997,150
5.50% - 7-28-98 ......................... 2,688,687
5.51% - 8-13-98 ......................... 2,289,626
5.50% - 8-20-98 ......................... 495,390
----------
17,492,218
MANUFACTURING - 2.7%
Eaton Corporation (PP),
5.51% - 7-8-98 .......................... 4,900,000 4,894,561
METALS & MINERALS - 3.3%
Aluminum Company of America,
5.52% - 8-26-98 ......................... 6,200,000 6,146,618
NATURAL GAS - 4.1%
Laclede Gas Company,
5.55% - 7-22-98 ......................... 1,000,000 996,763
Questar Corporation, 6,600,000
5.55% - 7-14-98 ......................... 4,989,979
5.60% - 7-21-98 ......................... 1,595,022
----------
7,581,764
NUCLEAR - 4.7%
Bayshore Fuel Company, 8,670,000
5.50% - 7-17-98 ......................... 3,001,645
5.54% - 7-21-98 ......................... 2,084,564
5.52% - 8-12-98 ......................... 1,291,537
5.51% - 8-27-98 ......................... 2,250,115
----------
8,627,861
PETROLEUM - 0.5%
Atlantic Richfield Company,
5.53% - 8-7-98 .......................... 950,000 944,601
PHOTOGRAPH/IMAGING - 5.3%
Eastman Kodak Company, 9,750,000
5.50% - 7-30-98 ......................... 3,832,752
5.50% - 8-3-98 .......................... 3,084,221
5.51% - 8-3-98 .......................... 1,392,929
5.50% - 8-20-98 ......................... 1,389,304
----------
9,699,206
- --------------------------------------------------------------------------------
33 See accompanying notes.
</TABLE>
<PAGE> 35
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
SERIES C (MONEY MARKET) (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
COMMERCIAL PAPER (CONTINUED) AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
RECREATION - 2.1%
Carnival Corporation,
5.53% - 7-27-98 ........................... $ 3,850,000 $ 3,834,624
RETAIL - GROCERY - 5.1%
Winn-Dixie Stores, Inc., 9,482,000
5.52% - 7-14-98 ........................... 798,360
5.50% - 7-28-98 ........................... 4,572,321
5.51% - 7-28-98 ........................... 936,500
5.50% - 8-11-98 ........................... 3,129,966
------------
9,437,147
TELECOMMUNICATIONS - 2.2%
Bell Atlantic Network Funding
Corporation, 5.52% - 7-10-98 .............. 4,000,000 3,994,480
TOYS & SPORTING GOODS - 3.7%
Toys "R" Us, Inc., 6,800,000
5.50% - 7-2-98 ............................ 3,999,389
5.50% - 8-4-98 ............................ 2,785,244
------------
6,784,633
------------
Total commercial paper - 83.8% ............ 154,549,746
U.S. GOVERNMENT & AGENCIES
FEDERAL HOME LOAN MORTGAGES - 6.0%
Federal Home Loan Bank, 11,000,000
5.53% - 2-26-99 ........................... 2,999,610
5.625% - 3-12-99 .......................... 1,999,180
5.70% - 4-15-99 ........................... 3,001,290
5.76% - 5-6-99 ............................ 2,996,520
------------
10,996,600
FEDERAL FARM CREDIT BANKS - 1.6%
Federal Farm Credit Bank,
5.50% -9-1-98 ............................. 3,000,000 2,999,550
SMALL BUSINESS ASSOCIATION POOLS - 8.6%
#502406, 6.25% - 2006(2) .................. 394,584 394,584
#502163, 6.50% - 2012(2) .................. 770,073 770,073
#502353, 6.25% - 2018(2) .................. 99,172 99,172
#503176, 6.125% - 2020(2) ................. 682,825 686,239
#503459, 6.00% - 2021(2) .................. 1,818,162 1,811,343
#503283, 6.00% - 2021(2) .................. 1,817,410 1,809,744
#503295, 6.00% - 2021(2) .................. 1,255,025 1,261,300
#503303, 6.00% - 2021(2) .................. 1,370,337 1,377,188
#503308, 6.00% - 2021(3) .................. 1,196,702 1,196,702
#503343, 6.125% - 2021(2) ................. 1,612,451 1,612,451
#503347, 6.125% - 2021(2) ................. 4,856,306 4,856,306
------------
15,875,102
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Total U.S. government & agencies - 16.2% ......................... $ 29,871,252
-------------
Total investments - 100.0% ....................................... 184,420,998
Liabilities, less cash and other assets - 0.00%................... (49,425)
-------------
Total net assets - 100.0% ........................................ $ 184,371,573
=============
SERIES D (WORLDWIDE EQUITY)
COMMON STOCKS
AUSTRALIa - 1.0%
Foster's Brewing Group, Ltd. .......................... 1,336,000 $ 3,143,795
AUSTRIA - 3.1%
Boehler - Uddeholm AG ................................. 53,060 3,505,575
Wienerberger Baustoffindustrie AG ..................... 26,900 6,507,342
-------------
10,012,917
CANADA - 4.9%
Hudson's Bay Company .................................. 96,500 2,211,463
Imax Corporation ADR* ................................. 268,300 6,120,594
Lowen Group, Inc., The ................................ 92,500 2,497,500
Yogen Fruz World-Wide, Inc.* .......................... 599,250 5,338,287
-------------
16,167,844
FRANCE - 8.5%
Alcatel Alsthom ....................................... 16,940 3,449,064
AXA-UAP ............................................... 23,200 2,609,316
Banque Nationale De Paris ............................. 31,000 2,532,902
Bouygues Offshore S.A ................................. 58,500 2,515,701
Elf Aquitaine S.A. ADR ................................ 68,100 4,835,100
GrandVision S.A ....................................... 80,800 2,686,193
Sidel S.A ............................................. 53,160 3,868,721
Vivendi ............................................... 24,690 5,272,020
-------------
27,769,017
GERMANY - 4.1%
Allianz AG ............................................ 7,020 2,314,029
Deutsche Bank AG ...................................... 19,900 1,685,129
Hoechst AG ............................................ 58,600 2,925,076
Rhoen-Klinikum AG ..................................... 43,930 4,259,062
VEBA AG ............................................... 32,300 2,201,011
-------------
13,384,307
GREECE - 3.3%
Alpha Credit Bank ..................................... 25,700 2,083,247
Athens Medical Care S.A ............................... 77,600 1,527,619
Commercial Bank of Greece S.A ......................... 40,300 2,989,257
Hellenic Telecommunications
Organization S.A ................................... 117,755 3,018,565
Michaniki S.A ......................................... 210,690 1,107,874
-------------
10,726,562
- ----------------------------------------------------------------------------------------
</TABLE>
34 See accompanying notes.
<PAGE> 36
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
SERIES D (WORLDWIDE EQUITY)(CONTINUED)
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
HONG KONG - 0.3%
JCG Holdings, Ltd. ....................... 3,552,000 $ 985,575
IRELAND - 3.3%
Allied Irish Banks PLC ................... 204,500 2,952,270
Elan Corporation PLC ADR ................. 88,700 5,704,519
Ryanair Holdings PLC ..................... 297,610 2,075,582
-----------
10,732,371
ISRAEL - 0.8%
Bank Hapoalim Ltd.* ...................... 905,000 2,736,566
ITALY - 1.6%
Fiat Spa* ................................ 823,000 2,048,761
Telecom Italia Spa ....................... 434,900 3,201,410
-----------
5,250,171
JAPAN - 5.1%
Amway Japan, Ltd. ........................ 99,100 1,049,660
Asahi Diamond Industry
Company, Ltd. ......................... 269,000 1,211,406
Benesse Corporation ...................... 20,500 716,396
Bunka Shutter Company, Ltd. .............. 378,000 1,048,600
Doutor Coffee Company, Ltd. .............. 68,000 1,734,481
Mos Food Service, Inc. ................... 169,000 2,009,223
National House Industrial
Company, Ltd. ......................... 401,000 3,071,391
Paris Miki, Inc. ......................... 39,600 519,592
Sakura Bank, Ltd., The ................... 509,000 1,320,316
Snow Brand Milk Products
Company, Ltd. ......................... 569,000 1,721,944
Tiemco, Ltd. ............................. 27,900 261,339
York-Benimaru Company, Ltd. .............. 102,600 1,929,502
-----------
16,593,850
LUXEMBOURG - 0.7%
Espirito Santo Financial Group ADR ....... 98,500 2,400,938
NORWAY - 2.3%
Saga Petroleum ASA "A" ................... 292,200 4,493,312
Storebrand ASA* .......................... 357,700 3,169,802
-----------
7,663,114
PHILIPPINES - 0.2%
C&P Homes, Inc. .......................... 11,450,150 576,625
SINGAPORE - 0.7%
Cerebos Pacific, Ltd. .................... 582,000 757,866
Keppek Fels, Ltd. ........................ 398,000 1,189,655
Mandarin Oriental International, Ltd. .... 776,000 442,320
-----------
2,389,841
SWEDEN - 3.7%
Castellum AB* ............................ 437,200 5,153,238
Skandinaviska Enskilda Banken ............ 116,500 1,994,026
Swedish Match AB ......................... 1,472,308 4,892,341
-----------
12,039,605
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS(CONTINUED) OF SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
SWITZERLAND - 5.6%
Nestle S.A .................................. 1,842 $ 3,941,909
Novartis AG ................................. 3,500 5,824,060
Roche Holdings AB ........................... 265 2,602,285
Saurer AG ................................... 2,525 2,580,248
Schweizerische Lebensversicherungs-
und Rentenstalt .......................... 3,830 3,242,143
-----------
18,190,645
UNITED KINGDOM - 15.5%
Aegis Group PLC ............................. 2,763,000 4,448,714
British Steel PLC ........................... 637,000 1,408,256
Cadbury Schweppes PLC ....................... 211,300 3,271,702
Capita Group PLC ............................ 355,500 3,057,698
D.F.S. Furniture Company PLC ................ 426,200 1,404,452
George Wimpey PLC ........................... 1,502,100 2,919,786
Glaxo Wellcome PLC .......................... 95,300 2,868,505
Harvey Nichols PLC .......................... 196,200 770,932
J.D. Wetherspoon PLC ........................ 139,500 670,337
Oriflame International S.A .................. 105,000 779,607
PizzaExpress PLC ............................ 106,400 1,521,418
Polypipe PLC ................................ 945,000 2,325,681
Provident Financial PLC ..................... 277,798 4,391,719
Regent Inns PLC ............................. 517,600 1,666,778
Rio Tinto PLC ............................... 430,100 4,847,536
Royal Bank of Scotland Group PLC ............ 148,000 2,565,686
SmithKline Beecham PLC ...................... 429,900 5,232,618
Tomkins PLC ................................. 568,000 3,099,005
Vodafone Group PLC .......................... 275,200 3,494,293
-----------
50,744,723
UNITED STATES - 24.6%
Ace Ltd. .................................... 51,000 1,989,000
B.J. Services Company* ...................... 41,600 1,209,000
BMC Software, Inc.* ......................... 29,900 1,552,931
Bristol-Myers Squibb Company ................ 16,800 1,930,950
Cardinal Health, Inc. ....................... 24,900 2,334,375
Caribiner International, Inc.* .............. 52,400 917,000
Comcast Corporation ......................... 55,500 2,252,953
Computer Associates International, Inc. ..... 25,600 1,422,400
Costco Companies, Inc.* ..................... 22,200 1,399,988
Cymer, Inc.* ................................ 81,900 1,320,637
Ecolab, Inc. ................................ 58,300 1,807,300
EMC Corporation* ............................ 52,000 2,330,250
Emerson Electric Company .................... 17,800 1,073,563
EXEL, Ltd. .................................. 17,000 1,322,812
Exxon Corporation ........................... 27,000 1,925,438
Federal National Mortgage
Association .............................. 29,900 1,816,425
Federal-Mogul Corporation ................... 20,800 1,404,000
Fort James Corporation ...................... 30,800 1,370,600
Gannett Company, Inc. ....................... 21,800 1,549,162
Gap, Inc. ................................... 28,300 1,743,988
- --------------------------------------------------------------------------------
</TABLE>
35 See accompanying notes.
<PAGE> 37
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
SERIES D (WORLDWIDE EQUITY)(CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
UNITED STATES (CONTINUED)
Global Industries, Ltd.* ........................ 74,600 $ 1,258,875
HBO & Company ................................... 36,900 1,300,725
Home Depot, Inc. ................................ 20,800 1,727,700
Ingersoll-Rand Company .......................... 8,100 356,906
Lucent Technologies, Inc. ....................... 14,400 1,197,900
Marsh and McLennan Companies, Inc. .............. 33,750 2,039,766
Martin Marietta Materials, Inc. ................. 29,100 1,309,500
Medtronic, Inc. ................................. 24,600 1,568,250
Merrill Lynch & Company, Inc. ................... 14,700 1,356,075
NAC Re Corporation .............................. 32,400 1,729,350
NationsBank Corporation ......................... 25,100 1,920,150
Network Associates, Inc.* ....................... 27,900 1,335,712
PepsiCo, Inc. ................................... 32,000 1,318,000
Pfizer, Inc. .................................... 11,200 1,217,300
Philip Morris Companies, Inc. ................... 32,000 1,260,000
Pitney-Bowes, Inc. .............................. 29,400 1,414,875
Procter & Gamble Company, The ................... 17,200 1,566,275
Republic Services, Inc. ......................... 35,500 852,000
Rubbermaid, Inc. ................................ 41,000 1,360,688
Safeway, Inc.* .................................. 40,800 1,660,050
Sara Lee Corporation ............................ 24,000 1,342,500
Sungard Data Systems, Inc.* ..................... 43,600 1,673,150
Teva Pharmaceutical Industries, Ltd. ............ 133,300 4,690,494
Texaco, Inc. .................................... 19,400 1,157,937
TJX Companies, Inc. ............................. 55,600 1,341,350
Tyco International, Ltd. ........................ 49,500 3,118,500
Unilever NV ..................................... 20,900 1,649,794
Union Planters Corporation ...................... 21,800 1,282,112
Walt Disney Company, The ........................ 15,400 1,617,963
Williams Companies, Inc., The ................... 66,300 2,237,625
------------
80,534,294
------------
Total common stocks - 89.3% .................................. 292,042,760
PREFERRED STOCKS
GERMANY - 1.6%
Fielman AG ...................................... 78,500 2,722,442
Sto Ag Vorzug ................................... 6,990 2,617,813
------------
Total preferred stocks - 1.6% ................................ 5,340,255
U.S. GOVERNMENT SECURITIES
U.S. Treasury Strip, 0.00% - 2023 ............... $ 25,820,000 6,378,315
U.S. Treasury Strip, 0.00% - 2023 ............... $ 70,000,000 17,048,500
------------
Total U.S. governments - 7.2% ................................ 23,426,815
------------
Total investments - 98.1% .................................... 320,809,830
Cash and other assets, less liabilities - 1.9% ............... 6,077,976
------------
Total net assets - 100.0% .................................... $326,887,806
============
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
At June 30, 1998, Series D's investment concentration by industry was as
follows:
<S> <C>
Banking.......................................... 8.4%
Building Materials............................... 9.2%
Chemicals........................................ 1.1%
Computer Software/Services....................... 3.5%
Electric Equipment............................... 1.8%
Entertainment.................................... 4.8%
Financial Services............................... 2.6%
Foods/Beverages.................................. 10.8%
Government....................................... 7.3%
Health Care/Drugs................................ 12.0%
Household Products............................... 2.9%
Machinery........................................ 2.1%
Manufacturing.................................... 4.9%
Oil & Gas........................................ 6.6%
Retail........................................... 9.4%
Telecommunications............................... 4.1%
Transportation................................... 1.3%
Utilities........................................ 5.3%
Cash, short-term instruments and other assets,
less liabilities........................... 1.9%
------
Total net assets................................. 100.0%
======
</TABLE>
SERIES E (HIGH GRADE INCOME)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
CORPORATE BONDS AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
AUTOMOTIVE - 2.7%
Chrysler Corporation,
7.45% - 2027 .................... $2,375,000 $2,621,406
Ford Motor Company,
7.25% - 2008 .................... $1,000,000 1,075,000
----------
3,696,406
BANKING - 3.6%
Bank of New York, Inc.,
6.50% - 2003 .................... $ 325,000 329,875
Homeside, Inc., 11.25% - 2003 ...... $1,250,000 1,481,250
PNC Funding Corporation,
7.75% - 2004 .................... $ 800,000 860,000
Washington Mutual Capital,
8.375% - 2002(1)................. $2,000,000 2,242,500
----------
4,913,625
BEVERAGE - 1.9%
Anheuser-Busch Companies, Inc.,
7.10% - 2007 .................... $2,425,000 2,543,219
- --------------------------------------------------------------------------------
</TABLE>
36 See accompanying notes.
<PAGE> 38
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
SERIES E(HIGH GRADE INCOME)(CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
NUMBER MARKET
CORPORATE BONDS(CONTINUED) OF SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
BROKERAGE - 7.3%
Lehman Brothers, Inc., 7.25% - 2003 .......... $ 2,000,000 $ 2,077,500
Merrill Lynch Company, Inc.,
7.375% - 2006 ............................. $ 2,500,000 2,668,750
Morgan Stanley Group, Inc.,
7.25% - 2004 .............................. $ 2,500,000 2,550,000
SI Financing, Inc., 9.50% - 2026(1)........... 102,610 2,764,057
-----------
10,060,307
CAPITAL GOODS - BUILDING MACHINERY - 0.7%
AGCO Corporation, 8.5% - 2006 ................ $ 500,000 514,375
Columbus McKinnon Corporation,
8.5% - 2008 ............................... $ 500,000 492,500
-----------
1,006,875
CAPITAL GOODS - BUILDING MATERIALS - 0.7%
International Comfort Products,
8.625% - 2008 ............................. $ 500,000 497,500
Titan Wheel International, Inc. ..............
8.75% - 2007 .............................. $ 500,000 516,250
-----------
1,013,750
CONSUMER CYCLICALS - OTHER - 0.4%
American ECO Corporation,
9.625% - 2008 ............................. $ 500,000 502,500
CONSUMER PRODUCTS - 0.4%
Chattem, Inc., 8.875% - 2008 ................. $ 500,000 497,500
ENERGY - INDEPENDENT - 0.6%
Seagull Energy Corporation,
8.625% - 2005 ............................. $ 800,000 821,000
ENERGY - INTEGRATED - 0.8%
Union Pacific Resources,
7.50% - 2026 .............................. $ 1,000,000 1,041,250
ENERGY - OIL FIELD SERVICES - 1.7%
Transocean Offshore, Inc.,
8.00% - 2027 .............................. $ 2,000,000 2,310,000
ENERGY - OTHER - 0.2%
P&L Coal Holdings Corporation,
8.875% - 2008 ............................. $ 300,000 308,625
ENTERTAINMENT - 0.7%
Paramount Communications,
7.5% - 2023 ............................... $ 1,000,000 971,250
FINANCIAL COMPANIES - 4.3%
American RE Capital, 8.5% - 2025(1)........... 46,000 1,190,250
Associates Corporation, N.A.,
7.55% - 2007 .............................. $ 1,000,000 1,081,250
CB Richard Ellis Service,
8.875% - 2006 ............................. $ 500,000 493,750
Countrywide Capital Industries, Inc.,
8.00% - 2026 .............................. $ 1,000,000 1,063,750
General Electric Capital Corporation,
8.625% - 2008 ............................. $ 1,750,000 2,073,750
-----------
5,902,750
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
CORPORATE BONDS(CONTINUED) AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
FINANCE - OTHER - 1.7%
B.F. Saul REIT, 9.75% - 2008 ............. $ 250,000 $ 246,875
EOP Operating LP, REIT,
6.625% - 2005 ......................... 2,050,000 2,057,688
----------
2,304,563
FOOD - 5.3%
Archer-Daniels-Midland Company,
8.875% - 2011 ......................... 2,000,000 2,447,500
Cargill Corporation, 6.15% - 2008 ........ 2,000,000 1,992,500
Carrols Corporation, Inc.,
11.50% - 2003 ......................... 1,750,000 1,835,313
Chiquita Brands International, Inc.,
10.25% - 2006 ......................... 500,000 542,500
Nash Finch Company, 8.50% - 2008 ......... 500,000 496,250
----------
7,314,063
GAMING - 2.7%
Boyd Gaming Corporation,
9.50% - 2007 .......................... 500,000 522,500
Empress Entertainment, 8.125% - 2006 ..... 500,000 501,250
MGM Grand, Inc., 6.95% - 2005 ............ 1,400,000 1,391,250
Mirage Resorts, Inc., 6.625% - 2007 ...... 1,250,000 1,240,625
----------
3,655,625
HEALTHCARE - 0.4%
Tenet Healthcare Corporation,
8.125% - 2008 ......................... 500,000 502,500
HOME CONSTRUCTION - 0.4%
MDC Holdings, 8.375% - 2008 .............. 250,000 250,000
Toll Corporation, 7.75% - 2008 ........... 250,000 246,250
----------
496,250
MEDIA - CABLE - 5.6%
Adelphia Communications, Inc.,
8.375% - 2008 ......................... 500,000 502,500
Century Communications
Corporation, 8.375% - 2007 ............ 125,000 128,750
Comcast Corporation, 9.125% - 2006 ....... 500,000 536,250
CSC Holdings, Inc., 7.875% - 2018 ........ 500,000 528,750
Jones Intercable, Inc., 7.625% - 2008 .... 500,000 507,500
Lenfest Communications, Inc.,
10.50% - 2006 ......................... 500,000 582,500
Rogers Cablesystems, 9.625% - 2002 ....... 675,000 720,563
Rogers Communications, Inc.,
9.125% - 2006 ......................... 665,000 673,313
Time Warner Entertainment,
10.15% - 2012 ......................... 1,790,000 2,378,463
Westinghouse Electric Company,
8.375% - 2002 ......................... 1,050,000 1,094,625
----------
7,653,214
MEDIA - NONCABLE - 1.7%
Big Flower Press Holdings, Inc.,
8.875% - 2007 ......................... 500,000 508,750
KIII Communications Corporation,
10.25% - 2004 ......................... 555,000 597,319
- --------------------------------------------------------------------------------
</TABLE>
37 See accompanying notes.
<PAGE> 39
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
SERIES E (HIGH GRADE INCOME)(CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
CORPORATE BONDS (CONTINUED) AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
MEDIA - NONCABlE (CONTINUED)
News American Holdings,
6.625% - 2003 ........................... $ 475,000 $ 517,750
Valassis Communications,
9.55% - 2003 ............................ 650,000 728,000
----------
2,351,819
METALS - 0.9%
AK Steel, 10.75% - 2004 .................... 500,000 531,250
Ameristeel Corporation, 8.75% - 2008 ....... 500,000 500,000
WHX Corporation, 8.5% - 2006 ............... 250,000 254,375
----------
1,285,625
RETAILERS - 2.2%
Lowe's Companies, Inc.,
6.70% - 2007 ............................ 1,600,000 1,648,000
Sears Roebuck & Company,
6.41% - 2001 ............................ 350,000 352,625
Specialty Retailers, Inc., 8.50% - 2005 .... 250,000 257,500
Zale's Corporation, 8.50% - 2007 ........... 750,000 766,875
----------
3,025,000
SERVICES - 0.6%
Loewen Group International, Inc.,
8.25% - 2003 ............................ 850,000 878,687
TECHNOLOGY - 0.7%
Dell Computer Corporation,
6.55% - 2008 ............................ 1,000,000 1,012,500
TELECOMMUNICATIONS - 3.6%
Centennial Cellular, 8.875% - 2001 ......... 800,000 832,000
Comcast Cellular Holdings, Inc.,
9.50% - 2007 ............................ 250,000 260,938
GTE Corporation, 6.46% - 2008 .............. 1,500,000 1,507,500
Mastec, Inc., 7.75% - 2008 ................. 250,000 238,750
New Jersey Bell, 6.625% - 2008 ............. 1,000,000 1,006,250
Southwestern Bell, 6.625% - 2007 ........... 1,000,000 1,033,750
----------
4,879,188
TEXTILES - 0.2%
Westpoint Stevens, Inc.,
7.875% - 2008 ........................... 300,000 299,250
TOBACCO - 0.7%
Dimon, Inc., 8.875% - 2006 ................. 400,000 409,500
Standard Commercial Tobacco
Corporation, 8.875% - 2005 .............. 500,000 500,000
----------
909,500
TRANSPORTATION - AIRLINES - 3.9%
Southwest Airlines Company,
7.875% - 2007 ........................... 2,475,000 2,741,063
United Airlines, 11.21% - 2014 ............. 1,825,000 2,582,375
----------
5,323,438
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
CORPORATE BONDS (CONTINUED) AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
TRANSPORTATION - RAILROADS - 2.9%
ROCS Series Burlington Northern
Santa Fe 1998-1, 6.5% - 2017 ............ $ 1,500,000 $ 1,497,641
ROCS Series NSC, 6.375% - 2017 ............. 2,466,794 2,439,613
------------
3,937,254
TRANSPORTATION - OTHER - 0.4%
Allied Holdings, Inc.,
8.625% - 2007 ........................... 500,000 511,250
UTILITIES - ELECTRIC - 0.8%
Cal Energy Company, Inc.,
9.50% -2006 ............................. 1,000,000 1,081,250
UTILITIES - NATURAL GAS - 1.3%
Tennessee Gas Pipeline,
7.50% - 2017 ............................ 1,700,000 1,844,500
YANKEE - CORPORATE - 13.5%
ABN AMRO Bank NV,
7.55% - 2006 ............................ 1,475,000 1,598,531
7.30% - 2026 ............................ 1,500,000 1,571,250
Abbey National PLC, 6.69% - 2005 ........... 2,375,000 2,431,406
Argentaria Capital Funding,
6.375% - 2026 ........................... 2,000,000 1,974,669
Bank of Austria AG, 7.25% - 2017 ........... 160,000 174,400
BCH Cayman Islands, 7.70% - 2006 ........... 2,500,000 2,675,000
Den Danske Bank, 7.40% - 2010 .............. 2,175,000 2,319,094
Panamerican Beverages, Inc.,
8.125% - 2003 ........................... 2,050,000 2,132,000
Petroleum Geo-Services,
7.50% - 2007 ............................ 2,050,000 2,180,688
Santander Financial Issuances, Ltd.,
7.00% - 2006 ............................ 1,400,000 1,454,250
------------
18,511,288
YANKEE - CANADIAN - 2.5%
Agrium, Inc., 7.00% - 2004 ................. 1,000,000 1,017,500
Quebecor Printing Capital,
7.25% - 2007 ............................ 2,350,000 2,464,563
------------
3,482,063
------------
Total corporate bonds -78.0% ............... 106,847,884
MORTGAGE BACKED SECURITIES
- --------------------------
U.S. GOVERNMENT AGENCIES - 6.2%
Federal Home Loan Mortgage Corporation,
FHR 1339 C, 8.00% - 2006 CMO ............ 1,000,000 1,048,430
FHR 112 H, 8.80% - 2020 CMO ............. 450,589 456,572
FHR 1311 J, 7.50% - 2021 CMO ............ 3,325,000 3,414,509
FHR 1930 AB, 7.50% - 2023 CMO ........... 1,765,826 1,791,536
Federal National Mortgage Association,
FNR 1994-79 B,
7.00% - 2019 CMO ........................ 1,700,000 1,727,557
------------
8,438,604
- --------------------------------------------------------------------------------
</TABLE>
38 See accompanying notes.
<PAGE> 40
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
SERIES E(HIGH GRADE INCOME)(CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
MORTGAGE BACKED NUMBER OF MARKET
SECURITIES(CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT SECURITIES - 7.9%
Government National Mortgage Association,
GNMA 39238, 9.50% - 2009 ..................... $ 292,657 $ 313,895
GNMA II 181907, 9.50% - 2020 ................. $ 232,493 248,048
GNMA 305617, 9.00% - 2021 .................... $ 228,627 243,469
GNMA 301465, 9.00% - 2021 .................... $ 189,463 201,787
GNMA 313107, 7.00% - 2022 .................... $ 1,577,030 1,606,931
GNMA 352022, 7.00% - 2023 .................... $ 1,743,418 1,770,354
GNMA 369303, 7.00% - 2023 .................... $ 1,925,175 1,954,784
GNMA II 2445, 8.00% - 2027 ................... $ 1,921,276 1,981,276
GNR 1997-10B, 7.5% - 2019 .................... $ 2,500,000 2,544,600
------------
10,865,144
NON-AGENCY SECURITIES - 1.9%
Chase Capital Mortgage Securities
Company, 1997-1B,
7.37% - 2007 CMO ............................. $ 1,500,000 1,597,968
Securitized Multiple Assets Rated Trust,
1998-1, 7.45% - 2006 ......................... $ 927,086 928,534
------------
2,526,502
------------
Total mortgage backed securities - 16.0% .................... 21,830,250
GOVERNMENT SECURITIES
- ---------------------
U.S. GOVERNMENT SECURITIES - 4.5%
U.S. Treasury Note,
5.75% - 2003 ................................. $ 1,600,000 1,614,240
U.S. Treasury Bond,
6.625% - 2027 ................................ $ 500,000 564,535
U.S. Department of Housing and
Urban Development Bond,
6.93% - 2013 ................................. $ 3,800,000 4,019,541
------------
Total government securities - 4.5% .......................... 6,198,316
------------
Total investments - 98.5% ................................... 134,876,450
Cash and other assets, less liabilities - 1.5% .............. 2,119,065
------------
Total net assets - 100.0% ................................... $136,995,515
============
SERIES J (EMERGING GROWTH)
COMMON STOCKS
- -------------
AIR FREIGHT - 1.7%
Expeditors International of
Washington, Inc. .............................. 90,000 $ 3,960,000
BANKS - MAJOR REGIONAL - 3.1%
Northern Trust Corporation ...................... 60,000 4,575,000
State Street Corporation ........................ 40,500 2,814,750
------------
7,389,750
- -------------------------------------------------------------------------------
</TABLE>
SERIES J (EMERGING GROWTH)(CONTINUED)
<TABLE>
<CAPTION>
NUMBER OF MARKET
COMMON STOCKS(CONTINUED) SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
BIOTECHNOLGY - 1.3%
Ligand Pharmaceuticals Inc. (Cl.B)* ............ 246,000 $ 3,167,250
CHEMICALS - BASIC - 1.1%
Praxair, Inc. ................................... 55,500 2,598,094
CHEMICALS - DIVERSIFIED - 0.6%
Engelhard Corporation ........................... 75,000 1,518,750
CHEMICALS - SPECIALTY - 2.5%
Bush Boake Allen, Inc.* ......................... 81,000 2,374,312
M.A. Hanna Company .............................. 53,100 972,394
Sigma-Aldrich Corporation ....................... 71,000 2,493,875
-----------
5,840,581
COMMUNICATION EQUIPMENT - 6.0%
Comverse Technology, Inc.* ...................... 245,000 12,709,375
Transcrypt International, Inc.* ................. 419,700 1,414,389
-----------
14,123,764
COMPUTER HARDWARE - 1.4%
CHS Electronics, Inc.* .......................... 184,000 3,289,000
COMPUTER SOFTWARE/SERVICES -13.0%
America OnLine,Inc.* ............................ 60,600 6,423,600
American Management
Systems, Inc.* ............................... 230,000 6,885,625
Computer Sciences Corporation ................... 58,000 3,712,000
Electronic Processing, Inc.* .................... 90,000 1,080,000
Electronics For Imaging, Inc.* .................. 95,000 2,006,875
Network Associates, Inc.* ....................... 91,500 4,380,563
Rational Software Corporation* .................. 420,000 6,405,000
-----------
30,893,663
CONTAINERS & PACKAGING - 2.8%
Bemis Company, Inc. ............................. 60,400 2,468,850
Crown Cork & Seal Company, Inc. ................. 87,500 4,156,250
-----------
6,625,100
ELECTRICAL EQUIPMENT - 2.5%
Honeywell, Inc. ................................ 32,000 2,674,000
Maxwell Technologies, Inc.* .................... 135,900 3,159,675
-----------
................................................ 5,833,675
ELECTRONICS - INSTRUMENTATION - 3.1%
EG & G, Inc. ................................... 120,000 3,600,000
The Perkin-Elmer Corporation ................... 36,000 2,238,750
Sawtek, Inc.* .................................. 110,000 1,622,500
-----------
................................................ 7,461,250
ENTERTAINMENT - 1.1%
Metromedia International Group, Inc.* .......... 220,000 2,626,250
FOODS - 4.6%
Chiquita Brands International, Inc. ............ 350,000 4,921,875
Dean Foods Company ............................. 80,000 4,395,000
Dole Food Company, Inc. ........................ 33,200 1,649,625
-----------
10,966,500
- -------------------------------------------------------------------------------
</TABLE>
39 See accompanying notes.
<PAGE> 41
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
SERIES J(EMERGING GROWTH)(CONTINUED)
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS(CONTINUED) OF SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
GAMING & LOTTERY - 0.9%
Circus Circus Enterprises, Inc.* ............. 125,400 $ 2,123,962
HEALTH CARE - LONG TERM CARE - 2.5%
Integrated Health Services, Inc. ............. 159,000 5,962,500
HEALTH CARE - SPECIALIZED SERVICES - 0.9%
Quintiles Transnational Corporation* ......... 43,800 2,154,413
HOUSEHOLD FURNISHINGS & APPLIANCES - 1.1%
Leggett & Platt, Inc. ........................ 102,600 2,565,000
HOUSEHOLD PRODUCTS - 0.6%
Dial Corporation ............................. 50,000 1,296,875
INSURANCE - LIFE/HEALTH - 2.7%
AFLAC, Inc. .................................. 210,000 6,365,625
INVESTMENT BANK/BROKERAGE - 1.6%
Franklin Resources, Inc. ..................... 70,000 3,780,000
LEISURE TIME PRODUCTS - 1.7%
Hasbro, Inc. ................................. 104,000 4,088,500
MANUFACTURING - SPECIALIZED - 1.5%
Ionics, Inc.* ................................ 56,000 2,065,000
Sealed Air Corporation* ...................... 39,700 1,458,975
-----------
3,523,975
MEDICAL PRODUCTS & SUPPLIES - 5.3%
ATL Ultrasound, Inc.* ........................ 81,000 3,695,625
Dentsply International, Inc. ................. 77,000 1,925,000
Depuy, Inc. .................................. 123,000 3,474,750
Sonosight, Inc.* ............................. 27,000 197,438
Stryker Corporation .......................... 58,000 2,225,750
Sunrise Medical, Inc.* ....................... 75,000 1,125,000
-----------
12,643,563
OFFICE EQUIPMENT & SUPPLIES - 2.0%
Corporate Express, Inc.* ..................... 380,000 4,821,250
OIL - INTERNATIONAL - 1.4%
Tesoro Petroleum Corporation* ................ 206,000 3,270,250
OIL & GAS EXPLORATION & PRODUCTION - 3.6%
Apache Corporation ........................... 135,000 4,252,500
Forcenergy, Inc.* ............................ 107,800 1,920,188
MCN Energy Group, Inc. ....................... 93,000 2,313,375
-----------
8,486,063
PHARMACEUTICALS - 8.7%
Dura Pharmaceuticals, Inc.* .................. 95,400 2,134,575
Mylan Laboratories, Inc. ..................... 450,000 13,528,125
R.P. Scherer Corporation* .................... 26,000 2,304,250
Teva Pharmaceutical
Industries, Ltd. ADR ...................... 75,000 2,639,062
-----------
20,606,012
PUBLISHING - NEWSPAPER - 2.1%
E.W. Scripps Company (Cl.A) .................. 91,000 4,987,937
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
NUMBER MARKET
COMMON STOCKS(CONTINUED) OF SHARES VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C>
RESTAURANTS - 1.0%
The Cheesecake Factory* .............................. 106,500 $ 2,409,563
RETAIL - APPAREL - 0.7%
Stage Stores, Inc.* .................................. 34,000 1,538,500
RETAIL - DEPARTMENT STORES - 1.1%
Family Dollar Stores, Inc. ........................... 62,000 1,147,000
Saks Holdings, Inc.* ................................. 55,000 1,519,375
------------
2,666,375
RETAIL - FOOD CHAINS - 0.5%
American Stores Company .............................. 49,000 1,185,188
RETAIL - GENERAL MERCHANDISE - 3.2%
Consolidated Stores Corporation* ..................... 95,000 3,443,750
Dollar Tree Stores, Inc.* ............................ 101,250 4,113,281
------------
7,557,031
RETAIL - SPECIALTY - 1.4%
Keystone Automotive Industries, Inc.* ................ 20,000 462,500
Payless ShoeSource, Inc.* ............................ 39,000 2,873,812
------------
3,336,312
SERVICES - ADVERTISING/MARKETING - 3.3%
Acxiom Corporation* .................................. 145,000 3,615,937
Omnicom Group, Inc. .................................. 85,000 4,239,375
------------
7,855,312
SERVICES - COMMERCIAL & CONSUMER - 1.5%
Angelica Corporation ................................. 51,500 1,081,500
Pinkerton's, Inc.* ................................... 116,000 2,407,000
------------
3,488,500
SERVICES - COMPUTER SYSTEMS - 0.7%
Sungard Data Systems, Inc.* .......................... 45,000 1,726,875
SERVICES - DATA PROCESSING - 1.5%
Paychex, Inc. ........................................ 84,150 3,423,853
------------
Total common stocks - 96.3% ...................................... 228,157,061
Cash and other assets, less liabilities - 3.7% ................... 8,748,928
------------
Total net assets - 100.0% ........................................ $236,905,989
============
SERIES K (GLOBAL AGGRESSIVE BOND)
GOVERNMENT OBLIGATIONS
- ----------------------
ARGENTINA - 5.0%
Republic of Argentina,
5.50% - 2023(5) .................................... $ 1,000,000 $ 743,750
BRAZIL - 2.9%
Government of Brazil C,
4.50% - 2014(6) .................................... $ 580,105 426,739
- ------------------------------------------------------------------------------------
</TABLE>
40 See accompanying notes.
<PAGE> 42
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
SERIES K(GLOBAL AGGRESSIVE BOND)(CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
GOVERNMENT NUMBER MARKET
OBLIGATIONS(CONTINUED) OF SHARES VALUE
- -----------------------------------------------------------------------------------
<S> <C> <C>
COSTA RICA - 2.7%
Banco Costa Rica, 6.25% - 2010 ................. $ 459,015 $ 401,638
DOMINICAN REPUBLIC - 4.4%
Central Bank of Dominican Republic,
6.875% - 2024(7) ............................ $ 850,000 654,500
ECUADOR - 2.3%
Republic of Ecuador,
6.6875% - 2025(7) ........................... $ 500,000 344,185
GREECE - 6.9%
Hellenic Republic,
11.00% - 2003(4)............................. 310,000,000 1,030,413
HUNGARY - 5.5%
Government of Hungary,
23.00% - 1999(4) ............................ 130,000,000 621,716
Government of Hungary,
21.00% - 1999(4) ............................ 40,000,000 192,431
------------
................................................ 814,147
MEXICO - 2.8%
United Mexican States,
6.25% - 2019 ................................ $ 500,000 413,750
PHILIPPINES - 3.4%
Central Bank Philippines,
6.00% - 2008 ................................ $ 600,000 504,537
POLAND - 6.4%
Government of Poland,
12.00% - 2003(4)............................. 2,000,000 491,823
Government of Poland,
16.00% - 1998(4) ............................ 1,675,000 471,082
------------
................................................ 962,905
SOUTH AFRICA - 4.8%
Electricity Supply Commission,
11.00% - 2008(4)............................. 2,600,000 343,190
Republic of South Africa,
12.00% - 2005(4)............................. 2,500,000 369,957
------------
................................................ 713,147
------------
Total government obligations - 47.1% ........ 7,009,711
CORPORATE BONDS
- ---------------
ARGENTINA - 1.6%
CIA Radiocomunic Moviles,
9.25% - 2008 ................................ $ 250,000 238,276
CANADA - 6.2%
CHC Helicopter, 11.50% - 2002 .................. $ 500,000 535,000
Roger's Communication, Inc.,
10.50% - 2006(4)............................. 500,000 380,482
------------
915,482
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
CORPORATE NUMBER MARKET
BONDS(CONTINUED) OF SHARES VALUE
- ------------------------------------------------------------------------------------
<S> <C> <C>
CZECH REPUBLIC - 2.6%
CEZ, a.s., 11.30% - 2005(4) ..................... 13,000,000 $ 383,799
DENMARK - 11.5%
Nykredit, 7.00% - 2026(4)........................ 3,364,000 500,417
Realkredit Danmark, 7.00% - 2026(4).............. 3,367,000 501,842
Unikredit Realkredit, 7.00% - 2026(4)............ 4,813,000 716,664
------------
1,718,923
MEXICO - 2.0%
Cemex SA, 12.75% - 2006 ......................... $ 250,000 294,377
UNITED STATES - 20.7%
Archibald Candy Corporation,
10.25% - 2004(4).............................. 500,000 531,250
BA Mortgage Securities 1997-2 B4,
7.25% - 2027 ................................. $ 496,747 363,712
Chiquita Brands International, Inc.,
10.25% - 2006 ................................ $ 250,000 271,250
Citicorp Mortgage Securities, Inc.,
7.25% - 2027 ................................. $ 406,488 300,928
Clark Materials Handling,
10.75% - 2006 ................................ $ 500,000 540,000
Countrywide Home Loans,
7.50% - 2027 ................................. $ 627,690 589,481
PNC Mortgage Securities
Corporation, 6.625% - 2028 ................... $ 415,276 295,624
Residential Asset Securization Trust,
7.50% - 2011 ................................. $ 225,830 184,123
------------
3,076,368
------------
Total corporate bonds - 44.6% ................ 6,627,225
SHORT-TERM INVESTMENTS
- ----------------------
TURKEY - 2.2%
Government of Turkey Treasury
Bill, 0% - 9-2-98(4).......................... 100,000,000,000 331,604
UNITED STATES - 4.0%
U.S. Treasury Bill,
0% - 11-12-98 ................................ $ 400,000 392,492
U.S. Treasury Bill,
0% - 11-27-98 ................................ $ 200,000 195,844
------------
588,336
------------
Total short-term investments - 6.2% .............................. 919,940
------------
Total investments - 97.9% ........................................ 14,556,876
Cash and other assets, less liabilities - 2.1% ................... 319,535
------------
Total net assets - 100.0% ........................................ $ 14,876,411
============
- -------------------------------------------------------------------------------------
</TABLE>
41 See accompanying notes.
<PAGE> 43
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
SERIES M)(SPECIALIZED ASSET ALLOCATION)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
CORPORATE BONDS AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
BANKING - 5.7%
Abbey National Place, 6.69% - 2005 ..... $ 175,000 $ 179,156
ABN Amro Bank, 7.55% - 2006 ............ 100,000 108,375
Citicorp, 7.125% - 2003 ................ 1,000,000 1,041,250
Bank of New York, Inc.,
6.50% - 2003 ........................ 185,000 187,775
Star Bank Cincinnati,
6.375% - 2004 ....................... 1,000,000 1,013,750
Washington Mutual Capital,
8.375% - 2027(1)..................... 175,000 196,219
----------
2,726,525
BROKERAGE - 1.0%
Merrill Lynch & Company, Inc.,
8.00% - 2007 ........................ 225,000 250,594
SI Financing, 9.50% - 2026(1)........... 7,420 199,876
----------
450,470
CONSUMER CYCLICAL - 2.0%
Lowe's Companies, Inc.,
6.70% - 2007 ........................ 125,000 128,750
MGM Grand, Inc., 6.95% - 2005 .......... 100,000 99,375
Mirage Resorts, Inc., 6.625% - 2005 .... 100,000 99,250
News American Holdings,
8.625% - 2003 ....................... 200,000 218,000
Rite Aid Corporation, 6.70% - 2001 ..... 400,000 408,000
----------
953,375
CONSUMER NONCYCLICAL - 0.7%
Archer-Daniels-Midland Company,
8.875% - 2011 ....................... 175,000 214,156
Cargill, Inc., 6.15% - 2008 ............ 100,000 99,625
----------
313,781
ENERGY - 0.2%
Occidental Petroleum Corporation,
6.24% - 2000 ........................ 110,000 110,413
INSURANCE - 0.4%
Hartford Life, Inc., 7.10% - 2007 ...... 200,000 208,250
NATURAL GAS - 0.3%
MCN Investment Corporation,
6.32% - 2003 ........................ 125,000 124,844
REAL ESTATE INVESTMENT TRUST - 0.3%
EOP Operating LP, 6.625% - 2005 ........ 150,000 150,562
TECHNOLOGY - 0.3%
Dell Computer Corporation,
6.55% - 2008 ........................ 150,000 151,875
TELECOMMUNICATIONS - 0.8%
GTE Corporation, 6.46% - 2008 .......... 200,000 201,000
SBC Communications Capital
Corporation, 6.625% - 2007 .......... 175,000 180,906
----------
381,906
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
NUMBER MARKET
CORPORATE BONDS(CONTINUED) OF SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
TRANSPORTATION - 3.5%
Airborn Freight Corporation,
7.35% - 2005 ........................ $ 500,000 $ 519,375
Hertz Corporation, 7.00% - 2004 ........ 1,100,000 1,137,125
----------
1,656,500
----------
Total corporate bonds - 15.2% ................... 7,228,501
COMMON STOCKS
- -------------
ALUMINUM - 1.1%
Alcan Aluminum, Ltd. ................... 4,300 118,787
Alumax, Inc. ........................... 3,800 176,225
Aluminum Company of America ............ 1,800 118,688
Reynolds Metals Company ................ 2,100 117,469
----------
531,169
BIOTECHNOLOGY - 1.4%
Amgen, Inc.* ........................... 2,800 183,050
Centocor, Inc.* ........................ 3,300 119,625
Chiron Corporation* .................... 7,400 116,087
Genome Therapeutics Corporation* ....... 16,800 75,600
Genzyme Corporation* ................... 2,600 66,463
Intercardia, Inc.* ..................... 3,100 31,000
Millennium Pharmaceutical, Inc.* ....... 3,400 48,025
NeXstar Pharmaceuticals, Inc.* ......... 5,100 50,841
----------
690,691
COMMUNICATION EQUIPMENT - 2.6%
ADC Telecommunications, Inc.* .......... 7,100 259,372
Allen Telecom, Inc.* ................... 6,600 76,725
Andrew Corporation* .................... 4,200 75,862
Lucent Technologies, Inc. .............. 2,800 232,925
Motorola, Inc. ......................... 2,500 131,406
Northern Telecom, Ltd. ................. 2,800 158,900
QUALCOMM, Inc.* ........................ 2,300 129,231
Tellabs, Inc.* ......................... 2,500 179,063
----------
1,243,484
COMPUTERS - NETWORKING - 2.3%
Bay Networks, Inc.* .................... 9,400 303,150
Cabletron Systems, Inc.* ............... 9,800 131,688
Cisco Systems, Inc.* ................... 4,950 455,709
3Com Corporation* ...................... 6,600 202,537
----------
1,093,084
COMPUTERS - PERIPHERALS - 2.6%
EMC Corporation* ....................... 6,000 268,875
Iomega Corporation* .................... 12,600 74,025
Lexmark International Group, Inc.* ..... 4,900 298,900
Quantum Corporation* ................... 7,000 145,250
Read-Rite Corporation* ................. 4,200 38,063
Seagate Technology, Inc.* .............. 5,400 128,587
Storage Technology Corporation* ........ 6,600 286,275
----------
1,239,975
- --------------------------------------------------------------------------------
</TABLE>
42 See accompanying notes.
<PAGE> 44
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
SERIES M (SPECIALIZED ASSET ALLOCATION)(CONTINUED)
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
CONSUMER FINANCE - 1.7%
Capital One Financial Corporation .... 1,200 $ 149,025
Contifinancial Corporation* .......... 4,200 97,125
Greentree Financial Corporation ...... 5,800 248,312
Household International, Inc. ........ 3,300 164,175
MBNA Corporation ..................... 4,500 148,500
----------
807,137
ENTERTAINMENT - 1.7%
Time Warner, Inc. .................... 4,000 341,750
Viacom, Inc.* ........................ 6,000 351,000
The Walt Disney Company .............. 1,200 126,075
----------
818,825
EQUIPMENT - SEMICONDUCTORS - 1.1%
Applied Materials, Inc.* ............. 4,800 141,600
KLA-Tencor Corporation* .............. 4,100 113,519
Novellus Systems, Inc.* .............. 4,500 160,594
Teradyne, Inc.* ...................... 4,000 107,000
----------
522,713
FOOTWEAR - 1.3%
Nike, Inc. ........................... 3,600 175,275
Nine West Group, Inc.* ............... 5,400 144,788
Reebok International, Ltd.* .......... 5,700 157,819
Wolverine World Wide, Inc. ........... 5,900 127,956
----------
605,838
GAMING & LOTTERY - 2.2%
Circus Circus Enterprises, Inc.* ..... 8,900 150,744
Harrah's Entertainment, Inc.* ........ 13,300 309,225
International Game Technology ........ 14,400 349,200
Mirage Resorts, Inc.* ................ 10,900 232,306
----------
1,041,475
GOLD - 3.9%
Barrick Gold Corporation ............. 16,400 314,675
Battle Mountain Gold Company ......... 55,600 330,125
Hecla Mining Company* ................ 24,500 130,156
Homestake Mining Company ............. 33,700 349,638
Newmont Mining Corporation ........... 12,300 290,587
Placer Dome, Inc. .................... 25,700 301,975
Stillwater Mining Company* ........... 4,900 132,913
----------
1,850,069
LEISURE TIME PRODUCTS - 0.5%
Brunswick Corporation ................ 6,400 158,400
Callaway Golf Company ................ 5,300 104,344
----------
262,744
LONG-TERM HEALTH CARE - 2.0%
Beverly Enterprises, Inc.* ........... 6,900 95,306
Genesis Health Ventures, Inc.* ....... 6,400 160,000
HEALTHSOUTH Corporation* ............. 9,675 258,202
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
LONG-TERM HEALTH CARE (CONTINUED)
Health Care and Retirements
Corporation* ...................... 3,100 $ 122,256
Integrated Health Services, Inc. ..... 4,300 161,250
Mariner Health Group, Inc.* .......... 9,000 149,625
----------
946,639
MANAGED HEALTH CARE - 1.6%
Express Scripts, Inc.* ............... 3,100 249,938
First Health Group Corporation* ...... 6,200 176,700
Oxford Health Plans* ................. 2,100 32,156
Pacificare Health Systems,Inc.* ...... 1,600 141,400
United Healthcare Corporation ........ 2,600 165,100
----------
765,294
RESTAURANTS - 2.0%
Applebees International, Inc. ........ 3,000 67,125
Brinker International, Inc.* ......... 6,000 115,500
CKE Restaurants, Inc. ................ 3,025 124,781
Cracker Barrel Old Country
Store, Inc. ....................... 5,000 158,750
McDonald's Corporation ............... 2,500 172,500
Outback Steakhouse, Inc.* ............ 2,600 101,400
Ryan's Family Steak House, Inc.* ..... 10,000 102,500
Wendy's International, Inc. .......... 5,000 117,500
----------
960,056
RETAIL - SPECIALTY - 1.6%
AutoZone, Inc.* ...................... 3,500 111,781
Claire's Stores, Inc. ................ 4,100 84,050
OfficeMax, Inc.* ..................... 7,200 118,800
The Pep Boys - Manny, Moe & Jack ..... 3,800 71,963
Staples, Inc.* ....................... 5,400 156,262
Toys "R" Us, Inc.* ................... 2,900 68,331
Viking Office Products, Inc.* ........ 4,300 134,913
----------
746,100
TELECOMMUNICATIONS - 1.0%
Ameritech Corporation ................ 2,000 89,750
Bell Atlantic Corporation ............ 2,008 91,615
Bellsouth Corporation ................ 1,500 100,687
GTE Corporation ...................... 1,600 89,000
SBC Communication, Inc. .............. 2,220 88,800
----------
459,852
TRUCKING - 1.3%
Rollins Truck Leasing Corporation .... 14,250 179,016
Ryder System, Inc. ................... 4,000 126,250
USFreightways Corporation ............ 4,800 157,650
Werner Enterprises, Inc. ............. 8,250 157,265
----------
620,181
----------
Total common stocks - 31.9% .................... 15,205,326
- --------------------------------------------------------------------------------
</TABLE>
43 See accompanying notes.
<PAGE> 45
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
SERIES M(SPECIALIZED ASSET ALLOCATION)(CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
NUMBER MARKET
U.S. GOVERNMENT AGENCIES OF SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
FEDERAL HOME LOAN MORTGAGES - 0.8%
6.00% - 2006 .......................... $ 55,069 $ 54,862
7.00% - 2020 .......................... $ 250,000 251,085
7.00% - 2021 .......................... $ 88,716 89,121
----------
395,068
FEDERAL NATIONAL MORTGAGE
ASSOCIATION - 2.0%
7.17% - 2007 .......................... $ 500,000 510,320
6.50% - 2018 .......................... $ 140,000 139,423
6.95% - 2020 .......................... $ 170,000 171,877
7.50% - 2020 .......................... $ 147,823 150,695
----------
972,315
U.S. TREASURY BONDS - 2.1%
6.00% - 2026 .......................... $ 950,000 988,741
U.S. TREASURY NOTES - 0.3%
6.875% - 1999 ......................... $ 50,000 50,755
6.50% - 2006 .......................... $ 100,000 106,100
----------
156,855
----------
Total U.S. government & government
agencies - 5.2% .................................. 2,512,979
REAL ESTATE INVESTMENT TRUSTS
- -----------------------------
American Health Properties, Inc. ......... 4,600 115,000
Avalon Bay Communities, Inc. ............. 3,073 116,013
CBL & Associates Properties, Inc. ........ 4,600 111,550
Duke Realty Investment, Inc. ............. 5,700 135,019
Equity Residential Properties, Inc. ...... 2,300 109,106
Federal Realty Investment Trust .......... 4,350 104,672
General Growth Property, Inc. ............ 3,550 132,681
Glimcher Realty Trust .................... 5,550 107,878
Health Care Property Investors, Inc. ..... 3,200 115,400
Kimco Realty Corporation ................. 3,600 147,600
Merry Land & Investment Company .......... 5,200 109,525
New Plan Realty Trust .................... 5,100 124,950
Post Properties, Inc. .................... 2,850 109,725
Public Storage, Inc. ..................... 3,800 106,400
Security Capital Pacific Trust ........... 5,100 114,750
Simon Debartolo Group, Inc. .............. 3,700 120,250
Spieker Properties, Inc. ................. 3,200 124,000
United Dominion Realty Trust , Inc. ...... 7,700 106,838
Washington Real Estate Investment
Trust ................................. 6,400 111,200
Weingarten Realty Investors .............. 2,700 112,894
----------
Total real estate investment trusts - 4.9% ............ 2,335,451
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
FOREIGN STOCKS OF SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
BELGIUM - 5.7%
Bekaert SA .............................. 50 $ 41,521
Cementbedrijven Cimenteries ............. 600 67,240
Delhaize - Le Lion ...................... 1,550 108,304
Electrabel .............................. 1,400 396,936
Fortis AG ............................... 850 217,012
Gevaert NV .............................. 900 59,500
Groupe Bruxelles Lambert ................ 700 141,279
KBC Bancassurance Holding ............... 5,500 492,206
Petrofina SA ............................ 850 348,932
Royale Belgium .......................... 650 247,178
Solvay SA ............................... 3,100 245,767
Tractebel Investment International ...... 2,100 307,579
Union Miniere ........................... 500 30,906
----------
2,704,360
DENMARK - 5.9%
A/S Dampskibssellskabet Svendborg ....... 20 244,292
A/S Forsikringsselskabet Codan .......... 514 71,005
Aktieselskabet Potagua .................. 1,605 44,343
Bang & Olufsen Holding A/S .............. 927 66,724
BG Bank A/S ............................. 1,515 93,832
Carlsberg A/S ........................... 2,240 162,861
Cheminova Holding A/S ................... 2,433 52,074
Danisco A/S ............................. 2,768 185,955
Danske Traelast ......................... 616 58,581
Den Danske Bank ......................... 2,779 333,382
D/S Norden A/S .......................... 398 37,618
Finansierings Instituttet for
Industri og Handvaerk A/S ............ 2,146 54,609
Finansieringsselskabet Gefion A/S ....... 2,728 50,776
FLS Industries A/S ...................... 2,409 61,302
ISS International Service System A/S .... 1,682 97,833
J. Lauritzen Holdings A/S ............... 1,007 99,133
Jyske Bank A/S .......................... 692 81,628
Korn-OG Foderstof Kompangniet A/S ....... 1,736 40,943
Novo Nordisk A/S ........................ 2,989 412,035
Radiometer A/S .......................... 1,067 42,629
Ratin A/S ............................... 996 210,728
Sophus Berendsen A/S .................... 996 41,277
Sydbank A/S ............................. 1,224 68,168
Tele Danmark A/S ........................ 1,073 102,978
Topdanmark A/S .......................... 345 57,225
Tryg-Baltica Forsikring A/S ............. 1,449 39,401
----------
2,811,332
GERMANY - 10.7%
Allianz AG .............................. 2,140 705,416
BASF AG ................................. 7,919 375,104
Bayer AG ................................ 5,365 276,716
Bayerische Motoren Werke
(BMW) AG ............................. 300 302,654
Bayerische Motoren Werke
(BMW) AG- Bonus ...................... 60 59,666
- --------------------------------------------------------------------------------
</TABLE>
44 See accompanying notes.
<PAGE> 46
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
SERIES M(SPECIALIZED ASSET ALLOCATION)(CONTINUED)
<TABLE>
<CAPTION>
NUMBER MARKET
FOREIGN STOCKS(CONTINUED) OF SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
GERMANY (CONTINUED)
Bayerische Motoren Werke
(BMW) AG- Rights ................... 360 $ 10,311
Continental AG ........................ 1,198 37,300
Daimler-Benz AG ....................... 2,850 279,468
Daimler-Benz AG-Rights ................ 2,850 3,158
Degussa AG ............................ 860 52,933
Deutsche Bank AG ...................... 5,108 432,545
Deutsche Telekom AG ................... 18,700 504,528
Dresdner Bank AG ...................... 4,589 247,369
Friedrich Grohe AG- Vorzugsak ......... 43 14,651
Heidelberger Zement AG ................ 518 49,073
Hochtief AG ........................... 1,070 51,276
Linde AG .............................. 86 60,270
Merck KGAA ............................ 1,113 49,760
Muenchener Rueckversicherungs-
Gesellschaft AG .................... 430 213,209
Preussag AG ........................... 428 152,702
SAP AG ................................ 728 441,632
Siemens AG ............................ 7,662 466,079
Veba AG ............................... 4,766 324,768
----------
5,110,588
JAPAN - 11.7%
All Nippon Airways Company, Ltd.* ..... 16,000 52,686
Asahi Glass Company, Ltd. ............. 16,000 86,465
Bank of Tokyo-Mitsubishi, Ltd. ........ 16,000 169,355
Bank of Yokohama, Ltd. ................ 9,000 22,048
Bridgestone Corporation ............... 4,000 94,535
Canon, Inc. ........................... 4,000 90,788
Chubu Electric Power Company, Inc. .... 4,800 71,593
Daiei, Inc. ........................... 8,000 18,734
Dai Nippon Printing Company, Ltd. ..... 5,000 79,800
East Japan Railway Company ............ 10 46,979
Fanuc, Ltd. ........................... 900 31,127
Fuji Bank, Ltd. ....................... 15,000 66,902
Fuji Photo Film Company ............... 2,000 69,604
Fujitsu, Ltd. ......................... 9,000 94,679
Hitachi, Ltd. ......................... 17,000 110,855
Honda Motor Company, Ltd. ............. 5,000 177,973
Industrial Bank of Japan, Ltd. ........ 13,000 81,493
Ito-Yokado Company, Ltd. .............. 1,000 47,051
Japan Airlines Company, Ltd.* ......... 16,000 44,500
Kansai Electric Power Company ......... 5,000 86,825
Kawasaki Heavy Industries ............. 16,000 32,280
Kawasaki Steel Corporation ............ 49,000 88,266
Kinki Nippon Railway Company, Ltd. .... 20,000 93,670
Kirin Brewery Company, Ltd. ........... 10,000 94,391
Komatsu, Ltd. ......................... 8,000 38,851
Kyocera Corporation ................... 2,000 97,705
Marubeni Corporation .................. 24,000 47,901
Marui Company, Ltd. ................... 3,000 44,745
Matsushita Electric Industrial
Company, Ltd. ...................... 12,000 192,816
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
NUMBER MARKET
FOREIGN STOCKS(CONTINUED) OF SHARES VALUE
- ----------------------------------------------------------------------------------
<S> <C> <C>
JAPAN (CONTINUED)
Mitsubishi Corporation ............................... 21,000 $ 130,129
Mitsubishi Estate Company, Ltd. ...................... 8,000 70,325
Mitsubishi Heavy Industrial, Ltd. .................... 26,000 98,166
Mitsubishi Motors Corporation ........................ 17,000 40,790
Mitsui Fudosan Company, Ltd. ......................... 9,000 71,074
NEC Corporation ...................................... 10,000 93,166
Nippondenso Company, Ltd. ............................ 5,000 82,862
Nippon Oil Company, Ltd. ............................. 16,000 51,648
Nippon Steel Corporation ............................. 47,000 82,631
Nippon Telegraph &
Telephone Corporation ............................. 30 248,586
Nissan Motor Company, Ltd. ........................... 16,000 50,380
Normura Securities Company,Ltd ....................... 12,000 139,640
Sankyo Company, Ltd. ................................. 3,000 68,307
Secom Company, Ltd. .................................. 1,000 57,715
Seibu Railway, Ltd. .................................. 4,000 121,627
Sekisui House, Ltd. .................................. 18,000 139,424
Seven-Eleven Japan Company, Ltd. ..................... 2,000 119,033
Sharp Corporation .................................... 8,000 64,791
Shin-Etsu Chemical Company ........................... 5,000 86,465
Sony Corporation ..................................... 1,600 137,767
Sumitomo Bank, Ltd. .................................. 20,000 194,546
Sumitomo Chemical Company ............................ 23,000 70,930
Taisho Pharmaceutical Company, Ltd. .................. 3,000 55,986
Takeda Chemical Industries ........................... 4,000 106,352
Tokai Bank, Ltd. ..................................... 9,000 49,544
Tokio Marine & Fire Insurance Company ................ 10,000 102,749
Tokyo Electric Power Company ......................... 14,500 284,181
Tokyu Corporation .................................... 25,000 75,837
Toshiba Corporation .................................. 17,000 69,453
Toyoda Automatic Loom Works, Ltd. .................... 3,000 52,960
Toyota Motor Corporation ............................. 10,000 258,674
-----------
5,550,355
-----------
Total foreign stocks - 34.0% .................................... 16,176,635
TEMPORARY CASH INVESTMENTS
- --------------------------
MONEY MARKET FUNDS - 2.1%
Vista Federal Money
Market Fund ....................................... $ 1,013,000 1,013,000
FEDERAL NATIONAL MORTGAGE ASSOCIATION
DISCOUNT NOTES - 6.3%
5.38% - 7-2-98 .................................... $ 2,000,000 1,999,701
5.43% - 7-15-98 ................................... $ 1,000,000 997,888
-----------
2,997,589
Total temporary cash investments - 8.4% ......................... 4,010,589
-----------
Total investments - 99.6% ....................................... 47,469,481
Cash and other assets, less liabilities - 0.4% .................. 169,404
-----------
Total net assets - 100% ......................................... $47,638,885
===========
- ----------------------------------------------------------------------------------
</TABLE>
45 See accompanying notes.
<PAGE> 47
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
SERIES N (MANAGED ASSET ALLOCATION)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
CORPORATE BONDS AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
AUTOMOTIVE - 0.2%
Federal-Mogul Corporation,
7.75% - 2006 ........................ $100,000 $101,125
BANKING - 1.1%
Bankers Trust - NY, 7.25% - 2003 ....... 100,000 103,875
Banque Paribas - NY, 6.875% - 2009 ..... 500,000 511,250
--------
615,125
BUILDING MATERIALS - 0.4%
ABC Supply Company (Series B)
10.625% - 2007 ...................... 50,000 51,688
Associated Materials, Inc.,
9.25% - 2008 ....................... 50,000 51,375
Synthetic Industries, 9.25% - 2007 ..... 50,000 51,625
Werner Holdings Company, Inc.,
10.00% - 2007 ....................... 50,000 52,250
--------
206,938
CAPITAL GOODS - OTHER - 0.2%
International Wire Group,
11.75% - 2005 ....................... 100,000 110,000
CHEMICALS - 0.2%
Agricultural Minerals & Chemicals,
10.75% - 2003 ....................... 50,000 53,063
Furon Company, 8.125% - 2008 ........... 50,000 49,937
--------
103,000
CONSTRUCTION MATERIALS - 0.1%
Columbus McKinnon Corporation,
8.50% - 2008 ........................ 50,000 49,250
CONSUMER CYCLICAL - OTHER - 0.9%
EOP Operating, 6.75% - 2008 ............ 500,000 505,000
CONSUMER NONCYCLICAL - OTHER - 0.2%
APCOA, Inc., 9.25% - 2008 .............. 50,000 49,875
Coinmach Corporation, (Series B),
11.75% - 2005 ....................... 50,000 55,750
--------
105,625
CONSUMER PRODUCTS - 0.8%
American Safety Razor Company,
9.875% - 2005 ....................... 100,000 107,625
Chattem, Inc., 12.75% - 2004 ........... 50,000 56,375
Doane Products Company,
10.625% - 2006 ...................... 50,000 53,875
Holmes Products Corporation,
9.875% - 2007 ....................... 50,000 51,625
Purina Mills, Inc., 9.00% - 2010 ....... 75,000 77,063
Revlon Consumer Products Company,
10.50% - 2003 ....................... 50,000 50,125
Windy Hill Pet Food Company,
9.75% - 2007 ........................ 50,000 52,875
--------
449,563
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
CORPORATE BONDS (CONTINUED) AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
DEFENSE - 0.2%
Raytheon Company, 6.50% - 2005 ......... $100,000 $101,375
ENTERTAINMENT - 0.9%
AMC Entertainment, Inc.,
9.50% - 2009 ........................ 50,000 51,187
Bally Total Fitness Holding,
9.875% - 2007 ....................... 100,000 103,000
Empress Entertainment,
8.125% - 2006 ....................... 100,000 100,250
Six Flags Entertainment,
8.875% - 2006 ....................... 50,000 51,000
Six Flags Theme Parks,
12.25% - 2005 ....................... 75,000 84,469
Time Warner Entertainment,
7.25% - 2008 ........................ 100,000 106,750
--------
496,656
ENVIRONMENTAL - 0.1%
Allied Waste North America,
10.25% - 2006 ....................... 50,000 55,062
FINANCE - 1.4%
Intertek Finance PLC, 10.25% - 2006 50,000 53,000
Lehman Brothers, Inc., 7.25% - 2003 350,000 363,563
Ocwen Capital Trust,
10.875% - 2027 ...................... 100,000 109,000
Penske Truck Leasing, 6.65% - 2000 100,000 101,625
Salomon, Inc., 6.75% - 2003 ............ 100,000 101,375
--------
728,563
FOOD - 0.5%
Archibald Candy Corporation,
10.25% - 2004 ....................... 50,000 53,125
Aurora Foods, Inc., 9.875% - 2007 ...... 50,000 52,625
B&G Foods, Inc., 9.625% - 2007 ......... 25,000 25,375
McDonald's Corporation,
6.625% - 2005 ....................... 50,000 51,875
Price/Costco, Inc., 7.125% - 2005 ...... 100,000 106,000
--------
289,000
GAMING - 0.4%
Grand Casinos, 10.125% - 2003 .......... 50,000 54,563
Horseshoe Gaming LLC,
9.375% - 2007 ....................... 100,000 105,500
Rio Hotel & Casino, Inc.,
10.625% - 2005 ...................... 30,000 32,625
Rio Hotel & Casino, Inc.,
9.50% - 2007 ........................ 25,000 26,375
--------
219,063
HEALTHCARE - 0.1%
Owens & Minor, Inc.,
10.875% - 2006 ...................... 25,000 27,250
Quest Diagnostic, Inc.,
10.75% - 2006 ....................... 25,000 27,875
--------
55,125
- --------------------------------------------------------------------------------
</TABLE>
46 See accompanying notes.
<PAGE> 48
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
SERIES N (MANAGED ASSET ALLOCATION)(CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
CORPORATE BONDS(CONTINUED) AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
INSURANCE - 0.2%
New York Life Insurance,
7.50% - 2023 ..................... $100,000 $101,250
LODGING - 0.4%
Courtyard by Marriott,
10.75% - 2008 .................... 100,000 110,125
Host Marriott Travel Plaza,
9.50% - 2005 ..................... 100,000 106,000
--------
216,125
MEDIA - CABLE - 0.7%
Comcast Cable Communications,
8.125% - 2004 .................... 100,000 108,375
Frontiervision, 11.00% - 2006 ....... 50,000 55,375
Fundy Cable, Ltd., 11.00% - 2005 .... 50,000 54,875
Marcus Cable Operating Company,
0.00% - 2004 ..................... 50,000 48,625
Northland Cable Television,
10.25% - 2007 .................... 100,000 106,750
--------
374,000
MEDIA - NONCABLE - 0.4%
American Radio Systems,
9.00% - 2006 ..................... 50,000 53,125
Chancellor Media Corporation
8.125% - 2007 .................... 100,000 101,375
Mediacom LLC, 8.50% - 2008 .......... 25,000 24,937
Sun Media Corporation,
9.50% - 2007 ..................... 32,000 33,920
--------
213,357
METALS - 0.3%
AEI Holdings, 10.00% - 2007 ......... 50,000 49,375
Freeport McMoran Resources,
7.00% - 2008 ..................... 50,000 51,000
Maxxam Group, Inc.,
11.25% - 2003 .................... 50,000 52,875
--------
153,250
OIL FIELD SERVICES - 0.1%
Pride Petroleum Services, Inc.,
9.375% - 2007 .................... 50,000 52,687
OTHER 0.1%
Herff Jones, Inc., (Series B),
11.00% - 2005 .................... 50,000 55,063
Paragon Corporate Holdings,
9.625% - 2008 .................... 25,000 22,937
--------
78,000
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
CORPORATE BONDS(CONTINUED) AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
PACKAGING - 0.4%
Bway Corporation, (Series B)
10.25% - 2007 ..................... $ 50,000 $ 54,250
Container Corporation of America,
10.75% - 2002 ..................... 100,000 110,000
Plastic Containers, Inc.,
10.00% - 2006 ..................... 25,000 26,875
U.S. Can Corporation,
10.125% - 2006 .................... 50,000 52,813
----------
243,938
RETAILERS - 0.5%
Eye Care Center of America,
9.125% - 2008 ..................... 50,000 49,375
Finlay Fine Jewelry Corporation,
8.375% - 2008 ..................... 100,000 100,250
Safelite Glass Corporation,
9.875% - 2006 ..................... 49,693 52,550
Specialty Retailers, 8.50% - 2005 .... 50,000 51,500
----------
253,675
SERVICES - 0.1%
Dyncorp, Inc., 9.50% - 2007 .......... 50,000 51,375
TECHNOLOGY - 0.4%
Celestica International,
10.50% - 2006 ..................... 50,000 55,125
Communications & Power Industry,
12.00% - 2005 ..................... 100,000 111,375
Fairchild Semiconductor,
10.125% - 2007 .................... 50,000 51,500
----------
218,000
TELECOMMUNICATIONS - 1.9%
Flag, Ltd., 8.25% - 2008 ............. 25,000 25,219
Intermedia Communications
(Series B), 8.50% - 2008 .......... 50,000 50,000
Lucent Technologies, Inc.,
6.90% - 2001 ...................... 100,000 102,750
Nextel Communications,
0.00% - 2007 ...................... 75,000 48,844
Price Communications,
9.125% - 2006 ..................... 100,000 99,750
Qwest Communications
International, 0.00% - 2007 ....... 50,000 37,562
Sprint Spectrum LP, 11.00% - 2006 .... 100,000 115,000
Worldcom, Inc., 7.75% - 2007 ......... 500,000 541,875
----------
1,021,000
TEXTILES - 0.2%
Dan River, Inc., 10.125% - 2003 ...... 50,000 53,375
Westpoint Stevens, Inc.,
7.875% - 2008 ..................... 50,000 49,875
----------
103,250
- --------------------------------------------------------------------------------
</TABLE>
47 See accompanying notes.
<PAGE> 49
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
SERIES N (MANAGED ASSET ALLOCATION)(CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
NUMBER MARKET
CORPORATE BONDS (CONTINUED) OF SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
TRANSPORTATION - OTHER - 0.2%
Sea Containers, Ltd.,
12.50% - 2004 .................. $ 30,000 $ 33,862
Stena AB, 10.50% - 2005 ........... $ 50,000 54,500
----------
88,362
UTILITY - ELECTRIC - 1.6%
Energy Louisiana, Inc.,
6.50% - 2008 ................... $ 500,000 502,500
Midwest Power System,
7.125% - 2003 .................. $ 140,000 146,125
Niagra Mohawk Power,
0.00% - 2010 ................... $ 200,000 138,750
Southern California Edison,
6.50% - 2001 ................... $ 50,000 50,687
----------
838,062
UTILITY - NATURAL GAS - 0.2%
Energy Corporation of America,
9.50% - 2007 ................... $ 100,000 98,500
----------
Total corporate bonds - 15.4% .................. 8,295,301
COMMON STOCKS
- -------------
AEROSPACE/DEFENSE - 0.4%
Boeing Company .................... 2,814 125,399
Lockheed Martin Corporation ....... 600 63,525
Northrop Grumman Corporation ...... 300 30,937
----------
219,861
AGRICULTURAL PRODUCTS - 0.1%
Archer-Daniels Midland Company .... 2,401 46,519
AIRLINES - 0.3%
AMR Corporation* .................. 800 66,600
Delta Air Lines, Inc. ............. 400 51,700
KLM Royal Dutch Air Lines
NV ADR ......................... 800 32,750
Southwest Airlines ................ 700 20,738
----------
171,788
ALUMINUM - 0.1%
Aluminum Company of America ....... 800 52,750
AMERICAN GOLD - 0.1%
Barrick Gold Corporation .......... 1,600 30,700
Placer Dome, Inc. ................. 1,500 17,625
----------
48,325
AUTO PARTS & EQUIPMENT - 0.2%
Eaton Corporation ................. 400 31,100
Genuine Parts Company ............. 1,150 39,747
TRW, Inc. ......................... 700 38,237
----------
109,084
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
AUTOMOBILES - 1.0%
Chrysler Corporation .............. 1,700 $ 95,838
Echlin, Inc. ...................... 800 39,250
Ford Motor Company ................ 3,700 218,300
General Motors Corporation ........ 2,300 153,669
Honda Motor Company, Ltd. ADR ..... 700 50,006
----------
557,063
BANKS - MAJOR REGIONAL - 4.0%
BB&T Corporation .................. 500 33,812
Banc One Corporation .............. 1,760 98,230
Banco Frances Del Rio De
La Plata ADR ................... 805 18,465
Bank of New York Company, Inc. .... 900 54,619
BankBoston Corporation ............ 800 44,500
BankAmerica Corporation ........... 2,300 198,806
Bankers Trust Corporation ......... 200 23,212
Citicorp .......................... 1,300 194,025
Comerica, Inc. .................... 650 43,062
Fifth Third Bancorp ............... 1,125 70,875
First Chicago NBD Corporation ..... 1,000 88,625
First Union Corporation ........... 3,058 178,129
Fleet Financial Group, Inc. ....... 1,100 91,850
Huntington Bancshares, Inc. ....... 700 23,450
KeyCorp ........................... 1,800 64,125
Mellon Bank Corporation ........... 900 62,663
Mercantile Bancorporation ......... 400 20,150
J.P. Morgan & Company, Inc. ....... 600 70,275
National City Corporation ......... 900 63,900
Nationsbank Corporation ........... 2,300 175,950
Northern Trust Corporation ........ 600 45,750
Norwest Corporation ............... 2,700 100,913
PNCBank Corporation ............... 1,115 60,001
State Street Boston ............... 600 41,700
Suntrust Banks, Inc. .............. 900 73,181
U.S. Bancorp ...................... 2,331 100,233
Wells Fargo & Company ............. 300 110,700
----------
2,151,201
BANKS - MONEY CENTER - 0.4%
Chase Manhattan Corporation ....... 2,424 183,012
Summit Bancorp .................... 500 23,750
----------
206,762
BEVERAGES - ALCOHOLIC - 0.3%
Anheuser-Busch Companies, Inc. .... 1,200 56,625
Diageo PLC ADR .................... 777 37,442
LVMH Moet Hennessy Lou ADR ........ 1,000 39,500
Seagram Company, Ltd. ............. 1,000 40,937
----------
174,504
BEVERAGES - SOFT DRINK - 1.5%
Coca-Cola Company ................. 7,000 598,500
Pepsico, Inc. ..................... 4,700 193,581
----------
792,081
- --------------------------------------------------------------------------------
</TABLE>
48 See accompanying notes.
<PAGE> 50
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
SERIES N (MANAGED ASSET ALLOCATION)(CONTINUED)
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- -----------------------------------------------------------------------------
<S> <C> <C>
BIOTECHNOLOGY - 0.1%
Amgen, Inc.* ................................ 1,000 $ 65,375
BROADCAST MEDIA - 0.5%
Clear Channel Communications, Inc.* ......... 600 65,475
Comcast Corporation (Cl. A) ................. 1,100 44,653
MediaOne Group, Inc.* ....................... 1,800 79,088
Viacom, Inc. (Cl. B)* ....................... 1,400 81,550
----------
270,766
BUILDING MATERIALS - 0.1%
Armstrong World Industries, Inc. ............ 300 20,212
Masco Corporation ........................... 700 42,350
----------
62,562
CHEMICALS - BASIC - 1.1%
Air Products and Chemicals, Inc. ............ 1,000 40,000
Akzo Nobel NV ADR ........................... 1,300 144,138
Dow Chemical Company ........................ 800 77,350
(E.I.) du Pont de Nemours & Company ......... 3,500 261,188
FMC Corporation* ............................ 300 20,456
Great Lakes Chemical Company ................ 700 27,606
Morton International, Inc. .................. 900 22,500
Solutia, Inc. ............................... 680 19,507
----------
612,745
CHEMICALS - DIVERSIFIED - 0.2%
Monsanto Company ............................ 2,200 122,925
CHEMICALS - SPECIALTY - 0.3%
Minnesota Mining & Manufacturing
Company .................................. 1,300 106,844
Rohm & Haas Company ......................... 400 41,575
----------
148,419
COMMUNICATIONS EQUIPMENT - 1.1%
Lucent Technologies ......................... 3,672 305,465
Motorola, Inc. .............................. 1,800 94,613
Oy Nokia AB Corporation ADR ................. 600 43,537
Northern Telecom, Ltd. ...................... 1,800 102,150
Tellabs, Inc.* .............................. 700 50,137
----------
595,902
COMPUTER HARDWARE - 1.6%
Compaq Computer Company ..................... 5,256 149,139
Dell Computer Corporation* .................. 2,400 222,750
Hewlett-Packard Company ..................... 2,600 155,675
International Business Machines
Corporation .............................. 2,600 298,513
Sun Microsystems, Inc.* ..................... 1,400 60,812
----------
886,889
- -----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS)(CONTINUED) OF SHARES VALUE
- -----------------------------------------------------------------------------
<S> <C> <C>
COMPUTER SOFTWARE/SERVICES - 2.1%
Adobe Systems, Inc. ......................... 700 $ 29,706
Ceridian Corporation* ....................... 600 35,250
Computer Associates International,
Inc ...................................... 1,700 94,456
HBO & Company ............................... 1,400 49,350
Microsoft Corporation* ...................... 7,200 780,300
Novell, Inc.* ............................... 3,000 38,250
Oracle Corporation* ......................... 2,850 70,003
Parametric Technology Company* .............. 1,200 32,550
----------
............................................. 1,129,865
COMPUTERS - NETWORKING - 0.6%
Bay Networks, Inc.* ......................... 1,200 38,700
Cisco Systems, Inc.* ........................ 2,800 257,775
3COM Corporation* ........................... 1,000 30,688
----------
............................................. 327,163
COMPUTERS - PERIPHERALS - 0.2%
EMC Corporation* ............................ 1,500 67,219
Seagate Technology* ......................... 1,100 26,194
----------
............................................. 93,413
CONSUMER FINANCE - 0.3%
Greentree Financial Corporation ............. 600 25,688
Household International, Inc. ............... 1,500 74,625
MBNA Corporation ............................ 1,500 49,500
----------
............................................. 149,813
CONTAINERS & PACKAGING - 0.1%
Bemis Company, Inc. ......................... 500 20,437
Owens-Illinois, Inc.* ....................... 900 40,275
----------
............................................. 60,712
DISTRIBUTION - FOOD & HEALTH - 0.1%
Cardinal Health, Inc. ....................... 500 46,875
Sysco Corporation ........................... 1,000 25,625
----------
............................................. 72,500
ELECTRIC COMPANIES - 1.2%
American Electric Power
Company, Inc. ............................ 500 22,687
Baltimore Gas & Electric Company ............ 800 24,850
Consolidated Edison, Inc. ................... 700 32,244
Dominion Resources, Inc. .................... 1,100 44,825
Duke Energy Corporation ..................... 1,300 77,025
Edison International ........................ 1,700 50,256
Empresa Nacional Electricidad
Chile S.A. ADR ........................... 500 7,125
Empresa Nacional De Electricidad
S.A. ADR ................................. 2,400 51,900
Entergy Corporation ......................... 1,100 31,625
FPL Group, Inc. ............................. 900 56,700
FirstEnergy Corporation ..................... 800 24,600
Niagra Mohawk Power Corporation* ............ 2,400 35,850
- -----------------------------------------------------------------------------
</TABLE>
49 See accompanying notes.
<PAGE> 51
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
SERIES N(MANAGED ASSET ALLOCATION)(CONTINUED)
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
ELECTRIC COMPANIES (CONTINUED)
P G & E Corporation ..................... 1,600 $ 50,500
Southern Company ........................ 2,300 63,681
Texas Utilities Company ................. 1,300 54,113
Unicom Corporation ...................... 1,100 38,569
----------
666,550
ELECTRICAL EQUIPMENT - 1.9%
Emerson Electric Company ................ 1,500 90,469
General Electric Company ................ 9,200 837,200
Honeywell, Inc. ......................... 700 58,494
Rockwell International Corporation ...... 900 43,256
----------
1,029,419
ELECTRONIC EQUIPMENT - 0.3%
Hitachi, Ltd. ADR ....................... 300 19,350
Philips Electronics NV ADR .............. 2,000 170,000
----------
189,350
ELECTRONICS - DEFENSE - 0.1%
Raytheon Company (Cl. A) ................ 421 24,260
Raytheon Company (Cl. B) ................ 500 29,563
----------
53,823
ELECTRONICS - SEMI-CONDUCTORS - 0.9%
Altera Corporation* ..................... 600 17,738
Analog Devices, Inc.* ................... 667 16,383
Intel Corporation ....................... 4,600 340,975
Texas Instruments, Inc. ................. 1,300 75,806
Xilinx, Inc.* ........................... 400 13,600
----------
464,502
ENTERTAINMENT - 0.7%
The Walt Disney Company ................. 1,914 201,090
Time Warner, Inc. ....................... 1,900 162,331
----------
363,421
EQUIPMENT - SEMICONDUCTORS - 0.1%
Applied Materials, Inc.* ................ 1,300 38,350
FINANCIAL - DIVERSE - 2.3%
American Express Company ................ 1,400 159,600
American General Corporation ............ 800 56,950
Associates First Capital Corporation .... 864 66,420
Banco Bilbao Viz ADR .................... 3,000 153,000
Fannie Mae .............................. 2,700 164,025
Federal Home Loan Mortgage
Corporation .......................... 2,600 122,363
H & R Block, Inc. ....................... 500 21,062
Merrill Lynch & Company, Inc. ........... 1,100 101,475
Morgan Stanley, Dean Witter
and Company .......................... 1,630 148,941
SunAmerica, Inc. ........................ 800 45,950
Travelers Group, Inc. ................... 3,347 202,912
----------
1,242,698
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS)(CONTINUED) OF SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
FOODS - 1.2%
BestFoods .............................. 1,000 $ 58,062
Conagra, Inc. .......................... 1,900 60,206
Earthgrains Company .................... 64 3,576
General Mills .......................... 700 47,862
Heinz (H.J.) Company ................... 1,100 61,738
Hershey Foods Corporation .............. 400 27,600
Kellogg Company ........................ 1,500 56,344
Ralston - Ralston Purina Group ......... 400 46,725
Sara Lee Corporation ................... 1,700 95,094
Unilever NY ADR ........................ 2,000 157,875
William Wrigley, Jr. Company ........... 400 39,200
----------
654,282
FOOTWEAR - 0.1%
Nike, Inc. (Cl. B) ..................... 800 38,950
GAMING & LOTTERY - 0.1%
Mirage Resorts, Inc.* .................. 1,400 29,837
HARDWARE & TOOLS - 0.1%
Black & Decker Corporation ............. 500 30,500
HEALTH CARE - DIVERSE - 1.8%
Abbott Laboratories .................... 4,200 171,675
American Home Products Corporation ..... 3,600 186,300
Bristol-Myers Squibb Company ........... 2,800 321,825
Johnson & Johnson ...................... 3,700 272,875
----------
952,675
HEALTH CARE - LONG TERM CARE - 0.1%
HEALTHSOUTH Corporation* ............... 1,400 37,362
HEALTH CARE - MANAGED CARE - 0.1%
United Healthcare Corporation .......... 700 44,450
HEALTH CARE - PHARMACEUTICALS - 3.0%
Glaxo Wellcome Plc ADR ................. 900 53,831
Eli Lilly & Company .................... 2,900 191,581
Merck & Company, Inc. .................. 3,500 468,125
Pfizer, Inc. ........................... 3,900 423,881
Pharmacia & Upjohn, Inc. ............... 1,900 87,638
Schering-Plough Corporation ............ 2,400 219,900
Warner Lambert Company ................. 2,200 152,625
----------
1,597,581
HOMEBUILDING - 0.1%
PPG Industries, Inc. ................... 700 48,694
HOSPITAL MANAGEMENT - 0.1%
Columbia/HCA Healthcare
Corporation ......................... 2,400 69,900
HOUSEHOLD PRODUCTS - 1.2%
Clorox Company ......................... 600 57,225
Colgate-Palmolive Company .............. 1,100 96,800
Fort James Corporation ................. 900 40,050
Kimberly-Clark Corporation ............. 1,900 87,162
Procter & Gamble Company, The .......... 3,900 355,144
----------
636,381
- --------------------------------------------------------------------------------
</TABLE>
50 See accompanying notes.
<PAGE> 52
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
SERIES N (MANAGED ASSET ALLOCATION) (CONTINUED)
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
INSURANCE - BROKERS - 0.1%
Conseco, Inc. ............................... 600 $ 28,050
MGIC Investment Corporation ................. 300 17,119
Marsh & McLennan Companies, Inc. ............ 600 36,262
--------
81,431
INSURANCE - LIFE/HEALTH - 0.2%
Aetna, Inc. ................................. 544 41,412
Torchmark Corporation ....................... 600 27,450
Unum Corporation ............................ 800 44,400
--------
113,262
INSURANCE - MULTILINE - 1.0%
American International Group, Inc. .......... 1,900 277,400
Cigna Corporation ........................... 900 62,100
General Re Corporation ...................... 300 76,050
Hartford Financial Services Group, Inc. ..... 400 45,750
Lincoln National Corporation ................ 500 45,688
Loews Corporation ........................... 400 34,850
--------
541,838
INSURANCE - PROPERTY - 0.5%
Allstate Corporation ........................ 1,200 109,875
Chubb Corporation ........................... 800 64,300
Progressive Corporation ..................... 400 56,400
Selective Insurance Group ................... 800 17,925
--------
248,500
INVESTMENT BANK/BROKERAGE - 0.1%
Franklin Resources, Inc. .................... 700 37,800
Schwab (Charles) Corporation ................ 1,150 37,375
--------
75,175
IRON & STEEL - 0.0%
Nucor Corporation ........................... 500 23,000
LEISURE TIME PrODUCTS - 0.1%
Brunswick Corporation ....................... 900 22,275
Mattel, Inc. ................................ 600 25,387
--------
47,662
LODGING - HOTELS - 0.1%
Marriott International, Inc. (Cl.A) ......... 1,000 32,375
MACHINERY - DIVERSE - 0.3%
Caterpillar, Inc. ........................... 1,300 68,738
Deere & Company ............................. 800 42,300
Dover Corporation ........................... 900 30,825
Ingersoll-Rand Company ...................... 500 22,031
--------
163,894
MANUFACTURING - DIVERSIFIED - 0.8%
AlliedSignal, Inc. .......................... 2,000 88,750
Corning, Inc. ............................... 1,000 34,750
Illinois Tool Works, Inc. ................... 800 53,350
Textron, Inc. ............................... 600 43,013
Tyco International, Ltd. .................... 1,900 119,700
United Technologies Corporation ............. 900 83,250
--------
422,813
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
MANUFACTURING - SPECIALIZED - 0.4%
CBS Corporation ............................. 2,000 $ 63,500
Goodyear Tire & Rubber Company .............. 500 32,219
Pall Corporation ............................ 1,300 26,650
Sealed Air Corporation* ..................... 300 11,025
Thermo Electron Corporation* ................ 1,200 41,025
Tomkins Plc ADR ............................. 2,000 45,750
----------
220,169
MEDICAL PRODUCTS & SUPPLIES - 0.6%
Baxter International, Inc. .................. 1,000 53,812
Becton, Dickinson & Company ................. 700 54,338
Boston Scientific Corporation* .............. 800 57,300
Guidant Corporation ......................... 800 57,050
Medtronic, Inc. ............................. 1,600 102,000
----------
324,500
MISCELLANEOUS BUSINESS SERVICES - 0.1%
Equifax, Inc. ............................... 800 29,050
NATURAL GAS - 0.1%
Sonat, Inc. ................................. 800 30,900
OFFICE EQUIPMENT & SUPPLIES - 0.1%
Ikon Office Solutions, Inc. ................. 1,100 16,019
Pitney-Bowes, Inc. .......................... 1,200 57,750
----------
73,769
OIL - DOMESTIC - 0.1%
Atlantic-Richfield Company .................. 600 46,875
Unocal Corporation .......................... 700 25,025
----------
71,900
OIL - INTERNATIONAL - 3.0%
Amoco Corporation ........................... 3,300 137,362
British Petroleum PLC ADR ................... 600 52,950
Chevron Corporation ......................... 2,100 174,431
Exxon Corporation ........................... 6,800 484,925
Mobil Corporation ........................... 2,100 160,913
Occidental Petroleum Corporation ............ 1,700 45,900
Royal Dutch Petroleum Company
NY Shares ................................ 7,100 389,169
Texaco, Inc. ................................ 1,700 101,469
USX Marathon Group .......................... 1,300 44,606
----------
1,591,725
OIL & GAS - DRILLING & EQUIPMENT - 0.5%
B.J. Services Company* ...................... 1,400 40,687
Halliburton Company ......................... 1,100 49,019
Repsol S.A. ADR ............................. 400 22,000
Schlumberger, Ltd. .......................... 1,500 102,469
Union Pacific Resources Group, Inc. ......... 1,738 30,524
----------
244,699
- --------------------------------------------------------------------------------
</TABLE>
51 See accompanying notes.
<PAGE> 53
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
SERIES N (MANAGED ASSET ALLOCATION)(CONTINUED)
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
OIL & GAS - EXPLORATION & PRODUCTION - 0.6%
Amerada Hess Corporation ....................... 1,000 $ 54,313
Anadarko Petroleum Corporation ................. 100 6,719
Apache Corporation ............................. 500 15,750
Burlington Resources, Inc. ..................... 800 34,450
Enron Corporation .............................. 1,100 59,469
Ente Nazionale Idroncarburi S.p.a. ADR ......... 400 26,000
Helmerich & Payne, Inc. ........................ 400 8,900
Phillips Petroleum Company ..................... 800 38,550
Shell Transport & Trading Company .............. 900 38,137
Total S.A. ADR ................................. 1,000 65,375
--------
347,663
OIL & GAS - REFINING & MARKETING - 0.1%
The Williams Companies, Inc. ................... 1,600 54,000
PAPER & FOREST PRODUCTS - 0.2%
Georgia-Pacific Corporation
(GP Group) .................................. 400 23,575
Georgia-Pacific Corporation
(Timber Group) .............................. 400 9,200
International Paper Company .................... 1,400 60,200
Weyerhaeuser Company ........................... 400 18,475
--------
111,450
PERSONAL CARE - 0.5%
Avon Products, Inc. ............................ 700 54,250
Gillette Company ............................... 3,000 170,063
International Flavors &
Fragrances, Inc. ............................ 800 34,750
--------
259,063
PHOTOGRAPHY/IMAGING - 0.3%
Eastman Kodak Company .......................... 900 65,756
Xerox Corporation .............................. 800 81,300
--------
147,056
PUBLISHING - 0.2%
R.R. Donnelley & Sons Company .................. 600 27,450
Dun & Bradstreet Corporation ................... 400 14,450
McGraw-Hill Companies, Inc. .................... 600 48,937
--------
90,837
PUBLISHING - NEWSPAPER - 0.2%
Gannett Company, Inc. .......................... 1,000 71,063
Tribune Company ................................ 600 41,287
--------
112,350
RAILROADS - 0.2%
Burlington Northern Santa Fe
Corporation ................................. 400 39,275
CSX Corporation ................................ 800 36,400
Norfolk Southern Corporation ................... 1,100 32,794
Union Pacific Corporation ...................... 600 26,475
--------
134,944
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
RESTAURANTS - 0.4%
Brinker International, Inc.* ................... 1,500 $ 28,875
Darden Restaurants, Inc. ....................... 1,400 22,225
McDonald's Corporation ......................... 1,900 131,100
Tricon Global Restaurants* ..................... 740 23,449
--------
205,649
RETAIL - APPAREL - 0.2%
GAP, Inc. ...................................... 1,050 64,706
Nordstrom, Inc. ................................ 300 23,175
TJX Companies, Inc. ............................ 800 19,300
--------
107,181
RETAIL - DEPARTMENT STORES - 0.3%
Federated Department Stores, Inc.* ............. 800 43,050
May Department Stores Company .................. 1,100 72,050
J.C. Penney Company, Inc. ...................... 1,000 72,313
--------
187,413
RETAIL - DRUG STORES - 0.2%
CVS Corporation ................................ 1,200 46,725
Rite Aid Corporation ........................... 600 22,537
Walgreen Company ............................... 1,600 66,100
--------
135,362
RETAIL - FOOD CHAINS - 0.2%
Albertson's, Inc. .............................. 900 46,631
American Stores Company ........................ 600 14,513
Kroger Company* ................................ 1,000 42,875
--------
104,019
RETAIL - GENERAL MERCHANDISE - 1.1%
Costco Companies, Inc.* ........................ 1,000 63,063
Dayton Hudson Corporation ...................... 1,400 67,900
Sears Roebuck .................................. 1,200 73,275
Wal-Mart Stores, Inc. .......................... 6,100 370,575
--------
574,813
RETAIL - SPECIALTY - 0.6%
Circuit City Stores -
Circuit City Group .......................... 700 32,812
Home Depot, Inc. ............................... 2,300 191,044
Payless Shoesource, Inc.* ...................... 144 10,611
Tandy Corporation .............................. 600 31,837
Toys "R" Us, Inc.* ............................. 1,400 32,988
--------
299,292
SAVINGS & LOANS - 0.1%
Golden West Financial .......................... 300 31,894
Washington Mutual, Inc. ........................ 900 39,094
--------
70,988
SERVICES - ADVERTISING/MARKETING - 0.1%
Omnicom Group, Inc. ............................ 700 34,912
- --------------------------------------------------------------------------------
</TABLE>
52 See accompanying notes.
<PAGE> 54
STATEMENTS OF NET ASSETS
JUNE 30, 1998
(UNAUDITED)
SERIES N (MANAGED ASSET ALLOCATION)(CONTINUED)
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
SERVICES - COMMERCIAL & CONSUMER - 0.3%
Cendant Corporation* ........................ 2,591 $ 54,087
Cognizant Corporation ....................... 800 50,400
Service Corporation International ........... 1,300 55,738
Sodexho Marriott Services ................... 75 2,175
----------
162,400
SERVICES - DATA PROCESSING - 0.2%
Automatic Data Processing ................... 1,100 80,163
First Data Corporation ...................... 1,300 43,306
----------
123,469
TELECOMMUNICATION - CELLULAR - 0.2%
Sprint Corporation .......................... 1,500 105,750
TELECOMMUNICATION - LONG DISTANCE - 0.5%
AT&T Corporation ............................ 4,600 262,775
TELECOMMUNICATIONS - 3.1%
Airtouch Communications, Inc.* .............. 1,500 87,656
Alltel Corporation .......................... 800 37,200
Ameritech Corporation ....................... 2,800 125,650
Bell Atlantic Corporation ................... 4,274 195,001
BellSouth Corporation ....................... 2,900 194,663
British Telecom Plc ADR ..................... 400 49,400
Ericsson (L.M.) Telecom Company
ADR (Cl. B) .............................. 2,400 68,700
GTE Corporation ............................. 2,800 155,750
Hong Kong Telecommunications, Ltd. .......... 800 15,100
MCI Communications Corporation .............. 2,200 127,875
SBC Communications, Inc. .................... 5,654 226,160
Telecom Braxileiras S.A. ADR ................ 700 76,431
Telecom New Zealand ADR ..................... 400 13,100
Telefonica De Espana ADR .................... 400 55,625
Vodafone Group Plc ADR ...................... 500 63,031
Worldcom, Inc. .............................. 3,400 164,688
----------
1,656,030
TELEPHONE - 0.3%
Cia De Telecomunicaciones De
Chile S.A. ADR ........................... 425 8,633
Telefonos De Mexico ADR ..................... 1,800 86,512
US WEST, Inc. ............................... 1,449 68,110
----------
163,255
TEXTILES - APPAREL - 0.2%
Benetton Group S.p.a. ADR ................... 2,080 86,580
Springs Industries, Inc. (Cl. A) ............ 300 13,837
----------
100,417
TOBACCO - 0.6%
Fortune Brands, Inc. ........................ 900 34,594
Gallaher Group PLC ADR ...................... 500 10,937
Philip Morris Companies, Inc. ............... 6,800 267,750
----------
313,281
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
U.S. GOVERNMENT & NUMBER MARKET
GOVERNMENT AGENCY SECURITIES OF SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
WASTE MANAGEMENT - 0.1%
Browning-Ferris Industries ........................ 374 $ 12,996
Waste Management, Inc. ............................ 1,396 48,860
-----------
61,856
-----------
Total common stocks - 51.3% ..................................... 27,580,599
U.S. GOVERNMENT & GOVERNMENT AGENCY SECURITIES
- ----------------------------------------------
U.S. GOVERNMENT AGENCIES - 6.4%
Federal Home Loan Banks,
5.55% - 7-1-98 ................................. $ 693,000 693,000
Federal Home Loan Mortgage
Corporation, 5.97% - 2001 ...................... $ 600,000 600,090
Government National Mortgage Association,
#67365, 11.50% - 2013 .......................... $ 28,661 32,187
#353937, 6.00% - 2023 .......................... $ 298,194 292,737
#410777, 7.00% - 2025 .......................... $ 115,269 117,094
#780057, 7.50% - 2025 .......................... $ 68,983 71,070
#2102, 8.00% - 2025 ............................ $ 38,119 39,290
#412429, 8.50% - 2025 .......................... $ 44,661 46,895
#410891, 7.00% - 2026 .......................... $ 244,855 248,707
#426384, 7.00% - 2026 .......................... $ 333,667 338,946
#424476, 7.50% - 2026 .......................... $ 389,782 400,469
#432891, 7.50% - 2026 .......................... $ 83,423 85,679
#402684, 8.00% - 2026 .......................... $ 172,315 178,361
#427029, 8.50% - 2026 .......................... $ 178,309 187,763
#435589, 8.50% - 2026 .......................... $ 95,903 100,991
-----------
2,140,189
U.S. GOVERNMENT SECURITIES - 17.8%
U.S. Treasury Bonds,
6.875% - 2025 .................................. $ 35,000 40,511
6.75% - 2026 ................................... $ 1,740,000 1,990,612
6.625% - 2027 .................................. $ 550,000 620,989
-----------
2,652,112
U.S. Treasury Notes,
6.00% - 1999 ................................... $ 175,000 175,835
6.375% - 1999 .................................. $ 300,000 302,100
5.625% - 2000 .................................. $ 75,000 75,138
6.25% - 2000 ................................... $ 475,000 481,104
5.625% - 2001 .................................. $ 700,000 702,233
6.25% - 2002 ................................... $ 380,000 389,276
5.50% - 2003 ................................... $ 1,000,000 999,300
5.875% - 2005 .................................. $ 75,000 76,359
6.50% - 2005 ................................... $ 100,000 105,530
5.625% - 2006 .................................. $ 100,000 100,330
6.50% - 2006 ................................... $ 175,000 185,675
6.25% - 2007 ................................... $ 1,000,000 1,046,750
6.125% - 2007 .................................. $ 900,000 936,018
5.625% - 2008 .................................. $ 1,300,000 1,317,251
-----------
6,892,899
-----------
Total U.S. government & government
agency securities - 24.2% .................................. 12,978,290
- --------------------------------------------------------------------------------
</TABLE>
53 See accompanying notes.
<PAGE> 55
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
SERIES N (MANAGED ASSET ALLOCATION)(CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
NUMBER MARKET
MISCELLANEOUS ASSETS OF SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSET-BACKED SECURITIES - 0.4%
Advanta Home Equity Loan Trust
(Cl. A2), 5.95% - 2009 .................... $ 180,159 $ 177,198
Airplanes Pass-Through Trust
(Cl. D), 10.875% - 2019 ................... $ 50,000 56,477
-----------
233,675
REAL ESTATE INVESTMENT TRUSTS - 0.0%
Starwood Hotels & Resorts .................... 367 17,731
-----------
Total miscellaneous assets - 0.4% ........................ 251,406
FOREIGN CORPORATE BONDS
- -----------------------
JAPAN - 0.5%
European Investment Bank,
3.00% - 2006(4)............................ 7,000,000 56,238
European Investment Bank,
4.625% - 2003(4) .......................... 17,000,000 142,397
Interamerican Development Bank,
6.00% - 2001(4) ........................... 5,000,000 42,106
KFW International Finance,
6.00% - 1999(4) ........................... 3,000,000 23,264
-----------
Total foreign bonds - 0.5% ............................... 264,005
FOREIGN GOVERNMENT ISSUES
- -------------------------
CANADA - 0.2%
Government Bond,
8.50% - 2002 .............................. 60,000 45,130
6.50% - 2004 .............................. 60,000 43,170
-----------
88,300
FRANCE - 0.2%
O.A.T. Government Bond,
8.50% - 2002(4) ........................... 430,000 83,048
5.50% - 2007(4) ........................... 214,000 37,250
-----------
120,298
GERMANY - 0.4%
Bundersrepub Deutschland,
8.375% - 2001(4) .......................... 130,000 80,102
7.375% - 2005(4) .......................... 125,000 79,798
Deutschland Republic Government
Bond, 6.00% - 20074 ....................... 62,000 37,381
-----------
197,281
UNITED KINGDOM - 0.1%
Treasury Bond, 8.00% - 2003 .................. 29,000 51,728
Treasury Bond, 7.50% - 2006 .................. 12,000 22,005
-----------
73,733
-----------
Total foreign government issues - 0.9% ................... 479,612
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
FOREIGN STOCKS OF SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
AUSTRALIA - 0.0%
Rio Tinto, Ltd. ...................... 1,000 $ 11,890
BELGIUM - 0.2%
Electrabel ........................... 50 14,176
KBC Bancassurance Holdings ........... 1,000 89,492
--------
103,668
DENMARK - 0.1%
Danisco A/S .......................... 1,000 67,180
FRANCE - 0.6%
Axa .................................. 500 56,235
Eridania Beghin-Say S.A .............. 200 44,161
L'Air Liquide ........................ 236 39,075
Pinault-Printemps-Redoute S.A ........ 100 83,691
Societe Generale De Paris ............ 308 64,035
Societe Technip ...................... 400 48,892
--------
336,089
GERMANY - 0.7%
Altana AG ............................ 300 22,853
Bank of Berlin ....................... 2,000 41,883
Bayer AG ............................. 2,000 103,156
Ckag Colonia Konzern AG .............. 300 37,146
Deutsche Bank AG ..................... 500 42,340
M.A.N. AG ............................ 200 77,782
Siemens AG ........................... 400 24,332
Veba AG .............................. 600 40,886
--------
390,378
HONG KONG - 0.2%
Cheung Kong Holdings ................. 5,000 24,585
Hong Kong Electric Holdings, Ltd. .... 9,000 27,876
Hutchinson Whampoa, Ltd. ............. 14,000 73,898
--------
126,359
ITALY - 0.2%
Banco Commerciale Italiane ........... 13,000 77,742
Telecom Italia S.p.a ................. 5,555 40,892
--------
118,634
JAPAN - 0.7%
Bridgestone Corporation .............. 3,000 70,901
Canon, Inc. .......................... 1,000 22,697
Dai Nippon Printing, Ltd. ............ 2,000 31,920
Kao Corporation ...................... 4,000 61,678
Kuraray Company, Ltd. ................ 3,000 25,485
Marui Company, Ltd. .................. 2,000 29,830
Mitsubishi Electric Corporation ...... 4,000 9,194
Mitsubishi Heavy Industries, Ltd. .... 4,000 15,103
Ricoh Corporation, Ltd. .............. 4,000 42,108
Sharp Corporation .................... 2,000 16,198
Takeda Chemical Industries ........... 2,000 53,176
--------
378,290
- -------------------------------------------------------------------------------
</TABLE>
54 See accompanying notes.
<PAGE> 56
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
SERIES N (MANAGED ASSET ALLOCATION)(CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
NUMBER MARKET
FOREIGN STOCKS (CONTINUED) OF SHARES VALUE
- ----------------------------------------------------------------------------------
<S> <C> <C>
MALAYSIA - 0.0%
Malayan Cement Berhad ................................ 12,500 $ 4,069
Sime Darby Berhad .................................... 8,000 5,517
-----------
9,586
NETHERLANDS - 0.3%
CSM NV ............................................... 600 28,817
Ing Groep NV ......................................... 1,500 98,219
Oce NV ............................................... 1,200 51,086
-----------
178,122
NEW ZEALAND - 0.1%
Lion Nathan, Ltd. .................................... 10,000 22,217
SINGAPORE - 0.0%
Cycle & Carriage, Ltd. ............................... 3,000 7,316
SOUTH AFRICA - 0.1%
Anglo American Platinum .............................. 2,000 21,901
SWEDEN - 0.1%
Astra AB -B .......................................... 3,200 63,800
SWITZERLAND - 0.7%
ABB AG-Bearer ........................................ 20 29,536
Nestle S.A ........................................... 20 42,800
Novartis AG .......................................... 26 43,264
Sig Schweizland ...................................... 120 97,705
UBS-Bearer (Union Bank of
Switzerland) ...................................... 400 148,733
-----------
362,038
UNITED KINGDOM - 0.9%
Abbey National PLC ................................... 3,600 64,150
BAA PLC .............................................. 2,300 24,887
Barclays PLC ......................................... 3,000 86,645
Blue Circle Industries PLC ........................... 3,845 21,620
GKN PLC .............................................. 4,000 50,656
HSBC Holdings PLC .................................... 3,000 76,134
Lonrho PLC ........................................... 5,500 25,878
Lonrho Africa PLC* ................................... 3,700 4,537
Tesco PLC ............................................ 10,000 97,524
-----------
452,031
-----------
Total foreign stocks - 4.9% ..................................... 2,649,499
TEMPORARY CASH INVESTMENTS
- --------------------------
MONEY MARKET FUNDS - 1.9%
Vista Treasury International Money
Market Fund ....................................... $ 991,815 991,815
-----------
Total investments - 99.5% ....................................... 53,490,527
Cash and other assets, less liabilities - 0.5% .................. 244,855
-----------
Total net assets - 100.0% ....................................... $53,735,382
===========
- ----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SERIES O (EQUITY INCOME)
NUMBER MARKET
COMMON STOCKS OF SHARES VALUE
- ------------------------------------------------------------------------------------
<S> <C> <C>
ALUMINUM - 0.5%
Reynolds Metals Company ................................ 15,600 $ 872,625
AMERICAN GOLD - 0.5%
Newmont Mining Corporation ............................. 38,800 916,650
AUTO PARTS & EQUIPMENT - 1.4%
Genuine Parts Company .................................. 42,100 1,455,081
TRW, Inc. .............................................. 23,000 1,256,375
-----------
2,711,456
AUTOMOBILES - 0.8%
General Motors Corporation ............................. 23,800 1,590,137
BANKS - MAJOR REGIONAL - 8.2%
Banc One Corporation ................................... 29,567 1,650,208
BankBoston Corporation ................................. 19,400 1,079,125
Bankers Trust Corporation .............................. 11,700 1,357,932
First Union Corporation ................................ 23,280 1,356,060
Fleet Financial Group, Inc. ............................ 17,300 1,444,550
Mellon Bank Corporation ................................ 49,400 3,439,475
Mercantile Bankshares Corporation ...................... 18,100 630,106
J.P. Morgan & Company, Inc. ............................ 18,000 2,108,250
National City Corporation .............................. 14,200 1,008,200
PNC Bank Corporation ................................... 14,500 780,281
Wells Fargo & Company .................................. 3,300 1,217,700
-----------
16,071,887
BANKS - MONEY CENTER - 0.8%
Chase Manhattan Corporation ............................ 20,816 1,571,608
BEVERAGES - ALCOHOLIC - 1.7%
Anheuser-Busch Companies, Inc. ......................... 42,700 2,014,906
Brown-Forman Corporation (Cl. B) ....................... 19,000 1,220,750
-----------
3,235,656
BIOTECHNOLOGY - 0.3%
Amgen, Inc.* ........................................... 8,800 575,300
BUILDING MATERIALS - 0.4%
Armstrong World Industries, Inc. ....................... 12,400 835,450
CHEMICALS - BASIC - 3.5%
Dow Chemical Company ................................... 26,600 2,571,888
(E.I.) du Pont de Nemours & Company..................... 25,600 1,910,400
Great Lakes Chemical Company ........................... 31,300 1,234,394
Olin Corporation ....................................... 27,800 1,158,912
-----------
6,875,594
CHEMICALS - DIVERSIFIED - 0.9%
Hercules, Inc. ......................................... 36,800 1,513,400
Octel Corporation* ..................................... 7,825 155,522
-----------
1,668,922
- -------------------------------------------------------------------------------------
</TABLE>
55 See accompanying notes.
<PAGE> 57
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
SERIES O (EQUITY INCOME) (CONTINUED)
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
CHEMICALS - SPECIALTY - 2.9%
Eastman Chemical Company ..................... 7,100 $ 441,975
Imperial Chemical Industries
PLC ADR ................................... 14,600 941,700
Lubrizol Corporation ......................... 17,700 535,425
Minnesota Mining & Manufacturing
Company ................................... 19,700 1,619,094
Nalco Chemical Company ....................... 27,300 958,912
Witco Corporation ............................ 37,300 1,091,025
-----------
.............................................. 5,588,131
COMPUTER HARDWARE - 0.4%
Hewlett-Packard Company ...................... 14,100 844,237
CONTAINERS & PACKAGING - 0.7%
Union Camp Corporation ....................... 27,700 1,374,612
ELECTRIC COMPANIES - 7.0%
Baltimore Gas & Electric Company ............. 18,400 571,550
Central & Southwest Corporation .............. 18,200 489,125
DQE, Inc. .................................... 24,600 885,600
Dominion Resources, Inc. ..................... 24,400 994,300
Duke Energy Corporation ...................... 29,500 1,747,875
Entergy Corporation .......................... 23,200 667,000
FirstEnergy Corporation ...................... 44,757 1,376,278
GPU, Inc. .................................... 16,900 639,031
Houston Industries, Inc. ..................... 38,900 1,201,037
Peco Energy Corporation ...................... 34,500 1,006,969
Pacificorp ................................... 33,800 764,725
Southern Company ............................. 51,000 1,412,062
Teco Energy, Inc. ............................ 23,600 632,775
Unicom Corporation ........................... 41,000 1,437,563
-----------
.............................................. 13,825,890
ELECTRICAL EQUIPMENT - 2.6%
Amp, Inc. .................................... 36,100 1,240,938
Cooper Industries, Inc. ...................... 17,888 982,722
General Electric Company ..................... 22,100 2,011,100
Hubbell, Inc. (Cl. B) ........................ 18,400 765,900
-----------
.............................................. 5,000,660
FINANCIAL - DIVERSE - 3.7%
American General Corporation ................. 25,700 1,829,519
Fannie Mae ................................... 28,900 1,755,675
H & R Block, Inc. ............................ 28,900 1,217,413
Transamerica Corporation ..................... 9,900 1,139,737
Travelers Group, Inc. ........................ 22,600 1,370,125
-----------
.............................................. 7,312,469
FOODS - 3.8%
General Mills, Inc. .......................... 29,200 1,996,550
Heinz (H.J.) Company ......................... 22,350 1,254,394
Kellogg Company .............................. 20,500 770,031
McCormick & Company, Inc.
(Non-Voting) .............................. 44,200 1,578,769
Quaker Oats Company .......................... 26,600 1,461,338
Sara Lee Corporation ......................... 7,000 391,562
-----------
7,452,644
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS(CONTINUED) OF SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
HEALTH CARE - DIVERSE - 2.4%
Abbott Laboratories .......................... 29,200 $1,193,550
American Home Products Corporation ........... 56,400 2,918,700
Johnson & Johnson ............................ 8,000 590,000
----------
4,702,250
HEALTH CARE - PHARMACEUTICALS - 1.2%
Pharmacia & Upjohn, Inc. ..................... 51,795 2,389,044
HOMEBUILDING - 0.7%
PPG Industries, Inc. ......................... 20,700 1,439,944
HOUSEHOLD FURNISHINGS & APPLIANCES - 0.7%
Whirlpool Corporation ........................ 20,800 1,430,000
HOUSEHOLD PRODUCTS - 1.2%
Kimberly-Clark Corporation ................... 32,600 1,495,525
Tupperware Corporation ....................... 27,900 784,688
----------
2,280,213
INSURANCE - BROKERS - 0.3%
Hilb, Rogal & Hamilton Company ............... 700 10,937
Willis Corroon Group PLC ADR ................. 49,500 621,844
----------
632,781
INSURANCE - MULTILINE - 0.5%
Lincoln National Corporation ................. 11,200 1,023,400
INSURANCE - PROPERTY - 2.7%
Exel Limited ................................. 16,200 1,260,562
Safeco Corporation ........................... 36,800 1,672,100
St. Paul Companies, Inc. ..................... 55,304 2,326,225
----------
5,258,887
IRON & STEEL - 0.3%
USX - U.S. Steel Group, Inc. ................. 19,300 636,900
LODGING - HOTELS - 0.4%
Hilton Hotels Corporation .................... 26,400 752,400
MACHINERY - DIVERSE - 0.3%
GATX Corporation ............................. 15,200 666,900
MANUFACTURING - SPECIALIZED - 0.5%
Pall Corporation ............................. 50,900 1,043,450
MANUFACTURING - DIVERSIFIED - 0.5%
AlliedSignal, Inc. ........................... 24,000 1,065,000
MEDICAL PRODUCTS & SUPPLIES - 1.8%
Bausch & Lomb, Inc. .......................... 20,300 1,017,538
Baxter International, Inc. ................... 12,000 645,750
United States Surgical Corporation ........... 42,400 1,934,500
----------
3,597,788
METALS & MINING - 0.2%
Inco, Ltd. ................................... 32,000 436,000
MISCELLANEOUS - 0.4%
Phelps Dodge Corporation ..................... 14,300 817,781
- --------------------------------------------------------------------------------
</TABLE>
56 See accompanying notes.
<PAGE> 58
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
SERIES O (EQUITY INCOME)(CONTINUED)
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
OIL - DOMESTIC - 1.6%
Atlantic-Richfield Company ......................... 32,900 $ 2,570,313
Unocal Corporation ................................. 16,200 579,150
-----------
3,149,463
OIL - INTERNATIONAL - 8.5%
Amoco Corporation .................................. 63,200 2,630,700
British Petroleum PLC ADR .......................... 14,100 1,244,325
Chevron Corporation ................................ 29,400 2,442,038
Exxon Corporation .................................. 39,800 2,838,238
Mobil Corporation .................................. 25,900 1,984,587
Occidental Petroleum Corporation ................... 41,300 1,115,100
Royal Dutch Petroleum
Company NY Shares ............................... 24,300 1,331,944
Texaco, Inc. ....................................... 36,400 2,172,625
USX Marathon Group ................................. 26,600 912,712
-----------
16,672,269
OIL & GAS - EXPLORATION & PRODUCTION - 1.2%
Amerada Hess Corporation ........................... 27,300 1,482,731
Phillips Petroleum Company ......................... 16,600 799,913
-----------
2,282,644
PAPER & FOREST PRODUCTS - 1.3%
Consolidated Papers, Inc. .......................... 33,800 921,050
Georgia-Pacific Corporation
(GP Group) ...................................... 9,700 571,694
Georgia-Pacific Corporation
(Timber Group) .................................. 7,200 165,600
International Paper Company ........................ 22,100 950,300
-----------
2,608,644
PERSONAL CARE - 0.9%
International Flavors & Fragrances, Inc. ........... 42,600 1,850,437
PHOTOGRAPHY/IMAGING - 1.0%
Eastman Kodak Company .............................. 26,600 1,943,462
PUBLISHING - 3.2%
R.R. Donnelley & Sons Company ...................... 32,500 1,486,875
Dow Jones & Company, Inc. .......................... 22,100 1,232,075
Dun & Bradstreet Corporation ....................... 31,500 1,137,938
Knight-Ridder, Inc. ................................ 29,000 1,596,813
Readers Digest Association, Inc. (Cl. A) ........... 31,500 854,437
-----------
6,308,138
RAILROADS - 2.6%
Burlington Northern Santa Fe
Corporation ..................................... 10,300 1,011,331
Norfolk Southern Corporation ....................... 74,200 2,212,088
Union Pacific Corporation .......................... 43,800 1,932,675
-----------
5,156,094
REAL ESTATE - 0.2%
Rouse Company ...................................... 10,800 339,525
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
NUMBER MARKET
COMMON STOCKS(CONTINUED) OF SHARES VALUE
- ---------------------------------------------------------------------------------------
<S> <C> <C>
RETAIL - DEPARTMENT STORES - 1.3%
May Department Stores Company ........................... 14,400 $ 943,200
J.C. Penney Company, Inc. ............................... 21,200 1,533,025
------------
2,476,225
TELECOMMUNICATIONS - LONG DISTANCE - 0.9%
AT&T Corporation ........................................ 32,400 1,850,850
TELECOMMUNICATIONS - 6.6%
Alltel Corporation ...................................... 59,000 2,743,500
BCE, Inc. ............................................... 27,100 1,156,831
Bell Atlantic Corporation ............................... 36,000 1,642,500
Bellsouth Corporation ................................... 19,300 1,295,512
Frontier Corporation .................................... 30,400 957,600
GTE Corporation ......................................... 36,100 2,008,063
SBC Communications, Inc. ................................ 52,638 2,105,520
Southern New England
Telecommunications ................................... 16,800 1,100,400
------------
13,009,926
TELEPHONE - 0.5%
US WEST, Inc. ........................................... 19,300 907,100
TEXTILES - APPAREL - 0.1%
Unifi, Inc. ............................................. 4,700 160,975
TOBACCO - 3.0%
Fortune Brands, Inc. .................................... 33,000 1,268,437
Philip Morris Companies, Inc. ........................... 58,100 2,287,688
RJR Nabisco Holdings Corporation ........................ 38,100 904,875
UST, Inc. ............................................... 54,300 1,466,100
------------
5,927,100
TRANSPORTATION - MISCELLANEOUS (BUS/TRUCKING) - 0.2%
Alexander & Baldwin, Inc. ............................... 12,600 366,975
WASTE MANAGEMENT - 1.4%
Browning-Ferris Industries .............................. 34,200 1,188,450
Waste Management, Inc. .................................. 42,100 1,473,500
------------
2,661,950
------------
Total common stocks - 88.7% ......................................... 174,168,443
U.S. GOVERNMENT & GOVERNMENT AGENCY SECURITIES
- ----------------------------------------------
U.S. GOVERNMENT SECURITIES - 0.9%
U.S. Treasury Bonds, 6.00% - 2026 ....................... $ 400,000 416,312
U.S. Treasury Notes,
5.875% - 1999 ........................................ $ 100,000 100,454
6.25% - 2000 ......................................... $ 100,000 101,285
6.50% - 2001 ......................................... $ 400,000 410,076
5.75% - 2003 ......................................... $ 400,000 404,124
5.625% - 2006 ........................................ $ 200,000 200,660
7.00% - 2006 ......................................... $ 100,000 109,168
------------
Total U.S. government & government
agency securities - 0.9% ............................. .............. 1,742,079
- ---------------------------------------------------------------------------------------
</TABLE>
57 See accompanying notes.
<PAGE> 59
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
SERIES O (EQUITY INCOME)(CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
NUMBER MARKET
REAL ESTATE INVESTMENT TRUSTS OF SHARES VALUE
- -----------------------------------------------------------------------------------
<S> <C> <C>
REAL ESTATE - 2.9%
Crescent Real Estate
Equities Company .............................. 31,100 $ 1,045,737
Security Capital Pacific Trust ................... 18,900 425,250
Simon DeBartolo Group, Inc. ...................... 49,436 1,606,670
Starwood Hotels & Resorts ........................ 44,749 2,161,936
Weingarten Realty Investors ...................... 11,500 480,844
-------------
Total real estate investment trusts - 2.9% .................... 5,720,437
FOREIGN STOCKS
- --------------
UNITED KINGDOM - 1.0%
Lonrho PLC ....................................... 36,300 170,798
Lonrho Africa PLC* ............................... 24,200 29,678
Smith & Nephew PLC ............................... 215,100 537,444
Tomkins PLC ...................................... 235,400 1,284,341
-------------
Total foreign stocks - 1.0% ................................... 2,022,261
TEMPORARY CASH INVESTMENTS
- --------------------------
MONEY MARKET FUNDS - 0.6%
Vista Treasury Institutional
Money Market Fund - 0.6% ...................... $1,198,568 1,198,568
COMMERCIAL PAPER
- ----------------
BEVERAGES - 0.4%
Coca-Cola Company,
5.50% - 7-8-98 ................................ $ 700,000 699,252
FINANCIAL SERVICES - 5.8%
Associates Financial Services,
5.52% - 7-28-98 ............................... $4,000,000 3,983,320
IBM Credit Corporation,
5.50% - 7-8-98 ................................ $7,500,000 7,491,979
-------------
11,475,299
-------------
Total commercial paper - 6.2% ................................. 12,174,551
-------------
Total investments - 100.3% .................................... 197,026,339
Liabilities, less cash
and other assets - (0.3%) .................................. (602,436)
-------------
Total net assets - 100.0% ..................................... $ 196,423,903
=============
- -----------------------------------------------------------------------------------
</TABLE>
SERIES P (HIGH YIELD)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
NUMBER MARKET
CORPORATE BONDS OF SHARES VALUE
- -----------------------------------------------------------------------------------
<S> <C> <C>
AEROSPACE/DEFENSE - 1.6%
Burke Industries, Inc.,
10.0% - 2007 .................................. $ 125,000 $ 126,562
Sequa Industries, Inc.,
9.375% - 2003 ................................. $ 50,000 52,063
-------------
178,625
AUTOMOTIVE - 3.1%
Breed Technologies, Inc.,
9.25% - 2008 .................................. $ 175,000 172,813
Federal-Mogul Corporation,
7.875% - 2010 ................................. $ 175,000 175,437
-------------
348,250
BANKING - 2.8%
Bay View Capital Corporation,
9.125% - 2007 ................................. $ 100,000 102,750
FCB/NC Capital Trust, Inc.,
8.05% - 2028 .................................. $ 150,000 155,625
Homeside, Inc., 11.25% - 2003 .................... $ 50,000 59,250
-------------
317,625
BEVERAGES - 0.5%
Delta Beverage Group,
9.75% - 2003 .................................. $ 50,000 52,375
BROKERAGE - 0.8%
SI Financing, Inc., 9.50% - 2026(1) .............. 3,500 94,281
BUILDING MATERIALS - 2.4%
International Comfort Products,
8.625% - 2008 ................................. $ 200,000 199,000
Knoll, Inc., 10.875% - 2006 ...................... $ 63,000 71,662
-------------
270,662
CHEMICALS - 0.5%
Envirodyne Industries, Inc.,
12.00% - 2000 ................................. $ 50,000 53,125
CONSUMER CYCLICAL - OTHER - 1.8%
American ECO Corporation,
9.625% - 2008 ................................. $ 200,000 201,000
CONSUMER PRODUCTS - 4.0%
AMF Bowling Worldwide, Inc.,
10.875% - 2006 ................................ $ 50,000 54,375
Chattem, Inc., 8.875% - 2008 ..................... $ 175,000 174,125
Revlon Consumer Products,
8.125% - 2006 ................................. $ 150,000 149,062
Shop Vac Corporation,
10.625% - 2003 ................................ $ 50,000 54,750
-------------
432,312
CONSTRUCTION MACHINERY - 2.7%
AGCO Corporation, 8.50% - 2006 ................... $ 100,000 102,875
Columbus McKinnon Corporation,
8.50% - 2008 .................................. $ 175,000 172,375
Titan Wheel International, Inc.,
8.75% - 2007 .................................. $ 25,000 25,812
-------------
301,062
- -----------------------------------------------------------------------------------
</TABLE>
58 See accompanying notes.
<PAGE> 60
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
SERIES P (HIGH YIELD)(CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
CORPORATE BONDS (CONTINUED) AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
ELECTRIC - 1.9%
AES Corporation, 10.25% - 2006 .......... $100,000 $ 108,750
Cal Energy Company, Inc.,
9.50% - 2006 ......................... 100,000 108,125
----------
216,875
ENERGY - INDEPENDENT - 2.1%
COHO Energy, Inc., 8.875% - 2007 ........ 100,000 95,000
Seagull Energy Corporation,
8.625% - 2005 ........................ 50,000 51,313
Southwest Royalties, Inc.,
10.50% - 2004 ........................ 100,000 83,000
----------
229,313
ENERGY - OTHER - 2.0%
AEI Holding Company, 10.0% - 2007 ....... 100,000 98,750
P&L Coal Holdings Corporation,
8.875% - 2008 ........................ 125,000 128,594
----------
227,344
ENTERTAINMENT - 1.7%
Premier Parks, 9.75% - 2007 ............. 175,000 190,313
FINANCE - OTHER - 1.5%
B.F. Saul REIT, 9.75% - 2008 ............ 175,000 172,812
FINANCIAL COMPANIES - 0.5%
Dollar Financial Group, Inc.,
10.875% - 2006 ....................... 50,000 53,875
FOOD - 3.4%
Carrols Corporation, 11.50% - 2003 ...... 100,000 104,875
Chiquita Brands International, Inc.,
10.25% - 2006 ........................ 25,000 27,125
Nash Finch Company, 8.50% - 2008 ........ 150,000 148,875
Pilgrims Pride Corporation,
10.875% - 2003 ....................... 100,000 104,125
----------
385,000
GAMING - 7.5%
Boyd Gaming Corporation,
9.50% - 2007 ......................... 100,000 103,000
Empress Entertainment,
8.125% - 2006 ........................ 200,000 200,500
Hard Rock Hotel, Inc., 9.25% - 2005 ..... 100,000 102,000
MGM Grand, Inc., 6.95% - 2005 ........... 125,000 124,219
Mirage Resorts, Inc., 6.625% - 2005 ..... 150,000 148,875
Rio Hotel & Casino, Inc.,
9.50% - 2007 ......................... 150,000 158,250
----------
836,844
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
CORPORATE BONDS (CONTINUED) AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
HEALTHCARE 4.4%
Multicare Companies, Inc.,
9.0% - 2007 ......................... $150,000 $ 147,375
Packard Bioscience Company,
9.375% - 2007 ........................ 75,000 73,125
Prime Medical Services,
8.75% - 2008 ......................... 100,000 97,875
Tenet Healthcare Corporation,
8.125% - 2008 ........................ 175,000 175,875
----------
494,250
HOME CONSTRUCTION - 2.0%
Hovnanian Enterprise, 9.75% - 2005 ...... 100,000 99,000
Toll Corporation, 7.75% - 2007 .......... 125,000 123,125
----------
222,125
INDUSTRIAL SERVICES - 0.5%
Iron Mountain, Inc.,
10.125% - 2006 ....................... 50,000 54,125
MEDIA - CABLE - 9.4%
Adelphia Communications,
8.375% - 2008 ........................ 100,000 100,500
Century Communications,
8.375% - 2007 ........................ 75,000 77,250
Century Communications,
9.50% -2005 .......................... 125,000 135,313
CF Cable TV, Inc., 11.625% - 2005 ....... 100,000 113,500
Comcast Corporation,
9.125% - 2006 ........................ 50,000 53,625
CSC Holdings, Inc., 7.875% -2018 ........ 25,000 26,437
Diamond Holdings, 9.125% - 2008 ......... 150,000 156,000
Jones Intercable, Inc.,
7.625% -2008 ......................... 100,000 101,500
Lenfest Communications,
10.50% - 2006 ........................ 175,000 203,875
Rogers Cablesystems, 9.625% - 2002 ...... 50,000 53,375
Rogers Communications, Inc.,
9.125% - 2006 ........................ 30,000 30,375
----------
1,051,750
MEDIA - NONCABLE - 5.2%
Allbritton Communications,
9.75% - 2007 ......................... 100,000 110,000
Big Flower Press Holdings, Inc.,
8.875% - 2007 ........................ 125,000 127,187
Golden Books Publishing,
7.65% - 2002 ......................... 50,000 39,000
Heritage Media Corporation,
8.75% - 2006 ......................... 50,000 53,375
Hollinger International Publishing,
8.625% - 2005 ........................ 50,000 52,125
- --------------------------------------------------------------------------------
</TABLE>
59 See accompanying notes.
<PAGE> 61
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
SERIES P (HIGH YIELD)(CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
CORPORATE BONDS (CONTINUED) AMOUNT VALUE
- ----------------------------------------------------------------------------------
<S> <C> <C>
MEDIA - NONCABlE (CONTINUED)
K-III Communications Corporation,
10.25% - 2004 .................................... $ 20,000 $ 21,525
Valassis Communications,
9.55% - 2003 ..................................... 40,000 44,800
Viacom, Inc., 8.0% - 2006 ........................... 125,000 128,750
----------
576,762
METALS - 3.8%
AK Steel Corporation, 9.125% - 2006.................. 50,000 52,250
Ameristeel Corporation,
8.75% - 2008 ..................................... 100,000 100,000
Simcala, Inc., 9.625% - 2006 ........................ 100,000 99,000
Wheeling Pittsburgh Corporation,
9.25% - 2007 ..................................... 100,000 102,500
WHX Corporation, 10.50% - 2005 ...................... 75,000 76,313
----------
430,063
PACKAGING & CONTAINERS - 4.2%
Huntsman Packaging Corporation,
9.125 - 2007 ..................................... 125,000 124,375
Indesco International, Inc.,
9.75% - 2008 ..................................... 175,000 172,375
Packaged Ice, Inc., 9.75% - 2005 .................... 125,000 126,250
Plastic Containers, Inc.,
10.00% - 2006 .................................... 50,000 53,750
----------
476,750
REFINING - 2.1%
Crown Central Petroleum,
10.875% - 2005 ................................... 125,000 132,500
Giant Industries, Inc., 9.0% - 2007 ................. 100,000 102,250
----------
234,750
RETAILERS - 2.1%
Cole National Group, 9.875% - 2006 .................. 25,000 27,000
Specialty Retailers, Inc., 8.50% - 2005 ............. 150,000 154,500
Zale's Corporation, 8.50% - 2007 .................... 50,000 51,125
----------
232,625
TELECOMMUNICATIONS - 9.7%
Centennial Cellular, 8.875% - 2001 .................. 100,000 104,000
Comcast Cellular Holdings, Inc.,
9.50% - 2007 ..................................... 150,000 156,562
Intermedia Communications,
8.50% - 2008 ..................................... 125,000 125,000
Mastec, Inc., 7.75% - 2008 .......................... 125,000 119,375
Mcleodusa, Inc., 8.375% - 2008 ...................... 175,000 175,438
MJD Communications, Inc.,
9.50% - 2008 ..................................... 175,000 179,156
RCN Corporation, 10.0% - 2007 ....................... 100,000 102,750
Satelites Mexicanos, Inc.,
10.125% - 2004 ................................... 125,000 122,187
----------
1,084,468
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
NUMBER MARKET
CORPORATE BONDS (CONTINUED) OF SHARES VALUE
- ----------------------------------------------------------------------------------
<S> <C> <C>
TEXTILES - 1.8%
Delta Mills, Inc., 9.625% - 2007 ...................... $ 100,000 $ 98,375
Westpoint Stevens, 7.875% - 2008 ...................... $ 100,000 99,750
-----------
198,125
TOBACCO - 0.5%
Dimon, Inc., 8.875% - 2006 ............................ $ 25,000 25,594
Standard Commercial Tobacco
Corporation, 8.875% - 2005 ......................... $ 25,000 25,000
-----------
50,594
TRANSPORTATION - OTHER - 1.5%
Allied Holdings, Inc., 8.625% - 2007 .................. $ 100,000 102,250
Teekay Shipping Corporation,
8.32% - 2008 ....................................... $ 65,000 67,113
-----------
169,363
-----------
Total corporate bonds - 88.0% ................................... 9,837,443
PREFERRED STOCKS
- ----------------
BANKS & CREDIT - 1.6%
California Federal Bank, 9.125% ....................... 6,500 177,125
MEDIA - CABLE - 1.9%
CSC Holdings, Inc., 11.125% ........................... 827 93,702
Time Warner, Inc. ..................................... 108 120,150
-----------
213,852
MEDIA - NONCABLE - 0.7%
Primedia, Inc., 10.0% - 2008 .......................... 800 84,400
-----------
Total preferred stocks - 4.2% ................................... 475,377
-----------
Total investments- 92.2% ........................................ 10,312,820
Cash and other assets, less liabilities - 7.8% .................. 870,489
-----------
Total net assets - 100.0% ....................................... $11,183,309
===========
SERIES S(SOCIAL AWARENESS)
COMMON STOCKS
- --------------
AUTO PARTS & EQUIPMENT - 0.8%
Snap-On Tools ......................................... 25,500 924,375
BANKS - MAJOR REGIONAL - 4.8%
Banc One Corporation .................................. 22,600 1,264,711
Bank of New York Company, Inc. ........................ 24,600 1,492,913
First Chicago NBD Corporation ......................... 11,000 974,875
Northern Trust Corporation ............................ 22,200 1,692,750
-----------
5,425,249
- ------------------------------------------------------------------------------------
</TABLE>
60 See accompanying notes.
<PAGE> 62
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
SERIES S (SOCIAL AWARENESS)(CONTINUED)
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
BANKS - MONEY CENTER - 1.6%
Chase Manhattan Corporation ................... 23,600 $1,781,800
BEVERAGES - SOFT DRINK - 4.7%
Coca-Cola Company ............................. 40,200 3,437,100
PepsiCo, Inc. ................................. 31,900 1,313,881
Whitman Corporation ........................... 22,000 504,625
----------
5,255,606
BROADCAST MEDIA - 2.9%
Comcast Corporation (Cl. A) ................... 20,600 836,231
Tele-Communications, Inc.* .................... 22,700 872,531
Viacom, Inc. (Cl. B)* ......................... 26,900 1,566,925
----------
3,275,687
CHEMICALS - BASIC - 0.8%
Praxair, Inc. ................................. 18,800 880,075
CHEMICALS - SPECIALTY - 0.7%
Fuller (H.B.) Company ......................... 7,600 421,325
Nalco Chemical Company ........................ 10,300 361,788
----------
783,113
COMMUNICATION EQUIPMENT - 1.0%
ADC Telecommunications, Inc.* ................. 11,800 431,069
Tellabs, Inc.* ................................ 10,100 723,412
----------
1,154,481
COMPUTER HARDWARE - 3.6%
Compaq Computer Corporation ................... 17,000 482,375
Hewlett-Packard Company ....................... 17,600 1,053,800
International Business Machines
Corporation ................................ 22,200 2,548,837
----------
4,085,012
COMPUTER SOFTWARE/SERVICES - 5.5%
Affiliated Computer Services, Inc. - A* ....... 25,900 997,150
American Management Systems, Inc.* ............ 37,900 1,134,631
Microsoft Corporation* ........................ 37,200 4,031,550
----------
6,163,331
COMPUTERS - NETWORKING - 1.8%
Cisco Systems, Inc.* .......................... 22,350 2,057,597
CONTAINERS & PACKAGING - 0.2%
Crown Cork & Seal Company, Inc. ............... 5,500 261,250
DISTRIBUTION - FOOD & HEALTH - 1.1%
Cardinal Health, Inc. ......................... 13,800 1,293,750
ELECTRIC COMPANIES - 0.3%
New Century Energies, Inc. .................... 8,300 377,131
ELECTRICAL EQUIPMENT - 0.5%
Hubbell, Inc. (Cl. B) ......................... 12,500 520,313
ELECTRONICS - DISTRIBUTION - 0.6%
W.W. Grainger, Inc. ........................... 13,000 647,562
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
ELECTRONICS - SEMICONDUCTORS - 2.8%
Analog Devices, Inc.* ......................... 33,000 $ 810,563
Intel Corporation ............................. 31,200 2,312,700
----------
3,123,263
ENTERTAINMENT - 1.1%
Time Warner, Inc. ............................. 14,300 1,221,756
FINANCIAL - DIVERSE - 7.7%
American Express Company ...................... 13,400 1,527,600
American General Corporation .................. 21,100 1,502,056
Federal Home Loan Mortgage
Corporation ................................ 28,800 1,355,400
Federal National Mortgage Corporation ......... 22,000 1,336,500
Finova Group,Inc., ............................ 24,400 1,381,650
SunAmerica, Inc. .............................. 27,600 1,585,275
----------
8,688,481
FOODS - 1.7%
General Mills, Inc. ........................... 12,500 854,688
Interstate Bakeries ........................... 33,400 1,108,462
----------
1,963,150
HEALTH CARE - DIVERSE - 2.0%
Johnson & Johnson ............................. 30,332 2,236,985
HEALTH CARE - LONG TERM CARE - 0.6%
HEALTHSOUTH Corporation* ...................... 25,000 667,188
HOUSEHOLD FURNISHING & APPLIANCES - 1.2%
Leggett & Platt, Inc. ......................... 56,200 1,405,000
HOUSEHOLD PRODUCTS - 4.1%
Colgate-Palmolive Company ..................... 16,000 1,408,000
Kimberly-Clark Corporation .................... 16,000 734,000
Procter & Gamble Company, The ................. 27,400 2,495,113
----------
4,637,113
INSURANCE - LIFE/HEALTH - 1.2%
Unum Corporation .............................. 23,800 1,320,900
INSURANCE - MULTI-LINE - 2.0%
American International Group, Inc. ............ 15,450 2,255,700
INSURANCE - PROPERTY - 1.2%
Chubb Corporation ............................. 17,000 1,366,375
INVESTMENT BANK/BROKERAGE - 0.5%
Edwards (A.G.), Inc. .......................... 11,700 499,444
LEISURE TIME PRODUCTS - 0.9%
Mattel, Inc. .................................. 24,000 1,015,500
MACHINERY - DIVERSE - 0.9%
Deere & Company ............................... 19,200 1,015,200
MANUFACTURING - DIVERSIFIED - 1.0%
Illinois Tool Works, Inc. ..................... 17,200 1,147,025
MEDICAL PRODUCTS & SUPPLIES - 0.8%
ATL Ultrasound, Inc.* ......................... 9,500 433,437
Guidant Corporation ........................... 7,200 513,450
----------
946,887
- --------------------------------------------------------------------------------
</TABLE>
61 See accompanying notes.
<PAGE> 63
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
SERIES S (SOCIAL AWARENESS)
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C>
NATURAL GAS - 0.4%
Consolidated Natural Gas Company ...................... 8,000 $ 471,000
OIL - INTERNATIONAL - 1.2%
Amoco Corporation ..................................... 31,800 1,323,675
OIL & GAS - DRILLING & EQUIPMENT - 0.3%
Ensco International, Inc. ............................. 9,600 166,800
Smith International, Inc.* ............................ 4,800 167,100
------------
333,900
OIL & GAS - EXPLORATION/PRODUCTION - 1.3%
Anadarko Petroleum Corporation ........................ 12,000 806,250
Apache Corporation .................................... 22,000 693,000
------------
1,499,250
PAPER & FOREST PRODUCTS 0.2%
Mead Corporation ...................................... 6,700 212,725
PHARMACEUTICALS - 5.3%
Forest Laboratories, Inc.* ............................ 15,600 557,700
Merck & Company, Inc. ................................. 21,800 2,915,750
Schering-Plough Corporation ........................... 26,600 2,437,225
------------
5,910,675
PHOTOGRAPHY / IMAGING - 0.9%
Xerox Corporation ..................................... 9,900 1,006,088
PUBLISHING - 0.5%
McGraw-Hill Companies, Inc. ........................... 7,100 579,094
RAILROADS - 0.4%
Norfolk Southern Corporation .......................... 14,300 426,319
RESTAURANTS - 1.8%
McDonald's Corporation ................................ 15,200 1,048,800
Starbucks Corporation* ................................ 18,500 988,594
------------
2,037,394
RETAIL - APPAREL - 0.6%
Talbots, Inc. ......................................... 23,500 615,406
RETAIL - DEPARTMENT STORES - 3.0%
Dollar General Corporation ............................ 30,468 1,205,390
Kohl's Corporation* ................................... 13,200 684,750
Proffitt's, Inc.* ..................................... 38,000 1,534,250
------------
3,424,390
RETAIL - DRUG STORES - 1.5%
Rite Aid Corporation .................................. 45,400 1,705,337
RETAIL - FOOD CHAINS - 1.6%
American Stores Company ............................... 30,500 737,719
Kroger Company* ....................................... 24,500 1,050,437
------------
1,788,156
RETAIL - GENERAL MERCHANDISE - 2.4%
Consolidated Stores Corporation* ...................... 17,300 627,125
Dayton Hudson Corporation ............................. 42,800 2,075,800
------------
2,702,925
- --------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C>
SAVINGS & LOAN - 0.6%
Ahmanson (H.F.) & Company ............................. 9,000 $ 639,000
SERVICES - ADVERTISING/MARKETING - 1.6%
Omnicom Group, Inc. ................................... 35,000 1,745,625
SERVICES - COMMERCIAL & CONSUMER - 0.9%
Service Corporation International ..................... 23,800 1,020,425
SERVICES - COMPUTER SYSTEMS - 1.0%
Sungard Data Systems, Inc.* ........................... 28,500 1,093,687
TELECOMMUNICATIONS - 5.9%
Ameritech Corporation ................................. 24,000 1,077,000
Bell Atlantic Corporation ............................. 10,100 1,569,500
Bellsouth Corporation ................................. 22,600 1,517,025
SBC Communications, Inc. .............................. 38,200 1,528,000
WorldCom, Inc.* ....................................... 20,500 992,969
------------
6,684,494
TELECOMMUNICATIONS - CELLULAR - 1.2%
Sprint Corporation .................................... 19,500 1,374,750
TELECOMMUNICATIONS - LONG DISTANCE - 1.9%
AT&T Corporation ...................................... 37,100 2,119,338
TRUCKING - 0.5%
Consolidated Freightways Corporation* ................. 20,000 278,750
FDX Corporation* ...................................... 4,500 282,375
------------
561,125
------------
Total common stocks - 95.6% ...................................... 107,671,077
Cash and other assets, less liabilities - 4.4% ................... 5,008,722
------------
Total net assets - 100.0% ........................................ $112,679,799
============
SERIES V (VALUE)
COMMON STOCKS
- --------------
AEROSPACE/DEFENSE - 1.6%
Lockheed Martin Corporation ........................... 2,000 $ 211,750
AGRICULTURAL PRODUCTS - 2.0%
Agribrands International, Inc.* ....................... 2,200 66,550
Archer-Daniels-Midland Company ........................ 10,600 205,375
------------
271,295
AIRFREIGHT - 3.0%
Air Express International Corporation ................. 7,500 200,625
Monaco Coach Corporation* ............................. 7,200 210,600
------------
411,225
ALUMINUM - 1.1%
Aluminum Company of America ........................... 1,600 105,500
Easco, Inc. ........................................... 4,000 40,250
------------
145,750
- --------------------------------------------------------------------------------------
</TABLE>
62 See accompanying notes.
<PAGE> 64
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
SERIES V (VALUE)(CONTINUED)
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- -----------------------------------------------------------------------------
<S> <C> <C>
BUILDING MATERIALS - 0.6%
American Standard Companies, Inc.* ....... 1,700 $ 75,969
CHEMICALS - BASIC - 2.2%
Praxair, Inc. ............................ 2,000 93,625
Solutia, Inc. ............................ 6,900 197,944
--------
291,569
CHEMICALS - DIVERSIFIED - 1.2%
Engelhard Corporation .................... 8,000 162,000
CHEMICALS - SPECIALTY - 3.1%
Buch Boake Allen, Inc.* .................. 5,700 167,081
Material Sciences Corporation* ........... 22,000 255,750
--------
422,831
COMMUNICATION EQUIPMENT - 5.2%
Antec Corporation* ....................... 10,000 231,875
Comverse Technology, Inc.* ............... 8,000 415,000
Transcrypt International, Inc.* .......... 17,800 59,986
--------
706,861
COMPUTER HARDWARE - 2.9%
CHS Electronics, Inc.* ................... 5,800 103,675
International Business Machines
Corporation ........................... 2,500 287,031
--------
390,706
COMPUTER SOFTWARE/SERVICES - 7.1%
American Management Systems, Inc.* ....... 5,800 173,637
Computer Sciences Corporation* ........... 4,800 307,200
DST Systems, Inc.* ....................... 3,000 168,000
Electronics For Imaging, Inc.* ........... 6,400 135,200
Rational Software Corporation* ........... 12,000 183,000
--------
967,037
CONTAINER - METAL & GLASS - 1.9%
Ball Corporation ......................... 6,500 261,219
CONTAINERS & PACKAGING - 1.8%
Bemis Company, Inc. ...................... 3,600 147,150
Crown Cork & Seal Company, Inc. .......... 2,000 95,000
--------
242,150
ELECTRICAL EQUIPMENT - 2.1%
Honeywell, Inc. .......................... 2,000 167,125
Hubbell, Inc. (Cl.B) ..................... 2,900 120,712
--------
287,837
ELECTRONICS - INSTRUMENTATION - 2.3%
E G & G, Inc. ............................ 10,500 315,000
ENTERTAINMENT - 0.7%
Metromedia International Group, Inc.* .... 8,000 95,500
FOODS - 4.3%
Chiquita Brands International, Inc. ...... 15,000 210,937
Dean Foods Company ....................... 4,000 219,750
Hormel Foods Corporation ................. 4,200 145,163
--------
575,850
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- -----------------------------------------------------------------------------
<S> <C> <C>
GAMING & LOTTERY - 0.7%
Circus Circus Enterprises, Inc.* ............... 5,500 $ 93,156
HEALTH CARE - LONG TERM CARE - 1.7%
Integrated Health Services, Inc. ............... 6,000 225,000
HEALTH CARE - SPECIALIZED SERVICES - 0.9%
Allegiance Corporation ......................... 2,300 117,875
HOUSEHOLD FURNISHINGS & APPLIANCES - 2.5%
Meadowcraft, Inc.* ............................. 6,500 71,500
O'Sullivan Industries Holdings, Inc.* .......... 19,200 268,800
--------
340,300
HOUSEHOLD PRODUCTS - 1.3%
Kimberly-Clark Corporation ..................... 3,900 178,913
INSURANCE - LIFE/HEALTH - 2.5%
Aflac, Inc. .................................... 6,000 181,875
Unum Corporation ............................... 2,800 155,400
--------
337,275
IRON & STEEL - 0.7%
Cleveland-Cliffs, Inc. ......................... 1,700 91,163
LEISURE TIME PRODUCTS - 2.9%
Hasbro, Inc. ................................... 10,000 393,125
MANUFACTURING - DIVERSIFIED - 0.8%
AEP Industries, Inc.* .......................... 4,800 103,800
MEDICAL PRODUCTS & SUPPLIES - 3.8%
ATL Ultrasound, Inc.* .......................... 3,000 136,875
Dentsply International, Inc. ................... 5,300 132,500
SonoSight, Inc.* ............................... 1,000 7,312
Sunrise Medical, Inc.* ......................... 16,000 240,000
--------
516,687
NATURAL GAS - 2.1%
Equitable Resources, Inc. ...................... 9,500 289,750
OFFICE EQUIPMENT & SUPPLIES - 1.1%
Corporate Express, Inc.* ....................... 12,000 152,250
OIL & GAS - DRILLING & EQUIPMENT - 1.2%
Tuboscope, Inc.* ............................... 8,000 158,000
OIL & GAS - EXPLORATION & PRODUCTION - 6.3%
Apache Corporation ............................. 4,000 126,000
Chieftain International, Inc.* ................. 7,600 180,025
Enron Corporation .............................. 3,300 178,406
MCN Energy Group, Inc. ......................... 5,500 136,813
YFP Sociedad Anomima ADR ....................... 7,500 225,469
--------
846,713
OIL & GAS - INTERNATIONAL - 1.8%
Tesoro Petroleum Corporation* .................. 15,000 238,125
- --------------------------------------------------------------------------------
</TABLE>
63 See accompanying notes.
<PAGE> 65
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
SERIES V (VALUE)(CONTINUED)
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C>
PHARMACEUTICALS - 5.5%
Dura Pharmaceuticals, Inc.* ........................... 8,700 $ 194,662
Mylan Laboratories, Inc. .............................. 15,000 450,937
Teva Pharmaceutical Industries,
Ltd. ADR ........................................... 2,800 98,525
-----------
744,124
PUBLISHING - NEWSPAPER - 3.1%
E.W. Scripps Company .................................. 4,200 230,213
News Corporation, Ltd. ADR ............................ 6,000 192,750
-----------
422,963
RAILROADS - 2.0%
RailAmerica, Inc.* .................................... 45,000 275,625
RESTAURANTS - 2.3%
Morrison Health Care, Inc. ............................ 5,600 103,600
Sonic Corporation* .................................... 9,400 210,325
-----------
313,925
RETAIL - APPAREL - 1.9%
Talbots, Inc. ......................................... 10,000 261,875
RETAIL - DEPARTMENT STORES - 0.6%
Saks Holdings, Inc.* .................................. 3,000 82,875
RETAIL - FOOD CHAINS - 2.0%
American Stores Corporation* .......................... 11,400 275,738
RETAIL - GENERAL MERCHANDISE - 1.3%
Consolidated Stores Corporation* ...................... 5,000 181,250
RETAIL - SPECIALTY - 0.8%
Payless ShoeSource, Inc. .............................. 1,500 110,531
SERVICES - COMMERCIAL & CONSUMER - 5.4%
Angelica Corporation .................................. 17,300 363,300
Pinkerton's, Inc.* .................................... 17,400 361,050
-----------
724,350
-----------
Total common stocks - 98.3% ...................................... 13,310,567
Cash and other assets, less liabilities - 1.7% ................... 228,068
-----------
Total net assets - 100.0% ........................................ $13,538,635
===========
SERIES X (SMALL CAP)
COMMON STOCKS
- -------------
AEROSPACE/DEFENSE - 0.8%
Triumph Group, Inc.* .................................. 800 $ 33,600
AIRLINES - 1.8%
Midwest Express Holdings, Inc.* ....................... 2,000 72,375
BEVERAGES - ALCOHOLIC - 0.8%
Beringer Wine Estates Holdings, Inc. (Cl.B)* .......... 700 30,844
- -------------------------------------------------------------------------------------
</TABLE>
SERIES X (SMALL CAP)(CONTINUED)
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C>
BROADCAST MEDIA - 1.7%
Cox Radio, Inc. (Cl. A)* ............................. 1,600 $ 69,200
BUILDING MATERIALS - 1.4%
Centex Construction Products, Inc. ................... 1,500 57,750
COMMUNICATION EQUIPMENT - 1.8%
Com21, Inc.* ......................................... 2,000 42,500
ICG Communications, Inc.* ............................ 900 32,906
--------
...................................................... 75,406
COMPUTER SOFTWARE/SERVICES - 10.4%
Amdocs Limited* ...................................... 1,500 22,688
CBT Group Limited Company
PLC ADR* .......................................... 1,000 53,500
Dendrite International, Inc.* ........................ 900 33,862
Documentum, Inc.* .................................... 400 19,200
Legato Systems, Inc.* ................................ 1,200 46,800
Mercury Interactive Corporation* ..................... 700 31,237
NOVA Corporation* .................................... 1,400 50,050
Sykes Enterprises, Inc.* ............................. 900 18,056
Systems & Computer Technology
Corporation* ...................................... 2,500 67,500
Unigraphics Solutions, Inc.* ......................... 700 9,800
Visio Corporation* ................................... 1,500 71,625
--------
...................................................... 424,318
DISTRIBUTION - FOOD/HEALTH - 1.5%
Hain Food Group, Inc.* ............................... 2,500 64,687
ELECTRONICS - SEMICONDUCTORS - 1.8%
MMC Networks, Inc.* .................................. 1,300 41,438
Sipex Corporation* ................................... 900 19,350
Uniphase Corporation* ................................ 200 12,556
--------
...................................................... 73,344
ENTERTAINMENT - 1.0%
Engineering Animation, Inc.* ......................... 700 42,700
FINANCIAL - DIVERSE - 1.8%
ARM Financial Group, Inc. (Cl.A) ..................... 1,300 28,762
LandAmerica Financial Group, Inc. .................... 800 45,800
--------
...................................................... 74,562
FOODS - 2.7%
American Italian Pasta
Company (Cl.A)* ................................... 3,000 111,750
FOOTWEAR - 0.9%
Maxwell Shoe Company, Inc. (Cl.A)* ................... 1,800 35,775
HEALTH CARE - DIVERSE - 0.6%
Ocular Sciences, Inc.* ............................... 700 22,750
- -------------------------------------------------------------------------------------
</TABLE>
64 See accompanying notes.
<PAGE> 66
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
SERIES X (SMALL CAP)(CONTINUED)
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
HEALTH CARE - LONG TERM CARE - 1.6%
Hanger Orthopedic Group, Inc.* ............... 3,200 $ 65,200
HEALTH CARE - SPECIALIZED SERVICES - 4.1%
Advance Paradigm, Inc.* ...................... 1,400 51,450
Medical Manager Corporation* ................. 1,000 27,625
Parexel International* ....................... 1,200 43,650
Renal Care Group, Inc.* ...................... 1,000 44,062
--------
166,787
HOSPITAL MANAGEMENT - 0.7%
Province Healthcare Company* ................. 1,000 27,688
IRON & STEEL - 0.5%
Oregon Steel Mills, Inc. ..................... 1,000 18,625
LEISURE TIME PRODUCTS - 0.4%
Family Golf Centers, Inc.* ................... 600 15,187
LODGING - HOTELS - 1.7%
ResortQuest International, Inc.* ............. 4,200 68,513
MANUFACTURING - DIVERSIFIED - 1.2%
MSC Industrial Direct
Company, Inc., (Cl.A)* .................... 1,700 48,450
OIL & GAS - DRILLING & EQUIPMENT - 0.6%
Camco International, Inc. .................... 300 23,362
PHARMACEUTICALS - 0.7%
Schein Pharmaceutical, Inc.* ................. 1,000 26,625
REAL ESTATE INVESTMENT TRUST - 0.5%
Glenborough Realty Trust, Inc. ............... 700 18,463
RESTAURANTS - 0.8%
Au Bon Pain Company, Inc. (Cl.A)* ............ 3,000 33,000
RETAIL - APPAREL - 7.1%
American Eagle Outfitters, Inc.* ............. 700 26,994
Goody's Family Clothing, Inc.* ............... 400 21,950
K & G Men's Center, Inc.* .................... 1,700 38,463
Pacific Sunwear of California, Inc.* ......... 1,800 63,000
Stage Stores, Inc.* .......................... 700 31,675
The Finish Line, Inc. (Cl.A)* ................ 2,100 59,063
The Men's Wearhouse, Inc.* ................... 1,500 49,500
--------
290,645
RETAIL - BUILDING SUPPLIES - 1.6%
Rental Service Corporation* .................. 1,900 63,888
RETAIL - DEPARTMENT STORES - 1.7%
99 Cents Only Stores* ........................ 1,700 70,550
RETAIL - DRUG STORES - 0.5%
Duane Reade, Inc.* ........................... 700 21,000
RETAIL - GENERAL MERCHANDISE - 1.6%
Linens 'N Things, Inc.* ...................... 2,200 67,237
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS(CONTINUED) OF SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
RETAIL - SPECIALTY - 3.7%
Michaels Stores, Inc.* ....................... 1,500 $ 52,922
School Specialty, Inc.* ...................... 1,300 21,287
Sunglass Hut International, Inc.* ............ 3,200 35,400
United Auto Group, Inc.* ..................... 1,900 41,563
--------
151,172
SAVINGS & LOANS - 1.0%
Sterling Financial Corporation* .............. 1,800 40,950
SERVICES - ADVERTISING/MARKETING - 8.5%
Acxiom Corporation* .......................... 1,800 44,888
Boron, LePore & Associates, Inc.* ............ 2,000 76,000
HA-LO Industries, Inc.* ...................... 600 18,675
Lamar Advertising Company* ................... 3,000 107,625
Metris Companies, Inc. ....................... 1,600 102,000
--------
349,188
SERVICES - COMMERCIAL & CONSUMER - 13.8%
Adminstaff, Inc.* ............................ 700 32,288
Bright Horizons, Inc.* ....................... 1,000 28,000
First Consulting Group, Inc.* ................ 800 21,000
Integrated Electrical Services, Inc.* ........ 2,000 40,250
International Telecommunication
Data Systems, Inc.* ....................... 3,300 95,700
Profit Recovery Group International, Inc.*.... 2,500 69,844
Rent-Way, Inc.* .............................. 2,900 88,450
Romac International, Inc.* ................... 3,800 115,425
Sylvan Learning Systems, Inc.* ............... 1,200 39,300
Travel Services International, Inc.* ......... 1,000 32,875
--------
563,132
SERVICES - DATA PROCESSING - 2.6%
Envoy Corporation* ........................... 1,100 52,113
Lason, Inc.* ................................. 1,000 54,550
--------
106,613
SERVICES - FACILITIES/ENVIRONMENTAL - 0.8%
Metzler Group, Inc.* ......................... 900 32,962
TELECOMMUNICATION - LONG DISTANCE - 4.1%
IDT Corporation* ............................. 2,100 63,131
Lycos, Inc.* ................................. 600 45,225
Saville Systems Ireland PLC-ADR* ............. 1,200 60,150
--------
168,506
TELEPHONE - 1.0%
Intermedia Communications, Inc.* ............. 600 25,162
McLeodUSA, Inc. (Cl.A)* ...................... 400 15,550
--------
40,712
TEXTILES - APPAREL - 1.4%
Columbia Sportswear* ......................... 2,000 38,000
Russell Corporation .......................... 700 21,131
--------
59,131
- --------------------------------------------------------------------------------
</TABLE>
65 See accompanying notes.
<PAGE> 67
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
SERIES X (SMALL CAP)(CONTINUED)
<TABLE>
<CAPTION>
NUMBER MARKET
COMMON STOCKS(CONTINUED) OF SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
WASTE MANAGEMENT - 2.2%
Eastern Environmental Services, Inc.* ........... 600 $ 20,400
Superior Services, Inc.* ........................ 2,300 69,144
----------
89,544
----------
Total common stocks - 93.4% .................. 3,816,191
----------
Cash and other assets, less liabilities - 6.6% 269,774
----------
Total net assets - 100.0% .................... $4,085,965
==========
</TABLE>
The identified cost of investments owned at June 30, 1998, was the same for
federal income tax and financial statement purposes. *Securities on which no
cash dividend was paid during the preceding twelve months.
ADR (American Depository Receipt)
PP (Private Placement)
(1) Trust preferred securities - Securities issued by financial institutions to
augment their tier 1 capital base. Issued on a subordinate basis relative to
senior rates or debentures. Institutions may defer cash payments for up to 10
pay periods.
(2) Variable rate security which may be reset the first of each month.
(3) Variable rate security which may be reset the first of each quarter.
(4) Principal amount on foreign bond is reflected in local currency
(e.g., Danish krone) while market value is reflected in U.S. dollars.
(5) Step rate security in which rate may change over the life of the bond.
(6) Variable rate security which may be reset the first of each semi-annual
payment.
(7) Floating rate security which may be reset the first of each semi-annual
payment.
- --------------------------------------------------------------------------------
66 See accompanying notes.
<PAGE> 68
BALANCE SHEETS
JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SERIES B SERIES C SERIES D SERIES E
SERIES A (GROWTH- (MONEY (WORLDWIDE (HIGH GRADE
(GROWTH) INCOME) MARKET) EQUITY) INCOME)
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments, at value (identified cost $636,717,801,
$1,090,338,016, $29,863,617, $288,903,879
and $130,839,390 respectively) ....................... $1,105,581,529 $1,141,189,346 $ 29,871,252 $320,809,830 $ 134,876,450
Short-term commercial paper, at market or at
amortized cost which approximates market
value (identified cost $0, $1,597,854, $154,553,205,
$0 and $0, respectively) ........................... -- 1,597,854 154,549,746 -- --
Cash ................................................. 39,420,724 125,420,925 117,013 6,286,058 114,879
Receivables:
Fund shares sold .................................... 1,655,164 908,878 277,273 445,907 125,150
Securities sold ..................................... 7,758,822 -- 269,384 16,501,365 60,300
Interest ............................................ 108,345 962,748 349,051 17,642 2,085,928
Dividends ........................................... 996,489 2,086,598 -- 558,824 --
Prepaid expenses ..................................... 23,326 2,170 4,815 -- 3,900
Foreign taxes recoverable ............................ -- -- -- 259,418 --
-------------- -------------- ------------ ------------ -------------
Total assets ...................................... $1,155,544,399 $1,272,168,519 $185,438,534 $344,879,044 $ 137,266,607
============== ============== ============ ============ =============
LIABILITIES AND NET ASSETS
Liabilities:
Payable for:
Securities purchased ............................... $ 778,640 $ 1,732,640 $ 965,695 $ 16,335,634 $ --
Fund shares redeemed ............................... 2,851,964 2,591,492 -- 595,992 139,436
Forward foreign exchange contracts ................... -- -- -- 528,855 --
Other liabilities:
Management fees .................................... 732,698 837,075 85,225 286,296 91,436
Custodian fees ..................................... 8,173 7,661 1,068 114,748 3,138
Transfer and administration fees ................... 44,276 50,517 8,017 13,155 5,720
Professional fees .................................. 13,807 19,027 3,265 35,632 9,543
Miscellaneous ...................................... 24,854 111,949 3,691 80,926 21,819
-------------- -------------- ------------ ------------ -------------
Total liabilities ................................. 4,454,412 5,350,361 1,066,961 17,991,238 271,092
Net Assets:
Paid in capital ...................................... 661,990,365 862,661,369 181,258,423 277,656,736 141,520,964
Undistributed net investment income .................. 2,560,396 10,753,900 3,108,974 1,431,577 4,194,170
Accumulated undistributed net realized
gain (loss) on sale of investments
and foreign currency transactions .................. 17,675,498 342,551,559 -- 16,443,946 (12,756,679)
Net unrealized appreciation
in value of investments, futures and translation
of assets and liabilities in foreign currency ....... 468,863,728 50,851,330 4,176 31,355,547 4,037,060
-------------- -------------- ------------ ------------ -------------
Net assets ......................................... 1,151,089,987 1,266,818,158 184,371,573 326,887,806 136,995,515
-------------- -------------- ------------ ------------ -------------
Total liabilities and net assets .................. $1,155,544,399 $1,272,168,519 $185,438,534 $344,879,044 $ 137,266,607
============== ============== ============ ============ =============
Capital shares authorized ............................ Indefinite Indefinite Indefinite Indefinite Indefinite
Capital shares outstanding ........................... 35,680,020 31,866,124 15,083,819 51,298,262 11,471,364
Net asset value per share (net assets
divided by shares outstanding) ..................... $32.26 $39.75 $12.22 $6.37 $11.94
============== ============== ============ ============ =============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
67
<PAGE> 69
BALANCE SHEETS (CONTINUED)
JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SERIES K SERIES M SERIES N
SERIES J (GLOBAL (SPECIALIZED (MANAGED SERIES O
(EMERGING AGGRESSIVE ASSET ASSET (EQUITY
GROWTH) BOND) ALLOCATION) ALLOCATION) INCOME)
------- ----- ----------- ----------- -------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments, at value (identified cost $188,063,093,
$15,225,467, $44,668,750, $44,303,379,
and $157,958,253, respectively) .................. $ 228,157,061 $ 14,556,876 $47,469,481 $53,490,527 $184,851,788
Short-term commercial paper, at market or at
amortized cost which approximates market
value (identified cost $0, $0, $0, $0
and $12,174,671, respectively) .................... -- -- -- -- 12,174,551
Cash ............................................... 9,283,804 -- 208 -- --
Receivables:
Fund shares sold .................................. 281,441 14,690 45,846 46,152 359,330
Securities sold ................................... 1,802,533 303 3,783 -- 18,573
Interest .......................................... 13,224 397,952 160,470 340,707 32,997
Dividends ......................................... 94,879 -- 22,123 32,825 394,494
Prepaid expenses ................................... 4,700 1,154 285 2,669 4,047
Foreign taxes recoverable .......................... -- 8,477 25,447 2,560 3,797
------------- ------------ ----------- ----------- ------------
Total assets ..................................... $ 239,637,642 $ 14,979,452 $47,727,643 $53,915,440 $197,839,577
============= ============ =========== =========== ============
LIABILITIES AND NET ASSETS
Liabilities:
Payable for:
Securities purchased ............................. $ 2,347,701 $ -- $ -- $ -- $ 899,417
Fund shares redeemed ............................. 213,830 8,023 32,575 122,675 328,007
Other liabilities:
Management fees .................................. 152,884 9,783 41,117 45,769 169,770
Custodian fees ................................... 4,577 5,013 1,445 1,542 4,804
Transfer and administration fees ................. 9,462 5,826 7,045 7,253 7,946
Professional fees ................................ 704 501 2,313 630 --
Miscellaneous .................................... 2,495 7,834 4,263 2,189 5,730
Cash overdraft ................................... -- 66,061 -- -- --
------------- ------------ ----------- ----------- ------------
Total liabilities ............................... 2,731,653 103,041 88,758 180,058 1,415,674
Net Assets:
Paid in capital .................................... 174,983,557 14,745,027 41,535,600 43,913,425 163,127,999
Undistributed net investment income (loss) ......... (284,934) 859,619 173,965 579,161 1,632,362
Accumulated undistributed net realized
gain (loss) on sale of investments, futures
and foreign currency transactions ................ 22,113,398 (52,137) 3,128,934 56,051 4,769,897
Net unrealized appreciation (depreciation)
in value of investments, futures and
translation of assets and liabilities in
foreign currency .................................. 40,093,968 (676,098) 2,800,386 9,186,745 26,893,645
------------- ------------ ----------- ----------- ------------
Net assets ....................................... 236,905,989 14,876,411 47,638,885 53,735,382 196,423,903
------------- ------------ ----------- ----------- ------------
Total liabilities and net assets ................ $ 239,637,642 $ 14,979,452 $47,727,643 $53,915,440 $197,839,577
============= ============ =========== =========== ============
Capital shares authorized .......................... Indefinite Indefinite Indefinite Indefinite Indefinite
Capital shares outstanding ......................... 11,401,329 1,429,756 3,755,705 3,572,304 10,983,565
Net asset value per share (net assets
divided by shares outstanding) .................... $20.78 $10.40 $12.68 $15.04 $17.88
============= ============ =========== =========== ============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
68
<PAGE> 70
BALANCE SHEETS (CONTINUED)
JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SERIES S
SERIES P (SOCIAL- SERIES V SERIES X
(HIGH YIELD) AWARENESS) (VALUE) (SMALL CAP)
------------ ---------- ------- -----------
<S> <C> <C> <C> <C>
ASSETS
Investments, at value
(identified cost $10,211,207, $76,527,428,
$12,004,999 and $3,371,904, respectively) ...... $10,312,820 $107,671,077 $13,310,567 $ 3,816,191
Cash ........................................... 614,379 5,632,618 524,619 419,226
Receivables:
Fund shares sold .............................. 31,767 137,710 20,115 30,009
Securities sold ............................... -- 954,697 -- 37,677
Interest ...................................... 231,262 18,377 2,825 2,201
Dividends ..................................... -- 90,496 12,277 369
Prepaid expenses ............................... 233 1,857 118 33
----------- ------------ ----------- -----------
Total assets ................................. $11,190,461 $114,506,832 $13,870,521 $ 4,305,706
=========== ============ =========== ===========
LIABILITIES AND NET ASSETS
Liabilities:
Payable for:
Securities purchased ......................... $ 2,166 $ 1,621,408 $ 310,592 $ 209,564
Fund shares redeemed ......................... -- 110,065 4,456 2,972
Other liabilities:
Management fees .............................. -- 71,208 8,471 --
Custodian fees ............................... 650 992 100 1,464
Transfer and administration fees ............. 483 4,522 570 --
Professional fees ............................ 184 17,585 7,128 4,162
Miscellaneous ................................ 3,669 1,253 569 1,579
----------- ------------ ----------- -----------
Total liabilities ........................... 7,152 1,827,033 331,886 219,741
Net Assets:
Paid in capital ................................ 10,687,787 74,914,770 12,025,103 3,915,463
Undistributed net investment income (loss) ..... 368,523 176,583 38,194 (235)
Accumulated undistributed net realized
gain (loss) on sale of investments, futures and
foreign currency transactions ................ 25,386 6,444,797 169,770 (273,550)
Net unrealized appreciation in value
of investments ................................ 101,613 31,143,649 1,305,568 444,287
----------- ------------ ----------- -----------
Net assets ................................... 11,183,309 112,679,799 13,538,635 4,085,965
----------- ------------ ----------- -----------
Total liabilities and net assets ............ $11,190,461 $114,506,832 $13,870,521 $ 4,305,706
=========== ============ =========== ===========
Capital shares authorized ...................... Indefinite Indefinite Indefinite Indefinite
Capital shares outstanding ..................... 633,513 4,504,229 919,772 393,180
Net asset value per share (net assets
divided by shares outstanding) ............... $17.65 $25.02 $14.72 $10.39
=========== ============ =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
69
<PAGE> 71
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SERIES B SERIES C SERIES D SERIES E
SERIES A (GROWTH- (MONEY (WORLDWIDE (HIGH GRADE
(GROWTH) INCOME) MARKET) EQUITY) INCOME)
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends ..................................... $ 6,140,252 $ 12,183,288 $ -- $ 3,839,313 $ --
Interest ...................................... 1,174,267 3,810,122 3,758,259 971,882 5,001,756
------------ ------------- ---------- ------------ -----------
7,314,519 15,993,410 3,758,259 4,811,195 5,001,756
Less foreign tax expense ...................... -- -- -- (342,967) --
------------ ------------- ---------- ------------ -----------
Total investment income ................... 7,314,519 15,993,410 3,758,259 4,468,228 5,001,756
EXPENSES:
Management fees ............................... 4,078,904 4,745,239 331,076 1,580,314 515,694
Custodian fees ................................ 16,625 16,990 -- 238,015 6,203
Transfer/maintenance fees ..................... 3,312 3,024 3,498 2,966 2,513
Administration fees ........................... 244,734 284,714 29,844 229,146 31,847
Directors' fees ............................... 7,644 -- -- 3,982 5,997
Professional fees ............................. 15,861 20,900 3,942 7,964 5,371
Reports to shareholders ....................... 39,454 25,722 5,626 21,358 7,191
Registration fees ............................. 756 906 -- 10,498 107
Other expenses ................................ 18,104 19,200 -- 23,763 15,191
------------ ------------- ---------- ------------ -----------
Total expenses ............................ 4,425,394 5,116,695 373,986 2,118,006 590,114
------------ ------------- ---------- ------------ -----------
Net investment income ..................... 2,889,125 10,876,715 3,384,273 2,350,222 4,411,642
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain during the period on:
Investments .................................. 17,919,373 342,824,994 -- 19,797,647 1,059,918
Foreign currency transactions ................ -- -- -- 470,878 --
------------ ------------- ---------- ------------ -----------
Net realized gain ......................... 17,919,373 342,824,994 -- 20,268,525 1,059,918
Net change in unrealized appreciation
(depreciation) during the period on:
Investments .................................. 160,174,111 (260,775,913) 8,006 17,574,680 (305,361)
Translation of assets and liabilities
in foreign currencies ..................... -- -- -- (1,429,413) --
------------ ------------- ---------- ------------ -----------
Net unrealized appreciation (depreciation) 160,174,111 (260,775,913) 8,006 16,145,267 (305,361)
------------ ------------- ---------- ------------ -----------
Net gain .................................. 178,093,484 82,049,081 8,006 36,413,792 754,557
------------ ------------- ---------- ------------ -----------
Net increase in net assets resulting
from operations ........................ $180,982,609 $ 92,925,796 $3,392,279 $ 38,764,014 $ 5,166,199
============ ============= ========== ============ ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
70
<PAGE> 72
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SERIES K SERIES M SERIES N
SERIES J (GLOBAL (SPECIALIZED (MANAGED SERIES O
(EMERGING AGGRESSIVE ASSET ASSET (EQUITY
GROWTH) BOND) ALLOCATION) ALLOCATION) INCOME)
------- ----- ----------- ----------- -------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends .................................... $ 576,731 $ -- $ 349,818 $ 213,995 $ 2,237,712
Interest ..................................... 144,756 981,781 378,305 678,221 428,715
------------ --------- ----------- ----------- -----------
721,487 981,781 728,123 892,216 2,666,427
Less foreign tax expense ..................... -- (21,871) (29,943) (5,332) (3,023)
------------ --------- ----------- ----------- -----------
Total investment income .................. 721,487 959,910 698,180 886,884 2,663,404
EXPENSES:
Management fees .......................... 883,240 57,707 238,822 230,162 888,633
Custodian fees ........................... 5,111 9,313 8,836 8,759 23,958
Transfer/maintenance fees ................ 2,799 2,414 2,067 1,957 3,199
Administration fees ...................... 52,995 33,462 40,747 40,357 39,988
Directors' fees .......................... 2,053 109 351 291 1,504
Professional fees ........................ 1,522 3,260 2,855 1,160 --
Reports to shareholders .................. 8,291 543 4,866 2,805 8,379
Registration fees ........................ 17 701 47 -- 56
Other expenses ........................... 6,151 423 1,447 584 2,069
------------ --------- ----------- ----------- -----------
Total expenses ........................... 962,179 107,932 300,038 286,075 967,786
Reimbursement of expenses ................ -- (38,300) -- -- --
------------ --------- ----------- ----------- -----------
Net expenses ................................. 962,179 69,632 300,038 286,075 967,786
------------ --------- ----------- ----------- -----------
Net investment income (loss) ............. (240,692) 890,278 398,142 600,809 1,695,618
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) during the period on:
Investments ................................. 22,214,260 115,341 3,143,254 91,093 4,879,038
Foreign currency transactions ............... (192,736) 5,679 (2,333) (1,558)
------------ --------- ----------- ----------- -----------
Net realized gain (loss) .................. 22,214,260 (77,395) 3,148,933 88,760 4,877,480
Net change in unrealized appreciation
(depreciation) during the period on:
Investments ................................. (1,213,133) (28,152) 1,464,613 4,128,035 3,344,466
Translation of assets and liabilities
in foreign currencies .................... -- (231,536) 185 (19,359) 192
------------ --------- ----------- ----------- -----------
Net unrealized appreciation
(depreciation) ........................ (1,213,133) (259,688) 1,464,798 4,108,676 3,344,658
------------ --------- ----------- ----------- -----------
Net gain (loss) .......................... 21,001,127 (337,083) 4,613,731 4,197,436 8,222,138
------------ --------- ----------- ----------- -----------
Net increase in net assets resulting
from operations ....................... $ 20,760,435 $ 553,195 $ 5,011,873 $ 4,798,245 $ 9,917,756
============ ========= =========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
71
<PAGE> 73
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SERIES S
SERIES P (SOCIAL- SERIES V SERIES X
(HIGH YIELD) AWARENESS) (VALUE) (SMALL CAP)
------------ ---------- ------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends .................................... $ 719 $ 499,258 $ 54,631 $ 4,638
Interest ..................................... 384,666 105,127 12,359 11,188
--------- ----------- ----------- ---------
Total investment income .................. 385,385 604,385 66,990 15,826
EXPENSES:
Management fees .............................. 34,146 377,657 38,444 16,779
Custodian fees ............................... 3,763 2,583 1,521 5,464
Transfer/maintenance fees .................... 632 2,610 614 470
Administration fees .......................... 2,049 22,659 2,306 1,510
Directors' fees .............................. 181 842 219 25
Professional fees ............................ 3,037 15,697 7,307 6,303
Reports to shareholders ...................... 693 3,147 186 98
Registration fees ............................ 86 6 5 187
Other expenses ............................... -- 2,623 268 594
--------- ----------- ----------- ---------
Total expenses ........................... 44,587 427,824 50,870 31,430
Reimbursement of expenses ................... (34,146) -- (22,594) (16,779)
--------- ----------- ----------- ---------
Net expenses ................................. 10,441 427,824 28,276 14,651
--------- ----------- ----------- ---------
Net investment income .................... 374,944 176,561 38,714 1,175
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) during the period on:
Investments ................................. 27,356 6,778,245 173,863 (53,051)
--------- ----------- ----------- ---------
Net realized gain (loss) ................. 27,356 6,778,245 173,863 (53,051)
Net change in unrealized appreciation
(depreciation) during the period on
investments ................................. (28,426) 7,626,840 960,131 325,355
--------- ----------- ----------- ---------
Net unrealized appreciation (depreciation) (28,426) 7,626,840 960,131 325,355
--------- ----------- ----------- ---------
Net gain (loss) .......................... (1,070) 14,405,085 1,133,994 272,304
--------- ----------- ----------- ---------
Net increase in net assets
resulting from operations .............. $ 373,874 $14,581,646 $ 1,172,708 $ 273,479
========= =========== =========== =========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
72
<PAGE> 74
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SERIES B SERIES C SERIES D SERIES E
SERIES A (GROWTH- (MONEY (WORLDWIDE) (HIGH GRADE
(GROWTH) INCOME) MARKET) EQUITY) INCOME)
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income ...................... $ 2,889,125 $ 10,876,715 $ 3,384,273 $ 2,350,222 $ 4,411,642
Net realized gain .......................... 17,919,373 342,824,994 -- 20,268,525 1,059,918
Unrealized appreciation (depreciation)
during the period ....................... 160,174,111 (260,775,913) 8,006 16,145,267 (305,361)
--------------- --------------- ------------- ------------- -------------
Net increase in net assets resulting
from operations ........................ 180,982,609 92,925,796 3,392,279 38,764,014 5,166,199
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ...................... (5,787,007) (20,380,168) (6,397,306) (4,184,565) (8,568,936)
Net realized gain .......................... (73,869,447) (129,457,129) -- (23,945,010) --
--------------- --------------- ------------- ------------- -------------
Total distributions to shareholders ...... (79,656,454) (149,837,297) (6,397,306) (28,129,575) (8,568,936)
CAPITAL SHARE TRANSACTIONS (a):
Proceeds from sale of shares ............... 157,726,309 115,829,732 219,716,250 66,010,886 41,537,247
Dividends reinvested ....................... 79,656,454 149,837,297 6,397,306 28,129,575 8,568,936
Shares redeemed ............................ (187,547,898) (140,239,791) (136,751,786) (63,668,755) (50,616,466)
--------------- --------------- ------------- ------------- -------------
Net increase (decrease) from capital share
transactions ............................ 49,834,865 125,427,238 89,361,770 30,471,706 (510,283)
--------------- --------------- ------------- ------------- -------------
Total increase (decrease) in net assets 151,161,020 68,515,737 86,356,743 41,106,145 (3,913,020)
NET ASSETS:
Beginning of period ........................ 999,928,967 1,198,302,421 98,014,830 285,781,661 140,908,535
--------------- --------------- ------------- ------------- -------------
End of period .............................. $ 1,151,089,987 $ 1,266,818,158 $ 184,371,573 $ 326,887,806 $ 136,995,515
=============== =============== ============= ============= =============
Undistributed net investment income at
end of period ............................ $2,560,396 $10,753,900 $3,108,974 $1,431,577 $4,194,170
=============== =============== ============= ============= =============
(a) Shares issued and redeemed
Shares sold ............................. 5,064,048 2,762,960 17,804,708 10,136,334 3,436,602
Dividends reinvested .................... 2,571,222 3,659,924 530,017 4,367,946 736,162
Shares redeemed ......................... (5,975,879) (3,362,055) (11,072,668) (9,750,080) (4,208,269)
--------------- --------------- ------------- ------------- -------------
Net increase (decrease) ............. 1,659,391 3,060,829 7,262,057 4,754,200 (35,505)
=============== =============== ============= ============= =============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
73
<PAGE> 75
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SERIES K SERIES M SERIES N
SERIES J (GLOBAL (SPECIALIZED (MANAGED SERIES O
(EMERGING AGGRESSIVE ASSET ASSET (EQUITY
GROWTH) BOND) ALLOCATION) ALLOCATION) INCOME)
------- ----- ----------- ----------- -------
<S> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income (loss) ................ $ (240,692) $ 890,278 $ 398,142 $ 600,809 $ 1,695,618
Net realized gain (loss) .................... 22,214,260 (77,395) 3,148,933 88,760 4,877,480
Unrealized appreciation (depreciation)
during the period ........................ (1,213,133) (259,688) 1,464,798 4,108,676 3,344,658
------------- ------------ ------------ ------------ -------------
Net increase in net assets resulting
from operations ......................... 20,760,435 553,195 5,011,873 4,798,245 9,917,756
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ....................... (1,431,865) (30,659) (959,469) (745,652) (2,449,984)
Net realized gain ........................... (23,830,326) -- (2,398,671) (466,032) (5,928,963)
------------- ------------ ------------ ------------ -------------
Total distributions to shareholders ....... (25,262,191) (30,659) (3,358,140) (1,211,684) (8,378,947)
CAPITAL SHARE TRANSACTION (a):
Proceeds from sale of shares ................ 38,904,067 5,230,355 6,495,451 16,664,867 62,047,625
Dividends reinvested ........................ 25,262,191 30,659 3,358,140 1,211,684 8,378,947
Shares redeemed ............................. (49,055,953) (5,585,810) (12,247,249) (5,909,532) (25,932,781)
------------- ------------ ------------ ------------ -------------
Net increase (decrease) from capital share
transactions ............................. 15,110,305 (324,796) (2,393,658) 11,967,019 44,493,791
------------- ------------ ------------ ------------ -------------
Total increase (decrease) in net assets . 10,608,549 197,740 (739,925) 15,553,580 46,032,600
NET ASSETS:
Beginning of period ......................... 226,297,440 14,678,671 48,378,810 38,181,802 150,391,303
------------- ------------ ------------ ------------ -------------
End of period ............................... $ 236,905,989 $ 14,876,411 $ 47,638,885 $ 53,735,382 $ 196,423,903
============= ============ ============ ============ =============
Undistributed net investment income (loss) at
end of period ............................. ($284,934) $859,619 $173,965 $579,161 $1,632,362
============= ============ ============ ============ =============
(a) Shares issued and redeemed
Shares sold .............................. 1,818,112 508,127 507,985 1,144,115 3,423,374
Dividends reinvested ..................... 1,198,396 2,977 268,437 82,992 458,869
Shares redeemed .......................... (2,223,270) (540,430) (955,644) (404,876) (1,432,287)
------------- ------------ ------------ ------------ -------------
Net increase (decrease) ............... 793,238 (29,326) (179,222) 822,231 2,449,956
============= ============ ============ ============ =============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
74
<PAGE> 76
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SERIES S
SERIES P (SOCIAL- SERIES V SERIES X
(HIGH YIELD) AWARENESS) (VALUE) (SMALL CAP)
------------ ---------- ------- -----------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income ....................... $ 374,944 $ 176,561 $ 38,714 $ 1,175
Net realized gain (loss) .................... 27,356 6,778,245 173,863 (53,051)
Unrealized appreciation (depreciation)
during the period ......................... (28,426) 7,626,840 960,131 325,355
------------ ------------- ------------ -----------
Net increase in net assets
resulting from operations ............... 373,874 14,581,646 1,172,708 273,479
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ....................... (309,157) (252,822) (28,626) (5,176)
Net realized gain ........................... (68,420) (2,781,038) (157,440) --
------------ ------------- ------------ -----------
Total distributions to shareholders ....... (377,577) (3,033,860) (186,066) (5,176)
CAPITAL SHARE TRANSACTION (a):
Proceeds from sale of shares ................ 5,688,242 17,670,518 6,689,355 1,305,676
Dividends reinvested ........................ 377,577 3,033,860 186,066 5,176
Shares redeemed ............................. (1,645,974) (8,904,023) (814,425) (133,174)
------------ ------------- ------------ -----------
Net increase from capital share
transactions ............................. 4,419,845 11,800,355 6,060,996 1,177,678
------------ ------------- ------------ -----------
Total increase in net assets ............ 4,416,142 23,348,141 7,047,638 1,445,981
NET ASSETS:
Beginning of period ......................... 6,767,167 89,331,658 6,490,997 2,639,984
------------ ------------- ------------ -----------
End of period ............................... $ 11,183,309 $ 112,679,799 $ 13,538,635 $ 4,085,965
============ ============= ============ ===========
Undistributed net investment income (loss) at
end of period ............................. $368,523 $176,583 $38,194 ($235)
============ ============= ============ ===========
(a) Shares issued and redeemed
Shares sold .............................. 320,629 738,411 469,335 130,410
Dividends reinvested ..................... 21,650 125,263 12,649 489
Shares redeemed .......................... (93,191) (373,832) (56,434) (12,838)
------------ ------------- ------------ -----------
Net increase .......................... 249,088 489,842 425,550 118,061
============ ============= ============ ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
75
<PAGE> 77
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
SERIES B SERIES C SERIES D SERIES E
SERIES A (GROWTH- (MONEY (WORLDWIDE) (HIGH GRADE
(GROWTH) INCOME) MARKET) EQUITY) INCOME)
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income ...................... $ 5,613,118 $ 20,496,929 $ 6,337,336 $ 2,126,880 $ 8,403,103
Net realized gain (loss) ................... 74,245,595 129,262,529 -- 22,460,775 (1,539,646)
Unrealized appreciation (depreciation)
during the period ....................... 126,638,845 101,905,973 49,687 (8,322,309) 4,991,204
------------- --------------- ------------- ------------- -------------
Net increase in net assets resulting
from operations ........................ 206,497,558 251,665,431 6,387,023 16,265,346 11,854,661
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ...................... (5,518,886) (23,074,486) (6,976,237) (5,800,374) (8,745,211)
Net realized gain .......................... (51,595,242) (57,256,924) -- (12,516,597) --
------------- --------------- ------------- ------------- -------------
Total distributions to shareholders ...... (57,114,128) (80,331,410) (6,976,237) (18,316,971) (8,745,211)
CAPITAL SHARE TRANSACTIONS (a):
Proceeds from sale of shares ............... 349,498,897 206,586,968 334,627,234 104,379,832 66,408,884
Dividends reinvested ....................... 57,114,128 80,331,410 6,976,237 18,316,971 8,745,211
Shares redeemed ............................ (270,658,046) (216,536,285) (371,671,540) (81,889,098) (71,396,121)
------------- --------------- ------------- ------------- -------------
Net increase (decrease) from capital share
transactions ............................ 135,954,979 70,382,093 (30,068,069) 40,807,705 3,757,974
------------- --------------- ------------- ------------- -------------
Total increase (decrease) in net assets 285,338,409 241,716,114 (30,657,283) 38,756,080 6,867,424
NET ASSETS:
Beginning of year .......................... 714,590,558 956,586,307 128,672,113 247,025,581 134,041,111
------------- --------------- ------------- ------------- -------------
End of year ................................ $ 999,928,967 $ 1,198,302,421 $ 98,014,830 $ 285,781,661 $ 140,908,535
============= =============== ============= ============= =============
Undistributed net investment income at
end of year .............................. $5,458,278 $20,257,353 $6,122,007 $3,265,920 $8,351,464
============= =============== ============= ============= =============
(a) Shares issued and redeemed
Shares sold ............................. 12,677,122 5,260,534 26,333,439 16,054,895 5,467,675
Dividends reinvested .................... 1,995,844 2,051,364 565,336 2,813,667 744,273
Shares redeemed ......................... (10,042,899) (5,527,086) (29,322,870) (12,578,379) (5,876,034)
------------- --------------- ------------- ------------- -------------
Net increase (decrease) ............. 4,630,067 1,784,812 (2,424,095) 6,290,183 335,914
============= =============== ============= ============= =============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
76
<PAGE> 78
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
SERIES K SERIES M SERIES N
SERIES J (GLOBAL (SPECIALIZED (MANAGED SERIES O
(EMERGING AGGRESSIVE ASSET ASSET (EQUITY
GROWTH) BOND) ALLOCATION) ALLOCATION) INCOME)
------- ----- ----------- ----------- -------
<S> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income (loss) ......... $ (218,416) $ 1,447,951 $ 787,888 $ 737,856 $ 2,406,342
Net realized gain .................... 25,352,614 96,313 2,392,722 431,789 5,852,343
Unrealized appreciation (depreciation)
during the period ................. 13,543,690 (737,317) (609,025) 3,226,105 17,563,989
------------- ------------ ------------ ------------ -------------
Net increase in net assets resulting
from operations .................. 38,677,888 806,947 2,571,585 4,395,750 25,822,674
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ................ (549,249) (1,187,593) (989,376) (463,492) (1,036,083)
Net realized gain .................... (4,737,130) (360,640) (951,614) (302,277) (1,478,050)
------------- ------------ ------------ ------------ -------------
Total distributions to shareholders (5,286,379) (1,548,233) (1,940,990) (765,769) (2,514,133)
CAPITAL SHARE TRANSACTIONS (a):
Proceeds from sale of shares ......... 133,668,974 12,401,810 20,640,318 22,521,114 89,058,294
Dividends reinvested ................. 5,286,379 1,548,233 1,940,990 765,769 2,514,133
Shares redeemed ...................... (94,470,710) (11,249,981) (13,229,016) (12,079,640) (26,866,727)
------------- ------------ ------------ ------------ -------------
Net increase from capital share
transactions ...................... 44,484,643 2,700,062 9,352,292 11,207,243 64,705,700
------------- ------------ ------------ ------------ -------------
Total increase in net assets ..... 77,876,152 1,958,776 9,982,887 14,837,224 88,014,241
NET ASSETS:
Beginning of year .................... 148,421,288 12,719,895 38,395,923 23,344,578 62,377,062
------------- ------------ ------------ ------------ -------------
End of year .......................... $ 226,297,440 $ 14,678,671 $ 48,378,810 $ 38,181,802 $ 150,391,303
============= ============ ============ ============ =============
Undistributed net investment income at
end of year ........................ $1,387,623 $-- $735,292 $724,004 $2,386,728
============= ============ ============ ============ =============
(a) Shares issued and redeemed
Shares sold ....................... 6,939,060 1,143,221 1,648,855 1,701,526 5,601,731
Dividends reinvested .............. 248,954 153,633 154,292 57,361 151,820
Shares redeemed ................... (4,713,562) (1,023,875) (1,055,108) (951,637) (1,670,956)
------------- ------------ ------------ ------------ -------------
Net increase ................... 2,474,452 272,979 748,039 807,250 4,082,595
============= ============ ============ ============ =============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
77
<PAGE> 79
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
SERIES S
SERIES P (SOCIAL- SERIES V* SERIES X**
(HIGH YIELD) AWARENESS) (VALUE) (SMALL CAP)
------------ ---------- ------- -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income ........................... $ 303,160 $ 255,356 $ 28,106 $ 3,766
Net realized gain (loss) ........................ 66,450 2,451,272 153,347 (220,499)
Unrealized appreciation during the period ....... 67,808 12,331,938 345,437 118,932
----------- ------------ ----------- -----------
Net increase (decrease) in net assets
resulting from operations ................... 437,418 15,038,566 526,890 (97,801)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ........................... (86,463) (140,591) -- --
Net realized gain ............................... (16,835) (3,817,588) -- --
----------- ------------ ----------- -----------
Total distributions to shareholders ........... (103,298) (3,958,179) -- --
CAPITAL SHARE TRANSACTION (a):
Proceeds from sale of shares .................... 5,106,583 31,437,717 6,530,970 2,739,040
Dividends reinvested ............................ 103,298 3,958,179 -- --
Shares redeemed ................................. (1,441,939) (14,641,340) (566,863) (1,255)
----------- ------------ ----------- -----------
Net increase from capital share
transactions ................................. 3,767,942 20,754,556 5,964,107 2,737,785
----------- ------------ ----------- -----------
Total increase in net assets ................ 4,102,062 31,834,943 6,490,997 2,639,984
NET ASSETS:
Beginning of period ............................. 2,665,105 57,496,715 -- --
----------- ------------ ----------- -----------
End of period ................................... $ 6,767,167 $ 89,331,658 $ 6,490,997 $ 2,639,984
=========== ============ =========== ===========
Undistributed net investment income at
end of period ................................. $302,736 $252,844 $28,106 $3,766
=========== ============ =========== ===========
(a) Shares issued and redeemed
Shares sold .................................. 294,241 1,523,304 538,647 275,255
Dividends reinvested ......................... 6,087 186,619 -- --
Shares redeemed .............................. (82,570) (708,502) (44,425) (136)
----------- ------------ ----------- -----------
Net increase .............................. 217,758 1,001,421 494,222 275,119
=========== ============ =========== ===========
</TABLE>
* Period May 1, 1997 (inception) through December 31, 1997.
** Period October 15, 1997 (inception) through December 31, 1997.
See accompanying notes.
- --------------------------------------------------------------------------------
78
<PAGE> 80
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED DECEMBER 31
SERIES A (GROWTH) -------------------------------------------------------------------------------------
1998(j) 1997(e) 1996(e) 1995(e) 1994 1993
---------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD $ 29.39 $ 24.31 $ 21.03 $ 16.00 $ 19.82 $ 18.33
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income ............... 0.08 0.16 0.18 0.18 0.20 0.39
Net Gain (Loss) on Securities
(realized and unrealized) .......... 5.13 6.75 4.50 5.65 (0.44) 2.08
---------- -------- -------- -------- -------- --------
Total from investment operations .... 5.21 6.91 4.68 5.83 (0.20) 2.47
LESS DISTRIBUTIONS
Dividends (from Net
Investment Income) ................ (0.17) (0.18) (0.20) (0.15) (0.38) (0.23)
Distributions (from Capital Gains)... (2.17) (1.65) (1.20) (0.65) (3.20) (0.75)
---------- -------- -------- -------- -------- --------
Total Distributions .............. (2.34) (1.83) (1.40) (0.80) (3.58) (0.98)
---------- -------- -------- -------- -------- --------
NET ASSET VALUE END OF PERIOD ....... $ 32.26 $ 29.39 $ 24.31 $ 21.03 $ 16.00 $ 19.82
========== ======== ======== ======== ======== ========
TOTAL RETURN (b) .................... 18.1% 28.7% 22.7% 36.8% (1.7%) 13.7%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period
(thousands) ....................... $1,151,090 $999,929 $714,591 $519,891 $332,288 $317,407
Ratio of Expenses to
Average Net Assets ................ 0.81% 0.81% 0.83% 0.83% 0.84% 0.86%
Ratio of Net Investment
Income (Loss) to
Average Net Assets ................ 0.53% 0.66% 0.90% 1.21% 1.13% 2.01%
Portfolio Turnover Rate ............. 42% 61% 57% 83% 90% 108%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED DECEMBER 31
SERIES B (GROWTH) ----------------------------------------------------------------------------------
1998(j) 1997(e) 1996(e) 1995(e) 1994 1993
---------- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD .... $ 41.60 $ 35.40 $ 33.95 $ 26.54 $ 29.73 $ 27.76
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income .................. 0.35 0.72 0.83 0.79 0.51 0.64
Net Gain (Loss) on Securities
(realized and unrealized) ............. 3.02 8.47 5.16 7.16 (1.34) 2.01
---------- ---------- -------- -------- -------- --------
Total from investment operations ....... 3.37 9.19 5.99 7.95 (0.83) 2.65
LESS DISTRIBUTIONS
Dividends (from Net
Investment Income) ................... (0.71) (0.86) (0.78) (0.54) (0.68) (0.68)
Distributions (from Capital Gains) ..... (4.51) (2.13) (3.76) -- (1.68) --
---------- ---------- -------- -------- -------- --------
Total Distributions ................. (5.22) (2.99) (4.54) (0.54) (2.36) (0.68)
---------- ---------- -------- -------- -------- --------
NET ASSET VALUE END OF PERIOD .......... $ 39.75 $ 41.60 $ 35.40 $ 33.95 $ 26.54 $ 29.73
========== ========== ======== ======== ======== ========
TOTAL RETURN (b) ....................... 7.7% 26.5% 18.3% 30.1% (3.0%) 9.6%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period
(thousands) .......................... $1,266,818 $1,198,302 $956,586 $795,113 $595,154 $583,599
Ratio of Expenses to
Average Net Assets ................... 0.81% 0.83% 0.84% 0.83% 0.84% 0.86%
Ratio of Net Investment Income (Loss)
to Average Net Assets ................ 1.72% 1.89% 2.56% 2.70% 2.07% 2.63%
Portfolio Turnover Rate ................ 129% 62% 58% 94% 43% 95%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
79
<PAGE> 81
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED DECEMBER 31
SERIES C (MONEY MARKET) ----------------------------------------------------------------------------------
1998(j) 1997(e) 1996(a)(e) 1995(e) 1994 1993
-------- ------- ---------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD ....... $ 12.53 $ 12.56 $ 12.34 $ 12.27 $ 12.09 $ 12.21
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income ..................... 0.29 0.79 0.61 0.74 0.41 0.29
Net Gain (Loss) on Securities
(realized and unrealized) ................ 0.02 (0.15) 0.01 (0.08) 0.04 0.03
-------- ------- -------- -------- -------- -------
Total from investment operations .......... 0.31 0.64 0.62 0.66 0.45 0.32
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) .... (0.62) (0.67) (0.40) (0.59) (0.27) (0.44)
Distributions (from Capital Gains) ........ -- -- -- -- -- --
-------- ------- -------- -------- -------- -------
Total Distributions .................... (0.62) (0.67) (0.40) (0.59) (0.27) (0.44)
-------- ------- -------- -------- -------- -------
NET ASSET VALUE END OF PERIOD ............. $ 12.22 $ 12.53 $ 12.56 $ 12.34 $ 12.27 $ 12.09
======== ======= ======== ======== ======== =======
TOTAL RETURN (b) .......................... 2.5% 5.2% 5.1% 5.4% 3.7% 2.6%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ...... $184,372 $98,015 $128,672 $105,436 $118,668 $99,092
Ratio of Expenses to Average Net Assets ... 0.56% 0.58% 0.58% 0.60% 0.61% 0.61%
Ratio of Net Investment Income (Loss)
to Average Net Assets ................... 5.10% 5.04% 4.89% 5.27% 3.70% 2.65%
Portfolio Turnover Rate ................... -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
FINANCIAL HIGHLIGHTS(CONTINUED)
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED DECEMBER 31
SERIES D (WORLDWIDE EQUITY) -------------------------------------------------------------------------------------
1998(j) 1997 1996 1995 1994 1993
--------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD ........ $ 6.14 $ 6.14 $ 5.56 $ 5.07 $ 4.94 $ 3.76
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income ...................... 0.05 0.04 0.03 0.05 0.02 0.02
Net Gain (Loss) on Securities
(realized and unrealized) ................. 0.78 0.38 0.93 0.50 0.12 1.17
-------- -------- -------- -------- -------- -------
Total from investment operations ........... 0.83 0.42 0.96 0.55 0.14 1.19
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) ..... (0.09) (0.13) (0.20) -- (0.01) (0.01)
Distributions (from Capital Gains) ......... (0.51) (0.29) (0.18) (0.06) -- --
-------- -------- -------- -------- -------- -------
Total Distributions ..................... (0.60) (0.42) (0.38) (0.06) (0.01) (0.01)
-------- -------- -------- -------- -------- -------
NET ASSET VALUE END OF PERIOD .............. $ 6.37 $ 6.14 $ 6.14 $ 5.56 $ 5.07 $ 4.94
======== ======== ======== ======== ======== =======
TOTAL RETURN (b) ........................... 13.5% 6.5% 17.5% 10.9% 2.7% 31.6%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ....... $326,888 $285,782 $247,026 $177,781 $147,033 $98,252
Ratio of Expenses to Average Net Assets .... 1.34% 1.24% 1.30% 1.31% 1.34% 1.42%
Ratio of Net Investment Income (Loss)
to Average Net Assets .................... 1.49% 0.74% 0.74% 0.90% 0.50% 0.38%
Portfolio Turnover Rate .................... 107% 129% 115% 169% 82% 70%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
80
<PAGE> 82
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED DECEMBER 31
SERIES E (HIGH GRADE INCOME) -----------------------------------------------------------------------------------
1998(j) 1997(e) 1996(e) 1995(e) 1994 1993
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD ........ $ 12.25 $ 12.00 $ 12.86 $ 11.52 $ 13.78 $ 13.02
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income ...................... 0.40 0.86 0.75 0.74 0.76 0.64
Net Gain (Loss) on Securities
(realized and unrealized) ................. 0.05 0.31 (0.85) 1.36 (1.71) 1.02
-------- -------- -------- -------- -------- --------
Total from investment operations ........... 0.45 1.17 (0.10) 2.10 (0.95) 1.66
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) ..... (0.76) (0.92) (0.76) (0.76) (0.69) (0.79)
Distributions (from Capital Gains) ......... -- -- -- -- (0.62) (0.11)
-------- -------- -------- -------- -------- --------
Total Distributions ..................... (0.76) (0.92) (0.76) (0.76) (1.31) (0.90)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE END OF PERIOD .............. $ 11.94 $ 12.25 $ 12.00 $ 12.86 $ 11.52 $ 13.78
======== ======== ======== ======== ======== = =======
TOTAL RETURN (b) ........................... 3.8% 10.0% (0.7%) 18.6% (6.9%) 12.6%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ....... $136,996 $140,909 $134,041 $125,652 $107,078 $ 112,900
Ratio of Expenses to Average Net Assets .... 0.86% 0.83% 0.83% 0.85% 0.85% 0.86%
Ratio of Net Investment Income (Loss)
to Average Net Assets .................... 6.42% 6.67% 6.77% 6.60% 6.74% 6.21%
Portfolio Turnover Rate .................... 103% 106% 232% 180% 185% 151%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED DECEMBER 31
SERIES J (EMERGING GROWTH) ------------------------------------------------------------------------------
1998(j) 1997(e) 1996(e) 1995(e) 1994 1993
-------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD ....... $ 21.33 $ 18.25 $ 16.06 $ 13.44 14.17 $ 12.47
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income ..................... (0.02) (0.03) (0.04) 0.04 (0.01) (0.01)
Net Gain (Loss) on Securities
(realized and unrealized) ................ 1.94 3.67 2.93 2.58 (0.71) 1.71
-------- -------- -------- ------- ------- -------
Total from investment operations .......... 1.92 3.64 2.89 2.62 (0.72) 1.70
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) .... (0.14) (0.06) (0.03) -- -- (0.00)
Distributions (from Capital Gains) ........ (2.33) (0.50) (0.67) -- (0.01) --
-------- -------- -------- ------- ------- -------
Total Distributions .................... (2.47) (0.56) (0.70) -- (0.01) (0.00)
-------- -------- -------- ------- ------- -------
NET ASSET VALUE END OF PERIOD ............. $ 20.78 $ 21.33 $ 18.25 $ 16.06 $ 13.44 $ 14.17
======== ======== ======== ======= ======= =======
TOTAL RETURN (b) .......................... 8.8% 20.0% 18.0% 19.5% (5.1%) 13.6%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ...... $236,906 $226,297 $148,421 $93,379 $76,940 $42,096
Ratio of Expenses to Average
Net Assets .............................. 0.82% 0.82% 0.84% 0.84% 0.88% 0.91%
Ratio of Net Investment Income (Loss)
to Average Net Assets ................... (0.20%) (0.11%) (0.21%) 0.26% (0.11%) (0.14%)
Portfolio Turnover Rate ................... 111% 107% 123% 202% 91% 117%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
81
<PAGE> 83
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED DECEMBER 31
SERIES K (GLOBAL AGGRESSIVE) -----------------------------------------------------------
1998(j) 1997(d) 1996(d) 1995(a)(c)(d)
------- ------- ------- --------------
<S> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD ................. $ 10.06 $ 10.72 $ 10.22 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income ............................... 0.60 1.12 0.90 0.54
Net Gain (Loss) on Securities
(realized and unrealized) .......................... (0.24) (0.56) 0.50 0.22
------- ------- ------- ------
Total from investment operations .................... 0.36 0.56 1.40 0.76
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) .............. (0.02) (.94) (0.77) (0.47)
Distributions (from Capital Gains) .................. -- (.28) (0.13) (0.04)
Return of Capital ................................... -- -- -- (0.03)
------- ------- ------- ------
Total Distributions .............................. (0.02) (1.22) (0.90) (0.54)
------- ------- ------- ------
NET ASSET VALUE END OF PERIOD ....................... $ 10.40 $ 10.06 $ 10.72 $10.22
======= ======= ======= ======
TOTAL RETURN (b) .................................... 3.5% 5.4% 13.7% 7.6%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ................ $14,876 $14,679 $12,720 $5,678
Ratio of Expenses to Average Net Assets ............. 0.77% 0.64% 0.84% 1.63%
Ratio of Net Investment Income (Loss) to Average
Net Assets ........................................ 9.81% 9.81% 10.79% 11.03%
Portfolio Turnover Rate ............................. 39% 85% 86% 127%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED DECEMBER 31
SERIES M (SPECIALIZED ASSET ALLOCATION) --------------------------------------------------------
1998(j) 1997(i) 1996 1995(a)(c)
------- ------- ------- ----------
<S> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD ................. $ 12.29 $ 12.05 $ 10.71 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income ............................... 0.13 0.16 0.15 0.17
Net Gain (Loss) on Securities
(realized and unrealized) .......................... 1.21 0.59 1.36 0.54
------- ------- ------- -------
Total from investment operations .................... 1.34 0.75 1.51 0.71
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) .............. (0.27) (0.26) (0.12) --
Distributions (from Capital Gains) .................. (0.68) (0.25) (0.05) --
------- ------- ------- -------
Total Distributions .............................. (0.95) (0.51) (0.17) --
------- ------- ------- -------
NET ASSET VALUE END OF PERIOD ....................... $ 12.68 $ 12.29 $ 12.05 $ 10.71
======= ======= ======= =======
TOTAL RETURN (b) .................................... 11.0% 6.2% 14.2% 7.1%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ................ $47,639 $48,379 $38,396 $15,976
Ratio of Expenses to Average Net Assets ............. 1.26% 1.26% 1.34% 1.94%
Ratio of Net Investment Income (Loss) to Average
Net Assets ........................................ 1.67% 1.71% 2.73% 3.20%
Portfolio Turnover Rate ............................. 31% 64% 40% 181%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
82
<PAGE> 84
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED DECEMBER 31
SERIES N (MANAGED ASSET ALLOCATION) ---------------------------------------------------
1998(j) 1997 1996 1995(a)(c)
------- ------- ------- -----------
<S> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD ................. $ 13.88 $ 12.02 $ 10.73 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income ............................... 0.14 0.24 0.19 0.16
Net Gain (Loss) on Securities
(realized and unrealized) .......................... 1.41 1.96 1.18 0.57
------- ------- ------- -------
Total from investment operations .................... 1.55 2.20 1.37 0.73
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) .............. (0.24) (0.21) (0.07) --
Distributions (from Capital Gains) .................. (0.15) (0.13) (0.01) --
------- ------- ------- -------
Total Distributions .............................. (0.39) (0.34) (0.08) --
------- ------- ------- -------
NET ASSET VALUE END OF PERIOD ....................... $ 15.04 $ 13.88 $ 12.02 $ 10.73
======= ======= ======= =======
TOTAL RETURN (b) .................................... 11.3% 18.4% 12.8% 7.3%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ................ $53,735 $38,182 $23,345 $10,580
Ratio of Expenses to Average Net Assets ............. 1.24% 1.35% 1.45% 1.90%
Ratio of Net Investment Income (Loss) to Average
Net Assets ........................................ 2.61% 2.71% 2.67% 2.80%
Portfolio Turnover Rate ............................. 13% 28% 41% 26%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED DECEMBER 31
SERIES O (EQUITY INCOME) -------------------------------------------
1998(j) 1997 1996 1995(a)(c)
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD $17.62 $14.01 $11.70 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income 0.12 0.19 0.17 0.17
Net Gain (Loss) on Securities
(realized and unrealized) 1.00 3.77 2.17 1.53
-------- -------- -------- --------
Total from investment operations 1.12 3.96 2.34 1.70
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) (0.25) (0.14) (0.03) --
Distributions (from Capital Gains) (0.61) (0.21) -- --
-------- -------- -------- --------
Total Distributions (0.86) (0.35) (0.03) --
-------- -------- -------- --------
NET ASSET VALUE END OF PERIOD $17.88 $17.62 $14.01 $11.70
======== ======== ======== ========
TOTAL RETURN (b) 6.2% 28.4% 20.0% 17.0%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) $196,424 $150,391 $62,377 $13,528
Ratio of Expenses to Average Net Assets 1.09% 1.09% 1.15% 1.40%
Ratio of Net Investment Income (Loss) to Average
Net Assets 1.91% 2.31% 2.62% 3.00%
Portfolio Turnover Rate 20% 21% 22% 3%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
83
<PAGE> 85
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED DECEMBER 31
SERIES P (HIGH YIELD) --------------------------------------
1998(j) 1997(d) 1996(d)(f)
---------- ---------- -----------
<S> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD ................. $ 17.60 $ 15.99 $ 15.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income ............................... 0.59 0.68 0.51
Net Gain (Loss) on Securities
(realized and unrealized) .......................... 0.21 1.43 0.48
---------- ---------- --------
Total from investment operations .................... 0.80 2.11 0.99
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) .............. (0.61) (0.42) --
Distributions (from Capital Gains) .................. (0.14) (0.08) --
---------- ---------- --------
Total Distributions .............................. (0.75) (0.50) --
---------- ---------- --------
NET ASSET VALUE END OF PERIOD ....................... $ 17.65 $ 17.60 $ 15.99
========== ========== ========
TOTAL RETURN (b) .................................... 4.6% 13.4% 6.6%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ................ $ 11,183 $ 6,767 $ 2,665
Ratio of Expenses to Average Net Assets ............. 0.23% 0.31% 0.28%
Ratio of Net Investment Income (Loss) to Average
Net Assets ........................................ 8.24% 8.58% 8.24%
Portfolio Turnover Rate ............................. 108% 77% 151%
- --------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED DECEMBER 31
SERIES S (SOCIAL AWARENESS) ------------------------------------------------------------------------
1998(j) 1997(e) 1996(e) 1995(e) 1994 1993
-------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD ................ $ 22.25 $ 19.08 $ 16.49 $ 12.97 $ 13.69 $ 12.25
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income .............................. 0.04 0.06 0.03 0.09 0.08 0.02
Net Gain (Loss) on Securities
(realized and unrealized) ......................... 3.45 4.21 3.07 3.51 (0.59) 1.43
-------- ------- ------- ------- ------- -------
Total from investment operations ................... 3.49 4.27 3.10 3.60 (0.51) 1.45
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) ............. (0.06) (0.04) (0.08) (0.08) (0.02) (0.01)
Distributions (from Capital Gains) ................. (0.66) (1.06) (0.43) -- (0.19) --
-------- ------- ------- ------- ------- -------
Total Distributions ............................. (0.72) (1.10) (0.51) (0.08) (0.21) (0.01)
-------- ------- ------- ------- ------- -------
NET ASSET VALUE END OF PERIOD ...................... $ 25.02 $ 22.25 $ 19.08 $ 16.49 $ 12.97 $ 13.69
======== ======= ======= ======= ======= =======
TOTAL RETURN (b) ................................... 15.8% 22.7% 18.8% 27.7% (3.7%) 11.9%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ............... $112,680 $89,332 $57,497 $36,830 $24,539 $19,490
Ratio of Expenses to Average Net Assets ............ 0.85% 0.83% 0.84% 0.86% 0.90% 0.90%
Ratio of Net Investment Income (Loss) to Average
Net Assets ....................................... 0.35% 0.35% 0.30% 0.75% 0.75% 0.23%
Portfolio Turnover Rate ............................ 42% 49% 67% 122% 67% 105%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
84
<PAGE> 86
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED
DECEMBER 31
SERIES V (VALUE) -----------------------
1998(j) 1997(a)(d)(g)
------- -------------
<S> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD ................. $ 13.13 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income ............................... 0.17 0.12
Net Gain (Loss) on Securities
(realized and unrealized) .......................... 1.68 3.01
-------- -------
Total from investment operations .................... 1.85 3.13
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) .............. (0.04) --
Distributions (from Capital Gains) .................. (0.22) --
--------- -------
Total Distributions .............................. (0.26) --
NET ASSET VALUE END OF PERIOD ....................... $ 14.72 $ 13.13
======== =======
TOTAL RETURN (b) .................................... 14.1% 31.3%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ................ $ 13,539 $ 6,491
Ratio of Expenses to Average Net Assets ............. 0.55% 0.40%
Ratio of Net Investment Income (Loss) to Average
Net Assets ........................................ 0.76% 1.55%
Portfolio Turnover Rate ............................. 57% 79%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED
DECEMBER 31
SERIES X (SMALL CAP) -------------------------
1998(j) 1997(d)(h)
--------- ----------
<S> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD ................. $ 9.60 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income ............................... -- 0.01
Net Gain (Loss) on Securities
(realized and unrealized) .......................... 0.81 (0.41)
--------- ---------
Total from investment operations .................... 0.81 (0.40)
LESS DISTRIBUTIONS
Dividends (from Net Investment Income) .............. (0.02) --
Distributions (from Capital Gains) .................. -- --
--------- ---------
Total Distributions .............................. (0.02) --
--------- ---------
NET ASSET VALUE END OF PERIOD ....................... $ 10.39 $ 9.60
========= =========
TOTAL RETURN (b) .................................... 8.6% (4.0%)
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ................ $ 4,086 $ 2,640
Ratio of Expenses to Average Net Assets ............. 0.87% 0.98%
Ratio of Net Investment Income (Loss) to Average
Net Assets ........................................ 0.07% 0.73%
Portfolio Turnover Rate ............................. 333% 402%
- --------------------------------------------------------------------------------
</TABLE>
(a)Net investment income per share has been calculated using the weighted
monthly average number of capital shares outstanding.
(b)Total return does not take into account any of the expenses associated
with an investment in variable insurance products offered by Security
Benefit Life Insurance Company. Shares of a series of SBL Fund are
available only through the purchase of such products.
(c)Series K, M, N and O were initially capitalized on June 1, 1995 with net
asset values of $10.00 per share. Percentage amounts for the period have
been annualized, except for total return.
(d)Fund expenses for Series K, P, V and X were reduced by the Investment
Manager during the period. Expense ratios absent such reimbursement would
have been as follows:
1995 1996 1997 1998
----- ------- ------ ------
Series K 2.03% 1.59% 1.39% 1.19%
Series P -- 1.11% 1.14% 0.98%
Series V -- -- 1.14% 0.99%
Series X -- -- 1.98% 1.87%
(e)Expense ratios were calculated without the reduction for custodian fees
earnings credits beginning February 1, 1995. Expense ratios with such
reductions would have been as follows:
1995 1996 1997
------ ----- ------
Series A 0.83% 0.83% 0.81%
Series B 0.83% 0.84% 0.83%
Series C 0.60% 0.58% 0.58%
Series E 0.85% 0.83% 0.83%
Series J 0.83% 0.84% 0.82%
Series S 0.84% 0.84% 0.83%
(f)Series P was initially capitalized on August 5, 1996, with a net asset
value of $15 per share. Percentage amounts for the period have been
annualized, except for total return.
(g)Series V was initially capitalized on May 1, 1997, with a net asset value
of $10 per share. Percentage amounts for the period have been annualized,
except for total return.
(h)Series X was initially capitalized on October 15, 1997, with a net asset
value of $10 per share. Percentage amounts for the period have been
annualized, except for total return.
(i)Meridian Investment Management Corporation (Meridian) became the
sub-advisor of Series M (Specialized Asset Allocation) effective August 1,
1997. Prior to August 1, 1997, SMC paid Templeton/Franklin Investment
Services, Inc. and Meridian for research services provided to Series M.
(j)Unaudited figures for the six months ended June 30, 1998. Percentage
amounts for the period, except total return, have been annualized.
- --------------------------------------------------------------------------------
85
<PAGE> 87
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The Fund is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company of the series
type. Each series, in effect, represents a separate fund. The Fund is required
to account for the assets of each series separately and to allocate general
liabilities of the Fund to each series based on the net asset value of each
series. Shares of the Fund will be sold only to Security Benefit Life Insurance
Company (SBL) separate accounts. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements. These policies are in conformity with generally accepted accounting
principles.
A. SECURITIES VALUATION - Valuations of the Fund's securities are supplied
by pricing services approved by the Board of Directors. Securities listed or
traded on a recognized securities exchange are valued on the basis of the last
sales price. If there are no sales on a particular day, then the securities are
valued at the last bid price. If a security is traded on multiple exchanges, its
value will be based on the price from the principal exchange where it is traded.
All other securities for which market quotations are available are valued on the
basis of the current bid price. If there is no bid price or if the bid price is
deemed to be unsatisfactory by the Board of Directors or by the Fund's
investment manager, then the securities are valued in good faith by such method
as the Board of Directors determines will reflect the fair value. The Fund
generally will value short-term debt securities at prices based on market
quotations for such securities or securities of similar type, yield, quality and
duration, except those securities purchased with 60 days or less to maturity are
valued on the basis of amortized cost which approximates market value.
Generally, trading in foreign securities markets is substantially completed
each day at various times prior to the close of the New York Stock Exchange. The
values of foreign securities are determined as of the close of such foreign
markets or the close of the New York Stock Exchange, if earlier. All investments
quoted in foreign currency are valued in U.S. dollars on the basis of the
foreign currency exchange rates prevailing at the close of business. Investment
in foreign securities may involve risks not present in domestic investments.
Since foreign securities may be denominated in a foreign currency and involve
settlement and pay interest or dividends in foreign currencies, changes in the
relationship of these foreign currencies to the U.S. dollar can significantly
affect the value of the investments and earnings of the Fund. Foreign
investments may also subject the Fund to foreign government exchange
restrictions, expropriation, taxation or other political, social or economic
developments, all of which could affect the market and/or credit risk of the
investments.
B. FOREIGN CURRENCY TRANSACTIONS - The accounting records of the Fund are
maintained in U.S. dollars. All assets and liabilities initially expressed in
foreign currencies are converted into U.S. dollars at prevailing exchange rates.
Purchases and sales of investment securities, dividend and interest income, and
certain expenses are translated at the rates of exchange prevailing on the
respective dates of such transactions.
Except for Series K, the funds which invest in foreign securities and
currencies do not isolate that portion of the results of operations resulting
from changes in the foreign exchange rates on investments from the fluctuation
arising from changes in the market prices of securities held. Such fluctuations
are included with the net realized and unrealized gain or loss on investments.
Series K isolates its portion of the results of operations resulting from
foreign exchange rates on investment from the fluctuation arising from changes
in the market prices of securities held.
Net realized foreign exchange gains or losses arise from sales of portfolio
securities, sales of foreign currencies, and the difference between asset and
liability amounts initially stated in foreign currencies and the U.S. dollar
value of the amounts actually received or paid. Net unrealized foreign exchange
gains or losses arise from changes in the value of portfolio securities and
other assets and liabilities at the end of the reporting period, resulting from
changes in the exchange rates.
C. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS - Series D, K, M, N, O and X
may enter into forward foreign exchange contracts in connection with foreign
currency risk from purchase or sale of securities denominated in foreign
currency. These Series may also enter into such contracts to manage the effect
of changes in foreign currency exchange rates on portfolio positions. These
contracts are marked to market daily, by recognizing the difference between the
contract exchange rate and the current market rate as unrealized gains or
losses. Realized gains or losses are recognized when contracts are settled and
are reflected in the Statement of Operations. These contracts involve market
risk in excess of the amount reflected in the Balance Sheet. The face or
contract amount in U.S. dollars reflects the total exposure the Series have in
that particular currency contract. Losses may arise due to changes in the value
of the foreign currency or if the counter party does not perform under the
contract.
D. FUTURES - The Fund may utilize futures contracts to a limited extent,
with the objectives of maintaining full exposure to the underlying stock
markets, enhancing returns, maintaining liquidity, and minimizing transaction
costs. Series Jand M may purchase futures contracts to immediately position
incoming cash in the market, thereby simulating a fully invested position in the
underlying index while maintaining a cash balance for liquidity. Returns may be
enhanced by purchasing futures contracts instead of the underlying securities
when futures are believed to be priced more attractively than the underlying
securities. The primary risks associated with the use of futures contracts are
imperfect correlation between changes in market values of stocks contained in
the indices and the prices of futures contracts, and the possibility of an
illiquid market. Futures contracts are valued based on their quoted daily
settlement prices. Upon entering into a futures contract, the Series is required
to deposit cash or liquid securities, representing the initial margin, equal to
a certain percentage of the contract value. Subsequent changes in the value of
the contract, or variation margin, are recorded as unrealized gains or losses.
The variation margin is paid or received in cash daily by the Series. The Series
realizes a gain or loss when the contract is closed or expires. There were no
futures contracts held by the Fund at June 30, 1998.
- --------------------------------------------------------------------------------
86
<PAGE> 88
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
E. OPTIONS WRITTEN - The Fund may purchase put and call options and write
such options on a covered basis on securities that are traded on recognized
securities exchanges and over-the-counter markets. Call and put options on
securities give the holder the right to purchase or sell respectively, (and the
writer the obligation to sell or purchase) a security at a specified price,
until a certain date. The primary risks associated with the use of options are
an imperfect correlation between the change in market value of the securities
held by the Series and the price of the option, the possibility of an illiquid
market, and the inability of the counter-party to meet the terms of the
contract.
The premium received for a written option is recorded as an asset with an
equal liability which is marked to market based on the option's quoted daily
settlement price. Fluctuations in the value of such instruments are recorded as
unrealized appreciation (depreciation) until terminated, at which time realized
gains and losses are recognized.
F. SECURITY TRANSACTIONS AND INVESTMENT INCOME - Security transactions are
accounted for on the date the securities are purchased or sold. Realized gains
and losses are reported on an identified cost basis. Dividend income less
foreign taxes withheld (if any) are recorded on the ex-dividend date. Interest
income is recognized on the accrual basis. Premium and discounts (except
original issue discounts) on debt securities are not amortized, except for
Series K, which does amortize premiums and discounts on debt securities.
G. DISTRIBUTIONS TO SHAREHOLDERS - Distributions to shareholders are
recorded on the ex-dividend date. The character of distributions made during the
year from net investment income or net realized gains may differ from their
ultimate characterization for federal income tax purposes. These differences are
primarily due to differing treatments for expiration of net operating losses and
recharacterization of foreign currency gains and losses.
H. TAXES - The Fund complied with the requirements of the Internal Revenue
Code applicable to regulated investment companies and distributed all of its
taxable net income and net realized gains sufficient to relieve it from all, or
substantially all, federal income, excise and state income taxes. Therefore, no
provision for federal or state income tax is required.
I. EARNINGS CREDITS - Under the fee schedule with the custodian, the Fund
earns credits based on overnight custody cash balances. These credits are
utilized to reduce related custodial expenses. The custodian fees disclosed in
the Statement of Operations do not reflect the reduction in expense from the
related earnings credits.
2. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Management fees are payable to Security Management Company, LLC (SMC) (the
Investment Manager) under an investment advisory contract at an annual rate of
.50% of the average daily net assets for Series C, .75% for Series A, B, E, J,
K, P, S and V and 1.00% for Series D, M, N, O and X. SMC pays Lexington
Management Corporation (LMC), an amount equal to .50% of the average daily net
assets of Series D and .35% of the average net assets for Series K, for
management services. SMC has agreed to waive all of the management fees for
Series P and X through December 31, 1998. SMC waived all of the management fees
for Series V through April 30, 1998. SMC & LMC waived all of the management fees
for Series K through April 30, 1998. The Investment Manager pays T. Rowe Price
Associates, Inc. an annual fee equal to .50% of the first $50,000,000 of average
net assets of Series N and .40% of the average net assets of Series N in excess
of $50,000,000 for management services provided to that Series. The Investment
Manager pays T. Rowe Price Associates, Inc. an annual fee equal to .50% of the
first $20,000,000 of average net assets of Series O and .40% of the average
assets in excess of $20,000,000 for management services provided to Series O.
The Investment Manager pays Strong Capital Management, Inc. ("Strong") with
respect to Series X, an annual fee based on the combined average net assets of
the Series and another fund within the Security Funds to which Strong provides
advisory services. The fee is equal to .50% of the combined average net assets
under $150,000,000, .45% of the combined average net assets at or above
$150,000,000 but less than $500,000,000, and .40% of the combined average net
assets at or above $500,000,000. Meridian Investment Management Corporation
furnishes investment advisory, statistical and research facilities, supervises
and arranges for the purchase and sale of securities on behalf of Series M, and
for such services receives an annual fee equal to the following schedule:
Average Daily Net Assets of the Series Annual Fees
Less Than $100 Million . ........................... .40%, plus
$100 Million but less than $200 Million ............ .35%, plus
$200 Million but less than $400 Million ............ .30%, plus
$400 Million or more ............................... .25%
The investment advisory contract provides that the total annual expenses of
each Series (including management fees, but excluding interest, taxes, brokerage
commissions and extraordinary expenses) will not exceed the level of expenses
which the Series is permitted to bear under the most restrictive expense
limitation imposed by any state in which shares of the Fund are then offered for
sale. For the six month period ended June 30, 1998, SMC agreed to limit the
total expenses for Series K, M, P, V and X to an annual rate of 2% of the
average daily net asset value of each respective Series.
The Fund has entered into a contract with SMC for transfer agent services
and administrative services which SMC provides to the Fund. The charges paid by
the Fund under the contract for transfer agent services are insignificant. The
administrative services provided by SMC principally
- --------------------------------------------------------------------------------
87
<PAGE> 89
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
include all fund and portfolio accounting and regulatory filings. For providing
these services, SMC receives a fee at the annual rate of .045% of the average
daily net assets of the Fund (except Series X), plus the greater of .10% of the
average net assets of Series D, K, M and N, or $60,000. with respect to Series
X, SMC receives a fee at the annual rate of .09% of the average daily net assets
of the Series.
Certain officers and directors of the Fund are also officers and/or
directors of SBL and its subsidiaries, which include SMC.
3. FEDERAL INCOME TAX MATTERS
The amounts of unrealized appreciation (depreciation) for income tax
purposes at June 30, 1998, for all securities and foreign currency holdings
(including foreign currency receivables and payables) were as follows:
<TABLE>
<CAPTION>
Aggregate gross Aggregate gross Net unrealized
unrealized unrealized appreciation
appreciation depreciation (depreciation)
---------------- --------------- ---------------
<S> <C> <C> <C>
SERIES A
(Growth) .............. $ 472,101,407 $ (3,237,679) $ 468,863,728
SERIES B
(Growth Income) ....... 107,507,331 (56,656,001) 50,851,330
SERIES C
(Money Market) ........ 14,033 (9,857) 4,176
SERIES D
(Worldwide Equity) .... 52,634,044 (21,278,497) 31,355,547
SERIES E
(High Grade Income) ... 4,202,856 (165,796) 4,037,060
SERIES J
(Emerging Growth) ..... 51,786,301 (11,692,333) 40,093,968
SERIES K
(Global Aggressive) ... 482,211 (1,158,309) (676,098)
SERIES M
(Specialized Asset
Allocation) .......... 6,950,688 (4,150,302) 2,800,386
SERIES N
(Managed Asset
Allocation) .......... 9,798,169 (611,424) 9,186,745
SERIES O
(Equity Income) ....... 31,050,447 (4,156,802) 26,893,645
SERIES P
(High Yield) .......... 177,106 (75,493) 101,613
SERIES S
(Social Awareness) .... 32,202,500 (1,058,851) 31,143,649
SERIES V
(Value) ............... 1,821,866 (516,298) 1,305,568
SERIES X
(Small Cap) ........... 486,011 (41,724) 444,287
</TABLE>
4. INVESTMENT TRANSACTIONS
Investment transactions for the six month period ended June 30, 1998,
(excluding overnight investments and short-term debt securities) are as follows:
<TABLE>
<CAPTION>
Proceeds
Purchases from sales
------------- -------------
<S> <C> <C>
SERIES A
(Growth) .............. $233,866,234 $218,458,973
SERIES B
(Growth Income) ....... 754,200,255 878,819,119
SERIES C
(Money Market) ........ -- --
SERIES D
(Worldwide Equity) .... 190,880,174 159,608,786
SERIES E
(High Grade Income) ... 54,891,149 60,243,942
SERIES J
(Emerging Growth) ..... 126,416,469 129,707,994
SERIES K
(Global Aggressive) ... 3,382,118 2,629,950
SERIES M
(Specialized Asset
Allocation) .......... 6,938,871 14,067,761
SERIES N
(Managed Asset
Allocation) .......... 14,953,443 2,711,270
SERIES O
(Equity Income) ....... 52,832,389 16,541,803
SERIES P
(High Yield) .......... 8,919,031 4,604,853
SERIES S
(Social Awareness) .... 27,639,918 20,313,766
SERIES V
(Value) ............... 8,877,001 2,824,309
SERIES X
(Small Cap) ........... 6,045,010 5,002,305
- --------------------------------------------------------------------------------
</TABLE>
88
<PAGE> 90
NOTES TO FINANCIAL STATEMENTS
JUNE 30,1998
(UNAUDITED)
5. FORWARD FOREIGN EXCHANGE CONTRACTS
At June 30, 1998, Series D had the following open forward foreign exchange
contracts to sell currency (excluding foreign currency contracts used for
purchase and sale settlements):
<TABLE>
<CAPTION>
CURRENCY TYPE SETTLEMENT DATE FOREIGN AMOUNT U. S. AMOUNT UNREALIZED GAIN(LOSS)
-------- ---- --------------- -------------- ------------ ---------------------
SERIES D
- --------
<S> <C> <C> <C> <C> <C>
Australian Dollar Sell 11/05/98 8,755,241 5,697,911 $ 273,863
Australian Dollar Buy 11/05/98 2,538,782 1,515,856 56,970
Australian Dollar Buy 11/05/98 1,968,277 1,154,985 64,402
Canadian Dollar Sell 11/30/98 13,590,071 9,353,755 66,327
Canadian Dollar Buy 11/30/98 5,967,259 4,128,734 (50,721)
German Deutsche Mark Sell 10/01/98 18,120,396 9,907,811 (171,410)
German Deutsche Mark Buy 10/01/98 18,120,396 10,184,718 (105,497)
British Pound Sell 10/06/98 9,955,400 16,440,846 (74,372)
Japanese Yen Sell 07/08/98 1,493,003,200 11,456,000 689,693
Japanese Yen Buy 07/08/98 1,493,003,200 11,879,402 (1,113,094)
Swedish Krona Sell 10/01/98 52,220,767 6,605,207 45,919
Swedish Krona Buy 10/01/98 52,220,767 6,770,224 (210,935)
------------
$ (528,855)
============
</TABLE>
6. TRANSACTIONS IN WRITTEN CALL OPTIONS
Transactions in written covered call options for Series K were as follows:
<TABLE>
<CAPTION>
SERIES K
----------------------------
NUMBER OF
PREMIUM CONTRACTS
---------- -----------
<S> <C> <C>
Balance at December 31, 1997 $ 19,300 912,208
Options written 42,368 3,304,521
Exercised (34,193) (2,524,416)
Expiration (27,475) (1,692,313)
--------- ----------
Balance at June 30, 1998 $ -- --
========= ==========
- --------------------------------------------------------------------------------
</TABLE>
89
<PAGE> 91
SECURITY FUNDS
OFFICERS AND DIRECTORS
- --------------------------
DIRECTORS
Donald A. Chubb, Jr.
John D. Cleland
Penny A. Lumpkin
Mark L. Morris, Jr., D.V.M.
Maynard F. Oliverius
James R. Schmank
OFFICERS
John D. Cleland, President
James R. Schmank, Vice President
Terry A. Milberger, Vice President
Jane A. Tedder, Vice President
Mark E. Young, Vice President
Cindy L. Shields, Vice President
Steven M. Bowser, Vice President
David Eshnaur, Vice President
Michael A. Petersen, Vice President
James P. Schier, Vice President
Thomas A. Swank, Vice President and Chief Investment Officer
Amy J. Lee, Secretary
Christopher D. Swickard, Assistant Secretary
Brenda M. Harwood,Treasurer
This report is submitted for the general information of the shareholders of the
Funds. The report is not authorized for distribution to prospective investors in
the Funds unless preceded or accompanied by an effective prospectus which
contains details concerning the sales charges and other pertinent information.
BULK RATE
U.S. POSTAGE PAID
PERMIT NO. 941
CHICAGO, IL
- -------------------------------------
[LOGO] SECURITY DISTRIBUTORS, INC.
- -------------------------------------
700 SW Harrison St.
Topeka, KS 66636-0001
(785) 431-3112
(800) 888-2461
<PAGE>
SBL FUND
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
a. Financial Statements
Included in Part A of this Registration Statement:
Per Share Income and Capital Changes
To be included in Part B of this Registration Statement:
The audited financial statements contained in the most recent
Annual Report of SBL Fund for fiscal year ended December 31,
1997, and the unaudited Semiannual Report of SBL Fund for the
period ended June 30, 1998, are incorporated by reference in
Part B of this Registration Statement.
b. Exhibits:
(1) Articles of Incorporation
(2) Corporate Bylaws of Registrant
(3) Not applicable
(4) Not applicable
(5) (a) Investment Advisory Contract
(b) Sub-Advisory Contract - Oppenheimer (Series D)
(c) Sub-Advisory Contract - Lexington (Series K)
(d) Sub-Advisory Contract - T. Rowe Price (Series N)
(e) Sub-Advisory Contract - T. Rowe Price (Series O)
(f) Sub-Advisory Contract - Meridian (Series M)(a)
(g) Sub-Advisory Contract - Strong (Series X)(b)
(h) Form of Sub-Advisory Contract - Bankers Trust (Series I)
(6) Not applicable
(7) Not applicable
(8) (a) Custodian Agreement - UMB
(b) Form of Custodian Agreement - Chase Manhattan Bank
(9) Administrative Services and Transfer Agency Agreement
(10) Opinion of counsel as to the legality of the securities
offered
(11) Consent of Independent Auditors
(12) Not applicable
(13) Not applicable
(14) Not applicable
(15) Not applicable
(16) Schedule of Computation of Performance(c)
(17) Financial Data Schedules
(18) Not applicable
(a) Incorporated herein by reference to the Exhibits filed with the
Registrant's Post-Effective Amendment No. 33 to Registration Statement No.
2-59353 (October 15, 1997).
(b) Incorporated herein by reference to the Exhibits filed with the
Registrant's Post-Effective Amendment No. 34 to Registration Statement No.
2-59353 (October 15, 1997).
(c) Incorporated herein by reference to the Exhibits filed with the
Registrant's Post-Effective Amendment No. 35 to Registration Statement No.
2-59353 (April 9, 1998).
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
Not applicable.
ITEM 27. INDEMNIFICATION
A policy of insurance covering Security Management Company, LLC, its
subsidiaries, Security Distributors, Inc., and all of the registered investment
companies advised by Security Management Company, LLC insures the Registrant's
directors and officers and others against liability arising by reason of an
alleged breach of duty caused by any negligent act, error or accidental omission
in the scope of their duties.
Paragraph 30 of Registrant's Bylaws, dated February 3, 1995, provides in
relevant part as follows:
30. INDEMNIFICATION AND LIABILITY OF DIRECTORS AND OFFICERS. Each person
who is or was a Director or officer of the Corporation or is or was serving
at the request of the Corporation as a Director or officer of another
corporation (including the heirs, executors, administrators and estate of
such person) shall be indemnified by the Corporation as of right to the
full extent permitted or authorized by the laws of the State of Kansas, as
now in effect and as hereafter amended, against any liability, judgment,
fine, amount paid in settlement, cost and expense (including attorneys'
fees) asserted or threatened against and incurred by such person in his/her
capacity as or arising out of his/her status as a Director or officer of
the Corporation or, if serving at the request of the Corporation, as a
Director or officer of another corporation. The indemnification provided by
this bylaw provision shall not be exclusive of any other rights to which
those indemnified may be entitled under the Articles of Incorporation,
under any other bylaw or under any agreement, vote of stockholders or
disinterested directors or otherwise, and shall not limit in any way any
right which the Corporation may have to make different or further
indemnification with respect to the same or different persons or classes of
persons.
No person shall be liable to the Corporation for any loss, damage,
liability or expense suffered by it on account of any action taken or
omitted to be taken by him/her as a Director or officer of the Corporation
or of any other corporation which he/she serves as a Director or officer at
the request of the Corporation, if such person (a) exercised the same
degree of care and skill as a prudent man would have exercised under the
circumstances in the conduct of his/her own affairs, or (b) took or omitted
to take such action in reliance upon advice of counsel for the Corporation,
or for such other corporation, or upon statement made or information
furnished by Directors, officers, employees or agents of the Corporation,
or of such other corporation, which he/she had no reasonable grounds to
disbelieve.
In the event any provision of this Section 30 shall be in violation of the
Investment Company Act of 1940, as amended or of the rules and regulations
promulgated thereunder, such provisions shall be void to the extent of such
violations.
On March 25, 1988, the shareholders approved the Board of Directors'
recommendation that the Articles of Incorporation be amended by adopting the
following Article Fifteenth:
"A director shall not be personally liable to the corporation or to its
stockholders for monetary damages for breach of fiduciary duty as a
director, provided that this sentence shall not eliminate nor limit the
liability of a director:
A. for any breach of his or her duty of loyalty to the corporation or to
its stockholders;
B. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
C. for any unlawful dividend, stock purchase or redemption under the
provisions of Kansas Statutes Annotated (K.S.A.) 17-6424 and amendments
thereto; or
D. for any transaction from which the director derived an improper
personal benefit."
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 28. BUSINESS OR OTHER CONNECTIONS OF INVESTMENT ADVISER
SECURITY MANAGEMENT COMPANY, LLC:
Security Management Company, LLC also acts as Investment Manager to Corporate
Bond Series, Limited Maturity Bond Series, U.S. Government Series and High Yield
Series of Security Income Fund, Security Cash Fund, Security Equity Fund,
Security Growth and Income Fund, Security Municipal Bond Fund and Security Ultra
Fund.
NAME, BUSINESS* AND OTHER CONNECTIONS OF THE EXECUTIVE OFFICERS AND DIRECTORS OF
REGISTRANT'S ADVISER
JAMES R. SCHMANK
- ----------------
PRESIDENT AND MANAGING MEMBER REPRESENTATIVE--Security Management Company, LLC
SENIOR VICE PRESIDENT--Security Benefit Life Insurance Company; Security Benefit
Group, Inc.
VICE PRESIDENT AND DIRECTOR--Security Distributors, Inc.; Security Growth and
Income Fund; Security Cash Fund; Security Municipal Bond Fund; Security Ultra
Fund; Security Equity Fund; SBL Fund; Advisor's Fund
VICE PRESIDENT--Security Income Fund
DIRECTOR--MFR Advisors, Inc., One Liberty Plaza, 46th Floor, New York, New York
10006; The Parkstone Advantage Fund, 3435 Stelzer Road, Columbus, Ohio 43219;
Stormont-Vail Foundation, 1500 SW 10th, Topeka, Kansas 66604
PRESIDENT AND DIRECTOR--Auburn-Washburn Public Schools Foundation, 5928 SW 53rd,
Topeka, Kansas 66610
TRUSTEE--Eugene P. Mitchell Charitable Remainder Unit Trust (Family Trust)
JOHN D. CLELAND
- ---------------
SENIOR VICE PRESIDENT AND MANAGING MEMBER REPRESENTATIVE--Security Management
Company, LLC
PRESIDENT AND DIRECTOR--Security Cash Fund; Security Income Fund; Security
Municipal Bond Fund; SBL Fund; Security Growth and Income Fund; Security
Equity Fund; Security Ultra Fund; Advisor's Fund
SENIOR VICE PRESIDENT--Security Benefit Life Insurance Company; Security Benefit
Group, Inc.
VICE PRESIDENT AND DIRECTOR--Security Distributors, Inc.
TRUSTEE AND TREASURER--Mount Hope Cemetery Corporation, 4700 SW 17th, Topeka,
Kansas
TRUSTEE AND INVESTMENT COMMITTEE CHAIRMAN--Topeka Community Foundation, 5100 SW
10th, Topeka, Kansas
MARK E. YOUNG
- -------------
VICE PRESIDENT--Security Growth and Income Fund; Security Income Fund; Security
Cash Fund; Security Municipal Bond Fund; Security Ultra Fund; Security Equity
Fund; SBL Fund; Security Management Company, LLC
SECOND VICE PRESIDENT--Security Benefit Life Insurance Company; Security Benefit
Group, Inc.
ASSISTANT VICE PRESIDENT--First Security Benefit Life Insurance and Annuity
Company of New York
VICE PRESIDENT AND DIRECTOR--Security Distributors, Inc.
TRUSTEE--Topeka Zoological Foundation, Topeka, Kansas
TERRY A. MILBERGER
- ------------------
SENIOR VICE PRESIDENT AND SENIOR PORTFOLIO MANAGER--Security Management Company,
LLC
SENIOR VICE PRESIDENT--Security Benefit Life Insurance Company; Security Benefit
Group, Inc.
VICE PRESIDENT--Security Equity Fund; SBL Fund
MICHAEL A. PETERSEN
- -------------------
VICE PRESIDENT AND SENIOR PORTFOLIO MANAGER--Security Management Company, LLC
VICE PRESIDENT--Security Benefit Life Insurance Company; Security Benefit Group,
Inc.; SBL Fund; Security Growth and Income Fund
JANE A. TEDDER
- --------------
VICE PRESIDENT AND SENIOR ECONOMIST--Security Management Company, LLC
VICE PRESIDENT--Security Benefit Life Insurance Company; Security Benefit Group,
Inc.; SBL Fund
AMY J. LEE
- ----------
VICE PRESIDENT, ASSOCIATE GENERAL COUNSEL AND ASSISTANT SECRETARY--Security
Benefit Life Insurance Company; Security Benefit Group, Inc.
SECRETARY--Security Management Company, LLC; Security Distributors, Inc.;
Security Cash Fund; Security Equity Fund; Security Municipal Bond Fund;
Security Ultra Fund; SBL Fund; Security Growth and Income Fund; Security
Income Fund; Advisor's Fund
DIRECTOR--Midland Hospice Care, Inc., 200 SW Frazier Court, Topeka, Kansas 66606
BRENDA M. HARWOOD
- -----------------
ASSISTANT VICE PRESIDENT AND TREASURER--Security Management Company, LLC
TREASURER--Security Equity Fund; Security Ultra Fund; Security Growth and Income
Fund; Security Income Fund; Security Cash Fund; SBL Fund; Security Municipal
Bond Fund; Advisor's Fund; Security Distributors, Inc.
ASSISTANT VICE PRESIDENT--Security Benefit Life Insurance Company; Security
Benefit Group, Inc.
DIRECTOR--The Parkstone Advantage Fund, 3435 Stelzer Road, Columbus, Ohio 43219
STEVEN M. BOWSER
- ----------------
SECOND VICE PRESIDENT AND PORTFOLIO MANAGER--Security Management Company, LLC
SECOND VICE PRESIDENT--Security Benefit Life Insurance Company; Security Benefit
Group, Inc.
VICE PRESIDENT--Security Income Fund; Security Equity Fund; SBL Fund
THOMAS A. SWANK
- ---------------
VICE PRESIDENT AND PORTFOLIO MANAGER--Security Management Company, LLC
VICE PRESIDENT AND CHIEF INVESTMENT OFFICER--Security Benefit Life Insurance
Company; Security Benefit Group, Inc.
VICE PRESIDENT--SBL Fund; Security Income Fund
CINDY L. SHIELDS
- ----------------
ASSISTANT VICE PRESIDENT AND PORTFOLIO MANAGER--Security Management Company, LLC
ASSISTANT VICE PRESIDENT--Security Benefit Life Insurance Company; Security
Benefit Group, Inc.
VICE PRESIDENT--SBL Fund; Security Equity Fund
LARRY L. VALENCIA
- -----------------
ASSISTANT VICE PRESIDENT AND SENIOR RESEARCH ANALYST--Security Management
Company, LLC
JAMES P. SCHIER
- ---------------
ASSISTANT VICE PRESIDENT AND PORTFOLIO MANAGER--Security Management Company, LLC
ASSISTANT VICE PRESIDENT--Security Benefit Life Insurance Company; Security
Benefit Group, Inc.
VICE PRESIDENT--SBL Fund; Security Equity Fund; Security Ultra Fund
DAVID ESHNAUR
- -------------
ASSISTANT VICE PRESIDENT AND PORTFOLIO MANAGER--Security Management Company, LLC
ASSISTANT VICE PRESIDENT--Security Benefit Life Insurance Company; Security
Benefit Group, Inc.
VICE PRESIDENT--SBL Fund; Security Income Fund; Security Equity Fund
MARTHA L. SUTHERLAND
- --------------------
SECOND VICE PRESIDENT--Security Management Company, LLC
VICE PRESIDENT--Security Benefit Life Insurance Company; Security Benefit Group,
Inc.
CHRISTOPHER D. SWICKARD
- -----------------------
ASSISTANT SECRETARY--Security Management Company, LLC; Security Cash Fund;
Security Equity Fund; Security Municipal Bond Fund; Security Ultra Fund; SBL
Fund; Security Growth and Income Fund; Security Income Fund; Advisor's Fund
ASSISTANT VICE PRESIDENT AND ASSISTANT COUNSEL--Security Benefit Life Insurance
Company; Security Benefit Group, Inc.
*Located at 700 Harrison, Topeka, Kansas 66636-0001
OPPENHEIMERFUNDS, INC.
OppenheimerFunds, Inc., sub-adviser to Series D, currently manages investment
companies other than the Registrant with assets of more than $85 billion.
For information as to the business, profession, vocation or employment of a
substantial nature of each director, officer or partner of OppenheimerFunds,
Inc., reference is made to Schedule A and D of Form ADV filed by
OppenheimerFunds, Inc. under the Investment Advisers Act of 1940 (SEC File No.
801-8253) which is incorporated by reference.
LEXINGTON MANAGEMENT CORPORATION:
Lexington Management Corporation, sub-adviser to Series K (Global Aggressive
Bond Series), acts as investment adviser, sub-adviser and/or sponsor to 21
investment companies other than Registrant.
For information as to the business, profession, vocation or employment of a
substantial nature of each director, officer or partner of Lexington Management
Corporation, reference is made to Schedule A and D of Form ADV filed by
Lexington Management Corporation under the Investment Advisers Act of 1940 (SEC
File No. 801-8281) which is incorporated by reference.
MFR ADVISORS, INC.
Lexington Management Corporation contracts with MFR Advisors, Inc. to provide
advisory services for Series K (Global Aggressive Bond Series). MFR Advisors,
Inc. serves as sub-adviser to one investment company other than Registrant.
For information as to the business, profession, vocation or employment of a
substantial nature of each director, officer or partner of MFR Advisors, Inc.,
reference is made to Schedule A and D of Form ADV filed by MFR Advisors, Inc.
under the Investment Advisers Act of 1940 (SEC File No. 801-43116) which is
incorporated by reference.
MERIDIAN INVESTMENT MANAGEMENT CORPORATION
Meridian Investment Management Corporation, sub-adviser to Series M, serves as
an investment adviser, sub-adviser and provider of investment research to mutual
funds and private accounts representing assets over $500 million.
For information as to the business, profession, vocation or employment of a
substantial nature of each director, officer or partner of Meridian Investment
Management Corporation, reference is made to Schedule A and D of Form ADV filed
by Meridian Investment Management Corporation under the Investment Advisers Act
of 1940 (SEC File No. 801-38868) which is incorporated by reference.
STRONG CAPITAL MANAGEMENT, INC.
Strong Capital Management, Inc., sub-adviser to Series X, serves as investment
adviser to the Strong Funds and provides investment management services for
mutual funds and other investment portfolios representing assets over $29
billion.
For information as to the business, profession, vocation or employment of a
substantial nature of each director, officer or partner of Strong Capital
Management, Inc., reference is made to Schedule A and D of Form ADV filed by
Strong Capital Management, Inc. under the Investment Advisers Act of 1940 (SEC
File No. 801-10724) which is incorporated by reference.
T. ROWE PRICE ASSOCIATES, INC.
T. Rowe Price Associates, Inc., sub-adviser to Series N and O, was founded in
1937 by the late Thomas Rowe Price, Jr. As of December 31, 1997, the firm and
its affiliates managed over $124 billion for over 6 million individual and
institutional investor accounts.
For information as to the business, profession, vocation or employment of a
substantial nature of each director, officer or partner of T. Rowe Price
Associates, Inc., reference is made to Schedule A and D of Form ADV filed by T.
Rowe Price Associates, Inc. under the Investment Advisers Act of 1940 (SEC File
No. 801-856) which is incorporated by reference.
BANKERS TRUST COMPANY
Bankers Trust Company ("Bankers Trust") serves as sub-adviser to Series I.
Bankers Trust, a New York banking corporation, is a wholly-owned subsidiary of
Bankers Trust New York Corporation. Bankers Trust conducts a variety of
commercial banking and trust activities and is a major wholesale supplier of
financial services to the international institutional market.
To the knowledge of SBL Fund, none of the directors or officers of Bankers
Trust, except those set forth below, is engaged in any other business,
profession, vocation or employment of a substantial nature, except that certain
directors and officers also hold various positions with and engage in business
for Bankers Trust New York Corporation. Set forth below are the names and
principal businesses of the directors and officers of Bankers Trust who are
engaged in any other business, profession, vocation or employment of a
substantial nature.
NAME AND PRINCIPAL BUSINESS ADDRESS, PRINCIPAL OCCUPATION AND OTHER INFORMATION
GEORGE B. BEITZEL
- -------------------
International Business Machines Corporation, Old Orchard Road, Armonk, New York
10504.
DIRECTOR--Bankers Trust Company; Computer Task Group; Phillips Petroleum
Company; Caliber Systems, Inc. (formerly Roadway Services Inc.); Rohm and Haas
Company; TIG Holdings
RETIRED SENIOR VICE PRESIDENT AND DIRECTOR--International Business Machines
Corporation
CHAIRMAN EMERITUS--Amherst College
CHAIRMAN--Colonial Williamsburg Foundation
RICHARD H. DANIEL
- -----------------
Bankers Trust Company, 130 Liberty Street, New York, New York 10006.
VICE CHAIRMAN AND CHIEF FINANCIAL OFFICER--Bankers Trust Company; Bankers Trust
New York Corporation
BENEFICIAL OWNER, GENERAL PARTNER--Daniel Brothers; Daniel Lingo & Assoc.;
Daniel Pelt & Assoc.
BENEFICIAL OWNER--Rhea C. Daniel Trust
PHILIP A. GRIFFITHS
- -------------------
Bankers Trust Company, 130 Liberty Street, New York, New York 10006.
DIRECTOR--Institute for Advanced Study; Bankers Trust Company
CHAIRMAN--Committee on Science, Engineering and Public Policy of the National
Academies of Sciences and Engineering and the Institute of Medicine
CHAIRMAN AND MEMBER--Nominations Committee; Committee on Science and Engineering
Indicators; National Science Board
TRUSTEE--North Carolina School of Science and Mathematics; the Woodward Academy
WILLIAM R. HOWELL
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J. C. Penney Company, Inc., P.O. Box 10001, Plano, Texas 75301-0001.
CHAIRMAN EMERITUS--J. C. Penney Company, Inc.
DIRECTOR--Bankers Trust Company; Exxon Corporation; Halliburton Company;
Warner-Lambert Corporation; The Williams Companies, Inc.; National Retail
Federation
VERNON E. JORDAN, JR.
- ---------------------
Akin, Gump, Strauss, Hauer & Feld, LLP, 1333 New Hampshire Avenue, NW,
Washington, District of Columbia 20036.
DIRECTOR--Bankers Trust Company; American Express Company; Dow-Jones, Inc.; J.
C. Penney Company, Inc.; Revlon Group Incorporated; Ryder System, Inc.; Sara
Lee Corporation; Union Carbide Corporation; Xerox Corporation
TRUSTEE--Brookings Institution; The Ford Foundation; Howard University
DAVID MARSHALL
- --------------
Bankers Trust Company, 130 Liberty Street, New York, New York 10006.
CHIEF INFORMATION OFFICER AND EXECUTIVE VICE PRESIDENT--Bankers Trust New York
Corporation
SENIOR MANAGING DIRECTOR--Bankers Trust Company
HAMISH MAXWELL
- --------------
Philip Morris Companies, Inc., 120 Park Avenue, New York, New York 10006.
RETIRED CHAIRMAN AND CHIEF EXECUTIVE OFFICER--Philip Morris Companies, Inc.
DIRECTOR--Bankers Trust Company; The News Corporation Limited; Sola
International Inc.
CHAIRMAN--WWP Group pic
FRANK N. NEWMAN
- ---------------
Bankers Trust Company, 130 Liberty Street, New York, New York 10006.
CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER AND PRESIDENT--Bankers Trust New
York Corporation; Bankers Trust Company
DIRECTOR--Bankers Trust Company; Dow-Jones, Inc.; Carnegie Hall
N. J. NICHOLAS, JR.
- -------------------
745 Fifth Avenue, New York, New York 10020.
DIRECTOR--Bankers Trust Company; Boston Scientific Corporation; Xerox
Corporation
RUSSELL E. PALMER
- -----------------
The Palmer Group, 3600 Market Street, Suite 530, Philadelphia, Pennsylvania
19104.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER--The Palmer Group
DIRECTOR--Bankers Trust Company; Allied-Signal Inc.; Federal Home Loan Mortgage
Corporation; GTE Corporation; The May Department Stores Company; Safeguard
Scientifics, Inc.
TRUSTEE--University of Pennsylvania
DONALD L. STAHELI
- -----------------
Bankers Trust Company, 130 Liberty Street, New York, New York 10006.
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER--Continental Grain Company
DIRECTOR--Bankers Trust Company; ContiFinancial Corporation; Prudential Life
Insurance Company of America; Fresenius Medical Care, A.g.; America-China
Society; National Committee on United States-China Relations; New York City
Partnership
CHAIRMAN--U.S. China Business Council; Council on Foreign Relations; National
Advisor Council of Brigham Young University's Marriott School of Management
VICE CHAIRMAN--The Points of Light Foundation
TRUSTEE--American Graduate School of International Management.
PATRICIA CARRY STEWART
- ----------------------
c/o Office of the Secretary, 130 Liberty Street, New York, New York 10006.
DIRECTOR--Bankers Trust Company; CVS Corporation; Community Foundation for Palm
Beach and Martin Counties
TRUSTEE EMERITA--Cornell University
GEORGE J. VOJTA
- ---------------
Bankers Trust Company, 130 Liberty Street, New York, New York 10006.
VICE CHAIRMAN--Bankers Trust New York Corporation; Bankers Trust Company
DIRECTOR--Bankers Trust Company; Alicorp S.A.; Northwest Airlines; Private
Export Funding Corp.; New York State Banking Board; St. Lukes-Roosevelt
Hospital Center
PARTNER--New York City Partnership
CHAIRMAN--Wharton Financial Services Center
PAUL A. VOLCKER
- ---------------
Bankers Trust Company, 130 Liberty Street, New York, New York 10006.
DIRECTOR--Bankers Trust Company; American Stock Exchange; Nestle S.A.;
Prudential Insurance Company; UAL Corporation; American Council on Germany;
Aspen Institute; Council on Foreign Relations; The Japan Society
CHAIRMAN--Group of 30
NORTH AMERICAN CHAIRMAN--Trilateral Commission
CO-CHAIRMAN--U.S./Hong Kong Economic Cooperation Committee
TRUSTEE--The American Assembly
MELVIN A. YELLIN
- ----------------
Bankers Trust Company, 130 Liberty Street, New York, New York 10006.
SENIOR MANAGING DIRECTOR AND GENERAL COUNSEL--Bankers Trust New York
Corporation; Bankers Trust Company
DIRECTOR--1136 Tenants Corporation; ABA Securities Association
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Not applicable.
(b) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Certain accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the Rules promulgated thereunder are maintained by
Security Management Company, LLC, 700 Harrison, Topeka, Kansas 66636-0001;
Lexington Management Corporation, Park 80 West, Plaza Two, Saddle Brook, New
Jersey 07663; T. Rowe Price Associates, Inc., 100 East Pratt Street, Baltimore,
Maryland 21202; Meridian Investment Management Corporation, 12835 Arapahoe Road,
Tower II, 7th Floor, Englewood, Colorado 80112; Strong Capital Management, Inc.,
100 Heritage Reserve, Menomonee Falls, Wisconsin 53051; Templeton/Franklin
Investment Services, Inc., 777 Mariners Island Boulevard, San Mateo, California
94404; OppenheimerFunds, Inc., Two World Trade Center, New York, New York 10048;
and Bankers Trust Company, One Bankers Trust Plaza, New York, New York 10006.
Records relating to the duties of the Registrant's custodian are maintained by
UMB, n.a., 928 Grand Avenue, Kansas City, Missouri 64106 and Chase Manhattan
Bank, 4 Chase MetroTech Center, 18th Floor, Brooklyn, New York 11245.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
(a) Not applicable.
(b) Not applicable.
(c) Registrant hereby undertakes to furnish each person, to whom a prospectus
is delivered, a copy of the Registrant's latest report to shareholders upon
request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment Company
Act, the Fund has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Topeka, and
State of Kansas on the 6th day of November, 1998.
SBL FUND
(The Fund)
By: JOHN D. CLELAND, President
----------------------------------
John D. Cleland, President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated:
Date: November 6, 1998
DONALD A. CHUBB, JR. Director
- ---------------------------
Donald A. Chubb, Jr.
JOHN D. CLELAND President and Director
- ---------------------------
John D. Cleland
PENNY A. LUMPKIN Director
- ---------------------------
Penny A. Lumpkin
MARK L. MORRIS, JR. Director
- ---------------------------
Mark L. Morris, Jr.
JAMES R. SCHMANK Director
- ---------------------------
James R. Schmank
MAYNARD OLIVERIUS Director
- ---------------------------
Maynard Oliverius
BRENDA M. HARWOOD Treasurer (Principal Financial Officer)
- ---------------------------
Brenda M. Harwood
<PAGE>
EXHIBIT INDEX
(1) Articles of Incorporation
(2) Bylaws
(3) None
(4) None
(5) (a) Investment Advisory Contract
(b) Sub-Advisory Contract - Oppenheimer
(c) Sub-Advisory Contract - Lexington
(d) Sub-Advisory Contract - T. Rowe Price
(e) Sub-Advisory Contract - T. Rowe Price
(f) None
(g) None
(h) Form of Sub-Advisory Contract - Bankers Trust
(6) None
(7) None
(8) (a) Custodian Agreement - UMB
(b) Form of Custodian Agreement - Chase
(9) Administrative Services and Transfer Agency Agreement
(10) Opinion of Counsel
(11) Consent of Independent Auditors
(12) None
(13) None
(14) None
(15) None
(16) None
(17) Financial Data Schedules
(18) None
<PAGE>
ARTICLES OF INCORPORATION
OF
SBL FUND, INC.
FIRST: The name of the Corporation is:
SBL FUND, INC.
SECOND: The address of its registered office in the State of Kansas is Security
Benefit Life Building, 700 Harrison Street, in the City of Topeka, County of
Shawnee. The name of its registered agent at such address is Security Management
Company, Inc.
THIRD: The nature of the business or objects or purposes to be conducted,
transacted, promoted or carried on by the Corporation is:
(a) To engage in the business of an investment company and mutual fund and
to hold, invest and reinvest its funds, and in connection therewith to
hold part or all of its funds in cash, and to purchase or otherwise
acquire, hold for investment or otherwise, trade, purchase on margin,
sell, sell short, assign, pledge, hypothecate, negotiate, transfer,
exchange or otherwise dispose of or turn to account or realize upon,
securities (which term "securities" shall for the purposes of this
Article, without limitation of the generality thereof, be deemed to
include any stocks, bonds, shares, debentures, notes, mortgages or
other obligations, and any certificates, receipts, warrants or other
instruments representing rights to receive, purchase or subscribe for
the same, or evidencing or representing any other rights or interests
therein, or in any property or assets) created or issued by any
persons, firms, associations, corporations, syndicates, combinations,
organizations, governments or subdivisions thereof; and to exercise,
as owner of holder of any securities, all rights, powers and
privileges in respect thereof; and to do any and all acts and things
for the preservation, protection, improvement and enhancement in value
of any and all such securities; and
(b) To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Code of the State of Kansas.
In addition to the powers and privileges conferred upon the corporation by law
and those incidental thereto, the corporation shall possess and may exercise all
the powers and privileges which are necessary or convenient to the conduct,
promotion or attainment of the business, objects or purposes of the corporation.
FOURTH: The total number of shares of stock which the corporation shall have
authority to issue is Ten Million (10,000,000) shares of common stock, of the
par value of One Dollar ($1.00) per share. The board of directors of the
corporation is expressly authorized to cause shares of common stock of the
corporation authorized herein to be issued in one or more series and to increase
or decrease the number of shares so authorized to be issued in any such series.
All shares of stock of the corporation of any class or series shall be
non-assessable.
<PAGE>
No holder of any shares or stock of the corporation of any class or series shall
be entitled as such, as a matter of right, to subscribe for or purchase any
shares of stock of the corporation of any class or series, whether now or
hereafter authorized or whether issued for cash, property or services or as a
dividend or otherwise, or to subscribe for or purchase any obligations, bonds,
notes, debentures, other securities or stock convertible into shares of stock of
the corporation of any class or series or carrying or evidencing any right to
purchase shares of stock of any class or series.
FIFTH: The name and mailing address of the incorporation are as follows:
NAME ADDRESS
Larry D. Armel 700 Harrison Street
Topeka, KS 66636
The number of directors of the corporation shall be fixed by or in the manner
provided in the bylaws. The names and mailing addresses of the persons who are
to serve as directors of the corporation until the first annual meeting of
stockholders or until their successors are elected and qualified are as follows:
NAME ADDRESS
John W. Henderson 3130 Shadow Lane
Topeka, Kansas 66604
Robert E. Jacoby 700 Harrison Street
Topeka, Kansas 66636
William R. Oberkrieser 700 Harrison Street
Topeka, Kansas 66636
John J. Schaff 4409 Holly Lane
Topeka, Kansas 66604
Willis A. Anton, Jr. 3616 York Way
Topeka, Kansas 66604
SIXTH: The corporation is to have perpetual existence.
SEVENTH: The private property of the stockholders shall not be subject to the
payment of corporate debts to any extent whatsoever.
EIGHTH: Elections of directors need not be by ballot unless the bylaws of the
corporation so provide.
NINTH: The bylaws of the corporation may from time to time be altered, amended
or repealed, or new bylaws may be adopted, in any of the following ways: (i) by
the holders of a majority of the outstanding shares of stock of the corporation
entitled to vote, or (ii) by a majority of the full board of directors and any
change so made by the stockholders may thereafter be further changed by a
majority of the directors; provided, however, that the power of the board of
directors to alter, amend or repeal bylaws, or to adopt new bylaws, may be
denied as to any bylaws or portion thereof by the stockholders if at the time of
enactment the stockholders shall so expressly provide.
<PAGE>
TENTH: The corporation may agree to the terms and conditions upon which any
director, officer, employee or agent accepts his office or position and in its
bylaws, by contract or in any other manner may agree to indemnify and protect
any director, officer, employee or agent of the corporation, or any person who
serves at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, to the extent permitted by the laws of the State of Kansas and the
Investment Company Act of 1940, as amended, and the rules and regulations
promulgated under said Act.
ELEVENTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them or between this corporation
and its stockholders or any class of them, any court of competent jurisdiction
within the State of Kansas, on the application in a summary way of this
corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this corporation under the provisions of
section 104 of the General Corporation Code of Kansas or on the application of
trustees in dissolution or of any receiver or receivers appointed for this
corporation under the provisions of section 98 of the General Corporation Code
of Kansas, may order a meeting of the creditors or class of creditors, or of the
stockholders or class of stockholders of this corporation, as the case may be,
to be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors, or
of the stockholders or class of stockholders of this corporation, as the case
may be, agree to any compromise or arrangement and to any reorganization of this
corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization, if sanctioned by the
court to which the said application has been made, shall be binding on all the
creditors or class of creditors, or on all the stockholders or class of
stockholders, of this corporation, as the case may be, and also on this
corporation.
TWELFTH: Except as may be otherwise provided by statute, the corporation shall
be entitled to treat the registered holder of any shares of the corporation as
the owner of such shares and of all rights derived from such shares for all
purposes, and the corporation shall not be obligated to recognize any equitable
or other claim to or interest in such shares or rights on the part of any other
person, including, but without limiting the generality of the term "person," a
purchaser, pledgee, assignee or transferee of such shares or rights, unless and
until such person becomes the registered holder of such shares. The foregoing
shall apply whether or not the corporation shall have either actual or
constructive notice of the interest of such person.
THIRTEENTH: Meetings of stockholders may be held within or without the State of
Kansas, as the bylaws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes of Kansas) outside the State
of Kansas at such place or places as may be designated from time to time by the
board of directors or in the bylaws of the corporation.
FOURTEENTH: The corporation reserves the right to amend, alter, change or repeal
any provision contained in these Articles of Incorporation in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation; provided, however, any proposed
amendment, alteration, change or repeal of these Articles or the adoption of any
additional provision inconsistent with any provision of these Articles which
materially and adversely affect the rights of the holders of any particular
series of common stock as a series, shall not be effective unless approved by
the holders of a majority of the outstanding shares of common stock of such
series.
<PAGE>
The undersigned, for the purpose of forming a corporation under the General
Corporation Code of the State of Kansas, does hereby execute these Articles, and
does hereby declare and certify that this is his act and deed and the facts
herein stated are true, and accordingly has executed these Articles this 26th
day of May, 1977.
Larry D. Armel
------------------------------------
Larry D. Armel
STATE OF KANSAS )
)
COUNTY OF SHAWNEE )
BE IT REMEMBERED, that on this 26th day of May, 1977, before me, the
undersigned, a Notary Public in and for said County and State, personally
appeared Larry D. Armel, who duly acknowledged before me that he executed the
foregoing instrument.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed my official
seal the day and year last above written.
Janet M. Ladd
-------------------------------------------------
Notary Public in and for said County and State
(NOTARIAL SEAL)
My Commission expires September 3, 1980
<PAGE>
CERTIFICATE OF DESIGNATION
OF SERIES OF COMMON STOCK
OF
SBL FUND, INC.
STATE OF KANSAS )
) ss.:
COUNTY OF SHAWNEE )
We, ROBERT F. JACOBY, president, and LARRY D. ARMEL, secretary, of SBL Fund,
Inc., a corporation organized and existing under the laws of the State of
Kansas, and whose registered office is Security Benefit Life Building, 700
Harrison Street, Topeka, Shawnee, Kansas, do hereby certify that pursuant to
authority expressly invested in the board of directors by the provisions of the
corporation's articles of incorporation, the board of directors of said
corporation at its first meeting duly convened and held on the 6TH day of June,
1977, adopted resolutions establishing three separate series of common stock of
the corporation and setting forth the preferences, rights, privileges and
restrictions of such three series, which resolutions provided in their entirety
as follows:
RESOLVED, that, pursuant to authority vested in the board of directors of the
corporation by its Articles of Incorporation, the corporation initially shall
issue its Common Stock, par value One Dollar per share, in the following three
series:
Series A Common Stock;
Series B Common Stock; and
Series C Common Stock
FURTHER RESOLVED, that the Corporation shall initially have the authority to
issue Two Million shares of Common Stock in each of the foregoing three series;
FURTHER RESOLVED, that the preferences, rights, privileges and restrictions of
the shares of each such series shall be as follows:
1. Except as set forth below and as may be hereafter established by the board
of directors of the corporation all shares of the corporation, regardless of
series, shall be equal.
2. (a) Outstanding shares of each series shall represent a stockholder
interest in a particular fund of assets held by the corporation which
fund shall be invested and reinvested in accordance with policies and
objectives established by the board of directors.
(b) All cash and other property received by the corporation from the sale
of shares of a particular series, all securities and other property
held as a result of the investment and reinvestment of such cash and
other property, all revenues and income received or receivable with
respect to such cash, other property, investments and reinvestments,
and all proceeds derived from the sale, exchange, liquidation or other
disposition of any of the foregoing, shall be allocated to the series
to which they relate and held for the benefit of the stockholders
owning shares of such series.
<PAGE>
(c) All losses, liabilities and expenses of the corporation (including
accrued liabilities and expenses and such reserves as the board of
directors may determine are appropriate) shall be allocated and
charged to the series to which such loss, liability or expense
relates. Where any loss, liability or expense relates to more than one
series, the board of directors shall allocate the same between or
among such series pro rata based on the respective net asset values of
such series or on such other basis as the board of directors deem
appropriate.
(d) All allocations made hereunder by the board of directors shall be
conclusive and binding upon all stockholders and upon the corporation.
3. Each share of stock of a series shall have the same preferences, rights,
privileges and restrictions as each other share of stock of that series.
Each fractional share of stock of a series proportionately shall have the
same preferences, rights, privileges and restrictions as a whole share.
4. Dividends may be paid when, as and if declared by the board of directors
out of funds legally available therefor. Dividends shall be declared and
paid with respect to a particular series and shall be allocated to such
series. Stockholders of the same series shall share in dividends declared
and paid with respect to such series pro rata based on their ownership of
shares of such series. Whenever dividends are declared and paid with
respect to any series, the holders of shares of other series shall have no
rights in or to such dividends.
5. In the event of liquidation, stockholders of each series shall be entitled
to share in the assets of the corporation that are allocated to such series
and that are available for distribution to the stockholders of such series.
Liquidating distributions shall be made to the stockholders of each series
pro rata based on their share ownership of such series.
6. At all meetings of stockholders each stockholder of the corporation shall
be entitled to one vote in person or by proxy on each matter submitted to a
vote at such meeting for each share of common stock standing in his name on
the books of the corporation on the date, fixed in accordance with the
bylaws, for determination of stockholders entitled to vote at such
meetings. At all elections of directors each stockholder shall be entitled
to as many votes as shall equal the number of shares of stock multiplied by
the number of directors to be elected, and he may cast all of such votes
for a single director or may distribute them among the number to be noted
for, or any two or more of them as he may see fit. Notwithstanding the
foregoing, (i) if any matter is submitted to the stockholders which does
not affect the investment policies or objectives of all series, then only
stockholders of the affected series shall be entitled to vote and (ii) in
the event the Investment Company Act of 1940, as amended, or the rules and
regulations promulgated thereunder shall require a greater or different
vote than would otherwise be required herein or by the Articles of
Incorporation of the corporation, such greater or different voting
requirement shall also be satisfied.
7. Each stockholder of the corporation shall have the right to require the
corporation to purchase for cash part or all of the shares held by such
stockholder at a price per share equal to the per share net asset value of
such shares as determined by the board of directors of the corporation or
in accordance with procedures established by the board of directors and in
compliance with applicable statutes and regulations. Any shares of the
corporation purchased as a result of a stockholder exercising the right
granted in the immediately preceding sentence, shall, subject to filing
such instruments and documents as the laws of the State of Kansas may
require, upon such purchase automatically and without the necessity of
further action on the part of the board of directors or stockholders of the
corporation, be retired, and thereupon such shares shall be returned to the
status of authorized and unissued shares of
<PAGE>
common stock of the series to which they belong, and the capital of the
corporation shall be reduced by an amount equal to the par value of such
shares, and the surplus of the corporation shall be reduced by the amount
of cash paid by the corporation to such stockholder in excess of such par
value.
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the
corporation this 16th day of June, 1977.
Robert E. Jacoby
------------------------------------------
Robert E. Jacoby, President
Larry D. Armel
------------------------------------------
Larry D. Armel, Secretary
[SEAL]
STATE OF KANSAS )
) ss.:
COUNTY OF SHAWNEE )
Be it remembered, that before me JANET M. LADD a Notary Public in and for the
County and State aforesaid, came ROBERT E. JACOBY, president, and LARRY D.
ARMEL, secretary, of SBL Fund, Inc., a Kansas Corporation, personally known to
me to be the persons who executed the foregoing instrument of writing as
president and secretary, respectively, and duly acknowledged the execution of
the same this 16th day of June, 1977.
Janet M. Ladd
------------------------------------------
Notary Public
(NOTARIAL SEAL)
My commission expires: Sept. 3, 1980
<PAGE>
CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION
OF
SBL FUND, INC.
STATE OF KANSAS )
) ss.:
COUNTY OF SHAWNEE )
We, Everett S. Gille, President, and Larry D. Armel, Secretary of SBL Fund,
Inc., a corporation organized and existing under the laws of the State of
Kansas, and whose registered office is Security Benefit Life Building, 700
Harrison Street, Topeka, Shawnee County, Kansas, do hereby certify that at the
regular meeting of the board of directors of said corporation held on the 22nd
day of January, 1982, said board adopted resolutions setting forth the following
amendments to the Articles of Incorporation and declared their advisability, to
wit:
"RESOLVED, that the Articles of Incorporation of SBL Fund, Inc. be amended by
deleting Article FIRST in its entirety and by inserting, in lieu thereof, the
following new Article FIRST:
`FIRST: The name of the Corporation is SBL Fund.'
"RESOLVED, that the Articles of Incorporation of SBL Fund, Inc. be further
amended by deleting the first paragraph of Article FOURTH and by inserting in
lieu thereof, the following:
`FOURTH: The total number of shares of stock which the Corporation shall have
authority to issue is 500,000,000 shares of common stock, of the par value of
One Dollar ($1.00) per share. The board of directors of the corporation is
expressly authorized to cause shares of common stock of the corporation
authorized herein to be issued in one or more series and to increase or decrease
the number of shares so authorized to be issued in any such series.'
FURTHER RESOLVED, that the board of directors of this corporation hereby
declares the advisability of the foregoing amendments to the articles of
incorporation of this corporation and hereby recommends that the stockholders of
this corporation adopt said amendments.
FURTHER RESOLVED, that at the annual meeting of the stockholders of this
corporation to be held at the offices of the corporation in Topeka, Kansas, on
March 4, 1982, beginning at 10:00 a.m. on that day, the matter of the aforesaid
proposed amendments to the articles of incorporation of this corporation shall
be submitted to the stockholders entitled to vote thereon.
FURTHER RESOLVED, that in the event the stockholders of this corporation shall
approve and adopt the proposed amendments to the articles of incorporation of
this corporation as heretofore adopted and recommended by this board of
directors, the appropriate officers of this corporation be, and they hereby are,
authorized and directed, for and in behalf of this corporation, to make,
execute, verify, acknowledge and file or record in any and all appropriate
governmental offices any and all certificates and other instruments, and to take
any and all other action as may be necessary to effectuate the said proposed
amendments to the articles of incorporation of this corporation."
That thereafter, pursuant to said resolutions and in accordance with the bylaws
and the laws of the State of Kansas, said directors called a meeting of
stockholders for the consideration of said amendments and thereafter, pursuant
to said notice and in accordance with the statutes of the State of Kansas, on
the 4th day of March, 1982, said stockholders met and convened and considered
said proposed amendments.
<PAGE>
That at said meeting the stockholders entitled to vote did vote upon the
amendment to Article FIRST, and the majority of voting stockholders of the
corporation had voted for the proposed amendment certifying that the votes were
(Common Stock) 71,981 shares in favor of the proposed amendment and (Common
Stock) no shares against the amendment.
That said amendments were duly adopted in accordance with the provisions of
K.S.A. 17-6602, as amended.
That the capital of said corporation will not be reduced under or by reason of
said amendments.
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of said
corporation, this 9th day of March, 1982.
[Seal]
Everett S. Gille
------------------------------------------
Everett S. Gille, President
Larry D. Armel
------------------------------------------
Larry D. Armel, Secretary
STATE OF KANSAS )
) ss.:
COUNTY OF SHAWNEE )
Be it remembered, that before me, Lois J. Hedrick, a Notary Public in and for
the County and State aforesaid, came Everett S. Gille, President, and Larry D.
Armel, Secretary, of SBL Fund, Inc., a corporation, personally known to me to be
the persons who executed the foregoing instrument of writing as president and
secretary, respectively, and duly acknowledged the execution of the same this
9th day of March, 1982.
Lois J. Hedrick
------------------------------------------
Notary Public
(NOTARIAL SEAL)
My commission expires: January 8, 1984.
Submit in duplicate
A fee of $20.00 must accompany this form.
<PAGE>
CERTIFICATE OF CHANGE OF DESIGNATION OF COMMON STOCK OF SBL FUND
STATE OF KANSAS )
) ss.:
COUNTY OF SHAWNEE )
We, Everett S. Gille, President, and Larry D. Armel, Secretary, of SBL Fund, a
corporation organized and existing under the laws of the State of Kansas, and
whose registered office is the Security Benefit Life Building, 700 Harrison
Street, Topeka, Shawnee County, Kansas, do hereby certify that pursuant to
authority expressly invested in the board of directors by the corporation's
articles of incorporation, the board of directors of said corporation, by
Statement of Unanimous Consent dated March 7, 1983, adopted resolutions
increasing the number of shares authorized to be issued in the three separate
previously-designated series of common stock of the corporation, which
resolutions are as follows:
WHEREAS, at a meeting on the sixth day of June, 1977, the board of directors of
this corporation adopted resolutions establishing three separate series of
common stock of the corporation, setting forth the preferences, rights,
privileges and restrictions of said three series, and designating the number of
shares to be initially issued in each of said three series; and
WHEREAS, this board of directors wishes to increase the number of shares to be
issued in each of said three series;
NOW, THEREFORE, BE IT RESOLVED, that this corporation shall have the authority
to issue ten million shares of common stock in each previously designated Series
A, Series B, and Series C, and that the preferences, rights, privileges and
restrictions of the shares of each such series shall be those adopted by the
board of directors on June 6, 1977, and contained in the Certificate of
Designation of Common Stock executed and filed with the Secretary of State of
the State of Kansas on June 16, 1977.
FURTHER RESOLVED, that, the appropriate officers of the corporation be, and they
hereby are, authorized empowered and directed for and on behalf of this
corporation to prepare, execute and file with the Secretary of State of the
State of Kansas a certificate reflecting the aforementioned increase in the
number of shares authorized to be issued in each of the three series of common
stock, and to do any and all other necessary and appropriate acts and things in
connection therewith.
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the
corporation this 8th day of March, 1983.
Everett S. Gille
------------------------------------------
Everett S. Gille, President
(Corporate Seal)
Larry D. Armel
------------------------------------------
Larry D. Armel, Secretary
<PAGE>
STATE OF KANSAS )
) ss.:
COUNTY OF SHAWNEE )
Be it remembered, that before me, Lois J. Hedrick, a Notary Public in and for
the County and State aforesaid, came EVERETT S. GILLE, President, and LARRY D.
ARMEL, Secretary, of SBL Fund, a Kansas corporation, personally known to me to
be the persons who executed the foregoing instrument of writing as president and
secretary, respectively, and duly acknowledged the execution of the same this
8th day of March, 1983.
Lois J. Hedrick
------------------------------------------
Notary Public
(NOTARIAL SEAL)
My commission expires January 8, 1984.
<PAGE>
CERTIFICATE OF CHANGE OF DESIGNATION OF COMMON STOCK OF SBL FUND
STATE OF KANSAS )
) ss.:
COUNTY OF SHAWNEE )
We, Everett S. Gille, President, and Lois J. Hedrick, Assistant Secretary, of
SBL Fund, a corporation organized and existing under the laws of the State of
Kansas, whose registered office is the Security Benefit Life Building, 700
Harrison Street, Topeka, Shawnee County, Kansas, do hereby certify that pursuant
to authority expressly invested in the board of directors by the corporation's
articles of incorporation, the board of directors of said corporation, by
Statement of Unanimous Consent dated February 1, 1984, adopted resolutions
increasing the number of shares authorized to be issued in the three separate
previously-designated series of common stock of the corporation, which
resolutions are as follows:
WHEREAS, at a meeting on the sixth day of June, 1977, the board of directors of
this corporation adopted resolutions establishing three separate series of
common stock of the corporation, setting forth the preferences, rights,
privileges and restrictions of said three series, and designating the number of
shares to be initially issued in each of said three series; and on March 8,
1983, the board of directors increased the number of shares designated for
public sale of the three separate series; and
WHEREAS, this board of directors wishes to further increase the number of shares
to be issued in each of said three series;
NOW, THEREFORE, BE IT RESOLVED, that this corporation shall have the authority
to issue fifty million shares of common stock in each previously designated
Series A, Series B, and Series C, and that the preferences, rights, privileges
and restrictions of the shares of each such series shall be those adopted by the
board of directors on June 6, 1977, and contained in the Certificate of
Designation of Common Stock executed and filed with the Secretary of State of
the State of Kansas on June 16, 1977.
FURTHER RESOLVED, that, the appropriate officers of this corporation be, and
they hereby are fully authorized, empowered and directed, for and on behalf of
this corporation, to prepare, execute and file with the Secretary of State of
the State of Kansas a certificate reflecting the aforementioned increase in the
number of shares authorized to be issued in each of the three series of common
stock, and to do any and all other necessary and appropriate acts and things in
connection therewith.
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the
corporation this 3rd day of February, 1984.
Everett S. Gille
------------------------------------------
Everett S. Gille, President
(Corporate Seal)
Lois J. Hedrick
------------------------------------------
Lois J. Hedrick, Assistant Secretary
<PAGE>
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
Be it remembered, that before me, a Notary Public in and for the County and
State aforesaid, came EVERETT S. GILLE, President, and LOIS J. HEDRICK,
Assistant Secretary, of SBL Fund, a Kansas corporation, personally known to me
to be the persons who executed the foregoing instrument of writing as president
and secretary, respectively, and duly acknowledged the execution of the same
this 3rd day of February, 1984.
Gloria J. Sanders
------------------------------------------
Notary Public
(NOTARIAL SEAL)
My commission expires: April 11, 1986
<PAGE>
CERTIFICATE OF
DESIGNATION OF SERIES
OF COMMON STOCK
OF
SBL FUND
STATE OF KANSAS )
) ss.:
COUNTY OF SHAWNEE )
We, Everett S. Gille, President, and Tad Patton, Assistant Secretary, of SBL
Fund, a corporation organized and existing under the laws of the State of
Kansas, and whose registered office is the Security Benefit Life Building, 700
Harrison Street, Topeka, Shawnee County, Kansas, do hereby certify that pursuant
to the authority expressly vested in the board of directors by the provisions of
the corporation's articles of incorporation, the board of directors of said
corporation at its regular meeting duly convened and held on the 18th day of
November, 1983, adopted resolutions establishing the fourth separate series of
common stock of the corporation and setting forth the preferences, rights,
privileges and restrictions of such series, which resolutions provided in their
entirety as follows:
RESOLVED, that, pursuant to the authority vested in the board of directors of
the corporation by its articles of incorporation, the corporation shall be
authorized, subject to the approval of appropriate regulatory authorities, to
offer Series D common stock, par value $1.00 per share, in addition to its
presently offered series of common stock (Series A, Series B and Series C).
FURTHER RESOLVED, that, the corporation shall initially have the authority to
issue 50 million shares of Series D common stock.
FURTHER RESOLVED, that, the preferences, rights, privileges, and restrictions of
the shares of each of the Fund's series of common stock, as set forth in the
minutes of the June 6, 1977 meeting of this board of directors, are hereby
reaffirmed and incorporated by reference into the minutes of this meeting.
FURTHER RESOLVED, that, the appropriate officers of the corporation be, and they
hereby are, authorized and directed to take such action as may be necessary
under the laws of the State of Kansas or as they deem appropriate to cause the
foregoing resolutions to become effective and to create the additional series of
common stock of the corporation contemplated herein.
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the
corporation this 23rd day of March, 1984.
Everett S. Gille
------------------------------------------
EVERETT S. GILLE, President
Tad Patton
------------------------------------------
TAD PATTON, Assistant Secretary
<PAGE>
STATE OF KANSAS )
) ss.:
COUNTY OF SHAWNEE )
Be it remembered, that before me, VICKIE JACQUES, a Notary Public in and for the
County and State aforesaid, came EVERETT S. GILLE, President, and TAD PATTON,
Assistant Secretary, of SBL Fund, a Kansas corporation, personally known to me
to be the persons who executed the foregoing instrument of writing as president
and assistant secretary, respectively, and duly acknowledged the execution of
the same this 23rd day of March, 1984.
Vickie Jacques
------------------------------------------
Notary Public
(NOTARIAL SEAL)
My commission expires: June 3, 1986
<PAGE>
CERTIFICATE OF
DESIGNATION OF SERIES
OF COMMON STOCK
OF
SBL FUND
STATE OF KANSAS )
) ss.:
COUNTY OF SHAWNEE )
We, Everett S. Gille, President, and Barbara W. Rankin, Secretary, of SBL Fund,
a corporation organized and existing under the laws of the State of Kansas, and
whose registered office is the Security Benefit Life Building, 700 Harrison
Street, Topeka, Shawnee County, Kansas, do hereby certify that pursuant to the
authority expressly vested in the Board of Directors by the provisions of the
corporation's Articles of Incorporation, the Board of Directors of said
corporation at its regular meeting duly convened and held on the 9th day of
November, 1984, adopted resolutions establishing the fifth separate series of
common stock of the corporation and setting forth the preferences, rights,
privileges and restrictions of such series, which resolutions provided in their
entirety as follows:
RESOLVED, that, pursuant to the authority vested in the Board of Directors of
the corporation by its articles of incorporation, the corporation shall be
authorized, subject to the approval of appropriate regulatory authorities, to
offer Series E common stock, par value $1.00 per share, in addition to its
presently offered series of common stock (Series A, Series B, Series C, and
Series D).
FURTHER RESOLVED, that, the Corporation shall initially have the authority to
issue 50 million shares of Series E common stock.
FURTHER RESOLVED, that, the preferences, rights, privileges, and restrictions of
the shares of each of the Fund's series of common stock, as set forth in the
minutes of the June 6, 1977 meeting of this Board of Directors, are hereby
reaffirmed and incorporated by reference into the minutes of this meeting.
FURTHER RESOLVED, that, the appropriate officers of the corporation be, and they
hereby are, authorized and directed to take such action as may be necessary
under the laws of the State of Kansas or as they deem appropriate to cause the
foregoing resolutions to become effective and to create the additional series of
common stock of the corporation contemplated herein.
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the
corporation this 23rd day of July, 1985.
Everett S. Gille
------------------------------------------
EVERETT S. GILLE, President
Barbara W. Rankin
------------------------------------------
Barbara W. Rankin, Secretary
<PAGE>
STATE OF KANSAS )
) ss.:
COUNTY OF SHAWNEE )
Be it remembered, that before me, LOIS J. HEDRICK, a Notary Public in and for
the County and State aforesaid, came EVERETT S. GILLE, President, and BARBARA W.
RANKIN, Secretary, of SBL Fund, a Kansas corporation, personally known to me to
be the persons who executed the foregoing instrument of writing as president and
secretary, respectively, and duly acknowledged the execution of the same this
23rd day of July, 1985.
Lois J. Hedrick
------------------------------------------
Notary Public
(NOTARIAL SEAL)
My commission expires: June 1, 1988.
<PAGE>
CERTIFICATE OF AMENDMENT TO THE
ARTICLES OF INCORPORATION OF
SBL FUND
We, Michael J. Provines, President, and Amy J. Lee, Secretary of the above named
corporation, a corporation organized and existing under the laws of the State of
Kansas, do hereby certify that at a meeting of the board of directors of said
corporation, the board adopted a resolution setting forth the following
amendment to the Articles of Incorporation and declaring its advisability;
"A director shall not be personally liable to the corporation or to its
stockholders for monetary damages for breach of fiduciary duty as a
director, provided that this sentence shall not eliminate nor limit the
liability of a director:
A. for any breach of his or her duty of loyalty to the corporation or to
its stockholders;
B. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
C. for an unlawful dividend, stock purchase or redemption under the
provisions of Kansas Statutes Annotated (K.S.A.) 17-6424 and
amendments thereto; or
D. for any transaction from which the director derived an improper
personal benefit."
We further certify that thereafter, pursuant to said resolution, and in
accordance with the by-laws of the corporation and the laws of the State of
Kansas, the Board of Directors called a meeting of stockholders for
consideration of the proposed amendment, and thereafter, pursuant to notice and
in accordance with the statutes of the State of Kansas, the stockholders
convened and considered the proposed amendment.
We further certify that at a meeting a majority of the stockholders entitled to
vote voted in favor of the proposed amendment.
We further certify that the amendment was duly adopted in accordance with the
provisions of K.S.A. 17-6602, as amended.
We further certify that the capital of said corporation will not be reduced
under or by reason of said amendment.
IN WITNESS WHEREOF, we have hereunto set out hands and affixed the seal of said
corporation this 19th day of April, 1988.
Michael J. Provines
------------------------------------------
Michael J. Provines, President
Amy J. Lee
------------------------------------------
Amy J. Lee, Secretary
<PAGE>
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
Be it remembered, that before me, a Notary Public in and for the aforesaid
county and state, personally appeared Michael J. Provines, President, and Amy J.
Lee, Secretary, of the corporation named in this document, who are known to be
to be the same persons who executed the foregoing certificate, and duly
acknowledged the execution of the same this 19th day of April, 1988.
Connie Brungardt
------------------------------------------
Notary Public
(NOTARIAL SEAL)
My commission expires: November 30, 1991
PLEASE SUBMIT THIS DOCUMENT IN DUPLICATE, WITH $20 FILING FEE TO:
Secretary of State
2nd Floor, State Capitol
Topeka, KS 66612-1594
(913) 296-2236
<PAGE>
CERTIFICATE OF CHANGE OF DESIGNATION OF COMMON STOCK OF SBL FUND
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
We, Michael J. Provines, President, and Amy J. Lee, Secretary, of SBL Fund, a
corporation organized and existing under the laws of the State of Kansas, whose
registered office is Security Benefit Life Building, 700 Harrison, Topeka,
Shawnee County, Kansas, do hereby certify that pursuant to the authority
expressly invested in the board of directors by the corporation's articles of
incorporation, the board of directors of said corporation by Statement of
Unanimous Consent dated October 13, 1989, adopted resolutions increasing the
number of shares authorized to be issued in three separate previously-designated
series of common stock of the corporation, which resolutions are as follows:
WHEREAS, at a meeting on the sixth day of June, 1977, the board of directors of
this corporation adopted resolutions establishing three separate series of
common stock of the corporation, setting forth the preferences, rights,
privileges and restrictions of said three series, and designating the number of
shares to be initially issued in each of said three series; and on March 8,
1983, and on February 3, 1984, the board of directors increased the number of
shares designated for public sale to Series A, Series B and Series C; and
WHEREAS, this board of directors wishes to further increase the number of shares
to be issued in each of said Series;
NOW, THEREFORE, BE IT RESOLVED, that this corporation shall have the authority
to issue one hundred fifty million shares of common stock in each previously
designated Series A and Series C and shall have the authority to issue one
hundred million shares of common stock in the previously designated Series B,
and that the preferences, rights, privileges and restrictions of the shares of
each such series shall be those adopted by the board of directors on June 6,
1977, and contained in the Certificate of Designation of Common Stock executed
and filed with the Secretary of State of the State of Kansas on June 16, 1977.
FURTHER RESOLVED, that the appropriate officers of this corporation be, and they
hereby are, fully authorized, empowered and directed, for and on behalf of this
corporation, to prepare, execute and file with the Secretary of State of the
State of Kansas a certificate reflecting the aforementioned increase in the
number of shares authorized to be issued in each of the three series of common
stock, and to do any and all other necessary and appropriate acts and things in
connection therewith.
<PAGE>
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the
corporation this 19th day of October, 1989.
Michael J. Provines
------------------------------------------
Michael J. Provines, President
(Corporate Seal)
Amy J. Lee
------------------------------------------
Amy J. Lee, Secretary
STATE OF KANSAS )
) ss.:
COUNTY OF SHAWNEE )
Be it remembered, that before me, Coleen C. Hoffmeister, a Notary Public in and
for the County and State aforesaid, came Michael J. Provines, President, and Amy
J. Lee, Secretary, of SBL Fund, a Kansas corporation, personally known to me to
be the persons who executed the foregoing instrument of writing as president and
secretary, respectively, and duly acknowledged the execution of the same this
19th day of October, 1989.
Coleen C. Hoffmeister
------------------------------------------
Notary Public
My Commission Expires: May 19, 1990
<PAGE>
CERTIFICATE OF DESIGNATION
OF SERIES OF COMMON STOCK
OF
SBL FUND
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
We, Michael J. Provines, President and Amy J. Lee, Secretary, of SBL Fund, a
corporation organized and existing under the laws of the State of Kansas, and
whose registered office is the Security Benefit Life Building, 700 Harrison
Street, Topeka, Shawnee County, Kansas, do hereby certify that pursuant to the
authority expressly vested in the Board of Directors by the provisions of the
corporation's Articles of Incorporation, the Board of Directors of said
corporation at its regular meeting duly convened and held on the 24th day of
July, 1992, adopted resolutions establishing the seventh separate series of
common stock of the corporation and setting forth the preferences, rights,
privileges and restrictions of such series, which resolutions provided in their
entirety as follows:
RESOLVED, that, pursuant to the authority vested in the Board of Directors of
the corporation by its Articles of Incorporation, the corporation shall be
authorized, subject to the approval of appropriate regulatory authorities, to
offer Series J common stock, par value $1.00 per share, in addition to its
presently offered series of common stock (Series A, Series B, Series C, Series
D, Series E and Series S).
FURTHER RESOLVED, that, the corporation shall initially have the authority to
issue 50 million shares of Series J common stock.
FURTHER RESOLVED, that, the preferences, rights, privileges and restrictions of
the shares of each of the Fund's series of common stock, as set forth in the
minutes of the June 6, 1977, meeting of this Board of Directors, are hereby
reaffirmed and incorporated by reference into the minutes of this meeting.
FURTHER RESOLVED, that, the appropriate officers of the corporation be, and they
hereby are, authorized and directed to take such action as may be necessary
under the laws of the State of Kansas or as they deem appropriate to cause the
foregoing resolutions to become effective and to create the additional series of
common stock of the corporation contemplated therein.
IN WITNESS WHEREOF, we have hereunto set out hands and affixed the seal of the
corporation this 24th day of September 1992.
Michael J. Provines
------------------------------------------
MICHAEL J. PROVINES, President
Amy J. Lee
------------------------------------------
AMY J. LEE, Secretary
<PAGE>
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
Be it remembered, that before me, Peggy S. Avey, a Notary Public in and for the
County and State aforesaid, came MICHAEL J. PROVINES, President, and AMY J. LEE,
Secretary, of SBL Fund, a Kansas Corporation, personally known to me to be the
persons who executed the foregoing instrument of writing as president and
secretary, respectively, and duly acknowledged the execution of the same this
24th day of September 1992.
Peggy S. Avey
------------------------------------------
Notary Public
My Commission Expires: November 22, 1992
<PAGE>
CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION
OF
SBL FUND
We, Michael J Provines, President , and Amy J. Lee, Secretary of SBL Fund, a
corporation organized and existing under the laws of the State of Kansas, and
whose registered office is at 700 Harrison, in the city of Topeka, county of
Shawnee, 66636, Kansas, do hereby certify that the regular meeting of the Board
of Directors of said corporation, held on the 30th day of April, 1990, said
board adopted a resolution setting forth the following amendment to the Articles
of Incorporation and declaring its advisability;
SEE ATTACHED CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION
We further certify that thereafter, pursuant to said resolution, and in
accordance with the by-laws of the corporation and the laws of the State of
Kansas, the Board of Directors called a meeting of stockholders for
consideration of the proposed amendment, and thereafter, pursuant to notice and
in accordance with the statutes of the State of Kansas, on the 30th day of
April, 1990, said stockholders convened and considered the proposed amendment.
We further certify that at a meeting a majority of the stockholders entitled to
vote voted in favor of the proposed amendment, and that the votes were
26,489,283 shares in favor of the proposed amendment and 1,762,215 shares
against the amendment.
We further certify that the amendment was duly adopted in accordance with the
provisions of K.S.A. 17-6602, as amended.
We further certify that the capital of said corporation will not be reduced
under or by reason of said amendment.
IN WITNESS WHEREOF, we have hereunto set out hands and affixed the seal of said
corporation this 14th day of May, 1990.
Michael J. Provines
------------------------------------------
Michael J. Provines, President
Amy J. Lee
------------------------------------------
Amy J. Lee, Secretary
<PAGE>
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
Be it remembered that before me, a Notary Public in and for the aforesaid county
and state, personally appeared: Michael J. Provines, President, and Amy J. Lee,
Secretary, of SBL FUND, a corporation, who are known to me to be the same
persons who executed the foregoing Certificate of Amendment to Articles of
Incorporation, duly acknowledged the execution of the same this 14th day of May,
1990.
Connie Brungardt
------------------------------------------
Notary Public
My Commission Expires: November 30, 1991.
THIS FORM MUST BE SUBMITTED TO THIS OFFICE IN DUPLICATE.
THE FILING FEE OF $20 MUST ACCOMPANY THIS DOCUMENT.
MAIL THIS DOCUMENT, WITH FEE, TO:
Secretary of State
Capitol, 2nd Floor
Topeka, KS 66612
(913) 296-2236
<PAGE>
CERTIFICATE OF AMENDMENT TO THE
ARTICLES OF INCORPORATION
OF
SBL FUND
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
We, Michael J Provines, President , and Amy J. Lee, Secretary of SBL Fund, a
corporation organized and existing under the laws of the State of Kansas, and
whose registered office is the Security Benefit Life Building, 700 Harrison
Street, Topeka, Shawnee County, Kansas, do hereby certify that pursuant to the
authority expressly vested in the Board of Directors by the provisions of the
corporation's Articles of Incorporation, the Board of Directors of said
corporation, at its regular meeting duly convened and held on the 30th day of
April, 1990, adopted a resolution setting forth the following amendment to the
Articles of Incorporation and declared its advisability to wit:
RESOLVED, that the Articles of Incorporation of SBL Fund, Inc. be further
amended by deleting the first paragraph of Article FOURTH and by inserting in
lieu thereof, the following:
"FOURTH: The total number of shares of stock which the corporation shall
have authority to issue is 1,000,000,000 shares of common stock,
of the par value of One Dollar ($1) per share. The Board of
Directors of the corporation is expressly authorized to cause
shares of common stock of the corporation authorized herein to be
issued in one or more series and to increase or decrease the
number of shares so authorized to be issued in any such series'.
RESOLVED, that, pursuant to the authority vested in the Board of Directors of
the corporation by its Articles of Incorporation, the corporation shall be
authorized, subject to the approval of appropriate regulatory authorities, to
offer Series D common stock, par value $1 per share, in addition to its
presently offered series of common stock (Series A, Series B and Series C).
FURTHER RESOLVED, that, the corporation shall initially have the authority to
issue 50 million shares of Series D common stock.
FURTHER RESOLVED, that, the preferences, rights, privileges and restrictions of
the shares of each of the Fund's series of common stock, as set forth in the
minutes of the June 6, 1977, meeting of this Board of Directors, are hereby
reaffirmed and incorporated by reference into the minutes.
FURTHER RESOLVED, that, the appropriate officers of the corporation be, and they
hereby are, authorized and directed to take such action as may be necessary
under the laws of the State of Kansas or as they deem appropriate to cause the
foregoing resolution to become effective.
<PAGE>
IN WITNESS WHEREOF, we have hereunto set out hands and affixed the seal of the
Corporation this 14th day of May, 1990.
Michael J. Provines
------------------------------------------
Michael J. Provines, President
Amy J. Lee
------------------------------------------
Amy J. Lee, Secretary
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
Be it remembered, that before me, Connie Brungardt, a Notary Public in and for
the county and state aforesaid, came Michael J. Provines, President, and Amy J.
Lee, Secretary, of SBL Fund, a Kansas corporation, personally known to me to be
the persons who executed the foregoing instrument of writing as President and
Secretary respectively and duly acknowledged the execution, of the same this
14th day of May, 1990.
Connie Brungardt
------------------------------------------
Notary Public
(NOTARIAL SEAL)
My commission expires: November 30, 1991.
<PAGE>
CERTIFICATE OF
DESIGNATION OF SERIES
OF COMMON STOCK OF
SBL FUND
STATE OF KANSAS )
) ss
COUNTY OF SHAWNEE )
We, John D. Cleland, President, and Amy J. Lee, Secretary, of SBL Fund, a
corporation organized and existing under the laws of the State of Kansas, and
whose registered office is the Security Benefit Life Building, 700 Harrison
Street, Topeka, Shawnee County, Kansas, do hereby certify that pursuant to the
authority expressly vested in the Board of Directors by the provisions of the
corporation's Articles of Incorporation, the Board of Directors of said
corporation at a special meeting duly convened and held on the 3rd day of April,
1995, adopted resolutions (i) establishing three new series of common stock in
addition to those eight series of common stock currently being issued by the
corporation, and (ii) allocating the corporation's authorized capital stock
among the eleven separate series of common stock of the corporation. Resolutions
were also adopted which reaffirmed the preferences, rights, privileges and
restrictions of the separate series of stock of SBL Fund, which resolutions are
provided in their entirety as follows:
WHEREAS, the Board of Directors has approved the establishment of three new
series of common stock of SBL Fund in addition to the eight separate series
presently issued by the fund designated as Series A, Series B, Series C, Series
D, Series E, Series S, Series J and Series K;
WHEREAS, the Board of Directors wishes to reallocate the 5,000,000,000 shares of
authorized capital stock among the series.
NOW, THEREFORE, BE IT RESOLVED, that, the officers of the Corporation are hereby
directed and authorized to establish three new series of the SBL Fund designated
as Series M, Series N and Series O.
FURTHER RESOLVED, that, officers of the corporation are hereby directed and
authorized to allocate the Fund's 5,000,000,000 shares of authorized capital
stock as follows: 1,000,000,000 $1.00 par value shares to each of the Series A,
B, C, and D, 250,000,000 $1.00 par value shares to each of the Series E, S, and
J; 50,000,000 $1.00 par value shares to each of Series K, M, N and O; and
50,000,000 shares shall remain unallocated.
FURTHER RESOLVED, that, the preferences, rights, privileges and restrictions of
the shares of each of the corporation's series of common stock, as set forth in
the minutes of the June 6, 1977, meeting of this Board of Directors, are hereby
reaffirmed and incorporated by reference into the minutes of this meeting.
<PAGE>
FURTHER RESOLVED, that, the appropriate officers of the corporation be, and they
hereby are, authorized and directed to take such action as may be necessary
under the laws of the State of Kansas or as they deem appropriate to cause the
foregoing resolutions to become effective.
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the
Corporation this 3rd day of April, 1995.
John D. Cleland
------------------------------------------
JOHN D. CLELAND, President
Amy J. Lee
------------------------------------------
AMY J. LEE, Secretary
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
Be it remembered, that before me, Connie Brungardt, a Notary Public in and for
the County and State aforesaid, came JOHN D. CLELAND, President, and AMY J. LEE,
Secretary, of SBL Fund, a Kansas Corporation, personally known to me to be the
persons who executed the foregoing instrument of writing as President and
Secretary, respectively, and duly acknowledged the execution of the same this
3rd day of April, 1995.
Connie Brungardt
------------------------------------------
Notary Public
(NOTARIAL SEAL)
My commission expires: November 30, 1998.
<PAGE>
CERTIFICATE OF DESIGNATIONS
OF COMMON STOCK OF
SBL FUND
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
We, John D. Cleland, President, and Amy J. Lee, Secretary, of SBL Fund, a
corporation organized and existing under the laws of the State of Kansas, and
whose registered office is the Security Benefit Life Building, 700 Harrison
Street, Topeka, Shawnee County, Kansas, do hereby certify that pursuant to the
authority expressly vested in the Board of Directors by the provisions of the
corporation's Articles of Incorporation, the Board of Directors of said
Corporation at a special meeting duly convened and held on the 2nd day of
February, 1996, adopted resolutions authorizing the corporation to authorize the
issuance of an indefinite number of shares of capital stock of each of the
eleven series of common stock of the corporation. Resolutions were also adopted
which reaffirmed the preferences, rights, privileges and restrictions of the
separate series of stock of SBL Fund, which resolutions are provided in their
entirety as follows:
WHEREAS, K.S.A. 17-6602 has been amended to allow the board of directors of a
corporation that is registered as an open-end investment company under the
Investment Company Act of 1940 (the "1940 Act") to approve, by resolution, an
amendment of the corporation's Articles of Incorporation, to allow the issuance
of an indefinite number of shares of the capital stock of the corporation;
WHEREAS, the corporation is registered as an open-end investment company under
the 1940 Act; and
WHEREAS, the Board of Directors desire to authorize the issuance of an
indefinite number of shares of capital stock of each of the eleven series of
common stock of the corporation;
NOW THEREFORE BE IT RESOLVED, that, the officers of the corporation are hereby
directed and authorized to issue an indefinite number of $1.00 par value shares
of capital stock of each series of the corporation, including: Series A, Series
B, Series C, Series D, Series E, Series S, Series J, Series K, Series M, Series
N, and Series O;
FURTHER RESOLVED, that, the preferences, rights, privileges and restrictions of
the shares of each of the corporation's series of common stock, as set forth in
the minutes of the June 6, 1977, meeting of this Board of Directors, are hereby
reaffirmed and incorporated by reference into the minutes of this meeting; and
FURTHER RESOLVED, that, the appropriate officers of the corporation be, and they
hereby are, authorized and directed to take such action as may be necessary
under the laws of the State of Kansas or as they deem appropriate to cause the
foregoing resolutions to become effective.
<PAGE>
The undersigned do hereby certify that the foregoing amendment to the
corporation's Articles of Incorporation has been duly adopted in accordance with
the provisions of K.S.A. 17-6602.
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the
corporation this 2nd day of February, 1996.
John D. Cleland
------------------------------------------
John D. Cleland, President
Amy J. Lee
------------------------------------------
Amy J. Lee, Secretary
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
Be it remembered, that before me, L. Charmaine Lucas, a Notary Public in and for
the County and State aforesaid, came John D. Cleland, President, and Amy J. Lee,
Secretary, of SBL Fund, a Kansas corporation, personally known to me to be the
persons who executed the foregoing instrument of writing as President and
Secretary, respectively, and duly acknowledged the execution of the same this
2nd day of February, 1996.
L. Charmaine Lucas
------------------------------------------
Notary Public
My Commission Expires: 04/01/98
<PAGE>
CERTIFICATE OF
CHANGE OF DESIGNATION
OF COMMON STOCK OF
SBL FUND
STATE OF KANSAS )
)ss
COUNTY OF SHAWNEE )
We, John D. Cleland, President, and Amy J. Lee, Secretary, of SBL Fund, a
corporation organized and existing under the laws of the State of Kansas, and
whose registered office is the Security Benefit Life Building, 700 Harrison
Street, Topeka, Shawnee County, Kansas, do hereby certify that pursuant to the
authority expressly vested in the Board of Directors by the provisions of the
corporation's Articles of Incorporation, the Board of Directors of said
corporation at its regular meeting duly convened and held on the 21st day of
October, 1994, adopted resolutions allocating the corporation's authorized
capital stock among the seven separate series of common stock of the
corporations. Resolutions were also adopted which reaffirmed the preferences,
rights, privileges and restrictions of the separate series of stock of SBL Fund,
which resolutions are provided in their entirety as follows:
WHEREAS SBL Fund issues its common stock in seven separate series designated as
Series A, Series B, Series C, Series D, Series E, Series S, and Series J;
WHEREAS, the corporation's shareholders will consider an amendment to the
corporation's Articles of Incorporation to increase the authorized capital stock
of the corporation from 1,000,000,000 to 5,000,000,000 shares, at a meeting of
shareholders to be held December 21, 1994; and
WHEREAS, upon approval by shareholders of the proposed amendment to the
corporation's articles of incorporation, the Board of Directors wishes to
reallocate the 5,000,000,000 shares of authorized capital stock among the
series.
NOW, THEREFORE, BE IT RESOLVED, that upon approval by shareholders of an
amendment to the articles of incorporation increasing the corporation's
authorized capital stock from 1,000,000,000 to 5,000,000,000 shares, the
officers of the corporation are hereby directed and authorized to allocate the
Fund's authorized capital stock as follows: 100,000,000 $1.00 par value shares
to each of the Series A, B, C and D; and 250,000,000 $1.00 par value shares to
each of the Series E, S, and J.
FURTHER RESOLVED, that, the preferences, rights, privileges and restrictions of
the shares of each of the corporation's series of common stock, as set forth in
the minutes of the June 6, 1977, meeting of this Board of Directors, are hereby
reaffirmed and incorporated by reference into the minutes of this meeting.
FURTHER RESOLVED, that, the appropriate officers of the corporation be, and they
hereby are, authorized and directed to take such action as may be necessary
under the laws of the State of Kansas or as they deem appropriate to cause the
foregoing resolutions to become effective.
<PAGE>
We hereby certify that in accordance with the by-laws of the corporation and the
laws of the State of Kansas, the Board of Directors called a meeting of
stockholders for consideration of the proposed amendment to the articles of
incorporation, and thereafter, pursuant to notice and in accordance with the
statutes of the State of Kansas, the stockholders convened and considered the
proposed amendment. We further certify that at the meeting a majority of the
stockholders entitled to vote voted in favor of the proposed amendment which was
duly adopted in accordance with the provisions of K.S.A. 17-66602, as amended.
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the
corporation this 21st day of December, 1994.
John D. Cleland
------------------------------------------
JOHN D. CLELAND, President
Amy J. Lee
------------------------------------------
AMY J. LEE, Secretary
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
Be it remembered, that before me, Judith M. Ralston, a Notary Public in and fore
the County and State aforesaid, came JOHN D. CLELAND, President, and AMY J. LEE,
Secretary, of SBL Fund, a Kansas corporation, personally known to me to be the
persons who executed the foregoing instrument of writing as President and
Secretary, respectively, and duly acknowledged the execution of the same this
21st day of October, 1994.
Judith M. Ralston
------------------------------------------
Notary Public
My Commission Expires: January 1, 1995
<PAGE>
CERTIFICATE OF
DESIGNATION OF SERIES
OF COMMON STOCK OF
SBL FUND
STATE OF KANSAS )
) ss
COUNTY OF SHAWNEE )
We, Michael J. Provines, President, and Amy J. Lee, Secretary, of SBL Fund, a
corporation organized and existing under the laws of the State of Kansas, and
whose registered office is the Security Benefit Life Building, 700 Harrison
Street, Topeka, Shawnee County, Kansas, do hereby certify that pursuant to the
authority expressly vested in the Board of Directors by the provisions of the
corporation's Articles of Incorporation, the Board of Directors of said
corporation at a special meeting duly convened and held on the 15th day of
February, 1991, adopted resolutions establishing the sixth separate series of
common stock of the corporation and setting forth the preferences, rights,
privileges and restrictions of such series, which resolutions provided in their
entirety as follows:
RESOLVED, that, pursuant to the authority vested in the Board of Directors of
the corporation by its Articles of Incorporation, the corporation shall be
authorized, subject to the approval of the appropriate regulatory authorities,
to offer Series S common stock, par value $1.00 per share, in addition to its
presently offered series of common stock (Series A, Series B, Series C, Series
D, and Series E).
FURTHER RESOLVED, that, the Corporation shall initially have the authority to
issue 50 million shares of Series S common stock.
FURTHER RESOLVED, that, the preferences, rights, privileges and restrictions of
the shares of each of the Fund's series of common stock, as set forth in the
minutes of the June 6, 1977, meeting of this Board of Directors, are hereby
reaffirmed and incorporated by reference into the minutes of this meeting.
FURTHER RESOLVED, that, the appropriate officers of the corporation be, and they
hereby are, authorized and directed to take such action as may be necessary
under the laws of the State of Kansas or as they deem appropriate to cause the
foregoing resolutions to become effective, and to create the additional series
in common stock of the corporation contemplated therein.
<PAGE>
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the
corporation this 26th day of February, 1991.
Michael J. Provines
------------------------------------------
MICHAEL J. PROVINES, President
Amy J. Lee
------------------------------------------
AMY J. LEE, Secretary
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
Be it remembered, that before me, Judith M. Ralston, a Notary Public in and for
the County and State aforesaid, came MICHAEL J. PROVINES, President, and AMY J.
LEE, Secretary, of SBL Fund, a Kansas corporation, personally known to me to be
the persons who executed the foregoing instrument of writing as President and
Secretary, respectively, and duly acknowledged the execution of the same this
25th day of February, 1991.
Judith M. Ralston
------------------------------------------
Notary Public
My Commission Expires: January 1, 1995
<PAGE>
CERTIFICATE OF AMENDMENT TO THE
ARTICLES OF INCORPORATION OF
SBL FUND
We, John D. Cleland, President, and Amy J. Lee, Secretary, of SBL Fund, a
corporation organized and existing under the laws of the State of Kansas, do
hereby certify that at a meeting of the Board of Directors of said Corporation,
the board adopted a resolution setting forth the following amendment to the
Articles of Incorporation and declaring its advisability:
See attached amendment
We further certify that thereafter, pursuant to said resolution, and in
accordance with the by-laws of the corporation and the laws of the State of
Kansas, the Board of Directors called a meeting of stockholders for
consideration of the proposed amendment, and thereafter, pursuant to notice and
in accordance with the statutes of the State of Kansas, the stockholders
convened and considered the proposed amendment.
We further certify that at the meeting a majority of the stockholders entitled
to vote, voted in favor of the proposed amendment.
We further certify that the amendment was duly adopted in accordance with the
provisions of K.S.A. 17-6602, as amended.
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of said
Corporation this 21st day of December, 1994.
John D. Cleland
------------------------------------------
John D. Cleland, President
Amy J. Lee
------------------------------------------
Amy J. Lee, Secretary
<PAGE>
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
BE IT REMEMBERED that before me, a Notary Public in and for the aforesaid county
and state, personally appeared John C. Cleland, President, and Amy J. Lee,
Secretary, of SBL Fund, who are known to me to be the same persons who executed
the foregoing certificate, and duly acknowledged the execution of the same this
21st day of December, 1994.
Judith M. Ralston
------------------------------------------
Notary Public
My Commission Expires January 1, 1995.
PLEASE SUBMIT THIS DOCUMENT IN DUPLICATE, WITH $20 FILING FEE TO:
Secretary of State
2nd Floor, State Capitol
Topeka, KS 66612-1594
(913) 296-4564
<PAGE>
SBL FUND, INC.
The Board of Directors of SBL Fund, Inc. recommends that the Articles of
Incorporation be amended by deleting the first paragraph of Article Fourth and
by inserting, in lieu thereof, the following new Article:
FOURTH: The total number of shares which the corporation shall have authority to
issue shall be (5,000,000,000) shares of common stock, of the par value of one
dollar ($1.00) per share. The Board of Directors of the corporation is expressly
authorized to cause shares of common stock of the corporation authorized herein
to be issued in one or more series and to increase or decrease the number of
shares so authorized to be issued in any such series.
<PAGE>
CERTIFICATE OF AMENDMENT TO THE
ARTICLES OF INCORPORATION OF
SBL FUND
We, John D. Cleland, President, and Amy J. Lee, Secretary, of SBL Fund, a
corporation organized and existing under the laws of the State of Kansas, do
hereby certify that at a regular meeting of the Board of Directors of said
corporation, held on the 2nd day of February, 1996, the board adopted a
resolution setting forth the following amendment to the Articles of
Incorporation and declaring its advisability:
RESOLVED
The Board of Directors of SBL Fund recommends that the Articles of Incorporation
be amended by deleting the first paragraph of Article Fourth and by inserting,
in lieu thereof, the following new Article:
FOURTH: The Corporation shall have authority to issue an indefinite number
of shares of common stock, of the par value of one dollar ($1.00)
per share. The board of directors of the Corporation, is expressly
authorized to cause shares of common stock of the Corporation
authorized herein to be issued in one or more series and to
increase or decrease the number of shares so authorized to be
issued in any such series.
We further certify that the amendment was duly adopted in accordance with the
provisions of K.S.A. 17-6602, as amended.
IN WITNESS WHEREOF, we have hereunto set out hands and affixed the seal of said
corporation this 2nd day of February, 1996.
John D. Cleland
------------------------------------------
John D. Cleland, President
Amy J. Lee
------------------------------------------
Amy J. Lee, Secretary
[SEAL]
<PAGE>
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
BE IT REMEMBERED, that before me, L. Charmaine Lucas, a Notary Public in and for
the aforesaid county and state, personally appeared John D. Cleland, President
and Amy J. Lee, Secretary, of SBL Fund who are known to me to be the same
persons who executed the foregoing certificate, and duly acknowledged the
execution of the same this 2nd day of February, 1996.
L. Charmaine Lucas
------------------------------------------
Notary Public
My Commission Expires: 04/01/98
PLEASE SUBMIT THIS DOCUMENT IN DUPLICATE WITH $20 FILING FEE TO:
Secretary of State
2nd Floor, State Capital
Topeka, KS 66612-1594
(913) 296-4564
<PAGE>
CERTIFICATE OF
DESIGNATION OF SERIES
OF COMMON STOCK OF
SBL FUND
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
We, John D. Cleland, President, and Amy J. Lee, Secretary, of SBL Fund, a
corporation organized and existing under the laws of the State of Kansas, and
whose registered office is the Security Benefit Life Building, 700 Harrison
Street, Topeka, Shawnee County, Kansas, do hereby certify that pursuant to the
authority expressly vested in the Board of Directors by the provisions of the
corporation's Articles of Incorporation, the Board of Directors of said
corporation at a meeting duly convened and held on the 3rd day of May, 1996,
adopted resolutions (i) establishing a new series of common stock in addition to
those eleven series of common stock currently being issued by the corporation,
and (ii) allocating the corporation's authorized capital stock among the twelve
separate series of common stock of the corporation. Resolutions were also
adopted which for the new series set forth and for the existing eleven,
reaffirmed the preferences, rights, privileges and restrictions of the separate
series of stock of SBL Fund, which resolutions are provided in their entirety as
follows:
WHEREAS, the Board of Directors has approved the establishment of a new series
of common stock of SBL Fund in addition to the eleven separate series of common
stock presently issued by the fund designated as Series A, Series B, Series C,
Series D, Series E, Series S, Series J, Series K, Series M, Series N, and Series
O; and
WHEREAS, the Board of Directors desire to authorize the issuance of an
indefinite number of shares of capital stock of each of the twelve series of
common stock of the corporation.
NOW, THEREFORE, BE IT RESOLVED, that, the officers of the Corporation are hereby
directed and authorized to establish a new series of the SBL Fund designated as
Series P.
FURTHER RESOLVED, that, officers of the corporation are hereby directed and
authorized to issue an indefinite number of $1.00 par value shares of capital
stock of each series of the corporation, which consist of Series A, Series B,
Series C, Series D, Series E, Series S, Series J, Series K, Series M, Series N,
Series O, and Series P.
FURTHER RESOLVED, that, the preferences, rights, privileges and restrictions of
the shares of each of the corporation's series of common stock, as set forth in
the minutes of the June 6, 1977 meeting of this Board of Directors, are hereby
reaffirmed into the minutes of this meeting.
<PAGE>
FURTHER RESOLVED, that, the appropriate officers of the corporation be, and they
hereby are, authorized and directed to take such action as may be necessary
under the laws of the State of Kansas or as they deem appropriate to cause the
foregoing resolutions to become effective.
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the
Corporation this 13th day of May, 1996.
John D. Cleland
------------------------------------------
JOHN D. CLELAND, President
Amy J. Lee
------------------------------------------
AMY J. LEE, Secretary
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
Be it remembered, that before me, Jana R. Selley, a Notary Public in and for the
County and State aforesaid, came JOHN D. CLELAND, President, and AMY J. LEE,
Secretary, of the SBL Fund, a Kansas corporation, personally known to me to be
the persons who executed the foregoing instrument of writing as President and
Secretary, respectively, and duly acknowledged the execution of the same this
13th day of May, 1996.
Jana R. Selley
------------------------------------------
Notary Public
(NOTARIAL SEAL)
My commission expires: June 14, 1996.
<PAGE>
CERTIFICATE OF DESIGNATION
OF SERIES OF COMMON STOCK
OF
SBL FUND
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
We, John D. Cleland, President, and Amy J. Lee, Secretary of SBL Fund, a
corporation organized and existing under the laws of the State of Kansas, and
whose registered office is Security Benefit Life Building, 700 Harrison Street,
Topeka, Shawnee County, Kansas, do hereby certify that pursuant to authority
expressly vested in the Board of Directors by the provisions of the
corporation's Articles of Incorporation, the Board of Directors of said
corporation at a meeting duly convened and held on the 7th day of February,
1997, adopted resolutions (i) establishing a new series of common stock in
addition to those twelve series of common stock currently being issued by the
corporation, and (ii) allocating the corporation's authorized capital stock
among the thirteen separate series of common stock of the corporation.
Resolutions were also adopted, which for the new series set forth and for the
existing twelve, reaffirmed the preferences, rights, privileges and restrictions
of separate series of stock of SBL Fund, which resolutions are provided in their
entirety as follows:
WHEREAS, the Board of Directors has approved the establishment of a new series
of common stock of SBL Fund in addition to the twelve separate series of common
stock presently issued by the fund designated as Series A, Series B, Series C,
Series D, Series E, Series S, Series J, Series K, Series M, Series N, Series O,
and Series P; and
WHEREAS, the Board of Directors desires to authorize the issuance of an
indefinite number of shares of capital stock of each of the thirteen series of
common stock of the corporation.
NOW, THEREFORE, BE IT RESOLVED, that, the officers of the corporation are hereby
directed and authorized to establish a new series of the SBL Fund designated as
Series V.
FURTHER RESOLVED, that, the officers of the corporation are hereby directed and
authorized to issue an indefinite number of $1.00 par value shares of capital
stock of each series of the corporation, which consist of Series A, Series B,
Series C, Series D, Series E, Series S, Series J, Series K, Series M, Series N,
Series O, Series P, and Series V.
FURTHER RESOLVED, that the preferences, rights, privileges and restrictions of
the shares of the corporation's series of common stock, as set forth in the
minutes of the June 6, 1977 meeting of this Board of Directors, are hereby
reaffirmed into the minutes of this meeting.
FURTHER RESOLVED, that, the appropriate officers of the corporation be, and they
hereby are, authorized and directed to take such action as may be necessary
under the laws of the State of Kansas or as they deem appropriate to cause the
foregoing resolutions to become effective.
<PAGE>
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the
corporation this 12th day of March, 1997.
JOHN D. CLELAND
------------------------------------------
John D. Cleland, President
AMY J. LEE
------------------------------------------
Amy J. Lee, Secretary
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE)
Be it remembered, that before me, L. Charmaine Lucas, a Notary Public in
and for the County and State aforesaid, came JOHN D. CLELAND, President, and AMY
J. LEE, Secretary, of the SBL Fund, a Kansas corporation, personally known to me
to be the persons who executed the foregoing instrument of writing as President
and Secretary, respectively, and duly acknowledged the execution of the same
this 12th day of March, 1997.
L. CHARMAINE LUCAS
------------------------------------------
Notary Public
My commission expires 04/01/98
- --------------------------
<PAGE>
CERTIFICATE OF DESIGNATION
OF SERIES OF COMMON STOCK
OF
SBL FUND
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
We, John D. Cleland, President, and Amy J. Lee, Secretary of SBL Fund, a
corporation organized and existing under the laws of the State of Kansas, and
whose registered office is Security Benefit Life Building, 700 Harrison Street,
Topeka, Shawnee County, Kansas, do hereby certify that pursuant to authority
expressly vested in the Board of Directors by the provisions of the
corporation's Articles of Incorporation, the Board of Directors of said
corporation at a meeting duly convened and held on the 6th day of November,
1998, adopted resolutions (i) establishing a new series of common stock in
addition to those fourteen series of common stock currently being issued by the
corporation, and (ii) allocating the corporation's authorized capital stock
among the fifteen separate series of common stock of the corporation.
Resolutions were also adopted, which for the new series set forth and for the
existing fourteen, reaffirmed the preferences, rights, privileges and
restrictions of separate series of stock of SBL Fund, which resolutions are
provided in their entirety as follows:
WHEREAS, the Board of Directors has approved the establishment of a new series
of common stock of SBL Fund in addition to the fourteen separate series of
common stock presently issued by the fund designated as Series A, Series B,
Series C, Series D, Series E, Series S, Series J, Series K, Series M, Series N,
Series O, Series P, Series V and Series X; and
WHEREAS, the Board of Directors desires to authorize the issuance of an
indefinite number of shares of capital stock of each of the fifteen series of
common stock of the corporation.
NOW, THEREFORE, BE IT RESOLVED, that, the officers of the corporation are hereby
directed and authorized to establish a new series of the SBL Fund designated as
Series I.
FURTHER RESOLVED, that, the officers of the corporation are hereby directed and
authorized to issue an indefinite number of $1.00 par value shares of capital
stock of each series of the corporation, which consist of Series A, Series B,
Series C, Series D, Series E, Series S, Series J, Series K, Series M, Series N,
Series O, Series P, Series V, Series X and Series I.
FURTHER RESOLVED, that the preferences, rights, privileges and restrictions of
the shares of the corporation's series of common stock, as set forth in the
minutes of the June 6, 1977 meeting of this Board of Directors, are hereby
reaffirmed into the minutes of this meeting.
FURTHER RESOLVED, that, the appropriate officers of the corporation be, and they
hereby are, authorized and directed to take such action as may be necessary
under the laws of the State of Kansas or as they deem appropriate to cause the
foregoing resolutions to become effective.
IN WITNESS WHEREOF, we have hereunto set our hands and affixed the seal of the
corporation this ______ day of ____________, 1998.
----------------------------------
John D. Cleland, President
----------------------------------
Amy J. Lee, Secretary
STATE OF KANSAS )
) ss.
COUNTY OF SHAWNEE )
Be it remembered, that before me, _______________________, a Notary
Public in and for the County and State aforesaid, came JOHN D. CLELAND,
President, and AMY J. LEE, Secretary, of the SBL Fund, a Kansas corporation,
personally known to me to be the persons who executed the foregoing instrument
of writing as President and Secretary, respectively, and duly acknowledged the
execution of the same this ______ day of ____________, 1998.
----------------------------------
Notary Public
My commission expires _____________________________
<PAGE>
BYLAWS
OF
SBL FUND
OFFICES
1. REGISTERED OFFICE AND REGISTERED AGENT. The location of the registered
office and the name of the registered agent of the Corporation in the State
of Kansas shall be as stated in the Articles of Incorporation or as shall
be determined from time the time by the Board of Directors and on file in
the appropriate public offices of the State of Kansas pursuant to
applicable provisions of law.
2. CORPORATE OFFICES. The Corporation may have such other corporate offices
and places of business anywhere within or without the State of Kansas as
the Board of Directors may from time to time designate or the business of
the Corporation may require.
3. CORPORATE RECORDS. The books and records of the Corporation may be kept at
any one or more offices of the Corporation within or without the State of
Kansas, except that the original or duplicate stock ledger containing the
names and addresses of the stockholders, and the number of shares held by
them, respectively, shall be kept at the registered office of the
Corporation in the State of Kansas.
4. STOCKHOLDERS' RIGHT OF INSPECTION. A stockholder of record, upon written
demand to inspect the records of the Corporation pursuant to any statutory
or other legal right, shall be privileged to inspect such records only
during the usual and customary hours of business and in such manner will
not unduly interfere with the regular conduct of the business of the
Corporation. A stockholder may delegate his/her right of inspection to a
certified or public accountant on the condition, to be enforced at the
option of the Corporation, that the stockholder and accountant agree with
the Corporation to furnish to the Corporation promptly a true and correct
copy of each report with respect to such inspection made by such
accountant. No stockholder shall use, permit to be used or acquiesce in the
use by others of any information so obtained to the detriment competitively
of the Corporation, nor shall he/she furnish or permit to be furnished any
information so obtained to any competitor or prospective competitor of the
Corporation. The Corporation as a condition precedent to any stockholder's
inspection of the records of the Corporation may require the stockholder to
indemnify the Corporation, in such manner and for such amount as may be
determined by the Board of Directors, against any loss or damage which may
be suffered by it arising out of or resulting from any unauthorized
disclosure made or permitted to be made by such stockholder of information
obtained in the course of such inspection.
SEAL
5. SEAL. The Corporation shall have a corporate seal inscribed with the name
of the Corporation and the words "Corporate Seal - Kansas". The form of the
seal may be altered at pleasure and shall be used by causing it or a
facsimile thereof to be impressed, affixed, reproduced or otherwise used.
STOCKHOLDERS' MEETINGS
6. PLACE OF MEETINGS. Meetings of the stockholders may be held at any place
within or without the State of Kansas, as shall be determined from time to
time by the Board of Directors. All meetings of the stockholders for the
election of Directors shall be held at the principal office of the
Corporation in Kansas. Meetings of the stockholders for any purpose other
than the election of Directors may be held at such place as shall be
specified in the notice thereof.
7. ANNUAL MEETING. No annual meeting of stockholders is required to be held
for the purpose of electing directors or any other reason, except when
specifically and expressly required under state or federal law. When an
annual meeting is held for the purpose of electing directors, such
directors shall hold office until the next annual meeting at which
directors are to be elected and until their successors are elected and
qualified, or until their earlier resignation or removal herein.
8. SPECIAL MEETINGS. Special meetings of the stockholders for any purpose or
purposes, unless otherwise prescribed by statute, may be called by the
President, or a Vice President, by the Board of Directors or by the holders
of not less than 10% of all outstanding shares of stock entitled to vote at
any annual meeting; and shall be called by any officer directed to do so by
the Board of Directors.
The "call" and the "notice" of any such meeting shall be deemed to be
synonymous.
9. NOTICE OF MEETINGS. Written or printed notice of each meeting of the
stockholders, whether annual or special, stating the place, date and time
thereof and in case of a special meeting, the purpose or purposes thereof
shall be delivered or mailed to each stockholder entitled to vote thereat,
not less than ten (10) days nor more than fifty (50) days prior to the
meeting. unless as to a particular matter, other or further notice is
required by law, in which case such other or further notice shall be given.
The Board of Directors may fix in advance a date, which shall not be more
than sixty (60) days nor less than ten (10) days preceding the date of any
meeting of the stockholders, as a record date for the determination of the
stockholders entitled to notice of, and to vote at, any such meeting and
any adjournment thereof; provided, however, that the Board of Directors may
fix a new record date for any adjourned meeting. Any notice of a
stockholders' meeting sent by mail shall be deemed to be delivered when
deposited in the United States mail with postage prepaid thereon, addressed
to the stockholder at his/her address as it appears on the books of the
Corporation.
10. REGISTERED STOCKHOLDERS - EXCEPTIONS - STOCK OWNERSHIP PRESUMED. The
Corporation shall be entitled to treat the holders of the shares of stock
of the Corporation, as recorded on the stock record or transfer books of
the Corporation, as the holders of record and as the holders and owners in
fact thereof and, accordingly, the Corporation shall not be required to
recognize any equitable or other claim to or interest in any such shares on
the part of any other person or other claim to or interest in any such
shares on the part of any other person, firm, partnership, corporation or
association, whether or not the Corporation shall have express or other
notice thereof, except as is otherwise expressly required by law, and the
term "stockholder" as used in these Bylaws means one who is a holder of
record of shares of the Corporation; provided, however, that if permitted
by law,
(a) shares standing in the name of another corporation, domestic or
foreign, may be voted by such officer, agent or proxy as the Bylaws of
such corporation may prescribe, or, in the absence of such provision,
as the Board of Directors of such corporation may determine;
(b) shares held by a person in a fiduciary capacity may be voted by such
person; and,
(c) a stockholder whose shares are pledged shall be entitled to vote such
shares, unless in the transfer of the shares by the pledgor on the
books of the Corporation, he/she shall have expressly empowered the
pledgee to vote thereon, in which case only the pledgee or his/her
proxy may represent said stock and vote thereon.
11. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. To the extent, if any, and in
the manner permitted by statute and unless otherwise provided in the
Articles of Incorporation, any action required to be taken at any annual or
special meeting of stockholders of the Corporation, or any action which may
be taken at any annual or special meeting of such stockholders, may be
taken by written consent without a meeting.
12. WAIVER OF NOTICE. Whenever any notice is required to be given under the
provisions of these Bylaws, the Articles of Incorporation of the
Corporation, or of any law, a waiver thereof, if not expressly prohibited
by law, in writing signed by the person or persons entitled to notice
shall, whether before or after the time stated therein, be deemed the
equivalent to the giving of such notice. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when a
person attends a meeting for the express purpose of objecting at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
13. QUORUM. Except as otherwise may be provided by law, by the Articles of
Incorporation of the Corporation or by these Bylaws, the holders of a
majority of the stock issued and outstanding and entitled to vote thereat,
present in person or represented by proxy, shall be required for and shall
constitute a quorum at all meetings of the stockholders for the transaction
of any business. Every decision of a majority in amount of shares of such
quorum shall be valid as a corporate act, except in those specific
instances in which a larger vote is required by law or by the Articles of
Incorporation or by these Bylaws.
If a quorum be not present at any meeting, the stockholders entitled to
vote thereat, present in person or by proxy, shall have power to adjourn
the meeting from time to time without notice other than announcement at the
meeting, until the requisite amount of voting stock shall be present. If
the adjournment is for more than thirty (30) days, or if after adjournment
a new record date is fixed for the adjourned meeting, a notice of the
adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting. At any subsequent session of the meeting at which a
quorum is present in person or by proxy any business may be transacted
which could have been transacted at the initial session of the meeting if a
quorum had been present.
14. PROXIES. At any meeting of the stockholders, every stockholder having the
right to vote shall be entitled to vote in person or by proxy executed by
an instrument in writing subscribed by such a stockholder and bearing a
date not more than three (3) years prior to said meeting unless said
instrument provides that it shall be valid for a longer period.
15. VOTING. Each stockholder shall have one vote for each share of stock having
voting power registered in his/her name on the books of the Corporation and
except where the transfer books of the Corporation shall have been closed
or a date shall have been fixed as a record date for the determination of
its stockholders entitled to vote, no share of stock shall be voted at any
election for directors which shall have been transferred on the books of
the Corporation within twenty (20) days next preceding such election of
Directors. At all elections of Directors, cumulative voting shall prevail,
so that each stockholder shall be entitled to as many votes as shall equal
the number of his/her shares of stock multiplied by the number of Directors
to be elected, and he/she may cast all of such votes for a single Director
or may distribute them among the number to be voted for, or any two or more
as he/she sees fit. Voting shall be ballot for the election of Directors
and on such matters as may be required by law, provided that voting by
ballot on any matter may be waived by the unanimous consent of those
stockholders entitled to vote present at the meeting. A stockholder holding
stock in a fiduciary capacity shall be entitled to vote the shares so held,
and a stockholder whose stock is pledged shall be entitled to vote unless,
in the transfer by the pledgor on the books of the Corporation, (s)he shall
have expressly empowered the pledgee to vote thereon, in which case only
the pledgee or his/her proxy may represent said stock and vote thereon.
16. STOCKHOLDERS' LISTS. A complete list of the stockholders entitled to vote
at every election of Directors, arranged in alphabetical order, with the
address of and the number of voting shares held by each stockholder, shall
be prepared by the officer having charge of the stock books of the
Corporation and for at least ten (10) days prior to the date of the
election shall be open at the place where the election is to be held,
during the usual hours for business, to the examination of any stockholder
and shall be produced and kept open at the place of the election during the
whole time thereof for the inspection of any stockholder present. The
original or duplicate stock ledger shall be the only evidence as to who are
stockholders entitled to examine such lists, or the books of the
Corporation, or to vote in person or by proxy, at such election. Failure to
comply with the foregoing shall not affect the validity or any action taken
at any such meeting.
17. PRESIDING OFFICIALS. Every meeting of the stockholders, for whatever
object, shall be convened by the President, or by the officer or person who
called the meeting by notice as above provided, but it shall be presided
over by the officers specified in paragraphs 37 and 38 of these Bylaws;
provided, however, that the stockholders at any meeting, by a majority vote
in amount of shares represented thereat, and notwithstanding anything to
the contrary contained elsewhere in these Bylaws, may select any persons of
their choosing to act as Chairman and Secretary of such meeting or any
session thereof.
BOARD OF DIRECTORS
18. OFFICES. The Directors may have one or more offices, and keep the books of
the Corporation (except the original or duplicated stock ledgers, and such
other books and records as may by law be required to be kept at a
particular place) at such place or places within or without the State of
Kansas as the Board of Directors may from time to time determine.
19. MANAGEMENT. The management of all affairs, property and business of the
corporation shall be vested in a Board of Directors, consisting of a
minimum of six (6) and a maximum of nine (9) directors. Unless required by
the Articles of Incorporation, Directors need not be stockholders. Each
person who shall serve on the Board of Directors and who shall be
recommended and nominated for election or reelection as a director shall be
a person who is in good standing in his/her community and who shall not, at
the time of election or reelection, have attained his/her 70th birthday. In
addition to the power and authorities by these Bylaws and the Articles of
Incorporation expressly conferred upon it, the Board of Directors may
exercise all such powers of the Corporation, and do all such lawful acts
and things as are not by statute or by the Articles of Incorporation or by
these Bylaws directed or required to be exercised or done by the
stockholders.
20. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Vacancies and newly created
directorships resulting from any increase in the authorized number of
Directors may be filled by a majority of the Directors then in office,
though less than a quorum, or by a sole remaining Director, unless it is
otherwise provided in the Articles of Incorporation or these Bylaws, and
the Directors so chosen shall hold office until the next annual election
and until their successors are duly elected and qualified, or until their
earlier resignation or removal. If there are no Directors in office, then
an election of Directors may be held in the manner provided by statute.
21. MEETINGS OF THE NEWLY ELECTED BOARD -- NOTICE. The first meeting of the
members of each newly elected Board of Directors shall be held (a) at such
time and place either within or without the State of Kansas as shall be
suggested or provided by resolution of the stockholders at the meeting at
which such newly elected Board was elected, and no notice of such meeting
shall be necessary to the newly elected Directors in order legally to
constitute the meeting, provided a quorum shall be present, or (b) if not
so suggested or provided for by resolution of the stockholders or if a
quorum shall not be present, at such time and place as shall be consented
to in writing by a majority of the newly elected Directors, provided that
written or printed notice of such meeting shall be given to each of the
other Directors in the same manner as provided in section 23 of these
Bylaws with respect to the giving of notice for special meetings of the
Board except that it shall not be necessary to state the purpose of the
meeting in such notice, or (c) regardless of whether or not the time and
place of such meeting shall be suggested or provided for by resolution of
the stockholders, at such time and place as shall be consented to in
writing by all of the newly elected Directors.
Every Director of the Corporation, upon his/her election, shall qualify by
accepting the office of the Director, and his/her attendance at, or his/her
written approval of the minutes of, any meeting of the Board subsequent to
his/her election shall constitute his/her acceptance of such office; or
he/she may execute such acceptance by a separate writing, which shall be
placed in the minute book.
22. REGULAR MEETINGS. Regular meetings of the Board of Directors may be held
without notice at such times and places either within or without the State
of Kansas as shall from time to time be fixed by resolution adopted by the
full Board of Directors. Any business may be transacted at a regular
meeting.
23. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called
at any time by the Chairman of the Board, the President, and Vice President
or the Secretary, or by any two (2) or more of the Directors. The place may
be within or without the State of Kansas as designated in the notice.
24. NOTICE OF SPECIAL MEETINGS. Written or printed notice of each special
meeting of the Board, stating the place, day and hour of the meeting and
the purpose or purposes thereof, shall be mailed to each Director addressed
to him/her at his/her residence or usual place of business at least three
(3) days before the day on which the meeting is to be held, or shall be
sent to him/her by telegram, or delivered to him/her personally, at least
two (2) days before the day on which the meeting is to be held. If mailed,
such notice shall be deemed to be delivered when it is deposited in the
United States mail with postage thereon addressed to the Director at
his/her residence or usual place of business. If given by telegraph, such
notice shall be deemed to be delivered when it is delivered to the
telegraph company. The notice may be given by any officer having authority
to call the meeting. "Notice" and "call" with respect to such meetings
shall be deemed to be synonymous. Any meeting of the Board of Directors
shall be a legal meeting without any notice thereof having been given if
all Directors shall be present.
25. MEETINGS BY CONFERENCE TELEPHONE OR SIMILAR COMMUNICATIONS EQUIPMENT.
Unless otherwise restricted by law, the Articles of Incorporation or these
Bylaws, members of the Board of Directors of the Corporation, or any
committee designated by the board, may participate in a meeting of the
board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant hereto
shall constitute presence in person at such meeting.
26. QUORUM. Unless otherwise required by law, the Articles of Incorporation or
these Bylaws, a majority of the total number of Directors shall be
necessary at all meetings to constitute a quorum for the transaction of
business, and except as may be otherwise provided by law, the Articles of
Incorporation or these Bylaws, the act of a majority of the Directors
present at any meeting at which there is a quorum shall be the act of the
Board of Directors.
If at least two (2) Directors or one-third (1/3) of the whole Board of
Directors, whichever is greater, is present at any meeting at which a
quorum is not present, a majority of the Directors present at such meeting
shall have power successively to adjourn the meeting from time to time to a
subsequent date, without notice to any Directors other than announcement at
the meeting. At such adjourned meeting at which a quorum is present, any
business may be transacted which might have been transacted at the original
meeting with was adjourned.
27. STANDING OR TEMPORARY COMMITTEES. The Board of Directors may, by resolution
or resolutions passed by a majority of the whole Board, designate one (1)
or more committees, each committee to consist of one (1) or more Directors
of the Corporation. The Board may designate one (1) or more Directors as
alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not
he/she or they constitute a quorum, may unanimously appoint another member
of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member. Any such committee, to the extent provided
in the resolution of the Board of Directors or in these Bylaws, shall have
and may exercise all of the powers and authority of the Board of Directors
in the management of the business and affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers which may
require it; but no such committee shall have the power of authority of the
Board of Directors with respect to amending the Articles of Incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or
amending the Bylaws of the Corporation; and, unless the resolution, these
Bylaws or the Articles of Incorporation expressly so provide, no such
committee shall have power or authority to declare a dividend or to
authorize the issuance of stock.
Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of
Directors. All committees so appointed shall, unless otherwise provided by
the Board of Directors, keep regular minutes of the transactions at their
meetings and shall cause them to be recorded in books kept for that purpose
in the office of the Corporation and shall report the same to the Board of
Directors at its next meeting. The Secretary or an Assistant Secretary of
the Corporation may act as Secretary of the committee if the committee so
requests.
28. COMPENSATION. Unless otherwise restricted by the Articles of Incorporation,
the Board of Directors may, by resolution, fix the compensation to be paid
Directors for serving as Directors of the Corporation and may, by
resolution, fix a sum which shall be allowed and paid for attendance at
each meeting of the Board of Directors and may provide for reimbursement of
expenses incurred by Directors in attending each meeting; provided that
nothing herein contained shall be construed to preclude any Director from
serving the Corporation in any other capacity and receiving his/her regular
compensation therefor. Members of special or standing committees may be
allowed similar compensation for attending committee meetings. Nothing
herein contained shall be construed to preclude any Director or committee
member from serving the Corporation in any other capacity and receiving
compensation therefor.
29. RESIGNATIONS. Any Director may resign at any time upon written notice to
the Corporation. Such resignation shall take effect at the time specified
therein or shall take effect upon receipt thereof by the Corporation if no
time is specified therein, and unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
30. INDEMNIFICATION AND LIABILITY OF DIRECTORS AND OFFICERS. Each person who is
or was a Director or officer of the Corporation or is or was serving at the
request of the Corporation as a Director or officer of another corporation
(including the heirs, executors, administrators and estate of such person)
shall be indemnified by the Corporation as of right to the full extent
permitted or authorized by the laws of the State of Kansas, as now in
effect and is hereafter amended, against any liability, judgment, fine,
amount paid in settlement, cost and expense (including attorneys' fees)
asserted or threatened against and incurred by such person in his/her
capacity as or arising out of his/her status as a Director or officer of
the Corporation or, if serving at the request of the Corporation, as a
Director or officer of another corporation. The indemnification provided by
this bylaw provision shall not be exclusive of any other rights to which
those indemnified may be entitled under the Articles of Incorporation,
under any other bylaw or under any agreement, vote of stockholders or
disinterested directors or otherwise, and shall not limit in any way any
right which the Corporation may have to make different or further
indemnification with respect to the same or different persons or classes of
persons.
No person shall be liable to the Corporation for any loss, damage,
liability or expense suffered by it on account of any action taken or
omitted to be taken by him/her as a Director or officer of the Corporation
or of any other corporation which he/she serves as a Director or officer at
the request of the Corporation, if such person (a) exercised the same
degree of care and skill as a prudent man would have exercised under the
circumstances in the conduct of his/her own affairs, or (b) took or omitted
to take such action in reliance upon advice of counsel for the Corporation,
or for such other corporation, or upon statement made or information
furnished by Directors, officers, employees or agents of the Corporation,
or of such other corporation, which he/she had no reasonable grounds to
disbelieve.
In the event any provision of this section 30 shall be in violation of the
Investment Company Act of 1940, as amended, or of the rules and regulations
promulgated thereunder, such provisions shall be void to the extent of such
violations.
31. ACTION WITHOUT A MEETING. Unless otherwise restricted by the Articles of
Incorporation or these Bylaws, any action required or permitted to be taken
at any meeting of the Board of Directors or any committee thereof may be
taken without a meeting if written consent thereto is signed by all members
of the Board of Directors or of such committee, as the case may be, and
such written consent is filed with the minutes of proceedings of the Board
or committee.
32. NUMBERS AND POWERS OF THE BOARD. The property and business of this
Corporation shall be managed by a Board of Directors, and the number of
Directors to constitute the Board shall be not less than six (6) nor more
than nine (9). Directors need not be stockholders. In addition to the
powers and authorities by these Bylaws expressly conferred upon the Board
of Directors, the Board may exercise all such powers of the corporation and
do or cause to be done all such lawful acts and things as are not by
statute or by the Articles of Incorporation or by these Bylaws prohibited,
or required to be exercised or done by the stockholders only.
33. TERM OF OFFICE. The first Board of Directors shall be elected at the first
duly held meeting of the incorporators and thereafter they shall be elected
at the annual meetings of the stockholders. Except as may otherwise be
provided by law, the Articles of Incorporation or these Bylaws, each
Director shall hold office until the next annual election and until a
successor shall be duly elected and qualified, or until his/her written
resignation shall have been filed with the Secretary of the Corporation.
Each Director, upon his/her election, shall qualify by accepting the office
of Director by executing and filing with the Corporation a written
acceptance of his/her election which shall be placed in the minute book.
34. WAIVER. Any notice provided or required to be given to the Directors may be
waived in writing by any of them. Attendance of a Director at any meeting
shall constitute a waiver of notice of such meeting except where he/she
attends for the express purpose of objecting to the transaction of any
business thereat because the meeting is not lawfully called or convened.
OFFICERS
35. (a) OFFICERS -- WHO SHALL CONSTITUTE. The officers of the Corporation
shall be a Chairman of the Board, a President, one or more Vice
Presidents, a Secretary, a Treasurer, one or more Assistant
Secretaries and one or more Assistant Treasurers. The Board shall
elect a President, a Secretary and a Treasurer at its first meeting
after each annual meeting of the stockholders. The Board then, or from
time to time, may elect one or more of the other prescribed officers
as it may deem advisable, but need not elect any officers other than a
President, a Secretary and a Treasurer. The Board may, if it desires,
elect or appoint additional officers and may further identify or
describe any one or more of the officers of the Corporation. In the
discretion of the Board of Directors, the office of Chairman of the
Board of Directors may remain unfilled. The Chairman of the Board of
Directors, if any, shall at all times be, and other officers may be,
members of the Board of Directors.
Officers of the Corporation need not be members of the Board of
Directors. Any two (2) or more offices may be held by the same person.
An officer shall be deemed qualified when he/she enters upon the
duties of the office to which he/she has been elected or appointed and
furnishes any bond required by the Board; but the Board may also
require his/her written acceptance and promise faithfully to discharge
the duties of such office.
(b) TERM OF OFFICE. Each officer of the Corporation shall hold his/her
office at the pleasure of the Board of Directors or for such other
period as the Board may specify at the time of his/her election or
appointment, or until his/her death, resignation or removal by the
Board, whichever first occurs. In any event, each officer of the
Corporation who is not reelected or reappointed at the annual election
of officers by the Board next succeeding his/her election or
appointment shall be deemed to have been removed by the Board, unless
the Board provides otherwise at the time of his/her election or
appointment.
(c) OTHER AGENTS. The Board from time to time may also appoint such other
agents for the Corporation as it shall deem necessary or advisable,
each of whom shall serve at the pleasure of the Board or for such
period as the Board may specify, and shall exercise such powers, have
such titles and perform such duties as shall be determined from time
to time by the Board or by an officer empowered by the Board to make
such determinations.
36. CHAIRMAN OF THE BOARD. If a Chairman of the Board be elected, he/she shall
preside at all meetings of the stockholders and Directors at which he/she
may be present and shall have such other duties, powers and authority as
any be prescribed elsewhere in these Bylaws. The Board of Directors may
delegate such other authority and assign such additional duties to the
Chairman of the Board, other than those conferred by law exclusively upon
the President, as it may from time to time determine, and, to the extent
permissible by law, the Board may designate the Chairman of the Board as
the Chief Executive Officer of the Corporation with all of the powers
otherwise conferred upon the President of the Corporation under paragraph
37 of these Bylaws, or it may, from time to time, divide the
responsibilities, duties and authority for the general control and
management of the Corporation's business and affairs between the Chairman
of the Board and the President.
37. THE PRESIDENT. Unless the Board otherwise provides, the President shall be
the Chief Executive Officer of the Corporation with such general executive
powers and duties of supervision and management as are usually vested in
the office of the Chief Executive Officer of a corporation, and he/she
shall carry into effect all directions and resolutions of the Board. The
President, in the absence of the Chairman of the Board or if there be no
Chairman of the Board, shall preside at all meetings of the stockholders
and Directors.
The President may execute all bonds, notes, debentures, mortgages and other
instruments for and in the name of the Corporation, may cause the corporate
seal to be affixed thereto, and may execute all other instruments for and
in the name of the Corporation.
Unless the Board otherwise provides, the President, or any person
designated in writing by him/her, shall have full power and authority on
behalf of this Corporation (a) to attend and vote or take action at any
meeting of the holders of securities of corporations in which this
Corporation may hold securities, and at such meetings shall possess and may
exercise any and all rights and powers incident to being a holder of such
securities, and (b) to execute and deliver waivers of notice and proxies
for and in the name of the Corporation with respect to any securities held
by this Corporation.
He/she shall, unless the Board otherwise provides, be ex officio a member
of all standing committees.
He/she shall have such other or further duties and authority as may be
prescribed elsewhere in these Bylaws or from time to time by the Board of
Directors.
If a Chairman of the Board be elected or appointed and designated as the
Chief Executive Officer of the Corporation, as provided in paragraph 36 of
these Bylaws, the President shall perform such duties as may be
specifically delegated to him/her by the Board of Directors or are
conferred by law exclusively upon him/her, and in the absence, disability,
or inability or refusal to act of the Chairman of the Board, the President
shall perform the duties and exercise the powers of the Chairman of the
Board.
38. VICE PRESIDENT. In the absence of the President or in the event of his/her
disability or inability or refusal to act, any Vice President may perform
the duties and exercise the powers of the President until the Board
otherwise provides. Vice Presidents shall perform such other duties as the
Board may from time to time prescribe.
39. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall attend all
sessions of the Board and all meetings of the stockholders, shall prepare
minutes of all proceedings at such meetings and shall preserve them in a
minute book of the Corporation. He/she shall perform similar duties for the
executive and other standing committees when requested by the Board or any
such committee.
It shall be the principal responsibility of the Secretary to give, or cause
to be given, notice of all meetings of the stockholders and of the Board of
Directors, but this shall not lessen the authority of others to give such
notice as is authorized elsewhere in these Bylaws.
The Secretary shall see that all books, records, lists and information, or
duplicates, required to be maintained in Kansas, or elsewhere, are so
maintained.
The Secretary shall keep in safe custody the seal of the Corporation, and
shall have authority to affix the seal to any instrument requiring a
corporate seal and, when so affixed, he/she shall attest the seal by
his/her signature. The Board of Directors may give general authority to any
other officer to affix the seal of the Corporation and to attest the
affixing by his/her signature.
The Secretary shall have the general duties, responsibilities and
authorities of a Secretary of a Corporation and shall perform such other
duties and have such other responsibility and authority as may be
prescribed elsewhere in these Bylaws or from time to time by the Board of
Directors or the Chief Executive Officer of the Corporation, under whose
direct supervision (s)he shall be.
In the absence of the Secretary or in the event of his/her disability, or
inability or refusal to act, any Assistant Secretary may perform the duties
and exercise the powers of the Secretary until the Board otherwise
provides. Assistant Secretaries shall perform such other duties as the
Board of Directors may from time to time prescribe.
40. TREASURER AND ASSISTANT TREASURERS. The Treasurer shall have responsibility
for the safekeeping of the funds and securities of the Corporation, shall
keep or cause to be kept full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall keep, or
cause to be kept, all other books of account and accounting records of the
Corporation. He/she shall deposit or cause to be deposited all moneys and
other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors or by any
officer of the Corporation to whom such authority has been granted by the
Board.
He/she shall disburse, or permit to be disbursed, the funds of the
Corporation as may be ordered, or authorized generally, by the Board, and
shall render to the Chief Executive Officer of the Corporation and the
Directors whenever they may require it, an account of all his/her
transactions as Treasurer and of those under his/her jurisdiction, and of
the financial condition of the Corporation.
He/she shall perform such other duties and shall have such other
responsibility and authority as may be prescribed elsewhere in these Bylaws
or from time to time by the Board of Directors.
He/she shall have the general duties, powers and responsibility of a
Treasurer of a corporation and shall, unless otherwise provided by the
Board, be the Chief Financial and Accounting Officer of the Corporation.
If required by the Board, he/she shall give the Corporation a bond in a sum
and with one or more sureties satisfactory to the Board, for the faithful
performance of the duties of his/her office and for the restoration to the
Corporation, in the case of his/her death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other
property of whatever kind in his/her possession or under his/her control
which belong to the Corporation.
In the absence of the Treasurer or in the event of his/her disability, or
inability or refusal to act, any Assistant Treasurer may perform the duties
and exercise the powers of the Treasurer until the Board otherwise
provides. Assistant Treasurers shall perform such other duties and have
such other authority as the Board of Directors may from time to time
prescribe.
41. DUTIES OF OFFICERS MAY BE DELEGATED. If any officer of the Corporation be
absent or unable to act, or for any other reason that the Board may deem
sufficient, the Board may delegate, for the time being, some or all of the
functions, duties, powers and responsibilities of any officer to any other
officer, or to any other agent or employee of the Corporation or other
responsible person, provided a majority of the whole Board concurs.
42. REMOVAL. Any officer or agent elected or appointed by the Board of
Directors, and any employee, may be removed or discharged by the Board
whenever in its judgment the best interests of the Corporation would be
served thereby, but such removal or discharge shall be without prejudice to
the contract rights, if any, of the person so removed or discharged.
43. SALARIES AND COMPENSATION. Salaries and compensation of all elected
officers of the Corporation shall be fixed, increased or decreased by the
Board of Directors, but this power, except as to the salary or compensation
of the Chairman of the Board and the President, may, unless prohibited by
law, be delegated by the Board to the Chairman of the Board or the
President, or may be delegated to a committee. Salaries and compensation of
all appointed officer, agents, and employees of the Corporation may be
fixed, increased or decreased by the Board of Directors, but until action
is taken with respect thereto by the Board of Directors the same fixed,
increased or decreased by the Chairman of the Board, the President or such
other officer or officers as may be empowered by the Board of Directors to
do so.
44. DELEGATION OF AUTHORITY TO HIRE, DISCHARGE AND DESIGNATE DUTIES. The Board
from time to time may delegate to the Chairman of the Board, the President
or other officer or executive employee of the Corporation, authority to
hire, discharge and fix and modify the duties, salary or other compensation
of employees of the Corporation under their jurisdiction, and the Board may
delegate to such officer or executive employee similar authority with
respect to obtaining and retaining for the Corporation the services of
attorneys, accountants and other experts.
STOCK
45. CERTIFICATES FOR SHARES OF STOCK. Certificates for shares of stock shall be
issued in numerical order, and each stockholder shall be entitled to a
certificate signed by, or in the name of the Corporation by, the Chairman
of the Board or the President or a Vice President, and by the Treasurer or
an Assistant Treasurer or the Secretary or an Assistant Secretary,
certifying the number of shares owned by him/her. To the extent permitted
by statute, any of or all of the signatures on such certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before such
certificate is issued, such certificate may nevertheless be issued by the
Corporation with the same effect as if such officer, transfer agent or
registrar who signed such certificate, or whose facsimile signature shall
have been used thereon, had not ceased to be such officer, transfer agent
or registrar of the Corporation.
46. TRANSFERS OF STOCK. Transfers of stock shall be made only upon the transfer
books of the Corporation, kept at the office of the Corporation or of the
transfer agent designated to transfer the class of stock, and before a new
certificate is issued the old certificate shall be surrendered for
cancellation. Until and unless the Board appoints some other person, firm
or corporation as its transfer agent (and upon the revocation of any such
appointment, thereafter, until a new appointment is similarly made) the
Secretary of the Corporation shall be the transfer agent of the Corporation
without the necessity of any formal action of the Board, and the Secretary,
or any person designated by him/her, shall perform all of the duties
thereof.
47. REGISTERED STOCKHOLDERS. Only registered stockholders shall be entitled to
be treated by the Corporation as the holders and owner in fact of the
shares standing in their respective names, and the Corporation shall not be
bound to recognize any equitable or other claim to or interest in such
shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as expressly provided by the laws
of Kansas.
48. LOST CERTIFICATES. The Board of Directors may authorize the Secretary to
direct that a new certificate or certificates be issued in place of any
certificate or certificates theretofore issued by the Corporation, alleged
to have been lost, stolen or destroyed, upon the making of an affidavit of
the fact by the person claiming the certificate or certificates to be lost,
stolen or destroyed. When authorizing such issue of a replacement
certificate or certificates, the Secretary may, as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his/her legal representative, to give the
Corporation and its transfer agents and registrars, if any, a bond in such
sum as it may direct to indemnify it against any claim that may be made
against it with respect to the certificate or certificates alleged to have
been lost, stolen or destroyed, or with respect to the issuance of such new
certificate or certificates.
49. REGULATIONS. The Board of Directors shall have power and authority to make
all such rules and regulations as it may deem expedient concerning the
issue, transfer, conversion and registration of certificates for shares of
stock of the Corporation, not inconsistent with the laws of the State of
Kansas, the Articles of Incorporation of the Corporation and these Bylaws.
50. FIXING RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise in respect of any change, conversion or exchange of stock or for
the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty (60) days not
less than ten (10) days before the date of such meeting, nor more than
sixty (60) days prior to any other action. A determination of stockholders
of record entitled to notice of or to vote at a meeting of stockholders
shall apply to any adjournment of the meeting; provided, however, that the
Board of Directors may fix a new record date for the adjourned meeting.
DIVIDENDS AND FINANCE
51. DIVIDENDS. Dividends upon the outstanding shares of stock of the
Corporation, subject to the provisions of the Articles of Incorporation and
of any applicable law and of these Bylaws, may be declared by the Board of
Directors at any meeting. Subject to such provisions, dividends may be paid
in cash, in property, or in shares of stock of the Corporation.
52. CREATION OF RESERVES. The Directors may set apart out of any of the funds
of the Corporation available for dividends a reserve or reserves for any
proper purpose or may abolish any such reserve in the manner in which it
was created.
53. DEPOSITORIES. The moneys of the Corporation shall be deposited in the name
of the Corporation in such bank or banks or other depositories as the Board
of Directors shall designate, and shall be drawn out only by check signed
by persons designated by resolution adopted by the Board of Directors,
except that the Board of Directors may delegate said powers in the manner
hereinafter provided in this bylaw 53. The Board of Directors may by
resolution authorize an officer or officers of the Corporation to designate
any bank or banks or other depositories in which moneys of the Corporation
may be deposited, and to designate the persons who may sign checks drawn on
any particular account or accounts of the Corporation, whether created by
direct designation of the Board of Directors or by authorized officer or
officers as aforesaid.
54. FISCAL YEAR. The Board of Directors shall have power to fix and from time
to time change the fiscal year of the Corporation. In the absence of action
by the Board of Directors, the fiscal year of the Corporation shall end
each year on the date which the Corporation treated as the close of its
first fiscal year, until such time, if any, as the fiscal year shall be
changed by the Board of Directors.
55. DIRECTORS' STATEMENT. The Board of Directors may present at each annual
meeting of the stockholders, and when called for by vote of the
stockholders shall present to any annual or special meeting of the
stockholders, a full and clear statement of the business and condition of
the Corporation.
56. FIXING OF CAPITAL, TRANSFERS OF SURPLUS. Except as may be specifically
otherwise provided in the Articles of Incorporation, the Board of Directors
is expressly empowered to exercise all authority conferred upon it or the
Corporation by any law or statute, and in conformity therewith, relative
to:
(a) the determination of what part of the consideration received for
shares of the Corporation shall be capital;
(b) increasing or reducing capital;
(c) transferring surplus to capital or capital to surplus;
(d) all similar or related matters;
provided that any concurrent action or consent by or of the Corporation and
its stockholders required to be taken or given pursuant to law shall be
duly taken or given in connection therewith.
57. LOANS TO OFFICERS AND DIRECTORS PROHIBITED. The Corporation shall not loan
money to any officer or director of the Corporation.
58. BOOKS, ACCOUNTS AND RECORDS. The books, accounts and records of the
Corporation, except as may be otherwise required by the laws of the State
of Kansas, may be kept outside the State of Kansas, at such place or places
as the Board of Directors may from time to time determine. The Board of
Directors shall determine whether, to what extent and the conditions upon
which the book, accounts and records of the Corporation, or any of them,
shall be open to the inspection of the stockholders, and no stockholder
shall have any right to inspect any book, account or record of the
Corporation, except as conferred by law or by resolution of the
stockholders or Directors.
INVESTMENT AND MANAGEMENT POLICIES
59. CUSTODY OF SECURITIES. Without limitation as to any restriction imposed by
the Articles of Incorporation of the Corporation or by operation of law on
the conduct of the Corporation's investment company business, the custody
of the Corporation's securities shall be subject to the following
requirements:
(a) The securities of the Corporation shall be placed in the custody and
care of a custodian which shall be a bank or trust company having not
less than $2,000,000 aggregate capital, surplus and undivided profits.
(b) Upon the resignation or inability to serve of the custodian, the
officers and directors shall be required to use their best efforts to
locate a successor, to whom all cash and securities must be delivered
directly, and in the event that no successor can be found, to submit
to stockholders the question of whether the corporation should be
liquidated or shall function without a custodian.
(c) Any agreement with the custodian shall require it to deliver
securities owned by the Corporation only (1) upon sale of such
securities for the account of the Corporation and receipt of payment;
(2) to the broker or dealer selling the securities in accordance with
"street delivery" custom; (3) on redemption, retirement of maturity;
(4) on conversion or exchange into other securities pursuant to a
conversion or exchange privilege, or plan of merger, consolidation,
reorganization, recapitalization, readjustment, share split-up, change
of par value, deposit in or withdrawal from a voting trust, or similar
transaction or event affecting the issuer; or (5) pursuant to the
redemption in kind of any securities of the Corporation.
(d) Any agreement with the custodian shall require it to deliver funds of
the Corporation only (1) upon the purchase of securities for the
portfolio of the Corporation and delivery of such securities to the
custodian, or (2) for the redemption of shares by the Corporation, the
payment of interest, dividend disbursements, taxes, management fees,
the making of payments in connection with the conversion, exchange or
surrender of securities owned by the Corporation and the payment of
operating expenses of the Corporation.
60. RESTRICTIONS ON THE INVESTMENT OF FUNDS. Without limitation as to any
restrictions imposed by the Articles of Incorporation of the Corporation or
by operation of law on the conduct of the Corporation's investment company
business, the officers and Directors of the Corporation shall not permit
the Corporation to take any action not permitted by its fundamental
investment policies, as amended, set forth in the Corporation's
registration statement.
61. DISTRIBUTION OF EARNINGS.
A. The Directors by appropriate resolution shall from time to time
distribute the net earnings of the Corporation to its shareholders
pro-rata by mailing checks to the shareholders at the address shown on
the books of the Company.
B. In addition to paying all current expenses, it shall be the duty of the
officers and Directors to set up adequate reserves to cover taxes,
auditors' fees, and any and all necessary expenses that can be
anticipated but are not currently payable, and same shall be deducted
from gross earnings before net earnings may be distributed.
C. If any of the net earnings of this Corporation is profit from sale of
its securities or from any source that would be considered as capital
gains, this information shall be clearly revealed to the stockholders
and the basis of calculation of such gains set forth.
D. The officers and Directors shall distribute not less than that amount
of net earnings of this Corporation to its shareholders as may be
required or advisable under applicable law and special distribution of
net earnings may be made at the discretion of the Directors at any time
to meet this requirement or for any other reason.
62. UNDERWRITING OR PRINCIPAL BROKER AGREEMENT.
A. The officers and Directors of this Corporation shall not enter into an
agreement or contract with any person or corporation to act as
underwriter or principal broker for the sale and/or distribution of its
shares, unless said person or corporation is fully qualified as a
broker and has net all the requirements of the Kansas Corporation
Commission and United States Securities and Exchange Commission and is
currently in good standing with said Commissions.
B. No commission, sales load or discount from the offering price of said
shares shall be greater than that which is permitted under the
Investment Company Act of 1940 and the rules, regulations and orders
promulgated thereunder.
C. Any such contract so made shall not endure for a period of more than on
year, unless such extension has been duly ratified and approved by a
majority vote of the Directors of the Corporation, and such contract
shall contain a provision that it may be terminated for cause upon
sixty days written notice by either party.
MISCELLANEOUS
63. WAIVER OF NOTICE. Whenever any notice is required to be given under the
provisions of the statutes of Kansas, or of the Articles of Incorporation
or of these Bylaws, a waiver thereof in writing, signed by the person or
persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent to notice. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when
the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
stockholders, Directors or members of a committee of directors need be
specified in any written waiver of notice unless so required by the
Articles of Incorporation of these Bylaws.
64. CONTRACTS. The Board of Directors may authorize any officer or officers, or
agent or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the Corporation, and such
authority may be general or confined to specific instances.
65. AMENDMENTS. These Bylaws may be altered, amended or repealed, or new Bylaws
may be adopted, in any of the following ways: (i) by the holders of a
majority of the outstanding shares of stock of the Corporation entitled to
vote, or (ii) by a majority of the full Board of Directors and any change
so made by the stockholders may thereafter be further changed by a majority
of the directors; provided, however, that the power of the Board of
Directors to alter, amend or repeal the Bylaws, or to adopt new Bylaws, may
be denied as to any Bylaws or portion thereof as the stockholders shall so
expressly provide.
CERTIFICATE
The undersigned Secretary of SBL Fund, a Kansas Corporation, hereby
certifies that the foregoing Bylaws are the amended/restated Bylaws of said
Corporation adopted by the Directors of the Corporation.
Dated: February 3, 1995 AMY J. LEE
--------------------------------
Amy J. Lee
Secretary
<PAGE>
INVESTMENT ADVISORY CONTRACT
THIS AGREEMENT, made and entered into this 20th day of June, 1977, by and
between SBL FUND, INC., a Kansas corporation (hereinafter referred to as the
"Fund"), and SECURITY MANAGEMENT COMPANY, INC., a Kansas corporation
(hereinafter referred to as the "Management Company").
WITNESSETH:
WHEREAS, the Fund is engaged in business as an open-end, management
investment company registered under the Federal Investment Company Act of 1940;
and
WHEREAS, the Management Company is willing to provide interest research and
advice to the Fund on the terms and conditions hereinafter set forth:
NOW, THEREFORE, in consideration of the premises and mutual agreements made
herein, the parties hereto agree as follows:
1. EMPLOYMENT OF MANAGEMENT COMPANY. The Fund hereby employs the Management
Company to act as investment adviser to the Fund with respect to the investment
of its assets and to supervise and arrange the purchase of securities for the
Fund and the sale of securities held in the portfolio of the Fund, subject
always to the supervision of the board of directors of the Fund (or a duly
appointed committee thereof), during the period and upon and subject to the
terms and conditions herein set forth. The Management Company hereby accepts
such employment and agrees to perform the services required by this Agreement
for the compensation herein provided.
2. INVESTMENT ADVISORY DUTIES. The Management Company shall regularly
provide the Fund with investment research, advice and supervision, continuously
furnish an investment program and recommend what securities shall be purchased
and sold and what portion of the assets of the Fund shall be held uninvested and
shall arrange for the purchase of securities and other investments for the Fund
and the sale of securities and other investments held in the portfolio of the
Fund. All investment advice furnished by the Management Company to the Fund
under this Section 2 shall at all times conform to any requirements imposed by
the provisions of the Fund's Articles of Incorporation and Bylaws, the
Investment Company Act of 1940, the Investment Advisors Act of 1940 and the
rules and regulations promulgated thereunder, any other applicable provisions of
law, and the terms of the registration statements of the Fund under the
Securities Act of 1933 and the Investment Company Act of 1940, all as from time
to time amended. The Management Company shall advise and assist the officers or
other agents of the Fund in taking such steps as are necessary or appropriate to
carry out the decisions of the board of directors of the Fund (and any duly
appointed committee thereof) in regard to the foregoing matters and the general
conduct of the Fund's business.
3. PORTFOLIO TRANSACTIONS AND BROKERAGE.
(a) Transactions in portfolio securities shall be effected by the
Management Company, through brokers or otherwise, in the manner permitted
in this Section 3 and in such manner as the Management Company shall deem
to be in the best interests of the Fund after consideration is given to all
relevant factors.
(b) In reaching a judgment relative to the qualification of a broker to
obtain the best execution of a particular transaction, the Management
Company may take into account all relevant factors and circumstances,
including the size of any contemporaneous market in such securities; the
importance to the Fund of speed and efficiency of execution; whether the
particular transaction is part of a larger intended change of portfolio
position in the same securities; the execution capabilities required by the
circumstances of the particular transaction; the capital to be required by
the transaction; the overall capital strength of the broker; the broker's
apparent knowledge of or familiarity with sources from or to whom such
securities may be purchased or sold; as well as the efficiency, reliability
and confidentiality with which the broker has handled the execution of
prior similar transactions.
(c) Subject to any statements concerning the allocation of brokerage
contained in the Fund's prospectus, the Management Company is authorized to
direct the execution of the portfolio transactions of the Fund to brokers
who furnish investment information or research services to the Management
Company. Such allocation shall be in such amounts and proportions as the
Management Company may determine. If a transaction is directed to a broker
supplying brokerage and research services to the Management Company, the
commission paid for such transaction may be in excess of the commission
another broker would have charged for effecting that transaction, provided
that the Management Company shall have determined in good faith that the
commission is reasonable in relation to the value of the brokerage and
research services provided, viewed in terms of either that particular
transaction or the overall responsibilities of the Management Company with
respect to all accounts as to which it now or hereafter exercises
investment discretion. For purposes of the immediately preceding sentence,
"providing brokerage and research services" shall have the meaning
generally given in such term or similar term under Section 28 (c)(3) of the
Securities Exchange Act of 1934, as amended.
(d) In the selection of a broker for the execution of any transaction
not subject to fixed commission rates, the Management Company shall have no
duty or obligation to seek advance competitive bidding for the most
favorable negotiated commission rate to be applicable to such transaction,
or to select any broker solely on the basis of its purported or "posted"
commission rates.
(e) In connection with transactions on markets other than national or
regional securities exchanges, the Fund will deal directly with the selling
principal or market maker without incurring charges for the services of a
broker on its behalf unless, in the best judgment of the Management
Company, better price or execution can be obtained by utilizing the
services of a broker.
4. ALLOCATION OF EXPENSES AND CHARGES. The Management Company shall provide
investment advisory, statistical and research facilities and all clerical
services relating to research, statistical and investment work, and shall
provide for the compilation and maintenance of such records relating to these
functions as shall be required under applicable law and the rules and
regulations of the Securities and Exchange Commission. Other than as
specifically indicated in the preceding sentence, the Management Company shall
not be required to pay any expenses of the Fund, and in particular, but without
limiting the generality of the foregoing, the Management Company shall not be
required to pay office rental or general administrative expenses; board of
directors' fees; legal, auditing and accounting expenses; broker's commissions;
taxes and governmental fees; membership dues; fees of custodian, transfer agent,
registrar and dividend disbursing agent (if any); expenses (including clerical
expenses) of issue, sale or redemption of shares of the Fund's capital stock;
costs and expenses in connection with the registration of such capital stock
under the Securities Act of 1933 and qualification of the Fund's capital stock
under the "Blue Sky" laws of the states where such stock is offered; costs and
expenses in connection with the registration of the Fund under the Investment
Company Act of 1940 and all periodic and other reports required thereunder;
expenses of preparing and distributing reports, proxy statements, notices and
distributions to stockholders; costs of stationery; expenses of printing
prospectuses; costs of stockholder and other meetings; and such nonrecurring
expenses as may arise including litigation affecting the Fund and the legal
obligations the Fund may have to indemnify its officers and the members of its
board of directors.
5. COMPENSATION OF MANAGEMENT COMPANY.
(a) As compensation for the services to be rendered by the Management
Company as provided herein, for each of the years this Agreement is in effect,
the Fund shall pay the Management Company an annual fee equal to .5 of 1% of the
average daily closing value of the net assets of each Series of the Fund
computed on a daily basis. Such fee shall be adjusted and payable monthly. If
this Agreement shall be effective for only a portion of a year, then the
Management Company's compensation for said year shall be prorated for such
portion. For purposes of this Section 5, the value of the net assets of each
such Series shall be computed in the same manner at the end of the business day
as the value of such net assets is computed in connection with the determination
of the net asset value of the Fund's shares as described in the Fund's
prospectus.
(b) For each of the Fund's full fiscal years this Agreement remains in
force, the Management Company agrees that if total annual expenses of each
Series of the Fund, exclusive of interest and taxes and extraordinary expenses
(such as litigation), but inclusive of the Management Company's compensation,
exceed any expense limitation imposed by state securities law or regulation in
any state in which shares of the Fund are then qualified for sale, as such
regulations may be amended from time to time, the Management Company will
contribute to such Series such funds or to waive such portion of its fee,
adjusted monthly, as may be requisite to insure that such annual expenses will
not exceed any such limitation. If this contract shall be effective for only a
portion of one of the Series' fiscal years, then the maximum annual expenses
shall be prorated for such portion. Brokerage fees and commissions incurred in
connection with the purchase or sale of any securities by a Series shall not be
deemed to be expenses within the meaning of this paragraph (b)". (Amended March
27, 1987)
6. MANAGEMENT COMPANY NOT TO RECEIVE COMMISSIONS. In connection with the
purchase or sale of portfolio securities for the account of the Fund, neither
the Management Company nor any officer or director of the Management Company
shall act as principal or receive any compensation from the Fund other than its
compensation as provided for in Section 5 above. If the Management Company, or
any "affiliated person" (as defined in the Investment Company Act of 1940)
receives any cash credits, commissions or tender fees from any person in
connection with transactions in portfolio securities of the Fund (including but
not limited to the tender or delivery of any securities held in such portfolio),
the Management Company shall immediately pay such amount to the Fund in cash or
as a credit against any then earned but unpaid management fees due by the Fund
to the Management Company.
7. LIMITATION OF LIABILITY OF MANAGEMENT COMPANY. So long as the Management
Company shall give the Fund the benefit of its best judgment and effort in
rendering services hereunder, the Management Company shall not be liable for any
errors of judgment or mistake of law, or for any loss sustained by reason of the
adoption of any investment policy or the purchase, sale or retention of any
security on its recommendation, whether or not such recommendation shall have
been based upon its own investigation and research or upon investigation and
research made by any other individual, firm or corporation, if such
recommendation shall have been made and such other individual firm or
corporation shall have been selected with due care and in good faith. Nothing
herein contained shall, however, be construed to protect the Management Company
against any liability to the Fund or its contractowners by reason of willful
misfeasance, bad faith, or gross negligence in the performance of its duties or
by reason of its reckless disregard of its obligations and duties under the
Agreement. As used in this Section 7, "Management Company" shall include
directors, officers and employees of the Management Company, as well as that
corporation itself.
8. OTHER ACTIVITIES NOT RESTRICTED. Nothing in this Agreement shall prevent
the Management Company or any officer thereof from acting as investment adviser
for any other person, firm, or corporation, not shall it in any way limit or
restrict the Management Company or any of its directors, officer, stockholders
or employees from buying, selling, or trading any securities for its own
accounts or for the accounts of others for whom it may be acting; provided,
however, that the Management Company expressly represents that it will undertake
no activities which, in its judgment, will conflict with the performance of its
obligations to the Fund under this Agreement. The Fund acknowledges that the
Management Company acts as investment adviser to other investment companies, and
it expressly consents to the Management Company acting as such; provided,
however, that if securities of one issuer are purchased or sold, the purchase or
sale of such securities is consistent with the investment objectives of, and, in
the opinion of the Management Company, such securities are desirable purchases
or sales for the portfolios of the Fund and one or more of such other investment
companies at approximately the same time, such purchases or sales will be made
on a proportionate basis if feasible, and if not feasible, then on a rotating or
other equitable basis.
9. DURATION AND TERMINATION OF AGREEMENT. This Agreement shall become
effective on the date hereof, provided that on or before that date it has been
approved by a majority of the holders of the outstanding voting securities of
the Fund, and shall remain in force until the first regular or special meeting
of the Fund stockholders following the date shares of capital stock of the Fund
are first sold to Security Benefit Life Insurance Company for allocation to its
separate account. This Agreement shall be presented to the Fund's stockholders
at such meeting for their approval and, if so approved, shall continue in force
from year to year thereafter, but only if such continuance is specifically
approved at least annually by the vote of a majority of the board of directors
of the Fund (including approval by the vote of a majority of the directors who
are not parties to this Agreement or interested persons of any such party) cast
in person at a regular or special meeting of the board of directors called for
the purpose of voting upon such approval, or by the vote of the holders of a
majority of the outstanding voting securities of the Fund and by such a vote of
the board of directors. The words "interested persons" as used herein shall have
the meaning set forth in Section 2(a) (19) of the Investment Company Act of
1940.
This Agreement may be terminated at any time, without the payment of any
penalty, by vote of the board of directors of the Fund or by vote of the holders
of a majority of the outstanding voting securities of the Fund, or by the
Management Company, upon 60 days written notice to the other party.
This Agreement shall automatically terminate in the event of its
"assignment" (as defined in the Investment Company Act of 1940).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers thereto duly authorized on the day,
month and year first above written.
(SEAL)
SBL FUND, INC.
ATTEST By Robert E. Jacoby
-----------------------------------------------
President
Larry D. Armel
- --------------------------
Secretary SECURITY MANAGEMENT COMPANY, INC.
By Everett S. Gille
-----------------------------------------------
ATTEST President
Larry D. Armel
- --------------------------
Secretary
<PAGE>
AMENDMENT TO INVESTMENT ADVISORY CONTRACT
WHEREAS, SBL Fund (hereinafter referred to as the "Fund") and Security
Management Company (hereinafter referred to as the "Management Company") are
parties to an Investment Advisory Contract dated June 20, 1977, (the "Advisory
Contract") under which the Management Company agrees to provide investment
research, advice and supervision and business management services to the Fund in
return for the compensation specified in the Advisory Contract; and
WHEREAS, on January 27, 1989, the Board of Directors voted to amend the Advisory
Contract to increase the compensation payable to the Management Company, which
was approved by the Shareholders of Series A, Series B, Series D, and Series E
of the Fund on March 31, 1989;
NOW THEREFORE, the Fund and Management Company hereby amend the Investment
Advisory Contract, dated June 20, 1977, effective April 28, 1989, as follows:
Paragraph 5 (a) shall be deleted in its entirety and the following
paragraph inserted in lieu thereof:
5. COMPENSATION OF MANAGEMENT COMPANY
(a) As compensation for the services to be rendered by the Management
Company as provided herein, for each of the years this Agreement is in
effect, the Fund shall pay the Management Company an annual fee equal
to .75 of 1 percent of the average daily closing value of the net
assets of Series A, Series B, Series D, and Series E, of the Fund and
.50 of 1 percent of the average daily closing value of the net assets
of Series C of the Fund computed on a daily basis. Such fee shall be
adjusted and payable monthly. If this Agreement shall be effective for
only a portion of a year, then the Management Company's compensation
for said year shall be prorated for such portion. For purposes of this
Section 5, the value of the net assets of each such Series shall be
computed in the same manner at the end of the business day as the value
of such net assets is computed in connection with the determination of
the net asset value of the Fund's shares as described in the Fund's
prospectus.
IN WITNESS WHEREOF, the parties hereto have made this Agreement to the
Investment Advisory Contract this 31st day of March, 1989.
SBL FUND, INC.
By M. J. Provines
-----------------------------------------------
ATTEST Michael J. Provines, President
Amy J. Lee
- -------------------------
Amy J. Lee, Secretary
SECURITY MANAGEMENT COMPANY, INC.
ATTEST
By M. J. Provines
-----------------------------------------------
Amy J. Lee Michael J. Provines, President
- -------------------------
Amy J. Lee, Secretary
<PAGE>
AMENDMENT TO INVESTMENT ADVISORY CONTRACT
WHEREAS, SBL Fund (the "Fund") and Security Management Company (the "Management
Company") are parties to an Investment Advisory Contract dated June 20, 1977, as
amended, (the "Advisory Contract"), under which the Management Company agrees to
provide investment research, advice and supervision and business management
services to the Fund in return for the compensation specified in the Advisory
Contract;
WHEREAS, on February 15, 1991, the Board of Directors of the Fund authorized the
Fund to offer Series S common stock in addition to its presently offered series
of common stock (Series A, Series B, Series C, Series D, and Series E);
WHEREAS, on February 15, 1991, the Board of Directors of the Fund voted to amend
the Advisory Contract to provide that the Management Company would provide
investment advisory and business management services to Series S of the Fund
pursuant to the Advisory Contract;
WHEREAS, on April 15, 1991, the initial shareholder of Series S approved such
amendment to the Investment Advisory Contract;
WHEREAS, on February 15, 1991, the Board of Directors of the Fund approved an
amendment to the investment advisory contract to increase the compensation
payable to the Management Company as to Series D of the Fund; and;
WHEREAS, on April 26, 1991, the shareholders of Series D approved such amendment
to the Investment Advisory Contract;
NOW, THEREFORE, the Fund and the Management Company hereby amend the Investment
Advisory Contract, dated June 20, 1977, effective April 30, 1991, as follows:
Paragraph 5(a) shall be deleted in its entirety and the following paragraph
inserted in lieu thereof:
5. COMPENSATION OF MANAGEMENT COMPANY
(a) As compensation for the services to be rendered by the Management
Company as provided for herein, for each of the years this Agreement is
in effect, the Fund shall pay the Management Company an annual fee
equal to .75 percent of the average daily closing value of the net
assets of Series A, Series B, Series E and Series S of the Fund, .50
percent of the average daily closing value of the net assets of Series
C of the Fund and 1.00 percent of the average daily closing value of
the net assets of Series D of the Fund, computed on a daily basis. Such
fee shall be adjusted and payable monthly. If this Agreement shall be
effective for only a portion of a year, then the Management Company's
compensation for said year shall be prorated for such portion. For
purposes of this Section 5, the value of the net assets of each such
series shall be computed in the same manner at the end of the business
day as the value of such net assets is computed in connection with the
determination of the net asset value of the Fund's shares as described
in the Fund's prospectus.
IN WITNESS WHEREOF, the parties hereto have made this Amendment to the
Investment Advisory Contract this 26th day of April, 1991.
SBL FUND, INC.
By James R. Schmank
-----------------------------------------------
ATTEST James R. Schmank, Vice President
Amy J. Lee
- --------------------------
Amy J. Lee, Secretary
SECURITY MANAGEMENT COMPANY, INC.
ATTEST
By James R. Schmank
-----------------------------------------------
Amy J. Lee James R. Schmank, Sr. Vice President
- --------------------------
Amy J. Lee, Secretary
<PAGE>
AMENDMENT TO INVESTMENT ADVISORY CONTRACT
WHEREAS, SBL Fund (the "Fund") and Security Management Company (the "Management
Company") are parties to an Investment Advisory Contract dated June 20, 1977, as
amended, (the "Advisory Contract"), under which the Management Company agrees to
provide investment research, advice and supervision and business management
services to the Fund in return for the compensation specified in the Advisory
Contract;
WHEREAS, on July 24, 1992, the Board of Directors of the Fund authorized the
Fund to offer Series J common stock in addition to its presently offered series
of common stock (Series A, Series B, Series C, Series D, Series E and Series S);
WHEREAS, on July 24, 1992, the Board of Directors of the Fund voted to amend the
Advisory Contract to provide that the Management Company would provide
investment advisory and business management services to Series J of the Fund
pursuant to the Advisory Contract;
WHEREAS, on July 31, 1992, the initial shareholder of Series J approved such
amendment to the Investment Advisory Contract;
NOW, THEREFORE, the Fund and the Management Company hereby amend the Investment
Advisory Contract, dated June 20, 1977, effective October 1, 1992, as follows:
Paragraph 5(a) shall be deleted in its entirety and the following paragraph
inserted in lieu thereof:
5. COMPENSATION OF MANAGEMENT COMPANY
(a) As compensation for the services to be rendered by the Management
Company as provided for herein, for each of the years this Agreement is
in effect, the Fund shall pay the Management Company an annual fee
equal to .75 percent of the average daily closing value of the net
assets of Series A, Series B, Series E, Series S and Series J of the
Fund, .50 percent of the average daily closing value of the net assets
of Series C of the Fund and 1.00 percent of the average daily closing
value of the net assets of Series D of the Fund, computed on a daily
basis. Such fee shall be adjusted and payable monthly. If this
Agreement shall be effective for only a portion of a year, then the
Management Company's compensation for said year shall be prorated for
such portion. For purposes of this Section 5, the value of the net
assets of each such Series shall be computed in the same manner at the
end of the business day as the value of such net assets is computed in
connection with the determination of the net asset value of the Fund's
shares as described in the Fund's prospectus.
IN WITNESS WHEREOF, the parties hereto have made this Amendment to the
Investment Advisory Contract this 1st day of October, 1992.
SBL FUND, INC.
By James R. Schmank
-----------------------------------------------
ATTEST James R. Schmank, Vice President
Amy J. Lee
- ------------------------
Amy J. Lee, Secretary
SECURITY MANAGEMENT COMPANY, INC.
ATTEST
By James R. Schmank
-----------------------------------------------
Amy J. Lee James R. Schmank, Sr. Vice President
- -------------------------
Amy J. Lee, Secretary
<PAGE>
AMENDMENT TO INVESTMENT ADVISORY CONTRACT
WHEREAS, SBL Fund (the "Fund") and Security Management Company (the "Management
Company") are parties to an Investment Advisory Contract dated June 20, 1977, as
amended (the "Advisory Contract"), under which the Management Company agrees to
provide investment research, advice and supervision and business management
services to the Fund in return for the compensation specified in the Advisory
Contract;
WHEREAS, on February 3, 1995, the Board of Directors of the Fund authorized the
Fund to offer a new series, Series K, of common stock, and voted to amend the
Advisory Contract to provide that the Management Company would provide
investment advisory and business management services to Series K of the Fund
pursuant to the Advisory Contract; and
WHEREAS, on April 3, 1995, the Board of Directors of the Fund authorized the
Fund to offer three additional new series of common stock, Series M, N and O,
and voted to amend the Advisory Contract to provide that the Management Company
would provide investment advisory and business management services to Series M,
N and O pursuant to the Advisory Contract; and
WHEREAS, on April 18, 1995, the initial shareholder of each of Series K, M, N
and O approved such amendments to the Advisory Contract;
NOW, THEREFORE, the Fund and the Management Company hereby amend the Investment
Advisory Contract, dated June 20, 1977, effective May 1, 1995, as follows:
The Paragraph 5(a) shall be amended as follows (new language underlined):
5. COMPENSATION OF MANAGEMENT COMPANY
(a) As compensation for the services to be rendered by the Management
Company as provided for herein, for each of the years this Agreement is
in effect, the Fund shall pay the Management Company an annual fee
equal to .75 percent of the average daily closing value of the net
assets of Series A, Series B, Series E, Series S, Series J, AND SERIES
K of the Fund, .50 percent of the average daily closing value of the
net assets of Series C of the Fund and 1.00 percent of the average
daily closing value of the net assets of Series D, SERIES M, SERIES N
AND SERIES O of the Fund, computed on a daily basis. Such fee shall be
adjusted and payable monthly. If this Agreement shall be effective for
only a portion of a year, then the Management Company's compensation
for said year shall be prorated for such portion. For purposes of this
Section 5, the value of the net assets of each such Series shall be
computed in the same manner at the end of the business day as the value
of such net assets is computed in connection with the determination of
the net asset value of the Fund's shares as described in the Fund's
prospectus.
IN WITNESS WHEREOF, the parties hereto have made this Amendment to the
Investment Advisory Contract this 28th day of April, 1995.
SBL FUND, INC.
By John D. Cleland
-----------------------------------------------
ATTEST John D. Cleland, President
Amy J. Lee
- -------------------------
Amy J. Lee, Secretary
SECURITY MANAGEMENT COMPANY, INC.
ATTEST
By J. B. Pantages
-----------------------------------------------
Amy J. Lee Jeffrey B. Pantages, President
- -------------------------
Amy J. Lee, Secretary
<PAGE>
AMENDMENT TO INVESTMENT ADVISORY CONTRACT
WHEREAS, SBL Fund (the "Fund") and Security Management Company (the "Management
Company") are parties to an Investment Advisory Contract dated June 20, 1977, as
amended, (the "Advisory Contract"), under which the Management Company agrees to
provide investment research, advice and supervision and business management
services to the Fund in return for the compensation specified in the Advisory
Contract;
WHEREAS, on May 3, 1996, the Board of Directors of the Fund authorized the Fund
to offer its common stock in a new series designated as Series P, addition to
its presently offered series of common stock of Series A, Series B, Series C,
Series D, Series E, Series S, Series J, Series K, Series M, Series N and Series
O;
WHEREAS, on May 3, 1996, the Board of Directors of the Fund approved the
amendment of the Advisory Contract to provide that the Management Company would
provide investment advisory and business management services to Series P of the
Fund under the terms and conditions of the Advisory Contract;
WHEREAS, this amendment to the Advisory Contract is subject to the approval of
the initial shareholder of Series P;
NOW, THEREFORE BE IT RESOLVED, that the Fund and the Management Company hereby
amend the Advisory Contract, dated June 20, 1977, as amended as follows,
effective July 1, 1996:
Paragraph 5(a) shall be amended as follows (new language underlined):
5. COMPENSATION OF MANAGEMENT COMPANY
(a) As compensation for the services to be rendered by the Management
Company as provided for herein, for each of the years this Agreement is in
effect, the Fund shall pay the Management Company an annual fee equal to .75
percent of the average daily closing value of the net assets of Series A, Series
B, Series E, Series S, Series J, Series K, AND SERIES P of the Fund, .50 percent
of the average daily closing value of the net assets of Series C of the Fund and
1.00 percent of the average daily closing value of the net assets of Series D,
Series M, Series N and Series O of the Fund, computed on a daily basis. Such fee
shall be adjusted and payable monthly. If this Agreement shall be effective for
only a portion of a year, then the Management Company's compensation for said
year shall be prorated for such portion. For purposes of this Section 5, the
value of the net assets of each such Series shall be computed in the same manner
at the end of the business day as the value of such net assets is computed in
connection with the determination of the net asset value of the Fund's shares as
described in the Fund's prospectus.
IN WITNESS WHEREOF, the parties hereto have made this Amendment to the
Investment Advisory Contract this 13th day of May, 1996.
SBL FUND, INC.
By John D. Cleland
-----------------------------------------------
ATTEST John D. Cleland, Vice President
Amy J. Lee
- --------------------------
Amy J. Lee, Secretary
SECURITY MANAGEMENT COMPANY, INC.
ATTEST
By Jeffrey B. Pantages
-----------------------------------------------
Amy J. Lee Jeffrey B. Pantages, President
- --------------------------
Amy J. Lee, Secretary
<PAGE>
AMENDMENT TO INVESTMENT ADVISORY CONTRACT
WHEREAS, SBL Fund (the "Fund") and Security Management Company (the "Management
Company") are parties to an Investment Advisory Contract, dated June 20, 1977,
as amended (the "Advisory Contract"), under which the Management Company agrees
to provide investment research, advice and supervision and business management
services to the Fund in return for the compensation specified in the Advisory
Contract;
WHEREAS, on October 31, 1996, the operations of the Management Company, a Kansas
corporation, will be transferred to Security Management Company, LLC ("SMC,
LLC"), a Kansas limited liability company; and
WHEREAS, SMC, LLC desires to assume all rights, duties and obligations of the
Management Company under the Advisory Contract.
NOW THEREFORE, in consideration of the premises and mutual agreements made
herein, the parties hereto agree as follows:
1. The Advisory Contract is hereby amended to substitute SMC, LLC for Security
Management Company, with the same effect as though SMC, LLC were the
originally named management company, effective November 1, 1996;
2. SMC, LLC agrees to assume the rights, duties and obligations of Security
Management Company pursuant to the terms of the Advisory Contract.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to
Investment Advisory Contract this 1st day of November, 1996.
SBL FUND SECURITY MANAGEMENT COMPANY, LLC
By: JOHN D. CLELAND By: JAMES R. SCHMANK
- --------------------------------- --------------------------------------
John D. Cleland, President James R. Schmank, President
ATTEST: ATTEST:
AMY J. LEE AMY J. LEE
- --------------------------------- --------------------------------------
Amy J. Lee, Secretary Amy J. Lee, Secretary
<PAGE>
AMENDMENT TO INVESTMENT ADVISORY CONTRACT
WHEREAS, SBL Fund (the "Fund") and Security Management Company, LLC (the
"Management Company") are parties to an Investment Advisory Contract dated June
20, 1977, as amended (the "Advisory Contract"), under which the Management
Company agrees to provide investment research, advice and supervision and
business management services to the Fund in return for the compensation
specified in the Advisory Contract;
WHEREAS, on February 7, 1997, the Board of Directors of the Fund authorized the
Fund to offer its common stock in a new series designated as Series V, in
addition to its presently offered series of common stock of Series A, Series B,
Series C, Series D, Series E, Series S, Series J, Series K, Series M, Series N,
Series O and Series P;
WHEREAS, on February 7, 1997, the Board of Directors of the Fund approved the
amendment of the Advisory Contract to provide that the Management Company would
provide investment advisory and business management services to Series V of the
Fund under the terms and conditions of the Advisory Contract; and
WHEREAS, this amendment to the Advisory Contract is subject to the approval of
the initial shareholder of Series V;
NOW, THEREFORE BE IT RESOLVED, that the Fund and the Management Company hereby
amend the Advisory Contract, dated June 20, 1977, as amended as follows,
effective April 30, 1997:
Paragraph 5(a) shall be amended as follows (new language underlined):
5. COMPENSATION OF MANAGEMENT COMPANY
a) As compensation for the services to be rendered by the Management Company
as provided for herein, for each of the years this Agreement is in effect, the
Fund shall pay the Management Company an annual fee equal to .75 percent of the
average daily closing value of the net assets of Series A, Series B, Series E,
Series S, Series J, Series K, Series P, AND SERIES V of the Fund, .50 percent of
the average daily closing value of the net assets of Series C of the Fund and
1.00 percent of the average daily closing value of the net assets of Series D,
Series M, Series N and Series O of the Fund, computed on a daily basis. Such fee
shall be adjusted and payable monthly. If this Agreement shall be effective for
only a portion of a year, then the Management Company's compensation for said
year shall be prorated for such portion. For purposes of this Section 5, the
value of the net assets of each such Series shall be computed in the same manner
at the end of the business day as the value of such net assets is computed in
connection with the determination of the net asset value of the Fund's shares as
described in the Fund's prospectus.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the
Investment Advisory Contract this 12th day of March, 1997.
SBL FUND
By: JOHN D. CLELAND
---------------------------------
John D. Cleland, President
ATTEST:
AMY J. LEE
- -----------------------------------
Amy J. Lee, Secretary
SECURITY MANAGEMENT COMPANY, LLC
By: JAMES R. SCHMANK
---------------------------------
James R. Schmank, President
ATTEST:
AMY J. LEE
- -----------------------------------
Amy J. Lee, Secretary
<PAGE>
AMENDMENT TO INVESTMENT ADVISORY CONTRACT
WHEREAS, SBL Fund (the "Fund") and Security Management Company, LLC (the
"Management Company") are parties to an Investment Advisory Contract dated June
20, 1977, as amended (the "Advisory Contract"), under which the Management
Company agrees to provide investment research, advice and supervision and
business management services to the Fund in return for the compensation
specified in the Advisory Contract;
WHEREAS, on November 6, 1998, the Board of Directors of the Fund authorized the
Fund to offer its common stock in a new series designated as Series I, in
addition to its presently offered series of common stock of Series A, Series B,
Series C, Series D, Series E, Series S, Series J, Series K, Series M, Series N,
Series O, Series P, Series V and Series X;
WHEREAS, on November 6, 1998, the Board of Directors of the Fund approved the
amendment of the Advisory Contract to provide that the Management Company would
provide investment advisory and business management services to Series I of the
Fund under the terms and conditions of the Advisory Contract; and
WHEREAS, this amendment to the Advisory Contract is subject to the approval of
the initial shareholder of Series I;
NOW, THEREFORE BE IT RESOLVED, that the Fund and the Management Company hereby
amend the Advisory Contract, dated June 20, 1977, as amended as follows,
effective January 28, 1999:
Paragraph 5(a) shall be amended as follows (new language underlined) and a new
paragraph 5(c) added:
5. COMPENSATION OF MANAGEMENT COMPANY
a) As compensation for the services to be rendered by the Management
Company as provided for herein, for each of the years this Agreement is in
effect, the Fund shall pay the Management Company an annual fee computed on a
daily basis equal to .75 percent of the average daily closing value of the net
assets of Series A, Series B, Series E, Series S, Series J, Series K, Series P
and Series V of the Fund, .50 percent of the average daily closing value of the
net assets of Series C of the Fund, 1.00 percent of the average daily closing
value of the net assets of Series D, Series M, Series N, Series O and Series X
of the Fund, and 1.10 percent of the average daily closing value of the net
assets of Series I of the Fund. Such fee shall be adjusted and payable monthly.
If this Agreement shall be effective for only a portion of a year, then the
Management Company's compensation for said year shall be prorated for such
portion. For purposes of this Section 5, the value of the net assets of each
such Series shall be computed in the same manner at the end of the business day
as the value of such net assets is computed in connection with the determination
of the net asset value of the Fund's shares as described in the Fund's
prospectus.
(c) For each of the Fund's full fiscal year this Agreement remains in
force, the Management Company agrees that if total annual expenses of each
Series of the Fund identified below, exclusive of interest, taxes, extraordinary
expenses (such as litigation), and brokerage fees and commissions, but inclusive
of the Management Company's compensation, exceeds the amount set forth below
(the "Expense Cap"), the Management Company will contribute to such Series such
funds or waive such portion of its fee, adjusted monthly, as may be required to
insure that the total annual expenses of the Series will not exceed the Expense
Cap. If this Agreement shall be effective for only a portion of a Series' fiscal
year, then the maximum annual expenses shall be prorated for such portion.
Expense Cap
Series I - 2.25%
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the
Investment Advisory Contract this _____ day of _____________, 1999.
SBL FUND
By:
--------------------------------
John D. Cleland, President
ATTEST:
- ------------------------------
Amy J. Lee, Secretary
SECURITY MANAGEMENT COMPANY, LLC
By:
-------------------------------
James R. Schmank, President
ATTEST:
- ------------------------------
Amy J. Lee, Secretary
<PAGE>
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made and entered into on this 23rd day of October, 1998
between SECURITY MANAGEMENT COMPANY, LLC (the "Adviser"), a Kansas limited
liability company, registered under the Investment Advisers Act of 1940, as
amended (the "Investment Advisers Act"), and OPPENHEIMERFUNDS, INC. (the
"Subadviser"), a Colorado corporation registered under the Investment Advisers
Act.
WITNESSETH:
WHEREAS, SBL Fund, a Kansas corporation, is registered with the Securities
and Exchange Commission (the "Commission") as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "Investment
Company Act");
WHEREAS, SBL Fund has, pursuant to an Advisory Agreement with the
Adviser (the "Advisory Agreement"), retained the Adviser to act as investment
adviser for and to manage its assets;
WHEREAS, the Advisory Agreement permits the Adviser to delegate certain of
its duties under the Advisory Agreement to other investment advisers, subject to
the requirements of the Investment Company Act; and
WHEREAS, the Adviser desires to retain the Subadviser as subadviser for
Series D (the "Fund") of SBL Fund to act as investment adviser for and to manage
the Fund's Investments (as defined below) and the Subadviser desires to render
such services.
NOW, THEREFORE, the Adviser and Subadviser do mutually agree and promise as
follows:
1. APPOINTMENT AS SUBADVISER. The Adviser hereby retains the Subadviser to
act as investment adviser for and to manage certain assets of the Fund subject
to the supervision of the Adviser and the Board of Directors of SBL Fund and
subject to the terms of this Agreement; and the Subadviser hereby accepts such
employment. In such capacity, the Subadviser shall be responsible for the Fund's
Investments. The Subadviser shall not be responsible for any services to the
Fund or to bear any expenses other than those delineated in this Agreement.
2. DUTIES OF SUBADVISER.
(a) INVESTMENTS. The Subadviser is hereby authorized and directed and
hereby agrees, subject to the stated investment policies and
restrictions of the Fund as set forth in its prospectus and statement of
additional information as currently in effect and as supplemented or
amended from time to time (collectively referred to hereinafter as the
"Prospectus") and subject to the directions of the Adviser and SBL
Fund's Board to purchase, hold and sell investments for the account of
the Fund (hereinafter "Investments") and to monitor on a continuous
basis the performance of such Investments. The Subadviser shall give the
Fund the benefit of its best efforts in rendering its services as
Subadviser. The Subadviser may contract with or consult with such banks,
other securities firms, brokers or other parties, without additional
expense to the Fund, as it may deem appropriate regarding investment
advice, research and statistical data, clerical assistance or otherwise.
(b) BROKERAGE. The Subadviser is authorized, subject to the
supervision of the Adviser and SBL Fund's Board to establish and
maintain accounts on behalf of the Fund with, and place orders for the
purchase and sale of the Fund's Investments with or through, such
persons, brokers or dealers as Subadviser may select which may include,
to the extent permitted by the Adviser and SBL Fund, brokers or dealers
affiliated with the Subadviser, and negotiate commissions to be paid on
such transactions. The Subadviser agrees that in placing such orders it
shall attempt to obtain best execution, provided that, the Subadviser
may, on behalf of the Fund, pay brokerage commissions to a broker which
provides brokerage and research services to the Subadviser in excess of
the amount another broker would have charged for effecting the
transaction, provided (i) the Subadviser determines in good faith that
the amount is reasonable in relation to the value of the brokerage and
research services provided by the executing broker in terms of the
particular transaction or in terms of the Subadviser's overall
responsibilities with respect to the Fund and the accounts as to which
the Subadviser exercises investment discretion, (ii) such payment is
made in compliance with Section 28(e) of the Securities Exchange Act of
1934, as amended, and any other applicable laws and regulations, and
(iii) in the opinion of the Subadviser, the total commissions paid by
the Fund will be reasonable in relation to the benefits to the Fund over
the long term. In reaching such determination, the Subadviser will not
be required to place or attempt to place a specific dollar value on the
brokerage and/or research services provided or being provided by such
broker. It is recognized that the services provided by such brokers may
be useful to the Subadviser in connection with the Subadviser's services
to other clients. On occasions when the Subadviser deems the purchase or
sale of a security to be in the best interests of the Fund as well as
other clients of the Subadviser, the Subadviser, to the extent permitted
by applicable laws and regulations, may, but shall be under no
obligation to, aggregate the securities to be sold or purchased in order
to obtain the most favorable price or lower brokerage commissions and
efficient execution. In such event, allocation of securities so sold or
purchased, as well as the expenses incurred in the transaction, will be
made by the Subadviser in the manner the Subadviser considers to be the
most equitable and consistent with its fiduciary obligations to the Fund
and to such other clients. The Subadviser will report on such
allocations at the request of the Adviser, SBL Fund or SBL Fund's Board
providing such information as the number of aggregated trades to which
the Fund was a party, the broker(s) to whom such trades were directed
and the basis of the allocation for the aggregated trades. Subject to
the foregoing provisions of this subsection 2(b), the Subadviser may
also consider sales of fund shares and shares of other investment
companies managed by the Subadviser or its affiliates as a factor in the
selection of brokers or dealers for the Fund's portfolio transactions.
(c) SECURITIES TRANSACTIONS. The Subadviser and any affiliated person
of the Subadviser will not purchase securities or other instruments from
or sell securities or other instruments to the Fund ("Principal
Transactions"); PROVIDED, HOWEVER, the Subadviser may enter into a
Principal Transaction with the Fund if (i) the transaction is
permissible under applicable laws and regulations, including, without
limitation, the Investment Company Act and the Investment Advisers Act
and the rules and regulations promulgated thereunder, and (ii) the
transaction or category of transactions receives the express written
approval of the Adviser.
The Subadviser agrees to observe and comply with Rule 17j-1 under
the Investment Company Act and its Code of Ethics, as the same may be
amended from time to time. The Subadviser agrees to provide the Adviser
and SBL Fund with a copy of such Code of Ethics.
(d) BOOKS AND RECORDS. The Subadviser will maintain all books and
records required to be maintained pursuant to the Investment Company Act
and the rules and regulations promulgated thereunder solely with respect
to transactions made by it on behalf of the Fund including, without
limitation, the books and records required by Subsections (b)(1), (5),
(6), (7), (9), (10) and (11) and Subsection (f) of Rule 31a-1 under the
Investment Company Act and shall timely furnish to the Adviser all
information relating to the Subadviser's services hereunder needed by
the Adviser to keep such other books and records of the Fund required by
Rule 31a-1 under the Investment Company Act. The Subadviser will also
preserve all such books and records for the periods prescribed in part
(e) of Rule 31a-2 under the Investment Company Act, and agrees that such
books and records shall remain the sole property of the Fund and shall
be immediately surrendered to the Fund upon request. The Subadviser
further agrees that all books and records maintained hereunder shall be
made available to the Fund or the Adviser at any time upon reasonable
request and notice, including telecopy, during any business day.
(e) INFORMATION CONCERNING INVESTMENTS AND SUBADVISER. From time to
time as the Adviser or the Fund may request, the Subadviser will furnish
the requesting party reports on portfolio transactions and reports on
Investments held in the portfolio, all in such detail as the Adviser or
SBL Fund may reasonably request. The Subadviser will make available its
officers and employees to meet with SBL Fund's Board of Directors at SBL
Fund's principal place of business on due notice (but no more than once
in any 12-month period) to review the Investments of the Fund.
The Subadviser will also provide such information as is
customarily provided by a subadviser and may be required for the Fund or
the Adviser to comply with their respective obligations under applicable
laws, including, without limitation, the Internal Revenue Code of 1986,
as amended (the "Code"), the Investment Company Act, the Investment
Advisers Act, the Securities Act of 1933, as amended (the "Securities
Act") and any state securities laws, and any rule or regulation
thereunder.
(f) CUSTODY ARRANGEMENTS. The Subadviser shall provide the Fund's
custodian, on each business day with information relating to all
transactions concerning the Fund's assets.
(g) COMPLIANCE WITH APPLICABLE LAWS AND GOVERNING DOCUMENTS. In all
matters relating to the performance of this Agreement, the Subadviser
and its directors, officers, partners, employees and interested persons
shall act in conformity with SBL Fund's Articles of Incorporation,
By-Laws, and currently effective registration statement and with the
written instructions and directions of SBL Fund's Board and the Adviser,
and shall comply with the requirements of the Investment Company Act,
the Investment Advisers Act, the Commodity Exchange Act, the rules
thereunder, and all other applicable federal and state laws and
regulations.
In carrying out its obligations under this Agreement, the
Subadviser shall ensure that the Fund complies with all applicable
statutes and regulations necessary to qualify the Fund as a Regulated
Investment Company under Subchapter M of the Code (or any successor
provision), and shall notify the Adviser immediately upon having a
reasonable basis for believing that the Fund has ceased to so qualify or
that it might not so qualify in the future.
In carrying out its obligations under this Agreement, the
Subadviser shall invest the assets of Series D in such a manner as to
ensure that the Fund complies with the diversification provisions of
Section 817(h) of the Code (or any successor provision) and the
regulations issued thereunder relating to the diversification
requirements for variable insurance contracts and any prospective
amendments or other modifications to Section 817 or regulations
thereunder. Subadviser shall notify the Adviser immediately upon having
a reasonable basis for believing that the Fund has ceased to comply and
will take all reasonable steps to adequately diversify the Fund so as to
achieve compliance within the grace period afforded by Regulation
1.817-5.
The Adviser has furnished the Subadviser with copies of each of
the following documents and will furnish the Subadviser at its principal
office all future amendments and supplements to such documents, if any,
as soon as practicable after such documents become available: (i) the
Articles of Incorporation of SBL Fund, (ii) the By-Laws of SBL Fund,
(iii) SBL Fund's registration statement under the Investment Company Act
and the Securities Act of 1933, as amended, as filed with the
Commission, and (iv) any written instructions of the SBL Fund Board and
the Adviser.
(h) VOTING OF PROXIES. The Subadviser shall direct the custodian as to
how to vote such proxies as may be necessary or advisable in connection
with any matters submitted to a vote of shareholders of securities held
by the Fund.
3. INDEPENDENT CONTRACTOR. In the performance of its duties hereunder, the
Subadviser is and shall be an independent contractor and unless otherwise
expressly provided herein or otherwise authorized in writing, shall have no
authority to act for or represent SBL Fund or the Adviser in any way or
otherwise be deemed an agent of SBL Fund or the Adviser.
4. COMPENSATION. The Adviser shall pay to the Subadviser, for the services
rendered hereunder, an annual fee equal to a percentage of the average daily
closing value of the combined net assets of the Fund and Global Series of
Security Equity Fund, computed on a daily basis and payable monthly, as follows:
0.35 percent of such assets up to $300 million, plus 0.30 percent of such assets
over $300 million up to $750 million and 0.25 percent of such assets over $750
million. If this Agreement shall be effective for only a portion of a year, then
the Subadviser's compensation for said year shall be prorated for such portion.
For purposes of this paragraph 4, the value of the net assets of the Fund shall
be computed in the same manner at the end of the business day as the value of
such net assets is computed in connection with the determination of the net
asset value of the Fund's shares as described in the Fund's Prospectus. Payment
of the Subadviser's compensation for the preceding month shall be made as
promptly as possible after the end of each month.
5. EXPENSES. The Subadviser shall bear all expenses incurred by it in
connection with its services under this Agreement and will, from time to time,
at its sole expense employ or associate itself with such persons as it believes
to be particularly fitted to assist it in the execution of its duties hereunder.
However, the Subadviser shall not assign or delegate any of its investment
management duties under this Agreement without the approval of the Adviser and
SBL Fund's Board.
6. REPRESENTATIONS AND WARRANTIES OF SUBADVISER. The Subadviser represents
and warrants to the Adviser and the Fund as follows:
(a) The Subadviser is registered as an investment adviser under the
Investment Advisers Act;
(b) The Subadviser will immediately notify the Adviser of the
occurrence of any event that would disqualify the Subadviser from
serving as an investment adviser of an investment company pursuant to
Section 9(a) of the Investment Company Act;
(c) The Subadviser has registered as a commodities trading advisor
under the CEA with the Commodity Futures Trading Commission (the
"CFTC");
(d) The Subadviser is a corporation duly organized and validly
existing under the laws of the State of Colorado with the power to own
and possess its assets and carry on its business as it is now being
conducted;
(e) The execution, delivery and performance by the Subadviser of this
Agreement are within the Subadviser's powers and have been duly
authorized by all necessary action on the part of its shareholders, and
no action by or in respect of, or filing with, any governmental body,
agency or official is required on the part of the Subadviser for the
execution, delivery and performance by the Subadviser of this Agreement,
and the execution, delivery and performance by the Subadviser of this
Agreement do not contravene or constitute a default under (i) any
provision of applicable law, rule or regulation, (ii) the Subadviser's
governing instruments, or (iii) any agreement, judgment, injunction,
order, decree or other instrument binding upon the Subadviser;
(f) This Agreement is a valid and binding agreement of the Subadviser;
(g) The Form ADV of the Subadviser previously provided to the Adviser
is a true and complete copy of the form filed with the Commission and
the information contained therein is accurate and complete in all
material respects as of its filing date, and does not omit to state any
material fact necessary in order to make the statements made, in light
of the circumstances under which they were made, not misleading;
7. NON-EXCLUSIVITY. The services of the Subadviser with respect to the Fund
are not deemed to be exclusive, and the Subadviser and its officers shall be
free to render investment advisory and administrative or other services to
others (including other investment companies) and to engage in other activities.
8. REPRESENTATIONS AND WARRANTIES OF ADVISER. The Adviser represents and
warrants to the Subadviser as follows:
(a) The Adviser is registered as an investment adviser under the
Investment Advisers Act;
(b) The Adviser has filed a notice of exemption pursuant to Rule 4.14
under the CEA with the Commodity Futures Trading Commission (the "CFTC")
and the National Futures Association;
(c) The Adviser is a limited liability company duly organized and
validly existing under the laws of the State of Kansas with the power to
own and possess its assets and carry on its business as it is now being
conducted;
(d) The execution, delivery and performance by the Adviser of this
Agreement and the Advisory Agreement are within the Adviser's powers and
have been duly authorized by all necessary action on the part of its
members, and no action by or in respect of, or filing with, any
governmental body, agency or official is required on the part of the
Adviser for the execution, delivery and performance by the Adviser of
this Agreement, and the execution, delivery and performance by the
Adviser of this Agreement do not contravene or constitute a default
under (i) any provision of applicable law, rule or regulation, (ii) the
Adviser's governing instruments, or (iii) any agreement, judgment,
injunction, order, decree or other instrument binding upon the Adviser;
(e) This Agreement and the Advisory Agreement are valid and binding
agreements of the Adviser;
(f) The Form ADV of the Adviser previously provided to the Subadviser
is a true and complete copy of the form filed with the Commission and
the information contained therein is accurate and complete in all
material respects as of its filing date and does not omit to state any
material fact necessary in order to make the statements made, in light
of the circumstances under which they were made, not misleading;
(g) The Adviser acknowledges that it received a copy of the
Subadviser's Form ADV at least 48 hours prior to the execution of this
Agreement.
9. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; DUTY TO UPDATE INFORMATION.
All representations and warranties made by the Subadviser and the Adviser
pursuant to Sections 6 and 8 hereof shall survive for the duration of this
Agreement and the parties hereto shall promptly notify each other in writing
upon becoming aware that any of the foregoing representations and warranties are
no longer true.
10. LIABILITY AND INDEMNIFICATION.
(a) LIABILITY. In the absence of willful misfeasance, bad faith or
gross negligence on the part of the Subadviser or a breach of its duties
hereunder, the Subadviser shall not be subject to any liability to the
Adviser, SBL Fund, or the Fund or any of the Fund's shareholders, and,
in the absence of willful misfeasance, bad faith or gross negligence on
the part of the Adviser or a breach of its duties hereunder, the Adviser
shall not be subject to any liability to the Subadviser, for any act or
omission in the case of, or connected with, rendering services hereunder
or for any losses that may be sustained in the purchase, holding or sale
of Investments; PROVIDED, HOWEVER, that nothing herein shall relieve the
Adviser and the Subadviser from any of their respective obligations
under applicable law, including, without limitation, the federal and
state securities laws and the CEA. The Subadviser shall not be liable to
the Adviser, SBL Fund or the Fund for any losses that may be sustained
as a result of delays in or inaccuracy of information about the Fund
provided to the Subadviser by or on behalf of the Adviser or the Fund's
Custodian.
(b) INDEMNIFICATION. The Subadviser shall indemnify the Adviser, SBL
Fund and the Fund, and their respective officers and directors, for any
liability and expenses, including attorneys' fees, which may be
sustained by the Adviser, SBL Fund or the Fund, as a result of the
Subadviser's willful misfeasance, bad faith, gross negligence, breach of
its duties hereunder or violation of applicable law, including, without
limitation, the federal and state securities laws or the CEA. The
Adviser shall indemnify the Subadviser and its officers and directors,
for any liability and expenses, including attorneys' fees, which may be
sustained as a result of the Adviser's, SBL Fund's or the Fund's willful
misfeasance, bad faith, gross negligence, breach of its duties hereunder
or violation of applicable law, including, without limitation, the
federal and state securities laws or the CEA.
11. DURATION AND TERMINATION.
(a) DURATION. This Agreement shall become effective upon the date
first above written, provided that this Agreement shall not take effect
with respect to SBL Fund unless it has first been approved (i) by a vote
of a majority of those directors of SBL Fund who are not parties to this
Agreement or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such approval, and (ii) by
vote of a majority of SBL Fund's outstanding voting securities. This
Agreement shall continue in effect for a period of two years from the
date hereof, subject thereafter to being continued in force and effect
from year to year with respect to the Fund if specifically approved each
year by either (i) the Board of Directors of SBL Fund, or (ii) by the
affirmative vote of a majority of the Fund's outstanding voting
securities. In addition to the foregoing, each renewal of this Agreement
with respect to the Fund must be approved by the vote of a majority of
SBL Fund's directors who are not parties to this Agreement or interested
persons of any such party, cast in person at a meeting called for the
purpose of voting on such approval. Prior to voting on the renewal of
this Agreement, the Board of Directors of the Fund may request and
evaluate, and the Subadviser shall furnish, such information as may
reasonably be necessary to enable the Fund's Board of Directors to
evaluate the terms of this Agreement.
(b) TERMINATION. Notwithstanding whatever may be provided herein to
the contrary, this Agreement may be terminated at any time, without
payment of any penalty:
(i) By vote of a majority of the Board of Directors of SBL
Fund, or by vote of a majority of the outstanding voting
securities of the Fund, or by the Adviser, in each case,
upon sixty (60) days' written notice to the Subadviser;
(ii) By the Adviser upon breach by the Subadviser of any
representation or warranty contained in Section 6 hereof,
which shall not have been cured during the notice period,
upon twenty (20) days written notice;
(iii) By the Adviser immediately upon written notice to the
Subadviser if the Subadviser becomes unable to discharge
its duties and obligations under this Agreement; or
(iv) By the Subadviser upon 180 days written notice to the
Adviser and the Fund.
This Agreement shall not be assigned (as such term is defined in
the Investment Company Act) without the prior written consent of the
parties hereto. This Agreement shall terminate automatically in the
event of its assignment without such consent or upon the termination of
the Advisory Agreement.
12. DUTIES OF THE ADVISER. The Adviser shall continue to have
responsibility for all services to be provided to the Fund pursuant to the
Advisory Agreement and shall oversee and review the Subadviser's performance of
its duties under this Agreement. The Adviser shall remain responsible for, among
other things, providing the following services with respect to the Fund:
(a) The Adviser shall provide the Subadviser, or shall cause the
Fund's Custodian to provide to the Subadviser, on each business day as
of a time deadline to be mutually agreed upon, a report or a computer
download in a mutually acceptable software program and format, detailing
the Fund's portfolio holdings, uninvested cash, current valuations and
other information requested by the Subadviser to assist it in carrying
out its duties under this Agreement, as of the close of the prior
business day. In performing its obligations under this Agreement, the
Subadviser may rely upon the information provided to it by or on behalf
of the Adviser or the Fund's Custodian.
(b) Composition of periodic reports with respect to the Fund's
operations for shareholders of the Fund, composition of proxy materials
for meetings of the Fund's shareholders and the composition of such
registration statements as may be required by Federal and state
securities laws for the continuous public offering and sale of shares of
the Fund, as well as the determination of the net asset value of shares
of the Fund.
13. AMENDMENT. This Agreement may be amended by mutual consent of the
parties, provided that the terms of each such amendment with respect to the Fund
shall be approved by the Board of Directors of the Fund or by a vote of a
majority of the outstanding voting securities of the Fund.
14. NOTICE. Any notice that is required to be given by the parties to each
other (or to the Fund) under the terms of this Agreement shall be in writing,
delivered, or mailed postpaid to the other party, or transmitted by facsimile
with acknowledgment of receipt, to the parties at the following addresses or
facsimile numbers, which may from time to time be changed by the parties by
notice to the other party:
(a) If to the Subadviser:
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Attention: Andrew J. Donohue
Facsimile: (212) 321-1159
(b) Copy to:
OppenheimerFunds, Inc.
6801 Tucson Way
Englewood, CO 80112
Attention: Treasurer
Facsimile: (303) 768-2849
(c) If to the Adviser:
Security Management Company, LLC
700 SW Harrison
Topeka, Kansas 66636-0001
Attention: James R. Schmank, President
Facsimile: (785) 431-3080
(d) If to SBL Fund:
SBL Fund
700 SW Harrison
Topeka, Kansas 66636-0001
Attention: Amy J. Lee, Secretary
Facsimile: (785) 431-3080
15. GOVERNING LAW; JURISDICTION. Except as indicated in Section 19(b) of
this Agreement, this Agreement shall be governed by and construed in accordance
with the internal laws of the State of Kansas.
16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall together constitute one and the same
instrument.
17. CAPTIONS. The captions herein are included for convenience of reference
only and shall be ignored in the construction or interpretation hereof.
18. SEVERABILITY. If any provision of this Agreement shall be held or made
invalid by a court decision or applicable law, the remainder of the Agreement
shall not be affected adversely and shall remain in full force and effect.
19. CERTAIN DEFINITIONS.
(a) "BUSINESS DAY." As used herein, business day means any customary
business day in the United States on which the New York Stock Exchange
is open.
(b) MISCELLANEOUS. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise derived
from a term or provision of the Investment Company Act shall be resolved
by reference to such term or provision of the Investment Company Act and
to interpretations thereof, if any, by the U.S. courts or, in the
absence of any controlling decisions of any such court, by rules,
regulation or order of the Commission validly issued pursuant to the
Investment Company Act. Specifically, as used herein, "investment
company," "affiliated person," "interested person," "assignment,"
"broker," "dealer" and "affirmative vote of the majority of the Fund's
outstanding voting securities" shall all have such meaning as such terms
have in the Investment Company Act. The term "investment adviser" shall
have such meaning as such term has in the Investment Advisers Act and
the Investment Company Act, and in the event of a conflict between such
Acts, the most expansive definition shall control. In addition, where
the effect of a requirement of the Investment Company Act reflected in
any provision of this Agreement is relaxed by a rule, regulation or
order of the Commission, whether of special or general application, such
provision shall be deemed to incorporate the effect of such rule,
regulation or order.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first written above.
SECURITY MANAGEMENT COMPANY, LLC
By: JAMES R. SCHMANK
-----------------------------------
Name: James R. Schmank
Title: President
Attest: AMY J. LEE
-----------------------------------
Name: Amy J. Lee
Title: Secretary
OPPENHEIMERFUNDS, INC.
By: ROBERT G. ZACK
-----------------------------------
Name: Robert G. Zack
Title: Senior Vice President
Attest: MITCHELL J. LINDAUER
-----------------------------------
Name: Mitchell J. Lindauer
Title: Vice President
<PAGE>
Pursuant to the agreement (the "Agreement") dated October 23, 1998 by and
between Security Management Company LLC (the "Advisor") and OppenheimerFunds,
Inc. (the "Subadvisor"), the Advisor notifies the Subadvisor as follows:
1. The Subadvisor's appointment as subadvisor for SBL Fund, Series D (the
"Fund") pursuant to the Agreement takes effect as of the close of business on
October 30, 1998.
2. The Advisor shall provide to the Subadvisor, from October 30, 1998 to June
30, 1999, with reports of daily trades in the form attached hereto as Exhibit A,
and the other reports on Exhibit B, for the Fund's portfolio. Such reports shall
be provided following the close of each business day, and other reports shall be
provided on a periodic basis as reasonably requested by the Subadvisor.
SECURITY MANAGEMENT COMPANY, LLC
By: BRENDA M. HARWOOD
-----------------------------------
Name: Brenda M. Harwood
Title: Treasurer
Accepted on behalf of
OPPENHEIMERFUNDS, INC.
By: MITCHELL J. LINDAUER
-----------------------------------
Name: Mitchell J. Lindauer
Title: Vice President
<PAGE>
EXHIBIT A
DAILY TRADES SECURITY EQUITY GLOBAL
10/27/98 thru 10/28/98
<TABLE>
<CAPTION>
OUTSTANDING
ISSUER SECURITY NUMBER SECURITY DESCRIPTION COUNTRY OF RISK INCOME/EXPENSE SHARES/PAR ASSET GROUP CATEGORY LEVEL 1
------ --------------- -------------------- --------------- -------------- -------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BUY
308251 308251306 CONOCO, INC. UNITED STATES OIL - DOMESTIC 191,456,000.00 COMMON STOCK COMMON STOCKS
</TABLE>
<PAGE>
EXHIBIT B
REPORT FREQUENCY
Trades Report every business day
Invest One Parm 4% Report Monday of every week
Invest One Spectra 25% Report Monday of every week
Invest One Spectra 65% Report 1st business day of every month
Invest One Spectra Portfolio Holdings Report 1st business day of every month
<PAGE>
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made this 1st day of May 1995, by and between SECURITY
MANAGEMENT COMPANY, a Kansas Corporation (The "Adviser"), and LEXINGTON
MANAGEMENT CORPORATION, a Delaware corporation (the "Sub-Adviser"),
WITNESSETH:
WHEREAS, the Adviser is a registered investment adviser under the Investment
Advisers Act of 1940, as amended, and engages in the business of acting as an
investment adviser;
WHEREAS, the Adviser is the investment adviser for the SBL Fund (the "Fund"),
and provides investment advisory services to the Fund on the terms and
conditions set forth in an investment advisory contract;
WHEREAS, the Fund is registered as a diversified, open-end investment company
under the Investment Company Act of 1940, as amended, (the "1940 Act"), and the
rules and regulations promulgated thereunder;
WHEREAS, the Fund is authorized to issue shares in separate series, with each
such series representing interests in a separate portfolio of securities and
other assets; and
WHEREAS, the Adviser desires to retain the Sub-Adviser as the Adviser's agent to
furnish certain advisory services to Series K of the Fund (the "Series"), on the
terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein contained and
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. APPOINTMENT. The Adviser hereby appoints Sub-Adviser to provide certain
sub-investment advisory services to the Series for the period and on the
terms set forth in this Agreement. Sub-Adviser accepts such appointment and
agrees to furnish the services herein set forth for the compensation herein
provided.
2. INVESTMENT ADVICE. The Sub-Adviser shall furnish the Series with investment
research and advice consistent with the investment policies set forth in the
Prospectus and Statement of Additional Information of the Fund, subject at
all times to the policies and control of the Fund's Board of Directors and
the supervision of the Adviser. In addition, the Sub-Adviser may avail itself
of any investment research or advice provided by the Adviser. The Sub-Adviser
shall give the Series the benefit of its best judgment, efforts and
facilities in rendering its services as Sub-Adviser.
3. INVESTMENT ANALYSIS AND IMPLEMENTATION. In carrying out its obligation under
paragraph 2 hereof, the Sub-Adviser shall:
(a) determine which issuers and securities shall be represented in the
Series' portfolio and regularly report thereon to the Fund's Board of
Directors and the Adviser;
(b) formulate and implement continuing programs for the purchase and sale of
the securities of such issuers and regularly report thereon to the
Fund's Board of Directors and the Adviser;
(c) continuously review the Series' security holdings and the investment
program and the investment policies of the Series; and
(d) take, on behalf of the Series, all actions which appear necessary to
carry into effect such purchase and sale programs, including the
placement of orders for the purchase and sale of securities for the
Series.
4. BROKER-DEALER RELATIONSHIPS. The Sub-Adviser is responsible for decisions to
buy and sell securities for the Series, broker/dealer selection, and
negotiation of brokerage commission rates. The Sub-Adviser's primary
consideration in effecting a security transaction will be execution at the
most favorable price. In selecting a broker/dealer to execute each particular
transaction, the Sub-Adviser will take the following into consideration: the
best net price available; the reliability, integrity and financial condition
of the broker/dealer; the size of and difficulty in executing the order; and
the value of the expected contribution of the broker/dealer to the investment
performance of the Series on a continuing basis. Accordingly, the price to
the Series in any transaction may be less favorable than that available from
another broker/dealer if the difference is reasonably justified by other
aspects of the portfolio execution services offered. Subject to such policies
as the Board of Directors may determine, the Sub-Adviser shall not be deemed
to have acted unlawfully or to have breached any duty created by this
Agreement or otherwise solely by reason of its having caused the Series to
pay a broker for effecting a portfolio investment transaction in excess of
the amount of commission another broker or dealer would have charged for
effecting that transaction if the Sub-Adviser determines in good faith that
such amount of commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer, viewed in
terms of either that particular transaction or the Sub-Adviser's overall
responsibilities with respect to the Series and to its other clients as to
which it exercises investment discretion. The Sub-Adviser is further
authorized to place and/or to effect orders with such brokers and dealers who
may provide research or statistical material or other services to the Series
or to the Sub-Adviser. Such allocation shall be in such amounts and
proportions as the Sub-Adviser shall determine and the Sub-Adviser will
report on said allocations regularly to the Board of Directors of the Fund
and the Adviser indicating the brokers to whom such allocations have been
made and the basis therefor.
5. CONTROL BY BOARD OF DIRECTORS. Any investment program undertaken by the
Sub-Adviser pursuant to this Agreement, as well as any other activities
undertaken by the Sub-Adviser on behalf of the Series pursuant thereto, shall
at all times be subject to any directives of the Board of Directors of the
Fund.
6. COMPLIANCE WITH APPLICABLE REQUIREMENTS. In carrying out its obligations
under this Agreement, the Sub-Adviser shall ensure that the Series complies
with:
(a) all applicable provisions of the 1940 Act;
(b) the provisions of the Registration Statement of the Fund, as amended,
under the Securities Act of 1933 and the 1940 Act;
(c) all applicable statutes and regulations necessary to qualify the Series
as a Regulated Investment Company under Subchapter M of the Internal
Revenue Code (or any successor or similar provision), and shall notify
the Adviser immediately upon having a reasonable basis for believing
that the Series has ceased to so qualify or that it might not so qualify
in the future;
(d) the diversification provisions of Section 817(h) of the Internal Revenue
Code and the regulations issued thereunder relating to the
diversification requirements for variable insurance contracts and any
prospective amendments or other modifications to Section 817 or
regulations thereunder, and shall notify the Adviser immediately upon
having a reasonable basis for believing that the Series has ceased to
comply.
(e) the provisions of the Fund's Articles of Incorporation, as amended;
(f) the provisions of the Bylaws of the Fund, as amended; and
(g) any other applicable provisions of state and federal law.
7. RECORDS. The Sub-Adviser hereby agrees to maintain all records relating to
its activities and obligations under this Agreement which are required to be
maintained by Rule 31a-1 under the 1940 Act and agrees to preserve such
records for the periods prescribed by Rule 31a-2 under the Act. The
Sub-Adviser further agrees that all such records are the property of the Fund
and agrees to surrender promptly to the Fund any such records upon the Fund's
request.
8. EXPENSES. The expenses connected with the Fund shall be borne by the
Sub-Adviser as follows:
(a) The Sub-Adviser shall maintain, at its expense and without cost to the
Adviser or the Series, a trading function in order to carry out its
obligations under subparagraph (d) of paragraph 3 hereof to place orders
for the purchase and sale of portfolio securities for the Series.
(b) The Sub-Adviser shall pay any expenses associated with carrying out its
obligation under subparagraph (b) of paragraph 2 hereof to prepare
reports for the Fund's Board of Directors concerning issuers and
securities represented in the Series' portfolio and the expenses of any
travel by employees of the Sub-Adviser in connection with such reports
to the Fund's Board of Directors.
(c) The Sub-Adviser shall pay any expenses that it may incur in
communicating with the Adviser in connection with its obligations under
this Agreement, including the expenses of telephone calls, special mail
services and telecopier charges.
9. DELEGATION OF RESPONSIBILITIES. Upon request of the Adviser and with the
approval of the Fund's Board of Directors, the Sub-Adviser may perform
services on behalf of the Fund which are not required by this Agreement. Such
services will be performed on behalf of the Fund, and the Sub-Adviser's cost
in rendering such services may be billed monthly to the Adviser, subject to
examination by the Adviser's independent accountants. Payment or assumption
by the Sub-Adviser of any Fund expense that the Sub-Adviser is not required
to pay or assume under this Agreement shall not relieve the Adviser or the
Sub-Adviser of any of their obligations to the Fund or obligate the
Sub-Adviser to pay or assume any similar Fund expense on any subsequent
occasions.
10.DELEGATION OF DUTIES. The Sub-Adviser may, at its discretion, delegate,
assign or subcontract any of the duties, responsibilities and services
governed by this agreement to a third party, whether or not by formal written
agreement, provided that such arrangement with a third party has been
approved by the Board of Directors of the Fund. The Sub-Adviser shall,
however, retain ultimate responsibility to the Fund and shall implement such
reasonable procedures as may be necessary for assuring that any duties,
responsibilities or services so assigned, subcontracted or delegated are
performed in conformity with the terms and conditions of this agreement.
11.COMPENSATION. For the services to be rendered and the facilities furnished
hereunder, the Adviser shall pay the Sub-Adviser an annual fee equal to .35
percent of the average daily closing value of the net assets of the Series,
computed on a daily basis. Such fee shall be computed and payable monthly. If
this Agreement shall be effective for only a portion of a year, then the
Sub-Adviser's compensation for said year shall be prorated for such portion.
For purposes of this paragraph 11, the value of the net assets of the Series
shall be computed in the same manner at the end of the business day as the
value of such net assets is computed in connection with the determination of
the net asset value of the Series' shares as described in the Fund's
prospectus and statement of additional information. Payment of the
Sub-Adviser's compensation for the preceding month shall be made as promptly
as possible after the end of each month.
12.NON-EXCLUSIVITY. The services of the Sub-Adviser to the Adviser are not to
be deemed to be exclusive, and the Sub-Adviser shall be free to render
investment advisory or other services to others (including other investment
companies) and to engage in other activities, so long as its services under
this Agreement are not impaired thereby.
13.TERM. This Agreement shall become effective at the close of business on the
date first shown above. It shall remain in force and effect, subject to
paragraph 14 hereof for one year from the date hereof.
14.RENEWAL. Following the expiration of its initial year term, this Agreement
shall continue in force and effect from year to year, provided that such
continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or (ii) by the vote of a majority
of the Series' outstanding voting securities (as defined in Section
2(a)(42) of the 1940 Act), and
(b) by the affirmative vote of a majority of the directors who are not
parties to this Agreement or interested persons of a party to this
Agreement (other than as a director of the Fund), by votes cast in
person at a meeting specifically called for such purpose.
15.TERMINATION. This Agreement may be terminated at any time, without the
payment of any penalty, by vote of the Fund's Board of Directors or by vote
of a majority of the Series' outstanding voting securities (as defined in
Section 2(a)(42) of the 1940 Act), or by the Adviser or by the Sub-Adviser on
sixty (60) days' written notice to the other party. This Agreement shall
automatically terminate in the event of its "assignment" as that term is
defined in Section 2(a)(4) of the 1940 Act. This Agreement shall
automatically terminate in the event that the investment advisory contract
between the Adviser and the Fund is terminated, assigned or not renewed.
16.LIABILITY OF THE SUB-ADVISER. In the absence of willful misfeasance, bad
faith or gross negligence on the part of the Sub-Adviser or its officers,
directors or employees, or reckless disregard by the Sub-Adviser of its
duties under this Agreement, the Sub-Adviser shall not be liable to the
Adviser, the Fund or to any shareholder of the Fund for any act or omission
in the course of, or connected with, rendering services hereunder or for any
losses that may be sustained in the purchase, holding or sale of any
security, provided the Sub-Adviser has acted in good faith.
17.INDEMNIFICATION. The Adviser and the Sub-Adviser each agree to indemnify the
other against any claim against, loss, or liability to, such other party
(including reasonable attorney's fees) arising out of any action on the part
of the indemnifying party which constitutes willful misfeasance, bad faith or
gross negligence.
18.NOTICES. Any notices under this Agreement shall be in writing, addressed and
delivered or mailed postage-paid to the other party at such address as such
other party may designate for the receipt of such notice. Until further
notice to the other party, it is agreed that the address of the Sub-Adviser
for this purpose shall be Park 80 West, Plaza Two, Saddle Brook, New Jersey
07662, and the address of the Adviser for this purpose shall be 700 Harrison
Street, Topeka, Kansas 66636-0001.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in duplicate by their respective officers on the day and year first above
written.
ATTEST: SECURITY MANAGEMENT COMPANY
AMY J. LEE By: JAMES R. SCHMANK
- ----------------------------------------- --------------------------------
Title: Secretary Senior Vice President
Security Management Company
ATTEST: LEXINGTON MANAGEMENT CORPORATION
LISA CURCIO By: LAWRENCE KANTER
- ----------------------------------------- --------------------------------
Title: Senior Vice President & Secretary Executive Vice President
<PAGE>
INVESTMENT SUB-ADVISORY AGREEMENT
BETWEEN
SECURITY MANAGEMENT COMPANY
AND
T. ROWE PRICE ASSOCIATES, INC.
INVESTMENT SUB-ADVISORY AGREEMENT, made as of the 1st day of May, 1995,
between Security Management Company ("ADVISER"), a corporation organized and
existing under the laws of the State of Kansas, and T. Rowe Price Associates,
Inc. ("SUB-ADVISER"), a corporation organized and existing under the laws of the
State of Maryland.
WHEREAS, the Adviser has entered into an Investment Advisory Agreement
dated as of the lst day of May, 1995 ("Advisory Agreement") with SBL Fund
("COMPANY"), which is engaged in business as an open-end investment company
registered under the Investment Company Act of 1940, as amended ("1940 Act");
and
WHEREAS, the Company is authorized to issue shares of Series N ("FUND"), a
separate series of the Company;
WHEREAS, the Sub-Adviser is engaged principally in the business of
rendering investment supervisory services and is registered as an investment
adviser under the Investment Advisers Act of 1940, as amended ("ADVISERS ACT");
and
WHEREAS, the Adviser desires to retain the Sub-Adviser as sub-adviser to
furnish certain investment advisory services to the Adviser and the Fund and the
Sub-Adviser is willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual promises herein
set forth, the parties hereto agree as follows:
1. APPOINTMENT. Adviser hereby appoints the Sub-Adviser as its investment
sub-adviser with respect to the Fund for the period and on the terms set
forth in this Agreement. The Sub-Adviser accepts such appointment and
agrees to render the services herein set forth, for the compensation herein
provided.
2. DUTIES OF THE SUB-ADVISER.
A. INVESTMENT SUB-ADVISORY SERVICES. Subject to the supervision of the
Company's Board of Directors ("Board") and the Adviser, the Sub-Adviser
shall act as the investment sub-adviser and shall supervise and direct
the investments of the Fund in accordance with the Fund's investment
objectives, policies, and restrictions as provided in the Fund's
Prospectus and Statement of Additional Information, as currently in
effect and as amended or supplemented from time to time (hereinafter
referred to as the "Prospectus"), and such other limitations as the
Fund may impose by notice in writing to the Sub-Adviser. The
Sub-Adviser shall obtain and evaluate such information relating to the
economy, industries, businesses, securities markets, and securities as
it may deem necessary or useful in the discharge of its obligations
hereunder and shall formulate and implement a continuing program for
the management of the assets and resources of the Fund in a manner
consistent with the Fund's investment objective(s), policies, and
restrictions. In furtherance of this duty, the Sub-Adviser, on behalf
of the Fund, is authorized, in its discretion and without prior
consultation with the Fund or the Adviser, to:
(1) buy, sell, exchange, convert, lend, and otherwise trade in any
stocks, bonds, and other securities or assets; and
(2) directly or through the trading desks of T. Rowe Price Associates,
Inc., and Robert Fleming Holdings Limited, and their affiliates,
place orders and negotiate the commissions (if any) for the
execution of transactions in securities or other assets with or
through such brokers, dealers, underwriters or issuers as the
Sub-Adviser may select.
B. FURTHER DUTIES OF SUB-ADVISER. In all matters relating to the
performance of this Agreement, the Sub-Adviser shall act in conformity
with the Company's Articles of Incorporation, By-Laws, and currently
effective Registration Statement (as defined below) and with the
written instructions and directions of the Board and the Adviser, and
shall comply with the requirements of the 1940 Act, the Advisers Act,
the rules thereunder, and all other applicable federal and state laws
and regulations.
C. In carrying out its obligations under this Agreement, the Sub-Adviser
shall ensure that the Fund complies with all applicable statutes and
regulations necessary to qualify the Fund as a Regulated Investment
Company under Subchapter M of the Internal Revenue Code (or any
successor or similar provision), and shall notify the Adviser
immediately upon having a reasonable basis for believing that the fund
has ceased to so qualify or that it might not so qualify in the future.
D. In carrying out its obligations under this Agreement, the Sub-Advisor
shall invest the Fund assets in such a manner as to ensure that the
Fund complies with the diversification provisions of Section 817(h) of
the Internal Revenue Code and the regulations issued thereunder
relating to the diversification requirements for variable insurance
contracts and any prospective amendments or other modifications to
Section 817 or regulations thereunder. Subadviser shall notify the
Adviser immediately upon having a reasonable basis for believing that
the Fund has ceased to comply and will take all reasonable steps to
adequately diversify the Fund so as to achieve compliance within the
grace period afforded by Regulation 1.817.5.
3. COMPENSATION. For the services provided and the expenses assumed by the
Sub-Adviser pursuant to this Agreement, the Sub-Adviser shall receive a
monthly investment management fee as set forth in Schedule 1, attached
hereto and incorporated herein by reference. The management fee shall be
payable monthly to the Sub-Adviser on or before the 25th day of the next
succeeding calendar month. If this Agreement becomes effective or
terminates before the end of any month, the investment management fee for
the period from the effective date to the end of such month or from the
beginning of such month to the date of termination, as the case may be,
shall be prorated according to the proration which such period bears to the
full month in which such effectiveness or termination occurs.
4. DUTIES OF THE ADVISER.
A. The Adviser shall continue to have responsibility for all services to
be provided to the Fund pursuant to the Advisory Agreement and shall
oversee and review the Sub-Adviser's performance of its duties under
this Agreement.
B. The Adviser has furnished the Sub-Adviser with copies of each of the
following documents and will furnish to the Sub-Adviser at its
principal office all future amendments and supplements to such
documents, if any, as soon as practicable after such documents become
available:
(1) The Articles of Incorporation of the Company, as filed with the
Secretary of State, as in effect on the date hereof and as amended
from time to time;
(2) The By-Laws of the Company as in effect on the date hereof and as
amended from time to time ("BY-LAWS");
(3) Certified resolutions of the Board of the Company authorizing the
appointment of the Adviser and the Sub-Adviser and approving the
form of the Advisory Agreement and this Agreement;
(4) The Company's Registration Statement under the 1940 Act and the
Securities Act of 1933, as amended, on Form N-1A, as filed with
the Securities and Exchange Commission ("SEC") relating to the
Fund and its shares and all amendments thereto ("REGISTRATION
STATEMENT");
(5) The Notification of Registration of the Company under the 1940 Act
on Form N-8A as filed with the SEC and any amendments thereto;
(6) The Funds Prospectus (as defined above); and
(7) A certified copy of any financial statement or report prepared for
the Fund by certified or independent public accountants, and
copies of any financial statements or reports made by the Fund to
its shareholders or to any governmental body or securities
exchange.
The Adviser shall furnish the Sub-Adviser with any further documents,
materials or information that the Sub-Adviser may reasonably request to enable
it to perform its duties pursuant to this Agreement.
C. During the term of this Agreement, the Adviser shall furnish to the
Sub-Adviser at its principal office all prospectuses, proxy statements,
reports to shareholders, sales literature, or other material prepared
for distribution to shareholders of the Fund or the public, which refer
to the Sub-Adviser or its clients in any way, prior to the use thereof,
and the Adviser shall not use any such materials if the Sub-Adviser
reasonably objects in writing five business days (or such other time as
may be mutually agreed) after receipt thereof. The Adviser shall ensure
that materials prepared by employees or agents of the Adviser or its
affiliates that refer to the Sub-Adviser or its clients in any way are
consistent with those materials previously approved by the Sub-Adviser
as referenced in the preceding sentence.
5. BROKERAGE.
A. The Sub-Adviser agrees that, in placing orders with broker-dealers for
the purchase or sale of portfolio securities, it shall attempt to
obtain best execution at favorable security prices; provided that, on
behalf of the Fund, the Sub-Adviser may, in its discretion, agree to
pay a broker-dealer that furnishes brokerage or research services as
such services are defined under Section 28(e) of the Securities
Exchange Act of 1934, as amended ("1934 Act"), a higher commission than
that which might have been charged by another broker-dealer for
effecting the same transactions, if the Sub-Adviser determines in good
faith that such commission is reasonable in relation to the brokerage
and research services provided by the broker-dealer, viewed in terms of
either that particular transaction or the overall responsibilities of
the Sub-Adviser with respect to the accounts as to which it exercises
investment discretion (as such term is defined under Section 3(a)(35)
of the 1934 Act). In no instance will portfolio securities be purchased
from or sold to the Sub-Adviser, or any affiliated person thereof
("PRINCIPAL TRANSACTIONS"), except in accordance with the federal
securities laws and the rules and regulations thereunder. Regardless of
the provisions of the federal securities laws relating to Principal
Transactions, as currently in effect or as may be amended in the
future, no such transactions will be effected for the Fund without the
express written authorization of the Adviser.
B. On occasions when the Sub-Adviser deems the purchase or sale of a
security to be in the best interest of the Fund as well as other
clients of the Sub-Adviser, the Sub-Adviser, to the extent permitted by
applicable laws and regulations, may, but shall be under no obligation
to, aggregate the securities to be purchased or sold to attempt to
obtain a more favorable price or lower brokerage commissions and
efficient execution. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the transaction,
will be made by the Sub-Adviser in the manner the Sub-Adviser considers
to be the most equitable and consistent with its fiduciary obligations
to the Fund and to its other clients.
6. OWNERSHIP OF RECORDS. The Sub-Adviser shall maintain all books and records
required to be maintained by the Sub-Adviser pursuant to the 1940 Act and
the rules and regulations promulgated thereunder with respect to
transactions on behalf of the Fund. In compliance with the requirements of
Rule 31a-3 under the 1940 Act, the Sub-Adviser hereby agrees (i) that all
records that it maintains for the Fund are the property of the Company,
(ii) to preserve for the periods prescribed by Rule 31a-2 under the 1940
Act any records that it maintains for the Company and that are required to
be maintained by Rule 31a-1 under the 1940 Act, and (iii) agrees to
surrender promptly to the Company any records that it maintains for the
Company upon request by the Company; provided, however, the Sub-Adviser may
retain copies of such records.
7. REPORTS. The Sub-Adviser shall furnish to the Board or the Adviser, or
both, as appropriate, such information, reports, evaluation, analyses and
opinions as the Sub-Adviser and the Board or the Adviser, as appropriate,
may mutually agree upon from time to time.
8. SERVICES TO OTHERS CLIENTS. Nothing contained in this Agreement shall limit
or restrict (i) the freedom of the Sub-Adviser, or any affiliated person
thereof, to render investment management and corporate administrative
services to other investment companies, to act as investment manager or
investment counselor to other persons, firms, or corporations, or to engage
in any other business activities, or (ii) the right of any director,
officer, or employee of the Sub-Adviser, who may also be a director,
officer, or employee of the Company, to engage in any other business or to
devote his or her time and attention in part to the management or other
aspects of any other business, whether of a similar nature or a dissimilar
nature, so long as the Sub-Adviser's services under this Agreement is not
impaired thereby.
9. SUB-ADVISER'S USE OF THE SERVICES OF OTHERS. The Sub-Adviser may (at its
cost except as contemplated by Paragraph 5 of the Agreement) employ,
retain, or otherwise avail itself of the services or facilities of other
persons or organizations for the purpose of providing the Sub-Adviser or
the Company or Fund, as appropriate, with such statistical and other
factual information, such advice regarding economic factors and trends,
such advice as to occasional transactions in specific securities, or such
other information, advice, or assistance as the Sub-Adviser may deem
necessary, appropriate, or convenient for the discharge of its obligations
hereunder or otherwise helpful to the Company or the Fund, as appropriate,
or in the discharge of Sub-Adviser's overall responsibilities with respect
to the other accounts that it serves as investment manager or counselor.
However, the Sub-Adviser shall not assign or delegate any of its duties
under this Agreement without the approval of the Advisor and the Board.
10. LIMITATION OF LIABILITY OF THE SUB-ADVISER. Neither the Sub-Adviser nor any
of its officers, directors, or employees, nor any person performing
executive, administrative, trading, or other functions for the Company, the
Fund (at the direction or request of the Sub-Adviser) or the Sub-Adviser in
connection with the Sub-Adviser's discharge of its obligations undertaken
or reasonably assumed with respect to this Agreement, shall be liable for
(i) any error of judgment or mistake of law or for any loss suffered by the
Company or Fund or (ii) any error of fact or mistake of law contained in
any report or data provided by the Sub-Adviser, except for any error,
mistake or loss resulting from willful misfeasance, bad faith, or gross
negligence in the performance of its or his duties on behalf of the Company
or Fund or from reckless disregard by the Sub-Adviser or any such person of
the duties of the Sub-Adviser pursuant to this Agreement.
11. REPRESENTATIONS OF SUB-ADVISER. The Sub-Adviser represents, warrants, and
agrees as follows:
A. The Sub-Adviser: (i) is registered as an investment adviser under the
Advisers Act and will continue to be so registered for so long as this
Agreement remains in effect; (ii) is not prohibited by the 1940 Act or
the Advisers Act from performing the services contemplated by this
Agreement; (iii) has met, and will continue to meet for so long as this
Agreement remains in effect, any other applicable federal or state
requirements, or the applicable requirements of any regulatory or
industry self-regulatory agency, necessary to be met in order to
perform the services contemplated by this Agreement; (iv) has the
authority to enter into and perform the services contemplated by this
Agreement; and (v) will immediately notify the Adviser of the
occurrence of any event that would disqualify the Sub-Adviser from
serving as an investment adviser of an investment company pursuant to
Section 9(a) of the 1940 Act or otherwise.
B. The Sub-Adviser has adopted a written code of ethics complying with the
requirements of Rule 17j-1 under the 1940 Act and, if it has not
already done so, will provide the Adviser and the Company with a copy
of such code of ethics, together with evidence of its adoption.
C. The Sub-Adviser has provided the Adviser and the Company with a copy of
its Form ADV as most recently filed with the SEC and will, promptly
after filing any amendment to its Form ADV with the SEC, furnish a copy
of such amendment to the Adviser.
12. TERM OF AGREEMENT. This Agreement shall become effective upon the date
first above written, provided that this Agreement shall not take effect
unless it has first been approved (i) by a vote of a majority of those
directors of the Company who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting called
for the purpose of voting on such approval, and (ii) by vote of a majority
of the Fund's outstanding voting securities. Unless sooner terminated as
provided herein, this Agreement shall continue in effect for two years from
its effective date. Thereafter, this Agreement shall continue in effect
from year to year, with respect to the Fund, subject to the termination
provisions and all other terms and conditions hereof, so long as such
continuation shall be specifically approved at least annually (a) by either
the Board, or by vote of a majority of the outstanding voting securities of
the Fund; (b) in either event, by the vote, cast in person at a meeting
called for the purpose of voting on such approval, of a majority of the
directors of the Company who are not parties to this Agreement or
interested persons of any such party; and (c) the Sub-Adviser shall not
have notified the Company, in writing, at least 60 days prior to such
approval that it does not desire such continuation. The Sub-Adviser shall
furnish to the Company, promptly upon its request, such information as may
reasonably be necessary to evaluate the terms of this Agreement or any
extension, renewal, or amendment hereof.
13. TERMINATION OF AGREEMENT. Notwithstanding the foregoing, this Agreement may
be terminated at any time, without the payment of any penalty, by vote of
the Board or by a vote of a majority of the outstanding voting securities
of the Fund on at least 60 days' prior written notice to the Sub-Adviser.
This Agreement may also be terminated by the Adviser: (i) on at least 60
day's prior written notice to the Sub-Adviser, without the payment of any
penalty; (ii) upon material breach by the Sub-Adviser of any of the
representations and warranties set forth in Paragraph 11 of this Agreement,
if such breach shall not have been cured within a 20-day period after
notice of such breach; or (iii) if the Sub-Adviser becomes unable to
discharge its duties and obligations under this Agreement. The Sub-Adviser
may terminate this Agreement at any time, without the payment of any
penalty, on at least 60 days' prior notice to the Adviser. This Agreement
shall terminate automatically in the event of its assignment or upon
termination of the Advisory Agreement.
14. AMENDMENT OF AGREEMENT. No provision of this Agreement may be changed,
waived, discharged, or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change,
waiver, discharge, or termination is sought, and no material amendment of
this Agreement shall be effective until approved by vote of a majority of
the Fund's outstanding voting securities.
15. MISCELLANEOUS
A. GOVERNING LAW. This Agreement shall be construed in accordance with the
laws of the State of Maryland without giving effect to the conflicts of
laws principles thereof and the 1940 Act. To the extent that the
applicable laws of the State of Maryland conflict with the applicable
provisions of the 1940 Act, the latter shall control.
B. CAPTIONS. The captions contained in this Agreement are included for
convenience of reference only and in no way define or delimit any of
the provisions hereof or otherwise affect their construction or effect.
C. ENTIRE AGREEMENT. This Agreement represents the entire agreement and
understanding of the parties hereto and shall supersede any prior
agreements between the parties relating to the subject matter hereof,
and all such prior agreements shall be deemed terminated upon the
effectiveness of this Agreement.
D. INTERPRETATION. Nothing herein contained shall be deemed to require the
Company to take any action contrary to its Articles of Incorporation or
By-Laws, or any applicable statutory or regulatory requirement to which
it is subject or by which it is bound; or to relieve or deprive the
Board of its responsibility for and control of the conduct of the
affairs of the Fund.
E. DEFINITIONS. Any question of interpretation of any term or provision of
this Agreement having a counterpart in or otherwise derived from a term
or provision of the 1940 Act shall be resolved by reference to such
term or provision of the 1940 Act and to interpretations thereof, if
any, by the United States courts or, in the absence of any controlling
decision of any such court, by rules, regulations, or orders of the SEC
validly issued pursuant to the Act. As used in this Agreement, the
terms "majority of the outstanding voting securities," "affiliated
person," "interested person," "assignment," "broker," "investment
adviser," "net assets," "sale," "sell," and "security" shall have the
same meaning as such terms have in the 1940 Act, subject to such
exemption as may be granted by the SEC by any rule, regulation, or
order. Where the effect of a requirement of the federal securities laws
reflected in any provision of this Agreement is made less restrictive
by a rule, regulation, or order of the SEC, whether of special or
general application, such provision shall be deemed to incorporate the
effect of such rule, regulation, or order.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized signatories as of the date and year first
above written.
Attest: SECURITY MANAGEMENT COMPANY
AMY J. LEE By: JAMES R. SCHMANK
- --------------------------- -----------------------------------
Amy J. Lee James R. Schmank
Secretary Senior Vice President
Attest: T. ROWE PRICE ASSOCIATES, INC.
LUCY ROBINS By: NANCY M. MORRIS
- --------------------------- -----------------------------------
<PAGE>
SCHEDULE 1
FEE SCHEDULE
For the services provided and the expenses assumed by the Sub-Adviser under the
terms of the Agreement, the Sub-Adviser shall receive a monthly investment
management fee as set forth below:
Average Daily Net Assets of the Fund Compensation
The first $50 million .50% plus
$50 million or more .40%
The schedule above is subject, however, to a minimum investment management fee
of $100,000 over the first twelve months from the date of inception of the Fund.
Therefore, if at the end of the twelfth month after inception of the investment
management fee paid totals less than $100,000, then the Adviser will pay any
such difference in a lump-sum to the Sub-Adviser. For purposes of Section 3 of
the Agreement, the value of the net assets of the Fund shall be computed in the
same manner at the end of the business day as the value of such net assets is
computed in connection with the determination of the net asset value of the
Fund's shares as described in the Fund's prospectus and statement of additional
information.
Attest: SECURITY MANAGEMENT COMPANY
AMY J. LEE By: JAMES R. SCHMANK
- --------------------------- -----------------------------------
Amy J. Lee James R. Schmank
Secretary Senior Vice President
Attest: T. ROWE PRICE ASSOCIATES, INC.
LUCY ROBINS By: NANCY M. MORRIS
- --------------------------- -----------------------------------
Lucy Robins Nancy M. Morris
Vice President Vice President
<PAGE>
INVESTMENT SUB-ADVISORY AGREEMENT
BETWEEN
SECURITY MANAGEMENT COMPANY
AND
T. ROWE PRICE ASSOCIATES, INC.
INVESTMENT SUB-ADVISORY AGREEMENT, made as of the 1st day of May, 1995,
between Security Management Company ("ADVISER"), a corporation organized and
existing under the laws of the State of Kansas, and T. Rowe Price Associates,
Inc. ("SUB-ADVISER"), a corporation organized and existing under the laws of the
State of Maryland.
WHEREAS, the Adviser has entered into an Investment Advisory Agreement dated
as of the lst day of May, 1995 ("Advisory Agreement") with SBL Fund ("COMPANY"),
which is engaged in business as an open-end investment company registered under
the Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, the Company is authorized to issue shares of Series O ("FUND"), a
separate series of the Company;
WHEREAS, the Sub-Adviser is engaged principally in the business of rendering
investment supervisory services and is registered as an investment adviser under
the Investment Advisers Act of 1940, as amended ("ADVISERS ACT"); and
WHEREAS, the Adviser desires to retain the Sub-Adviser as sub-adviser to
furnish certain investment advisory services to the Adviser and the Fund and the
Sub-Adviser is willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual promises herein
set forth, the parties hereto agree as follows:
1. APPOINTMENT. Adviser hereby appoints the Sub-Adviser as its investment
sub-adviser with respect to the Fund for the period and on the terms set
forth in this Agreement. The Sub-Adviser accepts such appointment and
agrees to render the services herein set forth, for the compensation herein
provided.
2. DUTIES OF THE SUB-ADVISER.
A. INVESTMENT SUB-ADVISORY SERVICES. Subject to the supervision of the
Company's Board of Directors ("Board") and the Adviser, the Sub-Adviser
shall act as the investment sub-adviser and shall supervise and direct
the investments of the Fund in accordance with the Fund's investment
objectives, policies, and restrictions as provided in the Fund's
Prospectus and Statement of Additional Information, as currently in
effect and as amended or supplemented from time to time (hereinafter
referred to as the "Prospectus"), and such other limitations as the
Fund may impose by notice in writing to the Sub-Adviser. The
Sub-Adviser shall obtain and evaluate such information relating to the
economy, industries, businesses, securities markets, and securities as
it may deem necessary or useful in the discharge of its obligations
hereunder and shall formulate and implement a continuing program for
the management of the assets and resources of the Fund in a manner
consistent with the Fund's investment objective(s), policies, and
restrictions. In furtherance of this duty, the Sub-Adviser, on behalf
of the Fund, is authorized, in its discretion and without prior
consultation with the Fund or the Adviser, to:
(1) buy, sell, exchange, convert, lend, and otherwise trade in any
stocks, bonds, and other securities or assets; and
(2) directly or through the trading desks of T. Rowe Price Associates,
Inc., and Robert Fleming Holdings Limited, and their affiliates,
place orders and negotiate the commissions (if any) for the
execution of transactions in securities or other assets with or
through such brokers, dealers, underwriters or issuers as the
Sub-Adviser may select.
B. FURTHER DUTIES OF SUB-ADVISER. In all matters relating to the
performance of this Agreement, the Sub-Adviser shall act in conformity
with the Company's Articles of Incorporation, By-Laws, and currently
effective Registration Statement (as defined below) and with the
written instructions and directions of the Board and the Adviser, and
shall comply with the requirements of the 1940 Act, the Advisers Act,
the rules thereunder, and all other applicable federal and state laws
and regulations.
C. In carrying out its obligations under this Agreement, the Sub-Adviser
shall ensure that the Fund complies with all applicable statutes and
regulations necessary to qualify the Fund as a Regulated Investment
Company under Subchapter M of the Internal Revenue Code (or any
successor or similar provision), and shall notify the Adviser
immediately upon having a reasonable basis for believing that the fund
has ceased to so qualify or that it might not so qualify in the future.
D. In carrying out its obligations under this Agreement, the Sub-Adviser
shall invest the Fund assets in such a manner as to ensure that the
Fund complies with the diversification provisions of Section 817(h) of
the Internal Revenue Code and the regulations issued thereunder
relating to the diversification requirements for variable insurance
contracts and any prospective amendments or other modifications to
Section 817 or regulations thereunder. Subadvisor shall notify the
Adviser immediately upon having a reasonable basis for believing that
the Fund has ceased to comply and will take all reasonable steps to
adequately diversify the Fund so as to achieve compliance within the
grace period afforded by Regulation 1.817.5.
3. COMPENSATION. For the services provided and the expenses assumed by the
Sub-Adviser pursuant to this Agreement, the Sub-Adviser shall receive a
monthly investment management fee as set forth in Schedule 1, attached
hereto and incorporated herein by reference. The management fee shall be
payable monthly to the Sub-Adviser on or before the 25th day of the next
succeeding calendar month. If this Agreement becomes effective or
terminates before the end of any month, the investment management fee for
the period from the effective date to the end of such month or from the
beginning of such month to the date of termination, as the case may be,
shall be prorated according to the proration which such period bears to the
full month in which such effectiveness or termination occurs.
4. DUTIES OF THE ADVISER.
A. The Adviser shall continue to have responsibility for all services to
be provided to the Fund pursuant to the Advisory Agreement and shall
oversee and review the Sub-Adviser's performance of its duties under
this Agreement.
B. The Adviser has furnished the Sub-Adviser with copies of each of the
following documents and will furnish to the Sub-Adviser at its
principal office all future amendments and supplements to such
documents, if any, as soon as practicable after such documents become
available:
(1) The Articles of Incorporation of the Company, as filed with the
Secretary of State, as in effect on the date hereof and as amended
from time to time;
(2) The By-Laws of the Company as in effect on the date hereof and as
amended from time to time ("BY-LAWS");
(3) Certified resolutions of the Board of the Company authorizing the
appointment of the Adviser and the Sub-Adviser and approving the
form of the Advisory Agreement and this Agreement;
(4) The Company's Registration Statement under the 1940 Act and the
Securities Act of 1933, as amended, on Form N-1A, as filed with
the Securities and Exchange Commission ("SEC") relating to the
Fund and its shares and all amendments thereto ("REGISTRATION
STATEMENT");
(5) The Notification of Registration of the Company under the 1940 Act
on Form N-8A as filed with the SEC and any amendments thereto;
(6) The Funds Prospectus (as defined above); and
(7) A certified copy of any financial statement or report prepared for
the Fund by certified or independent public accountants, and
copies of any financial statements or reports made by the Fund to
its shareholders or to any governmental body or securities
exchange.
The Adviser shall furnish the Sub-Adviser with any further documents,
materials or information that the Sub-Adviser may reasonably request to enable
it to perform its duties pursuant to this Agreement.
C. During the term of this Agreement, the Adviser shall furnish to the
Sub-Adviser at its principal office all prospectuses, proxy statements,
reports to shareholders, sales literature, or other material prepared
for distribution to shareholders of the Fund or the public, which refer
to the Sub-Adviser or its clients in any way, prior to the use thereof,
and the Adviser shall not use any such materials if the Sub-Adviser
reasonably objects in writing five business days (or such other time as
may be mutually agreed) after receipt thereof. The Adviser shall ensure
that materials prepared by employees or agents of the Adviser or its
affiliates that refer to the Sub-Adviser or its clients in any way are
consistent with those materials previously approved by the Sub-Adviser
as referenced in the preceding sentence.
5. BROKERAGE.
A. The Sub-Adviser agrees that, in placing orders with broker-dealers for
the purchase or sale of portfolio securities, it shall attempt to
obtain best execution at favorable security prices; provided that, on
behalf of the Fund, the Sub-Adviser may, in its discretion, agree to
pay a broker-dealer that furnishes brokerage or research services as
such services are defined under Section 28(e) of the Securities
Exchange Act of 1934, as amended ("1934 Act"), a higher commission than
that which might have been charged by another broker-dealer for
effecting the same transactions, if the Sub-Adviser determines in good
faith that such commission is reasonable in relation to the brokerage
and research services provided by the broker-dealer, viewed in terms of
either that particular transaction or the overall responsibilities of
the Sub-Adviser with respect to the accounts as to which it exercises
investment discretion (as such term is defined under Section 3(a)(35)
of the 1934 Act). In no instance will portfolio securities be purchased
from or sold to the Sub-Adviser, or any affiliated person thereof
("PRINCIPAL TRANSACTIONS"), except in accordance with the federal
securities laws and the rules and regulations thereunder. Regardless of
the provisions of the federal securities laws relating to Principal
Transactions, as currently in effect or as may be amended in the
future, no such transactions will be effected for the Fund without the
express written authorization of the Adviser.
B. On occasions when the Sub-Adviser deems the purchase or sale of a
security to be in the best interest of the Fund as well as other
clients of the Sub-Adviser, the Sub-Adviser, to the extent permitted by
applicable laws and regulations, may, but shall be under no obligation
to, aggregate the securities to be purchased or sold to attempt to
obtain a more favorable price or lower brokerage commissions and
efficient execution. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the transaction,
will be made by the Sub-Adviser in the manner the Sub-Adviser considers
to be the most equitable and consistent with its fiduciary obligations
to the Fund and to its other clients.
6. OWNERSHIP OF RECORDS. The Sub-Adviser shall maintain all books and records
required to be maintained by the Sub-Adviser pursuant to the 1940 Act and
the rules and regulations promulgated thereunder with respect to
transactions on behalf of the Fund. In compliance with the requirements of
Rule 31a-3 under the 1940 Act, the Sub-Adviser hereby agrees (i) that all
records that it maintains for the Fund are the property of the Company,
(ii) to preserve for the periods prescribed by Rule 31a-2 under the 1940
Act any records that it maintains for the Company and that are required to
be maintained by Rule 31a-1 under the 1940 Act, and (iii) agrees to
surrender promptly to the Company any records that it maintains for the
Company upon request by the Company; provided, however, the Sub-Adviser may
retain copies of such records.
7. REPORTS. The Sub-Adviser shall furnish to the Board or the Adviser, or
both, as appropriate, such information, reports, evaluation, analyses and
opinions as the Sub-Adviser and the Board or the Adviser, as appropriate,
may mutually agree upon from time to time.
8. SERVICES TO OTHERS CLIENTS. Nothing contained in this Agreement shall limit
or restrict (i) the freedom of the Sub-Adviser, or any affiliated person
thereof, to render investment management and corporate administrative
services to other investment companies, to act as investment manager or
investment counselor to other persons, firms, or corporations, or to engage
in any other business activities, or (ii) the right of any director,
officer, or employee of the Sub-Adviser, who may also be a director,
officer, or employee of the Company, to engage in any other business or to
devote his or her time and attention in part to the management or other
aspects of any other business, whether of a similar nature or a dissimilar
nature, so long as the Sub-Adviser's services under this Agreement is not
impaired thereby.
9. SUB-ADVISER'S USE OF THE SERVICES OF OTHERS. The Sub-Adviser may (at its
cost except as contemplated by Paragraph 5 of the Agreement) employ,
retain, or otherwise avail itself of the services or facilities of other
persons or organizations for the purpose of providing the Sub-Adviser or
the Company or Fund, as appropriate, with such statistical and other
factual information, such advice regarding economic factors and trends,
such advice as to occasional transactions in specific securities, or such
other information, advice, or assistance as the Sub-Adviser may deem
necessary, appropriate, or convenient for the discharge of its obligations
hereunder or otherwise helpful to the Company or the Fund, as appropriate,
or in the discharge of Sub-Adviser's overall responsibilities with respect
to the other accounts that it serves as investment manager or counselor.
However, the Sub-Adviser shall not assign or delegate any of its duties
under this Agreement without the approval of the Advisor and the Board.
10. LIMITATION OF LIABILITY OF THE SUB-ADVISER. Neither the Sub-Adviser nor any
of its officers, directors, or employees, nor any person performing
executive, administrative, trading, or other functions for the Company, the
Fund (at the direction or request of the Sub-Adviser) or the Sub-Adviser in
connection with the Sub-Adviser's discharge of its obligations undertaken
or reasonably assumed with respect to this Agreement, shall be liable for
(i) any error of judgment or mistake of law or for any loss suffered by the
Company or Fund or (ii) any error of fact or mistake of law contained in
any report or data provided by the Sub-Adviser, except for any error,
mistake or loss resulting from willful misfeasance, bad faith, or gross
negligence in the performance of its or his duties on behalf of the Company
or Fund or from reckless disregard by the Sub-Adviser or any such person of
the duties of the Sub-Adviser pursuant to this Agreement.
11. REPRESENTATIONS OF SUB-ADVISER. The Sub-Adviser represents, warrants, and
agrees as follows:
A. The Sub-Adviser: (i) is registered as an investment adviser under the
Advisers Act and will continue to be so registered for so long as this
Agreement remains in effect; (ii) is not prohibited by the 1940 Act or
the Advisers Act from performing the services contemplated by this
Agreement; (iii) has met, and will continue to meet for so long as this
Agreement remains in effect, any other applicable federal or state
requirements, or the applicable requirements of any regulatory or
industry self-regulatory agency, necessary to be met in order to
perform the services contemplated by this Agreement; (iv) has the
authority to enter into and perform the services contemplated by this
Agreement; and (v) will immediately notify the Adviser of the
occurrence of any event that would disqualify the Sub-Adviser from
serving as an investment adviser of an investment company pursuant to
Section 9(a) of the 1940 Act or otherwise.
B. The Sub-Adviser has adopted a written code of ethics complying with the
requirements of Rule 17j-1 under the 1940 Act and, if it has not
already done so, will provide the Adviser and the Company with a copy
of such code of ethics, together with evidence of its adoption.
C. The Sub-Adviser has provided the Adviser and the Company with a copy of
its Form ADV as most recently filed with the SEC and will, promptly
after filing any amendment to its Form ADV with the SEC, furnish a copy
of such amendment to the Adviser.
12. TERM OF AGREEMENT. This Agreement shall become effective upon the date
first above written, provided that this Agreement shall not take effect
unless it has first been approved (i) by a vote of a majority of those
directors of the Company who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting called
for the purpose of voting on such approval, and (ii) by vote of a majority
of the Fund's outstanding voting securities. Unless sooner terminated as
provided herein, this Agreement shall continue in effect for two years from
its effective date. Thereafter, this Agreement shall continue in effect
from year to year, with respect to the Fund, subject to the termination
provisions and all other terms and conditions hereof, so long as such
continuation shall be specifically approved at least annually (a) by either
the Board, or by vote of a majority of the outstanding voting securities of
the Fund; (b) in either event, by the vote, cast in person at a meeting
called for the purpose of voting on such approval, of a majority of the
directors of the Company who are not parties to this Agreement or
interested persons of any such party; and (c) the Sub-Adviser shall not
have notified the Company, in writing, at least 60 days prior to such
approval that it does not desire such continuation. The Sub-Adviser shall
furnish to the Company, promptly upon its request, such information as may
reasonably be necessary to evaluate the terms of this Agreement or any
extension, renewal, or amendment hereof.
13. TERMINATION OF AGREEMENT. Notwithstanding the foregoing, this Agreement may
be terminated at any time, without the payment of any penalty, by vote of
the Board or by a vote of a majority of the outstanding voting securities
of the Fund on at least 60 days' prior written notice to the Sub-Adviser.
This Agreement may also be terminated by the Adviser: (i) on at least 60
day's prior written notice to the Sub-Adviser, without the payment of any
penalty; (ii) upon material breach by the Sub-Adviser of any of the
representations and warranties set forth in Paragraph 11 of this Agreement,
if such breach shall not have been cured within a 20-day period after
notice of such breach; or (iii) if the Sub-Adviser becomes unable to
discharge its duties and obligations under this Agreement. The Sub-Adviser
may terminate this Agreement at any time, without the payment of any
penalty, on at least 60 days' prior notice to the Adviser. This Agreement
shall terminate automatically in the event of its assignment or upon
termination of the Advisory Agreement.
14. AMENDMENT OF AGREEMENT. No provision of this Agreement may be changed,
waived, discharged, or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change,
waiver, discharge, or termination is sought, and no material amendment of
this Agreement shall be effective until approved by vote of a majority of
the Fund's outstanding voting securities.
15. MISCELLANEOUS
A. GOVERNING LAW. This Agreement shall be construed in accordance with the
laws of the State of Maryland without giving effect to the conflicts of
laws principles thereof and the 1940 Act. To the extent that the
applicable laws of the State of Maryland conflict with the applicable
provisions of the 1940 Act, the latter shall control.
B. CAPTIONS. The captions contained in this Agreement are included for
convenience of reference only and in no way define or delimit any of
the provisions hereof or otherwise affect their construction or effect.
C. ENTIRE AGREEMENT. This Agreement represents the entire agreement and
understanding of the parties hereto and shall supersede any prior
agreements between the parties relating to the subject matter hereof,
and all such prior agreements shall be deemed terminated upon the
effectiveness of this Agreement.
D. INTERPRETATION. Nothing herein contained shall be deemed to require the
Company to take any action contrary to its Articles of Incorporation or
By-Laws, or any applicable statutory or regulatory requirement to which
it is subject or by which it is bound, or to relieve or deprive the
Board of its responsibility for and control of the conduct of the
affairs of the Fund.
E. DEFINITIONS. Any question of interpretation of any term or provision of
this Agreement having a counterpart in or otherwise derived from a term
or provision of the 1940 Act shall be resolved by reference to such
term or provision of the 1940 Act and to interpretations thereof, if
any, by the United States courts or, in the absence of any controlling
decision of any such court, by rules, regulations, or orders of the SEC
validly issued pursuant to the Act. As used in this Agreement, the
terms "majority of the outstanding voting securities," "affiliated
person," "interested person," "assignment," "broker," "investment
adviser," "net assets," "sale," "sell," and "security" shall have the
same meaning as such terms have in the 1940 Act, subject to such
exemption as may be granted by the SEC by any rule, regulation, or
order. Where the effect of a requirement of the federal securities laws
reflected in any provision of this Agreement is made less restrictive
by a rule, regulation, or order of the SEC, whether of special or
general application, such provision shall be deemed to incorporate the
effect of such rule, regulation, or order.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized signatories as of the date and year first
above written.
Attest: SECURITY MANAGEMENT COMPANY
AMY J. LEE By: JAMES R. SCHMANK
- ----------------------------------- ------------------------------
Amy J. Lee James R. Schmank
Secretary Senior Vice President
Attest: T. ROWE PRICE ASSOCIATES, INC.
LUCY ROBINS By: NANCY M. MORRIS
- ------------------------------------ ------------------------------
<PAGE>
SCHEDULE 1
FEE SCHEDULE
For the services provided and the expenses assumed by the Sub-Adviser under the
terms of the Agreement, the Sub-Adviser shall receive a monthly investment
management fee as set forth below:
AVERAGE DAILY NET ASSETS OF THE FUND COMPENSATION
First $20 million .50%
Next $30 million .40%
Above $50 million .40% on all assets
For purposes of Section 3 of the Agreement, the value of the net assets of the
Fund shall be computed in the same manner at the end of the business day as the
value of such net assets is computed in connection with the determination of the
net asset value of the Fund's shares as described in the Fund's prospectus and
statement of additional information.
Attest: SECURITY MANAGEMENT COMPANY
AMY J. LEE By: JAMES R. SCHMANK
- ----------------------------------- ------------------------------
Amy J. Lee James R. Schmank
Secretary Senior Vice President
Attest: T. ROWE PRICE ASSOCIATES, INC.
LUCY ROBINS By: NANCY M. MORRIS
- ------------------------------------ ------------------------------
Lucy Robins Nancy M. Morris
Vice President Vice President
<PAGE>
FORM OF
SUBADVISORY AGREEMENT
THIS AGREEMENT is made and entered into on this ___ day of ______________
between SECURITY MANAGEMENT COMPANY, LLC (the "Adviser"), a Kansas limited
liability company, registered under the Investment Advisers Act of 1940, as
amended (the "Investment Advisers Act"), and BANKERS TRUST COMPANY (the
"Subadviser"), a New York corporation.
WITNESSETH:
WHEREAS, SBL Fund and Security Equity Fund, Kansas corporations, are
registered with the Securities and Exchange Commission (the "Commission") as
open-end management investment companies under the Investment Company Act of
1940, as amended (the "Investment Company Act");
WHEREAS, the Subadviser is a bank within the meaning of Section 2(a)(5) of
the Investment Company Act and Section 202(a)(2) of the Investment Advisers Act;
WHEREAS, SBL Fund is authorized to issue shares of Series I, a separate
series of SBL Fund and Security Equity Fund is authorized to issue shares of the
International Series and the Enhanced Index Series, each a separate series of
Security Equity Fund (each series referred to herein individually as a "Fund"
and collectively as the "Funds");
WHEREAS, each of SBL Fund and Security Equity Fund has, pursuant to an
Advisory Agreement with the Adviser (the "Advisory Agreements"), retained the
Adviser to act as investment adviser for and to manage each Fund's assets;
WHEREAS, the Advisory Agreements permit the Adviser to delegate certain of
its duties under the Advisory Agreements to other investment advisers, subject
to the requirements of the Investment Company Act; and
WHEREAS, the Adviser desires to retain the Subadviser as subadviser for the
Funds to act as investment adviser for and to manage each Fund's Investments (as
defined below) and the Subadviser desires to render such services.
NOW, THEREFORE, the Adviser and Subadviser do mutually agree and promise as
follows:
1. APPOINTMENT AS SUBADVISER. The Adviser hereby retains the Subadviser to
act as investment adviser for and to manage certain assets of the Funds subject
to the supervision of the Adviser and the respective Boards of Directors of SBL
Fund and Security Equity Fund and subject to the terms of this Agreement; and
the Subadviser hereby accepts such employment. In such capacity, the Subadviser
shall be responsible for each Fund's Investments.
2. DUTIES OF SUBADVISER.
(a) INVESTMENTS. The Subadviser is hereby authorized and directed and
hereby agrees, subject to the stated investment policies and restrictions of
the Funds as set forth in each Fund's current prospectus and statement of
additional information as currently in effect and as supplemented or amended
from time to time (collectively referred to hereinafter as the "Prospectus")
and subject to the directions of the Adviser and the respective Fund's Board
to purchase, hold and sell investments for the account of the Funds
(hereinafter "Investments") and to monitor on a continuous basis the
performance of such Investments. The Subadviser shall give the Funds the
benefit of its best efforts in rendering its services as Subadviser.
(b) BROKERAGE. The Subadviser is authorized, subject to the supervision
of the Adviser and the respective Fund's Board to establish and maintain
accounts on behalf of each Fund with, and place orders for the purchase and
sale of the Fund's Investments with or through, such persons, brokers or
dealers as Subadviser may select and negotiate commissions to be paid on such
transactions. The Subadviser agrees that in placing such orders it shall
attempt to obtain best execution, provided that, the Subadviser may, on
behalf of a Fund, pay brokerage commissions to a broker which provides
brokerage and research services to the Subadviser in excess of the amount
another broker would have charged for effecting the transaction, provided (i)
the Subadviser determines in good faith that the amount is reasonable in
relation to the value of the brokerage and research services provided by the
executing broker in terms of the particular transaction or in terms of the
Subadviser's overall responsibilities with respect to the Fund and the
accounts as to which the Subadviser exercises investment discretion, (ii)
such payment is made in compliance with Section 28(e) of the Securities
Exchange Act of 1934, as amended, and any other applicable laws and
regulations, and (iii) in the opinion of the Subadviser, the total
commissions paid by the Fund will be reasonable in relation to the benefits
to the Fund over the long term. It is recognized that the services provided
by such brokers may be useful to the Subadviser in connection with the
Subadviser's services to other clients. On occasions when the Subadviser
deems the purchase or sale of a security to be in the best interests of a
Fund as well as other clients of the Subadviser, the Subadviser, to the
extent permitted by applicable laws and regulations, may, but shall be under
no obligation to, aggregate the securities to be sold or purchased in order
to obtain the most favorable price or lower brokerage commissions and
efficient execution. In such event, allocation of securities so sold or
purchased, as well as the expenses incurred in the transaction, will be made
by the Subadviser in the manner the Subadviser considers to be the most
equitable and consistent with its fiduciary obligations to the Funds and to
such other clients. The Subadviser will report on such allocations at the
request of the Adviser, the Funds or the respective Fund's Board providing
such information as the number of aggregated trades to which the Fund was a
party, the broker(s) to whom such trades were directed and the basis of the
allocation for the aggregated trades.
(c) SECURITIES TRANSACTIONS. The Subadviser and any affiliated person of
the Subadviser will not purchase securities or other instruments from or sell
securities or other instruments to a Fund ("Principal Transactions");
PROVIDED, HOWEVER, the Subadviser may enter into a Principal Transaction with
a Fund if (i) the transaction is permissible under applicable laws and
regulations, including, without limitation, the Investment Company Act and
the Investment Advisers Act and the rules and regulations promulgated
thereunder, and (ii) the transaction receives the express written approval of
the Adviser.
The Subadviser agrees to observe and comply with Rule 17j-1 under the
Investment Company Act and its Code of Ethics, as the same may be amended
from time to time. The Subadviser agrees to provide the Adviser and the Funds
with a copy of such Code of Ethics.
(d) BOOKS AND RECORDS. The Subadviser will maintain all books and records
required to be maintained pursuant to the Investment Company Act and the
rules and regulations promulgated thereunder with respect to transactions
made by it on behalf of the Funds including, without limitation, the books
and records required by Subsections (b)(1), (5), (6), (7), (9), (10) and (11)
and Subsection (f) of Rule 31a-1 under the Investment Company Act and shall
timely furnish to the Adviser all information relating to the Subadviser's
services hereunder needed by the Adviser to keep such other books and records
of the Funds required by Rule 31a-1 under the Investment Company Act. The
Subadviser will also preserve all such books and records for the periods
prescribed in Rule 31a-2 under the Investment Company Act, and agrees that
such books and records shall remain the sole property of the respective Fund
and shall be immediately surrendered to a Fund upon request. The Subadviser
further agrees that all books and records maintained hereunder shall be made
available to the Funds or the Adviser at any time upon reasonable request,
including telecopy, during any business day.
(e) INFORMATION CONCERNING INVESTMENTS AND SUBADVISER. From time to time
as the Adviser or the Funds may request, the Subadviser will furnish the
requesting party reports on portfolio transactions and reports on Investments
held in the portfolio, all in such detail as the Adviser or the Funds may
reasonably request. The Subadviser will make available its officers and
employees to meet with the respective Fund's Board of Directors at the Funds'
principal place of business on due notice to review the Investments of the
Funds.
The Subadviser will also provide such information or perform such
additional acts as are customarily performed by a subadviser and may be
required for the Funds or the Adviser to comply with their respective
obligations under applicable laws, including, without limitation, the
Internal Revenue Code of 1986, as amended (the "Code"), the Investment
Company Act, the Investment Advisers Act, the Securities Act of 1933, as
amended (the "Securities Act") and any state securities laws, and any rule or
regulation thereunder.
(f) CUSTODY ARRANGEMENTS. The Subadviser shall provide the Funds'
custodian, on each business day with information relating to all transactions
concerning each Fund's assets.
(g) COMPLIANCE WITH APPLICABLE LAWS AND GOVERNING DOCUMENTS. In all
matters relating to the performance of this Agreement, the Subadviser and its
directors, officers, partners, employees and interested persons shall act in
conformity with each Fund's Articles of Incorporation, By-Laws, and currently
effective registration statement and with the written instructions and
directions of the respective Fund's Board and the Adviser, and shall comply
with the requirements of the Investment Company Act, the Investment Advisers
Act, the Commodity Exchange Act (the "CEA"), the rules thereunder, and all
other applicable federal and state laws and regulations.
In carrying out its obligations under this Agreement, the Subadviser
shall, solely with regard to those matters within its control, ensure that
each Fund complies with all applicable statutes and regulations necessary to
qualify the Fund as a Regulated Investment Company under Subchapter M of the
Code (or any successor provision), and shall notify the Adviser immediately
upon having a reasonable basis for believing that a Fund has ceased to so
qualify or that it might not so qualify in the future.
In carrying out its obligations under this Agreement, the Subadviser
shall invest the assets of Series I in such a manner as to ensure that the
Fund complies with the diversification provisions of Section 817(h) of the
Code (or any successor provision) and the regulations issued thereunder
relating to the diversification requirements for variable insurance contracts
and any prospective amendments or other modifications to Section 817 or
regulations thereunder. Subadviser shall notify the Adviser immediately upon
having a reasonable basis for believing that the Fund has ceased to comply
and will take all reasonable steps to adequately diversify the Fund so as to
achieve compliance within the grace period afforded by Regulation 1.817-5.
The Adviser has furnished the Subadviser with copies of each of the
following documents and will furnish the Subadviser at its principal office
all future amendments and supplements to such documents, if any, as soon as
practicable after such documents become available: (i) the Articles of
Incorporation of each Fund, (ii) the By-Laws of each Fund and (iii) each
Fund's registration statement under the Investment Company Act and the
Securities Act of 1933, as amended, as filed with the Commission.
(h) VOTING OF PROXIES. The Subadviser shall direct the custodian as to
how to vote such proxies as may be necessary or advisable in connection with
any matters submitted to a vote of shareholders of securities held by the
Funds.
3. INDEPENDENT CONTRACTOR. In the performance of its duties hereunder, the
Subadviser is and shall be an independent contractor and unless otherwise
expressly provided herein or otherwise authorized in writing, shall have no
authority to act for or represent the Funds or the Adviser in any way or
otherwise be deemed an agent of the Funds or the Adviser.
4. COMPENSATION. The Adviser shall pay to the Subadviser, for the services
rendered hereunder, the fees set forth in Exhibit A attached hereto.
5. EXPENSES. The Subadviser shall bear all expenses incurred by it in
connection with its services under this Agreement and will, from time to time,
at its sole expense employ or associate itself with such persons as it believes
to be particularly fitted to assist it in the execution of its duties hereunder.
However, the Subadviser shall not assign or delegate any of its duties under
this Agreement without the approval of the Adviser and the respective Fund's
Board.
6. REPRESENTATIONS AND WARRANTIES OF SUBADVISER. The Subadviser represents
and warrants to the Adviser and the Funds as follows:
(a) The Subadviser is a bank within the meaning of Section 2(a)(5) of the
Investment Company Act and Section 202(a)(2) of the Investment Advisers Act;
(b) The Subadviser will immediately notify the Adviser of the occurrence
of any event that would disqualify the Subadviser from serving as an
investment adviser of an investment company pursuant to Section 9(a) of the
Investment Company Act;
(c) The Subadviser is not required to register with the Commodity Futures
Trading Commission (the "CFTC") as a commodity trading advisor pursuant to
Section 1a(5)(B) or 4m of the CEA;
(d) The Subadviser is a corporation duly organized and validly existing
under the laws of the State of New York with the power to own and possess its
assets and carry on its business as it is now being conducted;
(e) The execution, delivery and performance by the Subadviser of this
Agreement are within the Subadviser's powers and have been duly authorized by
all necessary action on the part of its shareholders, and no action by or in
respect of, or filing with, any governmental body, agency or official is
required on the part of the Subadviser for the execution, delivery and
performance by the Subadviser of this Agreement, and the execution, delivery
and performance by the Subadviser of this Agreement do not contravene or
constitute a default under (i) any provision of applicable law, rule or
regulation, (ii) the Subadviser's governing instruments, or (iii) any
agreement, judgment, injunction, order, decree or other instrument binding
upon the Subadviser;
(f) This Agreement is a valid and binding agreement of the Subadviser;
7. REPRESENTATIONS AND WARRANTIES OF ADVISER. The Adviser represents and
warrants to the Subadviser as follows:
(a) The Adviser is registered as an investment adviser under the
Investment Advisers Act;
(b) The Adviser has filed a notice of exemption pursuant to Rule 4.14
under the CEA with the CFTC and the National Futures Association;
(c) The Adviser is a limited liability company duly organized and validly
existing under the laws of the State of Kansas with the power to own and
possess its assets and carry on its business as it is now being conducted;
(d) The execution, delivery and performance by the Adviser of this
Agreement are within the Adviser's powers and have been duly authorized by
all necessary action on the part of its members, and no action by or in
respect of, or filing with, any governmental body, agency or official is
required on the part of the Adviser for the execution, delivery and
performance by the Adviser of this Agreement, and the execution, delivery and
performance by the Adviser of this Agreement do not contravene or constitute
a default under (i) any provision of applicable law, rule or regulation, (ii)
the Adviser's governing instruments, or (iii) any agreement, judgment,
injunction, order, decree or other instrument binding upon the Adviser;
(e) This Agreement is a valid and binding agreement of the Adviser;
(f) The Form ADV of the Adviser previously provided to the Subadviser is
a true and complete copy of the form filed with the Commission and the
information contained therein is accurate and complete in all material
respects and does not omit to state any material fact necessary in order to
make the statements made, in light of the circumstances under which they were
made, not misleading;
8. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; DUTY TO UPDATE INFORMATION.
All representations and warranties made by the Subadviser and the Adviser
pursuant to Sections 6 and 7 hereof shall survive for the duration of this
Agreement and the parties hereto shall promptly notify each other in writing
upon becoming aware that any of the foregoing representations and warranties are
no longer true.
9. LIABILITY AND INDEMNIFICATION.
(a) LIABILITY. In the absence of willful misfeasance, bad faith or
negligence on the part of the Subadviser or a breach of its duties hereunder,
the Subadviser shall not be subject to any liability to the Adviser or the
Funds or any of the Funds' shareholders, and, in the absence of willful
misfeasance, bad faith or negligence on the part of the Adviser or a breach
of its duties hereunder, the Adviser shall not be subject to any liability to
the Subadviser, for any act or omission in the case of, or connected with,
rendering services hereunder or for any losses that may be sustained in the
purchase, holding or sale of Investments; PROVIDED, HOWEVER, that nothing
herein shall relieve the Adviser and the Subadviser from any of their
obligations under applicable law, including, without limitation, the federal
and state securities laws and the CEA.
(b) INDEMNIFICATION. The Subadviser shall indemnify the Adviser and the
Funds, and their respective officers and directors, for any liability and
expenses, including reasonable attorneys' fees, which may be sustained as a
result of the Subadviser's willful misfeasance, bad faith, negligence, breach
of its duties hereunder or violation of applicable law, including, without
limitation, the federal and state securities laws or the CEA. The Adviser
shall indemnify the Subadviser and its officers and directors, for any
liability and expenses, including reasonable attorneys' fees, which may be
sustained as a result of the Adviser's willful misfeasance, bad faith,
negligence, breach of its duties hereunder or violation of applicable law,
including, without limitation, the federal and state securities laws or the
CEA.
10. DURATION AND TERMINATION.
(a) DURATION. This Agreement shall become effective upon the date first
above written, provided that this Agreement shall not take effect with
respect to a Fund unless it has first been approved (i) by a vote of a
majority of those directors of the Fund who are not parties to this Agreement
or interested persons of any such party, cast in person at a meeting called
for the purpose of voting on such approval, and (ii) by vote of a majority of
the Fund's outstanding voting securities. This Agreement shall continue in
effect for a period of two years from the date hereof, subject thereafter to
being continued in force and effect from year to year with respect to each
Fund if specifically approved each year by either (i) the Board of Directors
of the Fund, or (ii) by the affirmative vote of a majority of the Fund's
outstanding voting securities. In addition to the foregoing, each renewal of
this Agreement with respect to a Fund must be approved by the vote of a
majority of the Fund's directors who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting called for
the purpose of voting on such approval. Prior to voting on the renewal of
this Agreement, the Board of Directors of each Fund may request and evaluate,
and the Subadviser shall furnish, such information as may reasonably be
necessary to enable the Fund's Board of Directors to evaluate the terms of
this Agreement.
(b) TERMINATION. Notwithstanding whatever may be provided herein to the
contrary, this Agreement may be terminated at any time, without payment of
any penalty:
(i) By vote of a majority of the Board of Directors of a Fund with
respect to that Fund, or by vote of a majority of the outstanding voting
securities of the Fund, or by the Adviser, in each case, upon sixty (60)
days' written notice to the Subadviser;
(ii) By the Adviser upon breach by the Subadviser of any
representation or warranty contained in Section 6 hereof, which shall not
have been cured during the notice period, upon twenty (20) days written
notice;
(iii) By the Adviser immediately upon written notice to the
Subadviser if the Subadviser becomes unable to discharge its duties and
obligations under this Agreement; or
(iv) By the Subadviser upon 120 days written notice to the Adviser
and the Fund.
This Agreement shall not be assigned (as such term is defined in the
Investment Company Act) without the prior written consent of the parties
hereto. This Agreement shall terminate automatically in the event of its
assignment without such consent or upon the termination of the Advisory
Agreement.
11. DUTIES OF THE ADVISER. The Adviser shall continue to have responsibility
for all services to be provided to the Funds pursuant to the Advisory Agreements
and shall oversee and review the Subadviser's performance of its duties under
this Agreement.
12. AMENDMENT. This Agreement may be amended by mutual consent of the
parties, provided that the terms of each such amendment with respect to a Fund
shall be approved by the Board of Directors of the Fund or by a vote of a
majority of the outstanding voting securities of the Fund.
13. CONFIDENTIALITY. Subject to the duties of the Adviser, the Funds and the
Subadviser to comply with applicable law, including any demand of any regulatory
or taxing authority having jurisdiction, the parties hereto shall treat as
confidential all information pertaining to the Funds and the actions of the
Subadviser, the Adviser and the Funds in respect thereof.
14. NOTICE. Any notice that is required to be given by the parties to each
other (or to the Funds) under the terms of this Agreement shall be in writing,
delivered, or mailed postpaid to the other party, or transmitted by facsimile
with acknowledgment of receipt, to the parties at the following addresses or
facsimile numbers, which may from time to time be changed by the parties by
notice to the other party:
(a) If to the Subadviser:
Bankers Trust Company
One Bankers Trust Plaza
Mail Stop 2355
New York, New York 10006
Attention: Vinay Mendiratta, Vice President
Facsimile: (212) 250-1026
(b) If to the Adviser:
Security Management Company, LLC
700 SW Harrison
Topeka, Kansas 66636-0001
Attention: James R. Schmank, President
Facsimile: (785) 431-3080
(c) If to Security Equity Fund:
Security Equity Fund
700 SW Harrison
Topeka, Kansas 66636-0001
Attention: Amy J. Lee, Secretary
Facsimile: (785) 431-3080
(d) If to SBL Fund:
SBL Fund
700 SW Harrison
Topeka, Kansas 66636-0001
Attention: Amy J. Lee, Secretary
Facsimile: (785) 431-3080
15. INSTRUCTIONS. The Subadviser is authorized to honor and act on any
notice, instruction or confirmation given by the Adviser in writing signed or
sent by one of the persons whose names, addresses and specimen signatures will
be provided by the Adviser from time to time.
16. GOVERNING LAW; JURISDICTION. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Kansas.
17. COUNTERPARTS. This Agreement may be executed in one or more counterparts,
all of which shall together constitute one and the same instrument.
18. CAPTIONS. The captions herein are included for convenience of reference
only and shall be ignored in the construction or interpretation hereof.
19. SEVERABILITY. If any provision of this Agreement shall be held or made
invalid by a court decision or applicable law, the remainder of the Agreement
shall not be affected adversely and shall remain in full force and effect.
20. CERTAIN DEFINITIONS.
(a) "BUSINESS DAY." As used herein, business day means any customary
business day in the United States on which the New York Stock Exchange is
open.
(b) MISCELLANEOUS. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise derived from
a term or provision of the Investment Company Act shall be resolved by
reference to such term or provision of the Investment Company Act and to
interpretations thereof, if any, by the U.S. courts or, in the absence of any
controlling decisions of any such court, by rules, regulation or order of the
Commission validly issued pursuant to the Investment Company Act.
Specifically, as used herein, "investment company," "affiliated person,"
"interested person," "assignment," "broker," "dealer" and "affirmative vote
of the majority of the Fund's outstanding voting securities" shall all have
such meaning as such terms have in the Investment Company Act. The term
"investment adviser" shall have such meaning as such term has in the
Investment Advisers Act and the Investment Company Act, and in the event of a
conflict between such Acts, the most expansive definition shall control. In
addition, where the effect of a requirement of the Investment Company Act
reflected in any provision of this Agreement is relaxed by a rule, regulation
or order of the Commission, whether of special or general application, such
provision shall be deemed to incorporate the effect of such rule, regulation
or order.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first written above.
SECURITY MANAGEMENT COMPANY, LLC
By:
------------------------------
Name: James R. Schmank
Title: President
Attest:
------------------------------
Name: Amy J. Lee
Title: Secretary
BANKERS TRUST COMPANY
By:
------------------------------
Name:
Title:
Attest:
------------------------------
Name:
Title:
<PAGE>
Exhibit A
SUBADVISORY FEE
1. INTERNATIONAL FUNDS
For all services rendered to the International Series of Security Equity Fund
and Series I of SBL Fund (collectively referred to herein as the "International
Funds") by the Subadviser hereunder, Adviser shall pay to Subadviser an annual
fee (the "Subadvisory Fee"), as follows:
An annual rate of .60% of the combined average daily net assets of the
International Funds of $200 million or less; and
An annual rate of .55% of the combined average daily net assets of the
International Funds of more than $200 million.
The Subadvisory Fee shall be accrued for each calendar day the Subadviser
renders subadvisory services hereunder and the sum of the daily fee accruals
shall be paid monthly to the Subadviser as soon as practicable following the
last day of each month, by wire transfer if so requested by the Subadviser, but
no later than fifteen (15) calendar days thereafter. If this Agreement shall be
effective for only a portion of a year, then the Subadviser's fee for said year
shall be prorated for such portion. For purposes of calculating the fee
hereunder, the value of the net assets of the International Funds shall be
computed in the same manner at the end of the business day as the value of such
net assets are computed in connection with the determination of the net asset
value of the International Funds' shares as described in the applicable current
Prospectus.
2. ENHANCED INDEX FUNDS
The parties agree that the fee paid by the Adviser to the Subadviser for the
services rendered by the Subadviser to the Enhanced Index Series of Security
Equity Fund (the "Enhanced Index Series") shall be based on the combined average
daily net assets of the Enhanced Index Series and a future series of SBL Fund
with the same investment objective as the Enhanced Index Series. The parties
further agree that the combining of assets for purposes of calculating the fee
owed by the Adviser to the Subadviser hereunder shall only apply if the
following conditions are met (i) the anticipated future series of SBL Fund with
the same investment objective as the Enhanced Index Series is actually formed by
appropriate action of the directors of SBL Fund and (ii) the Subadviser is
engaged by the Adviser to act as investment adviser for such series of SBL Fund
and such engagement is approved by the requisite vote of the directors and
shareholders of SBL Fund. The Enhanced Index Series and the future series of SBL
Fund referenced above are collectively referred to herein as the "Enhanced Index
Funds."
For all services rendered to the Enhanced Index Series by the Subadviser
hereunder, Adviser shall pay to Subadviser an annual fee (the "Subadvisory
Fee"), as follows:
An annual rate of .20% of the combined average daily net assets of the
Enhanced Index Funds of $100 million or less; and
An annual rate of .15% of the combined average daily net assets of the
Enhanced Index Funds of more than $100 million but less than $300 million; and
An annual rate of .13% of the combined average daily net assets of the
Enhanced Index Funds of more than $300 million.
The Subadvisory Fee shall be accrued for each calendar day the Subadviser
renders subadvisory services hereunder and the sum of the daily fee accruals
shall be paid monthly to the Subadviser as soon as practicable following the
last day of each month, by wire transfer if so requested by the Subadviser, but
no later than fifteen (15) calendar days thereafter. If this Agreement shall be
effective for only a portion of a year, then the Subadviser's fee for said year
shall be prorated for such portion. For purposes of calculating the fee
hereunder, the value of the net assets of the Enhanced Index Funds shall be
computed in the same manner at the end of the business day as the value of such
net assets are computed in connection with the determination of the net asset
value of the Enhanced Index Funds' shares as described in the applicable current
Prospectus.
3. INDEX FUNDS' MINIMUM FEES
The schedule in 2 above is subject to the following minimum fees: (i) in the
first year from the date the Enhanced Index Series of Security Equity Fund is
seeded (the "Seeding Date"), no minimum fee; (ii) in the second year from the
Seeding Date, $100,000 minimum and (iii) in the third year from the Seeding Date
and each year thereafter, $200,000 minimum. If at the end of the second year
from the Seeding Date, the total amount of the fees paid by the Adviser to the
Subadviser for services to the Enhanced Index Funds is collectively less than
$100,000, then the Adviser will pay any such difference in a lump-sum to the
Subadviser. If at the end of the third year from the Seeding Date, and each year
thereafter that this Agreement is in effect, the total amount of the fees paid
by the Adviser to the Subadviser for services to the Enhanced Index Funds is
collectively less than $200,000, then the Adviser will pay any such difference
in a lump-sum to the Subadviser.
<PAGE>
CUSTODY AGREEMENT
Dated January 1, 1995
As amended September 24, 1998
Between
UMB BANK, N.A.
and
THE SECURITY FUNDS
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
1. Appointment of Custodian 1
2. Definitions 1
(a) Securities 1
(b) Assets 1
(c) Instructions and Special Instructions 1
3. Delivery of Corporate Documents 2
4. Powers and Duties of Custodian and Domestic Subcustodian 2
(a) Safekeeping 3
(b) Manner of Holding Securities 3
(c) Free Delivery of Assets 4
(d) Exchange of Securities 4
(e) Purchases of Assets 5
(f) Sales of Assets 5
(g) Options 6
(h) Futures Contracts 6
(i) Segregated Accounts 6
(j) Depositary Receipts 7
(k) Corporate Actions, Put Bonds, Called Bonds, Etc. 7
(l) Interest Bearing Deposits 7
(m) Foreign Exchange Transactions 8
(n) Pledges or Loans of Securities 8
(o) Stock Dividends, Rights, Etc. 9
(p) Routine Dealings 9
(q) Collections 9
(r) Bank Accounts 9
(s) Dividends, Distributions and Redemptions 9
(t) Proceeds from Shares Sold 10
(u) Proxies and Notices; Compliance with the Shareholders 10
Communication Act of 1985
(v) Books and Records 10
(w) Opinion of Fund's Independent Certified Public 10
Accountants
(x) Reports by Independent Certified Public Accountants 10
(y) Bills and Others Disbursements 11
5. Subcustodians 11
(a) Domestic Subcustodians 11
(b) Foreign Subcustodians 11
(c) Interim Subcustodians 12
(d) Special Subcustodians 12
(e) Termination of a Subcustodian 12
(f) Certification Regarding Foreign Subcustodians 12
6. Standard of Care 12
(a) General Standard of Care 12
(b) Actions Prohibited by Applicable Law, Events Beyond
Custodian's Control, Armed Conflict, Sovereign Risk, etc. 12
(c) Liability for Past Records 13
(d) Advice of Counsel 13
(e) Advice of the Fund and Others 13
(f) Instructions Appearing to be Genuine 13
(g) Exceptions from Liability 13
7. Liability of the Custodian for Actions of Others 14
(a) Domestic Subcustodians 14
(b) Liability for Acts and Omissions of Foreign 14
Subcustodians
(c) Securities Systems, Interim Subcustodians, Special
Subcustodians, Securities Depositories and Clearing 14
Agencies
(d) Defaults or Insolvency's of Brokers, Banks, Etc. 14
(e) Reimbursement of Expenses 14
8. Indemnification 14
(a) Indemnification by Fund 14
(b) Indemnification by Custodian 15
9. Advances 15
10. Liens 15
11. Compensation 16
12. Powers of Attorney 16
13. Termination and Assignment 16
14. Additional Funds 16
15. Notices 16
16. Miscellaneous 17
<PAGE>
CUSTODY AGREEMENT
This agreement made as of this 1st day of January, 1995, as amended
September 24, 1998, between UMB Bank, n.a., a national banking association with
its principal place of business located in Kansas City, Missouri (hereinafter
"Custodian"), and each of the Funds which have executed the signature page
hereof, together with such additional Funds which shall be made parties to this
Agreement by the execution of a separate signature page hereto (individually, a
"Fund" and collectively, the "Funds").
WITNESSETH:
WHEREAS, each Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended; and
WHEREAS, each Fund desires to appoint Custodian as its custodian for the
custody of Assets (as hereinafter defined) owned by such Fund which Assets are
to be held in such accounts as such Fund may establish from time to time; and
WHEREAS, Custodian is willing to accept such appointment on the terms and
conditions hereof.
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the parties hereto, intending to be legally bound, mutually covenant and agree
as follows:
1. APPOINTMENT OF CUSTODIAN.
Each Fund hereby constitutes and appoints the Custodian as custodian of
Assets belonging to each such Fund which have been or may be from time to time
deposited with the Custodian. Custodian accepts such appointment as a custodian
and agrees to perform the duties and responsibilities of Custodian as set forth
herein on the conditions set forth herein.
2. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the
meanings so indicated:
(a) "Security" or "Securities" shall mean stocks, bonds, bills, rights,
script, warrants, interim certificates, registered investment company shares and
all negotiable or nonnegotiable paper commonly known as Securities and other
instruments or obligations.
(b) "Assets" shall mean Securities, monies and other property held by the
Custodian for the benefit of a Fund.
(c)(1) "Instructions", as used herein, shall mean: (i) a tested telex, a
written (including, without limitation, facsimile transmission) request,
direction, instruction or certification signed or initialed by or on behalf of a
Fund by an Authorized Person; (ii) a telephonic or other oral communication from
a person the Custodian reasonably believes to be an Authorized Person; or (iii)
a communication effected directly between an electro-mechanical or electronic
device or system (including, without limitation, computers) on behalf of a Fund.
Instructions in the form of oral communications shall be confirmed by the
appropriate Fund by tested telex or in writing in the manner set forth in clause
(i) above, but the lack of such confirmation shall in no way affect any action
taken by the Custodian in reliance upon such oral Instructions prior to the
Custodian's receipt of such confirmation. Each Fund authorizes the Custodian to
record any and all telephonic or other oral Instructions communicated to the
Custodian.
(c)(2) "Special Instructions", as used herein, shall mean Instructions
countersigned or confirmed in writing by the Treasurer or any Assistant
Treasurer of a Fund or any other person designated by the Treasurer of such Fund
in writing, which countersignature or confirmation shall be included on the same
instrument containing the Instructions or on a separate instrument relating
thereto.
(c)(3) Instructions and Special Instructions shall be delivered to the
Custodian at the address and/or telephone, facsimile transmission or telex
number agreed upon from time to time by the Custodian and each Fund.
(c)(4) Where appropriate, Instructions and Special Instructions shall
be continuing instructions.
3. DELIVERY OF CORPORATE DOCUMENTS.
Each of the parties to this Agreement represents that its execution does
not violate any of the provisions of its respective charter, articles of
incorporation, articles of association or bylaws and all required corporate
action to authorize the execution and delivery of this Agreement has been taken.
Each Fund has furnished the Custodian with copies, properly certified or
authenticated, with all amendments or supplements thereto, of the following
documents:
(a) Certificate of Incorporation (or equivalent document) of the Fund
as in effect on the date hereof;
(b) By-Laws of the Fund as in effect on the date hereof;
(c) Resolutions of the Board of Directors of the Fund appointing the
Custodian and approving the form of this Agreement; and
(d) The Fund's current prospectus and statements of additional
information.
Each Fund shall promptly furnish the Custodian with copies of any updates,
amendments or supplements to the foregoing documents.
In addition, each Fund has delivered or will promptly deliver to the
Custodian, copies of the Resolution(s) of its Board of Directors or Trustees and
all amendments or supplements thereto, properly certified or authenticated,
designating certain officers or employees of each such Fund who will have
continuing authority to certify to the Custodian: (a) the names, titles,
signatures and scope of authority of all persons authorized to give Instructions
or any other notice, request, direction, instruction, certificate or instrument
on behalf of each Fund, and (b) the names, titles and signatures of those
persons authorized to countersign or confirm Special Instructions on behalf of
each Fund (in both cases collectively, the "Authorized Persons" and
individually, an "Authorized Person"). Such Resolutions and certificates may be
accepted and relied upon by the Custodian as conclusive evidence of the facts
set forth therein and shall be considered to be in full force and effect until
delivery to the Custodian of a similar Resolution or certificate to the
contrary. Upon delivery of a certificate which deletes or does not include the
name(s) of a person previously authorized to give Instructions or to countersign
or confirm Special Instructions, such persons shall no longer be considered an
Authorized Person authorized to give Instructions or to countersign or confirm
Special Instructions. Unless the certificate specifically requires that the
approval of anyone else will first have been obtained, the Custodian will be
under no obligation to inquire into the right of the person giving such
Instructions or Special Instructions to do so. Notwithstanding any of the
foregoing, no Instructions or Special Instructions received by the Custodian
from a Fund will be deemed to authorize or permit any director, trustee,
officer, employee, or agent of such Fund to withdraw any of the Assets of such
Fund upon the mere receipt of such authorization, Special Instructions or
Instructions from such director, trustee, officer, employee or agent.
4. POWERS AND DUTIES OF CUSTODIAN AND DOMESTIC SUBCUSTODIAN.
Except for Assets held by any Subcustodian appointed pursuant to Sections
5(b), (c), or (d) of this Agreement, the Custodian shall have and perform the
powers and duties hereinafter set forth in this Section 4. For purposes of this
Section 4 all references to powers and duties of the "Custodian" shall also
refer to any Domestic Subcustodian appointed pursuant to Section 5(a).
(a) Safekeeping.
The Custodian will keep safely the Assets of each Fund which are delivered
to it from time to time. The Custodian shall not be responsible for any property
of a Fund held or received by such Fund and not delivered to the Custodian.
(b) Manner of Holding Securities.
(1) The Custodian shall at all times hold Securities of each Fund
either: (i) by physical possession of the share certificates or other
instruments representing such Securities in registered or bearer form; (ii) in
book-entry form by a Securities System (as hereinafter defined) in accordance
with the provisions of sub-paragraph (3) below; or (iii) with the transfer
agents for other registered investment companies (in the case of registered
investment company shares owned by a Fund) in accordance with the provisions of
sub-paragraph (4) below.
(2) The Custodian may hold registrable portfolio Securities which have
been delivered to it in physical form, by registering the same in the name of
the appropriate Fund or its nominee, or in the name of the Custodian or its
nominee, for whose actions such Fund and Custodian, respectively, shall be fully
responsible. Upon the receipt of Instructions, the Custodian shall hold such
Securities in street certificate form, so called, with or without any indication
of fiduciary capacity. However, unless it receives Instructions to the contrary,
the Custodian will register all such portfolio Securities in the name of the
Custodian's authorized nominee. All such Securities shall be held in an account
of the Custodian containing only assets of the appropriate Fund or only assets
held by the Custodian as a fiduciary, provided that the records of the Custodian
shall indicate at all times the Fund or other customer for which such Securities
are held in such accounts and the respective interests therein.
(3) The Custodian may deposit and/or maintain domestic Securities
owned by a Fund in, and each Fund hereby approves use of: (a) The Depository
Trust Company; (b) The Participants Trust Company; and (c) any book-entry system
as provided in (i) Subpart O of Treasury Circular No. 300, 31 CFR 306.115, (ii)
Subpart B of Treasury Circular Public Debt Series No. 27-76, 31 CFR 350.2, or
(iii) the book-entry regulations of federal agencies substantially in the form
of 31 CFR 306.115. Upon the receipt of Special Instructions, the Custodian may
deposit and/or maintain domestic Securities owned by a Fund in any other
domestic clearing agency registered with the Securities and Exchange Commission
("SEC") under Section 17A of the Securities Exchange Act of 1934 (or as may
otherwise be authorized by the SEC to serve in the capacity of depository or
clearing agent for the Securities or other assets of investment companies) which
acts as a Securities depository. Each of the foregoing shall be referred to in
this Agreement as a "Securities System", and all such Securities Systems shall
be listed on the attached Appendix A. Use of a Securities System shall be in
accordance with applicable Federal Reserve Board and SEC rules and regulations,
if any, and subject to the following provisions:
(i) The Custodian may deposit the Securities directly or through
one or more agents or Subcustodians which are also qualified to act as
custodians for investment companies.
(ii) The Custodian shall deposit and/or maintain the Securities
in a Securities System, provided that such Securities are represented in an
account ("Account") of the Custodian in the Securities System that includes only
assets held by the Custodian as a fiduciary, custodian or otherwise for
customers.
(iii) The books and records of the Custodian shall at all times
identify those Securities belonging to any one or more Funds which are
maintained in a Securities System.
(iv) The Custodian shall pay for Securities purchased for the
account of a Fund only upon (a) receipt of advice from the Securities System
that such Securities have been transferred to the Account of the Custodian in
accordance with the rules of the Securities System, and (b) the making of an
entry on the records of the Custodian to reflect such payment and transfer for
the account of such Fund. The Custodian shall transfer Securities sold for the
account of a Fund only upon (a) receipt of advice from the Securities System
that payment for such Securities has been transferred to the Account of the
Custodian in accordance with the rules of the Securities System, and (b) the
making of an entry on the records of the Custodian to reflect such transfer and
payment for the account of such Fund. Copies of all advices from the Securities
System relating to transfers of Securities for the account of a Fund shall be
maintained for such Fund by the Custodian. The Custodian shall deliver to a Fund
on the next succeeding business day, daily transaction reports that shall
include each day's transactions in the Securities System for the account of such
Fund. Such transaction reports shall be delivered to such Fund or any agent
designated by such Fund pursuant to Instructions, by computer or in such other
manner as such Fund and Custodian may agree.
(v) The Custodian shall, if requested by a Fund pursuant to
Instructions, provide such Fund with reports obtained by the Custodian or any
Subcustodian with respect to a Securities System's accounting system, internal
accounting control and procedures for safeguarding Securities deposited in the
Securities System.
(vi) Upon receipt of Special Instructions, the Custodian shall
terminate the use of any Securities System on behalf of a Fund as promptly as
practicable and shall take all actions reasonably practicable to safeguard the
Securities of such Fund maintained with such Securities System.
(4) The Custodian may hold shares of other registered investment
companies ("Underlying Funds") which are owned by a Fund with the transfer
agents for such Underlying Funds. In maintaining shares of Underlying Funds with
such transfer agents, each Fund investing in such shares and the Custodian shall
adhere to the following procedures designed to comply with the requirements of
Rule 17f-4 of the 1940 Act:
(i) The Custodian may deposit the shares directly or through one
or more agents or Subcustodians which are also qualified to act as custodians
for investment companies.
(ii) The Custodian shall hold the shares in accounts with the
transfer agents of the Underlying Funds, provided such accounts are maintained
by such transfer agents as segregated accounts containing only assets held for
the Custodian as Custodian of a Fund.
(iii) The books and records of the Custodian shall at all times
identify those shares of Underlying Funds belonging to one or more Funds which
are held by the transfer agents of such Underlying Funds.
(iv) The Custodian shall provide notice to the Funds of all
transfers to or from the account of a Fund held at the transfer agent of an
Underlying Fund.
(v) The Custodian shall, if reasonably requested by a Fund
pursuant to Instructions, provide such Fund with reports obtained by the
Custodian or any Subcustodian with respect to the internal accounting control
maintained by the transfer agent for an Underlying Fund.
(c) Free Delivery of Assets.
Notwithstanding any other provision of this Agreement and except as
provided in Sections 3 and 4 hereof, the Custodian, upon receipt of Special
Instructions, will undertake to make free delivery of Assets, provided such
Assets are on hand and available, in connection with a Fund's transactions and
to transfer such Assets to such broker, dealer, Subcustodian, bank, agent,
Securities System or otherwise as specified in such Special Instructions.
(d) Exchange of Securities.
Upon receipt of Instructions, the Custodian will exchange portfolio
Securities held by it for a Fund for other Securities or cash paid in connection
with any reorganization, recapitalization, merger, consolidation, or conversion
of convertible Securities, and will deposit any such Securities in accordance
with the terms of any reorganization or protective plan.
Without Instructions, the Custodian is authorized to exchange Securities
held by it in temporary form for Securities in definitive form, to surrender
Securities for transfer into a name or nominee name as permitted in Section
4(b)(2), to effect an exchange of shares in a stock split or when the par value
of the stock is changed, to sell any fractional shares, and, upon receiving
payment therefor, to surrender bonds or other Securities held by it at maturity
or call.
(e) Purchases of Assets.
(1) Securities Purchases. In accordance with Instructions, the
Custodian shall, with respect to a purchase of Securities, pay for such
Securities out of monies held for a Fund's account for which the purchase was
made, but only insofar as monies are available therein for such purpose, and
receive the portfolio Securities so purchased. Unless the Custodian has received
Special Instructions to the contrary, such payment will be made only upon
receipt of Securities by the Custodian, a clearing corporation of a national
Securities exchange of which the Custodian is a member, or a Securities System
in accordance with the provisions of Section 4(b)(3) hereof. Notwithstanding the
foregoing, upon receipt of Instructions: (i) in connection with a repurchase
agreement, the Custodian may release funds to a Securities System prior to the
receipt of advice from the Securities System that the Securities underlying such
repurchase agreement have been transferred by book-entry into the Account
maintained with such Securities System by the Custodian, provided that the
Custodian's instructions to the Securities System require that the Securities
System may make payment of such funds to the other party to the repurchase
agreement only upon transfer by book-entry of the Securities underlying the
repurchase agreement into such Account; (ii) in the case of Interest Bearing
Deposits, currency deposits, and other deposits, foreign exchange transactions,
futures contracts or options, pursuant to Sections 4(g), 4(h), 4(l), and 4(m)
hereof, the Custodian may make payment therefor before receipt of an advice of
transaction; (iii) in the case of Securities as to which payment for the
Security and receipt of the instrument evidencing the Security are under
generally accepted trade practice or the terms of the instrument representing
the Security expected to take place in different locations or through separate
parties, such as commercial paper which is indexed to foreign currency exchange
rates, derivatives and similar Securities, the Custodian may make payment for
such Securities prior to delivery thereof in accordance with such generally
accepted trade practice or the terms of the instrument representing such
Security; and (iv) in the case of shares of Underlying Funds maintained with
transfer agents for such Underlying Funds pursuant to Section 4(b)(4) hereof,
payment for shares purchased shall be in accordance with the procedures of such
transfer agent.
(2) Other Assets Purchased. Upon receipt of Instructions and except as
otherwise provided herein, the Custodian shall pay for and receive other Assets
for the account of a Fund as provided in Instructions.
(f) Sales of Assets.
(1) Securities Sold. In accordance with Instructions, the Custodian
will, with respect to a sale, deliver or cause to be delivered the Securities
thus designated as sold to the broker or other person specified in the
Instructions relating to such sale. Unless the Custodian has received Special
Instructions to the contrary, such delivery shall be made only upon receipt of
payment therefor in the form of: (a) cash, certified check, bank cashier's
check, bank credit, or bank wire transfer; (b) credit to the account of the
Custodian with a clearing corporation of a national Securities exchange of which
the Custodian is a member; or (c) credit to the Account of the Custodian with a
Securities System, in accordance with the provisions of Section 4(b)(3) hereof.
Notwithstanding the foregoing: (i) Securities held in physical form may be
delivered and paid for in accordance with "street delivery custom" to a broker
or its clearing agent, against delivery to the Custodian of a receipt for such
Securities, provided that the Custodian shall have taken reasonable steps to
ensure prompt collection of the payment for, or return of, such Securities by
the broker or its clearing agent, and provided further that the Custodian shall
not be responsible for the selection of or the failure or inability to perform
of such broker or its clearing agent or for any related loss arising from
delivery or custody of such Securities prior to receiving payment therefor; and
(ii) in the case of shares of Underlying Funds maintained with transfer agents
for such Underlying Funds pursuant to Section 4(b)(4) hereof, delivery of shares
sold shall be in accordance with the procedures of such transfer agent.
(2) Other Assets Sold. Upon receipt of Instructions and except as
otherwise provided herein, the Custodian shall receive payment for and deliver
other Assets for the account of a Fund as provided in Instructions.
(g) Options.
(1) Upon receipt of Instructions relating to the purchase of an option
or sale of a covered call option, the Custodian shall: (a) receive and retain
confirmations or other documents, if any, evidencing the purchase or writing of
the option by a Fund; (b) if the transaction involves the sale of a covered call
option, deposit and maintain in a segregated account the Securities (either
physically or by book-entry in a Securities System) subject to the covered call
option written on behalf of such Fund; and (c) pay, release and/or transfer such
Securities, cash or other Assets in accordance with any notices or other
communications evidencing the expiration, termination or exercise of such
options which are furnished to the Custodian by the Options Clearing Corporation
(the "OCC"), the securities or options exchanges on which such options were
traded, or such other organization as may be responsible for handling such
option transactions.
(2) Upon receipt of Instructions relating to the sale of a naked
option (including stock index and commodity options), the Custodian, the
appropriate Fund and the broker-dealer shall enter into an agreement to comply
with the rules of the OCC or of any registered national securities exchange or
similar organizations(s). Pursuant to that agreement and such Fund's
Instructions, the Custodian shall: (a) receive and retain confirmations or other
documents, if any, evidencing the writing of the option; (b) deposit and
maintain in a segregated account, Securities (either physically or by book-entry
in a Securities System), cash and/or other Assets; and (c) pay, release and/or
transfer such Securities, cash or other Assets in accordance with any such
agreement and with any notices or other communications evidencing the
expiration, termination or exercise of such option which are furnished to the
Custodian by the OCC, the securities or options exchanges on which such options
were traded, or such other organization as may be responsible for handling such
option transactions. The appropriate Fund and the broker-dealer shall be
responsible for determining the quality and quantity of assets held in any
segregated account established in compliance with applicable margin maintenance
requirements and the performance of other terms of any option contract.
(h) Futures Contracts.
Upon receipt of Instructions, the Custodian shall enter into a futures
margin procedural agreement among the appropriate Fund, the Custodian and the
designated futures commission merchant (a "Procedural Agreement"). Under the
Procedural Agreement the Custodian shall: (a) receive and retain confirmations,
if any, evidencing the purchase or sale of a futures contract or an option on a
futures contract by such Fund; (b) deposit and maintain in a segregated account
cash, Securities and/or other Assets designated as initial, maintenance or
variation "margin" deposits intended to secure such Fund's performance of its
obligations under any futures contracts purchased or sold, or any options on
futures contracts written by such Fund, in accordance with the provisions of any
Procedural Agreement designed to comply with the provisions of the Commodity
Futures Trading Commission and/or any commodity exchange or contract market
(such as the Chicago Board of Trade), or any similar organization(s), regarding
such margin deposits; and (c) release Assets from and/or transfer Assets into
such margin accounts only in accordance with any such Procedural Agreements. The
appropriate Fund and such futures commission merchant shall be responsible for
determining the type and amount of Assets held in the segregated account or paid
to the broker-dealer in compliance with applicable margin maintenance
requirements and the performance of any futures contract or option on a futures
contract in accordance with its terms.
(i) Segregated Accounts.
Upon receipt of Instructions, the Custodian shall establish and maintain
on its books a segregated account or accounts for and on behalf of a Fund, into
which account or accounts may be transferred Assets of such Fund, including
Securities maintained by the Custodian in a Securities System pursuant to
Paragraph (b)(3) of this Section 4 and shares maintained by the Custodian with
the transfer agents for Underlying Funds pursuant to Paragraph (b)(4) of this
Section 4, said account or accounts to be maintained (i) for the purposes set
forth in Sections 4(g), 4(h) and 4(n) and (ii) for the purpose of compliance by
such Fund with the procedures required by the SEC Investment Company Act Release
Number 10666 or any subsequent release or releases relating to the maintenance
of segregated accounts by registered investment companies, or (iii) for such
other purposes as may be set forth, from time to time, in Special Instructions.
The Custodian shall not be responsible for the determination of the type or
amount of Assets to be held in any segregated account referred to in this
paragraph, or for compliance by the Fund with required procedures noted in (ii)
above.
(j) Depositary Receipts.
Upon receipt of Instructions, the Custodian shall surrender or cause to be
surrendered Securities to the depositary used for such Securities by an issuer
of American Depositary Receipts or International Depositary Receipts
(hereinafter referred to, collectively, as "ADRs"), against a written receipt
therefor adequately describing such Securities and written evidence satisfactory
to the organization surrendering the same that the depositary has acknowledged
receipt of instructions to issue ADRs with respect to such Securities in the
name of the Custodian or a nominee of the Custodian, for delivery in accordance
with such instructions.
Upon receipt of Instructions, the Custodian shall surrender or cause to be
surrendered ADRs to the issuer thereof, against a written receipt therefor
adequately describing the ADRs surrendered and written evidence satisfactory to
the organization surrendering the same that the issuer of the ADRs has
acknowledged receipt of instructions to cause its depository to deliver the
Securities underlying such ADRs in accordance with such instructions.
(k) Corporate Actions, Put Bonds, Called Bonds, Etc.
Upon receipt of Instructions, the Custodian shall: (a) deliver warrants,
puts, calls, rights or similar Securities to the issuer or trustee thereof (or
to the agent of such issuer or trustee) for the purpose of exercise or sale,
provided that the new Securities, cash or other Assets, if any, acquired as a
result of such actions are to be delivered to the Custodian; and (b) deposit
Securities upon invitations for tenders thereof, provided that the consideration
for such Securities is to be paid or delivered to the Custodian, or the tendered
Securities are to be returned to the Custodian.
Notwithstanding any provision of this Agreement to the contrary, the
Custodian shall take all necessary action, unless otherwise directed to the
contrary in Instructions, to comply with the terms of all mandatory or
compulsory exchanges, calls, tenders, redemptions, or similar rights of security
ownership, and shall notify the appropriate Fund of such action in writing by
facsimile transmission or in such other manner as such Fund and Custodian may
agree in writing.
The Fund agrees that if it gives an Instruction for the performance of an
act on the last permissible date of a period established by any optional offer
or on the last permissible date for the performance of such act, the Fund shall
hold the Bank harmless from any adverse consequences in connection with acting
upon or failing to act upon such Instructions.
(l) Interest Bearing Deposits.
Upon receipt of Instructions directing the Custodian to purchase interest
bearing fixed term and call deposits (hereinafter referred to, collectively, as
"Interest Bearing Deposits") for the account of a Fund, the Custodian shall
purchase such Interest Bearing Deposits in the name of such Fund with such banks
or trust companies, including the Custodian, any Subcustodian or any subsidiary
or affiliate of the Custodian (hereinafter referred to as "Banking
Institutions"), and in such amounts as such Fund may direct pursuant to
Instructions. Such Interest Bearing Deposits may be denominated in U.S. dollars
or other currencies, as such Fund may determine and direct pursuant to
Instructions. The responsibilities of the Custodian to a Fund for Interest
Bearing Deposits issued by the Custodian shall be that of a U.S. bank for a
similar deposit. With respect to Interest Bearing Deposits other than those
issued by the Custodian, (a) the Custodian shall be responsible for the
collection of income and the transmission of cash to and from such accounts; and
(b) the Custodian shall have no duty with respect to the selection of the
Banking Institution or for the failure of such Banking Institution to pay upon
demand.
(m) Foreign Exchange Transactions.
(l) Each Fund may from time to time appoint the Custodian as its agent
in the execution of currency exchange transactions. The Custodian agrees to
provide exchange rate and U.S. Dollar information, electronically or in writing,
to the Funds prior to the value date of said foreign exchange transaction. The
Fund agrees to provide the Custodian with information necessary to complete the
foreign exchange transaction two business days prior to the value date of said
transaction.
(2) Upon receipt of Instructions, the Custodian shall settle foreign
exchange contracts or options to purchase and sell foreign currencies for spot
and future delivery on behalf of and for the account of a Fund with such
currency brokers or Banking Institutions as such Fund may determine and direct
pursuant to Instructions. If, in its Instructions, a Fund does not direct the
Custodian to utilize a particular currency broker or Banking Institution, the
Custodian is authorized to select such currency broker or Banking Institution as
it deems appropriate to execute the Fund's foreign currency transaction.
(3) Each Fund accepts full responsibility for its use of third party
foreign exchange brokers and for execution of said foreign exchange contracts
and understands that the Fund shall be responsible for any and all costs and
interest charges which may be incurred as a result of the failure or delay of
its third party broker to deliver foreign exchange. The Custodian shall have no
responsibility or liability with respect to the selection of the currency
brokers or Banking Institutions with which a Fund deals or the performance of
such brokers or Banking Institutions.
(4) Notwithstanding anything to the contrary contained herein, upon
receipt of Instructions the Custodian may, in connection with a foreign exchange
contract, make free outgoing payments of cash in the form of U.S. Dollars or
foreign currency prior to receipt of confirmation of such foreign exchange
contract or confirmation that the countervalue currency completing such contract
has been delivered or received.
(5) The Custodian shall not be obligated to enter into foreign
exchange transactions as principal. However, if the Custodian has made available
to a Fund its services as a principal in foreign exchange transactions and
subject to any separate agreement between the parties relating to such
transactions, the Custodian shall enter into foreign exchange contracts or
options to purchase and sell foreign currencies for spot and future delivery on
behalf of and for the account of the Fund, with the Custodian as principal.
(n) Pledges or Loans of Securities.
(1) Upon receipt of Instructions from a Fund, the Custodian will
release or cause to be released Securities held in custody to the pledgees
designated in such Instructions by way of pledge or hypothecation to secure
loans incurred by such Fund with various lenders including but not limited to
UMB Bank, n.a.; provided, however, that the Securities shall be released only
upon payment to the Custodian of the monies borrowed, except that in cases where
additional collateral is required to secure existing borrowings, further
Securities may be released or delivered, or caused to be released or delivered
for that purpose upon receipt of Instructions. Upon receipt of Instructions, the
Custodian will pay, but only from funds available for such purpose, any such
loan upon re-delivery to it of the Securities pledged or hypothecated therefor
and upon surrender of the note or notes evidencing such loan. In lieu of
delivering collateral to a pledgee, the Custodian, on the receipt of
Instructions, shall transfer the pledged Securities to a segregated account for
the benefit of the pledgee.
(2) Upon receipt of Special Instructions, and execution of a separate
Securities Lending Agreement, the Custodian will release Securities held in
custody to the borrower designated in such Instructions and may, except as
otherwise provided below, deliver such Securities prior to the receipt of
collateral, if any, for such borrowing, provided that, in case of loans of
Securities held by a Securities System that are secured by cash collateral, the
Custodian's instructions to the Securities System shall require that the
Securities System deliver the Securities of the appropriate Fund to the borrower
thereof only upon receipt of the collateral for such borrowing. The Custodian
shall have no responsibility or liability for any loss arising from the delivery
of Securities prior to the receipt of collateral. Upon receipt of Instructions
and the loaned Securities, the Custodian will release the collateral to the
borrower.
(o) Stock Dividends, Rights, Etc.
The Custodian shall receive and collect all stock dividends, rights, and
other items of like nature and, upon receipt of Instructions, take action with
respect to the same as directed in such Instructions.
(p) Routine Dealings.
The Custodian will, in general, attend to all routine and mechanical
matters in accordance with industry standards in connection with the sale,
exchange, substitution, purchase, transfer, or other dealings with Securities or
other property of each Fund except as may be otherwise provided in this
Agreement or directed from time to time by Instructions from any particular
Fund. The Custodian may also make payments to itself or others from the Assets
for disbursements and out-of-pocket expenses incidental to handling Securities
or other similar items relating to its duties under this Agreement, provided
that all such payments shall be accounted for to the appropriate Fund.
(q) Collections.
The Custodian shall (a) collect amounts due and payable to each Fund with
respect to portfolio Securities and other Assets; (b) promptly credit to the
account of each Fund all income and other payments relating to portfolio
Securities and other Assets held by the Custodian hereunder upon Custodian's
receipt of such income or payments or as otherwise agreed in writing by the
Custodian and any particular Fund; (c) promptly endorse and deliver any
instruments required to effect such collection; and (d) promptly execute
ownership and other certificates and affidavits for all federal, state, local
and foreign tax purposes in connection with receipt of income or other payments
with respect to portfolio Securities and other Assets, or in connection with the
transfer of such Securities or other Assets; provided, however, that with
respect to portfolio Securities registered in so-called street name, or physical
Securities with variable interest rates, the Custodian shall use its best
efforts to collect amounts due and payable to any such Fund. The Custodian shall
notify a Fund in writing by facsimile transmission or in such other manner as
such Fund and Custodian may agree in writing if any amount payable with respect
to portfolio Securities or other Assets is not received by the Custodian when
due. The Custodian shall not be responsible for the collection of amounts due
and payable with respect to portfolio Securities or other Assets that are in
default.
(r) Bank Accounts.
Upon Instructions, the Custodian shall open and operate a bank account or
accounts on the books of the Custodian; provided that such bank account(s) shall
be in the name of the Custodian or a nominee thereof, for the account of one or
more Funds, and shall be subject only to draft or order of the Custodian. The
responsibilities of the Custodian to any one or more such Funds for deposits
accepted on the Custodian's books shall be that of a U.S.
bank for a similar deposit.
(s) Dividends, Distributions and Redemptions.
To enable each Fund to pay dividends or other distributions to
shareholders of each such Fund and to make payment to shareholders who have
requested repurchase or redemption of their shares of each such Fund
(collectively, the "Shares"), the Custodian shall release cash or Securities
insofar as available. In the case of cash, the Custodian shall, upon the receipt
of Instructions, transfer such funds by check or wire transfer to any account at
any bank or trust company designated by each such Fund in such Instructions. In
the case of Securities, the Custodian shall, upon the receipt of Special
Instructions, make such transfer to any entity or account designated by each
such Fund in such Special Instructions.
(t) Proceeds from Shares Sold.
The Custodian shall receive funds representing cash payments received for
shares issued or sold from time to time by each Fund, and shall credit such
funds to the account of the appropriate Fund. The Custodian shall notify the
appropriate Fund of Custodian's receipt of cash in payment for shares issued by
such Fund by facsimile transmission or in such other manner as such Fund and the
Custodian shall agree. Upon receipt of Instructions, the Custodian shall: (a)
deliver all federal funds received by the Custodian in payment for shares as may
be set forth in such Instructions and at a time agreed upon between the
Custodian and such Fund; and (b) make federal funds available to a Fund as of
specified times agreed upon from time to time by such Fund and the Custodian, in
the amount of checks received in payment for shares which are deposited to the
accounts of such Fund.
(u) Proxies and Notices; Compliance with the Shareholders Communication
Act of 1985.
The Custodian shall deliver or cause to be delivered to the appropriate
Fund all forms of proxies, all notices of meetings, and any other notices or
announcements affecting or relating to Securities owned by such Fund that are
received by the Custodian, any Subcustodian, or any nominee of either of them,
and, upon receipt of Instructions, the Custodian shall execute and deliver, or
cause such Subcustodian or nominee to execute and deliver, such proxies or other
authorizations as may be required. Except as directed pursuant to Instructions,
neither the Custodian nor any Subcustodian or nominee shall vote upon any such
Securities, or execute any proxy to vote thereon, or give any consent or take
any other action with respect thereto.
The Custodian will not release the identity of any Fund to an issuer which
requests such information pursuant to the Shareholder Communications Act of 1985
for the specific purpose of direct communications between such issuer and any
such Fund unless a particular Fund directs the Custodian otherwise in writing.
(v) Books and Records.
The Custodian shall maintain such records relating to its activities under
this Agreement as are required to be maintained by Rule 31a-1 under the
Investment Company Act of 1940 ("the 1940 Act") and to preserve them for the
periods prescribed in Rule 31a-2 under the 1940 Act. These records shall be open
for inspection by duly authorized officers, employees or agents (including
independent public accountants) of the appropriate Fund during normal business
hours of the Custodian.
The Custodian shall provide accountings relating to its activities under
this Agreement as shall be agreed upon by each Fund and the Custodian.
(w) Opinion of Fund's Independent Certified Public Accountants.
The Custodian shall take all reasonable action as each Fund may request to
obtain from year to year favorable opinions from each such Fund's independent
certified public accountants with respect to the Custodian's activities
hereunder and in connection with the preparation of each such Fund's periodic
reports to the SEC and with respect to any other requirements of the SEC.
(x) Reports by Independent Certified Public Accountants.
At the request of a Fund, the Custodian shall deliver to such Fund a
written report prepared by the Custodian's independent certified public
accountants with respect to the services provided by the Custodian under this
Agreement, including, without limitation, the Custodian's accounting system,
internal accounting control and procedures for safeguarding cash, Securities and
other Assets, including cash, Securities and other Assets deposited and/or
maintained in a Securities System, with a transfer agent for an Underlying Fund
or with a Subcustodian. Such report shall be of sufficient scope and in
sufficient detail as may reasonably be required by such Fund and as may
reasonably be obtained by the Custodian.
(y) Bills and Other Disbursements.
Upon receipt of Instructions, the Custodian shall pay, or cause to be
paid, all bills, statements, or other obligations of a Fund.
5. SUBCUSTODIANS.
From time to time, in accordance with the relevant provisions of this
Agreement, the Custodian may appoint one or more Domestic Subcustodians, Foreign
Subcustodians, Special Subcustodians, or Interim Subcustodians (as each are
hereinafter defined) to act on behalf of any one or more Funds. A Domestic
Subcustodian, in accordance with the provisions of this Agreement, may also
appoint a Foreign Subcustodian, Special Subcustodian, or Interim Subcustodian to
act on behalf of any one or more Funds. For purposes of this Agreement, all
Domestic Subcustodians, Foreign Subcustodians, Special Subcustodians and Interim
Subcustodians shall be referred to collectively as "Subcustodians".
(a) Domestic Subcustodians.
The Custodian may, at any time and from time to time, appoint any bank as
defined in Section 2(a)(5) of the 1940 Act or any trust company or other entity,
any of which meet the requirements of a custodian under Section 17(f) of the
1940 Act and the rules and regulations thereunder, to act for the Custodian on
behalf of any one or more Funds as a subcustodian for purposes of holding Assets
of such Fund(s) and performing other functions of the Custodian within the
United States (a "Domestic Subcustodian"). Each Fund shall approve in writing
the appointment of the proposed Domestic Subcustodian; and the Custodian's
appointment of any such Domestic Subcustodian shall not be effective without
such prior written approval of the Fund(s). Each such duly approved Domestic
Subcustodian shall be listed on Appendix A attached hereto, as it may be
amended, from time to time.
(b) Foreign Subcustodians.
The Custodian may at any time appoint, or cause a Domestic Subcustodian to
appoint, any bank, trust company or other entity meeting the requirements of an
"eligible foreign custodian" under Section 17(f) of the 1940 Act and the rules
and regulations thereunder to act for the Custodian on behalf of any one or more
Funds as a subcustodian or sub-subcustodian (if appointed by a Domestic
Subcustodian) for purposes of holding Assets of the Fund(s) and performing other
functions of the Custodian in countries other than the United States of America
(hereinafter referred to as a "Foreign Subcustodian" in the context of either a
subcustodian or a sub-subcustodian); provided that the Custodian shall have
obtained written confirmation from each Fund of the approval of the Board of
Directors or other governing body of each such Fund (which approval may be
withheld in the sole discretion of such Board of Directors or other governing
body or entity) with respect to (i) the identity of any proposed Foreign
Subcustodian (including branch designation), (ii) the country or countries in
which, and the securities depositories or clearing agencies (hereinafter
"Securities Depositories and Clearing Agencies"), if any, through which, the
Custodian or any proposed Foreign Subcustodian is authorized to hold Securities
and other Assets of each such Fund, and (iii) the form and terms of the
subcustodian agreement to be entered into with such proposed Foreign
Subcustodian. Each such duly approved Foreign Subcustodian and the countries
where and the Securities Depositories and Clearing Agencies through which they
may hold Securities and other Assets of the Fund(s) shall be listed on Appendix
A attached hereto, as it may be amended, from time to time. Each Fund shall be
responsible for informing the Custodian sufficiently in advance of a proposed
investment which is to be held in a country in which no Foreign Subcustodian is
authorized to act, in order that there shall be sufficient time for the
Custodian, or any Domestic Subcustodian, to effect the appropriate arrangements
with a proposed Foreign Subcustodian, including obtaining approval as provided
in this Section 5(b). In connection with the appointment of any Foreign
Subcustodian, the Custodian shall, or shall cause the Domestic Subcustodian to,
enter into a subcustodian agreement with the Foreign Subcustodian in form and
substance approved by each such Fund. The Custodian shall not consent to the
amendment of, and shall cause any Domestic Subcustodian not to consent to the
amendment of, any agreement entered into with a Foreign Subcustodian, which
materially affects any Fund's rights under such agreement, except upon prior
written approval of such Fund pursuant to Special Instructions.
(c) Interim Subcustodians.
Notwithstanding the foregoing, in the event that a Fund shall invest in an
Asset to be held in a country in which no Foreign Subcustodian is authorized to
act, the Custodian shall notify such Fund in writing by facsimile transmission
or in such other manner as such Fund and the Custodian shall agree in writing of
the unavailability of an approved Foreign Subcustodian in such country; and upon
the receipt of Special Instructions from such Fund, the Custodian shall, or
shall cause its Domestic Subcustodian to, appoint or approve an entity (referred
to herein as an "Interim Subcustodian") designated in such Special Instructions
to hold such Security or other Asset.
(d) Special Subcustodians.
Upon receipt of Special Instructions, the Custodian shall, on behalf of a
Fund, appoint one or more banks, trust companies or other entities designated in
such Special Instructions to act for the Custodian on behalf of such Fund as a
subcustodian for purposes of: (i) effecting third-party repurchase transactions
with banks, brokers, dealers or other entities through the use of a common
custodian or subcustodian; (ii) providing depository and clearing agency
services with respect to certain variable rate demand note Securities, (iii)
providing depository and clearing agency services with respect to dollar
denominated Securities, and (iv) effecting any other transactions designated by
such Fund in such Special Instructions. Each such designated subcustodian
(hereinafter referred to as a "Special Subcustodian") shall be listed on
Appendix A attached hereto, as it may be amended from time to time. In
connection with the appointment of any Special Subcustodian, the Custodian shall
enter into a subcustodian agreement with the Special Subcustodian in form and
substance approved by the appropriate Fund in Special Instructions. The
Custodian shall not amend any subcustodian agreement entered into with a Special
Subcustodian, or waive any rights under such agreement, except upon prior
approval pursuant to Special Instructions.
(e) Termination of a Subcustodian.
The Custodian may, at any time in its discretion upon notification to the
appropriate Fund(s), terminate any Subcustodian of such Fund(s) in accordance
with the termination provisions under the applicable subcustodian agreement, and
upon the receipt of Special Instructions, the Custodian will terminate any
Subcustodian in accordance with the termination provisions under the applicable
subcustodian agreement.
(f) Certification Regarding Foreign Subcustodians.
Upon request of a Fund, the Custodian shall deliver to such Fund a
certificate stating: (i) the identity of each Foreign Subcustodian then acting
on behalf of the Custodian; (ii) the countries in which and the Securities
Depositories and Clearing Agencies through which each such Foreign Subcustodian
is then holding cash, Securities and other Assets of such Fund; and (iii) such
other information as may be requested by such Fund, and as the Custodian shall
be reasonably able to obtain, to evidence compliance with rules and regulations
under the 1940 Act.
6. STANDARD OF CARE.
(a) General Standard of Care.
The Custodian shall be liable to a Fund for all losses, damages and
reasonable costs and expenses suffered or incurred by such Fund resulting from
the negligence or willful misfeasance of the Custodian; provided, however, in no
event shall the Custodian be liable for special, indirect or consequential
damages arising under or in connection with this Agreement.
(b) Actions Prohibited by Applicable Law, Events Beyond Custodian's
Control, Sovereign Risk, Etc.
In no event shall the Custodian or any Domestic Subcustodian incur
liability hereunder (i) if the Custodian or any Subcustodian or Securities
System, or any subcustodian, transfer agent, Securities System, Securities
Depository or Clearing Agency utilized by the Custodian or any such
Subcustodian, or any nominee of the Custodian or any Subcustodian (individually,
a "Person") is prevented, forbidden or delayed from performing, or omits to
perform, any act or thing which this Agreement provides shall be performed or
omitted to be performed, by reason of: (a) any provision of any present or
future law or regulation or order of the United States of America, or any state
thereof, or of any foreign country, or political subdivision thereof or of any
court of competent jurisdiction (and neither the Custodian nor any other Person
shall be obligated to take any action contrary thereto); or (b) any event beyond
the control of the Custodian or other Person such as armed conflict, riots,
strikes, lockouts, labor disputes, equipment or transmission failures, natural
disasters, or failure of the mails, transportation, communications or power
supply; or (ii) for any loss, damage, cost or expense resulting from "Sovereign
Risk." A "Sovereign Risk" shall mean nationalization, expropriation, currency
devaluation, revaluation or fluctuation, confiscation, seizure, cancellation,
destruction or similar action by any governmental authority, de facto or de
jure; or enactment, promulgation, imposition or enforcement by any such
governmental authority of currency restrictions, exchange controls, taxes,
levies or other charges affecting a Fund's Assets; or acts of armed conflict,
terrorism, insurrection or revolution; or any other act or event beyond the
Custodian's or such other Person's control.
(c) Liability for Past Records.
Neither the Custodian nor any Domestic Subcustodian shall have any
liability in respect of any loss, damage or expense suffered by a Fund, insofar
as such loss, damage or expense arises from the performance of the Custodian or
any Domestic Subcustodian in reliance upon records that were maintained for such
Fund by entities other than the Custodian or any Domestic Subcustodian prior to
the Custodian's employment hereunder.
(d) Advice of Counsel.
The Custodian and all Domestic Subcustodians shall be entitled to receive
and act upon advice of counsel of its own choosing on all matters. The Custodian
and all Domestic Subcustodians shall be without liability for any actions taken
or omitted in good faith pursuant to the advice of counsel.
(e) Advice of the Fund and Others.
The Custodian and any Domestic Subcustodian may rely upon the advice of
any Fund and upon statements of such Fund's accountants and other persons
believed by it in good faith to be expert in matters upon which they are
consulted, and neither the Custodian nor any Domestic Subcustodian shall be
liable for any actions taken or omitted, in good faith, pursuant to such advice
or statements.
(f) Instructions Appearing to be Genuine.
The Custodian and all Domestic Subcustodians shall be fully protected and
indemnified in acting as a custodian hereunder upon any Resolutions of the Board
of Directors or Trustees, Instructions, Special Instructions, advice, notice,
request, consent, certificate, instrument or paper appearing to it to be genuine
and to have been properly executed and shall, unless otherwise specifically
provided herein, be entitled to receive as conclusive proof of any fact or
matter required to be ascertained from any Fund hereunder a certificate signed
by any officer of such Fund authorized to countersign or confirm Special
Instructions.
(g) Exceptions from Liability.
Without limiting the generality of any other provisions hereof, neither
the Custodian nor any Domestic Subcustodian shall be under any duty or
obligation to inquire into, nor be liable for:
(i) the validity of the issue of any Securities purchased by or for
any Fund, the legality of the purchase thereof or evidence of ownership required
to be received by any such Fund, or the propriety of the decision to purchase or
amount paid therefor;
(ii) the legality of the sale of any Securities by or for any Fund,
or the propriety of the amount for which the same were sold; or
(iii) any other expenditures, encumbrances of Securities, borrowings
or similar actions with respect to any Fund's Assets;
and may, until notified to the contrary, presume that all Instructions or
Special Instructions received by it are not in conflict with or in any way
contrary to any provisions of any such Fund's Declaration of Trust, Partnership
Agreement, Articles of Incorporation or By-Laws or votes or proceedings of the
shareholders, trustees, partners or directors of any such Fund, or any such
Fund's currently effective Registration Statement on file with the SEC.
7. LIABILITY OF THE CUSTODIAN FOR ACTIONS OF OTHERS.
(a) Domestic Subcustodians
The Custodian shall be liable for the acts or omissions of any Domestic
Subcustodian to the same extent as if such actions or omissions were performed
by the Custodian itself.
(b) Liability for Acts and Omissions of Foreign Subcustodians.
The Custodian shall be liable to a Fund for any loss or damage to such
Fund caused by or resulting from the acts or omissions of any Foreign
Subcustodian to the extent that, under the terms set forth in the subcustodian
agreement between the Custodian or a Domestic Subcustodian and such Foreign
Subcustodian, the Foreign Subcustodian has failed to perform in accordance with
the standard of conduct imposed under such subcustodian agreement and the
Custodian or Domestic Subcustodian recovers from the Foreign Subcustodian under
the applicable subcustodian agreement.
(c) Securities Systems, Transfer Agents for Underlying funds, Interim
Subcustodians, Special Subcustodians, Securities Depositories and Clearing
Agencies.
The Custodian shall not be liable to any Fund for any loss, damage or
expense suffered or incurred by such Fund resulting from or occasioned by the
actions or omissions of a Securities System, transfer agent for an Underlying
Fund, Interim Subcustodian, Special Subcustodian, or Securities Depository and
Clearing Agency unless such loss, damage or expense is caused by, or results
from, the negligence or willful misfeasance of the Custodian.
(d) Defaults or Insolvency's of Brokers, Banks, Etc.
The Custodian shall not be liable for any loss, damage or expense suffered
or incurred by any Fund resulting from or occasioned by the actions, omissions,
neglects, defaults or insolvency of any broker, bank, trust company or any other
person with whom the Custodian may deal (other than any of such entities acting
as a Subcustodian, Securities System or Securities Depository and Clearing
Agency, for whose actions the liability of the Custodian is set out elsewhere in
this Agreement) unless such loss, damage or expense is caused by, or results
from, the negligence or willful misfeasance of the Custodian.
(e) Reimbursement of Expenses.
Each Fund agrees to reimburse the Custodian for all out-of-pocket expenses
incurred by the Custodian in connection with this Agreement, but excluding
salaries and usual overhead expenses.
8. INDEMNIFICATION.
(a) Indemnification by Fund.
Subject to the limitations set forth in this Agreement, each Fund agrees
to indemnify and hold harmless the Custodian and its nominees from all losses,
damages and expenses (including attorneys' fees) suffered or incurred by the
Custodian or its nominee caused by or arising from actions taken by the
Custodian, its employees or agents in the performance of its duties and
obligations under this Agreement, including, but not limited to, any
indemnification obligations undertaken by the Custodian under any relevant
subcustodian agreement; provided, however, that such indemnity shall not apply
to the extent the Custodian is liable under Sections 6 or 7 hereof.
If any Fund requires the Custodian to take any action with respect to
Securities, which action involves the payment of money or which may, in the
opinion of the Custodian, result in the Custodian or its nominee assigned to
such Fund being liable for the payment of money or incurring liability of some
other form, such Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
(b) Indemnification by Custodian.
Subject to the limitations set forth in this Agreement and in addition to
the obligations provided in Sections 6 and 7, the Custodian agrees to indemnify
and hold harmless each Fund from all losses, damages and expenses suffered or
incurred by each such Fund caused by the negligence or willful misfeasance of
the Custodian.
9. ADVANCES.
In the event that, pursuant to Instructions, the Custodian or any
Subcustodian, Securities System, transfer agent for an Underlying Fund, or
Securities Depository or Clearing Agency acting either directly or indirectly
under agreement with the Custodian (each of which for purposes of this Section 9
shall be referred to as "Custodian"), makes any payment or transfer of funds on
behalf of any Fund as to which there would be, at the close of business on the
date of such payment or transfer, insufficient funds held by the Custodian on
behalf of any such Fund, the Custodian may, in its discretion without further
Instructions, provide an advance ("Advance") to any such Fund in an amount
sufficient to allow the completion of the transaction by reason of which such
payment or transfer of funds is to be made. In addition, in the event the
Custodian is directed by Instructions to make any payment or transfer of funds
on behalf of any Fund as to which it is subsequently determined that such Fund
has overdrawn its cash account with the Custodian as of the close of business on
the date of such payment or transfer, said overdraft shall constitute an
Advance. Any Advance shall be payable by the Fund on behalf of which the Advance
was made on demand by Custodian, unless otherwise agreed by such Fund and the
Custodian, and shall accrue interest from the date of the Advance to the date of
payment by such Fund to the Custodian at a rate agreed upon in writing from time
to time by the Custodian and such Fund. It is understood that any transaction in
respect of which the Custodian shall have made an Advance, including but not
limited to a foreign exchange contract or transaction in respect of which the
Custodian is not acting as a principal, is for the account of and at the risk of
the Fund on behalf of which the Advance was made, and not, by reason of such
Advance, deemed to be a transaction undertaken by the Custodian for its own
account and risk. The Custodian and each of the Funds which are parties to this
Agreement acknowledge that the purpose of Advances is to finance temporarily the
purchase or sale of Securities for prompt delivery in accordance with the
settlement terms of such transactions or to meet emergency expenses not
reasonably foreseeable by a Fund. The Custodian shall promptly notify the
appropriate Fund of any Advance. Such notification shall be sent by facsimile
transmission or in such other manner as such Fund and the Custodian may agree.
10. LIENS.
The Bank shall have a lien on the Property in the Custody Account to
secure payment of fees and expenses for the services rendered under this
Agreement. If the Bank advances cash or securities to the Fund for any purpose
or in the event that the Bank or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of its duties hereunder, except such as may arise from its or
its nominee's negligent action, negligent failure to act or willful misconduct,
any Property at any time held for the Custody Account shall be security therefor
and the Fund hereby grants a security interest therein to the Bank. The Fund
shall promptly reimburse the Bank for any such advance of cash or securities or
any such taxes, charges, expenses, assessments, claims or liabilities upon
request for payment, but should the Fund fail to so reimburse the Bank, the Bank
shall be entitled to dispose of such Property to the extent necessary to obtain
reimbursement. The Bank shall be entitled to debit any account of the Fund with
the Bank including, without limitation, the Custody Account, in connection with
any such advance and any interest on such advance as the Bank deems reasonable.
11. COMPENSATION.
Each Fund will pay to the Custodian such compensation as is agreed to in
writing by the Custodian and each such Fund from time to time. Such
compensation, together with all amounts for which the Custodian is to be
reimbursed in accordance with Section 7(e), shall be billed to each such Fund
and paid in cash to the Custodian.
12. POWERS OF ATTORNEY.
Upon request, each Fund shall deliver to the Custodian such proxies,
powers of attorney or other instruments as may be reasonable and necessary or
desirable in connection with the performance by the Custodian or any
Subcustodian of their respective obligations under this Agreement or any
applicable subcustodian agreement.
13. TERMINATION AND ASSIGNMENT.
Any Fund or the Custodian may terminate this Agreement by notice in
writing, delivered or mailed, postage prepaid (certified mail, return receipt
requested) to the other not less than 90 days prior to the date upon which such
termination shall take effect. Upon termination of this Agreement, the
appropriate Fund shall pay to the Custodian such fees as may be due the
Custodian hereunder as well as its reimbursable disbursements, costs and
expenses paid or incurred. Upon termination of this Agreement, the Custodian
shall deliver, at the terminating party's expense, all Assets held by it
hereunder to the appropriate Fund or as otherwise designated by such Fund by
Special Instructions. Upon such delivery, the Custodian shall have no further
obligations or liabilities under this Agreement except as to the final
resolution of matters relating to activity occurring prior to the effective date
of termination.
This Agreement may not be assigned by the Custodian or any Fund without
the respective consent of the other, duly authorized by a resolution by its
Board of Directors or Trustees.
14. ADDITIONAL FUNDS.
An additional Fund or Funds may become a party to this Agreement after the
date hereof by an instrument in writing to such effect signed by such Fund or
Funds and the Custodian. If this Agreement is terminated as to one or more of
the Funds (but less than all of the Funds) or if an additional Fund or Funds
shall become a party to this Agreement, there shall be delivered to each party
an Appendix B or an amended Appendix B, signed by each of the additional Funds
(if any) and each of the remaining Funds as well as the Custodian, deleting or
adding such Fund or Funds, as the case may be. The termination of this Agreement
as to less than all of the Funds shall not affect the obligations of the
Custodian and the remaining Funds hereunder as set forth on the signature page
hereto and in Appendix B as revised from time to time.
15. NOTICES.
As to each Fund, notices, requests, instructions and other writings
delivered to The Security Benefit Group of Companies, 700 Harrison, Topeka,
Kansas 66636-0001, postage prepaid, or to such other address as any particular
Fund may have designated to the Custodian in writing, shall be deemed to have
been properly delivered or given to a Fund.
Notices, requests, instructions and other writings delivered to the
Securities Administration department of the Custodian at its office at 928 Grand
Blvd., 10th Floor, Attn: Debbie Cadwell, Kansas City, Missouri 64106, or mailed
postage prepaid, to the Custodian's Securities Administration department, Post
Office Box 226, Attn: Debbie Cadwell, Kansas City, Missouri 64141, or to such
other addresses as the Custodian may have designated to each Fund in writing,
shall be deemed to have been properly delivered or given to the Custodian
hereunder; provided, however, that procedures for the delivery of Instructions
and Special Instructions shall be governed by Section 2(c) hereof.
16. MISCELLANEOUS.
(a) This Agreement is executed and delivered in the State of Missouri and
shall be governed by the laws of such state.
(b) All of the terms and provisions of this Agreement shall be binding
upon, and inure to the benefit of, and be enforceable by the respective
successors and assigns of the parties hereto.
(c) No provisions of this Agreement may be amended, modified or waived, in
any manner except in writing, properly executed by both parties hereto;
provided, however, Appendix A may be amended from time to time as Domestic
Subcustodians, Foreign Subcustodians, Special Subcustodians, and Securities
Depositories and Clearing Agencies are approved or terminated
according to the terms of this Agreement.
(d) The captions in this Agreement are included for convenience of
reference only, and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
(e) This Agreement shall be effective as of the date of execution hereof.
(f) This Agreement may be executed simultaneously in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
(g) The following terms are defined terms within the meaning of this
Agreement, and the definitions thereof are found in the following sections of
the Agreement:
Term Section
---- -------
Account 4(b)(3)(ii)
ADR'S 4(j)
Advance 9
Assets 2(b)
Authorized Person 3
Banking Institution 4(1)
Domestic Subcustodian 5(a)
Foreign Subcustodian 5(b)
Instruction 2(c)(1)
Interim Subcustodian 5(c)
Interest Bearing Deposit 4(1)
Liens 10
OCC 4(g)(1)
Person 6(b)
Procedural Agreement 4(h)
SEC 4(b)(3)
Securities 2(a)
Securities Depositories and 5(b)
Clearing Agencies
Securities System 4(b)(3)
Shares 4(s)
Sovereign Risk 6(b)
Special Instruction 2(c)(2)
Special Subcustodian 5(d)
Subcustodian 5
1940 Act 4(v)
Underlying Funds 4(b)(4)
(h) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid by any court of competent
jurisdiction, the remaining portion or portions shall be considered severable
and shall not be affected, and the rights and obligations of the parties shall
be construed and enforced as if this Agreement did not contain the particular
part, term or provision held to be illegal or invalid.
(i) This Agreement constitutes the entire understanding and agreement of
the parties hereto with respect to the subject matter hereof, and accordingly
supersedes, as of the effective date of this Agreement, any custodian agreement
heretofore in effect between the Fund and the Custodian.
IN WITNESS WHEREOF, the parties hereto have caused this Custody Agreement
to be executed by their respective duly authorized officers.
SECURITY ULTRA FUND
ATTEST: AMY J. LEE By: JOHN D. CLELAND
---------------------------- -------------------------------
Name: John D. Cleland
Title: President
Date: September 24, 1998
SECURITY EQUITY FUND
- Equity Series
- Social Awareness Series
- Value Series
- Small Company Series
ATTEST: AMY J. LEE By: JOHN D. CLELAND
---------------------------- -------------------------------
Name: John D. Cleland
Title: President
Date: September 24, 1998
SBL FUND
- Series A, B, C, E, J, P, S, V and X
ATTEST: AMY J. LEE By: JOHN D. CLELAND
---------------------------- -------------------------------
Name: John D. Cleland
Title: President
Date: September 24, 1998
SECURITY INCOME FUND
- Corporate Bond Series
- U. S. Government Series
- Limited Maturity Bond Series
- High Yield Series
ATTEST: AMY J. LEE By: JOHN D. CLELAND
---------------------------- -------------------------------
Name: John D. Cleland
Title: President
Date: September 24, 1998
SECURITY GROWTH AND INCOME FUND
ATTEST: AMY J. LEE By: JOHN D. CLELAND
---------------------------- -------------------------------
Name: John D. Cleland
Title: President
Date: September 24, 1998
SECURITY MUNICIPAL BOND FUND
ATTEST: AMY J. LEE By: JOHN D. CLELAND
---------------------------- -------------------------------
Name: John D. Cleland
Title: President
Date: September 24, 1998
ADVISOR'S FUND
- PCG Growth Series
- PCG Aggressive Growth Series
- SIM Growth Series
- SIM Conservative Growth Series
ATTEST: AMY J. LEE By: JOHN D. CLELAND
---------------------------- -------------------------------
Name: John D. Cleland
Title: President
Date: September 24, 1998
SECURITY MANAGEMENT COMPANY, LLC
(Corporate Account)
ATTEST: AMY J. LEE By: JOHN D. CLELAND
---------------------------- -------------------------------
Name: John D. Cleland
Title: Senior Vice President
Date: September 24, 1998
SECURITY CASH FUND
ATTEST: AMY J. LEE By: JOHN D. CLELAND
---------------------------- -------------------------------
Name: John D. Cleland
Title: President
Date: September 24, 1998
UMB BANK, N.A.
ATTEST: R. WM. BLOOM By: RALPH R. SANTORO
---------------------------- -------------------------------
Name: Ralph R. Santoro
Title: Senior Vice President
Date: September 24, 1998
<PAGE>
APPENDIX A
CUSTODY AGREEMENT
DOMESTIC SUBCUSTODIANS:
United Missouri Trust Company of New York
SECURITIES SYSTEMS:
Federal Book Entry
Depository Trust Company
Participant Trust Company
SPECIAL SUBCUSTODIANS:
The Bank of New York
SECURITIES DEPOSITORIES
COUNTRIES FOREIGN SUBCUSTODIANS CLEARING AGENCIES
Euroclear
SECURITY ULTRA FUND
ATTEST: AMY J. LEE By: JOHN D. CLELAND
---------------------------- -------------------------------
Name: John D. Cleland
Title: President
Date: September 24, 1998
SECURITY EQUITY FUND
- Equity Series
- Social Awareness Series
- Value Series
- Small Company Series
ATTEST: AMY J. LEE By: JOHN D. CLELAND
---------------------------- -------------------------------
Name: John D. Cleland
Title: President
Date: September 24, 1998
SBL FUND
- Series A, B, C, E, J, P, S, V and X
ATTEST: AMY J. LEE By: JOHN D. CLELAND
---------------------------- -------------------------------
Name: John D. Cleland
Title: President
Date: September 24, 1998
SECURITY INCOME FUND
- Corporate Bond Series
- U. S. Government Series
- Limited Maturity Bond Series
- High Yield Series
ATTEST: AMY J. LEE By: JOHN D. CLELAND
---------------------------- -------------------------------
Name: John D. Cleland
Title: President
Date: September 24, 1998
SECURITY GROWTH AND INCOME FUND
ATTEST: AMY J. LEE By: JOHN D. CLELAND
---------------------------- -------------------------------
Name: John D. Cleland
Title: President
Date: September 24, 1998
SECURITY MUNICIPAL BOND FUND
ATTEST: AMY J. LEE By: JOHN D. CLELAND
---------------------------- -------------------------------
Name: John D. Cleland
Title: President
Date: September 24, 1998
SECURITY CASH FUND
ATTEST: AMY J. LEE By: JOHN D. CLELAND
---------------------------- -------------------------------
Name: John D. Cleland
Title: President
Date: September 24, 1998
ADVISOR'S FUND
- PCG Growth Series
- PCG Aggressive Growth Series
- SIM Growth Series
- SIM Conservative Growth Series
ATTEST: AMY J. LEE By: JOHN D. CLELAND
---------------------------- -------------------------------
Name: John D. Cleland
Title: President
Date: September 24, 1998
SECURITY MANAGEMENT COMPANY, LLC
(Corporate Account)
ATTEST: AMY J. LEE By: JOHN D. CLELAND
---------------------------- -------------------------------
Name: John D. Cleland
Title: Senior Vice President
Date: September 24, 1998
UMB BANK, N.A.
ATTEST: R. WM. BLOOM By: RALPH R. SANTOROO
---------------------------- -------------------------------
Name: Ralph R. Santoro
Title: Senior Vice President
Date: September 24, 1998
<PAGE>
[CHASE LOGO]
FORM OF
GLOBAL CUSTODY AGREEMENT
This AGREEMENT is effective ___________________, 1998, and is between THE CHASE
MANHATTAN BANK ("Bank") and each of the portfolios listed on Exhibit 1 hereto
(each a "Customer").
With respect to any obligations of a particular Customer arising hereunder,
Bank shall look for payment or satisfaction of any such obligation solely to
that Customer and the Assets of such Customer and Customer's Accounts to which
such obligation relates as though that Customer had separately contracted with
Bank by separate written agreement with respect to such Accounts. The rights and
benefits to which a given Customer is entitled hereunder shall be solely those
of such Customer and no other Customer hereunder shall receive such benefits.
1. CUSTOMER ACCOUNTS.
Bank, acting as "Securities Intermediary" (as defined in Section 15(g)
hereof) shall establish and maintain the following accounts ("Accounts"):
(a) a Custody Account (as defined in Section 15(b) hereof) in the name of
Customer for Financial Assets, which shall, except as modified by Section 15(d)
hereof, mean stocks, shares, bonds, debentures, notes, mortgages or other
obligations for the payment of money, bullion, coin and any certificates,
receipts, warrants or other instruments representing rights to receive, purchase
or subscribe for the same or evidencing or representing any other rights or
interests therein and other similar property whether certificated or
uncertificated as may be received by Bank or its Subcustodian (as defined in
Section 3 hereof) for the account of Customer, including as an "Entitlement
Holder" as defined in Section 15(c) hereof); and
(b) an account in the name of Customer ("Deposit Account") for any and all
cash in any currency received by Bank or its Subcustodian for the account of
Customer, which cash shall not be subject to withdrawal by draft or check.
Customer warrants its authority to: 1) deposit the cash and Financial Assets
(collectively "Assets") received in the Accounts and 2) give Instructions (as
defined in Section 11 hereof) concerning the Accounts. Bank may deliver
Financial Assets of the same class in place of those deposited in the Custody
Account.
Upon written agreement between Bank and Customer, additional Accounts may be
established and separately accounted for as additional Accounts hereunder.
2. MAINTENANCE OF FINANCIAL ASSETS AND CASH AT BANK AND SUBCUSTODIAN LOCATIONS.
Unless Instructions specifically require another location acceptable to
Bank:
(a) Financial Assets shall be held in the country or other jurisdiction in
which the principal trading market for such Financial Assets is located, where
such Financial Assets are to be presented for payment or where such Financial
Assets are acquired; and
(b) Cash shall be credited to an account in a country or other jurisdiction
in which such cash may be legally deposited or is the legal currency for the
payment of public or private debts.
Cash may be held pursuant to Instructions in either interest or non-interest
bearing accounts as may be available for the particular currency. To the extent
Instructions are issued and Bank can comply with such Instructions, Bank is
authorized to maintain cash balances on deposit for Customer with itself or one
of its "Affiliates" at such reasonable rates of interest as may from time to
time be paid on such accounts, or in non-interest bearing accounts as Customer
may direct, if acceptable to Bank. For purposes hereof, the term "Affiliate"
shall mean an entity controlling, controlled by, or under common control with,
Bank.
If Customer wishes to have any of its Assets held in the custody of an
institution other than the established Subcustodians as defined in Section 3 (or
their securities depositories), such arrangement must be authorized by a written
agreement, signed by Bank and Customer.
3. SUBCUSTODIANS AND SECURITIES DEPOSITORIES.
Bank may act hereunder through the subcustodians listed in Schedule A hereof
with which Bank has entered into subcustodial agreements ("Subcustodians").
Customer authorizes Bank to hold Assets in the Accounts in accounts which Bank
has established with one or more of its branches or Subcustodians. Bank and
Subcustodians are authorized to hold any of Financial Assets in their account
with any securities depository in which they participate.
Bank reserves the right to add new, replace or remove Subcustodians.
Customer shall be given reasonable notice by Bank of any amendment to Schedule
A. Upon request by Customer, Bank shall identify the name, address and principal
place of business of any Subcustodian of Customer's Assets and the name and
address of the governmental agency or other regulatory authority that supervises
or regulates such Subcustodian.
4. USE OF SUBCUSTODIAN.
(a) Bank shall identify the Assets on its books as belonging to Customer.
(b) A Subcustodian shall hold such Assets together with assets belonging to
other customers of Bank in accounts identified on such Subcustodian's books as
custody accounts for the exclusive benefit of customers of Bank.
(c) Any Assets in the Accounts held by a Subcustodian shall be subject only
to the instructions of Bank or its agent. Any Financial Assets held in a
securities depository for the account of a Subcustodian shall be subject only to
the instructions of such Subcustodian.
(d) Any agreement Bank enters into with a Subcustodian for holding Bank's
customers' assets shall provide that such assets shall not be subject to any
right, charge, security interest, lien or claim of any kind in favor of such
Subcustodian except for safe custody or administration, and that the beneficial
ownership of such assets shall be freely transferable without the payment of
money or value other than for safe custody or administration, or, in the case of
cash deposits, except for liens or rights in favor of creditors of the
Subcustodian arising under bankruptcy, insolvency or similar laws. Where
Securities are deposited by a Subcustodian with a securities depository, Bank
shall cause the Subcustodian to identify on its books as belonging to Bank, as
agent, the Securities shown on the Subcustodian's account on the books of such
securities depository. The foregoing shall not apply to the extent of any
special agreement or arrangement made by Customer with any particular
Subcustodian.
5. DEPOSIT ACCOUNT TRANSACTIONS.
(a) Bank or its Subcustodians shall make payments from the Deposit Account
upon receipt of Instructions which include all information required by Bank.
(b) In the event that any payment to be made under this Section 5 exceeds
the funds available in the Deposit Account, Bank, in its discretion, may advance
Customer such excess amount which shall be deemed a loan payable on demand,
bearing interest at the rate customarily charged by Bank on similar loans.
(c) If Bank credits the Deposit Account on a payable date, or at any time
prior to actual collection and reconciliation to the Deposit Account, with
interest, dividends, redemptions or any other amount due, Customer shall
promptly return any such amount upon oral or written notification: (i) that such
amount has not been received in the ordinary course of business or (ii) that
such amount was incorrectly credited. If Customer does not promptly return any
amount upon such notification, Bank shall be entitled, upon oral or written
notification to Customer, to reverse such credit by debiting the Deposit Account
for the amount previously credited. Bank or its Subcustodian shall have no duty
or obligation to institute legal proceedings, file a claim or a proof of claim
in any insolvency proceeding or take any other action with respect to the
collection of such amount, but may act for Customer upon Instructions after
consultation with Customer.
6. CUSTODY ACCOUNT TRANSACTIONS.
(a) Financial Assets shall be transferred, exchanged or delivered by Bank or
its Subcustodian upon receipt by Bank of Instructions which include all
information required by Bank. Settlement and payment for Financial Assets
received for, and delivery of Financial Assets out of, the Custody Account may
be made in accordance with the customary or established securities trading or
securities processing practices and procedures in the jurisdiction or market in
which the transaction occurs, including, without limitation, delivery of
Financial Assets to a purchaser, dealer or their agents against a receipt with
the expectation of receiving later payment and free delivery. Delivery of
Financial Assets out of the Custody Account may also be made in any manner
specifically required by Instructions acceptable to Bank.
(b) Bank, in its discretion, may credit or debit the Accounts on a
contractual settlement date with cash or Financial Assets with respect to any
sale, exchange or purchase of Financial Assets. Otherwise, such transactions
shall be credited or debited to the Accounts on the date cash or Financial
Assets are actually received by Bank and reconciled to the Account.
(i) Bank may reverse credits or debits made to the Accounts in its
discretion if the related transaction fails to settle within a reasonable
period, determined by Bank in its discretion, after the contractual
settlement date for the related transaction.
(ii) If any Financial Assets delivered pursuant to this Section 6 are
returned by the recipient thereof, Bank may reverse the credits and debits
of the particular transaction at any time.
7. ACTIONS OF BANK.
Bank shall follow Instructions received regarding Assets held in the
Accounts. However, until it receives Instructions to the contrary, Bank shall:
(a) Present for payment any Financial Assets which are called, redeemed or
retired or otherwise become payable and all coupons and other income items which
call for payment upon presentation, to the extent that Bank or Subcustodian is
actually aware of such opportunities.
(b) Execute in the name of Customer such ownership and other certificates as
may be required to obtain payments in respect of Financial Assets.
(c) Exchange interim receipts or temporary Financial Assets for definitive
Financial Assets.
(d) Appoint brokers and agents for any transaction involving the Financial
Assets, including, without limitation, Affiliates of Bank or any Subcustodian.
(e) Issue statements to Customer, at times mutually agreed upon, identifying
the Assets in the Accounts.
Bank shall send Customer an advice or notification of any transfers of
Assets to or from the Accounts. Such statements, advices or notifications shall
indicate the identity of the entity having custody of the Assets. Unless
Customer sends Bank a written exception or objection to any Bank statement
within sixty (60) days of receipt, Customer shall be deemed to have approved
such statement. In such event, or where Customer has otherwise approved any such
statement, Bank shall, to the extent permitted by law, be released, relieved and
discharged with respect to all matters set forth in such statement or reasonably
implied therefrom as though it had been settled by the decree of a court of
competent jurisdiction in an action where Customer and all persons having or
claiming an interest in Customer or Customer's Accounts were parties.
All collections of funds or other property paid or distributed in respect of
Financial Assets in the Custody Account shall be made at the risk of Customer.
Bank shall have no liability for any loss occasioned by delay in the actual
receipt of notice by Bank or by its Subcustodians of any payment, redemption or
other transaction regarding Financial Assets in the Custody Account in respect
of which Bank has agreed to take any action hereunder.
8. CORPORATE ACTIONS; PROXIES; TAX RECLAIMS.
(a) CORPORATE ACTIONS. Whenever Bank receives information concerning the
Financial Assets which requires discretionary action by the beneficial owner of
the Financial Assets (other than a proxy), such as subscription rights, bonus
issues, stock repurchase plans and rights offerings, or legal notices or other
material intended to be transmitted to securities holders ("Corporate Actions"),
Bank shall give Customer notice of such Corporate Actions to the extent that
Bank's central corporate actions department has actual knowledge of a Corporate
Action in time to notify its customers.
When a rights entitlement or a fractional interest resulting from a rights
issue, stock dividend, stock split or similar Corporate Action is received which
bears an expiration date, Bank shall endeavor to obtain Instructions from
Customer or its Authorized Person (as defined in Section 10 hereof), but if
Instructions are not received in time for Bank to take timely action, or actual
notice of such Corporate Action was received too late to seek Instructions, Bank
is authorized to sell such rights entitlement or fractional interest and to
credit the Deposit Account with the proceeds or take any other action it deems,
in good faith, to be appropriate in which case it shall be held harmless for any
such action.
(b) PROXY VOTING. Bank shall provide proxy voting services, if elected by
Customer, in accordance with the terms of the proxy voting services rider
hereto. Proxy voting services may be provided by Bank or, in whole or in part,
by one or more third parties appointed by Bank (which may be Affiliates of
Bank).
(c) TAX RECLAIMS.
(i) Subject to the provisions hereof, Bank shall apply for a reduction of
withholding tax and any refund of any tax paid or tax credits which apply in
each applicable market in respect of income payments on Financial Assets for
Customer's benefit which Bank believes may be available to Customer.
(ii) The provision of tax reclaim services by Bank is conditional upon
Bank's receiving from Customer or, to the extent the Financial Assets are
beneficially owned by others, from each beneficial owner, A) a declaration
of the beneficial owner's identity and place of residence and (B) certain
other documentation (PRO FORMA copies of which are available from Bank).
Customer acknowledges that, if Bank does not receive such declarations,
documentation and information Bank shall be unable to provide tax reclaim
services.
(iii) Bank shall not be liable to Customer or any third party for any taxes,
fines or penalties payable by Bank or Customer, and shall be indemnified
accordingly, whether these result from the inaccurate completion of
documents by Customer or any third party, or as a result of the provision to
Bank or any third party of inaccurate or misleading information or the
withholding of material information by Customer or any other third party, or
as a result of any delay of any revenue authority or any other matter beyond
Bank's control.
(iv) Bank shall perform tax reclaim services only with respect to taxation
levied by the revenue authorities of the countries notified to Customer from
time to time and Bank may, by notification in writing, at Bank's absolute
discretion, supplement or amend the markets in which tax reclaim services
are offered. Other than as expressly provided in this sub-clause, Bank shall
have no responsibility with regard to Customer's tax position or status in
any jurisdiction.
(v) Customer confirms that Bank is authorized to disclose any information
requested by any revenue authority or any governmental body in relation to
Customer or the securities and/or cash held for Customer.
(vi) Tax reclaim services may be provided by Bank or, in whole or in part,
by one or more third parties appointed by Bank (which may be Bank's
affiliates); provided that Bank shall be liable for the performance of any
such third party to the same extent as Bank would have been if Bank
performed such services.
(d) TAX OBLIGATIONS.
(i) Customer confirms that Bank is authorized to deduct from any cash
received or credited to the Deposit Account any taxes or levies required by
any revenue or governmental authority for whatever reason in respect of the
Custody Account.
(ii) If Bank does not receive appropriate declarations, documentation and
information that additional United Kingdom taxation shall be deducted from
all income received in respect of the Financial Assets issued outside the
United Kingdom and any applicable United States withholding tax shall be
deducted from income received from the Financial Assets. Customer shall
provide to Bank such documentation and information as Bank may require in
connection with taxation, and warrants that, when given, this information
shall be true and correct in every respect, not misleading in any way, and
contain all material information. Customer undertakes to notify Bank
immediately if any such information requires updating or amendment.
(iii) Customer shall be responsible for the payment of all taxes relating to
the Financial Assets in the Custody Account, and Customer agrees to pay,
indemnify and hold Bank harmless from and against any and all liabilities,
penalties, interest or additions to tax with respect to or resulting from,
any delay in, or failure by, Bank (1) to pay, withhold or report any U.S.
federal, state or local taxes or foreign taxes imposed on, or (2) to report
interest, dividend or other income paid or credited to the Deposit Account,
whether such failure or delay by Bank to pay, withhold or report tax or
income is the result of (x) Customer's failure to comply with the terms of
this paragraph, or (y) Bank's own acts or omissions; provided however,
Customer shall not be liable to Bank for any penalty or additions to tax due
as a result of Bank's failure to pay or withhold tax or to report interest,
dividend or other income paid or credited to the Deposit Account solely as a
result of Bank's negligent acts or omissions.
9. NOMINEES.
Financial Assets which are ordinarily held in registered form may be
registered in a nominee name of Bank, Subcustodian or securities depository, as
the case may be. Bank may without notice to Customer cause any such Financial
Assets to cease to be registered in the name of any such nominee and to be
registered in the name of Customer. In the event that any Financial Assets
registered in a nominee name are called for partial redemption by the issuer,
Bank may allot the called portion to the respective beneficial holders of such
class of security in any manner Bank deems to be fair and equitable. Customer
shall hold Bank, Subcustodians, and their respective nominees harmless from any
liability arising directly or indirectly from their status as a mere record
holder of Financial Assets in the Custody Account.
10. AUTHORIZED PERSONS.
As used herein, the term "Authorized Person" means employees or agents
including investment managers as have been designated by written notice from
Customer or its designated agent to act on behalf of Customer hereunder. Such
persons shall continue to be Authorized Persons until such time as Bank receives
Instructions from Customer or its designated agent that any such employee or
agent is no longer an Authorized Person.
11. INSTRUCTIONS.
The term "Instructions" means instructions of any Authorized Person received
by Bank, via telephone, telex, facsimile transmission, bank wire or other
teleprocess or electronic instruction or trade information system acceptable to
Bank which Bank believes in good faith to have been given by Authorized Persons
or which are transmitted with proper testing or authentication pursuant to terms
and conditions which Bank may specify. Unless otherwise expressly provided, all
Instructions shall continue in full force and effect until canceled or
superseded. The term "Instructions" includes, without limitation, instructions
to sell, assign, transfer, deliver, purchase or receive for the Custody Account,
any and all stocks, bonds and other Financial Assets or to transfer funds in the
Deposit Account.)
Any Instructions delivered to Bank by telephone shall promptly thereafter be
confirmed in writing by an Authorized Person (which confirmation may bear the
facsimile signature of such Person), but Customer shall hold Bank harmless for
the failure of an Authorized Person to send such confirmation in writing, the
failure of such confirmation to conform to the telephone instructions received
or Bank's failure to produce such confirmation at any subsequent time. Bank may
electronically record any Instructions given by telephone, and any other
telephone discussions with respect to the Custody Account. Customer shall be
responsible for safeguarding any testkeys, identification codes or other
security devices which Bank shall make available to Customer or its Authorized
Persons.
12. STANDARD OF CARE; LIABILITIES.
(a) Bank shall be responsible for the performance of only such duties as are
set forth herein or expressly contained in Instructions which are consistent
with the provisions hereof as follows:
(i) Notwithstanding any other provisions of this Agreement, Bank's
responsibilities shall be limited to the exercise of reasonable care with
respect to its obligations hereunder. Bank shall only be liable to Customer
for any loss which shall occur as the result of the failure of a
Subcustodian to exercise reasonable care with respect to the safekeeping of
such Assets where such loss results directly from the failure by the
Subcustodian to use reasonable care in the provision of custodial services
by it in accordance with the standards prevailing in its local market or
from the willful default of such Subcustodian in the provision of custodial
services by it. In the event of any loss to Customer which is compensable
hereunder (I.E. a loss arising by reason of willful misconduct or the
failure of Bank or its Subcustodian to use reasonable care), Bank shall be
liable to Customer only to the extent of Customer's direct damages, to be
determined based on the market value of the property which is the subject of
the loss at the date of discovery of such loss and without reference to any
special conditions or circumstances. Bank shall have no liability whatsoever
for any consequential, special, indirect or speculative loss or damages
(including, but not limited to, lost profits) suffered by Customer in
connection with the transactions and services contemplated hereby and the
relationship established hereby even if Bank has been advised as to the
possibility of the same and regardless of the form of the action.
(ii) Bank shall not be responsible for the insolvency of any
Subcustodian which is not a branch or Affiliate of Bank. Bank shall not be
responsible for any act, omission, default or the solvency of any broker or
agent which it or a Subcustodian appoints unless such appointment was made
negligently or in bad faith.
(iii) (A) Customer shall indemnify and hold Bank and its directors,
officers, agents and employees (collectively the "Indemnitees") harmless
from and against any and all claims, liabilities, losses, damages, fines,
penalties, and expenses, including out-of-pocket and incidental expenses and
legal fees ("Losses") that may be imposed on, incurred by, or asserted
against, the Indemnitees or any of them for following any instructions or
other directions upon which Bank is authorized to rely pursuant to the terms
of this Agreement. (B) In addition to and not in limitation of the preceding
subparagraph, Customer shall also indemnify and hold the Indemnitees and
each of them harmless from and against any and all Losses that may be
imposed on, incurred by, or asserted against, the Indemnitees or any of them
in connection with or arising out of Bank's performance under this
Agreement, provided the Indemnitees have not acted with negligence or
engaged in willful misconduct. (C) In performing its obligations hereunder,
Bank may rely on the genuineness of any document which it believes in good
faith to have been validly executed.
(iv) Customer shall pay for and hold Bank harmless from any liability or
loss resulting from the imposition or assessment of any taxes or other
governmental charges, and any related expenses with respect to income from
or Assets in the Accounts.
(v) Bank shall be entitled to rely, and may act, upon the advice of
counsel (who may be counsel for Customer) on all matters and shall be
without liability for any action reasonably taken or omitted pursuant to
such advice.
(vi) Bank need not maintain any insurance for the benefit of Customer.
(vii) Without limiting the foregoing, Bank shall not be liable for any
loss which results from: 1) the general risk of investing, or 2) investing
or holding Assets in a particular country including, but not limited to,
losses resulting from malfunction, interruption of or error in the
transmission of information caused by any machines or system or interruption
of communication facilities, abnormal operating conditions, nationalization,
expropriation or other governmental actions; regulation of the banking or
securities industry; currency restrictions, devaluations or fluctuations;
and market conditions which prevent the orderly execution of securities
transactions or affect the value of Assets.
(viii) Neither party shall be liable to the other for any loss due to
forces beyond their control including, but not limited to strikes or work
stoppages, acts of war (whether declared or undeclared) or terrorism,
insurrection, revolution, nuclear fusion, fission or radiation, or acts of
God.
(b) Consistent with and without limiting the first paragraph of this Section
12, it is specifically acknowledged that Bank shall have no duty or
responsibility to:
(i) question Instructions or make any suggestions to Customer or an
Authorized Person regarding such Instructions;
(ii) supervise or make recommendations with respect to investments or
the retention of Financial Assets;
(iii) advise Customer or an Authorized Person regarding any default in
the payment of principal or income of any security other than as provided in
Section 5(c) hereof;
(iv) evaluate or report to Customer or an Authorized Person regarding
the financial condition of any broker, agent or other party to which
Financial Assets are delivered or payments are made pursuant hereto; and
(v) review or reconcile trade confirmations received from brokers.
Customer or its Authorized Persons issuing Instructions shall bear any
responsibility to review such confirmations against Instructions issued to
and statements issued by Bank.
(c) Customer authorizes Bank to act hereunder notwithstanding that Bank or
any of its divisions or Affiliates may have a material interest in a
transaction, or circumstances are such that Bank may have a potential conflict
of duty or interest including the fact that Bank or any of its Affiliates may
provide brokerage services to other customers, act as financial advisor to the
issuer of Financial Assets, act as a lender to the issuer of Financial Assets,
act in the same transaction as agent for more than one customer, have a material
interest in the issue of Financial Assets, or earn profits from any of the
activities listed herein.
13. FEES AND EXPENSES.
Customer shall pay Bank for its services hereunder the fees set forth in
Schedule B hereto or such other amounts as may be agreed upon in writing,
together with Bank's reasonable out-of-pocket or incidental expenses, including,
but not limited to, legal fees. Bank shall have a lien on and is authorized to
charge any Accounts of Customer for any amount owing to Bank under any provision
hereof
14. MISCELLANEOUS.
(a) FOREIGN EXCHANGE TRANSACTIONS. To facilitate the administration of
Customer's trading and investment activity, when instructed by specific or
standing Instruction, Bank is authorized to enter into spot or forward foreign
exchange contracts with Customer or an Authorized Person for Customer and may
also provide foreign exchange through its subsidiaries, Affiliates or
Subcustodians. Instructions, may be issued with respect to such contracts but
Bank may establish rules or limitations concerning any foreign exchange facility
made available. In all cases where Bank, its subsidiaries, Affiliates or
Subcustodians enter into a separate master foreign exchange contract with
Customer that covers foreign exchange transactions for the Accounts, the terms
and conditions of that foreign exchange contract, and to the extent not
inconsistent, this Agreement, shall apply to such transactions.
(b) CERTIFICATION OF RESIDENCY, ETC. Customer certifies that it is a
resident of the United States and shall notify Bank of any changes in residency.
Bank may rely upon this certification or the certification of such other facts
as may be required to administer Bank's obligations hereunder. Customer shall
indemnify Bank against all losses, liability, claims or demands arising directly
or indirectly from any such certifications.
(c) ACCESS TO RECORDS. Bank shall allow Customer's independent public
accountant reasonable access to the records of Bank relating to the Assets as is
required in connection with their examination of books and records pertaining to
Customer's affairs. Subject to restrictions under applicable law, Bank shall
also obtain an undertaking to permit Customer's independent public accountants
reasonable access to the records of any Subcustodian which has physical
possession of any Assets as may be required in connection with the examination
of Customer's books and records.
(d) GOVERNING LAW; SUCCESSORS AND ASSIGNS, CAPTIONS THIS AGREEMENT SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND
TO BE PERFORMED IN NEW YORK and shall not be assignable by either party, but
shall bind the successors in interest of Customer and Bank. The captions given
to the sections and subsections of this Agreement are for convenience of
reference only and are not to be used to interpret this Agreement.
(e) ENTIRE AGREEMENT; APPLICABLE RIDERS. Customer represents that the Assets
deposited in the Accounts are (Check one):
__ Investment Company assets subject to certain U.S. Securities and Exchange
Commission rules and regulations;
__ Other (specify)
This Agreement consists exclusively of this document together with Schedules
A and B, Exhibits I - _______ and the following Rider(s) [Check applicable
rider(s)]:
__ INVESTMENT COMPANY
__ PROXY VOTING
__ SPECIAL TERMS AND CONDITIONS
There are no other provisions hereof and this Agreement supersedes any other
agreements, whether written or oral, between the parties. Any amendment hereto
must be in writing, executed by both parties.
(f) SEVERABILITY. In the event that one or more provisions hereof are held
invalid, illegal or unenforceable in any respect on the basis of any particular
circumstances or in any jurisdiction, the validity, legality and enforceability
of such provision or provisions under other circumstances or in other
jurisdictions and of the remaining provisions shall not in any way be affected
or impaired.
(g) WAIVER. Except as otherwise provided herein, no failure or delay on the
part of either party in exercising any power or right hereunder operates as a
waiver, nor does any single or partial exercise of any power or right preclude
any other or further exercise, or the exercise of any other power or right. No
waiver by a party of any provision hereof, or waiver of any breach or default,
is effective unless in writing and signed by the party against whom the waiver
is to be enforced.
(h) REPRESENTATIONS AND WARRANTIES. (i) Customer hereby represents and
warrants to Bank that: (A) it has full authority and power to deposit and
control the Financial Assets and cash deposited in the Accounts; (B) it has all
necessary authority to use Bank as its custodian; (C) this Agreement constitutes
its legal, valid and binding obligation, enforceable in accordance with its
terms; (D) it shall have full authority and power to borrow moneys and enter
into foreign exchange transactions; and (E) it has not relied on any oral or
written representation made by Bank or any person on its behalf, and
acknowledges that this Agreement sets out to the fullest extent the duties of
Bank. (ii) Bank hereby represents and warrants to Customer that: (A) it has the
full power and authority to perform its obligations hereunder, (B) this
Agreement constitutes its legal, valid and binding obligation, enforceable in
accordance with its terms; and (C) that it has taken all necessary action to
authorize the execution and delivery hereof.
(i) NOTICES. All notices hereunder shall be effective when actually
received. Any notices or other communications which may be required hereunder
are to be sent to the parties at the following addresses or such other addresses
as may subsequently be given to the other party in writing: (a) Bank: The Chase
Manhattan Bank, 4 Chase MetroTech Center, Brooklyn, N.Y. 11245, Attention:
Global Investor Services, Investment Management Group; and (b)
Customer:_____________ .
(j) TERMINATION. This Agreement may be terminated by Customer or Bank by
giving sixty (60) days written notice to the other, provided that such notice to
Bank shall specify the names of the persons to whom Bank shall deliver the
Assets in the Accounts. If notice of termination is given by Bank, Customer
shall, within sixty (60) days following receipt of the notice, deliver to Bank
Instructions specifying the names of the persons to whom Bank shall deliver the
Assets. In either case Bank shall deliver the Assets to the persons so
specified, after deducting any amounts which Bank determines in good faith to be
owed to it under Section 13. If within sixty (60) days following receipt of a
notice of termination by Bank, Bank does not receive Instructions from Customer
specifying the names of the persons to whom Bank shall deliver the Assets, Bank,
at its election, may deliver the Assets to a bank or trust company doing
business in the State of New York to be held and disposed of pursuant to the
provisions hereof, or to Authorized Persons, or may continue to hold the Assets
until Instructions are provided to Bank.
(k) MONEY LAUNDERING. Customer warrants and undertakes to Bank for itself
and its agents that all Customer's customers are properly identified in
accordance with U.S. Money Laundering Regulations as in effect from time to
time.
(l) IMPUTATION OF CERTAIN INFORMATION. Bank shall not be held responsible
for and shall not be required to have regard to information held by any person
by imputation or information of which Bank is not aware by virtue of a "Chinese
Wall" arrangement. If Bank becomes aware of confidential information which in
good faith it feels inhibits it from effecting a transaction hereunder Bank may
refrain from effecting it.
15. DEFINITIONS.
As used herein, the following terms shall have the meaning hereinafter
stated:
a) "Certificated Security" shall mean a security that is represented by a
certificate.
b) "Custody Account" means each Securities custody account on Bank's records
to which Financial Assets are or may be credited pursuant hereto.
c) "Entitlement Holder" shall mean the person on the records of a Securities
Intermediary as the person having a Securities Entitlement against the
Securities Intermediary.
d) "Financial Asset" shall mean, as the context requires, either the asset
itself or the means by which a person's claim to it is evidenced, including a
Certificated Security or Uncertificated Security, a security certificate, or a
Securities Entitlement.
e) "Securities" means stocks, bonds, rights, warrants and other negotiable
and non-negotiable paper whether issued as Certificated Securities or
Uncertificated Securities and commonly traded or dealt in on securities
exchanges or financial markets, and other obligations of an issuer, or shares,
participations and interests in an issuer recognized in an area in which it is
issued or dealt in as a medium for investment and any other property as shall be
acceptable to Bank for the Custody Account.
f) "Securities Entitlement" shall mean the rights and property interest of
an Entitlement Holder with respect to a Financial Asset as set forth in Part 5
of the Uniform Commercial Code.
g) "Securities Intermediary" shall mean Bank, a Subcustodian, a securities
depository, and any other financial institution which in the ordinary course of
business maintains custody accounts for others and acts in that capacity.
h) "Uncertificated Security" shall mean a security that is not represented
by a certificate.
i) "Uniform Commercial Code" means Article 8 of the Uniform Commercial Code
of the State of New York, as the same may be amended from time to time.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first-above written.
CUSTOMER
By:__________________________________________
Title:
Date:
THE CHASE MANHATTAN BANK
By:__________________________________________
Title:
Date:
<PAGE>
STATE OF __________)
)ss.
COUNTY OF _________)
On this ____ day of __________, 199__, before me personally came
__________, to me known, who being by me duly sworn, did depose and say that
he/she resides in __________ at __________, that he/she is __________ of
__________, the entity described in and which executed the foregoing instrument;
that he/she knows the seal of said entity, that the seal affixed to said
instrument is such seal, that it was so affixed by order of said entity, and
that he/she signed his/her name thereto by like order.
Sworn to before me this ____ day of __________, 199__.
___________________________
Notary
<PAGE>
STATE OF NEW YORK)
)ss.
COUNTY OF _______)
On this ____ day of __________, 199__, before me personally came
__________, to me known, who being by me duly sworn, did depose and say that
he/she resides in __________ at __________; that he/she is a Vice President of
THE CHASE MANHATTAN BANK, the corporation described in and which executed the
foregoing instrument; that he/she knows the seal of said corporation, that the
seal affixed to said instrument is such corporate seal, that it was so affixed
by order of the Board of Directors of said corporation, and that he/she signed
his/her name thereto by like order.
Sworn to before me this ____ day of __________, 199__.
___________________________
Notary
<PAGE>
Investment Company Rider to Global Custody Agreement
Between The Chase Manhattan Bank and
____________________________________
effective __________________
The following modifications are made to the Agreement:
A. Add a new Section 16 to the Agreement as follows:
"16. COMPLIANCE WITH SEC RULE 17F-5.
(a) Customer's board of directors (or equivalent body) (hereinafter
'Board') hereby delegates to Bank, and, except as to the country or countries as
to which Bank may, from time to time, advise Customer that it does not accept
such delegation, Bank hereby accepts the delegation to it, of the obligation to
perform as Customer's 'Foreign Custody Manager' (as that term is defined in SEC
rule 17f-5(a)(2)), both for the purpose of selecting Eligible Foreign Custodians
(as that term is defined in SEC rule 17f-5(a)(1), and as the same may be amended
from time to time, or that have otherwise been made exempt pursuant to an SEC
exemptive order) to hold Assets and of evaluating the contractual arrangements
with such Eligible Foreign Custodians (as set forth in SEC rule 17f-5(c)(2));
provided that, the term Eligible Foreign Custodian shall not include any
`Compulsory Depository.' A Compulsory Depository shall mean a securities
depository or clearing agency the use of which is compulsory because: (1) its
use is required by law or regulation, (2) securities cannot be withdrawn from
the depository, or (3) maintaining securities outside the depository is not
consistent with prevailing custodial practices in the country which the
depository serves. Compulsory Depositories used by Bank as of the date hereof
are set forth in Appendix 1-A hereto, and as the same may be amended on notice
to Customer from time to time.
(b) In connection with the foregoing, Bank shall:
(i) provide written reports notifying Customer's Board of the placement of
Assets with particular Eligible Foreign Custodians and of any material
change in the arrangements with such Eligible Foreign Custodians, with such
reports to be provided to Customer's Board at such times as the Board deems
reasonable and appropriate based on the circumstances of Customer's foreign
custody arrangements (and until further notice from Customer such reports
shall be provided not less than quarterly with respect to the placement of
Assets with particular Eligible Foreign Custodians and with reasonable
promptness upon the occurrence of any material change in the arrangements
with such Eligible Foreign Custodians);
(ii) exercise such reasonable care, prudence and diligence in performing as
Customer's Foreign Custody Manager as a person having responsibility for
the safekeeping of Assets would exercise;
(iii) in selecting an Eligible Foreign Custodian, first have determined
that Assets placed and maintained in the safekeeping of such Eligible
Foreign Custodian shall be subject to reasonable care, based on the
standards applicable to custodians in the relevant market, after having
considered all factors relevant to the safekeeping of such Assets,
including, without limitation, those factors set forth in SEC rule
17f-5(c)(1)(i)-(iv);
(iv) determine that the written contract with the Eligible Foreign
Custodian (or, in the case of an Eligible Foreign Custodians that is a
securities depository or clearing agency, such contract, the rules or
established practices or procedures of the depository, or any combination
of the foregoing) requires that the Eligible Foreign Custodian will provide
reasonable care for Assets based on the standards applicable to custodians
in the relevant market.
(v) have established a system to monitor the continued appropriateness of
maintaining Assets with particular Eligible Foreign Custodians and of the
governing contractual arrangements; it being understood, however, that in
the event that Bank shall have determined that the existing Eligible
Foreign Custodian in a given country would no longer afford Assets
reasonable care and that no other Eligible Foreign Custodian in that
country would afford reasonable care, Bank shall promptly so advise
Customer and shall then act in accordance with the Instructions of Customer
with respect to the disposition of the affected Assets.
Subject to (b)(i)-(v) above, Bank is hereby authorized to place and maintain
Assets on behalf of Customer with Eligible Foreign Custodians pursuant to a
written contract deemed appropriate by Bank.
(c) Except as expressly provided herein, Customer shall be solely
responsible to assure that the maintenance of Assets hereunder complies with the
rules, regulations, interpretations and exemptive orders promulgated by or under
the authority of the SEC.
(d) Bank represents to Customer that it is a U.S. Bank as defined in Rule
17f-5(a)(7). Customer represents to Bank that: (1) the Assets being placed and
maintained in Bank's custody are subject to the Investment Company Act of 1940,
as amended (the "1940 Act"), as the same may be amended from time to time; (2)
its Board: (i) has determined that it is reasonable to rely on Bank to perform
as Customer's Foreign Custody Manager (ii) or its investment adviser shall have
determined that Customer may maintain Assets in each country in which Customer's
Assets shall be held hereunder and determined to accept the risks arising
therefrom (including, but not limited to, a country's financial infrastructure),
prevailing custody and settlement practices, laws applicable to the safekeeping
and recovery of Assets held in custody, and the likelihood of nationalization,
currency controls and the like) (collectively ("Country Risk")). Nothing
contained herein shall require Bank to make any selection or to engage in any
monitoring on behalf of Customer that would entail consideration of Country
Risk.
(e) Bank shall provide to Customer such information relating to Country
Risk as is specified in Appendix 1-B hereto. Customer hereby acknowledges that:
(i) such information is solely designed to inform Customer of market conditions
and procedures and is not intended as a recommendation to invest or not invest
in particular markets; and (ii) Bank has gathered the information from sources
it considers reliable, but that Bank shall have no responsibility for
inaccuracies or incomplete information.
B. Add the following after the first sentence of Section 3 of the
Agreement: "At the request of Customer, Bank may, but need not, add to Schedule
A an Eligible Foreign Custodian that is either a bank or a non-Compulsory
Depository where Bank has not acted as Foreign Custody Manager with respect to
the selection thereof. Bank shall notify Customer in the event that it elects to
add any such entity."
C. Add the following language to the end of Section 3 of the Agreement:
"The term Subcustodian as used herein shall mean the following:
(a) a 'U.S. Bank,' which shall mean a U.S. bank as defined in SEC rule
17f-5(a)(7);
(b) an 'Eligible Foreign Custodian,' which shall mean (i) a banking
institution or trust company, incorporated or organized under the laws of a
country other than the United States, that is regulated as such by that
country's government or an agency thereof, (ii) a majority-owned direct or
indirect subsidiary of a U.S. bank or bank holding company which subsidiary
is incorporated or organized under the laws of a country other than the
United States; (iii) a securities depository or clearing agency,
incorporated or organized under the laws of a country other than the United
States (other than a Compulsory Depository), that acts as a system for the
central handling of securities or equivalent book-entries in that country
and that is regulated by a foreign financial regulatory authority as
defined under section 2(a)(50) of the 1940 Act, (iv) a securities
depository or clearing agency organized under the laws of a country other
than the United States to the extent acting as a transnational system for
the central handling of securities or equivalent book-entries, and (v) any
other entity that shall have been so qualified by exemptive order, rule or
other appropriate action of the SEC.
For purposes of clarity, it is agreed that as used in Section 12(a)(i), the term
Subcustodian shall not include any Eligible Foreign Custodian as to which Bank
has not acted as Foreign Custody Manager or any "Compulsory Depository."
<PAGE>
Appendix 1-A
COMPULSORY DEPOSITORIES
<PAGE>
Appendix 1-B
INFORMATION REGARDING COUNTRY RISK
1. To aid Customer in its determinations regarding Country Risk, Bank shall
furnish annually and upon the initial placing of Assets into a country the
following information (check items applicable):
A Opinions of local counsel concerning:
___ i. Whether applicable foreign law would restrict the access afforded
Customer's independent public accountants to books and records kept by
an eligible foreign custodian located in that country.
___ ii. Whether applicable foreign law would restrict the Customer's ability
to recover its assets in the event of the bankruptcy of an Eligible
Foreign Custodian located in that country.
___ iii. Whether applicable foreign law would restrict the Customer's ability
to recover assets that are lost while under the control of an Eligible
Foreign Custodian located in the country.
B. Written information concerning:
___ i. The foreseeability of expropriation, nationalization, freezes, or
confiscation of Customer's assets.
___ ii. Whether difficulties in converting Customer's cash and cash
equivalents to U.S. dollars are reasonably foreseeable.
C. A market report with respect to the following topics:
(i) securities regulatory environment, (ii) foreign ownership
restrictions, (iii) foreign exchange, (iv) securities settlement and
registration, (v) taxation, and (vi) compulsory depositories (including
depository evaluation).
2. To aid Customer in monitoring Country Risk, Bank shall furnish board
the following additional information:
Market flashes, including with respect to changes in the information in
market reports.
<PAGE>
GLOBAL PROXY SERVICE RIDER
To Global Custody Agreement
Between
THE CHASE MANHATTAN BANK
AND
------------------------------------
dated 199_.
1. Global Proxy Services ("Proxy Services") shall be provided for the
countries listed in the procedures and guidelines ("Procedures") furnished
to Customer, as the same may be amended by Bank from time to time on prior
notice to Customer. The Procedures are incorporated by reference herein and
form a part of this Rider.
2. Proxy Services shall consist of those elements as set forth in the
Procedures, and shall include (a) notifications ("Notifications") by Bank
to Customer of the dates of pending shareholder meetings, resolutions to be
voted upon and the return dates as may be received by Bank or provided to
Bank by its Subcustodians or third parties, and (b) voting by Bank of
proxies based on Customer Instructions. Original proxy materials or copies
thereof shall not be provided. Notifications shall generally be in English
and, where necessary, shall be summarized and translated from such
non-English materials as have been made available to Bank or its
Subcustodian. In this respect Bank's only obligation is to provide
information from sources it believes to be reliable and/or to provide
materials summarized and/or translated in good faith. Bank reserves the
right to provide Notifications, or parts thereof, in the language received.
Upon reasonable advance request by Customer, backup information relative to
Notifications, such as annual reports, explanatory material concerning
resolutions, management recommendations or other material relevant to the
exercise of proxy voting rights shall be provided as available, but without
translation.
3. While Bank shall attempt to provide accurate and complete Notifications,
whether or not translated, Bank shall not be liable for any losses or other
consequences that may result from reliance by Customer upon Notifications
where Bank prepared the same in good faith.
4 Notwithstanding the fact that Bank may act in a fiduciary capacity with
respect to Customer under other agreements or otherwise under the
Agreement, in performing Proxy Services Bank shall be acting solely as the
agent of Customer, and shall not exercise any discretion with regard to
such Proxy Services.
5. Proxy voting may be precluded or restricted in a variety of circumstances,
including, without limitation, where the relevant Financial Assets are: (i)
on loan; (ii) at registrar for registration or reregistration; (iii) the
subject of a conversion or other corporate action; (iv) not held in a name
subject to the control of Bank or its Subcustodian or are otherwise held in
a manner which precludes voting; (v) not capable of being voted on account
of local market regulations or practices or restrictions by the issuer; or
(vi) held in a margin or collateral account.
6 Customer acknowledges that in certain countries Bank may be unable to vote
individual proxies but shall only be able to vote proxies on a net basis
(E.G., a net yes or no vote given the voting instructions received from all
customers).
7. Customer shall not make any use of the information provided hereunder,
except in connection with the funds or plans covered hereby, and shall in
no event sell, license, give or otherwise make the information provided
hereunder available, to any third party, and shall not directly or
indirectly compete with Bank or diminish the market for Proxy Services by
provision of such information, in whole or in part, for compensation or
otherwise, to any third party.
8. The names of Authorized Persons for Proxy Services shall be furnished to
Bank in accordance with ss.10 of the Agreement. Proxy Services fees shall
be as set forth in ss.13 of the Agreement or as separately agreed.
<PAGE>
SPECIAL TERMS AND CONDITIONS RIDER
GLOBAL CUSTODY AGREEMENT
WITH ___________________________________
DATE ___________________________________
<PAGE>
DOMESTIC ONLY
SPECIAL TERMS AND CONDITIONS RIDER
DOMESTIC CORPORATE ACTIONS AND PROXIES
With respect to domestic U.S. and Canadian Financial Assets (the latter if held
in DTC), the following provisions shall apply rather than the provisions of
Section 8 of the Agreement and the Global Proxy Service rider:
Bank shall send to Customer or the Authorized Person for a Custody
Account, such proxies (signed in blank, if issued in the name of
Bank's nominee or the nominee of a central depository) and
communications with respect to Financial Assets in the Custody Account
as call for voting or relate to legal proceedings within a reasonable
time after sufficient copies are received by Bank for forwarding to
its customers. In addition, Bank shall follow coupon payments,
redemptions, exchanges or similar matters with respect to Financial
Assets in the Custody Account and advise Customer or the Authorized
Person for such Account of rights issued, tender offers or any other
discretionary rights with respect to such Financial Assets, in each
case, of which Bank has received notice from the issuer of the
Financial Assets, or as to which notice is published in publications
routinely utilized by Bank for this purpose.
FEES
The fees referenced in Section 13 hereof cover only domestic and euro-dollar
holdings. There shall be no Schedule A hereto, as there are no foreign assets in
the Accounts.
<PAGE>
DOMESTIC AND GLOBAL
SPECIAL TERMS AND CONDITIONS RIDER
DOMESTIC CORPORATE ACTIONS AND PROXIES
With respect to domestic U.S. and Canadian Financial Assets (the latter if held
in DTC), the following provisions shall apply rather than the pertinent
provisions of Section 8 of the Agreement and the Global Proxy Service rider:
Bank shall send to Customer or the Authorized Person for a Custody
Account, such proxies (signed in blank, if issued in the name of
Bank's nominee or the nominee of a central depository) and
communications with respect to Financial Assets in the Custody Account
as call for voting or relate to legal proceedings within a reasonable
time after sufficient copies are received by Bank for forwarding to
its customers. In addition, Bank shall follow coupon payments,
redemptions, exchanges or similar matters with respect to Financial
Assets in the Custody Account and advise Customer or the Authorized
Person for such Account of rights issued, tender offers or any other
discretionary rights with respect to such Financial Assets, in each
case, of which Bank has received notice from the issuer of the
Financial Assets, or as to which notice is published in publications
routinely utilized by Bank for this purpose.
<PAGE>
Exhibit 1
TO CUSTODIAN AGREEMENT
BETWEEN
SBL Fund and The Chase Manhattan Bank
Dated as of
The following is a list of Portfolios for which the Custodian shall serve
under a Custodian Agreement dated as of _______________ (the "Agreement"):
PORTFOLIO NAME: EFFECTIVE AS OF:
Series D
Series I
Series K
Series M
Series N
Series O
<PAGE>
Exhibit 1
TO CUSTODIAN AGREEMENT
BETWEEN
Security Equity Fund and The Chase Manhattan Bank
Dated as of
The following is a list of Portfolios for which the Custodian shall serve
under a Custodian Agreement dated as of _______________ (the "Agreement"):
PORTFOLIO NAME: EFFECTIVE AS OF:
Asset Allocation Fund
Global Series
International Series
<PAGE>
Exhibit 1
TO CUSTODIAN AGREEMENT
BETWEEN
Security Income Fund and The Chase Manhattan Bank
Dated as of
The following is a list of Portfolios for which the Custodian shall serve
under a Custodian Agreement dated as of _______________ (the "Agreement"):
PORTFOLIO NAME: EFFECTIVE AS OF:
Emerging Markets Total Return Series
Global Asset Allocation Series
Global High Yield Series
<PAGE>
ADMINISTRATIVE SERVICES AND
TRANSFER AGENCY AGREEMENT
This Agreement, made and entered into this 1st day of April, 1987, by and
between SBL Fund, a Kansas corporation ("Fund"), and Security Management
Company, a Kansas corporation, ("SMC").
WHEREAS, the Fund is engaged in business as an open-end management investment
company registered under the Investment Company Act of 1940; and
WHEREAS, Security Management Company is willing to provide general
administrative, fund accounting, transfer agency, and dividend disbursing
services to the Fund under the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual agreements made
herein, the parties agree as follows:
1. EMPLOYMENT OF SECURITY MANAGEMENT COMPANY
SMC will provide the Fund with general administrative, fund accounting,
transfer agency, and dividend disbursing services described and set forth
in Schedule A attached hereto and made a part of this agreement by
reference. SMC agrees to maintain sufficient trained personnel and
equipment and supplies to perform such services in conformity with the
current prospectus of the Fund and such other reasonable standards of
performance as the Fund may from time to time specify, and otherwise in an
accurate, timely, and efficient manner.
2. COMPENSATION
As consideration for the services described in Section I, the Fund agrees
to pay SMC a fee as described and set forth in Schedule B attached hereto
and made a part of this agreement by reference, as it may be amended from
time to time, such fee to be calculated and accrued daily and payable
monthly.
3. EXPENSES
A. EXPENSES OF SMC. SMC shall pay all of the expenses incurred in
providing Fund the services and facilities described in this
agreement, whether or not such expenses are billed to SMC or the fund,
except as otherwise provided herein.
B. DIRECT EXPENSES. Anything in this agreement to the contrary
notwithstanding, the Fund shall pay, or reimburse SMC for the payment
of, the following described expenses of the Fund (hereinafter called
"direct expenses") whether or not billed to the Fund, SMC or any
related entity:
1. Fees and expenses of its independent directors and the meetings
thereof;
2. Fees and costs of investment advisory services;
3. Fees and costs of independent auditors and income tax
preparation;
4. Fees and costs of outside legal counsel and any legal counsel
directly employed by the Fund or its Board of Directors;
5. Custodian and banking services, fees and costs;
6. Costs of printing and mailing prospectuses to existing
shareholders, proxy statements and other reports to shareholders,
where such costs are incurred through the use of unaffiliated
vendors or mail services.
7. Fees and costs for the registration of its securities with the
Securities and Exchange Commission and the jurisdictions in which
it qualifies its share for sale, including the fees and costs of
registering and bonding brokers, dealers and salesmen as
required;
8. Dues and expenses associated with membership in the Investment
Company Institute;
9. Expenses of fidelity and liability insurance and bonding covering
Fund;
10. Organizational costs.
4. INSURANCE
The Fund and SMC agree to procure and maintain, separately or as joint
insureds with themselves, their directors, employees, agents and others,
and other investment companies for which SMC acts as investment advisor and
transfer agent, a policy or policies of insurance against loss arising from
breaches of trust, errors and omissions, and a fidelity bond meeting the
requirements of the Investment Company Act of 1940, in the amounts and with
such deductibles as may be agreed upon from time to time, and to pay such
portions of the premiums therefor as amount of the coverage attributable to
each party is to the aggregate amount of the coverage for all parties.
5. REGISTRATION AND COMPLIANCE
A. SMC represents that as of the date of this agreement it is registered
as a transfer agent with the Securities and Exchange Commission
("SEC") pursuant to Subsection 17A of the Securities and Exchange Act
of 1934 and the rules and regulations thereunder, and agrees to
maintain said registration and comply with all of the requirements of
said Act, rules and regulations so long as this agreement remains in
force.
B. The Fund represents that it is a diversified management investment
company registered with the SEC in accordance with the Investment
Company Act of 1940 and the rules and regulations thereunder, and
authorized to sell its shares pursuant to said Act, the Securities Act
of 1933 and the rules and regulations thereunder.
6. LIABILITIES AND INDEMNIFICATION
SMC shall be liable for any actual losses, claims, damages or expenses
(including any reasonable counsel fees and expenses) resulting from SMC's
bad faith, willful misfeasance, reckless disregard of its obligations and
duties, negligence or failure to properly perform any of its
responsibilities or duties under this agreement. SMC shall not be liable
and shall be indemnified and held harmless by the Fund, for any claim,
demand or action brought against it arising out of, or in connection with:
A. Bad faith, willful misfeasance, reckless disregard of its duties or
negligence of the Board of Directors of the Fund, or SMC's acting upon
any instructions properly executed and authorized by the Board of
Directors of the Fund;
B. SMC acting in reliance upon advice given by independent counsel
retained by the Board of Directors of the Fund.
In the event that SMC requests the Fund to indemnify or hold it harmless
hereunder, SMC shall use its best efforts to inform the Fund of the
relevant facts concerning the matter in question. SMC shall use reasonable
care to identify and promptly notify the Fund concerning any matter which
presents, or appears likely to present, a claim for indemnification against
the Fund.
The Fund shall have the election of defending SMC against any claim which
may be the subject of indemnification hereunder. In the event the Fund so
elects, it will so notify SMC and thereupon the Fund shall take over
defenses of the claim, and (if so requested by the Fund, SMC shall incur no
further legal or other claims related thereto for which it would be
entitled to indemnity hereunder provided, however, that nothing herein
contained shall prevent SMC from retaining, at its own expense, counsel to
defend any claim. Except with the Fund's prior consent, SMC shall in no
event confess any claim or make any compromise in any matter in which the
Fund will be asked to indemnify or hold SMC harmless hereunder.
PUNITIVE DAMAGES. SMC shall not be liable to the Fund, or any third
party, for punitive, exemplary, indirect, special or consequential
damages (even if SMC has been advised of the possibility of such
damages) arising from its obligations and the services provided under
this agreement, including but not limited to loss of profits, loss of
use of the shareholder accounting system, cost of capital and expenses
of substitute facilities, programs or services.
FORCE MAJEURE. Anything in this agreement to the contrary
notwithstanding, SMC shall not be liable for delays or errors
occurring by reason of circumstances beyond its control, including but
not limited to acts of civil or military authority, national
emergencies, work stoppages, fire, flood, catastrophe, earthquake,
acts of God, insurrection, war, riot, failure of communication or
interruption.
7. DELEGATION OF DUTIES
SMC may, at its discretion, delegate, assign or subcontract any of the
duties, responsibilities and services governed by this agreement, to its
parent company, Security Benefit Group, Inc., whether or not by formal
written agreement. SMC shall, however, retain ultimate responsibility to
the Fund, and shall implement such reasonable procedures as may be
necessary, for assuring that any duties, responsibilities or services so
assigned, subcontracted or delegated are performed in conformity with the
terms and conditions of this agreement.
8. AMENDMENT
This agreement and the schedules forming a part hereof may be amended at
any time, without shareholder approval, by a writing signed by each of the
parties hereto. Any change in the Fund's registration statements or other
documents of compliance or in the forms relating to any plan, program or
service offered by its current prospectus which would require a change in
SMC's obligations hereunder shall be subject to SMC's approval, which shall
not be unreasonably withheld.
9. TERMINATION
This agreement may be terminated by either party without cause upon 120
days' written notice to the other, and at any time for cause in the event
that such cause remains unremedied for more than 30 days after receipt by
the other party of written specification of such cause.
In the event Fund designates a successor to any of SMC's obligations
hereunder, SMC shall, at the expense and pursuant to the direction of the
Fund, transfer to such successor all relevant books, records and other data
of Fund in the possession or under the control of SMC.
10. SEVERABILITY
If any clause or provision of this agreement is determined to be illegal,
invalid or unenforceable under present or future laws effective during the
term hereof, then such clause or provision shall be considered severed
herefrom and the remainder of this agreement shall continue in full force
and effect.
11. TERM
This agreement initially shall become effective upon its approval by a
majority vote of the Board of Directors of the Fund, including a majority
vote of the Directors who are not "interested persons" of Fund or SMC, as
defined in the Investment Company Act of 1940, and shall continue until
terminated pursuant to its provisions.
12. APPLICABLE LAW
This agreement shall be subject to and construed in accordance with the
laws of the State of Kansas.
SECURITY MANAGEMENT COMPANY
BY: Everett S. Gille, President
ATTEST:
Barbara W. Rankin, Secretary
SBL FUND
BY: Everett S. Gille, President
ATTEST:
Barbara W. Rankin, Secretary
<PAGE>
SCHEDULE A
ADMINISTRATIVE SERVICES AND
TRANSFER AGENCY AGREEMENT
Schedule of Administrative and Fund Accounting
Facilities and Services
Security Management Company agrees to provide the Fund the following
Administrative facilities and services:
1. FUND AND PORTFOLIO ACCOUNTING
A. Maintenance of Fund General Ledger and Journal.
B. Preparing and recording disbursements for direct fund expenses.
C. Preparing daily money transfers.
D. Reconciliation of all Fund bank and custodian accounts.
E. Assisting Fund independent auditors as appropriate.
F. Prepare daily projection of available cash balances.
G. Record trading activity for purposes of determining net asset values
and daily dividend.
H. Prepare daily portfolio evaluation report to value portfolio
securities and determine daily accrued income.
I. Determine the daily net asset value per share.
J. Determine the daily, monthly, quarterly, semiannual or annual dividend
per share.
K. Prepare monthly, quarterly, semiannual and annual financial
statements.
L. Provide financial information for reports to the securities and
exchange commission in compliance with the provisions of the
Investment Company Act of 1940 and the Securities Act of 1933, the
Internal Revenue Service and other regulatory agencies as required.
M. Provide financial, yield, net asset value, etc. information to NASD
and other survey and statistical agencies as instructed by the Fund.
N. Report to the Audit Committee of the Board of Directors, if
applicable.
2. LEGAL
A. Provide registration and other administrative services necessary to
qualify the shares of the Fund for sale in those jurisdictions
determined from time to time by the Fund's Board of Directors
(commonly known as "Blue Sky Registration").
B. Provide registration with and reports to the Securities and Exchange
Commission in compliance with the provisions of the Investment Company
Act of 1940 and the Securities Act of 1933.
C. Prepare and review Fund prospectus and Statement of Additional
Information.
D. Prepare proxy statements and oversee proxy tabulation for annual
meetings.
E. Prepare Board materials and maintain minutes of Board meetings.
F. Draft, review and maintain contractual agreements between Fund and
Investment Advisor, Custodian, Distributor and Transfer Agent.
G. Oversee printing of proxy statements, financial reports to
shareholders, prospectuses and Statements of Additional Information.
H. Provide legal advice and oversight regarding shareholder transactions,
administrative services, compliance with contractual agreements and
the provisions of the 1940 and 1933 Acts.
(Notwithstanding the above, outside counsel for the Funds may provide the
services listed above as a direct Fund expense or at the option of the
Funds, the Funds may employ their own counsel to perform any of these
services.)
<PAGE>
SCHEDULE OF SHARE TRANSFER AND DIVIDEND DISBURSING SERVICES
Security Management Company agrees to provide the Fund the following transfer
agency and dividend disbursing services:
1. Maintenance of shareholder accounts, including processing of new accounts.
2. Posting address changes and other file maintenance for shareholder
accounts.
3. Posting all transactions to the shareholder file, including:
A. Direct purchases
B. Wire order purchases
C. Direct redemptions
D. Wire order redemptions
E. Draft redemptions
F. Direct exchanges
G. Transfers
H. Certificate issuances
I. Certificate deposits
4. Monitor fiduciary processing, insuring accuracy and deduction of fees.
5. Prepare daily reconciliations of shareholder processing to money movement
instructions.
6. Handle bounced check collections. Immediately liquidate shares purchased
and return to the shareholder the check and confirmation of the
transaction.
7. Issuing all checks and stopping and replacing lost checks.
8. Draft clearing services.
A. Maintenance of signature cards and appropriate corporate resolutions.
B. Comparison of the signature on the check to the signatures on the
signature card for the purpose of paying the face amount of the check
only.
C. Receiving checks presented for payment and liquidating shares after
verifying account balance.
D. Ordering checks in quantity specified by the Fund for the shareholder.
9. Mailing confirmations, checks and/or certificates resulting from
transaction requests to shareholders.
10. Performing all of the Fund's other mailings, including:
A. Dividend and capital gain distributions.
B. Semiannual and annual reports.
C. 1099/year-end shareholder reporting.
D. Systematic withdrawal plan payments.
E. Daily confirmations.
11. Answering all service related telephone inquiries from shareholders and
others, including:
A. General and policy inquiries (research and resolve problems).
B. Fund yield inquiries.
C. Taking shareholder processing requests and account maintenance changes
by telephone as described above.
D. Submit pending requests to correspondence.
E. Monitor online statistical performance of unit.
F. Develop reports on telephone activity.
12. Respond to written inquiries (research and resolve problems); including:
A. Initiate shareholder account reconciliation proceeding when
appropriate.
B. Notify shareholder of bounced investment checks.
C. Respond to financial institutions regarding verification of deposit.
D. Initiate proceedings regarding lost certificates.
E. Respond to complaints and log activities.
F. Correspondence control.
13. Maintaining and retrieving all required past history for shareholders and
provide research capabilities as follows:
A. Daily monitoring of all processing activity to verify back-up
documentation.
B. Provide exception reports.
C. Microfilming.
D. Storage, retrieval and archive.
14. Prepare materials for annual meetings.
A. Address and mail annual proxy and related material.
B. Prepare and submit to Fund and affidavit of mailing.
C. Furnish certified list of shareholders (hard copy or microfilm) and
inspectors of election.
15. Report and remit as necessary for state escheat requirements.
Approved: Fund ---------------------------------------- SMC Everette S. Gille
<PAGE>
---------------------------------------------------------------
MODEL: SBL FUNDS
MAINTENANCE FEE...................................... $8.00
TRANSACTIONS......................................... $1.00
DIVIDENDS............................................ $1.00
ADMINISTRATION FEE................................... 0.00045
(BASED ON DAILY NET ASSET VALUE)
---------------------------------------------------------------
<TABLE>
<CAPTION>
MASTER WORKSHEET A B C D E
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1986:
TRANSACTIONS - 82 76 62 71 56
DIVIDENDS - 1 1 1 1 1
SHAREHOLDER ACCTS - 8 8 6 7 5
AVERAGE NET ASSETS - 104,150,857.26 50,141,894.67 36,603,758.20 17,678,037.53 17,393,190.51
INCOME - 2,893,670.06 2,372,681.65 2,258,629.91 2,137,524.29 1,514,339.94
EXPENSES - 670,252.11 301,247.65 227,930.13 121,890.09 113,546.44
SERVICE FEES - 78,494.06 30,063.43 23,589.25 10,053.93 9,232.24
</TABLE>
1986 1986
SERVICE TRANSFER & EXPENSE EXPENSE
FEES ADMINISTRATION PERCENT RATIO RATIO
ACTUAL MODEL INCREASE ACTUAL MODEL
-----------------------------------------------------------------
SBLA 78,494.06 47,014.89 -40.10% 0.644% 0.613%
SBLB 30,063.43 22,704.85 -24.48% 0.601% 0.586%
SBLC 23,589.25 16,582.69 -29.70% 0.623% 0.604%
SBLD 10,053.93 8,083.12 -19.60% 0.690% 0.678%
SBLE 9,232.24 7,923.94 -14.17% 0.653% 0.641%
<PAGE>
AMENDMENT TO ADMINISTRATIVE SERVICES
AND TRANSFER AGENCY AGREEMENT
WHEREAS, SBL Fund (hereinafter referred to as the "Fund") and Security
Management Company (hereinafter referred to as "SMC") are parties to an
Administrative Services and Transfer Agency Agreement dated April 1, 1987, (the
"Administrative Services Agreement") under which SMC agrees to provide general
administrative, fund accounting, transfer agency, and dividend disbursing
services to the Fund in return for the compensation specified in the
Administrative Services Agreement; and
WHEREAS, on May 5, 1989, the Board of Directors of the Fund voted to amend the
Administrative Services Agreement to provide for payment by the Fund of the fees
of all directors;
NOW THEREFORE, the Fund and the Management Company hereby amend the
Administrative Services Agreement, dated April 1, 1987, effective May 5, 1989,
as follows:
Paragraph 3.B.1. shall be deleted in its entirety and the following
paragraph inserted in lieu thereof:
3. EXPENSES
B. DIRECT EXPENSES
1. Fees and expenses of its directors (including the fees of
those directors who are deemed to be "interested persons" of
the Fund as that term is defined in the Investment Company
Act of 1940) and the meetings thereof;
IN WITNESS WHEREOF, the parties hereto have made this Amendment to the
Administrative Services Agreement this 5th day of May, 1989.
SBL FUND
By: MICHAEL J. PROVINES, PRESIDENT
Attest:
Amy J. Lee, Secretary
SECURITY MANAGEMENT COMPANY
By: MICHAEL J. PROVINES, PRESIDENT
Attest:
Amy J. Lee, Secretary
<PAGE>
AMENDMENT TO ADMINISTRATIVE SERVICES
AND TRANSFER AGENCY AGREEMENT
WHEREAS, SBL Fund (hereinafter referred to as the "Fund") and Security
Management Company (hereinafter referred to as "SMC") are parties to an
Administrative Services and Transfer Agency Agreement dated April 1, 1987, as
amended May 5, 1989, (the "Administrative Services Agreement") under which SMC
agrees to provide general administrative, fund accounting, transfer agency, and
dividend disbursing services to the Fund in return for the compensation
specified in the Administrative Services Agreement; and
WHEREAS, on July 27, 1990, the Board of Directors of the Fund voted to amend the
Administrative Services Agreement to provide for payment by the Fund of the fees
of only those directors who are not "interested persons" of the Fund;
NOW THEREFORE, the Fund and SMC hereby amend the Administrative Services
Agreement, dated April 1, 1987, effective July 27, 1990, as follows:
Paragraph 3.B.1. shall be deleted in its entirety and the following
paragraph inserted in lieu thereof:
3. EXPENSES
B. DIRECT EXPENSES
1. Fees and expenses of its directors (except the fees of those
directors who are deemed to be "interested persons" of the
Fund as that term is defined in the Investment Company Act
of 1940) and the meetings thereof;
IN WITNESS WHEREOF, the parties hereto have made this Amendment to the
Administrative Services Agreement this 27th day of July, 1990.
SBL FUND
By: MICHAEL J. PROVINES, PRESIDENT
Attest:
Amy J. Lee, Secretary
SECURITY MANAGEMENT COMPANY
By: MICHAEL J. PROVINES, PRESIDENT
Attest:
Amy J. Lee, Secretary
<PAGE>
AMENDMENT TO ADMINISTRATIVE SERVICES
AND TRANSFER AGENCY AGREEMENT
WHEREAS, SBL Fund (the "Fund"), and Security Management Company (the "Management
Company") are parties to an Administrative Services and Transfer Agency
Agreement dated April 1, 1987, as amended (the "Administrative Agreement"),
under which the Management Company provides general administrative, fund
accounting, transfer agency and dividend disbursing services to the Fund in
return for the compensation specified in the Administrative Agreement;
WHEREAS, on February 15, 1991, the Board of Directors of the Fund voted to amend
the Administrative Agreement to provide for an increase in the compensation
payable to the Management Company with respect to Series D of the Fund; and
WHEREAS, on February 15, 1991, the Board of Directors of the Fund authorized the
Fund to offer Series S common stock and approved amendment of the Administrative
Agreement to provide that the Management Company would provide general
administrative, fund accounting, transfer agency and dividend disbursing
services to Series S under the terms and conditions of the Agreement.
NOW, THEREFORE, the Fund and the Management Company hereby amend the
Administrative Agreement dated April 1, 1987, as follows, effective April 30,
1991:
1. Schedule B shall be deleted in its entirety and the attached Schedule
B inserted in lieu thereof.
2. Paragraph 7 shall be deleted in its entirety and the following
paragraph inserted in lieu thereof:
DELEGATION OF DUTIES
SMC may, at its discretion, delegate, assign or subcontract any of the
duties, responsibilities and services governed by this agreement, to
its parent company, Security Benefit Group, Inc., whether or not by
formal written agreement, or to any third party, provided that such
arrangement with a third party has been approved by the Board of
Directors of the Fund. SMC shall, however, retain ultimate
responsibility to the Fund, and shall implement such reasonable
procedures as may be necessary, for assuring that any duties,
responsibilities or services so assigned, subcontracted or delegated
are performed in conformity with the terms and conditions of this
agreement.
3. The Administrative Agreement is hereby amended to cover Series S of
the Fund.
IN WITNESS WHEREOF, the parties hereto have made this Amendment to the
Administrative Agreement this 26th day of April, 1991.
SBL FUND
By: James R. Schmank
-------------------------------------------
ATTEST: James R. Schmank, Vice President
Amy J. Lee
- --------------------------
Amy J. Lee, Secretary
SECURITY MANAGEMENT COMPANY
By: James R. Schmank
-------------------------------------------
James R. Schmank, Vice President
ATTEST:
Amy J. Lee
- --------------------------
Amy J. Lee, Secretary
<PAGE>
SBL FUND
ADMINISTRATIVE SERVICES AND TRANSFER AGENCY AGREEMENT
SCHEDULE B
The following charges apply to all Series of SBL Fund:
Maintenance Fee: $8.00 per account
Transaction Fee: $1.00
Dividend Fee: $1.00
Annual Administration Fee: .00045 (based on average daily net asset values)
The following charges apply only to Series D of SBL Fund.
Global Administration Fee: In addition to the above fees, Series D shall pay the
greater of .10 percent of its average net assets or $30,000 in the year
beginning April 30, 1991, and ending April 29, 1992; the greater of .10 percent
of its average net assets or $45,000 in the year beginning April 30, 1992, and
ending April 29, 1993; and the greater of .10 percent of its average net assets
or $60,000 thereafter. If this Agreement shall terminate befoer the last day of
a month, compensation for that part of the month this Agreement is in effect
shall be prorated in a manner consistent with the calculation of the fees set
forth above.
<PAGE>
AMENDMENT TO
ADMINISTRATIVE SERVICES AND TRANSFER AGENCY AGREEMENT
WHEREAS, SBL Fund (the "Fund"), and Security Management Company (the "Management
Company") are parties to an Administrative Services and Transfer Agency
Agreement dated April 1, 1987, as amended (the "Administrative Agreement"),
under which the Management Company provides general administrative, fund
accounting, transfer agency and dividend disbursing services to the Fund in
return for the compensation specified in the Administrative Agreement;
WHEREAS, on July 24, 1992, the Board of Directors of the Fund authorized the
Fund to offer Series J common stock and approved amendment of the Administrative
Agreement to provide that the Management Company would provide general
administrative, fund accounting, transfer agency, and dividend disbursing
services to Series J under the terms and conditions of the Agreement.
NOW, THEREFORE, the Fund and Management Company hereby amend the Administrative
Agreement dated April 1, 1987, effective October 1, 1992, to cover Series J of
the Fund.
IN WITNESS WHEREOF, the parties hereto have made this Amendment to the
Administrative Agreement this 1st day of October, 1992.
SBL FUND
By: James R. Schmank
-------------------------------------------
ATTEST: James R. Schmank, Vice President
Amy J. Lee
- --------------------------
Amy J. Lee, Secretary
SECURITY MANAGEMENT COMPANY
By: James R. Schmank
-------------------------------------------
James R. Schmank, Sr. Vice President
ATTEST:
Amy J. Lee
- --------------------------
Amy J. Lee, Secretary
<PAGE>
AMENDMENT TO ADMINISTRATIVE SERVICES
AND TRANSFER AGENCY AGREEMENT
WHEREAS, SBL Fund (the "Fund"), and Security Management Company (the "Management
Company") are parties to an Administrative Services and Transfer Agency
Agreement dated April 1, 1987, as amended (the "Administrative Agreement"),
under which the Management Company provides general administrative, fund
accounting, transfer agency and dividend disbursing services to the Fund in
return for the compensation specified in the Administrative Agreement; and
WHEREAS, on February 3, 1995, the Board of Directors of the Fund authorized the
Fund to offer a new series of common stock, Series K, and approved amendment of
the Administrative Agreement to provide that the Management Company would
provide general administrative, fund accounting, transfer agency, and dividend
disbursing services to Series K under the terms and conditions of the Agreement.
WHEREAS, on April 3, 1995, the Board of Directors of the Fund authorized the
Fund to offer three additional new series of common stock, Series M, N and O,
and approved amendment of the Administrative Agreement to provide that the
Management Company would provide general administrative, fund accounting,
transfer agency and dividend disbursing services to Series M, N, and O under the
terms and conditions of the Agreement.
NOW, THEREFORE, the Fund and the Management Company hereby amend the
Administrative Agreement dated April 1, 1987, as follows, effective May 1, 1995:
1. Schedule B shall be deleted in its entirety and the attached Schedule
B inserted in lieu thereof.
2. The Administrative Agreement is hereby amended to cover Series K, M, N
and O of the Fund.
IN WITNESS WHEREOF, the parties hereto have made this Amendment to the
Administrative Agreement this 28th day of April, 1995.
SBL FUND
By: John D. Cleland
-------------------------------------------
ATTEST: John D. Cleland, President
Amy J. Lee
- --------------------------
Amy J. Lee, Secretary
SECURITY MANAGEMENT COMPANY
By: Jeffrey B. Pantages
-------------------------------------------
Jeffrey B. Pantages, President
ATTEST:
Amy J. Lee
- --------------------------
Amy J. Lee, Secretary
<PAGE>
SBL FUND
ADMINISTRATIVE SERVICES AND TRANSFER AGENCY AGREEMENT
SCHEDULE B
The following charges apply to all Series of SBL Fund:
Maintenance Fee: $8.00 per account
Transaction Fee: $1.00
Dividend Fee: $1.00
Annual Administration Fee: .045% (based on average daily net asset values)
The following charges apply only to Series K, M and N of SBL Fund.
Global Administration Fee: In addition to the above fees, each of Series K, M
and N shall pay an annual fee equal to the greater of .10 percent of its average
net assets or (i) $30,000 in the year ending April 29, 1996; (ii) $45,000 in the
year ending April 29, 1997; and (iii) $60,000 thereafter.
The following charges apply only to Series D of SBL Fund.
Global Administration Fee. In addition to the above fees, Series D shall pay an
annual fee equal to the greater of .10 percent of its average net assets or
$60,000.
If this Agreement shall terminate before the last day of a month, compensation
for that part of the month this Agreement is in effect shall be prorated in a
manner consistent with the calculation of the fees set forth above.
<PAGE>
AMENDMENT TO ADMINISTRATIVE SERVICES
AND TRANSFER AGENCY AGREEMENT
WHEREAS, SBL Fund (hereinafter referred to as the "Fund") and Security
Management Company (hereinafter referred to as "SMC") are parties to an
Administrative Services and Transfer Agency Agreement dated April 1, 1987, as
amended, (the "Administrative Agreement"), under which SMC provides general
administrative, fund accounting, transfer agency and dividend disbursing
services to the Fund in return for the compensation specified in the
Administrative Agreement;
WHEREAS, on February 2, 1996, the Board of Directors of the Fund voted to amend
the Administrative Agreement to provide for payment by the Fund for costs
associated with preparing and transmitting electronic filings to the Securities
and Exchange Commission or any other regulating authority;
NOW THEREFORE, the Fund and SMC hereby amend paragraph 3B of the Administrative
Agreement, effective February 2, 1996, by adding the following language at the
end of paragraph 3B:
11. Costs associated with the preparation and transmission of any
electronic filings to the Securities and Exchange Commission or
any other regulating authority.
IN WITNESS WHEREOF, the parties hereto have made this Amendment to the
Administrative Agreement this 2nd day of February, 1996.
SBL FUND
By: John D. Cleland
-------------------------------------------
ATTEST: John D. Cleland, President
Amy J. Lee
- --------------------------
Amy J. Lee, Secretary
SECURITY MANAGEMENT COMPANY
By: Jeffrey B. Pantages
-------------------------------------------
Jeffrey B. Pantages, President
ATTEST:
Amy J. Lee
- --------------------------
Amy J. Lee, Secretary
<PAGE>
AMENDMENT TO ADMINISTRATIVE
SERVICES AND TRANSFER AGENCY AGREEMENT
WHEREAS, SBL Fund (the "Fund"), and Security Management Company (the "Management
Company") are parties to an Administrative Services and Transfer Agency
Agreement dated April 1, 1987 (the "Administrative Agreement"), under which the
Management Company provides general administrative, fund accounting, transfer
agency and dividend disbursing services to the Fund in return for the
compensation specified in the Administrative Agreement;
WHEREAS, on May 3, 1996, the Board of Directors of the Fund authorized the Fund
to offer its common stock in a new series designated as Series P, in addition to
its presently offered series of common stock of Series A, Series B, Series C,
Series D, Series E, Series S, Series J, Series K, Series M, Series N and Series
O; and
WHEREAS, on May 3, 1996, the Board of Directors approved the amendment of the
Administrative Agreement to provide that the Management Company would provide
general administrative, fund accounting, transfer agency, and dividend
disbursing services to Series P under the terms and conditions of the
Administrative Agreement;
NOW, THEREFORE BE IT RESOLVED, that the Fund and Management Company hereby amend
the Administrative Agreement dated April 1, 1987, as follows, effective July 1,
1996,
1. Schedule B shall be deleted in its entirety and the attached Schedule
B inserted in lieu thereof.
2. The Administrative Agreement is hereby amnended to cover Series P of
the Fund.
IN WITNESS WHEREOF, the parties hereto have made this Amendment to the
Administrative Agreement this 13th day of May, 1996.
SBL FUND
By: John D. Cleland
-------------------------------------------
ATTEST: John D. Cleland, President
Amy J. Lee
- --------------------------
Amy J. Lee, Secretary
SECURITY MANAGEMENT COMPANY
By: Jeffrey B. Pantages
-------------------------------------------
Jeffrey B. Pantages, President
ATTEST:
Amy J. Lee
- --------------------------
Amy J. Lee, Secretary
<PAGE>
SBL FUND
ADMINISTRATIVE SERVICES AND TRANSFER AGENCY AGREEMENT
SCHEDULE B
The following charges apply to all Series of SBL Fund:
Maintenance Fee: $8.00 per account
Transaction Fee: $1.00
Dividend Fee: $1.00
Administration Fee: .045% (based on daily net asset value)
The following charges apply only to Series K, M and N of SBL Fund.
Global Administration Fee: In addition to the above fees, each of Series K, M
and N shall pay an annual fee equal to the greater of .10 percent of its average
net assets or (i) $30,000 in the year ending April 29, 1996; (ii) $45,000 in the
year ending April 29, 1997; and (iii) $60,000 thereafter.
The following charges apply only to Series D of SBL Fund.
Global Administration Fee. In addition to the above fees, Series D shall pay an
annual fee equal to the greater of .10 percent of its average net assets or
$60,000.
If this Agreement shall terminate before the last day of a month, compensation
for that part of the month this Agreement is in effect shall be prorated in a
manner consistent with the calculation of the fees set forth above.
<PAGE>
AMENDMENT TO ADMINISTRATIVE SERVICES
AND TRANSFER AGENCY AGREEMENT
WHEREAS, SBL Fund (the "Fund") and Security Management Company (the "Management
Company") are parties to an Administrative Services and Transfer Agency
Agreement, dated April 1, 1987, as amended (the "Administrative Agreement"),
under which the Management Company provides general administrative, fund
accounting, transfer agency and dividend disbursing services to the Fund in
return for the compensation specified in the Administrative Agreement;
WHEREAS, on October 31, 1996, the operations of the Management Company, a Kansas
corporation, will be transferred to Security Management Company, LLC ("SMC,
LLC"), a Kansas limited liability company; and
WHEREAS, SMC, LLC desires to assume all rights, duties and obligations of the
Management Company under the Administrative Agreement.
NOW THEREFORE, in consideration of the premises and mutual agreements made
herein, the parties hereto agree as follows:
1. The Administrative Agreement is hereby amended to substitute SMC, LLC for
Security Management Company, with the same effect as though SMC, LLC were
the originally named management company, effective November 1, 1996;
2. SMC, LLC agrees to assume the rights, duties and obligations of Security
Management Company pursuant to the terms of the Administrative Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to
Administrative Services and Transfer Agency Agreement this 1st day of November,
1996.
SBL FUND SECURITY MANAGEMENT COMPANY, LLC
By: JOHN D. CLELAND By: JAMES R. SCHMANK
------------------------------- ----------------------------------
John D. Cleland, President James R. Schmank, President
ATTEST: ATTEST:
AMY J. LEE, SECRETARY AMY J. LEE, SECRETARY
- ---------------------------------- -------------------------------------
Amy J. Lee, Secretary Amy J. Lee, Secretary
<PAGE>
AMENDMENT TO
ADMINISTRATIVE SERVICES AND TRANSFER AGENCY AGREEMENT
WHEREAS, SBL Fund (the "Fund") and Security Management Company, LLC (the
"Management Company") are parties to an Administrative Services and Transfer
Agency Agreement dated April 1, 1987, as amended (the "Administrative
Agreement"), under which the Management Company provides general administrative,
fund accounting, transfer agency and dividend disbursing services to the Fund in
return for the compensation specified in the Administrative Agreement;
WHEREAS, on February 7, 1997, the Board of Directors of the Fund authorized the
Fund to offer its common stock in a new series designated as Series V, in
addition to its presently offered series of common stock of Series A, Series B,
Series C, Series D, Series E, Series S, Series J, Series K, Series M, Series N,
Series O and Series P; and
WHEREAS, on February 7, 1997, the Board of Directors approved the amendment of
the Administrative Agreement to provide that the Management Company would
provide general administrative, fund accounting, transfer agency, and dividend
disbursing services to Series V under the terms and conditions of the
Administrative Agreement;
NOW, THEREFORE BE IT RESOLVED, that the Fund and Management Company hereby amend
the Administrative Agreement, dated April 1, 1987, as follows, effective April
30, 1997:
1. Schedule B shall be deleted in its entirety and the attached Schedule B
inserted in lieu thereof.
2. The Administrative Agreement is hereby amended to cover Series V of the
Fund.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the
Administrative Agreement this 12th day of March, 1997.
SBL FUND
By: JOHN D. CLELAND
-----------------------------------
John D. Cleland, President
ATTEST:
AMY J. LEE
- ----------------------------------
Amy J. Lee, Secretary
SECURITY MANAGEMENT COMPANY, LLC
By: JAMES R. SCHMANK
-----------------------------------
James R. Schmank, President
ATTEST:
AMY J. LEE
- ----------------------------------
Amy J. Lee, Secretary
<PAGE>
SBL FUND
ADMINISTRATIVE SERVICES AND TRANSFER AGENCY AGREEMENT
SCHEDULE B
The following charges apply to all Series of SBL Fund:
Maintenance Fee: $8.00 per account
Transaction Fee: $1.00
Dividend Fee: $1.00
Annual Administration Fee: .045% (based on average daily net asset values)
The following charges apply only to Series K, M and N of SBL Fund.
Global Administration Fee: In addition to the above fees, each of Series K, M
and N shall pay an annual fee equal to the greater of .10 percent of its average
net assets or (i) $30,000 in the year ended April 29, 1996; (ii) $45,000 in the
year ending April 29, 1997; and (iii) $60,000 thereafter.
The following charges apply only to Series D of SBL Fund.
Global Administration Fee. In addition to the above fees, Series D shall pay an
annual fee equal to the greater of .10 percent of its average net assets or
$60,000.
If this Agreement shall terminate before the last day of a month, compensation
for that part of the month this Agreement is in effect shall be prorated in a
manner consistent with the calculation of the fees set forth above.
<PAGE>
AMENDMENT TO
ADMINISTRATIVE SERVICES AND TRANSFER AGENCY AGREEMENT
WHEREAS, SBL Fund (the "Fund") and Security Management Company, LLC (the
"Management Company") are parties to an Administrative Services and Transfer
Agency Agreement dated April 1, 1987, as amended (the "Administrative
Agreement"), under which the Management Company provides general administrative,
fund accounting, transfer agency and dividend disbursing services to the Fund in
return for the compensation specified in the Administrative Agreement;
WHEREAS, on July 25, 1997, the Board of Directors of the Fund authorized the
Fund to offer its common stock in a new series designated as Series X, in
addition to its presently offered series of common stock of Series A, Series B,
Series C, Series D, Series E, Series S, Series J, Series K, Series M, Series N,
Series O, Series P and Series V; and
WHEREAS, on July 25, 1997, the Board of Directors approved the amendment of the
Administrative Agreement to provide that the Management Company would provide
general administrative, fund accounting, transfer agency, and dividend
disbursing services to Series X under the terms and conditions of the
Administrative Agreement;
NOW, THEREFORE BE IT RESOLVED, that the Fund and Management Company hereby amend
the Administrative Agreement, dated April 1, 1987, as follows, effective October
15, 1997:
1. Schedule B shall be deleted in its entirety and the attached Schedule B
inserted in lieu thereof.
2. The Administrative Agreement is hereby amended to cover Series X of the
Fund.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the
Administrative Agreement this 15th day of September, 1997.
SBL FUND
By: JOHN D. CLELAND
-------------------------------
John D. Cleland, President
ATTEST:
AMY J. LEE
- ---------------------
Amy J. Lee, Secretary
SECURITY MANAGEMENT COMPANY, LLC
By: JEFFREY B. PANTAGES
-------------------------------
Jeffrey B. Pantages, President
ATTEST:
AMY J. LEE
- ---------------------
Amy J. Lee, Secretary
<PAGE>
SBL FUND
ADMINISTRATIVE SERVICES AND TRANSFER AGENCY AGREEMENT
SCHEDULE B
The following charges apply to all Series of SBL Fund:
Maintenance Fee: $8.00 per account
Transaction Fee: $1.00
Dividend Fee: $1.00
Annual Administration Fee: .045% (based on average daily net asset values),
except Series X, for which the fee is .09% (based on average daily net asset
values)
The following charges apply only to Series K, M and N of SBL Fund.
Global Administration Fee: In addition to the above fees, each of Series K, M
and N shall pay an annual fee equal to the greater of .10 percent of its average
net assets or (i) $30,000 in the year ended April 29, 1996; (ii) $45,000 in the
year ending April 29, 1997; and (iii) $60,000 thereafter.
The following charges apply only to Series D of SBL Fund.
Global Administration Fee. In addition to the above fees, Series D shall pay an
annual fee equal to the greater of .10 percent of its average net assets or
$60,000.
If this Agreement shall terminate before the last day of a month, compensation
for that part of the month this Agreement is in effect shall be prorated in a
manner consistent with the calculation of the fees set forth above.
<PAGE>
FORM OF
AMENDMENT TO
ADMINISTRATIVE SERVICES AND TRANSFER AGENCY AGREEMENT
WHEREAS, SBL Fund (the "Fund") and Security Management Company, LLC (the
"Management Company") are parties to an Administrative Services and Transfer
Agency Agreement dated April 1, 1987, as amended (the "Administrative
Agreement"), under which the Management Company provides general administrative,
fund accounting, transfer agency and dividend disbursing services to the Fund in
return for the compensation specified in the Administrative Agreement;
WHEREAS, on November 6, 1998, the Board of Directors of the Fund authorized the
Fund to offer its common stock in a new series designated as Series I, in
addition to its presently offered series of common stock of Series A, Series B,
Series C, Series D, Series E, Series S, Series J, Series K, Series M, Series N,
Series O, Series P, Series V and Series X; and
WHEREAS, on November 6, 1998, the Board of Directors approved the amendment of
the Administrative Agreement to provide that the Management Company would
provide general administrative, fund accounting, transfer agency, and dividend
disbursing services to Series I under the terms and conditions of the
Administrative Agreement;
NOW, THEREFORE BE IT RESOLVED, that the Fund and Management Company hereby amend
the Administrative Agreement, dated April 1, 1987, as follows, effective January
28, 1999:
1. Schedule B shall be deleted in its entirety and the attached Schedule B
inserted in lieu thereof.
2. The Administrative Agreement is hereby amended to cover Series I of the
Fund.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the
Administrative Agreement this ______ day of ____________, 1999.
SBL FUND
By:_____________________________________
John D. Cleland, President
ATTEST:
- --------------------------
Amy J. Lee, Secretary
SECURITY MANAGEMENT COMPANY, LLC
By:_____________________________________
James R. Schmank, President
ATTEST:
- ---------------------------
Amy J. Lee, Secretary
<PAGE>
SBL FUND
ADMINISTRATIVE SERVICES AND TRANSFER AGENCY AGREEMENT
SCHEDULE B
The following charges apply to all Series of SBL Fund:
Maintenance Fee: $8.00 per account
Transaction Fee: $1.00
Dividend Fee: $1.00
Annual Administration Fee: .045% (based on average daily net asset values),
except Series X, for which the fee is .09% (based on average daily net asset
values)
The following charges apply only to Series D, K, M and N of SBL Fund.
Global Administration Fee: In addition to the above fees, each of Series D, K, M
and N shall pay an annual fee equal to the greater of .10 percent of its average
net assets or $60,000.
The following charges apply only to Series I of SBL Fund.
Global Administration Fee. In addition to the above fees, Series I shall pay an
annual fee equal to the greater of .10 percent of its average net assets or (i)
$30,000 in the year ended January 28, 2000; (ii) $45,000 in the year ending
January 28, 2001, and (iii) $60,000 thereafter.
If this Agreement shall terminate before the last day of a month, compensation
for that part of the month this Agreement is in effect shall be prorated in a
manner consistent with the calculation of the fees set forth above.
<PAGE>
[SBG LOGO]
- --------------------------------------------------------------------------------
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
October 10, 1998
SBL Fund
700 Harrison Street
Topeka, KS 66636-0001
Dear Sir/Madam:
In connection with the registration under the Securities Act of 1933 of an
indefinite number of shares of common stock of SBL Fund (the "Company"), I have
examined such matters as I have deemed necessary to give this opinion.
On the basis of the foregoing, it is my opinion that the shares have been duly
authorized and, when paid for as contemplated by the Company's Registration
Statement, will be validly issued, fully paid, and non-assessable.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.
Sincerely,
AMY J. LEE
Amy J. Lee, Esq.
Secretary
SBL Fund
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the caption "Independent
Auditors" and to the incorporation by reference of our report dated February 6,
1998 in the Post-Effective Amendment No. 36 to the Registration Statement (Form
N-1A) and related Prospectus and Statement of Additional Information of SBL Fund
filed with the Securities and Exchange Commission under the Securities Act of
1933 (Registration No. 2-59353) and under the Investment Company Act of 1940
(Registration No. 811-2753).
Ernst & Young LLP
Kansas City, Missouri
November 13, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000217087
<NAME> SBL FUND
<SERIES>
<NUMBER> 001
<NAME> SERIES A
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 611,559
<INVESTMENTS-AT-VALUE> 920,249
<RECEIVABLES> 2,407
<ASSETS-OTHER> 92,923
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,015,579
<PAYABLE-FOR-SECURITIES> 12,565
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,085
<TOTAL-LIABILITIES> 15,650
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 612,156
<SHARES-COMMON-STOCK> 34,021
<SHARES-COMMON-PRIOR> 29,391
<ACCUMULATED-NII-CURRENT> 5,458
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 73,625
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 308,690
<NET-ASSETS> 999,929
<DIVIDEND-INCOME> 10,101
<INTEREST-INCOME> 2,471
<OTHER-INCOME> 0
<EXPENSES-NET> 6,959
<NET-INVESTMENT-INCOME> 5,613
<REALIZED-GAINS-CURRENT> 74,246
<APPREC-INCREASE-CURRENT> 126,639
<NET-CHANGE-FROM-OPS> 206,498
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12,677
<NUMBER-OF-SHARES-REDEEMED> 10,043
<SHARES-REINVESTED> 1,996
<NET-CHANGE-IN-ASSETS> 285,338
<ACCUMULATED-NII-PRIOR> 5,364
<ACCUMULATED-GAINS-PRIOR> 50,975
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6,408
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,959
<AVERAGE-NET-ASSETS> 859,896
<PER-SHARE-NAV-BEGIN> 24.31
<PER-SHARE-NII> .16
<PER-SHARE-GAIN-APPREC> 6.75
<PER-SHARE-DIVIDEND> .18
<PER-SHARE-DISTRIBUTIONS> 1.65
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 29.39
<EXPENSE-RATIO> .81
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000217087
<NAME> SBL FUND
<SERIES>
<NUMBER> 002
<NAME> SERIES B
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 872,131
<INVESTMENTS-AT-VALUE> 1,183,758
<RECEIVABLES> 20,005
<ASSETS-OTHER> 70,199
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,273,962
<PAYABLE-FOR-SECURITIES> 71,933
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,727
<TOTAL-LIABILITIES> 75,660
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 737,234
<SHARES-COMMON-STOCK> 28,805
<SHARES-COMMON-PRIOR> 27,020
<ACCUMULATED-NII-CURRENT> 20,257
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 129,184
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 311,627
<NET-ASSETS> 1,198,302
<DIVIDEND-INCOME> 13,392
<INTEREST-INCOME> 16,087
<OTHER-INCOME> 0
<EXPENSES-NET> 8,982
<NET-INVESTMENT-INCOME> 20,497
<REALIZED-GAINS-CURRENT> 129,262
<APPREC-INCREASE-CURRENT> 101,906
<NET-CHANGE-FROM-OPS> 251,665
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 23,074
<DISTRIBUTIONS-OF-GAINS> 57,257
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,261
<NUMBER-OF-SHARES-REDEEMED> 5,527
<SHARES-REINVESTED> 2,051
<NET-CHANGE-IN-ASSETS> 241,716
<ACCUMULATED-NII-PRIOR> 22,621
<ACCUMULATED-GAINS-PRIOR> 57,392
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,120
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8,984
<AVERAGE-NET-ASSETS> 1,082,632
<PER-SHARE-NAV-BEGIN> 35.40
<PER-SHARE-NII> .72
<PER-SHARE-GAIN-APPREC> 8.47
<PER-SHARE-DIVIDEND> .86
<PER-SHARE-DISTRIBUTIONS> 2.13
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 41.60
<EXPENSE-RATIO> .83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000217087
<NAME> SBL FUND
<SERIES>
<NUMBER> 003
<NAME> SERIES C
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 98,019
<INVESTMENTS-AT-VALUE> 98,015
<RECEIVABLES> 1,507
<ASSETS-OTHER> 523
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 100,045
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,030
<TOTAL-LIABILITIES> 2,030
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 91,897
<SHARES-COMMON-STOCK> 7,822
<SHARES-COMMON-PRIOR> 10,246
<ACCUMULATED-NII-CURRENT> 6,122
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (4)
<NET-ASSETS> 98,015
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,066
<OTHER-INCOME> 0
<EXPENSES-NET> 729
<NET-INVESTMENT-INCOME> 6,337
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 50
<NET-CHANGE-FROM-OPS> 6,387
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,976
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 26,334
<NUMBER-OF-SHARES-REDEEMED> 29,323
<SHARES-REINVESTED> 565
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