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SBL FUND
PROSPECTUS
MAY 1, 1999
* 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 H (Enhanced Index Series)
* Series I (International Series)
* Series J (Mid Cap Series)
* Series K (Global Strategic Income Series)
* Series M (Global Total Return 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)
* Series Y (Select 25 Series)
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The Securities and Exchange Commission has
not approved or disapproved these securities
or passed upon the accuracy or adequacy of
this prospectus. Any representation to the
contrary is a criminal offense.
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[SDI LOGO]
SECURITY DISTRIBUTORS, INC.
A Member of The Security Benefit
Group of Companies
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TABLE OF CONTENTS
SERIES' OBJECTIVES.......................................................... 2
Series A (Growth Series).................................................. 2
Series B (Growth-Income Series)........................................... 2
Series C (Money Market Series)............................................ 2
Series D (Worldwide Equity Series)........................................ 2
Series E (High Grade Income Series)....................................... 2
Series H (Enhanced Index Series).......................................... 2
Series I (International Series)........................................... 2
Series J (Mid Cap Series)................................................. 2
Series K (Global Strategic Income Series)................................. 2
Series M (Global Total Return Series)..................................... 2
Series N (Managed Asset Allocation Series)................................ 2
Series O (Equity Income Series)........................................... 2
Series P (High Yield Series).............................................. 2
Series S (Social Awareness Series)........................................ 2
Series V (Value Series)................................................... 2
Series X (Small Cap Series)............................................... 2
Series Y (Select 25 Series)............................................... 2
SERIES' PRINCIPAL INVESTMENT STRATEGIES..................................... 2
Series A (Growth Series).................................................. 2
Series B (Growth-Income Series)........................................... 3
Series C (Money Market Series)............................................ 3
Series D (Worldwide Equity Series)........................................ 3
Series E (High Grade Income Series)....................................... 4
Series H (Enhanced Index Series).......................................... 5
Series I (International Series)........................................... 5
Series J (Mid Cap Series)................................................. 6
Series K (Global Strategic Income Series)................................. 6
Series M (Global Total Return Series)..................................... 7
Series N (Managed Asset Allocation Series)................................ 8
Series O (Equity Income Series)........................................... 8
Series P (High Yield Series).............................................. 9
Series S (Social Awareness Series)........................................ 9
Series V (Value Series)................................................... 10
Series X (Small Cap Series)............................................... 10
Series Y (Select 25 Series)............................................... 10
MAIN RISKS.................................................................. 11
Market Risk............................................................... 11
Smaller Companies......................................................... 11
Value Stocks.............................................................. 11
Growth Stocks............................................................. 11
Foreign Securities........................................................ 11
Emerging Markets.......................................................... 12
Options and Futures....................................................... 12
Short Sales............................................................... 12
Active Trading............................................................ 12
Interest Rate Risk........................................................ 12
Credit Risk............................................................... 12
Prepayment Risk........................................................... 12
Mortgage-Backed Securities................................................ 12
Restricted Securities..................................................... 13
High Yield Securities..................................................... 13
Social Investing.......................................................... 13
Diversification........................................................... 13
Investment Companies...................................................... 13
Additional Information.................................................... 13
PAST PERFORMANCE............................................................ 13
INVESTMENT MANAGER.......................................................... 18
Management Fees........................................................... 19
Portfolio Managers........................................................ 20
Year 2000 Compliance...................................................... 22
PURCHASE AND REDEMPTION OF SHARES........................................... 22
DISTRIBUTIONS AND FEDERAL INCOME TAX CONSIDERATIONS......................... 23
DETERMINATION OF NET ASSET VALUE............................................ 23
GENERAL INFORMATION......................................................... 23
Contractowner Inquiries................................................... 23
INVESTMENT POLICIES AND MANAGEMENT PRACTICES................................ 23
Convertible Securities and Warrants....................................... 23
Foreign Securities........................................................ 24
Emerging Markets.......................................................... 24
Smaller Companies......................................................... 24
Asset-Backed Securities................................................... 24
Mortgage-Backed Securities................................................ 24
Restricted Securities..................................................... 25
Lower Rate Debt Securities................................................ 25
Hard Asset Securities..................................................... 26
Guaranteed Investment Contracts ("GICs").................................. 26
Futures and Options....................................................... 26
Hybrid Instruments........................................................ 26
Swaps, Caps, Floors and Collars........................................... 26
When-Issued Securities and Forward Commitment Contracts................... 27
Cash Reserves............................................................. 27
Shares of Other Investment Companies...................................... 27
Borrowing................................................................. 27
FINANCIAL HIGHLIGHTS........................................................ 28
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SERIES' OBJECTIVES
Described below are the investment objectives for each of the Series. SBL Fund's
Board of Directors may change the investment objectives without shareholder
approval.
As with any investment, there can be no guarantee that the Series will achieve
their objectives.
SERIES A (GROWTH SERIES) -- Series A seeks long-term capital growth.
SERIES B (GROWTH-INCOME SERIES) -- Series B seeks long-term growth of capital
with secondary emphasis on income.
SERIES C (MONEY MARKET SERIES) -- Series C seeks a level of current income
consistent with preservation of capital by investing in money market securities
with varying maturities.
SERIES D (WORLDWIDE EQUITY SERIES) -- Series D seeks long-term growth of capital
primarily through investment in common stocks and equivalents of companies in
foreign countries and the United States.
SERIES E (HIGH GRADE INCOME SERIES) -- Series E seeks to provide current income
with security of principal by investing in a broad range of debt securities,
including U.S. and foreign corporate debt securities and securities issued by
U.S. and foreign governments.
SERIES H (ENHANCED INDEX SERIES) -- Series H seeks to outperform the S&P 500
Index through stock selection resulting in different weightings of common stocks
relative to the index.
SERIES I (INTERNATIONAL SERIES) -- Series I seeks long-term capital appreciation
by investing primarily in non-U.S. equity securities and other securities with
equity characteristics.
SERIES J (MID CAP SERIES) -- Series J seeks capital appreciation.
SERIES K (GLOBAL STRATEGIC INCOME SERIES) -- Series K seeks high current income
and, as a secondary objective, capital appreciation.
SERIES M (GLOBAL TOTAL RETURN SERIES) -- Series M seeks high total return,
consisting of capital appreciation and current income.
SERIES N (MANAGED ASSET ALLOCATION SERIES) -- Series N seeks a high level of
total return.
SERIES O (EQUITY INCOME SERIES) -- Series O seeks to provide substantial
dividend income and also capital appreciation.
SERIES P (HIGH YIELD SERIES) -- Series P seeks high current income. Capital
appreciation is a secondary objective.
SERIES S (SOCIAL AWARENESS SERIES) -- Series S seeks capital appreciation.
SERIES V (VALUE SERIES) -- Series V seeks long-term growth of capital.
SERIES X (SMALL CAP SERIES) -- Series X seeks long-term growth of capital.
SERIES Y (SELECT 25 SERIES) -- Series Y seeks long-term growth of capital.
SERIES' PRINCIPAL INVESTMENT STRATEGIES
SERIES A (GROWTH SERIES) -- The Series pursues its objective by investing, under
normal circumstances, at least 65% of its total assets in a widely-diversified
portfolio of stocks, which may include ADRs and convertible securities.
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AMERICAN DEPOSITARY RECEIPTS (ADRS) are U.S. dollar-denominated receipts issued
generally by U.S. banks, which represent the deposit with the bank of a foreign
company's securities. ADRs are publicly traded on exchanges or over-the-counter.
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To choose stocks, the Investment Manager uses a blended approach, investing in
growth stocks and value stocks. The Investment Manager typically chooses larger,
growth-oriented companies. The Investment Manager will also invest in
value-oriented stocks to reduce the Series' potential volatility. In choosing
the balance of growth stocks and value stocks, the Investment Manager compares
the potential risks and rewards of each category.
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GROWTH-ORIENTED STOCKS are stocks of established companies that typically have a
record of consistent earnings growth.
VALUE-ORIENTED STOCKS are stocks of companies that are believed to be
undervalued in terms of price or other financial measurements and that have
above average growth potential.
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Under adverse market conditions, the Series could invest some or all of its
assets in cash or money market securities. Although the Series would do this
only in seeking to avoid losses, the Series may be unable to pursue its
investment objective during that time, and it could reduce the benefit from any
upswing in the market.
SERIES B (GROWTH-INCOME SERIES) -- The Series pursues its objective by
investing, under normal circumstances, in a well-diversified portfolio of
stocks, which may include ADRs. The Investment Manager selects stocks that it
believes are attractively valued with above-average growth potential. The Series
also invests in fixed-income securities, which are less volatile than stocks, to
adjust the risk characteristics of the portfolio. Fixed-income securities and
stocks that provide income will make up at least 25% of the Series' portfolio.
The Investment Manager uses a value-oriented strategy to choose stocks. The
Investment Manager identifies stocks that are undervalued in terms of price or
other financial measurements with above average growth potential. The Series
typically invests in the common stock of companies whose total market value is
$1 billion or greater at the time of purchase.
To manage risk in declining or volatile markets, the Investment Manager may
invest more in cash, fixed-income securities and stocks that provide income.
Fixed-income securities include U.S. government securities, foreign debt
securities that are denominated in U.S. dollars and high yield securities (also
referred to as "junk bonds").
The Series may purchase money market securities that have not been registered
under the federal securities laws; provided that the securities are eligible for
resale pursuant to Rule 144A.
Under adverse market conditions, the Series could invest some or all of its
assets in cash, government bonds or money market securities. Although the Series
would do this only in seeking to avoid losses, the Series may be unable to
pursue its investment objective during that time, and it could reduce the
benefit from any upswing in the market.
SERIES C (MONEY MARKET SERIES) -- The Series pursues its objective by investing
in a diversified and liquid portfolio of primarily the highest quality money
market instruments. Generally, the Series is required to invest at least 95% of
its assets in the securities of issuers with the highest credit rating, with the
remainder invested in securities with the second-highest credit rating. The
Series is not designed to maintain a constant net asset value of $1.00 per
share, and it is possible to lose money by investing in the Series. The Series
is subject to certain federal requirements which include the following:
* maintain an average dollar-weighted portfolio maturity of 90 days or less
* buy individual securities that have remaining maturities of 13 months or less
* invest only in high-quality, dollar-denominated, short-term obligations.
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A MONEY MARKET INSTRUMENT is a short-term IOU issued by banks or other U.S.
corporations, or the U.S. government or state or local governments. Money market
instruments have maturity dates of 13 months or less. Money Market instruments
may include certificates of deposit, bankers' acceptances, variable rate demand
notes, fixed-term obligations, commercial paper, asset-backed commercial paper
and repurchase agreements.
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The Investment Manager attempts to increase return and manage risk by (1)
maintaining an average dollar-weighted portfolio maturity within 10 days of the
Series' benchmark, the Money Fund Report published by IBC Donoghue; (2)
selecting securities that mature at regular intervals over the life of the
portfolio; (3) purchasing only top-tier commercial paper; and (4) constantly
evaluating alternative investment opportunities for diversification without
additional risk.
The Series may purchase money market securities that have not been registered
under the federal securities laws; provided that the securities are eligible for
resale pursuant to Rule 144A.
SERIES D (WORLDWIDE EQUITY SERIES) -- The Series pursues its objective by
investing, under normal circumstances, in a diversified portfolio of securities
with at least 65% of its total assets in at least three countries, one of which
may be the United States. The Series primarily invests in foreign and domestic
common stocks or convertible stocks of growth-oriented companies considered to
have appreciation possibilities. The Series may actively trade its investments
without regard to the length of time they have been owned by the Series.
Investments in debt securities may be made in uncertain market conditions.
The Sub-Adviser, OppenheimerFunds, Inc., uses a disciplined theme approach to
choose securities in foreign and U.S. markets. By identifying key worldwide
growth trends, OppenheimerFunds focuses on areas they believe offer some of the
best opportunities for long-term growth. These trends include: (1) mass
affluence; (2) new technologies; (3) restructuring; and (4) aging.
Oppenheimer looks for the following securities:
* Stocks of small, medium and large growth-oriented companies worldwide
* Companies that stand to benefit from one or more global trends
* Businesses with strong competitive positions and high demand for their
products or services
To lower the risks of foreign investing, such as currency fluctuations,
Oppenheimer diversifies broadly across countries and industries. 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 to adjust
its exposure to certain markets.
Under adverse market conditions, the Series could invest some or all of its
assets in debt obligations consisting of cash, repurchase agreements and money
market instruments of foreign or domestic countries and the U.S. and foreign
governments. Although the Series would do this only in seeking to avoid losses,
the Series may be unable to pursue its investment objective during that time,
and it could reduce the benefit from any upswing in the market.
SERIES E (HIGH GRADE INCOME SERIES) -- The Series pursues its objectives by
investing, under normal circumstances, primarily in a diversified portfolio of
U.S. government securities and investment grade corporate debt securities. The
Series' average weighted maturity is normally expected to be between 5 and 15
years. To manage risk, the Investment Manager diversifies the Series' holdings
among asset classes and individual securities. The asset classes in which the
Series may invest include investment grade corporate debt securities, high yield
debt securities (also known as "junk bonds"), mortgage-backed securities,
foreign debt securities denominated in U.S. dollars, and U.S. government
securities.
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DEBT SECURITIES, which are also called BONDS or DEBT OBLIGATIONS, are like a
loan. The issuer of the bond, which could be the U.S. government, a corporation,
or a city or state, borrows money from investors and agrees to pay back the loan
amount (the PRINCIPAL) on a certain date (the MATURITY DATE). Usually, the
issuer also agrees to pay interest on certain dates during the period of the
loan. Some bonds, such as ZERO COUPON BONDS, do not pay interest, but instead
pay back more at maturity than the original loan. Most bonds pay a fixed rate of
interest (or income). Although some bonds' interest rates may adjust
periodically based upon a market rate. Payment-In-Kind bonds pay interest in the
form of additional securities.
INVESTMENT GRADE SECURITIES are debt securities that have been determined by a
rating agency to have a medium to high probability of being paid, although there
is always a risk of default. Investment grade securities are rated BBB, A, AA or
AAA by Standard & Poor's Corporation and Fitch Investors Service, Inc. or Baa,
A, Aa or Aaa by Moody's Investors Service.
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The Investment Manager uses a "bottom-up" approach in selecting asset classes
and securities. The Investment Manager emphasizes rigorous credit analysis and
relative value in selecting securities. The Investment Manager's credit analysis
includes looking at factors such as an issuer's management experience, position
in its market, and capital structure.
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BOTTOM-UP APPROACH means that the Investment Manager looks primarily at
individual issuers against the context of broader market factors. Some of the
factors which the Investment Manager looks at when analyzing individual issuers
include relative earnings growth, profitability trends, the issuer's financial
strength, valuation analysis and strength of management.
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To determine the relative value of a security, the Investment Manager compares
the credit risk and yield of the security relative to the credit risk and yield
of other securities of the same or another asset class. Higher quality
securities tend to have lower yields than lower quality securities. Based upon
current market conditions, the Investment Manager will consider the relative
risks and rewards of various asset classes and securities in selecting
securities for the Series.
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CREDIT QUALITY RATING is a measure of the issuer's expected ability to make all
required interest and principal payments in a timely manner.
An issuer with the highest credit rating has a very strong degree of certainty
(or safety) with respect to making all payments. An issuer with the
second-highest credit rating has a strong capacity to make all payments, but the
degree of safety is somewhat less.
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The Investment Manager may determine to sell a security (1) if it can purchase a
security with a better relative value; (2) if a security's credit rating has
been changed; (3) if diversification of the Series is compromised due to mergers
or acquisitions; or (4) to meet redemption requests.
Under adverse market conditions, the Series could invest some or all of its
assets in cash or money market instruments. Although the Series would do this
only in seeking to avoid losses, the Series may be unable to pursue its
investment objective during that time, and it could reduce the benefit from any
upswing in the market.
SERIES H (ENHANCED INDEX SERIES) -- The Series pursues its objective by
investing in a portfolio of stocks representative of the holdings in the S&P 500
Index. The Sub-Adviser, Bankers Trust Company, analyzes the stocks in the index
with a set of quantitative criteria that may indicate whether a stock will
predictably generate returns that will exceed or be less than the S&P 500 Index.
Based on the quantitative criteria, Bankers Trust Company determines whether the
Series should (1) overweight - invest more in a particular stock, (2)
underweight - invest less in a particular stock, or (3) hold a neutral position
- - invest a similar amount in a particular stock, relative to the proportion of
the S&P 500 Index that the stock represents. While the majority of issues held
by the Series will be similar to those comprising the S&P 500, approximately 100
will be over or underweighted relative to the index. In addition, Bankers Trust
may determine that certain S&P 500 stocks should not be held by the Fund in any
amount. Under normal conditions, the Series will invest at least 80% of its
assets in equity securities of companies in the index and futures contracts
representative of the stocks that make up the index. Bankers Trust believes that
its quantitative criteria will result in a portfolio with an overall risk
similar to that of the S&P 500.
Under adverse market conditions, the Series could invest some or all of its
assets in cash or money market instruments. Although the Series would do this
only in seeking to avoid losses, the Series may be unable to pursue its
investment objective during that time, and it could reduce the benefit from any
upswing in the market.
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THE S&P 500 INDEX is a well-known stock market index that includes common stocks
of 500 companies. These companies are from several industrial sectors
representing a significant portion of the market value of all common stocks
publicly traded in the U.S., most of which are listed on the NYSE.
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The Series also may invest a portion of its assets in options and futures, which
are primarily used to hedge the Series' portfolio but may be used to increase
returns and to maintain exposure to the equity markets.
SERIES I (INTERNATIONAL SERIES) -- The Series pursues its objective by
investing, under normal circumstances, at least 65% of its assets in equity
securities of foreign issuers. These issuers are primarily established companies
based in developed countries outside of the United States. However, the Series
may also invest in securities of issuers based in underdeveloped countries.
Investments in these countries will be based on what the Sub-Adviser, Bankers
Trust Company, 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 at least three countries other than the United States.
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EQUITY SECURITIES include 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).
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The Series' investments will generally be diversified among several geographic
regions and countries. Bankers Trust uses the following criteria to determine
the appropriate distribution of investments among various countries and regions:
* The prospects for relative growth among foreign countries
* Expected levels of inflation
* Government policies influencing business conditions
* The outlook for currency relationships
* 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 identify 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
* Overall marketability
In other countries and regions where capital markets are underdeveloped or not
easily accessed and information is difficult to obtain, Bankers Trust may choose
to invest only at the market level through use of options or futures based upon
an established index of securities of locally based issuers. Similarly, country
exposure may also be achieved through investments in other registered investment
companies.
Under adverse market conditions, the Series could invest some or all of its
assets in cash or money market securities. Although the Series would do this
only in seeking to avoid losses, the Series may be unable to pursue its
investment objective during that time, and it could reduce the benefit from any
upswing in the market.
SERIES J (MID CAP SERIES) -- The Series pursues its objective by investing,
under normal circumstances, at least 65% of its total assets in a diversified
portfolio of equity securities of companies with total market value of $8
billion or below at the time of purchase. The Investment Manager selects
securities that it believes are attractively valued with the greatest potential
for appreciation.
The Investment Manager uses a value-oriented strategy and "bottom-up" approach
to choose equity securities, which may include ADRs. The Investment Manager
identifies securities of companies that are in the early to middle stages of
growth and are valued at a reasonable price. Equity securities considered to
have appreciation potential often include securities of smaller and less mature
companies which often have unique proprietary products or profitable market
niches and the potential to grow very rapidly. The Series may actively trade its
investments without regard to the length of time they have been owned by the
Series.
Under adverse market conditions, the Series could invest some or all of its
assets in cash or money market securities. Although the Series would do this
only in seeking to avoid losses, the Series may be unable to pursue its
investment objective during that time, and it could reduce the benefit from any
upswing in the market.
SERIES K (GLOBAL STRATEGIC INCOME SERIES) -- The Series pursues its objective by
investing under normal circumstances at least 65% of its assets in debt
securities of issuers worldwide, including bonds, notes, debentures, preferred
stock and high yield securities (also referred to as "junk bonds")
Wellington Management Company, LLP, the Series' Sub-Adviser, may select debt
securities issued by any private or governmental entity. The Series may invest
without limitation in any region of the world, including investments in
developed foreign countries and emerging market foreign countries. The quality
of the portfolio's investments will range from investment grade to high yield
securities or junk bonds.
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An EMERGING MARKET FOREIGN COUNTRY consists of all countries determined by the
Sub-Adviser to have developing or emerging economies and markets. The definition
of "emerging market foreign country" may change over time as a result of
developments in national or regional economies and capital markets.
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Under normal circumstances, the Series may invest without limitation in:
* fixed income securities issued or guaranteed by governments, governmental
entities or supranational entities
* fixed income securities and commercial paper issued by corporations
* bank obligations, such as certificates of deposit or bankers' acceptances
* mortgage-backed and asset-backed securities, which are securities
representing an interest in a pool of mortgages or assets such as credit card
receivables
* collateralized mortgage obligations, including interest-only bonds and
principal-only bonds, residual interest bonds, inverse floating obligations,
and other structured or derivative fixed income securities
* convertible bonds, which are debt securities that may be converted into
common stocks or other equity interests
* preferred stock
* privately-issued securities deemed to be liquid by the Sub-Adviser
The investment decision-making process used for the Series is highly
interactive, relying on frequent, direct communication between portfolio
managers and research analysts. Broad strategy is set by portfolio managers and
includes interest rate and sector allocation, country and currency selection,
and quality emphasis. Individual securities are purchased and sold on the basis
of relative value to implement the portfolio's broad strategy. Purchase and
sales decisions are made by the portfolio manager with strong reliance on
in-house research professionals.
The Series may invest in securities denominated in any currency. The Series will
seek to protect against currency exchange rate changes that are adverse to its
foreign currency positions by hedging selected investments to the U.S. dollar.
The Series will also seek exposure to foreign currencies on an opportunistic
basis to take advantage of currency exchange rate movements.
The Series may invest a portion of its assets in options, futures and forward
currency contracts. Generally, these derivative instruments involve the
obligation, in the case of futures and forwards, or the right, in the case of
options, to purchase or sell financial instruments in the present or at a future
date. The Series may also enter into short sales of securities and currencies.
These derivatives strategies will be used:
* To adjust the portfolio's exposure to a particular currency
* To manage risk or enhance income
* As a substitute for purchasing or selling securities.
Under adverse market conditions, the Series could invest some or all of its
assets in cash, foreign currencies, high quality debt securities or money market
securities. Although the Series would do this only in seeking to avoid losses,
the Series may be unable to pursue its investment objective during that time,
and it could reduce the benefit from any upswing in the market.
SERIES M (GLOBAL TOTAL RETURN SERIES) -- The Series pursues its objective
through asset allocation and security selection by investing in a diversified
portfolio of global equity and fixed income securities. The Series' Sub-Adviser,
Wellington Management Company, LLP, will seek to allocate on average about 80%
of total assets to equity securities and about 20% of total assets to fixed
income securities. The Series is not required to allocate any particular
percentage of its assets to these asset classes. Allocations will vary as a
result of the Sub-Adviser's judgment of the relative attractiveness of
industries, sectors, countries, currencies, and asset classes. The portfolio
will be rebalanced to the desired asset allocation and currency exposure on a
regular basis primarily through the use of exchange-listed futures contracts and
currency forwards.
Under normal circumstances, the Portfolio invests at least 65% of its total
assets in equity and fixed income securities of issuers worldwide.
ASSET ALLOCATION. Asset allocation across asset classes (specifically stocks,
bonds and cash) and exposure to countries or currencies are based on the
Sub-Adviser's assessment of the relative attractiveness of an asset class,
country or currency. Attractiveness is evaluated based on a quantitative
analysis of multiple fundamental factors such as market valuation, economic
conditions, interest rates, and other relevant measures. The Sub-Adviser uses a
disciplined portfolio management approach which seeks to balance investment risk
and expected return to determine the overall asset allocation and country and
currency exposure of the Series. The Series seeks to exceed the total return of
a blended benchmark consisting of 80% MSCI World Equity Index in U.S. dollars
and 20% Salomon Brothers World Government Bond Index in U.S. dollars.
EQUITY SECURITIES. Investments in global equity securities are selected using
proprietary quantitative analysis techniques to affirm the fundamental
evaluation of equity securities. Equity investments are evaluated based on
quantitative valuation and timeliness measures combined with fundamental
analysis of a company's management, cash flow, earnings, dividends, and business
environment. A disciplined analytical process is used to evaluate the relative
expected return and control portfolio risk. The Series invests in equity
securities and other securities with equity characteristics issued in the United
States and abroad, including common stocks, preferred stocks, convertible
securities, warrants and rights, as well as ADRs and other depositary receipts.
Under normal circumstances, equity investments will be broadly diversified by
country, industry and company.
FIXED INCOME SECURITIES. The investment decision-making process used for fixed
income securities is highly interactive, relying on frequent, direct
communication between portfolio managers and research analysts. Broad strategy
is set by portfolio managers and includes interest rate and sector allocation,
country and currency selection, and quality emphasis. Individual securities are
purchased and sold on the basis of relative value to implement the portfolio's
broad strategy. Purchase and sales decisions are made by the portfolio manager
with strong reliance on in-house research professionals. Under normal
circumstances, the Series may invest without limitation in:
* fixed income securities issued or guaranteed by governments, governmental
entities or supranational entities
* fixed income securities and commercial paper issued by corporations
* bank obligations, such as certificates of deposit or bankers' acceptances
* mortgage-backed and asset-backed securities, which are securities
representing an interest in a pool of mortgages or assets such as credit card
receivables
* collateralized mortgage obligations, including interest-only bonds and
principal-only bonds, residual interest bonds, inverse floating obligations,
and other structured or derivative fixed income securities
* convertible bonds, which are debt securities that may be converted into
common stocks or other equity interests
* privately-issued securities deemed to be liquid by the Sub-Adviser
These debt securities may be issued in the United States or abroad, and may
include investment grade as well as high yield debt obligations (also referred
to as "junk bonds"). Many of these investments will be denominated in foreign
currencies.
The Series typically sells an investment when the company or issuer begins to
show deteriorating relative fundamentals, or when alternative investments become
sufficiently more attractive.
The Sub-Adviser's portfolio management team meets regularly in order to
coordinate the decision-making between the asset allocation, equity and fixed
income elements of the portfolio.
Investments in derivatives include principally futures and options contracts on
securities, financial indices and currencies, as well as options on futures
contracts and currency forwards. Generally, these derivative instruments involve
the obligation, in the case of futures and forwards, or the right, in the case
of options, to purchase or sell financial instruments in the present or at a
future date. Derivative contracts may be less expensive to trade and may provide
greater liquidity, making them easier to buy or sell than the underlying
financial instrument. Use of derivatives is the preferred method to reallocate
exposure to asset classes, countries and currencies, although reallocation may
also be accomplished by direct purchase and sale of financial instruments. The
Sub-Adviser will not use derivatives to leverage the portfolio. Derivative
strategies also may be used to:
* manage risk
* enhance income
Under adverse market conditions, the Series could invest some or all of its
assets in cash, foreign currencies, high quality debt securities or money market
securities. Although the Series would do this only in seeking to avoid losses,
the Series may be unable to pursue its investment objective during that time,
and it could reduce the benefit from any upswing in the market.
SERIES N (MANAGED ASSET ALLOCATION SERIES) -- The Series pursues its objective
by normally investing approximately 60% of total assets in common stocks and 40%
in fixed-income securities. The mix may vary over shorter time periods where the
fixed income portion may range between 30-50% and the equity portion between
50-70%.
The Sub-Adviser, T. Rowe Price Associates, Inc., concentrates common stock
investments in larger, established companies but may include small- and
medium-sized companies with good growth prospects, as well as up to 35% of the
equity portion in foreign (non-dollar-denominated) equity securities. The fixed
income portion of the portfolio will be allocated as follows:
Investment Grade Securities........................................... 50-100%
High Yield Securities ("Junk Bonds").................................. 0-30%
Foreign (Non-dollar-Denominated) High Quality Debt Securities......... 0-30%
Cash Reserves......................................................... 0-20%
The precise mix of equity and fixed income will depend on T. Rowe Price's
outlook for the markets. Shifts between stocks and bonds will normally be done
gradually and T. Rowe Price will not attempt to precisely "time" the market.
Fixed income investments may include U.S. Treasury and agency issues, corporate
debt including noninvestment-grade "junk" bonds, currencies, mortgage-backed and
other securities. Maturities will vary with T. Rowe Price's view of market
conditions. The Series may also invest in foreign stocks and bonds for
diversification. Under normal conditions, T. Rowe Price will diversify the
Series' foreign investments among at least three different countries.
The Series may sell securities for a variety of reasons, such as to secure
gains, limit losses, or redeploy assets into more promising opportunities.
Under adverse market conditions the Series could invest some or all of its
assets in cash reserves, which may include money market instruments and
repurchase agreements. Although the Series would do this only in seeking to
avoid losses, the Series may be unable to pursue its investment objective during
that time, and it could reduce the benefit from any upswing in the market.
SERIES O (EQUITY INCOME SERIES) -- The Series pursues its objective by
investing, under normal circumstances, at least 65% of its total assets in the
common stocks of well-established companies paying above-average dividends.
T. Rowe Price typically employs a value-oriented strategy in selecting
investments for the Series. T. Rowe Price identifies companies that appear to be
undervalued by various measures and may be temporarily out of favor, but have
good prospects for capital appreciation and dividend growth.
In selecting investments, T. Rowe Price generally favors companies with the
following:
* An established operating history
* Above-average dividend yield relative to the S&P 500 Index
* Low price/earnings ratio relative to the S&P 500 Index
* A sound balance sheet and other financial characteristics
* Low stock price relative to a company's underlying value as measured by
assets, cash flow or business franchises
- --------------------------------------------------------------------------------
PRICE/EARNINGS RATIO ("P/E") is the price of a stock divided by its earnings per
share. The price/earnings ratio gives investors an idea of how much they are
paying for a company's earning power. High P/E stocks are typically young,
fast-growing companies. Low P/E stocks tend to be in low-growth or mature
industries, in stock groups that have fallen out of favor, or in old,
established, blue-chip companies with long records of earnings stability and
regular dividends. Generally, low P/E stocks have higher yields than high P/E
stocks, which often pay no dividends at all.
- --------------------------------------------------------------------------------
While most of the Series' assets will be invested in U.S. common stocks, T. Rowe
Price may also invest in other securities, including foreign securities, debt
securities, futures and options, in maintaining the Series' objective.
Under adverse market conditions the Series could invest some or all of its
assets in money market securities, including repurchase agreements. Although the
Series would do this only in seeking to avoid losses, the Series may be unable
to pursue its investment objective during that time, and it could reduce the
benefit from any upswing in the market.
The Series may sell securities for a variety of reasons, such as to secure
gains, limit losses, or redeploy assets into more promising opportunities.
SERIES P (HIGH YIELD SERIES) -- The Series pursues its objective by investing,
under normal circumstances, in a broad range of high-yield, high risk debt
securities rated in medium or lower rating categories or determined by the
Investment Manager to be of comparable quality ("junk bonds"). The Series may
also invest in equity securities, including common stocks, American Depositary
Receipts, warrants and rights. The Series' average weighted maturity is expected
to be between 5 and 15 years.
- --------------------------------------------------------------------------------
HIGH YIELD SECURITIES are debt securities that have been determined by a rating
agency to have a lower probability of being paid and have a credit rating of BB
or lower by Standard & Poor's Corporation and Fitch Investors Service, Inc. or
Ba or lower by Moody's Investors Service. These securities are more volatile and
normally pay higher yields than investment grade securities.
- --------------------------------------------------------------------------------
The Investment Manager uses a "bottom-up" approach in selecting high yield
securities. The Investment Manager emphasizes rigorous credit analysis and
relative value in selecting securities. The Investment Manager's credit analysis
includes looking at factors such as an issuer's debt service coverage (i.e., its
ability to make interest payments on its debt), the issuer's cash flow, general
economic factors and market conditions and world market conditions.
To determine the relative value of a security, the Investment Manager compares
the security's credit risk and yield to the credit risk and yield of other
securities. The Investment Manager is looking for securities that appear to be
inexpensive relative to other comparable securities and securities that have the
potential for an upgrade of their credit rating. A rating upgrade typically
would increase the value of the security. The Investment Manager focuses on an
issuer's management experience, position in its market, and capital structure in
assessing its value. The Investment Manager seeks to diversify the Series'
holdings among securities and asset classes.
The Investment Manager may determine to sell a security (1) if it can purchase a
security with a better relative value; (2) if a security's credit rating has
been changed; or (3) to meet redemption requests.
Under adverse market conditions the Series could invest some or all of its
assets in cash, U.S. government securities, commercial notes or money market
securities. Although the Series would do this only in seeking to avoid losses,
the Series may be unable to pursue its investment objective during that time,
and it could reduce the benefit from any upswing in the market.
SERIES S (SOCIAL AWARENESS SERIES) -- The Series pursues its objective by
investing, under normal circumstances, in a well-diversified portfolio of equity
securities that the Investment Manager believes have above-average earnings
potential and which meet certain established social criteria. The Series may
also invest in fixed-income securities.
The Investment Manager uses a "bottom-up" approach when selecting
growth-oriented and value-oriented stocks. The Series typically invests in the
common stock of companies whose total market value is $1 billion or greater at
the time of purchase.
After identifying potential investments, the Investment Manager determines if
the securities meet the Series' established social criteria. The Series does not
invest in securities of companies that engage in the production of:
* Nuclear energy
* Alcoholic beverages
* Tobacco products
Additionally, the Series does not invest in companies that significantly engage
in:
* The manufacture of weapons
* Practices that have a detrimental effect on the environment
* The gambling industry
The Series seeks out companies that:
* Contribute substantially to the communities in which they operate
* Demonstrate a positive record on employment relations
* Demonstrate substantial progress in the promotion of women and minorities or
in the implementation of benefit policies that support working parents
* Take notably positive steps in addressing environmental challenges
The Investment Manager continues to evaluate an issuer's activities to determine
whether it engages in any practices prohibited by the Series' social criteria.
If the Investment Manager determines that securities held by the Series do not
comply with its social criteria, the security is sold within a reasonable time.
This requirement may cause the Series to sell the security at a disadvantageous
time.
Under adverse market conditions the Series could invest some or all of its
assets in cash, U.S. government securities and money market securities. Although
the Series would do this only in seeking to avoid losses, the Series may be
unable to pursue its investment objective during that time, and it could reduce
the benefit from any upswing in the market.
SERIES V (VALUE SERIES) -- The Series pursues its objective by investing, under
normal circumstances, at least 65% of its total assets in a diversified
portfolio of equity securities, which may include ADRs. The Investment Manager
selects securities which it considers to be undervalued.
The Investment Manager typically chooses securities that appear undervalued
relative to assets, earnings, growth potential or cash flows. The value stocks
included in the Series' portfolio consist of all sizes of companies, but due to
the nature of value companies, typically consist of small- to medium-size
companies. The Series may actively trade its investments without regard to the
length of time they have been owned by the Series.
Under adverse market conditions, the Series could invest some or all of its
assets in cash or money market securities. Although the Series would do this
only in seeking to avoid losses, the Series may be unable to pursue its
investment objective during that time, and it could reduce the benefit from any
upswing in the market.
SERIES X (SMALL CAP SERIES) -- The Series pursues its investment objective by
investing, under normal circumstances, at least 65% of its assets in equity
securities of domestic and foreign companies with total market value of less
than $1.2 billion at the time of purchase. The Series may also invest in
securities of emerging growth companies (some of which have total market value
over $1.2 billion). Emerging growth companies include companies that are past
their start-up phase and that show positive earnings and prospects of achieving
significant profit and gain in a relatively short period of time. The Series may
actively trade its investments without regard to the length of time they have
been owned by the Series.
The Sub-Adviser, Strong Capital Management, Inc., focuses on common stocks of
companies that it believes are reasonably priced and have above-average growth
potential. Strong may decide to sell a stock when the company's growth prospects
become less attractive.
Under adverse market conditions, the Series could invest some or all of its
assets in cash, fixed-income securities, money market securities or repurchase
agreements. Although the Series would do this only in seeking to avoid losses,
it could reduce the benefit from any upswing in the market.
SERIES Y (SELECT 25 SERIES) -- The Series pursues its objective by concentrating
its investments in a core position of 20-30 common stocks of growth companies
which have exhibited consistent above average earnings growth. The Investment
Manager selects what it believes to be premier growth companies as the core
position for the Series. The Investment Manager uses a "bottom-up" approach in
selecting growth stocks. Portfolio holdings will be replaced when one or more of
the companies' fundamentals have changed and, in the opinion of the Investment
Manager, it is no longer a premier growth company.
Under adverse market conditions, the Series could invest some or all of its
assets in cash or money market securities. Although the Series would do this
only in seeking to avoid losses, the Series may be unable to pursue its
investment objective during that time, and it could reduce the benefit from any
upswing in the market.
MAIN RISKS
- --------------------------------------------------------------------------------
Your investment in the Series is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. The value of an investment in the Series will go up and down, which
means investors could lose money.
- --------------------------------------------------------------------------------
MARKET RISK -- While stocks have historically been a leading choice of long-term
investors, they fluctuate in price. Their prices tend to fluctuate more
dramatically over the shorter term than do the prices of other asset classes.
These movements may result from factors affecting individual companies, or from
broader influences like changes in interest rates, market conditions, investor
confidence or announcements of economic, political or financial information here
or abroad. By virtue of their investment strategies to invest in stocks, each
Series other than Series C, E, P and K are particularly susceptible to market
risk.
SMALLER COMPANIES -- While potentially offering greater opportunities for
capital growth than larger, more established companies, the securities of
smaller companies may be particularly volatile, especially during periods of
economic uncertainty. Securities of smaller companies may present additional
risks because their earnings are less predictable, their share prices tend to be
more volatile and their securities often are less liquid than larger, more
established companies, among other reasons. By virtue of their investment
strategies, Series J, V and X may be particularly susceptible to the risks posed
by investing in smaller companies.
VALUE STOCKS -- Investments in value stocks are subject to the risk that their
intrinsic values may never be realized by the market, that a stock judged to be
undervalued may actually be appropriately priced, or that their prices may go
down. While the Series' investments in value stocks may limit downside risk over
time, a Series may, as a trade-off, produce more modest gains than riskier stock
funds. Series A, B, J, O, S and V in particular offer the potential rewards, and
risks, of a value-oriented investment strategy.
GROWTH STOCKS -- While potentially offering greater or more rapid capital
appreciation potential than value stocks, investments in growth stocks may lack
the dividend yield that can cushion stock prices in market downturns. Growth
companies often are expected to increase their earnings at a certain rate. If
expectations are not met, investors can punish the stocks, even if earnings do
increase. Series A, D, H, N, S, X and Y feature an investment strategy that
emphasizes investment in growth stocks.
FOREIGN SECURITIES -- Series D, I, K, M and, to a lesser extent, Series A, B, E,
J, N, O, P and X may invest in foreign securities and/or American Depositary
Receipts (ADRs). Investing in foreign securities involves additional risks such
as currency fluctuations, differences in financial reporting standards, a lack
of adequate company information and political or economic instability. The risks
may be particularly acute in underdeveloped capital markets.
RISKS OF CONVERSION TO EURO. On January 1, 1999, eleven countries in the
European Monetary Union adopted the euro as their official currency. However,
their current currencies (for example, the franc, the mark, and the lira) 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
provide 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 the vendors 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 Series' contracts could pose extra
costs to the Series.
The Investment Manager has upgraded its computer and bookkeeping systems to deal
with the conversion. Each 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.
EMERGING MARKETS -- Series B, D, I, K, M and N may invest in securities of
developing countries or emerging markets. All of the risks of investing in
foreign securities are heightened by investing in developing countries and
emerging markets. The markets of developing countries historically have been
more volatile than the markets of developed countries with mature economies.
These markets often have provided higher rates of return, and greater risks, to
investors.
OPTIONS AND FUTURES -- Each Series, except Series A, Series C and Series E, may
invest some of their assets in options and futures. These practices are used
primarily to hedge a Series' portfolio or gain exposure to a market without
buying individual securities. There is the risk that such practices sometimes
may reduce returns or increase volatility. These practices also entail
transactional expenses.
SHORT SALES -- Series K is authorized to make short sales. A short sale is a
transaction in which the Series sells a security or currency in anticipation
that the market price of that security or currency 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 may also enter into short sales of securities and currencies in order
to hedge the currency exchange risk associated with assets denominated in
foreign currencies, adjust the portfolio's exposure to a particular currency,
manage risk or enhance income, or as a substitute for purchasing or selling
securities. The loss to the Series could be substantial if the price of the
security or currency sold short does not decline in value.
ACTIVE TRADING -- Series D, J, V and X may engage in active trading which
involves higher expenses including higher brokerage commissions.
INTEREST RATE RISK -- Investments in fixed-income securities are subject to the
possibility that interest rates could rise sharply, causing the value of the
Series' securities, and share price, to decline. Longer term bonds and zero
coupon bonds are generally more sensitive to interest rate changes than
shorter-term bonds. Generally, the longer the average maturity of the bonds in a
Series, the more a Series' share price will fluctuate in response to interest
rate changes. By virtue of their investment strategies, Series B, C, E, K, M, N
and P may be particularly susceptible to the risks posed by investing in
fixed-income securities.
CREDIT RISK -- It is possible that some issuers of fixed-income securities will
not make payments on debt securities held by a Series, or there could be
defaults on repurchase agreements held by a Series. Also, an issuer may suffer
adverse changes in financial condition that could lower the credit quality of a
security, leading to greater volatility in the price of the security and in
shares of a Series. A change in the quality rating of a bond can affect the
bond's liquidity and make it more difficult for the Series to sell. By virtue of
their investment strategies, Series B, C, E, K, M, N and P may be particularly
susceptible to the risks posed by investing in fixed-income securities.
PREPAYMENT RISK -- The issuers of securities held by a Series may be able to
prepay principal due on the securities, particularly during periods of declining
interest rates. Securities subject to prepayment risk generally offer less
potential for gains when interest rates decline, and may offer a greater
potential for loss when interest rates rise. In addition, rising interest rates
may cause prepayments to occur at a slower than expected rate, thereby
effectively lengthening the maturity of the security and making the security
more sensitive to interest rate changes. Prepayment risk is a major risk of
mortgage-backed securities. By virtue of their investment strategies, Series B,
C, E, K, M, N and P may be particularly susceptible to the risks posed by
investing in fixed-income securities.
MORTGAGE-BACKED SECURITIES -- Series E, K, M, N and P may invest in
mortgage-backed securities. A Series will receive payments on its
mortgage-backed securities that are part interest and part return of principal.
These payments may vary based on the rate at which homeowners pay off their
loans. When a homeowner makes a prepayment, the Series receives a larger portion
of its principal investment back, which means that there will be a decrease in
monthly interest payments. Some mortgage-backed securities may have structures
that make their reaction to interest rates and other factors difficult to
predict, making their prices very volatile.
- --------------------------------------------------------------------------------
WHAT ARE MORTGAGE-BACKED SECURITIES? Home mortgage loans are typically grouped
together into "POOLS" by banks and other lending institutions, and interests in
these pools are then sold to investors, allowing the bank or other lending
institution to have more money available to loan to home buyers. When homeowners
make interest and principal payments, these payments are passed on to the
investors in the pool. Most of these pools are guaranteed by U.S. government
agencies or by government sponsored private corporations-familiarly called
"GINNIE MAES," "FANNIE MAES" and "FREDDIE MACS."
- --------------------------------------------------------------------------------
RESTRICTED SECURITIES -- Series C, K, M, N, O, P and Y may invest in 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. Series P also
may purchase securities that are not eligible for resale to qualified
institutional investors according to Rule 144A. Since the market for restricted
securities is limited to certain qualified institutional investors, the
liquidity of these securities may be limited, and a series may, from time to
time, hold a security that is illiquid.
HIGH YIELD SECURITIES -- Series P, Series K and to a lesser extent, Series B, E,
M, N, O and X may invest in higher yielding, high risk debt securities. These
investments may present additional risk because these securities may be less
liquid than investment grade bonds and they tend to be more susceptible to high
interest rates and to real or perceived adverse economic and competitive
industry conditions. High yield securities are subject to more credit risk than
higher quality securities.
SOCIAL INVESTING -- Investment in companies that must meet Series S's
established social criteria may present additional risks because it will limit
the availability of investment opportunities compared to those of similar funds
which do not impose such restrictions on investment. In addition, if the
Investment Manager determines that securities held by the Series do not comply
with its social criteria, the Series must sell the security at a time when it
may be disadvantageous to do so.
DIVERSIFICATION -- Series Y may invest in the securities of a limited number of
issuers. The use of a focused investment strategy may increase the volatility of
the Series' investment performance, as the Series may be more susceptible to
risks associated with a single economic, political or regulatory event than a
more diversified portfolio. If the securities in which the Series invests
perform poorly, the Series could incur greater losses than it would have had it
been invested in a greater number of securities.
INVESTMENT COMPANIES -- Because Series I may invest in other investment
companies in order to gain exposure to a foreign securities market, it will
incur its pro rata share of the underlying investment companies' expenses to the
extent it pursues its investment objective in this manner. In addition, the
Series will be subject to the effects of business and regulatory developments
that affect an underlying investment company or the investment company industry
generally. Each Series, except Series A, B, C, D, E, J and S may also invest in
other investment companies.
ADDITIONAL INFORMATION -- For more information about the investment program of
the Series; including additional information about the risks of certain types of
investments, please see the "Investment Policies and Management Practices"
section of the prospectus.
PAST PERFORMANCE
The charts and tables on the following pages provide some indication of the
risks of investing in the Series' by showing changes in each Series' performance
from year to year and by showing how the Series' average annual total returns
have compared to those of broad measures of market performance. Fee waivers
and/or expense reimbursements for Series K, P, V and X reduced the expenses of
those Series and in the absence of such waivers and/or reimbursements, the
performance quoted would be reduced. The performance figures on the following
pages do not reflect fees and expenses associated with an investment in variable
insurance products offered by Security Benefit Life Insurance Company. Shares of
the Series are available only through the purchase of such products. In
addition, some Series make a comparison to an index that more closely reflects
the securities in which that Series invests than does a broad market index. As
with all mutual funds, past performance is not a prediction of future results.
================================================================================
SERIES A (GROWTH SERIES)
================================================================================
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
35.9% -9.8% 36.1% 11.1% 13.7% -1.7% 36.8% 22.7% 28.7% 25.4%
- --------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(QUARTERLY 1989-1998)
- --------------------------------------------------------------------------------
QUARTER ENDED
Highest................................ 20.4% December 31, 1998
Lowest................................. -17.8% September 30, 1990
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1998)
- --------------------------------------------------------------------------------
PAST PAST PAST
1 YEAR 5 YEARS 10 YEARS
Series A............................... 25.4% 21.7% 18.7%
S&P 500................................ 28.6% 24.1% 19.2%
- --------------------------------------------------------------------------------
================================================================================
SERIES B (GROWTH-INCOME SERIES)
================================================================================
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
28.4% -4.4% 37.7% 6.3% 9.6% -3.0% 30.1% 18.3% 26.5% 7.9%
- --------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(QUARTERLY 1989-1998)
- --------------------------------------------------------------------------------
QUARTER ENDED
Highest................................ 14.5% June 30, 1997
Lowest................................. -8.9% September 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1998)
- --------------------------------------------------------------------------------
PAST PAST PAST
1 YEAR 5 YEARS 10 YEARS
Series B............................... 7.9% 15.3% 14.9%
S&P 500................................ 28.6% 24.1% 19.2%
- --------------------------------------------------------------------------------
================================================================================
SERIES C (MONEY MARKET SERIES)
================================================================================
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
9.0% 8.0% 5.6% 3.2% 2.6% 3.7% 5.4% 5.1% 5.2% 5.1%
- --------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(QUARTERLY 1989-1998)
- --------------------------------------------------------------------------------
QUARTER ENDED
Highest................................ 2.4% June 30, 1989
Lowest................................. .6% September 30, 1993
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
(THROUGH DECEMBER 31, 1998)
- --------------------------------------------------------------------------------
PAST PAST PAST
1 YEAR 5 YEARS 10 YEARS
Series C............................... 5.1% 4.9% 4.9%
7-Day Yield............................ 3.87%
- --------------------------------------------------------------------------------
================================================================================
SERIES D (WORLDWIDE EQUITY SERIES)
================================================================================
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
- -8.9% -22.7% 12.7% -2.6% 31.6% 2.7% 10.9% 17.5% 6.5% 20.1%
- --------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(QUARTERLY 1989-1998)
- --------------------------------------------------------------------------------
QUARTER ENDED
Highest................................ 18.3% December 31, 1998
Lowest................................. -10.5% September 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1998)
- --------------------------------------------------------------------------------
PAST PAST PAST
1 YEAR 5 YEARS 10 YEARS
Series D............................... 20.1% 11.3% 5.7%
MSCI................................... 24.8% 16.2% 11.2%
Lehman Brothers High Yield Index....... 15.3% 11.3% 11.9%
- --------------------------------------------------------------------------------
================================================================================
SERIES E (HIGH GRADE INCOME SERIES)
================================================================================
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
11.9% 6.7% 17.0% 7.4% 12.6% -6.9% 18.6% -0.7% 10.0% 8.0%
- --------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(QUARTERLY 1989-1998)
- --------------------------------------------------------------------------------
QUARTER ENDED
Highest................................ 8.1% June 30, 1989
Lowest................................. -4.6% March 31, 1994
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1998)
- --------------------------------------------------------------------------------
PAST PAST PAST
1 YEAR 5 YEARS 10 YEARS
Series E............................... 8.0% 5.4% 8.2%
Lehman Brothers Government/
Corporate Bond Index................. 9.5% 7.3% 9.3%
Lehman Brothers Corporate Bond Index... 8.6% 7.7% 9.9%
- --------------------------------------------------------------------------------
================================================================================
SERIES J (MID CAP SERIES)
================================================================================
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A N/A 13.6% -5.1% 19.5% 18.0% 20.0% 18.0%
- --------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(QUARTERLY 1992-1998)
- --------------------------------------------------------------------------------
QUARTER ENDED
Highest................................ 29.7% December 31, 1998
Lowest................................. -16.5% September 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1998)
- --------------------------------------------------------------------------------
PAST PAST LIFE OF SERIES
1 YEAR 5 YEARS (SINCE 10/1/92)
Series J............................... 18.0% 13.6% 17.1%
S&P Midcap............................. 19.1% 18.9% 19.6%
- --------------------------------------------------------------------------------
================================================================================
SERIES K (GLOBAL STRATEGIC INCOME SERIES)
================================================================================
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A N/A N/A N/A N/A 13.7% 5.4% 6.9%
- --------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(QUARTERLY 1995-1998)
- --------------------------------------------------------------------------------
QUARTER ENDED
Highest................................ 6.3% December 31, 1998
Lowest................................. -2.8% September 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1998)
- --------------------------------------------------------------------------------
PAST LIFE OF SERIES
1 YEAR (SINCE 6/1/95)
Series K............................... 6.9% 9.4%
Lehman Brothers Global Bond Index...... 15.3% 12.9%
- --------------------------------------------------------------------------------
================================================================================
SERIES M (GLOBAL TOTAL RETURN SERIES)
================================================================================
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A N/A N/A N/A N/A 14.2% 6.2% 12.6%
- --------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(QUARTERLY 1995-1998)
- --------------------------------------------------------------------------------
QUARTER ENDED
Highest................................ 14.1% December 31, 1998
Lowest................................. -11.0% September 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1998)
- --------------------------------------------------------------------------------
PAST LIFE OF SERIES
1 YEAR (SINCE 6/1/95)
Series M............................... 12.6% 11.2%
S&P 500................................ 28.6% 28.7%
- --------------------------------------------------------------------------------
================================================================================
SERIES N (MANAGED ASSET ALLOCATION SERIES)
================================================================================
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A N/A N/A N/A N/A 12.8% 18.4% 18.4%
- --------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(QUARTERLY 1995-1998)
- --------------------------------------------------------------------------------
QUARTER ENDED
Highest................................ 11.5% December 31, 1998
Lowest................................. -4.5% September 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1998)
- --------------------------------------------------------------------------------
PAST LIFE OF SERIES
1 YEAR (SINCE 6/1/95)
Series N............................... 18.4% 15.9%
S&P 500................................ 28.6% 28.7%
- --------------------------------------------------------------------------------
================================================================================
SERIES O (EQUITY INCOME SERIES)
================================================================================
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A N/A N/A N/A N/A 20.0% 28.4% 9.0%
- --------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(QUARTERLY 1995-1998)
- --------------------------------------------------------------------------------
QUARTER ENDED
Highest................................ 11.3% June 30, 1997
Lowest................................. -7.6% September 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1998)
- --------------------------------------------------------------------------------
PAST LIFE OF SERIES
1 YEAR (SINCE 6/1/95)
Series O............................... 9.0% 20.7%
S&P 500................................ 28.6% 28.7%
- --------------------------------------------------------------------------------
================================================================================
SERIES P (HIGH YIELD SERIES)
================================================================================
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A N/A N/A N/A N/A N/A 13.4% 5.8%
- --------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(QUARTERLY 1996-1998)
- --------------------------------------------------------------------------------
QUARTER ENDED
Highest................................ 2.6% December 31, 1998
Lowest................................. -1.3% September 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1998)
- --------------------------------------------------------------------------------
PAST LIFE OF SERIES
1 YEAR (SINCE 8/5/96)
Series P............................... 5.8% 10.7%
Lehman Brothers High Yield Index....... 4.1% 10.0%*
- --------------------------------------------------------------------------------
*Index performance is only available to the Series at the beginning of each
month. The Lehman Brothers High Yield Index is for the period August 1, 1996 to
December 31, 1998.
- --------------------------------------------------------------------------------
================================================================================
SERIES S (SOCIAL AWARENESS SERIES)
================================================================================
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A 16.4% 11.9% -3.7% 27.7% 18.8% 22.7% 31.4%
- --------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(QUARTERLY 1991-1998)
- --------------------------------------------------------------------------------
QUARTER ENDED
Highest................................ 24.8% December 31, 1998
Lowest................................. -9.7% June 30, 1992
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1998)
- --------------------------------------------------------------------------------
PAST PAST LIFE OF SERIES
1 YEAR 5 YEARS (SINCE 5/1/91)
Series S............................... 31.4% 18.7% 16.5%
S&P 500................................ 28.6% 24.1% 19.6%
Domini Social Index.................... 34.5% 26.1% 21.8%
- --------------------------------------------------------------------------------
================================================================================
SERIES V (VALUE SERIES)
================================================================================
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A N/A N/A N/A N/A N/A N/A 16.6%
- --------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(QUARTERLY 1997-1998)
- --------------------------------------------------------------------------------
QUARTER ENDED
Highest................................ 20.2% December 31, 1998
Lowest................................. -15.0% September 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1998)
- --------------------------------------------------------------------------------
PAST LIFE OF SERIES
1 YEAR (SINCE 5/1/97)
Series V............................... 16.6% 29.0%
S&P 500................................ 28.6% 31.4%
BARRA Value Index...................... 14.7% 21.8%
- --------------------------------------------------------------------------------
================================================================================
SERIES X (SMALL CAP SERIES)
================================================================================
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A N/A N/A N/A N/A N/A N/A 11.5%
- --------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(QUARTERLY 1998)
- --------------------------------------------------------------------------------
QUARTER ENDED
Highest................................ 22.5% December 31, 1998
Lowest................................. -16.2% September 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1998)
- --------------------------------------------------------------------------------
PAST LIFE OF SERIES
1 YEAR (SINCE 10/15/97)
Series X............................... 11.5% 5.6%
Russell 2000 Index..................... -2.6% -6.6%*
- --------------------------------------------------------------------------------
*Index performance is only available to the Series at the beginning of each
month. The Russell 2000 Index is for the period October 1, 1997 to December 31,
1998.
- --------------------------------------------------------------------------------
INVESTMENT MANAGER
Security Management Company, LLC, 700 SW Harrison Street, Topeka, Kansas 66636,
is the Series' Investment Manager. On December 31, 1998, the aggregate assets of
all of the mutual funds under the investment management of the Investment
Manager were approximately $5.5 billion.
The Investment Manager has engaged OppenheimerFunds, Inc., Two World Trade
Center, New York, New York 10048, to provide investment advisory services to
Series D. Oppenheimer currently manages over $85 billion in assets. Oppenheimer
became Series D's Sub-Adviser on November 1, 1998, replacing Lexington
Management Corporation which served as Sub-Adviser of the Series from October
1993 to November 1, 1998.
The Investment Manager has engaged Bankers Trust Company, One Bankers Trust
Plaza, New York, New York 10006, to provide investment advisory services to
Series H and Series I. Bankers Trust was founded in 1903 and manages over $300
billion in assets.
Bankers Trust Company is a wholly owned subsidiary of Bankers Trust Corporation.
On November 30, 1998, Bankers Trust Corporation entered into an Agreement and
Plan of Merger with Deutsche Bank AG under which Bankers Trust Corporation and
all of its subsidiaries would merge with and into a subsidiary of Deutsche
Bank AG. Deutsche Bank AG is a major global banking institution that is engaged
in a wide range of financial services, including retail and commercial banking,
investment banking and insurance. The transaction is contingent upon various
regulatory approvals. If the transaction is completed, Deutsche Bank AG, will
control the operations of Bankers Trust Company as the new parent company.
Bankers Trust Company believes that, under this new arrangement, its
sub-advisory services to the Investment Manager will be maintained at their
current level.
The merger may be deemed to result in a change of control of Bankers Trust
Company, which would have the effect of terminating the current sub-advisory
agreement between the Investment Manager and Bankers Trust Company. However, the
Investment Manager and Bankers Trust Company have negotiated a new sub-advisory
agreement for Series H and Series I to take effect after the closing of the
merger transaction. The new sub-advisory agreement has been approved by the
initial shareholder of Series H and Series I and by the Board of Directors of
SBL Fund. The new sub-advisory agreement is substantially identical in its terms
as the current sub-advisory agreement, except for the commencement date. In the
event that the merger is not completed, Bankers Trust Company will continue to
serve as sub-adviser under the terms of the current sub-advisory agreement.
On March 11, 1999, Bankers Trust announced that it had reached an agreement with
the United States Attorney's Office in the Southern District of New York to
resolve an investigation concerning inappropriate transfers of unclaimed funds
and related record-keeping problems that occurred between 1994 and early 1996.
These past events led to a guilty plea by Bankers Trust, but did not arise out
of the investment advisory or mutual fund management activities of Bankers Trust
or its affiliates.
Pursuant to its agreement with the U.S. Attorney's Office, Bankers Trust pleaded
guilty to misstating entries in the bank's books and records and agreed to pay a
$60 million fine to federal authorities. Separately, Bankers Trust agreed to pay
a $3.5 million fine to the State of New York.
The SEC has granted a temporary order to permit Bankers Trust and its affiliates
to continue to provide investment advisory services to registered investment
companies. There is no assurance that the SEC will grant a permanent order. As a
result of the plea, absent an order from the SEC, Bankers Trust would not be
able to continue to provide investment advisory services to Series H and Series
I.
The Investment Manager has engaged Strong Capital Management, Inc., 900 Heritage
Reserve, Menomonee Falls, Wisconsin 53051, to provide investment advisory
services to Series X. Strong was established in 1974 and as of December 31,
1998, managed over $32 billion in assets.
The Investment Manager has engaged Wellington Management Company, LLP, 75 State
Street, Boston, Massachusetts, 02109 to provide investment advisory services to
Series K and Series M on an interim basis. It is anticipated that Wellington
Management will operate under the interim agreement until a definitive agreement
is voted on by shareholders of Series K and Series M. The shareholder meeting to
vote on the definitive agreement is set for May 14, 1999. Wellington Management
became the sub-adviser to Series K on March 30, 1999, replacing Lexington
Management Corporation which served as sub-adviser of Series K since its
inception in 1995. Wellington Management became the sub-adviser to Series M on
May 1, 1999, replacing Meridian Investment Management Corporation which served
as sub-adviser to Series M since August of 1997. Wellington Management is a
limited liability partnership which traces its origins to 1928. It currently
manages over $215 billion in assets on behalf of investment companies, employee
benefit plans, endowments, foundations and other institutions and individuals.
The Investment Manager has engaged T. Rowe Price Associates, Inc., 100 East
Pratt Street, Baltimore, Maryland 21202 to provide investment advisory services
to Series N and Series O. T. Rowe Price was founded in 1937. As of December 31,
1998, T. Rowe Price and its affiliates managed approximately $148 billion in
investments for approximately 7 million individual and institutional accounts.
The Series intend to apply to the Securities and Exchange Commission ("SEC") for
an exemptive order from the Investment Company Act of 1940 that will permit the
Series and the Investment Manager to enter into and materially amend
sub-advisory agreements with new or existing sub-advisers without the agreements
or amendments being approved by shareholders. However, this order would not
apply to sub-advisory agreements with an affiliate of the Investment Manager. If
this order is obtained, the Series or the Investment Manager could terminate a
sub-advisory agreement with an existing sub-adviser and engage a new
sub-adviser, or materially amend a sub-advisory agreement, without shareholder
approval of the new sub-advisory agreement or the amendment.
In order for the Series to enter into and amend sub-advisory agreements without
shareholder approval, the Series and the Investment Manager must not only
receive an order from the SEC, but the shareholders of the Series must also
initially approve this method of operation. However, shareholder approval of
this method of operation may not be necessary for Series H, Series I and Series
Y as the sole initial shareholder of those Series have approved this method of
operation. Therefore, Series H, Series I and Series Y could be operated under
the method of operation described above upon effectiveness of the exemptive
order.
There can be no assurance that the exemptive order will be issued by the SEC. It
is anticipated that if the exemptive order is granted, notice to shareholders
would be required of new sub-advisory agreements or material amendments to
sub-advisory agreements. Any material change to the investment advisory
agreement between the Series and the Investment Manager would not be subject to
the exemptive order, and therefore, would still require shareholder approval.
MANAGEMENT FEES -- The following chart shows the investment management fees paid
by each Series during the last fiscal year, except as otherwise indicated.
-----------------------------------------------------
MANAGEMENT FEES
(expressed as a percentage of average net assets)
-----------------------------------------------------
Series A.......... 0.75% Series M......... 1.00%
Series B.......... 0.75% Series N......... 1.00%
Series C.......... 0.50% Series O......... 1.00%
Series D.......... 1.00% Series P......... 0.00%
Series E.......... 0.75% Series S......... 0.75%
Series H*......... 0.75% Series V......... 0.57%
Series I*......... 1.10% Series X......... 0.00%
Series J.......... 0.75% Series Y*........ 0.75%
Series K.......... 0.44%
-----------------------------------------------------
*These Funds were not available until April 30, 1999.
-----------------------------------------------------
The Investment Manager may waive its management fee to limit the total operating
expenses of a Series to a specified level. The Investment Manager also may
reimburse expenses of the Series from time to time to help maintain competitive
expense ratios. These arrangements are voluntary and may be terminated at any
time.
PORTFOLIO MANAGERS -- STEVE BOWSER, Second Vice President and Portfolio Manager
of the Investment Manager, has co-managed Series E (High Grade Income Series)
since June 1997. Prior to joining the Investment Manager in 1992, he was
Assistant Vice President and Portfolio Manager with 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.
DAVID ESHNAUR, Assistant Vice President and Portfolio Manager of the Investment
Manager, has co-managed Series E (High Grade Income Series) since January 1998
and has managed 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.
DAVID J. GOERZ, III, Vice President at Wellington Management, has had day-to-day
responsibility for managing Series M since May 1, 1999. Mr. Goerz is the head of
Wellington Management's Tactical Asset Allocation research group. Prior to
joining Wellington Management in 1995, Mr. Goerz was Senior Investment
Strategist and Product Manager at TSA Capital Management (1994-1995) and Senior
Quantitative Analyst at ARCO Investment Management (1990-1994). Mr. Goerz earned
a B.S. degree in applied mathematics from the University of California, Los
Angeles and an M.S. degree in operations research from Stanford University.
LUCIUS T. HILL, III, Senior Vice President at Wellington Management, has had
day-to-day responsibility for managing Series K since March 30, 1999. Mr. Hill
chairs Wellington Management's Core Bond Strategy Group, which sets investment
policy guidelines for portfolios managed in the Core Bond and Strategic Total
Return styles. Mr. Hill is also a member of Wellington Management's Strategic
Total Return Strategy Group. Prior to joining Wellington Management in 1993, Mr.
Hill was a corporate bond trader at C.S. First Boston Corporation (1986-1990),
and a money market trader at Dean Witter Reynolds (1983-1986). Mr. Hill earned a
B.A. degree in economics and political science from Yale University and an
M.B.A. degree from Columbia Business School.
SIDNEY F. HOOTS, Managing Director of Bankers Trust, has been the manager of
Series H (Enhanced Index Series) since its inception in May 1999. He is the
Senior Portfolio Manager for the Structured Equity Group at Bankers Trust. He
has responsibility for a variety of funds ranging from an enhanced index fund
using quantitative stock selection to an equity-based relative value hedge fund
which combines traditional hedge fund trading with quantitative techniques. In
addition, he is responsible for a tax-advantaged equity product. Mr. Hoots also
directs the quantitative equity research effort for Bankers Trust. Mr. Hoots
joined Bankers Trust in 1983 and has 15 years of investment experience. He has a
B.S. degree from Duke University and an M.B.A. from the University of Chicago.
He is also a Member of the American Finance Association.
MICHAEL LEVY, Managing Director of Bankers Trust, has been co-lead manager of
Series I (International Series) since its inception in May 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 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
seventeen 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. He has been
the lead manager of Series Y (Select 25 Series) since its inception in May 1999.
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.
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. Mr. Ognar is a Chartered Financial Analyst
with more than 30 years of investment experience. He joined Strong in April 1993
after two years as a principal and portfolio manager with RCM Capital
Management. For approximately three years prior to that he was a portfolio
manager at Kemper Financial Services in Chicago. 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.
ROBERT REINER, Principal at Bankers Trust, has been co-lead manager of Series I
(International Series) since its inception in May 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, Director, 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, Second Vice President and Portfolio Manager of the Investment
Manager, has managed Series J (Mid Cap 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, Second Vice President and Portfolio Manager of the Investment
Manager, has managed Series S (Social Awareness Series) since 1994. She has nine
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.
LARRY VALENCIA, Research Analyst of the Investment Manager, has co-managed
Series Y (Select 25 Series) since its inception in May 1999. He has over 20
years of experience in the industry and is a Chartered Financial Analyst. Prior
to joining the Investment Manager in 1994, he was a portfolio manager at Pena
Investment Advisors, Inc. from 1992 to 1994. From 1978 to 1992, Mr. Valencia was
a Senior Consultant at Standard & Poor's Compustat Services, Inc. He earned a
B.S. degree in business administration from Illinois College and an M.B.A. from
the University of Denver.
JULIE WANG, Principal at Bankers Trust, has been co-manager of Series I
(International Series) since its inception in May 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 assisted 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. (economics) from Yale University and her M.B.A. from the Wharton School.
WILLIAM L. WILBY, Senior Vice President and Director of International Equities
of Oppenheimer, became manager of Series D (Worldwide Equity Series) in November
1998. Prior to joining Oppenheimer in 1991, he was an international 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.
JONN WULLSCHLEGER, Research Analyst of the Investment Manager, has co-managed
Series Y (Select 25 Series) since its inception in May 1999. He has 8 years of
experience in the investment field and is a Chartered Financial Analyst. Prior
to joining the Investment Manager in 1997, Mr. Wullschleger was a Research
Analyst at National City Corporation from 1994 to 1996. From 1993 to 1994, he
was employed at Liberty National Bank as an Equity Research Analyst. Prior to
1993, Mr. Wullschleger was employed as a Trust Investment Representative at
Merchants Bank. He earned a B.S. degree and an M.B.A. from Rockhurst College.
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. The Investment Manager considers a system "Year 2000
Compliant" when it is able to correctly process, provide and/or receive data
before, during and after the Year 2000. 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 commenced in early 1998 and will extend into the first
eight 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.
PURCHASE AND REDEMPTION OF SHARES
Security Benefit Life Insurance Company purchases shares of the Series for its
variable annuity and variable life insurance separate accounts. Security Benefit
buys and sells shares of the Series at the net asset value per share (NAV) next
determined after it submits the order to buy or sell. A Series' NAV is generally
calculated as of the close of trading on every day the New York Stock Exchange
is open.
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
Each Series pays its shareholders dividends from net investment income, and
distributes any net capital gains that it has realized, at least annually. Such
dividends and distributions will be reinvested in additional shares of the
Series.
You may purchase shares of the Series only indirectly through the purchase of a
variable annuity or variable life insurance contract issued by Security Benefit
Life Insurance Company. The prospectus for such variable annuity or variable
life insurance contract describes the federal tax consequences of your purchase
or sale of the contract.
DETERMINATION OF NET ASSET VALUE
The net asset value per share (NAV) of each Series is computed as of the close
of regular trading hours on the New York Stock Exchange (normally 3 p.m. Central
time) on days when the Exchange is open. The Exchange is open Monday through
Friday, except on observation of the following holidays: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
Each Series' NAV is generally based upon the market value of securities held in
the Series' portfolio. If market prices are not available, the fair value of
securities is determined using procedures approved by each Fund's Board of
Directors.
Foreign securities are valued based on quotations from the primary market in
which they are traded, and are converted from the local currency into U.S.
dollars using current exchange rates. Foreign securities may trade in their
primary markets on weekends or other days when the Series does not price its
shares. Therefore, the NAV of Series holding foreign securities may change on
days when shareholders will not be able to buy or sell shares of the Series.
GENERAL INFORMATION
CONTRACTOWNER INQUIRIES -- If you have questions concerning your account or wish
to obtain additional information, you may write to SBL Fund, 700 SW Harrison
Street, Topeka, Kansas 66636-0001, or call (785) 431-3127 or 1-800-888-2461,
extension 3127.
INVESTMENT POLICIES AND MANAGEMENT PRACTICES
This section takes a detailed look at some of the types of securities the Series
may hold in their portfolios and the various kinds of management practices that
may be used in the portfolios. The Series' holdings of certain types of
investments cannot exceed a maximum percentage of net assets. These percentage
limitations are set forth in the Statement of Additional Information. While the
percentage limitations provide a useful level of detail about a Series'
investment program, they should not be viewed as an accurate gauge of the
potential risk of the investment. For example, in a given period, a 5%
investment in futures contracts could have a significantly greater impact on a
Series' share price than its weighting in the portfolio. The net effect of a
particular investment depends on its volatility and the size of its overall
return in relation to the performance of all the Series' other investments.
Portfolio Managers have considerable leeway in choosing investment strategies
and selecting securities they believe will help a Series achieve its objective.
In seeking to meet its investment objective, a Series may invest in any type of
security or instrument whose investment characteristics are consistent with the
Series' investment program.
The Series are subject to certain investment policy limitations referred to as
"fundamental policies." The fundamental policies can not be changed without
shareholder approval. Some of the more important fundamental policies are that
each Series will not:
* with respect to 75% of its total assets, invest more than 5% of the value of
its assets in any one issuer other than the U.S. Government or its
instrumentalities
* purchase more than 10% of the outstanding voting securities of any one issuer
* invest 25% or more of its total assets in any one industry.
The full text of each Series' fundamental policies are included in the Statement
of Additional Information.
The following pages describe some of the investments which may be made by the
Series, as well as some of their management practices.
CONVERTIBLE SECURITIES AND WARRANTS -- Series A, B, D, I, J, K, M, O, P, S and X
may invest in debt or preferred equity securities convertible into, or
exchangeable for, equity securities. Traditionally, convertible securities have
paid dividends or interest at rates higher than common stocks but lower than
nonconvertible securities. They generally participate in the appreciation or
depreciation of the underlying stock into which they are convertible, but to a
lesser degree. In recent years, convertible securities have been developed which
combine higher or lower current income with options and other features. Warrants
are options to buy a stated number of shares of common stock at a specified
price anytime during the life of the warrants (generally, two or more years).
FOREIGN SECURITIES -- Series D, I, K, M, N, O, and X may invest in foreign
securities. Foreign investments involve certain special risks, including, but
not limited to, (i) unfavorable changes in currency exchange rates; (ii) adverse
political and economic developments; (iii) unreliable or untimely information;
(iv) limited legal recourse; (v) limited markets; and (vi) higher operational
expenses. Series A, B, E, J, P, S and Y may invest in foreign securities
denominated in U.S. dollars.
Foreign investments are normally issued and traded in foreign currencies. As a
result, their values may be affected by changes in the exchange rates between
particular foreign currencies and the U.S. dollar. Foreign investments may be
subject to the risks of seizure by a foreign government, imposition of
restrictions on the exchange or transport of foreign currency, and tax
increases. There may also be less information publicly available about a foreign
company than about most U.S. companies, and foreign companies are usually not
subject to accounting, auditing and financial reporting standards and practices
comparable to those in the United States. The legal remedies for investors in
foreign investments may be more limited than those available in the United
States. Certain foreign investments may be less liquid (harder to buy and sell)
and more volatile than domestic investments, which means a Series may at times
be unable to sell its foreign investments at desirable prices. For the same
reason, a Series may at times find it difficult to value its foreign
investments. Brokerage commissions and other fees are generally higher for
foreign investments than for domestic investments. The procedures and rules for
settling foreign transactions may also involve delays in payment, delivery or
recovery of money or investments. Foreign withholding taxes may reduce the
amount of income available to distribute to shareholders of the Series.
EMERGING MARKETS -- Series D, I, K, M, N, P and X may invest in emerging markets
foreign securities. The risks associated with foreign investments are typically
increased in less developed and developing countries, which are sometimes
referred to as emerging markets. For example, political and economic structures
in these countries may be young and developing rapidly, which can cause
instability. These countries are also more likely to experience high levels of
inflation, deflation or currency devaluation, which could hurt their economies
and securities markets. For these and other reasons, investments in emerging
markets are often considered speculative.
SMALLER COMPANIES -- Series A, B, D, I, J, M, N, V and X may invest in small- or
medium-sized companies. These companies are more likely than larger companies to
have limited product lines, markets or financial resources, or to depend on a
small, inexperienced management group. Stocks of these companies may trade less
frequently and in limited volume, and their prices may fluctuate more than
stocks of other companies. Stocks of these companies may therefore be more
vulnerable to adverse developments than those of larger companies.
ASSET-BACKED SECURITIES -- Series E, K, M, N and P may invest in asset-backed
securities. An underlying pool of assets, such as credit card receivables,
automobile loans, or corporate loans or bonds back these bonds and provides the
interest and principal payments to investors. On occasion, the pool of assets
may also include a swap obligation, which is used to change the cash flows on
the underlying assets. As an example, a swap may be used to allow floating rate
assets to back a fixed rate obligation. Credit quality depends primarily on the
quality of the underlying assets, the level of credit support, if any, provided
by the issuer, and the credit quality of the swap counterparty, if any. The
underlying assets (i.e. loans) are subject to prepayments, which can shorten the
securities' weighted average life and may lower their return. The value of these
securities also may change because of actual or perceived changes in the
creditworthiness of the originator, the servicing agent, the financial
institution providing credit support, or swap counterparty.
MORTGAGE-BACKED SECURITIES -- Series E, K, M, N and P may invest in a variety of
mortgage-backed securities. Mortgage lenders pool individual home mortgages with
similar characteristics to back a certificate or bond, which is sold to
investors such as the Series. Interest and principal payments generated by the
underlying mortgages are passed through to the investors. The three largest
issuers of these securities are the Government National Mortgage Association
(GNMA), the Federal National Mortgage Association (Fannie Mae) and the Federal
Home Loan Mortgage Corporation (Freddie Mac). GNMA certificates are backed by
the full faith and credit of the U.S. Government, while others, such as Fannie
Mae and Freddie Mac certificates, are only supported by the ability to borrow
from the U.S. Treasury or supported only by the credit of the agency. Private
mortgage bankers and other institutions also issue mortgage-backed securities.
Mortgage-backed securities are subject to scheduled and unscheduled principal
payments as homeowners pay down or prepay their mortgages. As these payments are
received, they must be reinvested when interest rates may be higher or lower
than on the original mortgage security. Therefore, these securities are not an
effective means of locking in long-term interest rates. In addition, when
interest rates fall, the pace of mortgage prepayments picks up. These refinanced
mortgages are paid off at face value (par), causing a loss for any investor who
may have purchased the security at a price above par. In such an environment,
this risk limits the potential price appreciation of these securities and can
negatively affect a Series' net asset value. When rates rise, the prices of
mortgage-backed securities can be expected to decline, although historically
these securities have experienced smaller price declines than comparable quality
bonds. In addition, when rates rise and prepayments slow, the effective duration
of mortgage-backed securities extends, resulting in increased volatility.
Additional mortgage-backed securities in which these Series may invest include
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs) and stripped mortgage securities.
CMOs are debt securities that are fully collateralized by a portfolio of
mortgages or mortgage-backed securities. All interest and principal payments
from the underlying mortgages are passed through to the CMOs in such a way as to
create, in most cases, more definite maturities than is the case with the
underlying mortgages. CMOs may pay fixed or variable rates of interest, and
certain CMOs have priority over others with respect to the receipt of
prepayments. Stripped mortgage securities (a type of potentially high-risk
derivative) are created by separating the interest and principal payments
generated by a pool of mortgage-backed securities or a CMO to create additional
classes of securities. Generally, one class receives only interest payments
(IOs) and another receives principal payments (POs). Unlike with other
mortgage-backed securities and POs, the value of IOs tends to move in the same
direction as interest rates. The Series can use IOs as a hedge against falling
prepayment rates (interest rates are rising) and/or a bear market environment.
POs can be used as a hedge against rising prepayment rates (interest rates are
falling) and/or a bull market environment. IOs and POs are acutely sensitive to
interest rate changes and to the rate of principal prepayments. A rapid or
unexpected increase in prepayments can severely depress the price of IOs, while
a rapid or unexpected decrease in prepayments could have the same effect on POs.
These securities are very volatile in price and may have lower liquidity than
most other mortgage-backed securities. Certain non-stripped CMOs may also
exhibit these qualities, especially those that pay variable rates of interest
that adjust inversely with, and more rapidly than, short-term interest rates. In
addition, if interest rates rise rapidly and prepayment rates slow more than
expected, certain CMOs, in addition to losing value, can exhibit characteristics
of longer-term securities and become more volatile. There is no guarantee a
Series' investment in CMOs, IOs, or POs will be successful, and a Series' total
return could be adversely affected as a result.
RESTRICTED SECURITIES -- Series B, C, D, H, I, K, M, N, O, P, V and X may invest
in restricted securities that are eligible for resale under Rule 144A of the
Securities Act of 1933. These securities are sold directly to a small number of
investors, usually institutions. Unlike public offerings, restricted securities
are not registered with the SEC. Although restricted securities which are
eligible for resale under Rule 144A may be readily sold to qualified buyers,
there may not always be a market for them and their sale may involve substantial
delays and additional costs. In addition, Series P and X may invest in
restricted securities that are not eligible for resale under Rule 144A. Because
there is no active market for these types of securities, selling a security that
is not a Rule 144A security may be difficult and/or may involve expenses that
would not be incurred in the sale of securities that were freely marketable.
LOWER RATE DEBT SECURITIES -- Series B, D, E, I, K, M, N, O, P and X may invest
in higher yielding debt securities in the lower rating (higher risk) categories
of the recognized rating services (commonly referred to as "junk bonds"). The
total return and yield of junk bonds can be expected to fluctuate more than the
total return and yield of higher-quality bonds. Junk bonds (those rated below
BBB or in default) are regarded as predominantly speculative with respect to the
issuer's continuing ability to meet principal and interest payments. Successful
investment in lower-medium- and low-quality bonds involves greater investment
risk and is highly dependent on the Investment Manager's credit analysis. A real
or perceived economic downturn or higher interest rates could cause a decline in
high-yield bond prices by lessening the ability of issuers to make principal and
interest payments. These bonds are often thinly traded and can be more difficult
to sell and value accurately than high-quality bonds. Because objective pricing
data may be less available, judgment may play a greater role in the valuation
process. In addition, the entire junk bond market can experience sudden and
sharp price swings due to a variety of factors, including changes in economic
forecasts, stock market activity, large or sustained sales by major investors, a
high-profile default, or just a change in the market's psychology. This type of
volatility is usually associated more with stocks than bonds, but junk bond
investors should be prepared for it.
HARD ASSET SECURITIES -- Series X may invest in equity securities of issuers
which are directly or indirectly engaged to a significant extent in the
exploration development or distribution of one or more of the following:
precious metals; ferrous and non-ferrous metals; gas, petroleum, petrochemical
and/or other commodities (collectively, "Hard Assets"). The production and
marketing of Hard Assets may be affected by actions and changes in governments.
In addition, Hard Asset securities may be cyclical in nature. During periods of
economic or financial instability, the securities of some Hard Asset companies
may be subject to broad price fluctuations, reflecting the volatility of energy
and basic materials prices and the possible instability of supply of various
Hard Assets. In addition, some Hard Asset companies also may be subject to the
risks generally associated with extraction of natural resources, such as the
risks of mining and oil drilling, and the risks of the hazard associated with
natural resources, such as fire, drought, increased regulatory and environmental
costs, and others. Securities of Hard Asset companies may also experience
greater price fluctuations than the relevant Hard Asset. In periods of rising
Hard Asset prices, such securities may rise at a faster rate, and, conversely,
in times of falling Hard Asset prices, such securities may suffer a greater
price decline.
GUARANTEED INVESTMENT CONTRACTS ("GICS") -- Series C 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 nationally recognized statistical ratings
organizations. 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.
FUTURES AND OPTIONS -- Series B, D, H, I, J, K, M, N, O, P, S, V and X may
utilize futures contracts, options on futures and may purchase call and put
options and write call and put options on a "covered" basis. Futures (a type of
potentially high-risk derivative) are often used to manage or hedge risk because
they enable the investor to buy or sell an asset in the future at an agreed-upon
price. Options (another type of potentially high-risk derivative) give the
investor the right (where the investor purchases the options), or the obligation
(where the investor writes (sells) the options), to buy or sell an asset at a
predetermined price in the future. Certain Series may also engage in forward
foreign currency transactions. These instruments may be bought or sold for any
number of reasons, including: to manage exposure to changes in securities prices
and foreign currencies, to manage exposure to changes in interest rates, and
bond prices; as an efficient means of adjusting overall exposure to certain
markets; in an effort to enhance income; to protect the value of portfolio
securities; and to adjust portfolio duration. Futures contracts and options may
not always be successful hedges; their prices can be highly volatile. Using them
could lower a Series' total return, and the potential loss from the use of
futures can exceed the Series' initial investment in such contracts.
HYBRID INSTRUMENTS -- Series K, M, N and O may invest in certain hybrid
instruments. These instruments (which are derivatives) can combine the
characteristics of securities, futures and options. For example, the principal
amount, redemption or conservation terms of a security could be related to the
market price of some commodity, currency or securities index. The risks of such
investments would reflect the risks of investing in futures, options and
securities, including volatility and illiquidity. Such securities may bear
interest or pay dividends at below market (or even relatively nominal) rates.
Under certain conditions, the redemption value of such an investment could be
zero. Hybrids can have volatile prices and limited liquidity and their use by a
Series may not be successful.
SWAPS, CAPS, FLOORS AND COLLARS -- Series K, P and X may enter into interest
rate and/or index swaps, and the purchase or sale of related caps, floors and
collars. A Series would enter into these transactions primarily to preserve a
return or spread on a particular investment or portion of its portfolio as a
technique for managing the portfolio's duration (i.e. the price sensitivity to
changes in interest rates) or to protect against any increase in the price of
securities the Series anticipates purchasing at a later date. To the extend a
Series enters into these types of transactions, it will be done to hedge and not
as a speculative investment, and the Series will not sell interest rate caps or
floors if it does not own securities or other instruments providing the income
the Series may be obligated to pay. Interest rate swaps involve the exchange by
the Series with another party of their respective commitments to pay or receive
interest on a notional amount of principal. 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.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENT CONTRACTS -- Series A, B, D, I, J,
K, M, N, P, V and X may purchase and sell securities on a "when issued",
"forward commitment" or "delayed delivery" basis. The price of these securities
is fixed at the time of the commitment to buy, but delivery and payment can take
place a month or more later. During the interim period, the market value of the
securities can fluctuate, and no interest accrues to the purchaser. At the time
of delivery, the value of the securities may be more or less than the purchase
or sale price. When a Series purchases securities on this basis, there is a risk
that the securities may not be delivered and that the Series may incur a loss.
CASH RESERVES -- Each Series may establish and maintain reserves as the
Investment Manager or relevant Sub-Adviser believes is advisable to facilitate
the Series' cash flow needs (e.g., redemptions, expenses and, purchases of
portfolio securities) or for temporary, defensive purposes. Such reserves may
include domestic, and for certain Series, foreign money market instruments as
well as certificates of deposit, bank demand accounts and repurchase agreements.
SHARES OF OTHER INVESTMENT COMPANIES -- Each Series other than Series A, B, C,
D, E, J and S may invest in shares of other investment companies. A 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.
BORROWING -- Each 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. To the extent that a 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 a 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. A 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.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand certain of the
Series' financial performance during the past five years, or the period since
commencement of a Series. Certain information reflects financial results for a
single Series share. The total returns in the table represent the rate that an
investor would have earned (or lost) on an investment in the Series assuming
reinvestment of all dividends and distributions. This information has been
audited by Ernst & Young LLP, whose report, along with the Fund's financial
statements, is included in its annual report, which is available upon request.
- --------------------------------------------------------------------------------
SERIES A
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
----------------------------------------------------------------
1998(E) 1997(E) 1996(E) 1995(E) 1994
------- ------- ------- ------- ----
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value beginning of period................... $29.39 $24.31 $21.03 $16.00 $19.82
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).......................... 0.17 0.16 0.18 0.18 0.20
Net gain (loss) on securities (realized & unrealized). 7.05 6.75 4.50 5.65 (0.44)
------ ------ ------ ------ ------
Total from investment operations...................... 7.22 6.91 4.68 5.83 (0.24)
LESS DISTRIBUTIONS
Dividends (from net investment income)................ (0.17) (0.18) (0.20) (0.15) (0.38)
Distributions (from capital gains).................... (2.17) (1.65) (1.20) (0.65) (3.20)
------ ------ ------ ------ ------
Total distributions................................... (2.34) (1.83) (1.40) (0.80) (3.58)
------ ------ ------ ------ ------
Net asset value end of period......................... $34.27 $29.39 $24.31 $21.03 $16.00
====== ====== ====== ====== =====
Total return (b)...................................... 25.4% 28.7% 22.7% 36.8% (1.7)%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands).................. $1,307,332 $999,929 $714,591 $519,891 $332,288
Ratio of expenses to average net assets............... 0.81% 0.81% 0.83% 0.83% 0.84%
Ratio of net investment income (loss) to average net
assets............................................. 0.59% 0.66% 0.90% 1.21% 1.13%
Portfolio turnover rate............................... 39% 61% 57% 83% 90%
</TABLE>
- --------------------------------------------------------------------------------
SERIES B
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
----------------------------------------------------------------
1998(E) 1997(E) 1996(E) 1995(E) 1994
------- ------- ------- ------- ----
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value beginning of period................... $41.60 $35.40 $33.95 $26.54 $29.73
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).......................... 0.83 0.72 0.83 0.79 0.51
Net gain (loss) on securities (realized & unrealized). 2.60 8.47 5.16 7.16 (1.34)
------ ------ ------ ------ ------
Total from investment operations...................... 3.43 9.19 5.99 7.95 (0.83)
LESS DISTRIBUTIONS
Dividends (from net investment income)................ (0.71) (0.86) (0.78) (0.54) (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)
------ ------ ------ ------ ------
Net asset value end of period......................... $39.81 $41.60 $35.40 $33.95 $26.54
====== ====== ====== ====== =====
Total return (b)...................................... 7.9% 26.5% 18.3% 30.1% (3.0)%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands).................. $1,196,979 $1,198,302 $956,586 $795,113 $595,154
Ratio of expenses to average net assets............... 0.80% 0.83% 0.84% 0.83% 0.84%
Ratio of net investment income (loss) to average net
assets............................................. 2.02% 1.89% 2.56% 2.70% 2.07%
Portfolio turnover rate............................... 119% 62% 58% 94% 43%
</TABLE>
- --------------------------------------------------------------------------------
SERIES C
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
----------------------------------------------------------------
1998(A)(E) 1997(E) 1996(A)(E) 1995(E) 1994
---------- ------- ---------- ------- ----
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value beginning of period................... $12.53 $12.56 $12.34 $12.27 $12.09
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).......................... 0.68 0.79 0.61 0.74 0.41
Net gain (loss) on securities (realized & unrealized). (0.06) (0.15) 0.01 (0.08) 0.04
------ ------ ------ ------ -----
Total from investment operations...................... 0.62 0.64 0.62 0.66 0.45
LESS DISTRIBUTIONS
Dividends (from net investment income)................ (0.62) (0.67) (0.40) (0.59) (0.27)
Distributions (from capital gains).................... --- --- --- --- ---
------ ------ ------ ------ -----
Total distributions................................... (0.62) (0.67) (0.40) (0.59) (0.27)
------ ------ ------ ------ ------
Net asset value end of period......................... $12.53 $12.53 $12.56 $12.34 $12.27
====== ====== ====== ====== =====
Total return (b)...................................... 5.1% 5.2% 5.1% 5.4% 3.7%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands).................. $128,083 $98,015 $128,672 $105,436 $118,668
Ratio of expenses to average net assets............... 0.57% 0.58% 0.58% 0.60% 0.61%
Ratio of net investment income (loss) to average net
assets............................................. 4.99% 5.04% 4.89% 5.27% 3.70%
Portfolio turnover rate............................... --- --- --- --- ---
</TABLE>
- --------------------------------------------------------------------------------
SERIES D
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
----------------------------------------------------------------
1998 1997 1996 1995 1994(A)
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value beginning of period................... $ 6.14 $ 6.14 $ 5.56 $ 5.07 $ 4.94
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).......................... 0.03 0.04 0.03 0.05 0.02
Net gain (loss) on securities (realized & unrealized). 1.18 0.38 0.93 0.50 0.12
------ ------ ------ ------ -----
Total from investment operations...................... 1.21 0.42 0.96 0.55 0.14
LESS DISTRIBUTIONS
Dividends (from net investment income)................ (0.09) (0.13) (0.20) --- (0.01)
------
Distributions (from capital gains).................... (0.52) (0.29) (0.18) (0.06) ---
------ ------ ------ ------ -----
Total distributions................................... (0.61) (0.42) (0.38) (0.06) (0.01)
------ ------ ------ ------ ------
Net asset value end of period......................... $ 6.74 $ 6.14 $ 6.14 $ 5.56 $ 5.07
====== ====== ====== ====== =====
Total return (b)...................................... 20.1% 6.5% 17.5% 10.9% 2.7%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands).................. $349,794 $285,782 $247,026 $177,781 $147,033
Ratio of expenses to average net assets............... 1.26% 1.24% 1.30% 1.31% 1.34%
Ratio of net investment income (loss) to average net
assets............................................. 0.92% 0.74% 0.74% 0.90% 0.50%
Portfolio turnover rate............................... 166% 129% 115% 169% 82%
</TABLE>
- --------------------------------------------------------------------------------
SERIES E
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
----------------------------------------------------------------
1998(E) 1997(E) 1996(E) 1995(E) 1994
------- ------- ------- ------- ----
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value beginning of period................... $12.25 $12.00 $12.86 $11.52 $13.78
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).......................... 0.74 0.86 0.75 0.74 0.76
Net gain (loss) on securities (realized & unrealized). 0.19 0.31 (0.85) 1.36 (1.71)
------ ------ ------ ------ ------
Total from investment operations...................... 0.93 1.17 (0.10) 2.10 (0.95)
LESS DISTRIBUTIONS
Dividends (from net investment income)................ (0.76) (0.92) (0.76) (0.76) (0.69)
Distributions (from capital gains).................... --- --- --- --- (0.62)
------ ------ ------ ------ ------
Total distributions................................... (0.76) (0.92) (0.76) (0.76) (1.31)
------ ------ ------ ------ ------
Net asset value end of period......................... $12.42 $12.25 $12.00 $12.86 $11.52
====== ====== ====== ====== =====
Total return (b)...................................... 8.0% 10.0% (0.7)% 18.6% (6.9)%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands).................. $154,722 $140,909 $134,041 $125,652 $107,078
Ratio of expenses to average net assets............... 0.83% 0.83% 0.83% 0.85% 0.85%
Ratio of net investment income (loss) to average net
assets............................................. 6.31% 6.67% 6.77% 6.60% 6.74%
Portfolio turnover rate............................... 70% 106% 232% 180% 185%
</TABLE>
- --------------------------------------------------------------------------------
SERIES J
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
----------------------------------------------------------------
1998(E) 1997(E) 1996(E) 1995(E) 1994
------- ------- ------- ------- ----
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value beginning of period................... $21.33 $18.25 $16.06 $13.44 $14.17
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).......................... (0.04) (0.03) (0.04) 0.04 (0.01)
Net gain (loss) on securities (realized & unrealized). 3.70 3.67 2.93 2.58 (0.71)
------ ------ ------ ------ ------
Total from investment operations...................... 3.66 3.64 2.89 2.62 (0.72)
LESS DISTRIBUTIONS
Dividends (from net investment income)................ (0.14) (0.06) (0.03) --- ---
Distributions (from capital gains).................... (2.34) (0.50) (0.67) --- (0.01)
------ ------ ------ ------ ------
Total distributions................................... (2.48) (0.56) (0.70) --- (0.01)
------ ------ ------ ------ ------
Net asset value end of period......................... $22.51 $21.33 $18.25 $16.06 $13.44
====== ====== ====== ====== =====
Total return (b)...................................... 18.0% 20.0% 18.0% 19.5% (5.1)%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands).................. $271,281 $226,297 $148,421 $93,379 $76,940
Ratio of expenses to average net assets............... 0.82% 0.82% 0.84% 0.84% 0.88%
Ratio of net investment income (loss) to average net
assets............................................. (0.21)% (0.11)% (0.21)% 0.26% (0.11)%
Portfolio turnover rate............................... 94% 107% 123% 202% 91%
</TABLE>
- --------------------------------------------------------------------------------
SERIES K
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
----------------------------------------------------
1998(D)(E) 1997(D)(E) 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 (loss).......................... 1.02 1.12 0.90 0.54
Net gain (loss) on securities (realized & unrealized). (0.32) (0.56) 0.50 0.22
------ ------ ------ -----
Total from investment operations...................... 0.70 0.56 1.40 0.76
LESS DISTRIBUTIONS
Dividends (from net investment income)................ (1.02) (0.94) (0.77) (0.47)
Distributions (from capital gains).................... (0.18) (0.28) (0.13) (0.04)
Return of capital..................................... --- --- --- (0.03)
------ ------ ------ ------
Total distributions................................... (1.20) (1.22) (0.90) (0.54)
------ ------ ------ ------
Net asset value end of period......................... $ 9.56 $10.06 $10.72 $10.22
====== ====== ====== =====
Total return (b)...................................... 6.9% 5.4% 13.7% 7.6%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands).................. $13,028 $14,679 $12,720 $5,678
Ratio of expenses to average net assets............... 1.13% 0.64% 0.84% 1.63%
Ratio of net investment income (loss) to average net
assets............................................. 10.85% 9.81% 10.79% 11.03%
Portfolio turnover rate............................... 57% 85% 86% 127%
</TABLE>
- --------------------------------------------------------------------------------
SERIES M
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
-------------------------------------------------
1998(E) 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 (loss).......................... 0.20 0.16 0.15 0.17
Net gain (loss) on securities (realized & unrealized). 1.33 0.59 1.36 0.54
------ ------ ------ -----
Total from investment operations...................... 1.53 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......................... $12.87 $12.29 $12.05 $10.71
====== ====== ====== =====
Total return (b)...................................... 12.6% 6.2% 14.2% 7.1%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands).................. $45,174 $48,379 $38,396 $15,976
Ratio of expenses to average net assets............... 1.24% 1.26% 1.34% 1.94%
Ratio of net investment income (loss) to average net
assets............................................. 1.33% 1.71% 2.73% 3.2%
Portfolio turnover rate............................... 49% 64% 40% 181%
</TABLE>
- --------------------------------------------------------------------------------
SERIES N
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
--------------------------------------------------
1998 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 (loss).......................... 0.26 0.24 0.19 0.16
Net gain (loss) on securities (realized & unrealized). 2.26 1.96 1.18 0.57
------ ------ ------ -----
Total from investment operations...................... 2.52 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......................... $16.01 $13.88 $12.02 $10.73
====== ====== ====== =====
Total return (b)...................................... 18.4% 18.4% 12.8% 7.3%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands).................. $76,121 $38,182 $23,345 $10,580
Ratio of expenses to average net assets............... 1.22% 1.35% 1.45% 1.90%
Ratio of net investment income (loss) to average net
assets............................................. 2.49% 2.71% 2.67% 2.8%
Portfolio turnover rate............................... 10% 28% 41% 26%
</TABLE>
- --------------------------------------------------------------------------------
SERIES O
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
--------------------------------------------------
1998 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 (loss).......................... 0.29 0.19 0.17 0.17
Net gain (loss) on securities (realized & unrealized). 1.30 3.77 2.17 1.53
------ ------ ------ -----
Total from investment operations...................... 1.59 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......................... $18.35 $17.62 $14.01 $11.70
====== ====== ====== =====
Total return (b)...................................... 9.0% 28.4% 20.0% 17.0%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands).................. $204,070 $150,391 $62,377 $13,528
Ratio of expenses to average net assets............... 1.08% 1.09% 1.15% 1.40%
Ratio of net investment income (loss) to average net
assets............................................. 1.93% 2.31% 2.62% 3.0%
Portfolio turnover rate............................... 20% 21% 22% 3%
</TABLE>
- --------------------------------------------------------------------------------
SERIES P
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
------------------------------------
1998(D) 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 (loss).......................... 0.89 0.68 0.51
Net gain (loss) on securities (realized & unrealized). 0.12 1.43 0.48
------ ------ -----
Total from investment operations...................... 1.01 2.11 0.99
LESS DISTRIBUTIONS
Dividends (from net investment income)................ (1.63) (0.42) ---
Distributions (from capital gains).................... (0.18) (0.08) ---
------ ------ -----
Total distributions................................... (1.81) (0.50) ---
------ ------ -----
Net asset value end of period......................... $16.80 $17.60 $15.99
====== ====== =====
Total return (b)...................................... 5.8% 13.4% 6.6%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands).................. $14,949 $6,767 $2,665
Ratio of expenses to average net assets............... 0.18% 0.31% 0.28%
Ratio of net investment income (loss) to average net
assets............................................. 8.17% 8.58% 8.24%
Portfolio turnover rate............................... 87% 77% 151%
</TABLE>
- --------------------------------------------------------------------------------
SERIES S
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
----------------------------------------------------------------
1998 1997(E) 1996(E) 1995(E) 1994
---- ------- ------- ------- ----
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value beginning of period................... $22.25 $19.08 $16.49 $12.97 $13.69
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).......................... 0.09 0.06 0.03 0.09 0.08
Net gain (loss) on securities (realized & unrealized). 6.78 4.21 3.07 3.51 (0.59)
------- ------ ------ ------ ------
Total from investment operations...................... 6.87 4.27 3.10 3.60 (0.51)
LESS DISTRIBUTIONS
Dividends (from net investment income)................ (0.06) (0.04) (0.08) (0.08) (0.02)
Distributions (from capital gains).................... (0.66) (1.06) (0.43) --- (0.19)
------ ------ ------ ------ ------
Total distributions................................... (0.72) (1.10) (0.51) (0.08) (0.21)
------ ------ ------ ------ ------
Net asset value end of period......................... $28.40 $22.25 $19.08 $16.49 $12.97
====== ====== ====== ====== =====
Total return (b)...................................... 31.4% 22.7% 18.8% 27.7% (3.7)%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands).................. $152,641 $89,332 $57,497 $36,830 $24,539
Ratio of expenses to average net assets............... 0.82% 0.83% 0.84% 0.86% 0.90%
Ratio of net investment income (loss) to average net
assets............................................. 0.47% 0.35% 0.30% 0.75% 0.75%
Portfolio turnover rate............................... 23% 49% 67% 122% 67%
</TABLE>
- --------------------------------------------------------------------------------
SERIES V
- --------------------------------------------------------------------------------
FISCAL YEAR ENDED
DECEMBER 31
------------------------
1998(D) 1997(A)(D)(G)
------- -------------
PER SHARE DATA
Net asset value beginning of period................... $13.13 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).......................... 0.03 0.12
Net gain (loss) on securities (realized & unrealized). 2.14 3.01
------ -----
Total from investment operations...................... 2.17 3.13
LESS DISTRIBUTIONS
Dividends (from net investment income)................ (0.08) ---
Distributions (from capital gains).................... (0.39) ---
------ -----
Total distributions................................... (0.47) ---
------ -----
Net asset value end of period......................... $14.83 $13.13
====== =====
Total return (b)...................................... 16.6% 31.3%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands).................. $18,523 $6,491
Ratio of expenses to average net assets............... 0.71% 0.40%
Ratio of net investment income (loss) to average net
assets............................................. 0.42% 1.55%
Portfolio turnover rate............................... 72% 79%
- --------------------------------------------------------------------------------
SERIES X
- --------------------------------------------------------------------------------
FISCAL YEAR ENDED
DECEMBER 31
----------------------
1998(D) 1997(D)(H)
------- ----------
PER SHARE DATA
Net asset value beginning of period................... $ 9.60 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).......................... 0.02 0.01
Net gain (loss) on securities (realized & unrealized). 1.07 (0.41)
------ ------
Total from investment operations...................... 1.09 (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......................... $10.67 $ 9.60
====== =====
Total return (b)...................................... 11.5% (4.0)%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands).................. $5,621 $2,640
Ratio of expenses to average net assets............... 0.59% 0.98%
Ratio of net investment income (loss) to average net
assets............................................. 0.26% 0.73%
Portfolio turnover rate............................... 367% 402%
- --------------------------------------------------------------------------------
(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 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% 1.66%
Series P --- 1.11% 1.14% 0.93%
Series V --- --- 1.14% 0.89%
Series X --- --- 1.98% 1.59%
(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 1998
---- ---- ---- ----
Series A 0.83% 0.83% 0.81% 0.81%
Series B 0.83% 0.84% 0.83% 0.80%
Series C 0.60% 0.58% 0.58% 0.57%
Series E 0.85% 0.83% 0.83% 0.83%
Series J 0.83% 0.84% 0.82% 0.82%
Series P --- --- 0.31% 0.18%
Series S 0.84% 0.84% 0.83% 0.82%
(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-adviser of Series M 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.
- --------------------------------------------------------------------------------
<PAGE>
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
BY TELEPHONE -- Call 1-800-888-2461.
BY MAIL -- Write to:
Security Management Company, LLC
700 SW Harrison
Topeka, KS 66636-0001
ON THE INTERNET -- Reports and other information about the Fund can be viewed
online or downloaded from:
SEC: http://www.sec.gov
SMC, LLC: http://www.securitybenefit.com
Additional information about the Fund (including the Statement of Additional
Information) can be reviewed and copied at the Securities and Exchange
Commission's Public Reference Room in Washington, DC. Information about the
operation of the public reference room may be obtained by calling the Commission
at 1-800-SEC-0330. Copies may be obtained, upon payment of a duplicating fee, by
writing the Public Reference Section of the Commission, Washington, DC
20549-6009.
- --------------------------------------------------------------------------------
The Fund's prospectus is to be used with the attached variable annuity or
variable life insurance product prospectus. The Series of the Fund correspond to
the subaccounts offered in such prospectuses.
ANNUAL/SEMI-ANNUAL REPORT -- Additional information about the Fund's investments
is available in the Fund's annual and semi-annual reports to shareholders. In
the Fund's annual report, you will find a discussion of the market conditions
and investment strategies that significantly affected the Fund's performance
during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION -- The Fund's Statement of Additional
Information and the Fund's annual or semi-annual report are available, without
charge upon request by calling the Fund's toll-free telephone number
1-800-888-2461, extension 3127. Shareholder inquiries should be addressed to
SMC, LLC, 700 SW Harrison Street, Topeka, Kansas 66636-0001, or by calling the
Fund's toll-free telephone number listed above. The Fund's Statement of
Additional Information is incorporated into this prospectus by reference.
The Fund's Investment Company Act file number is listed below:
SBL Fund.................................. 811-02753
