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SBL FUND
PROSPECTUS
MAY 1, 2000
AS SUPPLEMENTED MAY 11, 2000
* Series A (Equity Series)
* Series B (Large Cap Value Series)
* Series C (Money Market Series)
* Series D (Global Series)
* Series E (Diversified Income Series)
* Series G (Large Cap Growth Series)
* Series H (Enhanced Index Series)
* Series I (International Series)
* Series J (Mid Cap Growth Series)
* Series K (Global Strategic Income Series)
* Series L (Capital Growth Series)
* Series M (Global Total Return Series)
* Series N (Managed Asset Allocation Series)
* Series O (Equity Income Series)
* Series P (High Yield Series)
* Series Q (Small Cap Value Series)
* Series S (Social Awareness Series)
* Series T (Technology Series)
* Series V (Mid Cap Value Series)
* Series W (Main Street Growth and Income(R) Series)
* Series X (Small Cap Growth 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
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SERIES' OBJECTIVES.......................................................... 3
Series A (Equity Series)................................................ 3
Series B (Large Cap Value Series)....................................... 3
Series C (Money Market Series).......................................... 3
Series D (Global Series)................................................ 3
Series E (Diversified Income Series).................................... 3
Series G (Large Cap Growth Series)...................................... 3
Series H (Enhanced Index Series)........................................ 3
Series I (International Series)......................................... 3
Series J (Mid Cap Growth Series)........................................ 3
Series K (Global Strategic Income Series)............................... 3
Series L (Capital Growth Series)........................................ 3
Series M (Global Total Return Series)................................... 3
Series N (Managed Asset Allocation Series).............................. 3
Series O (Equity Income Series)......................................... 3
Series P (High Yield Series)............................................ 3
Series Q (Small Cap Value Series)....................................... 3
Series S (Social Awareness Series)...................................... 3
Series T (Technology Series)............................................ 3
Series V (Mid Cap Value Series)......................................... 3
Series W (Main Street Growth and Income(R) Series)...................... 3
Series X (Small Cap Growth Series)...................................... 3
Series Y (Select 25 Series)............................................. 3
SERIES' PRINCIPAL INVESTMENT STRATEGIES..................................... 3
Series A (Equity Series)................................................ 3
Series B (Large Cap Value Series)....................................... 4
Series C (Money Market Series).......................................... 4
Series D (Global Series)................................................ 5
Series E (Diversified Income Series).................................... 5
Series G (Large Cap Growth Series)...................................... 6
Series H (Enhanced Index Series)........................................ 7
Series I (International Series)......................................... 7
Series J (Mid Cap Growth Series)........................................ 8
Series K (Global Strategic Income Series)............................... 8
Series L (Capital Growth Series)........................................ 9
Series M (Global Total Return Series)................................... 10
Series N (Managed Asset Allocation Series).............................. 11
Series O (Equity Income Series)......................................... 11
Series P (High Yield Series)............................................ 12
Series Q (Small Cap Value Series)....................................... 12
Series S (Social Awareness Series)...................................... 13
Series T (Technology Series)............................................ 13
Series V (Mid Cap Value Series)......................................... 14
Series W (Main Street Growth and Income(R) Series)...................... 14
Series X (Small Cap Growth Series)...................................... 15
Series Y (Select 25 Series)............................................. 15
MAIN RISKS.................................................................. 16
Market Risk............................................................. 16
Smaller Companies....................................................... 16
Value Stocks............................................................ 16
Growth Stocks........................................................... 17
Foreign Securities...................................................... 17
Emerging Markets........................................................ 17
Options and Futures..................................................... 17
Short Sales............................................................. 17
Active Trading.......................................................... 18
Interest Rate Risk...................................................... 18
Credit Risk............................................................. 18
Prepayment Risk......................................................... 18
Mortgage-Backed Securities.............................................. 18
Restricted Securities................................................... 18
High Yield Securities................................................... 19
Interest Rate Swap Agreements........................................... 19
Social Investing........................................................ 19
Focused Investment Strategy............................................. 19
Non-Diversification..................................................... 19
Concentration........................................................... 19
Investment in Investment Companies...................................... 19
Technology Stocks....................................................... 19
Additional Information.................................................. 19
PAST PERFORMANCE............................................................ 20
INVESTMENT MANAGER.......................................................... 27
Management Fees......................................................... 29
Portfolio Managers...................................................... 29
PURCHASE AND REDEMPTION OF SHARES........................................... 32
BROKERAGE ENHANCEMENT PLAN.................................................. 32
DISTRIBUTIONS AND FEDERAL INCOME TAX CONSIDERATIONS......................... 32
DETERMINATION OF NET ASSET VALUE............................................ 32
GENERAL INFORMATION......................................................... 33
Contractowner Inquiries................................................. 33
INVESTMENT POLICIES AND MANAGEMENT PRACTICES................................ 33
Convertible Securities and Warrants..................................... 33
Foreign Securities...................................................... 33
Emerging Markets........................................................ 34
Smaller Companies....................................................... 34
Asset-Backed Securities................................................. 34
Mortgage-Backed Securities.............................................. 34
Restricted Securities................................................... 35
High Yield Securities................................................... 35
Hard Asset Securities................................................... 36
Guaranteed Investment Contracts ("GICs")................................ 36
Futures and Options..................................................... 36
Hybrid Instruments...................................................... 36
Swaps, Caps, Floors and Collars......................................... 37
When-Issued Securities and Forward Commitment Contracts................. 37
Cash Reserves........................................................... 37
Shares of Other Investment Companies.................................... 37
Borrowing............................................................... 37
FINANCIAL HIGHLIGHTS........................................................ 38
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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 (EQUITY SERIES) -- Series A seeks long-term capital growth.
SERIES B (LARGE CAP VALUE 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 (GLOBAL 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 (DIVERSIFIED INCOME SERIES) -- Series E seeks to provide current income
with security of principal by investing primarily in a diversified portfolio of
investment-grade debt securities. The debt securities in which Series E invests
will primarily be domestic securities, but may also include dollar denominated
foreign securities.
SERIES G (LARGE CAP GROWTH SERIES) -- Series G seeks long-term capital growth.
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 GROWTH 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 L (CAPITAL GROWTH SERIES) -- Series L seeks growth of capital by pursuing
aggressive investment policies.
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 Q (SMALL CAP VALUE SERIES) -- Series Q seeks capital growth.
SERIES S (SOCIAL AWARENESS SERIES) -- Series S seeks capital appreciation.
SERIES T (TECHNOLOGY SERIES) -- Series T seeks long-term capital appreciation by
investing in the equity securities of technology companies.
SERIES V (MID CAP VALUE SERIES) -- Series V seeks long-term growth of capital.
SERIES W (MAIN STREET GROWTH AND INCOME(R) SERIES) -- Series W seeks high total
return (which includes growth in the value of its shares as well as current
income) from equity and debt securities.
SERIES X (SMALL CAP GROWTH 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 (EQUITY 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, Security Management Company, LLC, 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.
The Series also may invest a portion of its assets in options and futures
contracts. These instruments may be used to hedge the Series' portfolio, to
increase returns, or to maintain exposure to the equity markets.
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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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The Series may invest in a variety of investment companies, including those that
seek to track the composition and performance of a specific index. The Series
may use these index-based investments as a way of managing its cash position, to
gain exposure to the equity markets, or a particular sector of the equity
market, while maintaining liquidity.
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INDEX-BASED INVESTMENTS, such as S&P Depositary Receipts (SPDRs), hold
substantially all of their assets in securities representing a specific index.
In the case of SPDRs the index represented is the S&P 500.
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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 (LARGE CAP VALUE 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
may also invest 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
$5 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 securities that have not been registered under the
federal securities laws; provided that the securities are eligible for resale
pursuant to Rule 144A.
The Series also may invest a portion of its assets in options and futures
contracts. These instruments may be used to hedge the options and Series'
portfolio, to increase returns, or to maintain exposure to the equity markets.
The Series may invest in a variety of investment companies, including those that
seek to track the composition and performance of a specific index. The Series
may use these index-based investments as a way of managing its cash position, to
gain exposure to the equity markets, or a particular sector of the equity
market, while maintaining liquidity.
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 commercial paper in the top two tiers; 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 (GLOBAL 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 considering the effect of key
worldwide growth trends, OppenheimerFunds focuses on areas they believe offer
some of the best opportunities for long-term growth. These trends include: (1)
the growth of mass affluence; (2) the development of new technologies; (3)
corporate restructuring; and (4) demographics.
OppenheimerFunds currently looks for the following:
* Stocks of small, medium and large growth-oriented companies worldwide
* Companies that stand to benefit from global growth trends
* Businesses with strong competitive positions and high demand for their
products or services
* Cyclical opportunities in the business cycle and sectors or industries that
may benefit from those opportunities.
To lower the risks of foreign investing, such as currency fluctuations,
OppenheimerFunds diversifies broadly across countries and industries. The Series
can 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 or unstable market conditions, the Series could invest some or all
of its assets in 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 (DIVERSIFIED INCOME SERIES) -- The Series pursues its objectives by
investing, under normal circumstances, primarily in a diversified portfolio of
investment grade debt securities. The Series expects to maintain a weighted
average duration of 4 to 10 years. The debt securities in which the Series
invests will primarily be domestic securities, but may also include dollar
denominated foreign securities. 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"), investment grade mortgage-backed securities, investment grade
asset-backed securities, U.S. Government securities and total return swap
agreements.
Series E also may invest a portion of its assets in options and futures
contracts. These instruments may be used to hedge the Series' portfolio, enhance
income, or as a substitute for purchasing or selling 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.
TOTAL RETURN SWAP AGREEMENTS involve the payment by the Series of a floating
rate of interest in exchange for the total rate of return on a benchmark index.
For example, instead of investing in the securities of a particular benchmark
index, the Series could enter into a swap agreement and receive the total return
of the benchmark index, in return for a floating rate payment to the
counterparty.
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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, cashflow,
position in its market, capital structure, general economic factors and market
conditions, as well as world market conditions.
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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. An issuer with the lowest credit quality
rating may be in default or have extremely poor prospects of making timely
payment of interest and principal.
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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 the Investment Manager believes 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, debt obligations consisting of repurchase agreements and money
market instruments of foreign or domestic issuers 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 G (LARGE CAP GROWTH SERIES) -- The Series pursues its objective by
investing, under normal circumstances, at least 65% of its total assets in
common stock and other equity securities of large capitalization companies that,
in the opinion of the Investment Manager, have long-term capital growth
potential. The Series invests primarily in a portfolio of common stocks, which
may include American Depositary Receipts ("ADRs") or securities with common
stock characteristics, such as securities convertible into common stocks. The
Series defines large capitalization companies as those whose total market value
is at least $5 billion at the time of purchase. The Series is non-diversified as
defined in the Investment Company Act of 1940, which means that it may hold a
larger position in a smaller number of securities than a diversified series. The
Series may also concentrate its investments in a particular industry or group of
related industries, although it has no present intention of doing so.
The Investment Manager uses a growth-oriented strategy to choose stocks, which
means that it invests in companies whose earnings are believed to be in a
relatively strong growth trend. In identifying companies with favorable growth
prospects, the Investment Manager considers factors such as prospects for
above-average sales and earnings growth; high return on invested capital;
overall financial strength; competitive advantages, including innovative
products and services; effective research, product development and marketing;
and stable, effective management.
Series G also may invest a portion of its assets in options and futures
contracts. These instruments may be used to hedge the Series' portfolio, to
increase returns or to maintain exposure to the equity markets.
The Series typically sells a stock when the reasons for buying it no longer
apply, or when the company begins to show deteriorating fundamentals or poor
relative performance.
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 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.
The Series typically sells an investment when the reasons for buying it no
longer apply, or when the issuer begins to show deteriorating fundamentals or
poor relative performance.
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 GROWTH 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 $10 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 "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 invest a portion of its assets in options and futures contracts.
These instruments may be used to hedge the Series' portfolio, to increase
returns, or to maintain exposure to the equity markets.
The Series may invest in a variety of investment companies, including those that
seek to track the composition and performance of a specific index. The Series
may use these index-based investments as a way of managing its cash position, to
gain exposure to the equity markets, or a particular sector of the equity
market, while maintaining liquidity.
The Series typically sells a stock if its growth prospects diminsh, or if better
opportunities become available.
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 o 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 L (CAPITAL GROWTH SERIES) -- The Series invests primarily in equity
securities of U.S. companies. Unlike most equity funds, the Series focuses on a
relatively small number of intensively researched companies. The Series'
Sub-Adviser, Alliance Capital Management L.P., selects the Series' investments
from a research universe of more than 600 companies that have strong management,
superior industry positions, excellent balance sheets, and superior earnings
growth prospects.
Normally, the Series invests in about 40-50 companies, with the 25 most highly
regarded of these companies usually constituting approximately 70% of the
Series' net assets. During market declines, while adding to positions in favored
stocks, the Series becomes somewhat more aggressive, gradually reducing the
number of companies represented in its portfolio. Conversely, in rising markets,
while reducing or eliminating fully-valued positions, the Series becomes
somewhat more conservative, gradually increasing the number of companies
represented in its portfolio. Through this approach, Alliance seeks to gain
positive returns in good markets while providing some measure of protection in
poor markets.
The Series also may:
* invest up to 20% of its net assets in convertible securities;
* invest up to 15% of its total assets in foreign securities;
* make short sales "against the box" of up to 15% of its net assets; and
* invest up to 10% of its total assets in illiquid securities.
The Series may also invest a portion of its assets in options and futures
contracts. These instruments may be used to hedge the Series' portfolio, to
increase returns or to maintain exposure to the equity markets.
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 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 seeks to allocate on average about 80% of
total assets to equity securities and about 20% of total assets to fixed income
securities. Under normal circumstances, the Portfolio invests at least 65% of
its total assets in equity and fixed income securities of issuers worldwide, but
typically maintains a fully invested position.
The Series is not required to allocate any particular percentage of its assets
to equity or fixed-income securities. 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.
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. When deciding upon allocations within the prescribed
limits, T. Rowe Price may favor fixed income securities if the economy is
expected to slow sufficiently to hurt corporate profit growth. The opposite may
be true when strong economic growth is expected. Shifts between stocks and bonds
will normally be done gradually and T. Rowe Price will not attempt to precisely
"time" the market. Bonds will be primarily investment-grade and chosen from
across the entire government, corporate and mortgage-backed bond market. While
maturities will vary with T. Rowe Price's view of market conditions; the
weighted average maturity of the fixed income portion as a whole (except for
cash reserves) is expected to be in the range of 7 - 12 years. 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 enter into stock index,
interest rate or currency futures contracts (or options thereon) for hedging
purposes or to provide an efficient means of adjusting the portfolio's exposure
to the securities markets. The Series may enter into foreign currency exchange
contracts in connection with its foreign investments. To the extent the Series
uses these investments, it will be exposed to additional volatility and
potential losses.
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
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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.
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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 seeking the Series' objective.
Under adverse market conditions the Series could invest some or all of its
assets in cash reserves including money market securities 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.
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 will
not purchase a debt security, if at the time of purchase, it is rated in
default. The Series may invest in equity securities, including common stocks,
American Depositary Receipts, exchange-traded real estate investment trusts,
warrants and rights. The Series' average weighted maturity is expected to be
between 5 and 15 years.
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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.
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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 Q (SMALL CAP VALUE SERIES) -- The Series pursues its objective by
investing, under normal circumstances, at least 65% of its assets in stocks of
small-capitalization companies that the Series' Sub-Adviser, Strong Capital
Management, Inc., believes are undervalued relative to the market based on
earnings, cash flow, or asset value. The Series defines small-capitalization
companies as those companies with a market capitalization substantially similar
to that of companies in the Russell 2500(TM) Index at the time of purchase.
Strong specifically looks for companies whose stock prices may benefit from a
catalyst event, such as a corporate restructuring, a new product or service, or
a change in the political, economic, or social environment. The Series may write
put and call options to limit its exposure to adverse market movements. This
means that the Series sells an option to another party to either buy a stock
from (call) or sell a stock to (put) the Series at a specified price at a
specified time. Strong may sell a stock when it believes fundamental changes
will hurt the company over the long term or when its price becomes excessive.
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The RUSSELL 2500(TM) INDEX is a market capitalization weighted U.S. equity index
published by Frank Russell Company. The index is a subset of the Russell 3000
Index which measures the performance of the 3,000 largest U.S. companies. The
Russell 2500(TM) Index measures the performance of the 2,500 smallest companies
in the Russell 3000 Index.
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Under adverse market conditions, the Series could invest some or all of its
assets in cash or cash-type securities (high-quality, short-term debt securities
issued by corporations, financial institutions, or the U.S. government).
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 also
may invest in companies that are included in the Domini 400 Social IndexSM,
which companies will be deemed to comply with the Series' social criteria.
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The DOMINI 400 SOCIAL INDEXSM (DSI) is a market capitalization-weighted common
stock index. It monitors the performance of 400 U.S. corporations that pass
multiple, broad-based social screens. The DSI 400 consists of approximately 250
companies included in the Standard & Poor's 500 Index, approximately 100
additional large companies not included in the S&P but providing industry
representation, and approximately 50 additional companies with particularly
strong social characteristics. The DSI is maintained by Kinder, Lydenberg,
Domini & Co., Inc.
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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 $5 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 T (TECHNOLOGY SERIES) -- The Series pursues its objective by investing,
under normal circumstances, at least 80% of its total assets in the equity
securities of technology companies. The Series is non-diversified and expects to
hold approximately 30 to 50 positions. The Series may invest up to 40% of its
total assets in foreign securities. The Series may actively trade its
investments without regard to the length of time they have been owned by the
Series.
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The TECHNOLOGY SECTOR consists of companies that are engaged in the development,
production, or distribution of technology-related products or services. These
include computer software, computer hardware, semiconductors and equipment,
communication equipment, and Internet and new media companies.
- --------------------------------------------------------------------------------
The Sub-Adviser, Wellington Management Company, LLP, uses fundamental analysis
to choose technology securities in foreign and U.S. markets. The Series'
investment approach is based on analyzing the competitive outlook for the
technology sector, identifying those industries likely to benefit from the
current and expected future environment, and identifying individual
opportunities. The Sub-adviser's evaluation of technology companies rests on its
solid knowledge of the overall competitive environment including supply and
demand characteristics, trends, existing product evaluations, and new product
developments within the technology sector. Fundamental research is focused on
direct contact with company management, suppliers, and competitors.
Asset allocation within the Series reflects the Sub-adviser's opinion of the
relative attractiveness of stocks within the industries of the technology
sector, near term macroeconomic events that may detract or enhance an industry's
attractiveness, and the number of undervalued opportunities in each industry.
Opportunities dictate the magnitude and frequency of changes in asset allocation
among industries, but some representation typically is maintained in each major
industry, including computer software, computer hardware, semiconductors and
equipment, communications equipment, and internet and new media.
Stocks considered for purchase typically share the following attributes:
* A positive change in operating results is anticipated
* Unrecognized or undervalued capabilities are present
* The quality of management indicates that these factors will be converted to
shareholder values.
Stocks will be considered for sale from the Series when:
* Target prices are achieved
* Earnings and/or return expectations are marked down due to fundamental
changes in the company's operating outlook
* More attractive value in a comparable company is available.
The Series may invest in securities denominated in any currency. 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. These
derivatives strategies will be used:
* To adjust the portfolio's exposure to a particular currency
* To manage risk
* As a substitute for purchasing or selling securities
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 V (MID CAP 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 of companies with total market value
of $10 billion or below at the time of purchase. The Series may also invest in
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 sell a stock if it is no longer considered undervalued
or when the company begins to show deteriorating fundamentals.
The Series also may invest a portion of its assets in options and futures
contracts which may be used to hedge the Series' portfolio, to increase returns
or to maintain exposure to the equity markets.
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 W (MAIN STREET GROWTH AND INCOME(R) SERIES) -- The Series pursues its
objective by investing mainly in common stocks of U.S. companies, but it can
also invest in other equity securities such as preferred stocks and securities
convertible into common stocks. Although the Series does not have any
requirements as to the capitalization of issuers in which it invests, the
Series' Sub-Adviser, OppenheimerFunds, currently emphasizes the stocks of
large-capitalization companies in the portfolio. At times, the Series may
increase the relative emphasis of its investments in small-cap and mid-cap
stocks. While the Series can buy foreign securities and debt securities such as
bonds and notes, currently it does not emphasize those investments. The Series
can also use hedging instruments and certain derivative investments.
In selecting securities for purchase or sale by the Series, OppenheimerFunds
uses an investment process that combines quantitative models, fundamental
research about particular securities and individual judgment. While this process
and the inter-relationship of factors used may change over time and its
implementation may vary in particular cases, in general the selection process
involves the use of:
* Multi-factor quantitative models: These include a group of "top-down" models
that analyze data such as relative valuations, relative price trends,
interest rates and the shape of the yield curve. These help direct portfolio
emphasis by market capitalization (small, mid, or large), industries, and
value or growth styles. A group of "bottom up" models helps to rank stocks
in a universe typically including 2000 stocks, selecting stocks for relative
attractiveness by analyzing fundamental stock and company characteristics.
* Fundamental research: OppenheimerFunds use internal research and analysis by
other market analysts, with emphasis on current company news and
industry-related events.
* Judgment: The portfolio is then continuously re-balanced, using all of the
tools described above.
Under adverse or unstable market conditions, the Series can 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 X (SMALL CAP GROWTH 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 market
capitalizations substantially similar to that of the companies in the Russell
2000(TM) Growth Index at the time of purchase. The Series may also invest in
securities of emerging growth companies. 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.
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The RUSSELL 2000(TM) GROWTH INDEX is a market capitalization weighted U.S.
equity index published by Frank Russell Company. This index measures the
performance of the companies in the Russell 2000 Index that have higher
price/book ratios and higher forecasted growth rates.
- --------------------------------------------------------------------------------
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 focusing its
investments in a core position of 20-30 common stocks of growth companies which
have exhibited consistent above average earnings or revenue 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.
The Series also may invest a portion of its assets in options and futures
contracts which may be used to hedge the Series' portfolio, to increase returns
or to maintain exposure to the equity markets.
The Series may invest in a variety of investment companies, including those that
seek to track the composition and performance of a specific index. The Series
may use these index-based investments as a way of managing its cash position, to
gain exposure to the equity markets, or a particular sector of the equity
market, while maintaining liquidity.
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
The following chart indicates which main risks apply to which Series of the
Fund. However, the fact that a particular risk is not indicated as a main risk
for a Series does not mean that the Series is prohibited from investing its
assets in securities which give rise to that risk. It simply means that the risk
is not a main risk for that Series. For example, the risk of investing in
smaller companies is not listed as a main risk for Series A. This does not mean
that Series A is prohibited from investing in smaller companies, only that the
risk of smaller companies is not one of the main risks associated with Series A.
The Portfolio Manager for a Series has considerable leeway in choosing
investment strategies and selecting securities that he or she believes will help
the Series achieve its investment objective. In seeking to meet its investment
objective, a Series' assets may be invested in any type of security or
instrument whose investment characteristics are consistent with the Series'
investment program.
<TABLE>
<CAPTION>
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A B C D E G H I J K L M N O P Q S T V W X Y
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Market Risk X X X X X X X X X X X X X X X X X X
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Smaller Companies X X X X X
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Value Stocks X X X X X X X X
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Growth Stocks X X X X X X X X X X X X X X
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Foreign Securities X X X X X X X X X X X X X X X X X X X
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Emerging Markets X X X X X X
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Options and Futures X X X X X X X X X X X X X X X X X X X X X
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Short Sales X X
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Active Trading X X X X X X X X
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Interest Rate Risk X X X X X X X
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Credit Risk X X X X X X X
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Prepayment Risk X X X X X X X
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Mortgage-Backed Securities X X X X X
- -------------------------------------------------------------------------------------------------------------------------------
Restricted Securities X X X X X X X X X X X
- --------------------------------------------------------------------------------------------------------------------------------
High Yield Securities X X X X X X X X
- --------------------------------------------------------------------------------------------------------------------------------
Interest Rate Swap Agreements X
- --------------------------------------------------------------------------------------------------------------------------------
Social Investing X
- --------------------------------------------------------------------------------------------------------------------------------
Focused Investment Strategy X X
- --------------------------------------------------------------------------------------------------------------------------------
Non-Diversification X X
- -------------------------------------------------------------------------------------------------------------------------------
Industry Concentration X X
- --------------------------------------------------------------------------------------------------------------------------------
Investment in Investment Companies X X X X
- --------------------------------------------------------------------------------------------------------------------------------
Technology Stocks X
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
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.
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.
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.
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.
FOREIGN SECURITIES -- 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. However,
the conversion to the new currency could have a negative impact on the Series
operationally. The exact impact is not known, but it could affect the value of
some of the Series holdings and increase its operational costs.
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 -- Options and futures may be used to hedge a Series'
portfolio, to gain exposure to a market without buying individual securities or
to increase returns. There is the risk that such practices sometimes may reduce
returns or increase volatility. These practices also entail transactional
expenses.
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. A 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. A 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 a Series could be
substantial if the price of the security or currency sold short does not decline
in value.
- --------------------------------------------------------------------------------
SELLING SHORT "AGAINST THE BOX" means that the Series owns, or has the right to
acquire, without payment of any further consideration, the security or currency
sold short. In a short sale against the box, the Series is exposed to the risk
of being forced to deliver appreciated stock or currency to close the position
if the borrowed stock or currency is called, causing a taxable gain to be
recognized.
- --------------------------------------------------------------------------------
ACTIVE TRADING -- Active trading 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.
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.
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.
MORTGAGE-BACKED SECURITIES -- A Series which invests in mortgage-backed
securities will receive payments 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 -- Restricted securities cannot be sold to the public
without registration under the Securities Act of 1933 ("1933 Act"). Unless
registered for sale, restricted securities can be sold only in privately
negotiated transactions or pursuant to an exemption from registration.
Restricted securities are generally considered illiquid and, therefore, subject
to the Fund's limitation on illiquid securities.
Restricted securities (including Rule 144A Securities) may involve a high degree
of business and financial risk which may result in substantial losses. The
securities may be less liquid than publicly traded securities. Although these
securities may be resold in privately negotiated transactions, the prices
realized from these sales could be less than those originally paid by a Series.
In particular, Rule 144A Securities may be resold only to qualified
institutional buyers in accordance with Rule 144A under the Securities Act of
1933. Rule 144A permits the resale to "qualified institutional buyers" of
"restricted securities" that, when issued, were not of the same class as
securities listed on a U.S. securities exchange or quoted in the National
Association of Securities Dealers Automated Quotation System (the "Rule 144A
Securities").
Investing in Rule 144A Securities and other restricted securities could have the
effect of increasing the amount of a Series' assets invested in illiquid
securities to the extent that qualified institutional buyers become
uninterested, for a time, in purchasing these securities.
HIGH YIELD SECURITIES -- Higher yielding, high risk debt securities 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.
INTEREST RATE SWAP AGREEMENTS -- Investment in total return swap agreements
entails both interest rate and credit risk. There is a risk that, based on
movements of interest rates in the future, the payments made by the Series under
a swap agreement will be greater than the payments it received. Credit risk
arises from the possibility that the counterparty will default. If the
counterparty defaults, the Series' loss will consist of the net amount of
contractual interest payments that the Series has not yet received. The
Investment Manager will monitor the creditworthiness of counterparties to the
Series' interest rate swap transactions on an ongoing basis.
SOCIAL INVESTING -- Social investing may present additional risks to a Series
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.
FOCUSED INVESTMENT STRATEGY -- The typical diversified stock mutual fund might
hold between 80 and 120 stocks in its portfolio. A Series which focuses its
investments in fewer stocks than this can be expected to be more volatile than
the typical diversified stock fund.
NON-DIVERSIFICATION -- A non-diversified Series may hold larger positions in a
smaller number of securities than a diversified Series. As a result, a single
security's increase or decrease in value may have a greater impact on a Series'
net asset value and total return. A non-diversified Series is expected to be
more volatile that a diversified Series.
INDUSTRY CONCENTRATION -- Investment in sector-specific stocks, subjects a
Series to industry concentration risk, which is the chance that the Series
return could be hurt significantly by problems affecting a particular sector.
Because a sector fund concentrates its investments in a particular industry, or
group of related industries, its performance can be significantly affected, for
better or worse, by developments in that sector.
INVESTMENT IN INVESTMENT COMPANIES -- Investment in other investment companies,
may include index-based investments such as SPDRs (based on the S&P 500), MidCap
SPDRs (based on the S&P MidCap 400 Index), Select Sector SPDRs (based on sectors
or industries of the S&P 500 Index) Nasdaq-100 Index Tracking Stocks (based on
the Nasdaq-100 Index) and DIAMONDS (based on the Dow Jones Industrial Average).
To the extent a Series invests in other investment companies, it will incur its
pro rata share of the underlying investment companies' expenses. In addition, a
Series will be subject to the effects of business and regulatory developments
that affect an underlying investment company or the investment company industry
generally.
TECHNOLOGY STOCKS -- Companies in the rapidly changing field of technology often
face unusually high price volatility, both in terms of gains and losses. The
potential for wide variation in performance is based on the special risks common
to these stocks. For example, products or services that at first appear
promising may not prove commercially successful or may become obsolete quickly.
Earnings disappointments can result in sharp price declines. A portfolio focused
primarily on these stocks is therefore likely to be much more volatile than one
with broader diversification that includes investments across industries and
sectors.
The level of risk will be increased to the extent that the Series has
significant exposure to smaller or unseasoned companies (those with less than a
three-year operating history), which may not have established products or more
experienced management.
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. Performance
information for Series G, H, I, L, Q, T, W and Y is not included since they each
have less than one full calendar year of operating history. Fee waivers and/or
expense reimbursements for Series K, P, V and X during certain time periods
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 (EQUITY SERIES)
================================================================================
[BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
1990 -9.8%
1991 36.1%
1992 11.1%
1993 13.7%
1994 -1.7%
1995 36.8%
1996 22.7%
1997 28.7%
1998 25.4%
1999 8.1%
- ---------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(QUARTERLY 1990-1999)
- ---------------------------------------------------------------
QUARTER ENDED
Highest 20.4% December 31, 1998
Lowest -17.8% September 30, 1990
- ---------------------------------------------------------------
- ---------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1999)
- ---------------------------------------------------------------
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
Series A 8.1% 24.0% 16.1%
S&P 500 21.0% 28.6% 18.2%
- ---------------------------------------------------------------
================================================================================
SERIES B (LARGE CAP VALUE SERIES)
================================================================================
[BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
1990 -4.4%
1991 37.7%
1992 6.3%
1993 9.6%
1994 -3.0%
1995 30.1%
1996 18.3%
1997 26.5%
1998 7.9%
1999 1.5%
- --------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(QUARTERLY 1990-1999)
- --------------------------------------------------------------
QUARTER ENDED
Highest 14.5% June 30, 1997
Lowest -10.6% September 30, 1999
- --------------------------------------------------------------
- --------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1999)
- --------------------------------------------------------------
PAST PAST PAST
1 YEAR 5 YEARS 10 YEARS
Series B 1.5% 16.3% 12.2%
S&P 500 21.0% 28.6% 18.2%
S&P 500 BARRA Value
Index 12.7% 22.9% 15.4%
- --------------------------------------------------------------
Beginning January 1, 2000 the primary benchmark will be the
S&P 500 BARRA Value Index.
- --------------------------------------------------------------
================================================================================
SERIES C (MONEY MARKET SERIES)
================================================================================
[BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
1990 8.0%
1991 5.6%
1992 3.2%
1993 2.6%
1994 3.7%
1995 5.4%
1996 5.1%
1997 5.2%
1998 5.1%
1999 4.6%
- ---------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(QUARTERLY 1990-1999)
- ---------------------------------------------------------------
QUARTER ENDED
Highest 2.4% June 30, 1989
Lowest .6% September 30, 1993
- ---------------------------------------------------------------
- ---------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
(THROUGH DECEMBER 31, 1999)
- ---------------------------------------------------------------
PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS
Series C 4.6% 5.1% 4.9%
7-Day Yield 4.8%
- ---------------------------------------------------------------
================================================================================
SERIES D (GLOBAL SERIES)
================================================================================
[BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW
1990 -22.7%
1991 12.7%
1992 -2.6%
1993 31.6%
1994 2.7%
1995 10.9%
1996 17.5%
1997 6.5%
1998 20.1%
1999 53.7%
- ---------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(QUARTERLY 1990-1999)
- ---------------------------------------------------------------
QUARTER ENDED
Highest 34.9% December 31, 1999
Lowest -10.5% September 30, 1998
- ---------------------------------------------------------------
- ---------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1999)
- ---------------------------------------------------------------
PAST PAST PAST
1 YEAR 5 YEARS 10 YEARS
Series D 53.7% 20.7% 11.4%
MSCI 25.3% 20.2% 12.0%
Lehman Brothers
High Yield Index 2.4% 9.3% 10.7%
- ---------------------------------------------------------------
================================================================================
SERIES E (DIVERSIFIED INCOME SERIES)
================================================================================
[BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW
1990 6.7%
1991 17.0%
1992 7.4%
1993 12.6%
1994 -6.9%
1995 18.6%
1996 -0.7%
1997 10.0%
1998 8.0%
1999 -3.8%
- ---------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(QUARTERLY 1990-1999)
- ---------------------------------------------------------------
QUARTER ENDED
Highest 5.9% March 31, 1993
Lowest -4.6% March 31, 1994
- ---------------------------------------------------------------
- ---------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1999)
- ---------------------------------------------------------------
PAST PAST PAST
1 YEAR 5 YEARS 10 YEARS
Series E -3.8% 6.1% 6.6%
Lehman Brothers Government/
Corporate Bond Index -2.2% 7.6% 7.7%
Lehman Brothers
Corporate Bond Index -1.9% 8.2% 8.2%
- ---------------------------------------------------------------
================================================================================
SERIES J (MID CAP GROWTH SERIES)
================================================================================
[BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW
1990 N/A
1991 N/A
1992 N/A
1993 13.6%
1994 -5.1%
1995 19.5%
1996 18.0%
1997 20.0%
1998 18.0%
1999 61.9%
- ---------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(QUARTERLY 1992-1999)
- ---------------------------------------------------------------
QUARTER ENDED
Highest 38.8% December 31, 1999
Lowest -16.5% September 30, 1998
- ---------------------------------------------------------------
- ---------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1999)
- ---------------------------------------------------------------
LIFE OF SERIES
PAST 1 YEAR PAST 5 YEARS (SINCE 10/1/92)
Series J 61.9 26.4% 22.5%
S&P Midcap 14.7% 23.1% 18.7%
- ---------------------------------------------------------------
================================================================================
SERIES K (GLOBAL STRATEGIC INCOME SERIES)
================================================================================
[BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
1990 N/A
1991 N/A
1992 N/A
1993 N/A
1994 N/A
1995 N/A
1996 13.7%
1997 5.4%
1998 6.9%
1999 1.2%
- ---------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(QUARTERLY 1995-1999)
- ---------------------------------------------------------------
QUARTER ENDED
Highest 6.3% December 31, 1998
Lowest -2.8% September 30, 1998
- ---------------------------------------------------------------
- ---------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1999)
- ---------------------------------------------------------------
PAST LIFE OF SERIES
1 YEAR (SINCE 6/1/95)
Series K 1.2% 7.5%
Lehman Brothers
Global Bond Index -5.2% 8.7%
Salomon Smith Barney
World Government Non-U.S.
Hedged Index 2.3% 9.8%
- ---------------------------------------------------------------
Effective May 15, 1999, Wellington Management Company, LLP
became the subadvisor for Series K. The appropriate benchmark
going forward will be the Salomon Smith Barney World Government
Non-U.S. Hedged Index.
- ---------------------------------------------------------------
================================================================================
SERIES M (GLOBAL TOTAL RETURN SERIES)
================================================================================
[BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
1990 N/A
1991 N/A
1992 N/A
1993 N/A
1994 N/A
1995 N/A
1996 14.2%
1997 6.2%
1998 12.6%
1999 14.0%
- ---------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(QUARTERLY 1995-1999)
- ---------------------------------------------------------------
QUARTER ENDED
Highest 14.1% December 31, 1998
Lowest -11.0% September 30, 1998
- ---------------------------------------------------------------
- ---------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1999)
- ---------------------------------------------------------------
LIFE OF SERIES
PAST 1 YEAR (SINCE 6/1/95)
Series M 14.0% 11.8%
S&P 500 21.1% 27.0%
MSCI World Index 25.3% 19.9%
- ---------------------------------------------------------------
Effective May 15, 1999, Wellington Management Company became
subadvisor for Series M. The appropriate benchmark going
forward will be the MSCI World Index.
- ---------------------------------------------------------------
================================================================================
SERIES N (MANAGED ASSET ALLOCATION SERIES)
================================================================================
[BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
1990 N/A
1991 N/A
1992 N/A
1993 N/A
1994 N/A
1995 N/A
1996 12.8%
1997 18.4%
1998 18.4%
1999 9.7%
- ---------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(QUARTERLY 1995-1999)
- ---------------------------------------------------------------
QUARTER ENDED
Highest 11.5% December 31, 1998
Lowest -4.5% September 30, 1998
- ---------------------------------------------------------------
- ---------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1999)
- ---------------------------------------------------------------
LIFE OF SERIES
PAST 1 YEAR (SINCE 6/1/95)
Series N 9.7% 14.5%
S&P 500 21.0% 27.0%
- ---------------------------------------------------------------
================================================================================
SERIES O (EQUITY INCOME SERIES)
================================================================================
1990 N/A
1991 N/A
1992 N/A
1993 N/A
1994 N/A
1995 N/A
1996 20.0%
1997 28.4%
1998 9.0%
1999 3.1%
- ---------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(QUARTERLY 1995-1999)
- ---------------------------------------------------------------
QUARTER ENDED
Highest 13.0% June 30, 1999
Lowest -8.6% September 30, 1999
- ---------------------------------------------------------------
- ---------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1999)
- ---------------------------------------------------------------
LIFE OF SERIES
PAST 1 YEAR (SINCE 6/1/95)
Series O 3.1% 16.7%
S&P 500 21.0% 27.0%
- ---------------------------------------------------------------
================================================================================
SERIES P (HIGH YIELD SERIES)
================================================================================
[BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
1990 N/A
1991 N/A
1992 N/A
1993 N/A
1994 N/A
1995 N/A
1996 N/A
1997 13.4%
1998 5.8%
1999 1.3%
- -----------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(QUARTERLY 1996-1999)
- -----------------------------------------------------------------
QUARTER ENDED
Highest 3.4% March 31, 1998
Lowest -1.3% September 30, 1998
- -----------------------------------------------------------------
- -----------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1999)
- -----------------------------------------------------------------
LIFE OF SERIES
PAST 1 YEAR (SINCE 8/5/96)
Series P 1.3% 7.9%
Lehman Brothers
High Yield Index 2.4% 7.08%*
- -----------------------------------------------------------------
*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, 1999.
- -----------------------------------------------------------------
================================================================================
SERIES S (SOCIAL AWARENESS SERIES)
================================================================================
1990 N/A
1991 N/A
1992 16.4%
1993 11.9%
1994 -3.7%
1995 27.7%
1996 18.8%
1997 22.7%
1998 31.4%
1999 17.2%
- ---------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(QUARTERLY 1991-1999)
- ---------------------------------------------------------------
QUARTER ENDED
Highest 24.8% December 31, 1998
Lowest -9.7% June 30, 1992
- ---------------------------------------------------------------
- ---------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1999)
- ---------------------------------------------------------------
PAST PAST LIFE OF SERIES
1 YEAR 5 YEARS (SINCE 5/1/91)
Series S 17.2% 23.5% 16.6%
S&P 500 21.0% 28.6% 16.01%
Domini Social Index 24.5% 17.2% 22.1%
- ---------------------------------------------------------------
================================================================================
SERIES V (MID CAP VALUE SERIES)
================================================================================
[BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
1990 N/A
1991 N/A
1992 N/A
1993 N/A
1994 N/A
1995 N/A
1996 N/A
1997 N/A
1998 16.6%
1999 18.9%
- ---------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(QUARTERLY 1997-1999)
- ---------------------------------------------------------------
QUARTER ENDED
Highest 21.9% June 30, 1999
Lowest -15.0% September 30, 1998
- ---------------------------------------------------------------
- ---------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1999)
- ---------------------------------------------------------------
LIFE OF SERIES
PAST 1 YEAR (SINCE 5/1/97)
Series V 18.9% 25.1%
S&P 500 21.0% 27.4%
BARRA Value Index 12.7% 18.3%
- ---------------------------------------------------------------
================================================================================
SERIES X (SMALL CAP GROWTH SERIES)
================================================================================
[BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
1990 N/A
1991 N/A
1992 N/A
1993 N/A
1994 N/A
1995 N/A
1996 N/A
1997 N/A
1998 11.5%
1999 87.2%
- ---------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(QUARTERLY 1999)
- ---------------------------------------------------------------
QUARTER ENDED
Highest 51.3% December 31, 1999
Lowest -16.2% September 30, 1998
- ---------------------------------------------------------------
- ---------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1998)
- ---------------------------------------------------------------
LIFE OF SERIES
PAST 1 YEAR (SINCE 10/15/97)
Series X 87.2% 36.8%
Russell 2000(TM) Index 24.4% 5.6%*
- ---------------------------------------------------------------
*Index performance is only available to the Series at the
beginning of each month. The Russell 2000(TM) Index is for the
period October 1, 1997 to December 31, 1999.
Series X participates in the initial public offering ("IPO")
market, which may have a significant impact on its total return
during the time it has a small asset base. There can be no
assurance that IPOs will continue to have the same impact on
the Series performance as the Fund's assets grow.
- ---------------------------------------------------------------
INVESTMENT MANAGER
Security Management Company, LLC, 700 SW Harrison Street, Topeka, Kansas 66636,
is the Series' Investment Manager. On December 31, 1999, the aggregate assets of
all of the mutual funds under the investment management of the Investment
Manager were approximately $6.3 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 and Series W. OppenheimerFunds, Inc., (including subsidiaries and
affiliates) managed more than $120 billion in assets as of March 31, 2000,
including other mutual funds with more than five million shareholder accounts.
The Investment Manager has engaged Bankers Trust Company, 130 Liberty Street,
New York, New York 10006, to provide investment advisory services to Series H
and Series I. Bankers Trust Company ("Bankers Trust"), a New York banking
corporation with principal offices at 130 Liberty Street New York, New York
10006, is a wholly owned subsidiary of Bankers Trust Corporation and an indirect
subsidiary of Deutsche Bank AG ("Deutsche Bank"). Bankers Trust has more than 50
years of experience managing retirement assets for the nation's largest
corporations and institutions. Deutsche Bank is split into 5 business divisions,
including Deutsche Asset Management, which encompasses the investment management
capabilities of Bankers Trust. As of December 31,1999, Deutsche Asset Management
had $580 billion in assets under management globally; and in the U.S., Deutsche
Asset Management is responsible for $287 billion in client assets. Bankers Trust
managed $270.5 billion of the $287 billion in client assets.
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., 100 Heritage
Reserve, Menomonee Falls, Wisconsin 53051, to provide investment advisory
services to Series Q and Series X. Strong was established in 1974 and as of
December 31, 1999, managed over $38 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, Series M and Series T.
Wellington Management is a limited liability partnership which traces its
origins to 1928. It currently manages over $248 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,
1999, T. Rowe Price and its affiliates managed approximately $179 billion in
investments for approximately 8 million individual and institutional accounts.
The Investment Manager has engaged Alliance Capital Management L.P., 1345 Avenue
of the Americas, New York, New York 10105 to provide investment advisory
services to Series L. Alliance is a leading international investment manager
supervising client accounts with assets as of December 31, 1999, totaling more
than $368 billion (of which approximately $169 billion represented the assets of
investment companies).
The Investment Manager and the Series have received from the Securities and
Exchange Commission an exemptive order for a multi-manager structure that allows
the Investment Manager to hire, replace or terminate sub-advisors without the
approval of shareholders. The order also allows the Investment Manager to revise
a sub-advisory agreement with the approval of Fund Directors, but without
shareholder approval. If a new sub-advisor is hired, shareholders will receive
information about the new sub-advisor within 90 days of the change. The order
allows the Series to operate more efficiently and with greater flexibility. The
Investment Manager provides the following oversight and evaluation services to
the Series which use a sub-advisor:
* performing initial due diligence on prospective sub-advisors for the Series
* monitoring the performance of the sub-advisors
* communicating performance expectations to the sub-advisors
* ultimately recommending to the Board of Directors whether a sub-advisor's
contract should be renewed, modified or terminated.
The Investment Manager does not expect to recommend frequent changes of
sub-advisors. Although the Investment Manager will monitor the performance of
the sub-advisors, there is no certainty that any sub-advisor or Series will
obtain favorable results at any given time.
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...... 0.75%
Series E....... 0.75% Series Q*..... 1.00%
Series G*...... 1.00% Series S...... 0.75%
Series H....... 0.75% Series T*..... 1.00%
Series I....... 1.10% Series V...... 0.75%
Series J....... 0.75% Series W*..... 1.00%
Series K....... 0.75% Series X...... 1.00%
Series L*...... 1.00% Series Y...... 0.75%
- ------------------------------------------------------
*These Funds were not available until May 1, 2000.
- ------------------------------------------------------
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 -- CHARLES ALBERs, Senior Vice President at OppenheimerFunds,
has co-managed Series W (Main Street Growth and Income(R) Series) since its
inception in May of 2000. Prior to joining Oppenheimer Funds in 1998, Mr. Albers
was with the investment management subsidiary of The Guardian Life Insurance
Company. Mr. Albers holds a bachelor of arts from Kenyon College and an M.B.A.
degree from Columbia University. He is a Chartered Financial Analyst.
STEVE BOWSER, Second Vice President and Portfolio Manager of the Investment
Manager, has co-managed Series E (Diversified 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 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.
SYED J. HASNAIN, Senior Vice President and Large Cap Growth Portfolio Manager
with Alliance has been the manager of Series L (Capital Growth Series) since its
inception in May of 2000. Mr. Hasnain joined Alliance in 1993 after working as a
strategist with Merrill Lynch Capital Markets. Previously he was an
international economist with Citicorp and a financial analyst at Goldman Sachs &
Co. He holds a M. Phil. from Cambridge University, an Sc.B. from Brown
University, and studied towards a doctorate at Stanford Business School.
LUCIUS T. HILL, III, Senior Vice President at Wellington Management, has had
day-to-day responsibility for managing Series K (Global Strategic Income Series)
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.
DEAN S. BARR, Managing Director and Head of Global Quantitative Index
Strategies, has been co-manager of Series H (Enhanced Index Series) since he
joined Bankers Trust in September 1999. Prior to joining Bankers Trust, he was
Chief Investment Officer of Active Quantitative Strategies at State Street
Global Advisors. He has a bachelor's degree from Cornell University and an MBA
in finance from New York University Graduate School of Business.
MANISH KESHIVE, Vice President of Bankers Trust, has been co-manager of Series H
(Enhanced Index Series) since September 1999. He joined Bankers Trust in 1996.
Prior to joining Bankers Trust, he was a student earning a B.S. degree in
Technology from the Indian Institute of Technology in 1993 and an M.S. degree
from the Massachusetts Institute of Technology in 1995.
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 (Equity Series) since 1989. He has been
the lead manager of Series Y (Select 25 Series) since its inception in May 1999
and has managed Series B (Large Cap Value Series) since March 7, 2000. 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.
NIKOLAOS D. MONOYIOS, Vice President at OppenheimerFunds, has co-managed Series
W (Main Street Growth and Income(R) Series) since its inception in May of 2000.
Prior to joining Oppenheimer Funds in 1998, Mr. Monoyios was with the investment
management subsidiary of The Guardian Life Insurance Company. Mr. Monoyios holds
a bachelor of arts in economics from Princeton University and an M.B.A. degree
from Columbia University. He 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.
CHRIS PHALEN, Research Analyst of the Investment Manager, has co-managed Series
E (Diversified Income Series) since May 2000. Prior to joining the Investment
Manager in 1997, he was with Sprint PCS as a pricing analyst. Prior to joining
Sprint PCS in 1997, Mr. Phalen was employed by Security Benefit Group. Mr.
Phalen graduated from the University of Kansas with a bachelor of businesss
administration and accounting degree.
RONALD C. OGNAR, Portfolio Manager of Strong, has managed Series X (Small Cap
Growth 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.
ROBERT REINER, Managing Director 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.
I. CHARLES RINALDI, portfolio manager at Strong, has been the manager of Series
Q (Small Cap Value Series) since its inception in May of 2000. He has over 25
years of investment experience. He joined Strong in December 1997. Prior to
joining Strong, Mr. Rinaldi was employed by Mutual of America Capital Management
Corporation (MOA) as a Vice President from November 1989 to January 1994 and as
a Senior Vice President from January 1994 to November 1997. Mr. Rinaldi received
his bachelors in Science from St. Michael's College in 1965 and his Masters of
Business Administration in Finance from Babson College in 1970.
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, Vice President and Senior Portfolio Manager of the Investment
Manager, has managed Series J (Mid Cap Growth Series) since January 1998 and
Series V (Mid Cap Value Series) since its inception in 1997. He has 17 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 and has
managed Series G (Large Cap Growth Series) since its inception in May of 2000.
She joined the Investment Manager in 1989. Ms. Shields graduated from Washburn
University with a bachelor of business administration degree, majoring in
finance and economics. She is a Chartered Financial Analyst with ten years of
investment experience.
DAVID G. TOUSSAINT, portfolio manager of the Investment Manager, has managed
Series P (High Yield Series) since April 2000. Mr. Toussaint has nine years of
investment experience and is a Chartered Financial Analyst. In addition, Mr.
Toussaint holds a CPA certificate. Prior to joining the Investment Manager in
2000, he was with Allstate Insurance Company as an investment analyst and in
various managerial positions in their investment operations group. Mr. Toussaint
earned a bachelor of arts degree in Economics from the University of Illinois, a
master of science degree in Accountancy from DePaul University and an M.B.A.
from the University of Chicago.
JULIE WANG, Director 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.
WELLINGTON MANAGEMENT COMPANY'S GLOBAL TECHNOLOGY TEAM has managed Series T
(Technology Series) since its inception in May of 2000. The Global Technology
Team is comprised of a group of global industry analysts who focus on various
sub-sectors of the Technology industry. The Global Technology Team is supported
by a significant number of specialized fundamental, quantitative and technical
analysts; macro-economic analysts and traders.
FRANK WHITSELL, Research Analyst of the Investment Manager, has co-managed
Series Y (Select 25 Series) since February 2000. He joined the Investment
Manager in 1994. Mr. Whitsell graduated from Washburn University with a bachelor
of business administration degree, majoring in accounting and finance, and an
MBA.
WILLIAM L. WILBY, Senior Vice President and Director of International Equities
of OppenheimerFunds, became manager of Series D (Global 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.
MARK ZAVANELLI, Associate Portfolio Manager at OppenheimerFunds, has co-managed
Series W (Main Street Growth and Income(R) Series) since its inception in May of
2000. Prior to joining Oppenheimer Funds in 1998, Mr. Zavanelli was President of
Waterside Capital Management, a registered investment advisor (from August 1995)
and a financial research analyst for Elder Research (from June 1997). Mr.
Zavanelli holds a bachelor of science from the Wharton School, University of
Pennsylvania. He is a Chartered Financial Analyst.
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.
BROKERAGE ENHANCEMENT PLAN
The Fund has adopted, in accordance with the provisions of Rule 12b-1 under the
Investment Company Act of 1940, a Brokerage Enhancement Plan (the "Plan"). The
Plan uses available brokerage commissions to promote the sale and distribution
of Fund shares (through the sale of variable insurance products funded by the
Fund).
Under the Plan, the Fund may direct the Investment Manager or a sub-advisor to
use certain broker-dealers for securities transactions. (The duty of best price
and execution still applies to these transactions.) These are broker-dealers
that have agreed either (1) to pay a portion of their commission from the sale
and purchase of securities to the Distributor or other introducing brokers
("Brokerage Payments"), or (2) to provide brokerage credits, benefits or
services ("Brokerage Credits"). The Distributor will use all Brokerage Payments
and Credits (other than a minimal amount to defray its legal and administrative
costs) to finance activities that are meant to result in the sale of the Fund's
shares, including:
* holding or participating in seminars and sales meetings promoting the sale
of the Fund's shares
* paying marketing fees requested by broker-dealers who sell the Fund
* training sales personnel
* creating and mailing advertising and sales literature
* financing any other activity that is intended to result in the sale of the
Fund's shares.
The Plan permits the Brokerage Payments and Credits generated by securities
transactions from one Series of the Fund to inure to the benefit of other Series
as well. The Plan is not expected to increase the brokerage costs of the Fund.
For more information about the Plan, please read the "Allocation of Portfolio
Brokerage" section of the Statement of Additional Information.
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. Please refer to the Statement of Additional Information
for a complete list of the fundamental policies applicable to each of the
Series. Some of the more important fundamental policies are outlined below. The
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 (this limitation does not apply to Series G or to Series
T)
* with respect to 75% of its total assets, purchase more than 10% of the
outstanding voting securities of any one issuer other than the U.S.
Government or its instrumentalities (this limitation does not apply to
Series G or to Series T)
* invest 25% or more of its total assets in any one industry (this limitation
does not apply to Series G or Series T).
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 -- Each Series other than Series C 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 -- 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.
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. Each
Series other than Series C may invest in foreign securities.
EMERGING MARKETS -- 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. Series D, I, K, M, N, P, Q, T and X
may invest in emerging market foreign securities.
SMALLER COMPANIES -- Small- or medium-sized 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. Each of the Series that invests in equity securities may invest in
small or medium sized companies.
ASSET-BACKED SECURITIES -- An underlying pool of assets, such as credit card
receivables, automobile loans, or corporate loans or bonds back asset backed
securities 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. Series E, K, M, N and P may invest in asset-backed securities.
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 -- Restricted securities cannot be sold to the public
without registration under the Securities Act of 1933 ("1933 Act"). Unless
registered for sale, restricted securities can be sold only in privately
negotiated transactions or pursuant to an exemption from registration.
Restricted securities are generally considered illiquid and, therefore, subject
to the Fund's limitation on illiquid securities.
Restricted securities (including Rule 144A Securities) may involve a high degree
of business and financial risk which may result in substantial losses. The
securities may be less liquid than publicly traded securities. Although these
securities may be resold in privately negotiated transactions, the prices
realized from these sales could be less than those originally paid by the
Series. In particular, Rule 144A Securities may be resold only to qualified
institutional buyers in accordance with Rule 144A under the Securities Act of
1933. Rule 144A permits the resale to "qualified institutional buyers" of
"restricted securities" that, when issued, were not of the same class as
securities listed on a U.S. securities exchange or quoted in the National
Association of Securities Dealers Automated Quotation System (the "Rule 144A
Securities"). A "qualified institutional buyer" is defined by Rule 144A
generally as an institution, acting for its own account or for the accounts of
other qualified institutional buyers, that in the aggregate owns and invests on
a discretionary basis at least $100 million in securities of issuers not
affiliated with the institution. A dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act"), acting for its own account or the
accounts of other qualified institutional buyers, that in the aggregate owns and
invests on a discretionary basis at least $10 million in securities of issuers
not affiliated with the dealer may also qualify as a qualified institutional
buyer, as well as an Exchange Act registered dealer acting in a riskless
principal transaction on behalf of a qualified institutional buyer.
Investing in Rule 144A Securities and other restricted securities could have the
effect of increasing the amount of a Series' assets invested in illiquid
securities to the extent that qualified institutional buyers become
uninterested, for a time, in purchasing these securities. Each of the Series can
invest in restricted securities.
HIGH YIELD SECURITIES -- Higher yielding debt securities in the lower rating
(higher risk) categories of the recognized rating services are 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. Series B, D, E, I, K, M, N, O, P and X may invest in high yield
securities.
HARD ASSET SECURITIES -- Hard Asset Securities are 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. Each of the Series which invest in equity securities as part of
their investment program may invest in hard asset securities.
GUARANTEED INVESTMENT CONTRACTS ("GICS") -- Series C may invest in GICs. When
investing in GICs, a 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. A Series 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 -- Each Series, other than Series C, 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. Those Series which invest in non-dollar denominated foreign
securities 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 -- Certain hybrid 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. Each Series other than Series C may
invest in hybrid instruments.
SWAPS, CAPS, FLOORS AND COLLARS -- Interest rate and/or index swaps, and the
purchase or sale of related caps, floors and collars are used 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 extent 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. Series E, K, M, P, Q and X may enter into these types of
transactions.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENT CONTRACTS -- The price of "when
issued", "forward commitment" or "delayed delivery" 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. Each
Series, other than Series C, may purchase or sell securities on a when issued,
forward commitment or delayed delivery basis.
CASH RESERVES -- Cash reserves maintained by a Series may include domestic, and
for certain Series, foreign money market instruments as well as certificates of
deposit, bank demand accounts and repurchase agreements. The Series may
establish and maintain reserves as the Investment Manager or relevant
Sub-Advisor believes is advisable to facilitate the Series' cash flow needs
(e.g., redemptions, expenses and, purchases of portfolio securities) or for
temporary, defensive purposes.
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. Each Series, other than Series C, may
invest in the shares of other investment companies.
BORROWING -- 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
derived from financial statements that have 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.
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------------
SERIES A
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
-----------------------------------------------------------------------
1999 1998(e) 1997(e) 1996(e) 1995(e)
---- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value beginning of period....................... $34.27 $29.39 $24.31 $21.03 $16.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).............................. 0.11 0.17 0.16 0.18 0.18
Net gain (loss) on securities (realized & unrealized)..... 2.56 7.05 6.75 4.50 5.65
----- ----- ----- ----- -----
Total from investment operations.......................... 2.67 7.22 6.91 4.68 5.83
LESS DISTRIBUTIONS:
Dividends (from net investment income).................... (0.27) (0.17) (0.18) (0.20) (0.15)
Distributions (from realized gains)....................... (1.16) (2.17) (1.65) (1.20) (0.65)
----- ----- ----- ----- -----
Total distributions....................................... (1.43) (2.34) (1.83) (1.40) (0.80)
----- ----- ----- ----- -----
Net asset value end of period............................. $35.51 $34.27 $29.39 $24.31 $21.03
===== ===== ===== ===== =====
Total return (b).......................................... 8.1% 25.4% 28.7% 22.7% 36.8%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)...................... $1,396,995 $1,307,332 $999,929 $714,591 $519,891
Ratio of expenses to average net assets................... 0.81% 0.81% 0.81% 0.83% 0.83%
Ratio of net investment income (loss) to average net
assets................................................. 0.31% 0.59% 0.66% 0.90% 1.21%
Portfolio turnover rate................................... 49% 39% 61% 57% 83%
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------------
SERIES B
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
-------------------------------------------------------------
1999 1998(e) 1997(e) 1996(e) 1995(e)
---- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value beginning of period....................... $ 39.81 $41.60 $35.40 $33.95 $26.54
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).............................. 0.57 0.83 0.72 0.83 0.79
Net gain (loss) on securities (realized & unrealized)..... (0.65) 2.60 8.47 5.16 7.16
----- ----- ----- ----- -----
Total from investment operations.......................... (0.08) 3.43 9.19 5.99 7.95
LESS DISTRIBUTIONS:
Dividends (from net investment income).................... (0.85) (0.71) (0.86) (0.78) (0.54)
Distributions (from realized gains)...................... (14.49) (4.51) (2.13) (3.76) ---
------ ----- ----- ----- -----
Total distributions....................................... (15.34) (5.22) (2.99) (4.54) (0.54)
------ ----- ----- ----- -----
Net asset value end of period............................. $ 24.39 $39.81 $41.60 $35.40 $33.95
====== ===== ===== ===== =====
Total return (b).......................................... 1.5% 7.9% 26.5% 18.3% 30.1%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)...................... $1,051,832 $1,196,979 $1,198,302 $956,586 $795,113
Ratio of expenses to average net assets................... 0.82% 0.80% 0.83% 0.84% 0.83%
Ratio of net investment income (loss) to average net
assets................................................. 2.00% 2.02% 1.89% 2.56% 2.70%
Portfolio turnover rate................................... 73% 119% 62% 58% 94%
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------------
SERIES C
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
---------------------------------------------------------------
1999(a) 1998(a)(e) 1997(e) 1996(a)(e) 1995(e)
------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value beginning of period....................... $12.53 $12.53 $12.56 $12.34 $12.27
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).............................. 0.57 0.68 0.79 0.61 0.74
Net gain (loss) on securities (realized & unrealized)..... (0.01) (0.06) (0.15) 0.01 (0.08)
----- ----- ----- ----- -----
Total from investment operations.......................... 0.56 0.62 0.64 0.62 0.66
LESS DISTRIBUTIONS:
Dividends (from net investment income).................... (1.05) (0.62) (0.67) (0.40) (0.59)
Distributions (from realized gains)...................... --- --- --- --- ---
----- ----- ----- ----- -----
Total distributions....................................... (1.05) (0.62) (0.67) (0.40) (0.59)
----- ----- ----- ----- -----
Net asset value end of period............................. $12.04 $12.53 $12.53 $12.56 $12.34
===== ===== ===== ===== =====
Total return (b).......................................... 4.6% 5.1% 5.2% 5.1% 5.4%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)...................... $153,589 $128,083 $98,015 $128,672 $105,436
Ratio of expenses to average net assets................... 0.57% 0.57% 0.58% 0.58% 0.60%
Ratio of net investment income (loss) to average net
assets................................................. 4.61% 4.99% 5.04% 4.89% 5.27%
Portfolio turnover rate................................... --- --- --- --- ---
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------------
SERIES D
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value beginning of period....................... $ 6.74 $ 6.14 $ 6.14 $ 5.56 $ 5.07
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).............................. 0.02 0.03 0.04 0.03 0.05
Net gain (loss) on securities (realized & unrealized)..... 3.29 1.18 0.38 0.93 0.50
----- ----- ----- ----- -----
Total from investment operations.......................... 3.31 1.21 0.42 0.96 0.55
LESS DISTRIBUTIONS:
Dividends (from net investment income).................... --- (0.09) (0.13) (0.20) ---
Distributions (from realized gains)...................... (0.97) (0.52) (0.29) (0.18) (0.06)
----- ----- ----- ----- -----
Total distributions....................................... (0.97) (0.61) (0.42) (0.38) (0.06)
----- ----- ----- ----- -----
Net asset value end of period............................. $ 9.08 $ 6.74 $ 6.14 $ 6.14 $ 5.56
===== ===== ===== ===== =====
Total return (b).......................................... 53.7% 20.1% 6.5% 17.5% 10.9%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)...................... $525,748 $349,794 $285,782 $247,026 $177,781
Ratio of expenses to average net assets................... 1.21% 1.26% 1.24% 1.30% 1.31%
Ratio of net investment income (loss) to average net
assets................................................. 0.32% 0.92% 0.74% 0.74% 0.90%
Portfolio turnover rate................................... 76% 166% 129% 115% 169%
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------------
SERIES E
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
-------------------------------------------------------------
1999 1998(e) 1997(e) 1996(e) 1995(e)
---- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value beginning of period....................... $12.42 $12.25 $12.00 $12.86 $11.52
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).............................. 0.76 0.74 0.86 0.75 0.74
Net gain (loss) on securities (realized & unrealized)..... (1.22) 0.19 0.31 (0.85) 1.36
----- ----- ----- ----- -----
Total from investment operations.......................... (0.46) 0.93 1.17 (0.10) 2.10
LESS DISTRIBUTIONS:
Dividends (from net investment income).................... (1.41) (0.76) (0.92) (0.76) (0.76)
Distributions (from realized gains)...................... --- --- --- --- ---
----- ----- ----- ----- -----
Total distributions....................................... (1.41) (0.76) (0.92) (0.76) (0.76)
----- ----- ----- ----- -----
Net asset value end of period............................. $10.55 $12.42 $12.25 $12.00 $12.86
===== ===== ===== ===== =====
Total return (b).......................................... (3.8)% 8.0% 10.0% (0.7)% 18.6%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)...................... $136,632 $154,722 $140,909 $134,041 $125,652
Ratio of expenses to average net assets................... 0.82% 0.83% 0.83% 0.83% 0.85%
Ratio of net investment income (loss) to average net
assets................................................. 6.34% 6.31% 6.67% 6.77% 6.60%
Portfolio turnover rate................................... 25% 70% 106% 232% 180%
</TABLE>
- --------------------------------------------------------------------------------
SERIES H
- --------------------------------------------------------------------------------
FISCAL YEAR
ENDED
DECEMBER 31
-----------
1999(i)
PER SHARE DATA
Net asset value beginning of period....................... $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).............................. 0.04
Net gain (loss) on securities (realized & unrealized)..... 1.19
-----
Total from investment operations.......................... 1.23
LESS DISTRIBUTIONS:
Dividends (from net investment income).................... (0.04)
Distributions (from capital gains)........................ (0.04)
-----
Total distributions....................................... (0.08)
-----
Net asset value end of period............................. $11.15
=====
Total return (b).......................................... 12.3%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)...................... $25,023
Ratio of expenses to average net assets................... 1.04%
Ratio of net investment income (loss) to average net
assets................................................. 0.82%
Portfolio turnover rate................................... 52%
- --------------------------------------------------------------------------------
SERIES I
- --------------------------------------------------------------------------------
FISCAL YEAR
ENDED
DECEMBER 31
---------------
1999(d)(i)
PER SHARE DATA
Net asset value beginning of period....................... $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).............................. (0.04)
Net gain (loss) on securities (realized & unrealized)..... 3.04
-----
Total from investment operations.......................... 3.00
LESS DISTRIBUTIONS:
Dividends (from net investment income).................... ---
Distributions (from realized gains)...................... ---
-----
Total distributions....................................... ---
-----
Net asset value end of period............................. $13.00
=====
Total return (b).......................................... 30.0%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)...................... $9,857
Ratio of expenses to average net assets................... 2.25%
Ratio of net investment income (loss) to average net
assets................................................. (0.7)%
Portfolio turnover rate................................... 98%
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------------
SERIES J
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
--------------------------------------------------------------
1999 1998(e) 1997(e) 1996(e) 1995(e)
---- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value beginning of period....................... $22.51 $21.33 $18.25 $16.06 $13.44
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).............................. (0.05) (0.04) (0.03) (0.04) 0.04
Net gain (loss) on securities (realized & unrealized)..... 11.65 3.70 3.67 2.93 2.58
----- ----- ----- ----- -----
Total from investment operations.......................... 11.60 3.66 3.64 2.89 2.62
LESS DISTRIBUTIONS:
Dividends (from net investment income).................... --- (0.14) (0.06) (0.03) ---
Distributions (from realized gains)...................... (3.96) (2.34) (0.50) (0.67) ---
----- ----- ----- ----- -----
Total distributions....................................... (3.96) (2.48) (0.56) (0.70) ---
----- ----- ----- ----- -----
Net asset value end of period............................. $30.15 $22.51 $21.33 $18.25 $16.06
===== ===== ===== ===== =====
Total return (b).......................................... 61.9% 18.0% 20.0% 18.0% 19.5%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)...................... $429,528 $271,281 $226,297 $148,421 $93,379
Ratio of expenses to average net assets................... 0.82% 0.82% 0.82% 0.84% 0.84%
Ratio of net investment income (loss) to average net
assets................................................. (0.25)% (0.21)% (0.11)% (0.21)% 0.26%
Portfolio turnover rate................................... 55% 94% 107% 123% 202%
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------------
SERIES K
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
----------------------------------------------------------------
1999 1998(d) 1997(d) 1996(d) 1995(a)(c)(d)
---- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value beginning of period....................... $ 9.56 $10.06 $10.72 $10.22 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).............................. 0.79 1.02 1.12 0.90 0.54
Net gain (loss) on securities (realized & unrealized)..... (0.68) (0.32) (0.56) 0.50 0.22
----- ----- ----- ----- -----
Total from investment operations.......................... 0.11 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 realized gains)...................... (0.06) (0.18) (0.28) (0.13) (0.04)
Return of capital......................................... --- --- --- --- (0.03)
----- ----- ----- ----- -----
Total distributions....................................... (0.06) (1.20) (1.22) (0.90) (0.54)
----- ----- ----- ----- -----
Net asset value end of period............................. $ 9.61 $ 9.56 $10.06 $10.72 $10.22
===== ===== ===== ===== =====
Total return (b).......................................... 1.2% 6.9% 5.4% 13.7% 7.6%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)...................... $11,369 $13,028 $14,679 $12,720 $5,678
Ratio of expenses to average net assets................... 1.62% 1.13% 0.64% 0.84% 1.63%
Ratio of net investment income (loss) to average net
assets................................................. 7.80% 10.85% 9.81% 10.79% 11.03%
Portfolio turnover rate................................... 208% 57% 85% 86% 127%
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------------
SERIES M
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
---------------------------------------------------------------
1999 1998 1997 1996 1995(A)(C)
---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value beginning of period....................... $12.87 $12.29 $12.05 $10.71 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).............................. 0.15 0.20 0.16 0.15 0.17
Net gain (loss) on securities (realized & unrealized)..... 1.49 1.33 0.59 1.36 0.54
----- ----- ----- ----- -----
Total from investment operations.......................... 1.64 1.53 0.75 1.51 0.71
LESS DISTRIBUTIONS:
Dividends (from net investment income).................... (0.44) (0.27) (0.26) (0.12) ---
Distributions (from realized gains)....................... (0.98) (0.68) (0.25) (0.05) ---
----- ----- ----- ----- -----
Total distributions....................................... (1.42) (0.95) (0.51) (0.17) ---
----- ----- ----- ----- -----
Net asset value end of period............................. $13.09 $12.87 $12.29 $12.05 $10.71
===== ===== ===== ===== =====
Total return (b).......................................... 14.0% 12.6% 6.2% 14.2% 7.1%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)...................... $44,034 $45,174 $48,379 $38,396 $15,976
Ratio of expenses to average net assets................... 1.36% 1.24% 1.26% 1.34% 1.94%
Ratio of net investment income (loss) to average net
assets................................................. 1.09% 1.33% 1.71% 2.73% 3.2%
Portfolio turnover rate................................... 155% 49% 64% 40% 181%
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------------
SERIES N
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
---------------------------------------------------------------
1999 1998 1997 1996 1995(A)(C)
---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value beginning of period....................... $16.01 $13.88 $12.02 $10.73 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).............................. 0.38 0.26 0.24 0.19 0.16
Net gain (loss) on securities (realized & unrealized)..... 1.15 2.26 1.96 1.18 0.57
----- ----- ----- ----- -----
Total from investment operations.......................... 1.53 2.52 2.20 1.37 0.73
LESS DISTRIBUTIONS:
Dividends (from net investment income).................... (0.60) (0.24) (0.21) (0.07) ---
Distributions (from realized gains)...................... --- (0.15) (0.13) (0.01) ---
----- ----- ----- ----- -----
Total distributions....................................... (0.60) (0.39) (0.34) (0.08) ---
----- ----- ----- ----- -----
Net asset value end of period............................. $16.94 $16.01 $13.88 $12.02 $10.73
===== ===== ===== ===== =====
Total return (b).......................................... 9.7% 18.4% 18.4% 12.8% 7.3%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)...................... $98,487 $76,121 $38,182 $23,345 $10,580
Ratio of expenses to average net assets................... 1.17% 1.22% 1.35% 1.45% 1.90%
Ratio of net investment income (loss) to average net
assets................................................. 2.45% 2.49% 2.71% 2.67% 2.8%
Portfolio turnover rate................................... 24% 10% 28% 41% 26%
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------------
SERIES O
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
---------------------------------------------------------------
1999 1998 1997 1996 1995(A)(C)
---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value beginning of period....................... $18.35 $17.62 $14.01 $11.70 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).............................. 0.30 0.29 0.19 0.17 0.17
Net gain (loss) on securities (realized & unrealized)..... 0.19 1.30 3.77 2.17 1.53
----- ----- ----- ----- -----
Total from investment operations.......................... 0.49 1.59 3.96 2.34 1.70
LESS DISTRIBUTIONS:
Dividends (from net investment income).................... (0.59) (0.25) (0.14) (0.03) ---
Distributions (from realized gains)...................... (0.98) (0.61) (0.21) --- ---
----- ----- ----- ----- -----
Total distributions....................................... (1.57) (0.86) (0.35) (0.03) ---
----- ----- ----- ----- -----
Net asset value end of period............................. $17.27 $18.35 $17.62 $14.01 $11.70
===== ===== ===== ===== =====
Total return (b).......................................... 3.1% 9.0% 28.4% 20.0% 17.0%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)...................... $207,022 $204,070 $150,391 $62,377 $13,528
Ratio of expenses to average net assets................... 1.09% 1.08% 1.09% 1.15% 1.40%
Ratio of net investment income (loss) to average net
assets................................................. 1.66% 1.93% 2.31% 2.62% 3.0%
Portfolio turnover rate................................... 35% 20% 21% 22% 3%
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------------
SERIES P
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
---------------------------------------------------
1999(d) 1998(d)(e) 1997(d)(e) 1996(d)(f)
------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
PER SHARE DATA
Net asset value beginning of period....................... $16.80 $17.60 $15.99 $15.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).............................. 1.30 0.89 0.68 0.51
Net gain (loss) on securities (realized & unrealized)..... (1.08) 0.12 1.43 0.48
----- ----- ----- -----
Total from investment operations.......................... 0.22 1.01 2.11 0.99
LESS DISTRIBUTIONS:
Dividends (from net investment income).................... (1.37) (1.63) (0.42) ---
Distributions (from realized gains)...................... (0.10) (0.18) (0.08) ---
----- ----- ----- -----
Return of Capital (0.04) --- --- ---
----- ----- ----- -----
Total distributions....................................... (1.51) (1.81) (0.50) ---
----- ----- ----- -----
Net asset value end of period............................. $15.51 $16.80 $17.60 $15.99
===== ===== ===== =====
Total return (b).......................................... 1.3% 5.8% 13.4% 6.6%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)...................... $19,152 $14,949 $6,767 $2,665
Ratio of expenses to average net assets................... 0.18% 0.18% 0.31% 0.28%
Ratio of net investment income (loss) to average net
assets................................................. 8.55% 8.17% 8.58% 8.24%
Portfolio turnover rate................................... 29% 87% 77% 151%
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------------
SERIES S
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
-------------------------------------------------------------
1999 1998(e) 1997(e) 1996(e) 1995(e)
---- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value beginning of period....................... $28.40 $22.25 $19.08 $16.49 $12.97
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).............................. 0.07 0.09 0.06 0.03 0.09
Net gain (loss) on securities (realized & unrealized)..... 4.60 6.78 4.21 3.07 3.51
----- ----- ----- ----- -----
Total from investment operations.......................... 4.67 6.87 4.27 3.10 3.60
LESS DISTRIBUTIONS:
Dividends (from net investment income).................... (0.16) (0.06) (0.04) (0.08) (0.08)
Distributions (from realized gains)...................... (1.20) (0.66) (1.06) (0.43) ---
----- ----- ----- ----- -----
Total distributions....................................... (1.36) (0.72) (1.10) (0.51) (0.08)
----- ----- ----- ----- -----
Net asset value end of period............................. $31.71 $28.40 $22.25 $19.08 $16.49
===== ===== ===== ===== =====
Total return (b).......................................... 17.2% 31.4% 22.7% 18.8% 27.7%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)...................... $236,576 $152,641 $89,332 $57,497 $36,830
Ratio of expenses to average net assets................... 0.82% 0.82% 0.83% 0.84% 0.86%
Ratio of net investment income (loss) to average net
assets................................................. 0.29% 0.47% 0.35% 0.30% 0.75%
Portfolio turnover rate................................... 24% 23% 49% 67% 122%
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------------
SERIES V
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
------------------------------------
1999 1998(d) 1997(a)(d)(g)
---- ------- -------------
<S> <C> <C> <C>
PER SHARE DATA
Net asset value beginning of period....................... $14.83 $13.13 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).............................. 0.03 0.03 0.12
Net gain (loss) on securities (realized & unrealized)..... 2.66 2.14 3.01
----- ----- -----
Total from investment operations.......................... 2.69 2.17 3.13
LESS DISTRIBUTIONS:
Dividends (from net investment income).................... (0.05) (0.08) ---
Distributions (from realized gains)...................... (0.74) (0.39) ---
----- ----- -----
Total distributions....................................... (0.79) (0.47) ---
----- ----- -----
Net asset value end of period............................. $16.73 $14.83 $13.13
===== ===== =====
Total return (b).......................................... 18.9% 16.6% 31.3%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)...................... $42,885 $18,523 $6,491
Ratio of expenses to average net assets................... 0.84% 0.71% 0.40%
Ratio of net investment income (loss) to average net
assets................................................. 0.32% 0.42% 1.55%
Portfolio turnover rate................................... 57% 72% 79%
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------------
SERIES X
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
-------------------------------------
1999(d) 1998(d) 1997(d)(h)
------- ------- ----------
<S> <C> <C> <C>
PER SHARE DATA
Net asset value beginning of period....................... $10.67 $ 9.60 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).............................. --- 0.02 0.01
Net gain (loss) on securities (realized & unrealized)..... 9.27 1.07 (0.41)
----- ----- -----
Total from investment operations.......................... 9.27 1.09 (0.40)
LESS DISTRIBUTIONS:
Dividends (from net investment income).................... (0.02) (0.02) ---
Distributions (from realized gains)...................... (0.52) --- ---
----- ----- -----
Total distributions....................................... (0.54) (0.02) ---
----- ----- -----
Net asset value end of period............................. $19.40 $10.67 $ 9.60
===== ===== =====
Total return (b).......................................... 87.2% 11.5% (4.0)%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)...................... $44,095 $5,621 $2,640
Ratio of expenses to average net assets................... 0.57% 0.59% 0.98%
Ratio of net investment income (loss) to average net
assets................................................. --- 0.26% 0.73%
Portfolio turnover rate................................... 283% 367% 402%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
SERIES Y
- --------------------------------------------------------------------------------
FISCAL YEAR
ENDED
DECEMBER 31
-----------
1999(i)
PER SHARE DATA
Net asset value beginning of period....................... $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).............................. (0.01)
Net gain (loss) on securities (realized & unrealized)..... 2.38
-----
Total from investment operations.......................... 2.37
LESS DISTRIBUTIONS:
Dividends (from net investment income).................... ---
Distributions (from realized gains)...................... ---
-----
Total distributions....................................... ---
-----
Net asset value end of period............................. $12.37
=====
Total return (b).......................................... 23.7%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)...................... $31,399
Ratio of expenses to average net assets................... 0.97%
Ratio of net investment income (loss) to average net
assets................................................. (0.16)%
Portfolio turnover rate................................... 54%
- --------------------------------------------------------------------------------
(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 I, 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 1999
Series I --- ---- ---- --- 4.20%
Series K 2.03% 1.59% 1.39% 1.66% ---
Series P --- 1.11% 1.14% 0.93% 0.86%
Series V --- --- 1.14% 0.89% ---
Series X --- --- 1.98% 1.59% 1.33%
(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) Series H, I and Y were initially capitalized on May 3, 1999, with net asset
values of $10.00 per share. Percentage amounts for the period have been
annualized, except for total return.
- --------------------------------------------------------------------------------
<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: On the EDGAR Database at 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 1-202-942-8090. Copies may be obtained, upon payment of a
duplicating fee, by electronic request at the following e-mail address:
[email protected] or by writing the Public Reference Section of the
Commission, Washington, DC 20549-0102.
- --------------------------------------------------------------------------------
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
