This amendment is being made fully to correct Series and Class identifiers.
- --------------------------------------------------------------------------------
Securities Act File No. __________
As filed with the Securities and Exchange Commission on March 6, 2006
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ ]
SBL FUND
(Exact Name of Registrant as Specified in Charter)
One Security Benefit Place, Topeka, Kansas 66636-0001
(Address of Principal Executive Offices) (Zip Code)
(785) 438-3000
(Registrant's Area Code and Telephone Number)
Amy J. Lee
Security Management Company, LLC
One Security Benefit Place
Topeka, Kansas 66636-0001
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after this
Registration Statement becomes effective.
It is proposed that this filing will become effective on April 3, 2006 pursuant
to Rule 488 under the Securities Act of 1933.
No filing fee is required because an indefinite number of shares has previously
been registered pursuant to Rule 24f-2 under the Investment Company Act of 1940,
as amended.
Pursuant to Rule 429 under the Securities Act of 1933, this registration
statement relates to shares of common stock previously registered on Form N-1A
(File No. 2-59353).
April 3, 2006
Dear Shareholder:
We are writing to inform you of the upcoming special meeting of shareholders of
SBL Fund, Series W (Main Street Growth & Income Series) to be held Friday, April
28, 2006. You are being asked to vote on a plan that merges this fund into SBL
Fund, Series H (Enhanced Index Series). Main Street Growth & Income Series has
investment objectives and policies comparable to Enhanced Index Series.
Your proxy statement is enclosed. You can vote in one of four ways:
o By mail with the enclosed proxy card - be sure to sign, date and
return it in the enclosed postage-paid envelope,
o Through the Web site listed in the proxy voting instructions,
o By telephone using the toll-free number listed in the proxy voting
instructions, or
o In person at the shareholder meeting on April 28, 2006.
We encourage you to vote over the Internet or by telephone, using the voting
control number that appears on your proxy card. Please read the enclosed
information carefully before voting. Your vote is extremely important. If you
have questions, please call InvestorConnectTM at 1-800-361-2782.
We appreciate your consideration of this important proposal. Thank you for
investing in Security Funds.
Sincerely,
MICHAEL G. ODLUM
Michael G. Odlum, President
Security Management Company, LLC
SBL Fund
One Security Benefit Place
Topeka, KS 66636-0001
(Toll Free) (800) 888-2461
April 3, 2006
Dear Shareholder:
Your Board of Directors ("Board") has called a special meeting of shareholders
of Series W (Main Street Growth and Income Series) (the "Acquired Series"),
which is a series of SBL Fund, to be held April 28, 2006 at 1:00 p.m. (Central
time), or any adjournment(s) or postponement(s) thereof (the "Special Meeting"),
at the executive offices of SBL Fund, One Security Benefit Place, Topeka, Kansas
66636-0001. The Board has called the Special Meeting so that shareholders can
vote on a proposed Plan of Reorganization ("Reorganization Plan") regarding the
Acquired Series, as discussed below.
The Board has approved the reorganization of the Main Street Growth and Income
Series into Series H (Enhanced Index Series) (the "Acquiring Series"), another
series of SBL Fund (the "Reorganization"). Security Management Company, LLC
serves as investment adviser to SBL Fund. For the Acquiring Series, Northern
Trust Investments, N.A. ("NTI") serves as sub-adviser. For the Acquired Series,
OppenheimerFunds, Inc. ("OppenheimerFunds") serves as sub-adviser. The Acquired
Series has investment objectives and policies that are comparable in some but
not all respects to those of the Acquiring Series.
After careful consideration, the Board unanimously approved this proposal with
respect to the Acquired Series and recommended that shareholders of the Acquired
Series vote "FOR" the proposal. Accordingly, you are asked to authorize the
Reorganization.
A Proxy Statement/Prospectus that describes the Reorganization is enclosed. We
urge you to vote your shares by completing and returning the enclosed proxy in
the envelope provided, or vote by Internet, fax or telephone, at your earliest
convenience.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. IN ORDER TO
AVOID THE ADDED COST OF FOLLOW-UP SOLICITATIONS AND POSSIBLE ADJOURNMENTS,
PLEASE TAKE A FEW MINUTES TO READ THE PROXY STATEMENT/PROSPECTUS AND CAST YOUR
VOTE. IT IS IMPORTANT THAT YOUR VOTE BE RECEIVED NO LATER THAN 9:00 a.m. on
April 28, 2006.
We appreciate your participation and prompt response in this matter and thank
you for your continued support.
Sincerely,
/s/ Michael G. Odlum
--------------------
Michael G. Odlum
President
3
SBL Fund
One Security Benefit Place
Topeka, KS 66636-0001
(Toll Free) (800) 888-2461
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF
MAIN STREET GROWTH AND INCOME SERIES
TO BE HELD APRIL 28, 2006
To the Shareholders:
The Board of Directors of SBL Fund has called a special meeting of shareholders
of Series W (Main Street Growth and Income Series) (the "Acquired Series"), a
series of SBL Fund, to be held April 28, 2006 at 1:00 p.m. (Central time) or any
adjournment(s) or postponement(s) thereof (the "Special Meeting"), at the
executive offices of SBL Fund, One Security Benefit Place, Topeka, Kansas
66636-0001.
At the Special Meeting you will be asked:
1. To approve a Plan of Reorganization providing for the acquisition of all of
the assets and liabilities of the Acquired Series by Series H (Enhanced
Index Series) (the "Acquiring Series"), a series of SBL Fund, solely in
exchange for shares of the Acquiring Series, followed by the complete
liquidation of the Acquired Series; and
2. To transact such other business as may properly come before the Special
Meeting or any adjournments thereof.
Shareholders of record at the close of business on March 1, 2006 are entitled to
notice of, and to vote at, the Special Meeting. Your attention is called to the
accompanying Proxy Statement/Prospectus. Shareholders who do not expect to
attend the Special Meeting in person are requested to complete, date, and sign
the enclosed proxy card and return it promptly in the envelope provided for that
purpose. Your proxy card also provides instructions for voting via telephone,
fax or the Internet, if you wish to take advantage of these voting options.
Proxies may be revoked at any time by executing and submitting a revised proxy,
by giving written notice of revocation to SBL Fund, or by voting in person at
the Special Meeting.
By Order of the Board
of Directors
/s/Amy J. Lee
--------------------
Amy J. Lee
Secretary
April 3, 2006
TABLE OF CONTENTS
INTRODUCTION.....................................................................................................................2
SUMMARY..........................................................................................................................3
The Proposed Reorganization.................................................................................................3
COMPARISON OF INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES, RISKS AND
MANAGEMENT OF THE ACQUIRED AND ACQUIRING SERIES..................................................................................3
Principal Risks of Investing in the Series..................................................................................5
Comparison of Portfolio Characteristics.....................................................................................6
COMPARISON OF EXPENSES FOR ACQUIRED AND ACQUIRING SERIES.........................................................................8
Comparison of Operating Expenses............................................................................................8
Example.....................................................................................................................8
ADDITIONAL INFORMATION ABOUT THE ACQUIRING SERIES................................................................................8
Performance of the Acquiring Series.........................................................................................8
Investment Manager.........................................................................................................10
Portfolio Manager..........................................................................................................11
Form of Organization.......................................................................................................11
INFORMATION ABOUT THE REORGANIZATION............................................................................................11
The Reorganization Plan....................................................................................................11
Reasons for the Reorganization.............................................................................................11
Board Considerations.......................................................................................................11
Tax Considerations.........................................................................................................12
Expenses of the Reorganization.............................................................................................12
Dividends and Other Distributions..........................................................................................12
Capitalization of the Series...............................................................................................12
GENERAL INFORMATION.............................................................................................................13
MORE INFORMATION REGARDING THE ACQUIRING SERIES.................................................................................15
Management of the Acquiring Series.........................................................................................17
FINANCIAL HIGHLIGHTS FOR THE ACQUIRING SERIES...................................................................................18
APPENDIX A.....................................................................................................................A-1
APPENDIX B.....................................................................................................................B-1
APPENDIX C.....................................................................................................................C-1
APPENDIX D.....................................................................................................................D-1
1
PROXY STATEMENT/PROSPECTUS
SBL FUND
ONE SECURITY BENEFIT PLACE
TOPEKA, KANSAS 66636-0001
(TOLL FREE) (800) 888-2461
INTRODUCTION
This Proxy Statement/Prospectus provides you with information about the proposed
transfer of all of the assets of Series W (Main Street Growth and Income Series)
("Acquired Series") to Series H (Enhanced Index Series) ("Acquiring Series") in
exchange for shares of the Acquiring Series; the assumption by the Acquiring
Series of all liabilities of the Acquired Series; and the distribution of the
Acquiring Series shares to the shareholders of the Acquired Series in complete
liquidation of the Acquired Series (the "Reorganization") as provided upon the
terms and conditions set forth in a Plan of Reorganization ("Reorganization
Plan").
This Proxy Statement/Prospectus solicits your vote in connection with a special
meeting ("Special Meeting") of shareholders, to be held April 28, 2006, at which
shareholders of the Acquired Series will vote on the Reorganization Plan through
which these transactions will be accomplished. Because you, as a shareholder of
the Acquired Series, are being asked to approve a transaction that will result
in your holding shares of the Acquiring Series, this document also serves as a
prospectus for the Acquiring Series, whose investment objective is long-term
growth of capital.
This Proxy Statement/Prospectus, which you should retain for future reference,
contains important information about the Acquiring Series that you should know
before investing. A Statement of Additional Information ("SAI") dated April 3,
2006 relating to this Proxy Statement/Prospectus, and containing additional
information about the Reorganization and the parties thereto, has been filed
with the U.S. Securities and Exchange Commission ("SEC") and is incorporated
herein by reference. For a more detailed discussion of the investment
objectives, policies, restrictions and risks of each of the Series, see the SBL
Fund Prospectus and Statement of Additional Information dated May 1, 2005, as
supplemented to date, each of which is incorporated herein by reference and is
available, without charge, by calling (800) 888-2461. The SBL Fund annual report
dated December 31, 2005 is incorporated herein by reference.
You also may obtain proxy materials, reports and other information filed by SBL
Fund from the SEC's Public Reference Section (1-202-942-8090) in Washington,
D.C., or from the SEC's internet website at www.sec.gov. Copies of materials
also may be obtained, after paying a duplicating fee, by electronic request at
the following e-mail address: publicinfo@sec.gov, or by writing the SEC's Public
Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, Washington, D.C. 20549-0102.
THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED THAT
THIS PROXY STATEMENT/PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
DATE: APRIL 3, 2006
2
SUMMARY
You should read this entire Proxy Statement/Prospectus carefully. For additional
information, you should consult the SBL Fund Prospectus and the Reorganization
Plan, which is attached hereto as Appendix A.
THE PROPOSED REORGANIZATION -- On February 10, 2006, the Board of Directors of
SBL Fund ("Board") approved the Reorganization Plan with respect to each of the
Series. Subject to the approval of shareholders of the Acquired Series, the
Reorganization Plan provides for:
o the transfer of all of the assets of the Acquired Series to the Acquiring
Series, in exchange for shares of the Acquiring Series;
o the assumption by the Acquiring Series of all of the liabilities of the
Acquired Series;
o the distribution of shares of the Acquiring Series to the shareholders of
the Acquired Series; and
o the complete liquidation of the Acquired Series.
The Reorganization is expected to be effective immediately after the close of
business on May 5, 2006, or on a later date as the parties may agree (the
"Closing"). As a result of the Reorganization, each shareholder of the Acquired
Series will become a shareholder of the Acquiring Series. Each shareholder will
hold, immediately after the Closing, shares of the Acquiring Series having an
aggregate value equal to the aggregate value of the shares of the Acquired
Series held by that shareholder as of the close of business on the date of the
Closing.
The Reorganization is intended to eliminate duplication of costs and other
inefficiencies arising from having comparable mutual funds within the same
family of funds, as well as to assist in achieving economies of scale.
Shareholders in the Acquired Series are expected to benefit from the larger
asset base and lower operating expenses as a percentage of Acquiring Fund assets
that will result from the Reorganization.
Approval of the Reorganization Plan with respect to the Acquired Series requires
the affirmative vote of a majority of the outstanding voting securities of the
Acquired Series. In the event that the shareholders of the Acquired Series do
not approve the Reorganization, the Acquired Series will continue to operate as
a separate entity and the Board will determine what further action, if any, to
take.
AFTER CAREFUL CONSIDERATION, THE BOARD UNANIMOUSLY APPROVED THE PROPOSED
REORGANIZATION. THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSED
REORGANIZATION.
In considering whether to approve the Reorganization, you should note that:
o As described below, the Acquired Series has investment objectives and
investment policies that are comparable in many respects to the investment
objective and investment policies of the Acquiring Series.
o The Series have the same investment manager, Security Management Company,
LLC (the "Investment Manager" or "SMC"), One Security Benefit Place,
Topeka, Kansas 66636-0001.
o The proposed Reorganization offers reductions in operating expenses and an
investment with better long-term investment performance for shareholders of
the Acquired Series.
o The share purchase, exchange and redemption provisions for each Series are
the same. For additional information on purchase and redemption provisions,
see "More Information Regarding the Acquiring Series."
o The Series expect that the Reorganization will be considered a tax-free
reorganization within the meaning of section 368(a)(1) of the Internal
Revenue Code of 1986 (the "Code"). As such, shareholders of the Series will
not recognize gain or loss as a result of the Reorganization. See
"Information About the Reorganization - Tax Considerations."
COMPARISON OF INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES, RISKS AND
MANAGEMENT OF THE ACQUIRED AND ACQUIRING SERIES - The investment objectives,
principal investment strategies, and risks of the Series are similar. Each
Series is managed by the same investment manager. Because the Acquired Series
and the Acquiring Series have similar investment objectives and investment
policies, the principal investment strategies and principal risks of an
investment in the Series are generally comparable, although there are certain
differences. The chart below summarizes similarities and differences, between
the Series' investment objectives, principal investment strategies and principal
risks. There can be no assurance that a Series will achieve its stated
objective.
3
- ------------------------------ ---------------------------------------------------- ------------------------------------------------
ACQUIRED SERIES ACQUIRING SERIES
- ------------------------------ ---------------------------------------------------- ------------------------------------------------
ENHANCED INDEX SERIES
MAIN STREET GROWTH AND INCOME SERIES
- ------------------------------ ---------------------------------------------------- ------------------------------------------------
INVESTMENT OBJECTIVE High total return (which includes growth in the Outperform the S&P 500 Index
value of its shares as well as current income)
from equity and debt securities
- ------------------------------ ---------------------------------------------------- ------------------------------------------------
PRINCIPAL INVESTMENT The Main Street Growth and Income Series pursues The Enhanced Index Series pursues its objective
STRATEGIES its objective by investing mainly in common stocks by investing, under normal market conditions, at
of U.S. companies, but it can also invest in least 80% of its net assets (including any
other equity securities such as preferred stocks borrowings for investment purposes) in equity
and securities convertible into common stocks. securities of companies in the S&P 500 Index and
futures contracts representative of the stocks
that make up the index.
- ------------------------------ ---------------------------------------------------- ------------------------------------------------
INVESTMENT MANAGER Security Management Company, LLC Security Management Company, LLC
- ------------------------------ ---------------------------------------------------- ------------------------------------------------
SUB-ADVISER OppenheimerFunds, Inc. Northern Trust Investments, N.A. ("NTI")
- ------------------------------ ---------------------------------------------------- ------------------------------------------------
PORTFOLIO MANAGER Nikolaos D. Monoyios and Marc Reinganum Robert H. Bergson
- ------------------------------ ---------------------------------------------------- ------------------------------------------------
COMPARISON OF SIMILAR o Each Series may invest a portion of its assets in options and futures contracts, which may be used
PRINCIPAL STRATEGIES to hedge each Series' portfolio, maintain exposure to the equity markets or to increase return
INVESTMENT potential.
STRATEGIES
- ---------------- ------------- ---------------------------------------------------- ------------------------------------------------
DIFFERENCES
IN STRATEGY o Main Street Growth and Income Series uses an o Enhanced Index Series employs a quantitative
investment process that combines quantitative discipline to determine which S&P 500 stocks
models, fundamental research about particular should be overweighted, underweighted, or held
securities and individual judgment. The in a neutral position relative to the
selection process generally involves the use of: proportion of the S&P 500 Index that the stock
represents. Approximately 150 issues will be
o multi-factor quantitative models, including over-or underweighted relative to the index,
"top-down" models focusing on market and and certain securities represented in the
economic trends, and "bottom up" models index will not be held by the Series. The
focusing on the relative strengths of Series also may invest a limited portion of
specific companies, its assets in equity securities that are not
included in the S&P 500 Index.
o fundamental research focusing on current
company news and industry-related events, o NTI may invest up to 25% of the Series'
and assets in short-term debt securities and
money market instruments to meet redemption
o judgment in continuously rebalancing the requests or to facilitate investment in the
portfolio. securities of the S&P 500 Index.
o The Series' sub-adviser currently emphasizes
the stocks of large-capitalization companies
in the portfolio, although there are no
requirements as to the capitalization of
issuers in which the Series invests.
- ---------------- ------------- -----------------------------------------------------------------------------------------------------
4
- ------------------------------ ---------------------------------------------------- ------------------------------------------------
ACQUIRED SERIES ACQUIRING SERIES
- ------------------------------ ---------------------------------------------------- ------------------------------------------------
ENHANCED INDEX SERIES
MAIN STREET GROWTH AND INCOME SERIES
- ------------------------------ ---------------------------------------------------- ------------------------------------------------
COMPARISON OF SIMILAR o Under adverse or unstable market conditions, each Series' policies allows it to invest some or all
PRINCIPAL RISKS RISKS of its assets in cash or money market securities for the purpose of avoiding losses, in which case
each Series may be unable to pursue its investment objective during that time or benefit from any
market upswings.
o Each Series also shares the following principal investment risks:
o Market Risk
o Growth Stock Risk
o Equity Derivatives Risk
o Leverage Risk
A summary description of each of these risks, as well as other principal investment risks
associated with an investment in the Series, is provided below under "Principal Risks of
Investing in the Funds." In addition, Appendix B contains additional information regarding other
investment strategies and risk considerations of the Series.
- ---------------- ------------- ---------------------------------------------------- ------------------------------------------------
DIFFERENCES o In addition to the above risks, Main Street o The principal risks of the Enhanced Index
IN RISKS Growth and Income Series is also subject to the Series are listed above.
following principal investment risks:
o Foreign Securities
o Active Trading
A summary description of each of these risks is
provided below under "Principal Risks of
Investing in the Funds."
- ---------------- ------------- ---------------------------------------------------- ------------------------------------------------
PRINCIPAL RISKS OF INVESTING IN THE SERIES - Each Series may invest in various
types of securities or use certain investment techniques to achieve its
objective. The following is a summary of the principal risks associated with
such securities and investment techniques. As with any security, an investment
in a Series involves certain risks, including loss of principal. The Series are
subject to varying degrees of financial, market, and credit risk. An investment
in the Series is not a deposit of a bank and is not insured by the Federal
Deposit Insurance Corporation or any other government agency. The fact that a
particular risk is not identified does not mean that a Series is prohibited from
investing its assets in securities that give rise to that risk. Please refer to
Appendix B for information about additional investment techniques that the
Series may utilize and related risks.
MARKET RISK. Equity securities fluctuate in price and 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 changes in economic, political or financial
market conditions.
GROWTH STOCKS RISK. 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.
EQUITY DERIVATIVES RISK. Equity derivatives include options, futures and options
on futures, which may be used to hedge a Series' portfolio, to increase returns,
or to maintain exposure to a market without buying individual securities. These
investments may pose risks in addition to those associated with investing
directly in securities or other investments. These risks may include illiquidity
of the equity derivative, imperfect correlation with underlying investments or a
Series' other portfolio holdings, and lack of availability. Accordingly, there
is the risk that such practices may fail to serve their intended purposes, and
may reduce returns or increase volatility. These practices also entail
transactional expenses.
LEVERAGE RISK. Leverage risk arises when a Series invests a portion of its
assets in options and futures contracts. The use of derivatives may create
leverage risk. For example, because of the low margin deposits required, futures
trading involves an extremely high degree of leverage. As a result, a relatively
small price movement in a futures contract may result in an immediate and
substantial impact on the net asset value of a Series. Leveraging may cause a
Series to be more volatile than if it had not been leveraged. To mitigate
leverage risk, each Series segregates liquid assets to meet its obligations
under, or otherwise covers, the transactions that may give rise to this risk.
5
FOREIGN SECURITIES RISK. Investing in foreign securities, including investing in
foreign securities through American Depositary Receipts, involves additional
risks such as differences in financial reporting, accounting and auditing
standards, a lack of adequate company information, a lesser degree of regulatory
and legal oversight of securities markets and participants therein,
nationalization, expropriation or confiscatory taxation, currency fluctuations,
and political instability or adverse diplomatic developments. The risks may
increase in underdeveloped capital markets.
ACTIVE TRADING. Active trading will increase the costs a Series incurs and as a
result, may lower a Series' performance.
COMPARISON OF PORTFOLIO CHARACTERISTICS - The following tables compare certain
characteristics of the portfolios of the Series as of December 31, 2005:
---------------------------------- ----------------------------------------- ------------------------------------
ACQUIRED SERIES ACQUIRING SERIES
---------------------------------- ----------------------------------------- ------------------------------------
MAIN STREET GROWTH AND INCOME SERIES ENHANCED INDEX SERIES
---------------------------------- ----------------------------------------- ------------------------------------
Net Assets (thousands) $56,429 $40,101
---------------------------------- ----------------------------------------- ------------------------------------
Number of Common Stock Holdings 473 252
---------------------------------- ----------------------------------------- ------------------------------------
Portfolio Turnover Rate (twelve 87% 106%
months ended 12/31/2005)
---------------------------------- ----------------------------------------- ------------------------------------
As a percentage of Net Assets
---------------------------------- ----------------------------------------- ------------------------------------
- Common Stocks 99.13% 97.75%
---------------------------------- ----------------------------------------- ------------------------------------
- Preferred Stocks
---------------------------------- ----------------------------------------- ------------------------------------
- Convertible Bonds
---------------------------------- ----------------------------------------- ------------------------------------
- Convertible Preferred Stocks
---------------------------------- ----------------------------------------- ------------------------------------
- U.S. Government Obligations
---------------------------------- ----------------------------------------- ------------------------------------
- U.S. Government Agency 0.28%
Obligations
---------------------------------- ----------------------------------------- ------------------------------------
- Foreign Government
Obligations
---------------------------------- ----------------------------------------- ------------------------------------
- Corporate Debt Securities
---------------------------------- ----------------------------------------- ------------------------------------
TOP 10 HOLDINGS (AS A % OF NET ASSETS)
--------------------------------------- ----------------------------------------------
ACQUIRED SERIES ACQUIRING SERIES
--------------------------------------- ----------------------------------------------
MAIN STREET GROWTH AND % ENHANCED INDEX %
INCOME SERIES SERIES
-------------------------- ------------ --------------------- ------------------------
EXXON MOBIL CORPORATION 3.40 EXXON MOBIL 3.36
CORPORATION
-------------------------- ------------ --------------------- ------------------------
GENERAL ELECTRIC COMPANY 3.02 GENERAL ELECTRIC 2.98
COMPANY
-------------------------- ------------ --------------------- ------------------------
CITIGROUP, INC. 2.26 MICROSOFT 2.16
CORPORATION
-------------------------- ------------ --------------------- ------------------------
MICROSOFT CORPORATION 2.09 BANK OF AMERICA 1.94
CORPORATION
-------------------------- ------------ --------------------- ------------------------
INTEL CORPORATION 1.84 JOHNSON & JOHNSON 1.87
-------------------------- ------------ --------------------- ------------------------
PFIZER, INC. 1.79 CITIGROUP, INC. 1.83
-------------------------- ------------ --------------------- ------------------------
BANK OF AMERICA 1.72 PFIZER, INC. 1.82
CORPORATION
-------------------------- ------------ --------------------- ------------------------
JOHNSON & JOHNSON 1.64 INTEL CORPORATION 1.63
-------------------------- ------------ --------------------- ------------------------
INTERNATIONAL
PROCTER & GAMBLE COMPANY 1.55 BUSINESS MACHINES 1.48
CORPORATION
6
--------------------------------------- ----------------------------------------------
ACQUIRED SERIES ACQUIRING SERIES
--------------------------------------- ----------------------------------------------
-------------------------- ------------ --------------------- ------------------------
CHEVRON CORPORATION 1.41 PROCTER & GAMBLE 1.38
COMPANY
-------------------------- ------------ --------------------- ------------------------
7
COMPARISON OF EXPENSES FOR ACQUIRED AND ACQUIRING SERIES
The following describes and compares the fees and expenses that you may pay if
you buy and hold shares of each Series. It is expected that combining the Series
in the manner proposed in the Reorganization Plan will allow shareholders of the
Acquired Series to realize economies of scale and lower operating expenses.
COMPARISON OF OPERATING EXPENSES - The current expenses of Main Street Growth
and Income Series and Enhanced Index Series and estimated pro forma expenses
after giving effect to the proposed Reorganization are shown in the table below.
Expenses for the Series are based on the operating expenses incurred for the
year ended December 31, 2005. Pro forma fees and expenses show estimated fees
and expenses of Enhanced Index Series after giving effect to the proposed
Reorganization as of December 31, 2005. Pro forma numbers are estimated in good
faith and are hypothetical. The table below does not reflect the fees and
expenses of the variable insurance product through which shares of the Series
are purchased. If such fees and expenses were reflected, the overall expenses
would be higher.
------------------------------------ ---------------------- -------------- ------------
ACQUIRED SERIES ACQUIRING
SERIES
------------------------------------ ---------------------- -------------- ------------
MAIN STREET GROWTH ENHANCED PRO FORMA
AND INCOME SERIES INDEX SERIES
------------------------------------ ---------------------- -------------- ------------
Management Fees 1.00% 0.75% 0.75%
------------------------------------ ---------------------- -------------- ------------
Other expenses 0.29% 0.29% 0.20%
------------------------------------ ---------------------- -------------- ------------
Total annual series operating 1.29% 1.04% .95%
expenses(1)
------------------------------------ ---------------------- -------------- ------------
1 During fiscal year 2005, the Investment Manager
waived 0.25% of its investment advisory fee for the
Acquiring Series. Net annual operating expenses for
the Acquiring Series, taking into account this
voluntary waiver [and giving effect to the new fund
accounting and administration agreement and new
transfer agency agreement], were 0.79% and 0.70% on a
pro forma basis. Waiver and/or disbursements may be
discontinued at any time. A waiver lowers the expense
ratio and increases overall returns to investors.
---------------------------------------------------------------------------------------
EXAMPLE - The example below is intended to help you compare the cost of
investing in the Series and in the combined Series (after the Reorganization) on
a pro forma basis. Your actual costs may be higher or lower. The example does
not reflect separate account or insurance contract fees and charges, which if
reflected would increase expenses.
The example assumes that you invest $10,000 in each Series and in the Enhanced
Index Series after the Reorganization for the time periods indicated and
redeemed your shares at the end of each period. The Example also assumes that
your investment has a 5% return each year and that each Series' operating
expenses remain the same. The 5% return is an assumption and is not intended to
portray past or future investment results. Based on the above assumptions, you
would pay the following expenses if you redeemed your shares at the end of each
period shown.
Example of Fees and Expenses - if shares are redeemed
- --------------------------------------------------------------------------
ACQUIRED SERIES ACQUIRING SERIES
- --------------------------------------------------------------------------
MAIN STREET GROWTH ENHANCED INDEX PRO FORMA
AND INCOME SERIES SERIES
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
1 Year $130 $106 $97
- --------------------------------------------------------------------------
3 Years $406 $331 $303
- --------------------------------------------------------------------------
5 Years $702 $574 $525
- --------------------------------------------------------------------------
10 Years $1,545 $1,271 $1,166
- --------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT THE ACQUIRING SERIES
PERFORMANCE OF THE ACQUIRING SERIES - The chart and table below provide some
indication of the risks of investing in the Acquiring Series by showing changes
in the Acquiring Series' performance from year to year and by showing how the
Acquiring Series' average annual returns have compared to those of the S&P 500
Index, a broad-based securities market index. In the absence of voluntary fee
waivers, performance would be reduced. The performance does not reflect fees and
expenses associated with an investment in variable insurance products through
which shares of the Acquiring Series are purchased and, if such fees and
expenses were reflected, performance would be lower. As with all mutual funds,
past performance is not a prediction of future results.
8
Series H (Enhanced Index Series)(1)
HIGHEST AND LOWEST RETURNS
(Quarterly 2000-2005)
- ---------------------------------------------------- ----------------------------------------------------------------------
HIGHEST QUARTER
Q 2 ended June 30, 2003 14.85%
LOWEST QUARTER
Q 3 ended September 30, 2002 -17.43%
- ----------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 2005)
- ----------------------------------------------------------------------------------------------------------------------------
1 Year 5 Years Since
Inception(2)
- ----------------------------------------------------------------------------------------------------------------------------
Enhanced Index Series 5.04% -0.24% -0.05%
- ----------------------------------------------------------------------------------------------------------------------------
S&P 500 Index (reflects no deduction for fees, expenses or taxes)(3) 4.91% 0.54% 0.54%
- ----------------------------------------------------------------------------------------------------------------------------
1 Northern Trust Investments, N.A. was engaged to provide investment advisory
services to the Acquiring Series effective May 1, 2003.
2 For the period beginning May 3, 1999 (date of inception) to December 31,
2005.
3 The S&P 500 Index is a capitalization-weighted index composed of 500
selected common stocks that represent the broad domestic economy and is a
widely recognized unmanaged index of market performance. Index performance
is only available to the Acquiring Series at the beginning of each month .
Performance information for the S&P Index is for the period April 30, 1999
to December 31, 2005.
- ----------------------------------------------------------------------------------------------------------------------------
For additional information about the Acquiring Series' performance, including a
discussion about market conditions and investment strategies that significantly
affected its performance during its last fiscal year, please refer to Appendix
C.
INVESTMENT MANAGER - SMC is located at One Security Benefit Place, Topeka,
Kansas 66636. The Investment Manager has overall responsibility for the
management of the Acquiring Series. The Investment Manager furnishes investment
advisory, statistical and research facilities, supervises and arranges for the
purchase and sale of securities on behalf of the Acquiring Series, and provides
for the compilation and maintenance of records pertaining to such investment
advisory services, subject to the control and supervision of the Board. For such
services, the Investment Manager is entitled to receive compensation on an
annual basis equal to 0.75% of the average net assets of the Acquiring Series,
computed on a daily basis and payable monthly. For the year ended December 31,
2005, SMC received an effective investment advisory fee, after voluntary waiver,
equal to an annual rate of 0.50% of the Acquiring Series' average daily net
assets.
A discussion regarding the basis of the Board's approval of the Acquiring
Series' investment advisory and sub-advisory contracts is available in the
Acquiring Series' annual report for the year ended December 31, 2005.
SUB-ADVISER - The Investment Manager has engaged Northern Trust Investments,
N.A. ("NTI"), 50 LaSalle Street, Chicago, Illinois 60675, to provide investment
advisory services to the Enhanced Index Series. NTI is a wholly-owned subsidiary
of The Northern Trust Company and primarily manages assets for defined
contribution and benefit plans, investment companies and other institutional
investors. As of December 31, 2005, NTI had approximately $618 billion in assets
under management.
The Northern Trust Company is the principal subsidiary of Northern Trust
Corporation, a bank holding company. Northern Trust Corporation, through its
subsidiaries, has for more than 100 years managed the assets of individuals,
charitable organizations, foundations and large corporate investors.
9
PORTFOLIO MANAGER - Robert H. Bergson, CFA, Vice President of NTI, has been
manager of the Acquiring Series since July 2003. He joined NTI in 1997 and has
managed equity portfolios specializing in quantitative strategies. Mr. Bergson
received a Bachelors of Architecture from Carnegie Mellon University and a
Master of Science degree from Massachusetts Institute of Technology.
The Statement of Additional Information provides additional information about
the portfolio manager's compensation, other accounts managed, and ownership of
Acquiring Series shares.
FORM OF ORGANIZATION - The Acquiring Series is a series of SBL Fund, a Kansas
corporation registered as an open-end management investment company. SBL Fund is
governed by the Board, which currently consists of seven directors.
INFORMATION ABOUT THE REORGANIZATION
THE REORGANIZATION PLAN -- The Reorganization Plan provides for the transfer of
all of the assets and liabilities of the Acquired Series to the Acquiring Series
solely in exchange for shares of the Acquiring Series. The Acquired Series will
distribute the shares of the Acquiring Series received in the exchange to its
shareholders, and then the Acquired Series will be liquidated.
After the Reorganization, each shareholder of the Acquired Series will own
shares in the Acquiring Series having an aggregate value equal to the aggregate
value of shares of the Acquired Series held by that shareholder as of the close
of business on the business day preceding the Closing.
Until the Closing, shareholders of the Acquired Series will continue to be able
to redeem their shares. Redemption requests received after the Closing will be
treated as requests received by the Acquired Series for the redemption of
Acquiring Series shares received by the shareholder in the Reorganization.
The obligations of the Series under the Reorganization Plan are subject to
various conditions, including approval of the shareholders of the Acquired
Series. The Reorganization Plan also requires that the Series take, or cause to
be taken, all actions, and do or cause to be done, all things reasonably
necessary, proper or advisable to consummate and make effective the transactions
contemplated by the Reorganization Plan. The Reorganization Plan may be
terminated by the Board or on certain other grounds. For a complete description
of the terms and conditions of the Reorganization, see the Reorganization Plan
at Appendix A, which qualifies in its entirety the foregoing summary of the
Reorganization Plan.
REASONS FOR THE REORGANIZATION -- The Series have investment objectives,
investment strategies and risks that are comparable in many respects.
Accordingly, the Series are somewhat duplicative. Further, the Acquiring Series
has a lower level of operating expenses and better long-term investment
performance. In addition, the Reorganization will create a larger Acquiring
Series, which should benefit shareholders of each of the Series by spreading
costs across a larger asset base. Also, a larger Acquiring Series may improve
trading efficiency and may eventually realize economies of scale and lower
operating expenses. Based upon these considerations, the Board determined that
the Acquired Series should be reorganized.
The proposed Reorganization was presented to the Board for consideration and
approval at a meeting held on February 10, 2006. For the reasons discussed
below, the Directors, including all of the Directors who are not "interested
persons" (as defined in the Investment Company Act of 1940) of SBL Fund,
determined that the interests of the shareholders of the respective Series would
not be diluted as a result of the proposed Reorganization, and that the proposed
Reorganization was in the best interests of each of the Series and its
shareholders.
BOARD CONSIDERATIONS -- The Board, in recommending the Reorganization,
considered a number of factors, including the following:
1. expense ratios and information regarding fees and expenses of the
Acquired Series and the Acquiring Series, which indicate that current
shareholders of the Acquired Series will benefit from the
Reorganization by getting a comparable investment at a lower cost than
their current investment;
2. the Reorganization will not dilute the interests of any Series'
current shareholders;
3. the stronger relative investment performance of the Acquiring Series
as compared to the Acquired Series over most measuring periods;
4. the similarity of the Acquired Series' investment objectives, policies
and restrictions and share class structure to those of the Acquiring
Series, which indicates that Acquired Series shareholders will
continue in a comparable investment vehicle;
5. elimination of duplication of costs and inefficiencies of having two
similar Series; and
6. the tax-free nature of the Reorganization to each Series and its
shareholders.
10
The Board also considered the future potential benefits to the Acquiring Series
in that its operating costs may be reduced if the Reorganization is approved.
THE BOARD RECOMMENDS THAT SHAREHOLDERS OF THE ACQUIRED SERIES APPROVE THE
REORGANIZATION.
TAX CONSIDERATIONS -- The Reorganization is intended to qualify for federal
income tax purposes as a tax-free reorganization under Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, pursuant to
this treatment, neither the Acquired Series, the Acquiring Series, nor the
shareholders will recognize any gain or loss for federal income tax purposes
from the transactions contemplated by the Reorganization Plan. As a condition to
the closing of the Reorganization, the Series will receive an opinion from the
law firm of Dechert LLP to the effect that the Reorganization will qualify as a
tax-free reorganization for federal income tax purposes. That opinion will be
based in part upon certain assumptions and upon certain representations made by
the Series.
Immediately prior to the Reorganization, the Acquired Series will pay a dividend
or dividends which, together with all previous dividends, will have the effect
of distributing to the shareholders all of the Acquired Series' investment
company taxable income for taxable years ending on or prior to the
Reorganization (computed without regard to any deduction for dividends paid) and
all of its net capital gains, if any, realized in taxable years ending on or
prior to the Reorganization (after reduction for any available capital loss
carryforward). Such dividends will be included in the taxable income of the
Acquired Series' shareholders.
As of December 31, 2005, the Acquired Series had accumulated capital loss
carryforwards in the amount of approximately $2,460,767. After the
Reorganization, these losses will be available to the Acquiring Series, which
had an accumulated capital loss carryforward of $2,460,767, to offset its
capital gains. The amount of accumulated capital losses of the Acquired Series,
Acquiring Series, or both which may be used in any given year following the
Reorganization may be limited. As a result of these potential limitations, it is
possible that the Acquiring Series may not be able to use these losses as
rapidly as each Series may have used the losses in the absence of the
Reorganization, and part of these losses may not be useable at all. The ability
of the Acquiring Series to absorb losses in the future depends upon a variety of
factors that cannot be known in advance, including the existence of capital
gains against which these losses may be offset. In addition, the benefits of any
capital loss carryforwards currently are available only to shareholders of the
respective Series. After the Reorganization, however, these benefits of these
losses will inure to the benefit of all shareholders of the Acquiring Series.
EXPENSES OF THE REORGANIZATION -- The Acquired Series will bear one half of the
expenses relating to the Reorganization, including but not limited to the costs
of the proxy solicitation. The Investment Manager will bear the remainder of the
expenses relating to the Reorganization. The costs of the Reorganization
include, but are not limited to, costs associated with preparation of the
Acquiring Series' registration statement, printing and distributing the
Acquiring Series' prospectus and the Acquired Series' proxy materials, legal
fees, accounting fees, securities registration fees, and expenses of holding the
Special Meeting.
DIVIDENDS AND OTHER DISTRIBUTIONS - Each Series pays dividends from net
investment income, and each distributes net capital gains, if any, at least
annually. Dividends and distributions of each Series are automatically
reinvested in additional shares of the Series unless otherwise directed by
shareholders. There are no fees or sales charges on reinvestments.
If the Reorganization Plan is approved by shareholders of the Acquired Series,
then as soon as practicable before the Closing, the Acquired Series will pay its
shareholders a cash distribution of all undistributed net investment income and
undistributed realized net capital gains.
CAPITALIZATION OF THE SERIES - The following table shows on an unaudited basis
the capitalization of each Series as of December 31, 2005 and on a pro forma
basis as of December 31, 2005, after giving effect to the Reorganization.
---------------------------- ------------------------ ------------------------------------ -----------------
ACQUIRED SERIES ACQUIRING SERIES
PRO FORMA
---------------------------- ------------------------ ------------------------------------ -----------------
MAIN STREET GROWTH AND ENHANCED INDEX SERIES
INCOME SERIES
---------------------------- ------------------------ ------------------------------------ -----------------
Net Assets $56,429,248 $40,101,072 $96,530,320
---------------------------- ------------------------ ------------------------------------ -----------------
Net Asset Value Per Share $9.38 $9.58 $9.58
---------------------------- ------------------------ ------------------------------------ -----------------
Shares Outstanding 6,018,756 4,186,037 10,076,355
---------------------------- ------------------------ ------------------------------------ -----------------
11
GENERAL INFORMATION
OTHER BUSINESS -- The Directors do not know of any matters to be presented at
the Special Meeting other than those set forth in this proxy statement. If other
business should properly come before the Special Meeting, proxies will be voted
in accordance with the judgment of the persons named in the accompanying proxy.
PROXY SOLICITATION -- The Board is soliciting Acquired Series shareholders'
proxies on behalf of SBL Fund. The principal solicitation of proxies will be by
the mailing of this Proxy Statement/Prospectus commencing on or about April 3,
2006, but proxies may also be solicited by telephone and/or in person by
representatives of SMC or its affiliate(s), or InvestorConnect, a private proxy
services firm. If we have not received your vote as the date of the Special
Meeting approaches, you may receive a call from InvestorConnect to ask for your
vote. Arrangements will be made with brokerage houses and other custodians,
nominees, and fiduciaries to forward proxies and proxy materials to their
principals.
The estimated cost of retaining InvestorConnect is approximately $20,000.00. The
costs of the Special Meeting, including the preparation and mailing of the
Notice, Proxy Statement/Prospectus and proxy, and the solicitation of proxies,
including reimbursements to broker-dealers and others who forwarded proxy
materials to their clients, will be allocated one half to SMC and one half to
the Acquired Series.
SHAREHOLDER VOTING -- Shareholders of record at the close of business on
February 21, 2006 (the "Record Date") are entitled to notice of, and to vote at,
the Special Meeting. As of the Record Date, there were issued and outstanding
[________] shares of the Acquired Series. Security Benefit Life Insurance
Company ("Security Benefit") and First Security Benefit Life Insurance and
Annuity Company of New York ("First Security") are the record owners of all
shares of the Acquired Series. The persons beneficially owning 5% or more of the
outstanding shares of the Acquired Series as of the Record Date are set forth in
Appendix D. As of the Record Date, the SBL Series' Directors and officers, as a
group, owned less than 1.00% of the outstanding shares of the Acquired Series.
By investing in a variable annuity or variable life insurance policy issued by
Security Benefit or First Security, you indirectly purchased shares of the
Acquired Series. Security Benefit or First Security own shares of the Acquired
Series for your benefit in the separate account funding your variable annuity or
variable life insurance policy. Security Benefit or First Security will vote
shares of the Series in accordance with voting instructions received from you
and other owners of such variable annuity and variable life insurance policies.
Shareholders have certain voting rights with respect to their beneficially owned
shares, and Security Benefit, First Security, or an appointee, will vote the
shares beneficially owned by each shareholder in accordance with the
shareholder's instructions. The enclosed form of proxy is provided for this
purpose. All shares for which shareholders do not provide voting instructions
will be voted in the same proportion as those shares for which voting
instructions have been received.
Shareholders are entitled to one vote for each share held and fractional votes
for fractional shares. The presence in person or by proxy of the holders of a
majority of the outstanding shares of the Acquired Series on the Record Date is
required to constitute a quorum at the Special Meeting with respect to that
Acquired Series, and therefore must be present for the transaction of business
at the Special Meeting. Shares held by shareholders present in person or
represented by proxy at the Special Meeting will be counted both for the
purposes of determining the presence of a quorum and for calculating the votes
cast on the issues before the Special Meeting.
Abstentions and "broker non-votes" are counted as shares eligible to vote at the
Special Meeting in determining whether a quorum is present, but do not represent
votes cast with respect to the proposal. "Broker non-votes" are shares held by a
broker or nominee as to which instructions have not been received from the
beneficial owners or persons entitled to vote, and the broker or nominee does
not have discretionary voting power.
In the event that a quorum is not present at the Special Meeting, or a quorum is
present but sufficient votes to approve a proposal are not received, the persons
named as proxies may propose one or more adjournments of the Special Meeting to
permit further solicitation of proxies or to obtain the vote required for
approval of one or more proposals. Any such adjournment will require the
affirmative vote of a majority of those shares represented at the Special
Meeting in person or by proxy. The persons named as proxies will vote those
proxies which they are entitled to vote FOR the proposal in favor of such an
adjournment and will vote those proxies required to be voted AGAINST the
proposal against any such adjournment. A shareholder vote may be taken prior to
any adjournment of the Special Meeting on any proposal for which there are
sufficient votes for approval, even though the Special Meeting is adjourned as
to other proposals.
In order that your shares may be represented at the Special Meeting, you are
requested to vote your shares by mail, the Internet, or by telephone by
following the enclosed instructions. If you wish to participate in the Special
Meeting, please submit the proxy card(s) originally sent with the Proxy
Statement/Prospectus or attend the Special Meeting in person. Any proxy given by
a shareholder, whether in writing, by telephone or via the Internet is
revocable. A shareholder may revoke the proxy at any time prior to its use by
12
filing with SBL Fund a written revocation or a duly executed proxy card bearing
a later date. In addition, any shareholder who attends the Special Meeting in
person may vote by ballot at the Special Meeting, thereby canceling any proxy
previously given. However, attendance in-person at the Special Meeting, by
itself, will not revoke a previously tendered proxy. If you vote by telephone or
the Internet, please do not return your proxy card(s), unless you later elect to
change your vote.
VOTE REQUIRED -- Shareholders of the Acquired Series vote separately on Proposal
1. Approval of the Reorganization with respect to the Acquired Series requires
the affirmative vote of the lesser of (i) 67% or more of the shares of the
Acquired Series that are present at the meeting, if the holders of more than 50%
of the Acquired Series' shares are present or represented by proxy, or (ii) more
than 50% of the outstanding shares of the Acquired Series. Accordingly, assuming
the presence of a quorum, abstentions and broker non-votes have the effect of a
negative vote on Proposal 1.
INVESTMENT MANAGER, ADMINISTRATOR AND PRINCIPAL UNDERWRITER --SMC, the Series'
investment adviser and administrator, is located at One Security Benefit Place,
Topeka, KS 66636-0001. The principal underwriter/of the Series, Security
Distributors, Inc., is located at One Security Benefit Place, Topeka, KS
66636-0001. SMC and Security Distributors, Inc. are affiliates of one another.
SHAREHOLDER REPORTS --Shareholders can find important information about the
Series in their Annual Report dated December 31, 2005. You may obtain a copy of
the Series' Annual Report without charge by writing to the Series at the address
above or by calling the Series at 1-800-888-2461.
SHAREHOLDER PROPOSALS --As a general matter, SBL Fund does not hold annual
meetings of shareholders. Shareholders wishing to submit proposals for inclusion
in a proxy statement for a subsequent meeting (if any) should send their written
proposals to the secretary of SBL Fund, One Security Benefit Place, Topeka, KS
66636-0001.
Proposals must be received a reasonable time prior to the date of a meeting of
shareholders to be considered for inclusion in the proxy materials for a
meeting. Timely submission of a proposal does not, however, necessarily mean
that the proposal will be included. Persons named as proxies for any subsequent
shareholders' meeting will vote in their discretion with respect to proposals
submitted on an untimely basis.
INFORMATION ABOUT THE SERIES -- SBL Fund is subject to the informational
requirements of the Securities Exchange Act and certain other federal securities
statutes, and files reports and other information with the SEC. Proxy materials,
reports and other information filed by the Series can be inspected and copied at
the Public Reference Facilities maintained by the SEC at 100 F Street, NE,
Washington, DC 20549. The SEC maintains an Internet web site (at
http://www.sec.gov) which contains other information about the Series.
TO ENSURE THE PRESENCE OF A QUORUM AT THE SPECIAL MEETING, WE REQUEST PROMPT
EXECUTION AND RETURN OF THE ENCLOSED PROXY. A SELF-ADDRESSED, POSTAGE-PAID
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
By Order of the Board of Directors,
/s/ Amy J. Lee
--------------
Secretary
SBL Fund
April 3, 2006
One Security Benefit Place
Topeka, Kansas 66636-0001
13
MORE INFORMATION REGARDING THE ACQUIRING SERIES
The Acquired and Acquiring Series share the following policies.
PURCHASE AND REDEMPTION OF SHARES
Security Benefit and First Security purchase shares of the Series for their
variable annuity and variable life insurance separate accounts. The companies
buy and sell shares of the Series at the net asset value per share (NAV) next
determined after receipt and acceptance of an order to buy or receipt of an
order to sell. Each Series reserves the right to reject or refuse, in its
discretion, any order for the purchase of its shares, in whole or in part. A
Series' NAV is generally calculated as of the close of trading on every day the
New York Stock Exchange (NYSE) is open (usually 3:00 p.m. Central Time).
SBL Fund may suspend the right of redemption during any period when trading on
the NYSE is restricted or the NYSE is closed for other than weekends or
holidays, or any emergency is deemed to exist by the Securities and Exchange
Commission. To the extent authorized by law, each Series reserves the right to
discontinue offering shares at any time, or to cease operations entirely.
SBL Fund intends to pay redemption proceeds in cash; however, under unusual
conditions that make payment in cash disadvantageous to a Series, the Fund
reserves the right to pay all, or part, of the redemption proceeds in liquid
securities with a market value equal to the redemption price ("redemption in
kind"). In the event of a redemption in kind of portfolio securities of a
Series, it would be the responsibility of the shareholder to dispose of the
securities. The shareholder would be at risk that the value of the securities
would decline prior to their sale, that it would be difficult to sell the
securities, and that brokerage fees could be incurred.
REVENUE SHARING -- Security Benefit and/or its affiliates may participate in
arrangements whereby they compensate, out of their own resources and at no
additional cost to the Series or the Series' shareholders, financial
representatives who sell Security Benefit's or First Security's variable annuity
products that invest in SBL Fund ("intermediaries"). The compensation received
by such intermediaries via these payments may be more or less than the overall
compensation received by the intermediaries in connection with the sale of other
investment products and may influence the products offered or recommended by the
intermediary. Additional information about these arrangements is provided in the
prospectus of the variable life insurance or variable annuity product or through
an intermediary. You may obtain information about associated conflicts of
interest from your intermediary, and should so inquire if you would like more
detailed information. You also may inquire of an intermediary how the
intermediary will be compensated in connection with your investment.
MARKET TIMING/SHORT-TERM TRADING -- Some investors try to profit from various
short-term or frequent trading strategies known as market timing; for example,
transferring money into mutual funds when they expect prices to rise and taking
money out when they expect prices to fall, or transferring from one Series to
another and then back again after a short period of time. As money is
transferred in and out, a Series incurs expenses for buying and selling
securities. Excessive purchases, redemptions or exchanges of a Series' shares
disrupt portfolio management, hurt Series performance and drive Series expenses
higher. These costs are borne by all shareholders, including long-term investors
who do not generate these costs. Investors may be more likely to attempt to
engage in market timing with respect to Series that invest a significant portion
of their assets in the securities of foreign issuers, securities that are thinly
traded (such as certain small- and mid-cap issuers), and/or securities such as
certain high yield securities that do not routinely have readily available
market quotations.
The Board has adopted policies and procedures against market timing and the
Series discourage market timing or excessive trading. If you wish to engage in
such practices, we request that you do not purchase shares of any of the Series.
Each Series reserves the right to reject any request to purchase shares,
including purchases in connection with an exchange transaction, that it
reasonably determines to be market timing or excessive trading by a shareholder
or accounts under common control. Transactions placed through the same insurance
company on an omnibus basis may be rejected in whole or in part by a Series.
Transactions accepted by an insurance company in violation of the market
timing/short-term trading policies and procedures are not deemed accepted by the
Series and may be cancelled or revoked by the Series by the close of business on
the next business day following receipt.
The policies and procedures of the Series are intended to restrict transfers
that are disruptive to the Series or potentially disadvantageous to other
shareholders. Although the Series have adopted policies and procedures, the
Series are dependant upon insurance companies offering the Series' shares to
implement the policies and procedures to its contract owners investing in the
Series. When considering if certain restrictions or limitations should be
applied to shareholder transactions, the Series' policies and procedures take
into account, among other things, the following factors:
o the total dollar amount being transferred;
o the number of transfers made within the previous 12 months;
o transfers to and from (or from and to) the same Series;
14
o whether a shareholder's transfers appear to follow a pattern designed
to take advantage of short-term market fluctuations; and
o whether a shareholder's transfers appear to be part of a group of
transfers made by a third party on behalf of individual shareholders
in the group.
If it is determined that a shareholder's transfer patterns among the Series are
disruptive or potentially disadvantageous to other shareholders, the Series'
policies and procedures require the insurance company to send the shareholder
(the insurance company's contract owner) a letter notifying the shareholder that
the insurance company is prohibiting the shareholder from making telephone
transfers or other electronic transfers and instead requiring that the
shareholder submit transfer requests in writing via regular U.S. mail for a
90-day period that begins on the date of the letter. In addition, the insurance
company will require that a shareholder submit subsequent transfer requests in
writing via regular U.S. mail for a 90-day period after the shareholder makes
four "round trip transfers" during any prior 12-month period. A "round trip
transfer" is a transfer involving $5,000 or more (1) from a Series followed by a
transfer to that Series or (2) to a Series followed by a transfer from that
Series, although the Series reserve the right to consider transfers in lesser
amounts to constitute round trips.
In their sole discretion, the Series may revise their market timing procedures
at any time without prior notice as it deems necessary or appropriate, including
changing the criteria for monitoring market timing and other harmful trading
(including, without limitation, imposing dollar or percentage limits on
transfers). For purposes of applying the criteria used to detect potential
market timing and other potentially harmful trading activity, the insurance
company on behalf of the Series may aggregate transfers made in two or more
variable insurance contracts that the insurance company believes are connected
(for example, two contracts with the same owner, or owned by spouses, or owned
by different partnerships or corporations that are under common control, etc.).
The Series' policies and procedures do not require insurance companies to
include transfers made pursuant to dollar cost averaging and asset reallocation
options available under their variable insurance contracts.
Shareholders who seek to engage in programmed, frequent, or high volume transfer
activity may deploy a variety of strategies to avoid detection, and an insurance
company's ability to detect and deter harmful trading activity may be limited by
operational and information systems capabilities. In addition, the terms of an
insurance company's variable insurance contract may also limit the insurance
company's ability to restrict or deter harmful trading. Furthermore, the
identification of contract owners determined to engage in harmful trading
activity involves judgments that are inherently subjective. Accordingly, despite
their best efforts, neither the Series nor the insurance companies can guarantee
that the policies and procedures will detect every potential market timer, but
the Series do require insurance companies to apply the policies and procedures
adopted by the Board consistently to all their contract owners without special
arrangement, waiver, or exception, except with respect to transfers in and out
of Series C (Money Market Series), which are not restricted or limited.
Because the Series cannot guarantee that all harmful trading activity will be
detected, and because the cooperation of insurance companies and other financial
intermediaries cannot be assured, shareholders bear the risks associated with
such activity, including potential disruption of portfolio management,
potentially lower performance, and higher expenses. Due to the risk that an
insurance company implementing the policies and procedures may not detect all
harmful trading activity, it is possible that some shareholders may
inadvertently be treated differently than shareholders who are not permitted to
engage in harmful trading activity. Those shareholders that do not engage in
harmful trading activity nonetheless will bear the costs associated with such
activity.
DISTRIBUTIONS AND FEDERAL INCOME TAX CONSIDERATIONS
Each Series pays its shareholders dividends from its 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.
Each Series intends to qualify and to elect to be taxed as a "regulated
investment company" under the provisions of Subchapter M of the Internal Revenue
Code of 1986, as amended (Code). If a Series qualifies as a "regulated
investment company" and complies with the appropriate provisions of the Code,
such Series will not be liable for federal income tax on income it distributes.
Shares of each Series will be purchased by the separate accounts of Security
Benefit or First Security. In order to comply with diversification regulations
applicable to the segregated asset accounts of insurance companies, each Series
will diversify its investments so that on the last day of each quarter of a
calendar year, no more than 55% of the value of its total investments is
represented by any one investment, no more than 70% is represented by any two
investments, no more than 80% is represented by any three investments, and no
more than 90% is represented by any four investments. For this purpose,
securities of a single issuer are treated as one investment and each U.S.
Government agency or instrumentality is treated as a separate issuer. Any
security issued, guaranteed, or insured (to the extent so guaranteed or insured)
by the U.S. Government or an agency or instrumentality of the U.S. Government is
treated as a security issued by the U.S. Government or its agency or
instrumentality, whichever is applicable.
If a Series fails to meet this diversification requirement, income with respect
to variable insurance contracts invested in the portfolio at any time during the
calendar quarter in which the failure occurred could become currently taxable to
the owners of the contracts.
15
Similarly, income for prior periods with respect to such contracts also could be
taxable, most likely in the year of the failure to achieve the required
diversification. Other adverse tax consequences could also ensue.
Since you may purchase shares of a Series only indirectly through the purchase
of a variable annuity or variable life insurance contract issued by Security
Benefit Life Insurance Company or First Security Benefit Life Insurance and
Annuity Company of New York, no discussion is included here as to the federal
income tax consequences at the Series shareholder level. For information
concerning the federal income tax consequences to you as the purchaser of a
variable annuity or variable life insurance contract based on a Series, see the
prospectus for such variable annuity or variable life insurance contract. See
the Statement of Additional Information for more information on taxes.
DETERMINATION OF NET ASSET VALUE
The NAV of each Series is computed as of the close of regular trading hours on
the NYSE (normally 3 p.m. Central time) on days when the NYSE is open. The NYSE
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.
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.
Portfolio securities and other investments are valued at market value when
market quotations are readily available. Securities traded on a domestic
securities exchange are valued at the last sale price on that exchange on the
day the valuation is made, provided, however, that securities listed on Nasdaq
will be valued at the Nasdaq Official Closing Price, which may not necessarily
represent the last sale price. If no sale is reported, the last current bid
price is used. Securities traded over-the-counter are valued at the last current
bid price. Market quotations for securities prices may be obtained from
automated pricing services. Investments in securities maturing in 60 days or
less may be valued at amortized cost.
When a market quotation for a security is not readily available (which may
include closing prices deemed to be unreliable because of the occurrence of a
subsequent event), the Investment Manager, in good faith, establishes a fair
value for the security in accordance with SBL Funds' valuation procedures. The
types of securities for which such fair value pricing may be required include,
but are not limited to: foreign securities, where a significant event occurs
after the close of the foreign market on which such security principally trades,
but before the close of the NYSE, that is likely to have changed the value of
such security, or the closing value is otherwise deemed unreliable; securities
of an issuer that has entered into a restructuring; securities whose trading has
been halted or suspended; fixed-income securities that have gone into default
and for which there is no current market value quotation; and securities that
are restricted as to transfer or resale.
Valuing securities at fair value involves greater reliance on judgment than
valuing securities that have readily available market quotations. Fair value
determinations can also involve reliance on quantitative models employed by a
fair value pricing service. The Investment Manager makes such determinations in
good faith in accordance with the Series' valuation procedures, with the goal of
accurately reflecting the current value of each Series' portfolio holdings in
the Series' net asset value per share. There can be no assurance that the Series
could obtain the fair value assigned to a security if it were to sell the
security at approximately the time at which the Series determines its net asset
value per share.
For further information about valuation of investments, see the Statement of
Additional Information.
MANAGEMENT OF THE ACQUIRING SERIES
INVESTMENT MANAGER -- SMC is a Kansas limited liability company. On December 31,
2005, the aggregate assets of all of the mutual funds under the investment
management of SMC were approximately $5.5 billion. SMC has overall
responsibility for the management of the Acquiring Series. SBL Fund and SMC have
entered into an agreement that requires SMC to provide investment advisory,
statistical and research services to the Acquiring Series, supervise and arrange
for the purchase and sale of securities on behalf of the Acquiring Series, and
provide for the maintenance and compilation of records pertaining to the
investment advisory function. The agreement with SMC can be terminated by the
Board upon 60 days' written notice. The investment management fee for the
Acquiring Series is equal to 0.75%, on an annual basis, of the average daily net
assets of the Acquiring Series. The investment management fee is computed and
accrued daily and paid monthly. For the fiscal year ended December 31, 2005, the
Acquiring Series paid investment management fees of $283,895 to SMC.
PARENT COMPANY AND DISTRIBUTOR -- SMC is controlled by its members, Security
Benefit and Security Benefit Corporation. Security Benefit Corporation is an
insurance and financial services holding company wholly-owned by Security
Benefit Mutual
16
Holding Company, One Security Benefit Place, Topeka, Kansas 66636-0001. Security
Benefit, a life insurance company, is incorporated under the laws of Kansas.
First Security, a life insurance company, is incorporated under the laws of New
York. SMC is a direct, and Security Distributors, Inc. is an indirect,
wholly-owned subsidiary of Security Benefit.
ADMINISTRATIVE AGENT -- SMC also acts as the administrative agent for SBL Fund
and, as such, performs administrative functions and the bookkeeping, accounting
and pricing functions for the Acquiring Series. For these services, SMC
receives, on an annual basis, a fee of 0.09% of the average net assets of the
Acquiring Series, calculated daily and payable monthly.
Under a Transfer Agency Agreement dated February 1, 2004, SMC acts as the
transfer agent for the Acquiring Series. As such, it processes purchase and
redemption transactions and acts as the dividend disbursing agent. For this
service, SMC receives the following fees with respect to the Acquiring Series:
1. Account Set-Up Charge - A fee of $4 to open an account on the
transfer agency system to hold shares of the Acquiring Series.
2. Annual Maintenance Charge - An annual per account fee of (i)
$8 per open account for regular accounts; (ii) $6.50 per open
account with respect to accounts which are Matrix Level III
pursuant to the National Securities Clearing Corporation
networking systems; and (iii) $5 per account for closed
accounts that remain outstanding on the transfer agency system
(regardless of whether such accounts are regular or Matrix
Level III).
3. Transaction Charge - A per transaction charge of (i) $1.10 per
transaction for regular accounts; and (ii) $0.60 per
transaction for accounts that are Matrix Level III.
The Acquiring Series is subject to a minimum fee per year of $25,000.
ALLOCATION OF PORTFOLIO BROKERAGE -- Transactions in portfolio securities are
effected in the best interests of the Acquiring Series. In reaching a judgment
relative to the qualifications of a broker-dealer ("broker") to obtain the best
execution of a particular transaction, all relevant factors and circumstances
will be taken into account, including the overall reasonableness of commissions
paid to a broker, the firm's general execution and operational capabilities, its
responsiveness (which may include such things as the broker's willingness to
commit capital and whether the broker's representatives are accommodating), and
its reliability and financial condition. Subject to the foregoing
considerations, the execution of portfolio transactions may be directed to
brokers who furnish investment information or research services to SMC. Such
investment information and research services include advice as to the value of
securities, the advisability of investing in, purchasing or selling securities,
and the availability of securities and purchasers or sellers of securities, and
furnishing analyses and reports concerning issues, industries, securities,
economic factors and trends, portfolio strategy and performance of accounts.
Such investment information and research services may be furnished by brokers in
many ways, including: (1) on-line data base systems, the equipment for which is
provided by the broker, that enable SMC to have real-time access to market
information, including quotations; (2) economic research services, such as
publications, chart services and advice from economists concerning macroeconomic
information; and (3) analytical investment information concerning particular
corporations.
If a transaction is directed to a broker supplying investment services or
research information, the transaction charges (i.e., a commission or a charge
that is deemed to be the equivalent of a commission) paid for such transaction
may be in excess of the transaction charges another broker would have charged
for effecting that transaction provided that SMC shall have determined in good
faith that the transaction charges are reasonable in relation to the value of
the investment information or the research services provided.
Securities held by the Acquiring Series may also be held by other investment
advisory clients of SMC, including other investment companies. In addition,
SMC's parent company, Security Benefit, may also hold some of the same
securities as the Acquiring Series. When selecting securities for purchase or
sale for the Acquiring Series, SMC may at the same time be purchasing or selling
the same securities for one or more of such other accounts. Subject to SMC's
obligation to seek best execution, such purchases or sales may be executed
simultaneously or "bunched." It is the policy of SMC not to favor one account
over the other.
FINANCIAL HIGHLIGHTS FOR THE ACQUIRING SERIES
The financial highlights table is intended to help you understand the financial
performance of the Acquiring Series during the past five years. Certain
information reflects financial results for a single Acquiring Series share. The
total returns in the table represent the rate that an investor would have earned
(or lost) on an investment in the Acquiring Series assuming reinvestment of all
dividends and distributions. This information has been derived from financial
statements that have been audited by Ernst & Young LLP, One Kansas City Place,
1200 Main Street, Kansas City, Missouri 64105, whose report, along with the
Acquiring Series' financial statements, are included in SBL Fund's annual
report, which is available upon request.
17
- -------------------------------------------------------------------------------------------------------------------------
SERIES H
- -------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED DECEMBER 31
--------------------------------------------------------------------------
2005 2004 2003(C) 2002 2001
------- ------- ---------- ---- ----
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD......... $9.12 $ 8.31 $ 6.55 $ 8.62 $ 9.95
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)................ 0.11 0.11 0.07 0.05 0.05
Net gain (loss) on securities
(realized & unrealized).................. 0.35 0.71 1.75 (2.02) (1.34)
-------- -------- -------- -------- --------
Total from investment operations............ 0.46 0.82 1.82 (1.97) (1.29)
LESS DISTRIBUTIONS:
Dividends (from net investment income)...... --- (0.01) (0.06) (0.10) (0.04)
Distributions (from capital gains).......... --- --- --- --- ---
Distributions (in excess of capital gains) . --- --- --- ---
-------- -------- -------- -------- --------
Total distributions......................... --- (0.01) (0.06) (0.10) (0.04)
-------- -------- -------- -------- --------
NET ASSET VALUE END OF PERIOD............... $9.58 $ 9.12 $ 8.31 $ 6.55 $ 8.62
======== ======== ======== ======== ========
TOTAL RETURN (A)............................ 5.04% 9.85% 27.78% (22.98)% (12.99)%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)........ $40,101 $38,822 $33,371 $25,052 $42,112
Ratio of expenses to average net assets(b).. 0.79% 0.74% 0.77% 0.99% 0.91%
Ratio of net investment income
(loss) to average net assets............. 1.15% 1.32% 0.94% 0.56% 0.57%
--------------------------------------------------------------------------
Portfolio turnover rate..................... .06% 98% 44% 74% 29%
- -------------------------------------------------------------------------------------------------------------------------
(a) 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 or First Security Benefit Life Insurance and Annuity
Company of New York. If such expenses were reflected, the total return
would be lower. Shares of a series of SBL Fund are available only through
the purchase of such products.
(b) Fund expenses for Series H were reduced by the Investment Manager for
voluntary expense waivers, reimbursements and custodian earnings credits.
Expense ratios absent such reimbursement would have been as follows:
---------------------------------------------------------
2005 2004 2003 2002 2001
---------------------------------------------------------
Series H 1.04% 0.99% 0.96% 0.99% 0.91%
---------------------------------------------------------
(
(c) Northern Trust became the sub-adviser of Series H effective May 1, 2003.
Prior to May 1, 2003, Security Management Company LLC (SMC) paid Deutsche
Asset Management for subadvisory services.
18
APPENDIX A
FORM OF PLAN OF REORGANIZATION
THIS PLAN OF REORGANIZATION (the "Reorganization Plan") is adopted as of this
10th day of February, 2006, by SBL Fund (the "Company") with its principal place
of business at One Security Benefit Place, Topeka, Kansas 66636-0001, on behalf
of its series, Series H (Enhanced Index Series) and Series W (Main Street Growth
and Income Series).
This Reorganization Plan is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1) of the
United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization to which this Reorganization Plan applies (the "Reorganization")
will consist of the transfer of all of the assets of the Acquired Series in the
table below to the Acquiring Series in the table below in exchange solely for
voting shares of the Acquiring Series (the "Acquiring Series Shares"); the
assumption by the Acquiring Series of all liabilities of the Acquired Series;
and the distribution of the Acquiring Series Shares to the shareholders of the
Acquired Series in complete liquidation of the Acquired Series as provided
herein, all upon the terms and conditions hereinafter set forth in this
Reorganization Plan:
ACQUIRED SERIES ACQUIRING SERIES
- ------------------------------------------------------------ ------------------------------------------
Series W (Main Street Growth and Income Series) Series H (Enhanced Index Series)
- ------------------------------------------------------------ ------------------------------------------
WHEREAS, the Company is an open-end, registered investment company of the
management type and the Acquired Series owns securities which generally are
assets of the character in which the Acquiring Series is permitted to invest;
WHEREAS, the Directors of the Company have determined that the exchange of all
of the assets of the Acquired Series for the Acquiring Series Shares and the
assumption of all liabilities of the Acquired Series by the Acquiring Series is
in the best interests of the Acquiring Series and its shareholders and that the
interests of the existing shareholders of the Acquiring Series would not be
diluted as a result of this transaction; and
WHEREAS, the Directors of the Company also have determined, with respect to the
Acquired Series, that the exchange of all of the assets of the Acquired Series
for the Acquiring Series Shares and the assumption of all liabilities of the
Acquired Series by the Acquiring Series is in the best interests of the Acquired
Series and its shareholders and that the interests of the existing shareholders
of the Acquired Series would not be diluted as a result of this transaction;
NOW, THEREFORE, the Company, on behalf of the Acquiring Series and the Acquired
Series separately, hereby approves the Reorganization Plan on the following
terms and conditions:
TRANSFER OF ASSETS OF THE ACQUIRED SERIES TO THE ACQUIRING SERIES IN EXCHANGE
FOR THE ACQUIRING SERIES SHARES, THE ASSUMPTION OF ALL ACQUIRED SERIES
LIABILITIES AND THE LIQUIDATION OF THE ACQUIRED SERIES
1.1. Subject to the requisite approvals of the shareholders of the Acquired
Series and the other terms and conditions herein set forth and on the
basis of the representations and warranties contained herein, the
Company will transfer all of the Acquired Series' assets, as set forth
in paragraph 1.2, to the Acquiring Series, and the Acquiring Series
agrees in exchange therefore: (i) to deliver to the Acquired Series the
number of full and fractional Acquiring Series Shares determined by
dividing the value of the Acquired Series' net assets, computed in the
manner and as of the time and date set forth in paragraph 2.1, by the
net asset value of one Acquiring Series Share, computed in the manner
and as of the time and date set forth in paragraph 2.2; and (ii) to
assume all liabilities of the Acquired Series. Such transactions shall
take place at the closing provided for in paragraph 3.1 (the
"Closing").
1.2. The assets of the Acquired Series to be acquired by the Acquiring
Series shall consist of all assets and property, including, without
limitation, all cash, securities, commodities and futures interests and
dividends or interests receivable that are owned by the Acquired Series
and any deferred or prepaid expenses shown as an asset on the books of
the Acquired Series on the closing date provided for in paragraph 3.1
(the "Closing Date").
A-1
1.3. The Acquired Series will endeavor to discharge all of its known
liabilities and obligations prior to the Closing Date. The Acquiring
Series shall also assume all of the liabilities of the Acquired Series,
whether accrued or contingent, known or unknown, existing at the
Valuation Date. On or as soon as practicable prior to the Closing Date,
the Acquired Series will declare and pay to its shareholders of record
one or more dividends and/or other distributions that, together with
all previous distributions, shall have the effect of distributing to
its shareholders (i) all of its investment company taxable income and
all of its net realized capital gains, if any, for the period from the
close of its last taxable year to the end of the business day on the
Closing; and (ii) any undistributed investment company taxable income
and net capital gain from any period to the extent not otherwise
distributed.
1.4. Immediately after the transfer of assets provided for in paragraph 1.1,
the Acquired Series will distribute to the Acquired Series'
shareholders of record, determined as of immediately after the close of
business on the Closing Date (the "Acquired Series Shareholders"), on a
pro rata basis, the Acquiring Series Shares received by the Acquired
Series pursuant to paragraph 1.1, and will completely liquidate. Such
distribution and liquidation will be accomplished, with respect to the
Acquired Series' shares, by the transfer of the Acquiring Series Shares
then credited to the account of the Acquired Series on the books of the
Acquiring Series to open accounts on the share records of the Acquiring
Series in the names of the Acquired Series Shareholders. The aggregate
net asset value of Acquiring Series Shares to be so credited to
Acquired Series Shareholders shall be equal to the aggregate net asset
value of the Acquired Series shares owned by such shareholders on the
Closing Date. All issued and outstanding shares of the Acquired Series
will simultaneously be canceled on the books of the Acquired Series,
although share certificates representing interests in shares of the
Acquired Series will represent a number of the Acquiring Series Shares
after the Closing Date, as determined in accordance with Section 2.3.
The Acquiring Series shall not issue certificates representing
Acquiring Series Shares in connection with such exchange.
1.5. Ownership of Acquiring Series Shares will be shown on the books of the
Acquiring Series' transfer agent. Shares of the Acquiring Series will
be issued in the manner described in the Acquiring Series' then-current
prospectus and statement of additional information.
1.6. Any reporting responsibility of the Acquired Series including, but not
limited to, the responsibility for filing of regulatory reports, tax
returns, or other documents with the Securities and Exchange Commission
(the "Commission"), any state securities commission, and any federal,
state or local tax authorities or any other relevant regulatory
authority, is and shall remain the responsibility of the Acquired
Series.
VALUATION
2.1. The value of the Acquired Series' assets to be acquired by the
Acquiring Series hereunder shall be the value of such assets computed
as of the close of business of the New York Stock Exchange (NYSE) and
after the declaration of any dividends on the Closing Date (such time
and date being hereinafter called the "Valuation Date"), using the
valuation procedures set forth in the Company's Articles of
Incorporation, as amended (the "Articles of Incorporation"), the
then-current prospectus or statement of additional information with
respect to the Acquiring Series, and valuation procedures established
by the Company's Board of Directors.
2.2. The net asset value of an Acquiring Series Share shall be the net asset
value per share computed as of the close of business of the NYSE and
after the declaration of any dividends on the Valuation Date, using the
valuation procedures set forth in the Company's Articles of
Incorporation, the then-current prospectus or statement of additional
information with respect to the Acquiring Series, and valuation
procedures established by the Company's Board of Directors.
2.3. The number of Acquiring Series Shares to be issued (including
fractional shares, if any) in exchange for the Acquired Series' assets
shall be determined by dividing the value of the net assets of the
Acquired Series determined using the same valuation procedures referred
to in paragraph 2.1, by the net asset value of an Acquiring Series
Share, determined in accordance with paragraph 2.2.
2.4. All computations of value shall be made by the Acquiring Series'
designated record keeping agent.
A-2
CLOSING AND CLOSING DATE
3.1. The Closing Date shall be May 5, 2006, or such other date as the
parties may agree to in writing. All acts taking place at the Closing
shall be deemed to take place simultaneously as of immediately after
the close of business on the Closing Date unless otherwise agreed to by
the parties. The close of business on the Closing Date shall be as of
4:00 p.m., Eastern Time. The Closing shall be held at the offices of
the Company or at such other time and/or place as the Board of
Directors or officers of the Company may designate.
3.2. The Company shall direct the Custodian of the Acquired Series (the
"Custodian"), to deliver, at the Closing, a certificate of an
authorized officer stating that (i) the Acquired Series' portfolio
securities, cash, and any other assets ("Assets") shall have been
delivered in proper form to the Acquiring Series within two business
days prior to or on the Closing Date, and (ii) all necessary taxes in
connection with the delivery of the Assets, including all applicable
federal and state stock transfer stamps, if any, have been paid or
provision for payment has been made. The Acquired Series' portfolio
securities represented by a certificate or other written instrument
shall be transferred and delivered by the Acquired Series as of the
Closing Date for the account of the Acquiring Series duly endorsed in
proper form for transfer in such condition as to constitute good
delivery thereof. The Acquired Series shall direct the Custodian to
deliver portfolio securities and instruments deposited with a
securities depository, as defined in Rule 17f-4 under the Investment
Company Act of 1940, as amended (the "1940 Act"), as of the Closing
Date by book entry in accordance with the customary practices of such
depositories and the custodian for the Acquiring Series.
3.3. Security Management Company, LLC, as transfer agent for the Acquired
Series (the "Transfer Agent"), shall deliver, on behalf of the Acquired
Series, at the Closing a certificate of an authorized officer stating
that its records contain the names and addresses of the Acquired Series
Shareholders and the number and percentage ownership of outstanding
shares owned by each such shareholder immediately prior to the Closing.
3.4. In the event that on the Valuation Date (a) the NYSE or another primary
trading market for portfolio securities of the Acquiring Series or the
Acquired Series shall be closed to trading or trading thereupon shall
be restricted, or (b) trading or the reporting of trading on the NYSE
or elsewhere shall be disrupted so that, in the judgment of the Board
of Directors of the Company, accurate appraisal of the value of the net
assets of the Acquiring Series or the Acquired Series is impracticable,
the Closing Date shall be postponed until the first business day after
the day when trading shall have been fully resumed and reporting shall
have been restored.
REPRESENTATIONS AND WARRANTIES
4.1. The Company, on behalf of the Acquired Series, represents and warrants
to the Acquiring Series as follows:
(a) The Acquired Series is duly organized as a series of the
Company, which is a corporation duly organized and validly
existing under the laws of the State of Kansas, with power
under the Company's Articles of Incorporation to own all of
its properties and assets and to carry on its business as it
is now being conducted;
(b) The Company is a registered investment company classified as a
management company of the open-end type, and its registration
with the Commission as an investment company under the 1940
Act, and the registration of its shares under the Securities
Act of 1933, as amended ("1933 Act"), are in full force and
effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the
Acquired Series of the transactions contemplated herein,
except such as have been obtained under the 1933 Act, the
Securities Exchange Act of 1934, as amended (the "1934 Act"),
and the 1940 Act, and such as may be required by state
securities laws;
(d) The current prospectus and statement of additional information
of the Acquired Series and each prospectus and statement of
additional information of the Acquired Series used during the
three years previous to the date of this Reorganization Plan
conforms or conformed at the time of its use in all
A-3
material respects to the applicable requirements of the 1933
Act and the 1940 Act and the rules and regulations of the
Commission thereunder and does not or did not at the time of
its use include any untrue statement of a material fact or
omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially
misleading;
(e) On the Closing Date, the Acquired Series will have good and
marketable title to the Acquired Series' assets to be
transferred to the Acquiring Series pursuant to paragraph 1.2
and full right, power, and authority to sell, assign, transfer
and deliver such assets hereunder free of any liens or other
encumbrances, and upon delivery and payment for such assets,
the Acquiring Series will acquire good and marketable title
thereto, subject to no restrictions on the full transfer
thereof, including such restrictions as might arise under the
1933 Act, other than as disclosed to the Acquiring Series;
(f) The Acquired Series is not engaged currently, and the
execution, delivery and performance of this Reorganization
Plan will not result, in (i) a material violation of the
Company's Articles of Incorporation or By-Laws or of any
agreement, indenture, instrument, contract, lease or other
undertaking to which the Acquired Series is a party or by
which it is bound, or (ii) the acceleration of any obligation,
or the imposition of any penalty, under any agreement,
indenture, instrument, contract, lease, judgment or decree to
which the Acquired Series is a party or by which it is bound;
(g) The Acquired Series has no material contracts or other
commitments (other than this Reorganization Plan) that will be
terminated with liability to it prior to the Closing Date;
(h) Except as otherwise disclosed in writing to and accepted by
the Acquiring Series, no litigation or administrative
proceeding or investigation of or before any court or
governmental body is presently pending or, to its knowledge,
threatened against the Acquired Series or any of its
properties or assets that, if adversely determined, would
materially and adversely affect its financial condition or the
conduct of its business. The Acquired Series knows of no facts
which might form the basis for the institution of such
proceedings and is not a party to or subject to the provisions
of any order, decree or judgment of any court or governmental
body which materially and adversely affects its business or
its ability to consummate the transactions herein
contemplated;
(i) The financial statements of the Acquired Series as of and for
the year ended December 31, 2005 have been audited by Ernst &
Young, LLP, independent registered public accounting firm.
Such statements are in accordance with U.S. generally accepted
accounting principles ("GAAP") consistently applied, and such
statements (copies of which have been furnished to the
Acquiring Series) present fairly, in all material respects,
the financial condition of the Acquired Series as of such date
in accordance with GAAP, and there are no known contingent
liabilities of the Acquired Series required to be reflected on
the balance sheet or in the notes thereto;
(j) Since December 31, 2005, there has not been any material
adverse change in the Acquired Series' financial condition,
assets, liabilities or business, other than changes occurring
in the ordinary course of business, or any incurrence by the
Acquired Series of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as
otherwise disclosed to and accepted by the Acquiring Series.
For the purposes of this subparagraph (j), a decline in net
asset value per share of the Acquired Series due to declines
in market values of securities in the Acquired Series'
portfolio, the discharge of Acquired Series liabilities, or
the redemption of Acquired Series shares by shareholders of
the Acquired Series shall not constitute a material adverse
change;
(k) On the Closing Date, all Federal and other tax returns and
reports of the Acquired Series required by law to have been
filed by such date (including any extensions) shall have been
filed and are or will be correct in all material respects, and
all Federal and other taxes shown as due or required to be
shown as due on said returns and reports shall have been paid
or provision shall have been made for the payment thereof, and
to the best of the Acquired Series' knowledge, no such return
is currently under audit and no assessment has been asserted
with respect to such returns;
A-4
(l) For each taxable year of its operation (including the taxable
year ending on the Closing Date), the Acquired Series has met
the requirements of Subchapter M of the Code for qualification
as a regulated investment company and has elected to be
treated as such, has been eligible to and has computed its
Federal income tax under Section 852 of the Code, and will
have distributed all of its investment company taxable income
and net capital gain (as defined in the Code) that has accrued
through the Closing Date, and before the Closing Date will
have declared dividends sufficient to distribute all of its
investment company taxable income and net capital gain for the
period ending on the Closing Date;
(m) All issued and outstanding shares of the Acquired Series are,
and on the Closing Date will be, duly and validly issued and
outstanding, fully paid and non-assessable by the Company and
have been offered and sold in every state and the District of
Columbia in compliance in all material respects with
applicable registration requirements of the 1933 Act and state
securities laws. All of the issued and outstanding shares of
the Acquired Series will, at the time of Closing, be held by
the persons and in the amounts set forth in the records of the
Transfer Agent, on behalf of the Acquired Series, as provided
in paragraph 3.3. The Acquired Series does not have
outstanding any options, warrants or other rights to subscribe
for or purchase any of the shares of the Acquired Series, nor
is there outstanding any security convertible into any of the
Acquired Series shares;
(n) The adoption and performance of this Reorganization Plan will
have been duly authorized prior to the Closing Date by all
necessary action, if any, on the part of the Directors of the
Company, and, subject to the approval of the shareholders of
the Acquired Series, this Reorganization Plan will constitute
a valid and binding obligation of the Acquired Series,
enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors'
rights and to general equity principles;
(o) The information to be furnished by the Acquired Series for use
in registration statements, proxy materials and other
documents filed or to be filed with any federal, state or
local regulatory authority (including the National Association
of Securities Dealers, Inc.), which may be necessary in
connection with the transactions contemplated hereby, shall be
accurate and complete in all material respects and shall
comply in all material respects with Federal securities and
other laws and regulations thereunder applicable thereto.
4.2. The Company, on behalf of the Acquiring Series, represents and warrants
to the Acquired Series as follows:
(a) The Acquiring Series is duly organized as a series of the
Company, which is a corporation duly organized and validly
existing under the laws of the State of Kansas, with power
under the Company's Articles of Incorporation to own all of
its properties and assets and to carry on its business as it
is now being conducted;
(b) The Company is a registered investment company classified as a
management company of the open-end type, and its registration
with the Commission as an investment company under the 1940
Act and the registration of its shares under the 1933 Act,
including the shares of the Acquiring Series, are in full
force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the
Acquiring Series of the transactions contemplated herein,
except such as have been obtained under the 1933 Act, the 1934
Act and the 1940 Act and such as may be required by state
securities laws;
(d) The current prospectus and statement of additional information
of the Acquiring Series and each prospectus and statement of
additional information of the Acquiring Series used during the
three years previous to the date of this Reorganization Plan
conforms or conformed at the time of its use in all material
respects to the applicable requirements of the 1933 Act and
the 1940 Act and the rules and regulations of the Commission
thereunder and does not or did not at the time of its use
include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary to
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make the statements therein, in light of the circumstances
under which they were made, not materially misleading;
(e) On the Closing Date, the Acquiring Series will have good and
marketable title to the Acquiring Series' assets, free of any
liens of other encumbrances, except those liens or
encumbrances as to which the Acquired Series has received
notice and necessary documentation at or prior to the Closing;
(f) The Acquiring Series is not engaged currently, and the
execution, delivery and performance of this Reorganization
Plan will not result, in (i) a material violation of the
Company's Articles of Incorporation or By-Laws or of any
agreement, indenture, instrument, contract, lease or other
undertaking to which the Acquiring Series is a party or by
which it is bound, or (ii) the acceleration of any obligation,
or the imposition of any penalty, under any agreement,
indenture, instrument, contract, lease, judgment or decree to
which the Acquiring Series is a party or by which it is bound;
(g) Except as otherwise disclosed in writing to and accepted by
the Acquired Series, no litigation or administrative
proceeding or investigation of or before any court or
governmental body is presently pending or, to its knowledge,
threatened against the Acquiring Series or any of its
properties or assets that, if adversely determined, would
materially and adversely affect its financial condition or the
conduct of its business. The Acquiring Series knows of no
facts which might form the basis for the institution of such
proceedings and is not a party to or subject to the provisions
of any order, decree or judgment of any court or governmental
body which materially and adversely affects its business or
its ability to consummate the transactions herein
contemplated;
(h) The financial statements of the Acquiring Series as of and for
the year ended December 31, 2005 have been audited by Ernst &
Young LLP, independent registered public accounting firm. Such
statements are in accordance with GAAP consistently applied,
and such statements (copies of which have been furnished to
the Acquired Series) present fairly, in all material respects,
the financial condition of the Acquiring Series as of such
date in accordance with GAAP, and there are no known
contingent liabilities of the Acquiring Series required to be
reflected on the balance sheet or in the notes thereto;
(i) Since December 31, 2005, there has not been any material
adverse change in the Acquiring Series' financial condition,
assets, liabilities or business, other than changes occurring
in the ordinary course of business, or any incurrence by the
Acquiring Series of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as
otherwise disclosed to and accepted by the Acquired Series.
For purposes of this subparagraph (i), a decline in net asset
value per share of the Acquiring Series due to declines in
market values of securities in the Acquiring Series'
portfolio, the discharge of Acquiring Series liabilities, or
the redemption of Acquiring Series Shares by shareholders of
the Acquiring Series, shall not constitute a material adverse
change;
(j) On the Closing Date, all Federal and other tax returns and
reports of the Acquiring Series required by law to have been
filed by such date (including any extensions) shall have been
filed and are or will be correct in all material respects, and
all Federal and other taxes shown as due or required to be
shown as due on said returns and reports shall have been paid
or provision shall have been made for the payment thereof, and
to the best of the Acquiring Series' knowledge no such return
is currently under audit and no assessment has been asserted
with respect to such returns;
(k) For each taxable year of its operation, the Acquiring Series
has met the requirements of Subchapter M of the Code for
qualification as a regulated investment company and has
elected to be treated as such, has been eligible to and has
computed its Federal income tax under Section 852 of the Code,
has distributed all of its investment company taxable income
and net capital gain (as defined in the Code) for periods
ending prior to the Closing Date, and will do so for the
taxable year including the Closing Date;
(l) All issued and outstanding Acquiring Series Shares are, and on
the Closing Date will be, duly and validly issued and
outstanding, fully paid and non-assessable by the Company and
have been offered and sold in every state and the District of
Columbia in compliance in all material respects with
applicable registration
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requirements of the 1933 Act and state securities laws. The
Acquiring Series does not have outstanding any options,
warrants or other rights to subscribe for or purchase any
Acquiring Series Shares, nor is there outstanding any security
convertible into any Acquiring Series Shares;
(m) The adoption and performance of this Reorganization Plan will
have been fully authorized prior to the Closing Date by all
necessary action, if any, on the part of the Directors of the
Company on behalf of the Acquiring Series and this
Reorganization Plan will constitute a valid and binding
obligation of the Acquiring Series, enforceable in accordance
with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization, moratorium and other laws relating
to or affecting creditors' rights and to general equity
principles;
(n) The Acquiring Series Shares to be issued and delivered to the
Acquired Series, for the account of the Acquired Series
Shareholders, pursuant to the terms of this Reorganization
Plan, will on the Closing Date have been duly authorized and,
when so issued and delivered, will be duly and validly issued
Acquiring Series Shares, and will be fully paid and
non-assessable by the Company;
(o) The information to be furnished by the Acquiring Series for
use in the registration statements, proxy materials and other
documents that may be necessary in connection with the
transactions contemplated hereby shall be accurate and
complete in all material respects and shall comply in all
material respects with Federal securities and other laws and
regulations applicable thereto; and
(p) That insofar as it relates to Company or the Acquiring Series,
the Registration Statement relating to the Acquiring Series
Shares issuable hereunder, and the proxy materials of the
Acquired Series to be included in the Registration Statement,
and any amendment or supplement to the foregoing, will, from
the effective date of the Registration Statement through the
date of the meeting of shareholders of the Acquired Series
contemplated therein (i) not contain any untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in
light of the circumstances under which such statements were
made, not materially misleading provided, however, that the
representations and warranties in this subparagraph (p) shall
not apply to statements in or omissions from the Registration
Statement made in reliance upon and in conformity with
information that was furnished by the Acquired Series for use
therein, and (ii) comply in all material respects with the
provisions of the 1933 Act, the 1934 Act and the 1940 Act and
the rules and regulations thereunder.
COVENANTS OF THE ACQUIRING SERIES AND THE ACQUIRED SERIES
5.1. The Acquiring Series and the Acquired Series each will operate its
business in the ordinary course between the date hereof and the Closing
Date, it being understood that such ordinary course of business will
include the declaration and payment of customary dividends and
distributions, and any other distribution that may be advisable.
5.2. To the extent required by applicable law, the Company will call a
meeting of the shareholders of the Acquired Series to consider and act
upon this Reorganization Plan and to take all other action necessary to
obtain approval of the transactions contemplated herein.
5.3. The Acquired Series covenants that the Acquiring Series Shares to be
issued hereunder are not being acquired for the purpose of making any
distribution thereof, other than in accordance with the terms of this
Reorganization Plan.
5.4. The Acquired Series will assist the Acquiring Series in obtaining such
information as the Acquiring Series reasonably requests concerning the
beneficial ownership of the Acquired Series shares.
5.5. Subject to the provisions of this Reorganization Plan, the Acquiring
Series and the Acquired Series will each take, or cause to be taken,
all action, and do or cause to be done, all things reasonably
necessary, proper or advisable to consummate and make effective the
transactions contemplated by this Reorganization Plan.
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5.6. As soon as is reasonably practicable after the Closing, the Acquired
Series will make a liquidating distribution to its shareholders
consisting of the Acquiring Series Shares received at the Closing.
5.7. The Acquiring Series and the Acquired Series shall each use its
reasonable best efforts to fulfill or obtain the fulfillment of the
conditions precedent to effect the transactions contemplated by this
Reorganization Plan as promptly as practicable.
5.8. The Acquired Series covenants that it will, from time to time, as and
when reasonably requested by the Acquiring Series, execute and deliver
or cause to be executed and delivered all such assignments and other
instruments, and will take or cause to be taken such further action as
the Acquiring Series may reasonably deem necessary or desirable in
order to vest in and confirm the Acquiring Series' title to and
possession of all the assets and otherwise to carry out the intent and
purpose of this Reorganization Plan.
5.9. The Acquiring Series will use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act and
such of the state blue sky or securities laws as may be necessary in
order to continue its operations after the Closing Date.
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED SERIES
The obligations of the Acquired Series to consummate the transactions
provided for herein shall be subject, at the Acquired Series' election,
to the performance by the Acquiring Series of all the obligations to be
performed by it hereunder on or before the Closing Date, and, in
addition thereto, the following further conditions:
6.1. All representations and warranties of the Acquiring Series and the
Company contained in this Reorganization Plan shall be true and correct
in all material respects as of the date hereof and, except as they may
be affected by the transactions contemplated by this Reorganization
Plan, as of the Closing Date, with the same force and effect as if made
on and as of the Closing Date;
6.2. The Company and the Acquiring Series shall have performed all of the
covenants and complied with all of the provisions required by this
Reorganization Plan to be performed or complied with by the Company and
the Acquiring Series on or before the Closing Date; and
6.3. The Acquired Series and the Acquiring Series shall have agreed on the
number of full and fractional Acquiring Series Shares to be issued in
connection with the Reorganization after such number has been
calculated in accordance with paragraph 1.1.
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING SERIES
The obligations of the Acquiring Series to complete the transactions
provided for herein shall be subject, at the Acquiring Series'
election, to the performance by the Acquired Series of all of the
obligations to be performed by it hereunder on or before the Closing
Date and, in addition thereto, the following conditions:
7.1. All representations and warranties of the Company and the Acquired
Series contained in this Reorganization Plan shall be true and correct
in all material respects as of the date hereof and, except as they may
be affected by the transactions contemplated by this Reorganization
Plan, as of the Closing Date, with the same force and effect as if made
on and as of the Closing Date;
7.2. The Company and the Acquired Series shall have performed all of the
covenants and complied with all of the provisions required by this
Reorganization Plan to be performed or complied with by the Company or
the Acquired Series on or before the Closing Date;
7.3. The Acquired Series and the Acquiring Series shall have agreed on the
number of full and fractional Acquiring Series Shares to be issued in
connection with the Reorganization after such number has been
calculated in accordance with paragraph 1.1;
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7.4. The Acquired Series shall have declared and paid a distribution or
distributions prior to the Closing that, together with all previous
distributions, shall have the effect of distributing to its
shareholders (i) all of its investment company taxable income and all
of its net realized capital gains, if any, for the period from the
close of its last taxable year to 4:00 p.m. Eastern Time on the
Closing; and (ii) any undistributed investment company taxable income
and net realized capital gains from any period to the extent not
otherwise already distributed.
FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING SERIES AND THE
ACQUIRED SERIES
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Acquired Series or the Acquiring
Series, the other party to this Reorganization Plan shall, at its
option, not be required to consummate the transactions contemplated by
this Reorganization Plan:
8.1. The Reorganization Plan and the transactions contemplated herein shall
have been approved by the requisite vote, if any, of the holders of the
outstanding shares of the Acquired Series in accordance with the
provisions of the Company's Articles of Incorporation, By-Laws,
applicable Kansas law and the 1940 Act, and certified copies of the
resolutions evidencing such approval shall have been delivered to the
Acquiring Series. Notwithstanding anything herein to the contrary,
neither the Acquiring Series nor the Acquired Series may waive the
conditions set forth in this paragraph 8.1;
8.2. On the Closing Date, no action, suit or other proceeding shall be
pending or, to its knowledge, threatened before any court or
governmental agency in which it is sought to restrain or prohibit, or
obtain damages or other relief in connection with, this Reorganization
Plan or the transactions contemplated herein;
8.3. All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities deemed
necessary by the Acquiring Series or the Acquired Series to permit
consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to
obtain any such consent, order or permit would not involve a risk of a
material adverse effect on the assets or properties of the Acquiring
Series or the Acquired Series, provided that either party hereto may
for itself waive any of such conditions;
8.4. The Registration Statement shall have become effective under the 1933
Act and no stop orders suspending the effectiveness thereof shall have
been issued and, to the best knowledge of the parties hereto, no
investigation or proceeding for that purpose shall have been instituted
or be pending, threatened or contemplated under the 1933 Act; and
8.5. Dechert LLP shall deliver an opinion addressed to the Company
substantially to the effect that, based upon certain facts,
assumptions, and representations, the transaction contemplated by this
Reorganization Plan shall constitute a tax-free reorganization for
Federal income tax purposes, unless, based on the circumstances
existing at the time of the Closing, Dechert LLP determines that the
transaction contemplated by this Reorganization Plan does not qualify
as such. The delivery of such opinion is conditioned upon receipt by
Dechert LLP of representations it shall request of the Company.
Notwithstanding anything herein to the contrary, the Company may not
waive the condition set forth in this paragraph 8.5.
BROKERAGE FEES AND EXPENSES
9.1. The Acquiring Series represents and warrants to the other that there
are no brokers or finders entitled to receive any payments in
connection with the transactions provided for herein.
9.2. The Acquired Series shall bear one-half of the expenses relating to the
proposed Reorganization. The costs of the Reorganization shall include,
but not be limited to, costs associated with obtaining any necessary
order of exemption from the 1940 Act, preparation of the Registration
Statement, printing and distributing the Acquiring Series' prospectus
and the Acquired Series' proxy materials, legal fees, accounting fees,
securities registration fees, and expenses of holding the shareholders'
meeting. Notwithstanding any of the foregoing, expenses will in any
event be paid by the party directly incurring such expenses if and to
the extent that the payment by the other
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party of such expenses would result in the disqualification of such
party as a "regulated investment company" within the meaning of Section
851 of the Code.
ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
The representations, warranties and covenants contained in this
Reorganization Plan or in any document delivered pursuant hereto or in
connection herewith shall survive the consummation of the transactions
contemplated hereunder. The covenants to be performed after the Closing
shall survive the Closing.
TERMINATION
This Reorganization Plan and the transactions contemplated hereby may
be terminated and abandoned by resolution of the Board of Directors, at
any time prior to the Closing Date, if circumstances should develop
that, in the opinion of the Board, make proceeding with the
Reorganization Plan inadvisable.
AMENDMENTS
This Reorganization Plan may be amended, modified or supplemented in
such manner as may be set forth in writing by the authorized officers
of the Company; provided, however, that following any meeting of the
shareholders called by the Acquired Series pursuant to paragraph 5.2 of
this Reorganization Plan, no such amendment may have the effect of
changing the provisions for determining the number of the Acquiring
Series Shares to be issued to the Acquired Series Shareholders under
this Reorganization Plan to the detriment of such shareholders without
their further approval.
HEADINGS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF LIABILITY
13.1. The Article and paragraph headings contained in this Reorganization
Plan are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Reorganization Plan.
13.2. This Reorganization Plan shall be governed by and construed in
accordance with the laws of the State of Kansas without regard to its
principles of conflicts of laws.
13.3. This Reorganization Plan shall bind and inure to the benefit of the
parties hereto and their respective successors and assigns, but no
assignment or transfer hereof or of any rights or obligations hereunder
shall be made by any party without the written consent of the other
party. Nothing herein expressed or implied is intended or shall be
construed to confer upon or give any person, firm or corporation, other
than the parties hereto and their respective successors and assigns,
any rights or remedies under or by reason of this Reorganization Plan.
13.4. It is expressly agreed that the obligations of the parties hereunder
shall not be binding upon any of the Directors, shareholders, nominees,
officers, agents, or employees of the Company personally, but shall
bind only property of such party. The execution and delivery by such
officers shall not be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but
shall bind only the property of each party.
IN WITNESS WHEREOF, the Board of Directors of the Company has caused this
Reorganization Plan to be approved on behalf of the Acquiring Series and the
Acquired Series.
SBL FUND
By: _______________________________
Name: Michael G. Odlum
Title: President
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APPENDIX B
ADDITIONAL INVESTMENT TECHNIQUES AND ASSOCIATED RISKS
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 Acquiring
Series.
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.
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.
CONVERTIBLE SECURITIES AND WARRANTS -- The Acquiring Series 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).
INITIAL PUBLIC OFFERING -- The Acquiring Series' investment in securities
offered through initial public offerings (IPOs) may have a magnified performance
impact, either positive or negative, on the Series, particularly if it has a
small asset base. There is no guarantee that as a Series' assets grow, they will
continue to experience substantially similar performance by investing in IPOs. A
Series' investments in IPOs may make it subject to more erratic price movements
than the overall equity market.
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 SMC's or NTI'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.
FUTURES AND OPTIONS -- The Acquiring Series may utilize futures contracts,
options on futures and may purchase call and put options and write call and put
options on a "covered" basis. A call option is "covered" if a Series owns the
security underlying the call or has an absolute right to acquire the security
without additional cash consideration (or, if additional cash consideration is
required, cash or
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cash equivalents in such amount as are segregated by the Series' custodian).
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. If a Series invests
in non-dollar denominated foreign securities, it may also engage in forward
foreign currency transactions. The instruments listed above 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. The Series also
may purchase, sell, or write call and put options on securities and financial
indices. 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. The Series will segregate cash or liquid
securities, enter into offsetting transactions, or otherwise cover any leverage
that may be deemed to arise in connection with futures and options transactions,
consistent with applicable regulatory guidance.
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 a 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 a Series with another party of their respective commitments to pay
or receive interest on a notional amount of principal. The purchase of a cap
entitles the purchaser to receive payments on a notional principal amount from
the party selling the cap to the extent that a specified index exceeds a
predetermined interest rate. The purchase of an interest rate floor entitles the
purchaser to receive payments on a notional principal amount from the party
selling the floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENT CONTRACTS -- 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 may purchase or sell securities on a when issued, forward commitment or
delayed delivery basis.
CASH RESERVES -- Cash reserves maintained by the Acquiring Series may include
domestic and foreign money market instruments as well as certificates of
deposit, bank demand accounts and repurchase agreements. The Series may
establish and maintain reserves as SMC or NTI believes advisable to facilitate
the Series' cash flow needs (e.g., redemptions, expenses and, purchases of
portfolio securities) or for temporary, defensive purposes.
BORROWING -- While the Acquiring Series has no present intention of borrowing
for investment purposes, the Series may borrow up to one-third of total assets
for purposes of investment. Borrowings may be collateralized with Series assets.
To the extent that a Series purchases securities while it has outstanding
borrowings, it may be deemed to be 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.
SECURITIES LENDING -- For purposes of realizing additional income, the Acquiring
Series may lend its portfolio securities to certain borrowers. Any such loan
will be continuously secured by collateral at least equal to the value of the
security loaned. The risks in lending portfolio securities, as with other
extensions of credit, consist of possible delay in receiving additional
collateral or in the recovery of the securities or possible loss of rights in
the collateral should the borrower fail financially. Loans will only be made to
firms deemed to be of good standing and will not be made unless, in the judgment
of SMC or NTI, the consideration to be earned from such loans would justify the
risk.
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
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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.
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.
SHARES OF OTHER INVESTMENT VEHICLES -- A Series' investment in shares of other
investment vehicles 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 vehicles has the effect of requiring shareholders to pay the
operating expenses of two mutual funds.
PORTFOLIO TURNOVER -- Although the Series will not generally trade for
short-term profits, circumstances may warrant a sale without regard to the
length of time a security was held. A high turnover rate may increase
transaction costs.
B-3
APPENDIX C
PERFORMANCE UPDATE
- ------------------------------------------------------------------- ----------------------------------------------------------------
SERIES H VS. S&P 500 INDEX
- ------------------------------------------------------------------- ----------------------------------------------------------------
PERIODS ENDED 12-31-05(1) 1 YEAR 5 YEARS SINCE INCEPTION
(5-03-99)
- ------------------------------------------------------------------- ----------------------------- -------- -------- ----------------
Series H 5.04% -0.24% -0.05%
- ------------------------------------------------------------------- ................................................................
(1) Performance figures do not reflect fees and expenses associated with an
investment in variable insurance products offered by Security Benefit
Life Insurance Company or First Security Benefit Life Insurance and
Annuity Company of New York. If returns had taken into account these
fees and expenses, performance would have been lower. Shares of a
Series of SBL Fund are available only through the purchase of such
products.
The performance data quoted above represents past performance. Past
performance is not predictive of future performance. The investment
return and principal value of an investment will fluctuate so that an
investor's shares, which redeemed, may be worth more or less than their
original cost.
Line Chart:
Series H S&P 500
5/3/1999 $10,000.00 $10,000.00
12/31/1999 $11,231.86 $11,099.83
12/31/2000 $10,086.15 $10,091.15
12/31/2001 $8,775.57 $8,893.97
12/31/2002 $6,758.69 $6,929.34
12/31/2003 $8,636.02 $8,917.03
12/31/2004 $9,486.84 $9,886.55
12/31/2005 $9,965.35 $10,370.14
$10,000 SINCE INCEPTION
This chart assumes a hypothetical $10,000 investment in Series H (Enhanced Index
Series) on May 3, 1999 (date of inception) and reflects the fees and expenses of
Series H. The S&P 500 Index is a capitalization-weighted index composed of 500
selected common stocks that represent the broad domestic economy and is a widely
recognized unmanaged index of market performance.
C-1
APPENDIX D
As of the Record Date, the name, address, and share ownership of persons who
owned beneficially 5% or more of the outstanding shares of the Acquired Series
are set forth below:
Shares
Shareholder and Address Owned % Owned
----------------------- ------ -------
SBL FUND
ONE SECURITY BENEFIT PLACE
TOPEKA, KS 66636-0001
(TOLL-FREE) 1-800-888-2461
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS
APRIL 28, 2006
The undersigned hereby appoint(s) Amy J. Lee, Donald A. Chubb, Jr. and Brenda M.
Harwood, or any one of them, proxies, each of them with full power of
substitution, to vote and act with respect to all shares of Series W (Main
Street Growth and Income Series) (the "Acquired Series") which the undersigned
is entitled to vote at the Special Meeting of SBL Fund shareholders to be held
at the executive offices of SBL Fund, One Security Benefit Place, Topeka, Kansas
66636, April 28, 2006 at 1:00 p.m. (Central time) and at any adjournment(s) or
postponements thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. This proxy card
will be voted as instructed. IF NO SPECIFICATION IS MADE, THE PROXY CARD WILL BE
VOTED "FOR" PROPOSAL 1.
- FOLD AND DETACH HERE -
.................................................................................
Series W (Main Street Growth and Income Series)
(the "Acquired Series")
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 28, 2006
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSAL
Please vote, date and sign this proxy card and return it promptly in the
enclosed envelope. Please indicate your vote by an "x" in the appropriate box
below:
1. To approve a Plan of Reorganization providing for the acquisition of
all of the assets and liabilities of the Acquired Series by Series H
(Enhanced Index Series) (the "Acquiring Series"), a series of SBL
Series, solely in exchange for shares of the Acquiring Series, followed
by the complete liquidation of the Acquired Series.
FOR AGAINST ABSTAIN
| | | | | |
PLEASE VOTE BY |X|
CHECKING THE
APPROPRIATE BOX
AS IN THIS EXAMPLE
Date: ____________________________
__________________________________
Signature
PROXY VOTING INSTRUCTIONS
Your mailed proxy statement provides details on important issues relating to
Series W (Main Street Growth and Income). The board of directors of SBL Fund
recommends that you vote "FOR" the proposal.
To make voting faster and more convenient for you, we are offering a variety of
ways to vote your proxy. You may vote using the Internet or by telephone instead
of completing and mailing the enclosed proxy card. The Internet and telephone
are generally available 24 hours a day and your vote will be confirmed and
posted immediately. Use whichever method is most convenient for you! If you
choose to vote via the Internet or by phone, you should not mail your proxy
card.
WAYS TO VOTE YOUR SHARES
Your vote is important no matter how many shares you own. Voting your shares
early will avoid costly follow-up mail and telephone solicitation.
Online 1. Click on www.myproxyonline.com.
2. Enter the 12 digit control number.
3. Follow the instructions on the Web site.
4. Once you have voted, you do not need to mail your
proxy card.
By Phone 1. Call toll-free 1-866-437-4675.
2. Enter the 12 digit control number.
3. Follow the recorded instructions.
4. Once you have voted, you do not need to mail your
proxy card
By Mail Complete and sign your proxy card and mail it in
the postage-paid envelope received with your
shareholder mailing. To ensure your vote is validated
properly, please sign your proxy card as described in
the "Instructions for Signing Proxy Cards" section of
your proxy materials.
In Person The Shareholder Meeting will take place April 28,
2006, at 1:00 p.m., Central time, at the office of
SBL Fund, located at One Security Benefit Place,
Topeka, Kansas 66636.
- FOLD AND DETACH HERE -
- --------------------------------------------------------------------------------
Questions?
We urge you to spend time reviewing your proxy statement and the proposal
included in the package. Should you have any questions, we encourage you to call
1-866-304-2059 toll-free Monday through Friday from 9:30 a.m. to 10:00 p.m.
Eastern time. We have retained InvestorConnect to assist our shareholders in the
voting process. If we have not received your proxy card byApril , 2006,
representatives from InvestorConnect may call you to remind you to exercise your
vote.
YOUR PROXY VOTE IS IMPORTANT! PLEASE VOTE TODAY
PART B
SBL FUND
- --------------------------------------------------------------------------------
Statement of Additional Information
April 3, 2006
- --------------------------------------------------------------------------------
Acquisition of the Assets and Liabilities of: By and in Exchange for Shares of:
Series W (Main Street Growth and Series H (Enhanced Index Series)
Income Series)
One Security Benefit Place One Security Benefit Place
Topeka, Kansas 66636-0001 Topeka, Kansas 66636-0001
This Statement of Additional Information is available to the shareholders of
Series W (Main Street Growth and Income Series) in connection with a proposed
transaction whereby all of the assets and liabilities of Series W (Main Street
Growth and Income Series) will be transferred to Series H (Enhanced Index
Series) in exchange for shares of Series H (Enhanced Index Series).
This Statement of Additional Information of Series H (Enhanced Index Series)
consists of this cover page, the accompanying pro forma financial statements and
related notes, and the following documents, each of which was filed
electronically with the Securities and Exchange Commission and is incorporated
by reference herein:
1. The Statement of Additional Information for SBL Fund dated May 1, 2005;
and
2. The Financial Statements of Series W (Main Street Growth and Income
Series) and Series H (Enhanced Index Series) as included in SBL Series'
Annual Report filed for the year ended December 31, 2005.
This Statement of Additional Information is not a prospectus. A Proxy
Statement/Prospectus dated April 3, 2006 relating to the reorganization may be
obtained, without charge, by writing to Security Management Company, LLC, at One
Security Benefit Place, Topeka, Kansas 66636-0001 or calling (800) 888-2461.
This Statement of Additional Information should be read in conjunction with the
Proxy Statement/Prospectus.
Pro Forma Combining
STATEMENT OF ASSETS AND LIABILITIES PRO FORMA
DECEMBER 31, 2005 (Unaudited) Series W Series H ADJUSTMENTS COMBINED
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments, at value(1).................................... $55,936,160 $39,936,456 $95,872,616
Cash........................................................ 534,097 3,074 537,171
Cash, denominated in a foreign currency, at value(2)........ 2,938 - 2,938
Receivables: -
Fund shares sold......................................... 105,274 230,322 335,596
Securities sold.......................................... 171,742 140,594 312,336
Dividends................................................ 68,018 60,110 128,128
Prepaid expenses............................................ 1,028 703 1,731
---------------------------------------------------------------------
Total assets................................................ 56,819,257 40,371,259 97,190,516
---------------------------------------------------------------------
LIABILITIES:
Payable for:
Securities purchased..................................... 266,334 158,273 424,607
Fund shares redeemed..................................... 50,886 68,796 119,682
Variation margin......................................... - 3,210 3,210
Management fees.......................................... 48,179 17,166 65,345
Custodian fees........................................... 4,967 5,400 10,367
Transfer agent and administration fees................... 9,960 6,245 16,205
Professional fees........................................ 7,647 8,375 16,022
Other.................................................... 2,036 2,722 4,758
---------------------------------------------------------------------
Total liabilities........................................... 390,009 270,187 660,196
---------------------------------------------------------------------
NET ASSETS.................................................. $56,429,248 $40,101,072 $96,530,320
=====================================================================
NET ASSETS CONSIST OF:
Paid in capital............................................. $55,465,057 $47,959,258 $103,424,315
Accumulated undistributed net investment income............. 313,697 436,418 750,115
Accumulated undistributed net realized loss on sale of
investments and futures.................................. (2,918,683) (10,196,394) (13,115,077)
Net unrealized appreciation in value of investments and
futures.................................................. 3,569,177 1,901,790 5,497,967
---------------------------------------------------------------------
Net assets.................................................. $56,429,248 $40,101,072 $96,530,320
=====================================================================
Capital shares authorized................................... Indefinite indefinite Indefinite
Capital shares outstanding.................................. 6,018,756 4,186,037 5,890,318 10,076,355
Net asset value per share (net assets divided by shares
outstanding)............................................. $9.38 $9.58 $9.58
=====================================================================
(1)Investments, at cost..................................... $52,366,990 $38,025,801 $90,392,791
(2)Cash denominated in a foreign currency, at cost.......... 2,931 - 2,931
Pro Forma Combining
STATEMENT OF OPERATIONS PRO FORMA
FOR THE YEAR ENDED DECEMBER 31, 2005 (Unaudited) Series W Series H ADJUSTMENTS COMBINED
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $962 & $0,
respectively).......................................... $990,431 $715,187 $1,705,618
Interest................................................. 382 18,586 18,968
---------------------------------------------------------------------
Total investment income.................................. 990,813 733,773 1,724,586
EXPENSES:
Management fees.......................................... 529,945 283,895 (132,486)(1) 681,354
Custodian fees........................................... 40,642 24,333 (24,333)(2) 40,642
Transfer agent/maintenance fees.......................... 25,117 25,136 (25,117)(2) 25,136
Administration fees...................................... 62,503 38,045 100,548
Directors' fees.......................................... 3,048 2,188 5,236
Professional fees........................................ 12,221 11,284 (8,505)(2) 15,000
Reports to shareholders.................................. 5,384 5,551 10,935
Other expenses........................................... 2,343 1,555 3,898
---------------------------------------------------------------------
Total expenses........................................... 681,203 391,987 (190,441) 882,749
Less: Expenses waived.................................... - (94,632) (94,632)
Earnings credits applied........................... (4,008) - 4,008(1) -
---------------------------------------------------------------------
Net expenses............................................. 677,195 297,355 (186,433) 788,117
---------------------------------------------------------------------
Net investment income.................................... 313,618 436,418 186,433 936,469
---------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) during the year:
Investments.............................................. 2,716,888 2,232,387 4,949,275
Foreign currency transactions............................ 79 - 79
Futures.................................................. - 67,208 4,949,354
---------------------------------------------------------------------
Net realized gain........................................ 2,716,967 2,299,595 9,898,708
Net unrealized depreciation during the year:
Investments.............................................. (220,452) (768,725) (989,178)
Translation of assets and liabilities in foreign currencies (112) - (111)
Futures.................................................. - (11,522) (989,289)
---------------------------------------------------------------------
Net unrealized depreciation.............................. (220,564) (780,247) (1,978,578)
---------------------------------------------------------------------
Net gain ................................................ 2,496,403 1,519,348 4,015,751
---------------------------------------------------------------------
Net decrease in net assets resulting from operations..... $2,810,021 $1,955,766 $186,433 $4,952,220
=====================================================================
1. Based on contract in effect for the surviving fund
2. Decrease due to the elimination of duplicative expenses achieved by
the merging funds
NUMBER OF SHARES PRO FORMA COMBINING MARKET VALUE
- ------------------------------------------------- SCHEDULE OF INVESTMENTS ----------------------------------------------
SERIES W SERIES H PRO FORMA DECEMBER 31, 2005 SERIES W SERIES H PRO FORMA
COMBINED COMBINED
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 98.2%
ADVERTISING - 0.1%
1,600 - 1,600 Omnicom Group, Inc. $136,208 $- $136,208
100 - 100 R.H. Donnelley Corporation* 6,162 - 6,162
----------------------------------------------
142,370 - 142,370
----------------------------------------------
AEROSPACE & DEFENSE - 2.8%
300 - 300 Alliant Techsystems, Inc.* 22,851 - 22,851
400 - 400 BE Aerospace, Inc.* 8,800 - 8,800
4,700 2,800 7,500 Boeing Company 330,128 196,672 526,800
1,400 1,400 2,800 General Dynamics Corporation 159,670 159,670 319,340
5,800 6,700 12,500 Honeywell International, Inc. 216,050 249,575 465,625
3,400 3,300 6,700 Lockheed Martin Corporation 216,342 209,979 426,321
4,200 1,500 5,700 Northrop Grumman Corporation 252,462 90,165 342,627
800 - 800 Precision Castparts Corporation 41,448 - 41,448
5,700 400 6,100 Raytheon Company 228,855 16,060 244,915
3,900 1,100 5,000 United Technologies Corporation 218,049 61,501 279,550
----------------------------------------------
1,694,655 983,622 2,678,277
----------------------------------------------
AGRICULTURAL PRODUCTS - 0.3%
5,700 4,100 9,800 Archer-Daniels-Midland Company 140,562 101,106 241,668
----------------------------------------------
AIR FREIGHT & LOGISTICS - 0.4%
300 4,200 4,500 United Parcel Service, Inc. (Cl.B) 22,545 315,630 338,175
----------------------------------------------
AIRLINES - 0.1%
1,400 - 1,400 AMR Corporation* 31,122 - 31,122
300 - 300 Alaska Air Group, Inc.* 10,716 - 10,716
600 - 600 Continental Airlines, Inc. (Cl.B)* 12,780 - 12,780
----------------------------------------------
54,618 - 54,618
----------------------------------------------
ALUMINUM - 0.1%
2,500 - 2,500 Alcoa, Inc. 73,925 - 73,925
----------------------------------------------
APPAREL RETAIL - 0.5%
1,000 - 1,000 American Eagle Outfitters, Inc. 22,980 - 22,980
300 - 300 AnnTaylor Stores Corporation* 10,356 - 10,356
400 - 400 Chico's FAS, Inc.* 17,572 - 17,572
200 - 200 Children's Place Retail Stores,
Inc.* 9,884 - 9,884
8,300 7,200 15,500 Gap, Inc. 146,412 127,008 273,420
- 100 100 Limited Brands, Inc. - 2,235 2,235
450 - 450 Men's Wearhouse, Inc.* 13,248 - 13,248
300 - 300 Talbots, Inc. 8,346 - 8,346
2,900 - 2,900 TJX Companies, Inc. 67,367 - 67,367
300 - 300 Too, Inc.* 8,463 - 8,463
----------------------------------------------
304,628 129,243 433,871
----------------------------------------------
APPAREL, ACCESSORIES & LUXURY GOODS
- 0.2%
4,200 - 4,200 Coach, Inc.* 140,028 - 140,028
400 - 400 Jones Apparel Group, Inc. 12,288 - 12,288
200 - 200 Liz Claiborne, Inc. 7,164 - 7,164
200 - 200 Phillips-Van Heusen Corporation 6,480 - 6,480
- 700 700 V.F. Corporation - 38,738 38,738
----------------------------------------------
165,960 38,738 204,698
----------------------------------------------
APPLICATION SOFTWARE - 0.6%
1,700 - 1,700 Adobe Systems, Inc. 62,832 - 62,832
3,700 - 3,700 Autodesk, Inc. 158,915 - 158,915
1,600 - 1,600 Cadence Design Systems, Inc.* 27,072 - 27,072
700 - 700 Citrix Systems, Inc.* 20,146 - 20,146
200 - 200 Cognos, Inc.* 6,942 - 6,942
3,000 2,400 5,400 Compuware Corporation* 26,910 21,528 48,438
500 - 500 Fair Isaac Corporation 22,085 - 22,085
750 - 750 Hyperion Solutions Corporation* 26,865 26,865
700 - 700 Intuit, Inc.* 37,310 - 37,310
- 300 300 Mercury Interactive Corporation* - 8,337 8,337
NUMBER OF SHARES PRO FORMA COMBINING MARKET VALUE
- ------------------------------------------------- SCHEDULE OF INVESTMENTS ----------------------------------------------
SERIES W SERIES H PRO FORMA DECEMBER 31, 2005 SERIES W SERIES H PRO FORMA
COMBINED COMBINED
- ------------------------------------------------------------------------------------------------------------------------------------
2,100 14,200 16,300 Parametric Technology Corporation* 12,810 86,620 99,430
100 - 100 Reynolds & Reynolds Company 2,807 - 2,807
1,700 - 1,700 Synopsys, Inc.* 34,102 - 34,102
----------------------------------------------
438,796 116,485 555,281
----------------------------------------------
ASSET MANAGEMENT & CUSTODY BANKS -
0.6%
880 1,120 2,000 Ameriprise Financial, Inc. 36,080 45,920 82,000
2,300 - 2,300 Bank of New York Company, Inc. 73,255 - 73,255
- 1,900 1,900 Franklin Resources, Inc. - 178,619 178,619
700 - 700 Janus Capital Group, Inc. 13,041 - 13,041
1,700 1,700 3,400 Mellon Financial Corporation 58,225 58,225 116,450
800 - 800 Northern Trust Corporation 41,456 - 41,456
1,800 - 1,800 State Street Corporation 99,792 - 99,792
----------------------------------------------
321,849 282,764 604,613
----------------------------------------------
AUTO PARTS & EQUIPMENT - 0.1%
1,100 - 1,100 Dana Corporation 7,898 - 7,898
1,400 - 1,400 Johnson Controls, Inc. 102,074 - 102,074
100 - 100 Lear Corporation 2,846 - 2,846
300 - 300 TRW Automotive Holdings Corporation* 7,905 - 7,905
1,000 - 1,000 Visteon Corporation* 6,260 - 6,260
----------------------------------------------
126,983 - 126,983
----------------------------------------------
AUTOMOBILE MANUFACTURERS - 0.2%
19,974 - 19,974 Ford Motor Company 154,199 - 154,199
----------------------------------------------
AUTOMOTIVE RETAIL - 0.2%
1,300 7,000 8,300 AutoNation, Inc.* 28,249 152,110 180,359
----------------------------------------------
BIOTECHNOLOGY - 1.5%
600 - 600 Abgenix, Inc.* 12,906 - 12,906
500 - 500 Alkermes, Inc.* 9,560 - 9,560
7,200 6,100 13,300 Amgen, Inc.* 567,792 481,046 1,048,838
1,100 - 1,100 Applera Corporation - Applied
Biosystems Group 29,216 - 29,216
- 700 700 Biogen Idec, Inc.* - 31,731 31,731
1,200 - 1,200 Genentech, Inc.* 111,000 - 111,000
300 - 300 Genzyme Corporation* 21,234 - 21,234
2,100 - 2,100 Gilead Sciences, Inc.* 110,523 - 110,523
500 - 500 Kos Pharmaceuticals, Inc.* 25,865 - 25,865
200 - 200 Techne Corporation* 11,230 - 11,230
----------------------------------------------
899,326 512,777 1,412,103
----------------------------------------------
BROADCASTING & CABLE TV - 0.8%
700 - 700 Cablevision Systems Corporation* 16,429 - 16,429
4,500 - 4,500 Clear Channel Communications, Inc. 141,525 - 141,525
8,131 11,800 19,931 Comcast Corporation* 211,081 306,328 517,409
- 300 300 E.W. Scripps Company - 14,406 14,406
12,400 - 12,400 Liberty Media Corporation* 97,588 - 97,588
----------------------------------------------
466,623 320,734 787,357
----------------------------------------------
BUILDING PRODUCTS - 0.3%
800 1,100 1,900 American Standard Companies, Inc. 31,960 43,945 75,905
3,500 4,100 7,600 Masco Corporation 105,665 123,779 229,444
400 - 400 USG Corporation* 26,000 - 26,000
----------------------------------------------
163,625 167,724 331,349
----------------------------------------------
CASINOS & GAMING - 0.0%
700 - 700 International Game Technology 21,546 - 21,546
----------------------------------------------
COMMERCIAL PRINTING - 0.1%
- 3,700 3,700 R.R. Donnelley & Sons Company - 126,577 126,577
----------------------------------------------
COMMODITY CHEMICALS - 0.0%
1,000 - 1,000 Lyondell Chemical Company 23,820 - 23,820
----------------------------------------------
COMMUNICATIONS EQUIPMENT - 3.0%
600 - 600 Adtran, Inc. 17,844 - 17,844
1,900 - 1,900 Avaya, Inc.* 20,273 - 20,273
3,100 - 3,100 Brocade Communications
Systems, Inc.* 12,617 - 12,617
NUMBER OF SHARES PRO FORMA COMBINING MARKET VALUE
- ------------------------------------------------- SCHEDULE OF INVESTMENTS ----------------------------------------------
SERIES W SERIES H PRO FORMA DECEMBER 31, 2005 SERIES W SERIES H PRO FORMA
COMBINED COMBINED
- ------------------------------------------------------------------------------------------------------------------------------------
- 2,000 2,000 Cienna Corporation* - 5,940 5,940
41,700 30,000 71,700 Cisco Systems, Inc.* 713,904 513,600 1,227,504
- 4,900 4,900 Comverse Technology, Inc.* - 130,291 130,291
10,600 6,300 16,900 Corning, Inc.* 208,396 123,858 332,254
500 - 500 Emulex Corporation* 9,895 - 9,895
100 - 100 Harris Corporation 4,301 - 4,301
3,800 - 3,800 Juniper Networks, Inc.* 84,740 - 84,740
18,900 11,300 30,200 Lucent Technologies, Inc.* 50,274 30,058 80,332
12,600 2,900 15,500 Motorola, Inc. 284,634 65,511 350,145
200 - 200 Polycom, Inc.* 3,060 - 3,060
6,400 2,700 9,100 Qualcomm, Inc. 275,712 116,316 392,028
700 100 800 Scientific-Atlanta, Inc. 30,149 4,307 34,456
- 14,300 14,300 Tellabs, Inc.* - 155,870 155,870
----------------------------------------------
1,715,799 1,145,751 2,861,550
----------------------------------------------
COMPUTER & ELECTRONICS RETAIL - 0.2%
3,600 - 3,600 Best Buy Company, Inc. 156,528 - 156,528
1,100 - 1,100 Circuit City Stores, Inc. 24,849 - 24,849
157 - 157 GameStop Corporation* 4,996 - 4,996
----------------------------------------------
186,373 - 186,373
----------------------------------------------
COMPUTER HARDWARE - 3.9%
4,600 1,100 5,700 Apple Computer, Inc.* 330,694 79,079 409,773
20,600 9,000 29,600 Dell, Inc.* 617,794 269,910 887,704
21,200 14,700 35,900 Hewlett-Packard Company 606,956 420,861 1,027,817
8,900 7,200 16,100 International Business Machines
Corporation 731,580 591,840 1,323,420
900 900 1,800 NCR Corporation* 30,546 30,546 61,092
300 - 300 Palm, Inc.* 9,540 - 9,540
7,600 - 7,600 Sun Microsystems, Inc.* 31,844 - 31,844
----------------------------------------------
2,358,954 1,392,236 3,751,190
----------------------------------------------
COMPUTER STORAGE & PERIPHERALS -
0.6%
21,500 11,200 32,700 EMC Corporation* 292,830 152,544 445,374
400 - 400 Komag, Inc.* 13,864 - 13,864
600 200 800 Lexmark International, Inc.* 26,898 8,966 35,864
1,600 - 1,600 Network Appliance, Inc.* 43,200 - 43,200
700 - 700 QLogic Corporation* 22,757 - 22,757
2,400 - 2,400 Western Digital Corporation* 44,664 - 44,664
----------------------------------------------
444,213 161,510 605,723
----------------------------------------------
CONSTRUCTION & ENGINEERING - 0.0%
700 - 700 Quanta Services, Inc.* 9,219 - 9,219
800 - 800 URS Corporation* 30,088 - 30,088
----------------------------------------------
39,307 - 39,307
----------------------------------------------
CONSTRUCTION & FARM MACHINERY - 0.5%
2,900 - 2,900 Caterpillar, Inc. 167,533 - 167,533
- 500 500 Cummins, Inc. - 44,865 44,865
- 1,100 1,100 Deere & Company - 74,921 74,921
100 - 100 JLG Industries, Inc. 4,566 - 4,566
- 2,500 2,500 Paccar, Inc. - 173,075 173,075
400 - 400 Terex Corporation* 23,760 - 23,760
----------------------------------------------
195,859 292,861 488,720
----------------------------------------------
CONSTRUCTION MATERIALS - 0.0%
200 - 200 Texas Industries, Inc. 9,968 - 9,968
----------------------------------------------
CONSUMER FINANCE - 1.1%
4,000 2,900 6,900 American Express Company 205,840 149,234 355,074
1,200 - 1,200 AmeriCredit Corporation* 30,756 - 30,756
2,581 1,600 4,181 Capital One Financial Corporation 222,998 138,240 361,238
5,800 7,200 13,000 MBNA Corporation 157,528 195,552 353,080
75 - 75 PHH Corporation* 2,101 - 2,101
----------------------------------------------
619,223 483,026 1,102,249
----------------------------------------------
DATA PROCESSING & OUTSOURCED
SERVICES - 0.8%
- 1,500 1,500 Automatic Data Processing,Inc. - 68,835 68,835
600 - 600 Ceridian Corporation* 14,910 - 14,910
400 - 400 CheckFree Corporation* 18,360 - 18,360
NUMBER OF SHARES PRO FORMA COMBINING MARKET VALUE
- ------------------------------------------------- SCHEDULE OF INVESTMENTS ----------------------------------------------
SERIES W SERIES H PRO FORMA DECEMBER 31, 2005 SERIES W SERIES H PRO FORMA
COMBINED COMBINED
- ------------------------------------------------------------------------------------------------------------------------------------
700 2,100 2,800 Computer Sciences Corporation* 35,448 106,344 141,792
1,300 - 1,300 Electronic Data Systems Corporation 31,252 - 31,252
6,100 - 6,100 First Data Corporation 262,361 - 262,361
700 3,300 4,000 Fiserv, Inc.* 30,289 142,791 173,080
400 - 400 Global Payments, Inc. 18,644 - 18,644
1,100 - 1,100 Sabre Holdings Corporation 26,521 - 26,521
----------------------------------------------
437,785 317,970 755,755
----------------------------------------------
DEPARTMENT STORES - 0.9%
3,100 2,500 5,600 Federated Department Stores, Inc. 205,623 165,825 371,448
3,200 900 4,100 J.C. Penney Company, Inc. 177,920 50,040 227,960
900 - 900 Kohl's Corporation* 43,740 - 43,740
4,000 - 4,000 Nordstrom, Inc. 149,600 - 149,600
1,100 - 1,100 Saks, Inc.* 18,546 - 18,546
300 400 700 Sears Holding Corporation* 34,659 46,212 80,871
----------------------------------------------
630,088 262,077 892,165
----------------------------------------------
DISTILLERS & VINTNERS - 0.1%
- 1,600 1,600 Brown-Forman Corporation (Cl.B) - 110,912 110,912
----------------------------------------------
DISTRIBUTORS - 0.0%
200 - 200 Genuine Parts Company 8,784 - 8,784
----------------------------------------------
DIVERSIFIED BANKS - 4.1%
21,084 16,864 37,948 Bank of America Corporation 973,027 778,274 1,751,301
1,100 3,000 4,100 Comerica, Inc. 62,436 170,280 232,716
11,933 8,800 20,733 U.S. Bancorp 356,677 263,032 619,709
8,800 2,900 11,700 Wachovia Corporation 465,168 153,294 618,462
6,000 5,200 11,200 Wells Fargo & Company 376,980 326,716 703,696
----------------------------------------------
2,234,288 1,691,596 3,925,884
----------------------------------------------
DIVERSIFIED CHEMICALS - 0.6%
5,300 400 5,700 Dow Chemical Company 232,246 17,528 249,774
1,600 - 1,600 E.I. du Pont de Nemours & Company 68,000 - 68,000
- 1,500 1,500 Eastman Chemical Company - 77,385 77,385
- 600 600 Engelhard Corporation - 18,090 18,090
200 - 200 FMC Corporation* 10,634 - 10,634
2,000 - 2,000 PPG Industries, Inc. 115,800 - 115,800
----------------------------------------------
426,680 113,003 539,683
----------------------------------------------
DIVERSIFIED COMMERCIAL &
PROFESSIONAL SERVICES - 0.3%
11,500 6,300 17,800 Cendant Corporation 198,375 108,675 307,050
200 - 200 Dun & Bradstreet Corporation* 13,392 - 13,392
----------------------------------------------
211,767 108,675 320,442
----------------------------------------------
DIVERSIFIED METALS & MINING - 0.4%
700 - 700 Freeport-McMoRan Copper & Gold,
Inc. (Cl.B) 37,660 - 37,660
1,200 1,300 2,500 Phelps Dodge Corporation 172,644 187,031 359,675
----------------------------------------------
210,304 187,031 397,335
----------------------------------------------
DRUG RETAIL - 0.1%
- 1,000 1,000 CVS Corporation - 26,420 26,420
2,300 - 2,300 Rite Aid Corporation* 8,004 - 8,004
1,100 600 1,700 Walgreen Company 48,686 26,556 75,242
----------------------------------------------
56,690 52,976 109,666
----------------------------------------------
EDUCATION SERVICES - 0.1%
1,500 - 1,500 Apollo Group, Inc.* 90,690 - 90,690
600 - 600 Career Education Corporation* 20,232 - 20,232
----------------------------------------------
110,922 - 110,922
----------------------------------------------
ELECTRIC UTILITIES - 0.6%
- 1,600 1,600 Allegheny Energy, Inc.* - 50,640 50,640
- 4,000 4,000 American Electric Power Company,
Inc. - 148,360 148,360
200 - 200 DPL, Inc. 5,202 - 5,202
- 4,100 4,100 Edison International - 178,801 178,801
200 1,700 1,900 Entergy Corporation 13,730 116,705 130,435
- 200 200 FPL Group, Inc. - 8,312 8,312
400 - 400 FirstEnergy Corporation 19,596 - 19,596
NUMBER OF SHARES PRO FORMA COMBINING MARKET VALUE
- ------------------------------------------------- SCHEDULE OF INVESTMENTS ----------------------------------------------
SERIES W SERIES H PRO FORMA DECEMBER 31, 2005 SERIES W SERIES H PRO FORMA
COMBINED COMBINED
- ------------------------------------------------------------------------------------------------------------------------------------
400 700 1,100 Progress Energy, Inc. - Contingent
Value Obligation*2 26 46 72
600 - 600 Sierra Pacific Resources* 7,824 - 7,824
----------------------------------------------
46,378 502,864 549,242
----------------------------------------------
ELECTRICAL COMPONENTS & EQUIPMENT -
0.3%
- 900 900 American Power Conversion
Corporation - 19,800 19,800
1,000 800 1,800 Emerson Electric Company 74,700 59,760 134,460
2,500 - 2,500 Rockwell Automation, Inc. 147,900 - 147,900
300 - 300 Roper Industries, Inc. 11,853 - 11,853
----------------------------------------------
234,453 79,560 314,013
----------------------------------------------
ELECTRONIC EQUIPMENT MANUFACTURERS
- 0.2%
5,200 - 5,200 Agilent Technologies, Inc.* 173,108 - 173,108
100 - 100 Mettler-Toledo International, Inc.* 5,520 - 5,520
----------------------------------------------
178,628 - 178,628
----------------------------------------------
ELECTRONIC MANUFACTURING SERVICES -
0.2%
900 - 900 Jabil Circuit, Inc.* 33,381 - 33,381
- 3,500 3,500 Molex, Inc. - 90,825 90,825
6,200 1,800 8,000 Sanmina-SCI Corporation* 26,412 7,668 34,080
8,000 - 8,000 Solectron Corporation* 29,280 - 29,280
----------------------------------------------
89,073 98,493 187,566
----------------------------------------------
ENVIRONMENTAL & FACILITIES SERVICES
- 0.1%
1,400 3,100 4,500 Waste Management, Inc. 42,490 94,085 136,575
----------------------------------------------
FERTILIZERS & AGRICULTURAL
CHEMICALS - 0.3%
900 - 900 Agrium, Inc. 19,791 - 19,791
2,000 1,000 3,000 Monsanto Company 155,060 77,530 232,590
300 - 300 Scotts Miracle-Gro Company 13,572 - 13,572
----------------------------------------------
188,423 77,530 265,953
----------------------------------------------
FOOD DISTRIBUTORS - 0.0%
100 - 100 Performance Food Group Company* 2,837 - 2,837
1,100 - 1,100 Sysco Corporation 34,155 - 34,155
----------------------------------------------
36,992 - 36,992
----------------------------------------------
FOOD RETAIL - 0.8%
800 - 800 Albertson's, Inc. 17,080 - 17,080
8,300 - 8,300 Kroger Company* 156,704 - 156,704
7,700 3,400 11,100 Safeway, Inc. 182,182 80,444 262,626
700 4,600 5,300 Supervalu, Inc. 22,736 149,408 172,144
1,200 500 1,700 Whole Foods Market, Inc. 92,868 38,695 131,563
----------------------------------------------
471,570 268,547 740,117
----------------------------------------------
FOOTWEAR - 0.1%
- 1,000 1,000 Nike, Inc. (Cl.B) - 86,790 86,790
700 - 700 Timberland Company* 22,785 - 22,785
----------------------------------------------
22,785 86,790 109,575
----------------------------------------------
FOREST PRODUCTS - 0.2%
400 3,300 3,700 Louisiana-Pacific Corporation 10,988 90,651 101,639
1,100 - 1,100 Weyerhaeuser Company 72,974 - 72,974
----------------------------------------------
83,962 90,651 174,613
----------------------------------------------
GAS UTILITIES - 0.0%
- 400 400 Nicor, Inc. - 15,724 15,724
----------------------------------------------
GENERAL MERCHANDISE STORES - 0.6%
800 5,900 6,700 Dollar General Corporation 15,256 112,513 127,769
900 - 900 Dollar Tree Stores, Inc.* 21,546 - 21,546
- 2,900 2,900 Family Dollar Stores, Inc. - 71,891 71,891
4,300 1,900 6,200 Target Corporation 236,371 104,443 340,814
----------------------------------------------
273,173 288,847 562,020
----------------------------------------------
NUMBER OF SHARES PRO FORMA COMBINING MARKET VALUE
- ------------------------------------------------- SCHEDULE OF INVESTMENTS ----------------------------------------------
SERIES W SERIES H PRO FORMA DECEMBER 31, 2005 SERIES W SERIES H PRO FORMA
COMBINED COMBINED
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE DISTRIBUTORS - 0.8%
800 600 1,400 AmerisourceBergen Corporation 33,120 24,840 57,960
400 - 400 Andrx Corporation* 6,588 - 6,588
3,600 2,600 6,200 Cardinal Health, Inc. 247,500 178,750 426,250
500 - 500 Henry Schein, Inc.* 21,820 - 21,820
4,200 - 4,200 McKesson Corporation 216,678 - 216,678
----------------------------------------------
525,706 203,590 729,296
----------------------------------------------
HEALTH CARE EQUIPMENT - 1.6%
3,000 2,400 5,400 Baxter International, Inc. 112,950 90,360 203,310
2,100 3,200 5,300 Becton, Dickinson & Company 126,168 192,256 318,424
1,600 - 1,600 Boston Scientific Corporation* 39,184 - 39,184
- 100 100 Fisher Scientific International,
Inc.* - 6,186 6,186
1,100 1,100 2,200 Guidant Corporation 71,225 71,225 142,450
- 3,700 3,700 Hospira, Inc.* - 158,286 158,286
200 - 200 Kinetic Concepts, Inc.* 7,952 - 7,952
4,300 2,600 6,900 Medtronic, Inc. 247,551 149,682 397,233
400 - 400 Mentor Corporation 18,432 - 18,432
200 - 200 PerkinElmer, Inc. 4,712 - 4,712
200 1,900 2,100 Stryker Corporation 8,886 84,417 93,303
300 803 1,103 Waters Corporation* 11,340 30,353 41,693
100 900 1,000 Zimmer Holdings, Inc.* 6,744 60,696 67,440
----------------------------------------------
655,144 843,461 1,498,605
----------------------------------------------
HEALTH CARE FACILITIES - 0.6%
200 - 200 Beverly Enterprises, Inc.* 2,334 - 2,334
200 - 200 Genesis HealthCare Corporation* 7,304 - 7,304
4,400 4,100 8,500 HCA, Inc. 222,200 207,050 429,250
300 2,100 2,400 Manor Care, Inc. 11,931 83,517 95,448
11,600 11,600 Tenet Healthcare Corporation* - 88,856 88,856
----------------------------------------------
243,769 379,423 623,192
----------------------------------------------
HEALTH CARE SERVICES - 0.9%
200 - 200 American Healthways, Inc.* 9,050 - 9,050
4,900 1,500 6,400 Caremark Rx, Inc.* 253,771 77,685 331,456
1,800 - 1,800 Express Scripts, Inc.* 150,840 - 150,840
100 300 400 IMS Health, Inc. 2,492 7,476 9,968
3,947 - 3,947 Medco Health Soulutions, Inc.* 220,243 - 220,243
200 - 200 Pediatrix Medical Group, Inc.* 17,714 - 17,714
2,300 - 2,300 Quest Diagnostics, Inc. 118,404 - 118,404
----------------------------------------------
772,514 85,161 857,675
----------------------------------------------
HEALTH CARE SUPPLIES - 0.0%
200 - 200 Millipore Corporation* 13,208 - 13,208
----------------------------------------------
HOME ENTERTAINMENT SOFTWARE - 0.0%
500 - 500 Take-Two Interactive Software, Inc.* 8,850 - 8,850
----------------------------------------------
HOME IMPROVEMENT RETAIL - 1.2%
100 100 Building Materials Holding
Corporation 6,821 - 6,821
11,700 6,700 18,400 Home Depot, Inc. 473,616 271,216 744,832
3,700 2,100 5,800 Lowe's Companies, Inc. 246,642 139,986 386,628
----------------------------------------------
727,079 411,202 1,138,281
----------------------------------------------
HOMEBUILDING - 0.4%
400 - 400 Beazer Homes USA, Inc. 29,136 - 29,136
1,500 3,300 4,800 D.R. Horton, Inc. 53,595 117,909 171,504
- 1,700 1,700 KB Home - 123,522 123,522
300 600 900 Lennar Corporation 18,306 36,612 54,918
100 - 100 M.D.C. Holdings, Inc. 6,198 - 6,198
- 300 300 Pulte Homes, Inc. - 11,808 11,808
----------------------------------------------
107,235 289,851 397,086
----------------------------------------------
HOMEFURNISHING RETAIL - 0.1%
1,800 - 1,800 Bed Bath & Beyond, Inc.* 65,070 - 65,070
----------------------------------------------
NUMBER OF SHARES PRO FORMA COMBINING MARKET VALUE
- ------------------------------------------------- SCHEDULE OF INVESTMENTS ----------------------------------------------
SERIES W SERIES H PRO FORMA DECEMBER 31, 2005 SERIES W SERIES H PRO FORMA
COMBINED COMBINED
- ------------------------------------------------------------------------------------------------------------------------------------
HOTELS, RESORTS & CRUISE LINES -
0.4%
200 - 200 Choice Hotels International, Inc. 8,352 - 8,352
- 7,300 7,300 Hilton Hotels Corporation - 176,003 176,003
- 2,600 2,600 Marriott International, Inc. - 174,122 174,122
----------------------------------------------
8,352 350,125 358,477
----------------------------------------------
HOUSEHOLD APPLIANCES - 0.1%
- 800 800 Black & Decker Corporation - 69,568 69,568
----------------------------------------------
HOUSEHOLD PRODUCTS - 1.9%
- 2,806 2,806 Clorox Company - 159,633 159,633
300 - 300 Energizer Holdings, Inc.* 14,937 - 14,937
500 4,000 4,500 Kimberly-Clark Corporation 29,825 238,600 268,425
15,102 9,565 24,667 Procter & Gamble Company 874,104 553,622 1,427,726
----------------------------------------------
918,866 951,855 1,870,721
----------------------------------------------
HOUSEWARES & SPECIALTIES - 0.0%
400 - 400 American Greetings Corporation 8,788 - 8,788
----------------------------------------------
HUMAN RESOURCE & EMPLOYMENT
SERVICES - 0.1%
200 - 200 Administaff, Inc. 8,410 - 8,410
500 - 500 Manpower, Inc. 23,250 - 23,250
600 - 600 Robert Half International, Inc. 22,734 - 22,734
----------------------------------------------
54,394 - 54,394
----------------------------------------------
HYPERMARKETS & SUPERCENTERS - 1.1%
1,000 - 1,000 Costco Wholesale Corporation 49,470 - 49,470
9,700 11,400 21,100 Wal-Mart Stores, Inc. 453,960 533,520 987,480
----------------------------------------------
503,430 533,520 1,036,950
----------------------------------------------
INDEPENDENT POWER PRODUCERS &
ENERGY TRADERS - 0.6%
1,800 - 1,800 AES Corporation* 28,494 - 28,494
1,600 - 1,600 Constellation Energy Group 92,160 - 92,160
- 7,700 7,700 Duke Energy Corporation - 211,365 211,365
- 1,100 1,100 Dynegy, Inc.* - 5,324 5,324
2,200 2,600 4,800 TXU Corporation 110,418 130,494 240,912
----------------------------------------------
231,072 347,183 578,255
----------------------------------------------
INDUSTRIAL CONGLOMERATES - 3.9%
1,200 3,100 4,300 3M Company 93,000 240,250 333,250
48,600 34,100 82,700 General Electric Company 1,703,430 1,195,205 2,898,635
100 100 Teleflex, Inc. 6,498 - 6,498
7,700 11,900 19,600 Tyco International, Ltd. 222,222 343,434 565,656
----------------------------------------------
2,025,150 1,778,889 3,804,039
----------------------------------------------
INDUSTRIAL GASES - 0.2%
- 2,900 2,900 Air Products & Chemicals, Inc. - 171,651 171,651
----------------------------------------------
INDUSTRIAL MACHINERY - 0.7%
900 - 900 Danaher Corporation 50,202 - 50,202
500 - 500 Flowserve Corporation* 19,780 - 19,780
400 - 400 ITT Industries, Inc. 41,128 - 41,128
2,000 100 2,100 Illinois Tool Works, Inc. 175,980 8,799 184,779
3,300 3,100 6,400 Ingersoll-Rand Company, Ltd. 133,221 125,147 258,368
300 300 600 Parker Hannifin Corporation 19,788 19,788 39,576
600 - 600 SPX Corporation 27,462 - 27,462
300 - 300 Unova, Inc.* 10,140 - 10,140
----------------------------------------------
477,701 153,734 631,435
----------------------------------------------
INSURANCE BROKERS - 0.1%
3,600 - 3,600 Aon Corporation 129,420 - 129,420
----------------------------------------------
INTEGRATED OIL & GAS - 6.2%
800 - 800 Amerada Hess Corporation 101,456 - 101,456
14,022 8,504 22,526 Chevron Corporation 796,029 482,772 1,278,801
10,166 3,400 13,566 ConocoPhillips 591,458 197,812 789,270
34,200 24,000 58,200 Exxon Mobil Corporation1 1,921,014 1,348,080 3,269,094
4,000 - 4,000 Marathon Oil Corporation 243,880 - 243,880
NUMBER OF SHARES PRO FORMA COMBINING MARKET VALUE
- ------------------------------------------------- SCHEDULE OF INVESTMENTS ----------------------------------------------
SERIES W SERIES H PRO FORMA DECEMBER 31, 2005 SERIES W SERIES H PRO FORMA
COMBINED COMBINED
- ------------------------------------------------------------------------------------------------------------------------------------
- 600 600 Murphy Oil Corporation - 32,394 32,394
3,100 400 3,500 Occidental Petroleum Corporation 247,628 31,952 279,580
500 - 500 Tesoro Corporation 30,775 - 30,775
----------------------------------------------
3,932,240 2,093,010 6,025,250
----------------------------------------------
INTEGRATED TELECOMMUNICATION
SERVICES - 2.1%
13,889 16,684 30,573 AT&T, Inc. 340,142 408,591 748,733
8,700 2,300 11,000 BellSouth Corporation 235,770 62,330 298,100
700 - 700 CenturyTel, Inc. 23,212 - 23,212
4,600 17,300 21,900 Qwest Communications International,
Inc.* 25,990 97,745 123,735
15,500 12,600 28,100 Verizon Communications, Inc. 466,860 379,512 846,372
----------------------------------------------
1,091,974 948,178 2,040,152
----------------------------------------------
INTERNET RETAIL - 0.3%
- 1,100 1,100 Amazon.com, Inc.* - 51,865 51,865
3,200 2,600 5,800 eBay, Inc.* 138,400 112,450 250,850
----------------------------------------------
138,400 164,315 302,715
----------------------------------------------
INTERNET SOFTWARE & SERVICES - 0.5%
900 - 900 Check Point Software Technologies,
Ltd.* 18,090 - 18,090
300 - 300 Digital River, Inc.* 8,922 - 8,922
1,700 - 1,700 EarthLink, Inc.* 18,887 - 18,887
500 - 500 Google, Inc.* 207,430 - 207,430
600 - 600 Internet Security Systems, Inc.* 12,570 - 12,570
1,250 - 1,250 United Online, Inc. 17,775 - 17,775
100 - 100 Websense, Inc.* 6,564 - 6,564
2,100 2,700 4,800 Yahoo!, Inc.* 82,278 105,786 188,064
----------------------------------------------
372,516 105,786 478,302
----------------------------------------------
INVESTMENT BANKING & BROKERAGE -
2.7%
900 - 900 Ameritrade Holding Corporation* 21,600 - 21,600
- 900 900 Bear Stearns Companies, Inc. - 103,977 103,977
9,700 - 9,700 Charles Schwab Corporation 142,299 - 142,299
- 1,700 1,700 E*Trade Financial Corporation* - 35,462 35,462
3,100 600 3,700 Goldman Sachs Group, Inc. 395,901 76,626 472,527
2,500 2,000 4,500 Lehman Brothers Holdings, Inc. 320,425 256,340 576,765
6,100 1,300 7,400 Merrill Lynch & Company, Inc. 413,153 88,049 501,202
8,600 5,200 13,800 Morgan Stanley 487,964 295,048 783,012
----------------------------------------------
1,781,342 855,502 2,636,844
----------------------------------------------
IT CONSULTING & OTHER SERVICES -
0.0%
200 - 200 CACI International, Inc.* 11,476 - 11,476
----------------------------------------------
LEISURE FACILITIES - 0.0%
200 - 200 Six Flags, Inc.* 1,542 - 1,542
----------------------------------------------
LEISURE PRODUCTS - 0.0%
562 - 562 CCE Spinco, Inc.* 7,369 - 7,369
1,100 - 1,100 Hasbro, Inc. 22,198 - 22,198
----------------------------------------------
29,567 - 29,567
----------------------------------------------
LIFE & HEALTH INSURANCE - 1.2%
900 - 900 AFLAC, Inc. 41,778 - 41,778
400 - 400 AmerUs Group Company* 22,668 - 22,668
- 1,300 1,300 Genworth Financial, Inc. - 44,954 44,954
- 1,200 1,200 Jefferson-Pilot Corporation - 68,316 68,316
200 - 200 Lincoln National Corporation 10,606 - 10,606
4,200 5,400 9,600 MetLife, Inc. 205,800 264,600 470,400
2,800 3,600 6,400 Prudential Financial, Inc. 204,932 263,484 468,416
400 - 400 StanCorp Financial Group, Inc. 19,980 - 19,980
- 1,000 1,000 Torchmark Corporation - 55,600 55,600
----------------------------------------------
505,764 696,954 1,202,718
----------------------------------------------
MANAGED HEALTH CARE - 2.1%
1,400 1,400 2,800 Aetna, Inc. 132,034 132,034 264,068
1,800 1,600 3,400 Cigna Corporation 201,060 178,720 379,780
400 - 400 Coventry Health Care, Inc.* 22,784 - 22,784
500 - 500 Health Net, Inc.* 25,775 - 25,775
800 3,500 4,300 Humana, Inc.* 43,464 190,155 233,619
300 - 300 Sierra Health Services, Inc.* 23,988 - 23,988
NUMBER OF SHARES PRO FORMA COMBINING MARKET VALUE
- ------------------------------------------------- SCHEDULE OF INVESTMENTS ----------------------------------------------
SERIES W SERIES H PRO FORMA DECEMBER 31, 2005 SERIES W SERIES H PRO FORMA
COMBINED COMBINED
- ------------------------------------------------------------------------------------------------------------------------------------
6,954 2,600 9,554 UnitedHealth Group, Inc. 432,122 161,564 593,686
200 - 200 WellCare Health Plans, Inc.* 8,170 - 8,170
4,956 400 5,356 WellPoint, Inc.* 395,418 31,916 427,334
----------------------------------------------
1,284,815 694,389 1,979,204
----------------------------------------------
MARINE - 0.0%
200 - 200 General Maritime Corporation 7,408 - 7,408
300 - 300 OMI Corporation 5,445 - 5,445
----------------------------------------------
12,853 - 12,853
----------------------------------------------
METAL & GLASS CONTAINERS - 0.1%
- 2,000 2,000 Ball Corporation - 79,440 79,440
1,000 - 1,000 Owens-Illinois, Inc.* 21,040 - 21,040
----------------------------------------------
21,040 79,440 100,480
----------------------------------------------
MOTORCYCLE MANUFACTURERS - 0.2%
2,600 1,400 4,000 Harley-Davidson, Inc. 133,874 72,086 205,960
----------------------------------------------
MOVIES & ENTERTAINMENT - 2.2%
12,200 15,500 27,700 News Corporation 189,710 241,025 430,735
28,300 14,900 43,200 Time Warner, Inc. 493,552 259,856 753,408
9,404 9,500 18,904 Viacom, Inc. (Cl.B) 306,570 309,700 616,270
6,800 8,500 15,300 Walt Disney Company 162,996 203,745 366,741
----------------------------------------------
1,152,828 1,014,326 2,167,154
----------------------------------------------
MULTI-LINE INSURANCE - 1.5%
10,637 6,900 17,537 American International Group, Inc. 725,763 470,787 1,196,550
2,400 500 2,900 Hartford Financial Services Group,
Inc. 206,136 42,945 249,081
500 Loews Corporation 47,425 - 47,425
----------------------------------------------
979,324 513,732 1,493,056
----------------------------------------------
MULTI-UTILITIES - 0.7%
- 3,200 3,200 CMS Enerfgy Corporation* - 46,432 46,432
- 6,900 6,900 CenterPoint Energy, Inc. - 88,665 88,665
- 2,400 2,400 KeySpan Corporation - 85,656 85,656
200 - 200 NiSource, Inc. 4,172 - 4,172
4,000 3,300 7,300 PG&E Corporation 148,480 122,496 270,976
- 8,100 8,100 Teco Energy, Inc. - 139,158 139,158
----------------------------------------------
152,652 482,407 635,059
----------------------------------------------
OFFICE ELECTRONICS - 0.2%
11,100 - 11,100 Xerox Corporation* 162,615 - 162,615
----------------------------------------------
OFFICE SERVICES & SUPPLIES - 0.1%
1,500 - 1,500 Pitney Bowes, Inc. 63,375 - 63,375
----------------------------------------------
OIL & GAS DRILLING - 0.7%
1,300 - 1,300 Grey Wolf, Inc.* 10,049 - 10,049
100 - 100 Helmerich & Payne, Inc. 6,191 - 6,191
- 2,300 2,300 Nabors Industries, Ltd.* - 174,225 174,225
- 2,200 2,200 Noble Corporation - 155,188 155,188
400 - 400 Pride International, Inc.* 12,300 - 12,300
- 2,100 2,100 Rowan Companies, Inc. - 74,844 74,844
2,100 1,900 4,000 Transocean, Inc.* 146,349 132,411 278,760
----------------------------------------------
174,889 536,668 711,557
----------------------------------------------
OIL & GAS EQUIPMENT & SERVICES -
0.2%
1,100 - 1,100 Halliburton Company 68,156 - 68,156
200 - 200 Lone Star Technologies, Inc.* 10,332 - 10,332
200 - 200 NS Group, Inc.* 8,362 - 8,362
- 600 600 Schlumberger, Ltd. - 58,290 58,290
200 - 200 Universal Compression Holdings,
Inc.* 8,224 - 8,224
300 - 300 Veritas DGC, Inc.* 10,647 - 10,647
----------------------------------------------
105,721 58,290 164,011
----------------------------------------------
OIL & GAS EXPLORATION & PRODUCTION
- 2.0%
2,100 1,700 3,800 Anadarko Petroleum Corporation 198,975 161,075 360,050
2,500 - 2,500 Apache Corporation 171,300 - 171,300
3,300 2,700 6,000 Burlington Resources, Inc. 284,460 232,740 517,200
300 - 300 Comstock Resources, Inc.* 9,153 - 9,153
NUMBER OF SHARES MARKET VALUE
- ------------------------------------------------- ----------------------------------------------
SBL W SBL H PRO FORMA SBL W SBL H PRO FORMA
- ------------------------------------------------------------------------------------------------------------------------------------
3,000 3,100 6,100 Devon Energy Corporation 187,620 193,874 381,494
1,000 - 1,000 EOG Resources, Inc. 73,370 - 73,370
400 - 400 KCS Energy, Inc.* 9,688 - 9,688
1,295 - 1,295 Kerr-McGee Corporation 117,664 - 117,664
200 - 200 Remington Oil & Gas Corporation* 7,300 - 7,300
200 - 200 Swift Energy Company* 9,014 - 9,014
400 - 400 Vintage Petroleum, Inc. 21,332 - 21,332
200 - 200 Whiting Petroleum Corporation* 8,000 - 8,000
2,300 4,200 6,500 XTO Energy, Inc. 101,062 184,548 285,610
----------------------------------------------
1,198,938 772,237 1,971,175
----------------------------------------------
OIL & GAS REFINING & MARKETING -
0.5%
100 - 100 Giant Industries, Inc.* 5,196 - 5,196
2,300 - 2,300 Sunoco, Inc. 180,274 - 180,274
4,568 1,400 5,968 Valero Energy Corporation 235,709 72,240 307,949
----------------------------------------------
421,179 72,240 493,419
----------------------------------------------
OIL & GAS STORAGE & TRANSPORTATION
- 0.2%
- 10,700 10,700 El Paso Corporation - 130,112 130,112
400 - 400 Overseas Shipholding Group, Inc. 20,156 - 20,156
----------------------------------------------
20,156 130,112 150,268
----------------------------------------------
OTHER DIVERSIFIED FINANCIAL
SERVICES - 3.7%
26,231 15,100 41,331 Citigroup, Inc. 1,272,990 732,803 2,005,793
18,828 10,841 29,669 JP Morgan Chase & Company 747,283 430,279 1,177,562
4,000 3,700 7,700 Principal Financial Group, Inc. 189,720 175,491 365,211
----------------------------------------------
2,209,993 1,338,573 3,548,566
----------------------------------------------
PACKAGED FOODS & MEATS - 0.7%
1,300 4,900 6,200 Campbell Soup Company 38,701 145,873 184,574
- 1,400 1,400 ConAgra Foods, Inc. - 28,392 28,392
500 - 500 Dean Foods Company* 18,830 - 18,830
300 - 300 Del Monte Foods Company* 3,129 - 3,129
2,000 2,600 4,600 General Mills, Inc. 98,640 128,232 226,872
800 - 800 H.J. Heinz Company 26,976 - 26,976
- 400 400 McCormick & Company, Inc. - 12,368 12,368
600 - 600 Pilgrim's Pride Corporation 19,896 - 19,896
3,400 4,300 7,700 Sara Lee Corporation 64,260 81,270 145,530
700 900 1,600 Tyson Foods, Inc. 11,970 15,390 27,360
----------------------------------------------
282,402 411,525 693,927
----------------------------------------------
PAPER PACKAGING - 0.1%
300 - 300 Sealed Air Corporation* 16,851 - 16,851
- 1,300 1,300 Temple-Inland, Inc. - 58,305 58,305
----------------------------------------------
16,851 58,305 75,156
----------------------------------------------
PAPER PRODUCTS - 0.0%
1,200 - 1,200 International Paper Company 40,332 - 40,332
800 - 800 MeadWestvaco Corporation 22,424 - 22,424
----------------------------------------------
62,756 - 62,756
----------------------------------------------
PERSONAL PRODUCTS - 0.1%
4,400 600 5,000 Avon Products, Inc. 125,620 17,130 142,750
----------------------------------------------
PHARMACEUTICALS - 6.5%
6,100 7,400 13,500 Abbott Laboratories 240,523 291,782 532,305
1,200 - 1,200 Allergan, Inc. 129,552 - 129,552
500 - 500 Alpharma, Inc. 14,255 - 14,255
700 - 700 Barr Pharmaceuticals, Inc.* 43,603 - 43,603
4,800 500 5,300 Bristol-Myers Squibb Company 110,304 11,490 121,794
2,700 3,100 5,800 Eli Lilly & Company 152,793 175,429 328,222
300 - 300 Endo Pharmaceuticals Holdings, Inc.* 9,078 - 9,078
3,600 400 4,000 Forest Laboratories, Inc.* 146,448 16,272 162,720
15,386 12,500 27,886 Johnson & Johnson 924,699 751,250 1,675,949
1,700 - 1,700 King Pharmaceuticals, Inc.* 28,764 - 28,764
100 - 100 Medicis Pharmaceutical Corporation 3,205 - 3,205
14,300 7,400 21,700 Merck & Company, Inc. 454,883 235,394 690,277
43,265 31,300 74,565 Pfizer, Inc. 1,008,940 729,916 1,738,856
- 1,100 1,100 Schering Plough Corporation - 22,935 22,935
NUMBER OF SHARES PRO FORMA COMBINING MARKET VALUE
- ------------------------------------------------- SCHEDULE OF INVESTMENTS ----------------------------------------------
SERIES W SERIES H PRO FORMA DECEMBER 31, 2005 SERIES W SERIES H PRO FORMA
COMBINED COMBINED
- ------------------------------------------------------------------------------------------------------------------------------------
100 - 100 Sepracor, Inc.* 5,160 - 5,160
700 400 1,100 Watson Pharmaceuticals, Inc.* 22,757 13,004 35,761
8,600 7,400 16,000 Wyeth 396,202 340,918 737,120
----------------------------------------------
3,691,166 2,588,390 6,279,556
----------------------------------------------
PROPERTY & CASUALTY INSURANCE -
1.5%
3,200 4,600 7,800 Allstate Corporation 173,024 248,722 421,746
100 - 100 Arch Capital Group, Ltd.* 5,475 - 5,475
1,300 1,800 3,100 Chubb Corporation 126,945 175,770 302,715
- 1,459 1,459 Cincinnati Financial Corporation - 65,188 65,188
790 - 790 Fidelity National Financial, Inc. 29,064 - 29,064
173 - 173 Fidelity National Title Group, Inc. 4,212 - 4,212
100 - 100 LandAmerica Financial Group, Inc. 6,240 - 6,240
500 - 500 MBIA, Inc. 30,080 - 30,080
600 - 600 Progressive Corporation 70,068 - 70,068
- 1,500 1,500 Safeco Corporation - 84,750 84,750
5,200 4,188 9,388 St. Paul Travelers Companies, Inc. 232,284 187,078 419,362
----------------------------------------------
677,392 761,508 1,438,900
----------------------------------------------
PUBLISHING - 0.4%
2,900 1,100 4,000 Gannett Company, Inc. 175,653 66,627 242,280
1,900 - 1,900 McGraw-Hill Companies, Inc. 98,097 - 98,097
600 - 600 Tribune Company 18,156 - 18,156
----------------------------------------------
291,906 66,627 358,533
----------------------------------------------
RAILROADS - 0.6%
2,600 3,300 5,900 Burlington Northern Santa Fe
Corporation 184,132 233,706 417,838
100 100 200 CSX Corporation 5,077 5,077 10,154
3,400 - 3,400 Norfolk Southern Corporation 152,422 - 152,422
400 - 400 Union Pacific Corporation 32,204 - 32,204
----------------------------------------------
373,835 238,783 612,618
----------------------------------------------
REAL ESTATE INVESTMENT TRUSTS - 0.4%
- 100 100 Apartment Investment & Management
Company - 3,787 3,787
- 2,000 2,000 Archstone-Smith Trust - 83,780 83,780
- 5,500 5,500 Equity Office Properties Trust - 166,815 166,815
- 1,700 1,700 Simon Property Group, Inc. - 130,271 130,271
----------------------------------------------
- 384,653 384,653
----------------------------------------------
REGIONAL BANKS - 1.1%
1,100 - 1,100 BB&T Corporation 46,101 - 46,101
- 2,000 2,000 First Horizon National Corporation - 76,880 76,880
2,800 5,500 8,300 KeyCorp 92,204 181,115 273,319
500 - 500 M&T Bank Corporation 54,525 - 54,525
1,900 4,100 6,000 National City Corporation 63,783 137,637 201,420
800 - 800 PNC Financial Services Group, Inc. 49,464 - 49,464
1,064 - 1,064 Regions Financial Corporation 36,346 - 36,346
600 100 700 SunTrust Banks, Inc. 43,656 7,276 50,932
- 6,000 6,000 Synovus Financial Corporation - 162,060 162,060
900 900 UnionBanCal Corporation 61,848 - 61,848
----------------------------------------------
447,927 564,968 1,012,895
----------------------------------------------
REINSURANCE - 0.0%
100 - 100 Everest Re Group, Ltd. 10,035 - 10,035
----------------------------------------------
RESTAURANTS - 0.5%
- 4,300 4,300 Darden Restaurants, Inc. - 167,184 167,184
5,200 400 5,600 McDonald's Corporation 175,344 13,488 188,832
2,400 400 2,800 Yum! Brands, Inc. 112,512 18,752 131,264
----------------------------------------------
287,856 199,424 487,280
----------------------------------------------
SEMICONDUCTOR EQUIPMENT - 0.5%
15,100 - 15,100 Applied Materials, Inc. 270,894 - 270,894
300 - 300 Cymer, Inc.* 10,653 - 10,653
1,900 900 2,800 KLA-Tencor Corporation 93,727 44,397 138,124
700 - 700 Lam Research Corporation* 24,976 - 24,976
1,000 - 1,000 Novellus Systems, Inc.* 24,120 - 24,120
----------------------------------------------
424,370 44,397 468,767
----------------------------------------------
NUMBER OF SHARES PRO FORMA COMBINING MARKET VALUE
- ------------------------------------------------- SCHEDULE OF INVESTMENTS ----------------------------------------------
SERIES W SERIES H PRO FORMA DECEMBER 31, 2005 SERIES W SERIES H PRO FORMA
COMBINED COMBINED
- ------------------------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS - 3.7%
5,300 600 5,900 Analog Devices, Inc. 190,111 21,522 211,633
4,200 - 4,200 Broadcom Corporation* 198,030 - 198,030
1,400 - 1,400 Fairchild Semiconductor
International, Inc.* 23,674 - 23,674
5,283 6,472 11,755 Freescale Semiconductor, Inc.
(Cl.B)* 132,973 162,900 295,873
200 - 200 Genesis Microchip, Inc.* 3,618 - 3,618
41,500 26,200 67,700 Intel Corporation 1,035,840 653,952 1,689,792
1,000 - 1,000 Intersil Corporation 24,880 - 24,880
3,100 7,100 10,200 LSI Logic Corporation* 24,800 56,800 81,600
- 700 700 Linear Technology Corporation - 25,249 25,249
500 - 500 Micrel, Inc.* 5,800 - 5,800
1,000 - 1,000 Microchip Technology, Inc. 32,150 - 32,150
300 - 300 Microsemi Corporation* 8,298 - 8,298
900 100 1,000 NVIDIA Corporation* 32,904 3,656 36,560
1,400 5,700 7,100 National Semiconductor Corporation 36,372 148,086 184,458
600 - 600 OmniVision Technologies, Inc.* 11,976 - 11,976
16,000 7,300 23,300 Texas Instruments, Inc. 513,120 234,111 747,231
200 - 200 Zoran Corporation* 3,242 - 3,242
----------------------------------------------
2,277,788 1,306,276 3,584,064
----------------------------------------------
SOFT DRINKS - 1.5%
7,100 10,600 17,700 Coca-Cola Company 286,201 427,286 713,487
1,200 1,900 3,100 Pepsi Bottling Group, Inc. 34,332 54,359 88,691
5,120 5,700 10,820 PepsiCo, Inc. 302,490 336,756 639,246
----------------------------------------------
623,023 818,401 1,441,424
----------------------------------------------
SPECIALIZED FINANCE - 0.4%
2,200 1,400 3,600 CIT Group, Inc. 113,916 72,492 186,408
350 - 350 Chicago Mercantile Exchange
Holdings, Inc. 128,621 - 128,621
1,700 - 1,700 Moody's Corporation 104,414 - 104,414
----------------------------------------------
346,951 72,492 419,443
----------------------------------------------
SPECIALTY CHEMICALS - 0.3%
- 400 400 International Flavors & Fragrances,
Inc. - 13,400 13,400
100 - 100 Lubrizol Corporation 4,343 - 4,343
1,500 3,300 4,800 Rohm & Haas Company 72,630 159,786 232,416
----------------------------------------------
76,973 173,186 250,159
----------------------------------------------
SPECIALTY STORES - 0.5%
600 - 600 Barnes & Noble, Inc. 25,602 - 25,602
500 - 500 Claire's Stores, Inc. 14,610 - 14,610
1,000 3,400 4,400 Office Depot, Inc.* 31,400 106,760 138,160
700 - 700 OfficeMax, Inc. 17,752 - 17,752
300 - 300 Sports Authority, Inc.* 9,339 - 9,339
9,450 - 9,450 Staples, Inc. 214,609 - 214,609
100 - 100 Tiffany & Company 3,829 - 3,829
300 - 300 Weight Watchers International, Inc.* 14,829 - 14,829
100 - 100 Zale Corporation* 2,515 - 2,515
----------------------------------------------
334,485 106,760 441,245
----------------------------------------------
STEEL - 0.4%
1,400 - 1,400 AK Steel Holding Corporation* 11,130 - 11,130
200 - 200 Carpenter Technology Corporation 14,094 - 14,094
300 - 300 Commercial Metals Company 11,262 - 11,262
2,200 2,300 4,500 Nucor Corporation 146,784 153,456 300,240
200 - 200 Quanex Corporation 9,994 - 9,994
400 - 400 Reliance Steel & Aluminum Company 24,448 - 24,448
300 - 300 Steel Dynamics, Inc. 10,653 - 10,653
100 - 100 United States Steel Corporation 4,807 - 4,807
400 - 400 Worthington Industries, Inc. 7,684 - 7,684
----------------------------------------------
240,856 153,456 394,312
----------------------------------------------
SYSTEMS SOFTWARE - 3.5%
2,700 - 2,700 BEA Systems, Inc.* 25,380 - 25,380
1,300 5,900 7,200 BMC Software, Inc.* 26,637 120,891 147,528
5,000 - 5,000 Computer Associates International,
Inc. 140,950 - 140,950
900 - 900 McAfee, Inc.* 24,417 - 24,417
45,200 33,200 78,400 Microsoft Corporation 1,181,980 868,180 2,050,160
100 - 100 MicroStrategy, Inc.* 8,274 - 8,274
3,100 - 3,100 Novell, Inc.* 27,373 - 27,373
NUMBER OF SHARES PRO FORMA COMBINING MARKET VALUE
- ------------------------------------------------- SCHEDULE OF INVESTMENTS ----------------------------------------------
SERIES W SERIES H PRO FORMA DECEMBER 31, 2005 SERIES W SERIES H PRO FORMA
COMBINED COMBINED
- ------------------------------------------------------------------------------------------------------------------------------------
29,000 19,800 48,800 Oracle Corporation* 354,090 241,758 595,848
1,100 - 1,100 Red Hat, Inc.* 29,964 - 29,964
13,261 6,147 19,408 Symantec Corporation* 232,067 107,573 339,640
----------------------------------------------
2,051,132 1,338,402 3,389,534
----------------------------------------------
TECHNOLOGY DISTRIBUTORS - 0.1%
800 - 800 Arrow Electronics, Inc.* 25,624 - 25,624
1,100 - 1,100 Avnet, Inc.* 26,334 - 26,334
300 - 300 CDW Corporation 17,271 - 17,271
200 - 200 Tech Data Corporation* 7,936 - 7,936
----------------------------------------------
77,165 - 77,165
----------------------------------------------
THRIFTS & MORTGAGE FINANCE - 1.6%
200 - 200 Accredited Home Lenders Holding
Company* 9,916 - 9,916
750 - 750 Astoria Financial Corporation 22,050 - 22,050
4,598 1,300 5,898 Countrywide Financial Corporation 157,206 44,447 201,653
6,100 700 6,800 Fannie Mae 297,741 34,167 331,908
2,600 300 2,900 Freddie Mac 169,910 19,605 189,515
100 - 100 Fremont General Corporation 2,323 - 2,323
1,000 200 1,200 Golden West Financial Corporation 66,000 13,200 79,200
400 2,400 2,800 MGIC Investment Corporation 26,328 157,968 184,296
300 - 300 PMI Group, Inc. 12,321 - 12,321
500 - 500 Radian Group, Inc. 29,295 - 29,295
5,540 6,415 11,955 Washington Mutual, Inc. 240,990 279,053 520,043
----------------------------------------------
1,034,080 548,440 1,582,520
----------------------------------------------
TIRES & RUBBER - 0.2%
1,500 8,400 9,900 Goodyear Tire & Rubber Company* 26,070 145,992 172,062
----------------------------------------------
TOBACCO - 1.6%
10,500 6,700 17,200 Altria Group, Inc. 784,560 500,624 1,285,184
300 - 300 Loews Corporation - Carolina Group 13,197 - 13,197
1,700 - 1,700 Reynolds American, Inc. 162,061 - 162,061
- 1,500 1,500 UST, Inc. - 61,245 61,245
----------------------------------------------
959,818 561,869 1,521,687
----------------------------------------------
TRADING COMPANIES & DISTRIBUTORS -
0.0%
400 - 400 United Rentals, Inc.* 9,356 - 9,356
----------------------------------------------
TRUCKING - 0.0%
300 - 300 Landstar System, Inc. 12,522 - 12,522
----------------------------------------------
WIRELESS TELECOMMUNICATION SERVICE
- 0.9%
1,400 - 1,400 American Tower Corporation* 37,940 - 37,940
700 - 700 Crown Castle International
Corporation* 18,837 - 18,837
1,200 - 1,200 Dobson Communications Corporation* 9,000 - 9,000
21,548 11,600 33,148 Sprint Nextel Corporation 503,361 270,976 774,337
----------------------------------------------
569,138 270,976 840,114
----------------------------------------------
TOTAL COMMON STOCKS
(cost $52,280,900) 55,575,504 39,199,643 94,775,147
----------------------------------------------
FOREIGN STOCKS - 0.4%
CANADA - 0.6%
1,768 Canadian Natural Resources, Ltd. 87,647 - 87,647
5,300 Paramount Resources, Ltd.* 140,877 - 140,877
500 Precision Drilling Trust 16,508 - 16,508
1,600 Talisman Energy, Inc. 84,783 - 84,783
1,500 Trilogy Energy Trust 30,710 - 30,710
----------------------------------------------
360,525 - 360,525
----------------------------------------------
TOTAL FOREIGN STOCKS
(cost $85,667) 360,525 - 360,525
----------------------------------------------
NUMBER OF SHARES PRO FORMA COMBINING MARKET VALUE
- ------------------------------------------------- SCHEDULE OF INVESTMENTS ----------------------------------------------
SERIES W SERIES H PRO FORMA DECEMBER 31, 2005 SERIES W SERIES H PRO FORMA
COMBINED COMBINED
- ------------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK - 0.0%
REGIONAL BANKS - 0.0%
200 Wachovia Corporation* 2 1 - 1
---------------- ---------------
TOTAL PREFERRED STOCK
(cost $48) 1 - 1
----------------------------------------------
WARRANT - 0.0%
1,000 Dime Bancorp, Inc., $1.00, 11-22-05 130 - 130
---------------- ---------------
TOTAL WARRANT
(cost $375) 130 - 130
----------------------------------------------
U.S. GOVERNMENT SECURITIES - 0.1%
- $115,000 $115,000 U.S. Treasury Bill, 4.048%, 04-06-06 - 113,813 113,813
TOTAL U.S. GOVERNMENT SECURITIES
----------------------------------------------
(cost $113,805) - 113,813 113,813
REPURCHASE AGREEMENT - 0.6%
- $623,000 $623,000 United Missouri Bank, 3.78%, dated
12-30-05, matures 01-03-06;
repurchase amount of $623,262
(Collateralized by U.S. Treasury
Notes, 1.875%, 01-31-06 with a
value of $635,947) - 623,000 623,000
TOTAL REPURCHASE AGREEMENT
----------------------------------------------
(cost $623,000) - 623,000 623,000
----------------------------------------------
TOTAL INVESTMENTS - 99.3%
-------------------------------
(cost $90,392,791) 55,936,160 39,936,456 95,872,616
CASH & OTHER ASSETS, LESS
LIABILITIES - 0.7% 493,088 164,616 657,704
----------------------------------------------
TOTAL NET ASSETS - 100.0% $56,429,248 $40,101,072 $96,530,320
==============================================
For federal income tax purposes the identified cost of investments owned at
December 31, 2005 was $92,413,242.
* Non-income producing security
1 Security is segregated as collateral for open futures contracts.
2 Security is restricted. The total market value of restricted securities is
$73 (cost $576), or 0.0% of total net assets. The acquisition dates range
from November 8, 1999 to June 6, 2002.
SBL FUND - SERIES H (ENHANCED INDEX SERIES)
NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS
DECEMBER 31, 2005
(UNAUDITED)
1. DESCRIPTION OF FUND
Series H (Enhanced Index Series) ("Acquiring Fund"), a series of SBL Fund (the
"Fund"), is registered under the Investment Company Act of 1940, as amended, as
an open-end management investment company of the series type.
2. BASIS OF COMBINATION
The accompanying pro forma financial statements are presented to show the effect
of the proposed acquisition of the Series W (Main Street Growth & Income
Series), a series of SBL Fund, by Series H, a series of SBL Fund, as if such
acquisitions had taken place as of January 1, 2005.
Under the terms of the Plan of Reorganization, the combination of Series W with
Series H will be accounted for by the method of accounting for tax-free mergers
of investment companies. The acquisition would be accomplished by an acquisition
of the net assets of Series W in exchange for shares of Series H at net asset
value. The statement of assets and liabilities and the related statement of
operations of Series W and Series H have been combined as of and for the twelve
months ended December 31, 2005. Following the acquisition, Series H will be the
accounting survivor. In accordance with U.S. generally accepted accounting
principles , the historical cost of investment securities will be carried
forward to the surviving fund and the results of operations for pre-combination
periods of the surviving fund will not be restated.
The accompanying pro-forma financial statements should be read in conjunction
with the financial statements of Series W and Series H included in SBL Fund's
annual report dated December 31, 2005.
The following notes refer to the accompanying pro forma financial statements as
if the above-mentioned acquisition of Series W by Series H had taken place as of
January 1, 2005.
3. PORTFOLIO VALUATION
Valuations of the Fund's securities are supplied by pricing services approved by
the Board of Directors. The Fund's officers, under the general supervision of
the Board of Directors, regularly review procedures used by, and valuations
provided by, the pricing services. Each security owned by a Fund that is listed
on a securities exchange is valued at its last sale price on that exchange on
the date as of which assets are valued. Where the security is listed on more
than one exchange, the Fund will use the price of that exchange that it
generally considers to be the principal exchange on which the stock is traded.
Securities listed on the Nasdaq Stock Market, Inc. ("Nasdaq") will be valued at
the Nasdaq Official Closing Price. Securities for which market quotations are
not readily available are valued by a pricing service considering securities
with similar yields, quality, type of issue, coupon, duration and rating. If
there is no bid price or if the bid price is deemed to be unsatisfactory by the
Board of Directors or by the Fund's investment manager, then the securities are
valued in good faith by such method as the Board of Directors determines will
reflect the fair value. If events occur after the close of the foreign exchange
that will affect the value of a fund's portfolio securities before the time as
of which NAV is calculated (a "significant event"), the security will generally
be priced using a fair value procedure. If the Valuation Committee determines a
significant event has occurred, it will evaluate the impact of that event on an
affected security or securities, to determine whether a fair value adjustment
would materially affect the Fund's net asset value per share. Some of the
factors which may be considered by the Board of Directors in determining fair
value are fundamental analytical data relating to the investment; the nature and
duration of any restrictions on disposition; trading in similar securities of
the same issuer or comparable companies; information from broker-dealers; and an
evaluation of the forces that influence the market in which the securities are
purchased and sold. The Fund generally will value short-term debt securities at
prices based on market quotations for such securities or securities of similar
type, yield, quality and duration, except those securities purchased within 60
days or less to maturity are valued on the basis of amortized cost which
approximates market value.
Generally, trading in foreign securities markets is substantially completed each
day at various times prior to the close of the New York Stock Exchange. The
values of foreign securities are determined as of the close of such foreign
markets or the close of the New York Stock Exchange, if earlier. All investments
quoted in foreign currency are valued in U.S. dollars on the basis of the
foreign currency exchange rates prevailing at the close of business. Investments
in foreign securities may involve risks not present in domestic investments. The
Valuation Committee will determine the current value of such foreign securities
by taking into consideration certain factors which may include those discussed
above, as well as the following factors, among others: the value of the
securities traded on
other foreign markets, ADR trading, closed-end fund trading, foreign currency
exchange activity, and the trading prices of financial products that are tied to
foreign securities such as WEBS(R). In addition, the Board of Directors has
authorized the Valuation Committee and Administrator to use prices and other
information supplied by IDC's Fair Value Information Service in valuing foreign
securities. Since foreign securities may be denominated in a foreign currency
and involve settlement and pay interest or dividends in foreign currencies,
changes in the relationship of these foreign currencies to the U.S. dollar can
significantly affect the value of the investments and earnings of the Fund.
Foreign investments may also subject the Series to foreign government exchange
restrictions, expropriation, taxation or other political, social or economic
developments, all of which could affect the market and/or credit risk of the
investments.
4. CAPITAL SHARES
The pro forma net asset value per share assumes the issuance of shares of Series
H that would have been issued at December 31, 2005, in connection with the
proposed reorganization. The number of shares assumed to be issued is equal to
the net asset value of shares of Series W as of December 31, 2005, divided by
the net asset value per share of the shares of Series H as of December 31, 2005.
The pro forma number of shares outstanding for the combined fund consists of the
following at December 31, 2005:
ADDITIONAL SHARES TOTAL
SHARES OF SERIES H ASSUMED ISSUED IN OUTSTANDING SHARES
PRE-COMBINATION REORGANIZATION POST-COMBINATION
--------------------------------------------------------------------
Series H 4,186,037 5,890,318 10,076,355
5. FEDERAL INCOME TAXES
Each series has elected to be taxed as a "regulated investment company" under
the Internal Revenue Code. After the acquisition, Series H intends to continue
to qualify as a regulated investment company, if such qualification is in the
best interests of its shareholders, by complying with the provisions available
to certain investment companies, as defined in applicable sections of the
Internal Revenue Code, and to make distributions of taxable income sufficient to
relieve it from all, or substantially all, federal income taxes.
PART C
OTHER INFORMATION
Item 15 Indemnification
A policy of insurance covering Security Management Company, LLC, its affiliate
Security Distributors, Inc., and all of the registered investment companies
advised by Security Management Company, LLC insures the Registrant's directors
and officers against liability arising by reason of an alleged breach of duty
caused by any negligent act, error or accidental omission in the scope of their
duties.
Paragraph 30 of the Registrant's Bylaws, as amended February 3, 1995, provides
in relevant part as follows:
30. Indemnification and Liability of Directors and Officers. Each person
who is or was a Director or officer of the Corporation or is or was serving
at the request of the Corporation as a Director or officer of another
corporation (including the heirs, executors, administrators and estate of
such person) shall be indemnified by the Corporation as of right to the
full extent permitted or authorized by the laws of the State of Kansas, as
now in effect and as hereafter amended, against any liability, judgment,
fine, amount paid in settlement, cost and expense (including attorneys'
fees) asserted or threatened against and incurred by such person in his/her
capacity as or arising out of his/her status as a Director or officer of
the Corporation or, if serving at the request of the Corporation, as a
Director or officer of another corporation. The indemnification provided by
this bylaw provision shall not be exclusive of any other rights to which
those indemnified may be entitled under the Articles of Incorporation,
under any other bylaw or under any agreement, vote of stockholders or
disinterested directors or otherwise, and shall not limit in any way any
right which the Corporation may have to make different or further
indemnification with respect to the same or different persons or classes of
persons.
No person shall be liable to the Corporation for any loss, damage,
liability or expense suffered by it on account of any action taken or
omitted to be taken by him/her as a Director or officer of the Corporation
or of any other corporation which he/she serves as a Director or officer at
the request of the Corporation, if such person (a) exercised the same
degree of care and skill as a prudent man would have exercised under the
circumstances in the conduct of his/her own affairs, or (b) took or omitted
to take such action in reliance upon advice of counsel for the Corporation,
or for such other corporation, or upon statement made or information
furnished by Directors, officers, employees or agents of the Corporation,
or of such other corporation, which he/she had no reasonable grounds to
disbelieve.
In the event any provision of this Section 30 shall be in violation of the
Investment Company Act of 1940, as amended or of the rules and regulations
promulgated thereunder, such provisions shall be void to the extent of such
violations.
On March 25, 1988, the shareholders approved the Board of Directors'
recommendation that the Articles of Incorporation be amended by adopting the
following Article Fifteenth:
"A director shall not be personally liable to the corporation or to its
stockholders for monetary damages for breach of fiduciary duty as a
director, provided that this sentence shall not eliminate nor limit the
liability of a director:
1. for any breach of his or her duty of loyalty to the corporation
or to its stockholders;
2. for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
3. for any unlawful dividend, stock purchase or redemption under the
provisions of Kansas Statutes Annotated (K.S.A.) 17-6424 and
amendments thereto; or
4. for any transaction from which the director derived an improper
personal benefit."
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 16 Exhibits
(1) Articles of Incorporation(a)
(2) Bylaws(b)
(3) Not Applicable
(4) Form of Plan of Reorganization(c)
(5) Not Applicable
(6) (a) Investment Advisory Contract(d)
(b) Sub-Advisory Contract(e)
(7) Distribution Agreement(a)
(8) Not Applicable
(9) (a) Custodian Agreement - UMB Bank, N.A.(f)
(b) Custodian Agreement - State Street Bank (g)
(c) Custodian Agreement - Bank of America (a)
(10) Not applicable
(11) Opinion of Counsel (filed herewith)
(12) Opinion and Consent of Counsel Supporting Tax Matters and Consequences
(to be filed by subsequent amendment)
(13) Not Applicable
(14) Consent of Independent Registered Public Accounting Firm (filed
herewith)
(15) Not Applicable
(16) Powers of Attorney(h)
(17) Not Applicable
(a) Incorporated herein by reference to the Exhibits filed with the
Registrant's Post-Effective Amendment No. 45 to Registration Statement
No. 2-59353 on Form N-1A (filed February 14, 2003).
(b) Incorporated herein by reference to the Exhibits filed with the
Registrant's Post-Effective Amendment No. 40 to Registration Statement
No. 2-59353 on Form N-1A (filed February 16, 2000).
(c) See Appendix A to the Proxy Statement/Prospectus.
(d) Incorporated herein by reference to the Exhibits filed with the
Registrant's Post-Effective Amendment No. 47 to Registration Statement
No. 2-59353 on Form N-1A (filed June 10, 2003).
(e) Incorporated herein by reference to the Exhibits filed with the
Registrant's Post-Effective Amendment No. 46 to Registration Statement
No. 2-59353 (filed April 29, 2003).
(f) Incorporated herein by reference to the Exhibits filed with Security
Income Fund's Post-Effective Amendment No. 73 to Registration
Statement No. 2-38414 (filed January 10, 2003).
(g) Incorporated herein by reference to the Exhibits filed with Security
Equity Fund's Post-Effective Amendment No. 94 to Registration
Statement No. 2-19458 (filed January 14, 2003).
(h) Incorporated herein by reference to the Exhibits filed with Security
Equity Fund's Registration Statement Filing No. 333-132032 on Form
N-14 on February 24, 2006.
Item 17. Undertakings
1. The undersigned registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is a
part of this registration statement by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c) of the
Securities Act 17 CFR 230.145(c), the reoffering prospectus will
contain the information
called for by the applicable registration form for reofferings by
persons who may be deemed underwriters, in addition to the information
called for by the other items of the applicable form.
2. The undersigned registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to
the registration statement and will not be used until the amendment is
effective, and that, in determining any liability under the 1933 Act,
each post-effective amendment shall be deemed to be a new registration
statement for the securities offered therein, and the offering of the
securities at that time shall be deemed to be the initial bona fide
offering of them.
3. The undersigned registrant undertakes to file a post-effective
amendment to this registration statement upon the closing of the
Reorganization described in this registration statement that contains
an opinion of counsel supporting the tax matters discussed in this
registration statement.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form N-14 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Topeka and State of Kansas on the 6th day of March, 2006.
SBL FUND
By: /s/_____________________
Michael G. Odlum
President
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the 6th day of March, 2006.
SBL FUND
By: /s/ MICHAEL G. ODLUM
John D. Cleland Michael G. Odlum, as President and Director, and as
Chairman of the Board Attorney-In-Fact for the Officers and Directors
and Director whose names appear opposite
Donald A. Chubb, Jr.
Director
Penny A. Lumpkin /s/ BRENDA M. HARWOOD
Director Brenda M. Harwood, Treasurer (Principal Financial
Officer)
Harry W. Craig, Jr.
Director
Maynard Oliverius
Director
Jerry B. Farley
Director
EXHIBIT INDEX
(11) Opinion of Counsel
(14) Consent of Independent Registered Public Accounting Firm