--------------------------------------------------------------------------------
Securities Act File No. 333-164581
As filed with the Securities and Exchange Commission on February 23, 2010
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. 1 [X]
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 Investors, 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.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
No filing fee is required because an indefinite number of shares have previously
been registered pursuant to Rule 24f-2 under the Investment Company Act of 1940,
as amended.
SBL FUND
One Security Benefit Place
Topeka, KS 66636-0001
(Toll Free) (800) 888-2461
March 10, 2010
Dear Policyowners:
The Board of Directors ("Board") of SBL Fund has called a special meeting of
shareholders of SBL Fund, Series H (Enhanced Index Series) (the "Acquired
Series") to be held on April 9, 2010 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.
Management of the Acquired Series has recommended that the Board approve the
Reorganization Plan relating to the reorganization of the Acquired Series into
SBL Fund, Series A (Equity Series) (the "Acquiring Series" and together with the
Acquired Series, the "Series") (the "Reorganization"). Security Investors, LLC
serves as investment manager to both Series. As a result of the Reorganization,
shareholders of the Acquired Series would become shareholders of the Acquiring
Series. Each Series currently is available as an investment option under your
insurance contract.
After careful consideration, the Board has unanimously approved this proposal
with respect to the Acquired Series and recommends 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 encourage you to vote over the Internet or by telephone, using the voting
control number that appears on your proxy card. Your vote is extremely
important. Please read the enclosed information carefully before voting.
We appreciate your participation and prompt response in this matter and thank
you for your continued support.
Sincerely,
/s/ Richard M. Goldman
Richard M. Goldman
President, Chairman of the Board of Directors
PROMPT EXECUTION AND RETURN OF THE ENCLOSED PROXY CARD IS REQUESTED. A
SELF-ADDRESSED, POSTAGE-PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE, ALONG
WITH INSTRUCTIONS ON HOW TO VOTE OVER THE INTERNET OR BY TELEPHONE SHOULD YOU
PREFER TO VOTE BY ONE OF THOSE METHODS.
SBL FUND
One Security Benefit Place
Topeka, KS 66636-0001
(Toll Free) (800) 888-2461
PROPOSED REORGANIZATION OF SBL FUND, SERIES H (ENHANCED INDEX SERIES) INTO SBL
FUND, SERIES A (EQUITY SERIES)
QUESTIONS AND ANSWERS
The enclosed materials include a Prospectus/Proxy Statement containing
information you need to make an informed decision about the proposed
reorganization. However, we thought it also would be helpful to begin by
answering some of the important questions you might have about the proposal. The
matters discussed below are also discussed in more detail in the enclosed
Prospectus/Proxy Statement.
WHAT ISSUE AM I BEING ASKED TO VOTE ON AT THE UPCOMING SPECIAL MEETING ON APRIL
9, 2010?
Shareholders of SBL Fund, Series H (Enhanced Index Series), (the "Acquired
Series"), are being asked to approve a Plan of Reorganization that provides for
the reorganization (the "Reorganization" ) of the Acquired Series into SBL Fund,
Series A (Equity Series), (the "Acquiring Series" and together with the Acquired
Series, the "Series").
Security Investors, LLC (the "Investment Manager" or "Security Investors")
serves as investment adviser for both the Acquired Series and the Acquiring
Series. An investor group has recently entered into agreements with the parent
company of Security Investors, which among other things will result in a change
of control of Security Investors within the meaning of the Investment Company
Act of 1940 and the termination of the current investment advisory agreements
between Security Investors and each Series. At a separate meeting to be held on
or about April 23, 2010, shareholders of record on February 24, 2010 of each
Series will be asked to approve a new investment advisory agreement between
Security Investors and the Series. A proxy statement, which is distinct from
this Proxy Statement/Prospectus and which contains information about the change
of control and the new investment advisory agreements, is also being mailed to
shareholders of both Series under a separate cover. The consummation of
Reorganization is contingent upon the approval of the new investment advisory
agreements by shareholders of both Series if such vote takes place. Thus, upon
shareholder approval of the Plan of Reorganization, if a vote on the new
investment advisory agreements by shareholders of the Series takes place, the
Reorganization will be consummated only if shareholders of both Series approve
the Series' respective new investment advisory agreements.
WHAT WILL HAPPEN TO MY SBL FUND, SERIES H INVESTMENT IF THE PROPOSED
REORGANIZATION IS APPROVED AND CONSUMMATED?
You will become a shareholder of the Acquiring Series on or about April 23, 2010
(the "Closing Date"), and will no longer be a shareholder of the Acquired
Series. You will receive shares of the Acquiring Series with a value equal to
the value of your investment in the Acquired Series as of the Closing Date. The
Acquired Series will then cease operations and will be liquidated.
WHAT HAPPENS IF THE REORGANIZATION IS NOT APPROVED OR NOT CONSUMMATED?
If shareholders of the Acquired Series do not approve the proposed
Reorganization and/or if the Reorganization is not consummated, the Board will
determine what, if any, additional action should be taken with respect to the
Acquired Series. Such action could include liquidation of the Acquired Series.
WHAT ARE THE BENEFITS OF THE PROPOSED REORGANIZATION FOR ME?
The Board believes that the Reorganization will permit the Acquired Series'
shareholders to continue to invest in a substantially larger fund, which should
benefit shareholders of each of the Series by spreading costs across a larger
asset base and which would allow shareholders of the Acquired Series to continue
to participate in a professionally managed portfolio. Also, a larger Acquiring
Series after the Reorganization may offer the potential benefits of a more
diversified portfolio of securities and improve trading efficiency, and may
eventually realize economies of scale and lower operating expenses. The annual
operating expense ratio of the Acquiring Portfolio could be lower than that of
the Acquired Portfolio, effective May 1, 2010.
DO THE SERIES HAVE SIMILAR INVESTMENT OBJECTIVES AND STRATEGIES?
The Series' investment objectives and strategies are generally different,
although similar in several respects. The Acquired Series and the Acquiring
Series have different investment objectives: the Acquired Series seeks to
outperform Standard & Poor's 500(R) Composite Stock Price Index (the "S&P 500
Index") through stock selection resulting in different weightings of common
stocks relative to the index while the Acquiring Series seeks long-term growth
of capital. Both Series pursue their investment objectives by investing at least
80% of their net assets (including any borrowings for investment purposes) in
equity securities and may invest a portion of their assets in options and future
contracts. However, the Acquired Series invests in equity securities of
companies in the S&P 500 Index and futures contracts representative of the
stocks that make up the index, and may overweight/underweight its investment in
a particular stock based on its sub-adviser's quantitative research. Meanwhile,
the Acquiring Series invests in a widely-diversified portfolio of equity
securities (typically of domestic and foreign companies whose total market value
is $5 billion or greater at the time of purchase), and allocates approximately
50% of its total assets to a large cap growth strategy and approximately 50% of
its total assets to a large cap value strategy, each managed independently by
its investment adviser. In addition, unlike the Acquired Series, the Acquiring
Series' principal investment strategies explicitly allow it to invest in a
variety of investment vehicles and securities issued by foreign companies.
WHAT ARE THE DIFFERENCES IN THE MANAGEMENT OF THE SERIES?
The Series are separate series of SBL Fund, and therefore have the same Board of
Directors. Security Investors serves as investment adviser for both Series.
However, while the Investment Manager directly manages the Acquiring Series
(without retaining any sub-adviser), the Investment Manager has engaged Northern
Trust Investments, N.A., a third party investment adviser, to serve as a
sub-adviser to, and directly manage the assets of, the Acquired Series. The
Series are managed by different portfolio managers.
WILL THE PROPOSED REORGANIZATION RESULT IN A HIGHER MANAGEMENT FEE OR HIGHER
FUND EXPENSES?
Each Series pays the Investment Manager a management fee at the annual rate of
0.75% of the value of its average daily net assets. The Acquiring Series' annual
operating expense ratio could be lower than that of the Acquired Series,
effective May 1, 2010, based on a comparison of historical (gross) expense
ratios, although there is no guarantee that this trend will continue in the
future.
WHAT ARE THE TAX CONSEQUENCES OF THE PROPOSED REORGANIZATION?
The Reorganization is not expected to be a taxable event for federal income tax
purposes. Shareholders are not expected to recognize any capital gain or loss as
a result of the Reorganization. As a condition to the closing of the
Reorganization, the Acquired Series and the Acquiring Series will receive an
opinion of counsel to the effect that, for federal income tax purposes, the
Reorganization will qualify as a tax-free reorganization and, thus, no gain or
loss will be recognized by the Acquired Series, the Acquired Series'
shareholders, or the Acquiring Series as a result of the Reorganization.
Further, shareholders are not expected to recognize any income or gains for
federal income tax purposes from the Acquired Series' distributions of any
undistributed net investment income and net realized capital gains prior to the
Reorganization
WHO WILL PAY THE EXPENSES OF THE PROPOSED REORGANIZATION?
The Acquired Series and the Investment Manager each will bear one-half of the
expenses relating to the Reorganization.
WHO IS ASKING FOR MY VOTE?
The enclosed proxy is being solicited by the Board of Directors of SBL Fund for
use at the Special Meeting of shareholders of the Acquired Series to be held on
April 9, 2010 (the "Special Meeting"), and, if the Special Meeting is adjourned
or postponed, at any later meetings, for the purposes stated in the Notice of
Special Meeting.
HOW DOES THE BOARD RECOMMEND I VOTE?
After considering, among other factors, the terms and conditions of the
Reorganization, the investment management policies of, as well as shareholder
services offered by, the Acquired Series and the Acquiring Series, the expense
ratios of the Acquired Series and the Acquiring Series, past attempt to
reorganize the Acquired Series, and the relative performance of the Acquired
Series and the Acquiring Series, the Board of Directors of the Series believe
that reorganizing the Acquired Series into the Acquiring Series is in the best
interests of the Series and their shareholders. Therefore, the Board of
Directors recommends that you vote FOR the Reorganization.
WHAT VOTE IS REQUIRED TO APPROVE THE PROPOSED REORGANIZATION?
Approval of the Reorganization requires the affirmative vote of a majority of
the outstanding shares of the Acquired Series.
WILL MY VOTE MAKE A DIFFERENCE?
Yes! Your vote is needed to ensure that the proposals can be acted upon. We
encourage all shareholders to participate in the governance of their series.
Additionally, your immediate response on the enclosed proxy card, on the
Internet or over the phone will help save the costs of any further
solicitations.
I'M AN INSURANCE CONTRACT OWNER. HOW WILL MY VOTE BE COUNTED?
As an insurance contract owner of record at the close of business on the record
date, you have the right to instruct the insurance company that issued your
contract as to how the shares of the Acquired Series attributable to your
contract should be voted. If no voting instructions are received, the insurance
company will vote the shares attributable to your contract in proportion ("for"
or "withhold authority") to those shares for which instructions are received. As
a result, a small number of contract owners could determine the outcome of the
vote if other contract owners fail to vote. It is thus particularly important
that you vote your shares.
HOW DO I PLACE MY VOTE?
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 9, 2010.
PROMPT EXECUTION AND RETURN OF THE ENCLOSED PROXY CARD IS REQUESTED. A
SELF-ADDRESSED, POSTAGE-PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE, ALONG
WITH INSTRUCTIONS ON HOW TO VOTE OVER THE INTERNET OR BY TELEPHONE SHOULD YOU
PREFER TO VOTE BY ONE OF THOSE METHODS.
SBL FUND
One Security Benefit Place
Topeka, KS 66636-0001
(Toll Free) (800) 888-2461
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF
SBL FUND, SERIES H (ENHANCED INDEX SERIES)
TO BE HELD APRIL 9, 2010
To the Shareholders:
The Board of Directors of SBL Fund has called a special meeting of shareholders
of SBL Fund, Series H (Enhanced Index Series) (the "Acquired Series") to be held
on April 9, 2010 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 SBL Fund, Series A
(Equity Series) (the "Acquiring Series"), 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 February 24, 2010 are
entitled to notice of, and to vote at, the Special Meeting. Your attention is
called to the accompanying Proxy Statement/Prospectus. You 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 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
YOUR VOTE IS VERY IMPORTANT TO US REGARDLESS OF THE NUMBER OF VOTES YOU HOLD. 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
11:59 P.M. (CENTRAL TIME) ON APRIL 8, 2010.
March 10, 2010
TABLE OF CONTENTS
INTRODUCTION......................................................................................................................1
SUMMARY 3
THE PROPOSED REORGANIZATION..............................................................................................3
A NOTE ABOUT A TRANSACTION INVOLVING THE INVESTMENT MANAGER..............................................................4
COMPARISON OF INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES, RISKS AND MANAGEMENT OF
THE SERIES...............................................................................................................4
PRINCIPAL RISKS OF INVESTING IN THE SERIES...............................................................................7
COMPARISON OF FEES AND EXPENSES FOR THE SERIES....................................................................................8
COMPARISON OF ANNUAL OPERATING EXPENSES..................................................................................8
EXAMPLE 8
COMPARISON OF SERIES PERFORMANCE..................................................................................................9
PERFORMANCE OF THE SERIES................................................................................................9
ADDITIONAL INFORMATION ABOUT THE SERIES..........................................................................................11
INVESTMENT MANAGER......................................................................................................11
SUB-ADVISER OF THE ACQUIRED SERIES......................................................................................11
PORTFOLIO MANAGERS OF THE ACQUIRING SERIES..............................................................................11
PORTFOLIO MANAGER OF THE ACQUIRED SERIES................................................................................11
ADMINISTRATOR, TRANSFER AGENT AND PRINCIPAL UNDERWRITER.................................................................12
FORM OF ORGANIZATION AND KEY DIFFERENCES IN SHAREHOLDER RIGHTS..........................................................12
INFORMATION ABOUT THE REORGANIZATION.............................................................................................12
THE REORGANIZATION PLAN.................................................................................................12
REASONS FOR THE REORGANIZATION..........................................................................................12
BOARD CONSIDERATIONS....................................................................................................12
TAX CONSIDERATIONS......................................................................................................13
IMPORTANT INFORMATION ABOUT PORTFOLIO TRANSITIONING.....................................................................13
EXPENSES OF THE REORGANIZATION..........................................................................................13
CAPITALIZATION OF THE SERIES............................................................................................14
GENERAL INFORMATION..............................................................................................................14
OTHER BUSINESS..........................................................................................................14
PROXY SOLICITATION......................................................................................................14
SHAREHOLDER VOTING......................................................................................................14
VOTE REQUIRED...........................................................................................................15
EFFECT OF ABSTENTIONS...................................................................................................15
CONSUMMATION OF THE REORGANIZATION AND SHAREHOLDER VOTE ON NEW INVESTMENT ADVISORY
AGREEMENTS.....................................................................................................15
SHAREHOLDER REPORTS.....................................................................................................15
SHAREHOLDER PROPOSALS...................................................................................................15
i
INFORMATION ABOUT THE SERIES............................................................................................15
MORE INFORMATION REGARDING THE SERIES............................................................................................16
PURCHASE AND REDEMPTION OF SHARES.......................................................................................16
REVENUE SHARING PAYMENTS................................................................................................16
MARKET TIMING/SHORT-TERM TRADING........................................................................................16
DISTRIBUTIONS AND FEDERAL INCOME TAX CONSIDERATIONS.....................................................................17
DETERMINATION OF NET ASSET VALUE........................................................................................18
FINANCIAL HIGHLIGHTS.............................................................................................................19
APPENDIX A - PLAN OF REORGANIZATION.............................................................................................A-1
APPENDIX B - ADDITIONAL INVESTMENT TECHNIQUES AND ASSOCIATED RISKS..............................................................B-1
APPENDIX C- PERFORMANCE UPDATE FOR THE ACQUIRING SERIES.........................................................................C-1
APPENDIX D - OWNERSHIP INFORMATION..............................................................................................D-1
ii
PROXY STATEMENT
FOR
SBL FUND, SERIES H (ENHANCED INDEX SERIES)
PROSPECTUS
FOR
SBL FUND, SERIES A (EQUITY SERIES)
One Security Benefit Place
Topeka, Kansas 66636-0001
(Toll Free) (800) 888-2461
INTRODUCTION
This combined proxy statement/prospectus (the "Proxy Statement/Prospectus") and
the enclosed notice and proxy card are being furnished in connection with the
solicitation of proxies by the Board of Directors (the "Board") of SBL Fund for
use at a special meeting of shareholders of SBL Fund, Series H (Enhanced Index
Series) (the "Acquired Series"), to be held at the executive offices of SBL
Fund, One Security Benefit Place, Topeka, Kansas 66636-0001, on April 9, 2010 at
1:00 p.m. (Central Time), and at any and all adjournment(s) or postponement(s)
thereof (the "Special Meeting"). The Board has called the Special Meeting and is
soliciting proxies from shareholders of the Acquired Series to vote on the
proposed reorganization (the "Reorganization") of the Acquired Series into SBL
Fund, Series A (Equity Series) (the "Acquiring Series" and together with the
Acquired Series, the "Series"). This Proxy Statement/Prospectus provides
information about the proposed reorganization. The Proxy Statement/Prospectus is
being first mailed to shareholders on or about March 10, 2010.
Shares of the Series are not offered directly to the public but are sold only to
certain insurance companies and their separate accounts as the underlying
investment medium for owners of variable annuity contracts and variable life
insurance policies. As such, Security Benefit Life Insurance Company and First
Security Benefit Life Insurance and Annuity Company of New York (each an
"Insurance Company and collectively, the "Insurance Companies") are the only
shareholders of record of the Acquired Series. As the shareholders of record of
the Acquired Series, the Insurance Companies have sole voting and investment
power with respect to the shares, but generally will pass through any voting
rights to insurance contract owners. As such and for ease of reference
throughout the Proxy Statement/Prospectus, insurance contract owners may be
referred to as "shareholders" of the Acquired Series.
You have received this Proxy Statement/Prospectus because you have an insurance
contract issued by of one of the Insurance Companies and you are invested in the
Acquired Series as of the close of business on February 24, 2010 (the "Record
Date"). You have the right to give voting instructions on shares of the Acquired
Series that are attributable to your insurance contract, if your voting
instructions are properly submitted and received prior to the Special Meeting.
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.
If shareholders of the Acquired Series approve the proposed Reorganization and
the Reorganization is consummated, the Acquired Series will transfer all of its
assets and liabilities to the Acquiring Series in exchange solely for shares of
the Acquiring Series. Following the transfer of its assets and liabilities to
the Acquiring Series in exchange for shares of the Acquiring Series, the
Acquired Series will distribute to you your pro rata portion of the shares of
the Acquiring Series that it receives in the Reorganization. You will receive
shares of the Acquiring Series having an aggregate value equal to the aggregate
value of shares of the Acquired Series held by you immediately prior to the
Reorganization. Following the Reorganization, the Acquired Series will
liquidate.
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 March 10,
2010 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, 2009, each
of which is incorporated herein by reference (File No. 002-59353) and is
available, without charge, by calling (800) 888-2461. The SBL Fund annual report
for the fiscal year ended December 31, 2008 and the SBL Fund semi-annual report
for the six month period ended June 30, 2009 are also incorporated herein by
reference (File No. 811-02753).
You may obtain proxy materials, reports and other information filed by SBL Fund
from the SEC's Public Reference Section (1-202-551-8090) 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
1
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: MARCH 10, 2010
2
SUMMARY
You should read this entire Proxy Statement/Prospectus and accompanying
materials carefully. For additional information, you should consult the SBL Fund
Prospectus and the proposed Plan of Reorganization (the "Reorganization Plan"),
a form of which is attached hereto as Appendix A.
THE PROPOSED REORGANIZATION -- On January 21, 2010, the Board approved the
Reorganization Plan. 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 April 23, 2009, or on a later date as the parties may agree (the
"Closing Date"). As a result of the Reorganization, each shareholder of the
Acquired Series will become a shareholder of the Acquiring Series. Each
shareholder of the Acquired Series will hold, immediately after the Closing
Date, 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 Closing Date.
The Acquired Series and the Investment Manager each will bear one-half of the
expenses relating to the Reorganization.
Approval of the Reorganization Plan requires the affirmative vote of a majority
of the outstanding shares 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, which could include
liquidation.
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 The Acquired Series and the Acquiring Series have different investment
objectives: the Acquired Series seeks to outperform Standard & Poor's
500(R) Composite Stock Price Index (the "S&P 500 Index") through stock
selection resulting in different weightings of common stocks relative to
the index while the Acquiring Series seeks long-term growth of capital.
o Both Series pursue their investment objectives by investing at least 80% of
their net assets (including any borrowings for investment purposes) in
equity securities and may invest a portion of their assets in options and
future contracts. However, their principal investment strategies are
generally different. The Acquired Series invests in equity securities of
companies in the S&P 500 Index and futures contracts representative of the
stocks that make up the index, and may overweight/underweight its
investment in a particular stock based on its sub-adviser's quantitative
research. Meanwhile, the Acquiring Series invests in a widely-diversified
portfolio of equity securities (typically of domestic and foreign companies
whose total market value is $5 billion or greater at the time of purchase),
and allocates approximately 50% of its total assets to a large cap growth
strategy and approximately 50% of its total assets to a large cap value
strategy, each managed independently by its investment adviser. In
addition, unlike the Acquired Series, the Acquiring Series' principal
investment strategies explicitly allow it to invest in a variety of
investment vehicles and securities issued by foreign companies.
o Security Investors, LLC (the "Investment Manager" or "Security Investors")
serves as investment adviser for both Series. However, while Security
Investors directly manages the Acquiring Series (without retaining any
sub-adviser), Security Investors has engaged Northern Trust Investments,
N.A. ("NTI") to serve as a sub-adviser to, and directly manage the assets
of, the Acquired Series.
o As a result of the proposed Reorganization, shareholders of the Acquired
Series would invest in the Acquiring Series that is more actively traded
and may have more investment in securities of foreign companies and
technology companies, and therefore could potentially be subject to higher
investment and price volatility risks.
o The annual operating expense ratio for shareholders of the Acquiring Series
could be lower than that of the Acquired Series, effective May 1, 2010,
based on a comparison of (gross) expense ratios for the fiscal year ended
December 31, 2009.
3
o The Acquiring Series is much larger than the Acquired Series and
shareholders in the Acquired Series are expected to benefit from the larger
asset base as a result of the Reorganization.
o Over the three-, five- and ten-year periods, both the Acquired Series and
the Acquiring Series trailed their S&P 500 Index benchmark and the Acquired
Series outperformed the Acquiring Series. However, the Acquiring Series
made certain changes to its investment strategies and management team in
early 2008, and since then it has shown a relatively strong investment
performance record, which was superior to the records of both the Acquired
Series and the S&P 500 Index. (Shareholders should note, however, that past
performance is not an indication of future results.)
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 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."
o If the Reorganization is approved by shareholders, certain holdings of the
Acquired Series could be sold shortly prior to the Closing Date. The
Investment Manager may also sell portfolio securities that the Acquiring
Series acquired from the Acquired Series after the Closing Date. In
addition, both Series may engage in transition management techniques to
facilitate the portfolio transition process. Such sales and purchases could
result in increased transaction costs, all or part of which are ultimately
borne by shareholders. (See the section titled "Important Information About
Portfolio Transitioning" below for additional information.)
A NOTE ABOUT A TRANSACTION INVOLVING THE INVESTMENT MANAGER -- Both the Acquired
Series and the Acquiring Series use the Investment Manager as their investment
adviser. Security Benefit Mutual Holding Co. ("SBHC"), the parent company of the
Investment Manager, and certain of SBHC's affiliates have entered into
agreements with an investor group (the "Investors") led by Guggenheim Partners,
LLC, under which the Investors will acquire control of the Investment Manager
and affiliates (the "Transaction"). Guggenheim Partners, LLC is a global,
independent, privately held, diversified financial services firm with more than
$100 billion in assets under supervision. The Transaction should not result in
material changes to the day-to-day management and operations of the Series or
any increase in fees. However, the Transaction will result in a change in
control of the Investment Manager within the meaning of the Investment Company
Act of 1940. This will, in turn, result in the termination of the current
investment advisory agreements between the Investment Manager and each of the
Series. At a separate meeting to be held on or about April 23, 2010,
shareholders of record on February 24, 2010 of each Series will be asked to
approve a new investment advisory agreement between Security Investors and the
Series. A proxy statement, which is distinct from this Proxy
Statement/Prospectus and which contains information about the change of control
and the new investment advisory agreements, is also being mailed to shareholders
of both Series. The consummation of Reorganization is contingent upon the
approval of the new investment advisory agreements by shareholders of both
Series if such vote takes place. Thus, upon shareholder approval of the
Reorganization Plan, if a vote on the new investment advisory agreements by
shareholders of the Series takes place, the Reorganization will be consummated
only if shareholders of both Series approve the Series' respective new
investment advisory agreements.
COMPARISON OF INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES, RISKS AND
MANAGEMENT OF THE SERIES
The investment objectives, principal investment strategies, and risks of the
Series are generally different, although similar in several respects. The chart
below summarizes the primary 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.
------------------------------------------------------------------------------------------------------------------------------------
THE ACQUIRED SERIES THE ACQUIRING SERIES
------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OBJECTIVE The Acquired Series seeks to outperform The Acquiring Series seeks long-term growth of capital.
the S&P 500 Index through stock
selection resulting in different
weightings of common stocks relative to
the index.
------------------------------------------------------------------------------------------------------------------------------------
BENCHMARK S&P 500 Index S&P 500 Index
------------------------------------------------------------------------------------------------------------------------------------
4
------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL INVESTMENT STRATEGIES The Acquired Series pursues its The Acquiring Series pursues its objective by investing,
objective by investing, under normal under normal market conditions, at least 80% of its net
market conditions, at least 80% of its assets (plus borrowings for investment purposes) in a
net assets (including any borrowings widely-diversified portfolio of equity securities, which
for investment purposes) in equity may include American Depositary Receipts ("ADRs") and
securities of companies in the S&P 500 convertible securities. The Series typically invests in the
Index and futures contracts equity securities of domestic and foreign companies whose
representative of the stocks that make total market value is $5 billion or greater at the time of
up the index. purchase.
-----------------------------------------------------------
The Acquiring Series pursues its objective by investing,
under normal market conditions, approximately 50% of its
total assets according to a Large Cap Growth strategy
managed by the Investment Manager and approximately 50% of
its total assets according to a Large Cap Value strategy
managed by the Investment Manager.
------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT MANAGER Security Investors Security Investors
------------------------------------------------------------------------------------------------------------------------------------
SUB-ADVISERS NTI None
------------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO MANAGERS Peter C. Stournaras, a portfolio Mark A. Mitchell and Mark P. Bronzo, each a portfolio
manager of NTI manager of the Investment Manager
------------------------------------------------------------------------------------------------------------------------------------
COMPARISON OF SIMILAR o Each Series pursues its investment objective by investing, under normal market conditions, at
PRINCIPAL STRATEGIES least 80% of its net assets (plus borrowings for investment purposes) in equity securities.
INVESTMENT
STRATEGIES o Each Series may also invest a portion of its assets in options and futures contracts. These
instruments may be used to hedge each Series' portfolio, to maintain exposure to the equity
markets, or to increase returns.
o Under adverse or unstable market conditions, each Series could invest some or all of its
assets in cash, fixed-income securities, government bonds, money market securities or
repurchase agreements.
------------------------------------------------------------------------------------------------------------------------------------
DIFFERENCES THE ACQUIRED SERIES
IN STRATEGIES
o The Acquired Series pursues its objective by investing, under normal market conditions,
at least 80% of its net assets (including any borrowings for investment purposes) in
equity securities of companies in the S&P 500 Index and futures contracts
representative of the stocks that make up the index.
o The Investment Manager has engaged NTI to provide investment advisory services to the
Acquired Series as a Sub-Adviser. Using a quantitative discipline, NTI determines
whether the Series should, relative to the proportion of the S&P 500 Index that the
stock represents, (1) overweight - invest more in a particular stock, (2) underweight
- invest less in a particular stock, or (3) hold a neutral position in the stock -
invest a similar amount in a particular stock. In addition, NTI may determine that
certain S&P 500 stocks should not be held by the Series in any amount. NTI believes that
its quantitative criteria will result in a portfolio with an overall risk similar to
that of the S&P 500 Index.
o In addition, to enhance return potential, the Acquired Series may invest a limited
portion of its assets in equity securities that are not included in the S&P 500 Index.
THE ACQUIRING SERIES
o The Acquiring Series pursues its objective by investing, under normal market
conditions, at least 80% of its net assets (plus borrowings for investment purposes) in
a widely-diversified portfolio of equity securities, which may include American
Depositary Receipts ("ADRs") and convertible securities. The Series typically invests in
the equity securities of domestic and foreign companies whose total market value
is $5 billion or greater at the time of purchase.
o The Acquiring Series pursues its objective by investing, under normal market
conditions, approximately 50% of its total assets according to a Large Cap Growth
strategy managed by the Investment Manager and approximately 50% of its total assets
according to a Large Cap Value strategy managed by the Investment Manager.
------------------------------------------------------------------------------------------------------------------------------------
5
------------------------------------------------------------------------------------------------------------------------------------
o The Investment Manager manages its allocation of the Acquiring Series' assets
according to each respective strategy, and the trading decisions with respect to each
strategy are made independently. In order to maintain the target allocations between the
two strategies, all daily cash inflows (purchases and reinvested distributions) and
outflows (redemptions and expense items) will be divided between the two strategies,
as appropriate. The Investment Manager will rebalance the allocation to the Acquiring
Series' strategies promptly to the extent the percentage of the Series' assets
allocated to either strategy equals or exceeds 60% of the Series' total assets.
o The Investment Manager in its discretion may make adjustments if either of the strategies
becomes over- or under-weighted as a result of market appreciation or depreciation.
Accordingly, the performance of the Acquiring Series could differ from the
performance of each strategy if either had been maintained as a separate portfolio. As
a consequence of the Investment Manager's efforts to maintain assets between the two
strategies at the targeted percentages, the Investment Manager will allocate assets and
rebalance when necessary by (1) allocating cash inflow to the strategy that is below
its targeted percentage or (2) selling securities in the strategy that exceeds its
targeted percentage with proceeds being reallocated to the strategy that is below
its targeted percentage. To the extent that the sales of securities as part of these
reallocations result in higher portfolio turnover, this active trading may increase
the costs the Series incurs.
o In choosing equity securities, the Investment Manager uses a blended approach,
investing in growth stocks and value stocks, and may, to the extent consistent with the
Acquiring Series' investment policies, invest in a limited number of industries or
industry sectors, including the technology sector. Growth-oriented stocks are stocks of
established companies that typically have a record of consistent earnings growth. The
Investment Manager typically chooses growth-oriented companies through a
combination of a qualitative top-down approach in reviewing growth trends that is
based upon several fixed income factors, such as bond spreads and interest rates, and
a quantitative bottom-up approach. The Investment Manager will also invest in
value-oriented stocks. Value-oriented companies appear to be undervalued relative
to assets, earnings, growth potential or cash flows. The Investment Manager uses a
blend of qualitative analysis and fundamental research to identify securities
that appear favorably priced and that may be able to sustain or improve their pre-tax
ROIC (Return on Invested Capital) over time. The Series typically sells a security when
the reasons for buying it no longer apply, when the company begins to show
deteriorating fundamentals or poor relative performance, or falls short of the
Investment Manager's expectations.
o The Acquiring Series may invest in a variety of investment vehicles, including those that
seek to track the composition and performance of a specific index, such as
exchange traded funds ("ETFs") and other mutual funds. The Series may use these
index-based investments as a way of managing its cash position, to gain exposure to the
equity markets, or a particular sector of the equity market, while maintaining liquidity.
o Although the Acquiring Series primarily invests in securities issued by domestic
companies, there is no limit in the amount that the Series may invest in securities
issued by foreign companies.
------------------------------------------------------------------------------------------------------------------------------------
COMPARISON OF SIMILAR RISKS o Under adverse or unstable market conditions, each Series' policies allow it to invest some or
PRINCIPAL RISKS all of its assets in cash, fixed-income securities, government bonds, money market securities or
repurchase agreements 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 Equity Derivatives Risk
o Growth Stocks Risk
o Leverage Risk
o Market Risk
------------------------------------------------------------------------------------------------------------------------------------
DIFFERENCES o In addition to the above risks, the Acquiring Series is also subject to the following principal
IN RISKS investment risks:
o Active Trading Risk
o Foreign Securities Risk
o Interest Rate Risk
o Investment in Investment Vehicles Risk
------------------------------------------------------------------------------------------------------------------------------------
6
------------------------------------------------------------------------------------------------------------------------------------
o Smaller Companies Risk
o Value Stocks 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 Series." In addition, Appendix B contains additional information regarding
other investment strategies and risk considerations of the Series.
------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL RISKS OF INVESTING IN THE SERIES - The discussion below provides more
information about the 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 means only that it is not a principal
risk of investing in the Series, but it does not mean that a Series is
prohibited from investing its assets in securities or other assets 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.
ACTIVE TRADING RISK -- Active trading will increase the costs a Series incurs
because of higher brokerage charges or mark-up charges, which are passed on to
shareholders and, as a result, may lower a Series' performance. It may also
result in short-term capital gains, which may increase the amount of tax an
investor pays on a Series' returns.
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 the Series' other portfolio holdings, lack of
availability, counterparty risks, valuation risk and legal restrictions. In
addition, when a Series sells covered call options, it receives cash but limits
its opportunity to profit from an increase in the market value of the security
beyond the exercise price (plus the premium received). The gain may be less than
if the Series had not sold an option on the underlying security. Accordingly,
there is the risk that such practices may fail to serve their intended purposes
and may reduce returns or increase volatility. There is also the risk that a
Series could lose more than the amount the Series invested in the derivates.
These practices also entail transactional expenses and may cause a Series to
realize higher amounts of short-term capital gains than if the Series had not
engaged in such transactions.
FOREIGN SECURITIES RISK -- Investing in foreign investments, including investing
in foreign securities through ADRs, involves 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; (vi) higher
operational expenses; and (vii) illiquidity. These risks may even be higher in
underdeveloped markets.
Foreign investments are normally issued and traded in foreign currencies. As a
result, their values may be affected by changes in the exchange rates between
particular foreign currencies and the U.S. dollar. Foreign investments may be
subject to the risks of seizure by a foreign government, imposition of
restrictions on the exchange or transport of foreign currency, and tax
increases. There may also be less information publicly available about a foreign
company than about most U.S. companies, and foreign companies are usually not
subject to accounting, auditing and financial reporting standards and practices
comparable to those in the United States. The legal remedies for investors in
foreign investments may be more limited than those available in the United
States. Certain foreign investments may be less liquid (harder to buy and sell)
and more volatile than domestic investments, which means a Series may at times
be unable to sell its foreign investments at desirable prices. For the same
reason, a Series may at times find it difficult to value its foreign
investments. Brokerage commissions and other fees are generally higher for
foreign investments than for domestic investments. The procedures and rules for
settling foreign transactions may also involve delays in payment, delivery or
recovery of money or investments. Foreign withholding taxes may reduce the
amount of income available to distribute to shareholders of the Series.
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.
INVESTMENT IN INVESTMENT VEHICLES RISK -- Investments in investment companies or
other investment vehicles may include index-based unit investment trusts such as
Standard & Poor's Depositary Receipts ("SPDRs") and similar securities of other
investment companies or other investment vehicles, including ETFs. Such
index-based investments sometimes hold substantially all of their assets in
securities representing a specific index. In the case of SPDRs, the index
represented is the S&P 500, but a Series may invest in other index-based
investments designed to track other indexes or market sectors. To the extent a
Series invests in other investment companies or investment vehicles, it will
incur its pro rata share of the underlying investment companies' or investment
vehicles'
7
expenses, such as investment advisory and other management expenses, and
shareholders will be required to pay the operating expenses of two or more
investment vehicles. In addition, a Series will be subject to the effects of
business and regulatory developments that affect an underlying investment
company or vehicle or the investment company industry generally. The Series may
use index-based investments as a way of managing its cash position, to maintain
liquidity while gaining exposure to the equity markets, or a particular sector
of the equity market, or to seek to avoid losses in declining market conditions.
LEVERAGE RISK -- The use of derivatives may create leveraging 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 leveraging risk, each
Series segregates liquid assets to meet its obligations under, or otherwise
covers, the trans-actions that may give rise to this risk. Leverage can also
arise through the use of derivates.
MARKET RISK -- Most securities fluctuate in price, and equity 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.
Volatility of financial markets can expose a Series to greater market risk,
possibly resulting in greater liquidity risk. Market conditions also may lead to
increased regulation of a Series and the instruments in which a Series may
invest, which may, in turn, affect the Series' ability to pursue its investment
objective and the Series' performance.
OVERWEIGHTING RISK -- Overweighting investments in certain sectors or industries
of the stock market increases the risk that a Series will suffer a loss because
of general declines in the prices of stocks in those sectors or industries.
TECHNOLOGY STOCKS RISK -- Companies in the rapidly changing field of technology
often face unusually high price volatility, in terms of both gains and losses.
The potential for wide variation in performance is based on the special risks
common to these stocks. For example, products or services that at first appear
promising may not prove commercially successful or may become obsolete quickly.
Earnings disappointments can result in sharp price declines. The level of risk
will be increased to the extent that the Series has significant exposure to
smaller or unseasoned companies (those with less than a three-year operating
history), which may not have established products or more experienced
management.
VALUE STOCK RISK -- Investments in value stocks are subject to the risk that
their intrinsic values may never be realized by the market or that their prices
may go down. While a Series' investments in value stocks may limit downside risk
over time, a Series may, as a trade-off, produce more modest gains than riskier
stock funds.
COMPARISON OF FEES AND EXPENSES FOR THE SERIES
The following describes and compares the fees and expenses that you may pay if
you buy and hold shares of each Series.
COMPARISON OF ANNUAL OPERATING EXPENSES - The current expenses of the Acquired
and the Acquiring 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 twelve month period
ended June 30, 2009. Pro forma fees and expenses show estimated fees and
expenses of the Acquiring Series after giving effect to the proposed
Reorganization as of June 30, 2009. 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(1) ACQUIRING SERIES PRO FORMA
-----------------------------------------------------------------------------------------------------
Advisory Fees 0.75% 0.75% 0.75%
-----------------------------------------------------------------------------------------------------
Other expenses 0.29% 0.17% 0.17%
-----------------------------------------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES 1.04% 0.92% 0.92%
-----------------------------------------------------------------------------------------------------
---------------
(1) The Investment Manager's contractual agreement to waive 0.25% of its
investment advisory fee for the Acquired Series will expire on April 30,
2010. Effective May 1, 2010, the Investment Manager has contractually
agreed to cap the total annual expenses of the Acquired Series at 1.00%
(excluding interest, taxes, extraordinary expenses, brokerage fees and
commissions.
EXAMPLES - 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.
8
The example assumes that you invest $10,000 in each Series and in the Acquiring
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.
-------------------------------------------------------------------------
ACQUIRED SERIES ACQUIRING SERIES PRO FORMA
-------------------------------------------------------------------------
1 Year $ 106 $ 94 $ 94
-------------------------------------------------------------------------
3 Years $ 331 $ 293 $ 293
-------------------------------------------------------------------------
5 Years $ 574 $ 509 $ 509
-------------------------------------------------------------------------
10 Years $1,271 $1,131 $1,131
-------------------------------------------------------------------------
COMPARISON OF SERIES PERFORMANCE
PERFORMANCE OF THE SERIES - The charts and tables below provide some indication
of the risks of investing in each Series by showing changes in the Series'
performance from year to year and by showing how the Series' average annual
returns have compared to those of the S&P 500 Index, a broad-based securities
market index. The tables also show how each Series' average annual total returns
for the periods indicated compare to those of the S&P 500 Index. Fee waivers
and/or reimbursements may have reduced expenses of the Series, and in the
absence of such waivers and/or reimbursements, the performance would be reduced.
The performance does not reflect fees and expenses associated with an investment
in variable insurance products through which shares of each Series are purchased
and, if such fees and expenses were reflected, the performance would be lower.
As with all mutual funds, past performance is not a prediction of future
results.
ACQUIRED SERIES - SERIES H (ENHANCED INDEX SERIES)(1)
HIGHEST AND LOWEST RETURNS
(Quarterly 2000-2009)
----------------------------------------------------
HIGHEST QUARTER
Q2 ended June 30, 2009 16.16%
LOWEST QUARTER
Q4 ended December 31, 2008 (22.70)%
Bar Chart:
2000 10.20%
2001 (12.99%)
2002 (22.98%)
2003 27.78%
2004 9.85%
2005 5.04%
2006 15.55%
2007 0.99%
2008 (37.57)%
2009 26.65%
----------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 2009)
----------------------------------------------------------------------------------------------------------------------------
1 Year 5 Years 10 Years
----------------------------------------------------------------------------------------------------------------------------
Series H 26.65% (0.62)% (1.98)%
----------------------------------------------------------------------------------------------------------------------------
S&P 500 Index (reflects no deduction for fees, expenses or taxes)(2) 26.46% 0.42% (0.95)%
----------------------------------------------------------------------------------------------------------------------------
1 NTI was engaged to provide investment advisory services to Series H
effective May 1, 2003.
2 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.
--------------------------------------------------------------------------------
9
ACQUIRING SERIES - SERIES A (EQUITY SERIES)
HIGHEST AND LOWEST RETURNS
(Quarterly 1999-2009)
----------------------------------------------------
HIGHEST QUARTER
Q3 ended September 30, 2009 16.91%
LOWEST QUARTER
Q4 ended December 31, 2008 (21.97)%
Bar Chart:
2000 -12.76%
2001 -11.41%
2002 -24.10%
2003 21.74%
2004 7.77%
2005 4.33%
2006 12.89%
2007 -4.88%
2008 -37.40%
2009 29.84%
----------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(through December 31, 2009)
----------------------------------------------------------------------------------------------------------------------------
1 Year 5 Years 10 Years
----------------------------------------------------------------------------------------------------------------------------
Series A 29.84% (1.86)% (3.49)%
----------------------------------------------------------------------------------------------------------------------------
S&P 500 Index (reflects no deduction for fees, expenses or taxes)(1) 26.46% 0.42% (0.95)%
----------------------------------------------------------------------------------------------------------------------------
1 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.
----------------------------------------------------------------------------------------------------------------------------
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.
10
ADDITIONAL INFORMATION ABOUT THE SERIES
INVESTMENT MANAGER- Security Investors, LLC, One Security Benefit Place, Topeka,
Kansas 66636, serves as investment manager to the Series. On December 31, 2009,
the aggregate assets of all accounts under management of the Investment Manager
were approximately $4.4 billion.
The Investment Manager has overall responsibility for the management of each
Series pursuant to an investment advisory contract with the Series. The
Investment Manager, subject to the control and supervision of the Board,
furnishes investment advisory, statistical and research facilities, supervises
and arranges for the purchase and sale of securities on behalf of the Series,
and provides for the compilation and maintenance of records pertaining to the
investment advisory function. For such services, the Investment Manager is
entitled to receive compensation on an annual basis equal to 0.75% of the
average net assets of each Series. If the proposed Reorganization is approved by
shareholders of the Acquired Series, the Acquiring Series will continue to pay
the same advisory fee currently in place.
SUB-ADVISER OF THE ACQUIRED SERIES
The Investment Manager and the Series have received from the SEC an exemptive
order for a multi manager structure that allows the Investment Manager to hire,
replace or terminate sub-advisers for the Series without the approval of
shareholders. While the Investment Manager directly manages the Acquiring Series
(without retaining any sub-adviser), the Investment Manager has engaged NTI, 50
South LaSalle Street, Chicago, Illinois 60603, to provide investment advisory
services to the Acquired Series. The Investment Manager, and not the Acquired
Series, is responsible for payment of sub-advisory fees to NTI. Shareholders
should note that the Investment Manager could have an interest in the proposed
Reorganization because, if the Reorganization is approved, it will no longer
have to pay sub-advisory fees to NTI for its sub-advisory services to the
Acquired Series.
NTI is an investment adviser registered under the Investment Advisers Act of
1940, as amended. NTI primarily manages assets for defined contribution and
benefit plans, investment companies and other institutional investors. NTI is a
subsidiary of The Northern Trust Company ("TNTC"). TNTC is an Illinois state
chartered banking organization and a member of the Federal Reserve System.
Formed in 1889, TNTC administers and manages assets for individuals, personal
trusts, defined contribution and benefit plans and other institutional and
corporate clients. TNTC is the principal subsidiary of Northern Trust
Corporation, a company that is regulated by the Board of Governors of the
Federal Reserve System as a financial holding company under the U.S. Bank
Holding Company Act of 1956, as amended. Northern Trust Corporation, through its
subsidiaries, has for more than 100 years managed the assets of individuals,
charitable organizations, foundations and large corporate investors. As of
September 30, 2009, Northern Trust Corporation had approximately $610.5 billion
in assets under management.
A discussion regarding the basis of the Board's approval of the Acquiring
Series' investment advisory agreement and the basis of the Board's approval of
the Acquired Series' investment advisory and sub-advisory agreements is
available in the Series' annual report for the fiscal year ended December 31,
2008.
PORTFOLIO MANAGERS OF THE ACQUIRING SERIES
MARK A. MITCHELL, Portfolio Manager of the Investment Manager, has managed the
Acquiring Series since February 2004 (co-managing with Mark Bronzo since
February 2008. Prior to joining the Investment Manager, Mr. Mitchell was
employed by GE Investments and its successor company, GE Asset Management, from
1994 to 2002 in the following positions: Senior Financial Analyst, Taxable Fixed
Income from 1994 to 1995; Sector Portfolio Manager and Research Analyst from
1996 to 1998; Vice President, Assistant Portfolio Manager from 1998 to 1999;
Vice President, Sector Portfolio Manager and Research Analyst from 1999 to 2001;
and most recently as Vice President, Portfolio Manager, U.S. Equities. Prior to
1994, Mr. Mitchell served in various positions with GE Capital. Mr. Mitchell
holds a Bachelor of Science degree with an emphasis in Finance from the
University of Nebraska and is a graduate of the GE Financial Management Program.
He is a Chartered Financial Analyst charterholder.
MARK P. BRONZO, Portfolio Manager of the Investment Manager, has been the
co-manager of the Acquiring Series since February 2008. Prior to joining the
Investment Manager in 2008, he was a Managing Director and member of the Board
of Managers of Nationwide Separate Accounts, LLC, the successor advisor to
Groupama Asset Management N.A. ("GAMNA") and Chairman, President and Chief
Executive Officer of Gartmore Mutual Funds II, Inc. From 1995 to 2003, he served
as Senior Vice President, Managing Director, and Board member of GAMNA. Mr.
Bronzo earned a Bachelor of Arts degree in Economics from Boston College and an
MBA in Finance from New York University. He is a Chartered Financial Analyst
charterholder.
PORTFOLIO MANAGER OF THE ACQUIRED SERIES
PETER C. STOURNARAS, Senior Vice President of NTI, has been manager of the
Acquired Series since May 2008. He joined NTI in 2006 and is a quantitative
equity senior portfolio manager and researcher. From 1998 to 2006, Mr.
Stournaras was with Legg Mason/Citigroup Asset Management where he was a
director of quantitative analysis as well as a quantitative analyst and senior
portfolio manager. Mr. Stournaras received a Bachelor of Science in management
information systems from Rensselaer Polytechnic
11
Institute and a Masters of Business Administration from Columbia Business
School. Mr. Stournaras is a Chartered Financial Analyst charter-holder, a member
of the Stamford Society of Investment Analysts and the Chicago Quantitative
Alliance.
The Statement of Additional Information of the Series provides additional
information about the portfolio managers' compensation, other accounts managed,
and ownership of shares of the Series.
ADMINISTRATOR, TRANSFER AGENT AND PRINCIPAL UNDERWRITER. The Investment Manager
also serves as administrative agent and transfer agent to each Series. Security
Distributors, Inc., One Security Benefit Place, Topeka, KS 66636-0001, and Rydex
Distributors, Inc., 9601 Blackwell Road, Suite 500, Rockville, Maryland 20850,
serve as the principal underwriters/distributors of the Series. The Investment
Manager, Security Distributors, Inc. and Rydex Distributors, Inc. are affiliates
of each other.
FORM OF ORGANIZATION AND KEY DIFFERENCES IN SHAREHOLDER RIGHTS - Each 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 six directors. There are no key differences in the rights of shareholders of
the Acquiring Series and the Acquired Series.
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 Date.
Until the Closing Date, shareholders of the Acquired Series will continue to be
able to redeem their shares. Redemption requests received after the Closing Date
will be treated as requests received by the Acquired Series for the redemption
of Acquiring Series shares received by the shareholders 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 mutual agreement of the parties or on certain other grounds.
The foregoing summarizes the material aspects of the Reorganization Plan. For a
complete description of the terms and conditions of the Reorganization, see the
form of the Reorganization Plan at Appendix A, which qualifies in its entirety
the foregoing summary of the Reorganization Plan.
REASONS FOR THE REORGANIZATION -- The Acquiring Series has shown a strong
investment performance record over the past year, which was superior to the
performance of the S&P 500 Index, its benchmark index, and the performance of
the Acquired Series, over this same period. While both Series have the same
investment advisory fee ratio, the Acquiring Series' annual operating ratio
could be lower than that of the Acquired Series, effective May 1, 2010, based on
a comparison of historical (gross) expense ratios. Furthermore, 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
and which would allow shareholders of the Acquired Series to continue to
participate in a professionally managed portfolio. Also, a larger Acquiring
Series may offer the potential benefits of a more diversified portfolio of
securities and improve trading efficiency, and may eventually realize economies
of scale and lower operating expenses. Also, it had been proposed in 2008 that
the Acquired Series be reorganized into another series of SBL Fund, but because
that series was closed to new investments, the reorganization never took place.
Based upon these considerations, management of the Series has recommended the
Reorganization.
The proposed Reorganization was presented to the Board for consideration and
approval at the meeting held on January 21, 2010. 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. the Reorganization would not dilute the interests of either Series'
current shareholders;
12
2. over the three-, five- and ten-year periods, both the Acquired Series and
the Acquiring Series trailed their S&P 500 Index benchmark and the
Acquired Series outperformed the Acquiring Series. However, the Acquiring
Series made certain changes to its investment strategies and management
team in early 2008, and since then it has shown a relatively strong
investment performance record, which was superior to the performance
records of both the Acquired Series and the S&P 500 Index, while the
Acquired Series' performance remains below expectations;
3. the similarities and differences between the investment objectives and
strategies of the Acquired Series and the Acquiring Series;
4 expense ratios and information regarding fees and expenses of the Acquired
Series and the Acquiring Series, which indicate that the current
shareholders of the Acquired Series will incur the same investment
advisory fee ratio and effective May 1, 2010, could potentially have a
lower annual operating expense ratio as a result of the Reorganization;
5. the extent to which the combined Acquiring Series may realize increased
investment opportunities and enhanced portfolio diversification and/or
liquidity after the Reorganization;
6. benefits to Security Investors, such as it would no longer have to make
any sub-advisory fee payments to the Acquired Series' sub-adviser or waive
any advisory fees for the Acquired Series as a result of the
Reorganization;
7. the pending change of control of Security Investors as a result of the
acquisition of control of Security Investors by an investor group let by
Guggenheim Partners, LLC, although this change should not result in
material changes to the day-to-day management and operations of the Series
or any increase in fees;
8. the tax-free nature of the Reorganization to each Series and its
shareholders; and
9. the Reorganization will allow shareholders of the Acquiring Series to
continue to participate in a professionally managed portfolio;
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.
If the Reorganization Plan is approved by shareholders of the Acquired Series,
then on or as soon as practicable before the Closing Date, the Acquired Series
will pay its shareholders a cash distribution of all undistributed net
investment income and undistributed realized net capital gains. Insurance
contract owners are not expected to recognize any income or gains for federal
income tax purposes from this cash distribution.
IMPORTANT INFORMATION ABOUT PORTFOLIO TRANSITIONING Upon shareholders' approval
of the Reorganization and prior to the Closing Date, the Investment Manager or
NTI (or a portfolio transition manager specifically appointed to assist with the
transition) may sell a portion of the Acquired Series' holdings to transition
the Acquired Series' portfolio holdings to the Acquiring Series. The proceeds of
such sales may be held in temporary investments or invested in assets that the
Acquiring Series may hold or wish to hold. After the Closing Date, the
Investment Manager may also sell Acquiring Series portfolio securities that were
acquired from the Acquired Series, and the Acquiring Series may not be
immediately fully invested in accordance with its long-term investment
strategies. Both Series also may engage in a variety of transition management
techniques to facilitate the portfolio transition process. During this
transition period, the Acquired Series may not be pursuing its investment
objective and strategies, and certain previous non-fundamental limitations on
permissible investments and investment restrictions may not apply. Furthermore,
sales and purchases of securities by the Series may be made at disadvantageous
times, could result in increased transactional costs (all or part of which are
ultimately borne by shareholders).
EXPENSES OF THE REORGANIZATION -- The Investment Manager and Acquired Series
each will bear one-half of the expenses relating to the Reorganization. The
expenses of the Reorganization include, but are not limited to, expenses
associated with preparation of the Acquiring Series' registration statement,
printing and distributing the Acquiring Series' prospectus and the Acquired
Series' proxy
13
materials, proxy solicitation expenses, legal fees, accounting fees, securities
registration fees, and expenses of holding the Special Meeting, which are
estimated to be approximately $63,000.
CAPITALIZATION OF THE SERIES - The following table shows on an unaudited basis
the capitalization of each Series as of June 30, 2009 and on a pro forma basis
as of June 30, 2009, after giving effect to the Reorganization.
---------------------------- ------------------------- ------------------------- ------------------------- -------------------------
ACQUIRED SERIES ACQUIRING SERIES ADJUSTMENT PRO FORMA
---------------------------- ------------------------- ------------------------- ------------------------- -------------------------
Net Assets $40,949,069 $160,509,700 $201,458,769
---------------------------- ------------------------- ------------------------- ------------------------- -------------------------
Net Assets Per Share $7.19 $16.26 $16.26
---------------------------- ------------------------- ------------------------- ------------------------- -------------------------
Shares Outstanding 5,692,726 9,873,224 2,518,393 12,391,617
---------------------------- ------------------------- ------------------------- ------------------------- -------------------------
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 March 15,
2010, but proxies may also be solicited by telephone and/or in person by
representatives of the Investment Manager or its affiliate(s), or The Altman
Group, 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 these
parties 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 The Altman Group
is approximately $21,000.
As previously discussed, the costs of the Special Meeting, including the costs
of retaining The Altman Group, 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 borne by the Investment Manager and Acquired Series .
SHAREHOLDER VOTING. Shareholders of the Acquired Series who own shares at the
close of business on the Record Date will be entitled to notice of, and vote at,
the Special Meeting. Shareholders are entitled to one vote for each share held
and fractional votes for fractional shares held. The number of shares of the
Acquired Series as to which a shareholder's voting instruction may be given to
SBL Fund is determined by dividing the amount of the shareholder's variable
contract account value attributable to the Acquired Series on the Record Date by
the net asset value per share of the Acquired Series as of the same date.
Fractional votes will be counted. As of the Record Date, there were issued and
outstanding [ ] shares of the Acquired Series.
The Insurance Companies who are known to have owned of record or beneficially 5%
or more of each Series' outstanding shares as of the Record Date are set forth
in Appendix D. As of the Record Date, SBL Fund's Directors and officers, as a
group, owned less than 1.00% of the outstanding shares of the each Series.
The Insurance Companies that use shares of the Acquired Series as funding media
for their variable annuity contracts and variable life policies will vote shares
of the Acquired Series held by their separate accounts in accordance with the
instructions received from owners of the variable insurance contracts. An
Insurance Company also will vote shares of the Acquired Series held in such
separate account for which it has not received timely instructions in the same
proportion as it votes shares held by that separate account for which it has
received instructions. As a result, a small number of owners of variable annuity
contracts and variable life policies could determine the outcome of the vote if
other owners fail to vote.
The presence in person or by proxy of the holders of a majority of the
outstanding shares of the Acquired Series entitled to vote on the Record Date is
required to constitute a quorum at the Special Meeting, 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.
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
14
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, via Internet, by telephone, or in person
by following the enclosed instructions. IF YOU VOTE BY TELEPHONE OR INTERNET,
PLEASE DO NOT RETURN YOUR PROXY CARD, UNLESS YOU LATER ELECT TO CHANGE YOUR
VOTE. You may revoke your proxy: (a) at any time prior to its exercise by
written notice of its revocation to the secretary of SBL Fund prior to the
Special Meeting; (b) by the subsequent execution and return of another proxy
prior to the Special Meeting; or (c) by being present and voting in person at
the Special Meeting and giving oral notice of revocation to the chairman of the
Special Meeting. However, attendance in-person at the Special Meeting, by
itself, will not revoke a previously-tendered proxy.
VOTE REQUIRED. Approval of the Reorganization Plan requires the affirmative vote
of a majority of the outstanding shares of the Acquired Series.
EFFECT OF ABSTENTIONS. Abstentions are counted as shares eligible to vote at the
Special Meeting in determining whether a quorum is present. Assuming the
presence of a quorum, abstentions have the effect of a negative vote on the
proposed Reorganization.
CONSUMMATION OF THE REORGANIZATION AND SHAREHOLDER VOTE ON NEW INVESTMENT
ADVISORY AGREEMENTS. As described above, in a separate proxy statement,
shareholders of record on February 24, 2010 of each of the Acquired Series and
the Acquiring Series are also being asked to approve a new investment advisory
agreement between Security Investors and each respective Series. The
consummation of Reorganization is contingent upon the approval of the new
investment advisory agreements by shareholders of both Series if such vote takes
place. Thus, upon shareholder approval of the Reorganization Plan, if a vote on
the new investment advisory agreements by shareholders of the Series takes
place, the Reorganization will be consummated only if shareholders of both
Series approve the Series' respective new investment advisory agreements.
SHAREHOLDER REPORTS. Shareholders can find important information about the
Series in the Annual Report for the fiscal year ended December 31, 2008 and the
Semi-Annual Report for the six month period ended June 30, 2009. You may obtain
a copy of the Series' Annual and Semi-Annual Reports 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
that are not included herein and that may require a vote (such as proposals
submitted on an untimely basis).
INFORMATION ABOUT THE SERIES. SBL Fund is subject to the informational
requirements of the Securities Exchange Act of 1934, 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
Amy J. Lee
Secretary
SBL Fund
March 10, 2010
One Security Benefit Place
Topeka, Kansas 66636-0001
15
MORE INFORMATION REGARDING THE SERIES
Both the Acquired and Acquiring Series share the following policies:
PURCHASE AND REDEMPTION OF SHARES
Insurance Companies 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 by SBL Fund or
its agents. 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, Inc. (the "NYSE") is open (usually 3:00 p.m. Central
Time).
The Series offer you the option to submit purchase orders through your financial
intermediary or send purchase orders by mail and send purchase proceeds by
check, wire transfer or ACH. The Series do not accept cash or cash equivalents
(such as traveler's checks, money orders or bearer bonds), government checks,
third-party checks, starter checks or checks drawn on a line of credit
(including credit card convenience checks), cashier's checks, or bank checks.
The Series reserve the right to refuse other payment instruments if, in the sole
discretion of management, it is deemed to be in the best interests of the
Series. Retirement contributions will be coded for the year in which they are
received unless otherwise instructed in writing at the time of the contribution.
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 SEC. To the extent
authorized by law, each Series reserves the right to discontinue offering shares
at any time, or to cease operations entirely.
Each Series intends to pay redemption proceeds in cash; however, under unusual
conditions that make payment in cash disadvantageous to the Series, the Series
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 PAYMENTS -- Security Benefit Life Insurance Company ("SBL")
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 their
shareholders, financial representatives who sell SBL's variable annuity products
that invest in SBL Fund. The compensation received by such financial
representatives 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
a financial representative.
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 of Directors 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 dependent 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:
16
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;
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 may 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 disclosed period that begins on the date of the letter. In addition, after
the shareholder makes four "round trip transfers" during any prior 12-month
period, the insurance company will prohibit further transfers until transfers
may be made that do not exceed this limitation. 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
SBL Fund reserves 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 they deem 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 employ 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.
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), including requirements with respect to
diversification of assets, distribution of income, and sources of income. 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. Each Series also intends to comply with the
diversification requirements of Section 817(h) of the Code and the underlying
regulations for variable annuity and variable life insurance contract so that
owners of these contracts should not be subject to federal tax on distributions
of dividends and income from a Series to the insurance company's separate
accounts.
Since you may purchase shares of a Series only indirectly through the purchase
of a variable annuity or variable life insurance contract issued by SBL or its
affiliated life insurance company, 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
17
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 of SBL Fund 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 3:00 p.m. Central Time) on days when the NYSE is open. The
Exchange is open Monday through Friday, except on observation of the following
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
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 do not price their
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 Fund's 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 a 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 of SBL Fund.
18
FINANCIAL HIGHLIGHTS
The following tables show the financial performance of the Acquiring Series and
the Acquired Series for the past five fiscal years and the first six months of
2009. Certain information reflects financial results for a single Series share.
The total returns in the table represent the rate an investor would have earned
(or lost) on an investment in each Series assuming reinvestment of all dividends
and distributions. The total returns do not reflect fees and expenses associated
with an investment in variable insurance products through which shares of the
Series are purchased and, if such fees and expenses were reflected, the total
returns would be lower. This information has been derived from financial
statements included in the Series' annual report for the fiscal year ended
December 31, 2008 that have been audited by Ernst & Young LLP, Independent
Registered Public Accounting Firm, 233 South Wacker Drive, Chicago, Illinois
60606 and from financial statements included in the Series' semi-annual report
for the six month period ended June 30, 2009, which is unaudited. The annual and
semi-annual reports are available upon request.
FINANCIAL HIGHLIGHTS FOR THE ACQUIRING SERIES
SIX MONTHS YEAR ENDED
ENDED JUNE DECEMBER 31,
30, 2009A 2008 2007 2006 2005 2004
---------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
Net asset value, beginning of period $15.38 $24.57 $25.83 $22.88 $21.93 $20.37
---------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment incomeb 0.07 0.14 0.14 0.11 0.16 0.18
Net gain (loss) on securities
(realized and unrealized) 0.81 (9.33) (1.40) 2.84 0.79 1.40
-----------------------------------------------------------------------------------------
Total from investment operations 0.88 (9.19) (1.26) 2.95 0.95 1.58
---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income - - - - - (0.02)
-----------------------------------------------------------------------------------------
Total distributions - - - - - (0.02)
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.26 $15.38 $24.57 $25.83 $22.88 $21.93
=========================================================================================
---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURNC 5.72% (37.40%) (4.88%) 12.89% 4.33% 7.77%
---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
thousands) $160,510 $165,109 $328,995 $441,788 $466,931 $530,096
---------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 0.92% 0.66% 0.52% 0.33% 0.55% 0.81%
Total expensesd 0.93% 0.90% 0.89% 0.90% 0.89% 0.87%
Net expensese 0.93% 0.90% 0.89% 0.90% 0.89% 0.87%
---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 77% 142%f 14% 26% 37% 27%
---------------------------------
a Unaudited figures for the six months ended June 30, 2009. Percentage
amounts, except total return, have been annualized.
b Net investment income (loss) was computed using average shares outstanding
throughout the period.
c 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. If total return had taken into account these
expenses, performance would have been lower. Shares of a series of SBL Fund
are available only through the purchase of such products.
d Total expense information reflects the expense ratios absent expense
reductions by the Investment Manager and earnings credits, as applicable.
e Net expense information reflects the expense ratios after voluntary expense
waivers, reimbursements and custodian earnings credits, as applicable.
f Significant variation in the portfolio turnover rate is due to Investment
Manager's appointment of new portfolio manager for the Series.
19
FINANCIAL HIGHLIGHTS FOR THE ACQUIRED SERIES
SIX MONTHS YEAR ENDED
ENDED JUNE DECEMBER 31,
30, 2009A 2008 2007 2006B 2005 2004
---------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
Net asset value, beginning of period $6.98 $11.18 $11.07 $9.58 $9.12 $8.31
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment incomec 0.06 0.15 0.14 0.03 0.11 0.11
Net gain (loss) on securities
(realized and unrealized) 0.15 (4.35) (0.03) 1.46 0.35 0.71
-----------------------------------------------------------------------------------------
Total from investment operations 0.21 (4.20) 0.11 1.49 0.46 0.82
---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income - - - - - (0.01)
-----------------------------------------------------------------------------------------
Total distributions - - - - - (0.01)
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.19 $6.98 $11.18 $11.07 $9.58 $9.12
=========================================================================================
---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURND 3.01% (37.57%) 0.99% 15.55% 5.04% 9.85%
---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in
thousands) $40,949 $43,637 $83,529 $110,030 $40,101 $38,822
---------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 1.87% 1.60% 1.25% 1.23% 1.15% 1.32%
Total expensese 1.06% 0.99% 0.94% 0.98% 1.04% 0.99%
Net expensesf 0.81% 0.74% 0.69% 0.73% 0.79% 0.74%
Net expenses prior to custodian
earnings credits and net of
expense waivers 0.81% 0.74% 0.69% 0.73% 0.79% 0.74%
---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 89% 106% 89% 119% 106% 98%
a Unaudited figures for the six months ended June 30, 2009. Percentage
amounts, except total return, have been annualized.
b The financial highlights for Series H exclude the historical financial
highlights for Series W. The assets of Series W were acquired by Series H
on June 16, 2006. A total of $53,926,052 was excluded from purchases in the
portfolio turnover calculation, which represents the cost of the securities
Series H received as a result of the merger.
c Net investment income (loss) was computed using average shares outstanding
throughout the period.
d 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. If total return had taken into account these
expenses, performance would have been lower. Shares of a series of SBL Fund
are available only through the purchase of such products.
e Total expense information reflects the expense ratios absent expense
reductions by the Investment Manager and earnings credits, as applicable.
f Net expense information reflects the expense ratios after voluntary expense
waivers, reimbursements and custodian earnings credits, as applicable.
20
APPENDIX A - Plan of Reorganization
THIS PLAN OF REORGANIZATION (the "Reorganization Plan") is adopted as of
this 21st day of January, 2010, 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 A (Equity
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 (each a
"Reorganization") will consist of the transfer of all of the assets of SBL Fund,
Series H (the "Acquired Series") to SBL Fund, Series A (the "Acquiring Series")
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.
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 Acquired Series and the
Acquiring Series separately, hereby approves the Reorganization Plan on the
following terms and conditions:
1. 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 therefor: (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").
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 (as defined in paragraph 2.1). 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.
A-1
1.4. Immediately after the transfer of assets provided for in paragraph
1.1, the Acquired Series will distribute to its 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 paragraph 2.3. The Acquiring Series will not issue
certificates representing the 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 U.S. 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.
2. 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, Inc.
("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.
3. CLOSING AND CLOSING DATE
3.1. The Closing Date shall be April 23, 2010, 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 (the "1940 Act"), as of the
A-2
Closing Date by book entry in accordance with the customary practices
of such depositories and the custodian for Acquiring Series.
3.3. Security Investors, 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.
4. 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 ("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 (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 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
A-3
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, 2008 have been audited by Ernst & Young
LLP, an 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, 2008, 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;
(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 and has met the diversification and other requirements of
Section 817(h) of the Code and Treasury Regulation Section
1.817-5 thereunder;
(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, 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;
A-4
(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 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, 2008 have been audited by Ernst &
Young LLP, an 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, 2008, 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 and has met the diversification and other requirements of
Section 817(h) of the Code and Treasury Regulation Section
1.817-5 thereunder;
A-5
(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 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 (the "Registration Statement"), 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.
5. 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 each will 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.
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.
A-6
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.
6. 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.
7. 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; and
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.
8. 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:
A-7
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;
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 and
8.6 Any other contingency as explicitly provided in the proxy
statement/prospectus of the series in relation to a possible
restructuring of the series' investment adviser.
9. 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 and Security Investors, LLC each will bear
one-half of the expenses relating to the 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 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.
10. 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.
11. 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.
12. 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 this Reorganization Plan, no such
amendment may have the effect of changing the provisions for determining
A-8
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.
13. 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: /s/ RICHARD M. GOLDMAN
------------------------------
NAME: RICHARD M. GOLDMAN
TITLE: PRESIDENT
A-9
APPENDIX B - ADDITIONAL INVESTMENT TECHNIQUES AND ASSOCIATED RISKS
This section takes a detailed look at some of the types of securities the Series
may hold in their respective portfolios and the various kinds of management
practices that may be used in the portfolios. The Series' holdings of certain
types of investments cannot exceed a maximum percentage of net assets. These
percentage limitations are set forth in the Statement of Additional Information
of SBL Fund. While the percentage limitations provide a useful level of detail
about a Series' investment program, they should not be viewed as an accurate
gauge of the potential risk of the investment. For example, in a given period, a
5% investment in futures contracts could have significantly more of an impact on
a Series' share price than its weighting in the portfolio. The net effect of a
particular investment depends on its volatility and the size of its overall
return in relation to the performance of the Series' other investments. A
Series' portfolio managers have considerable leeway in choosing investment
strategies and selecting securities they believe will help the Series achieve
its objective. In seeking to meet its investment objective, a Series may invest
in any type of security or instrument whose investment characteristics are
consistent with the Series' investment program. Investors should be aware that
the investments made by a Series and the results achieved by a Series at any
given time are not expected to be the same as those made by other mutual funds
for which the Investment Manager or a sub-adviser, if applicable, acts as
investment adviser, including mutual funds with names, investment objectives and
policies similar to the Series.
To the extent authorized by law, each of the Series reserves the right to
discontinue offering shares or cease operations at any time.
The following information describes some of the investments that may be made by
the Series, as well as some of the management practices of the Series.
FOREIGN SECURITIES -- Foreign investments involve certain special risks,
including, but not limited to, (i) unfavorable changes in currency exchange
rates; (ii) adverse political and economic developments; (iii) unreliable or
untimely information; (iv) limited legal recourse; (v) limited markets; and (vi)
higher operational expenses.
Foreign investments are normally issued and traded in foreign currencies. As a
result, their values may be affected by changes in the exchange rates between
particular foreign currencies and the U.S. dollar. Foreign investments may be
subject to the risks of seizure by a foreign government, imposition of
restrictions on the exchange or transport of foreign currency, and tax
increases. There may also be less information publicly available about a foreign
company than about most U.S. companies, and foreign companies are usually not
subject to accounting, auditing and financial reporting standards and practices
comparable to those in the United States. The legal remedies for investors in
foreign investments may be more limited than those available in the United
States. Certain foreign investments may be less liquid (harder to buy and sell)
and more volatile than domestic investments, which means a Series may at times
be unable to sell its foreign investments at desirable prices. For the same
reason, a Series may at times find it difficult to value its foreign
investments. Brokerage commissions and other fees are generally higher for
foreign investments than for domestic investments. The procedures and rules for
settling foreign transactions may also involve delays in payment, delivery or
recovery of money or investments. Foreign withholding taxes may reduce the
amount of income available to distribute to shareholders of the Series.
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 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).
ASSET-BACKED SECURITIES -- An underlying pool of assets, such as credit card
receivables, automobile loans, or corporate loans or bonds back these bonds and
provides the interest and principal payments to investors. On occasion, the pool
of assets may also include a swap obligation, which is used to change the cash
flows on the underlying assets. As an example, a swap may be used to allow
floating rate assets to back a fixed rate obligation. Credit quality depends
primarily on the quality of the underlying assets, the level of credit support,
if any, provided by the issuer, and the credit quality of the swap counterparty,
if any. The underlying assets (i.e. loans)
B-1
are subject to prepayments, which can shorten the securities' weighted average
life and may lower their return. The value of these securities also may change
because of actual or perceived changes in the creditworthiness of the
originator, the servicing agent, the financial institution providing credit
support, or swap counterparty. These securities are subject to high degrees of
credit, valuation and liquidity risks. At times, the Series may invest in
asset-backed securities through "structured investment vehicles" (or "SIVs").
INITIAL PUBLIC OFFERING -- A Series' investment in securities offered through
initial public offerings (IPOs) may have a magnified performance impact, either
positive or negative, on any Series and particularly those with 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 investment grade or in default, or unrated securities
determined to be of comparable quality) are regarded as predominantly
speculative with respect to the issuer's continuing ability to meet principal
and interest payments. Successful investment in lower-medium and low-quality
bonds involves greater investment risk and is highly dependent on the Investment
Manager or relevant sub-adviser's credit analysis. A real or perceived economic
downturn or higher interest rates could cause a decline in high-yield bond
prices by lessening the ability of issuers to make principal and interest
payments. These bonds are often thinly traded and can be more difficult to sell
and value accurately than high-quality bonds. Because objective pricing data may
be less available, judgment may play a greater role in the valuation process. In
addition, the entire junk bond market can experience sudden and sharp price
swings due to a variety of factors, including changes in economic forecasts,
stock market activity, large or sustained sales by major investors, a
high-profile default, or just a change in the market's psychology. This type of
volatility is usually associated more with stocks than bonds, but junk bond
investors should be prepared for it.
HARD ASSET SECURITIES -- Hard Asset Securities are equity securities of issuers
which are directly or indirectly engaged to a significant extent in the
exploration, development or distribution of one or more of the following:
precious metals, ferrous and non-ferrous metals, gas, petroleum, petrochemical
and/or other commodities (collectively, "Hard Assets"). The production and
marketing of Hard Assets may be affected by actions and changes in governments.
In addition, Hard Asset Securities may be cyclical in nature. During periods of
economic or financial instability, the securities of some Hard Asset companies
may be subject to broad price fluctuations, reflecting the volatility of energy
and basic materials prices and the possible instability of supply of various
Hard Assets. In addition, some Hard Asset companies also may be subject to the
risks generally associated with extraction of natural resources, such as the
risks of mining and oil drilling, and the risks of the hazard associated with
natural resources, such as fire, drought, increased regulatory and environmental
costs, and others. Securities of Hard Asset companies may also experience
greater price fluctuations than the relevant Hard Asset. In periods of rising
Hard Asset prices, such securities may rise at a faster rate, and, conversely,
in times of falling Hard Asset prices, such securities may suffer a greater
price decline. Each of the Series which invest in equity securities as part of
their investment program may invest in Hard Asset Securities.
GUARANTEED INVESTMENT CONTRACTS -- When investing in Guaranteed Investment
Contracts ("GICs"), a Series makes cash contributions to a deposit fund of an
insurance company's general account. The insurance company then credits
guaranteed interest to the deposit fund on a monthly basis. The GICs provide
that this guaranteed interest will not be less than a certain minimum rate. The
insurance company may assess periodic charges against a GIC for expenses and
service costs allocable to it, and the charges will be deducted from the value
of the deposit fund. A Series may invest only in GICs that have received the
requisite ratings by one or more nationally recognized statistical ratings
organizations. Because a Series may not receive the principal amount of a GIC
from the insurance company on 7 days' notice or less, the GIC is considered an
illiquid investment. In determining average portfolio maturity, GICs will be
deemed to have a maturity equal to the period of time remaining until the next
readjustment of the guaranteed interest rate.
FUTURES AND OPTIONS -- The Series may utilize futures contracts and options on
futures. The Series may also purchase call and put options and write call and
put options on a "covered" basis. Futures (a type of potentially high-risk
derivative) are often used to manage or hedge risk because they enable the
investor to buy or sell an asset in the future at an agreed-upon price. Options
(another type of potentially high-risk derivative) give the investor the right
(where the investor purchases the options), or the obligation (where the
investor writes (sells) the options), to buy or sell an asset at a predetermined
price in the future. 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 cash equivalents in such amount as are segregated by the Series'
custodian). If a Series sells a covered call option, it receives a premium from
the purchaser of the call option, which may provide additional income to the
Series. The selling of covered call options may tend to reduce the volatility of
a Series because the premiums received from selling the options will reduce any
losses on the underlying securities by the amount of the premiums. However,
selling covered call options will also limit a Series' gain, if any, on the
underlying securities if the option is exercised by the purchaser. If a call
option expires unexercised, the Series that wrote the option realizes a gain in
the amount of the premium received. Those Series which invest in nodular
denominated foreign securities 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
B-2
currencies, to manage exposure to changes in interest rates, and bond prices; as
an efficient means of adjusting overall exposure to certain markets; in an
effort to enhance income; to protect the value of portfolio securities; and to
adjust portfolio duration. Futures contracts and options may not always be
successful hedges; their prices can be highly volatile. Using them could lower a
Series' total return, and the potential loss from the use of futures can exceed
the Series' initial investment in such contracts.
HYBRID INSTRUMENTS -- Certain hybrid instruments (which are derivatives) can
combine the characteristics of securities, futures and options. For example, the
principal amount, redemption or conservation terms of a security could be
related to the market price of some commodity, currency or securities index. The
risks of such investments would reflect the risks of investing in futures,
options and securities, including volatility and illiquidity. Such securities
may bear interest or pay dividends at below market (or even relatively nominal)
rates. Under certain conditions, the redemption value of such an investment
could be zero. Hybrids can have volatile prices and limited liquidity, and their
use by a Series may not be successful.
SWAPS, CAPS, FLOORS AND COLLARS -- Interest rate and/or index swaps, and the
purchase or sale of related caps, floors and collars are used primarily to
preserve a return or spread on a particular investment or portion of its
portfolio as a technique for managing the portfolio's duration (i.e. the price
sensitivity to changes in interest rates) or to protect against any increase in
the price of securities the Series anticipates purchasing at a later date. To
the extent a Series enters into these types of transactions, it will be done to
hedge and not as a speculative investment, and the Series will not sell interest
rate caps or floors if it does not own securities or other instruments providing
the income the Series may be obligated to pay. Interest rate swaps involve the
exchange by the Series with another party of their respective commitments to pay
or receive interest on a notional amount of principal. The purchase of a cap
entitles the purchaser to receive payments on a notional principal amount from
the party selling the cap to the extent that a specified index exceeds a
predetermined interest rate. The purchase of an interest rate floor entitles the
purchaser to receive payments on a notional principal amount from the party
selling the floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.
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.
CASH RESERVES -- Cash reserves maintained by a Series may include domestic, and
for certain Series, foreign money market instruments as well as certificates of
deposit, bank demand accounts and repurchase agreements. The Series may
establish and maintain reserves as the Investment Manager or relevant
sub-adviser believes is advisable to facilitate the Series' cash flow needs
(e.g., redemptions, expenses and, purchases of portfolio securities) or for
temporary, defensive purposes.
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. Each Series may invest in the shares of
other investment vehicles.
BORROWING -- While the Series have 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 the Series' portfolio. Money
borrowed for leveraging will be subject to interest costs that may or may not be
recovered by appreciation of the securities purchased; in certain cases,
interest costs may exceed the return received on the securities purchased. 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 Series
may lend their 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 by the
Investment Manager to be of good standing and will not be made unless, in the
judgment of the Investment Manager, the consideration to be earned from such
loans would justify the risk.
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
STRUCTURED INVESTMENT VEHICLES -- The Series may invest in structured investment
vehicles ("SIVs"), which are legal entities that are sponsored by banks,
broker-dealers or other financial firms specifically created for the purpose of
issuing particular securities or instruments. SIVs often invest in asset-backed
and mortgage-backed securities, which are subject to the risks described above.
SIVs are often leveraged, and securities issued by SIVs may have differing
credit preferences. Investments in SIVs present counterparty risks, although
they may be subject to a guarantee or other financial support by the sponsoring
entity. Investments in SIVs may be more volatile, less liquid and more difficult
to price accurately than other types of investments.
B-4
APPENDIX C- PERFORMANCE UPDATE FOR THE ACQUIRING SERIES
SBL Fund Series A
Performance Summary (Equity Series)
December 31, 2009
Line Chart:
SERIES A VS. S&P 500 INDEX
SBL Fund, Series A (Equity Series) $7,008 S&P 500 Index $9,090
12/99 $10,000.00 $10,000.00
6/00 $9,834.00 $9,958.00
12/00 $8,724.00 $9,090.00
6/01 $8,160.00 $8,481.00
12/01 $7,728.00 $8,009.00
6/02 $6,524.00 $6,955.00
12/02 $5,866.00 $6,239.00
6/03 $6,424.00 $6,973.00
12/03 $7,137.00 $8,029.00
6/04 $7,330.00 $8,305.00
12/04 $7,696.00 $8,903.00
6/05 $7,527.00 $8,831.00
12/05 $8,029.00 $9,340.00
6/06 $8,184.00 $9,593.00
12/06 $9,064.00 $10,815.00
6/07 $9,356.00 $11,568.00
12/07 $8,622.00 $11,409.00
6/08 $7,885.00 $10,050.00
12/08 $5,397.00 $7,188.00
6/09 $5,706.00 $7,415.00
12/09 $7,008.00 $9,090.00
$10,000 SINCE INCEPTION
The chart above assumes a hypothetical $10,000 investment in Series A (Equity
Series) on (what date) and reflects the fees and expenses of Series A. 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.
--------------------------------------------------------------------------------
AVERAGE ANNUAL RETURNS
--------------------------------------------------------------------------------
PERIODS ENDED 1 YEAR 5 YEARS 10 YEARS
12-31-09
--------------------------------------------------------------------------------
Series A 29.84% (1.86%) (3.49%)
--------------------------------------------------------------------------------
Performance figures do not reflect fees and expenses associated with an
investment in variable insurance products offered by Security Benefit Life
Insurance Company. 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, when redeemed, may be worth more or
less than their original cost.
--------------------------------------------------------------------------------
PORTFOLIO COMPOSITION BY SECTOR
Consumer Discretionary 9.71%
------------------------------------------------------------
Consumer Staples 8.90%
------------------------------------------------------------
Energy 11.72%
------------------------------------------------------------
Financials 11.13%
------------------------------------------------------------
Health Care 11.44%
------------------------------------------------------------
Industrials 17.95%
------------------------------------------------------------
Information Technology 20.93%
------------------------------------------------------------
Materials 4.68%
------------------------------------------------------------
Utilities 2.14%
------------------------------------------------------------
Cash & Other Assets, Less
Liabilities 1.40%
------------------------------------------------------------
Total net assets 100.00%
------------------------------------------------------------
C-1
APPENDIX D - OWNERSHIP INFORMATION
As of the Record Date, to the knowledge of each Series, the name, address, and
share ownership of persons who owned of record or beneficially 5% or more of the
Series' outstanding shares are set forth below:
SERIES H (ENHANCED INDEX SERIES)
---------------------------------------------- ------------------------- ------------------------ ----------------------------------
NAME AND ADDRESS OF SHAREHOLDER TYPE OF OWNERSHIP PERCENTAGE OF SERIES PERCENTAGE OF COMBINED SERIES
AFTER THE REORGANIZATION*
---------------------------------------------- ------------------------- ------------------------ ----------------------------------
---------------------------------------------- ------------------------- ------------------------ ----------------------------------
---------------------------------------------- ------------------------- ------------------------ ----------------------------------
---------------------------------------------- ------------------------- ------------------------ ----------------------------------
---------------------------------------------- ------------------------- ------------------------ ----------------------------------
SERIES A (EQUITY SERIES)
---------------------------------------------- ------------------------- ------------------------ ----------------------------------
NAME AND ADDRESS OF SHAREHOLDER TYPE OF OWNERSHIP PERCENTAGE OF SERIES PERCENTAGE OF COMBINED SERIES
AFTER THE REORGANIZATION*
---------------------------------------------- ------------------------- ------------------------ ----------------------------------
---------------------------------------------- ------------------------- ------------------------ ----------------------------------
---------------------------------------------- ------------------------- ------------------------ ----------------------------------
---------------------------------------------- ------------------------- ------------------------ ----------------------------------
---------------------------------------------- ------------------------- ------------------------ ----------------------------------
---------------
* On a pro forma basis, assuming that the value of the shareholder's interest
in the Series on the date of consummation of the Reorganization is the same
as on the Record Date.
E-1
SBL FUND
ONE SECURITY BENEFIT PLACE
TOPEKA, KS 66636-0001
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS
APRIL 9, 2010
The undersigned hereby appoint(s) Donald A. Chubb, Jr., Amy J. Lee 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 SBL Fund, Series H
(Enhanced Index 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 9, 2010 at 1:00 p.m. (Central Time) and at any adjournment(s) or
postponement(s) 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" THE PROPOSAL. THE PROXIES ARE AUTHORIZED, IN THEIR DISCRETION, TO
VOTE UPON SUCH MATTERS AS MAY COME BEFORE THE SPECIAL MEETING OR ANY
ADJOURNMENTS.
-- FOLD AND DETACH HERE --
.................................................................................
SBL FUND, SERIES H (ENHANCED INDEX SERIES)
(the "Acquired Series")
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 9, 2010
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:
To approve a Plan of Reorganization providing for the acquisition of
all of the assets and liabilities of the Acquired Series by SBL Fund,
Series A (Equity Series) (the "Acquiring 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 CHECKING [X]
THE APPROPRIATE BOX AS
IN THIS EXAMPLE
Signature: ______________________ Signature (if held jointly): ______________
Date: ___________________________ Date: _____________________________________
This proxy card must be signed exactly as your name(s) appears hereon. If as an
attorney, executor, guardian or in some representative capacity or as an officer
of a corporation, please add title(s) as such. Joint owners must each sign. By
signing this proxy card, you acknowledge that you have received the proxy
statement/prospectus that the proxy card accompanies.
PROXY VOTING INSTRUCTIONS
Your mailed proxy statement provides details on important issues relating to
your Series. 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 1-866-530-8635.
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 9, 2010,
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
1-800-361-2782 toll-free Monday through Friday from 9:30 a.m. to 10:00 p.m.
Eastern time. We have retained The Altman Group to assist our shareholders in
the voting process. If we have not received your proxy card as the date of the
special meeting approaches, representatives from The Altman Group 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
March 10, 2010
--------------------------------------------------------------------------------
Acquisition of the Assets and Liabilities of: By and in Exchange for Shares of:
SBL Fund, Series H (Enhanced Index Series) SBL Fund, Series A (Equity 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 SBL
Fund, Series H in connection with a proposed transaction whereby all of the
assets and liabilities of SBL Fund, Series H will be transferred to SBL Fund,
Series A in exchange for shares of SBL Fund, Series A.
This Statement of Additional Information of SBL Fund, Series A 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
U.S. Securities and Exchange Commission and is incorporated by reference herein:
1. The Statement of Additional Information for SBL Fund dated May 1, 2009
(File No. 002-59353); and
2. The Financial Statements of SBL Fund, Series H and SBL Fund, Series A as
included in SBL Fund's Annual Report filed for the fiscal year ended
December 31, 2008 and Semi-Annual Report for the fiscal period ended June
30, 2009 (File No. 811-02753).
This Statement of Additional Information is not a prospectus. A Proxy
Statement/Prospectus dated March 10, 2010 relating to the reorganization of SBL
Fund, Series H may be obtained, without charge, by writing to Security
Investors, 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 FINANCIAL STATEMENTS
In connection with a proposed transaction whereby all of the assets and
liabilities of SBL Fund, Series H (Enhanced Index Series) will be transferred to
SBL Fund, Series A (Equity Series), in exchange for shares of SBL Fund, Series
A, shown below are financial statements for each Series and Pro Forma Financial
Statements for the combined Series, assuming the Reorganization is consummated,
as of June 30, 2009. The first table presents Statements of Assets and
Liabilities for each Series and estimated pro forma figures for the combined
Series. The second table presents Statements of Operations for each Series and
estimated pro forma figures for the combined Series. The third table presents
Schedule of Investments for each Series and estimated pro forma figures for the
combined Series. The tables are followed by Notes to the Pro Forma Financial
Statements.
SBL FUND,
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) SERIES H SBL FUND,
JUNE 30, 2009 (ENHANCED INDEX SERIES A
SERIES) (EQUITY SERIES) ADJUSTMENTS PRO FORMA
-------------------------------------------------------------------------------- ----------------- ---------------- ---------------
Assets:
Investments, at value(1).................................... $ 39,966,431 $ 157,778,092 $ - $ 197,744,523
Cash........................................................ 937,794 2,482,893 - 3,420,687
Receivables:
Fund shares sold......................................... 53,666 144,849 - 198,515
Securities sold........................................ - 2,980,110 - 2,980,110
Dividends............................................. 55,495 220,276 - 275,771
Prepaid expenses ........................................... 1,693 2,731 - 4,424
-------------------- ----------------- ---------------- ---------------
Total assets................................................ 41,015,079 163,608,951 - 204,624,030
-------------------- ----------------- ---------------- ---------------
Liabilities:
Payable for:
Securities purchased..................................... - 2,810,879 - 2,810,879
Fund shares redeemed..................................... 17,935 81,632 - 99,567
Variation margin on futures.............................. 8,152 - - 8,152
Management fees.......................................... 17,054 101,896 - 118,950
Administration fees...................................... 4,740 13,028 - 17,768
Custodian fees........................................... - 391 - 391
Transfer agent/maintenance fees.......................... 2,083 2,083 - 4,166
Director's fees.......................................... 577 9,691 - 10,268
Professional fees........................................ 10,327 31,589 - 41,916
Other.................................................... 5,142 48,062 - 53,204
-------------------- ----------------- ---------------- ---------------
Total liabilities........................................... 66,010 3,099,251 - 3,165,261
-------------------- ----------------- ---------------- ---------------
Net Assets.................................................. $ 40,949,069 $ 160,509,700 $ - $ 201,458,769
==================== ================= ================ ===============
Net assets consist of:
Paid in
capital..................................................... $ 65,644,624 $ 239,542,425 $ - $ 305,187,049
Accumulated undistributed net investment income (loss)...... 1,356,909 2,373,162 - 3,730,071
Accumulated undistributed net realized gain (loss)
on sale of investments ................................ (21,009,121) (55,930,196) - (76,939,317)
Net unrealized appreciation (depreciation)
in value of investments ............................... (5,043,343) (25,475,691) - (30,519,034)
-------------------- ----------------- ---------------- ---------------
Net Assets.................................................. $ 40,949,069 $ 160,509,700 $ - $ 201,458,769
==================== ================= ================ ===============
Capital shares outstanding
(unlimited number of shares authorized)................ 5,692,726 9,873,224 2,518,393 12,391,617
Net asset value per share -------------------- ----------------- ---------------- ---------------
(net assets divided by shares outstanding) $7.19 $16.26 $16.26
==================== ================= ================ ===============
(1) Investments, at cost.................................... $ 44,983,922 $ 183,253,783 - $ 228,237,705
2
STATEMENT OF OPERATIONS (UNAUDITED)
SBL FUND, SERIES H SBL FUND,
FOR THE SIX MONTHS ENDED JUNE 30, 2009 (ENHANCED INDEX SERIES A
SERIES) EQUITY SERIES) ADJUSTMENTS PRO FORMA
------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends................................................... $ 518,218 $ 1,424,113 $ - $ 1,942,331
Interest.................................................... 444 3,111 - 3,555
--------------------------------------------------------------------------
Total investment income................................ 518,662 1,427,224 - 1,945,886
--------------------------------------------------------------------------
EXPENSES:
Management fees........................................ 145,336 577,829 723,165
Custodian fees......................................... 4,798 3,312 8,110
Transfer agent/maintenance fees........................ 12,590 12,652 (12,590)(2) 12,652
Administration fees.................................... 21,264 73,317 94,581
Directors' fees........................................ 1,967 9,833 11,800
Professional fees...................................... 13,112 19,288 (9,532)(2) 22,868
Reports to shareholders................................ 4,060 17,643 21,703
Other expenses......................................... 1,521 5,898 7,419
--------------------------------------------------------------------------
Total expenses......................................... 204,648 719,772 (22,122) 902,298
Less: Expenses waived................................. (48,445) - 48,445(1) -
--------------------------------------------------------------------------
Net expenses ......................................... 156,203 719,772 26,323 902,298
--------------------------------------------------------------------------
Net investment income (loss).......................... 362,459 707,452 (26,323) 1,043,588
--------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) during the period on:
Investments............................................ (7,114,395) (26,452,122) (33,566,517)
Futures................................................ 83,287 - 83,287
Options written........................................ - 7,098 7,098
--------------------------------------------------------------------------
Net realized gain (loss)............................... (7,031,108) (26,445,024) - (33,476,132)
--------------------------------------------------------------------------
Net unrealized appreciation (depreciation) during the period on:
Investments................................................. 7,626,325 33,738,564 - 41,364,889
Futures................................................ (44,049) - - (44,049)
--------------------------------------------------------------------------
Net unrealized appreciation (depreciation)............. 7,582,276 33,738,564 - 41,320,840
--------------------------------------------------------------------------
Net gain (loss)........................................ 551,168 7,293,540 - 7,844,708
--------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations.......................... $ 913,627 $ 8,000,992 $ (26,323) $ 8,888,296
==========================================================================
(1) Based on contract in effect for the surviving fund
(2) Decrease due to the elimination of duplicative expenses achieved by merging
the funds
3
PRO FORMA
SCHEDULE OF INVESTMENTS
JUNE 30, 2009
UNAUDITED
NUMBER NUMBER NUMBER
OF SHARES OF SHARES OF SHARES VALUE VALUE VALUE
SBL FUND, SBL FUND, SBL FUND,
SERIES H SERIES A SERIES H SBL FUND,
(ENHANCED (EQUITY (ENHANCED SERIES A
INDEX SERIES) SERIES) TOTAL INDEX SERIES) (EQUITY SERIES) TOTAL
COMMON STOCKS - 96.4%
ADVERTISING - 1.4%
11,943 - 11,943 Interpublic Group of Companies, Inc. * $ 60,312 $ - 60,312
5,935 81,000 86,935 Omnicom Group, Inc. 187,427 2,557,980 2,745,407
--------------------------------------------
247,739 2,557,980 2,805,719
--------------------------------------------
AEROSPACE & DEFENSE - 5.2%
872 - 872 Boeing Company 37,060 - 37,060
4,337 - 4,337 General Dynamics Corporation 240,225 - 240,225
- 51,260 51,260 Goodrich Corporation - 2,561,462 2,561,462
2,990 78,565 81,555 Honeywell International, Inc. 93,886 2,466,941 2,560,827
1,921 49,590 51,511 ITT Corporation 85,485 2,206,755 2,292,240
727 - 727 L-3 Communications Holdings, Inc. 50,439 - 50,439
1,192 - 1,192 Lockheed Martin Corporation 96,135 - 96,135
4,617 - 4,617 Northrop Grumman Corporation 210,905 - 210,905
5,128 - 5,128 Raytheon Company 227,837 - 227,837
2,994 39,400 42,394 United Technologies Corporation 155,568 2,047,224 2,202,792
--------------------------------------------
1,197,540 9,282,382 10,479,922
--------------------------------------------
AGRICULTURAL PRODUCTS - 0.1%
8,778 - 8,778 Archer-Daniels-Midland Company 234,987 - 234,987
--------------------------------------------
AIR FREIGHT & LOGISTICS - 1.7%
1,716 - 1,716 CH Robinson Worldwide, Inc. 89,489 - 89,489
1,919 51,300 53,219 FedEx Corporation 106,735 2,853,306 2,960,041
5,095 - 5,095 United Parcel Services, Inc. (Cl.B) 254,699 - 254,699
--------------------------------------------
450,923 2,853,306 3,304,229
--------------------------------------------
APPAREL RETAIL - 0.2%
10,776 - 10,776 Gap, Inc. 176,726 - 176,726
10,411 - 10,411 Ltd. Brands, Inc. 124,620 - 124,620
--------------------------------------------
301,346 - 301,346
--------------------------------------------
APPAREL, ACCESSORIES & LUXURY GOODS - 0.1%
1,620 - 1,620 V.F. Corporation 89,667 - 89,667
--------------------------------------------
APPLICATION SOFTWARE - 0.0%
1,459 - 1,459 Adobe Systems, Inc. * 41,290 - 41,290
--------------------------------------------
ASSET MANAGEMENT & CUSTODY BANKS - 0.2%
5,003 - 5,003 Ameriprise Financial, Inc. 121,423 - 121,423
4
3,798 - 3,798 Bank of New York Mellon Corporation 111,319 - 111,319
221 - 221 Invesco, Ltd. 3,938 - 3,938
2,708 - 2,708 State Street Corporation 127,818 - 127,818
--------------------------------------------
364,498 - 364,498
--------------------------------------------
AUTO PARTS & EQUIPMENT - 0.0%
508 - 508 Johnson Controls, Inc. 11,034 - 11,034
--------------------------------------------
AUTOMOBILE MANUFACTURERS - 0.1%
14,598 - 14,598 Ford Motor Company * 88,610 - 88,610
--------------------------------------------
BIOTECHNOLOGY - 0.3%
7,753 - 7,753 Amgen, Inc. * 410,444 - 410,444
2,307 - 2,307 Biogen Idec, Inc. * 104,161 - 104,161
3,401 - 3,401 Gilead Sciences, Inc. * 159,303 159,303
--------------------------------------------
673,908 - 673,908
--------------------------------------------
BROADCASTING - 0.2%
6,996 49,700 56,696 CBS Corporation (Cl.B) 48,412 345,415 393,827
--------------------------------------------
BUILDING PRODUCTS - 0.8%
6,127 - 6,127 Masco Corporation 58,697 - 58,697
- 161,000 161,000 USG Corporation * - 1,621,270 1,621,270
--------------------------------------------
58,697 1,621,270 1,679,967
--------------------------------------------
CABLE & SATELLITE - 0.1%
12,415 - 12,415 Comcast Corporation 179,893 - 179,893
--------------------------------------------
COAL & CONSUMABLE FUELS - 1.2%
533 77,850 78,383 Peabody Energy Corporation 16,075 2,347,956 2,364,031
--------------------------------------------
COMMERCIAL PRINTING - 0.0%
4,453 - - 4,453 RR Donnelley & Sons Company 51,744 - 51,744
--------------------------------------------
COMMUNICATIONS EQUIPMENT - 2.3%
31,659 - 31,659 Cisco Systems, Inc.* 590,124 - 590,124
20,542 - 20,542 Motorola, Inc. 136,193 - 136,193
5,034 78,465 83,499 Qualcomm, Inc. 227,537 3,546,618 3,774,155
27,253 - 27,253 Tellabs, Inc. * 156,160 - 156,160
--------------------------------------------
1,110,014 3,546,618 4,656,632
--------------------------------------------
COMPUTER & ELECTRONICS RETAIL - 0.1%
2,470 - 2,470 Best Buy Company, Inc. 82,720 - 82,720
1,948 - 1,948 GameStop Corporation * 42,875 - 42,875
8,808 - 8,808 RadioShack Corporation 122,960 - 122,960
--------------------------------------------
248,555 - 248,555
--------------------------------------------
COMPUTER HARDWARE - 3.6%
3,625 23,110 26,735 Apple, Inc. * 516,309 3,291,556 3,807,865
16,723 - 16,723 Dell, Inc. * 229,607 - 229,607
14,194 47,900 62,094 Hewlett-Packard Company 548,597 1,851,335 2,399,932
8,023 - 8,023 International Business Machines Corporation 837,761 - 837,761
907 - 907 Sun Microsystems, Inc. * 8,363 - 8,363
--------------------------------------------
2,140,637 5,142,891 7,283,528
--------------------------------------------
5
COMPUTER STORAGE & PERIPHERALS - 0.1%
13,461 - 13,461 EMC Corporation * 176,339 - 176,339
3,047 - 3,047 Qlogic Corporation * 38,636 - 38,636
859 - 859 SanDisk Corporation * 12,619 - 12,619
--------------------------------------------
227,594 - 227,594
--------------------------------------------
CONSTRUCTION & ENGINEERING - 0.1%
2,855 - 2,855 Fluor Corporation 146,433 - 146,433
162 - 162 Jacobs Engineering Group, Inc. * 6,819 - 6,819
--------------------------------------------
153,252 - 153,252
--------------------------------------------
CONSTRUCTION MATERIALS - 0.2%
- 7,900 7,900 Vulcan Materials Company - 340,490 340,490
--------------------------------------------
CONSUMER FINANCE - 0.2%
5,573 - 5,573 American Express Company 129,516 - 129,516
1,952 - 1,952 Capital One Financial Corporation 42,710 - 42,710
- 161,243 161,243 First Marblehead Corporation * - 325,711 325,711
--------------------------------------------
172,226 325,711 497,937
--------------------------------------------
DATA PROCESSING & OUTSOURCED SERVICES - 2.1%
801 - 801 Affiliated Computer Services, Inc. * 35,580 - 35,580
1,200 - 1,200 Automatic Data Processing, Inc. 42,528 - 42,528
4,047 - 4,047 Computer Sciences Corporation* 179,283 - 179,283
1,741 - 1,741 Convergys Corporation * 16,156 - 16,156
6,627 - 6,627 Fidelity National Information Services, Inc. 132,275 - 132,275
1,349 231,100 232,449 Western Union Company 22,124 3,790,040 3,812,164
--------------------------------------------
427,946 3,790,040 4,217,986
--------------------------------------------
DEPARTMENT STORES - 2.5%
1,334 83,900 85,234 JC Penney Company, Inc. 38,299 2,408,769 2,447,068
- 55,550 55,550 Kohl's Corporation * - 2,374,763 2,374,763
3,181 - 3,181 Macy's, Inc. 37,409 - 37,409
1,912 - 1,912 Sears Holdings Corporation * 127,186 - 127,186
--------------------------------------------
202,894 4,783,532 4,986,426
--------------------------------------------
DISTRIBUTORS - 0.0%
2,117 - 2,117 Genuine Parts Company 71,047 - 71,047
--------------------------------------------
DIVERSIFIED BANKS - 1.9%
6,674 85,875 92,549 U.S. Bancorp 119,598 1,538,880 1,658,478
24,801 66,564 91,365 Wells Fargo & Company 601,672 1,614,843 2,216,515
--------------------------------------------
721,270 3,153,723 3,874,993
--------------------------------------------
DIVERSIFIED CHEMICALS - 0.6%
10,352 52,500 62,852 Dow Chemical Company 167,081 847,350 1,014,431
1,892 - 1,892 E.I. Du Pont de Nemours & Company 48,473 - 48,473
115 - 115 Eastman Chemical Company 4,359 - 4,359
3,964 - 3,964 PPG Industries, Inc. 174,019 - 174,019
--------------------------------------------
393,932 847,350 1,241,282
--------------------------------------------
DIVERSIFIED METALS & MINING - 0.1%
2,141 - 2,141 Freeport McMoRan Copper & Gold, Inc. (Cl.B) 107,286 - 107,286
--------------------------------------------
DIVERSIFIED SUPPORT SERVICES - 0.0%
2,968 - 2,968 Cintas Corporation 67,789 - 67,789
--------------------------------------------
6
DRUG RETAIL - 2.9%
10,970 170,730 181,700 CVS Caremark Corporation 349,614 5,441,165 5,790,779
780 - 780 Walgreen Company 22,932 - 22,932
--------------------------------------------
372,546 5,441,165 5,813,711
--------------------------------------------
EDUCATION SERVICES - 0.0%
156 - 156 Apollo Group, Inc, * 11,095 - 11,095
--------------------------------------------
ELECTRIC UTILITIES - 1.7%
- 648 648 American Electric Power Company, Inc. - 18,721 18,721
8,432 - 8,432 Duke Energy Corporation 123,023 - 123,023
4,550 86,300 90,850 Edison International 143,142 2,714,998 2,858,140
1,821 - 1,821 Entergy Corporation 141,164 - 141,164
892 - 892 Exelon Corporation 45,679 - 45,679
1,716 - 1,716 FirstEnergy Corporation 66,495 - 66,495
117 - 117 FPL Group, Inc. 6,653 - 6,653
8,686 - 8,686 Pepco Holdings, Inc. 116,740 - 116,740
4,012 - 4,012 Pinnacle West Capital Corporation 120,962 - 120,962
--------------------------------------------
763,858 2,733,719 3,497,577
--------------------------------------------
ELECTRICAL COMPONENTS & EQUIPMENT - 1.4%
4,494 - 4,494 Cooper Industries, Ltd. 139,539 - 139,539
6,444 77,560 84,004 Emerson Electric Company 208,785 2,512,944 2,721,729
239 - 239 Rockwell Automation, Inc. 7,677 - 7,677
--------------------------------------------
- 356,001 2,512,944 2,868,945
--------------------------------------------
ELECTRONIC COMPONENTS - 1.1%
810 137,330 138,140 Corning, Inc. 13,009 2,205,520 2,218,529
--------------------------------------------
ELECTRONIC MANUFACTURING SERVICES - 0.8%
1,262 - 1,262 Jabil Circuit, Inc, 9,364 - 9,364
- 85,200 85,200 Tyco Electronics, Ltd. * - 1,583,868 1,583,868
--------------------------------------------
9,364 1,583,868 1,593,232
--------------------------------------------
FERTILIZERS & AGRICULTURAL CHEMICALS - 1.1%
240 - 240 CF Industries Holdings, Inc. 17,794 - 17,794
1,039 29,025 30,064 Monsanto Company 77,239 2,157,719 2,234,958
--------------------------------------------
95,033 2,157,719 2,252,752
--------------------------------------------
FOOD DISTRIBUTORS - 0.1%
6,637 - 6,637 SYSCO Corporation 149,200 - 149,200
--------------------------------------------
FOOD RETAIL - 0.1%
3,221 - 3,221 Kroger Company 71,023 - 71,023
3,316 - 3,316 Safeway, Inc. 67,547 - 67,547
--------------------------------------------
138,570 - 138,570
--------------------------------------------
FOOTWEAR - 0.8%
- 31,100 31,100 Nike, Inc. (Cl.B) - 1,610,358 1,610,358
--------------------------------------------
GENERAL MERCHANDISE STORES - 1.2%
571 - 571 Big Lots, Inc. * 12,008 - 12,008
1,336 - 1,336 Family Dollar Stores, Inc. 37,809 - 37,809
423 60,200 60,623 Target Corporation 16,696 2,376,094 2,392,790
--------------------------------------------
66,513 2,376,094 2,442,607
--------------------------------------------
7
GOLD - 0.0%
693 - 693 Newmont Mining Corporation 28,323 - 28,323
--------------------------------------------
HEALTH CARE DISTRIBUTORS - 0.1%
7,704 - 7,704 AmerisourceBergen Corporation 136,669 - 136,669
981 - 981 McKesson Corporation 43,164 - 43,164
--------------------------------------------
179,833 - 179,833
--------------------------------------------
HEALTH CARE EQUIPMENT - 2.0%
2,708 - 2,708 Baxter International, Inc. 143,416 - 143,416
1,671 - 1,671 Becton Dickinson & Company 119,159 - 119,159
819 - 819 Boston Scientific Corporation * 8,305 - 8,305
11 - 11 CR Bard, Inc. 819 - 819
- 35,900 35,900 Covidien plc - 1,344,096 1,344,096
2,302 48,400 50,702 Hospira, Inc. * 88,673 1,864,368 1,953,041
9,003 - 9,003 Medtronic, Inc. 314,114 - 314,114
1,444 - 1,444 Stryker Corporation 57,385 - 57,385
--------------------------------------------
731,871 3,208,464 3,940,335
--------------------------------------------
HEALTH CARE SERVICES - 1.0%
390 - 390 Express Scripts, Inc. * 26,813 - 26,813
3,255 39,700 42,955 Medco Health Solutions, Inc. * 148,460 1,810,717 1,959,177
--------------------------------------------
175,273 1,810,717 1,985,990
--------------------------------------------
HEALTH CARE TECHNOLOGY - 0.0%
1,998 - 1,998 IMS Health, Inc. 25,375 - 25,375
--------------------------------------------
HOME ENTERTAINMENT SOFTWARE - 1.5%
- 245,880 245,880 Activision Blizzard, Inc. * - 3,105,464 3,105,464
--------------------------------------------
HOME IMPROVEMENT RETAIL - 1.3%
12,951 - 130,451 Home Depot, Inc. 306,032 - 2,586,707
1,643 117,500 1,643 Lowe's Companies, Inc. 31,891 2,280,675 31,891
--------------------------------------------
337,923 2,280,675 2,618,598
--------------------------------------------
HOMEBUILDING - 0.1%
608 - 608 Centex Corporation 5,144 - 5,144
5,710 - 5,710 DR Horton, Inc. 53,446 - 53,446
2,286 - 2,286 Lennar Corporation 22,151 - 22,151
5,870 - 5,870 Pulte Homes, Inc. 51,832 - 51,832
--------------------------------------------
132,573 - 132,573
--------------------------------------------
HOTELS, RESORTS & CRUISE LINES - 0.0%
383 - 383 Carnival Corporation 9,870 - 9,870
1,360 - 1,360 Marriott International, Inc. 30,015 - 30,015
273 - 273 Wyndham Worldwide Corporation 3,309 - 3,309
--------------------------------------------
43,194 - 43,194
--------------------------------------------
HOUSEHOLD APPLIANCES - 0.0%
779 - 779 Black & Decker Corporation 22,326 - 22,326
148 - 148 Whirlpool Corporation 6,299 - 6,299
--------------------------------------------
28,625 - 28,625
--------------------------------------------
HOUSEHOLD PRODUCTS - 0.5%
1,035 - 1,035 Clorox Company 57,784 - 57,784
268 - 268 Colgate-Palmolive Company 18,958 - 18,958
4,782 - 4,782 Kimberly-Clark Corporation 250,720 - 250,720
8
14,508 - 14,508 Procter & Gamble Company 741,360 - 741,360
--------------------------------------------
1,068,822 - 1,068,822
--------------------------------------------
HUMAN RESOURCES & EMPLOYMENT SERVICES - 0.0%
1,306 - 1,306 Robert Half International, Inc. 30,848 - 30,848
--------------------------------------------
HYPERMARKETS & SUPER CENTERS - 2.5%
- 45,100 45,100 Costco Wholesale Corporation - 2,061,070 2,061,070
13,931 47,800 61,731 Wal-Mart Stores, Inc. 674,818 2,315,432 2,990,250
--------------------------------------------
674,818 4,376,502 5,051,320
--------------------------------------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS - 0.6%
4,647 - 4,647 Constellation Energy Group, Inc. 123,517 - 123,517
- 41,600 41,600 NRG Energy, Inc.* - 1,079,936 1,079,936
--------------------------------------------
123,517 1,079,936 1,203,453
--------------------------------------------
INDUSTRIAL CONGLOMERATES - 2.5%
5,833 - 5,833 3M Company 350,563 - 350,563
50,288 143,400 193,688 General Electric Company 589,375 1,680,648 2,270,023
- 117,000 117,000 McDermott International, Inc. * - 2,376,270 2,376,270
--------------------------------------------
939,938 4,056,918 4,996,856
--------------------------------------------
INDUSTRIAL GASES - 1.2%
- 37,580 37,580 Air Products & Chemicals, Inc. - 2,427,292 2,427,292
--------------------------------------------
INDUSTRIAL MACHINERY - 0.8%
5,152 - 5,152 Dover Corporation 170,480 - -
788 - 788 Eaton Corporation 35,153 - -
4,526 - 4,526 Illinois Tool Works, Inc. 169,001 - -
687 - 687 Ingersoll-Rand Company, Ltd. 14,358 - -
1,367 38,100 39,467 Parker Hannifin Corporation 58,726 1,636,776 1,695,502
--------------------------------------------
447,718 1,636,776 1,695,502
--------------------------------------------
INDUSTRIAL REITS - 0.0%
5,331 - 5,331 ProLogis 42,968 - 42,968
--------------------------------------------
INSURANCE BROKERS - 0.6%
528 33,100 33,628 AON Corporation 19,995 1,253,497 1,273,492
--------------------------------------------
INTEGRATED OIL & GAS - 4.9%
12,003 31,700 43,703 Chevron Corporation 795,199 2,100,125 2,895,324
10,502 15,200 25,702 ConocoPhillips 441,714 639,312 1,081,026
26,518 48,400 74,918 Exxon Mobil Corporation (1) 1,853,873 3,383,644 5,237,517
4,959 - 4,959 Marathon Oil Corporation 149,415 - 149,415
3,367 - 3,367 Murphy Oil Corporation 182,895 - 182,895
5,335 - 5,335 Occidental Petroleum Corporation 351,096 - 351,096
--------------------------------------------
- 3,774,192 6,123,081 9,897,273
--------------------------------------------
INTEGRATED TELECOMMUNICATION SERVICES - 1.0%
26,839 - 26,839 AT&T, Inc. 666,680 - 666,680
5,268 - 5,268 CenturyTel, Inc. 161,728 - 161,728
14,624 - 14,624 Qwest Communications International, Inc. 60,690 - 60,690
10,759 - 10,759 Verizon Communications, Inc. 330,624 - 330,624
- 98,200 98,200 Windstream Corporation - 820,952 820,952
--------------------------------------------
1,219,722 820,952 2,040,674
--------------------------------------------
9
INTERNET RETAIL - 0.1%
1,650 - 1,650 Amazon.com, Inc. * 138,039 - 138,039
--------------------------------------------
INTERNET SOFTWARE & SERVICES - 2.1%
6,165 - 6,165 eBay, Inc. * 105,606 - 105,606
1,092 8,515 9,607 Google, Inc. * 460,377 3,589,839 4,050,216
7,600 - 7,600 Yahoo!, Inc. * 119,016 - 119,016
--------------------------------------------
684,999 3,589,839 4,274,838
--------------------------------------------
INVESTMENT BANKING & BROKERAGE - 1.6%
3,457 17,940 21,397 Goldman Sachs Group, Inc. 509,700 2,645,074 3,154,774
--------------------------------------------
IT CONSULTING & OTHER SERVICES - 1.6%
- 117,520 117,520 Cognizant Technology Solutions Corporation * - 3,137,784 3,137,784
--------------------------------------------
LIFE & HEALTH INSURANCE - 0.1%
1,225 - 1,225 Aflac, Inc. 38,085 - 38,085
847 - 847 Lincoln National Corporation 14,577 - 14,577
1,308 - 1,308 MetLife, Inc. 39,253 - 39,253
2,268 - 2,268 Prudential Financial, Inc. 84,415 - 84,415
296 - 296 Torchmark Corporation 10,964 - 10,964
5,232 - 5,232 Unum Group 82,980 - 82,980
--------------------------------------------
270,274 - 270,274
--------------------------------------------
LIFE SCIENCES TOOLS & SERVICES - 0.0%
1,053 - 1,053 PerkinElmer, Inc. 18,322 - 18,322
1,716 - 1,716 Thermo Fisher Scientific, Inc. * 69,962 - 69,962
--------------------------------------------
88,284 - 88,284
--------------------------------------------
MANAGED HEALTH CARE - 0.9%
1,699 49,600 51,299 Aetna, Inc. 42,560 1,242,480 1,285,040
583 - 583 Cigna Corporation 14,044 - 14,044
1,721 - 1,721 Humana, Inc. * 55,519 - 55,519
11,579 - 11,579 UnitedHealth Group, Inc. 289,244 - 289,244
3,581 - 3,581 WellPoint, Inc. * 182,237 - 182,237
--------------------------------------------
583,604 1,242,480 1,826,084
--------------------------------------------
METAL & GLASS CONTAINERS - 0.0%
927 - 927 Owens-Illinois, Inc. * 25,965 - 25,965
2,246 - 2,246 Pactiv Corporation * 48,806 - 48,806
--------------------------------------------
74,771 - 74,771
--------------------------------------------
MOVIES & ENTERTAINMENT - 1.1%
10,573 - 10,573 News Corporation 96,320 - 96,320
9,601 65,400 75,001 Time Warner, Inc. 241,848 1,647,426 1,889,274
3,919 - 3,919 Viacom, Inc. (Cl.B) * 88,961 - 88,961
6,926 - 6,926 Walt Disney Company 161,584 - 161,584
--------------------------------------------
588,713 1,647,426 2,236,139
--------------------------------------------
MULTI-LINE INSURANCE - 0.1%
22,031 - 22,031 American International Group, Inc. 25,556 - 25,556
3,498 - 3,498 Genworth Financial, Inc. 24,451 - 24,451
1,005 - 1,005 Hartford Financial Services Group, Inc. 11,929 - 11,929
6,868 - 6,868 Loews Corporation * 188,184 - 188,184
--------------------------------------------
250,120 - 250,120
--------------------------------------------
10
MULTI-SECTOR HOLDINGS - 0.0%
467 - 467 Leucadia National Corporation 9,849 - 9,849
--------------------------------------------
MULTI-UTILITIES - 0.4%
10,071 - 10,071 Centerpoint Energy, Inc. 111,587 - 111,587
4,824 - 4,824 DTE Energy Company 154,368 - 154,368
3,890 - 3,890 PG&E Corporation 149,532 - 149,532
3,861 - 3,861 Public Service Enterprise Group, Inc. 125,984 - 125,984
3,949 - 3,949 Sempra Energy 195,989 - 195,989
--------------------------------------------
737,460 - 737,460
--------------------------------------------
OFFICE ELECTRONICS - 0.0%
1,960 - 1,960 Xerox Corporation 12,701 - 12,701
--------------------------------------------
OFFICE REITS - 0.0%
569 - 569 Boston Properties, Inc. 27,141 - 27,141
--------------------------------------------
OFFICE SERVICES & SUPPLIES - 0.0%
545 - 545 Avery Dennison Corporation 13,996 - 13,996
1,321 - 1,321 Pitney Bowes, Inc. 28,969 - 28,969
--------------------------------------------
42,965 - 42,965
--------------------------------------------
OIL & GAS DRILLING - 1.7%
475 - 475 Diamond Offshore Drilling, Inc. 39,449 - 39,449
1,950 - 1,950 ENSCO International, Inc. 67,996 - 67,996
2,563 - 2,563 Nabors Industries, Ltd. * 39,932 - 39,932
- 43,100 43,100 Transocean, Ltd. - 3,201,899 3,201,899
--------------------------------------------
147,377 3,201,899 3,349,276
--------------------------------------------
OIL & GAS EQUIPMENT & SERVICES - 1.0%
4,721 - 4,721 BJ Services Company 64,347 - 64,347
2,084 - 2,084 Cameron International Corporation * 58,977 - 58,977
- 74,200 74,200 Halliburton Company - 1,535,940 1,535,940
3,560 - 3,560 National Oilwell Varco, Inc. * 116,270 - 116,270
3,368 - 3,368 Schlumberger, Ltd. 182,243 - 182,243
--------------------------------------------
421,837 1,535,940 1,957,777
--------------------------------------------
OIL & GAS EXPLORATION & PRODUCTION - 2.3%
5,021 - 5,021 Anadarko Petroleum Corporation 227,903 - 227,903
3,195 - 3,195 Apache Corporation 230,519 - 230,519
- 64,200 64,200 Chesapeake Energy Corporation - 1,273,086 1,273,086
880 - 880 Devon Energy Corporation 47,960 - 47,960
- 71,760 71,760 XTO Energy, Inc. - 2,736,926 2,736,926
--------------------------------------------
506,382 4,010,012 4,516,394
--------------------------------------------
OIL & GAS REFINING & MARKETING - 0.1%
2,145 - 2,145 Sunoco, Inc. 49,764 - 49,764
3,087 - 3,087 Tesoro Corporation 39,298 - 39,298
2,835 - 2,835 Valero Energy Corporation 47,883 - 47,883
--------------------------------------------
136,945 - 136,945
--------------------------------------------
OIL & GAS STORAGE & TRANSPORTATION - 0.8%
- 99,500 99,500 Williams Companies, Inc. - 1,553,195 1,553,195
--------------------------------------------
11
OTHER DIVERSIFIED FINANCIAL SERVICES - 2.9%
39,950 - 39,950 Bank of America Corporation 527,340 - 527,340
22,739 124,856 147,595 JPMorgan Chase & Company 775,628 4,258,837 5,034,465
11,089 - 11,089 Morgan Stanley 316,147 - 316,147
--------------------------------------------
1,619,115 4,258,837 5,877,952
--------------------------------------------
PACKAGED FOODS & MEATS - 0.3%
1,222 - 1,222 Campbell Soup Company 35,951 - 35,951
8,231 - 8,231 Dean Foods Company * 157,953 - 157,953
3,411 - 3,411 Kellogg Company 158,850 - 158,850
1,854 - 1,854 Kraft Foods, Inc. 46,980 - 46,980
16,686 - 16,686 Sara Lee Corporation 162,856 - 162,856
5,602 - 5,602 Tyson Foods, Inc. 70,641 - 70,641
--------------------------------------------
- 633,231 - 633,231
--------------------------------------------
PAPER PACKAGING - 0.1%
1,950 - 1,950 Bemis Company, Inc. 49,140 - 49,140
8,136 - 8,136 Sealed Air Corporation 150,109 - 150,109
--------------------------------------------
199,249 - 199,249
--------------------------------------------
PAPER PRODUCTS - 0.0%
3,886 - 3,886 International Paper Company 58,795 - 58,795
--------------------------------------------
-
PHARMACEUTICALS - 4.8%
6,640 - 6,640 Abbott Laboratories 312,346 - 312,346
6,133 - 6,133 Bristol-Myers Squibb Company 124,561 - 124,561
6,923 - 6,923 Eli Lilly & Company 239,813 - 239,813
6,693 - 6,693 Forest Laboratories, Inc. * 168,061 - 168,061
13,067 - 13,067 Johnson & Johnson 742,205 - 742,205
10,625 - 10,625 Merck & Company, Inc. 297,075 - 297,075
4,538 - 4,538 Mylan, Inc. * 59,221 - 59,221
41,920 137,150 179,070 Pfizer, Inc. 628,800 2,057,250 2,686,050
6,961 57,700 64,661 Schering-Plough Corporation 174,860 1,449,424 1,624,284
- 63,235 63,235 Teva Pharmaceutical Industries, Ltd. ADR - 3,120,015 3,120,015
820 - 820 Watson Pharmaceuticals, Inc. * 27,601 - 27,601
6,298 - 6,298 Wyeth 285,866 - 285,866
--------------------------------------------
3,060,409 6,626,689 9,687,098
--------------------------------------------
PROPERTY & CASUALTY INSURANCE - 2.1%
2,034 - 2,034 Allstate Corporation 49,630 - 49,630
- 42 42 Berkshire Hathaway, Inc. * - 3,780,000 3,780,000
2,795 - 2,795 Chubb Corporation 111,465 - 111,465
5,873 - 5,873 Travelers Companies, Inc. 241,027 - 241,027
1,504 - 1,504 XL Capital, Ltd. 17,236 - 17,236
--------------------------------------------
419,358 3,780,000 4,199,358
--------------------------------------------
PUBLISHING - 0.1%
2,695 - 2,695 McGraw-Hill Companies, Inc. 81,147 - 81,147
422 - 422 Meredith Corporation 10,782 - 10,782
150 - 150 Washington Post Company (Cl. B) 52,827 - 52,827
--------------------------------------------
144,756 - 144,756
--------------------------------------------
RAILROADS - 3.1%
- 41,375 41,375 Burlington Northern Santa Fe Corporation - 3,042,718 3,042,718
1,699 - 1,699 CSX Corporation 58,836 - 58,836
3,128 - 3,128 Norfolk Southern Corporation 117,833 - 117,833
7 56,100 56,107 Union Pacific Corporation 364 2,920,566 2,920,930
--------------------------------------------
177,033 5,963,284 6,140,317
--------------------------------------------
12
REGIONAL BANKS - 0.2%
6,433 - 6,433 BB&T Corporation 141,397 - 141,397
2,340 - 2,340 Marshall & Ilsley Corporation 11,232 - 11,232
1,985 - 1,985 PNC Financial Services Groups, Inc. 77,038 - 77,038
8,678 - 8,678 Regions Financial Corporation 35,059 - 35,059
1,718 - 1,718 SunTrust Banks, Inc. 28,261 - 28,261
--------------------------------------------
292,987 - 292,987
--------------------------------------------
RESEARCH & CONSULTING SERVICES - 0.9%
- 67,900 67,900 Equifax, Inc. - 1,772,190 1,772,190
--------------------------------------------
RESTAURANTS - 2.4%
443 54,180 54,623 Darden Restaurants, Inc. 14,610 1,786,856 1,801,466
6,257 - 6,257 McDonald's Corporation 359,715 - 359,715
- 184,300 184,300 Starbucks Corporation * - 2,559,927 2,559,927
384 - 384 Yum! Brands, Inc. 12,803 - 12,803
--------------------------------------------
387,128 4,346,783 4,733,911
--------------------------------------------
RETAIL REITS - 0.0%
2,656 - 2,656 Kimco Realty Corporation 26,693 - 26,693
--------------------------------------------
SEMICONDUCTOR EQUIPMENT - 0.0%
1,470 - 1,470 Novellus Systems, Inc. * 24,549 - 24,549
--------------------------------------------
SEMICONDUCTORS - 2.1%
112 - 112 Broadcom Corporation * 2,776 - 2,776
35,107 195,050 230,157 Intel Corporation 581,021 3,228,078 3,809,099
13,815 - 13,815 Texas Instruments, Inc. 294,260 - 294,260
5,856 - 5,856 Xilinx, Inc. 119,814 - 119,814
--------------------------------------------
997,871 3,228,078 4,225,949
--------------------------------------------
SOFT DRINKS - 2.2%
6,974 - 6,974 Coca-Cola Company 334,682 - 334,682
9,815 - 9,815 Coca-Cola Enterprises, Inc. 163,420 - 163,420
2,053 - 2,053 Dr Pepper Snapple Group, Inc. * 43,503 - 43,503
673 - 673 Pepsi Bottling Group, Inc. 22,774 - 22,774
4,907 63,810 68,717 PepsiCo, Inc. 269,689 3,506,998 3,776,687
--------------------------------------------
834,068 3,506,998 4,341,066
--------------------------------------------
SPECIALIZED CONSUMER SERVICES - 0.0%
3,727 - 3,727 H&R Block, Inc. 64,216 - 64,216
--------------------------------------------
- -
- SPECIALIZED FINANCE - 0.1% -
329 - 329 CME Group, Inc. 102,355 - 102,355
--------------------------------------------
- -
- SPECIALIZED REITS - 0.1% -
3,978 - 3,978 HCP, Inc. 84,294 - 84,294
4,471 - 4,471 Host Hotels & Resorts, Inc. 37,512 - 37,512
2,297 - 2,297 Public Storage, Inc. 150,407 - 150,407
--------------------------------------------
- 272,213 - 272,213
--------------------------------------------
- -
- SPECIALTY CHEMICALS - 0.1% -
4,835 - 4,835 International Flavors & Fragrances, Inc. 158,201 - 158,201
29 - 29 Sigma-Aldrich Corporation 1,437 - 1,437
--------------------------------------------
- 159,638 - 159,638
--------------------------------------------
13
- SPECIALTY STORES - 0.0% -
12,416 - 12,416 Office Depot, Inc. * 56,617 - 56,617
--------------------------------------------
STEEL - 0.1%
1,109 - 1,109 AK Steel Holding Corporation 21,282 - 21,282
3,897 - 3,897 Nucor Corporation 173,144 - 173,144
1,702 - 1,702 United States Steel Corporation 60,829 - 60,829
--------------------------------------------
- 255,255 - 255,255
--------------------------------------------
- -
- SYSTEMS SOFTWARE - 2.2% -
1,973 - 1,973 BMC Software, Inc. * 66,668 - 66,668
5,474 - 5,474 CA, Inc. 95,412 - 95,412
44,180 104,550 148,730 Microsoft Corporation 1,050,158 2,485,154 3,535,312
9,047 - 9,047 Novell, Inc. * 40,983 - 40,983
20,959 - 20,959 Oracle Corporation 448,941 - 448,941
9,550 - 9,550 Symantec Corporation * 148,598 - 148,598
--------------------------------------------
1,850,760 2,485,154 4,335,914
--------------------------------------------
TOBACCO - 1.4%
15,974 50,500 66,474 Altria Group, Inc. 261,814 827,695 1,089,509
704 - 704 Lorillard, Inc. 47,710 - 47,710
6,691 30,500 37,191 Philip Morris International, Inc. 291,861 1,330,410 1,622,271
--------------------------------------------
601,385 2,158,105 2,759,490
--------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES - 0.1%
32,792 - 32,792 Sprint Nextel Corporation * 157,730 - 157,730
--------------------------------------------
--------------------------------------------
Total Common Stocks - (Cost $224,676,351) $39,728,094 $154,430,092 $193,769,194
--------------------------------------------
SHARES SHARES SHARES VALUE VALUE VALUE
Preferred Stock - 0.0%
OTHER DIVERSIFIED FINANCIAL SERVICES - 0.0%
4,737 - 4,737 Citigroup, Inc. 8.125% $88,487 $ - $88,487
--------------------------------------------
--------------------------------------------
Total Preferred Stock - (Cost $63,516) $88,487 $ - $88,487
--------------------------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT VALUE VALUE VALUE
U.S. Government Securities - 0.1%
U.S. Treasury Bill
$150,000 $0 $150,000 0.28% - 11/19/09 $149,850 $ - $149,850
--------------------------------------------
--------------------------------------------
Total U.S. government securities
(cost $149,838) $149,850 $ - $149,850
--------------------------------------------
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT VALUE VALUE VALUE
REPURCHASE AGREEMENT - 1.7%
UMB Financial Corp, 0.07% dated 6/30/09,
$ - $ 3,348,000 $3,348,007 matures 7/01/09; repurchase amount
$3,348,000 (Collateralized by FNMA, 4.00%,
4/15/10 with a value of $3,414,986) $ - $ 3,348,000 $ 3,348,000
---------------------------------------------
14
---------------------------------------------
Total Repurchase Agreement (Cost
$3,348,000) - $ 3,348,000 $ 3,348,000
---------------------------------------------
Total Investments - 98.2% (Cost
$228,237,705) $ 39,966,431 $ 157,778,092 $ 197,355,531
Cash & Other Assets, Less Liabilities -
1.8% 982,638 2,731,608 3,714,246
---------------------------------------------
Total Net Assets - 100.0% $40,949,069 $160,509,700 $201,069,777
=============================================
For federal income tax purposes, the identified cost of investments owned at
June 30, 2009 was $231,552,690.
* Non-income producing security
ADR - American Depositary Receipt
(1) Security is segregated as collateral for open futures contracts.
15
ACQUIRING FUND
PRO FORMA NOTES TO COMBINING FINANCIAL STATEMENTS
JUNE 30, 2009
(UNAUDITED)
1) Description of the Fund
SBL Fund, Series A - Equity Series ("Acquiring Fund"), is registered under the
Investment Company Act of 1940, as amended, as an open-end, diversified
investment company.
2) Basis of Combination
The accompanying pro forma financial statements are presented to show the effect
of the proposed acquisition of SBL Fund, Series H - Enhanced Index Series,
("Target Fund") by SBL Fund, Series A - Equity Series as if such acquisition had
taken place as of June 30, 2009.
Under the terms of the Plan of Reorganization, the combination of SBL Fund,
Series H - Enhanced Index Series and SBL Fund, Series A - Equity Series 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 SBL Fund, Series H - Enhanced Index Series in exchange for shares of
SBL Fund, Series A - Equity Series at net asset value. The statement of assets
and liabilities and the related statement of operations of SBL Fund, Series H -
Enhanced Index Series and SBL Fund, Series A- Equity Series have been combined
as of and for the six months ended June 30, 2009. Following the acquisition, the
SBL Fund, Series A - Equity Series will be the accounting survivor. In
accordance with accounting principles generally accepted in the United States of
America, the historical cost of investment securities will be carried forward to
the SBL Fund, Series A - Equity Series and the results of operations for
pre-combination periods of the SBL Fund, Series A - Equity Series will not be
restated.
The accompanying pro forma financial statements should be read in conjunction
with the financial statements of SBL Fund, Series A - Equity Series and SBL
Fund, Series H - Enhanced Index Series included in their semi-annual report
dated June 30, 2009.
The following notes refer to the accompanying pro forma financial statements as
if the above mentioned acquisition of SBL Fund, Series H - Enhanced Index Series
by SBL Fund, Series A - Equity Series had taken place as of June 30, 2009.
3) Portfolio Valuation
Valuations of SBL 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 the 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 used the price of that exchange that it
generally considers to be the principal exchange on which the stock is traded.
Securities listed on the National Association of Securities Dealers Automated
Quotations ("NASDAQ") will be valued at the NASDAQ Official Closing Price, which
may not necessarily represent the last sale price. If there has been no sale on
such exchange or NASDAQ on such day, the security is valued at the closing bid
price on such day. 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 that will affect the value of a Fund's portfolio
securities before the NAV has been 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 NAV 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 with 60 days or less to maturity are valued on the
basis of amortized cost which approximates market value.
Generally, trading in foreign securities markets is substantially completed each
day at various times prior to the close of the New York Stock Exchange. The
values of foreign securities are determined as of the close of such foreign
markets or the close of the New York
16
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 a third party pricing vendor in valuing foreign
securities.
4) Capital Shares
The pro forma net asset value per share assumes the issuance of shares of the
SBL Fund, Series A - Equity Series that would have been issued at June 30, 2009,
in connection with the proposed reorganization. The number of shares assumed to
be issued is equal to the net asset value of shares of SBL Fund, Series H -
Enhanced Index Series, as of June 30, 2009, divided by the net asset value per
share of the shares of SBL Fund, Series A - Equity Series as of June 30, 2009.
The pro forma number of shares outstanding for the combined fund consists of the
following at June 30, 2009:
Shares of Acquiring Fund Additional Shares Assumed Total Outstanding Shares
Pre-Combination Issued In Reorganization Post-Combination
--------------- ------------------------ ----------------
9,873,224 2,518,393 12,391,617
5) Federal Income Taxes
Each fund has elected to be taxed as a "regulated investment company" under the
Internal Revenue Code. After the acquisition, the Acquiring Fund 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.
6) Fair Value of Financial Instruments
In September 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 157, "Fair Value Measurements"
(FAS 157). This standard clarifies the definition of fair value for financial
reporting, establishes a framework for measuring fair value and requires
additional disclosure about the use of fair value requirements. FAS 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007 and interim periods within those fiscal years.
The three levels of fair value hierarchy under FAS 157 are listed below:
Level 1 - quoted prices in active markets for identical securities. The types of
assets and liabilities carried at Level 1 fair value generally are government
and agency securities, equities listed in active markets, certain futures and
certain options.
Level 2 - other significant observable inputs (including quoted prices for
similar securities, interest rates, prepayment speeds, credit risk, etc.). The
types of assets and liabilities carried at Level 2 fair value generally are
municipal bonds, certain mortgage and asset-backed securities, certain corporate
debt, commercial paper and repurchase agreements.
Level 3 - significant unobservable inputs (including the Fund's own assumptions
in determining the fair value of investments). The types of assets and
liabilities carried at Level 3 fair value generally are certain mortgage and
asset-backed securities, certain corporate debt and certain derivatives.
Observable inputs are those based on market data obtained from sources
independent of the Fund, and unobservable inputs reflect the Fund's own
assumptions based on the best information available.
The inputs or methodology used for valuing securities are not necessarily an
indication of the risk association with investing in those securities.
In April 2009, the FASB issued Staff Position FSP FAS 157-4, "Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly" ("FAS
157-4"), which provides additional guidance when the volume and level of
activity for the asset or liability measured at fair value have significantly
decreased. Additionally, FAS 157-4 amends FASB Statement No. 157, Fair Value
Measurements, expanding disclosure requirements by reporting entities
surrounding the major categories of assets and liabilities carried at fair
value. FAS 157-4 is effective for interim
17
and annual periods ending after June 15, 2009. Management has evaluated the
impact of the adoption of FAS 157-4 on the Funds' and has determined that there
will be no impact to the financial statement disclosures.
The following table provides the fair value measurements of applicable Fund
assets by level within the fair value hierarchy as of June 30, 2009. These
assets are measured on a recurring basis.
LEVEL 1 LEVEL 2 LEVEL 3
Quoted prices in
active markets for significant other significant
Description Total identical assets observable inputs observable inputs
SBL FUND:
Series A (Equity)
Common Stocks $154,430,092 $154,430,092 - -
Repurchase Agreement 3,348,000 - $3,348,000 -
--------- - ----------
Total $157,778,092 $154,430,092 $3,348,000 -
------------ ------------ ----------
Series H (Enhanced Index)
Common Stocks $39,728,094 $39,728,094 - -
Preferred Stock 88,487 88,487 - -
U.S. Government Securities 149,850 - $149,850 -
Futures Contracts 25,852 25,852 - -
------ ------
Total $39,992,283 $39,842,433 $149,850 -
----------- ----------- --------
18
PART C
OTHER INFORMATION
Item 15 Indemnification
A policy of insurance covering Security Investors, LLC, its subsidiaries,
Security Distributors, Inc., and all of the registered investment companies
advised by Security Investors, LLC insures the Registrant's directors and
officers and others against liability arising by reason of an alleged breach of
duty caused by any negligent act, error or accidental omission in the scope of
their duties.
Paragraph 30 of Registrant's Bylaws, dated February 3, 1995, provides in
relevant part as follows:
30. Indemnification and Liability of Directors and Officers. Each person who is
or was a Director or officer of the Corporation or is or was serving at the
request of the Corporation as a Director or officer of another corporation
(including the heirs, executors, administrators and estate of such person)
shall be indemnified by the Corporation as of right to the full extent
permitted or authorized by the laws of the State of Kansas, as now in
effect and as hereafter amended, against any liability, judgment, fine,
amount paid in settlement, cost and expense (including attorneys' fees)
asserted or threatened against and incurred by such person in his/her
capacity as or arising out of his/her status as a Director or officer of
the Corporation or, if serving at the request of the Corporation, as a
Director or officer of another corporation. The indemnification provided by
this bylaw provision shall not be exclusive of any other rights to which
those indemnified may be entitled under the Articles of Incorporation,
under any other bylaw or under any agreement, vote of stockholders or
disinterested directors or otherwise, and shall not limit in any way any
right which the Corporation may have to make different or further
indemnification with respect to the same or different persons or classes of
persons.
No person shall be liable to the Corporation for any loss, damage,
liability or expense suffered by it on account of any action taken or
omitted to be taken by him/her as a Director or officer of the Corporation
or of any other corporation which he/she serves as a Director or officer at
the request of the Corporation, if such person (a) exercised the same
degree of care and skill as a prudent man would have exercised under the
circumstances in the conduct of his/her own affairs, or (b) took or omitted
to take such action in reliance upon advice of counsel for the Corporation,
or for such other corporation, or upon statement made or information
furnished by Directors, officers, employees or agents of the Corporation,
or of such other corporation, which he/she had no reasonable grounds to
disbelieve.
In the event any provision of this Section 30 shall be in violation of the
Investment Company Act of 1940, as amended or of the rules and regulations
promulgated thereunder, such provisions shall be void to the extent of such
violations.
On March 25, 1988, the shareholders approved the Board of Directors'
recommendation that the Articles of Incorporation be amended by adopting the
following Article Fifteen:
"A director shall not be personally liable to the corporation or to its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided that this sentence shall not eliminate nor limit the liability of a
director:
A. for any breach of his or her duty of loyalty to the corporation or to
its stockholders;
B. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
C. for any unlawful dividend, stock purchase or redemption under the
provisions of Kansas Statutes Annotated (K.S.A.) 17- 6424 and
amendments thereto; or
D. for any transaction from which the director derived an improper
personal benefit."
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 16 Exhibits
(1) Articles of Incorporation(a)
(2) Bylaws(b)
(3) Not Applicable
(4) Plan of Reorganization(c)
(5) Not Applicable
(6) (a) Investment Advisory Contract(d)
(7) Distribution Agreement(e)
(8) Not Applicable
(9) (a) Custodian Agreement - UMB Bank, n.a.(f)
(b) Custodian Agreement - State Street Bank(g)
(10) Not Applicable
(11) Opinion of Counsel(h) - Filed herewith.
(12) Opinion and Consent of Counsel Supporting Tax Matters and
Consequences(i) - Form filed herewith, definitive to be filed by
subsequent amendment.
(13)(a) Fund Accounting and Administration Agreement(j)
(b) Transfer Agency Agreement(k)
(14) Consent of Independent Registered Public Accounting Firm(h)
(15) Not Applicable
(16) Powers of Attorney(h)
(17) Not Applicable
-----------------
(a) Incorporated herein by reference to Exhibits filed with the Registrant's
Post-Effective Amendment No. 52 to Registration Statement No. 2-59353
(filed April 27, 2007).
(b) Incorporated herein by reference to the Exhibits filed with the
Registrant's Post-Effective Amendment No. 53 to Registration Statement
No. 2-59353 (filed April 30, 2008).
(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. 55 to Registration Statement
No. 2-59353 (filed August 15, 2008).
(e) Incorporated herein by reference to Exhibits filed with the Registrant's
Post-Effective Amendment No. 45 to Registration Statement No. 2-59353
(filed February 14, 2003).
(f) Incorporated herein by reference to the Exhibits filed with Security
Equity Fund's Post-Effective Amendment No. 112 to Registration Statement
2-19458 (filed February 2, 2009).
(g) Incorporated herein by reference to Exhibits filed with Security Equity
Fund's Post-Effective Amendment No. 107 to Registration Statement 2-19458
(filed July 10, 2008).
(h) Incorporated herein by reference to an Exhibit to the Registration
Statement on Form N-14 of the Registrant as filed on January 29, 2010,
File No. 333-164581.
(i) A form of opinion and consent of counsel supporting tax matters and
consequences was previously filed as an Exhibit to the Registration
Statement on Form N-14 of the Registrant as filed on January 29, 2010,
File No. 333-164581 and incorporated here by reference. The definitive
opinion and consent will be filed by subsequent amendment.
(j) Incorporated herein by reference to Exhibits filed with the Registrant's
Post-Effective Amendment No. 51 to Registration Statement No. 2-59353
(filed April 28, 2006).
2
(k) Incorporated herein by reference to Exhibits filed with the Registrant's
Post-Effective Amendment No. 52 to Registration Statement No. 2-59353
(filed April 27, 2007).
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.
3
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 23rd day of February, 2010.
SBL FUND
BY: /s/ RICHARD M. GOLDMAN
----------------------------
RICHARD M. GOLDMAN
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 23rd day of February, 2010.
SBL FUND
By: /s/ RICHARD M. GOLDMAN
------------------------------
Donald A. Chubb, Jr. Richard M. Goldman, as
Director President, Director and
Chairman of the Board, and as
Penny A. Lumpkin Attorney-In-Fact for the
Director Officers and Directors
whose names appear opposite
Harry W. Craig, Jr.
Director
-------------------------------------
Maynard Oliverius
Director
/s/ BRENDA M. HARWOOD
-------------------------------------
Brenda M. Harwood, Treasurer
(Principal Financial Officer
and Principal Accounting
Officer)