UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-02753
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)
MICHAEL G. ODLUM, PRESIDENT
SBL FUND
ONE SECURITY BENEFIT PLACE
TOPEKA, KANSAS 66636-0001
(Name and address of agent for service)
Registrant's telephone number, including area code: (785) 438-3000
Date of fiscal year end: December 31
Date of reporting period: December 31, 2004
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. Section 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
SBL FUND
ANNUAL REPORT
DECEMBER 31, 2004
- - SERIES A (EQUITY SERIES)
- - SERIES B (LARGE CAP VALUE SERIES)
- - SERIES C (MONEY MARKET SERIES)
- - SERIES D (GLOBAL SERIES)
- - SERIES E (DIVERSIFIED INCOME SERIES)
- - SERIES G (LARGE CAP GROWTH SERIES)
- - SERIES H (ENHANCED INDEX SERIES)
- - SERIES J (MID CAP GROWTH SERIES)
- - SERIES N (MANAGED ASSET ALLOCATION SERIES)
- - SERIES O (EQUITY INCOME SERIES)
- - SERIES P (HIGH YIELD SERIES)
- - SERIES Q (SMALL CAP VALUE SERIES)
- - SERIES S (SOCIAL AWARENESS SERIES)
- - SERIES V (MID CAP VALUE SERIES)
- - SERIES W (MAIN STREET GROWTH AND INCOME(R) SERIES)
- - SERIES X (SMALL CAP GROWTH SERIES)
- - SERIES Y (SELECT 25 SERIES)
- - SERIES Z (ALPHA OPPORTUNITY SERIES)
[SECURITY DISTRIBUTORS, INC. LOGO]
SBL FUND
DECEMBER 31, 2004
ANNUAL REPORT
TABLE OF CONTENTS
Series A (Equity Series)....................................... 2
Series B (Large Cap Value Series).............................. 10
Series C (Money Market Series)................................. 18
Series D (Global Series)....................................... 26
Series E (Diversified Income Series)........................... 35
Series G (Large Cap Growth Series)............................. 45
Series H (Enhanced Index Series)............................... 53
Series J (Mid Cap Growth Series)............................... 64
Series N (Managed Asset Allocation Series)..................... 72
Series O (Equity Income Series)................................ 97
Series P (High Yield Series)................................... 106
Series Q (Small Cap Value Series).............................. 117
Series S (Social Awareness Series)............................. 126
Series V (Mid Cap Value Series)................................ 134
Series W (Main Street Growth & Income(R) Series)............... 143
Series X (Small Cap Growth Series)............................. 159
Series Y (Select 25 Series).................................... 167
Series Z (Alpha Opportunity Series)............................ 174
Notes to Financial Statements.................................. 182
Report of Independent Registered Public Accounting Firm........ 193
Directors and Officers......................................... 194
1
SERIES A
Manager's Commentary (EQUITY SERIES)
February 15, 2005 (unaudited)
[SECURITY FUNDS LOGO]
Advisor, Security Management Company, LLC
[PHOTO OF MARK A. MITCHELL]
Mark A. Mitchell
Portfolio Manager
TO OUR SHAREHOLDERS:
With the retirement of Terry Milberger in February 2004, this marks my first
annual letter to the Equity Series' shareholders. 2004 was a normal year in many
respects; returns were positive, but not as spectacular as in 2003. The Equity
Series returned 7.77%(1) in the period, lagging the benchmark S&P 500 index's
return of 10.88% and the Fund's peer group median return of 8.81%. Similar to
2003, the market favored lower quality, higher beta stocks. In such
environments, we tend to underperform. While disappointing, we believe that our
approach delivers performance over the long term.
Our approach to managing the Equity Series is based on our investment philosophy
described below.
We understand a company's growth potential over the long term based on our
bottom-up fundamental investment process. We invest today based on future
potential. We concentrate our investments in companies with sustainable
competitive advantages when they are undervalued. Companies must demonstrate
management ability by consistently adding shareholder value. They must have
strong financial positions and be well positioned for growth. We are patient
buyers and sellers focused on the long term, and we take advantage of investor
uncertainty and short-term thinking.
For this Series, we apply this philosophy to a broad range of both growth and
value names.
INDUSTRIALS AND CONSUMER DISCRETIONARY STOCKS TOP PERFORMERS
The Series industrial holdings were up 23% compared to 18% for the index.
Positions in Federal Express and General Dynamics contributed positively to the
Series. Federal Express had strong results driven by continued economic growth
and business model efficiencies. General Dynamics benefited from a recovery in
its aircraft business and strong defense spending.
The Series consumer discretionary holdings performed well, besting the index
sector return of 13%. Harley Davidson was up 29% largely as a result of
executing well against near-term concerns regarding a slowdown in its business.
Carnival Cruise lines appreciated 47% driven by solid operating fundamentals and
recognition of an upcoming industry capacity slowdown.
TECHNOLOGY AND FINANCIALS DISAPPOINTING
Following an extremely strong year in 2003, technology stocks had a difficult
time in 2004. Adverse stock selection in ADC Telecom and not owning Qualcomm had
a negative impact on the Fund. ADC Telecom was down 24% as a result of a slower
broadband build out than was expected, while Qualcomm was up more than 58% as it
benefited from strong wireless handset demand.
Fur ther consolidation in the financial sector had a negative impact on the
funds. Wachovia, not owned in the Series, was up more than 18% due to strong
earnings growth and takeover speculation within the regional banking industry.
Freddie Mac was up more than 28% as the company recovered from regulatory issues
it experienced in 2003.
2005 MARKET OUTLOOK
Our outlook for the equity market continues to be guardedly optimistic. Like
every year, there are many potential positive and negative influences. We
believe the most significant issue facing us in 2005 will be a slowing profit
cycle. In such an environment, we believe more normal equity returns are likely.
Skilled stock picking versus owning beta will be critical. This favors our focus
on identifying good companies at attractive valuations.
We continue to believe that investing is a long-term pursuit that requires
patience and a consistent approach. Dollar cost averaging is a sound way to
build long-term value. While it does not assure profits or protect against
losses in a declining market, we think it is the best way to take advantage of
the natural highs and lows in a market cycle. We recognize there are many
investment fund alternatives available today and thank you for your business and
the confidence you place in us.
Sincerely,
Mark A. Mitchell
Portfolio Manager
2
SERIES A
Manager's Commentary (EQUITY SERIES)
February 15, 2005 (unaudited)
PERFORMANCE
[PERFORMANCE GRAPH]
SBL A INVESTMENT INFORMATION
DATE value
- ---------- ---------
SBL A
12/31/94 10,000.00
3/31/95 10,918.75
6/30/95 11,956.25
9/30/95 12,883.04
12/31/95 13,676.44
3/31/96 14,677.95
6/30/96 15,315.27
9/30/96 15,916.18
12/31/96 16,778.94
3/31/97 16,792.75
6/30/97 19,594.99
9/30/97 21,230.06
12/31/97 21,597.49
3/31/98 24,706.78
6/30/98 25,497.15
9/30/98 22,501.67
12/31/98 27,085.78
3/31/99 27,555.24
6/30/99 28,970.02
9/30/99 26,444.80
12/31/99 29,289.51
3/31/00 29,627.68
6/30/00 28,802.86
9/30/00 28,097.12
12/31/00 25,550.98
3/31/01 22,372.81
6/30/01 23,901.45
9/30/01 20,287.38
12/31/01 22,636.02
3/31/02 22,510.36
6/30/02 19,108.93
9/30/02 16,113.64
12/31/02 17,180.83
3/31/03 16,701.03
6/30/03 18,814.18
9/30/03 19,109.00
12/30/03 20,904.45
3/31/04 21,161.14
6/30/04 21,469.16
9/30/04 20,947.41
12/31/04 22,540.57
S& P 500
DATE value
- ------------------ ---------
INCEPTION 12/31/94 10000
3/31/95 10,973.54
6/30/95 12,021.73
9/30/95 12,977.38
12/31/95 13,758.83
3/31/96 14,496.79
6/30/96 15,146.75
9/30/96 15,615.00
12/31/96 16,917.32
3/31/97 17,370.33
6/30/97 20,403.22
9/30/97 21,933.28
12/31/97 22,563.84
3/31/98 25,711.52
6/30/98 26,560.80
9/30/98 23,917.78
12/31/98 29,009.49
3/31/99 30,459.09
6/30/99 32,605.67
9/30/99 30,569.24
12/31/99 35,117.47
3/31/00 35,924.60
06/30/00 34,971.96
09/30/00 34,633.69
12/31/00 31,926.23
3/31/01 28,142.75
6/30/01 29,790.71
9/30/01 25,420.61
12/31/01 28,138.60
3/31/02 28,215.08
6/30/02 24,435.90
9/30/02 20,215.62
12/31/02 21,922.95
3/31/03 21,232.51
6/30/03 24,500.84
9/30/03 25,149.28
12/31/03 28,211.56
3/31/04 28,690.15
6/30/04 29,181.95
9/30/04 28,634.84
12/31/04 31,278.93
SBL Fund Series A $22,541
S& P 500 Index $31,279
$10,000 OVER 10 YEARS
The chart above assumes a hypothetical $10,000 investment in Series A (Equity
Series) on December 31, 1994 and reflects the fees and expenses of Series A.
PORTFOLIO COMPOSITION BY SECTOR
Consumer Discretionary 13.01%
Consumer Staples 11.26
Energy 6.39
Financials 17.74
Health Care 12.93
Industrials 14.29
Information Technology 14.73
Materials 2.42
Telecommunication Services 1.59
Unit Investment Trust 3.09
Commercial Paper 2.13
Cash & other assets, less liabilities 0.42
AVERAGE ANNUAL RETURNS
PERIODS ENDED 12-31-04(1) 1 YEAR 5 YEARS 10 YEARS
- -------------------------- ------ ------- --------
Series A 7.77% (5.10%) 8.47%
- ----------
(1) 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.
See accompanying notes.
3
SERIES A
Manager's Commentary (EQUITY SERIES)
February 15, 2005 (unaudited)
PERFORMANCE
INFORMATION ABOUT YOUR SERIES EXPENSES
CALCULATING YOUR ONGOING SERIES EXPENSES
EXAMPLE
As a shareholder of the Series, you incur ongoing costs, including management
fees and other series expenses. Performance figures and expense ratios do not
reflect fees and expenses associated with an investment in variable insurance
products. Shares of a Series of SBL Fund are available only through the purchase
of such products. This Example is intended to help you understand your ongoing
costs (in dollars) of investing in the Series and to compare these costs with
ongoing costs of investing in other mutual funds. The Example is based on an
investment of $1,000 invested at the beginning of the period and held for the
entire period, July 1, 2004 - December 31, 2004.
ACTUAL EXPENSES
The first line in the table provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the table provides information about hypothetical account
values and hypothetical expenses based on the Series actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Series
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Series and other funds. To do so, compare this 5% hypothetical example with the
5% hypothetical examples that appear in the shareholder reports of the other
funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any fees and expenses associated with an
investment in variable insurance products. Therefore, the second line is useful
in comparing ongoing costs only, and will not help you determine the relative
total costs of owning different funds. In addition, if these fees and expenses
associated with an investment in variable insurance products were included, your
costs would have been higher.
FUND EXPENSES
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING
07-01-04 12-31-041 PERIOD(2)
------------- ------------- -------------
Series A (Equity Series)
Actual $ 1,000.00 $ 1,048.70 $ 4.53
Hypothetical 1,000.00 1,020.71 4.47
(1) The actual ending account value is based on the actual total return of the
Series for the period July 1, 2004 to December 31, 2004 after actual
expenses and will differ from the hypothetical ending account value which
is based on the Series expense ratio and a hypothetical annual return of
5% before expenses. The actual cumulative return at net asset value for
the period July 1, 2004 to December 31, 2004 was 4.87%.
(2) Expenses are equal to the Series annualized expense ratio 0.88% multiplied
by the average account value over the period, multiplied by 184/366 (to
reflect the one-half year period).
4
SERIES A
Schedule of Investments (EQUITY SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS - 97.4%
AEROSPACE & DEFENSE - 4.6%
General Dynamics Corporation 106,300 $ 11,118,980
L-3 Communications Holdings, Inc. 46,000 3,369,040
United Technologies Corporation 97,100 10,035,285
------------
24,523,305
------------
AIR FREIGHT & LOGISTICS - 2.1%
FedEx Corporation 113,500 11,178,615
------------
AIRLINES - 1.2%
Southwest Airlines Company 388,600 6,326,408
------------
ALUMINUM - 0.9%
Alcoa, Inc. 160,000 5,027,200
------------
ASSET MANAGEMENT & CUSTODY BANKS - 1.5%
Bank of New York Company, Inc. 230,000 7,686,600
------------
BIOTECHNOLOGY - 1.5%
Amgen, Inc.* 124,800 8,005,920
------------
BREWERS - 1.6%
Anheuser-Busch Companies, Inc. 170,000 8,624,100
------------
BROADCASTING & CABLE TV - 0.7%
Comcast Corporation* 103,800 3,454,464
------------
COMMUNICATIONS EQUIPMENT - 2.1%
ADC Telecommunications, Inc.* 1,600,000 4,288,000
Cisco Systems, Inc.* 363,900 7,023,270
------------
11,311,270
------------
COMPUTER HARDWARE - 3.7%
Dell, Inc.* 249,700 10,522,358
International Business Machines
Corporation 90,000 8,872,200
------------
19,394,558
------------
CONSUMER FINANCE - 1.4%
MBNA Corporation 270,900 7,636,671
------------
DATA PROCESSING & OUTSOURCED SERVICES - 3.0%
Computer Sciences Corporation* 70,000 3,945,900
First Data Corporation 285,000 12,123,900
------------
16,069,800
------------
DEPARTMENT STORES - 1.8%
Kohl's Corporation* 195,800 9,627,486
------------
DIVERSIFIED BANKS - 3.3%
Bank of America Corporation 134,000 6,296,660
Wells Fargo & Company 180,000 11,187,000
------------
17,483,660
------------
DRUG RETAIL - 1.8%
CVS Corporation 210,000 9,464,700
------------
EXCHANGE TRADED FUNDS - 3.1%
iShares S&P 500 Index Fund 135,300 16,371,300
------------
GENERAL MERCHANDISE STORES - 0.8%
Target Corporation 82,400 $ 4,279,032
------------
HEALTH CARE EQUIPMENT - 2.4%
Boston Scientific Corporation* 245,700 8,734,635
Medtronic, Inc. 76,350 3,792,305
------------
12,526,940
------------
HOME IMPROVEMENT RETAIL - 2.9%
Home Depot, Inc. 298,900 12,774,986
Lowe's Companies, Inc. 49,100 2,827,669
------------
15,602,655
------------
HOTELS, RESORTS & CRUISE LINES - 1.8%
Carnival Corporation 165,000 9,508,950
------------
HOUSEHOLD PRODUCTS - 3.1%
Colgate-Palmolive Company 110,000 5,627,600
Procter & Gamble Company 195,300 10,757,124
------------
16,384,724
------------
HYPERMARKETS & SUPERCENTERS - 2.5%
Wal-Mart Stores, Inc. 255,300 13,484,946
------------
INDUSTRIAL CONGLOMERATES - 6.4%
3M Company 56,650 4,649,265
General Electric Company 627,500 22,903,750
Tyco International, Ltd. 173,000 6,183,020
------------
33,736,035
------------
INDUSTRIAL GASES - 1.5%
Praxair, Inc. 177,000 7,814,550
------------
INTEGRATED OIL & GAS - 3.7%
ChevronTexaco Corporation 134,000 7,036,340
Exxon Mobil Corporation 246,900 12,656,094
------------
19,692,434
------------
INTEGRATED TELECOMMUNICATION SERVICES - 1.6%
SBC Communications, Inc. 170,000 4,380,900
Verizon Communications, Inc. 100,000 4,051,000
------------
8,431,900
------------
INVESTMENT BANKING & BROKERAGE - 2.3%
Goldman Sachs Group, Inc. 61,000 6,346,440
Merrill Lynch & Company, Inc. 95,000 5,678,150
------------
12,024,590
------------
LIFE & HEALTH INSURANCE - 0.9%
AFLAC, Inc. 119,000 4,740,960
------------
MANAGED HEALTH CARE - 3.1%
UnitedHealth Group, Inc. 110,750 9,749,323
WellPoint, Inc.* 60,200 6,923,000
------------
16,672,323
------------
See accompanying notes.
5
SERIES A
Schedule of Investments (EQUITY SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS (CONTINUED)
MOTORCYCLE MANUFACTURERS - 1.0%
Harley-Davidson, Inc. 91,400 $ 5,552,550
------------
MOVIES & ENTERTAINMENT - 4.0%
Time Warner, Inc.* 505,000 9,817,200
Viacom, Inc. (Cl.B) 305,900 11,131,701
------------
20,948,901
------------
MULTI-LINE INSURANCE - 3.1%
American International Group, Inc. 251,900 16,542,273
------------
OIL & GAS EQUIPMENT & SERVICES - 1.8%
BJ Services Company 73,800 3,434,652
Halliburton Company 149,700 5,874,228
------------
9,308,880
------------
OIL & GAS EXPLORATION & PRODUCTION - 0.9%
Anadarko Petroleum Corporation 74,800 4,847,788
------------
OTHER DIVERSIFIED FINANCIAL SERVICES - 3.8%
Citigroup, Inc. 412,000 19,850,160
------------
PHARMACEUTICALS - 5.9%
Abbott Laboratories 140,000 6,531,000
Eli Lilly & Company 56,350 3,197,862
Johnson & Johnson 201,400 12,772,788
Merck & Company, Inc. 149,500 4,804,930
Pfizer, Inc. 149,200 4,011,988
------------
31,318,568
------------
PROPERTY & CASUALTY INSURANCE - 1.5%
Chubb Corporation 104,700 8,051,430
------------
SEMICONDUCTOR EQUIPMENT - 0.3%
Applied Materials, Inc.* 77,400 1,323,540
------------
SEMICONDUCTORS -1.6%
Intel Corporation 369,100 8,633,249
------------
SOFT DRINKS - 2.2%
PepsiCo, Inc. 225,000 11,745,000
------------
SYSTEMS SOFTWARE - 4.0%
Microsoft Corporation 670,900 17,919,739
Oracle Corporation* 248,400 3,408,048
------------
21,327,787
------------
TOTAL COMMON STOCKS
(cost $ 428,595,807) 516,536,222
------------
WARRANTS - 0.0%
Lucent Technologies, Inc.* 16,528 26,114
------------
TOTAL WARRANTS
(cost $0) 26,114
------------
COMMERCIAL PAPER - 2.2%
BROKERAGE - 0.4%
Goldman Sachs Group, Inc.:
2.33%, 01-12-05 1,000,000 999,288
2.33%, 01-14-05 1,000,000 999,159
1,998,447
------------
ELECTRIC - 0.4%
Florida Power & Light Company,
2.31%, 01-14-05 2,305,000 2,303,077
------------
FINANCIAL COMPANIES - NONCAPTIVE DIVERSIFIED - 0.7%
Citigroup, Inc., 2.29%, 01-13-05 3,500,000 3,497,328
------------
FOOD & BEVERAGE - 0.7%
Coca-Cola Company, 2.18%, 01-05-05 3,500,000 3,499,152
------------
TOTAL COMMERCIAL PAPER
(cost $11,298,004) 11,298,004
------------
REPURCHASE AGREEMENT - 0.3%
United Missouri Bank, 1.74%, dated
12-31-04, matures 01-03-05; repurchase
amount of $1,753,254 (Collateralized
by FHLMC, 0.00%, 01-14-05 with
a value of $1,788,307) 1,753,000 1,753,000
------------
TOTAL REPURCHASE AGREEMENT
(cost $ 1,753,000) 1,753,000
------------
TOTAL INVESTMENTS - 99.9%
(cost $ 441,646,811) 529,613,340
CASH & OTHER ASSETS, LESS LIABILITIES - 0.1% 482,595
------------
TOTAL NET ASSETS - 100.0% 530,095,935
=============
The identified cost of investments owned at December 31, 2004 was the same for
federal income tax and financial statement purposes.
* Non-income producing security
See accompanying notes.
6
SERIES A
(EQUITY SERIES)
Statement of Assets and Liabilities
December 31, 2004
ASSETS:
Investments, at value(1) ....................... $ 529,613,340
Cash ........................................... 45,753
Receivables:
Fund shares sold ............................ 1,215,682
Securities sold ............................. 791,302
Dividends ................................... 410,924
Prepaid expenses ............................... 9,792
-------------
Total assets ................................... 532,086,793
-------------
LIABILITIES:
Payable for:
Securities purchased ........................ 790,900
Fund shares redeemed ........................ 754,833
Management fees ............................. 336,025
Custodian fees .............................. 1,575
Transfer agent and administration fees ...... 42,571
Professional fees ........................... 37,291
Other ....................................... 27,663
-------------
Total liabilities .............................. 1,990,858
-------------
NET ASSETS ..................................... $ 530,095,935
=============
NET ASSETS CONSIST OF:
Paid in capital ................................ $ 434,695,184
Accumulated undistributed net
investment income ........................... 4,363,888
Accumulated undistributed net realized gain
on sales of investments ..................... 3,070,334
Net unrealized appreciation in value
of investments .............................. 87,966,529
-------------
Net assets ..................................... $ 530,095,935
=============
Capital shares authorized ...................... indefinite
Capital shares outstanding ..................... 24,176,651
Net asset value and redemption price
per share (net assets divided by
shares outstanding) ......................... $ 21.93
=============
(1) Investments, at cost ....................... $ 441,646,811
Statement of Operations
For the Year Ended December 31, 2004
INVESTMENT INCOME:
Dividends .................................... $ 8,873,461
Interest ..................................... 184,682
-------------
Total investment income ...................... 9,058,143
-------------
EXPENSES:
Management fees .............................. 4,035,003
Custodian fees ............................... 20,234
Transfer/maintenance fees .................... 22,578
Administration fees .......................... 463,321
Directors' fees .............................. 27,675
Professional fees ............................ 50,267
Reports to shareholders ...................... 51,568
Other expenses ............................... 20,900
-------------
Total expenses ............................... 4,691,546
-------------
Net investment income ........................ 4,366,597
-------------
NET REALIZED AND UNREALIZED GAIN:
Net Realized gain during the period on:
Investments .................................. 32,489,299
-------------
Realized gain ................................ 32,489,299
-------------
Net change in unrealized appreciation
during the period on:
Investments .................................. 2,052,471
-------------
Unrealized appreciation ...................... 2,052,471
-------------
Net gain ..................................... 34,541,770
-------------
Net increase in net assets ...................
resulting from operations ................. $ 38,908,367
=============
See accompanying notes.
7
SERIES A
Statement of Changes in Net Assets (EQUITY SERIES)
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
----------------- -----------------
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income ........................................................... $ 4,366,597 $ 3,477,540
Net realized gain during the period on investments .............................. 32,489,299 12,105,223
Net change in unrealized appreciation during the period on investments .......... 2,052,471 87,820,531
--------------- ---------------
Net increase in net assets resulting from operations ............................ 38,908,367 103,403,294
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ........................................................... (557,400) (3,151,576)
--------------- ---------------
Total distributions to shareholders ............................................. (557,400) (3,151,576)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares .................................................... 73,369,951 97,529,750
Distributions reinvested ........................................................ 557,400 3,151,576
Cost of shares redeemed ......................................................... (141,472,304) (159,480,227)
--------------- ---------------
Net decrease from capital share transactions .................................... (67,544,953) (58,798,901)
--------------- ---------------
Net increase (decrease) in net assets ........................................... (29,193,986) 41,452,817
--------------- ---------------
NET ASSETS:
Beginning of period ............................................................. 559,289,921 517,837,104
--------------- ---------------
End of period ................................................................... $ 530,095,935 $ 559,289,921
=============== ===============
Accumulated undistributed net investment income at end of period ................ $ 4,363,888 $ 554,691
=============== ===============
CAPITAL SHARE ACTIVITY:
Shares sold ..................................................................... 3,545,480 5,367,510
Shares reinvested ............................................................... 27,151 158,232
Shares redeemed ................................................................. (6,850,984) (8,836,725)
--------------- ---------------
Total capital share activity .................................................... (3,278,353) (3,310,983)
=============== ===============
See accompanying notes.
8
SERIES A
Financial Highlights (EQUITY SERIES)
Selected data for each share of capital stock outstanding throughout each year
YEAR ENDED,
DECEMBER 31,
2004 2003 2002 2001 2000
--------- -------- -------- -------- ------------
PER SHARE DATA
Net asset value, beginning of period $ 20.37 $ 16.83 $ 22.36 $ 28.50 $ 35.51
--------- -------- -------- -------- ------------
Income (loss) from investment operations:
Net investment income (loss) 0.18 0.13 0.10 0.06 0.06
Net gain (loss) on securities (realized and unrealized) 1.40 3.53 (5.47) (3.14) (4.27)
--------- -------- -------- -------- ------------
Total from investment operations 1.58 3.66 (5.37) (3.08) (4.21)
--------- -------- -------- -------- ------------
Less distributions:
Dividends from net investment income (0.02) (0.12) (0.16) (0.05) (0.01)
Distributions from realized gains - - - (3.01) (2.79)
--------- -------- -------- -------- ------------
Total distributions (0.02) (0.12) (0.16) (3.06) (2.80)
--------- -------- -------- -------- ------------
Net asset value, end of period $ 21.93 $ 20.37 $ 16.83 $ 22.36 $ 28.50
========= ======== ======== ======== ============
TOTAL RETURN(a) 7.77% 21.74% (24.10%) (11.41%) (12.76%)
--------- -------- -------- -------- ------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $ 530,096 $559,290 $517,837 $790,602 $ 1,004,968
--------- -------- -------- -------- ------------
Ratios to average net assets:
Net investment income (loss) 0.81% 0.66% 0.49% 0.26% 0.16%
Total expenses 0.87% 0.82% 0.82% 0.83% 0.83%
Gross expenses(b) 0.87% 0.82% 0.82% 0.83% 0.83%
Net expenses(c) 0.87% 0.82% 0.82% 0.82% 0.82%
--------- -------- -------- -------- ------------
Portfolio turnover rate 27% 53% 25% 20% 41%
(a) Total return does not take into account any of the expenses associated
with an investment in variable insurance products offered by Security
Benefit Life Insurance Company. 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.
(b) Gross expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net expense information reflects expense ratios after expense reductions
or fee waivers and reduction of custodian expenses.
See accompanying notes.
9
SERIES B
Manager's Commentary (LARGE CAP VALUE SERIES)
February 15, 2005 (unaudited)
YOU,YOUR ADVISOR AND
[DREYFUS LOGO]
A MELLON FINANCIAL COMPANY
Subadvisor, Dreyfus
[PHOTO OF BRIAN FERGUSON]
Brian Ferguson
Senior Portfolio Manager
TO OUR SHAREHOLDERS:
MARKET ENVIRONMENT
Over the course of 2004, the U.S. markets have transitioned from a dramatic
rebound to a more cautious advance, as U.S. dollar weakness and the current
account deficit have tempered investor enthusiasm. Interest rates reached
40-year lows, global tension continued in the Middle East, and oil prices soared
beyond $50/barrel briefly as the Gross Domestic Product (GDP) slowed its hasty
rate of growth to a more sustainable, albeit moderate level. A clear outcome to
the U.S. presidential elections, increasing corporate expenditures, sinking
jobless claims and improving provide the opportunity for an advance by the U.S.
economy.
SECTOR AND STOCK REVIEW
The Large Cap Value Series advanced 10.60% during the fourth quarter and 10.82%
for the 12 months ending December 31, 2004.(1) The portfolio outpaced the S&P
BARRA Value Index during the quarter, but trailed the benchmark for 2004, as the
index advanced 9.90% for the quarter and 15.7% during 2004. Defensive sectors
led the market as typically cyclical companies faced selling pressure. Soaring
oil prices caused the energy sector to surge forward 30%, while investor demand
for strong cash flow and high dividend yields drove utilities (+24%) and telecom
firms (+20%) higher. The remaining sectors all posted positive returns including
the laggard, consumer discretionary, which trailed the group with a respectable
+9% return.
The most significant relative contributor during 2004 was telecom services. The
portfolio's +36% performance spread over the index was driven largely by
diversified telecom service provider Sprint, which advanced 55% on strong
wireless subscriber growth (including 23% growth in Blackberry subscribers) and
the pending merger with Nextel, which would create the third largest wireless
company in the United States. Utilities was another sector in which we enjoyed
an extremely substantial stock selection advantage over the index. The
portfolio's holdings in the sector averaged +17% performance advantage over
those in the index. In particular, our overweight in TXU Corporation paid off,
as the stock doubled in price since our purchase and we trimmed the position.
Despite strong outperformance in the telecom sector, however, the portfolio
underperformed in 2004. This underperformance was due in large part to several
sectors - financials, health care, energy and information technology. Our
unwillingness to hold overvalued companies that were riding waves of positive,
if irrational, investor sentiment in these industries contributed a substantial
amount to the portfolio's underperformance.
Within financials, two key detractors were PMI Group, a firm that offers
mortgage insurance and credit enhancements, and Fannie Mae, the
government-affiliated mortgage lender. Both suffered from speculation over
imminent interest rate increases and the potential for lower volumes. The health
care sector has struggled on a global basis lately, suffering from cautious
investor views. The major detractor in 2004 was medical technology and service
firm Cardinal Health (-5%), which suffered from lowered 2005 growth projections
and a massive cost-cutting and facility consolidation effort. As a result of
more recently available information, the stock was liquidated during the third
quarter. In energy, sustained high oil prices drove profits skyward as oil
peaked at over $55/barrel during November. Despite a 25% absolute return on our
holdings in the sector, a small underweight detracted from performance. As it
turned out, the rationale for our strategic underweight was correct, but simply
a little too early. Since November, oil prices have settled to a more moderate
and sustainable $42, and the sector has pulled back accordingly. Finally,
information technology trimmed performance, driven mainly by the weak
semiconductor industry and the rising global inventories that it has been
enduring. The portfolio was overweight in the industry by a factor of more than
two, holding four companies that the index did not - Intel (-27%), Agere Systems
(-55%), Fairchild (-35%) and ST Microelectronics (-28%).
As we begin the new year, we continue to focus on uncovering value in a market
that has become increasingly expensive over the course of the last 24 months.
Sincerely,
Brian Ferguson
Senior Portfolio Manager
10
SERIES B
Manager's Commentary (LARGE CAP VALUE SERIES)
February 15, 2005 (unaudited)
PERFORMANCE
[PERFORMANCE GRAPH]
SBL B INVESTMENT INFORMATION
DATE value
- -------- ---------
SBL B
12/31/94 10,000.00
03/31/95 10,648.07
06/30/95 11,571.21
09/30/95 12,409.01
12/31/95 13,006.67
03/31/96 13,830.36
06/30/96 14,293.93
09/30/96 14,898.35
12/31/96 15,380.62
03/31/97 15,510.97
06/30/97 17,757.23
09/30/97 18,768.77
12/31/97 19,456.29
03/31/98 21,641.73
06/30/98 20,961.47
09/30/98 19,089.44
12/31/98 20,993.11
03/31/99 21,035.69
06/30/99 24,040.79
09/30/99 21,489.95
12/31/99 21,306.50
03/31/00 20,127.18
06/30/00 19,052.68
09/30/00 19,866.55
12/31/00 19,866.55
03/31/01 18,470.92
06/30/01 19,267.86
09/30/01 16,786.24
12/31/01 18,753.38
03/31/02 18,568.59
06/30/02 16,540.52
09/30/02 13,350.63
12/31/02 14,226.09
03/31/03 13,516.84
06/30/03 15,613.75
09/30/03 16,176.88
12/31/03 18,324.41
03/31/04 18,935.92
06/30/04 18,738.99
09/30/04 18,366.85
12/31/04 20,306.21
S& P 500 - BARRA VALUE
DATE value
- ------------------ ---------
INCEPTION 12/31/94 10,000.00
3/31/95 10,963.99
6/30/95 11,918.56
9/30/95 12,866.03
12/31/95 13,698.19
3/31/96 14,573.61
6/30/96 14,872.83
9/30/96 15,264.89
12/31/96 16,712.78
3/31/97 17,008.58
6/30/97 19,469.19
9/30/97 21,252.79
12/31/97 21,722.38
3/31/98 24,231.39
6/30/98 24,355.33
9/30/98 21,211.19
12/31/98 24,908.30
3/31/99 25,618.51
6/30/99 28,383.93
9/30/99 25,767.95
12/31/99 28,078.14
03/31/00 28,144.38
06/30/00 26,934.80
09/30/00 29,311.11
12/31/00 29,789.45
03/31/01 27,843.14
06/30/01 29,069.69
09/30/01 24,358.64
12/31/01 26,299.17
03/31/02 26,646.20
06/30/02 23,808.95
09/30/02 18,937.79
12/31/02 20,809.96
03/31/03 19,664.02
06/30/03 23,368.26
09/30/03 23,962.07
12/31/03 27,425.82
03/31/04 28,345.11
06/30/04 28,569.69
09/30/04 28,867.93
12/31/04 31,735.79
SBL Fund Series B $20,306
S& P Barra Value Index $31,736
$10,000 OVER 10 YEARS
The chart above assumes a hypothetical $10,000 investment in Series B (Large
Cap Value Series) on December 31, 1994 and reflects the fees and expenses of
Series B.
PORTFOLIO COMPOSITION BY SECTOR
Consumer Discretionary 13.27%
Consumer Staples 4.82
Energy 11.74
Financials 31.71
Health Care 4.35
Industrials 10.57
Information Technology 9.54
Materials 3.05
Telecommunication Services 5.39
Utilities 4.43
U.S. Government Securities 0.86
Cash & other assets, less liabilities 0.27
AVERAGE ANNUAL RETURNS
PERIODS ENDED 12-31-04(1) 1 YEAR 5 YEARS 10 YEARS
- ------------------------- ------ ------- --------
Series B 10.82% (0.96%) 7.34%
(1) 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.
See accompanying notes.
11
SERIES B
Manager's Commentary (LARGE CAP VALUE SERIES)
February 15, 2005 (unaudited)
PERFORMANCE
INFORMATION ABOUT YOUR SERIES EXPENSES
CALCULATING YOUR ONGOING SERIES EXPENSES
EXAMPLE
As a shareholder of the Series, you incur ongoing costs, including management
fees and other series expenses. Performance figures and expense ratios do not
reflect fees and expenses associated with an investment in variable insurance
products. Shares of a Series of SBL Fund are available only through the purchase
of such products This Example is intended to help you understand your ongoing
costs (in dollars) of investing in the Series and to compare these costs with
ongoing costs of investing in other mutual funds. The Example is based on an
investment of $1,000 invested at the beginning of the period and held for the
entire period, July 1, 2004 - December 31, 2004.
ACTUAL EXPENSES
The first line in the table provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the table provides information about hypothetical account
values and hypothetical expenses based on the Series actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Series
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Series and other funds. To do so, compare this 5% hypothetical example with the
5% hypothetical examples that appear in the shareholder reports of the other
funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any fees and expenses associated with an
investment in variable insurance products. Therefore, the second line is useful
in comparing ongoing costs only, and will not help you determine the relative
total costs of owning different funds. In addition, if these fees and expenses
associated with an investment in variable insurance products were included, your
costs would have been higher.
FUND EXPENSES
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING
07-01-04 12-31-04(1) PERIOD(2)
------------- ------------- -------------
Series B (Large Cap Value Series)
Actual $ 1,000.00 $ 1,083.00 $ 4.61
Hypothetical 1,000.00 1,020.71 4.47
(1) The actual ending account value is based on the actual total return of the
Series for the period July 1, 2004 to December 31, 2004 after actual
expenses and will differ from the hypothetical ending account value which
is based on the Series expense ratio and a hypothetical annual return of
5% before expenses. The actual cumulative return at net asset value for
the period July 1, 2004 to December 31, 2004 was 8.30%.
(2) Expenses are equal to the Series annualized expense ratio 0.88% multiplied
by the average account value over the period, multiplied by 184/366 (to
reflect the one-half year period).
12
SERIES B
Schedule of Investments (LARGE CAP VALUE SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS - 98.9%
ADVERTISING - 1.9%
Omnicom Group, Inc. 98,300 $ 8,288,656
------------
AEROSPACE & DEFENSE - 3.5%
Boeing Company 103,500 5,358,195
United Technologies Corporation 94,500 9,766,575
------------
15,124,770
------------
APPAREL, ACCESSORIES & LUXURY GOODS - 0.5%
Jones Apparel Group, Inc. 53,100 1,941,867
------------
BROADCASTING & CABLE TV - 3.7%
Clear Channel Communications, Inc. 210,900 7,063,041
Liberty Media Corporation* 607,300 6,668,154
Liberty Media International, Inc.* 42,545 1,966,855
------------
15,698,050
------------
COMMUNICATIONS EQUIPMENT - 1.0%
Nokia Oyj ADR 271,200 4,249,704
------------
COMPUTER HARDWARE - 1.5%
Hewlett-Packard Company 106,300 2,229,111
International Business Machines
Corporation 44,000 4,337,520
------------
6,566,631
------------
CONSUMER ELECTRONICS - 0.5%
Koninklijke (Royal) Philips Electronics N.V. 79,400 2,104,100
------------
DATA PROCESSING & OUTSOURCED SERVICES - 3.2%
Automatic Data Processing, Inc. 138,000 6,120,300
DST Systems, Inc.* 100,200 5,222,424
SunGard Data Systems, Inc.* 84,400 2,391,052
------------
13,733,776
------------
DIVERSIFIED BANKS - 7.9%
Bank of America Corporation 296,022 13,910,074
U.S. Bancorp 195,900 6,135,588
Wachovia Corporation 179,100 9,420,660
Wells Fargo & Company 70,900 4,406,435
------------
33,872,757
------------
DIVERSIFIED CHEMICALS - 1.5%
Dow Chemical Company 84,700 4,193,497
E.I. du Pont de Nemours & Company 45,400 2,226,870
------------
6,420,367
------------
ELECTRIC UTILITIES - 3.9%
Edison International 73,800 2,363,814
Entergy Corporation 58,300 3,940,497
Exelon Corporation 101,500 4,473,105
PG&E Corporation* 71,200 2,369,536
PPL Corporation 45,700 2,434,896
TXU Corporation 20,000 1,291,200
------------
16,873,048
------------
ELECTRICAL COMPONENTS & EQUIPMENT - 0.6%
Emerson Electric Company 33,800 2,369,380
------------
FOOD RETAIL - 0.8%
Safeway, Inc.* 172,700 3,409,098
------------
GENERAL MERCHANDISE STORES - 0.6%
Dollar General Corporation 117,600 2,442,552
------------
HEALTH CARE EQUIPMENT - 0.9%
Boston Scientific Corporation* 110,700 3,935,385
------------
HEALTH CARE SERVICES - 1.6%
Caremark Rx, Inc.* 94,200 3,714,306
Medco Health Solutions, Inc.* 70,800 2,945,280
------------
6,659,586
------------
HOUSEHOLD PRODUCTS - 1.5%
Colgate-Palmolive Company 84,200 4,307,672
Kimberly-Clark Corporation 30,600 2,013,786
------------
6,321,458
------------
HOUSEWARES & SPECIALTIES - 0.5%
Newell Rubbermaid, Inc. 92,200 2,230,318
------------
INDUSTRIAL CONGLOMERATES - 5.6%
General Electric Company 342,500 12,501,250
Tyco International, Ltd. 325,000 11,615,500
------------
24,116,750
------------
INDUSTRIAL MACHINERY - 0.6%
Eaton Corporation 36,600 2,648,376
------------
INTEGRATED OIL & GAS - 10.0%
BP plc ADR 100,000 5,840,000
ChevronTexaco Corporation 94,000 4,935,940
ConocoPhillips 83,100 7,215,573
Exxon Mobil Corporation 375,100 19,227,626
Total S.A. ADR 52,800 5,799,552
------------
43,018,691
------------
INTEGRATED TELECOMMUNICATION SERVICES - 4.9%
Alltel Corporation 63,900 3,754,764
Sprint Corporation 316,050 7,853,843
Verizon Communications, Inc. 228,500 9,256,535
------------
20,865,142
------------
INVESTMENT BANKING & BROKERAGE - 6.1%
Goldman Sachs Group, Inc. 81,700 8,500,068
Merrill Lynch & Company, Inc. 107,400 6,419,298
Morgan Stanley 200,300 11,120,656
------------
26,040,022
------------
LIFE & HEALTH INSURANCE - 2.8%
Genworth Financial, Inc.* 157,800 4,260,600
Prudential Financial, Inc. 138,700 7,622,952
------------
11,883,552
------------
MANAGED HEALTH CARE - 0.9%
PacifiCare Health Systems, Inc.* 19,200 1,085,184
WellPoint, Inc.* 25,800 2,967,000
------------
4,052,184
------------
See accompanying notes.
13
SERIES B
Schedule of Investments (LARGE CAP VALUE SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
COMMON STOCK (CONTINUED)
MOVIES & ENTERTAINMENT - 3.9%
News Corporation 186,300 $ 3,476,358
Time Warner, Inc.* 349,200 6,788,448
Viacom, Inc. (Cl.B) 176,500 6,422,835
------------
16,687,641
------------
MULTI-LINE INSURANCE - 2.2%
American International Group, Inc. 85,700 5,627,919
Hartford Financial Services Group, Inc. 56,200 3,895,222
------------
9,523,141
------------
MULTI-UTILITIES & UNREGULATED POWER - 0.5%
Dominion Resources, Inc. 31,600 2,140,584
------------
OFFICE ELECTRONICS - 0.3%
Xerox Corporation* 71,400 1,214,514
------------
OIL & GAS EQUIPMENT & SERVICES - 1.0%
Schlumberger, Ltd. 64,200 4,298,190
------------
OIL & GAS EXPLORATION & PRODUCTION - 0.7%
Apache Corporation 61,100 3,089,827
------------
OTHER DIVERSIFIED FINANCIAL SERVICES - 6.4%
Citigroup, Inc. 325,500 15,682,590
JP Morgan Chase & Company 303,700 11,847,337
------------
27,529,927
------------
PACKAGED FOODS & MEATS - 1.3%
General Mills, Inc. 46,300 2,301,573
Kraft Foods, Inc. 94,700 3,372,267
------------
5,673,840
------------
PAPER PRODUCTS - 1.6%
Bowater, Inc. 48,500 2,132,545
International Paper Company 108,000 4,536,000
------------
6,668,545
------------
PHARMACEUTICALS - 0.9%
Pfizer, Inc. 65,000 1,747,850
Schering-Plough Corporation 109,500 2,286,360
------------
4,034,210
------------
PROPERTY & CASUALTY INSURANCE - 0.9%
Ace, Ltd. 26,400 1,128,600
Allstate Corporation 50,400 2,606,688
St. Paul Travelers Companies, Inc. 15 556
------------
3,735,844
------------
RAILROADS - 0.3%
Union Pacific Corporation 16,900 1,136,525
------------
REGIONAL BANKS - 1.1%
PNC Financial Services Group 40,800 2,343,552
SunTrust Banks, Inc. 31,000 2,290,280
------------
4,633,832
------------
RESTAURANTS - 1.0%
McDonald's Corporation 139,000 4,456,340
------------
SEMICONDUCTORS - 0.5%
Fairchild Semiconductor International,
Inc.* 128,200 2,084,532
------------
SOFT DRINKS - 0.5%
Coca-Cola Company 50,900 2,118,967
------------
SPECIALTY STORES - 0.7%
Advance Auto Parts, Inc.* 72,300 3,158,064
------------
SYSTEMS SOFTWARE - 3.0%
Microsoft Corporation 298,900 7,983,619
Oracle Corporation* 374,000 5,131,280
------------
13,114,899
------------
THRIFTS & MORTGAGE FINANCE - 4.4%
Countrywide Financial Corporation 63,700 2,357,537
Fannie Mae 51,100 3,638,831
Freddie Mac 93,900 6,920,430
PMI Group, Inc. 144,600 6,037,050
------------
18,953,848
------------
TOBACCO - 0.7%
Altria Group, Inc. 52,100 3,183,310
------------
WIRELESS TELECOMMUNICATION SERVICE - 0.5%
Vodafone Group plc ADR 83,300 2,280,754
------------
TOTAL COMMON STOCKS
(cost $368,244,013) 424,583,554
------------
U.S. GOVERNMENT SPONSORED AGENCIES - 0.8%
Federal Home Loan Bank,
1.25%, 01-03-05 $3,682,000 3,681,744
------------
TOTAL U.S. GOVERNMENT SPONSORED AGENCIES
(cost $3,681,744) 3,681,744
------------
TOTAL INVESTMENTS - 99.7%
(cost $371,925,757) 428,265,298
CASH & OTHER ASSETS, LESS LIABILITIES - 0.3% 1,227,250
------------
TOTAL NET ASSETS - 100.0% $429,492,548
============
For federal income tax purposes, the identified cost of investments owned at
December 31, 2004 was $372,615,726.
*Non-income producing security
ADR (American Depositary Receipt)
plc (public limited company)
See accompanying notes.
14
SERIES B
(LARGE CAP VALUE SERIES)
Statement of Assets and Liabilities
December 31, 2004
ASSETS:
Investments, at value(1)....................... $ 428,265,298
Cash........................................... 1,086
Receivables:
Fund shares sold............................ 400,027
Securities sold............................. 1,861,219
Dividends................................... 581,524
Prepaid expenses............................... 7,614
-------------
Total assets................................... 431,116,768
-------------
LIABILITIES:
Payable for:
Securities purchased........................ 808,149
Fund shares redeemed........................ 458,196
Management fees............................. 269,921
Custodian fees.............................. 2,153
Transfer agent and administration fees...... 34,690
Professional fees........................... 30,800
Other....................................... 20,311
-------------
Total liabilities.............................. 1,624,220
-------------
NET ASSETS..................................... $ 429,492,548
=============
NET ASSETS CONSIST OF:
Paid in capital................................ $ 670,686,955
Accumulated undistributed net investment
income...................................... 4,627,033
Accumulated net realized loss
on sales of investments..................... (302,160,981)
Net unrealized appreciation in value
of investments.............................. 56,339,541
-------------
Net assets..................................... $ 429,492,548
=============
Capital shares authorized...................... indefinite
Capital shares outstanding..................... 21,939,985
Net asset value and redemption price
per share (net assets divided by
shares outstanding)......................... $ 19.58
=============
(1) Investments, at cost....................... $ 371,925,757
Statement of Operations
For the Year Ended December 31, 2004
INVESTMENT INCOME:
Dividends.................................... $ 8,287,533
Interest..................................... 47,925
-------------
Total investment income...................... 8,335,458
-------------
EXPENSES:
Management fees.............................. 3,179,515
Custodian fees............................... 23,698
Transfer/maintenance fees.................... 22,516
Administration fees.......................... 365,309
Directors' fees.............................. 21,707
Professional fees............................ 41,149
Reports to shareholders...................... 29,625
Other expenses............................... 15,279
Marketing fees paid indirectly............... 196,812
-------------
Total expenses............................... 3,895,610
Less: Fees paid indirectly................... (196,812)
-------------
Net expenses................................. 3,698,798
-------------
Net investment income........................ 4,636,660
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain during the period on:
Investments.................................. 38,267,826
-------------
Realized gain................................ 38,267,826
-------------
Net change in unrealized depreciation
during the period on:
Investments.................................. (663,053)
-------------
Unrealized depreciation...................... (663,053)
-------------
Net gain..................................... 37,604,773
-------------
Net increase in net assets
resulting from operations................. $ 42,241,433
=============
See accompanying notes.
15
SERIES B
Statement of Changes in Net Assets (LARGE CAP VALUE SERIES)
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2004 2003
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income................................................................. $ 4,636,660 $ 3,566,269
Net realized gain (loss) during the period on investments............................. 38,267,826 (11,849,051)
Net change in unrealized appreciation (depreciation) during the period
on investments..................................................................... (663,053) 106,423,469
------------- -------------
Net increase in net assets resulting from operations.................................. 42,241,433 98,140,687
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income................................................................. (250,785) (3,492,855)
------------- -------------
Total distributions to shareholders................................................... (250,785) (3,492,855)
------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares.......................................................... 56,344,672 61,988,331
Distributions reinvested.............................................................. 250,785 3,492,855
Cost of shares redeemed............................................................... (103,668,222) (96,300,845)
------------- -------------
Net decrease from capital share transactions.......................................... (47,072,765) (30,819,659)
------------- -------------
Net increase (decrease) in net assets................................................. (5,082,117) 63,828,173
------------- -------------
NET ASSETS:
Beginning of period................................................................... 434,574,665 370,746,492
------------- -------------
End of period......................................................................... $ 429,492,548 $ 434,574,665
============= =============
Accumulated undistributed net investment income at end of period...................... $ 4,627,033 $ 241,158
============= =============
CAPITAL SHARE ACTIVITY:
Shares sold........................................................................... 3,106,269 4,012,799
Shares reinvested..................................................................... 14,089 203,135
Shares redeemed....................................................................... (5,754,451) (6,427,509)
------------- -------------
Total capital share activity.......................................................... (2,634,093) (2,211,575)
============= =============
See accompanying notes.
16
SERIES B
Financial Highlights (LARGE CAP VALUE SERIES)
Selected data for each share of capital stock outstanding throughout each year
YEAR ENDED DECEMBER 31,
2004 2003 2002 2001(d) 2000
---------- ---------- ----------- -------- ------------
PER SHARE DATA
Net asset value, beginning of period $ 17.68 $ 13.84 $ 18.59 $ 19.93 $ 24.39
---------- ---------- ----------- -------- ---------
Income (loss) from investment operations:
Net investment income (loss) 0.21 0.14 0.13 0.18 0.43
Net gain (loss) on securities (realized and unrealized) 1.70 3.84 (4.58) (1.29) (2.06)
---------- ---------- ----------- -------- ---------
Total from investment operations 1.91 3.98 (4.45) (1.11) (1.63)
---------- ---------- ----------- -------- ---------
Less distributions:
Dividends from net investment income (0.01) (0.14) (0.30) (0.23) (0.74)
Distributions from realized gains - - - - -
Distributions in excess of capital gains - - - (2.09)
---------- ---------- ----------- -------- ---------
Total distributions (0.01) (0.14) (0.30) (0.23) (2.83)
---------- ---------- ----------- -------- ---------
Net asset value, end of period $ 19.58 $ 17.68 $ 13.84 $ 18.59 $ 19.93
========== ========== =========== ======== =========
TOTAL RETURN(a) 10.82% 28.81% (24.14%) (5.60%) (6.76%)
---------- ---------- ----------- -------- ---------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $ 429,493 $ 434,575 $ 370,746 $563,240 $ 684,459
---------- ---------- ----------- -------- ---------
Ratios to average net assets:
Net investment income (loss) 1.09% 0.93% 0.74% 0.89% 1.08%
Total expenses 0.92% 0.89% 0.91% 0.93% 0.83%
Gross expenses(b) 0.92% 0.89% 0.91% 0.93% 0.83%
Net expenses(c) 0.87% 0.83% 0.82% 0.83% 0.82%
---------- ---------- ----------- -------- ---------
Portfolio turnover rate 73% 60% 68% 145% 145%
(a) Total return does not take into account any of the expenses associated with
an investment in variable insurance products offered by Security Benefit
Life Insurance Company. 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.
(b) Gross expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net expense information reflects expense ratios after expense reductions or
fee waivers and reduction of custodian expenses.
(d) The Dreyfus Corporation became sub-adviser of Series B effective January 2,
2001. Prior to January 2, 2001, advisory services were provided by the
Investment Manager.
See accompanying notes.
17
SERIES C
Managers' Commentary (MONEY MARKET SERIES)
February 15, 2005 (unaudited)
[SECURITY FUNDS LOGO]
Advisor, Security Management Company, LLC
TO OUR SHAREHOLDERS:
The main theme in the money markets during 2004 was the Federal Reserve Bank's
(Fed) monetary policy committee increasing the federal funds rate by 125 basis
points. The Fed's attempt to restrain inflationary pressure on the economy
lifted money market yields from historic lows. The Money Market Series returned
0.72% for the 12-month period ending December 31, 2004.
Aside from higher short-term interest rates, the past year proved positive for
credit issuers. Companies continued to report strong cash flows and healthy
earnings driven by the recent economy and consumer spending. One concerning
trend is the growing tendency for firms to use their excess cash flow for
increasing dividends or share repurchases, rather than bolstering credit
quality.
CHARACTERISTICS OF PORTFOLIO ASSETS
As of December 31, 2004, the average maturity of the holdings in the Money
Market, Series C was 49 days, which is slightly longer than the benchmark.
However, this longer maturity has worked well by enhancing the yield and
positioning the portfolio to benefit from expected additional federal funds
rate increases in 2005.
The yield curve for money market instruments trended upward for the latter half
of 2004, thus making it easier for the Series to pick up additional yield,
broadly along the matruity spectrum and among various types of instruments. The
majority of the Series assets lie in the corporate debt sector via commercial
paper, floating rate securities and bankers acceptances, due to the strong
fundamentals of credit and because these three areas of the market represent
good value against other sectors. At the end of the year, approximately 54% of
the Series was made up of Commercial Paper, 30% in Floating Rate securities
(which includes Corporate and U.S. Government-Backed), 9% in U.S.
Government/Agency obligations, 4% in funding agreements, and 3% in Bankers
Acceptances.
OUTLOOK FOR 2005
For 2005, we anticipate continued growth in the U.S. economy with the household
sector remaining an important factor, although becoming less of a driver of
growth relative to business investment. Also, we believe the Federal Reserve
will continue its "measured" increases in the federal funds rate. We plan to
continue investing in the corporate sector as companies have improved their
balance sheets and profitability in recent years.
As always, we will continue to monitor the economic and market conditions when
deciding portfolio strategies and will adjust the asset mix and maturity
structure in the portfolio accordingly.
Thank you for your investment in the Money Market Series. As always, we
appreciate that you have chosen us to manage your assets and remain focused on
achieving the Series' investment goals.
Sincerely,
Fixed Income Team
An investment in Series C is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency and does not attempt to
maintain a stable net asset value of $1.00 per share.
18
SERIES C
Managers' Commentary (MONEY MARKET SERIES)
February 15, 2005 (unaudited)
PERFORMANCE
PORTFOLIO COMPOSITION BY QUALITY RATINGS (BASED ON STANDARD AND POOR'S RATINGS)
AAA 12.19%
AA 11.35
A 78.00
Liabilities, less cash & other assets (1.54)
AVERAGE ANNUAL RETURNS
PERIODS ENDED 12-31-04(1) 1 YEAR 5 YEARS 10 YEARS
- ------------------------- ------ ------- --------
Series C 0.72% 2.42% 3.75%
(1) 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.
See accompanying notes.
19
SERIES C
Managers' Commentary (MONEY MARKET SERIES)
February 15, 2005 (unaudited)
PERFORMANCE
INFORMATION ABOUT YOUR SERIES EXPENSES
CALCULATING YOUR ONGOING SERIES EXPENSES
EXAMPLE
As a shareholder of the Series, you incur ongoing costs, including management
fees and other series expenses. Performance figures and expense ratios do not
reflect fees and expenses associated with an investment in variable insurance
products. Shares of a Series of SBL Fund are available only through the purchase
of such products. This Example is intended to help you understand your ongoing
costs (in dollars) of investing in the Series and to compare these costs with
ongoing costs of investing in other mutual funds. The Example is based on an
investment of $1,000 invested at the beginning of the period and held for the
entire period, July 1, 2004 - December 31, 2004.
ACTUAL EXPENSES
The first line in the table provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR
COMPARISON PURPOSES
The second line in the table provides information about hypothetical account
values and hypothetical expenses based on the Series actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Series
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Series and other funds. To do so, compare this 5% hypothetical example with the
5% hypothetical examples that appear in the shareholder reports of the other
funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any fees and expenses associated with an
investment in variable insurance products. Therefore, the second line is useful
in comparing ongoing costs only, and will not help you determine the relative
total costs of owning different funds. In addition, if these fees and expenses
associated with an investment in variable insurance products were included, your
costs would have been higher.
FUND EXPENSES
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING
07-01-04 12-31-04(1) PERIOD(2)
------------- ------------- -------------
Series C (Money Market Series)
Actual $1,000.00 $1,004.20 $3.33
Hypothetical 1,000.00 1,021.82 3.35
(1) The actual ending account value is based on the actual total return of the
Series for the period July 1, 2004 to December 31, 2004 after actual
expenses and will differ from the hypothetical ending account value
which is based on the Series expense ratio and a hypothetical annual
return of 5% before expenses. The actual cumulative return at net asset
value for the period July 1, 2004 to December 31, 2004 was 0.42%.
(2) Expenses are equal to the Series annualized expense ratio 0.66% multiplied
by the average account value over the period, multiplied by 184/366 (to
reflect the one-half year period).
20
SERIES C
Schedule of Investments (MONEY MARKET SERIES)
December 31, 2004
PRINCIPAL MARKET
AMOUNT VALUE
BANKERS ACCEPTANCES - 2.9%
JP Morgan & Company, Inc.:
2.03%, 01-18-05 $1,321,000 $1,319,451
2.03%, 01-24-05 607,000 606,045
----------
1,925,496
----------
TOTAL BANKERS ACCEPTANCES
(cost $1,925,947) 1,925,496
----------
COMMERCIAL PAPER - 54.1%
BANKING - 4.8%
ING (US) Funding:
2.20%, 01-18-05 2,100,000 2,097,818
2.37%, 02-25-05 1,100,000 1,096,017
----------
3,193,835
----------
BROKERAGE - 12.7%
Bear Stearns Companies, Inc.:
2.30%, 01-26-05 1,500,000 1,497,604
2.32%, 02-03-05 1,500,000 1,496,810
Credit Suisse First Boston:
2.34%, 01-20-05 1,000,000 998,765
2.33%, 01-31-05 1,100,000 1,097,892
Morgan Stanley:
2.17%, 01-04-05 1,300,000 1,299,765
2.33%, 01-25-05 2,000,000 1,996,893
----------
8,387,729
----------
CONSUMER PRODUCTS - 4.8%
Procter & Gamble Company:
2.40%, 03-15-05 900,000 895,561
2.37%, 03-17-05 2,300,000 2,288,329
----------
3,183,890
----------
ELECTRIC - 5.0%
Southern Company, 2.18%,01-28-05 3,329,000 3,323,102
----------
FINANCIAL COMPANIES - CAPTIVE - 4.7%
Edison Asset Securitization ABS,
2.33%, 02-10-05 1,100,000 1,097,113
General Electric Capital Corporation,
2.30%, 02-09-05 2,000,000 1,994,887
----------
3,092,000
----------
FINANCIAL COMPANIES - NONCAPTIVE
DIVERSIFIED - 6.3%
CIT Group, Inc., 2.36%, 02-11-05 3,200,000 3,191,385
Citigroup, Inc., 2.31%, 02-03-05 1,000,000 997,883
----------
4,189,268
----------
FOOD & BEVERAGE - 7.3%
Anheuser Busch Companies, Inc.,
2.39%, 03-22-05 2,300,000 2,287,506
Coca-Cola Company, 2.12%, 01-19-05 2,505,000 2,502,345
----------
4,789,851
----------
MEDIA - NONCABLE - 3.5%
Tribune Company, 2.27%, 01-06-05 2,300,000 2,299,275
----------
PHARMACEUTICALS - 5.0%
Pfizer, Inc.:
2.14%, 01-14-05 1,300,000 1,298,995
2.16%, 01-21-05 2,000,000 1,997,600
----------
3,296,595
----------
TOTAL COMMERCIAL PAPER
(cost $35,756,835) 35,755,545
----------
CORPORATE BONDS - 27.8%
BANKING - 4.5%
Wells Fargo & Company, 2.579%,
03-29-05(1) 3,000,000 3,001,548
----------
BROKERAGE - 6.5%
Merrill Lynch & Company, 2.82%,
03-21-05(1) 4,300,000 4,307,990
----------
FINANCIAL - OTHER - 1.8%
Countrywide Home Loan,
2.425%, 02-23-05(1) 1,200,000 1,199,646
----------
FINANCIAL COMPANIES - CAPTIVE - 3.9%
Caterpillar Financial Services
Corporation:
2.38%, 01-25-05(1) 550,000 550,420
2.55%, 03-01-05(1) 2,000,000 1,999,660
----------
2,550,080
----------
FINANCIAL COMPANIES - NONCAPTIVE
CONSUMER - 11.1%
American Express Credit Corporation,
2.468%, 01-14-05(1) 2,000,000 2,000,750
Citigroup, Inc., 2.28%, 02-07-05(1) 1,500,000 1,499,714
JP Morgan Chase & Company,
2.609%, 02-22-05(1) 1,800,000 1,802,102
SLM Corporation, 2.67%, 03-15-05(1) 2,000,000 2,002,690
----------
7,305,256
----------
TOTAL CORPORATE BONDS
(cost $18,370,012) 18,364,520
----------
See accompanying notes.
21
SERIES C
Schedule of Investments (MONEY MARKET SERIES)
December 31, 2004
PRINICIPAL MARKET
AMOUNT VALUE
MISCELLANEOUS ASSETS - 4.6%
FUNDING AGREEMENTS - 4.6%
United of Omaha Life Insurance Company,
2.38%, 01-01-05(1) $3,000,000 $ 3,000,000
-----------
TOTAL MISCELLANEOUS ASSETS
(cost $3,000,000) 3,000,000
-----------
U.S. GOVERNMENT SPONSORED AGENCIES - 12.2%
FEDERAL HOME LOAN BANK - 5.3%
1.38%, 03-28-05 2,000,000 1,994,824
3.02%, 01-18-06 1,500,000 1,499,960
-----------
3,494,784
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 2.3%
2.419%, 01-07-05(1) 1,500,000 1,500,704
-----------
SMALL BUSINESS ASSOCIATION POOLS - 3.6%
#503295, 2.25%, 01-01-05(1) 295,571 294,424
#503303, 2.25%, 01-01-05(1) 263,172 262,151
#503308, 2.50%, 01-01-05(1) 179,928 179,928
#503459, 2.50%, 01-01-05(1) 484,656 482,839
#503176, 2.625%, 01-01-05(1) 97,019 97,504
#503343, 2.625%, 01-01-05(1) 313,525 313,525
#503347, 2.625%, 01-01-05(1) 456,477 456,477
#502353, 2.75%, 01-01-05(1) 61,366 61,366
#502163, 3.00%, 01-01-05(1) 267,724 267,723
-----------
2,415,937
-----------
STUDENT LOAN MARKETING ASSOCIATION - 1.0%
1997-4 A2, 3.019%, 01-25-05(1) 641,336 642,906
-----------
TOTAL U.S. GOVERNMENT SPONSORED AGENCIES
(cost $8,057,796) 8,054,331
-----------
REPURCHASE AGREEMENT - 0.6%
United Missouri Bank, 1.74%, dated
12-31-04, matures 01-03-05;
repurchase amount of $416,060
(Collateralized by FNMA 0.00%,
1-04-05 with a value of $424,885) 416,000 416,000
-----------
TOTAL REPURCHASE AGREEMENT
(cost $416,000) 416,000
-----------
TOTAL INVESTMENTS - 102.2%
(cost $67,526,590) 67,515,892
LIABILITIES, LESS CASH & OTHER ASSETS - (2.2%) (1,432,023)
-----------
TOTAL NET ASSETS - 100.0% $66,083,869
===========
The identified cost of investments owned at December 31, 2004 was the same for
federal income tax and financial statement purposes.
(1) Variable rate security. Rate indicated is rate effective at December 31,
2004. Maturity date indicated is next interest reset date.
See accompanying notes.
22
SERIES C
(MONEY MARKET SERIES)
Statement of Assets and Liabilities
December 31, 2004
ASSETS:
Investments, at value(1)............................. $ 67,515,892
Cash................................................. 515
Receivables:
Fund shares sold................................... 241,341
Securities sold.................................... 11,674
Interest........................................... 66,486
Prepaid expenses..................................... 1,782
------------
Total assets......................................... 67,837,690
------------
LIABILITIES:
Payable for:
Securities purchased............................... 1,499,925
Fund shares redeemed............................... 204,742
Management fees.................................... 28,383
Transfer agent and administration fees............. 8,092
Professional fees.................................. 9,000
Other.............................................. 3,679
------------
Total liabilities.................................... 1,753,821
------------
NET ASSETS........................................... $ 66,083,869
============
NET ASSETS CONSIST OF:
Paid in capital...................................... $ 65,496,414
Accumulated undistributed net
investment income.................................. 598,153
Net unrealized depreciation in value
of investments..................................... (10,698)
------------
Net assets........................................... $ 66,083,869
============
Capital shares authorized............................ indefinite
Capital shares outstanding........................... 5,565,312
Net asset value and redemption price
per share (net assets divided by
shares outstanding)................................ $ 11.87
============
(1) Investments, at cost............................. $ 67,526,590
Statement of Operations
For the Year Ended December 31, 2004
INVESTMENT INCOME:
Interest........................................... $ 1,165,978
------------
Total investment income............................ 1,165,978
------------
EXPENSES:
Management fees.................................... 428,432
Custodian fees..................................... 8,839
Transfer/maintenance fees.......................... 22,570
Administration fees................................ 77,423
Directors' fees.................................... 4,329
Professional fees.................................. 11,259
Reports to shareholders............................ 4,711
Other expenses..................................... 3,748
------------
Total expenses..................................... 561,311
------------
Net investment income.............................. 604,667
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain during the period on:
Investments........................................ -
------------
Realized gain...................................... -
------------
Net change in unrealized depreciation
during the period on:
Investments........................................ (21,134)
------------
Unrealized depreciation............................ (21,134)
------------
Net loss........................................... (21,134)
------------
Net increase in net assets resulting
from operations................................... $ 583,533
============
See accompanying notes.
23
SERIES C
Statement of Changes in Net Assets (MONEY MARKET SERIES)
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income.................................................................... $ 604,667 $ 625,688
Net realized gain during the period on investments....................................... - -
Net change in unrealized depreciation during the period on investments................... (21,134) (14,488)
------------- -------------
Net increase in net assets resulting from operations..................................... 583,533 611,200
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.................................................................... (39,471) (717,127)
------------- -------------
Total distributions to shareholders...................................................... (39,471) (717,127)
------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares............................................................. 247,991,445 252,314,124
Distributions reinvested................................................................. 39,471 717,127
Cost of shares redeemed.................................................................. (268,949,230) (283,763,705)
------------- -------------
Net decrease from capital share transactions............................................. (20,918,314) (30,732,454)
------------- -------------
Net increase in net assets............................................................... (20,374,252) (30,838,381)
------------- -------------
NET ASSETS:
Beginning of period...................................................................... 86,458,121 117,296,502
------------- -------------
End of period............................................................................ $ 66,083,869 $ 86,458,121
============= =============
Accumulated undistributed net investment income at end of period......................... $ 598,153 $ 32,957
============= =============
CAPITAL SHARE ACTIVITY:
Shares sold.............................................................................. 20,984,022 21,292,010
Shares reinvested........................................................................ 3,337 60,767
Shares redeemed.......................................................................... (22,752,226) (23,947,413)
------------- -------------
Total capital share activity............................................................. (1,764,867) (2,594,636)
============= =============
See accompanying notes.
24
SERIES C
Financial Highlights (MONEY MARKET SERIES)
Selected data for each share of capital stock outstanding throughout each year
YEAR ENDED,
DECEMBER 31,
2004 2003 2002 2001 2000
-------- --------- -------- -------- ------------
PER SHARE DATA
Net asset value, beginning of period $ 11.79 $ 11.82 $ 12.20 $ 12.69 $ 12.04
-------- --------- -------- -------- --------
Income (loss) from investment operations:
Net investment income (loss) 0.11 0.09 0.16 0.54 0.80
Net gain (loss) on securities (realized and unrealized) (0.02) (0.02) (0.02) (0.09) (0.08)
-------- --------- -------- -------- --------
Total from investment operations 0.09 0.07 0.14 0.45 0.72
-------- --------- -------- -------- --------
Less distributions:
Dividends from net investment income (0.01) (0.10) (0.52) (0.94) (0.07)
Distributions from realized gains - - - - -
-------- --------- -------- -------- --------
Total distributions (0.01) (0.10) (0.52) (0.94) (0.07)
-------- --------- -------- -------- --------
Net asset value, end of period $ 11.87 $ 11.79 $ 11.82 $ 12.20 $ 12.69
======== ========= ======== ======== ========
TOTAL RETURN(a) 0.72% 0.55% 1.20% 3.75% 5.99%
-------- --------- -------- -------- --------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $ 66,084 $ 86,458 $117,297 $131,277 $119,372
-------- --------- -------- -------- --------
Ratios to average net assets:
Net investment income (loss) 0.70% 0.63% 1.26% 3.50% 5.79%
Total expenses 0.65% 0.59% 0.58% 0.58% 0.58%
Gross expenses(b) 0.65% 0.59% 0.58% 0.58% 0.58%
Net expenses(c) 0.65% 0.59% 0.58% 0.58% 0.58%
(a) Total return does not take into account any of the expenses associated
with an investment in variable insurance products offered by Security
Benefit Life Insurance Company. 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.
(b) Gross expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net expense information reflects expense ratios after expense reductions
or fee waivers and reduction of custodian expenses.
See accompanying notes.
25
SERIES D
Manager's Commentary (GLOBAL SERIES)
February 15, 2005 (unaudited)
[OPPENHEIMERFUNDS LOGO]
Subadvisor, OppenheimerFunds, Inc.
[PHOTO OF WILLIAM L. WILBY]
William L. Wilby
Portfolio Manager
TO OUR SHAREHOLDERS
The Series turned in a strong performance for the 12 months ended December 31,
2004, on both an absolute and relative basis, outperforming the (MSCI) World
Index by a solid margin for the year. We continued to focus on our four core
themes - mass affluence, new technology, restructuring and demographic shifts,
including aging - with our holdings in technology and consumer discretionary
stocks paying off particularly well.
Our performance through the year wasn't completely smooth, of course. After
participating strongly in the nine-month global stock rally that ended in
February 2004, our performance - like that of the overall global sector -
slipped in mid-March and stayed in a narrow range through the summer. The
slowdown during the first half of the reporting period was precipitated by
concerns over geopolitical uncertainties, rising short-term interest rates, high
oil prices, the U.S. Presidential election, the mounting U.S. current account
deficit and the weakening U.S. dollar. In the second half, however, a clear and
undisputed election in the United States and continued good news on the global
economy helped pave the way for strong performance in the fourth quarter.
The year also saw some notable performance in some of the weaker areas of the
Organization for Economic Cooperation and Development (OECD). Japan, for
example, continues to enjoy a remarkable turnaround, emerging largely unaffected
from China's efforts to slow its overheated economy and a stock-market pullback
following the Yen's calendar second-quarter rally. In Europe, some companies
successfully negotiated concessions from labor unions, a sign that the
long-needed restructuring on the continent is finally gaining some momentum.
Beyond the broad market gain, Series returns were also boosted by positions in
stocks reflecting its technology and mass-affluence themes. Sirius Satellite
Radio, Inc., Qualcomm, Inc., and Ericsson (Telefonaktiebolaget LM Ericsson) were
the major contributors in technology, while Hennes & Mauritz AB and Reckitt
Benckiser plc were the key contributors in the mass affluence category. Gains
in these and other stocks were partly offset by declines in other issues,
including a Taiwanese semiconductor manufacturer that suffered during the
industry's sell-off. During the period, we also began to build several
positions, including oil service companies Transocean, Inc. and Technip S.A.,
both of which should benefit from a rebound in oil exploration spurred by the
hike in energy prices. Another acquisition, Toyota Motor Corp., lies within our
mass-affluence theme.
There are some scattered clouds on the horizon, of course, including energy
prices, and the U.S. current account deficit. Overall, however, we're optimistic
about the prospects for the global economy. While the drivers differ from
region to region, we believe the global economy overall is poised for solid
growth and stocks worldwide are attractively priced.
As always, we urge shareholders to keep in mind the added volatility and risks -
including currency fluctuations and economic and political instability - that
investing in the securities of international markets entails.
Sincerely,
William L. Wilby
Portfolio Manager
26
SERIES D
Manager's Commentary (GLOBAL SERIES)
February 15, 2005 (unaudited)
PERFORMANCE
[PERFORMANCE GRAPH]
SBL D INVESTMENT INFORMATION
DATE value
- -------- ---------
12/31/94 10,000.00
3/31/95 9,901.38
6/30/95 10,177.51
9/30/95 10,727.39
12/31/95 11,086.30
3/31/96 11,824.06
6/30/96 12,482.06
9/30/96 12,662.06
12/31/96 13,022.62
3/31/97 13,361.97
6/30/97 14,676.96
9/30/97 15,194.88
12/31/97 13,862.79
3/31/98 15,930.79
6/30/98 15,733.19
9/30/98 14,078.37
12/31/98 16,647.05
3/31/99 17,024.12
6/30/99 18,557.10
9/30/99 18,960.52
12/31/99 25,581.38
3/31/00 29,046.70
6/30/00 28,088.81
9/30/00 27,514.23
12/31/00 26,484.79
3/31/01 22,502.55
6/30/01 24,233.51
9/30/01 19,814.03
12/31/01 23,239.13
3/31/02 23,644.25
6/30/02 21,397.67
9/30/02 17,493.80
12/31/02 17,961.31
3/31/03 16,522.93
6/30/03 20,063.56
9/30/03 21,955.48
12/31/03 25,765.34
3/31/04 26,948.25
6/30/04 26,578.59
9/30/04 26,282.86
12/31/04 30,607.89
MSCI WORLD
DATE value
- ---------- ---------
10,000.00
3/31/95 10,481.70
6/30/95 10,941.85
9/30/95 11,566.43
12/31/95 12,129.79
3/31/96 12,638.40
6/30/96 13,018.21
9/30/96 13,206.31
12/31/96 13,826.96
3/31/97 13,881.87
6/30/97 15,987.45
9/30/97 16,461.21
12/31/97 16,071.46
3/31/98 18,389.62
6/30/98 18,779.75
9/30/98 16,544.81
12/31/98 20,056.02
3/31/99 20,788.16
6/30/99 21,799.31
9/30/99 21,492.98
12/31/99 25,138.50
3/31/00 25,411.62
6/30/00 24,527.83
9/30/00 23,313.30
12/31/00 21,888.02
3/31/01 19,091.33
6/30/01 19,621.69
9/30/01 16,814.68
12/31/01 18,271.75
3/31/02 18,349.41
6/30/02 16,698.35
9/30/02 13,641.83
12/31/02 14,698.02
3/31/03 13,954.16
6/30/03 16,330.98
9/30/03 17,121.19
12/31/03 19,562.82
3/31/04 20,074.38
6/30/04 20,248.35
9/30/04 20,046.29
12/31/2004 22,441.36
SBL Fund Series D $30,608
MSCI World Index $22,441
$10,000 OVER TEN YEARS
The chart above assumes a hypothetical $10,000 investment in Series D (Global
Series) on December 31, 1994 and reflects the fees and expenses of Series D.
PORTFOLIO COMPOSITION BY SECTOR
Consumer Discretionary 19.21%
Consumer Staples 7.57
Energy 6.93
Financials 18.43
Health Care 13.46
Industrials 5.65
Information Technology 16.03
Materials 1.15
Telecommunication Services 8.05
Utilities 0.95
Cash & other assets, less liabilities 2.57
AVERAGE ANNUAL RETURNS
PERIODS ENDED 12-31-04(1) 1 YEAR 5 YEARS 10 YEARS
- ------------------------- ------ ------- --------
Series D 18.79% 3.65% 11.84%
- ----------
(1) 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.
27
SERIES D
Manager's Commentary (GLOBAL SERIES)
February 15, 2005 (unaudited)
PERFORMANCE
INFORMATION ABOUT YOUR SERIES EXPENSES
CALCULATING YOUR ONGOING SERIES EXPENSES
EXAMPLE
As a shareholder of the Series, you incur ongoing costs, including management
fees and other series expenses. Performance figures and expense ratios do not
reflect fees and expenses associated with an investment in variable insurance
products. Shares of a Series of SBL Fund are available only through the purchase
of such products. This Example is intended to help you understand your ongoing
costs (in dollars) of investing in the Series and to compare these costs with
ongoing costs of investing in other mutual funds. The Example is based on an
investment of $1,000 invested at the beginning of the period and held for the
entire period, July 1, 2004 - December 31, 2004.
ACTUAL EXPENSES
The first line in the table provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the table provides information about hypothetical account
values and hypothetical expenses based on the Series actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Series
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Series and other funds. To do so, compare this 5% hypothetical example with the
5% hypothetical examples that appear in the shareholder reports of the other
funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any fees and expenses associated with an
investment in variable insurance products. Therefore, the second line is useful
in comparing ongoing costs only, and will not help you determine the relative
total costs of owning different funds. In addition, if these fees and expenses
associated with an investment in variable insurance products were included, your
costs would have been higher.
FUND EXPENSES
EXPENSES
BEGINNING ENDING PAID
ACCOUNT VALUE ACCOUNT VALUE DURING
07-01-04 12-31-04(1) PERIOD(2)
------------- ------------- ---------
Series D (Global Series)
Actual $ 1,000.00 $ 1,151.60 $ 6.64
Hypothetical 1,000.00 1,018.95 6.24
- ----------
(1) The actual ending account value is based on the actual total return of the
Series for the period July 1, 2004 to December 31, 2004 after actual
expenses and will differ from the hypothetical ending account value which
is based on the Series expense ratio and a hypothetical annual return of
5% before expenses. The actual cumulative return at net asset value for
the period July 1, 2004 to December 31, 2004 was 15.16%.
(2) Expenses are equal to the Series annualized expense ratio 1.23% multiplied
by the average account value over the period, multiplied by 184/366 (to
reflect the one-half year period).
28
SERIES D
Schedule of Investments (GLOBAL SERIES)
December 31, 2004
PRINCIPAL
AMOUNT OR
NUMBER MARKET
OF SHARES VALUE
FOREIGN BOND - 0.0%
INDIA - 0.0%
Hindustan Lever, Ltd., 9.00% - 2005(1) 4,816,200 $ 6,792
-----------
TOTAL FOREIGN BOND
(cost $105,510) 6,792
-----------
COMMON STOCKS - 96.2%
AUSTRALIA - 0.4%
Australia & New Zealand Banking
Group,Ltd 126,488 2,041,577
-----------
BERMUDA - 0.9%
Ace, Ltd. 97,899 4,185,182
-----------
BRAZIL - 1.5%
Companhia de Bebidas das
Americas ADR 85,256 2,415,302
Empresa Brasileira de
Aeronautica S.A. ADR 138,526 4,632,309
Tele Norte Leste Participacoes S.A 12 210
-----------
7,047,821
-----------
CANADA - 2.1%
EnCana Corporation 53,081 3,030,289
Husky Energy, Inc. 151,800 4,339,315
Manulife Financial Corporation 56,283 2,602,411
-----------
9,972,015
-----------
FINLAND - 0.2%
Fortum Oyj 38,100 705,345
-----------
FRANCE - 7.5%
Alcatel S.A.* 156,240 2,431,627
Carrefour S.A 27,230 1,296,913
Essilor International S.A 26,620 2,085,963
France Telecom S.A 137,537 4,554,032
JC Decaux S.A.* 75,480 2,203,766
Louis Vuitton Moet Hennessy S.A 16,210 1,241,584
Sanofi-Aventis 106,839 8,538,988
Societe Generale 42,890 4,340,302
Societe Television Francaise 1 53,980 1,757,267
Technip S.A 26,350 4,871,007
Total S.A 8,703 1,901,009
-----------
35,222,458
-----------
GERMANY - 2.7%
Allianz AG 33,244 4,410,241
MLP AG 54,208 1,075,023
SAP AG 25,511 4,556,403
Siemens AG 28,607 2,425,587
-----------
12,467,254
-----------
HONG KONG - 2.7%
HSBC Holdings plc 283,634 4,853,310
Hong Kong & China Gas Company, Ltd. 1,213,700 2,506,193
Hutchison Telecommunications
International, Ltd. 2,985 2,688
Hutchison Whampoa, Ltd. 213,918 2,002,204
Television Broadcasts, Ltd. 708,904 3,292,477
-----------
12,656,872
-----------
INDIA - 3.5%
Gail India, Ltd. 55,620 295,181
Hindustan Lever, Ltd. 834,800 2,755,781
ITC, Ltd. 17,500 527,295
Icici Bank, Ltd. ADR 179,350 3,613,902
Infosys Technologies, Ltd. 113,864 5,471,863
Oil & Natural Gas Corporation, Ltd. 32,540 613,484
Zee Telefilms, Ltd. 745,800 2,935,504
-----------
16,213,010
-----------
IRELAND - 0.6%
Anglo Irish Bank Corporation plc 111,700 2,707,097
-----------
ITALY - 0.4%
Eni SpA 81,966 2,052,214
-----------
JAPAN - 8.5%
Canon, Inc. 32,000 1,726,944
Chugai Pharmaceutical Company, Ltd. 115,000 1,901,142
Credit Saison Company, Ltd. 71,900 2,617,225
Hoya Corporation 10,600 1,196,858
JGC Corporation 73,000 667,522
KDDI Corporation 1,294 6,970,704
Keyence Corporation 7,600 1,702,898
Murata Manufacturing Company, Ltd. 33,200 1,856,504
Nidec Corporation 7,700 938,548
Nikon Corporation 178,916 2,210,478
Omron Corporation 20,000 477,213
Resona Holdings, Inc.* 933,000 1,893,862
Seven-Eleven Japan Company, Ltd. 49,000 1,544,550
Sharp Corporation 120,000 1,959,208
Shionogi & Company, Ltd. 190,000 2,627,403
Shiseido Company, Ltd. 108,000 1,564,087
Toyota Motor Corporation 100,400 4,085,762
Trend Micro, Inc.* 51,000 2,752,318
Yahoo Japan Corporation* 250 1,200,351
-----------
39,893,577
-----------
KOREA - 1.9%
Hyundai Heavy Industries Company, Ltd.* 54,500 1,813,683
SK Telecom Company, Ltd. 8,720 1,659,428
SK Telecom Company, Ltd. ADR 52,200 1,161,450
Samsung Electronics Company, Ltd. 10,188 4,433,630
-----------
9,068,191
-----------
See accompanying notes.
29
SERIES D
Schedule of Investments (GLOBAL SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
COMMON STOCK (CONTINUED)
MEXICO - 1.6%
Fomento Economico Mexicano,
S.A. de C.V. 433,200 $ 2,274,621
Grupo Modelo, S.A. de C.V. (Cl.C) 600,200 1,650,860
Grupo Televisa S.A. ADR 62,133 3,759,046
-----------
7,684,527
-----------
NETHERLANDS - 2.2%
ABN Amro Holding N.V. 170,600 4,519,497
Aegon N.V. 247,406 3,372,954
Wolters Kluwer N.V. 110,129 2,210,963
-----------
10,103,414
-----------
NORWAY - 0.6%
Tandberg ASA 211,800 2,631,479
-----------
PORTUGAL - 0.3%
Energias de Portugal S.A. 403,690 1,223,636
-----------
SINGAPORE - 0.5%
Singapore Press Holdings, Ltd. 885,466 2,495,188
-----------
SPAIN - 0.5%
Amadeus Global Travel Distribution S.A. 216,339 2,226,025
-----------
SWEDEN - 4.8%
Hennes & Mauritz AB (Cl.B) 295,100 10,280,141
Investor AB (Cl.B)** 90,971 1,156,747
Telefonaktiebolaget LM
Ericsson (Cl.B)* 3,379,700 10,781,840
-----------
22,218,728
-----------
SWITZERLAND - 1.8%
Novartis AG 60,588 3,053,111
Roche Holding AG 46,872 5,395,783
-----------
8,448,894
-----------
TAIWAN - 0.8%
Taiwan Semiconductor Manufacturing
Company, Ltd. ADR 441,140 3,745,279
-----------
UNITED KINGDOM - 14.1%
3i Group plc*** 137,720 1,762,285
AstraZeneca plc 39,890 1,443,625
BP plc ADR 61,075 3,566,780
Boots Group plc 154,785 1,944,991
Cadbury Schweppes plc 494,864 4,607,938
Diageo plc 62,450 890,841
Dixons Group plc 1,351,753 3,931,778
HSBC Holdings plc 10,000 168,855
Pearson plc 295,730 3,562,773
Peninsular & Oriental Steam
Navigation Company 84,490 483,393
Reckitt Benckiser plc 302,367 9,148,915
Reed Elsevier plc 217,623 2,008,644
Royal Bank of Scotland Group plc 282,122 9,489,647
Smith & Nephew plc 395,400 4,046,158
Vodafone Group plc 6,175,700 16,717,999
WPP Group plc 166,300 1,829,472
-----------
65,604,094
-----------
UNITED STATES - 36.1%
Advanced Micro Devices, Inc.* 288,600 6,354,972
Affymetrix, Inc.* 63,400 2,317,270
Altera Corporation* 37,600 778,320
Altria Group, Inc. 19,900 1,215,890
Amazon.com, Inc.* 43,100 1,908,899
American Express Company 63,400 3,573,858
Amgen, Inc.* 68,800 4,413,520
Applera Corporation - Applied
Biosystems Group 74,400 1,555,704
BEA Systems, Inc.* 212,542 1,883,122
Berkshire Hathaway, Inc. (Cl.B)* 1,090 3,200,240
Boeing Company 42,700 2,210,579
Burlington Resources, Inc. 49,800 2,166,300
Cadence Design Systems, Inc.* 135,800 1,875,398
Charles Schwab Corporation 133,800 1,600,248
ChevronTexaco Corporation 70,654 3,710,042
Circuit City Stores, Inc. 192,799 3,015,376
Cisco Systems, Inc.* 140,200 2,705,860
Citigroup, Inc. 30,933 1,490,352
Coach, Inc.* 25,500 1,438,200
Commerce Bancorp, Inc. 13,900 895,160
Corning, Inc.* 185,500 2,183,335
Electronic Arts, Inc.* 12,900 795,672
Eli Lilly & Company 24,400 1,384,700
Everest Re Group, Ltd. 19,100 1,710,596
Express Scripts, Inc.* 24,800 1,895,712
Gap, Inc. 78,800 1,664,256
Genentech, Inc.* 39,500 2,150,380
Genzyme Corporation* 37,500 2,177,625
Gilead Sciences, Inc.* 105,100 3,677,449
Gillette Company 77,700 3,479,406
GlobalSantaFe Corporation 134,600 4,456,606
Human Genome Sciences, Inc.* 46,020 553,160
IMS Health, Inc. 78,800 1,828,948
International Business Machines
Corporation 46,175 4,551,932
International Game Technology 85,900 2,953,242
JDS Uniphase Corporation* 675,600 2,141,652
JP Morgan Chase & Company 186,992 7,294,558
Juniper Networks, Inc.* 65,700 1,786,383
Lockheed Martin Corporation 35,700 1,983,135
MBNA Corporation 145,100 4,090,369
Millennium Pharmaceuticals, Inc.* 45,100 546,612
National Semiconductor Corporation* 169,900 3,049,705
Nektar Therapeutics* (2),(3) 57,269 927,295
Northern Trust Corporation 30,300 1,471,974
Northrop Grumman Corporation 37,800 2,054,808
Novell, Inc.* 277,600 1,873,800
Pfizer, Inc. 99,199 2,667,461
Qualcomm, Inc. 104,440 4,428,256
Quest Diagnostics, Inc. 41,300 3,946,215
RadioShack Corporation 49,300 1,620,984
Raytheon Company 87,000 3,378,210
Red Hat, Inc.* 59,800 798,330
See accompanying notes.
30
SERIES D
Schedule of Investments (GLOBAL SERIES)
December 31, 2004
PRINCIPAL
AMOUNT OR
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS (CONTINUED)
UNITED STATES (CONTINUED)
Schering-Plough Corporation 117,200 $ 2,447,136
Scientific-Atlanta, Inc. 47,730 1,575,567
Silicon Laboratories, Inc.* 24,000 847,440
Sirius Satellite Radio, Inc.* 1,992,800 15,244,920
Starbucks Corporation* 50,700 3,161,652
Sun Microsystems, Inc.* 528,200 2,841,716
Symantec Corporation* 95,000 2,447,200
Transocean, Inc.* 136,500 5,786,235
Veritas Software Corporation* 47,200 1,347,560
Wachovia Corporation 90,547 4,762,772
------------
168,294,274
------------
TOTAL COMMON STOCKS
(cost $323,923,872) 448,908,151
------------
PREFERRED STOCKS - 1.2%
BRAZIL - 0.7%
Tele Norte Leste Participacoes S.A. 207,988 3,476,908
------------
GERMANY - 0.5%
Porsche AG 3,463 2,209,975
------------
TOTAL PREFERRED STOCKS
(cost $5,075,244) 5,686,883
------------
REPURCHASE AGREEMENT - 2.3%
State Street, 0.80%, dated 12-31-04,
matures 1-03-05; repurchase amount
of $10,749,861 (Collateralized
by FNMA, 1.875%, 2-15-05 with a
value of $10,964,935) $ 10,749,145 10,749,145
------------
TOTAL REPURCHASE AGREEMENT
(cost $10,749,145) 10,749,145
------------
TOTAL INVESTMENTS - 99.7%
(cost $339,853,771) 465,350,971
CASH & OTHER ASSETS, LESS LIABILITIES - 0.3% 1,225,904
------------
TOTAL NET ASSETS - 100.0% $466,576,875
============
INVESTMENT CONCENTRATION
At December 31, 2004, Series D's investment concentration by
industry was as follows:
Air Freight & Logistics ......................................... 3.1%
Automobiles ..................................................... 1.3%
Beverages ....................................................... 2.5%
Biotechnology ................................................... 3.4%
Capital Markets ................................................. 1.3%
Chemicals ....................................................... 0.2%
Commercial Banks ................................................ 2.3%
Commercial Services & Supplies .................................. 0.4%
Communications Equipment ........................................ 6.1%
Computers & Peripherals ......................................... 1.6%
Construction & Engineering ...................................... 0.1%
Consumer Finance ................................................ 2.2%
Diversified Financial Services .................................. 8.4%
Diversified Telecommunications .................................. 3.9%
Electric Utilities .............................................. 0.3%
Electrical Equipment ............................................ 0.1%
Electronic Equipment & Instruments .............................. 1.0%
Energy Equipment & Services ..................................... 1.0%
Food & Staples Retailing ........................................ 1.0%
Gas Utilities ................................................... 0.5%
Health Care Equipment & Services ................................ 1.9%
Health Care Providers & Services ................................ 1.6%
Hotels, Restaurants & Leisure Products .......................... 1.8%
Household Durables .............................................. 2.2%
Household Products .............................................. 2.5%
Industrial Conglomerates ........................................ 0.5%
Insurance ....................................................... 4.2%
Internet & Catalog Retail ....................................... 0.4%
Internet Software & Services .................................... 1.2%
IT Services ..................................................... 1.2%
Leisure Equipment & Products .................................... 0.5%
Machinery ....................................................... 0.4%
Marine .......................................................... 0.1%
Media ........................................................... 8.9%
Multi-Utilities & Unregulated Power ............................. 0.2%
Oil & Gas ....................................................... 5.9%
Paper & Forest Products ......................................... 1.0%
Personal Products ............................................... 1.1%
Pharmaceuticals ................................................. 6.5%
Semiconductors & Semiconductor Equipment ........................ 3.0%
Software ........................................................ 2.9%
Specialty Retail ................................................ 1.0%
Textiles, Apparel & Luxury Goods ................................ 3.1%
Tobacco ......................................................... 0.4%
Wireless Telecommunications ..................................... 4.2%
Repurchase agreement ............................................ 2.3%
Cash & other assets, less liabilities ........................... 0.3%
-----
100.0%
=====
For federal income tax purposes, the identified cost of investments owned at
December 31, 2004 was $340,667,215.
ADR (American Depositary Receipt)
plc (public limited company)
*Non-income producing security
**Passive Foreign Investment Company
(1) Principal amount on foreign bond is reflected in local currency (e.g.
Indian Rupee) while market value is reflected in U.S. dollars.
(2) Security is restricted. The total market value of restricted securities is
$927,295 (cost$650,000), or 0.2% of total net assets. The acquisition date
was August 5, 2004.
(3) Security is fair valued by the Board of Directors. The total market value
of fair valued securities amounts to $927,295, or 0.2% of total net
assets.
See accompanying notes.
31
SERIES D
(GLOBAL SERIES)
Statement Of Assets and Liabilities
December 31, 2004
ASSETS:
Investments, at value(1) ........................ $ 465,350,971
Cash denominated in a foreign currency,
at value(2) ................................... 1,194,804
Receivables:
Fund shares sold .............................. 448,671
Interest ...................................... 8,065
Dividends ..................................... 554,717
Foreign taxes recoverable ....................... 52,710
Prepaid expenses ................................ 7,791
-------------
Total assets .................................... 467,617,729
-------------
LIABILITIES:
Cash overdraft .................................. 84,844
Payable for:
Fund shares redeemed .......................... 429,651
Management fees ............................... 387,807
Custodian fees ................................ 15,951
Transfer agent and administration fees ........ 61,614
Professional fees ............................. 46,490
Other ......................................... 14,497
-------------
Total liabilities ............................... 1,040,854
-------------
NET ASSETS ...................................... $ 466,576,875
=============
NET ASSETS CONSIST OF:
Paid in capital ................................. $ 364,105,096
Accumulated undistributed net
investment income ............................. 1,270,893
Accumulated net realized loss
on sales of investments and foreign
currency transactions ......................... (24,344,659)
Net unrealized appreciation in value of
investments and translation of assets
and liabilities in foreign currency ........... 125,545,545
-------------
Net assets ...................................... $ 466,576,875
=============
Capital shares authorized ....................... indefinite
Capital shares outstanding ...................... 56,354,678
Net asset value and redemption price
per share (net assets divided by
shares outstanding) ........................... $ 8.28
=============
(1) Investments, at cost ........................ $ 339,853,771
(2) Cash denominated in a foreign currency,
at cost ..................................... 1,164,325
Statement of Operations
For the Year Ended December 31, 2004
INVESTMENT INCOME:
Dividends ..................................... $ 7,251,108
Interest ...................................... 128,819
-------------
7,379,927
Less: Foreign tax expense ..................... (535,249)
-------------
Total investment income ....................... 6,844,678
-------------
EXPENSES:
Management fees ............................... 4,277,735
Custodian fees ................................ 188,517
Transfer/maintenance fees ..................... 22,867
Administration fees ........................... 630,574
Directors' fees ............................... 23,287
Professional fees ............................. 70,782
Reports to shareholders ....................... 33,772
Other expenses ................................ 13,934
-------------
Total expenses ................................ 5,261,468
-------------
Net investment income ......................... 1,583,210
-------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain (loss) during the period on:
Investments ................................... 36,662,880
Foreign currency transactions ................. (225,898)
-------------
Net realized gain ............................. 36,436,982
-------------
Net change in unrealized appreciation
during the period on:
Investments ................................... 36,319,621
Translation of assets and liabilities
in foreign currencies ....................... 27,517
-------------
Net unrealized appreciation ................... 36,347,138
-------------
Net gain ...................................... 72,784,120
-------------
Net increase in net assets
resulting from operations ................... $ 74,367,330
=============
See accompanying notes.
32
SERIES D
Statement of Changes in Net Assets (GLOBAL SERIES)
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
----------------- -----------------
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income ....................................................... $ 1,583,210 $ 1,468,121
Net realized gain (loss) during the period on investments and foreign
currency transactions ..................................................... 36,436,982 (10,172,00)
Net change in unrealized appreciation during the period on investments and
translation of assets and liabilities in foreign currencies 36,347,138 134,589,689
--------------- ---------------
Net increase in net assets resulting from operations ........................ 74,367,330 125,885,805
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ....................................................... - (878,842)
Net realized gain ........................................................... - (40,171)
--------------- ---------------
Total distributions to shareholders ......................................... - (919,013)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares ................................................ 94,393,037 149,848,070
Distributions reinvested .................................................... - 919,013
Issuance of shares in connection with SBL I merger (Note 8) ................. - 17,884,030
Cost of shares redeemed ..................................................... (129,792,393) (171,062,2)
--------------- ---------------
Net decrease from capital share transactions ................................ (35,399,356) (2,411,118)
--------------- ---------------
Net increase in net assets .................................................. 38,967,974 122,555,674
--------------- ---------------
NET ASSETS:
Beginning of period ......................................................... 427,608,901 305,053,227
--------------- ---------------
End of period ............................................................... $ 466,576,875 $ 427,608,901
=============== ===============
Accumulated undistributed net investment income (loss) at end of period ..... $ 1,270,893 $ (52,670)
=============== ===============
CAPITAL SHARE ACTIVITY:
Shares sold ................................................................. 13,084,884 27,414,717
Shares reinvested ........................................................... - 140,307
Shares issued in connection with SBL I merger ............................... - 2,893,567
Shares redeemed ............................................................. (18,060,306) (31,727,709)
--------------- ---------------
Total capital share activity ................................................ (4,975,422) (1,279,118)
=============== ===============
See accompanying notes.
33
SERIES D
Financial Highlights (GLOBAL SERIES)
Selected data for each share of capital stock outstanding throughout each year
YEAR ENDED,
DECEMBER 31,
2004 2003(e) 2002(d) 2001 2000
--------- --------- --------- --------- ------------
PER SHARE DATA
Net asset value, beginning of period $ 6.97 $ 4.87 $ 6.31 $ 8.49 $ 9.08
--------- --------- --------- --------- -----------
Income (loss) from investment operations:
Net investment income (loss) 0.03 0.03 0.02 - -
Net gain (loss) on securities (realized and unrealized) 1.28 2.09 (1.45) (0.97) 0.37
--------- --------- --------- --------- -----------
Total from investment operations 1.31 2.12 (1.43) (0.97) 0.37
--------- --------- --------- --------- -----------
Less distributions:
Dividends from net investment income - (0.02) (0.01) - -
Distributions from realized gains - - - (0.94) (0.96)
Distributions in excess of capital gains - - - (0.27) -
--------- --------- --------- --------- -----------
Total distributions - (0.02) (0.01) (1.21) (0.96)
--------- --------- --------- --------- -----------
Net asset value, end of period $ 8.28 $ 6.97 $ 4.87 $ 6.31 $ 8.49
========= ========= ========= ========= ===========
TOTAL RETURN (a) 18.79% 43.45% (22.7%) (12.25%) 3.53%
------- ------- ------- -------- -----------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $ 466,577 $ 427,609 $ 305,053 $ 431,252 $ 565,950
Ratios to average net assets:
Net investment income (loss) 0.37% 0.44% 0.27% 0.07% (0.08%)
Total expenses 1.23% 1.25% 1.23% 1.20% 1.21%
Gross expenses(b) 1.23% 1.25% 1.23% 1.20% 1.21%
Net expenses(c) 1.23% 1.25% 1.23% 1.20% 1.21%
--------- --------- --------- --------- ----------
Portfolio turnover rate 28% 44% 48% 41% 55%
- ----------
(a) Total return does not take into account any of the expenses associated
with an investment in variable insurance products offered by Security
Benefit Life Insurance Company. 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.
(b) Gross expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net expense information reflects expense ratios after expense reductions
or fee waivers and reduction of custodian expenses.
(d) The financial highlights for Series D exclude the historical financial
highlights of Series M. The assets of Series M were acquired by Series D
on August 27, 2002.
(e) The financial highlights for Series D exclude the historical financial
highlights of Series I. The assets of Series I were acquired by Series D
on October 3, 2003.
See accompanying notes.
34
SERIES E
Managers' Commentary (DIVERSIFIED INCOME SERIES)
February 15, 2005 (unaudited)
[SECURITY FUNDS LOGO]
Advisor, Security Management Company, LLC
[PHOTO OF STEVEN M. BOWSER] [PHOTO OF CHRISTOPHER L. PHALEN]
Steven M. Bowser Christopher L. Phalen
Portfolio Manager Portfolio Manager
TO OUR SHAREHOLDERS:
December 31, 2004, marked the fifth consecutive year in which the fixed income
markets produced positive returns for investors. 2004 will be recalled as a
solid year for bonds, despite the predictions of higher interest rates from most
prognosticators in January. The equity market outpaced bonds for the second
consecutive year, but bonds have outperformed equities during this half-decade
by more than 12% - the first time since the early 1970s. The Diversified Income
Series advanced 3.82% for the year 2004.(1) The benchmark Lehman Brothers
Aggregate Bond Index gained 4.34% over the same period.
FIXED INCOME PERFORMANCE IN 2004
Action from the Federal Reserve's Open Market Committee (FOMC) became apparent
the last half of 2004, as they raised short-term interest rates by 125 basis
points (in 25 basis point increments) over the course of five meetings. Despite
this fact, the overall yield curve actually flattened (short rates increased
while the longer rates fell), enabling fixed income portfolios to continue to
provide positive returns. 2004 will be remembered as the "bearish bond market
that never came." The top investment grade fixed income per formers of 2005 were
corporate bonds, followed closely by mortgage-backed securities.
The majority of the negative variance from the benchmark by the Series can be
attributed to the flattening of the yield curve. The Series was overweight in
the intermediate part of the curve, namely the 5- to 10-year maturity range, due
to overweight allocations to corporate bonds and mortgage-backed securities.
Portfolios that are "barbelled," or more concentrated in the "tails" of the
curve, namely the shorter 2-year and longer 30-year bonds perform much better in
flattening scenarios. Portfolios of more intermediate maturities suffer
performance in these instances and the Series was no different.
The Series held an overweight position of corporate bonds and mortgage-backed
securities in 2004 due to the expectations of rising interest rates. These
securities have additional yield, or "spread" versus U.S. Treasuries and are
more able to offset the negative impact of a rising interest rate environment.
However, the rise in interest rates only affected the shortest part of the yield
curve and not the longer maturities. These issues continued to outperform
through this period. The Series did not contain enough of the longer maturity
bonds versus the index - as we felt the impending rise in interest rates would
negatively impact these issues. But as said before, the bear market never
materialized in the magnitude we expected.
THE COMPOSITION OF PORTFOLIO ASSETS
At the end of the year, the Diversified Income Series held 46% mortgage-backed
securities, 35% investment grade corporate issues, 4% U.S. Treasury issues, 13%
Federal agency securities, 1% high yield bonds and 1% cash. This represents an
overweight position in corporate bonds and mortgage backed securities, and an
underweight position in U.S. Treasuries.
OUTLOOK FOR 2005
Overall, the economic indicators point to a relatively positive year in 2005 for
the U.S. economy. We continue to expect the U.S. economy to grow at a healthy
rate (consensus 3.6% GDP growth) and the Federal Reserve should continue to
increase interest rates in order to control inflation. We also expect corporate
profitability to remain positive, although we expect the growth rate will slow.
The positive outlook for the economy is not without some risks. Investors remain
concerned about foreign countries financing our trade deficit, our government
budget deficit, potential fall in the dollar and the debt burden of the average
consumer. In this environment, our strategy is expected to continue focusing on
overweighting corporate bonds and mortgage-backed securities to take advantage
of their yield advantage over U.S. treasuries. The one caveat we have with this
strategy is that the current valuation of corporate bonds is relatively high (or
in other words - overvalued), so a reduction to this allocation may be in order
at some point during the year. We plan to maintain a duration less than the
benchmark due to the continued concern with rising interest rates.
Sincerely,
Steven M. Bowser and Christopher L. Phalen
Portfolio Managers
35
SERIES E
Managers' Commentary (DIVERSIFIED INCOME SERIES)
February 15, 2005 (unaudited)
[PERFORMANCE GRAPH]
SBL E INVESTMENT INFORMATION
DATE value
- -------- ---------
12/31/1994 10,000.00
3/31/1995 10,477.43
6/30/1995 11,006.94
9/30/1995 11,251.63
12/31/1995 11,860.32
3/31/1996 11,445.30
6/30/1996 11,445.30
9/30/1996 11,687.05
12/31/1996 11,775.36
3/31/1997 11,647.79
6/30/1997 12,099.18
9/30/1997 12,575.99
12/31/1997 12,956.76
3/31/1998 13,149.22
6/30/1998 13,453.44
9/30/1998 13,971.75
12/31/1998 13,994.28
3/31/1999 13,797.66
6/30/1999 13,582.45
9/30/1999 13,594.41
12/31/1999 13,466.86
3/31/2000 13,645.57
6/30/2000 13,683.86
9/30/2000 14,054.51
12/31/2000 14,620.29
3/31/2001 15,009.60
6/30/2001 15,064.58
9/30/2001 15,683.10
12/31/2001 15,669.36
3/31/2002 15,663.07
6/30/2002 16,198.69
9/30/2002 16,893.54
12/31/2002 17,125.15
3/31/2003 17,327.82
6/30/2003 17,820.00
9/30/2003 17,653.36
12/31/2003 17,671.80
3/31/2004 18,120.00
6/30/2004 17,655.79
9/30/2004 18,152.58
12/31/2004 18,346.38
LEHMAN AGGREGATE BOND
DATE value
- -------- ---------
12/31/94 10,000.00
3/31/95 10,504.40
6/30/95 11,144.44
9/30/95 11,363.64
12/31/95 11,847.61
3/31/96 11,636.27
6/30/96 11,702.71
9/30/96 11,918.19
12/31/96 12,275.86
3/31/97 12,207.67
6/30/97 12,657.35
9/30/97 13,078.07
12/31/97 13,463.36
3/31/98 13,672.47
6/30/98 13,992.06
9/30/98 14,583.44
12/31/98 14,632.60
3/31/99 14,558.24
6/30/99 14,429.98
9/30/99 14,528.79
12/31/99 14,511.10
3/31/00 14,831.44
06/30/00 15,088.48
09/30/00 15,543.87
12/31/00 16,198.86
3/31/01 16,689.16
6/30/01 16,782.31
9/30/01 17,556.88
12/31/01 17,563.34
3/31/02 17,580.58
6/30/02 18,231.22
9/30/02 19,067.63
12/31/02 19,366.99
3/31/03 19,636.20
6/30/03 20,127.12
9/30/03 20,098.07
12/31/03 20,162.53
3/31/04 20,697.40
6/30/04 20,193.08
9/30/04 20,838.61
12/31/04 21,037.32
SBL Fund Series E $18,346
Lehman Brothers Aggregate Bond Index $21,037
$10,000 OVER 10 YEARS
The chart above assumes a hypothetical $10,000 investment in Series E
(Diversified Income Series) on December 31, 1994 and reflects the fees and
expenses of Series E.
PORTFOLIO COMPOSITION BY QUALITY RATINGS (BASED ON STANDARD AND POOR'S RATINGS)
AAA 62.92%
AA 4.71
A 14.91
BBB 15.42
BB 0.19
B 0.40
Cash & other assets, less liabilities 1.45
AVERAGE ANNUAL RETURNS
PERIODS ENDED 12-31-04(1) 1 YEAR 5 YEARS 10 YEARS
- ------------------------- ------ ------- --------
Series E 3.82% 6.38% 6.26%
(1) 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.
See accompanying notes.
36
SERIES E
Managers' Commentary (DIVERSIFIED INCOME SERIES)
February 15, 2005 (unaudited)
PERFORMANCE
INFORMATION ABOUT YOUR SERIES EXPENSES
CALCULATING YOUR ONGOING SERIES EXPENSES
EXAMPLE
As a shareholder of the Series, you incur ongoing costs, including management
fees and other series expenses. Performance figures and expense ratios do not
reflect fees and expenses associated with an investment in variable insurance
products. Shares of a Series of SBL Fund are available only through the purchase
of such products. This Example is intended to help you understand your ongoing
costs (in dollars) of investing in the Series and to compare these costs with
ongoing costs of investing in other mutual funds. The Example is based on an
investment of $1,000 invested at the beginning of the period and held for the
entire period, July 1, 2004 - December 31, 2004.
ACTUAL EXPENSES
The first line in the table provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the table provides information about hypothetical account
values and hypothetical expenses based on the Series actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Series
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Series and other funds. To do so, compare this 5% hypothetical example with the
5% hypothetical examples that appear in the shareholder reports of the other
funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any fees and expenses associated with an
investment in variable insurance products. Therefore, the second line is useful
in comparing ongoing costs only, and will not help you determine the relative
total costs of owning different funds. In addition, if these fees and expenses
associated with an investment in variable insurance products were included, your
costs would have been higher.
FUND EXPENSES
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING
07-01-04 12-31-04(1) PERIOD(2)
------------- ------------- -------------
Series E (Diversified Income Series)
Actual $ 1,000.00 $ 1,029.90 $ 3.78
Hypothetical 1,000.00 1,021.42 3.76
(1) The actual ending account value is based on the actual total return of the
Series for the period July 1, 2004 to December 31, 2004 after actual
expenses and will differ from the hypothetical ending account value which
is based on the Series expense ratio and a hypothetical annual return of
5% before expenses. The actual cumulative return at net asset value for
the period July 1, 2004 to December 31, 2004 was 2.99%.
(2) Expenses are equal to the Series annualized expense ratio 0.74% multiplied
by the average account value over the period, multiplied by 184/366 (to
reflect the one-half year period).
37
SERIES E
Schedule of Investments (DIVERSIFIED INCOME SERIES)
December 31, 2004
PRINCIPAL MARKET
AMOUNT VALUE
CORPORATE BONDS - 35.1 %
AIRLINES - 0.9%
Qantas Airways, Ltd., 5.125% - 2013(1) $ 600,000 $ 594,109
Southwest Airlines Company,
7.875% - 2007 700,000 766,280
----------
1,360,389
----------
AUTOMOTIVE - 2.0%
Ford Motor Credit Company:
6.50% - 2007 650,000 675,901
5.80% - 2009 600,000 613,285
General Motors Corporation,
8.80% - 2021 1,250,000 1,352,635
Johnson Controls, Inc.,
4.875% - 2013 600,000 607,809
----------
3,249,630
----------
BANKING - 4.5%
BCH Cayman Islands, Ltd.,
7.70% - 2006 700,000 742,969
Bank of America Corporation,
7.80% - 2010 650,000 755,885
BankBoston Capital Trust,
3.04% - 2028(3) 1,200,000 1,157,160
Chase Capital III, 2.95% - 2027(3) 1,200,000 1,134,908
Danske Bank A/S, 7.40% - 2010(1,3) 800,000 866,288
Key Bank N.A., 7.00% - 2011 700,000 786,812
Regions Financial Corporation,
7.00% - 2011 1,000,000 1,141,145
US Central Credit Union,
2.70% - 2009 568,182 557,568
----------
7,142,735
----------
BROKERAGE - 1.3%
Credit Suisse First Boston USA,
6.125% - 2011 600,000 654,285
Legg Mason, Inc., 6.75% - 2008 650,000 707,874
Waddell & Reed Financial, Inc.,
7.50% - 2006 650,000 674,232
----------
2,036,391
----------
BUILDING MATERIALS - 0.8%
CRH America, Inc., 6.95% - 2012 600,000 683,912
Masco Corporation, 5.875% - 2012 600,000 643,018
----------
1,326,930
----------
CHEMICALS - 1.2%
PPG Industries, Inc., 7.40% - 2019 650,000 776,471
Pioneer Hi-Bred International, Inc.,
5.75% - 2009 1,000,000 1,064,072
----------
1,840,543
----------
CONSUMER PRODUCTS - 0.4%
Newell Rubbermaid, Inc.,
6.75% - 2012 600,000 683,661
----------
DIVERSIFIED MANUFACTURING - 2.1%
General Electric Company,
5.00% - 2013 600,000 615,579
Hutchison Whampoa International,
Ltd., 5.45% - 2010(1) 1,250,000 1,294,599
Tyco International Group, 7.00% - 2028 650,000 755,714
United Technologies Corporation,
6.35% - 2011 650,000 724,137
----------
3,390,029
----------
ELECTRIC - 2.1%
Arizona Public Service Company,
6.375% - 2011 600,000 661,471
Calpine Corporation, 8.75% - 2007 500,000 437,500
Cincinnati Gas & Electric Company,
5.70% - 2012 600,000 635,659
East Coast Power LLC:
6.737% - 2008 74,588 77,897
7.066% - 2012 140,867 150,901
National Rural Utilities, 5.50% - 2005 700,000 700,611
Oncor Electric Delivery Company,
6.375% - 2015 600,000 661,097
----------
3,325,136
----------
ENERGY - INDEPENDENT - 0.9%
Devon Financing Corporation, ULC,
6.875% - 2011 600,000 679,534
Pancanadian Petroleum, 6.30% - 2011 750,000 824,012
----------
1,503,546
----------
ENERGY - INTEGRATED - 0.5%
Conoco, Inc., 6.95% - 2029 650,000 767,556
----------
ENTERTAINMENT - 1.2%
Liberty Media Corporation,
7.875% - 2009 600,000 668,675
Time Warner, Inc., 6.875% - 2018 600,000 678,443
Viacom, Inc., 5.625% - 2007 600,000 627,301
----------
1,974,419
----------
FINANCIAL COMPANIES - CAPTIVE - 0.4%
General Motors Acceptance Corporation,
6.125% - 2006 650,000 666,369
----------
FINANCIAL COMPANIES - NONCAPTIVE CONSUMER - 0.8%
Countrywide Capital, 8.00% - 2026 700,000 735,477
SLM Corporation, 5.05% - 2014 600,000 603,281
----------
1,338,758
----------
FINANCIAL COMPANIES - NONCAPTIVE DIVERSIFIED - 1.9%
CIT Group, Inc., 7.625% - 2005 350,000 360,083
Core Investment Grade Trust,
4.727% - 2007 1,950,000 1,995,162
General Electric Capital Corporation,
5.875% - 2012 600,000 649,210
----------
3,004,455
----------
See accompanying notes.
38
SERIES E
Schedule of Investments (DIVERSIFIED INCOME SERIES)
December 31, 2004
PRINCIPAL MARKET
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
FINANCIAL - OTHER - 0.5%
Abbey National plc, 6.69% - 2005 $ 725,000 $ 743,074
-----------
FOOD & BEVERAGE - 0.5%
Fosters Brewing Group,
6.875% - 2011(1) 650,000 733,407
-----------
GAMING - 0.2%
Park Place Entertainment,
7.875% - 2005 300,000 311,250
-----------
HEALTH CARE - 0.4%
Anthem, Inc., 6.80% - 2012 600,000 679,246
-----------
INDUSTRIAL - OTHER - 0.4%
Eaton Corporation, 5.75% - 2012 625,000 674,284
-----------
INSURANCE - PROPERTY & CASUALTY - 0.5%
Nationwide Mutual Insurance Company,
8.25% - 2031(1) 650,000 803,321
-----------
MEDIA - CABLE - 2.3%
Comcast Corporation, 5.30% - 2014 625,000 644,571
Cox Communications, Inc.,
6.40% - 2008 625,000 670,216
Cox Enterprises, Inc., 4.375% - 2008(1) 600,000 599,456
Jones Intercable, Inc., 7.625% - 2008 500,000 553,224
Lenfest Communications, Inc.,
10.50% - 2006 500,000 547,046
Time Warner Entertainment,
7.25% - 2008 600,000 666,589
-----------
3,681,102
-----------
MEDIA - NONCABLE - 1.2%
Clear Channel Communications, Inc.,
4.625% - 2008 600,000 609,270
Thomson Corporation, 4.75% - 2010 1,250,000 1,273,229
-----------
1,882,499
-----------
PHARMACEUTICALS - 0.5%
Eli Lilly & Company, 7.125% - 2025 650,000 785,602
-----------
PIPELINES - 1.6%
Consolidated Natural Gas Company,
6.625% - 2013 600,000 669,944
Duke Energy Field Services Corporation,
7.50% - 2005 700,000 718,495
Express Pipeline LP, 6.47% - 2013(1) 430,400 446,092
Kinder Morgan Energy, 7.50% - 2010 600,000 693,580
-----------
2,528,111
-----------
RAILROADS -0.8%
Canadian National Railway Company,
6.25% - 2034 1,200,000 1,298,465
-----------
REAL ESTATE INVESTMENT TRUSTS - 0.8%
Reckson Operating Partnership,
5.15% - 2011 1,200,000 1,210,370
-----------
RETAILERS - 0.9%
May Department Stores Company,
3.95% - 2007 600,000 601,014
Tandy Corporation, 6.95% - 2007 750,000 811,661
-----------
1,412,675
-----------
SERVICES - 0.1%
American Eco Corporation,
9.625% - 2008*(4,5) 500,000 -
MasTec, Inc., 7.75% - 2008 200,000 194,500
-----------
194,500
-----------
SUPERMARKETS - 0.5%
Safeway, Inc., 6.50% - 2008 700,000 758,002
-----------
TECHNOLOGY - 0.9%
Pitney Bowes, Inc., 5.875% - 2006 650,000 670,712
Science Applications International
Corporation, 7.125% - 2032 600,000 706,732
-----------
1,377,444
-----------
TELECOMMUNICATIONS - WIRELESS - 0.4%
Vodafone Airtouch, 7.625% - 2005 650,000 653,790
-----------
TRANSPORTATION SERVICES - 1.6%
Erac USA Finance Company:
7.35% - 2008(1) 600,000 662,839
6.70% - 2034(1) 1,800,000 1,954,922
-----------
2,617,761
-----------
TOTAL CORPORATE BONDS
(cost $53,589,898) 55,955,450
-----------
MORTGAGE BACKED SECURITIES - 46.4%
U.S. GOVERNMENT SPONSORED AGENCIES
- - 42.8%
Federal Home Loan Mortgage Corporation:
#E01378, 5.00% - 2018 2,870,591 $ 2,917,502
#E01488, 5.00% - 2018 2,550,689 2,592,372
#E01538, 5.00% - 2018 2,642,892 2,686,081
FHR #188 H CMO, 7.00% - 2021 3,340 3,340
#C44050, 7.00% - 2030 86,692 91,909
#C01079, 7.50% - 2030 54,330 58,233
#C01172, 6.50% - 2031 162,154 170,192
#C01210, 6.50% - 2031 179,833 188,877
#C50964, 6.50% - 2031 164,794 172,962
#C50967, 6.50% - 2031 60,008 63,026
#C01277, 7.00% - 2031 275,130 291,463
#C01292, 6.00% - 2032 613,179 634,296
#C62801, 6.00% - 2032 325,555 336,767
#C01287, 6.50% - 2032 393,543 413,050
#C76358, 5.00% - 2033 3,017,742 3,005,954
#C78238, 5.50% - 2033 3,097,358 3,149,443
#A16943, 6.00% - 2033 2,293,073 2,369,816
#G08014, 5.00% - 2034 2,981,414 2,962,690
#G08015, 5.50% - 2034 2,950,053 2,998,824
#A17903, 6.00% - 2034 2,360,414 2,439,531
See accompanying notes.
39
SERIES E
Schedule of Investments (DIVERSIFIED INCOME SERIES)
December 31, 2004
PRINCIPAL MARKET
AMOUNT VALUE
MORTGAGE BACKED SECURITIES (CONTINUED)
U.S. GOVERNMENT SPONSORED AGENCIES (CONTINUED)
Federal National Mortgage Association:
#2544732 5.50% - 2017 $2,861,845 $ 2,960,859
#720714, 4.50% - 2018 2,594,778 2,592,361
#750465, 5.00% - 2018 2,653,492 2,698,500
#780952, 4.00% - 2019 2,974,766 2,905,811
FNR 1990-68 J, 6.95% - 2020 9,437 9,973
FNR 1990-103 K, 7.50% - 2020 2,494 2,578
#252806, 7.50% - 2029 152,112 163,040
#252874, 7.50% - 2029 55,394 59,373
#535277, 7.00% - 2030 105,426 111,717
#551262, 7.50% - 2030 45,164 48,393
#190307, 8.00% - 2030 66,357 71,952
#253356, 8.00% - 2030 80,797 87,609
#541735, 8.00% - 2030 68,893 74,701
#535838, 6.50% - 2031 140,637 147,538
#585348, 6.50% - 2031 138,256 145,039
#591381, 6.50% - 2031 226,468 237,579
#254477, 5.50% - 2032 1,603,114 1,628,397
#254198, 6.00% - 2032 631,832 653,683
#254377, 6.00% - 2032 1,049,854 1,087,025
#254478, 6.00% - 2032 536,087 555,068
#666750, 6.00% - 2032 1,086,294 1,123,860
#254346, 6.50% - 2032 329,555 345,725
#545691, 6.50% - 2032 498,723 523,192
#659790, 6.50% - 2032 395,898 415,542
#702879, 5.00% - 2033 1,922,494 1,911,216
#709805, 5.00% - 2033 2,579,291 2,564,161
#658077, 5.50% - 2033 1,618,080 1,645,161
#689108, 5.50% - 2033 1,489,000 1,513,921
#688328, 5.50% - 2033 1,699,598 1,726,930
#709748, 5.50% - 2033 2,713,326 2,758,738
#713971, 5.50% - 2033 2,632,770 2,675,108
#754903, 5.50% - 2033 2,142,681 2,175,575
#725033, 6.00% - 2034 1,942,076 2,009,054
#255554, 5.50% - 2035 3,000,000 3,047,419
-----------
68,223,126
-----------
U.S. GOVERNMENT SPONSORED SECURITIES - 2.3%
Government National Mortgage Association:
#301465, 9.00% - 2021 23,311 25,701
#305617, 9.00% - 2021 25,646 28,275
#313107, 7.00% - 2022 220,788 234,632
#352022, 7.00% - 2023 126,168 134,079
#369303, 7.00% - 2023 119,667 127,170
#780454, 7.00% - 2026 222,031 235,953
#482668, 7.00% - 2028 143,760 152,774
#462680, 7.00% - 2028 138,041 146,696
#518436, 7.25% - 2029 52,433 56,019
#494109, 7.50% - 2029 140,477 150,866
#510704, 7.50% - 2029 62,252 66,855
#781079, 7.50% - 2029 54,256 58,269
#479229, 8.00% - 2030 24,853 26,966
#479232, 8.00% - 2030 70,398 76,385
#508342, 8.00% - 2030 92,644 100,521
#538285, 6.50% - 2031 196,850 207,264
#561561, 6.50% - 2031 306,616 323,048
#564472, 6.50% - 2031 423,841 446,555
#781414, 5.50% - 2032 540,102 551,906
#552324, 6.50% - 2032 337,986 355,867
II #181907, 9.50% - 2020 21,624 24,273
II #2445, 8.00% - 2027 94,528 102,153
II #2909, 8.00% - 2030 56,811 61,393
-----------
3,693,620
-----------
NON-AGENCY SECURITIES - 1.3%
Chase Commercial Mortgage Securities Corporation,
1997-1B, 7.37% - 2007 CMO 1,500,000 1,612,444
1998-1B, 6.56% - 2008 CMO 500,000 542,656
Global Rate Eligible Asset Trust 1998-A,
7.33% - 2006(5) 807,558 -
-----------
2,155,100
-----------
TOTAL MORTGAGE BACKED SECURITIES
(cost $74,268,458) 74,071,846
-----------
U.S. AGENCY BONDS & NOTES - 13.2%
Federal Farm Credit Bank,
5.45% - 2013 1,000,000 1,066,833
Federal Home Loan Bank:
6.375% - 2006 900,000 945,010
Federal Home Loan Mortgage Corporation,
2.850% - 2007 3,000,000 2,966,967
Federal National Mortgage Association:
7.125% - 2005 2,000,000 2,010,396
3.00% - 2006(2) 3,000,000 3,003,387
6.00% - 2008 850,000 914,635
7.25% - 2010 2,000,000 2,298,602
5.50% - 2011 3,500,000 3,753,228
4.00% - 2013(2) 1,935,000 1,936,014
6.625% - 2030 750,000 893,748
7.125% - 2030 1,000,000 1,257,867
-----------
21,046,687
-----------
TOTAL U.S. AGENCY BONDS & NOTES
(cost $20,026,791) 21,046,687
-----------
U.S. GOVERNMENT SECURITIES - 3.9%
U.S. Treasury Bond,
5.375% - 2031 1,500,000 1,621,992
U.S. Treasury Notes:
6.25% - 2007 1,750,000 1,862,656
5.00% - 2011 2,500,000 2,661,425
-----------
6,146,073
-----------
TOTAL U.S. GOVERNMENT SECURITIES
(cost $5,895,199) 6,146,073
-----------
See accompanying notes.
40
SERIES E
Schedule of Investments (DIVERSIFIED INCOME SERIES)
December 31, 2004
PRINCIPAL MARKET
AMOUNT VALUE
REPURCHASE AGREEMENT - 0.2%
United Missouri Bank, 1.74%,
dated 12-31-04, matures 01-03-05;
repurchase amount of $315,046
(Collateralized by FHLMC, 0.00%,
01-14-05 with a value of $321,695) $315,000 $ 315,000
------------
TOTAL REPURCHASE AGREEMENT
(cost $315,000) 315,000
------------
TOTAL INVESTMENTS - 98.8%
(cost $154,095,346) 157,535,056
------------
CASH & OTHER ASSETS, LESS LIABILITIES - 1.2% 1,992,368
------------
TOTAL NET ASSETS - 100.0% $159,527,424
============
For federal income tax purposes the identified investments cost of owned at
December 31, 2004 was $156,151,365.
*Non-income producing security
CMO (Collateralized Mortgage Obligation)
plc (public limited company)
(1) Security is a 144A series. The total market value of 144A securities is
$7,955,033 (cost $7,448,687), or 5.0% of total net assets.
(2) Security is a step bond. Rate indicated is rate effective at December 31,
2004.
(3) Variable rate security. Rate indicated is rate effective December
31, 2004.
(4) Security is in default due to bankruptcy.
(5) Security is fair valued by the Board of Directors. The total market value of
fair valued securities amounts to $0, or 0.0% or net assets.
41
SERIES E
(DIVERSIFIED INCOME SERIES)
Statement of Assets and Liabilities
December 31, 2004
ASSETS:
Investments, at value(1)...................... $ 157,535,056
Receivables:
Fund shares sold............................. 535,637
Interest..................................... 1,647,504
Prepaid expenses.............................. 2,739
-------------
Total assets.................................. 159,720,936
-------------
LIABILITIES:
Cash overdraft................................ 19,752
Payable for:
Fund shares redeemed......................... 51,973
Management fees.............................. 80,833
Custodian fees............................... 811
Transfer agent and administration fees....... 17,163
Professional fees............................ 13,274
Other........................................ 9,706
-------------
Total liabilities............................. 193,512
-------------
NET ASSETS.................................... $ 159,527,424
=============
NET ASSETS CONSIST OF:
Paid in capital............................... $ 164,917,105
Accumulated undistributed net
investment income............................ 6,431,543
Accumulated net realized loss
on sales of investments...................... (15,260,934)
Net unrealized appreciation
in value of investments...................... 3,439,710
-------------
Net assets.................................... $ 159,527,424
=============
Capital shares authorized..................... indefinite
Capital shares outstanding.................... 14,044,755
-------------
Net asset value and redemption price
per share (net assets divided by
shares outstanding).......................... $ 11.36
=============
(1) Investments, at cost...................... $ 154,095,346
Statement of Operations
For the Year Ended December 31, 2004
INVESTMENT INCOME:
Dividends............................. $ 38,187
Interest.............................. 8,141,278
-------------
Total investment income............... 8,179,465
-------------
EXPENSES:
Management fees....................... 1,186,046
Custodian fees........................ 7,352
Transfer/maintenance fees............. 22,468
Administration fees................... 147,092
Directors' fees....................... 7,900
Professional fees..................... 17,302
Reports to shareholders............... 11,868
Other expenses........................ 7,202
-------------
Total expenses........................ 1,407,230
Less: Expenses waived................. (216,902)
-------------
Net expenses.......................... 1,190,328
-------------
Net investment income................. 6,989,137
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain during the period on:
Investments........................... 118,614
-------------
Realized gain......................... 118,614
-------------
Net change in unrealized depreciation
during the period on:
Investments........................... (1,211,731)
-------------
Unrealized depreciation............... (1,211,731)
-------------
Net loss.............................. (1,093,117)
-------------
Net increase in net assets............
resulting from operations........... $ 5,896,020
=============
See accompanying notes.
42
SERIES E
Statement of Changes in Net Assets (DIVERSIFIED INCOME SERIES)
YEAR YEAR
ENDED ENDED
DECEMBER 31, DECEMBER 31,
2004 2003
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income ...................................................... $ 6,989,137 $ 7,935,427
Net realized gain during the period on investments ......................... 118,614 1,277,359
Net change in unrealized depreciation during the period on investments...... (1,211,731) (3,604,169)
------------- -------------
Net increase in net assets resulting from operations ....................... 5,896,020 5,608,617
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ...................................................... (1,418,099) (15,865,608)
------------- -------------
Total distributions to shareholders ........................................ (1,418,099) (15,865,608)
------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares ............................................... 56,833,626 77,940,016
Distributions reinvested ................................................... 1,418,099 15,865,608
Cost of shares redeemed .................................................... (62,673,986) (119,830,471)
------------- -------------
Net decrease from capital share transactions ............................... (4,422,261) (26,024,847)
------------- -------------
Net increase (decrease) in net assets ...................................... 55,660 (36,281,838)
------------- -------------
NET ASSETS:
Beginning of period ........................................................ 159,471,764 195,753,602
------------- -------------
End of period .............................................................. $ 159,527,424 $ 159,471,764
============= =============
Accumulated undistributed net investment income at end of period ........... $ 6,431,543 $ 490,156
============= =============
CAPITAL SHARE ACTIVITY:
Shares sold ................................................................. 5,093,132 6,564,011
Shares reinvested ........................................................... 126,616 1,411,545
Shares redeemed ............................................................. (5,613,540) (10,085,989)
------------- -------------
Total capital share activity ................................................ (393,792) (2,110,433)
============= =============
See accompanying notes.
43
SERIES E
Financial Highlights (DIVERSIFIED INCOME SERIES)
Selected data for each share of capital stock outstanding throughout each year
YEAR ENDED DECEMBER 31,
2004 2003 2002 2001(d) 2000
-------- -------- -------- -------- ------------
PER SHARE DATA
Net asset value, beginning of period $ 11.04 $ 11.83 $ 11.40 $ 11.37 $ 10.55
-------- -------- -------- -------- ------------
Income (loss) from investment
operations:
Net investment income (loss) 0.50 0.68 0.51 0.58 0.75
Net gain (loss) on securities
(realized and unrealized) (0.08) (0.31) 0.51 0.20 0.15
-------- -------- -------- -------- ------------
Total from investment operations 0.42 0.37 1.02 0.78 0.90
-------- -------- -------- -------- ------------
Less distributions:
Dividends from net investment income (0.10) (1.16) (0.59) (0.75) (0.08)
Distributions from realized gains - - - - -
-------- -------- -------- -------- ------------
Total distributions (0.10) (1.16) (0.59) (0.75) (0.08)
-------- -------- -------- -------- ------------
Net asset value, end of period $ 11.36 $ 11.04 $ 11.83 $ 11.40 $ 11.37
======== ======== ======== ======== ============
TOTAL RETURN(a) 3.82% 3.19% 9.29% 7.18% 8.56%
-------- -------- -------- -------- ------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $159,527 $159,472 $195,754 $142,538 $ 122,147
-------- -------- -------- -------- ------------
Ratios to average net assets:
Net investment income (loss) 4.42% 4.39% 5.00% 5.67% 6.52%
Total expenses 0.75% 0.84% 0.83% 0.83% 0.84%
Gross expenses(b) 0.89% 0.84% 0.83% 0.83% 0.84%
Net expenses(c) 0.75% 0.84% 0.83% 0.83% 0.84%
-------- -------- -------- -------- ------------
Portfolio turnover rate 39% 45% 32% 46% 63%
(a) Total return does not take into account any of the expenses associated
with an investment in variable insurance products offered by Security
Benefit Life Insurance Company. 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.
(b) Gross expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net expense information reflects expense ratios after expense reductions
or fee waivers and reduction of custodian expenses.
(d) As required, effective January 1, 2001, the Funds adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premiums on fixed income securities. The effect of this change
for the period ended December 31, 2001 was to decrease net investment
income per share by less than 1/2 of a cent, increase net realized and
unrealized gains and losses per share by less than 1/2 of a cent and
increase (decrease) the ratio of net investment income to average net
assets from (0.02%) to 0.12%. Per share, ratios and supplemental data for
periods prior to January 1, 2001 have not been restated to reflect this
change in presentation.
See accompanying notes.
44
SERIES G
Manager's Commentary (LARGE CAP GROWTH SERIES)
February 15, 2005 (unaudited)
[SECURITY FUNDS LOGO]
Advisor, Security Management Company, LLC
[PHOTO OF MARK A. MITCHELL]
Portfolio Manage
Mark A. Mitchell Portfolio Manager
TO OUR SHAREHOLDERS:
2004 was a normal year in many respects; returns were positive, but not as
spectacular as in 2003. The Large Cap Growth Series returned 3.28%(1) in the
period, lagging the benchmark Russell 1000 Growth index's return of 6.30% and
the Fund's peer group median return of 8.29%. Similar to 2003, the market
favored lower quality, higher beta stocks. In such environments, we tend to
underperform. While disappointing, we believe that our approach delivers
performance over the long term.
Our approach to managing the Large Cap Growth Series is based on our investment
philosophy described below.
We understand a company's growth potential over the long term based on our
bottom-up fundamental investment process. We invest today based on future
potential. We concentrate our investments in companies with sustainable
competitive advantages when they are undervalued. Companies must demonstrate
management ability by consistently adding shareholder value. They must have
strong financial positions and be well positioned for growth. We are patient
buyers and sellers focused on the long term, and we take advantage of investor
uncertainty and short-term thinking.
For this Series, we apply this philosophy to a broad range of growth companies.
INDUSTRIALS AND CONSUMER STAPLES STOCKS TOP PERFORMERS
The Series industrial holdings were up 18% compared to 14% for the index.
Positions in Federal Express and General Dynamics contributed positively to the
Series. Federal Express had strong results driven by continued economic growth
and business model efficiencies. General Dynamics benefited from a recovery in
its aircraft business and strong defense spending.
The Series consumer staples holdings performed well, appreciating 8% compared to
4% for the index. CVS was up strongly due to a continued turnaround and the
belief in its ability to add shareholder value through the acquisition of
Eckerd. Avon Products benefited from continued operational execution.
TECHNOLOGY AND HEALTH CARE DISAPPOINTING
Health care, as a sector overall, underperformed the index. Pfizer and Cardinal
Health both had a negative impact on the Series. Pfizer was down more than 22%
on safety concerns in its COX-2 class drugs and slowing growth prospects.
Cardinal was down more than 22% as a result of undergoing a substantial industry
change in how pharmaceutical manufacturers distribute and price its products.
Following an extremely strong year in 2003, technology stocks had a difficult
time in 2004. Texas Instruments and Emulex had a negative impact on the Series.
Texas Instruments was down 16% as a result of an industrywide slowdown and a
corresponding inventory correction in semiconductors. Emulex experienced
unexpected new competition that took away part of its core business, thus making
its future growth opportunities much smaller.
2005 MARKET OUTLOOK
Our outlook for the equity market continues to be guardedly optimistic. Like
every year, there are many potential positive and negative influences. We
believe the most significant issue facing us in 2005 will be a slowing profit
cycle. In such an environment, we believe more normal equity returns are likely.
Skilled stock picking versus owning beta will be critical. This favors our focus
on identifying good companies at attractive valuations.
We continue to believe that investing is a long-term pursuit that requires
patience and a consistent approach. Dollar cost averaging is a sound way to
build long-term value. While it does not assure profits or protect against
losses in a declining market, we think it is the best way to take advantage of
the natural highs and lows in a market cycle. We recognize there are many
investment fund alternatives available today and thank you for your business and
the confidence you place in us.
Sincerely,
Mark A. Mitchell
Portfolio Manager
45
SERIES G
Manager's Commentary (LARGE CAP GROWTH SERIES)
February 15, 2005 (unaudited)
PERFORMANCE
[PERFORMANCE GRAPH]
SBL G INVESTMENT INFORMATION
DATE value
- -------- --------
SBL G
05/01/00 10,000.00
06/30/00 10,210.00
09/30/00 9,650.00
12/31/00 7,980.00
03/31/01 6,670.00
06/30/01 7,170.00
09/30/01 5,980.00
12/31/01 6,750.00
03/31/02 6,480.00
06/30/02 5,350.00
09/30/02 4,570.00
12/31/02 4,920.00
03/31/03 4,900.00
06/30/03 5,520.00
09/30/03 5,610.00
12/31/03 6,100.00
03/31/04 6,120.00
06/30/04 6,210.00
09/30/04 5,880.00
12/31/04 6,300.00
RUSSEL 1000 GROWTH
DATE value
- ----------------- ---------
INCEPTION 5/01/00 10,000.00
06/30/00 10,015.80
09/30/00 9,065.85
12/31/00 7,003.20
03/31/01 6,014.12
06/30/01 6,020.45
09/30/01 5,054.83
12/31/01 6,050.69
03/31/02 5,094.05
06/30/02 4,093.50
09/30/02 4,072.29
12/31/02 4,063.25
03/31/03 4,016.46
06/30/03 4,034.37
09/30/03 5,027.70
12/31/03 5,062.10
03/31/04 5,706.44
06/30/04 5,816.96
09/30/04 5,513.30
12/31/04 6,018.96
SBL Fund Series G $6,300
Russell 1000 Growth Index $6,109
$10,000 SINCE INCEPTION
The chart above assumes a hypothetical $10,000 investment in Series G (Large Cap
Growth Series) on May 1, 2000 and reflects the fees and expenses of Series G.
PORTFOLIO COMPOSITION BY SECTOR
consumer discretionary 17.66%
consumer staples 11.05
Energy 1.98
Finacials 8.53
Health care 18.29
Industrials 13.04
Information Technology 21.81
Unit Investment Trust 2.87
cash & other assets, less liabilities 4.77
AVERAGE ANNUAL RETURNS
PERIODS ENDED 12-31-04(1) 1 YEAR SINCE INCEPTION (5-1-00)
- ------------------------ ------ ------------------------
Series G 3.28% (9.42%)
- ----------
(1) 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 per formance data quoted above represents past per formance. 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.
See accompanying notes.
46
SERIES G
Manager's Commentary (LARGE CAP GROWTH SERIES)
February 15, 2005 (unaudited)
PERFORMANCE
INFORMATION ABOUT YOUR SERIES EXPENSES
CALCULATING YOUR ONGOING SERIES EXPENSES
EXAMPLE
As a shareholder of the Series, you incur ongoing costs, including management
fees and other series expenses. Performance figures and expense ratios do not
reflect fees and expenses associated with an investment in variable insurance
products. Shares of a Series of SBL Fund are available only through the purchase
of such products. This Example is intended to help you understand your ongoing
costs (in dollars) of investing in the Series and to compare these costs with
ongoing costs of investing in other mutual funds. The Example is based on an
investment of $1,000 invested at the beginning of the period and held for the
entire period, July 1, 2004 - December 31, 2004.
ACTUAL EXPENSES
The first line in the table provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the table provides information about hypothetical account
values and hypothetical expenses based on the Series actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Series
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Series and other funds. To do so, compare this 5% hypothetical example with the
5% hypothetical examples that appear in the shareholder reports of the other
funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any fees and expenses associated with an
investment in variable insurance products. Therefore, the second line is useful
in comparing ongoing costs only, and will not help you determine the relative
total costs of owning different funds. In addition, if these fees and expenses
associated with an investment in variable insurance products were included, your
costs would have been higher.
FUND EXPENSES
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING
07-01-04 12-31-04(1) PERIOD(2)
------------- ------------- -------------
Series G (Large Cap Growth Series)
Actual $ 1,000.00 $ 1,014.50 $ 4.81
Hypothetical 1,000.00 1,020.36 4.82
(1) The actual ending account value is based on the actual total return of the
Series for the period July 1, 2004 to December 31, 2004 after actual
expenses and will differ from the hypothetical ending account value which
is based on the Series expense ratio and a hypothetical annual return of
5% before expenses. The actual cumulative return at net asset value for
the period July 1, 2004 to December 31, 2004 was 1.45%.
(2) Expenses are equal to the Series annualized expense ratio 0.95%
multiplied by the average account value over the period, multiplied by
184/366 (to reflect the one-half year period).
47
SERIES G
Schedule of Investments (LARGE CAP GROWTH SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS - 95.3%
AEROSPACE & DEFENSE - 4.3%
General Dynamics Corporation 8,500 $ 889,100
United Technologies Corporation 9,800 1,012,830
-----------
1,901,930
-----------
AIR FREIGHT & LOGISTICS - 2.1%
FedEx Corporation 9,500 935,655
-----------
AIRLINES - 1.7%
Southwest Airlines Company 46,000 748,880
-----------
BIOTECHNOLOGY - 2.5%
Amgen, Inc.* 17,200 1,103,380
-----------
BREWERS - 1.8%
Anheuser-Busch Companies, Inc. 15,600 791,388
-----------
BROADCASTING & CABLE TV - 2.6%
Univision Communications, Inc.* 40,000 1,170,800
-----------
COMMUNICATIONS EQUIPMENT - 5.1%
3Com Corporation* 116,000 483,720
ADC Telecommunications, Inc.* 249,800 669,464
Cisco Systems, Inc.* 58,200 1,123,260
-----------
2,276,444
-----------
COMPUTER HARDWARE - 3.0%
Dell, Inc.* 31,000 1,306,340
-----------
CONSUMER FINANCE - 0.4%
MBNA Corporation 5,800 163,502
-----------
DATA PROCESSING & OUTSOURCED SERVICES - 3.5%
First Data Corporation 36,500 1,552,710
-----------
DEPARTMENT STORES - 1.4%
Kohl's Corporation* 12,300 604,791
-----------
DRUG RETAIL - 2.8%
CVS Corporation 27,500 1,239,425
-----------
ELECTRICAL COMPONENTS & EQUIPMENT - 1.0%
Power-One, Inc.* 51,300 457,596
-----------
EXCHANGE TRADED FUNDS - 2.9%
iShares Russell 1000 Growth
Index Fund 25,900 1,270,136
-----------
GENERAL MERCHANDISE STORES - 1.5%
Target Corporation 12,900 669,897
-----------
HEALTH CARE EQUIPMENT - 5.6%
Boston Scientific Corporation* 36,900 1,311,795
Medtronic, Inc. 5,800 288,086
Zimmer Holdings, Inc.* 11,000 881,320
-----------
2,481,201
-----------
HOME IMPROVEMENT RETAIL - 4.9%
Home Depot, Inc. 31,700 1,354,858
Lowe's Companies, Inc. 13,900 800,501
-----------
2,155,359
-----------
HOTELS, RESORTS & CRUISE LINES - 1.6%
Carnival Corporation 12,700 731,901
-----------
HYPERMARKETS & SUPERCENTERS - 3.6%
Wal-Mart Stores, Inc. 30,200 1,595,164
-----------
INDUSTRIAL CONGLOMERATES - 3.9%
3M Company 4,100 336,487
General Electric Company 38,200 1,394,300
-----------
1,730,787
-----------
INTERNET RETAIL - 1.1%
eBay, Inc.* 4,100 476,748
-----------
INVESTMENT BANKING & BROKERAGE - 1.1%
Goldman Sachs Group, Inc. 4,700 488,988
-----------
MANAGED HEALTH CARE - 2.3%
UnitedHealth Group, Inc. 11,700 1,029,951
-----------
MOTORCYCLE MANUFACTURERS - 0.7%
Harley-Davidson, Inc. 5,400 328,050
-----------
MOVIES & ENTERTAINMENT - 3.8%
Viacom, Inc. (Cl.B) 46,200 1,681,218
-----------
MULTI-LINE INSURANCE - 4.0%
American International Group, Inc. 26,900 1,766,523
-----------
OIL & GAS EQUIPMENT & SERVICES - 2.0%
BJ Services Company 18,800 874,952
-----------
OTHER DIVERSIFIED FINANCIAL SERVICES 3.1%
Citigroup, Inc. 28,200 1,358,676
-----------
PHARMACEUTICALS - 7.9%
Eli Lilly & Company 7,700 436,975
Johnson & Johnson 24,900 1,579,158
Merck & Company, Inc. 11,700 376,038
Pfizer, Inc. 40,600 1,091,734
-----------
3,483,905
-----------
SEMICONDUCTOR EQUIPMENT - 0.4%
Applied Materials, Inc.* 10,500 179,550
-----------
SEMICONDUCTORS - 2.6%
Applied Micro Circuits Corporation* 31,500 132,615
Intel Corporation 44,400 1,038,516
-----------
1,171,131
-----------
SOFT DRINKS - 2.9%
PepsiCo, Inc. 24,300 1,268,460
-----------
SYSTEMS SOFTWARE - 7.2%
Microsoft Corporation 71,000 1,896,410
Oracle Corporation* 47,400 650,328
Veritas Software Corporation* 21,800 622,390
-----------
3,169,128
-----------
TOTAL COMMON STOCKS
(cost $38,258,512) 42,164,566
-----------
See accompanying notes
48
SERIES G
Schedule of Investments (LARGE CAP GROWTH SERIES)
December 31, 2004
PRINCIPAL
AMOUNT OR
NUMBER MARKET
OF SHARES VALUE
WARRANTS - 0.0%
Lucent Technologies, Inc.* 566 $ 894
-----------
TOTAL WARRANTS (COST $0) 894
-----------
REPURCHASE AGREEMENT - 4.2%
State Street, 0.80%, dated 12-31-04, matures
1-05-05; repurchase amount
$1,872,376 (Collateralized
by FNMA, 1.875%, 7-15-32 with a value of
$1,914,700) $1,872,251 1,872,251
-----------
TOTAL REPURCHASE AGREEMENT
(cost $1,872,251) 1,872,251
-----------
TOTAL INVESTMENTS - 99.5%
(cost $40,130,763) 44,037,711
CASH & OTHER ASSETS, LESS LIABILITIES - 0.5% 240,517
-----------
TOTAL NET ASSETS - 100.0%
$44,278,228
===========
For federal income tax purposes the identified cost of investments owned at
December 31, 2004 was $41,006,188.
* Non-income producing security
See accompanying notes.
49
SERIES G
(LARGE CAP GROWTH SERIES)
Statement of Assets and Liabilities
December 31, 2004
ASSETS:
Investments, at value(1)........................ $ 44,037,711
Receivables:
Fund shares sold............................. 234,994
Securities sold.............................. 220,838
Dividends.................................... 30,545
Prepaid expenses................................ 781
------------
Total assets.................................... 44,524,869
------------
LIABILITIES:
Cash overdraft.................................. 40
Payable for:
Securities purchased ........................ 154,585
Fund shares redeemed......................... 49,247
Management fees.............................. 27,630
Custodian fees............................... 654
Transfer agent and administration fees....... 5,477
Professional fees............................ 7,075
Other........................................ 1,933
------------
Total liabilities............................... 246,641
------------
NET ASSETS...................................... $ 44,278,228
============
NET ASSETS CONSIST OF:
Paid in capital................................. $ 58,604,960
Accumulated undistributed net
investment income............................ 212,012
Accumulated net realized loss
on sales of investments...................... (18,445,692)
Net unrealized appreciation in value
of investments............................... 3,906,948
------------
Net assets...................................... $ 44,278,228
============
Capital shares authorized....................... indefinite
Capital shares outstanding...................... 7,027,531
Net asset value and redemption price
per share (net assets divided by
shares outstanding).......................... $ 6.30
============
(1) Investments, at cost........................ $ 40,130,763
Statement of Operations
For the Year Ended December 31, 2004
INVESTMENT INCOME:
Dividends..................................... $ 618,178
Interest...................................... 6,523
------------
Total investment income ...................... 624,701
------------
EXPENSES:
Management fees............................... 424,824
Custodian fees................................ 7,895
Transfer/maintenance fees..................... 22,065
Administration fees........................... 38,515
Directors' fees............................... 2,189
Professional fees............................. 8,717
Reports to shareholders....................... 3,159
Other expenses................................ 1,476
------------
Total expenses................................ 508,840
Less: Expenses waived ........................ (96,151)
------------
Net expenses.................................. 412,689
------------
Net investment income......................... 212,012
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain during the period on:
Investments................................... 744,288
------------
Realized gain................................. 744,288
------------
Net change in unrealized appreciation
during the period on:
Investments................................... 431,077
------------
Unrealized appreciation....................... 431,077
------------
Net gain...................................... 1,175,365
------------
Net increase in net assets
resulting from operations..................... $ 1,387,377
============
See accompanying notes.
50
SERIES G
Statement of Changes in Net Assets (LARGE CAP GROWTH SERIES)
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income (loss) ................................... $ 212,012 $ (19,633)
Net realized gain (loss) during the period on investments ...... 744,288 (3,685,496)
Net change in unrealized appreciation during the period on
investments .................................................. 431,077 11,720,402
----------------- -----------------
Net increase in net assets resulting from operations ........... 1,387,377 8,015,273
----------------- -----------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares ................................... 22,090,555 33,581,675
Cost of shares redeemed ........................................ (25,656,305) (24,239,522)
----------------- -----------------
Net increase (decrease) from capital share transactions ........ (3,565,750) 9,342,153
----------------- -----------------
Net increase (decrease) in net assets .......................... (2,178,373) 17,357,426
----------------- -----------------
NET ASSETS:
Beginning of period ............................................ 46,456,601 29,099,175
----------------- -----------------
End of period .................................................. $ 44,278,228 $ 46,456,601
================= =================
Accumulated undistributed net investment income at end
of period .................................................... $ 212,012 $ -
================= =================
CAPITAL SHARE ACTIVITY:
Shares sold .................................................... 3,634,256 6,173,078
Shares redeemed ................................................ (4,217,797) (4,477,229)
----------------- -----------------
Total capital share activity ................................... (583,541) 1,695,849
================= =================
See accompanying notes.
51
SERIES G
Financial Highlights (LARGE CAP GROWTH SERIES)
Selected data for each share of capital
stock outstanding throughout each period
YEAR ENDED
DECEMBER 31,
2004 2003 2002(e) 2001 2000(d)
-------- -------- ------- ------- ------------
PER SHARE DATA
Net asset value, beginning of period $ 6.10 $ 4.92 $ 6.75 $ 7.98 $ 10.00
-------- -------- ------- ------- ------------
Income (loss) from investment operations:
Net investment income (loss) 0.03 - (0.02) (0.02) (0.02)
Net gain (loss) on securities (realized and unrealized) 0.17 1.18 (1.81) (1.21) (2.00)
-------- -------- ------- ------- ------------
Total from investment operations 0.20 1.18 (1.83) (1.23) (2.02)
-------- -------- ------- ------- ------------
Less distributions:
Dividends from net investment income - - - - -
Distributions from realized gains - - - - -
-------- -------- ------- ------- ------------
Total distributions - - - - -
-------- -------- ------- ------- ------------
Net asset value, end of period $ 6.30 $ 6.10 $ 4.92 $ 6.75 $ 7.98
======== ======== ======= ======= ============
TOTAL RETURN(a) 3.28% 23.98% (27.11%) (15.41%) (20.20%)
-------- -------- ------- ------- ------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $ 44,278 $ 46,457 $29,099 $15,689 $ 12,139
-------- -------- ------- ------- ------------
Ratios to average net assets:
Net investment income (loss) 0.50% (0.05%) (0.20%) (0.30%) (0.47%)
Total expenses 0.97% 1.19% 1.21% 1.23% 1.28%
Gross expenses(b) 1.20% 1.19% 1.21% 1.23% 1.28%
Net expenses(c) 0.97% 1.19% 1.21% 1.22% 1.23%
-------- -------- ------- ------- ------------
Portfolio turnover rate 63% 30% 48% 4% 5%
(a) Total return does not take into account any of the expenses associated with
an investment in variable insurance products offered by Security Benefit
Life Insurance Company. 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.
(b) Gross expense information reflects expense ratios absent fund expense
reductions by the Investment Manager and before reduction to custodian
expenses.
(c) Net expense information reflects expense ratios after expense reductions or
fee waivers and reduction of custodian expenses.
(d) Series G was initially capitalized on May 1, 2000 with a net asset value of
$10 per share. Percentage amounts for the period have been annualized,
except for total return.
(e) The financial highlights for Series G exclude the historical financial
highlights of Series L. The assets of Series L were acquired by Series G on
August 27, 2002.
See accompanying notes.
52
SERIES H
Managers' Commentary (ENHANCED INDEX SERIES)
February 15, 2005 (unaudited)
[NORTHERN TRUST LOGO]
Advisor, Northern Trust
TO OUR SHAREHOLDERS:
The Enhanced Index Series' objective is to outperform the S&P 500 Index while
retaining similar risk characteristics as the index. Through the use of a
proprietary multi-factor model, stocks, which in our view have above-average
potential for appreciation, are overweighted, while stocks that have less than
average potential are underweighted. During the one-year period ending December
31, 2004, the portfolio was up 9.85%(1) versus 10.88% for benchmark, the S&P 500
Stock Index.
The Northern Trust Investments Quantitative Management group uses a proprietary
model to overweight or underweight stocks relative to the index. According to
our model, stocks are weighted based on a variety of factors our research has
shown to be predictive of future relative performance. The model's factors are
based on valuation, earnings and momentum characteristics. These factor-based
stock selection criteria are combined with sector, style and company size
constraints to manage the overall risk profile of the portfolio.
Energy and utilities were among the better performing sectors. Stock selection
was less successful in the technology and health care sectors, the benchmark's
weakest performing sectors. Additionally, the portfolio was able to take
advantage of shorter term opportunities related to changes in index constituents
or in corporate actions through careful trading of issues involved in these
events.
ECONOMIC AND MARKET UPDATE
Stocks rallied due to declining energy prices, solid economic data and strong
corporate liquidity. The dollar's continued slide heightened pressure for the
United States to increase savings and for foreign economies to stimulate their
domestic demand. Treasury yields trended modestly higher and the yield curve
flattened amid dollar weakness, rising expectations of additional Federal
Reserve tightening and unease over U.S. inflation. The European Central Bank
left its benchmark rate unchanged, despite a strong euro and indications that
Europe's economic expansion may be faltering. Core inflation, while still low,
is gradually rising because of higher import prices, increasing labor costs and
businesses' ability to finally pass on some of their higher costs. The Fed will
continue its measured monetary tightening as long as strong output growth,
improving labor markets and gradual inflation continue. We believe the election
outcome, retreat in oil prices and solid earnings picture support the outlook
for equities. Equities tend to perform well in a moderate growth and inflation
environment. A solid economic cycle and favorable financial conditions argue for
equities to remain the asset of choice, where the risks of equity investing can
be tolerated.
Sincerely,
Enhanced Index Team
53
SERIES H
Managers' Commentary (ENHANCED INDEX SERIES)
February 15, 2005 (unaudited)
PERFORMANCE
SERIES H VS. S&P 500 INDEX
[PERFORMANCE GRAPH]
SBL H INVESTMENT INFORMATION
DATE Value
- ---------- --------
SBL H
05/03/99 10,000.00
06/30/99 10,330.00
09/30/99 9,700.00
12/31/99 11,231.86
3/31/00 11,513.92
6/30/00 11,171.42
9/30/00 11,028.87
12/31/00 10,086.15
03/31/01 88,46.835
06/30/01 9,345.68
09/30/01 7,940.77
12/31/01 8,775.57
03/31/02 8,777.35
06/30/02 7,579.05
09/30/02 6,257.83
12/31/02 6,758.69
03/31/03 6,531.68
06/30/03 7,501.63
09/30/03 7,687.37
12/31/03 8,636.02
03/31/04 8,781.51
06/30/04 8,906.22
09/30/04 8,706.68
12/31/04 9,486.84
S& P 500
SBL H
SBL Y
DATE value
- ----------------- -------
INCEPTION 5/03/99 10,000.00
6/30/99 10,305.90
9/30/99 9,662.23
12/31/99 11,099.83
3/31/00 11,354.94
06/30/00 11,053.83
09/30/00 10,946.91
12/31/00 10,091.15
03/31/01 8,895.28
06/30/01 9,416.16
09/30/01 8,034.87
12/31/01 8,893.97
03/31/02 8,918.14
06/30/02 7,723.63
09/30/02 6,389.69
12/31/02 6,929.34
03/31/03 6,711.11
06/30/03 7,744.15
09/30/03 7,949.11
12/31/03 8,917.03
03/31/04 9,068.30
06/30/04 9,223.74
09/30/04 9,050.82
12/31/04 9,886.55
SBL Fund Series H $9,487
S& P 500 Index $9,887
$10,000 SINCE INCEPTION
The chart above assumes a hypothetical $10,000 investment in Series H (Enhanced
Index Series) on May 3, 1999 and reflects the fees and expenses of Series H.
PORTFOLIO COMPOSITION BY SECTOR
Consumer Discretionary 11.50%
Consumer Staples 10.24
Energy 7.04
Financials 20.00
Health Care 12.31
Industrials 11.40
Information Technology 16.08
Materials 3.31
Telecommunication Services 3.18
Utilities 3.11
U.S. Government Securities 0.31
Cash & other assets, less liabilities 1.52
AVERAGE ANNUAL RETURNS
PERIODS ENDED 12-31-04(1) 1 YEAR 5 YEARS SINCE INCEPTION
(5-3-99)
- ------------------------ ------ ------- ---------------
Series H 9.85% (3.32%) (0.93%)
(1) 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.
See accompanying notes.
54
SERIES H
Managers' Commentary (ENHANCED INDEX SERIES)
February 15, 2005 (unaudited)
PERFORMANCE
INFORMATION ABOUT YOUR SERIES EXPENSES
CALCULATING YOUR ONGOING SERIES EXPENSES
EXAMPLE
As a shareholder of the Series, you incur ongoing costs, including management
fees and other series expenses. Performance figures and expense ratios do not
reflect fees and expenses associated with an investment in variable insurance
products. Shares of a Series of SBL Fund are available only through the purchase
of such products. This Example is intended to help you understand your ongoing
costs (in dollars) of investing in the Series and to compare these costs with
ongoing costs of investing in other mutual funds. The Example is based on an
investment of $1,000 invested at the beginning of the period and held for the
entire period, July 1, 2004 - December 31, 2004.
ACTUAL EXPENSES
The first line in the table provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the table provides information about hypothetical account
values and hypothetical expenses based on the Series actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Series
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Series and other funds. To do so, compare this 5% hypothetical example with the
5% hypothetical examples that appear in the shareholder reports of the other
funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any fees and expenses associated with an
investment in variable insurance products. Therefore, the second line is useful
in comparing ongoing costs only, and will not help you determine the relative
total costs of owning different funds. In addition, if these fees and expenses
associated with an investment in variable insurance products were included, your
costs would have been higher.
FUND EXPENSES
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING
07-01-04 12-31-04(1) PERIOD(2)
------------- ------------- -------------
Series H (Enhanced Index Series)
Actual $ 1,000.00 $ 1,064.20 $ 3.89
Hypothetical 1,000.00 1,021.37 3.81
(1) The actual ending account value is based on the actual total return of the
Series for the period July 1, 2004 to December 31, 2004 after actual
expenses and will differ from the hypothetical ending account value which is
based on the Series expense ratio and a hypothetical annual return of 5%
before expenses. The actual cumulative return at net asset value for the
period July 1, 2004 to December 31, 2004 was 6.42%.
(2) Expenses are equal to the Series annualized expense ratio 0.75% multiplied
by the average account value over the period, multiplied by 184/366 (to
reflect the one-half year period).
55
SERIES H
Schedule of Investments (ENHANCED INDEX SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS - 98.2%
AEROSPACE & DEFENSE - 1.9%
Boeing Company 3,600 $ 186,372
General Dynamics Corporation 1,400 146,440
Goodrich Corporation 200 6,528
Honeywell International, Inc. 1,000 35,410
Lockheed Martin Corporation 2,100 116,655
Northrop Grumman Corporation 2,500 135,900
United Technologies Corporation 1,200 124,020
----------
751,325
----------
AGRICULTURAL PRODUCTS - 0.3%
Archer-Daniels-Midland Company 5,300 118,243
----------
AIR FREIGHT & LOGISTICS - 1.2%
FedEx Corporation 1,800 177,282
United Parcel Service, Inc. (Cl.B) 3,400 290,564
----------
467,846
----------
ALUMINUM - 0.3%
Alcoa, Inc. 3,200 100,544
----------
APPAREL RETAIL - 0.7%
Gap, Inc. 5,000 105,600
Limited Brands, Inc. 2,200 50,644
TJX Companies, Inc. 4,600 115,598
----------
271,842
----------
APPAREL, ACCESSORIES & LUXURY GOODS - 0.2%
Jones Apparel Group, Inc. 2,600 95,082
----------
APPLICATION SOFTWARE - 0.4%
Intuit, Inc.* 2,200 96,822
Parametric Technology Corporation* 3,700 21,793
PeopleSoft, Inc.* 1,300 34,424
----------
153,039
----------
ASSET MANAGEMENT & CUSTODY BANKS - 0.9%
Bank of New York Company, Inc. 400 13,368
Federated Investors, Inc. (Cl.B) 2,900 88,160
Franklin Resources, Inc. 100 6,965
Mellon Financial Corporation 3,900 121,329
State Street Corporation 2,800 137,536
----------
367,358
----------
AUTO PARTS & EQUIPMENT - 0.2%
Visteon Corporation 7,400 72,298
----------
AUTOMOBILE MANUFACTURERS - 0.3%
Ford Motor Company 6,900 101,016
General Motors Corporation 600 24,036
----------
125,052
----------
BIOTECHNOLOGY - 1.3%
Amgen, Inc.* 4,100 263,015
Applera Corporation - Applied
Biosystems Group 4,200 87,822
Biogen Idec, Inc.* 400 26,644
Chiron Corporation* 3,000 99,990
Gilead Sciences, Inc.* 900 31,491
----------
508,962
----------
BREWERS - 0.2%
Anheuser-Busch Companies, Inc. 1,900 96,387
----------
BROADCASTING & CABLE TV - 0.8%
Clear Channel Communications, Inc. 4,100 137,309
Comcast Corporation* 5,100 169,728
Univision Communications, Inc.* 600 17,562
----------
324,599
----------
BUILDING PRODUCTS - 0.2%
Masco Corporation 2,400 87,672
----------
CASINOS & GAMING - 0.3%
Harrah's Entertainment, Inc. 1,600 107,024
----------
COMMUNICATIONS EQUIPMENT - 2.5%
Avaya, Inc.* 500 8,600
Cisco Systems, Inc.* 26,600 513,380
Motorola, Inc. 7,000 120,400
Qualcomm, Inc. 5,100 216,240
Scientific-Atlanta, Inc. 1,100 36,311
Tellabs, Inc.* 9,100 78,169
----------
973,100
----------
COMPUTER & ELECTRONICS RETAIL - 0.2%
Circuit City Stores, Inc. 5,200 81,328
----------
COMPUTER HARDWARE - 3.5%
Apple Computer, Inc.* 200 12,880
Dell, Inc.* 6,800 286,552
Hewlett-Packard Company 10,300 215,991
International Business Machines
Corporation 6,400 630,912
NCR Corporation* 1,100 76,153
Sun Microsystems, Inc.* 25,000 134,500
----------
1,356,988
----------
COMPUTER STORAGE & PERIPHERALS - 0.4%
EMC Corporation* 3,000 44,610
Lexmark International, Inc.* 1,300 110,500
----------
155,110
----------
CONSTRUCTION & FARM MACHINERY - 0.5%
Caterpillar, Inc. 300 29,253
Deere & Company 1,500 111,600
Paccar, Inc. 600 48,288
----------
189,141
----------
CONSTRUCTION MATERIALS - 0.2%
Vulcan Materials Company 1,400 76,454
----------
CONSUMER FINANCE - 1.3%
American Express Company 5,600 315,672
MBNA Corporation 7,000 197,330
----------
513,002
----------
See accompanying notes.
56
SERIES H
Schedule of Investments (ENHANCED INDEX SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS (CONTINUED)
DATA PROCESSING & OUTSOURCED SERVICES - 1.2%
Automatic Data Processing, Inc. 3,600 $ 159,660
Convergys Corporation* 2,700 40,473
First Data Corporation 3,081 131,066
Fiserv, Inc.* 1,600 64,304
Sabre Holdings Corporation 3,300 73,128
----------
468,631
----------
DEPARTMENT STORES - 0.8%
Federated Department Stores, Inc. 1,700 98,243
J.C. Penney Company, Inc. 2,900 120,060
Nordstrom, Inc. 2,200 102,806
----------
321,109
----------
DISTILLERS & VINTNERS - 0.2%
Brown-Forman Corporation (Cl.B) 2,000 97,360
----------
DIVERSIFIED BANKS - 4.2%
Bank of America Corporation 15,264 717,255
U.S. Bancorp 8,800 275,616
Wachovia Corporation 4,000 210,400
Wells Fargo & Company 6,800 422,620
----------
1,625,891
----------
DIVERSIFIED CHEMICALS - 1.0%
Dow Chemical Company 1,700 84,167
E.I. du Pont de Nemours & Company 3,400 166,770
Eastman Chemical Company 1,700 98,141
Engelhard Corporation 1,600 49,072
----------
398,150
----------
DIVERSIFIED COMMERCIAL SERVICES - 0.7%
Cendant Corporation 6,700 156,646
H & R Block, Inc. 2,000 98,000
----------
254,646
----------
DIVERSIFIED METALS & MINING - 0.2%
Phelps Dodge Corporation* 600 59,352
----------
DRUG RETAIL - 0.2%
Walgreen Company 1,600 61,392
----------
ELECTRIC UTILITIES - 2.1%
CenterPoint Energy, Inc. 6,600 74,580
DTE Energy Company 400 17,252
Entergy Corporation 1,900 128,421
Exelon Corporation 400 17,628
FPL Group, Inc. 1,700 127,075
FirstEnergy Corporation 3,000 118,530
Pinnacle West Captial Corporation 2,000 88,820
Progress Energy, Inc. 2,600 117,624
Progress Energy, Inc. - Contingent
Value Obligation*(2) 700 84
Southern Company 200 6,704
TXU Corporation 2,100 135,576
----------
832,294
----------
ELECTRICAL COMPONENTS & EQUIPMENT - 0.4%
Emerson Electric Company 2,100 147,210
----------
ELECTRONIC EQUIPMENT MANUFACTURERS - 0.4%
Agilent Technologies, Inc.* 2,500 60,250
Tektronix, Inc. 2,700 81,567
----------
141,817
----------
ELECTRONIC MANUFACTURING SERVICES - 0.1%
Jabil Circuit, Inc.* 100 2,558
Molex, Inc. 1,500 45,000
----------
47,558
----------
EMPLOYMENT SERVICES - 0.2%
Robert Half International, Inc. 3,200 94,176
----------
ENVIRONMENTAL SERVICES - 0.3%
Waste Management, Inc. 3,500 104,790
----------
FOOD DISTRIBUTORS - 0.0%
Sysco Corporation 100 3,817
----------
FOOD RETAIL - 0.9%
Albertson's, Inc. 4,300 102,684
Kroger Company* 3,800 66,652
Safeway, Inc.* 4,100 80,934
Supervalu, Inc. 2,800 96,656
----------
346,926
----------
FOREST PRODUCTS - 0.4%
Louisiana-Pacific Corporation 3,100 82,894
Weyerhaeuser Company 800 53,776
----------
136,670
----------
GAS UTILITIES - 0.3%
KeySpan Corporation 2,500 98,625
----------
GENERAL MERCHANDISE STORES - 0.2%
Target Corporation 1,600 83,088
----------
HEALTH CARE DISTRIBUTORS - 0.3%
Cardinal Health, Inc. 1,100 63,965
McKesson Corporation 1,100 34,606
----------
98,571
----------
HEALTH CARE EQUIPMENT - 1.8%
Baxter International, Inc. 1,600 55,264
Becton, Dickinson & Company 2,200 124,960
Boston Scientific Corporation* 3,100 110,205
Medtronic, Inc. 5,500 273,185
Thermo Electron Corporation* 2,700 81,513
Zimmer Holdings, Inc.* 500 40,060
----------
685,187
----------
HEALTH CARE FACILITIES - 0.6%
HCA, Inc. 3,300 131,868
Manor Care, Inc. 2,500 88,575
----------
220,443
----------
See accompanying notes.
57
SERIES H
Schedule of Investments (ENHANCED INDEX SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS (CONTINUED)
HEALTH CARE SERVICES - 0.3%
Express Scripts, Inc.* 100 $ 7,644
IMS Health, Inc. 1,700 39,457
Quest Diagnostics, Inc. 700 66,885
----------
113,986
----------
HEALTH CARE SUPPLIES - 0.3%
Bausch & Lomb, Inc. 1,400 90,244
Millipore Corporation* 600 29,886
----------
120,130
----------
HOME IMPROVEMENT RETAIL - 1.1%
Home Depot, Inc. 5,800 247,892
Lowe's Companies, Inc. 3,100 178,529
----------
426,421
----------
HOMEBUILDING - 0.3%
Pulte Homes, Inc. 1,800 114,840
----------
HOTELS, RESORTS & CRUISE LINES - 0.1%
Carnival Corporation 800 46,104
----------
HOUSEHOLD APPLIANCES - 0.2%
Stanley Works 1,900 93,081
----------
HOUSEHOLD PRODUCTS - 2.0%
Clorox Company 1,806 106,428
Colgate-Palmolive Company 1,400 71,624
Kimberly-Clark Corporation 2,800 184,268
Procter & Gamble Company 7,200 396,576
----------
758,896
----------
HYPERMARKETS & SUPERCENTERS - 2.1%
Wal-Mart Stores, Inc. 15,700 829,274
----------
INDUSTRIAL CONGLOMERATES - 4.8%
3M Company 3,600 295,452
General Electric Company 33,900 1,237,350
Textron, Inc. 300 22,140
Tyco International, Ltd. 8,400 300,216
----------
1,855,158
----------
INDUSTRIAL GASES - 0.3%
Air Products & Chemicals, Inc. 2,100 121,737
----------
INDUSTRIAL MACHINERY - 0.7%
Dover Corporation 2,500 104,850
Illinois Tool Works, Inc. 1,600 148,288
----------
253,138
----------
INSURANCE BROKERS - 0.2%
Marsh & McLennan Companies, Inc. 1,800 59,220
----------
INTEGRATED OIL & GAS - 5.3%
Amerada Hess Corporation 1,200 98,856
ChevronTexaco Corporation 8,500 446,335
ConocoPhillips 3,200 277,856
Exxon Mobil Corporation 23,300 1,194,358
Marathon Oil Corporation 600 22,566
Occidental Petroleum Corporation 1 58
----------
2,040,029
----------
INTEGRATED TELECOMMUNICATION SERVICES - 3.0%
BellSouth Corporation 8,800 244,552
CenturyTel, Inc. 1,100 39,017
Citizens Communications Company 5,200 71,708
Qwest Communications International, Inc.* 15,100 67,044
SBC Communications, Inc. 12,300 316,971
Sprint Corporation 1,750 43,488
Verizon Communications, Inc. 9,700 392,947
----------
1,175,727
----------
INTERNET RETAIL - 0.6%
eBay, Inc.* 2,100 244,188
----------
INTERNET SOFTWARE & SERVICES - 0.3%
Yahoo!, Inc.* 3,500 131,880
----------
INVESTMENT BANKING & BROKERAGE - 1.6%
Bear Sterns Companies, Inc. 1,100 112,541
Goldman Sachs Group, Inc. 1,100 114,444
Lehman Brothers Holdings, Inc. 100 8,748
Merrill Lynch & Company, Inc. 1,900 113,563
Morgan Stanley 5,100 283,152
----------
632,448
----------
LEISURE PRODUCTS - 0.2%
Hasbro, Inc. 4,200 81,396
----------
LIFE & HEALTH INSURANCE - 1.0%
AFLAC, Inc. 2,200 87,648
Jefferson-Pilot Corporation 800 41,568
Lincoln National Corporation 1,000 46,680
MetLife, Inc. 3,000 121,530
Prudential Financial, Inc. 1,400 76,944
Torchmark Corporation 200 11,428
----------
385,798
----------
MANAGED HEALTH CARE - 1.0%
Cigna Corporation 1,200 97,884
UnitedHealth Group, Inc. 1,300 114,439
WellPoint, Inc.* 1,400 161,000
----------
373,323
----------
METAL & GLASS CONTAINERS - 0.0%
Ball Corporation 400 17,592
----------
MOTORCYCLE MANUFACTURERS - 0.4%
Harley-Davidson, Inc. 2,300 139,725
----------
MOVIES & ENTERTAINMENT - 2.0%
News Corporation 8,800 164,208
Time Warner, Inc.* 11,300 219,672
Viacom, Inc. (Cl.B) 7,800 283,842
Walt Disney Company 4,200 116,760
----------
784,482
----------
See accompanying notes.
58
SERIES H
Schedule of Investments (ENHANCED INDEX SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS (CONTINUED)
MULTI-LINE INSURANCE - 1.7%
American International Group, Inc. 9,100 $ 597,597
Hartford Financial Services Group, Inc. 700 48,517
Loews Corporation 400 28,120
-----------
674,234
-----------
MULTI-UTILITIES & UNREGULATED POWER - 0.7%
Dominion Resources, Inc. 2,300 155,802
Duke Energy Corporation 4,700 119,051
-----------
274,853
-----------
OFFICE ELECTRONICS - 0.3%
Xerox Corporation* 6,400 108,864
-----------
OIL & GAS DRILLING - 0.1%
Nabors Industries, Ltd.* 700 35,903
-----------
OIL & GAS EQUIPMENT & SERVICES - 0.8%
BJ Services Company 2,100 97,734
Schlumberger, Ltd. 3,200 214,240
-----------
311,974
-----------
OIL & GAS EXPLORATION & PRODUCTION - 0.7%
Anadarko Petroleum Corporation 1,900 123,139
Burlington Resources, Inc. 2,200 95,700
Devon Energy Corporation 1,700 66,164
-----------
285,003
-----------
OIL & GAS REFINING, MARKETING & TRANSPORTATION - 0.2%
Kinder Morgan, Inc. 800 58,504
-----------
OTHER DIVERSIFIED FINANCIAL SERVICES - 3.8%
Citigroup, Inc. 19,000 915,420
JP Morgan Chase & Company 11,541 450,214
Principal Financial Group, Inc. 3,000 122,820
-----------
1,488,454
-----------
PACKAGED FOODS & MEATS - 0.8%
ConAgra Foods, Inc. 3,300 97,185
General Mills, Inc. 1,900 94,449
Hershey Foods Corporation 1,000 55,540
Sara Lee Corporation 3,400 82,076
-----------
329,250
-----------
PAPER PACKAGING - 0.3%
Bemis Company, Inc. 1,200 34,908
Temple-Inland, Inc. 1,200 82,080
-----------
116,988
-----------
PAPER PRODUCTS - 0.3%
Georgia-Pacific Corporation 1,400 52,472
International Paper Company 1,300 54,600
-----------
107,072
-----------
PERSONAL PRODUCTS - 0.4%
Avon Products, Inc. 2,400 92,880
Gillette Company 1,800 80,604
-----------
173,484
-----------
PHARMACEUTICALS - 6.9%
Abbott Laboratories 6,200 289,230
Bristol-Myers Squibb Company 3,700 94,794
Eli Lilly & Company 5,100 289,425
Forest Laboratories, Inc.* 3,100 139,066
Johnson & Johnson 11,200 710,304
Merck & Company, Inc. 7,500 241,050
Mylan Laboratories, Inc. 400 7,072
Pfizer, Inc. 28,000 752,920
Schering-Plough Corporation 1,000 20,880
Wyeth 2,700 114,993
-----------
2,659,734
-----------
PROPERTY & CASUALTY INSURANCE - 1.3%
Ace, Ltd. 1,400 59,850
Allstate Corporation 2,700 139,644
Ambac Financial Group, Inc. 100 8,213
Chubb Corporation 700 53,830
Cincinnati Financial Corporation 990 43,817
MBIA, Inc. 200 12,656
Progressive Corporation 600 50,904
St. Paul Travelers Companies, Inc. 1,788 66,281
XL Capital, Ltd. 700 54,355
-----------
489,550
-----------
PUBLISHING - 1.2%
Gannett Company, Inc. 1,500 122,550
Knight-Ridder, Inc. 600 40,164
Meredith Corporation 1,600 86,720
New York Times Company 2,300 93,840
Tribune Company 2,500 105,350
-----------
448,624
-----------
RAILROADS - 0.4%
Burlington Northern Santa Fe Corporation 1,500 70,965
Norfolk Southern Corporation 1,900 68,761
-----------
139,726
-----------
REAL ESTATE INVESTMENT TRUSTS - 0.4%
Archstone-Smith Trust 700 26,810
Equity Office Properties Trust 700 20,384
Equity Residential 2,900 104,922
-----------
152,116
-----------
REGIONAL BANKS - 1.5%
BB&T Corporation 200 8,410
Compass Bancshares, Inc. 400 19,468
Fifth Third Bancorp 800 37,824
First Horizon National Corporation 2,100 90,531
Huntington Bancshares, Inc. 3,900 96,642
KeyCorp 2,200 74,580
National City Corporation 4,200 157,710
SunTrust Banks, Inc. 200 14,776
Zions Bancorporation 1,400 95,242
-----------
595,183
-----------
See accompanying notes.
59
SERIES H
Schedule of Investments (ENHANCED INDEX SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS (CONTINUED)
RESTAURANTS - 1.0%
Darden Restaurants, Inc. 3,200 $ 88,768
McDonald's Corporation 6,300 201,978
Starbucks Corporation* 100 6,236
Wendy's International, Inc. 2,400 94,224
-----------
391,206
-----------
SEMICONDUCTOR EQUIPMENT - 0.1%
Applied Materials, Inc.* 1,500 25,650
-----------
SEMICONDUCTORS - 3.1%
Analog Devices, Inc. 2,900 107,068
Freescale Semiconductor, Inc. (Cl.B)* 1,372 25,190
Intel Corporation 24,800 580,072
Maxim Integrated Products, Inc. 2,900 122,931
Micron Technology, Inc.* 8,600 106,210
National Semiconductor Corporation* 4,400 78,980
Texas Instruments, Inc. 2,900 71,398
Xilinx, Inc. 3,500 103,775
-----------
1,195,624
-----------
SOFT DRINKS - 1.9%
Coca-Cola Company 9,900 412,137
Pepsi Bottling Group, Inc. 3,400 91,936
PepsiCo, Inc. 4,300 224,460
-----------
728,533
-----------
SPECIALTY CHEMICALS- 0.2%
Sigma-Aldrich Corporation 1,500 90,690
-----------
SPECIALTY STORES - 0.4%
Office Depot, Inc.* 4,300 74,648
Staples, Inc. 1,200 40,452
Tiffany & Company 700 22,379
-----------
137,479
-----------
STEEL - 0.2%
Allegheny Technologies, Inc. 1,300 28,171
Nucor Corporation 600 31,404
-----------
59,575
-----------
SYSTEMS SOFTWARE - 3.8%
BMC Software, Inc.* 4,700 87,420
Computer Associates International, Inc. 1,000 31,060
Microsoft Corporation 39,300 1,049,703
Novell, Inc.* 5,900 39,825
Oracle Corporation* 13,300 182,476
Symantec Corporation* 1,500 38,640
Veritas Software Corporation* 1,900 54,245
-----------
1,483,369
-----------
THRIFTS & MORTGAGE FINANCE - 2.0%
Countrywide Financial Corporation 4,000 148,040
Fannie Mae 3,300 234,993
Freddie Mac 3,400 250,580
MGIC Investment Corporation 1,400 96,474
Washington Mutual, Inc. 1,200 50,736
-----------
780,823
-----------
TIRES & RUBBER - 0.2%
Cooper Tire & Rubber Company 3,600 77,580
-----------
TOBACCO - 1.1%
Altria Group, Inc. 6,600 403,260
Reynolds American, Inc. 300 23,580
UST, Inc. 100 4,811
----------
431,651
----------
TRADING COMPANIES & DISTRIBUTORS - 0.2%
W.W. Grainger, Inc. 1,200 79,944
----------
WIRELESS TELECOMMUNICATION SERVICE - 0.1%
Nextel Communications, Inc.* 1,900 57,000
----------
TOTAL COMMON STOCKS
(cost $35,431,051) 38,107,312
----------
WARRANTS - 0.0%
Lucent Technologies, Inc.* 1,968 3,110
----------
TOTAL WARRANTS
(cost $0) 3,110
----------
U.S. GOVERNMENT SECURITIES - 0.3%
U.S. Treasury Bill, 2.18% - 2005(1) $ 120,000 119,424
----------
TOTAL U.S. GOVERNMENT SECURITIES
(cost $119,415) 119,424
----------
REPURCHASE AGREEMENT - 0.6%
United Missouri Bank, 1.74%, dated
12-31-04, matures 1-03-05; repurchase
amount of $251,036 (Collateralized
by FHLMC, 0.00%, 1-14-05 with a value
of $256,757) $ 251,000 251,000
----------
TOTAL REPURCHASE AGREEMENT
(cost $251,000) 251,000
----------
TOTAL INVESTMENTS - 99.1%
(cost $35,801,466) 38,480,846
CASH & OTHER ASSETS, LESS LIABILITIES - 0.9% 341,186
-----------
TOTAL NET ASSETS - 100.0% $38,822,032
===========
For federal income tax purposes the identified cost of investments owned at
December 31, 2004 was $37,507,042.
*Non-income producing security
(1) Security is segregated as collateral for outstanding futures contracts.
(2) Security is restricted. The total market value of restricted securities is
$84 (cost $336), or 0.0% of total net assets. The acquisition dates range
from November 8, 1999 to November 2, 2000.
See accompanying notes.
60
SERIES H
(ENHANCED INDEX SERIES)
Statement of Assets and Liabilities
December 31, 2004
ASSETS:
Investments, at value(1)....................... $ 38,480,846
Cash .......................................... 119,901
Receivables:
Fund shares sold ............................ 219,444
Dividends ................................... 48,518
Prepaid expenses .............................. 1,635
------------
Total assets .................................. 38,870,344
------------
LIABILITIES:
Payable for:
Fund shares redeemed ........................ 17,068
Variation margin ............................ 380
Management fees ............................. 16,190
Transfer agent and administration fees ...... 5,897
Professional fees ........................... 7,790
Other ....................................... 987
------------
Total liabilities ............................. 48,312
------------
NET ASSETS .................................... $ 38,822,032
============
NET ASSETS CONSIST OF:
Paid in capital ............................... $ 48,155,181
Accumulated undistributed net
investment income ........................... 480,803
Accumulated net realized loss
on sales of investments and futures ......... (12,495,989)
Net unrealized appreciation in value of
investments and futures ..................... 2,682,037
Net assets .................................... ------------
$ 38,822,032
============
Capital shares authorized ..................... indefinite
Capital shares outstanding .................... 4,255,560
Net asset value and redemption price
per share (net assets divided by
shares outstanding) ......................... $ 9.12
============
(1) Investments, at cost ...................... $ 35,801,466
Statement of Operations
For the Year Ended December 31, 2004
INVESTMENT INCOME:
Dividends ................................. $ 743,022
Interest .................................. 8,577
-----------
Total investment income ................... 751,599
-----------
EXPENSES:
Management fees ........................... 272,713
Custodian fees ............................ 15,642
Transfer/maintenance fees ................. 22,020
Administration fees ....................... 36,429
Directors' fees ........................... 1,829
Professional fees ......................... 9,235
Reports to shareholders ................... 1,986
Other expenses ............................ 1,107
-----------
Total expenses ............................ 360,961
Less: Expenses waived ..................... (90,904)
-----------
Net expenses .............................. 270,057
-----------
Net investment income ..................... 481,542
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain during the period on:
Investments ............................... 857,078
Futures ................................... 95,970
-----------
Net realized gain ......................... 953,048
-----------
Net change in unrealized appreciation
(depreciation) during the period on:
Investments ............................... 1,944,230
Futures ................................... (2,857)
-----------
Net unrealized appreciation ............... 1,941,373
-----------
Net gain .................................. 2,894,421
-----------
Net increase in net assets
resulting from operations ............... $ 3,375,963
===========
See accompanying notes.
61
SERIES H
Statement of Changes in Net Assets (ENHANCED INDEX SERIES)
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income .................................................................. $ 481,542 $ 257,838
Net realized gain (loss) during the period on investments and futures .................. 953,048 (950,605)
Net change in unrealized appreciation during the period on investments and futures ..... 1,941,373 7,558,491
------------- --------------
Net increase in net assets resulting from operations ................................... 3,375,963 6,865,724
------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income .................................................................. (34,570) (228,222)
------------- --------------
Total distributions to shareholders .................................................... (34,570) (22,8222)
------------- --------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares ........................................................... 19,627,256 13,045,946
Distributions reinvested ............................................................... 34,570 228,223
Cost of shares redeemed ................................................................ (17,552,514) (11,592,782)
------------- --------------
Net increase from capital share transactions ........................................... 2,109,312 1,681,387
------------- --------------
Net increase in net assets ............................................................. 5,450,705 8,318,889
------------- --------------
NET ASSETS:
Beginning of period .................................................................... 33,371,327 25,052,438
------------- --------------
End of period .......................................................................... $ 38,822,032 $ 33,371,327
============= ==============
Accumulated undistributed net investment income at end of period ....................... $ 480,803 $ 33,831
============= ==============
CAPITAL SHARE ACTIVITY:
Shares sold ............................................................................ 2,314,752 1,816,279
Shares reinvested ...................................................................... 4,125 28,106
Shares redeemed ........................................................................ (2,079,833) (1,653,222)
------------- --------------
Total capital share activity ........................................................... 239,044 190,863
============= ==============
See accompanying notes.
62
SERIES H
Financial Highlights (ENHANCED INDEX SERIES)
Selected data for each share of capital stock outstanding throughout each year
YEAR ENDED
DECEMBER 31,
2004 2003(d) 2002 2001 2000
------- --------- ------- ------- ------------
PER SHARE DATA
Net asset value, beginning of period $ 8.31 $ 6.55 $ 8.62 $ 9.95 $ 11.15
------- ------- ------- ------- ---------
Income (loss) from investment operations:
Net investment income (loss) 0.11 0.07 0.05 0.05 0.05
Net gain (loss) on securities (realized and unrealized) 0.71 1.75 (2.02) (1.34) (1.18)
------- ------- ------- ------- ---------
Total from investment operations 0.82 1.82 (1.97) (1.29) (1.13)
------- ------- ------- ------- ---------
Less distributions:
Dividends from net investment income (0.01) (0.06) (0.10) (0.04) -
Distributions from realized gains - - - - -
Distributions in excess of capital gains - - - - (0.07)
------- ------- ------- ------- ---------
Total distributions (0.01) (0.06) (0.10) (0.04) (0.07)
------- ------- ------- ------- ---------
Net asset value, end of period $ 9.12 $ 8.31 $ 6.55 $ 8.62 $ 9.95
======= ======= ======= ======= =========
TOTAL RETURN(a) 9.85% 27.78% (22.98%) (12.99%) (10.20%)
------- ------- ------- ------- ---------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $38,822 $33,371 $25,052 $42,112 $ 45,820
------- ------- ------- ------- ---------
Ratios to average net assets:
Net investment income (loss) 1.32% 0.94% 0.56% 0.57% 0.55%
Total expenses 0.74% 0.77% 0.99% 0.91% 0.96%
Gross expenses(b) 0.99% 0.96% 0.99% 0.91% 0.96%
Net expenses(c) 0.74% 0.77% 0.99% 0.91% 0.96%
------- ------- ------- ------- ---------
Portfolio turnover rate 98% 44% 74% 29% 58%
(a) Total return does not take into account any of the expenses associated with
an investment in variable insurance products offered by Security Benefit
Life Insurance Company. 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.
(b) Gross expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net expense information reflects expense ratios after expense reductions or
fee waivers and reduction of custodian expenses.
(d) Northern Trust became the sub-adviser of Series H effective May 1, 2003.
Prior May 1, 2003, Security Management Company, LLC paid Deutsche Asset
Management sub-advisory services.
See accompanying notes.
63
SERIES J
Manager's Commentary (MID CAP GROWTH SERIES)
February 15, 2005 (unaudited)
[SECURITY FUNDS LOGO]
[PHOTO OF JAMES P.SCHIR]
James P. Schier
Senior Portfolio Manager
TO OUR SHAREHOLDERS:
Following double-digit returns in 2003, fiscal year 2004 proved more challenging
for the Mid Cap Growth Series. The Series gained 10.12%(1), but lagged the S&P
Mid Cap Growth benchmark gain of 14.00%.
Our investment philosophy is to seek appreciable securities of companies that
are able to grow and/or reinvest in increasingly profitable ventures and hold
them over three to five years to capture the better part of the improvements in
profitability. We invest where we find opportunities, with our individual
position sizes reflecting the magnitude and the confidence in the opportunity.
For this Series, we target securities of companies that appear likely to
generate above average profitability at prices that, as of yet, do not reflect
that potential.
ENERGY AND TECHNOLOGY LED RETURNS
Energy had the largest positive return for the Series during the year. Not only
was the Series weighting of 13% much larger than the index, but the Series
holdings gained 56%. Kfx, a pioneer in clean coal technology, gained more than
90%. Through a pressurization and heating process, Kfx effectively takes a low
Btu and high-moisture content coal and refines it into a high-Btu, low-moisture
fuel. The process removes mercury, SO(2) and NOX, creating an energy efficient,
low-emission coal. Rentech and Eog Resources also provided benefit. Rentech
profited from its gas-to-liquids technology, and Eog Resources benefited from a
buoyant North American natural gas market.
The Series technology holdings rose more than 36%, besting the 20% advance
achieved by technology in the mid-cap growth index. Careful stock selection
contributed, with 11 holdings gaining more than 40% during the year. Acxiom
Corporation and Tibco Software were the largest contributors with Tibco rising
more than 90%. Tibco saw very favorable demand for their integration software
and how they handle high-volume, real-time information.
HEALTH CARE AND SMALLER CAPITALIZATION NAMES HIT HARD
Following a good start, the Series biotechnology exposure succumbed to a
significant sell-off in July and August. The
Advisor, Security Management Company, LLC
Series health care holdings declined 17% in value. Ligand, the Series largest
biotech holding, declined 20%. The company's leading revenue generating product,
Avinza, stagnated prematurely causing the company to miss earnings projections
for the year. SciClone Pharmaceuticals also declined 45% as other companies
announced new therapeutic agents targeting hepatitis C. Sciclone focuses on
developing drugs using natural hormones to improve the immune system's
functionality. Unfortunately, the Series was never able to fully recover from
these losses during the year.
The Series smaller capitalization holdings in the industrial and technology
sector also experienced declines. In most of the situations, there was no
identifiable cause for the sell-off. Historically with such situations, the
stocks corrections usually reverse quickly when the company fundamentals emerge.
We believe that these laggards could turn around in 2005.
MUTED OUTLOOK FOR 2005
With 2004 being the second consecutive positive return year in the market, the
equity market no longer offers as many compelling opportunities based upon
dramatic mispricing. Our proprietary valuation work suggests some opportunities
in smaller capitalization names. However, the valuation is far less compelling
than five to seven years ago. Equity valuations are not cheap, profit margins
are high, and there is little opportunity for expanding earnings growth. With
valuations at current levels, equities will most likely not provide double-digit
returns in the year ahead.
As our investment process seeks opportunities on a bottom-up basis, we continue
to discover prospects in smaller, earlier stage companies, telecom equipment and
industrial companies, and companies focused on energy efficiency and
self-sufficiency.
We would like to take this opportunity to thank you for trusting your funds with
Security Management Company. We vow to do our best to continue to uncover the
exciting return potential that only small to mid-sized companies can provide.
Sincerely,
James P. Schier
Senior Portfolio Manager
64
SERIES J
Manager's Commentary (MID CAP GROWTH SERIES)
February 15, 2005 (unaudited)
[PERFORMANCE GRAPHS]
SBL J INVESTMENT INFORMATION
DATE value
- ---------------- ----------
SBL J
12/31/94 10,000.0000
3/31/95 10,305.0595
6/30/95 10,937.5000
9/30/95 12,261.9048
12/31/95 11,949.4048
3/31/96 12,842.2619
6/30/96 13,839.2857
9/30/96 14,182.7637
12/31/96 14,105.4734
3/31/97 12,992.4936
6/30/97 14,947.9373
9/30/97 17,236.6851
12/31/97 16,919.3968
3/31/98 18,830.9947
6/30/98 18,414.4974
9/30/98 15,381.9142
12/398 19,956.5930
3/31/99 19,872.6021
6/30/99 23,081.5816
9/30/99 23,280.8320
12/31/99 32,301.3739
3/31/00 38,183.1166
6/30/00 36,511.8018
9/30/00 40,735.8815
12/31/00 37,713.7272
3/31/01 30,953.5038
6/30/01 34,666.3273
9/30/01 24,659.0036
12/31/01 32,097.9583
3/31/02 32,661.5159
6/30/02 26,696.1354
9/30/02 20,166.6527
12/31/02 22,634.5997
3/31/03 22,056.3950
6/30/03 28,402.5445
9/30/03 31,293.5681
12/31/03 35,383.3089
3/31/04 37,484.5895
6/30/04 37,371.7691
9/30/04 33,197.4130
12/31/04 38,965.3577
S& P MIDCAP 400/BARRA GROWTH INDEX
DATE value
- ------------------------------ --------
INCEPTION 12/31/94 10,000.00
3/31/95 10,820.41
6/30/95 11,761.77
9/30/95 13,000.85
12/31/95 12,729.75
3/31/96 13,656.75
6/30/96 14,039.27
9/30/96 14,602.04
12/31/96 15,073.43
3/31/97 14,670.70
6/30/97 17,326.49
9/30/97 20,441.15
12/31/97 19,634.13
3/31/98 22,031.26
6/30/98 21,981.30
9/30/98 18,646.25
12/31/98 26,476.17
3/31/99 24,985.28
6/30/99 28,339.86
9/30/99 26,369.23
12/31/99 33,724.37
3/31/00 40,117.39
06/30/00 38,762.84
09/30/00 43,168.50
12/31/00 36,811.84
3/31/01 30,130.18
6/30/01 34,814.02
9/30/01 27,797.05
12/31/01 33,877.04
3/31/02 35,046.47
6/30/02 30,486.02
9/30/02 26,048.27
12/31/02 27,383.68
3/31/03 26,557.84
6/30/03 30,811.18
9/30/03 32,662.84
12/31/03 35,866.35
3/31/04 37,498.81
6/30/04 37,781.78
9/30/04 36,490.37
12/31/04 40,882.96
SBL Fund Series J $38,965
S& P Midcap 400/Barra Growth Index $40,883
$10,000 OVER 10 YEARS
The chart above assumes a hypothetical $10,000 investment in Series J (Mid Cap
Growth Series) on December 31, 1994 and reflects the fees and expenses of Series
J.
PORTFOLIO COMPOSITION BY SECTOR
Consumer Discretionary 13.21%
Energy 11.09
Financials 3.34
Health Care 12.70
Industrials 12.53
Information Technology 33.50
Materials 3.64
Utilities 6.69
Unit Investment Trust 3.23
Warrants 0.15
Liabilities, less cash & other assets (0.08)
AVERAGE ANNUAL RETURNS
PERIODS ENDED 12-31-04(1) 1 YEAR 5 YEARS 10 YEARS
- ------------------------- ------ ------- --------
Series J 10.12% 3.82% 14.57%
(1) 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.
See accompanying notes.
65
SERIES J
Manager's Commentary (MID CAP GROWTH SERIES)
February 15, 2005 (unaudited)
PERFORMANCE
INFORMATION ABOUT YOUR SERIES EXPENSES
CALCULATING YOUR ONGOING SERIES EXPENSES
EXAMPLE
As a shareholder of the Series, you incur ongoing costs, including management
fees and other series expenses. Performance figures and expense ratios do not
reflect fees and expenses associated with an investment in variable insurance
products. Shares of a Series of SBL Fund are available only through the purchase
of such products. This Example is intended to help you understand your ongoing
costs (in dollars) of investing in the Series and to compare these costs with
ongoing costs of investing in other mutual funds. The Example is based on an
investment of $1,000 invested at the beginning of the period and held for the
entire period, July 1, 2004 - December 31, 2004.
ACTUAL EXPENSES
The first line in the table provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the table provides information about hypothetical account
values and hypothetical expenses based on the Series actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Series
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Series and other funds. To do so, compare this 5% hypothetical example with the
5% hypothetical examples that appear in the shareholder reports of the other
funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any fees and expenses associated with an
investment in variable insurance products. Therefore, the second line is useful
in comparing ongoing costs only, and will not help you determine the relative
total costs of owning different funds. In addition, if these fees and expenses
associated with an investment in variable insurance products were included, your
costs would have been higher.
FUND EXPENSES
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING
07-01-04 12-31-04(1) PERIOD(2)
------------- ------------- -------------
Series J (Mid Cap Growth Series)
Actual $ 1,000.00 $ 1,042.60 $ 4.52
Hypothetical 1,000.00 1,020.71 4.47
(1) The actual ending account value is based on the actual total return of the
Series for the period July 1, 2004 to December 31, 2004 after actual
expenses and will differ from the hypothetical ending account value which is
based on the Series expense ratio and a hypothetical annual return of 5%
before expenses. The actual cumulative return at net asset value for the
period July 1, 2004 to December 31, 2004 was 4.26%.
(2) Expenses are equal to the Series annualized expense ratio 0.88% multiplied
by the average account value over the period, multiplied by 184/366 (to
reflect the one-half year period).
66
SERIES J
Schedule of Investments (MID CAP GROWTH SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
--------- -----------
COMMON STOCKS - 99.9%
APPLICATION SOFTWARE - 1.9%
InteliData Technologies Corporation* 911,450 $ 610,672
Tibco Software, Inc.* 588,400 7,849,256
-----------
8,459,928
-----------
ASSET MANAGEMENT & CUSTODY BANKS - 2.4%
Northern Trust Corporation 214,000 10,396,120
-----------
BIOTECHNOLOGY - 2.9%
Cell Genesys, Inc.* 126,000 1,020,600
Charles River Laboratories
International, Inc.* 71,000 3,266,710
Kosan Biosciences, Inc.* 275,900 1,911,987
La Jolla Pharmaceutical Company* 620,000 1,035,400
Novavax, Inc.* 305,300 992,225
SciClone Pharmaceuticals, Inc.* 814,479 3,013,572
Vical, Inc.* 334,000 1,569,800
-----------
12,810,294
-----------
CASINOS & GAMING - 1.6%
GTech Holdings Corporation 264,000 6,850,800
-----------
COMMODITY CHEMICALS - 1.3%
Headwaters, Inc.* 200,000 5,700,000
-----------
COMMUNICATIONS EQUIPMENT - 8.6%
ADC Telecommunications, Inc.* 2,300,000 6,164,000
Adtran, Inc. 273,500 5,234,790
Avici Systems, Inc.* 250,800 2,269,740
Extreme Networks, Inc.* 550,000 3,602,500
Finisar Corporation* 2,924,100 6,666,948
Harmonic, Inc.* 401,000 3,344,340
Harris Corporation 125,000 7,723,750
Symmetricom, Inc.* 283,300 2,750,843
-----------
37,756,911
-----------
COMPUTER STORAGE & PERIPHERALS - 1.0%
Adaptec, Inc.* 506,900 3,847,371
Maxtor Corporation* 90,352 478,866
-----------
4,326,237
-----------
CONSTRUCTION & ENGINEERING - 2.3%
Shaw Group, Inc.* 571,300 10,197,705
-----------
DATA PROCESSING & OUTSOURCED SERVICES - 3.3%
Computer Sciences Corporation* 167,900 9,464,523
Hewitt Associates, Inc.* 76,000 2,432,760
Per-Se Technologies, Inc.* 148,450 2,349,964
-----------
14,247,247
-----------
DIVERSIFIED COMMERCIAL SERVICES - 2.9%
ChoicePoint, Inc.* 98,000 4,507,020
Equifax, Inc. 76,600 2,152,460
FTI Consulting, Inc.* 90,000 1,896,300
Navigant Consulting, Inc.*(1) 154,900 4,120,340
-----------
12,676,120
-----------
ELECTRIC UTILITIES - 6.7%
KFx, Inc.* 2,016,000 29,272,320
-----------
ELECTRICAL COMPONENTS & EQUIPMENT - 4.7%
Electric City Corporation* 2,214,000 2,723,220
Plug Power, Inc.* 936,000 5,718,960
Power-One, Inc.* 1,350,000 12,042,000
-----------
20,484,180
-----------
ELECTRONIC EQUIPMENT MANUFACTURERS - 3.1%
Aeroflex, Inc.* 418,000 5,066,160
Identix, Inc.* 119,000 878,220
Maxwell Technologies, Inc.* 629,100 6,379,074
Universal Display Corporation* 158,200 1,423,800
-----------
13,747,254
-----------
EXCHANGE TRADED FUNDS - 3.2%
iShares S&P MidCap 400 Index Fund 4,000 530,320
iShares S&P MidCap 400/BARRA
Growth Index Fund 65,000 8,776,950
S&P MidCap 400 Depositary Receipts 40,000 4,845,200
-----------
14,152,470
-----------
GENERAL MERCHANDISE STORES - 2.3%
Fred's, Inc. 566,000 9,848,400
-----------
HEALTH CARE EQUIPMENT - 0.0%
Bioject Medical Technologies, Inc.* 116,300 185,964
-----------
HEALTH CARE FACILITIES - 2.5%
LifePoint Hospitals, Inc.* 76,000 2,646,320
U.S. Physical Therapy, Inc.* 225,300 3,474,126
United Surgical Partners
International, Inc.* 120,000 5,004,000
-----------
11,124,446
-----------
HEALTH CARE SERVICES - 1.3%
NDCHealth Corporation 120,000 2,230,800
Providence Service Corporation* 165,500 3,470,535
-----------
5,701,335
-----------
HEALTH CARE SUPPLIES - 1.5%
Orthovita, Inc.* 875,000 3,666,250
Staar Surgical Company* 471,300 2,940,912
-----------
6,607,162
-----------
HOME FURNISHINGS - 0.3%
Kirkland's, Inc.* 98,865 1,215,051
-----------
INDUSTRIAL MACHINERY - 0.3%
Tennant Company 35,500 1,407,575
-----------
INTERNET SOFTWARE & SERVICES - 1.2%
RADVision, Ltd.* 323,500 4,367,250
TippingPoint Technologies, Inc.* 18,825 879,127
-----------
5,246,377
-----------
See accompanying notes.
67
SERIES J
Schedule of Investments (MID CAP GROWTH SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
--------- ------------
COMMON STOCKS (CONTINUED)
IT CONSULTING & OTHER SERVICES - 6.1%
Acxiom Corporation(1) 770,000 $ 20,251,000
Keane, Inc.*(1) 430,400 6,326,880
------------
26,577,880
------------
LEISURE PRODUCTS - 0.3%
Mattel, Inc. 70,000 1,364,300
------------
METAL & GLASS CONTAINERS - 2.3%
Pactiv Corporation* 405,000 10,242,450
------------
MOVIES & ENTERTAINMENT - 3.3%
Lions Gate Entertainment Corporation*(1) 1,341,700 14,248,854
------------
OIL & GAS DRILLING - 1.4%
Ensco International, Inc. 192,000 6,094,080
------------
OIL & GAS EQUIPMENT & SERVICES - 0.9%
BJ Services Company 82,000 3,816,280
------------
OIL & GAS EXPLORATION & PRODUCTION - 7.2%
EOG Resources, Inc. 146,000 10,418,560
Pioneer Natural Resources Company 319,072 11,199,427
Rentech, Inc.* 2,601,000 5,800,230
Syntroleum Corporation* 523,750 4,205,712
------------
31,623,929
------------
OIL & GAS REFINING, MARKETING & TRANSPORTATION - 1.6%
Western Gas Resources, Inc. 90,000 2,632,500
Williams Companies, Inc. 270,000 4,398,300
------------
7,030,800
------------
PHARMACEUTICALS - 4.4%
Hollis-Eden Pharmaceuticals, Inc.* 522,346 4,920,499
Ligand Pharmaceuticals, Inc. (Cl.B)* 1,223,000 14,235,720
------------
19,156,219
------------
PUBLISHING - 2.0%
E.W. Scripps Company 180,000 8,690,400
------------
REGIONAL BANKS - 1.0%
Boston Private Financial Holdings, Inc. 150,000 4,225,500
------------
RESTAURANTS - 0.7%
Rare Hospitality International, Inc.* 100,500 3,201,930
------------
SEMICONDUCTOR EQUIPMENT - 0.7%
Mindspeed Technologies, Inc.*(1) 1,070,900 2,977,102
------------
SEMICONDUCTORS - 5.1%
Applied Micro Circuits Corporation* 1,040,000 4,378,400
Hi/fn, Inc.* 337,200 3,108,984
IXYS Corporation* 841,900 8,688,408
Intersil Corporation(1) 106,000 1,774,440
Microsemi Corporation* 249,500 4,331,320
------------
22,281,552
------------
SPECIALTY STORES - 2.8%
Cost Plus, Inc.*(1) 39,900 1,281,987
Hibbett Sporting Goods, Inc.* 247,500 6,585,975
Tractor Supply Company* 122,000 4,539,620
------------
12,407,582
------------
SYSTEMS SOFTWARE - 2.5%
BEA Systems, Inc.* 220,000 1,949,200
Microsoft Corporation 94,600 2,526,766
Wind River Systems, Inc.* 484,100 6,559,555
------------
11,035,521
------------
TRADING COMPANIES & DISTRIBUTORS - 2.3%
MSC Industrial Direct Company, Inc. 280,000 10,074,400
------------
TOTAL COMMON STOCKS
(cost $334,271,612) 437,462,675
------------
WARRANTS - 0.2%
Bioject Medical Technologies, Inc.* 16,875 356
Electric City Corporation* 645,750 266,071
Hollis-Eden Pharmaceuticals, Inc.* 18,126 44,458
Orthovita, Inc.* 175,000 259,053
Syntroleum Corporation* 29,100 101,559
------------
TOTAL WARRANTS
(cost $1,061,090) 671,497
------------
TOTAL INVESTMENTS - 100.1%
(cost $335,332,702) 438,134,172
LIABILITIES, LESS CASH AND OTHER ASSETS - (0.1%) (345,569)
------------
TOTAL NET ASSETS - 100.0% $437,788,603
============
For federal income tax purposes the identified cost of investments owned at
December 31, 2004 was $336,976,836.
* Non-income producing security
(1) Security is segregated as collateral for written options contracts.
See accompanying notes.
68
SERIES J
(MID CAP GROWTH SERIES)
Statement of Assets and Liabilities
December 31, 2004
ASSETS:
Investments, at value(1) ...................................... $ 438,134,172
Receivables:
Fund shares sold ............................................ 1,255,051
Dividends ................................................... 68,235
Prepaid expenses .............................................. 8,200
-------------
Total assets .................................................. 439,465,658
-------------
LIABILITIES:
Cash overdraft ................................................ 91,249
Payable for:
Securities purchased ...................................... 192,446
Fund shares redeemed ...................................... 595,248
Written options, at value(2) .............................. 435,340
Management fees ........................................... 274,826
Custodian fees ............................................ 3,277
Transfer agent and administration fees .................... 35,587
Professional fees ......................................... 30,603
Other ..................................................... 18,479
-------------
Total liabilities ............................................. 1,677,055
-------------
NET ASSETS .................................................... $ 437,788,603
=============
NET ASSETS CONSIST OF:
Paid in capital ............................................... $ 339,078,402
Accumulated net investment income ............................. -
Accumulated net realized loss
on sales of investments and options ......................... (4,324,954)
Net unrealized appreciation in value
of investments and written options .......................... 103,035,155
-------------
Net assets .................................................... $ 437,788,603
=============
Capital shares authorized ..................................... indefinite
Capital shares outstanding .................................... 15,846,910
Net asset value and redemption price
per share (net assets divided by
shares outstanding) ......................................... $ 27.63
=============
(1) Investments, at cost ...................................... $ 335,332,702
(2) Premiums recevied ......................................... $ 669,025
Statement of Operations
For the Year Ended December 31, 2004
INVESTMENT INCOME:
Dividends ................................. $ 1,456,960
Interest .................................. 41,874
------------
Total investment income ................... 1,498,834
------------
EXPENSES:
Management fees ........................... 3,225,844
Custodian fees ............................ 27,158
Transfer/maintenance fees ................. 22,570
Administration fees ....................... 370,758
Directors' fees ........................... 21,895
Professional fees ......................... 45,756
Reports to shareholders ................... 39,162
Other expenses ............................ 15,054
------------
Total expenses ............................ 3,768,197
------------
Net investment loss ....................... (2,269,363)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain during the period on:
Investments ............................... 24,298,010
Options written and purchased ............. 644,966
------------
Net realized gain ......................... 24,942,976
------------
Net change in unrealized appreciation
during the period on: .....................
Investments ............................... 16,999,829
Options written and purchased ............. 79,416
------------
Net unrealized appreciation ............... 17,079,245
------------
Net gain ...................................... 42,022,221
------------
Net increase in net assets ....................
resulting from operations ................. $ 39,752,858
============
See accompanying notes.
69
SERIES J
Statement of Changes in Net Assets (MID CAP GROWTH SERIES)
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment loss.................................................................... $ (2,269,363) $ (1,926,032)
Net realized gain during the period on investments and options written and purchased... 24,942,976 9,931,180
Net change in unrealized appreciation during the period on
investments and options written and purchased........................................ 17,079,245 151,389,910
----------------- -----------------
Net increase in net assets resulting from operations................................... 39,752,858 159,395,058
----------------- -----------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares........................................................... 99,200,455 108,547,105
Issuance of shares in connection with SBL Series T merger (Note 9)..................... - 28,421,162
Cost of shares redeemed................................................................ (149,093,130) (141,812,415)
----------------- -----------------
Net decrease from capital share transactions........................................... (49,892,675) (4,844,148)
----------------- -----------------
Net increase (decrease) in net assets.................................................. (10,139,817) 154,550,910
----------------- -----------------
NET ASSETS:
Beginning of period.................................................................... 447,928,420 293,377,510
----------------- -----------------
End of period.......................................................................... $ 437,788,603 $ 447,928,420
================= =================
Accumulated undistributed net investment income at end of period....................... $ - $ -
================= =================
CAPITAL SHARE ACTIVITY:
Shares sold............................................................................ 3,895,387 5,553,332
Shares issued in connection with SBL Series T merger................................... - 1,234,851
Shares redeemed........................................................................ (5,898,622) (7,211,922)
----------------- -----------------
Total capital share activity........................................................... (2,003,235) (423,739)
================= =================
See accompanying notes.
70
SERIES J
Financial Highlights (MID CAP GROWTH SERIES)
Selected data for each share of capital
stock outstanding throughout each year
YEAR ENDED DECEMBER 31,
2004 2003(D) 2002 2001 2000
---------- ---------- ---------- ---------- ------------
PER SHARE DATA
Net asset value, beginning of period $ 25.09 $ 16.05 $ 24.12 $ 32.82 $ 30.15
---------- ---------- ---------- ---------- ------------
Income (loss) from investment operations:
Net investment income (loss) (0.14) (0.11) (0.11) (0.13) (0.12)
Net gain (loss) on securities (realized and unrealized) 2.68 9.15 (6.69) (4.43) 5.37
---------- ---------- ---------- ---------- ------------
Total from investment operations 2.54 9.04 (6.80) (4.56) 5.25
---------- ---------- ---------- ---------- ------------
Less distributions:
Dividends from net investment income - - - - -
Distributions from realized gains - - (1.27) (4.14) (2.58)
---------- ---------- ---------- ---------- ------------
Total distributions - - (1.27) (4.14) (2.58)
---------- ---------- ---------- ---------- ------------
Net asset value, end of period $ 27.63 $ 25.09 $ 16.05 $ 24.12 $ 32.82
========== ========== ========== ========== ============
TOTAL RETURN(a) 10.12% 56.32% (29.48%) (14.89%) 16.76%
---------- ---------- ---------- ---------- ------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $ 437,789 $ 447,928 $ 293,378 $ 470,236 $ 603,714
---------- ---------- ---------- ---------- ------------
Ratios to average net assets:
Net investment income (loss) (0.53%) (0.55%) (0.56%) (0.53%) (0.38%)
Total expenses 0.88% 0.83% 0.83% 0.84% 0.82%
Gross expenses(b) 0.88% 0.83% 0.83% 0.84% 0.82%
Net expenses(c) 0.88% 0.83% 0.83% 0.83% 0.82%
---------- ---------- ---------- ---------- ------------
Portfolio turnover rate 37% 61% 41% 39% 33%
(a) Total return does not take into account any of the expenses associated
with an investment in variable insurance products offered by Security
Benefit Life Insurance Company. 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.
(b) Gross expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net expense information reflects expense ratios after expense reductions
or fee waivers and reduction of custodian expenses.
(d) The financial highlights for Series J exclude the historical financial
highlights of Series T. The assets of Series T were acquired by Series J
on October 3, 2003.
See accompanying notes.
71
SERIES N
Manager's Commentary (MANAGED ASSET ALLOCATION SERIES)
February 15, 2005 (unaudited)
[T. ROWE PRICE LOGO]
Advisor, T. Rowe Price Associates, Inc.
[PHOTO OF EDMUND M. NOTZON]
Edmund M. Notzon
Portfolio Manager
TO OUR SHAREHOLDERS:
ENVIRONMENT
U.S. stocks rose moderately in 2004, extending the previous year's brisk gains.
After beginning the year on a strong note, stocks struggled to make headway as
economic growth moderated amid rising short-term interest rates, surging energy
costs and a heated presidential campaign. Stock prices rose as oil prices backed
away from their late-October peak of $55 per barrel, and gains accelerated
following the re-election of President Bush. By year end, several major indexes
were at or near their highest levels of the year. Non-U.S. stocks strongly
outperformed their U.S. counterparts, thanks partially to a weakening U.S.
dollar, which fell to multi-year lows against several major currencies.
U.S. bonds generated positive returns in 2004. The Federal Reserve lifted the
overnight federal funds target rate from 1% to 2.25% in five quarter-point
increments beginning on June 30. Short-term interest rates rose in tandem with
the fed funds rate, but long-term rates declined in the second half of the year
after peaking in the spring.
PERFORMANCE
The Managed Asset Allocation Series returned 10.72%(1) for the 12 months ended
December 31, 2004, outperforming its 60% S&P 500/40% Lehman Brothers U.S.
Aggregate benchmark, which returned 8.30%. The Series benefited from
overweighting U.S. stocks relative to bonds, as well as from overweighting
international stocks. The S&P 500 returned 10.88% during the year and the Lehman
Brothers U.S. Aggregate Index returned 4.34%.
PORTFOLIO HIGHLIGHTS
In the second half of the year, we increased the portfolio's overweighting in
equities and underweighting in bonds from 5% to 7% relative to the neutral
weights. We maintained a stock overweight throughout 2004, as we believed that a
strengthening economy would continue to put upward pressure on interest rates
over the near term, which would negatively impact bond values.
The Federal Reserve raised the federal funds target rate from 1.75% to 2.25% in
two quarter-point increments during the fourth quarter. Looking ahead into 2005,
we anticipate that the central bank will continue shifting from an accommodative
monetary policy to a more neutral policy that neither stimulates nor stifles
economic growth.
As mentioned earlier, we are overweight in international equities within the
stock position. The fundamental factors of a fiscal and current account deficit
will likely contribute to continued pressure on the U.S. dollar, favoring an
overweighting in non-U.S. equities.
OUTLOOK
We continue to believe that the longer term outlook for stocks is favorable. At
the same time, the potentially stimulative impact of economic and monetary
policy, combined with the low absolute level of interest rates, favors
underweighting bonds. Looking ahead, we do not necessarily believe that the
equity markets will outperform over the next three to six months, but we believe
that, based on current economic conditions and valuations, equities should fare
better than bonds over the next several years.
Sincerely,
Edmund M. Notzon
Portfolio Manager
72
SERIES N
Manager's Commentary (MANAGED ASSET ALLOCATION SERIES)
February 15, 2005 (unaudited)
PERFORMANCE
[PERFORMANCE GRAPH]
SBL N INVESTMENT INFORMATION
DATE value
- ---------- ---------
6/01/95 $10,000.00
6/30/95 10,070.00
9/30/95 10,440.00
12/31/95 10,730.00
3/31/96 10,970.00
6/30/96 11,160.00
9/30/96 11,448.68
12/31/96 12,103.18
3/31/97 12,203.87
6/30/97 13,512.87
9/30/97 14,117.22
12/31/97 14,334.09
3/31/98 15,544.03
6/30/98 15,946.94
9/30/98 15,225.93
12/31/98 16,975.43
3/31/99 17,327.55
6/30/99 17,855.90
9/30/99 18,955.72
12/31/99 18,628.57
3/31/00 19,079.44
6/30/00 18,881.50
9/30/00 18,919.68
12/31/00 18,460.47
3/31/01 17,200.98
6/30/01 17,856.62
9/30/01 16,378.21
12/31/01 17,522.37
3/31/02 17,690.71
6/30/02 16,695.53
9/30/02 14,993.24
12/31/02 15,834.90
3/31/03 15,620.19
6/30/03 17,539.17
9/30/03 17,996.65
12/31/03 19,619.47
3/31/04 20,137.21
6/30/04 20,150.83
9/30/04 20,230.36
12/31/04 21,723.33
S& P 500
DATE VALUE
- ---------- ---------
6/01/95 $10,000.00
6/30/95 10,232.00
9/30/95 11,045.37
12/31/95 11,710.49
3/31/96 12,338.58
6/30/96 12,891.78
9/30/96 13,290.32
12/31/96 14,398.75
3/31/97 14,784.33
6/30/97 17,365.69
9/30/97 18,667.97
12/31/97 19,204.65
3/31/98 21,883.72
6/30/98 22,606.56
9/30/98 20,357.02
12/31/98 24,690.70
3/31/99 25,924.50
6/30/99 27,751.50
9/30/99 26,018.24
12/31/99 29,889.36
3/31/00 30,576.32
06/30/00 29,765.52
09/30/00 29,477.60
12/31/00 27,173.21
3/31/01 23,953.00
6/30/01 25,355.62
9/30/01 21,636.12
12/31/01 23,949.47
3/31/02 24,014.56
6/30/02 20,798.00
9/30/02 17,206.02
12/31/02 18,659.17
3/31/03 18,071.52
6/30/03 20,853.28
9/30/03 21,405.18
12/31/03 24,011.57
3/31/04 24,418.90
6/30/04 24,837.49
9/30/04 24,371.83
12/31/04 26,622.28
BLENDED INDEX
DATE Value
- ---------- ------
6/01/95 $10,000
6/30/95 10,168
9/30/95 10,732
12/31/95 11,304
3/31/96 11,583
6/30/96 11,920
9/30/96 12,235
12/31/96 12,995
3/31/97 13,180
6/30/97 14,738
9/30/97 15,606
12/31/97 16,067
3/31/98 17,498
6/30/98 18,012
9/30/98 17,262
12/31/98 19,437
3/31/99 19,979
6/30/99 20,751
9/30/99 20,023
12/31/99 21,770
3/31/00 22,289
06/30/00 22,086
09/30/00 22,238
12/31/00 21,556
3/31/01 20,264
6/30/01 21,033
9/30/01 19,509
12/31/01 20,758
3/31/02 20,810
6/30/02 19,402
9/30/02 17,684
12/31/02 18,722
3/31/03 18,471
6/30/03 20,343
9/30/03 20,663
12/31/03 22,182
3/31/04 22,644
6/30/04 22,654
9/30/04 22,687
12/31/04 24,021
SBL Fund Series N $21,723
Blended Index $24,021
S& P 500 Index $ 26,622
$10,000 SINCE INCEPTION
The chart above assumes a hypothetical $10,000 investment in Series N (Managed
Asset Allocation Series) on June 1, 1995 (date of inception), and reflects the
fees and expenses of Series N.
AVERAGE ANNUAL RETURNS
SINCE INCEPTION
PERIODS ENDED 12-31-04(1) 1 YEAR 5 YEARS (6-1-95)
- ------------------------- ------ ------- ---------------
Series N 10.72% 3.12% 8.43%
(1) 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 FOR EQUITY HOLDINGS & QUALITY RATINGS (BASED ON
STANDARD AND POOR'S RATINGS) FOR FIXED INCOME HOLDINGS
Consumer Discretionary 8.63%
Consumer Staples 6.00
Energy 4.98
Financials 15.49
Health Care 7.73
Industrials 7.53
Information Technology 9.26
Materials 2.97
Telecommunication Services 2.48
Utilities 2.09
AAA 16.40
AA 0.58
A 2.30
BBB 3.66
BB 1.70
B 5.59
CCC 0.28
Not Rated 0.06
Cash & other assets, less liabilities 2.27
See accompanying notes.
73
SERIES N
Manager's Commentary (MANAGED ASSET ALLOCATION SERIES)
February 15, 2005 (unaudited)
PERFORMANCE
INFORMATION ABOUT YOUR SERIES EXPENSES
CALCULATING YOUR ONGOING SERIES EXPENSES
EXAMPLE
As a shareholder of the Series, you incur ongoing costs, including management
fees and other series expenses. Performance figures and expense ratios do not
reflect fees and expenses associated with an investment in variable insurance
products. Shares of a Series of SBL Fund are available only through the purchase
of such products. This Example is intended to help you understand your ongoing
costs (in dollars) of investing in the Series and to compare these costs with
ongoing costs of investing in other mutual funds. The Example is based on an
investment of $1,000 invested at the beginning of the period and held for the
entire period, July 1, 2004 - December 31, 2004.
ACTUAL EXPENSES
The first line in the table provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the table provides information about hypothetical account
values and hypothetical expenses based on the Series actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Series
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Series and other funds. To do so, compare this 5% hypothetical example with the
5% hypothetical examples that appear in the shareholder reports of the other
funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any fees and expenses associated with an
investment in variable insurance products. Therefore, the second line is useful
in comparing ongoing costs only, and will not help you determine the relative
total costs of owning different funds. In addition, if these fees and expenses
associated with an investment in variable insurance products were included, your
costs would have been higher.
FUND EXPENSES
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING
07-01-04 12-31-04(1) PERIOD(2)
------------- ------------- -------------
Series N (Managed Asset Allocation Series)
Actual $ 1,000.00 $ 1,072.30 $ 7.71
Hypothetical 1,000.00 1,017.70 7.51
(1) The actual ending account value is based on the actual total return of the
Series for the period July 1, 2004 to December 31, 2004 after actual
expenses and will differ from the hypothetical ending account value which
is based on the Series expense ratio and a hypothetical annual return of
5% before expenses. The actual cumulative return at net asset value for
the period July 1, 2004 to December 31, 2004 was 7.23%.
(2) Expenses are equal to the Series annualized expense ratio 1.48% multiplied
by the average account value over the period, multiplied by 184/366 (to
reflect the one-half year period).
74
SERIES N
Schedule of Investments (MANAGED ASSET ALLOCATION SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS - 55.2%
ADVERTISING - 0.1%
Lamar Advertising Company* 400 $ 17,112
WPP Group plc ADR 600 32,790
--------------
49,902
--------------
AEROSPACE & DEFENSE - 1.1%
Boeing Company 2,500 129,425
Engineered Support Systems, Inc. 300 17,766
General Dynamics Corporation 1,000 104,600
Goodrich Corporation 400 13,056
Honeywell International, Inc. 7,400 262,034
Lockheed Martin Corporation 1,700 94,435
Mercury Computer Systems, Inc.* 800 23,744
Raytheon Company 1,100 42,713
Rockwell Colllins, Inc. 2,500 98,600
Triumph Group, Inc.* 300 11,850
United Technologies Corporation 1,700 175,695
--------------
973,918
--------------
AIR FREIGHT & LOGISTICS - 0.5%
Expeditors International of Washington,Inc. 200 11,176
UTI Worldwide, Inc. 500 34,010
United Parcel Service, Inc. (Cl.B) 5,200 444,392
--------------
489,578
--------------
AIRLINES - 0.1%
Frontier Airlines, Inc.* 2,150 24,532
SkyWest, Inc. 1,800 36,108
Southwest Airlines Company 3,800 61,864
--------------
122,504
--------------
ALUMINUM - 0.1%
Alcoa, Inc. 3,500 109,970
--------------
APPAREL RETAIL - 0.4%
Chico's FAS, Inc.* 600 27,318
Hot Topic, Inc.* 4,200 72,198
Pacific Sunwear of California, Inc.* 900 20,034
Ross Stores, Inc. 4,100 118,367
TJX Companies, Inc. 3,500 87,955
--------------
325,872
--------------
APPAREL, ACCESSORIES & LUXURY GOODS - 0.0%
Fossil, Inc.* 1,000 25,640
--------------
APPLICATION SOFTWARE - 0.4%
Cadence Design Systems, Inc.* 700 9,667
FactSet Research Systems, Inc. 300 17,532
Fair Isaac Corporation 845 30,995
Intuit, Inc.* 2,200 96,822
Jack Henry & Associates, Inc. 800 15,928
Mercury Interactive Corporation* 600 27,330
NetIQ Corporation* 4,600 56,166
Serena Software, Inc.* 800 17,312
Tibco Software, Inc.* 1,700 22,678
Verity, Inc.* 3,900 51,168
--------------
345,598
--------------
ASSET MANAGEMENT & CUSTODY BANKS - 0.7%
Eaton Vance Corporation 500 26,075
Franklin Resources, Inc. 1,400 97,510
Investors Financial Services Corporation 3,100 154,938
Legg Mason, Inc. 1,000 73,260
State Street Corporation 5,800 284,896
Waddell & Reed Financial, Inc. 800 19,112
--------------
655,791
--------------
AUTO PARTS & EQUIPMENT - 0.2%
Autoliv, Inc. 600 28,980
Gentex Corporation 600 22,212
Lear Corporation 800 48,808
TRW Automotive Holdings Corporation* 4,300 89,010
--------------
189,010
--------------
AUTOMOBILE MANUFACTURERS - 0.2%
General Motors Corporation 3,800 152,228
--------------
BIOTECHNOLOGY - 1.0%
Abgenix, Inc.* 900 9,306
Alkermes, Inc.* 900 12,681
Amgen, Inc.* 6,200 397,730
Biogen Idec, Inc.* 1,700 113,237
Celgene Corporation* 500 13,265
Cephalon, Inc.* 895 45,538
Charles River Laboratories International, Inc.* 400 18,404
Chiron Corporation* 900 29,997
Digene Corporation* 600 15,690
Genentech, Inc.* 1,800 97,992
Gilead Sciences, Inc.* 2,600 90,974
Human Genome Sciences, Inc.* 1,000 12,020
Invitrogen Corporation* 316 21,213
Martek Biosciences Corporation* 300 15,360
Medlmmune, Inc.* 1,000 27,110
Neurocrine Biosciences, Inc.* 400 19,720
Techne Corporation* 400 15,560
--------------
955,797
--------------
BREWERS - 0.1%
Anheuser-Busch Companies, Inc. 2,100 106,533
--------------
BROADCASTING & CABLE TV - 0.7%
Comcast Corporation* 5,500 183,040
Cox Radio, Inc.* 700 11,536
DirecTV Group, Inc.* 2,440 40,846
EchoStar Communications Corporation 900 29,916
Emmis Communications Corporation* 800 15,352
Liberty Media Corporation* 17,464 191,755
Liberty Media International, Inc.* 303 14,008
Radio One, Inc. (Cl.D)* 1,700 27,404
Rogers Communications, Inc. (Cl.B) 4,100 107,215
--------------
621,072
--------------
See accompanying notes.
75
SERIES N
Schedule of Investments (MANAGED ASSET ALLOCATION SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS (CONTINUED)
BUILDING PRODUCTS - 0.1%
American Standard Companies, Inc.* 900 $ 37,188
Trex Company, Inc.* 500 26,220
--------------
63,408
--------------
CASINOS & GAMING - 0.3%
Caesars Entertainment, Inc.* 700 14,098
International Game Technology 3,300 113,454
Mandalay Resort Group 100 7,043
Station Casinos, Inc. 1,200 65,616
WMS Industries, Inc.* 1,600 53,664
--------------
253,875
--------------
CATALOG RETAIL - 0.2%
IAC/InterActiveCorp* 4,900 135,338
Insight Enterprises, Inc.* 1,000 20,520
--------------
155,858
--------------
COMMODITY CHEMICALS - 0.0%
Lyondell Chemical Company 885 25,594
--------------
COMMUNICATIONS EQUIPMENT - 1.5%
Andrew Corporation* 700 9,541
Avaya, Inc.* 600 10,320
Belden CDT, Inc. 300 6,960
Cisco Systems, Inc.* 27,800 536,540
Comverse Technology, Inc.* 1,200 29,340
Corning, Inc.* 8,000 94,160
F5 Networks, Inc.* 200 9,744
Inter-Tel, Inc. 600 16,428
Juniper Networks, Inc.* 2,400 65,256
Lucent Technologies, Inc.* 12,800 48,128
Motorola, Inc. 10,700 184,040
Nokia Oyj ADR 1,600 25,072
Plantronics, Inc. 500 20,735
Polycom, Inc.* 1,400 32,648
Qualcomm, Inc. 7,000 296,800
Research In Motion, Ltd. 600 49,452
--------------
1,435,164
--------------
COMPUTER & ELECTRONICS RETAIL - 0.1%
Best Buy Company, Inc. 1,550 92,101
--------------
COMPUTER HARDWARE - 1.5%
Dell, Inc.* 18,200 766,948
Gateway, Inc.* 2,800 16,828
Hewlett-Packard Company 6,111 128,148
International Business
Machines Corporation 5,100 502,758
--------------
1,414,682
--------------
COMPUTER STORAGE & PERIPHERALS - 0.3%
Avid Technology, Inc.* 300 18,525
Lexmark International, Inc.* 1,000 85,000
QLogic Corporation* 3,100 113,863
Storage Technology Corporation* 1,000 31,610
--------------
248,998
--------------
CONSTRUCTION & ENGINEERING - 0.0%
Insituform Technologies, Inc.* 900 20,403
--------------
CONSTRUCTION & FARM MACHINERY - 0.4%
Deere & Company 2,900 215,760
Oshkosh Truck Corporation 700 47,866
Paccar, Inc. 900 72,432
--------------
336,058
--------------
CONSUMER ELECTRONICS - 0.1%
Digital Theater Systems, Inc.* 2,000 40,260
--------------
CONSUMER FINANCE - 0.6%
American Express Company 5,400 304,398
Jackson Hewitt Tax Service, Inc. 400 10,100
MBNA Corporation 3,100 87,389
Providian Financial Corporation* 1,200 19,764
SLM Corporation 3,300 176,187
--------------
597,838
--------------
DATA PROCESSING & OUTSOURCED SERVICES - 0.5%
Automatic Data Processing, Inc. 4,200 186,270
DST Systems, Inc.* 600 31,272
First Data Corporation 3,500 148,890
Fiserv, Inc.* 800 32,152
Global Payments, Inc. 300 17,562
Iron Mountain, Inc.* 1,050 32,015
--------------
448,161
--------------
DEPARTMENT STORES - 0.3%
Kohl's Corporation* 4,700 231,099
--------------
DIVERSIFIED BANKS - 2.4%
Bank of America Corporation 12,776 600,344
CapitalSource, Inc.* 3,600 92,412
Comerica, Inc. 5,700 347,814
Popular, Inc. 1,100 31,713
U.S. Bancorp 21,300 667,116
Wachovia Corporation 5,000 263,000
Wells Fargo & Company 4,200 261,030
--------------
2,263,429
--------------
DIVERSIFIED CHEMICALS - 0.6%
Cabot Corporation 2,000 77,360
Dow Chemical Company 5,200 257,452
E.I. du Pont de Nemours & Company 3,851 188,892
--------------
523,704
--------------
DIVERSIFIED COMMERCIAL SERVICES - 0.3%
Apollo Group, Inc.* 700 56,497
Career Education Corporation* 400 16,000
Cendant Corporation 4,000 93,520
ChoicePoint, Inc.* 466 21,431
Cintas Corporation 700 30,702
Corinthian Colleges, Inc.* 500 9,422
Corporate Executive Board Company 600 40,164
DeVry, Inc.* 500 8,680
Education Management Corporation* 700 23,107
--------------
299,523
--------------
See accompanying notes.
76
SERIES N
Schedule of Investments (MANAGED ASSET ALLOCATION SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS (CONTINUED)
DIVERSIFIED METALS & MINING - 0.1%
BHP Billiton, Ltd. ADR 4,100 $ 98,482
--------------
DRUG RETAIL - 0.3%
CVS Corporation 2,400 108,168
Walgreen Company 5,500 211,035
--------------
319,203
--------------
ELECTRIC UTILITIES - 1.2%
Alliant Energy Corporation 700 20,020
American Electric Power Company, Inc. 1,500 51,510
Black Hills Corporation 400 12,272
Edison International 2,300 73,669
El Paso Electric Company* 2,500 47,350
Entergy Corporation 1,100 74,349
Exelon Corporation 3,100 136,617
FirstEnergy Corporation 3,500 138,285
Great Plains Energy, Inc. 1,100 33,308
OGE Energy Corporation 1,000 26,510
PG&E Corporation* 2,500 83,200
PPL Corporation 2,100 111,888
Pinnacle West Captial Corporation 1,300 57,733
Southern Company 1,600 53,632
TXU Corporation 2,400 154,944
Teco Energy, Inc. 2,500 38,350
--------------
1,113,637
--------------
ELECTRICAL COMPONENTS & EQUIPMENT - 0.0%
C&D Technologies, Inc. 700 11,928
Roper Industries, Inc. 400 24,308
--------------
36,236
--------------
ELECTRONIC EQUIPMENT MANUFACTURERS - 0.0%
Aeroflex, Inc.* 900 10,908
CyberOptics Corporation* 300 4,461
Littelfuse, Inc.* 500 17,080
--------------
32,449
--------------
ELECTRONIC MANUFACTURING SERVICES - 0.2%
AVX Corporation 800 10,080
Flextronics International, Ltd.* 4,000 55,280
Jabil Circuit, Inc.* 2,900 74,182
Plexus Corporation* 1,300 16,913
--------------
156,455
--------------
EMPLOYMENT SERVICES - 0.1%
Manpower, Inc. 1,200 57,960
Monster Worldwide, Inc.* 800 26,912
Robert Half International, Inc. 1,000 29,430
--------------
114,302
--------------
ENVIRONMENTAL SERVICES - 0.1%
Republic Services, Inc. 1,100 36,894
Stericycle, Inc.* 100 4,595
Waste Connections, Inc.* 500 17,125
Waste Management, Inc. 1,612 48,263
--------------
106,877
--------------
FERTILIZERS & AGRICULTURAL CHEMICALS - 0.2%
Agrium, Inc. 600 10,110
Mosaic Company* 3,700 60,384
Potash Corporation of Saskatchewan, Inc. 1,500 124,590
--------------
195,084
--------------
FOOD DISTRIBUTORS - 0.1%
Performance Food Group Company* 300 8,073
Sysco Corporation 2,600 99,242
United Natural Foods, Inc.* 700 21,770
--------------
129,085
--------------
FOOD RETAIL - 0.0%
Whole Foods Market, Inc. 200 19,070
--------------
FOREST PRODUCTS - 0.1%
Weyerhaeuser Company 600 40,332
--------------
GAS UTILITIES - 0.1%
NiSource, Inc. 3,000 68,340
WGL Holdings, Inc. 600 18,504
--------------
86,844
--------------
GENERAL MERCHANDISE STORES - 0.6%
Dollar Tree Stores, Inc.* 700 20,076
Family Dollar Stores, Inc. 3,600 112,428
Fred's, Inc. 600 10,440
Target Corporation 7,200 373,896
--------------
516,840
--------------
GOLD - 0.1%
Newmont Mining Corporation 2,700 119,907
--------------
HEALTH CARE DISTRIBUTORS - 0.2%
AmerisourceBergen Corporation 400 23,472
Cardinal Health, Inc. 2,350 136,652
Omnicare, Inc. 800 27,696
Patterson Companies, Inc.* 400 17,356
Priority Healthcare Corporation (Cl.B)* 200 4,354
--------------
209,530
--------------
HEALTH CARE EQUIPMENT - 1.2%
Baxter International, Inc. 2,700 93,258
Becton, Dickinson & Company 1,000 56,800
Biomet, Inc. 1,200 52,068
Boston Scientific Corporation* 3,900 138,645
C.R. Bard, Inc. 800 51,184
Cytyc Corporation* 1,300 35,841
Dentsply International, Inc. 500 28,100
Guidant Corporation 1,100 79,310
Inamed Corporation* 200 12,650
Medtronic, Inc. 5,500 273,185
St. Jude Medical, Inc.* 1,800 75,474
Steris Corporation* 1,100 26,092
Stryker Corporation 1,900 91,675
Thoratec Corporation* 400 4,168
Zimmer Holdings, Inc.* 1,000 80,120
--------------
1,098,570
--------------
See accompanying notes.
77
SERIES N
Schedule of Investments (MANAGED ASSET ALLOCATION SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS (CONTINUED)
HEALTH CARE FACILITIES - 0.2%
AmSurg Corporation* 400 $ 11,816
Community Health Systems, Inc.* 2,300 64,124
HCA, Inc. 1,200 47,952
LifePoint Hospitals, Inc.* 300 10,446
Symbion, Inc.* 700 15,456
Triad Hospitals, Inc.* 310 11,535
United Surgical Partners International,Inc.* 400 16,680
--------------
178,009
--------------
HEALTH CARE SERVICES - 0.4%
Accredo Health, Inc.* 900 24,948
Advisory Board Company* 3,600 132,768
Caremark Rx, Inc.* 1,900 74,917
Computer Programs & Systems, Inc. 1,500 34,725
DaVita, Inc.* 750 29,647
Laboratory Corporation of America Holdings* 900 44,838
Medco Health Soulutions, Inc.* 663 27,581
--------------
369,424
--------------
HEALTH CARE SUPPLIES - 0.0%
Bausch & Lomb, Inc. 200 12,892
Edwards Lifesciences Corporation* 300 12,378
Merit Medical Systems, Inc.* 700 10,696
--------------
35,966
--------------
HOME ENTERTAINMENT SOFTWARE - 0.1%
Activision, Inc.* 900 18,162
Electronic Arts, Inc.* 900 55,512
--------------
73,674
--------------
HOME FURNISHINGS - 0.0%
Mohawk Industries, Inc.* 200 18,250
--------------
HOME IMPROVEMENT RETAIL - 0.6%
Home Depot, Inc. 9,350 399,619
Lowe's Companies, Inc. 3,400 195,806
--------------
595,425
--------------
HOMEBUILDING - 0.1%
D.R. Horton, Inc. 787 31,724
Levitt Corporation 400 12,228
Toll Brothers, Inc.* 700 48,027
WCI Communities, Inc.* 600 17,640
--------------
109,619
--------------
HOTELS, RESORTS & CRUISE LINES - 0.4%
Carnival Corporation 3,400 195,942
Fairmont Hotels & Resorts, Inc. 600 20,784
Marriott International, Inc. 1,100 69,278
Royal Caribbean Cruises, Ltd. 1,000 54,440
--------------
340,444
--------------
HOUSEHOLD APPLIANCES - 0.1%
Maytag Corporation 1,100 23,210
Whirlpool Corporation 500 34,605
--------------
57,815
--------------
HOUSEHOLD PRODUCTS - 1.1%
Clorox Company 1,300 76,609
Colgate-Palmolive Company 2,500 127,900
Kimberly-Clark Corporation 1,800 118,458
Procter & Gamble Company 12,800 705,024
--------------
1,027,991
--------------
HOUSEWARES & SPECIALTIES - 0.1%
Fortune Brands, Inc. 600 46,308
Newell Rubbermaid, Inc. 3,200 77,408
--------------
123,716
--------------
HYPERMARKETS & SUPERCENTERS - 0.9%
Wal-Mart Stores, Inc. 16,200 855,684
--------------
INDUSTRIAL CONGLOMERATES - 2.7%
General Electric Company 51,800 1,890,700
Teleflex, Inc. 900 46,746
Tyco International, Ltd. 16,400 586,136
--------------
2,523,582
--------------
INDUSTRIAL MACHINERY - 0.4%
Actuant Corporation* 900 46,935
Briggs & Stratton Corporation 600 24,948
Danaher Corporation 2,100 120,561
Harsco Corporation 300 16,722
ITT Industries, Inc. 300 25,335
Illinois Tool Works, Inc. 400 37,072
Nordson Corporation 500 20,035
Pall Corporation 2,200 63,690
--------------
355,298
--------------
INSURANCE BROKERS - 0.2%
Arthur J. Gallagher & Company 600 19,500
Marsh & McLennan Companies, Inc. 5,700 187,530
--------------
207,030
--------------
INTEGRATED OIL & GAS - 2.8%
BP plc ADR 1,400 81,760
ChevronTexaco Corporation 9,750 511,973
ConocoPhillips 3,300 286,539
Exxon Mobil Corporation 28,120 1,441,431
Murphy Oil Corporation 1,600 128,720
Occidental Petroleum Corporation 800 46,688
Total S.A. ADR 900 98,856
--------------
2,595,967
--------------
INTEGRATED TELECOMMUNICATION SERVICES - 1.3%
Compania de Telecomunications
de Chile S.A. ADR 2,400 26,976
SBC Communications, Inc. 5,400 139,158
Sprint Corporation 11,000 273,350
Tele Norte Leste Participacoes S.A. ADR 3,200 53,984
Telus Corporation 1,200 36,276
Telus Corporation - Non Voting Shares 4,900 141,610
Verizon Communications, Inc. 12,934 523,956
--------------
1,195,310
--------------
See accompanying notes.
78
SERIES N
Schedule of Investments (MANAGED ASSET ALLOCATION SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS (CONTINUED)
INTERNET RETAIL - 0.4%
Amazon.com, Inc.* 300 $ 13,287
eBay, Inc.* 2,700 313,956
--------------
327,243
--------------
INTERNET SOFTWARE & SERVICES - 0.5%
CNET Networks, Inc.* 5,000 56,150
Digital Insight Corporation* 900 16,560
EarthLink, Inc.* 1,600 18,432
Google, Inc.* 400 77,240
MatrixOne, Inc.* 5,400 35,370
VeriSign, Inc.* 700 23,464
Websense, Inc.* 400 20,288
Yahoo!, Inc.* 5,700 214,776
--------------
462,280
--------------
INVESTMENT BANKING & BROKERAGE - 1.3%
Ameritrade Holding Corporation* 17,000 241,740
Charles Schwab Corporation 7,900 94,484
Goldman Sachs Group, Inc. 2,200 228,888
Lehman Brothers Holdings, Inc. 1,300 113,724
Merrill Lynch & Company, Inc. 4,900 292,873
Morgan Stanley 4,600 255,392
--------------
1,227,101
--------------
IT CONSULTING & OTHER SERVICES - 0.1%
Accenture, Ltd.* 1,900 51,300
CACI International, Inc.* 100 6,813
Cognizant Tech Solutions Corporation* 300 12,699
Forrester Research, Inc.* 600 10,764
Inforte Corporation* 1,500 11,820
MTC Technologies, Inc.* 400 13,428
SRA International, Inc.* 200 12,840
--------------
119,664
--------------
LEISURE PRODUCTS - 0.2%
Brunswick Corporation 1,600 79,200
Hasbro, Inc. 1,200 23,256
Marvel Enterprises, Inc.* 1,000 20,480
Mattel, Inc. 700 13,643
SCP Pool Corporation 912 29,093
--------------
165,672
--------------
LIFE & HEALTH INSURANCE - 0.3%
Genworth Financial, Inc. 3,300 89,100
Protective Life Corporation 600 25,614
Prudential Financial, Inc. 2,700 148,392
StanCorp Financial Group, Inc. 300 24,750
--------------
287,856
--------------
MANAGED HEALTH CARE - 0.6%
Coventry Health Care, Inc.* 500 26,540
UnitedHealth Group, Inc. 4,500 396,135
WellChoice, Inc.* 300 16,020
WellPoint, Inc.* 900 103,500
--------------
542,195
--------------
MOTORCYCLE MANUFACTURERS - 0.0%
Harley-Davidson, Inc. 400 24,300
--------------
MOVIES & ENTERTAINMENT - 1.1%
Fox Entertainment Group, Inc.* 500 15,630
News Corporation 12,100 225,786
Time Warner, Inc.* 23,300 452,952
Viacom, Inc. (Cl.B) 8,400 305,676
Walt Disney Company 942 26,188
--------------
1,026,232
--------------
MULTI-LINE INSURANCE - 1.0%
American International Group, Inc. 11,675 766,697
Hartford Financial Services Group, Inc. 2,600 180,206
--------------
946,903
--------------
MULTI-UTILITIES & UNREGULATED POWER - 0.4%
CMS Energy Corporation* 1,400 14,630
Constellation Energy Group 1,100 48,081
Duke Energy Corporation 7,700 195,041
Dynegy, Inc.* 4,800 22,176
Energy East Corporation 1,100 29,348
National Fuel Gas Company 1,000 28,340
Sempra Energy 500 18,340
--------------
355,956
--------------
OFFICE SERVICES & SUPPLIES - 0.1%
Herman Miller, Inc. 1,000 27,630
Pitney Bowes, Inc. 900 41,652
--------------
69,282
--------------
OIL & GAS DRILLING - 0.2%
Grey Wolf, Inc.* 3,400 17,918
Helmerich & Payne, Inc. 300 10,212
Nabors Industries, Ltd.* 600 30,774
Patterson-UTI Energy, Inc. 1,400 27,230
Transocean, Inc.* 2,809 119,073
--------------
205,207
--------------
OIL & GAS EQUIPMENT & SERVICES - 0.6%
Baker Hughes, Inc. 1,900 81,073
BJ Services Company 1,000 46,540
Cooper Cameron Corporation* 200 10,762
FMC Technologies, Inc.* 2,371 76,346
Grant Prideco, Inc.* 2,400 48,120
Maverick Tube Corporation* 800 24,240
National-Oilwell, Inc.* 300 10,587
Schlumberger, Ltd. 3,500 234,325
--------------
531,993
--------------
OIL & GAS EXPLORATION & PRODUCTION - 0.3%
Anadarko Petroleum Corporation 1,063 68,893
Comstock Resources, Inc.* 1,000 22,050
Devon Energy Corporation 800 31,136
EOG Resources, Inc. 800 57,088
Newfield Exploration Company* 500 29,525
Pioneer Natural Resources Company 1,000 35,100
--------------
243,792
--------------
See accompanying notes.
79
SERIES N
Schedule of Investments (MANAGED ASSET ALLOCATION SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS (CONTINUED)
OIL & GAS REFINING, MARKETING &
TRANSPORTATION - 0.0%
Premcor, Inc. 300 $ 12,651
Williams Companies, Inc. 700 11,403
---------
24,054
---------
OTHER DIVERSIFIED FINANCIAL SERVICES
- 2.1%
Catellus Development Corporation 444 13,586
Citigroup, Inc. 23,873 1,150,201
First Marblehead Corporation* 200 11,250
JP Morgan Chase & Company 19,136 746,495
---------
1,921,532
---------
PACKAGED FOODS & MEATS - 0.5%
Campbell Soup Company 2,300 68,747
Dean Foods Company* 750 24,712
General Mills, Inc. 3,000 149,130
H.J. Heinz Company 620 24,174
Hershey Foods Corporation 1,100 61,094
Kellogg Company 2,100 93,786
Kraft Foods, Inc. 900 32,049
SunOpta, Inc.* 2,500 17,950
Tootsie Roll Industries, Inc. 452 15,653
---------
487,295
---------
PAPER PACKAGING - 0.0%
Smurfit-Stone Container Corporation* 1,000 18,680
---------
PAPER PRODUCTS - 0.3%
Bowater, Inc. 900 39,573
International Paper Company 2,800 117,600
MeadWestvaco Corporation 1,800 61,002
Potlatch Corporation 1,400 70,812
---------
288,987
---------
PERSONAL PRODUCTS - 0.2%
Estee Lauder Companies, Inc. 500 22,885
Gillette Company 4,200 188,076
---------
210,961
---------
PHARMACEUTICALS - 3.2%
Abbott Laboratories 5,600 261,240
AstraZeneca plc ADR 600 21,834
Bradley Pharmaceuticals, Inc.* 600 11,640
Elan Corporation plc ADR* 1,100 29,975
Eli Lilly & Company 5,300 300,775
Eon Labs, Inc.* 400 10,800
Forest Laboratories, Inc.* 1,600 71,776
GlaxoSmithKline plc ADR 900 42,651
Johnson & Johnson 12,288 779,305
Medicis Pharmaceutical Corporation 600 21,066
Merck & Company, Inc. 8,600 276,404
Noven Pharmaceuticals, Inc.* 1,100 18,766
Pfizer, Inc. 30,073 808,663
Schering-Plough Corporation 2,400 50,112
Watson Pharmaceuticals, Inc.* 800 26,248
Wyeth 6,300 268,317
---------
2,999,572
---------
PROPERTY & CASUALTY INSURANCE - 1.0%
Allstate Corporation 900 46,548
Assurant, Inc. 1,200 36,660
Axis Capital Holdings, Ltd. 3,200 87,552
Markel Corporation* 70 25,480
Mercury General Corporation 200 11,984
Progressive Corporation 1,000 84,840
Safeco Corporation 1,900 99,256
St. Paul Travelers Companies, Inc. 10,714 397,168
Triad Guaranty, Inc.* 600 36,288
XL Capital, Ltd. 1,600 124,240
---------
950,016
---------
PUBLISHING - 0.4%
Dow Jones & Company, Inc. 700 30,142
E.W. Scripps Company 400 19,312
Gannett Company, Inc. 1,300 106,210
Getty Images, Inc.* 400 27,540
McGraw-Hill Companies, Inc. 700 64,078
Meredith Corporation 700 37,940
New York Times Company 1,400 57,120
Scholastic Corporation* 700 25,872
Washington Post Company (Cl.B) 39 38,338
---------
406,552
---------
RAILROADS - 0.3%
CSX Corporation 3,200 128,256
Union Pacific Corporation 1,500 100,875
---------
229,131
---------
REAL ESTATE INVESTMENT TRUSTS - 0.6%
Archstone-Smith Trust 900 34,470
Arden Realty, Inc. 800 30,176
Boston Properties, Inc. 500 32,335
Camden Property Trust 600 30,600
Duke Realty Corporation 800 27,312
EastGroup Properties, Inc. 400 15,328
Equity Office Properties Trust 2,500 72,800
Equity Residential 1,800 65,124
LaSalle Hotel Properties 900 28,647
Mills Corporation 600 38,256
Reckson Associates Realty Corporation 500 16,405
Redwood Trust, Inc. 300 18,627
Regency Centers Corporation 700 38,780
Simon Property Group, Inc. 700 45,269
SL Green Realty Corporation 600 36,330
Vornado Realty Trust 500 38,065
Weingarten Realty Investors 700 28,070
---------
596,594
---------
See accompanying notes.
80
SERIES N
Schedule of Investments (MANAGED ASSET ALLOCATION SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS (CONTINUED)
REGIONAL BANKS - 0.5%
City National Corporation 200 $ 14,130
Commerce Bancshares, Inc. 622 31,224
East West Bancorp, Inc. 700 29,372
First Horizon National Corporation 800 34,488
Mercantile Bankshares Corporation 600 31,320
Southwest Bancorporation of Texas, Inc. 1,000 23,290
SunTrust Banks, Inc. 1,200 88,656
Synovus Financial Corporation 2,300 65,734
TCF Financial Corporation 600 19,284
Texas Regional Bancshares, Inc. 1,117 36,504
UCBH Holdings, Inc. 900 41,238
Wilmington Trust Corporation 800 28,920
---------
444,160
---------
RESTAURANTS - 0.6%
CEC Entertainment, Inc.* 500 19,985
Cheesecake Factory, Inc.* 300 9,741
McDonald's Corporation 4,400 141,064
P.F. Chang's China Bistro, Inc.* 200 11,270
Panera Bread Company* 2,300 92,736
Rare Hospitality International, Inc.* 2,000 63,720
Ruby Tuesday, Inc. 500 13,040
Sonic Corporation* 700 21,350
Starbucks Corporation* 1,600 99,776
Yum! Brands, Inc. 1,100 51,898
---------
524,580
---------
SEMICONDUCTOR EQUIPMENT - 0.3%
ATMI, Inc.* 500 11,265
Advanced Energy Industries, Inc.* 1,100 10,043
Applied Materials, Inc.* 6,800 116,280
Cymer, Inc.* 500 14,770
KLA-Tencor Corporation* 1,500 69,870
Mykrolis Corporation* 800 11,336
Novellus Systems, Inc.* 1,300 36,257
Varian Semiconductor Equipment
Associates, Inc.* 100 3,685
---------
273,506
---------
SEMICONDUCTORS - 1.4%
Analog Devices, Inc. 3,734 137,859
Freescale Semiconductor, Inc. (Cl.B)* 1 8
Intel Corporation 30,800 720,412
Intersil Corporation 1,200 20,088
Linear Technology Corporation 2,700 104,652
Microchip Technology, Inc. 500 13,330
National Semiconductor Corporation* 7,000 125,650
OmniVision Technologies, Inc.* 600 11,010
Semiconductor Manufacturing
International Corporation ADR* 1,000 10,770
Semtech Corporation* 1,100 24,057
TTM Technologies, Inc.* 2,200 25,960
Tessera Technologies, Inc.* 700 26,047
Xilinx, Inc. 3,800 112,670
Zoran Corporation* 1,089 12,611
---------
1,345,124
---------
SOFT DRINKS - 1.1%
Coca-Cola Company 11,600 $ 482,908
Cott Corporation* 2,800 69,244
PepsiCo, Inc. 8,300 433,260
---------
985,412
---------
SPECIALIZED FINANCE -0.2%
Moody's Corporation 700 60,795
Arch Chemicals, Inc. 900 25,902
Ferro Corporation 1,000 23,190
Great Lakes Chemical Corporation 300 8,547
Minerals Technologies, Inc. 300 20,010
Symyx Technologies, Inc.* 1,100 33,088
Valspar Corporation 300 15,003
---------
186,535
---------
SPECIALTY STORES - 0.3%
A.C. Moore Arts & Crafts, Inc.* 900 25,929
Cost Plus, Inc.* 600 19,278
Hibbett Sporting Goods, Inc.* 400 10,644
O'Reilly Automotive, Inc.* 900 40,545
Petsmart, Inc. 1,300 46,189
Rent-A-Center, Inc.* 250 6,625
Staples, Inc. 1,900 64,049
Williams-Sonoma, Inc.* 600 21,024
---------
234,283
---------
STEEL - 0.3%
Nucor Corporation 4,300 225,062
Steel Dynamics, Inc. 900 34,092
---------
259,154
---------
SYSTEMS SOFTWARE - 1.8%
Borland Software Corporation* 700 8,176
Macrovision Corporation* 700 18,004
Microsoft Corporation 47,600 1,271,396
Oracle Corporation* 23,700 325,164
Red Hat, Inc.* 5,600 74,760
---------
1,697,500
---------
TECHNOLOGY DISTRIBUTORS - 0.1%
CDW Corporation 1,700 112,795
Tech Data Corporation* 400 18,160
---------
130,955
---------
THRIFTS & MORTGAGE FINANCE - 0.7%
BankAtlantic Bancorp, Inc. 2,000 39,800
Countrywide Financial Corporation 1,400 51,814
Doral Financial Corporation 625 30,781
Fannie Mae 2,800 199,388
Freddie Mac 1,900 140,030
IndyMac Bancorp, Inc. 900 31,005
MGIC Investment Corporation 1,000 68,910
PMI Group, Inc. 700 29,225
Radian Group, Inc. 2,000 106,480
---------
697,433
---------
See accompanying notes.
81
SERIES N
Schedule of Investments (MANAGED ASSET ALLOCATION SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS (CONTINUED)
TOBACCO - 0.7%
Altria Group, Inc. 11,000 $ 672,100
----------
TRADING COMPANIES & DISTRIBUTORS - 0.0%
Hughes Supply, Inc. 400 12,940
----------
TRUCKING - 0.1%
Dollar Thrifty Automotive Group, Inc.* 800 24,160
Old Dominion Freight Line, Inc.* 700 24,360
----------
48,520
----------
WIRELESS TELECOMMUNICATION SERVICE - 0.6%
America Movil S.A. de C.V. ADR 1,700 88,995
Crown Castle International Corporation* 700 11,648
Nextel Communications, Inc.* 5,500 165,000
Nextel Partners, Inc.* 5,800 113,332
SpectraSite, Inc.* 700 40,530
Telephone & Data Systems, Inc. 200 15,390
Vodafone Group plc ADR 4,600 125,948
Western Wireless Corporation* 300 8,790
Wireless Facilities, Inc.* 1,600 15,104
----------
584,737
----------
TOTAL COMMON STOCKS
(cost $43,259,705) 51,395,664
----------
FOREIGN COMMON STOCKS - 11.9%
AUSTRALIA - 1.1%
Australia & New Zealand
Banking Group,Ltd. 8,533 137,727
Australian Gas Light Company, Ltd. 2,002 21,500
Babcock & Brown, Ltd.* 6,053 51,625
Bank Austria Creditanstalt 917 82,888
BlueScope Steel, Ltd. 20,781 134,394
Boral, Ltd. 27,219 146,585
CSL, Ltd. 895 20,521
Coles Myer, Ltd. 9,683 74,842
Downer EDI, Ltd. 6,628 24,576
General Property Trust** 9,184 26,926
Macquarie Bank, Ltd. 2,511 91,529
National Australia Bank, Ltd. 5,225 118,043
QBE Insurance Group, Ltd. 5,229 62,920
Qantas Airways, Ltd. 8,420 24,488
----------
1,018,564
----------
BRAZIL - 0.1%
Petroleo Brasileiro S.A. ADR 3,600 130,356
----------
CHILE - 0.1%
Banco Santander Chile S.A. ADR 1,888 63,928
----------
FINLAND - 0.1%
Nokia Oyj* 2,826 44,635
----------
FRANCE - 1.4%
Axa ADR 3,223 79,644
BNP Paribas S.A. 2,376 172,136
Bouygues S.A. 2,111 97,559
CNP Assurances 1,354 96,990
Casino Guichard-Perrachon S.A. 734 58,664
European Aeronautic Defence & Space
Company 2,174 63,208
Lafarge S.A. 327 31,558
PSA Peugeot Citroen S.A. 876 55,606
Publicis Groupe 4,028 130,580
Renault S.A. 731 61,157
Sagem S.A. 2,170 46,249
Sanofi-Aventis 1,739 138,988
Thomson 3,445 91,077
Total S.A. 819 178,895
----------
1,302,311
----------
GERMANY - 1.1%
Adidas-Salomon AG 395 63,757
BASF AG 1,696 122,180
Celesio AG 615 50,023
Degussa AG 1,869 78,703
E.On AG 1,664 151,676
Hypo Real Estate Holding AG* 1,925 79,805
Jenoptik AG* 2,154 22,720
Metro AG 3,055 168,135
SAP AG 760 135,740
Siemens AG 1,846 156,522
----------
1,029,261
----------
HONG KONG - 0.4%
China Overseas Land & Investment, Ltd. 128,000 31,618
China Telecom Corporation, Ltd. 101,000 37,033
China Unicom, Ltd. 24,000 18,989
Espirit Holdings, Ltd. 8,000 48,374
Hong Kong Electric Holdings, Ltd. 7,000 31,971
Hutchison Whampoa, Ltd. 5,700 53,350
Sun Hung Kai Properties, Ltd. 6,000 60,018
Yue Yuen Industrial Holdings, Ltd. 20,000 55,065
----------
336,418
----------
IRELAND - 0.1%
Bank of Ireland 4,047 67,386
----------
ITALY - 0.4%
Eni SpA 7,380 184,776
Telecom Italia Mobile SpA 14,625 109,335
UniCredito Italiano SpA 9,160 52,667
----------
346,778
----------
See accompanying notes.
82
SERIES N
Schedule of Investments (MANAGED ASSET ALLOCATION SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
FOREIGN COMMON STOCKS (CONTINUED)
JAPAN - 2.1%
Aiful Corporation** 600 $ 65,990
Aioi Insurance Company, Ltd. 16,000 73,856
Bank of Yokohama, Ltd. 9,000 56,739
Canon, Inc. 1,900 102,537
Eisai Company, Ltd. 1,100 36,176
Electric Power Development Company, Ltd.* 300 8,402
Fanuc, Ltd. 900 58,846
Goldcrest Company, Ltd. 530 36,723
Honda Motor Company, Ltd. 700 36,274
Inpex Corporation* 2 10,091
KDDI Corporation 13 70,030
Kaneka Corporation 5,000 56,602
Kirin Brewery Company, Ltd. 5,000 49,234
Kobayashi Pharmaceutical Company, Ltd. 1,500 40,475
Kyocera Corporation 600 46,199
Matsumotokiyoshi Company, Ltd. 1,000 28,496
Mitsubishi Corporation 7,000 90,446
Misubishi Heavy Industries, Ltd. 16,000 45,438
Mitsui Sumitomo Insurance Company, Ltd. 5,000 43,427
NEC Soft, Ltd. 600 19,030
NSK, Ltd. 7,000 35,181
Nikon Corporation 4,000 49,419
Nippon Steel Corporation 38,000 93,081
Nippon Yusen Kabushiki Kaisha 11,000 59,256
Noritsu Koki Company, Ltd. 500 11,491
Pioneer Corporation 2,500 48,795
Sony Corporation 2,200 85,020
Sumitomo Electric Industries, Ltd. 3,000 32,644
Sumitomo Mitsui Financial Group, Inc. 12 87,245
TDK Corporation 500 37,035
Takeda Pharmaceutical Company, Ltd. 1,500 75,534
Tohoku Electric Power Company, Inc. 4,800 86,191
Toshiba Corporation 12,000 51,527
Toyota Motor Corporation 5,700 231,961
Uniden Corporation 1,000 19,713
----------
1,979,104
----------
MALAYSIA - 0.0%
Astro All Asia Networks plc* 7,800 11,084
----------
MEXICO - 0.3%
Cemex S.A. de C.V. 11,074 80,867
Grupo Financiero Banorte S.A. de C.V. 24,604 154,948
Wal-Mart de Mexico S.A. de C.V. 20,000 68,718
----------
304,533
----------
NETHERLANDS - 0.5%
ABN Amro Holding N.V. 2,847 75,422
ASML Holding NV* 3,123 50,133
Corio N.V. 596 34,916
ING Groep N.V. 2,612 79,031
Koninklijke (Royal) KPN N.V. 7,888 74,945
Koninklijke (Royal) Philips
Electronics N.V. 1,499 39,752
TPG N.V. 2,236 60,725
----------
414,924
----------
NORWAY - 0.1%
Norsk Hydro ASA 445 35,047
Statoil ASA 5,647 88,574
Yara International ASA* 632 8,322
----------
131,943
----------
SINGAPORE - 0.1%
DBS Group Holdings, Ltd. 7,000 69,039
SembCorp Industries, Ltd. 62,000 61,529
----------
130,568
----------
SPAIN - 0.3%
Acciona S.A. 1,193 105,565
Banco Santander Central Hispano S.A. 6,913 85,790
Gestevision Telecinco S.A.* 400 8,253
Iberdrola S.A. 3,686 93,691
----------
293,299
----------
SWEDEN - 0.6%
Nordea Bank AB 16,095 162,272
SSAB Svenskt Stal AB 3,452 83,113
Skandinaviska Enskilda Banken AB 5,244 101,402
Svenska Handelsbanken AB 4,839 125,974
Tele2 AB (Cl.B) 1,856 72,895
----------
545,656
----------
SWITZERLAND - 0.5%
Credit Suisse Group* 2,752 115,685
Nestle S.A. 476 124,536
Novartis AG 5,135 258,760
----------
498,981
----------
UNITED KINGDOM - 2.6%
Aegis Group plc 32,835 67,926
Alliance & Leicester plc 2,985 52,180
Allied Domecq plc 5,837 57,321
Anglo American plc 1,631 38,453
Arriva plc 7,908 81,872
AstraZeneca plc 1,227 44,405
Aviva plc 3,547 42,664
BAE Systems plc 13,783 60,929
BP plc 13,726 133,608
Barclays plc 23,523 264,423
Bradford & Bingley plc 9,640 62,233
Centrica plc 23,240 105,300
GlaxoSmithKline plc ADR 6,309 148,017
Guinness Peat Group plc** 17,527 27,472
HBOS plc 8,150 132,610
HSBC Holdings plc 3,577 60,400
J. Sainsbury plc 6,584 34,256
mmO2 plc* 48,114 113,389
Persimmon plc 3,147 41,629
RMC Group plc 5,392 87,889
Royal & Sun Alliance Insurance Group plc 16,565 24,727
Royal Bank of Scotland Group plc 5,874 197,582
Shell Transport & Trading Company plc 19,834 168,977
Tesco plc 11,955 73,792
Unilever plc 11,564 113,617
Vodafone Group plc 13,782 37,309
WPP Group plc 7,546 83,014
Whitbread plc 3,648 59,322
----------
2,415,316
----------
See accompanying notes.
83
SERIES N
Schedule of Investments (MANAGED ASSET ALLOCATION SERIES)
December 31, 2004
PRINCIPAL
AMOUNT OR
NUMBER MARKET
OF SHARES VALUE
FOREIGN COMMON STOCKS (CONTINUED)
TOTAL FOREIGN STOCKS
(cost $7,971,943) $11,065,045
-----------
PREFERRED STOCKS - 0.0%
APPAREL, ACCESSORIES & LUXURY GOODS - 0.0%
Anvil Holdings, Inc. (Cl.B) 469 4,690
-----------
TOTAL PREFERRED STOCKS
(cost $6,135) 4,690
-----------
FOREIGN PREFERRED STOCKS - 0.1%
GERMANY - 0.1%
Porsche AG 99 63,178
-----------
TOTAL FOREIGN PREFERRED STOCKS
(cost $41,829) 63,178
-----------
WARRANTS - 0.0%
Lucent Technologies, Inc.* 129 204
Travelcenters of America, Inc.* 150 750
-----------
954
TOTAL WARRANTS
(cost $2) 954
-----------
MUNICIPAL BONDS - 0.1%
KANSAS - 0.0%
Kansas State Development Financial
Authority Revenue, 5.501% - 2034 $ 30,000 30,606
-----------
NEW YORK - 0.1%
New York, NY General Obligation,
5.00% - 2015 $ 60,000 64,577
-----------
OREGON - 0.0%
Oregon State Taxable Pension,
5.892% - 2027 $ 15,000 16,177
-----------
TOTAL MUNICIPAL BONDS
(cost $109,094) 111,360
-----------
CORPORATE BONDS - 13.2%
AEROSPACE & DEFENSE - 0.2%
BE Aerospace, Inc.:
8.50% - 2010 $ 25,000 27,500
8.875% - 2011 $ 25,000 26,125
Boeing Company, 8.75% - 2021 $ 20,000 26,726
GenCorp, Inc., 9.50% - 2013 $ 50,000 55,750
Sequa Corporation, 9.00% - 2009 $ 25,000 28,187
-----------
164,288
-----------
AUTOMOTIVE - 0.4%
Adesa, Inc., 7.625% - 2012 $ 25,000 26,375
Advanced Accessory Systems,
10.75% - 2011 $ 25,000 23,750
Asbury Automotive Group, Inc.,
8.00% - 2014 $ 25,000 24,750
DaimlerChrysler N.A. Holdings,:
2.94% - 2007(3) $ 35,000 35,115
6.50% - 2013 $ 50,000 54,231
Eagle-Picher Industries, Inc.,
9.75% - 2013 $ 25,000 25,000
AUTOMOTIVE (CONTINUED)
Ford Motor Credit Company,
3.24% - 2006(3) 25,000 24,969
General Motors Corporation,
8.375% - 2033 70,000 72,526
Lear Corporation, 5.75% - 2014(1) 20,000 20,189
TRW Automotive, Inc., 9.375% - 2013 67,000 77,720
Williams Scotsman, Inc., 10.00% - 2008 25,000 27,750
---------
412,375
---------
BANKING - 0.5%
ABN Amro Bank N.V., 7.125% - 2007 35,000 37,874
Bank One Corporation, 5.25% - 2013 75,000 77,023
BB&T Corporation, 6.50% - 2011 20,000 22,308
Countrywide Home Loan, 4.125% - 2009 45,000 44,798
First Union Corporation, 6.40% - 2008 20,000 21,689
General Motors Acceptance Corporation,
7.25% - 2011 60,000 62,818
Northern Trust Company, 4.60% - 2013 25,000 24,599
US Bank NA, 2.87% - 2007 40,000 39,654
Webster Financial Corporation,
5.125% - 2014 45,000 44,718
Wells Fargo & Company, 2.59% - 2007(3) 55,000 55,024
---------
430,505
---------
BROKERAGE - 0.3%
BCP Caylux Holdings LUX SCA,
9.625% - 2014(1) 25,000 28,188
Citigroup, Inc., 5.00% - 2014 60,000 60,289
Franklin Resources, Inc.,
3.70% - 2008 15,000 14,965
Goldman Sachs Group, Inc.,
6.345% - 2034 90,000 93,717
Morgan Stanley, 3.625% - 2008 70,000 69,617
---------
266,776
---------
BUILDING MATERIALS - 0.5%
Associated Materials, Inc.:
9.75% - 2012 25,000 27,937
0.00% - 2014(2) 25,000 18,000
Building Materials Corporation,
7.75% - 2014(1) 25,000 25,219
Celulosa Arauco y Constitucion S.A.,
5.125% - 2013 40,000 39,614
Centex Corporation, 4.55% - 2010 35,000 34,824
Kopper's, Inc., 9.875% - 2013 25,000 28,500
Masco Corporation, 5.875% - 2012 70,000 75,019
Norcraft Companies/Finance,
9.00% - 2011 25,000 27,000
RMCC Acquisition Company,
9.50% - 2012(1) 25,000 24,938
Riverside Forest Products, Ltd.,
7.875% - 2014 25,000 27,500
Texas Industries, Inc., 10.25% - 2011 25,000 29,250
US Concrete, Inc., 8.375% - 2014 25,000 26,937
WII Components, Inc., 10.00% - 2012 50,000 50,000
---------
434,738
---------
See accompanying notes.
84
SERIES N
Schedule of Investments (MANAGED ASSET ALLOCATION SERIES)
December 31, 2004
PRINCIPAL MARKET
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
CAPITAL GOODS - OTHER - 0.1%
AGCO Corporation, 9.50% - 2008 $ 25,000 $ 26,625
Rexnord Corporation, 10.125% - 2012 25,000 28,250
---------
54,875
---------
CHEMICALS - 0.4%
ARCO Chemical Company, 9.80% - 2020 25,000 28,500
Borden US Fin/Nova Scotia,
9.00% - 2014(1) 25,000 27,750
Canwest Media, Inc., 8.00% - 2012(1) 34,875 37,403
Crystal US Holdings, 0.00% - 2014(1,2) 25,000 17,125
Dow Chemical Company, 6.125% - 2011 30,000 32,859
Huntsman LLC, 11.625% - 2010 50,000 59,125
IMC Global, Inc., 10.875% - 2013 25,000 31,250
MacDermid, Inc., 9.125% - 2011 50,000 55,500
Omnova Solutions, Inc., 11.25% - 2010 25,000 28,125
Resolution Performance, 9.50% - 2010 25,000 27,062
Rhodia S.A., 7.625% - 2010 25,000 25,063
---------
369,762
---------
COMMUNICATIONS - OTHER - 0.1%
Belo Corporation, 8.00% - 2008 20,000 22,601
International Business Machines
Corporation, 4.25% - 2009 55,000 55,651
News America, Inc., 6.20% - 2034(1) 25,000 25,338
---------
103,590
---------
CONSTRUCTION MACHINERY - 0.1%
Navistar International Corporation,
7.50% - 2011 25,000 26,812
Shaw Group, Inc., 10.75% - 2010 25,000 27,563
---------
54,375
---------
CONSUMER PRODUCTS - 0.3%
American Achievement Corporation,
8.25% - 2012 25,000 25,938
Bunge, Ltd. Finance Corporation,
4.375% - 2008 50,000 50,384
Chattem, Inc., 7.00% - 2014 25,000 25,750
Couche-Tard US/Finance, 7.50% - 2013 25,000 26,812
FTD, Inc., 7.75% - 2014 25,000 25,750
Jostens Holding Corporation,
0.00% - 2013(2) 50,000 35,500
Jostens IH Corporation, 7.625% - 2012(1) 25,000 26,000
Rayovac Corporation, 8.50% - 2013 25,000 27,750
Riddell Bell Holdings, 8.375% - 2012(1) 25,000 25,875
Sealy Mattress Company, 8.25% - 2014 25,000 26,500
---------
296,259
---------
DISTRIBUTORS - 0.1%
FerrellGas Partners LP, 8.75% - 2012 25,000 27,250
Sempra Energy, 6.00% - 2013 45,000 48,028
---------
75,278
---------
DIVERSIFIED MANUFACTURING - 0.2%
Hawk Corporation, 8.75% - 2014(1) 25,000 25,625
Hutchison Whampoa International, Ltd.,
6.50% - 2013(1) 35,000 37,719
J.B. Poindexter & Company,
8.75% - 2014(1) 25,000 26,562
JLG Industries, Inc., 8.375% - 2012 25,000 26,750
MAAX Corporation, 9.75% - 2012(1) 25,000 26,438
Valmont Industries, Inc., 6.875% - 2014 25,000 26,000
---------
169,094
---------
ELECTRIC - 1.0%
AES Corporation:
8.875% - 2011 50,000 57,125
9.00% - 2015(1) 25,000 28,625
AMI Semiconductor, Inc., 10.75% - 2013 16,000 18,800
Alabama Power Company, 2.57% - 2009(3) 35,000 34,997
Appalachian Power Company,
4.80% - 2005 45,000 45,381
Black Hills Corporation, 6.50% - 2013 40,000 40,996
CE Electric UK Funding Company,
6.995% - 2007(1) 35,000 37,439
CMS Energy Corporation, 9.875% - 2007 25,000 27,937
CenterPoint Energy, Inc., 5.875% - 2008 30,000 31,392
Cleveland Electric Illuminating Company,
5.65% - 2013 40,000 41,484
Dominion Resources, Inc., 5.00% - 2013 30,000 30,184
Exelon Generation Company LLC,
5.35% - 2014 35,000 35,888
Midwest Generation LLC, 8.75% - 2034 25,000 28,375
NRG Energy, Inc., 8.00% - 2013(1) 25,000 27,250
PPL Capital Funding, 4.33% - 2009 45,000 44,476
PSE&G Power LLC, 8.625% - 2031 30,000 39,833
Pacific Gas & Electric Company:
2.72% - 2006(3) 9,000 9,007
6.05% - 2034 35,000 36,352
Pinnacle West Capital Corporation,
6.40% - 2006 40,000 41,167
Progress Energy, Inc., 6.75% - 2006 25,000 25,941
Public Service Company of New Mexico,
4.40% - 2008 40,000 40,334
Puget Sound Energy, Inc.,
2.801% - 2006(3) 45,000 45,018
Sanmina Corporation, 10.375% - 2010 25,000 28,687
Sierra Pacific Resources, 8.625% - 2014 25,000 28,250
Suburban Propane Partners,
6.875% - 2013 25,000 25,500
TNP Enterprises, Inc., 10.25% - 2010 25,000 26,688
TXU Energy Company LLC,
2.838% - 2006(1,3) 10,000 10,027
Western Power Distributors Holdings,
6.875% - 2007(1) 25,000 26,672
---------
913,825
---------
See accompanying notes.
85
SERIES N
Schedule of Investments (MANAGED ASSET ALLOCATION SERIES)
December 31, 2004
PRINCIPAL MARKET
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
ENERGY - INDEPENDENT - 0.1%
Forest Oil Corporation, 8.00% - 2011 $ 25,000 $ 28,563
Range Resources Corporation,
7.375% - 2013 25,000 26,813
---------
55,376
---------
ENERGY - INTEGRATED - 0.1%
Amerada Hess Corporation,
7.875% - 2029 30,000 35,496
ConocoPhillips, 5.90% - 2032 40,000 41,851
Westar Energy, Inc., 7.875% - 2007 25,000 27,186
---------
104,533
---------
ENERGY - OTHER - 0.0%
Dresser-Rand Group, Inc.,
7.375% - 2014(1) 25,000 25,500
---------
ENTERTAINMENT - 0.2%
AMF Bowling Worldwide, 10.00% - 2010 25,000 26,687
Cinemark, Inc., 0.00% - 2014(2) 25,000 18,875
International Speedway Corporation,
4.20% - 2009 20,000 19,898
K2, Inc., 7.375% - 2014(1) 25,000 27,375
LCE Acquisition Corporation,
9.00% - 2014(1) 25,000 27,063
Six Flags, Inc. 8.875% - 2010 25,000 25,312
Universal City Development,
11.75% - 2010 50,000 59,063
---------
204,273
---------
ENVIRONMENTAL - 0.2%
Allied Waste North America:
8.875% - 2008 25,000 26,750
7.875% - 2013 25,000 25,625
Casella Waste Systems, Inc.,
9.75% - 2013 25,000 27,625
IESI Corporation, 10.25% - 2012 25,000 29,250
Synagro Technologies, Inc.,
9.50% - 2009 25,000 27,250
Weyerhaeuser Company,
7.375% - 2032 10,000 11,858
---------
148,358
---------
FINANCIAL - OTHER - 0.2%
Alamosa Delaware, Inc.,
8.50% - 2012 50,000 54,625
Dollar Financial Group, Inc.,
9.75% - 2011 25,000 27,125
Encana Holdings Financial Corporation,
5.80% - 2014 45,000 47,974
IPC Acquisition Corporation,
11.50% - 2009 25,000 27,375
Orion Power Holdings, Inc.,
12.00% - 2010 25,000 31,750
---------
188,849
---------
FINANCIAL COMPANIES - CAPTIVE - 0.1%
Ford Motor Credit Company,
5.625% - 2008 105,000 107,328
---------
FINANCIAL COMPANIES - NONCAPTIVE
CONSUMER - 0.2%
Household Finance Corporation,
6.375% - 2012 30,000 33,146
International Lease Finance
Corporation, 6.375% - 2009 40,000 43,320
SLM Corporation:
2.30% - 2009(3) 55,000 55,000
4.31% - 2009(3) 35,000 34,917
Williams Scotsman, Inc.,
9.875% - 2007 25,000 25,000
---------
191,383
---------
FINANCIAL COMPANIES - NONCAPTIVE
DIVERSIFIED - 0.3%
CIT Group, Inc.:
2.875% - 2006 20,000 19,792
7.75% - 2012 45,000 53,267
General Electric Capital Corporation,
6.00% - 2012 60,000 65,402
John Deere Capital Corporation,
7.00% - 2012 45,000 51,883
MBNA America Bank, 4.625% - 2009 45,000 45,818
Refco Finance Holdings, 9.00% - 2012(1) 25,000 27,375
---------
263,537
---------
FOOD & BEVERAGE - 0.4%
Agrilink Foods, Inc., 11.875% - 2008 6,000 6,247
B&G Foods Holding Corporation,
8.00% - 2011 25,000 26,625
Dole Foods Company, Inc.,
8.875% - 2011 25,000 27,188
Eircom Funding, 8.25% - 2013 25,000 27,625
Kraft Foods, Inc., 5.625% - 2011 45,000 47,652
Le-Nature's, Inc., 9.00% - 2013(1) 25,000 27,625
McCormick & Company, Inc.,
6.40% - 2006 65,000 67,417
Miller Brewing Company, 5.50% - 2013(1) 55,000 57,489
Pantry, Inc., 7.75% - 2014 25,000 26,625
Pinnacle Foods Holding, Inc.,
8.25% - 2013(1) 25,000 23,812
Reddy Ice Holdings, Inc.,
0.00% - 2012(1,2) 25,000 17,250
Travelcenters of America, Inc.,
12.75% - 2009 50,000 56,625
---------
412,180
---------
See accompanying notes.
86
SERIES N
Schedule of Investments (MANAGED ASSET ALLOCATION SERIES)
December 31, 2004
PRINCIPAL MARKET
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
GAMING - 0.3%
American Casino & Entertainment,
7.85% - 2012 $ 25,000 $ 26,562
Ameristar Casinos, Inc., 10.75% - 2009 25,000 27,875
GTECH Holdings Corporation,
4.50% - 2009(1) 20,000 19,999
Harrah's Operating Company, Inc.,
5.50% - 2010 20,000 20,702
MGM Mirage, Inc., 6.75% - 2012 25,000 26,313
Mirage Resorts, Inc., 6.75% - 2008 25,000 26,281
Penn National Gaming, Inc.,
11.125% - 2008 25,000 26,688
Premier Entertainment Biloxi/Finance,
10.75% - 2012 25,000 27,313
Station Casinos, Inc., 6.50% - 2014 25,000 25,688
Turning Stone Casino, 9.125% - 2010(1) 25,000 27,062
Venetian Casino Resort, LLC,
11.00% - 2010 50,000 57,063
---------
311,546
---------
HEALTH CARE - 0.4%
AmeriPath, Inc., 10.50% - 2013 25,000 26,563
Amgen, Inc., 4.00% - 2009(1) 25,000 24,922
Concentra Operating Corporation,
9.125% - 2012(1) 25,000 28,250
Fisher Scientific International, Inc.,
8.125% - 2012 22,000 24,420
Genesis HealthCare Corporation,
8.00% - 2013 25,000 27,125
Highmark, Inc., 6.80% - 2013(1) 30,000 32,722
Hospira, Inc., 4.95% - 2009 45,000 45,969
InSight Health Services Corporation,
9.875% - 2011 25,000 25,250
Inverness Medical Innovations, Inc.,
8.75% - 2012(1) 25,000 26,125
Triad Hospitals, Inc., 7.00% - 2013 25,000 25,563
US Oncology, Inc., 9.00% - 2012(1) 25,000 27,937
Vanguard Health, 9.00% - 2014(1) 25,000 26,750
Vicar Operating, Inc., 9.875% - 2009 25,000 27,375
---------
368,971
---------
HOME CONSTRUCTION - 0.2%
Lennar Corporation, 5.50% - 2014(1) 35,000 35,476
NVR, Inc., 5.00% - 2010 30,000 30,000
Pulte Homes, Inc., 7.875% - 2011 35,000 40,603
WCI Communities, Inc.:
10.625% - 2011 25,000 27,750
9.125% - 2012 25,000 27,750
---------
161,579
---------
INDUSTRIAL - OTHER - 0.1%
Brand Intermediate Holding,
13.0% - 2013(1) 26,625 28,356
Coleman Cable, Inc., 9.875% - 2012(1) 25,000 26,563
National Waterworks, Inc., 10.50% - 2012 25,000 28,125
---------
83,044
---------
INSURANCE - LIFE - 0.5%
AIG Sunamerica Global Finance XII,
5.30% - 2007(1) 70,000 72,726
Allstate Financial Global Funding,
5.25% - 2007(1) 45,000 46,516
Genworth Financial, Inc., 5.75% - 2014 40,000 42,316
John Hancock Global Funding II,
5.625% - 2006(1) 65,000 66,991
MetLife, Inc., 6.125% - 2011 50,000 54,339
NLV Financial Corporation, 7.50% - 2033(1) 30,000 32,143
Nationwide Financial Services, Inc.,
5.90% - 2012 50,000 52,798
Principal Life Global, 5.125% - 2013(1) 45,000 45,619
Prudential Financial, Inc., 3.75% - 2008 35,000 34,801
---------
448,249
---------
INSURANCE - PROPERTY & CASUALTY - 0.1%
Ace INA Holdings, Inc., 5.875% - 2014 35,000 35,856
Fund American Companies, Inc.,
5.875% - 2013 45,000 45,799
Nationwide Mutual Insurance Company,
6.60% - 2034(1) 25,000 25,029
---------
106,684
---------
LODGING - 0.0%
John Q. Hammons Hotels, LP,
8.875% - 2012 25,000 28,250
---------
MEDIA - CABLE - 0.3%
CCO Holdings LLC, Capital Corporation,
8.75% - 2013 25,000 25,813
Cablevision Systems Corporation,
8.00% - 2012(1) 25,000 26,687
Charter Communications
LLC/Cap, 8.00% - 2012(1) 25,000 26,000
Comcast Cable Communications
Holdings, 8.375% - 2013 45,000 55,489
Echostar DBS Corporation,
6.625% - 2014(1) 25,000 25,312
Hearst-Argyle Television, Inc.,
7.00% - 2018 30,000 33,639
Insight Midwest, 10.50% - 2010 25,000 27,375
Rogers Cable, Inc., 5.50% - 2014 40,000 37,700
Superior Essex Company & Essex Group,
9.00% - 2012 25,000 25,750
---------
283,765
---------
See accompanying notes.
87
SERIES N
Schedule of Investments (MANAGED ASSET ALLOCATION SERIES)
December 31, 2004
PRINCIPAL MARKET
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
MEDIA - NONCABLE - 0.7%
AOL Time Warner, Inc., 7.625% - 2031 $ 40,000 $ 48,390
Advanstar Communications, Inc.,
10.75% - 2010 25,000 28,219
Affinity Group, Inc., 9.00% - 2012 25,000 27,063
CanWest Media, Inc., 10.625% - 2011 25,000 28,062
Chancellor Media Corporation,
8.00% - 2008 25,000 28,070
Coinmach Corporation, 9.00% - 2010 17,000 17,765
Dex Media Finance/East LLC:
9.875% - 2009 25,000 28,469
12.125% - 2012 32,000 39,000
Dex Media Finance/West:
8.50% - 2010 25,000 27,813
9.875% - 2013 23,000 26,507
Dex Media, Inc., 8.00% - 2013 25,000 27,063
Fisher Communications, Inc.,
8.625% - 2014(1) 25,000 27,000
Houghton Mifflin Company:
0.00% - 2013(2) 25,000 18,375
9.875% - 2013 25,000 27,375
Liberty Group Operating, Inc.,
9.375% - 2008 25,000 25,375
Quebecor Media, Inc., 11.125% - 2011 50,000 57,125
Reader's Digest Association, Inc.,
6.50% - 2011 25,000 26,125
RH Donnelley Finance Corporation:
8.875% - 2010 25,000 27,875
10.875% - 2012 50,000 59,375
Warner Music Group, 7.375% - 2014(1) 25,000 25,625
XM Satellite Radio, Inc., 12.00% - 2010 15,000 17,719
---------
638,390
---------
METALS & MINING - 0.6%
Alcan, Inc., 6.125% - 2033 40,000 42,335
Allegheny Technologies, Inc.,
8.375% - 2011 75,000 83,250
Alpha Natural Resources, 10.00% - 2012(1) 25,000 28,500
Autocam Corporation, 10.875% - 2014 25,000 24,750
Century Aluminum Company,
7.50% - 2014(1) 25,000 26,625
Compass Minerals International, Inc.,
0.00% - 2013(2) 50,000 40,500
Earle M. Jorgensen Company,
9.75% - 2012 50,000 56,250
Euramax International plc, 8.50% - 2011 25,000 26,687
Foundation PA Coal Company,
7.25% - 2014(1) 25,000 26,625
Freeport McMoran Resource Partners,
7.00% - 2008 75,000 78,375
Gerdau Ameristeel Corporation,
10.375% - 2011 25,000 29,312
Ispat Inland ULC, 9.75% - 2014 16,000 19,760
Russel Metals, Inc., 6.375% - 2014 25,000 25,375
TriMas Corporation, 9.875% - 2012 25,000 26,500
---------
534,844
---------
OIL FIELD SERVICES - 0.5%
Baker Hughes, Inc., 6.875% - 2029 55,000 64,199
Chesapeake Energy Corporation,
9.00% - 2012 25,000 28,563
Devon Financing Corporation, ULC,
7.875% - 2031 35,000 44,068
Diamond Offshore Drilling,
5.15% - 2014(1) 25,000 25,283
Encore Acquisition Company,
8.375% - 2012 25,000 27,812
Halliburton Company, 2.86% - 2007(1,3) 45,000 45,016
Hanover Compressor Company,
9.00% - 2014 25,000 27,813
Hilcorp Energy/Finance,
10.50% - 2010(1) 50,000 56,500
Pemex Project Funding Master Trust:
3.79% - 2010(1,3) 45,000 46,170
7.375% - 2014 30,000 33,345
Petroleum Geo-Services, 10.00% - 2010 25,000 28,500
Pioneer Natural Resources Company,
5.875% - 2016 20,000 20,894
Pride International, Inc., 7.375% - 2014 25,000 27,313
XTO Energy, Inc., 6.25% - 2013 30,000 32,832
---------
508,308
---------
PACKAGING - 0.2%
BWAY Corporation, 10.00% - 2010 25,000 26,000
Graphic Packaging International
Corporation, 8.50% - 2011 25,000 27,313
Greif Brothers Corporation,
8.875% - 2012 25,000 27,812
Owens-Brockway Glass Containers:
8.875% - 2009 25,000 27,156
8.75% - 2012 25,000 28,188
Owens-Illinois, Inc., 7.35% - 2008 25,000 26,250
---------
162,719
---------
PAPER - 0.2%
Boise Cascade LLC, 7.125% - 2014(1) 25,000 26,437
Longview Fibre Company, 10.00% - 2009 25,000 27,313
Plastipak Holdings, Inc., 10.75% - 2011 25,000 28,125
Sealed Air Corporation, 5.375% - 2008(1) 40,000 41,560
Stone Container Finance, 7.375% - 2014 75,000 79,875
Weyerhaeuser Company, 6.75% - 2012 25,000 28,171
---------
231,481
---------
PHARMACEUTICALS - 0.1%
AmerisourceBergen Corporation,
8.125% - 2008 25,000 27,813
GlaxoSmithKline Capital, Inc.,
5.375% - 2034 30,000 29,800
VWR International, Inc.
6.875% - 2012(1) 25,000 26,125
8.00% - 2014(1) 25,000 26,687
Wyeth, 6.50% - 2034 25,000 26,672
---------
137,097
---------
See accompanying notes.
88
SERIES N
Schedule of Investments (MANAGED ASSET ALLOCATION SERIES)
December 31, 2004
PRINCIPAL MARKET
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
PIPELINES - 0.4%
ANR Pipeline Company, 8.875% - 2010 $ 25,000 $ 28,000
Buckeye Partners:
5.30% - 2014 10,000 10,129
6.75% - 2033 20,000 22,067
Duke Capital LLC:
4.302% - 2006 25,000 25,302
6.25% - 2013 40,000 43,231
Dynegy-Roseton Danskamme,
7.27% - 2010 25,000 25,250
Kaneb Pipe Line Operating Partnership,
7.75% - 2012 20,000 23,130
Kinder Morgan, Inc., 6.50% - 2012 45,000 49,463
Markwest Energy Partners,
6.875% - 2014(1) 25,000 25,375
Panhandle Eastern Pipe Line Company,
4.80% - 2008 20,000 20,426
Plains All American Pipeline,
7.75% - 2012 15,000 17,546
Williams Companies, Inc.:
7.75% - 2031 25,000 26,187
8.75% - 2032 25,000 28,719
---------
344,825
---------
RAILROADS - 0.1%
Canadian National Railway Company,
6.25% - 2034 45,000 48,692
Union Pacific Corporation, 6.50% - 2012 55,000 61,258
---------
109,950
---------
REAL ESTATE INVESTMENT TRUSTS - 0.4%
BF Saul REIT, 7.50% - 2014 25,000
25,750
Developers Diversified Realty Corporation,
3.875% - 2009 35,000 34,346
EOP Operating LP, 4.65% - 2010 35,000 35,160
LNR Property Corporation, 7.25% - 2013 25,000 28,156
La Quinta Properties, 8.875% - 2011 50,000 55,750
Reckson Operating Partnership,
5.15% - 2011 40,000 40,346
Rouse Company, 8.43% - 2005 100,000 101,379
Simon Property Group, LP,
3.75% - 2009 45,000 44,287
---------
365,174
---------
REFINING - 0.0%
Denbury Resources, Inc., 7.50% - 2013 25,000 27,000
---------
RESTAURANTS - 0.1%
EPL Intermediate, Inc., 0.00% - 2010(2) 25,000 16,375
O'Charleys, Inc., 9.00% - 2013 25,000 26,750
Perkins Family Restaurants,
10.125% - 2007 25,000 25,563
---------
68,688
---------
RETAILERS - 0.2%
CVS Corporation, 4.00% - 2009 25,000 24,882
Federated Department Stores, Inc.,
6.625% - 2011 35,000 39,113
Jean Coutu Group, Inc., 7.625% - 2012(1) 25,000 26,438
May Department Stores Company,
3.95% - 2007 15,000 15,025
Yum! Brands, Inc., 7.70% - 2012 45,000 53,313
---------
158,771
---------
SERVICES - 0.1%
Brickman Group, Ltd., 11.75% - 2009 25,000 29,250
Petroleum Helicopters, Inc.,
9.375% - 2009 25,000 27,375
Sungard Data Systems, Inc.
3.75% - 2009 25,000 24,281
Vertis, Inc., 9.75% - 2009 25,000 27,125
---------
108,031
---------
SUPERMARKETS - 0.0%
Jitney-Jungle Stores, 12.00% - 2006(5,6) 75,000 -
Kroger Company, 8.05% - 2010 45,000 52,650
---------
52,650
---------
TECHNOLOGY - 0.4%
Amkor Technology, Inc., 9.25% - 2008 25,000 25,563
Fairchild Semiconductor International,
Inc., 10.50% - 2009 50,000 52,750
Freescale Semiconductor:
6.875% - 2011 25,000 26,813
7.125% - 2014 25,000 27,125
Lucent Technologies, 5.50% - 2008 25,000 25,688
ON Semiconductor Corporation,
12.00% - 2010 16,000 19,760
Solectron Corporation, 9.625% - 2009 25,000 27,500
Stats Chippac, Ltd., 6.75% - 2011(1) 25,000 24,750
Stratus Technologies, Inc.,
10.375% - 2008 25,000 22,562
Telex Communications, Inc.,
11.50% - 2008 75,000 81,750
UGS Corporation, 10.00% - 2012(1) 25,000 28,438
---------
362,699
---------
TELECOMMUNICATIONS - WIRELESS - 0.9%
America Movil S.A. de C.V.,
5.50% - 2014 25,000 24,698
Call-Net Enterprises, Inc.,
10.625% - 2008 25,000 25,000
Centennial Communications,
8.125% - 2014 25,000 25,688
Deutsche Telekom International
Finance B.V., 8.75% - 2030 35,000 46,216
FairPoint Communications, Inc.,
12.50% - 2010 50,000 54,000
Horizon PCS, Inc., 11.375% - 2012(1) 25,000 28,000
Inmarsat Finance plc, 7.625% - 2012 25,000 26,000
Nextel Communications, Inc.,
6.875% - 2013 75,000 81,375
See accompanying notes.
89
SERIES N
Schedule of Investments (MANAGED ASSET ALLOCATION SERIES)
December 31, 2004
PRINCIPAL MARKET
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
TELECOMMUNICATIONS - WIRELESS (CONTINUED)
Primus Telecommunications Group, Inc.,
8.00% - 2014 $ 25,000 $ 22,000
Qwest Services Corporation,
13.50% - 2010(1) 50,000 60,125
Rogers Wireless Communications, Inc.,
9.625% - 2011 100,000 117,250
Sprint Capital Corporation, 6.90% - 2019 50,000 55,935
Syniverse Technologies, Inc.,
12.75% - 2009 25,000 28,500
Telefonos de Mexico S.A., 4.50% - 2008 20,000 20,133
Telus Corporation, 8.00% - 2011 30,000 35,552
Time Warner Telecom LLC, 9.75% - 2008 50,000 50,625
Ubiquitel Operating Company,
9.875% - 2011 25,000 28,063
United States Cellular Corporation,
6.70% - 2033 25,000 25,901
US Unwired, Inc., 10.00% - 2012 25,000 28,188
Verizon Global Funding Corporation,
7.75% - 2030 40,000 49,733
Western Wireless Corporation,
9.25% - 2013 25,000 27,188
----------
860,170
----------
TELECOMMUNICATIONS - WIRELINES - 0.1%
AT&T Corporation, 9.05% - 2011 25,000 28,781
MCI, Inc.:
7.688% - 2009 25,000 25,875
8.735% - 2014 25,000 26,875
----------
81,531
----------
TEXTILE - 0.1%
Collins & Aikman Floor Cover,
9.75% - 2010 25,000 26,875
Interface, Inc., 10.375% - 2010 25,000 28,750
Invista, 9.25% - 2012(1) 50,000 55,750
----------
111,375
----------
TOBACCO - 0.1%
UST, Inc., 6.625% - 2012 70,000 78,163
----------
TRANSPORTATION SERVICES - 0.1%
Laidlaw International, Inc.,
10.75% - 2011 50,000 58,375
----------
TOTAL CORPORATE BONDS
(cost $11,765,975) 12,239,386
----------
FOREIGN BONDS - 0.5%
BERMUDA - 0.1%
XL Capital, Ltd., 6.50% - 2012 40,000 43,781
----------
CANADA - 0.1%
Canadian Natural Resources, Ltd.,
7.20% - 2032 80,000 94,525
Luscar Coal, Ltd., 9.75% - 2011 25,000 28,375
----------
122,900
----------
CAYMAN ISLANDS - 0.0%
Transocean, Inc., 7.50% - 2031 30,000 36,926
----------
FRANCE - 0.1%
Compagnie Generale de Geophysique S.A.,
10.625% - 2007 17,000 17,914
Crown Euro Holdings S.A.,
10.875% - 2013 50,000 59,125
France Telecom S.A.,
8.50% - 2011(2) 40,000 47,716
----------
124,755
----------
IRELAND - 0.1%
MDP Acquisitions plc, 9.625% - 2012 50,000 55,750
----------
UNITED KINGDOM - 0.1%
HBOS plc, 6.00% - 2033(1) 40,000 41,661
----------
TOTAL FOREIGN BONDS
(cost $389,531) 425,773
----------
FOREIGN GOVERNMENT BONDS - 0.2%
CHILE - 0.1%
Republic of Chile, 5.50% - 2013 40,000 42,028
----------
MEXICO - 0.1%
United Mexican States:
2.29% - 2009(3) 35,000 35,473
6.375% - 2013 45,000 47,925
----------
83,398
----------
SOUTH AFRICA - 0.0%
Republic of South Africa, 6.50% - 2014 25,000 27,375
----------
TOTAL FOREIGN GOVERNMENT BONDS
(cost $143,774) 152,801
----------
MORTGAGE BACKED SECURITIES - 8.0%
U.S GOVERNMENT SPONSORED AGENCIES - 6.0%
Federal Farm Credit Bank,
5.50% - 2028(7) 57,903 4,057
Federal Home Loan Mortgage Corporation:
#M80714, 5.00% - 2008 49,370 50,267
FHR 2631 IG, 4.50% - 2011(7) 164,000 13,317
FHR 2614 IH, 4.50% - 2016(7) 102,000 15,571
FHR 2631 PC, 4.50% - 2016 250,000 254,171
#E01489, 4.50% - 2018 44,095 44,053
#B10343, 5.00% - 2018 11,226 11,409
#E99933, 5.00% - 2018 7,566 7,690
#E99966, 5.00% - 2018 40,341 41,000
#B12065, 4.50% - 2019 26,559 26,534
#B13549, 4.50% - 2019 24,816 24,748
FHR 2681 PC, 5.00% - 2019 100,000 102,127
FHR 2882 YB, 5.00% - 2027 50,000 50,874
FHR 2890 PB, 5.00% - 2027 150,000 152,623
#1B0527, 4.566% - 2032(3) 33,781 34,116
See accompanying notes.
90
SERIES N
Schedule of Investments (MANAGED ASSET ALLOCATION SERIES)
December 31, 2004
PRINCIPAL MARKET
AMOUNT VALUE
MORTGAGE BACKED SECURITIES (CONTINUED)
U.S. GOVERNMENT SPONSORED AGENCIES (CONTINUED)
#C72128, 6.00% - 2032 $ 118,372 $ 122,449
#C68205, 7.00% - 2032 20,339 21,556
#A14854, 5.00% - 2033 87,283 86,859
TBA, 6.00% - 2034(4) 245,000 253,039
Federal National Mortgage Association:
FNR 2003-92 NM, 3.50% - 2013 75,000 74,993
#323322, 6.00% - 2013 101,131 106,198
FNR 2002-74 PJ, 5.00% - 2015 150,000 153,182
#644982, 5.50% - 2017 109,214 112,992
#357280, 6.50% - 2017 47,216 50,077
#254720, 4.50% - 2018 169,286 169,129
#555526, 5.50% - 2018 279,616 289,290
#555693, 5.50% - 2018 132,116 136,687
TBA, 5.50% - 2018(4) 85,000 87,816
#357475, 4.50% - 2019 205,463 205,272
#255357, 5.50% - 2019 322,247 333,253
#789885, 5.50% - 2019 24,351 25,187
#254514, 5.50% - 2032 5,150 5,236
#254550, 6.50% - 2032 42,679 44,797
#545759, 6.50% - 2032 244,740 256,748
#650075, 6.50% - 2032 39,068 41,006
#254983, 5.50% - 2033 251,909 255,960
#711117, 5.50% - 2033 69,877 71,001
#744692, 5.50% - 2033 55,977 56,877
#744750, 5.50% - 2033 23,860 24,244
#747387, 5.50% - 2033 28,746 29,208
#747549, 5.50% - 2033 9,771 9,928
#750362, 5.50% - 2033 50,024 50,828
#756190, 5.50% - 2033 56,264 57,169
#555417, 6.00% - 2033 160,546 166,234
#725220, 5.00% - 2034 137,146 136,342
#725238, 5.00% - 2034 213,496 212,243
#725249, 5.00% - 2034 74,944 74,505
#789292, 5.00% - 2034 24,744 24,620
#255028, 5.50% - 2034 29,626 30,093
#789293, 5.50% - 2034 199,706 203,161
#796104, 5.50% - 2034 51,652 52,468
#804395, 5.50% - 2034 149,937 152,307
#255459, 6.00% - 2034 74,209 76,774
#725690, 6.00% - 2034 87,193 90,206
#725704, 6.00% - 2034 205,642 212,734
#799644, 6.00% - 2034 108,658 112,413
Fannie Mae Strip,
6.50% -2032(7) 28,386 5,403
Fannie Mae Whole Loan,
2.91% - 2033 60,000 59,798
-----------
5,572,839
-----------
U.S. GOVERNMENT SPONSORED SECURITIES - 2.0%
Government National Mortgage Association:
#781312, 7.00% - 2013 49,637 52,880
#780766, 7.00% - 2013 17,057 17,918
#67365, 11.50% - 2013 3,115 3,523
2004-23B, 2.946% - 2019 55,000 53,439
#427029, 8.50% - 2026 10,696 11,708
#612919, 5.00% - 2033 315,485 316,165
#615278, 5.00% - 2033 131,380 131,664
#604639, 5.00% - 2033 109,545 109,782
II #2102, 8.00% - 2025 2,233 2,423
II #3442, 5.00% - 2033 261,504 261,731
II #3458, 5.00% - 2033 74,287 74,332
II #3490, 6.50% - 2033 24,794 26,052
II #3513, 5.00% - 2034 92,729 92,699
II #3529, 5.00% - 2034 23,710 23,703
II #3500, 5.50% - 2034 401,851 410,256
II #3544, 5.50% - 2034 211,142 215,558
II #3517, 6.00% - 2034 75,422 78,128
II #3612, 6.50% - 2034 45,593 47,906
-----------
1,929,867
-----------
TOTAL MORTGAGE BACKED SECURITIES
(cost $7,389,363) 7,502,706
-----------
U.S. GOVERNMENT SPONSORED AGENCY BONDS &
NOTES - 1.1%
Federal Home Loan Bank,
5.75% - 2012 10,000 10,946
Federal Home Loan Mortgage Corporation,
2.75% - 2008 145,000 141,781
Federal National Mortgage Association:
3.25% - 2008 465,000 458,871
3.375% - 2008 185,000 182,617
6.00% - 2011 112,000 123,222
4.375% - 2012 105,000 105,043
-----------
1,022,480
TOTAL U.S. GOVERNMENT SPONSORED AGENCY BONDS
& NOTES
(cost $1,008,658) 1,022,480
-----------
U.S. GOVERNMENT SECURITIES - 4.7%
U.S. Treasury Bonds:
4.00% - 2009 35,000 35,666
4.25% - 2013 155,000 155,975
8.50% - 2020 25,000 35,283
6.25% - 2023 210,000 245,856
6.00% - 2026 170,000 194,735
5.50% - 2028 325,000 351,762
6.25% - 2030 25,000 29,889
5.375% - 2031 215,000 232,486
See accompanying notes.
91
SERIES N
Schedule of Investments (MANAGED ASSET ALLOCATION SERIES)
December 31, 2004
PRINCIPAL MARKET
AMOUNT VALUE
U.S. GOVERNMENT SECURITIES (CONTINUED)
U.S. Treasury Notes:
1.50% - 2005 $ 220,000 $ 219,845
1.625% - 2005 105,000 104,742
1.875% - 2005 235,000 233,164
6.50% - 2005 510,000 522,411
1.50% - 2006 10,000 9,837
3.50% - 2006 450,000 453,797
3.00% - 2007 400,000 397,531
3.25% - 2007 105,000 105,156
3.375% - 2008 155,000 154,582
5.00% - 2011 630,000 670,679
Treasury Inflation Index,
2.375% - 2025 226,674 242,391
-----------
4,395,787
-----------
TOTAL U.S. GOVERNMENT SECURITIES
(cost $4,342,568) 4,395,787
-----------
ASSET BACKED SECURITIES - 2.8%
AUTO - 0.2%
Capital Auto Receivables Asset Trust,
2002-2 CTFS, 4.18% - 2007 37,928 38,104
Chase Manhattan Auto Owner Trust,
2003-A A4, 2.06% - 2009 70,000 68,246
Harley-Davidson Motorcycle Trust,
2001-1 B, 5.29% - 2009 20,534 20,710
Hyundai Auto Receivables Trust:
2003-A A4, 3.02% - 2010 40,000 39,549
2003-A D, 4.06% - 2010 20,000 20,121
Morgan Stanley Auto Loan Trust,
2004-HB1 C, 2.88% - 2011 28,477 28,375
-----------
215,105
-----------
CREDIT CARDS - 0.5%
Citibank Credit Card Issuance Trust:
2000-A1 A1, 6.90% - 2007 50,000 51,494
2001-C1 C1, 3.15% - 2010(3) 55,000 56,142
2004-C1 C1, 3.05% - 2013(3) 125,000 126,054
MBNA Credit Card Master Trust,
2000-D C, 8.40% - 2009 100,000 109,891
World Financial Network Credit Card Master Trust,
2003-A A2, 2.773% - 2012(3) 100,000 100,588
-----------
444,169
-----------
HOME EQUITY LOANS - 1.9%
Bank of America Commercial Mortgage, Inc.:
2004-A 2A2, 4.144% - 2034(3) 92,277 90,822
2004-D 2A2, 4.221% - 2034(3) 6,340 6,309
2003-L 2A2, 4.30% - 2034(3) 162,966 163,064
2004-H, 2A2, 4.808% - 2034(3) 44,393 44,604
2004-I, 3A2, 5.00% - 2034(3) 46,331 46,309
2003-1 A2, 4.648% - 2036 75,000 75,289
2004-6 A1, 3.801% - 2042 20,000 20,030
BankBoston Home Equity Loan Trust,
1998-1 A6, 6.35% - 2013 66,529 67,962
Bear Stearns Commercial Mortgage
Securities, Inc.,
2004-PWR6 A1, 3.688% - 2041 17,000 17,022
Chase Funding Mortgage Loan,
2002-2 1M1, 5.599% - 2031 20,000 20,379
Citigroup Commercial Mortgage Trust,
2004-C2 A1, 3.787% - 2041 15,000 14,991
Countrywide Home Loans:
2003-5 AF3, 3.613% - 2030 75,000 74,915
2003-60 2A1, 4.968% - 2034(3) 22,800 22,846
DLJ Commercial Mortgage Corporation,
1999-CG2 A1B, 7.30% - 2032 75,000 84,351
GE Capital Commercial Mortgage
Corporation, 2001-1 A2,
6.531% - 2033 100,000 111,269
GMAC Commercial Mortgage
Securities, Inc.,
2001-C2 A2, 6.70% - 2034 125,000 140,185
Greenwich Capital Commercial
Funding Corporation,
2004-GG1 A2, 3.835% - 2036 85,000 85,206
JP Morgan Chase Commercial
Mortgage Finance Corporation:
2001-CIBC A3, 6.26% - 2033 105,000 115,400
2001-CIBC A2, 6.244% - 2035 75,000 80,226
LB-UBS Commercial Mortgage Trust:
2004-C2 A2, 3.246% - 2029 125,000 121,628
2004-C4 A2, 4.567% - 2029 75,000 76,426
Morgan Stanley Dean Witter Capital,
2002-TOP7 A2, 5.98% - 2039 200,000 217,489
Washington Mutual 2004-AR1 A,
4.229% - 2034 48,397 47,974
-----------
1,744,696
-----------
OTHER - 0.2%
CenterPoint Energy Transition Bond Company, LLC,
2001-1 A4, 5.63% - 2015 75,000 80,231
Peco Energy Transition Trust, 2001-A A1,
6.52% - 2010 100,000 111,106
-----------
191,337
-----------
TOTAL ASSET BACKED SECURITIES
(cost $2,638,536) 2,595,307
-----------
See accompanying notes.
92
SERIES N
Schedule of Investments (MANAGED ASSET ALLOCATION SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
SHORT TERM INVESTMENTS - 2.1%
State Street General Account
Money Market Fund 284,750 $ 284,750
T. Rowe Price Reserve
Investment Fund 1,706,045 1,706,045
--------------
1,990,795
--------------
TOTAL SHORT TERM INVESTMENTS
(cost $1,990,795) 1,990,795
--------------
TOTAL INVESTMENTS - 99.9%
(cost $81,057,908) 92,965,926
CASH AND OTHER ASSETS, LESS LIABILITIES - 0.1% 121,532
--------------
TOTAL NET ASSETS - 100.0% $ 93,087,458
==============
For federal income tax purposes the identified cost of investments owned at
December 31, 2004 was $81,833,444.
* Non-income producing security
** Passive Foreign Investment Company
ADR (American Depositary Receipt)
LP (Limited Partnership)
plc (public limited company)
(1) Security is a 144A series. The total market value of 144A securities is
$2,127,746 (cost $2,032,146), or 2.3% of total net assets.
(2) Security is a step bond. Rate indicated is rate effective at December
31,2004.
(3) Variable rate security. Rate indicated is rate effective at December
31,2004.
(4) Securities represent a "when issued" investment.
(5) Security is fair valued by the Board of Directors. The total market value of
fair valued securities amounts ot $0, or 0.0% or net assets.
(6) Security is in default due to bankruptcy.
(7) Interest only security.
See accompanying notes.
93
SERIES N
(MANAGED ASSET ALLOCATION SERIES)
Statement of Assets and Liabilities
December 31, 2004
ASSETS:
Investments, at value(1) ......................... $ 92,965,926
Cash denominated in a foreign currency,
at value(2) ..................................... 7,952
Receivables:
Fund shares sold ................................ 160,897
Securities sold ................................. 313,561
Interest ........................................ 336,884
Dividends ....................................... 81,348
Foreign taxes recoverable ........................ 2,968
Prepaid expenses ................................. 1,595
------------
Total assets ..................................... 93,871,131
------------
LIABILITIES:
Payable for:
Securities purchased ............................ 552,873
Fund shares redeemed ............................ 93,469
Management fees ................................. 77,560
Custodian fees .................................. 5,181
Transfer agent and administration fees .......... 40,329
Professional fees ............................... 10,325
Other ........................................... 3,936
------------
Total liabilities ................................ 783,673
------------
NET ASSETS ....................................... $ 93,087,458
============
Net assets consist of:
Paid in capital .................................. $ 79,737,377
Accumulated undistributed net
investment income ............................... 1,441,726
Accumulated net realized loss
on sales of investments and foreign
currency transactions ........................... (505)
Net unrealized appreciation in value of
investments and translation
of assets and liabilities in foreign currency ... 11,908,860
------------
Net assets ....................................... $ 93,087,458
============
Capital shares authorized ........................ indefinite
Capital shares outstanding ....................... 5,869,487
Net asset value and redemption price
per share (net assets divided by
shares outstanding) ............................. $ 15.86
============
(1) Investments, at cost ......................... $ 81,057,908
(2) Cash denominated in a foreign
currency, at cost ............................ 7,745
Statement of Operations
For the Year Ended December 31, 2004
INVESTMENT INCOME:
Dividends ....................................... $ 1,256,346
Interest ........................................ 1,550,249
------------
2,806,595
Less: Foreign tax expense ....................... (37,495)
------------
Total investment income ......................... 2,769,100
------------
EXPENSES:
Management fees ................................. 883,118
Custodian fees .................................. 63,965
Transfer/maintenance fees ....................... 22,211
Administration fees ............................. 226,929
Directors' fees ................................. 4,636
Professional fees ............................... 12,904
Reports to shareholders ......................... 6,014
Other expenses .................................. 4,683
------------
Total expenses .................................. 1,224,460
------------
Net investment income ........................... 1,544,640
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain during the period on:
Investments ..................................... 5,230,547
Foreign currency transactions ................... 22,272
------------
Net realized gain ............................... 5,252,819
------------
Net change in unrealized appreciation
(depreciation) during the period on:
Investments ..................................... 2,243,267
Translation of assets and liabilities in
foreign currencies ............................. (414)
------------
Net unrealized appreciation ..................... 2,242,853
------------
Net gain ........................................ 7,495,672
------------
Net increase in net assets
resulting from operations ...................... $ 9,040,312
============
See accompanying notes.
94
SERIES N
Statement of Changes in Net Assets (MANAGED ASSET ALLOCATION SERIES)
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income ......................................................... $ 1,544,640 $ 1,374,498
Net realized gain (loss) during the period on investments
and foreign currency transactions ............................................ 5,252,819 (329,566)
Net change in unrealized appreciation during the period on investments
and translation of assets and liabilities in foreign currencies .............. 2,242,853 15,026,929
------------ ------------
Net increase in net assets resulting from operations .......................... 9,040,312 16,071,861
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ......................................................... (456,463) (1,282,674)
------------ ------------
Total distributions to shareholders ........................................... (456,463) (1,282,674)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares .................................................. 21,550,471 20,905,956
Distributions reinvested ...................................................... 456,463 1,282,674
Cost of shares redeemed ....................................................... (23,886,592) (18,356,803)
------------ ------------
Net increase (decrease) from capital share transactions ....................... (1,879,658) 3,831,827
------------ ------------
Net increase in net assets .................................................... 6,704,191 18,621,014
------------ ------------
NET ASSETS:
Beginning of period ........................................................... 86,383,267 67,762,253
------------ ------------
End of period ................................................................. $ 93,087,458 $ 86,383,267
============ ============
Accumulated undistributed net investment income at end of period .............. $ 1,441,726 $ 222,274
============ ============
CAPITAL SHARE ACTIVITY:
Shares sold ................................................................... 1,456,044 1,624,766
Shares reinvested ............................................................. 31,052 90,747
Shares redeemed ............................................................... (1,618,357) (1,457,599)
------------ ------------
Total capital share activity .................................................. (131,261) 257,914
============ ============
See accompanying notes.
95
SERIES N
Financial Highlights (MANAGED ASSET ALLOCATION SERIES)
Selected data for each share of capital stock outstanding throughout each year
YEAR ENDED,
DECEMBER 31,
2004 2003 2002 2001 2000
---------- ---------- ---------- ---------- ------------
PER SHARE DATA
Net asset value, beginning of period $ 14.40 $ 11.80 $ 13.63 $ 16.08 $ 16.94
---------- ---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income (loss) 0.27 0.23 0.30 0.33 0.39
Net gain (loss) on securities (realized and unrealized) 1.27 2.59 (1.59) (1.10) (0.52)
---------- ---------- ---------- ---------- ----------
Total from investment operations 1.54 2.82 (1.29) (0.77) (0.13)
---------- ---------- ---------- ---------- ----------
Less distributions:
Dividends from net investment income (0.08) (0.22) (0.54) (0.44) (0.04)
Distributions from realized gains - - - (1.24) (0.69)
---------- ---------- ---------- ---------- ----------
Total distributions (0.08) (0.22) (0.54) (1.68) (0.73)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 15.86 $ 14.40 $ 11.80 $ 13.63 $ 16.08
========== ========== ========== ========== ==========
TOTAL RETURN(a) 10.72% 23.90% (9.63%) (5.08%) (0.90%)
---------- ---------- ---------- ---------- ----------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $ 93,087 $ 86,383 $ 67,762 $ 87,348 $ 88,581
---------- ---------- ---------- ---------- ----------
Ratios to average net assets:
Net investment income (loss) 1.75% 1.86% 2.22% 2.34% 2.31%
Total expenses 1.39% 1.23% 1.26% 1.25% 1.25%
Gross expenses(b) 1.39% 1.23% 1.26% 1.25% 1.25%
Net expenses(c) 1.39% 1.23% 1.26% 1.25% 1.25%
---------- ---------- ---------- ---------- -----------
Portfolio turnover rate 79% 98% 116% 98% 44%
(a) Total return does not take into account any of the expenses associated with
an investment in variable insurance products offered by Security Benefit
Life Insurance Company. 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.
(b) Gross expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net expense information reflects expense ratios after expense reductions or
fee waivers and reduction of custodian expenses.
See accompanying notes.
96
SERIES O
Manager's Commentary (EQUITY INCOME SERIES)
February 15, 2005 (unaudited)
[T. ROWE PRICE LOGO]
Subadvisor, T. Rowe Price Associates, Inc.
[PHOTO OF BRIAN C. ROGERS]
Brain C. Rogers
Portfolio Manager
TO OUR SHAREHOLDERS:
U.S. stocks posted their second consecutive year of gains for the first time
since 1998-99.Value shares outstripped growth by an impressive margin in 2004,
while small- and mid-cap stocks out-paced large-company shares. The widely
followed Dow Jones Industrial Average registered the smallest gain, while the
broader market indices, including the S&P 500Index and Nasdaq Composite, were
stronger.
MARKET ENVIRONMENT
The Federal Open Market Committee's (FOMC) five rate increases last year, which
lifted the fed funds rate target from 1% to 2.25%, failed to dampen the economic
boost provided by firm stock prices, low long-term interest rates, tight yields
among bonds of various qualities, and a falling dollar. Consumer and housing
demand continue to draw support from job gains, income growth and low interest
rates. Resilient profit margins, steady cash flow and rising utilization rates
underpin capital expenditures.
While employment gains have been somewhat choppy, we believe they are strong
enough to gradually reduce the unemployment rate over time. An upturn in the
growth of labor costs and higher import prices, driven by a weak dollar, are
generating a cyclical rise in inflation. That said, inflation remains relatively
low in historic terms, allowing the FOMC to continue to tighten monetary policy
gradually in coming months.
The past year ended on a positive note as consumer confidence recovered to the
level attained in midsummer. The weakness in recent months was most likely
related to uncertainty about employment prospects, spiking oil prices and
uneasiness surrounding the election - concerns that moderated during the final
weeks of the year. We anticipate continuing economic growth in 2005.
PERFORMANCE REVIEW
The Equity Income Series posted strong absolute results with a return of
14.43%(1) significantly outpacing the S&P 500 Stock Index, which posted a 10.87%
return for the 12-month period ended December 31, 2004. This was due to several
factors, including a significant underweight in information technology (IT) and
strong stock selection plus an underweight in health care. Due to concerns about
tech companies' ability to meet second-half earnings projections, IT traded
significantly lower in the third quarter and was one of the worst-performing S&P
500 sectors during the year.
Health care badly lagged the market as pharmaceutical stocks were impaired by
limited growth prospects, generic competitive pressures, and more recently by
Merck's problems with Vioxx and Pfizer's with Celebrex. Within the sector,
health care insurer CIGNA boosted relative results because of an improvement in
the firm's fundamentals and stronger-than-anticipated performance in its health
care business. Cardinal Health, a new portfolio position, rebounded following a
series of negative events that drove the stock down in the second and third
quarters.
Energy was the best-performing sector in the index over the year thanks to
rising energy prices and improved investor sentiment, and an overweight position
benefited relative performance. In addition, strong stock selection in the
utilities sector enhanced our return versus the benchmark. TXU benefited from a
new management team and the sale of non-core assets to improve the company's
balance sheet. On a negative note, stock selection in the consumer discretionary
sector detracted slightly as New York Times, Dow Jones and Knight-Ridder were
hurt by sluggish advertising trends.
OUTLOOK
We are cautious heading into 2005. The market is fairly valued and the corporate
profit outlook appears to be moderating; earnings have reached record levels
over the past year, and profit growth will likely be pressured by relatively
high energy prices and higher short-term interest rates. Additionally, the trade
and budget deficits along with the ongoing war in Iraq could make for a tougher
environment. Nevertheless, despite these headwinds, we continue to view the
economic environment as favorable; corporate balance sheets appear strong with
healthy levels of cash, and value stocks should benefit from favorable tax
treatments for dividends and capital gains.
Sincerely,
Brian C. Rogers
Portfolio Manager
97
SERIES O
Manager's Commentary (EQUITY INCOME SERIES)
February 15, 2005 (unaudited)
PERFORMANCE
[PERFOMANCE GRAPH]
SBL O INVESTMENT INFORMATION
DATE value
- -------- ---------
SBL O
6/1/95 10,000.00
6/30/95 10,060.00
9/30/95 10,790.00
12/31/95 11,700.00
3/31/96 12,270.00
6/30/96 12,630.00
9/30/96 13,082.17
12/31/96 14,044.54
3/31/97 14,445.53
6/30/97 16,079.54
9/30/97 17,337.60
12/31/97 18,033.56
3/31/98 19,638.65
6/30/98 19,156.52
9/30/98 17,710.14
12/31/98 19,660.08
3/31/99 19,475.33
6/30/99 22,015.59
9/30/99 20,116.12
12/31/99 20,275.31
3/31/00 19,664.82
6/30/00 19,688.30
9/30/00 21,017.37
12/31/00 22,883.28
3/31/01 22,229.30
6/30/01 23,490.03
9/30/01 21,519.24
12/31/01 23,185.71
3/31/02 24,248.46
6/30/02 22,310.39
9/30/02 18,404.19
12/31/02 20,072.65
3/31/03 18,838.11
6/30/03 21,977.80
9/30/03 22,293.53
12/31/03 25,140.79
3/31/04 25,592.51
6/30/04 25,904.05
9/30/04 26,382.30
12/31/04 28,769.35
S& P 500
DATE value
- ------------------------------ -----
INCEPTION 6/01/95 10,000.00
6/30/95 10,232.00
9/30/95 11,045.37
12/31/95 11,710.49
3/31/96 12,338.58
6/30/96 12,891.78
9/30/96 13,290.32
12/31/96 14,398.75
3/31/97 14,784.33
6/30/97 17,365.69
9/30/97 18,667.97
12/31/97 19,204.65
3/31/98 21,883.72
6/30/98 22,606.56
9/30/98 20,357.02
12/31/98 24,690.70
3/31/99 25,924.50
6/30/99 27,751.50
9/30/99 26,018.24
12/31/99 29,889.36
3/31/00 30,576.32
06/30/00 29,765.52
09/30/00 29,477.60
12/31/00 27,173.21
3/31/01 23,953.00
6/30/01 25,355.62
9/30/01 21,636.12
12/31/01 23,949.47
3/31/02 24,014.56
6/30/02 20,798.00
9/30/02 17,206.02
12/31/02 18,659.17
3/31/03 18,071.52
6/30/03 20,853.28
9/30/03 21,405.18
12/31/03 24,011.57
3/31/04 24,418.90
6/30/04 24,837.49
9/30/04 24,371.83
12/31/04 26,622.28
SBL Fund Series O $28,769
S& P 500 Index $26,622
$10,000 SINCE INCEPTION
The chart above assumes a hypothetical $10,000 investment in Series O (Equity
Income Series) on June 1, 1995 (date of inception), and reflects the fees and
expenses of Series O.
PORTFOLIO COMPOSITION BY SECTOR
Consumer Discretionary 17.31%
Consumer Staples 7.36
Energy 8.96
Financials 18.65
Health Care 9.26
Industrials 12.17
Information Technology 4.66
Materials 6.22
Telecommunication Services 5.83
Utilities 4.59
Convertible Bond 0.41
Cash & other assets, less liabilities 4.58
AVERAGE ANNUAL RETURNS
SINCE INCEPTION
PERIODS ENDED 12-31-04(1) 1 YEAR 5 YEARS (6-1-95)
- ------------------------- ------ ------- ---------------
Series O 14.43% 7.25% 11.65%
- -------------------------
(1) 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.
See accompanying notes.
98
SERIES O
Manager's Commentary (EQUITY INCOME SERIES)
February 15, 2005 (unaudited)
PERFORMANCE
INFORMATION ABOUT YOUR SERIES EXPENSES
CALCULATING YOUR ONGOING SERIES EXPENSES
EXAMPLE
As a shareholder of the Series, you incur ongoing costs, including management
fees and other series expenses. Performance figures and expense ratios do not
reflect fees and expenses associated with an investment in variable insurance
products. Shares of a Series of SBL Fund are available only through the purchase
of such products. This Example is intended to help you understand your ongoing
costs (in dollars) of investing in the Series and to compare these costs with
ongoing costs of investing in other mutual funds. The Example is based on an
investment of $1,000 invested at the beginning of the period and held for the
entire period, July 1, 2004 - December 31, 2004.
ACTUAL EXPENSES
The first line in the table provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the table provides information about hypothetical account
values and hypothetical expenses based on the Series actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Series
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Series and other funds. To do so, compare this 5% hypothetical example with the
5% hypothetical examples that appear in the shareholder reports of the other
funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any fees and expenses associated with an
investment in variable insurance products. Therefore, the second line is useful
in comparing ongoing costs only, and will not help you determine the relative
total costs of owning different funds. In addition, if these fees and expenses
associated with an investment in variable insurance products were included, your
costs would have been higher.
FUND EXPENSES
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING
07-01-04 12-31-04(1) PERIOD(2)
------------- ------------- -------------
Series O (Equity Income Series)
Actual $1,000.00 $1,095.70 $5.95
Hypothetical 1,000.00 1,019.46 5.74
(1) The actual ending account value is based on the actual total return of the
Series for the period July 1, 2004 to December 31, 2004 after actual
expenses and will differ from the hypothetical ending account value which is
based on the Series expense ratio and a hypothetical annual return of 5%
before expenses. The actual cumulative return at net asset value for the
period July 1, 2004 to December 31, 2004 was 9.57%.
(2) Expenses are equal to the Series annualized expense ratio 1.13% multiplied
by the average account value over the period, multiplied by 184/366 (to
reflect the one-half year period).
99
SERIES O
Schedule of Investments (EQUITY INCOME SERIES)
December 31, 2004
PRINCIPAL
AMOUNT OR
NUMBER MARKET
OF SHARES VALUE
CONVERTIBLE BOND - 0.4%
COMMUNICATIONS - 0.4%
Lucent Technologies, Inc.,
8.00% - 2031 $ 895,000 $ 995,688
-----------
TOTAL CONVERTIBLE BOND
(cost $649,956) 995,688
-----------
PREFERRED STOCKS - 0.4%
AUTOMOBILE MANUFACTURERS - 0.2%
Ford Motor Company Capital Trust II 7,900 417,041
-----------
LIFE & HEALTH INSURANCE - 0.2%
Unumprovident Corporation 20,500 622,687
-----------
TOTAL PREFERRED STOCKS
(cost $907,500) 1,039,728
-----------
COMMON STOCKS - 93.1%
AEROSPACE & DEFENSE - 4.2%
Honeywell International, Inc. 101,300 3,587,033
Lockheed Martin Corporation 39,800 2,210,890
Raytheon Company 56,400 2,190,012
Rockwell Colllins, Inc. 51,700 2,039,048
-----------
10,026,983
-----------
ALUMINUM - 0.5%
Alcoa, Inc. 41,000 1,288,220
-----------
ASSET MANAGEMENT & CUSTODY BANKS - 1.4%
Janus Capital Group, Inc. 21,600 363,096
Mellon Financial Corporation 69,800 2,171,478
Northern Trust Corporation 17,300 840,434
-----------
3,375,008
-----------
BIOTECHNOLOGY - 0.7%
Chiron Corporation* 2,500 83,325
Medlmmune, Inc.* 58,500 1,585,935
-----------
1,669,260
-----------
BROADCASTING & CABLE TV - 1.3%
Comcast Corporation* 94,692 3,151,350
-----------
COMMUNICATIONS EQUIPMENT - 1.7%
Lucent Technologies, Inc.* 145,100 545,576
Motorola, Inc. 115,000 1,978,000
Nokia Oyj ADR 99,700 1,562,299
-----------
4,085,875
-----------
COMPUTER HARDWARE - 0.8%
Hewlett-Packard Company 94,499 1,981,644
-----------
CONSTRUCTION MATERIALS - 0.5%
Vulcan Materials Company 20,100 1,097,661
-----------
CONSUMER FINANCE - 0.8%
American Express Company 33,000 1,860,210
-----------
DEPARTMENT STORES - 0.5%
May Department Stores Company 39,350 1,156,890
-----------
DISTRIBUTORS - 0.8%
Genuine Parts Company 44,900 1,978,294
-----------
DIVERSIFIED BANKS - 1.9%
Bank of America Corporation 73,488 3,453,201
Wells Fargo & Company 18,600 1,155,990
-----------
4,609,191
-----------
DIVERSIFIED CHEMICALS - 2.1%
Dow Chemical Company 46,800 2,317,068
E.I. du Pont de Nemours & Company 40,600 1,991,430
Hercules, Inc.* 54,700 812,295
-----------
5,120,793
-----------
DIVERSIFIED COMMERCIAL SERVICES - 0.5%
Cendant Corporation 42,500 993,650
Dun & Bradstreet Corporation* 2,900 172,985
-----------
1,166,635
-----------
ELECTRIC UTILITIES - 1.8%
FirstEnergy Corporation 32,757 1,294,229
Progress Energy, Inc. 16,300 737,412
TXU Corporation 13,400 865,104
Teco Energy, Inc. 24,300 372,762
Xcel Energy, Inc. 61,500 1,119,300
-----------
4,388,807
-----------
ELECTRICAL COMPONENTS & EQUIPMENT - 1.9%
Cooper Industries, Ltd. 29,888 2,029,096
Emerson Electric Company 16,300 1,142,630
Rockwell Automation, Inc. 26,900 1,332,895
-----------
4,504,621
-----------
ELECTRONIC EQUIPMENT MANUFACTURERS - 0.0%
Agilent Technologies, Inc.* 2,800 67,480
-----------
ENVIRONMENTAL SERVICES - 0.9%
Waste Management, Inc. 69,922 2,093,465
-----------
GAS UTILITIES - 0.9%
NiSource, Inc. 98,800 2,250,664
-----------
HEALTH CARE DISTRIBUTORS - 0.6%
Cardinal Health, Inc. 26,600 1,546,790
-----------
HEALTH CARE EQUIPMENT - 0.8%
Baxter International, Inc. 56,700 1,958,418
-----------
HOME IMPROVEMENT RETAIL - 0.8%
Home Depot, Inc. 43,200 1,846,368
-----------
HOTELS, RESORTS & CRUISE LINES - 1.2%
Hilton Hotels Corporation 66,400 1,509,936
Starwood Hotels & Resorts
Worldwide, Inc. 24,249 1,416,142
-----------
2,926,078
-----------
HOUSEHOLD APPLIANCES - 0.6%
Whirlpool Corporation 20,000 1,384,200
-----------
HOUSEHOLD PRODUCTS - 2.4%
Clorox Company 17,400 1,025,382
Colgate-Palmolive Company 53,500 2,737,060
Kimberly-Clark Corporation 30,800 2,026,948
-----------
5,789,390
-----------
See accompanying notes.
100
SERIES O
Schedule of Investments (EQUITY INCOME SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS (CONTINUED)
HOUSEWARES & SPECIALTIES - 1.8%
Fortune Brands, Inc. 25,500 $ 1,968,090
Newell Rubbermaid, Inc. 100,300 2,426,257
-----------
4,394,347
-----------
INDUSTRIAL CONGLOMERATES - 2.1%
General Electric Company 135,900 4,960,350
-----------
INDUSTRIAL MACHINERY - 0.7%
Pall Corporation 58,400 1,690,680
-----------
INSURANCE BROKERS - 1.6%
Marsh & McLennan Companies, Inc. 119,700 3,938,130
-----------
INTEGRATED OIL & GAS - 7.1%
Amerada Hess Corporation 30,000 2,471,400
BP plc ADR 42,084 2,457,706
ChevronTexaco Corporation 81,732 4,291,747
Exxon Mobil Corporation 83,768 4,293,948
Royal Dutch Petroleum Company 61,600 3,534,608
-----------
17,049,409
-----------
INTEGRATED TELECOMMUNICATION SERVICES - 5.8%
AT&T Corporation 79,610 1,517,367
Alltel Corporation 36,800 2,162,368
Qwest Communications
International, Inc.* 418,701 1,859,032
SBC Communications, Inc. 83,352 2,147,981
Sprint Corporation 112,000 2,783,200
Telus Corporation (Non-Voting) 15,600 450,840
Telus Corporation (Voting) 10,600 320,437
Verizon Communications, Inc. 69,336 2,808,801
-----------
14,050,026
-----------
INVESTMENT BANKING & BROKERAGE - 2.1%
Charles Schwab Corporation 209,500 2,505,620
Morgan Stanley 46,800 2,598,336
-----------
5,103,956
-----------
LEISURE PRODUCTS - 1.1%
Mattel, Inc. 133,000 2,592,170
-----------
LIFE & HEALTH INSURANCE - 1.5%
Lincoln National Corporation 39,324 1,835,644
UnumProvident Corporation 94,900 1,702,506
-----------
3,538,150
-----------
MANAGED HEALTH CARE - 0.3%
Cigna Corporation 8,500 693,345
-----------
MOVIES & ENTERTAINMENT - 3.9%
Time Warner, Inc.* 159,600 3,102,624
Viacom, Inc. (Cl.B) 101,100 3,679,029
Walt Disney Company 97,400 2,707,720
-----------
9,489,373
-----------
MULTI-UTILITIES & UNREGULATED POWER - 1.8%
Constellation Energy Group 43,500 1,901,385
Duke Energy Corporation 99,600 2,522,868
-----------
4,424,253
-----------
OIL & GAS EQUIPMENT & SERVICES - 0.7%
Baker Hughes, Inc. 12,500 533,375
Schlumberger, Ltd. 16,800 1,124,760
-----------
1,658,135
-----------
OIL & GAS EXPLORATION & PRODUCTION - 1.2%
Anadarko Petroleum Corporation 25,800 1,672,098
Unocal Corporation 27,600 1,193,424
-----------
2,865,522
-----------
OTHER DIVERSIFIED FINANCIAL SERVICES - 2.6%
Citigroup, Inc. 31,433 1,514,442
JP Morgan Chase & Company 121,962 4,757,738
-----------
6,272,180
-----------
PACKAGED FOODS & MEATS - 1.9%
Campbell Soup Company 64,100 1,915,949
ConAgra Foods, Inc. 28,800 848,160
General Mills, Inc. 36,600 1,819,386
-----------
4,583,495
-----------
PAPER PRODUCTS - 1.8%
International Paper Company 66,720 2,802,240
MeadWestvaco Corporation 45,400 1,538,606
-----------
4,340,846
-----------
PHARMACEUTICALS - 6.8%
Abbott Laboratories 36,300 1,693,395
Bristol-Myers Squibb Company 122,600 3,141,012
Johnson & Johnson 50,200 3,183,684
Merck & Company, Inc. 113,600 3,651,104
Schering-Plough Corporation 85,100 1,776,888
Wyeth 70,000 2,981,300
-----------
16,427,383
-----------
PHOTOGRAPHIC PRODUCTS - 1.0%
Eastman Kodak Company 73,500 2,370,375
-----------
PROPERTY & CASUALTY INSURANCE - 2.9%
Chubb Corporation 23,400 1,799,460
Safeco Corporation 38,600 2,016,464
St. Paul Travelers Companies, Inc. 57,484 2,130,932
XL Capital, Ltd. 11,800 916,270
-----------
6,863,126
-----------
PUBLISHING - 3.0%
Dow Jones & Company, Inc. 58,800 2,531,928
Knight-Ridder, Inc. 20,500 1,372,270
New York Times Company 79,600 3,247,680
-----------
7,151,878
-----------
RAILROADS - 2.0%
Norfolk Southern Corporation 46,600 1,686,454
Union Pacific Corporation 47,200 3,174,200
-----------
4,860,654
-----------
REAL ESTATE INVESTMENT TRUSTS - 0.6%
Simon Property Group, Inc. 21,236 1,373,332
-----------
See accompanying notes.
101
SERIES O
Schedule of Investments (EQUITY INCOME SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS (CONTINUED)
REGIONAL BANKS - 2.0%
AmSouth Bancorporation 6,200 $ 160,580
Mercantile Bankshares Corporation 18,500 965,700
National City Corporation 27,300 1,025,115
SunTrust Banks, Inc. 28,600 2,112,968
Wilmington Trust Corporation 15,100 545,865
------------
4,810,228
------------
RESTAURANTS - 0.7%
McDonald's Corporation 53,000 1,699,180
------------
SEMICONDUCTORS - 1.2%
Freescale Semiconductor, Inc. (Cl.B)* 6,398 117,462
Intel Corporation 31,600 739,124
Texas Instruments, Inc. 79,700 1,962,214
------------
2,818,800
------------
SOFT DRINKS - 1.3%
Coca-Cola Company 74,800 3,113,924
Coca-Cola Enterprises, Inc. 3,400 70,890
------------
3,184,814
------------
SPECIALTY CHEMICALS - 0.9%
Great Lakes Chemical Corporation 35,000 997,150
International Flavors & Fragrances, Inc. 27,500 1,178,100
------------
2,175,250
------------
STEEL - 0.4%
Nucor Corporation 18,500 968,290
------------
SYSTEMS SOFTWARE - 0.9%
Microsoft Corporation 84,800 2,265,008
------------
THRIFTS & MORTGAGE FINANCE - 0.6%
Fannie Mae 21,000 1,495,410
------------
TOBACCO - 1.2%
Altria Group, Inc. 19,800 1,209,780
UST, Inc. 33,500 1,611,685
------------
2,821,465
------------
TOTAL COMMON STOCKS
(cost $192,420,758) 224,253,855
------------
WARRANT - 0.0%
Lucent Technologies, Inc.* 4,405 6,960
------------
TOTAL WARRANT
(cost $0) 6,960
------------
FOREIGN STOCKS - 1.5%
IRELAND - 0.4%
Bank of Ireland 63,500 1,050,421
------------
JAPAN - 0.5%
Sony Corporation 29,000 1,120,718
------------
NETHERLANDS - 0.6%
Unilever N.V. 20,000 1,341,036
------------
TOTAL FOREIGN STOCKS
(cost $3,050,343) 3,512,175
------------
TEMPORARY CASH INVESTMENTS - 4.4%
State Street General Account
Money Market Fund 1,030,627 1,030,627
T. Rowe Price Reserve
Investment Fund 9,664,182 9,664,182
------------
TOTAL TEMPORARY CASH INVESTMENTS
(cost $10,694,809) 10,694,809
------------
TOTAL INVESTMENTS - 99.8%
(cost $207,723,366) 240,503,215
CASH & OTHER ASSETS, LESS LIABILITIES - 0.2% 329,675
------------
TOTAL NET ASSETS - 100.0% $240,832,890
============
For federal income tax purposes, the identified cost of investments owned at
December 31, 2004 was $209,640,221.
*Non-income producing security
ADR (American Depositary Receipt)
plc (public limited company)
See accompanying notes.
102
SERIES O
(EQUITY INCOME SERIES)
Statement of Assets and Liabilities
December 31, 2004
ASSETS:
Investments, at value(1) ........................... $240,503,215
Receivables:
Fund shares sold ................................ 330,797
Securities sold ................................. 86,372
Interest ........................................ 41,576
Dividends ....................................... 400,668
Prepaid expenses ................................... 3,873
------------
Total assets ....................................... 241,366,501
------------
LIABILITIES:
Payable for:
Securities purchased ............................ 82,707
Fund shares redeemed ............................ 207,117
Management fees ................................. 200,055
Custodian fees .................................. 1,077
Transfer agent and administration fees .......... 20,688
Professional fees ............................... 16,080
Other ........................................... 5,887
------------
Total liabilities .................................. 533,611
------------
NET ASSETS ......................................... $240,832,890
============
NET ASSETS CONSIST OF:
Paid in capital .................................... $200,473,130
Accumulated undistributed net
investment income ............................... 2,781,731
Accumulated undistributed net realized gain
on sales of investments and foreign
currency transactions ........................... 4,797,942
Net unrealized appreciation in value of
investments and translation of assets and
liabilities in foreign currency ................. 32,780,087
------------
Net assets ......................................... $240,832,890
============
Capital shares authorized .......................... indefinite
Capital shares outstanding ......................... 13,059,460
Net asset value and redemption price
per share (net assets divided by
shares outstanding) ............................. $ 18.44
============
(1)Investments, at cost ............................ $207,723,366
Statement of Operations
For the Year Ended December 31, 2004
INVESTMENT INCOME:
Dividends ........................................... $ 4,965,215
Interest ............................................ 238,458
------------
5,203,673
Less: Foreign tax expense ........................... (9,583)
------------
Total investment income ............................. 5,194,090
------------
Expenses:
Management fees ..................................... 2,133,214
Custodian fees ...................................... 14,868
Transfer/maintenance fees ........................... 22,549
Administration fees ................................. 186,357
Directors' fees ..................................... 10,158
Professional fees ................................... 21,282
Reports to shareholders ............................. 11,698
Marketing fees paid indirectly ...................... 11,316
Other expenses ...................................... 6,959
------------
Total expenses ...................................... 2,418,401
Less: Fees paid indirectly .......................... (11,316)
------------
Net expenses ........................................ 2,407,085
------------
Net investment income ............................... 2,787,005
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) during the period on:
Investments ......................................... 6,972,840
Foreign currency transactions ....................... (5,659)
------------
Net realized gain ................................... 6,967,181
------------
Net change in unrealized appreciation
during the period on:
Investments ......................................... 20,103,776
Translation of assets and liabilities
in foreign currencies .............................. 238
------------
Net unrealized appreciation ......................... 20,104,014
------------
Net gain ............................................ 27,071,195
------------
Net increase in net assets
resulting from operations .......................... $ 29,858,200
============
See accompanying notes.
103
SERIES O
Statement of Changes in Net Assets (EQUITY INCOME SERIES)
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income ........................................................ $ 2,787,005 $ 2,605,292
Net realized gain (loss) during the period on investments
and foreign currency transactions ........................................... 6,967,181 (601,351)
Net change in unrealized appreciation during the period on
investments and translation of assets and liabilities in foreign currencies.. 20,104,014 36,666,615
------------- ---------------
Net increase in net assets resulting from operations ......................... 29,858,200 38,670,556
------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ........................................................ (344,457) (2,354,447)
Net realized gain ............................................................ - (1,640,204)
------------- ---------------
Total distributions to shareholders .......................................... (344,457) (3,994,651)
------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares ................................................. 64,011,284 47,400,548
Distributions reinvested ..................................................... 344,457 3,994,651
Cost of shares redeemed ...................................................... (49,756,700) (52,906,421)
------------- ---------------
Net increase (decrease) from capital share transactions. ..................... 14,599,041 (1,511,222)
------------- ---------------
Net increase in net assets ................................................... 44,112,784 33,164,683
------------- ---------------
NET ASSETS:
Beginning of period .......................................................... 196,720,106 163,555,423
------------- ---------------
End of period ................................................................ $ 240,832,890 $ 196,720,106
============= ===============
Accumulated undistributed net investment income at end of period ............. $ 2,781,731 $ 344,842
============= ===============
CAPITAL SHARE ACTIVITY:
Shares sold .................................................................. 3,819,116 3,375,416
Shares reinvested ............................................................ 20,394 261,003
Shares redeemed .............................................................. (2,969,771) (3,863,491)
------------- ---------------
Total capital share activity ................................................. 869,739 (227,072)
============= ===============
See accompanying notes.
104
SERIES O
Financial Highlights (EQUITY INCOME SERIES)
Selected data for each share of capital stock outstanding throughout each year
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000
-------- -------- -------- -------- ------------
PER SHARE DATA
Net asset value, beginning of period $ 16.14 $ 13.17 $ 16.00 $ 17.66 $ 17.27
-------- -------- -------- -------- ------------
Income (loss) from investment operations:
Net investment income (loss) 0.21 0.22 0.20 0.21 0.31
Net gain (loss) on securities (realized and unrealized) 2.12 3.09 (2.26) - 1.76
-------- -------- -------- -------- ------------
Total from investment operations 2.33 3.31 (2.06) 0.21 2.07
-------- -------- -------- -------- ------------
Less distributions:
Dividends from net investment income (0.03) (0.20) (0.39) (0.30) (0.04)
Distributions from realized gains - (0.14) (0.38) (1.57) (1.64)
-------- -------- -------- -------- ------------
Total distributions (0.03) (0.34) (0.77) (1.87) (1.68)
-------- -------- -------- -------- ------------
Net asset value, end of period $ 18.44 $ 16.14 $ 13.17 $ 16.00 $ 17.66
======== ======== ======== ======== ============
TOTAL RETURN(a) 14.43% 25.25% (13.43%) 1.32% 12.86%
-------- -------- -------- -------- ------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $240,833 $196,720 $163,555 $186,826 $ 178,756
-------- -------- -------- -------- ------------
Ratios to average net assets:
Net investment income (loss) 1.31% 1.55% 1.40% 1.32% 1.74%
Total expenses 1.13% 1.09% 1.09% 1.08% 1.10%
Gross expenses(b) 1.13% 1.09% 1.09% 1.08% 1.10%
Net expenses(c) 1.13% 1.08% 1.08% 1.08% 1.10%
-------- -------- -------- -------- ------------
Portfolio turnover rate 20% 19% 23% 21% 68%
(a) Total return does not take into account any of the expenses associated
with an investment in variable insurance products offered by Security
Benefit Life Insurance Company. 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.
(b) Gross expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net expense information reflects expense ratios after expense reductions
or fee waivers and reduction of custodian expenses.
See accompanying notes.
105
SERIES P
Manager's Commentary (HIGH YIELD SERIES)
February 15, 2005 (unaudited)
[PHOTO OF DAVID TOUSSAINT] [SECURITY FUNDS LOGO]
David Toussaint
Portfolio Manager
Advisor, Security Management Company, LLC
TO OUR SHAREHOLDERS:
The high yield market's strong momentum from 2003 carried over into 2004
helping the market to record another year of double-digit returns. The U.S.
economic expansion continued and corporate profits improved, which helped push
corporate default rates lower. The high yield market, as measured by the Lehman
Brothers High Yield Index, was able to produce an 11.10% return for the year and
was able to outperform most equity indices for the fifth straight year. The High
Yield Series was up 11.61%.(1)
CONTINUED STRONG PERFORMANCE IN 2004
For the year, high yield bonds significantly outperformed other fixed income
asset class returns with government bonds at 3.5%, higher quality corporate
bonds at 5.2%, and leveraged bank loans at 4.6%. Despite the interest rate moves
by the Fed during the year, investors continued to have a strong appetite for
risk as they reached for higher yielding investments. The lower quality
CCC-rated bonds, coming off a very strong 2003, continued to do well and after
having a strong fourth quarter, were able to outperform the higher quality
BB-rated bonds by 4.2% for the year.
During the second half of 2004, the High Yield Series moved to an overweight of
lower quality rated bonds to enhance the yield and to take advantage of the
healthy economy and declining corporate default rate. Over the past few years,
lower rated bonds have become a larger part of the market and the four largest
issuers in the high yield index are CCC-rated. The high yield corporate default
rate, after peaking in January 2002 at 11.6%, finished the year at 2.7%, down
from 5.4% in January 2004. The dramatic decline in the default rate has caused
bond yield spreads over Treasuries to fall significantly, thereby causing bond
prices to increase and resulting in higher returns. High yield corporate bond
spreads tightened throughout the year and were within reach of historic lows at
year end.
SEARCH FOR YIELD PROVES SUCCESSFUL
The Series move to overweight lower quality issues helped the Series to
outperform the high yield index. The Series typically invests in higher quality
bonds but, with the improving economy, a short-term overweight to lower quality
proved to be successful. One component of this overweight was the Series
exposure to the metals sector. One holding in particular, AK Steel, contributed
significantly to returns by producing a 26% return as steel prices appreciated
sharply due to strong demand from China. Another contributor to performance was
the Series holdings in lower quality companies in the energy sector. As oil
prices rose, companies such as El Paso, an exploration and production company,
and Petro Geo, an oilfield services company, returned 18% and 14%, respectively.
Another successful strategy during the year was to invest in industrial
companies such as Goodyear Tire and Shaw Group. As the economy gained strength,
so did these companies. Finally, Nextel Communications, a Fund holding for the
past five years, continued to perform well in 2004 by returning 18%, capped off
with its announcement near year end that it was being acquired by Sprint
Corporation.
CHEMICAL UNDERWEIGHT AND DEFENSIVE HOLDINGS SLIGHTLY UNDERPERFORMED MARKET
The Series biggest detractor from performance was its underweight to the
chemical sector. The rising oil and natural gas prices did not hurt the chemical
companies as they were able to pass on their higher input costs to customers by
raising prices. Another factor dampening performance was the Series investment
in lower yielding securities, such as shorter maturity bonds and cash holdings.
The Series was positioned for increases in yields on longer dated Treasuries.
This did not come to fruition so the lower yields on these securities caused
them to underperform the overall market.
OUTLOOK AND STRATEGY FOR 2005
For 2005, the economy is expected to maintain its current growth rate and the
corporate default rate is expected to decline further to below 2% by mid-2005,
which is expected to mark the bottom of the credit cycle. Default rates are
expected to trend upward thereafter, and are forecasted to end 2005 around 2.7%.
Therefore, the search for yield through the lower quality credits is expected to
continue in the short term. However, we believe the amount of lower quality
issuance over the last two years may cause the default rate to increase modestly
into 2006. With this in mind, the Series may move back into higher quality
corporate bonds later in 2005.
Sincerely,
David Toussaint
Portfolio Manager
106
SERIES P
Manager's Commentary (HIGH YIELD SERIES)
February 15, 2005 (unaudited)
PERFORMANCE
SERIES P VS. LEHMAN BROTHERS HIGH YIELD INDEX
[PERFORMANCE GRAPH]
SBL P INVESTMENT INFORMATION
DATE value
- -------- ---------
SBL P
8/5/96 10,000.00
9/30/96 10,246.67
12/31/96 10,660.00
3/31/97 10,846.67
6/30/97 11,320.00
9/30/97 11,754.46
12/31/97 12,076.97
3/31/98 12,485.54
6/30/98 12,628.64
9/30/98 12,464.08
12/31/98 12,782.48
3/31/99 12,972.80
6/30/99 12,957.56
9/30/99 12,858.47
12/31/99 12,950.59
3/31/00 12,666.70
6/30/00 12,700.10
9/30/00 12,925.54
12/31/00 12,753.20
3/31/01 13,342.62
6/30/01 13,108.23
9/30/01 12,441.09
12/31/01 13,317.91
3/31/02 13,704.12
6/30/02 13,201.31
9/30/02 12,550.61
12/31/02 13,371.90
3/31/03 14,041.01
6/30/03 15,117.87
9/30/03 15,528.05
12/31/03 16,274.90
3/31/04 16,628.94
6/30/04 16,529.37
9/30/04 17,205.58
12/31/04 18,165.17
LEHMAN BROTHERS HIGH YIELD
DATE value
- ---------------------------- -----
INCEPTION 8/05/96 10,000.00
9/30/96 10,351.60
12/31/96 10,713.39
3/31/97 10,833.03
6/30/97 11,336.45
9/30/97 11,851.52
12/31/97 12,081.45
3/31/98 12,487.77
6/30/98 12,625.64
9/30/98 12,050.69
12/31/98 12,307.02
3/31/99 12,533.43
6/30/99 12,566.52
9/30/99 12,386.90
12/31/99 12,589.80
3/31/00 12,295.73
06/30/00 12,437.20
09/30/00 12,507.17
12/31/00 11,851.92
3/31/01 12,604.41
6/30/01 12,317.36
9/30/01 11,796.10
12/31/01 12,477.29
3/31/02 12,687.29
6/30/02 11,878.19
9/30/02 11,529.80
12/31/02 12,306.89
3/31/03 13,243.87
6/30/03 14,581.94
9/30/03 14,985.62
12/31/03 15,871.48
3/31/04 16,243.91
6/30/04 16,087.60
9/30/04 16,867.08
12/31/04 17,639.12
SBL Fund Series P $18,165
Lehman Brothers High Yield Index $17,639
$10,000 SINCE INCEPTION
The chart above assumes a hypothetical $10,000 investment in Series P (High
Yield Series) on August 5, 1996 (date of inception) and reflects the fees and
expenses of Series P.
QUALITY RATINGS
A 0.26%
BBB 4.33
BB 18.64
B 45.51
CCC 12.05
CC 2.78
C 0.06
NR 8.96
Preferred Stocks 0.62
Common Stocks 2.73
Cash & other assets, less liablities 4.06
AVERAGE ANNUAL RETURNS
SINCE INCEPTION
PERIODS ENDED 12-31-04(1) 1 YEAR 5 YEARS (8-5-96)
- ------------------------- ------ ------- ---------------
Series P 11.61% 7.00% 7.36%
(1) 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.
See accompanying notes.
107
SERIES P
Manager's Commentary (HIGH YIELD SERIES)
February 15, 2005 (unaudited)
PERFORMANCE
INFORMATION ABOUT YOUR SERIES EXPENSES
CALCULATING YOUR ONGOING SERIES EXPENSES
EXAMPLE
As a shareholder of the Series, you incur ongoing costs, including management
fees and other series expenses. Performance figures and expense ratios do not
reflect fees and expenses associated with an investment in variable insurance
products. Shares of a Series of SBL Fund are available only through the purchase
of such products. This Example is intended to help you understand your ongoing
costs (in dollars) of investing in the Series and to compare these costs with
ongoing costs of investing in other mutual funds. The Example is based on an
investment of $1,000 invested at the beginning of the period and held for the
entire period, July 1, 2004 - December 31, 2004.
ACTUAL EXPENSES
The first line in the table provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the table provides information about hypothetical account
values and hypothetical expenses based on the Series actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Series
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Series and other funds. To do so, compare this 5% hypothetical example with the
5% hypothetical examples that appear in the shareholder reports of the other
funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any fees and expenses associated with an
investment in variable insurance products. Therefore, the second line is useful
in comparing ongoing costs only, and will not help you determine the relative
total costs of owning different funds. In addition, if these fees and expenses
associated with an investment in variable insurance products were included, your
costs would have been higher.
FUND EXPENSES
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING
07-01-04 12-31-04(1) PERIOD(2)
------------- ------------- -------------
Series P (High Yield Series)
Actual $ 1,000.00 $ 1,089.70 $ 5.04
Hypothetical 1,000.00 1,020.31 4.88
(1) The actual ending account value is based on the actual total return of
the Series for the period July 1, 2004 to December 31, 2004 after actual
expenses and will differ from the hypothetical ending account value which
is based on the Series expense ratio and a hypothetical annual return of
5% before expenses. The actual cumulative return at net asset value for
the period July 1, 2004 to December 31, 2004 was 8.97%.
(2) Expenses are equal to the Series annualized expense ratio 0.96%
multiplied by the average account value over the period, multiplied by
184/366 (to reflect the one-half year period).
108
SERIES P
Schedule of Investments (HIGH YIELD SERIES)
December 31, 2004
PRINCIPAL
AMOUNT OR
NUMBER MARKET
OF SHARES VALUE
CONVERTIBLE BONDS - 6.2%
AIRLINES - 2.2%
Continental Airlines, Inc.,
4.50% - 2007 $1,925,000 $1,612,187
----------
AUTOMOTIVE - 0.9%
Sonic Automotive, Inc., 5.25% - 2009 $ 650,000 646,750
----------
CONSTRUCTION MACHINERY - 1.2%
United Rentals, Inc., 1.875% - 2023 $ 925,000 929,625
----------
MEDIA - CABLE - 0.9%
Mediacom Communications Corporation,
5.25% - 2006 $ 675,000 664,875
----------
TELECOMMUNICATIONS - WIRELESS - 1.0%
Nextel Communications, Inc.,
5.25% - 2010 $ 750,000 767,813
----------
TOTAL CONVERTIBLE BONDS
(cost $4,396,437) 4,621,250
----------
PREFERRED STOCKS - 0.6%
PUBLISHING - 0.6%
Primedia, Inc. (Cl.D) 4,580 458,000
----------
STEEL - 0.0%
Weirton Steel Corporation (Cl.C) 315 3
----------
TOTAL PREFERRED STOCKS
(cost $301,370) 458,003
----------
COMMON STOCKS - 2.8%
AIRLINES - 0.0%
Ace Aviation Holdings, Inc.* 704 20,889
----------
BROADCASTING & CABLE TV - 0.0%
Classic Holdco, LLC*,(5) 79 -
----------
ELECTRONIC MANUFACTURING SERVICES - 0.0%
Viasystems Group, Inc.*,(5) 1,207 -
HEALTH CARE EQUIPMENT - 0.0%
----------
Mediq, Inc.*,(5) 92 -
----------
HEALTH CARE FACILITIES - 0.5%
Service Corporation International* 50,587 376,873
HOUSEHOLD PRODUCTS - 0.0%
----------
WKI Holding Company, Inc.*(5) 202 -
----------
INTEGRATED TELECOMMUNICATION SERVICES - 0.1%
Telewest Global, Inc.* 1,902 33,437
----------
REAL ESTATE INVESTMENT TRUSTS - 1.4%
Bimini Mortgage Management, Inc.* 30,450 489,027
HomeBanc Corporation* 55,700 539,176
----------
1,028,203
----------
WIRELESS TELECOMMUNICATION SERVICE - 0.8%
Nextel Communications, Inc.* 19,000 570,000
----------
TOTAL COMMON STOCKS
(cost $1,893,777) 2,029,402
----------
FOREIGN BONDS - 0.1%
TUNISIA - 0.1%
Banque Cent de Tunisie, 7.375% - 2012 80,000 91,400
----------
TOTAL FOREIGN BONDS
(cost $78,969) 91,400
----------
FOREIGN GOVERNMENT BONDS - 1.6%
BULGARIA - 0.2%
Bulgaria IAB, 2.75% - 2011(2) 54,600 54,567
Bulgaria FLIRB, 2.75% - 2012(2) 106,667 106,581
----------
161,148
----------
CHILE - 0.2%
Republic of Chile:
5.625% - 2007 100,000 104,740
7.125% - 2012 25,000 28,700
----------
133,440
----------
MEXICO - 0.4%
United Mexican States:
8.375% - 2011 85,000 99,833
7.50% - 2012 200,000 226,800
----------
326,633
----------
PERU - 0.2%
Republic of Peru, 4.50% - 2017(1) 115,000 107,525
----------
PHILIPPINES - 0.0%
Republic of Philippines, 8.375% - 2009 30,000 31,537
----------
RUSSIA - 0.3%
Russia Finance Ministry, 3.00% - 2011 80,000 67,464
Russian Federation:
8.75% - 2005 40,000 41,096
10.00% - 2007 100,000 113,010
8.25% - 2010(4) 36,500 40,241
----------
261,811
----------
SOUTH AFRICA - 0.2%
Republic of South Africa:
9.125% - 2009 95,000 112,575
7.375% - 2012 35,000 40,075
----------
152,650
----------
UKRAINE - 0.1%
Ukraine Government, 11.00% - 2007 35,001 37,546
----------
TOTAL FOREIGN GOVERNMENT BONDS
(cost $1,050,187) 1,212,290
----------
See accompanying notes.
109
SERIES P
Schedule of Investments (HIGH YIELD SERIES)
December 31, 2004
PRINCIPAL MARKET
AMOUNT VALUE
CORPORATE BONDS - 84.6%
AEROSPACE & DEFENSE - 3.3%
BE Aerospace, Inc., 8.875% - 2011 $ 625,000 $ 653,125
Esterline Technologies Corporation,
7.75% - 2013 610,000 666,425
Hexcel Corporation, 9.75% - 2009 25,000 26,000
Sequa Corporation:
8.875% - 2008 280,000 306,600
9.00% - 2009 200,000 225,500
Vought Aircraft Industries, Inc.,
8.00% - 2011 600,000 583,500
----------
2,461,150
----------
AIRLINES - 2.3%
Atlas Air, Inc., 9.375% - 2006(3,5) 30,000 -
Delta Air Lines, Inc.:
7.70% - 2005 1,350,000 1,248,750
7.90% - 2009 75,000 46,875
Northwest Airlines, Inc., 9.875% - 2007 10,000 9,025
Pegasus Aviation Lease
Securitization, 8.42% - 2030(5) 489,231 -
United Air Lines, Inc., 7.73% - 2010(3) 499,872 444,285
----------
1,748,935
----------
AUTOMOTIVE - 1.9%
Accuride Corporation, 9.25% - 2008 70,000 71,050
Allied Holdings, Inc., 8.625% - 2007 655,000 524,819
Dura Operating Corporation,
8.625% - 2012 10,000 10,400
Group 1 Automotive, Inc., 8.25% - 2013 400,000 425,000
TRW Automotive, Inc., 9.375% - 2013 312,000 361,920
----------
1,393,189
----------
BANKING - 0.6%
E*Trade Financial Corporation,
8.00% - 2011(4) 300,000 322,500
FCB/NC Capital Trust I, 8.05% - 2028 75,000 76,626
Popular North America, Inc.,
6.125% - 2006 60,000 62,532
Western Financial Bank,
9.625% - 2012 5,000 5,700
----------
467,358
----------
BUILDING MATERIALS - 3.4%
Building Materials Corporation:
8.00% - 2007 550,000 569,250
8.00% - 2008 825,000 849,750
Goodman Global Holdings,
7.875% - 2012(4) 800,000 792,000
THL Buildco, Inc., 8.50% - 2014(4) 300,000 313,500
----------
2,524,500
----------
CHEMICALS - 1.2%
Borden Chemicals & Plastics,
9.50% - 2005(5) 20,000 -
IMC Global, Inc., 11.25% - 2011 5,000 5,775
ISP Holdings, Inc., 10.625% - 2009 800,000 886,000
Methanex Corporation, 8.75% - 2012 5,000 5,838
Royster-Clark, Inc., 10.25% - 2009 15,000 15,525
----------
913,138
----------
CONSTRUCTION MACHINERY - 3.0%
Case Corporation, 7.25% - 2005 30,000 30,525
Case New Holland, Inc., 9.25% - 2011(4) 650,000 723,125
NMHG Holding Company, 10.00% - 2009 5,000 5,525
Navistar International Corporation,
9.375% - 2006 45,000 48,150
Shaw Group, Inc., 10.75% - 2010 1,300,000 1,433,250
----------
2,240,575
----------
CONSUMER PRODUCTS - 1.0%
Hasbro, Inc., 6.15% - 2008 56,000 59,360
Icon Health & Fitness, 11.25% - 2012 25,000 21,000
Sealy Mattress Company, 8.25% - 2014 500,000 530,000
WH Holdings/ WH Capital, 9.50% - 2011 100,000 110,000
----------
720,360
----------
DIVERSIFIED MANUFACTURING - 0.1%
Numatics, Inc., 9.625% - 2008 50,000 45,750
----------
ELECTRIC - 4.4%
AES Corporation, 9.50% - 2009 750,000 853,125
Avista Corporation, 9.75% - 2008 50,000 57,973
CMS Energy Corporation:
9.875% - 2007 10,000 11,175
7.50% - 2009 610,000 649,650
Calpine Corporation:
8.75% - 2007 225,000 196,875
8.625% - 2010 85,000 65,025
East Coast Power LLC:
6.737% - 2008 44,753 46,738
7.066% - 2012 84,520 90,540
Edison Mission Energy, 10.00% - 2008 550,000 631,125
Reliant Energy, Inc., 6.75% - 2014 400,000 397,500
Texas Genco LLC, 6.875% -2014(4) 150,000 155,063
UCAR Finance, Inc., 10.25% - 2012 15,000 17,138
Western Resources, Inc., 7.125% - 2009 90,000 98,827
----------
3,270,754
----------
See accompanying notes.
110
SERIES P
Schedule of Investments (HIGH YIELD SERIES)
December 31, 2004
PRINCIPAL MARKET
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
ENERGY - INDEPENDENT - 3.4%
El Paso Production Holding Company,
7.75% - 2013 $ 250,000 $ 261,875
Energy Corporation of America,
9.50% - 2007 52,000 49,660
Forest Oil Corporation, 8.00% - 2008 15,000 16,556
Houston Exploration, 7.00% - 2013 450,000 477,000
Magnum Hunter Resources, Inc.,
9.60% - 2012 793,000 900,055
Plains E&P Company, 8.75% - 2012 40,000 44,700
Range Resources Corporation,
7.375% - 2013 75,000 80,438
Stone Energy Corporation,
6.75% - 2014(4) 150,000 149,625
TransMontaigne, Inc., 9.125% - 2010 500,000 542,500
----------
2,522,409
----------
ENERGY - INTEGRATED - 1.3%
Petrobras International Finance Company:
9.00% - 2008(1) 425,000 500,438
9.125% - 2013 425,000 482,375
----------
982,813
----------
ENTERTAINMENT - 2.1%
Blockbuster, Inc., 9.00% - 2012(4) 300,000 296,250
Cinemark USA, Inc., 9.00% - 2013 400,000 456,500
Marquee Holdings, Inc.,
0.00% - 2014(1,4) 1,250,000 843,750
----------
1,596,500
----------
ENVIRONMENTAL - 1.2%
Allied Waste North America:
8.50% - 2008 20,000 21,200
8.875% - 2008 385,000 411,950
Casella Waste Systems, Inc.,
9.75% - 2013 400,000 442,000
----------
875,150
----------
FINANCIAL - OTHER - 0.3%
Arch Western Finance, 6.75% - 2013 200,000 206,500
----------
FOOD & BEVERAGE - 4.8%
ASG Consolidated LLC/Finance, Inc.,
0.00% - 2011(1,4) 1,200,000 765,000
Canandaigua Brands, Inc.,
8.625% - 2006 200,000 213,500
Dean Foods Company, 8.15% - 2007 350,000 381,500
Dole Foods Company, Inc.:
7.25% - 2010 400,000 411,000
8.875% - 2011 200,000 217,500
Land O' Lakes, Inc., 8.75% - 2011 1,025,000 1,019,875
Pinnacle Foods Holding, Inc.,
8.25% - 2013(4) 625,000 595,313
----------
3,603,688
----------
GAMING - 3.1%
American Casino & Entertainment,
7.85% - 2012 300,000 318,750
Mandalay Resort Group:
10.25% - 2007 45,000 50,850
6.50% - 2009 300,000 316,500
MGM Grand, Inc., 6.95% - 2005 125,000 125,312
MGM Mirage, Inc.:
8.50% - 2010 15,000 17,062
8.375% - 2011 55,000 62,012
6.75% - 2012 625,000 657,812
Mirage Resorts, Inc., 6.625% - 2005 150,000 150,375
Park Place Entertainment,
7.875% - 2005 300,000 311,250
Station Casinos, Inc., 6.00% - 2012 300,000 305,625
----------
2,315,548
----------
HEALTH CARE - 4.9%
Fisher Scientific International, Inc.,
8.00% - 2013 500,000 567,500
HCA, Inc., 6.375% - 2015 300,000 301,215
Hanger Orthopedic Group,
10.375% - 2009 900,000 929,250
Healthsouth Corporation, 8.50% - 2008 775,000 804,062
Johnsondiversey, Inc., 9.625% - 2012 5,000 5,587
Radiologix, Inc., 10.50% - 2008 45,000 49,500
Rural/Metro Corporation,
7.875% - 2008 150,000 144,000
Stewart Enterprises, Inc.,
10.75% - 2008 750,000 811,875
Sybron Dental Specialties, Inc.,
8.125% - 2012 5,000 5,450
----------
3,618,439
----------
HOME CONSTRUCTION - 0.1%
KB Home, 9.50% - 2011 35,000 38,500
INDUSTRIAL - OTHER - 3.1%
Coleman Cable, Inc., 9.875% - 2012(4) 150,000 159,375
Corrections Corporation of America,
7.50% - 2011 200,000 213,750
Iron Mountain, Inc.:
8.25% - 2011 800,000 825,000
7.75% - 2015 475,000 482,125
Usec, Inc., 6.625% - 2006 600,000 609,000
----------
2,289,250
----------
INSURANCE - LIFE - 0.4%
Genamerica Capital, Inc.,
8.525% - 2027(4) 175,000 195,911
Torchmark Corporation, 6.25% - 2006 75,000 78,824
----------
274,735
----------
See accompanying notes.
111
SERIES P
Schedule of Investments (HIGH YIELD SERIES)
December 31, 2004
PRINCIPAL MARKET
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
INSURANCE - PROPERTY & CASUALTY - 0.4%
Fairfax Financial Holdings, 7.75% - 2012 $ 325,000 $ 331,500
----------
LODGING - 1.7%
Starwood Hotels & Resorts,
7.375% - 2007(1) 600,000 639,750
Sun International Hotels,
8.875% - 2011 550,000 600,875
----------
1,240,625
----------
MEDIA - CABLE - 2.8%
CSC Holdings, Inc.:
7.25% - 2008 375,000 395,625
8.125% - 2009 10,000 10,937
8.125% - 2009 25,000 27,344
6.75% - 2012(4) 325,000 334,750
Charter Communications Holdings, Inc., LLC:
8.25% - 2007 25,000 24,281
8.625% - 2009 400,000 347,000
11.125% - 2011 300,000 271,500
Frontiervision Holdings,
11.875% - 2007(3) 20,000 26,700
Jones Intercable, Inc., 7.625% - 2008 200,000 221,289
Shaw Communications, Inc.,
7.25% - 2011 375,000 413,438
----------
2,072,864
----------
MEDIA - NONCABLE - 4.0%
Corus Entertainment, Inc.,
8.75% - 2012 30,000 32,925
EchoStar DBS Corporation,
9.125% - 2009 10,000 11,000
Entercom Radio Capital,
7.625% - 2014 425,000 457,406
Entravision Communications
Corporation,
8.125% - 2009 10,000 10,675
Fisher Communications, Inc.,
8.625% - 2014(4) 250,000 270,000
Intelsat, Ltd., 7.625% - 2012 1,250,000 1,215,625
RH Donnelley Finance Corporation:
8.875% - 2010 550,000 613,250
10.875% - 2012 125,000 148,438
Time Warner, Inc., 9.125% - 2013 30,000 38,566
USA Networks, Inc., 6.75% - 2005 175,000 179,850
----------
2,977,735
----------
METALS & MINING - 3.4%
AK Steel Corporation, 7.875% - 2009 1,495,000 1,523,031
Asarco, Inc., 7.875% - 2013 200,000 170,000
Asia Aluminum Holdings, Ltd.,
8.00% - 2011(4) 800,000 808,000
Bulong Operations, 12.50% - 2008(3,5) 185,000 -
National Steel Corporation,
9.875% - 2009(3,5) 17,515 -
Steel Dynamics, Inc., 9.50% - 2009 5,000 5,475
----------
2,506,506
----------
OIL FIELD SERVICES - 6.4%
BRL Universal Equipment,
8.875% - 2008 975,000 1,024,969
Key Energy Services, Inc.,
8.375% - 2008 800,000 838,000
North America Energy Partner,
8.75% - 2011 350,000 357,000
Parker Drilling Company:
10.125% - 2009 563,000 591,150
7.15% - 2010(2,4) 675,000 707,062
Pemex Project Funding Master Trust:
8.50% - 2008 30,000 33,825
7.875% - 2009 35,000 39,323
9.125% - 2010 40,000 47,960
Petroleum Geo-Services:
8.00% - 2006 350,000 357,000
10.00% - 2010 700,000 798,000
----------
4,794,289
----------
PACKAGING - 2.2%
Ball Corporation, 6.875% - 2012 250,000 268,750
Owens-Brockway Glass Containers,
7.75% - 2011 200,000 216,500
Owens-Illinois, Inc.:
8.10% - 2007 575,000 612,375
7.50% - 2010 30,000 31,837
Solo Cup Company, 8.50% - 2014 500,000 520,000
----------
1,649,462
----------
PAPER - 1.7%
Appleton Papers, Inc., 8.125% - 2011 300,000 323,250
Domtar, Inc., 8.75% - 2006 250,000 267,906
Longview Fibre Company, 10.00% - 2009 10,000 10,925
Sino-Forest Corporation, 9.125% - 2011(4) 625,000 682,813
----------
1,284,894
----------
PHARMACEUTICALS - 0.8%
AmerisourceBergen Corporation,
8.125% - 2008 300,000 333,750
Elan Financial Corporation,
7.75% - 2011(4) 250,000 266,250
----------
600,000
----------
PIPELINES - 1.5%
Sonat, Inc., 7.625% - 2011 1,050,000 1,086,750
----------
REAL ESTATE INVESTMENT TRUSTS - 0.7%
iStar Financial, Inc., 7.00% - 2008 500,000 538,402
----------
REFINING - 0.8%
Citgo Petroleum Corporation,
6.00% - 2011(4) 150,000 149,250
Crown Central Petroleum Corporation,
10.875% - 2005 125,000 118,750
Frontier Oil Corporation,
6.625% - 2011(4) 300,000 306,000
----------
574,000
----------
See accompanying notes.
112
SERIES P
Schedule of Investments (HIGH YIELD SERIES)
December 31, 2004
PRINCIPAL MARKET
AMOUNT VALUE
CORPORATE BONDS (CONTINUED)
RESTAURANTS - 0.4%
Tricon Global Restaurants,
8.50% - 2006 $ 290,000 $ 308,064
-----------
RETAILERS - 0.1%
Ames Department Stores, Inc.,
10.00% - 2006(3,5) 300,000 -
JC Penney Company, Inc.,
7.375% - 2008 40,000 43,900
PCA Finance Corporation,
11.875% - 2009 30,000 26,400
-----------
70,300
-----------
SERVICES - 1.2%
American Eco Corporation,
9.625% - 2008(3,5) 200,000 -
Mail-Well Corporation, 9.6% - 2012 10,000 10,975
MasTec, Inc., 7.75% - 2008 900,000 875,250
-----------
886,225
-----------
SUPERMARKETS - 0.5%
Fleming Companies, Inc.,
9.875% - 2012(3) 400,000 9,500
Roundy's, Inc., 8.8% - 2012 300,000 327,750
-----------
337,250
-----------
TECHNOLOGY - 2.5%
Advanced Micro Devices,
7.75% - 2012(4) 450,000 468,562
Hewlett-Packard Company,
5.75% - 2006 110,000 114,526
Worldspan LP, 9.625% - 2011 1,250,000 1,243,750
-----------
1,826,838
-----------
TELECOMMUNICATIONS - WIRELESS - 1.7%
AirGate PCS, Inc., 5.85% - 2011(2,4) 100,000 102,750
Call-Net Enterprises, Inc.,
10.625% - 2008 226 226
Telemig Celular, 8.75% - 2009(4) 500,000 518,750
Ubiquitel Operating Company,
9.875% - 2011 600,000 673,500
-----------
1,295,226
-----------
TELECOMMUNICATIONS - WIRELINES - 3.5%
Exodus Communications, Inc.,
11.625% - 2010(3,5) 344,194 -
LCI International, Inc., 7.2% - 2007 2,525,000 2,455,562
Qwest Corporation, 7.875% - 2011(4) 150,000 162,750
Telecommunications Technique,
9.75% - 2008(3,5) 30,000 -
-----------
2,618,312
-----------
TEXTILE - 0.4%
Invista, 9.25% - 2012(4) 250,000 278,750
-----------
TOBACCO - 0.6%
Dimon, Inc., 7.75% - 2013 450,000 472,500
-----------
TRANSPORTATION SERVICES - 1.4%
Overseas Shipholding Group, Inc.,
8.25% - 2013 400,000 445,000
Stena AB, 9.625% - 2012 425,000 480,250
Teekay Shipping Corporation,
8.32% - 2008 97,000 98,576
-----------
1,023,826
-----------
TOTAL CORPORATE BONDS
(cost $60,986,396) 62,883,559
-----------
REPURCHASE AGREEMENT - 2.4%
United Missouri Bank, 1.74%, dated 12-31-04,
matures 1-03-05; repurchase amount
of $1,780,258 (Collateralized by
FHLMC, 0.00%, 1-14-05 with a
value of $1,816,280) 1,780,000 1,780,000
TOTAL REPURCHASE AGREEMENT
(cost $1,780,000) 1,780,000
-----------
TOTAL INVESTMENTS - 98.3%
(cost $70,487,136) 73,075,904
CASH & OTHER ASSETS, LESS LIABILITIES - 1.7% 1,239,644
-----------
TOTAL NET ASSETS - 100.0% $74,315,548
===========
For federal income tax purposes, the identified cost of investments owned at
December 31, 2004 was $69,847,132.
*Non-income producing security
(1) Security is a step bond. Rate indicated is rate effective at December 31,
2004.
(2) Variable rate security. Rate indicated is rate effective at December 31,
2004.
(3) Security is in default.
(4) Security is a 144A Series. The total market value of 144A securities is
$11,080,839 (cost $10,582,326), or 14.9% of total net assets.
(5) Security is fair valued by the Board of Directors.The total market value
of fair valued securities amounts to $0, or 0.0% of total net assets.
See accompanying notes.
113
SERIES P
(HIGH YIELD SERIES)
Statement of Assets and Liabilities
December 31, 2004
ASSETS:
Investments, at value(1)..................... $ 73,075,904
Cash......................................... 14,53
Receivables:
Fund shares sold............................. 138,232
Interest..................................... 1,292,775
Dividends.................................... 9,469
Prepaid expenses.............................. 1,118
------------
Total assets.................................. 74,532,031
------------
LIABILITIES:
Payable for:
Fund shares redeemed......................... 145,395
Management fees.............................. 46,728
Custodian fees............................... 658
Transfer agent and administration fees....... 12,491
Professional fees............................ 8,715
Other........................................ 2,496
------------
Total liabilities............................. 216,483
------------
NET ASSETS.................................... $ 74,315,548
============
NET ASSETS CONSIST OF:
Paid in capital............................... $ 68,461,729
Accumulated undistributed net
investment income............................ 5,359,745
Accumulated net realized loss
on sales of investments...................... (2,094,694)
Net unrealized appreciation in
value of investments......................... 2,588,768
------------
Net assets.................................... $ 74,315,548
============
Capital shares authorized..................... indefinite
Capital shares outstanding.................... 4,564,425
Net asset value and redemption price
per share (net assets divided by
shares outstanding).......................... $ 16.28
============
(1)Investments, at cost....................... $ 70,487,136
Statement of Operations
For the Year Ended December 31,2004
INVESTMENT INCOME:
Dividends.................................... 83,264
Interest..................................... 5,490,054
------------
Total investment income...................... 5,573,318
------------
EXPENSES:
Management fees.............................. 520,111
Custodian fees............................... 12,868
Transfer/maintenance fees.................... 21,989
Administration fees.......................... 77,852
Directors' fees.............................. 3,440
Professional fees............................ 10,706
Reports to shareholders...................... 4,041
Other expenses............................... 2,589
------------
Total expenses............................... 653,596
------------
Net investment income........................ 4,919,722
------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain during the period on:
Investments.................................. 2,263,634
------------
Realized gain................................ 2,263,634
------------
Net change in unrealized appreciation
during the period on:
Investments.................................. 279,154
------------
Unrealized appreciation...................... 279,154
------------
Net gain..................................... 2,542,788
------------
Net increase in net assets
resulting from operations.................... $ 7,462,510
============
See accompanying notes.
114
SERIES P
Statement of Changes in Net Assets (HIGH YIELD SERIES)
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income.......................................................... $ 4,919,722 $ 4,725,578
Net realized gain (loss) during the period on investments...................... 2,263,634 (624,075)
Net change in unrealized appreciation during the period on investments......... 279,154 7,869,727
------------ ------------
Net increase in net assets resulting from operations........................... 7,462,510 11,971,230
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.......................................................... (557,357) (4,254,870)
------------ ------------
Total distributions to shareholders............................................ (557,357) (4,254,870)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares................................................... 63,392,388 76,721,501
Distributions reinvested....................................................... 557,358 4,254,870
Cost of shares redeemed........................................................ (75,030,153) (51,582,503)
------------ ------------
Net increase (decrease) from capital share transactions........................ (11,080,407) 29,393,868
------------ ------------
Net increase (decrease) in net assets.......................................... (4,175,254) 37,110,228
------------ ------------
NET ASSETS:
Beginning of period............................................................ 78,490,802 41,380,574
------------ ------------
End of period.................................................................. $ 74,315,548 $ 78,490,802
============ ============
Accumulated undistributed net investment income at end of period............... $ 5,359,745 $ 928,942
============ ============
CAPITAL SHARE ACTIVITY:
Shares sold.................................................................... 4,186,326 5,440,332
Shares reinvested.............................................................. 36,476 290,230
Shares redeemed................................................................ (4,993,239) (3,632,230)
------------ ------------
Total capital share activity................................................... (770,437) 2,098,332
============ ============
See accompanying notes.
115
SERIES P
Financial Highlights (HIGH YIELD SERIES)
Selected data for each share of capital stock outstanding throughout each year
YEAR ENDED,
DECEMBER 31,
2004 2003 2002(e) 2001(d) 2000
------- ------- ------- ------- ------------
PER SHARE DATA
Net asset value, beginning of period $ 14.71 $ 12.79 $ 13.60 $ 14.25 $ 15.51
Income (loss) from investment operations:
Net investment income (loss) 1.12 0.90 0.93 1.26 1.12
Net gain (loss) on securities (realized and unrealized) 0.58 1.87 (0.88) (0.63) (1.36)
------- ------- ------- ------- ------------
Total from investment operations 1.70 2.77 0.05 0.63 (0.24)
------- ------- ------- ------- ------------
Less distributions:
Dividends from net investment income (0.13) (0.85) (0.86) (1.28) (1.02)
Distributions from realized gains - - - - -
------- ------- ------- ------- ------------
Total distributions (0.13) (0.85) (0.86) (1.28) (1.02)
------- ------- ------- ------- ------------
Net asset value, end of period $ 16.28 $ 14.71 $ 12.79 $ 13.60 $ 14.25
======= ======= ======= ======= ============
TOTAL RETURN(a) 11.61% 21.71% 0.41% 4.43% (1.52%)
------- ------- ------- ------- ------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $74,316 $78,491 $41,381 $29,384 $ 22,616
------- ------- ------- ------- ------------
Ratios to average net assets:
Net investment income (loss) 7.08% 7.53% 8.12% 8.73% 8.06%
Total expenses 0.94% 0.87% 0.88% 0.86% 0.87%
Gross expenses(b) 0.94% 0.87% 0.88% 0.86% 0.87%
Net expenses(c) 0.94% 0.87% 0.88% 0.86% 0.87%
------- ------- ------- ------- ------------
Portfolio turnover rate 63% 52% 80% 80% 34%
(a) Total return does not take into account any of the expenses associated
with an investment in variable insurance products offered by Security
Benefit Life Insurance Company. 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.
(b) Gross expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net expense information reflects expense ratios after expense reductions
or fee waivers and reduction of custodian expenses.
(d) As required, effective January 1, 2001, the Funds adopted the provisions
of the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premiums on fixed income securities. The effect of this change
for the period ended December 31, 2001 was to decrease net investment
income per share by less than 1/2 of a cent, increase net realized and
unrealized gains and losses per share by less than 1/2 of a cent and
increase (decrease) the ratio of net investment income to average net
assets from (0.02%) to 0.12%. Per share, ratios and supplemental data for
periods prior to January 1, 2001 have not been restated to reflect this
change in presentation.
(e) The financial highlights for Series P exclude the historical financial
highlights of Series K. The assets of Series K were acquired by Series P
on August 27, 2002.
See accompanying notes.
116
SERIES Q
Manager's Commentary (SMALL CAP VALUE SERIES)
February 15, 2005 (unaudited)
[STRONG LOGO]
Advisor, Strong Capital Management
[PHOTO OF I. CHARLES RINALDI]
I. Charles Rinaldi
Portfolio Manager
TO OUR SHAREHOLDERS:
The equity markets fluctuated for much of 2004 before starting to rally in the
fourth quarter. Despite a rising interest rate environment, the equity markets
picked up, due in part, to an incumbent re-election and crude oil prices easing
from all-time highs. Small capitalization names enjoyed another solid year of
performance. The Russell 2000(R) Index reached record highs during the year and
has outperformed the S&P 500 six years in a row. In 2004, small capitalization
value was one of the top performing asset classes and our investment team still
believes the small-cap value space is attractive, as it has proven to be a solid
asset class on a risk/reward basis through the years.
The Small Cap Value Series outperformed the Russell 2000 for the year. The
Series returned 20.37%(1) for the year, versus the index's return of 18.33%.
Industrial names as well as the materials sector added value to the Series
during 2004. Within the industrial area, construction and engineering securities
along with commercial services and supplies stocks performed well and were among
the top contributors for the year. Packaging and chemical names aided
performance within the materials sector. The team continues to have conviction
in these names and believes they add significant value to the series over the
long term.
The energy sector also was an area of positive contribution to performance for
the year. The Series remains overweight compared to the benchmark in energy as
this sector continues to perform well and add value. Stock selection within this
area was the key driver of performance. Many of our energy names have been
long-term holdings in the Series and, while some of these names may experience
short-term fluctuations, we believe the Series' energy stocks remain undervalued
and therefore will continue to add value. The team continues to be positive on
this sector and its stocks as we enter into 2005.
The financials sector was a slight detractor to the Series' performance. The
team remains cautious on this sector, in particular the general banking
industry, an area in which the Series is significantly underweight compared to
the benchmark. Given the rising interest rate environment, we believe
traditional banking will experience pressure in many of their businesses.
Overall, we believe select opportunities exist in the small cap value universe,
despite price appreciation across the asset class. Valuations in specific
sectors, i.e. technology and financials, appear overextended and as a possible
pullback occurs, opportunities could present for additions to the Series. Energy
begins the year back at levels common throughout 2004. Late 2004 volatility was
temporary, sending crude oil to levels near $60 per barrel. We remain overweight
compared to the benchmark in energy based on our belief that we are in the midst
of steady, multi-year growth in select industries within energy.
Sincerely,
I. Charles Rinaldi
Portfolio Manager
117
SERIES Q
Manager's Commentary (SMALL CAP VALUE SERIES)
February 15, 2005 (unaudited)
PERFORMANCE
[PERFORMANCE GRAPH]
SBL Q INVESTMENT INFORMATION
DATE value
- -------- ---------
SBL Q
5/1/00 10,000.00
6/30/00 9,840.00
9/30/00 10,190.00
12/31/00 10,740.00
3/31/01 12,005.22
6/30/01 13,515.94
9/30/01 11,169.28
12/31/01 13,119.68
3/31/02 14,571.50
6/30/02 14,220.63
9/30/02 11,496.21
12/31/02 12,206.51
3/31/03 11,402.88
6/30/03 14,139.57
9/30/03 15,301.96
12/31/03 18,419.22
3/31/04 19,480.19
6/30/04 19,545.82
9/30/04 19,869.95
12/31/04 22,171.96
RUSSELL 2000
DATE value
- ------------------- -------
INCEPTION 5/01/00 10,000.00
06/30/00 10,238.16
09/30/00 10,350.97
12/31/00 9,635.94
3/31/01 9,012.59
6/30/01 10,299.91
9/30/01 8,158.99
12/31/01 9,878.84
3/31/02 10,272.70
6/30/02 9,414.59
9/30/02 7,400.54
12/31/02 7,856.86
3/31/03 7,504.09
6/30/03 9,261.65
9/30/03 10,101.77
12/31/03 11,569.23
3/31/04 12,293.25
6/30/04 12,350.75
9/30/04 11,998.31
12/31/04 13,688.97
SBL Fund Series Q $22,172
Russell 2000 Index $13,689
$10,000 SINCE INCEPTION
The chart above assumes a hypothetical $10,000 investment in Series Q (Small Cap
Value Series) on May 1, 2000 (date of inception), and reflects the fees and
expenses of Series Q.
PORTFOLIO COMPOSITION BY SECTOR
Consumer Discretionary 4.59%
Consumer Staples 1.39
Energy 24.24
Financials 4.36
Health Care 8.93
Industrials 13.96
Information Technology 8.90
Materials 25.24
Telecommunication Services 0.52
Cash & other assets, less liabilities 7.87
AVERAGE ANNUAL RETURNS
PERIODS ENDED 12-31-04(1) 1 YEAR SINCE INCEPTION (5-1-00)
- ------------------------- ------ ------------------------
Series Q 20.37% 18.58%
- --------------------------------------------------------------------------------
(1) 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.
118 See accompanying notes.
SERIES Q
Manager's Commentary (SMALL CAP VALUE SERIES)
February 15, 2005 (unaudited)
PERFORMANCE
INFORMATION ABOUT YOUR SERIES EXPENSES
CALCULATING YOUR ONGOING SERIES EXPENSES
EXAMPLE
As a shareholder of the Series, you incur ongoing costs, including management
fees and other series expenses. Performance figures and expense ratios do not
reflect fees and expenses associated with an investment in variable insurance
products. Shares of a Series of SBL Fund are available only through the purchase
of such products. This Example is intended to help you understand your ongoing
costs (in dollars) of investing in the Series and to compare these costs with
ongoing costs of investing in other mutual funds. The Example is based on an
investment of $1,000 invested at the beginning of the period and held for the
entire period, July 1, 2004 - December 31, 2004.
ACTUAL EXPENSES
The first line in the table provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the table provides information about hypothetical account
values and hypothetical expenses based on the Series actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Series
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Series and other funds. To do so, compare this 5% hypothetical example with the
5% hypothetical examples that appear in the shareholder reports of the other
funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any fees and expenses associated with an
investment in variable insurance products. Therefore, the second line is useful
in comparing ongoing costs only, and will not help you determine the relative
total costs of owning different funds. In addition, if these fees and expenses
associated with an investment in variable insurance products were included, your
costs would have been higher.
FUND EXPENSES
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING
07-01-04 12-31-04(1) PERIOD(2)
------------- ------------- --------------
Series Q (Small Cap
Value Series)
Actual $1,000.00 $1,126.50 $ 6.36
Hypothetical 1,000.00 1,019.15 6.04
(1) The actual ending account value is based on the actual total return of the
Series for the period July 1, 2004 to December 31, 2004 after actual
expenses and will differ from the hypothetical ending account value which
is based on the Series expense ratio and a hypothetical annual return of
5% before expenses. The actual cumulative return at net asset value for
the period July 1, 2004 to December 31, 2004 was 12.65%.
(2) Expenses are equal to the Series annualized expense ratio 1.19% multiplied
by the average account value over the period, multiplied by 184/366 (to
reflect the one-half year period).
119
SERIES Q
Schedule of Investments (SMALL CAP VALUE SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
PREFERRED STOCK - 0.6%
OIL & GAS EXPLORATION & PRODUCTION -
0.6%
Petrohawk Energy Corporation(2) 8,400 $ 647,136
TOTAL PREFERRED STOCK ----------
(cost $651,000) 647,136
----------
COMMON STOCKS - 90.8%
ADVERTISING - 1.2%
R.H. Donnelley Corporation*(1) 23,500 1,387,675
----------
AEROSPACE & DEFENSE - 0.6%
Armor Holdings, Inc.*(1) 14,900 700,598
----------
AIRLINES - 1.3%
Lan Airlines S.A. ADR 44,300 1,426,460
----------
APPAREL RETAIL - 1.3%
Foot Locker, Inc.(1) 22,600 608,618
Payless ShoeSource, Inc.* 15,900 195,570
Too, Inc.* 25,900 633,514
----------
1,437,702
----------
APPAREL, ACCESSORIES & LUXURY GOODS -
0.1%
DHB Industries, Inc.*(1) 7,900 150,416
----------
APPLICATION SOFTWARE - 1.1%
Evans & Sutherland Computer
Corporation* 48,400 337,348
JDA Software Group, Inc.*(1) 59,500 810,390
Tibco Software, Inc.*(1) 2,500 33,350
----------
1,181,088
----------
AUTO PARTS & EQUIPMENT - 1.0%
Dura Automotive Systems, Inc.* 42,410 459,300
LKQ Corporation* 22,700 455,589
Tower Automotive, Inc.* 94,700 226,333
----------
1,141,222
----------
BIOTECHNOLOGY - 1.8%
Applera Corporation - Applied
Biosystems Group(1) 41,400 865,674
CV Therapeutics, Inc.*(1) 15,300 351,900
Covalent Group, Inc.* 13,867 35,361
OraSure Technologies, Inc.* 107,333 721,278
----------
1,974,213
----------
BUILDING PRODUCTS - 1.4%
Royal Group Technologies, Ltd.* 89,700 939,159
York International Corporation(1) 17,400 600,996
----------
1,540,155
----------
COMMODITY CHEMICALS - 0.9%
Calgon Carbon Corporation 109,400 993,352
Headwaters, Inc.*(1) 2,300 65,550
----------
1,058,902
----------
COMMUNICATIONS EQUIPMENT - 0.3%
ADC Telecommunications, Inc.* 112,700 302,036
----------
COMPUTER & ELECTRONICS RETAIL - 0.3%
Circuit City Stores, Inc. 18,700 292,468
----------
COMPUTER HARDWARE - 0.5%
Cray, Inc.* 115,900 540,094
----------
COMPUTER STORAGE & PERIPHERALS - 0.1%
Iomega Corporation* 11,830 65,538
----------
CONSTRUCTION & ENGINEERING - 3.5%
Chicago Bridge & Iron Company N.V.(1) 83,600 3,344,000
Matrix Service Company* 75,322 607,095
----------
3,951,095
----------
CONSTRUCTION MATERIALS - 0.2%
U.S. Concrete, Inc.* 34,810 266,993
----------
CONSUMER FINANCE - 0.1%
World Acceptance Corporation* 5,200 143,052
----------
DATA PROCESSING & OUTSOURCED SERVICES
- 0.6%
Lightbridge, Inc.* 114,700 692,788
----------
DIVERSIFIED COMMERCIAL SERVICES -
1.5%
ABM Industries, Inc.(1) 19,570 385,920
Geo Group, Inc.* 46,970 1,248,463
----------
1,634,383
----------
DIVERSIFIED METALS & MINING - 1.9%
Apex Silver Mines, Ltd.* 121,700 2,090,806
----------
ELECTRICAL COMPONENTS & EQUIPMENT -
0.3%
Encore Wire Corporation* 28,950 385,904
----------
ELECTRONIC EQUIPMENT MANUFACTURERS -
1.9%
Coherent, Inc.*(1) 18,950 576,838
Newport Corporation*(1) 28,200 397,620
OSI Systems, Inc.*(1) 37,600 853,896
Richardson Electronics, Ltd. 32,700 346,947
----------
2,175,301
----------
ELECTRONIC MANUFACTURING SERVICES -
0.3%
Celestica, Inc.* 28,000 395,080
----------
EMPLOYMENT SERVICES - 1.3%
CDI Corporation 18,900 404,082
Kforce, Inc.* 93,800 1,041,180
----------
1,445,262
----------
ENVIRONMENTAL SERVICES - 1.2%
Layne Christensen Company* 72,700 1,319,505
----------
GENERAL MERCHANDISE STORES - 0.0%
ShopKo Stores, Inc.*(1) 1,000 18,680
----------
See accompanying notes.
120
SERIES Q
Schedule of Investments (SMALL CAP VALUE SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS (CONTINUED)
GOLD - 6.8%
Eldorado Gold Corporation* 3,500 $ 10,325
Glamis Gold, Ltd.*(1) 166,700 2,860,572
Goldcorp, Inc.(1) 104,400 1,570,176
Harmony Gold Mining
Company, Ltd. ADR 116,500 1,079,955
Meridian Gold, Inc.*(1) 66,800 1,267,196
Randgold Resources, Ltd. ADR*(1) 72,900 831,060
----------
7,619,284
----------
HEALTH CARE DISTRIBUTORS - 0.8%
Andrx Corporation*(1) 26,700 582,861
Omnicare, Inc. 10,800 373,896
----------
956,757
----------
HEALTH CARE EQUIPMENT - 0.3%
Allied Healthcare Products, Inc.* 51,700 338,635
----------
HEALTH CARE FACILITIES - 2.3%
Beverly Enterprises, Inc.* 188,100 1,721,115
Manor Care, Inc. 25,850 915,865
----------
2,636,980
----------
HEALTH CARE SERVICES - 3.3%
Cross Country Healthcare, Inc.* 19,600 354,368
Gentiva Health Services, Inc.* 48,000 802,560
Healthcare Services Group, Inc 29,800 621,032
IDX Systems Corporation*(1) 46,300 1,595,498
Providence Service Corporation* 13,510 283,305
----------
3,656,763
----------
HOTELS, RESORTS & CRUISE LINES - 0.0%
Great Wolf Resorts, Inc.* 800 17,872
----------
IT CONSULTING & OTHER SERVICES - 0.8%
MPS Group, Inc.* 71,475 876,283
----------
INDUSTRIAL MACHINERY - 2.2%
Robbins & Myers, Inc. 17,800 424,174
Unova, Inc.*(1) 80,000 2,023,200
----------
2,447,374
----------
INTEGRATED TELECOMMUNICATION SERVICES
- 0.5%
Cincinnati Bell, Inc.* 139,600 579,340
----------
INTERNET RETAIL - 0.0%
Stamps.com, Inc.* 2,240 35,482
----------
INTERNET SOFTWARE & SERVICES - 1.6%
EarthLink, Inc.*(1) 129,210 1,488,499
Net2Phone, Inc.* 96,400 327,760
----------
1,816,259
----------
INVESTMENT BANKING & BROKERAGE - 0.0%
LaBranche & Company, Inc.* 800 7,168
----------
METAL & GLASS CONTAINERS - 1.4%
Constar International, Inc.* 39,200 302,624
Intertape Polymer Group, Inc.*(3) 135,000 1,229,850
----------
1,532,474
----------
OIL & GAS DRILLING - 3.6%
Grey Wolf, Inc.* 100,200 528,054
Helmerich & Payne, Inc.(1) 28,730 977,969
Parker Drilling Company* 72,100 283,353
Pride International, Inc.* 59,200 1,215,968
Transocean, Inc.*(1) 25,700 1,089,423
----------
4,094,767
----------
OIL & GAS EQUIPMENT & SERVICES - 8.0%
BJ Services Company(1) 17,000 791,180
Global Industries, Ltd.* 297,100 2,462,959
Input/Output, Inc.*(1) 53,300 471,172
Key Energy Services, Inc.* 110,050 1,298,590
Newpark Resources, Inc.* 177,360 913,404
Oceaneering International, Inc.*(1) 34,300 1,280,076
Petroleum Helicopters, Inc. 8,850 221,870
(Non-Voting)*
Petroleum Helicopters, Inc. (Voting)* 5,900 152,096
Smith International, Inc.*(1) 11,400 620,274
Willbros Group, Inc.* 32,500 749,125
----------
8,960,746
----------
OIL & GAS EXPLORATION & PRODUCTION -
12.0%
Forest Oil Corporation*(1) 93,100 2,953,132
McMoRan Exploration Company*(1) 57,085 1,067,489
Newfield Exploration Company*(1) 12,200 720,410
Noble Energy, Inc.(1) 23,300 1,436,678
PetroQuest Energy, Inc.* 38,900 192,555
Pioneer Natural Resources Company(1) 28,900 1,014,390
Range Resources Corporation(1) 229,700 4,699,662
Remington Oil & Gas Corporation* 24,200 659,450
Stone Energy Corporation*(1) 16,200 730,458
----------
13,474,224
----------
PACKAGED FOODS & MEATS - 1.4%
Del Monte Foods Company* 141,160 1,555,583
----------
PAPER PACKAGING - 0.5%
Chesapeake Corporation 22,700 616,532
----------
PAPER PRODUCTS - 1.3%
Wausau-Mosinee Paper Corporation 83,300 1,487,738
----------
PHARMACEUTICALS - 0.4%
Discovery Partners International* 95,100 451,725
----------
PROPERTY & CASUALTY INSURANCE - 2.4%
Argonaut Group, Inc.* 20,800 439,504
Donegal Group, Inc. 12,700 291,211
Endurance Specialty Holdings, Ltd. 20,200 690,840
Mercury General Corporation 20,500 1,228,360
----------
2,649,915
----------
REAL ESTATE INVESTMENT TRUSTS - 0.6%
American Financial Realty Trust 29,400 475,692
Government Properties Trust, Inc. 18,900 186,354
----------
662,046
----------
See accompanying notes.
121
SERIES Q
Schedule of Investments (SMALL CAP VALUE SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS (CONTINUED)
REGIONAL BANKS - 0.7%
Colonial BancGroup, Inc. 18,200 $ 386,386
Hibernia Corporation 13,590 401,041
-----------
787,427
-----------
REINSURANCE - 0.6%
Montpelier Re Holdings, Ltd. 12,800 492,160
PXRE Group, Ltd. 5,700 143,697
-----------
635,857
-----------
SEMICONDUCTOR EQUIPMENT - 0.4%
Credence Systems Corporation*(1) 46,200 422,730
-----------
SEMICONDUCTORS - 1.4%
Cirrus Logic, Inc.* 111,800 616,018
Stats Chippac, Ltd. ADR* 75,533 462,262
TriQuint Semiconductor, Inc.* 52,200 232,290
Zoran Corporation* 18,000 208,440
-----------
1,519,010
-----------
SPECIALTY CHEMICALS - 3.3%
H.B. Fuller Company(1) 23,500 669,985
OM Group, Inc.* 50,900 1,650,178
PolyOne Corporation* 147,900 1,339,974
-----------
3,660,137
-----------
SPECIALTY STORES - 0.6%
Barbeques Galore, Ltd. ADR 27,126 162,756
Sharper Image Corporation*(1) 26,800 505,180
-----------
667,936
-----------
STEEL - 8.2%
Carpenter Technology Corporation(1) 14,900 871,054
GrafTech International, Ltd.*(1) 175,100 1,656,446
Ipsco, Inc.* 35,500 1,696,900
Roanoke Electric Steel Corporation 24,900 514,708
Steel Dynamics, Inc.*(1) 46,500 1,761,420
United States Steel Corporation(1) 43,340 2,221,175
Webco Industries, Inc.* 44,000 473,880
-----------
9,195,583
-----------
TRUCKING - 0.7%
Covenant Transport, Inc.* 38,700 805,734
-----------
TOTAL COMMON STOCKS
(cost $74,710,775) 101,885,777
-----------
FOREIGN STOCK - 0.7%
CANADA - 0.7%
Eldorado Gold Corporation* 150,100 444,732
Intertape Polymer Group, Inc.* 3,000 27,292
Quadra Mining, Ltd.* 63,000 297,083
-----------
769,107
TOTAL FOREIGN STOCKS
(cost $763,577) 769,107
-----------
REPURCHASE AGREEMENT - 8.2%
State Street, 0.80%, dated 12-31-04,
matures 1-03-05; repurchase amount
$9,211,354 (Collateralized by FNMA,
1.875%, 2-15-05 with a value of
$9,399,953) $9,210,740 $ 9,210,740
------------
TOTAL REPURCHASE AGREEMENT
(cost $9,210,740) 9,210,740
------------
TOTAL INVESTMENTS - 100.3%
(cost $85,336,092) 112,512,760
LIABILITIES, LESS CASH & OTHER ASSETS - (0.3%) (379,889)
------------
TOTAL NET ASSETS - 100.0% $112,132,871
============
For federal income tax purposes, the identified cost of investments owned at
December 31, 2004 was $86,003,094.
* Non-income producing security
ADR (American Depositary Receipt)
(1) Security underlying outstanding written options contracts.
(2) Security is restricted. The total market value of restricted securities
$647,136 (cost $651,000), or 0.6% of total net assets. The acquisition date
was November 16, 2004
(3) Security is a private placement
(4) Security is illiquid
See accompanying notes.
122
SERIES Q
(SMALL CAP VALUE SERIES)
Statement of Assets and Liabilities
December 31, 2004
ASSETS:
Investments, at value(1) ......................... $ 112,512,760
Cash ............................................. 16,358
Receivables:
Fund shares sold ........................... 527,439
Securities sold ............................ 426,409
Interest ................................... 49
Dividends .................................. 22,824
Prepaid expenses ................................. 1,727
-------------
Total assets ..................................... 113,507,566
-------------
LIABILITIES:
Payable for:
Securities purchased ....................... 670,580
Fund shares redeemed ....................... 94,153
Written options, at value(2) ............... 493,775
Management fees ............................ 91,864
Custodian fees ............................. 1,248
Transfer agent and administration fees ..... 11,851
Professional fees .......................... 9,232
Other ...................................... 1, 992
-------------
Total liabilities ................................ 1,374,695
-------------
NET ASSETS ....................................... $ 112,132,871
=============
NET ASSETS CONSIST OF:
Paid in capital .................................. $ 75,102,802
Accumulated net investment loss .................. (1,222)
Accumulated net realized gain
on sales of investments, options written
and purchased and currency transactions .... 9,877,381
Net unrealized appreciation in value of
investments, options written and purchased
and translation of assets and liabilities in
foreign currency ........................... 27,153,910
Net assets .......................................
-------------
$ 112,132,871
=============
Capital shares authorized ........................ indefinite
Capital shares outstanding ....................... 5,571,753
Net asset value and redemption price
per share (net assets divided by
shares outstanding) ........................ $ 20.13
=============
(1) Investments, at cost ....................... $ 85,336,092
(2) Options written premiums ................... $ 471,034
Statement of Operations
For the Year Ended December 31, 2004
INVESTMENT INCOME:
Dividends........................................ $ 451,252
Interest ........................................ 23,416
-------------
Total investment income ......................... 474,668
-------------
EXPENSES:
Management fees ................................. 937,110
Custodian fees .................................. 40,697
Transfer/maintenance fees ....................... 22,195
Administration fees ............................. 90,456
Directors' fees ................................. 4,431
Professional fees ............................... 11,570
Reports to shareholders ......................... 6,575
Other expenses .................................. 2,448
-------------
Total expenses .................................. 1,115,482
-------------
Net investment loss ............................. (640,814)
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) during the period on:
Investments ..................................... 11,350,315
Options written and purchased ................... (302,544)
Foreign currency transactions ................... (1,380)
------------
Net realized gain ............................... 11,046,391
------------
Net change in unrealized appreciation
(depreciation) during the period on:
Investments ..................................... 6,777,525
Options written and purchased ................... 54,527
Translation of assets and liabilities
in foreign currencies .......................... (17)
-------------
Net unrealized appreciation ..................... 6,832,035
-------------
Net gain ........................................ 17,878,426
-------------
Net increase in net assets resulting
from operations ................................ $ 17,237,612
=============
See accompanying notes.
123
SERIES Q
Statement of Changes in Net Assets (SMALL CAP VALUE SERIES)
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment loss ........................................................ $ (640,814) $ (167,142)
Net realized gain during the period on investments, options
written and purchased and foreign currency transactions ................... 11,046,391 1,722,894
Net change in unrealized appreciation during the period on
investments, options written and purchased and translation of
assets and liabilities in foreign currencies .............................. 6,832,035 24,339,936
------------ ------------
Net increase in net assets resulting from operations ........................ 17,237,612 25,895,688
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain. ......................................................... (617,424) (482,995)
------------ ------------
Total distributions to shareholders ........................................ (617,424) (482,995)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares ............................................... 62,936,569 51,727,115
Distributions reinvested. .................................................. 617,424 482,994
Cost of shares redeemed .................................................... (55,337,957) (41,155,870)
------------ ------------
Net increase from capital share transactions................................ 8,216,036 11,054,239
------------ ------------
Net increase in net assets.................................................. 24,836,224 36,466,932
------------ ------------
NET ASSETS:
Beginning of period ........................................................ 87,296,647 50,829,715
------------ ------------
End of period .............................................................. $112,132,871 $ 87,296,647
============ ============
Accumulated net investment loss at end of period ........................... $ (1,222) $ -
============ ============
CAPITAL SHARE ACTIVITY:
Shares sold ................................................................ 3,550,042 3,810,666
Shares reinvested........................................................... 35,444 33,634
Shares redeemed............................................................. (3,197,603) (3,181,431)
------------ ------------
Total capital share activity ............................................... 387,883 662,869
============ ============
See accompanying notes.
124
SERIES Q
Financial Highlights (SMALL CAP VALUE SERIES)
Selected data for each share of capital stock outstanding throughout each period
YEAR ENDED,
DECEMBER 31,
2004 2003 2002 2001 2000(d)
-------- ------- ------- ------- ------------
PER SHARE DATA
Net asset value, beginning of period $ 16.84 $ 11.24 $ 12.79 $ 10.74 $ 10.00
-------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income (loss) (0.12) (0.03) (0.09) (0.04) (0.02)
Net gain (loss) on securities (realized and unrealized) 3.53 5.73 (0.79) 2.41 0.76
-------- ------- ------- ------- -------
Total from investment operations 3.41 5.70 (0.88) 2.37 0.74
-------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income - - - - -
Distributions from realized gains (0.12) (0.10) (0.67) (0.32) -
-------- ------- ------- ------- -------
Total distributions (0.12) (0.10) (0.67) (0.32) -
-------- ------- ------- ------- -------
Net asset value, end of period $ 20.13 $ 16.84 $ 11.24 $ 12.79 $ 10.74
======== ======= ======= ======= =======
TOTAL RETURN(a) 20.37% 50.90% (6.96%) 22.16% 7.40%
-------- ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $112,133 $87,297 $50,830 $58,198 $10,427
-------- ------- ------- ------- -------
Ratios to average net assets:
Net investment income (loss) (0.68%) (0.28%) (0.59%) (0.42%) (0.41%)
Total expenses 1.19% 1.22% 1.22% 1.18% 1.49%
Gross expenses(b) 1.19% 1.22% 1.22% 1.18% 1.49%
Net expenses(c) 1.19% 1.22% 1.22% 1.17% 1.23%
-------- ------- ------- ------- -------
Portfolio turnover rate 43% 37% 56% 47% 81%
(a) Total return does not take into account any of the expenses associated with
an investment in variable insurance products offered by Security Benefit
Life Insurance Company. 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.
(b) Gross expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net expense information reflects expense ratios after expense reductions or
fee waivers and reduction of custodian expenses.
(d) Series Q was initially capitalized on May 1, 2000 with a net asset value of
$10 per share. Percentage amounts for the period have been annualized,
except for total return.
See accompanying notes.
125
SERIES S
Manager's Commentary (SOCIAL AWARENESS SERIES)
February 15, 2005 (unaudited)
[SECURITY FUNDS LOGO]
Advisor, Security Management Company, LLC
[PHOTO OF MARK A. MITCHELL]
Mark A. Mitchell
Portfolio Manager
TO OUR SHAREHOLDERS:
2004 was a normal year in many respects; returns were positive, but not as
spectacular as in 2003. The Social Awareness Series returned 5.17%(1) in the
period, lagging the benchmark DSI 400 index's return of 10.31% and the Fund's
peer group median return of 8.81%. Similar to 2003, the market favored lower
quality, higher beta stocks. In such environments, we tend to underperform.
While disappointing, we believe that our approach delivers performance over the
long term.
Our approach to managing the Social Awareness Series is based on our investment
philosophy described below.
We understand a company's growth potential over the long term based on our
bottom-up fundamental investment process. We invest today based on future
potential. We concentrate our investments in companies with sustainable
competitive advantages when they are undervalued. Companies must demonstrate
management ability by consistently adding shareholder value. They must have
strong financial positions and be well positioned for growth. We are patient
buyers and sellers focused on the long term, and we take advantage of investor
uncertainty and short-term thinking.
Once we determine that companies meet our investment criteria, we review them to
ensure they meet our social criteria as well. We employ this philosophy to a
universe of value and growth companies.
INDUSTRIALS AND MATERIALS STOCKS TOP PERFORMERS
In the industrial sector, Federal Express was up 52% as a result of continued
economic growth and business model efficiencies. Shaw Group appreciated 45%, as
it benefited from an improving global economy.
The Series sole materials sector holding, Praxair, had a strong year, up 17%. It
benefited from an improvement in the overall global economy as well.
TECHNOLOGY AND HEALTH CARE DISAPPOINTING
Following an extremely strong year in 2003, technology stocks had a difficult
time in 2004. Adverse stock selection in Texas Instruments and not owning Yahoo
had a negative impact on the Series. Texas Instruments was down 16% as a result
of an industry-wide slowdown and a corresponding inventory correction in
semiconductors. Yahoo was up more than 66% as it benefited from strong online
advertising trends and the positive sentiment generated by the Google IPO.
Health care, as a sector overall, underperformed the index. Cardinal Health and
Merck both had a negative impact on the Series. Cardinal was down more than 22%
as a result of undergoing a substantial industry change in how pharmaceutical
manufacturers distribute and price its products. Merck impacted the Series
negatively due to concerns over pharmaceutical industry and company-specific
growth prospects. Additionally, Merck experienced a significant product recall
that has hurt the company's performance.
2005 MARKET OUTLOOK
Our outlook for the equity market continues to be guardedly optimistic. Like
every year, there are many potential positive and negative influences. We
believe the most significant issue facing us in 2005 will be a slowing profit
cycle. In such an environment, we believe more normal equity returns are likely.
Skilled stock picking versus owning beta will be critical. This favors our focus
on identifying good companies at attractive valuations.
We continue to believe that investing is a long-term pursuit that requires
patience and a consistent approach. Dollar cost averaging is a sound way to
build long-term value. While it does not assure profits or protect against
losses in a declining market, we think it is the best way to take advantage of
the natural highs and lows in a market cycle. We recognize there are many
investment fund alternatives available today and thank you for your business and
the confidence you place in us.
Sincerely,
Mark A. Mitchell
Portfolio Manager
126
SERIES S
Manager's Commentary (SOCIAL AWARENESS SERIES)
February 15, 2005 (unaudited)
[PERFORMANCE GRAPH]
SBL S INVESTMENT INFORMATION
DATE value
- -------- ---------
SBL S
12/31/94 10,000.00
3/31/95 10,593.68
6/30/95 11,372.40
9/30/95 12,541.80
12/31/95 12,774.20
3/31/96 13,641.82
6/30/96 14,656.63
9/30/96 15,353.62
12/31/96 15,178.61
3/31/97 14,589.92
6/30/97 16,849.21
9/30/97 18,164.91
12/31/97 18,616.73
3/31/98 21,100.10
6/30/98 21,556.74
9/30/98 19,609.57
12/31/98 24,468.88
3/31/99 25,151.67
6/30/99 27,037.14
9/30/99 25,359.16
12/31/99 28,673.83
3/31/00 30,364.79
6/30/00 29,361.07
9/30/00 27,670.11
12/31/00 24,975.44
3/31/01 21,867.09
6/30/01 22,969.55
9/30/01 19,182.83
12/31/01 21,704.12
3/31/02 21,728.77
6/30/02 18,683.67
9/30/02 15,705.81
12/31/02 16,944.83
3/31/03 16,491.81
6/30/03 18,795.46
9/30/03 19,258.12
12/31/03 21,006.40
3/31/04 21,151.61
6/30/04 21,471.06
9/30/04 20,436.08
12/31/04 22,092.27
DOMINI SOCIAL 400
DATE value
- ------------------- ---------
INCEPTION 12/31/94 10,000.00
3/31/95 11,028.74
6/30/95 12,118.85
9/30/95 13,084.08
2/31/95 13,825.97
3/31/96 14,538.68
6/30/96 15,217.20
9/30/96 15,847.24
12/31/96 17,103.90
3/31/97 17,686.63
6/30/97 20,838.20
9/30/97 22,587.81
12/31/97 23,647.07
3/31/98 27,055.11
6/30/98 28,123.21
9/30/98 25,424.31
12/31/98 31,817.45
3/31/99 33,471.99
6/30/99 35,744.18
9/30/99 33,584.49
12/31/99 39,614.64
3/31/00 40,879.88
06/30/00 38,683.24
09/30/00 36,884.33
12/31/00 33,949.93
3/31/2001 29,864.79
6/30/2001 31,476.37
9/30/2001 27,010.45
12/31/2001 29,846.42
3/31/2002 29,906.80
6/30/2002 26,299.40
9/30/2002 21,830.74
12/31/2002 23,848.71
3/31/2003 23,045.76
6/30/2003 26,590.08
9/30/2003 27,502.40
12/31/2003 30,640.28
3/31/2004 31,277.27
6/30/2004 31,995.32
9/30/2004 30,869.55
12/31/2004 33,798.31
SBL Fund Series S $22,092
Domini Social 400 Index $33,798
$10,000 OVER TEN YEARS
The chart above assumes a hypothetical $10,000 investment in Series S (Social
Awareness Series) on December 31, 1994 and reflects the fees and expenses of
Series S.
PORTFOLIO COMPOSITION BY SECTOR
- -------------------------------
Consumer Discretionary 14.27%
Consumer Staples 12.33
Energy 1.20
Financials 22.14
Health Care 14.78
Industrials 7.03
Information Technology 18.01
Materials 1.87
Telecommunication Services 4.44
Commercial Paper 1.93
U.S. Government Agency 1.84
Warrants 0.04
Cash & other assets, less liabilities 0.12
AVERAGE ANNUAL RETURNS
PERIODS ENDED 12-31-04(1) 1 YEAR 5 YEARS 10 YEARS
- ------------------------- ------ ------- --------
Series S 5.17% (5.08%) 8.25%
(1) 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 per formance 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.
See accompanying notes.
127
SERIES S
Manager's Commentary (SOCIAL AWARENESS)
February 15, 2005 (unaudited)
PERFORMANCE
INFORMATION ABOUT YOUR SERIES EXPENSES
CALCULATING YOUR ONGOING SERIES EXPENSES
EXAMPLE
As a shareholder of the Series, you incur ongoing costs, including management
fees and other series expenses. Performance figures and expense ratios do not
reflect fees and expenses associated with an investment in variable insurance
products. Shares of a Series of SBL Fund are available only through the purchase
of such products. This Example is intended to help you understand your ongoing
costs (in dollars) of investing in the Series and to compare these costs with
ongoing costs of investing in other mutual funds. The Example is based on an
investment of $1,000 invested at the beginning of the period and held for the
entire period, July 1, 2004 - December 31, 2004.
ACTUAL EXPENSES
The first line in the table provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the table provides information about hypothetical account
values and hypothetical expenses based on the Series actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Series
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Series and other funds. To do so, compare this 5% hypothetical example with the
5% hypothetical examples that appear in the shareholder reports of the other
funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any fees and expenses associated with an
investment in variable insurance products. Therefore, the second line is useful
in comparing ongoing costs only, and will not help you determine the relative
total costs of owning different funds. In addition, if these fees and expenses
associated with an investment in variable insurance products were included, your
costs would have been higher.
FUND EXPENSES
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING
07-01-04 12-31-04(1) PERIOD(2)
------------- ------------- -------------
Series S (Social Awareness Series)
Actual $ 1,000.00 $ 1,028.40 $ 4.59
Hypothetical 1,000.00 1,020.61 4.57
(1) The actual ending account value is based on the actual total return of the
Series for the period July 1, 2004 to December 31, 2004 after actual
expenses and will differ from the hypothetical ending account value which
is based on the Series expense ratio and a hypothetical annual return of
5% before expenses. The actual cumulative return at net asset value for
the period July 1, 2004 to December 31, 2004 was 2.84%.
(2) Expenses are equal to the Series annualized expense ratio 0.90% multiplied
by the average account value over the period, multiplied by 184/366 (to
reflect the one-half year period).
128
SERIES S
Schedule of Investments (SOCIAL AWARENESS SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS - 96.1%
AIR FREIGHT & LOGISTICS - 2.4%
FedEx Corporation 26,000 $ 2,560,740
------------
AIRLINES - 1.7%
Southwest Airlines Company 113,000 1,839,640
------------
ASSET MANAGEMENT & CUSTODY BANKS - 0.9%
Bank of New York Company, Inc. 29,400 982,548
------------
BIOTECHNOLOGY - 2.4%
Amgen, Inc.* 40,400 2,591,660
------------
BROADCASTING & CABLE TV - 1.2%
Comcast Corporation* 40,707 1,354,729
------------
COMMUNICATIONS EQUIPMENT - 3.6%
ADC Telecommunications, Inc.* 512,000 1,372,160
Cisco Systems, Inc.* 132,000 2,547,600
------------
3,919,760
------------
COMPUTER HARDWARE - 3.2%
Dell, Inc.* 82,800 3,489,192
------------
CONSTRUCTION & ENGINEERING - 1.6%
Shaw Group, Inc.* 95,500 1,704,675
------------
CONSUMER FINANCE - 4.4%
American Express Company 43,200 2,435,184
MBNA Corporation 83,450 2,352,456
------------
4,787,640
------------
DEPARTMENT STORES - 1.3%
Kohl's Corporation* 28,550 1,403,804
------------
DIVERSIFIED BANKS - 4.7%
Bank of America Corporation 37,400 1,757,426
Wells Fargo & Company 54,500 3,387,175
------------
5,144,601
------------
DRUG RETAIL - 2.1%
CVS Corporation 50,300 2,267,021
------------
GENERAL MERCHANDISE STORES - 1.6%
Target Corporation 32,700 1,698,111
------------
HEALTH CARE EQUIPMENT - 3.7%
Boston Scientific Corporation* 72,700 2,584,485
Medtronic, Inc. 29,800 1,480,166
------------
4,064,651
------------
HOME IMPROVEMENT RETAIL - 4.6%
Home Depot, Inc. 79,500 3,397,830
Lowe's Companies, Inc. 27,000 1,554,930
------------
4,952,760
------------
HOUSEHOLD PRODUCTS - 4.9%
Colgate-Palmolive Company 34,900 1,785,484
Procter & Gamble Company 63,400 3,492,072
------------
5,277,556
------------
INDUSTRIAL CONGLOMERATES - 1.4%
3M Company 18,800 1,542,916
------------
INDUSTRIAL GASES - 1.9%
Praxair, Inc. 46,200 2,039,730
------------
INTEGRATED TELECOMMUNICATION SERVICES - 4.4%
SBC Communications, Inc. 70,064 1,805,549
Verizon Communications, Inc. 74,800 3,030,148
------------
4,835,697
------------
INVESTMENT BANKING & BROKERAGE - 2.0%
Goldman Sachs Group, Inc. 11,000 1,144,440
Merrill Lynch & Company, Inc. 16,600 992,182
------------
2,136,622
------------
LIFE & HEALTH INSURANCE - 1.0%
AFLAC, Inc. 27,900 1,111,536
------------
MANAGED HEALTH CARE - 1.9%
UnitedHealth Group, Inc. 23,900 2,103,917
------------
MOTORCYCLE MANUFACTURERS - 0.8%
Harley-Davidson, Inc. 14,300 868,725
------------
MOVIES & ENTERTAINMENT - 4.8%
Time Warner, Inc.* 115,300 2,241,432
Viacom, Inc. (Cl.B) 82,800 3,013,092
------------
5,254,524
------------
MULTI-LINE INSURANCE - 5.0%
American International Group, Inc. 82,699 5,430,843
------------
OIL & GAS EQUIPMENT & SERVICES - 1.0%
BJ Services Company 24,000 1,116,960
------------
OIL & GAS EXPLORATION & PRODUCTION - 0.2%
Anadarko Petroleum Corporation 3,000 194,430
------------
OTHER DIVERSIFIED FINANCIAL SERVICES - 1.2%
JP Morgan Chase & Company 34,200 1,334,142
------------
PHARMACEUTICALS - 6.7%
Johnson & Johnson 82,664 5,242,551
Merck & Company, Inc. 64,800 2,082,672
------------
7,325,223
------------
PROPERTY & CASUALTY INSURANCE - 2.9%
Chubb Corporation 41,300 3,175,970
------------
SEMICONDUCTOR EQUIPMENT - 0.5%
Applied Materials, Inc.* 33,700 576,270
------------
SEMICONDUCTORS - 2.8%
Intel Corporation 127,900 2,991,581
------------
SOFT DRINKS - 5.4%
Coca-Cola Company 59,550 2,479,066
PepsiCo, Inc. 65,000 3,393,000
------------
5,872,066
------------
See accompanying notes.
129
SERIES S
Schedule of Investments (SOCIAL AWARENESS SERIES)
December 31, 2004
PRINCIPAL
AMOUNT OF
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS (CONTINUED)
SYSTEMS SOFTWARE - 7.9%
Microsoft Corporation 251,100 $ 6,706,881
Oracle Corporation* 48,900 670,908
Veritas Software Corporation* 43,600 1,244,780
------------
8,622,569
------------
TOTAL COMMON STOCKS
(cost $100,558,884) 104,572,809
------------
WARRANTS - 0.0%
Lucent Technologies, Inc.* 26,354 41,639
------------
TOTAL WARRANTS (cost $0) 41,639
------------
COMMERCIAL PAPER - 1.9%
BROKERAGE - 0.9%
Goldman Sachs Group, Inc.,
2.33%, 01-10-05 $ 1,000,000 999,418
------------
TELECOMMUNICATIONS - WIRELINES - 1.0%
BellSouth Corporation,
2.17%, 01-03-05 $ 1,100,000 1,099,867
------------
TOTAL COMMERCIAL PAPER
(cost $2,099,285) 2,099,285
------------
U. S. GOVERNMENT SPONSORED AGENCIES - 1.9%
Federal Home Loan Bank:
2.20%, 01-05-05 $ 1,000,000 999,756
2.30%, 01-19-05 $ 1,000,000 998,877
------------
1,998,633
------------
TOTAL U.S. GOVERNMENT SPONSORED AGENCIES
(cost $1,998,633) 1,998,633
------------
TOTAL INVESTMENTS - 99.9%
(cost $104,656,802) 108,712,366
CASH AND OTHER ASSETS, LESS LIABILITIES - 0.1% 142,775
------------
TOTAL NET ASSETS- 100.0% $108,855,141
============
For federal income tax purposes, the identified cost of investments owned at
December 31, 2004 was $104,662,590.
* Non-income producing security
See accompanying notes.
130
SERIES S
(SOCIAL AWARENESS SERIES)
Statement of Assets and Liabilities
December 31, 2004
ASSETS:
Investments, at value(1)........................... $ 108,712,366
Cash .............................................. 93,860
Receivables:
Fund shares sold ................................ 148,810
Dividends ....................................... 75,284
Prepaid expenses .................................. 2,038
-------------
Total assets ...................................... 109,032,358
-------------
LIABILITIES:
Payable for:
Fund shares redeemed ............................ 82,069
Management fees ................................. 68,605
Custodian fees .................................. 477
Transfer agent and administration fees .......... 10,400
Professional fees ............................... 9,524
Other ........................................... 6,142
-------------
Total liabilities ............................... 177,217
-------------
NET ASSETS ......................................
$ 108,855,141
=============
NET ASSETS CONSIST OF:
Paid in capital ................................... $ 105,015,571
Accumulated undistributed net
investment income ............................... 1,093,613
Accumulated net realized loss
on sales of investments ......................... (1,309,607)
Net unrealized appreciation
in value of investments ......................... 4,055,564
-------------
Net assets ........................................
$ 108,855,141
=============
Capital shares authorized ......................... indefinite
Capital shares outstanding ........................ 4,771,369
Net asset value and redemption price
per share (net assets divided by
shares outstanding) ............................. $ 22.81
=============
(1) Investments, at cost .......................... $ 104,656,802
Statement of Operations
For the Year Ended December 31, 2004
INVESTMENT INCOME:
Dividends ....................................... $ 2,055,406
Interest ........................................ 44,857
-------------
Total investment income ......................... 2,100,263
-------------
EXPENSES:
Management fees ................................. 845,406
Custodian fees .................................. 6,147
Transfer/maintenance fees ....................... 22,212
Administration fees ............................. 97,179
Directors' fees ................................. 5,902
Professional fees ............................... 12,454
Reports to shareholders ......................... 8,228
Other expenses .................................. 4,258
-------------
Total expenses .................................. 1,001,786
-------------
Net investment income ........................... 1,098,477
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain during the period on:
Investments ..................................... 6,395,190
-------------
Realized gain ................................... 6,395,190
-------------
Net change in unrealized depreciation
during the period on:
Investments ..................................... (2,086,141)
-------------
Unrealized depreciation ......................... (2,086,141)
-------------
Net gain ........................................ 4,309,049
-------------
Net increase in net assets ......................
resulting from operations ................... $ 5,407,526
=============
See accompanying notes.
131
SERIES S
Statement of Changes in Net Assets (SOCIAL AWARENESS SERIES)
YEAR ENDED YEAR ENDED
DECEMBER 31,2004 DECEMBER 31, 2003
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income ................................................................. $ 1,098,477 $ 553,358
Net realized gain during the period on investments .................................... 6,395,190 781,505
Net change in unrealized appreciation (depreciation) during the period on
investments.......................................................................... (2,086,141) 22,370,365
------------- ---------------
Net increase in net assets resulting from operations .................................. 5,407,526 23,705,228
------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ................................................................. (55,978) (502,244)
------------- ---------------
Total distributions to shareholders ................................................... (55,978) (502,244)
------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares .......................................................... 13,188,684 14,174,608
Distributions reinvested .............................................................. 55,978 502,244
Cost of shares redeemed ............................................................... (28,190,885) (28,087,540)
------------- ---------------
Net decrease from capital share transactions .......................................... (14,946,223) (13,410,688)
------------- ---------------
Net increase (decrease) in net assets ................................................. (9,594,675) 9,792,296
------------- ---------------
NET ASSETS:
Beginning of period ................................................................... 118,449,816 108,657,520
------------- ---------------
End of period ......................................................................... $ 108,855,141 $ 118,449,816
============= ===============
Accumulated undistributed net investment income at end of period ...................... $ 1,093,613 $ 51,114
============= ===============
CAPITAL SHARE ACTIVITY:
Shares sold ........................................................................... 606,902 737,876
Shares reinvested ..................................................................... 2,616 23,602
Shares redeemed ....................................................................... (1,296,096) (1,484,400)
------------- ---------------
Total capital share activity .......................................................... (686,578) (722,922)
============= ===============
See accompanying notes.
132
SERIES S
Financial Highlights (SOCIAL AWARENESS SERIES)
Selected data for each share of capital
stock outstanding throughout each year
YEAR ENDED DECEMBER 31,
2004 2003 2002 2001 2000
---------- --------- --------- --------- -----------
PER SHARE DATA
Net asset value, beginning of period $ 21.70 $ 17.58 $ 22.64 $ 27.62 $ 31.71
---------- --------- --------- --------- ---------
Income (loss) from investment operations:
Net investment income (loss) 0.23 0.10 0.06 0.04 (0.02)
Net gain (loss) on securities (realized and unrealized) 0.89 4.11 (5.01) (3.55) (4.07)
---------- --------- --------- --------- ---------
Total from investment operations 1.12 4.21 (4.95) (3.51) (4.09)
---------- --------- --------- --------- ---------
Less distributions:
Dividends from net investment income (0.01) (0.09) (0.11) - -
Distributions from realized gains - - - (0.53) -
Distributions in excess of capital gains - - - (0.94) -
---------- --------- --------- --------- ---------
Total distributions (0.01) (0.09) (0.11) (1.47) -
---------- --------- --------- --------- ---------
Net asset value, end of period $ 22.81 $ 21.70 $ 17.58 $ 22.64 $ 27.62
========== ========= ========= ========= =========
TOTAL RETURN(a) 5.17% 23.97% (21.93%) (13.10%) (12.90%)
---------- --------- --------- --------- ---------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $ 108,855 $ 118,450 $ 108,658 $ 158,686 $ 208,709
---------- --------- --------- --------- ---------
Ratios to average net assets:
Net investment income (loss) 0.97% 0.50% 0.29% 0.17% (0.05%)
Total expenses 0.89% 0.83% 0.83% 0.83% 0.83%
Gross expenses(b) 0.89% 0.83% 0.83% 0.83% 0.83%
Net expenses(c) 0.89% 0.83% 0.83% 0.83% 0.83%
---------- --------- --------- --------- ---------
Portfolio turnover rate 24% 19% 5% 10% 24%
(a) Total return does not take into account any of the expenses associated
with an investment in variable insurance products offered by Security
Benefit Life Insurance Company. 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.
(b) Gross expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net expense information reflects expense ratios after expense reductions
or fee waivers and reduction of custodian expenses.
See accompanying notes.
133
SERIES V
Manager's Commentary (MID CAP VALUE SERIES)
February 15, 2005 (unaudited)
[SECURITY FUNDS LOGO]
Advisor, Security Management Company, LLC
[PHOTO OF JAMES P. SCHIER]
James P. Schier
Portfolio Manager
TO OUR SHAREHOLDERS:
2004 continued to be another solid year for the Mid Cap Value Series. For the
year, the Series gained 26.97%(1) versus a gain of 19.00% for the S&P Mid Cap
Value Index.
Our investment philosophy is to seek appreciable securities of companies that
are able to grow and/or reinvest in increasingly profitable ventures and hold
them over three to five years to capture the better part of the improvements in
profitability. We invest where we find opportunities, with our individual
position sizes reflecting the magnitude and the confidence in the opportunity.
For this Series, we target securities generally priced at or below a market
multiple that are able to increase their return on capital over time.
ENERGY, TECHNOLOGY AND CONSUMER DISCRETIONARY STOCKS TOP PERFORMERS
Energy was the largest contributor to the year's results due to a larger
weighting than the benchmark and good stock selection. Frontline and Denbury
Resources doubled in value for the year. Frontline, a tanker company, profited
from high day rates during a time when the industry was forced to retire older,
single-hull tankers over environmental concerns. Denbury, a North American
exploration company that specializes in tertiary recovery techniques, benefited
from favorable acquisitions, the sale of its Gulf of Mexico gas properties and a
buoyant commodity environment.
Technology holdings were also a very meaningful source of return for the Series.
Despite declines in value for most technology names, holdings Acxiom, Monolithic
Systems, Maxwell Technologies, Ultratech Inc., Ulticom and Mips Technologies all
gained more than 30% each during the year.
For the consumer sector, Coldwater Creek gained 203%. This catalog retailer
benefited from a strong offering in apparel and a successful rollout of a new
store base.
INDUSTRIALS AND HEALTH CARE DISAPPOINTING
With such a good year, stock selection was below expectation for health care and
industrial sectors. While the industrial holdings gained 9% during the year,
their performance trailed the 19% showing for industrials for the benchmark.
Electric City fell 27% on a slight earning disappointment; however, its load
management offerings for utilities and businesses continue to gain traction in
the market. Capstone Turbine declined 10%, as the market has been slow to switch
to the company's new micro turbine products. Lastly, Stonepath, a freight
logistics company, declined 65% on news that the company will be restating
financials from prior years. We believe the weakness for all three holdings will
be temporary in nature.
The Fund's health care holdings fell 6% lagging the 2% in health care holdings
for the benchmark. The Series' lack of exposure to the HMO industry was the
largest detriment.
MUTED OUTLOOK FOR 2005
With 2004 being the second consecutive positive return year in the market, the
equity market no longer offers as many compelling opportunities based upon
dramatic mispricing. Our proprietary valuation work suggests some opportunities
in smaller capitalization names; however, the valuation is far less compelling
than five to seven years ago. Equity valuations are not cheap, profit margins
are high, and there is little opportunity for expanding earnings growth. With
valuations at current levels, equities will most likely not provide double-digit
returns in the year ahead.
As our investment process seeks opportunities on a bottom-up basis, we continue
to discover prospects in smaller, earlier stage companies, telecom equipment and
industrial companies, and companies focused on energy efficiency and
self-sufficiency.
We would like to take this opportunity to thank you for trusting your funds with
Security Management Company. We vow to do our best to continue uncover the
exciting return potential that only small to mid-sized companies can provide
Sincerely,
James P. Schier
Senior Portfolio Manager
134
SERIES V
Manager's Commentary (MID CAP VALUE SERIES)
February 15, 2005 (unaudited)
PERFORMANCE
[PERFORMANCE GRAPH]
SBL V INVESTMENT INFORMATION
DATE value
- -------------------- -----------
SBL V
5/1/97 10,000.0000
6/30/97 11,140.0000
9/30/97 13,030.0000
12/31/97 13,130.0000
3/31/98 15,081.9443
6/30/98 14,980.1768
9/30/98 12,731.1149
12/31/98 15,307.8681
3/31/99 15,014.2301
6/30/99 18,300.2438
9/30/99 17,243.6478
12/31/99 18,197.5762
3/31/00 20,666.7034
6/30/00 20,982.1425
9/30/00 23,284.9468
12/31/00 24,349.3388
3/31/01 25,261.2482
6/30/01 27,726.3222
9/30/01 22,346.9319
12/31/01 27,058.2180
3/31/02 29,753.7481
6/30/02 27,475.4752
9/30/02 21,210.2249
12/31/02 23,250.5763
3/31/03 22,690.4714
6/30/03 29,025.8800
9/30/03 31,403.0472
12/31/03 35,868.7224
3/31/04 38,717.4561
6/30/04 39,679.6951
9/30/04 39,443.9839
12/31/04 45,542.2314
S&P MIDCAP 400/BARRA VALUE INDEX
DATE value
- ---------------------- --------
INCEPTION 5/01/97 10,000.00
6/30/97 10,925.23
9/30/97 12,471.40
12/31/97 13,146.38
3/31/98 14,440.15
6/30/98 13,842.25
9/30/98 11,932.74
12/31/98 13,761.77
3/31/99 12,653.42
6/30/99 14,543.13
9/30/99 13,126.61
12/31/99 14,081.67
3/31/00 14,964.64
6/30/00 14,567.38
9/30/00 16,467.23
12/31/00 18,001.12
3/31/01 17,381.57
6/30/01 19,360.83
9/30/01 16,839.62
12/31/01 19,286.99
3/31/02 21,200.92
6/30/02 19,956.18
9/30/02 16,268.59
12/31/02 17,337.54
3/31/03 16,331.37
6/30/03 19,462.62
9/30/03 20,862.99
12/31/03 24,304.45
3/31/04 25,648.25
6/30/04 25,951.24
9/30/04 25,748.69
12/31/04 28,901.11
SBL Fund Series V $45,542
S& P MidCap 400/Barra Value Index $28,901
$10,000 SINCE INCEPTION
The chart above assumes a hypothetical $10,000 investment in Series V (Mid Cap
Value Series) on May 1, 1997 (date of inception) and reflects the fees and
expenses of Series V.
PORTFOLIO COMPOSITION BY SECTOR
Consumer Discretionary 2.51%
Consumer Staples 6.55
Energy 9.92
Financials 12.01
Health Care 7.62
Industrials 22.00
Information Technology 15.03
Materials 13.27
Telecommunication Services 1.42
Utilities 6.70
Cash & other assets, less liabilities 2.97
AVERAGE ANNUAL RETURNS
SINCE INCEPTION
PERIODS ENDED 12-31-04(1) 1 YEAR 5 YEARS (5-1-97)
- ------------------------- ------ ------- ---------------
Series V 26.97% 20.14% 21.84%
(1) 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.
See accompanying notes.
135
SERIES V
Manager's Commentary (MID CAP VALUE SERIES)
February 15, 2005 (unaudited)
PERFORMANCE
INFORMATION ABOUT YOUR SERIES EXPENSES
CALCULATING YOUR ONGOING SERIES EXPENSES
EXAMPLE
As a shareholder of the Series, you incur ongoing costs, including management
fees and other series expenses. Performance figures and expense ratios do not
reflect fees and expenses associated with an investment in variable insurance
products. Shares of a Series of SBL Fund are available only through the purchase
of such products. This Example is intended to help you understand your ongoing
costs (in dollars) of investing in the Series and to compare these costs with
ongoing costs of investing in other mutual funds. The Example is based on an
investment of $1,000 invested at the beginning of the period and held for the
entire period, July 1, 2004 - December 31, 2004.
ACTUAL EXPENSES
The first line in the table provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the table provides information about hypothetical account
values and hypothetical expenses based on the Series actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Series
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Series and other funds. To do so, compare this 5% hypothetical example with the
5% hypothetical examples that appear in the shareholder reports of the other
funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any fees and expenses associated with an
investment in variable insurance products. Therefore, the second line is useful
in comparing ongoing costs only, and will not help you determine the relative
total costs of owning different funds. In addition, if these fees and expenses
associated with an investment in variable insurance products were included, your
costs would have been higher.
FUND EXPENSES
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING
07-01-04 12-31-04(1) PERIOD(2)
------------- ------------- -------------
Series V (Mid Cap Value Series)
Actual $ 1,000.00 $ 1,120.00 $ 4.69
Hypothetical 1,000.00 1,020.71 4.47
(1) The actual ending account value is based on the actual total return of the
Series for the period July 1, 2004 to December 31, 2004 after actual
expenses and will differ from the hypothetical ending account value which
is based on the Series expense ratio and a hypothetical annual return of
5% before expenses. The actual cumulative return at net asset value for
the period July 1, 2004 to December 31, 2004 was 12.00%.
(2) Expenses are equal to the Series annualized expense ratio 0.88% multiplied
by the average account value over the period, multiplied by 184/366 (to
reflect the one-half year period).
136
SERIES V
Schedule of Investments (MID CAP VALUE SERIES)
December 31, 2004
PRINCIPAL
AMOUNT OR
NUMBER MARKET
OF SHARES VALUE
CONVERTIBLE BOND - 0.6%
PHARMACEUTICALS - 0.6%
Ligand Pharmaceuticals, Inc.,
6.00% - 2007(2) $ 1,000,000 $ 1,990,000
-----------
TOTAL CONVERTIBLE BOND
(cost $1,000,000) 1,990,000
-----------
PREFERRED STOCK - 0.2%
DIVERSIFIED METALS & MINING - 0.2%
Arch Coal, Inc.(1) 5,200 473,200
-----------
TOTAL PREFERRED STOCK
(cost $260,000) 473,200
-----------
COMMON STOCKS - 96.2%
AEROSPACE & DEFENSE - 1.3%
Aviall, Inc.* 74,100 1,702,077
Curtiss-Wright Corporation 40,000 2,296,400
-----------
3,998,477
-----------
AGRICULTURAL PRODUCTS - 3.8%
Archer-Daniels-Midland Company 320,000 7,139,200
Corn Products International, Inc. 87,000 4,659,720
-----------
11,798,920
-----------
AIR FREIGHT & LOGISTICS - 0.4%
AirNet Systems, Inc.* 182,000 635,180
Stonepath Group, Inc.*(3) 520,000 566,280
-----------
1,201,460
-----------
APPAREL RETAIL - 0.4%
Children's Place Retail Stores, Inc.* 34,800 1,288,644
-----------
APPLICATION SOFTWARE - 0.1%
Ulticom, Inc.* 13,500 216,405
-----------
BIOTECHNOLOGY - 0.7%
Millennium Pharmaceuticals, Inc.* 180,000 2,181,600
-----------
BUILDING PRODUCTS - 0.0%
Aaon, Inc.* 3,250 52,227
-----------
COMMUNICATIONS EQUIPMENT - 2.2%
3Com Corporation* 715,000 2,981,550
Avanex Corporation* 1,123,800 3,719,778
-----------
6,701,328
-----------
COMPUTER STORAGE & PERIPHERALS - 0.6%
Adaptec, Inc.* 254,600 1,932,414
-----------
CONSTRUCTION & ENGINEERING - 10.6%
Dycom Industries, Inc.* 102,000 3,113,040
Granite Construction, Inc. 56,700 1,508,220
MasTec, Inc.* 446,400 4,513,104
McDermott International, Inc.* 221,800 4,072,248
Quanta Services, Inc.* 663,700 5,309,600
Shaw Group, Inc.* 790,000 14,101,500
-----------
32,617,712
-----------
DATA PROCESSING & OUTSOURCED SERVICES - 3.0%
Computer Sciences Corporation* 165,000 9,301,050
-----------
DIVERSIFIED COMMERCIAL SERVICES - 1.6%
FTI Consulting, Inc.* 231,000 4,867,170
-----------
DIVERSIFIED METALS & MINING - 8.4%
Arch Coal, Inc. 149,400 5,309,676
Consol Energy, Inc. 40,100 1,646,105
Inco, Ltd.* 258,000 9,489,240
Phelps Dodge Corporation* 55,800 5,519,736
Usec, Inc. 413,100 4,002,939
-----------
25,967,696
-----------
ELECTRIC UTILITIES - 6.7%
Cinergy Corporation 96,000 3,996,480
Great Plains Energy, Inc. 64,700 1,959,116
KFx, Inc.* 1,008,000 14,636,160
-----------
20,591,756
-----------
ELECTRICAL COMPONENTS & EQUIPMENT - 2.4%
Electric City Corporation* 1,200,000 1,476,000
Power-One, Inc.* 329,800 2,941,816
Preformed Line Products Company 1,400 40,572
Thomas & Betts Corporation* 100,000 3,075,000
-----------
7,533,388
-----------
ELECTRONIC EQUIPMENT MANUFACTURERS - 3.0%
Maxwell Technologies, Inc.* 343,200 3,480,048
Merix Corporation* 335,000 3,859,200
Powell Industries, Inc.* 101,700 1,880,433
-----------
9,219,681
-----------
ENVIRONMENTAL SERVICES - 1.1%
Republic Services, Inc. 45,000 1,509,300
TRC Companies, Inc.* 100,000 1,700,000
-----------
3,209,300
-----------
FERTILIZERS & AGRICULTURAL CHEMICALS - 1.1%
Potash Corporation of
Saskatchewan, Inc.(1) 40,000 3,322,400
-----------
FOOTWEAR - 0.8%
Brown Shoe Company, Inc. 80,000 2,386,400
-----------
HEALTH CARE FACILITIES - 2.8%
Community Health Systems, Inc.* 100,000 2,788,000
Triad Hospitals, Inc.* 156,000 5,804,760
-----------
8,592,760
-----------
HEALTH CARE SERVICES - 2.0%
Hooper Holmes, Inc. 807,700 4,781,584
NDCHealth Corporation 66,000 1,226,940
-----------
6,008,524
-----------
HOME FURNISHINGS - 0.9%
Mohawk Industries, Inc.* 14,000 1,277,500
Newell Rubbermaid, Inc. 62,000 1,499,780
-----------
2,777,280
-----------
See accompanying notes.
137
SERIES V
Schedule of Investments (MID CAP VALUE SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS (CONTINUED)
INDUSTRIAL CONGLOMERATES - 1.0%
Alleghany Corporation* 10,506 $ 2,996,837
-----------
INDUSTRIAL MACHINERY - 1.4%
Capstone Turbine Corporation* 1,150,000 2,104,500
Quixote Corporation 97,200 1,976,076
Valmont Industries, Inc. 12,800 321,408
-----------
4,401,984
-----------
INSURANCE BROKERS - 0.3%
Hub International, Ltd. 45,700 841,337
-----------
INTEGRATED OIL & GAS - 2.3%
Murphy Oil Corporation 88,000 7,079,600
-----------
INTEGRATED TELECOMMUNICATION SERVICE - 0.5%
Global Crossing, Ltd.* 75,000 1,360,575
IDT Corporation* 12,200 188,856
-----------
1,549,431
-----------
INVESTMENT BANKING & BROKERAGE - 0.5%
American Capital Strategies, Ltd. 50,000 1,667,500
-----------
IT CONSULTING & OTHER SERVICES - 1.9%
Acxiom Corporation 170,000 4,471,000
Keane, Inc.* 100,000 1,470,000
-----------
5,941,000
-----------
MARINE - 1.0%
Frontline, Ltd. 55,000 2,439,800
Ship Finance International, Ltd. 26,583 545,490
-----------
2,985,290
-----------
MULTI-LINE INSURANCE - 1.3%
American Financial Group, Inc. 132,000 4,132,920
-----------
OIL & GAS DRILLING - 0.7%
Nabors Industries, Ltd.*(1) 40,000 2,051,600
-----------
OIL & GAS EQUIPMENT & SERVICES - 1.5%
Key Energy Services, Inc.* 382,000 4,507,600
-----------
OIL & GAS EXPLORATION & PRODUCTION - 2.7%
Denbury Resources, Inc.* 203,000 5,572,350
Pioneer Natural Resources Company 80,396 2,821,900
-----------
8,394,250
-----------
OIL & GAS REFINING, MARKETING & TRANSPORTATION - 2.8%
Williams Companies, Inc. 520,000 8,470,800
-----------
PACKAGED FOODS & MEATS - 2.7%
American Italian Pasta Company 70,000 1,627,500
Hain Celestial Group, Inc.* 75,000 1,550,250
Hormel Foods Corporation 165,000 5,172,750
-----------
8,350,500
-----------
PAPER PACKAGING - 2.2%
Bemis Company, Inc. 100,000 2,909,000
Sonoco Products Company 125,000 3,706,250
-----------
6,615,250
-----------
PHARMACEUTICALS - 1.5%
Hollis-Eden Pharmaceuticals, Inc.* 193,803 1,825,624
Ligand Pharmaceuticals, Inc. (Cl. B)* 243,200 2,830,848
-----------
4,656,472
-----------
PROPERTY & CASUALTY INSURANCE - 4.2%
First American Corporation 177,400 6,233,836
W. R. Berkley Corporation 140,000 6,603,800
-----------
12,837,636
-----------
REAL ESTATE INVESTMENT TRUST - 3.1%
Bimini Mortgage Management, Inc.* 152,200 2,444,332
HomeBanc Corporation* 321,600 3,113,088
MortgageIt Holdings, Inc.* 218,100 3,914,895
-----------
9,472,315
-----------
REGIONAL BANKS - 2.6%
Corus Bankshares, Inc. 13,600 652,936
Iberiabank Corporation 17,000 1,128,120
Mercantile Bankshares Corporation 50,000 2,610,000
Wilmington Trust Corporation 39,000 1,409,850
Zions Bancorporation 32,000 2,176,960
-----------
7,977,866
-----------
SEMICONDUCTOR EQUIPMENT - 1.5%
Ultratech, Inc.* 249,000 4,693,650
-----------
SEMICONDUCTORS - 2.7%
Applied Micro Circuits Corporation* 550,000 2,315,500
IXYS Corporation* 437,200 4,511,904
MIPS Technologies, Inc.* 6,200 61,070
Stats Chippac, Ltd. ADR* 217,500 1,331,100
-----------
8,219,574
-----------
SPECIALTY CHEMICALS - 1.4%
H.B. Fuller Company 85,000 2,423,350
Material Sciences Corporation* 57,000 1,025,430
Minerals Technologies, Inc. 15,000 1,000,500
-----------
4,449,280
-----------
SPECIALTY STORES - 0.4%
Bombay Company, Inc.* 209,000 1,155,770
-----------
TIRES & RUBBER - 0.0%
Bandag, Inc. 2,600 129,506
-----------
TRUCKING - 1.2%
SCS Transportation, Inc.* 11,000 257,070
Werner Enterprises, Inc. 157,000 3,554,480
-----------
3,811,550
-----------
WIRELESS TELECOMMUNICATION SERVICES - 0.9%
Wireless Facilities, Inc.* 296,400 2,798,016
-----------
TOTAL COMMON STOCKS
(cost $205,523,178) 295,954,126
-----------
See accompanying notes.
138
SERIES V
Schedule of Investments (MID CAP VALUE SERIES)
December 31, 2004
PRINCIPAL
AMOUNT OR
NUMBER MARKET
OF SHARES VALUE
WARRANTS - 0.0%
Electric City Corporation* 350,000 $ 144,212
------------
TOTAL WARRANTS (cost $327,719) 144,212
------------
COMMERICAL PAPER - 2.8%
BROKERAGE - 0.8%
Goldman Sachs Group, Inc.,
2.33%, 01-07-05 $ 2,500,000 2,499,029
------------
FINANCIAL COMPANIES - 0.9%
General Electric Capital Corporation,
2.23%, 01-04-05 $ 1,500,000 1,499,731
Citigroup, Inc.,
2.26%, 01-20-05 $ 1,300,000 1,298,450
------------
2,798,181
------------
PHARMACEUTICALS - 1.1%
Pfizer, Inc.,
2.25%, 02-01-05 $ 3,200,000 3,193,800
------------
TOTAL COMMERCIAL PAPER
(cost $8,491,010) 8,491,010
------------
REPURCHASE AGREEMENT - 0.1%
United Missouri Bank, 1.74%, dated 12-31-04,
matures 01-03-05; repurchase amount
of $281,041 (Collateralized by FHLMC
0.00%, 01-14-05 with
a value of $286,729) $ 281,000 281,000
------------
TOTAL REPURCHASE AGREEMENT
(cost $281,000) 281,000
------------
TOTAL INVESTMENTS - 99.9%
(cost $215,882,907) 307,333,548
CASH & OTHER ASSETS, LESS LIAIBILITIES - 0.1% 202,842
------------
TOTAL NET ASSETS - 100.0% $307,536,390
============
The identified cost of investments owned at December 31, 2004 was the same for
federal income tax and financial statement purposes.
*Non-income producing security
ADR (American Depositary Receipt)
(1) Security is segregated as collateral for written options contracts.
(2) Security is a 144A Series. The total market value of 144A securities is
$1,990,000 (cost $1,000,000), or 0.6% of total net assets.
(3) Security is a restricted security. The total market value of restricted
securities is $566,280 (cost $702,000), or 0.2% of total net assets. The
acquisition date was February 25, 2003.
See accompanying notes.
139
SERIES V
(MID CAP VALUE SERIES)
Statement of Assets and Liabilities
December 31, 2004
ASSETS:
Investments, at value(1)........................................ $307,333,548
Cash............................................................ 15,551
Receivables:
Fund shares sold.............................................. 603,885
Interest...................................................... 7,624
Dividends..................................................... 348,964
Prepaid expenses................................................ 4,799
------------
Total assets.................................................... 308,314,371
------------
LIABILITIES:
Payable for:
Fund shares redeemed.......................................... 280,322
Written options, at value(2).................................. 254,580
Management fees............................................... 190,873
Custodian fees................................................ 2,028
Transfer agent and administration fees........................ 25,513
Professional fees............................................. 18,800
Other......................................................... 5,865
------------
Total liabilities............................................. 777,981
------------
NET ASSETS.................................................... $307,536,390
============
NET ASSETS CONSIST OF:
Paid in capital................................................. $188,924,056
Accumulated undistributed net investment
income........................................................ 956,660
Accumulated undistributed net realized gain
on sales of investments and written options................... 26,210,931
Net unrealized appreciation in value of
investments and written options............................... 91,444,743
------------
Net assets...................................................... $307,536,390
============
Capital shares authorized....................................... indefinite
Capital shares outstanding...................................... 8,762,552
Net asset value and redemption price
per share (net assets divided by shares outstanding).......... $ 35.10
============
(1) Investments, at cost........................................ $215,882,907
(2) Option premiums received.................................... $ 248,682
Statement of Operations
For the Year Ended December 31, 2004
INVESTMENT INCOME:
Dividends..................................................... $ 3,055,516
Interest...................................................... 145,223
------------
Total investment income....................................... 3,200,739
------------
EXPENSES:
Management fees............................................... 1,921,429
Custodian fees................................................ 18,889
Transfer/maintenance fees..................................... 22,183
Administration fees........................................... 223,488
Directors' fees............................................... 11,988
Professional fees............................................. 25,018
Reports to shareholders....................................... 13,834
Other expenses................................................ 7,250
------------
Total expenses................................................ 2,244,079
------------
Net investment income......................................... 956,660
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain during the period on:
Investments................................................... 25,379,709
Options written and purchased................................. 831,221
------------
Net realized gain............................................. 26,210,930
------------
Net change in unrealized appreciation
during the period on:
Investments................................................... 35,523,982
Options written and purchased................................. 58,180
------------
Net unrealized appreciation................................... 35,582,162
------------
Net gain...................................................... 61,793,092
------------
Net increase in net assets
resulting from operations................................... $ 62,749,752
============
140 See accompanying notes.
SERIES V
Statement of Changes in Net Assets (MID CAP VALUE SERIES)
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income....................................................... $ 956,660 $ 618,778
Net realized gain during the period on investments and options written...... 26,210,930 5,978,282
Net change in unrealized appreciation during the period on
investments and options written........................................... 35,582,162 68,297,677
-------------- ------------
Net increase in net assets resulting from operations........................ 62,749,752 74,894,737
-------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income....................................................... (66,480) (503,234)
Net realized gain........................................................... (6,024,709) (2,889,214)
-------------- ------------
Total distributions to shareholders........................................... (6,091,189) (3,392,448)
-------------- ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares................................................ 101,360,304 69,317,375
Distributions reinvested.................................................... 6,091,189 3,392,448
Cost of shares redeemed..................................................... (80,231,256) (68,066,760)
-------------- ------------
Net increase from capital share transactions................................ 27,220,237 4,643,063
-------------- ------------
Net increase in net assets.................................................. 83,878,800 76,145,352
-------------- ------------
NET ASSETS:
Beginning of period......................................................... 223,657,590 147,512,238
-------------- ------------
End of period............................................................... $ 307,536,390 $223,657,590
============== ============
Accumulated undistributed net investment income at end of period............ $ 956,660 $ 102,234
============== ============
CAPITAL SHARE ACTIVITY:
Shares sold................................................................. 3,302,809 2,976,917
Shares reinvested........................................................... 206,062 130,044
Shares redeemed............................................................. (2,640,940) (3,108,431)
-------------- ------------
Total capital share activity................................................ 867,931 (1,470)
============== ============
141 See accompanying notes.
SERIES V
Financial Highlights (MID CAP VALUE SERIES)
Selected data for each share of capital stock outstanding throughout each year
YEAR ENDED,
DECEMBER 31,
2004 2003 2002 2001 2000
--------- --------- --------- ---------- ---------
PER SHARE DATA
Net asset value, beginning of period .................. $ 28.33 $ 18.68 $ 23.49 $ 22.19 $ 16.73
--------- --------- --------- ---------- ---------
Income (loss) from investment operations:
Net investment income (loss) .......................... 0.11 0.07 0.10 0.09 0.08
Net gain (loss) on securities (realized and unrealized) 7.39 10.03 (3.16) 2.31 5.57
--------- --------- --------- ---------- ---------
Total from investment operations ...................... 7.50 10.10 (3.06) 2.40 5.65
--------- --------- --------- ---------- ---------
Less distributions:
Dividends from net investment income .................. (0.01) (0.06) (0.19) (0.08) --
Distributions from realized gains ..................... (0.72) (0.39) (1.56) (1.02) (0.19)
--------- --------- --------- ---------- ---------
Total distributions ................................... (0.73) (0.45) (1.75) (1.10) (0.19)
--------- --------- --------- ---------- ---------
Net asset value, end of period ........................ $ 35.10 $ 28.33 $ 18.68 $ 23.49 $ 22.19
========= ========= ========= ========== =========
TOTAL RETURN(a) ....................................... 26.97% 54.27% (14.07%) 11.13% 33.81%
--------- --------- --------- ---------- ---------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) .............. $ 307,536 $ 223,658 $ 147,512 $ 166,860 $ 115,551
--------- --------- --------- ---------- ---------
Ratios to average net assets:
Net investment income (loss) .......................... 0.37% 0.36% 0.46% 0.43% 0.55%
Total expenses ........................................ 0.88% 0.83% 0.84% 0.85% 0.84%
Gross expenses(b) ..................................... 0.88% 0.83% 0.84% 0.85% 0.84%
Net expenses(c) ....................................... 0.88% 0.83% 0.84% 0.83% 0.84%
--------- --------- --------- ---------- ---------
Portfolio turnover rate ............................... 43% 59% 65% 50% 35%
(a) Total return does not take into account any of the expenses associated
with an investment in variable insurance products offered by Security
Benefit Life Insurance Company. 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.
(b) Gross expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net expense information reflects expense ratios after expense reductions
or fee waivers and reduction of custodian expenses.
142 See accompanying notes.
SERIES W
Manager's Commentary (MAIN STREET GROWTH & INCOME(R) SERIES)
February 15, 2005 (unaudited)
[OPPENHEIMERFUNDS(R) LOGO]
Subadvisor, OppenheimerFunds, Inc.
[PHOTO OF NIKOLAOS MONOYIOS]
Nikolaos Monoyios
Portfolio Manager
TO OUR SHAREHOLDERS:
Although the Series produced slightly lower returns than its benchmark, the S&P
500 Index, during 2004, we nonetheless are satisfied with the Series'
performance. We attribute these results to a confluence of factors that caused
stocks to trade in a relatively narrow range until after the U.S. presidential
election, when uncertainty began to dissipate and signs of stronger economic
growth led to a stock market rally.
In our view, 2004 represented a year of transition in which investor sentiment
gradually began to migrate from a focus on smaller stocks to larger ones. This
shift comes in the wake of approximately six years in which small caps produced
consistently higher returns than larger ones. However, the transition in market
leadership from small-cap to large-cap stocks has not been a particularly smooth
or consistent one over the course of the past 12-month period. Our statistical
models first began to detect a change in January and February of 2004, signaling
to us that the degree of outperformance among small-cap stocks was moderating.
In response, we adopted a more neutral investment posture with regard to the
Series' weighted average market capitalization compared to that of its
benchmark.
In March, our models began to suggest that large-cap stocks were poised to over
take their smaller counterparts from a performance standpoint, and we began to
increase the Series' weighted average market capitalization toward a range that
was larger than the benchmark's. This positioning contributed positively to the
Series' relative performance during the late spring and summer, when larger
stocks indeed provided higher returns than smaller stocks. Results at the time
were especially strong among the largest companies in the S&P 500 Index.
However, small cap stocks regained market leadership in the fall, interrupting
the market's transition. For the year as a whole, in fact, all capitalization
ranges except the mega-cap category produced higher returns than broad measures
of the stock market overall, with the mid-cap and small-cap categories posting
higher returns than the micro-cap, large-cap and mega-cap categories. As a
result, the Series' focus on mega-cap stocks detracted from its relative
performance late in the year, causing its returns to modestly lag that of its
benchmark for 2004.
In this changing market environment, the Series achieved particularly strong
results from its investments in the energy and materials sectors, where our
sector allocation and stock selection strategies contributed positively to
performance. Both sectors appeared to benefit from rising demand for commodities
as global economic growth intensified and formerly third-world countries
modernized their industrial infrastructures.
Over the longer term, we remain confident that the multi-year cycle of small-cap
outperformance is nearing an end, and that mega-cap stocks are poised to assume
the mantle of market leadership for the next phase of the cycle. As always, we
remain committed to staying fully invested in a broadly diversified portfolio of
stocks as determined by our quantitative investment discipline.
Sincerely,
Nikolaos Monoyios
Portfolio Manager
143
SERIES W
Manager's Commentary (MAIN STREET GROWTH & INCOME(R) SERIES)
February 15, 2005 (unaudited)
PERFORMANCE
[PERFORMANCE GRAPH]
SBLW INVESTMENT INFORMATION
DATE value
- -------- ---------
5/1/00 10,000.00
6/30/00 9,980.00
9/30/00 10,060.00
12/31/00 9,016.25
3/31/01 8,155.65
6/30/01 8,505.90
9/30/01 7,555.24
12/31/01 8,115.58
3/31/02 8,215.77
6/30/02 7,494.38
9/30/02 6,262.02
12/31/02 6,551.13
3/31/03 6,329.74
6/30/03 7,205.24
9/30/03 7,416.57
12/31/03 8,271.52
3/31/04 8,423.01
6/30/04 8,453.31
9/30/04 8,284.62
12/31/04 8,991.85
S & P 500
DATE value
- ----------------- ---------
INCEPTION 5/01/00 10,000.00
06/30/00 10,036.94
09/30/00 9,939.85
12/31/00 9,162.81
3/31/01 8,076.96
6/30/01 8,549.92
9/30/01 7,295.70
12/31/01 8,075.77
3/31/02 8,097.71
6/30/02 7,013.09
9/30/02 5,801.87
12/31/02 6,291.88
3/31/03 6,093.72
6/30/03 7,031.73
9/30/03 7,217.83
12/31/03 8,096.70
3/31/04 8,234.06
6/30/04 8,375.21
9/30/04 8,218.19
12/31/04 8,977.04
SBL Fund Series W $8,992
S& P 500 Index $8,977
$10,000 SINCE INCEPTION
The chart above assumes a hypothetical $10,000 investment in Series W (Main St.
Growth & Income(R) Series) on May 1, 2000 (date of inception), and reflects the
fees and expenses of Series W.
PORTFOLIO COMPOSITION BY SECTOR
Consumer Discretionary 12.29%
Consumer Staples 8.64
Energy 7.07
Financials 21.68
Health Care 12.39
Industrials 10.21
Information Technology 18.88
Telecommunication Services 3.80
Materials 2.65
Utilities 0.40
Foreign Stocks 0.57
Cash & other assets, less liabilities 1.42
AVERAGE ANNUAL RETURNS
PERIODS ENDED 12-31-04(1) 1 YEAR SINCE INCEPTION (5-1-00)
- -------------------------- ------ ------------------------
Series W 8.71% (2.25%)
(1) 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.
See accompanying notes.
144
SERIES W
Manager's Commentary (MAIN STREET GROWTH & INCOME(R) SERIES)
February 15, 2005 (unaudited)
PERFORMANCE
INFORMATION ABOUT YOUR SERIES EXPENSES
CALCULATING YOUR ONGOING SERIES EXPENSES
EXAMPLE
As a shareholder of the Series, you incur ongoing costs, including management
fees and other series expenses. Performance figures and expense ratios do not
reflect fees and expenses associated with an investment in variable insurance
products. Shares of a Series of SBL Fund are available only through the purchase
of such products. This Example is intended to help you understand your ongoing
costs (in dollars) of investing in the Series and to compare these costs with
ongoing costs of investing in other mutual funds. The Example is based on an
investment of $1,000 invested at the beginning of the period and held for the
entire period, July 1, 2004 - December 31, 2004.
ACTUAL EXPENSES
The first line in the table provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the table provides information about hypothetical account
values and hypothetical expenses based on the Series actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Series
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Series and other funds. To do so, compare this 5% hypothetical example with the
5% hypothetical examples that appear in the shareholder reports of the other
funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any fees and expenses associated with an
investment in variable insurance products. Therefore, the second line is useful
in comparing ongoing costs only, and will not help you determine the relative
total costs of owning different funds. In addition, if these fees and expenses
associated with an investment in variable insurance products were included, your
costs would have been higher.
FUND EXPENSES
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING
07-01-04 12-31-04(1) PERIOD(2)
------------- ------------- -------------
Series W (Main Street Growth & Income Series)
Actual $ 1,000.00 $ 1,063.30 $ 6.59
Hypothetical 1,000.00 1,018.75 6.44
(1) The actual ending account value is based on the actual total return of the
Series for the period July 1, 2004 to December 31, 2004 after actual
expenses and will differ from the hypothetical ending account value which is
based on the Series expense ratio and a hypothetical annual return of 5%
before expenses. The actual cumulative return at net asset value for the
period July 1, 2004 to December 31, 2004 was 6.33%.
(2) Expenses are equal to the Series annualized expense ratio 1.27% multiplied
by the average account value over the period, multiplied by 184/366 (to
reflect the one-half year period).
145
SERIES W
Schedule of Investments (MAIN STREET GROWTH & INCOME(R) SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS - 98.0%
AEROSPACE & DEFENSE - 1.7%
Boeing Company 2,300 $119,071
General Dynamics Corporation 500 52,300
Goodrich Corporation 200 6,528
Honeywell International, Inc. 2,000 70,820
Lockheed Martin Corporation 800 44,440
Northrop Grumman Corporation 1,900 103,284
Raytheon Company 1,100 42,713
Rockwell Colllins, Inc. 100 3,944
United Defense Industries, Inc.* 300 14,175
United Technologies Corporation 4,200 434,070
--------
891,345
--------
AGRICULTURAL PRODUCTS - 0.1%
Archer-Daniels-Midland Company 1,300 29,003
Corn Products International, Inc. 200 10,712
--------
39,715
--------
AIR FREIGHT & LOGISTICS - 0.6%
CNF, Inc. 600 30,060
EGL, Inc.* 600 17,934
Expeditors International of
Washington, Inc. 200 11,176
FedEx Corporation 700 68,943
Ryder System, Inc. 500 23,885
United Parcel Service, Inc. (Cl.B) 1,800 153,828
--------
305,826
--------
AIRLINES - 0.2%
AMR Corporation* 2,300 25,185
Alaska Air Group, Inc.* 400 13,396
Continental Airlines, Inc. (Cl.B)* 1,200 16,248
Delta Air Lines, Inc.* 2,600 19,448
Northwest Airlines Corporation* 600 6,558
--------
80,835
--------
ALUMINUM - 0.3%
Alcoa, Inc. 5,100 160,242
--------
APPAREL RETAIL - 1.0%
Abercrombie & Fitch Company 1,100 51,645
Aeropostale, Inc.* 750 22,073
American Eagle Outfitters, Inc. 900 42,390
AnnTaylor Stores Corporation* 675 14,533
Bebe Stores, Inc. 150 4,047
Children's Place Retail Stores, Inc.* 200 7,406
Christopher & Banks Corporation 100 1,845
Finish Line, Inc. 200 3,660
Gap, Inc. 4,600 97,152
Hot Topic, Inc.* 400 6,876
Limited Brands, Inc. 3,300 75,966
Men's Wearhouse, Inc.* 200 6,392
Pacific Sunwear of California, Inc.* 1,375 30,607
TJX Companies, Inc. 4,100 103,033
Talbots, Inc. 600 16,338
Too, Inc.* 400 9,784
Urban Outfitters, Inc.* 300 13,320
--------
507,067
--------
APPAREL, ACCESSORIES & LUXURY GOODS - 0.2%
Coach, Inc.* 600 33,840
Jones Apparel Group, Inc. 900 32,913
V.F. Corporation 500 27,690
--------
94,443
--------
APPLICATION SOFTWARE - 0.4%
Amdocs, Ltd.* 700 18,375
Autodesk, Inc. 1,200 45,540
Compuware Corporation* 200 1,294
FactSet Research Systems, Inc. 200 11,688
Fair Isaac Corporation 400 14,672
FileNet Corporation* 300 7,728
Quest Software, Inc.* 100 1,595
RSA Security, Inc.* 800 16,048
Siebel Systems, Inc.* 1,900 19,950
Synopsys, Inc.* 1,000 19,620
Tibco Software, Inc.* 2,400 32,016
--------
188,526
--------
ASSET MANAGEMENT & CUSTODY BANKS - 0.6%
Affiliated Managers Group, Inc.* 350 23,709
Bank of New York Company, Inc. 3,200 106,944
Federated Investors, Inc. (Cl.B) 200 6,080
Franklin Resources, Inc. 200 13,930
Legg Mason, Inc. 150 10,989
Mellon Financial Corporation 1,000 31,110
Northern Trust Corporation 900 43,722
SEI Investments Company 300 12,579
State Street Corporation 700 34,384
T. Rowe Price Group, Inc. 400 24,880
--------
308,327
--------
AUTO PARTS & EQUIPMENT - 0.2%
Aftermarket Technology Corporation* 129 2,077
ArvinMeritor, Inc.* 300 6,711
Autoliv, Inc. 900 43,470
BorgWarner, Inc. 100 5,417
Dana Corporation 2,100 36,393
Delphi Corporation 500 4,510
Lear Corporation 100 6,101
Visteon Corporation 800 7,816
--------
112,495
--------
AUTOMOBILE MANUFACTURERS - 0.4%
Ford Motor Company 7,874 115,275
General Motors Corporation 1,400 56,084
Thor Industries, Inc. 100 3,705
Winnebago Industries, Inc. 300 11,718
--------
186,782
--------
See accompanying notes.
146
SERIES W
Schedule of Investments (MAIN STREET GROWTH & INCOME(R) SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS (CONTINUED)
BIOTECHNOLOGY - 0.7%
Amgen, Inc.* 4,700 $ 301,505
Applera Corporation -
Applied Biosystems Group 1,400 29,274
Gen-Probe, Inc.* 400 18,084
Millennium Pharmaceuticals, Inc.* 1,400 16,968
Onyx Pharmaceuticals, Inc.* 100 3,239
United Therapeutics Corporation* 300 13,545
-----------
382,615
-----------
BREWERS - 0.2%
Anheuser-Busch Companies, Inc. 1,600 81,168
-----------
BROADCASTING & CABLE TV - 1.1%
Charter Communications, Inc.* 5,500 12,320
Clear Channel Communications, Inc. 2,500 83,725
Comcast Corporation* 12,431 413,704
EchoStar Communications Corporation* 1,300 43,212
NTL, Inc.* 100 7,296
Westwood One, Inc.* 600 16,158
-----------
576,415
-----------
BUILDING PRODUCTS - 0.2%
American Standard Companies, Inc.* 500 20,660
Masco Corporation 1,100 40,183
USG Corporation* 600 24,162
-----------
85,005
-----------
CASINOS & GAMING - 0.3%
Aztar Corporation* 100 3,492
Caesars Entertainment, Inc.* 1,500 30,210
International Game Technology 2,400 82,512
Mandalay Resort Group 600 42,258
MGM Mirage* 200 14,548
-----------
173,020
-----------
CATALOG RETAIL - 0.2%
IAC/InterActiveCorp* 3,000 82,860
-----------
COMMODITY CHEMICALS - 0.1%
Georgia Gulf Corporation 600 29,880
Lyondell Chemical Company 900 26,028
-----------
55,908
-----------
COMMON STOCKS (CONTINUED)
COMMUNICATIONS EQUIPMENT - 3.4%
Adtran, Inc. 800 15,312
Avaya, Inc.* 3,200 55,040
Brocade Communications Systems, Inc.* 2,200 16,808
Ciena Corporation* 4,700 15,698
Cisco Systems, Inc.* 40,500 781,650
CommScope, Inc.* 100 1,890
Comverse Technology, Inc.* 1,900 46,455
Ditech Communications Corporation* 100 1,495
Extreme Networks, Inc.* 800 5,240
Harris Corporation 200 12,358
Juniper Networks, Inc.* 4,600 125,074
Lucent Technologies, Inc.* 20,800 78,208
Motorola, Inc. 8,300 142,760
Polycom, Inc.* 400 9,328
Qualcomm, Inc. 9,400 398,560
Scientific-Atlanta, Inc. 1,200 39,612
Sonus Networks, Inc.* 600 3,438
Tellabs, Inc.* 1,000 8,590
-----------
1,757,516
-----------
COMPUTER & ELECTRONICS RETAIL - 0.3%
Best Buy Company, Inc. 1,300 77,246
Circuit City Stores, Inc. 3,000 46,920
Electronics Boutique Holding Corporation* 200 8,588
Leapfrog Enterprises, Inc.* 100 1,360
-----------
134,114
-----------
COMPUTER HARDWARE - 4.5%
Apple Computer, Inc.* 900 57,960
Dell, Inc.* 16,700 703,738
Hewlett-Packard Company 23,700 496,989
International Business
Machines Corporation 9,500 936,510
NCR Corporation* 600 41,538
Sun Microsystems, Inc.* 21,000 112,980
-----------
2,349,715
-----------
COMPUTER STORAGE & PERIPHERALS - 0.3%
Avid Technology, Inc.* 100 6,175
Electronics for Imaging, Inc.* 200 3,482
Lexmark International, Inc.* 1,000 85,000
Maxtor Corporation* 2,300 12,190
QLogic Corporation* 100 3,673
Storage Technology Corporation* 1,000 31,610
Western Digital Corporation* 1,100 11,924
-----------
154,054
-----------
CONSTRUCTION & ENGINEERING - 0.0%
Shaw Group, Inc.* 400 7,140
-----------
See accompanying notes.
147
SERIES W
Schedule of Investments (MAIN STREET GROWTH & INCOME(R) SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS (CONTINUED)
CONSTRUCTION & FARM MACHINERY - 0.7%
Caterpillar, Inc. 1,100 $ 107,261
Cummins, Inc. 500 41,895
Deere & Company 1,200 89,280
Navistar International Corporation* 600 26,388
Paccar, Inc. 700 56,336
Terex Corporation* 100 4,765
Toro Company 200 16,270
Wabash National Corporation* 300 8,079
-----------
350,274
-----------
CONSTRUCTION MATERIALS - 0.1%
Eagle Materials, Inc. (Cl.B) 278 23,435
Florida Rock Industries, Inc. 100 5,953
Texas Industries, Inc. 100 6,238
Vulcan Materials Company 300 16,383
-----------
52,009
-----------
CONSUMER ELECTRONICS - 0.0%
Harman International Industries, Inc. 200 25,400
-----------
CONSUMER FINANCE - 0.9%
American Express Company 4,200 236,754
Capital One Financial Corporation 800 67,368
MBNA Corporation 5,400 152,226
SLM Corporation 400 21,356
-----------
477,704
-----------
DATA PROCESSING & OUTSOURCED SERVICES - 0.9%
Affiliated Computer Services, Inc.* 1,000 60,190
Automatic Data Processing, Inc. 2,700 119,745
Bisys Group, Inc.* 100 1,645
CheckFree Corporation* 1,100 41,888
Computer Sciences Corporation* 1,200 67,644
Convergys Corporation* 900 13,491
Electronic Data Systems Corporation 2,500 57,750
First Data Corporation 1,600 68,064
Sabre Holdings Corporation 1,300 28,808
-----------
459,225
-----------
DEPARTMENT STORES - 0.6%
Dillard's, Inc. 700 18,809
Federated Department Stores, Inc. 1,400 80,906
J.C. Penney Company, Inc. 2,800 115,920
Kohl's Corporation* 100 4,917
Neiman Marcus Group, Inc. 100 7,154
Nordstrom, Inc. 900 42,057
Sears, Roebuck & Company 1,000 51,030
-----------
320,793
-----------
DISTILLERS & VINTNERS - 0.0%
Brown-Forman Corporation (Cl.B) 100 4,868
-----------
DISTRIBUTORS - 0.0%
Genuine Parts Company 200 8,812
-----------
COMMON STOCKS (CONTINUED)
DIVERSIFIED BANKS - 5.2%
Bank of America Corporation 25,584 1,202,192
Comerica, Inc. 1,400 85,428
U.S. Bancorp 14,833 464,569
Wachovia Corporation 7,800 410,280
Wells Fargo & Company 8,400 522,060
-----------
2,684,529
-----------
DIVERSIFIED CHEMICALS - 0.6%
Cabot Corporation 200 7,736
Dow Chemical Company 1,200 59,412
E.I. du Pont de Nemours & Company 3,400 166,770
Eastman Chemical Company 500 28,865
Engelhard Corporation 400 12,268
FMC Corporation* 200 9,660
Hercules, Inc.* 100 1,485
PPG Industries, Inc. 400 27,264
-----------
313,460
-----------
DIVERSIFIED COMMERCIAL SERVICES - 0.4%
Brink's Company 100 3,952
Cendant Corporation 5,300 123,914
Cintas Corporation 500 21,930
Copart, Inc.* 500 13,160
Corporate Executive Board Company 100 6,694
Dun & Bradstreet Corporation* 200 11,930
Equifax, Inc. 600 16,860
ITT Educational Services, Inc.* 200 9,510
Sotheby's Holdings, Inc.* 300 5,448
-----------
213,398
-----------
DIVERSIFIED METALS & MINING - 0.3%
Inco, Ltd.* 200 7,356
Massey Energy Company 800 27,960
Phelps Dodge Corporation* 900 89,028
Southern Peru Copper Corporation 200 9,442
-----------
133,786
-----------
DRUG RETAIL - 0.2%
Rite Aid Corporation* 2,400 8,784
Walgreen Company 2,900 111,273
-----------
120,057
-----------
ELECTRIC UTILITIES - 0.3%
American Electric Power Company, Inc. 1,900 65,246
Edison International 900 28,827
Exelon Corporation 624 27,500
FPL Group, Inc. 300 22,425
NRG Energy, Inc.* 100 3,605
PG&E Corporation* 800 26,624
Progress Energy, Inc. - Contingent
Value Obligation* 400 48
Wisconsin Energy Corporation 100 3,371
-----------
177,646
-----------
See accompanying notes.
148
SERIES W
Schedule of Investments (MAIN STREET GROWTH & INCOME(R) SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS (CONTINUED)
ELECTRICAL COMPONENTS & EQUIPMENT - 0.3%
American Power Conversion Corporation 800 $ 17,120
Cooper Industries, Ltd. 300 20,367
Emerson Electric Company 1,500 105,150
Rockwell Automation, Inc. 600 29,730
-----------
172,367
-----------
ELECTRONIC EQUIPMENT MANUFACTURERS - 0.2%
Agilent Technologies, Inc.* 3,200 77,120
Amphenol Corporation* 1,000 36,740
Cognex Corporation 200 5,580
Littelfuse, Inc.* 100 3,416
Symbol Technologies, Inc. 200 3,460
-----------
126,316
-----------
ELECTRONIC MANUFACTURING SERVICES - 0.2%
Jabil Circuit, Inc.* 1,300 33,254
Molex, Inc. (Non-Voting) 500 13,325
Molex, Inc. (Voting) 900 27,000
Sanmina-SCI Corporation* 3,300 27,951
Trimble Navigation, Ltd.* 200 6,608
-----------
108,138
-----------
EMPLOYMENT SERVICES - 0.1%
Gevity HR, Inc. 100 2,056
Resources Connection, Inc.* 100 5,431
Robert Half International, Inc. 1,200 35,316
-----------
42,803
-----------
ENVIRONMENTAL SERVICES - 0.1%
Republic Services, Inc. 500 16,770
Waste Management, Inc. 1,300 38,922
-----------
55,692
-----------
FERTILIZERS & AGRICULTURAL CHEMICALS - 0.3%
Monsanto Company 2,400 133,320
Scotts Company* 100 7,352
-----------
140,672
-----------
FOOD DISTRIBUTORS - 0.2%
Sysco Corporation 3,300 125,961
-----------
FOOD RETAIL - 0.2%
Kroger Company* 1,300 22,802
Safeway, Inc.* 1,100 21,714
Supervalu, Inc. 1,000 34,520
Whole Foods Market, Inc. 100 9,535
-----------
88,571
-----------
FOOTWEAR - 0.2%
Deckers Outdoor Corporation* 100 4,699
Nike, Inc. (Cl.B) 600 54,414
Timberland Company* 600 37,602
-----------
96,715
-----------
COMMON STOCKS (CONTINUED)
FOREST PRODUCTS - 0.1%
Louisiana-Pacific Corporation 1,700 45,458
-----------
GENERAL MERCHANDISE STORES - 0.3%
Kmart Holding Corporation* 300 29,685
Target Corporation 2,200 114,246
-----------
143,931
-----------
HEALTH CARE DISTRIBUTORS - 0.1%
AmerisourceBergen Corporation 600 35,208
Andrx Corporation* 500 10,915
McKesson Corporation 600 18,876
-----------
64,999
-----------
HEALTH CARE EQUIPMENT - 1.3%
Baxter International, Inc. 600 20,724
Becton, Dickinson & Company 1,400 79,520
Biomet, Inc. 200 8,678
Boston Scientific Corporation* 1,000 35,550
Dade Behring Hldgs, Inc. 100 5,593
Idexx Laboratories, Inc.* 100 5,459
Inamed Corporation* 100 6,325
Medtronic, Inc. 6,200 307,954
PerkinElmer, Inc. 1,600 35,984
Stryker Corporation* 2,000 96,500
Thermo Electron Corporation* 1,400 42,266
Varian Medical Systems, Inc.* 400 17,296
VISX, Inc.* 300 7,761
Wright Medical Group, Inc.* 200 5,700
-----------
675,310
-----------
HEALTH CARE FACILITIES - 0.1%
HCA, Inc. 200 7,992
LCA-Vision, Inc. 450 10,525
Select Medical Corporation 300 5,280
Sunrise Senior Living, Inc.* 200 9,272
-----------
33,069
-----------
HEALTH CARE SERVICES - 0.5%
Advisory Board Company* 300 11,064
Amedisys, Inc.* 100 3,239
Caremark Rx, Inc.* 900 35,487
Cerner Corporation* 100 5,317
Covance, Inc.* 500 19,375
DaVita, Inc.* 200 7,906
eResearch Technology, Inc.* 200 3,170
Express Scripts, Inc.* 100 7,644
IMS Health, Inc. 393 9,121
Laboratory Corporation of America
Holdings* 500 24,910
Medco Health Soulutions, Inc.* 1,647 68,515
Pediatrix Medical Group, Inc.* 400 25,620
Quest Diagnostics, Inc. 600 57,330
-----------
278,698
-----------
See accompanying notes.
149
SERIES W
Schedule of Investments (MAIN STREET GROWTH & INCOME(R) SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS (CONTINUED)
HEALTH CARE SUPPLIES - 0.0%
Bausch & Lomb, Inc. 300 $ 19,338
----------
HOME ENTERTAINMENT SOFTWARE - 0.2%
Activision, Inc.* 900 18,162
Electronic Arts, Inc.* 1,000 61,680
THQ, Inc.* 700 16,058
Take-Two Interactive Software, Inc.* 500 17,395
----------
113,295
----------
HOME FURNISHINGS - 0.1%
Ethan Allen Interiors, Inc. 300 12,006
Furniture Brands International, Inc. 200 5,010
Leggett & Platt, Inc. 700 19,901
----------
36,917
----------
HOME IMPROVEMENT RETAIL - 1.5%
Home Depot, Inc. 14,100 602,634
Lowe's Companies, Inc. 2,000 115,180
Sherwin-Williams Company 800 35,704
----------
753,518
----------
HOMEBUILDING - 0.3%
Beazer Homes USA, Inc. 100 14,621
Cavco Industries, Inc.* 60 2,697
Hovnanian Enterprises, Inc.* 100 4,952
KB Home 400 41,760
Lennar Corporation (Cl.B) 340 17,751
M.D.C. Holdings, Inc. 380 32,847
Meritage Homes Corporation* 300 33,810
Ryland Group, Inc. 400 23,016
----------
171,454
----------
HOTELS, RESORTS & CRUISE LINES - 0.2%
Choice Hotels International, Inc. 100 5,800
Marriott International, Inc. 1,500 94,470
----------
100,270
----------
HOUSEHOLD APPLIANCES - 0.2%
Black & Decker Corporation 500 44,165
Stanley Works 400 19,596
Whirlpool Corporation 300 20,763
----------
84,524
----------
HOUSEHOLD PRODUCTS - 1.7%
Clorox Company 200 11,786
Energizer Holdings, Inc.* 300 14,907
Kimberly-Clark Corporation 1,700 111,877
Procter & Gamble Company 13,400 738,072
Rayovac Corporation* 200 6,112
----------
882,754
----------
HOUSEWARES & SPECIALTIES - 0.1%
American Greetings Corporation 600 15,210
Newell Rubbermaid, Inc. 2,300 55,637
----------
70,847
----------
HYPERMARKETS & SUPERCENTERS - 1.6%
BJ's Wholesale Club, Inc.* 700 20,391
Costco Wholesale Corporation 1,500 72,615
Wal-Mart Stores, Inc. 13,900 734,198
----------
827,204
----------
INDUSTRIAL CONGLOMERATES - 5.0%
3M Company 4,800 393,936
General Electric Company 59,400 2,168,100
Textron, Inc. 300 22,140
Tyco International, Ltd. 700 25,018
----------
2,609,194
----------
INDUSTRIAL GASES - 0.0%
Praxair, Inc. 300 13,245
----------
INDUSTRIAL MACHINERY - 0.6%
Briggs & Stratton Corporation 100 4,158
Danaher Corporation 400 22,964
Dover Corporation 400 16,776
Illinois Tool Works, Inc. 1,100 101,948
Ingersoll-Rand Company 800 64,240
Mueller Industries, Inc. 200 6,440
Pall Corporation 500 14,475
Parker Hannifin Corporation 300 22,722
SPX Corporation 1,000 40,060
Unova, Inc.* 100 2,529
----------
296,312
----------
INSURANCE BROKERS - 0.2%
AON Corporation 1,900 45,334
Marsh & McLennan Companies, Inc. 1,000 32,900
----------
78,234
----------
INTEGRATED OIL & GAS - 5.3%
Amerada Hess Corporation 700 57,666
ChevronTexaco Corporation 9,682 508,402
ConocoPhillips 2,783 241,648
Exxon Mobil Corporation 35,400 1,814,604
Murphy Oil Corporation 200 16,090
Occidental Petroleum Corporation 1,000 58,360
Tesoro Corporation* 1,100 35,046
----------
2,731,816
----------
INTEGRATED TELECOMMUNICATION SERVICES - 3.4%
AT&T Corporation 1,400 26,684
Alltel Corporation 600 35,256
BellSouth Corporation 10,500 291,795
CenturyTel, Inc. 1,000 35,470
Citizens Communications Company 3,800 52,402
Qwest Communications International, Inc.* 800 3,552
SBC Communications, Inc. 24,800 639,096
Sprint Corporation 1,400 34,790
Verizon Communications, Inc. 16,000 648,160
----------
1,767,205
----------
See accompanying notes.
150
SERIES W
Schedule of Investments (MAIN STREET GROWTH & INCOME(R) SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS (CONTINUED)
INTERNET RETAIL - 0.6%
Amazon.com, Inc.* 800 $ 35,432
eBay, Inc.* 2,300 267,444
----------
302,876
----------
INTERNET SOFTWARE & SERVICES - 0.6%
DoubleClick, Inc.* 800 6,224
EarthLink, Inc.* 1,600 18,432
InfoSpace, Inc.* 400 19,020
Internet Security Systems, Inc.* 700 16,275
Openwave Systems Inc.* 300 4,638
United Online, Inc.* 1,250 14,413
ValueClick, Inc.* 700 9,331
VeriSign, Inc.* 500 16,760
WebEx Communications, Inc.* 100 2,378
Websense, Inc.* 400 20,288
Yahoo!, Inc.* 4,500 169,560
----------
297,319
----------
INVESTMENT BANKING & BROKERAGE - 2.1%
American Capital Strategies, Ltd. 500 16,675
Bear Sterns Companies, Inc. 1,100 112,541
Charles Schwab Corporation 7,000 83,720
E*Trade Financial Corporation* 2,300 34,385
Goldman Sachs Group, Inc. 700 72,828
Knight Trading Group, Inc.* 100 1,095
Lehman Brothers Holdings, Inc. 800 69,984
Merrill Lynch & Company, Inc. 4,800 286,896
Morgan Stanley 7,600 421,952
----------
1,100,076
----------
IT CONSULTING & OTHER SERVICES - 0.1%
Acxiom Corporation 800 21,040
Unisys Corporation* 500 5,090
----------
26,130
----------
LEISURE PRODUCTS - 0.1%
Action Performance Companies, Inc. 1,100 12,089
Hasbro, Inc. 1,100 21,318
Marvel Enterprises, Inc.* 600 12,288
Nautilus Group, Inc. 200 4,834
Polaris Industries, Inc. 200 13,604
SCP Pool Corporation 200 6,380
----------
70,513
----------
LIFE & HEALTH INSURANCE - 0.6%
AFLAC, Inc. 2,800 111,552
AmerUs Group Company* 100 4,530
Jefferson-Pilot Corporation 300 15,588
Lincoln National Corporation 900 42,012
MetLife, Inc. 1,000 40,510
Protective Life Corporation 100 4,269
StanCorp Financial Group, Inc. 100 8,250
Torchmark Corporation 400 22,856
UICI 100 3,390
UnumProvident Corporation 2,000 35,880
----------
288,837
----------
MANAGED HEALTH CARE - 1.7%
Aetna, Inc. 900 112,275
Cigna Corporation 1,200 97,884
Coventry Health Care, Inc.* 600 31,848
Humana, Inc.* 1,200 35,628
PacifiCare Health Systems, Inc.* 900 50,868
Sierra Health Services, Inc.* 300 16,533
UnitedHealth Group, Inc. 3,857 339,532
WellChoice, Inc.* 400 21,360
WellPoint, Inc.* 1,400 161,000
----------
866,928
----------
MARINE - 0.1%
General Maritime Corporation* 400 15,980
OMI Corporation 900 15,165
Teekay Shipping Corporation 500 21,055
----------
52,200
----------
METAL & GLASS CONTAINERS - 0.1%
Ball Corporation 100 4,398
Crown Holdings, Inc.* 800 10,992
Owens-Illinois, Inc.* 1,200 27,180
Pactiv Corporation* 200 5,058
----------
47,628
----------
MOTORCYCLE MANUFACTURERS - 0.2%
Harley-Davidson, Inc. 1,300 78,975
----------
MOVIES & ENTERTAINMENT - 2.2%
Fox Entertainment Group, Inc.* 100 3,126
Pixar* 100 8,561
Time Warner, Inc.* 25,400 493,776
Viacom, Inc. (Cl.B) 8,004 291,266
Walt Disney Company 13,100 364,180
----------
1,160,909
----------
MULTI-LINE INSURANCE - 2.2%
Allmerica Financial Corporation* 300 9,849
American Financial Group, Inc. 400 12,524
American International Group, Inc. 14,437 948,078
Hartford Financial Services Group, Inc. 1,800 124,758
Loews Corporation 800 56,240
----------
1,151,449
----------
MULTI-UTILITIES & UNREGULATED POWER - 0.1%
CMS Energy Corporation* 1,000 10,450
Calpine Corporation* 2,200 8,668
Oneok, Inc. 200 5,684
Reliant Energy, Inc.* 400 5,460
----------
30,262
----------
OFFICE SERVICES & SUPPLIES - 0.0%
Herman Miller, Inc. 200 5,526
Pitney Bowes, Inc. 300 13,884
----------
19,410
----------
See accompanying notes.
151
SERIES W
Schedule of Investments (MAIN STREET GROWTH & INCOME(R) SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS (CONTINUED)
OIL & GAS DRILLING - 0.1%
Atwood Oceanics, Inc.* 100 $ 5,210
Diamond Offshore Drilling, Inc. 1,200 48,060
Pride International, Inc.* 400 8,216
----------
61,486
----------
OIL & GAS EQUIPMENT & SERVICES - 0.3%
BJ Services Company 500 23,270
Cal Dive International, Inc.* 400 16,300
Grant Prideco, Inc.* 900 18,045
Halliburton Company 1,100 43,164
Hydril* 100 4,551
Lone Star Technologies, Inc.* 200 6,692
Oil States International, Inc.* 900 17,361
Smith International, Inc.* 200 10,882
Universal Compression Holdings, Inc.* 500 17,455
----------
157,720
----------
OIL & GAS EXPLORATION & PRODUCTION - 0.8%
Apache Corporation 1,400 70,798
Cabot Oil & Gas Corporation 100 4,425
Chesapeake Energy Corporation 1,500 24,750
Cimarex Energy Company* 359 13,606
Devon Energy Corporation 1,400 54,488
EOG Resources, Inc. 600 42,816
Forest Oil Corporation* 300 9,516
Houston Exploration Company* 400 22,524
Kerr-McGee Corporation 400 23,116
Newfield Exploration Company* 400 23,620
Noble Energy, Inc. 500 30,830
Patina Oil & Gas Corporation 300 11,250
Petroleum Development Corporation* 200 7,714
Pioneer Natural Resources Company 300 10,530
Plains Exploration & Production Company* 300 7,800
Pogo Producing Company 100 4,849
Southwestern Energy Company* 100 5,069
Unocal Corporation 1,400 60,536
Vintage Petroleum, Inc. 300 6,807
----------
435,044
----------
OIL & GAS REFINING, MARKETING & TRANSPORTATION - 0.5%
Ashland, Inc. 300 17,514
El Paso Corporation 600 6,240
Frontier Oil Corporation 3,700 98,642
Premcor, Inc. 200 8,434
Sunoco, Inc. 700 57,197
Valero Energy Corporation 1,500 68,100
Williams Companies, Inc. 1,100 17,919
----------
274,046
----------
OTHER DIVERSIFIED FINANCIAL SERVICES - 5.1%
Citigroup, Inc. 30,931 1,490,256
JP Morgan Chase & Company 25,928 1,011,451
Nationwide Financial Services, Inc. 600 22,938
Principal Financial Group, Inc. 2,200 90,068
St. Joe Company 100 6,420
----------
2,621,133
----------
PACKAGED FOODS & MEATS - 0.6%
ConAgra Foods, Inc. 300 8,835
H.J. Heinz Company 2,500 97,475
Kellogg Company 100 4,466
Kraft Foods, Inc. 1,200 42,732
Pilgrim's Pride Corporation 100 3,068
Sara Lee Corporation 3,300 79,662
Smithfield Foods, Inc.* 100 2,959
Tyson Foods, Inc. 1,800 33,120
Wm. Wrigley Jr. Company 200 13,838
----------
286,155
----------
PAPER PACKAGING - 0.0%
Bemis Company, Inc. 100 2,909
Smurfit-Stone Container Corporation* 500 9,340
----------
12,249
----------
PAPER PRODUCTS - 0.4%
Georgia-Pacific Corporation 2,700 101,196
International Paper Company 400 16,800
MeadWestvaco Corporation 1,800 61,002
Neenah Paper, Inc.* 64 2,074
Potlatch Corporation 300 15,174
----------
196,246
----------
PERSONAL PRODUCTS - 0.4%
Avon Products, Inc. 1,000 38,700
Estee Lauder Companies, Inc. 1,600 73,232
Gillette Company 2,500 111,950
NBTY, Inc.* 100 2,401
----------
226,283
----------
PHARMACEUTICALS - 7.9%
Abbott Laboratories 6,100 284,565
Allergan, Inc. 600 48,642
Barr Pharmaceuticals, Inc.* 400 18,216
Bristol-Myers Squibb Company 12,400 317,688
Eli Lilly & Company 5,200 295,100
Endo Pharmaceuticals Holdings, Inc.* 1,300 27,326
Eon Labs, Inc.* 500 13,500
Forest Laboratories, Inc.* 2,100 94,206
Hospira, Inc.* 1,070 35,845
Johnson & Johnson 15,886 1,007,490
Merck & Company, Inc. 15,500 498,170
Pfizer, Inc. 45,065 1,211,798
Schering-Plough Corporation 1,600 33,408
Wyeth 4,800 204,432
----------
4,090,386
----------
PHOTOGRAPHIC PRODUCTS - 0.0%
Eastman Kodak Company 600 19,350
----------
See accompanying notes.
152
SERIES W
Schedule of Investments (MAIN STREET GROWTH & INCOME(R) SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS (CONTINUED)
PROPERTY & CASUALTY INSURANCE - 0.9%
Ace, Ltd. 900 $ 38,475
Allstate Corporation 3,700 191,364
Ambac Financial Group, Inc. 100 8,213
Chubb Corporation 400 30,760
Cincinnati Financial Corporation 500 22,130
Fidelity National Financial, Inc. 1,290 58,914
First American Corporation 200 7,028
LandAmerica Financial Group, Inc. 200 10,786
MBIA, Inc. 500 31,640
Old Republic International Corporation 300 7,590
Progressive Corporation 200 16,968
Safeco Corporation 700 36,568
St. Paul Travelers Companies, Inc. 500 18,535
----------
478,971
----------
PUBLISHING - 0.3%
Gannett Company, Inc. 200 16,340
Getty Images, Inc.* 200 13,770
Knight-Ridder, Inc. 300 20,082
Martha Stewart Living Omnimedia, Inc.* 500 14,510
McGraw-Hill Companies, Inc. 1,200 109,848
----------
174,550
----------
RAILROADS - 0.1%
Burlington Northern Santa Fe Corporation 300 14,193
CSX Corporation 200 8,016
Norfolk Southern Corporation 300 10,857
----------
33,066
----------
REGIONAL BANKS - 1.5%
Associated Banc-Corp 100 3,321
BB&T Corporation 1,100 46,255
Bank of Hawaii Corporation 100 5,074
Banknorth Group, Inc. 1,200 43,920
Compass Bancshares, Inc. 300 14,601
Fifth Third Bancorp 1,300 61,464
First Horizon National Corporation 200 8,622
Hibernia Corporation 800 23,608
Huntington Bancshares, Inc. 500 12,390
KeyCorp 2,100 71,190
M&T Bank Corporation 400 43,136
National City Corporation 1,700 63,835
North Fork Bancorporation, Inc. 1,039 29,969
PNC Financial Services Group 1,200 68,928
Regions Financial Corporation 1,264 44,986
Silicon Valley Bancshares* 200 8,964
SunTrust Banks, Inc. 1,400 103,432
UnionBanCal Corporation 1,300 83,824
Zions Bancorporation 300 20,409
----------
757,928
----------
REINSURANCE - 0.1%
Reinsurance Group of America, Inc. 700 33,915
RenaissanceRe Holdings, Ltd. 200 10,416
----------
44,331
----------
RESTAURANTS - 0.7%
Applebee's International, Inc. 375 9,919
CBRL Group, Inc. 600 25,110
CEC Entertainment, Inc.* 800 31,976
Darden Restaurants, Inc. 200 5,548
Jack in the Box, Inc.* 200 7,374
McDonald's Corporation 5,000 160,300
Outback Steakhouse, Inc. 100 4,578
P.F. Chang's China Bistro, Inc.* 100 5,635
Rare Hospitality International, Inc.* 200 6,372
Sonic Corporation* 100 3,050
Starbucks Corporation* 800 49,888
Yum! Brands, Inc. 1,200 56,616
----------
366,366
----------
SEMICONDUCTOR EQUIPMENT - 0.5%
Applied Materials, Inc.* 8,200 140,220
Cabot Microelectronics Corporation* 400 16,020
Cymer, Inc.* 200 5,908
KLA-Tencor Corporation* 600 27,948
Lam Research Corporation* 1,100 31,801
Teradyne, Inc.* 400 6,828
----------
228,725
----------
SEMICONDUCTORS - 3.4%
Advanced Micro Devices, Inc.* 2,600 57,252
Agere Systems, Inc.* 5,100 6,987
Altera Corporation* 2,000 41,400
Analog Devices, Inc. 2,800 103,376
Applied Micro Circuits Corporation* 2,600 10,946
Atmel Corporation* 9,100 35,672
Broadcom Corporation* 200 6,456
Cree, Inc.* 1,100 44,088
Freescale Semiconductor, Inc.* 1,200 21,384
Freescale Semiconductor, Inc. (Cl.B)* 883 16,218
Integrated Circuit Systems, Inc.* 100 2,092
Integrated Device Technology, Inc.* 800 9,248
Intel Corporation 36,300 849,057
Intersil Corporation 1,700 28,458
LSI Logic Corporation* 2,600 14,248
Linear Technology Corporation 2,700 104,652
Maxim Integrated Products, Inc. 1,200 50,868
Micrel, Inc.* 500 5,510
Microchip Technology, Inc. 1,100 29,326
Micron Technology, Inc.* 4,800 59,280
National Semiconductor Corporation* 3,100 55,645
PMC-Sierra, Inc.* 100 1,125
Rambus, Inc.* 600 13,800
Semtech Corporation* 500 10,935
Silicon Image, Inc.* 500 8,230
Texas Instruments, Inc. 5,300 130,486
Xilinx, Inc. 500 14,825
----------
1,731,564
----------
See accompanying notes.
153
SERIES W
Schedule of Investments (MAIN STREET GROWTH & INCOME(R) SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS (CONTINUED)
SOFT DRINKS - 2.1%
Coca-Cola Company 11,500 $ 478,745
PepsiAmericas, Inc. 100 2,124
Pepsi Bottling Group, Inc. 1,300 35,152
PepsiCo, Inc. 11,320 590,904
----------
1,106,925
----------
SPECIALIZED FINANCE - 0.1%
CIT Group, Inc. 1,100 50,402
Moody's Corporation 200 17,370
----------
67,772
----------
SPECIALTY CHEMICALS- 0.1%
OM Group, Inc.* 400 12,968
Rohm & Haas Company 600 26,538
W.R. Grace & Company* 800 10,888
----------
50,394
----------
SPECIALTY STORES - 0.9%
AutoNation, Inc.* 600 11,526
Barnes & Noble, Inc.* 500 16,135
Bed Bath & Beyond, Inc.* 1,200 47,796
Blockbuster, Inc. (Cl.B) 1,807 15,920
Borders Group, Inc. 1,400 35,560
Claire's Stores, Inc. 1,300 27,625
Hollywood Entertainment Corporation* 400 5,236
Michael's Stores, Inc. 1,100 32,967
Office Depot, Inc.* 2,400 41,664
Petco Animal Supplies, Inc.* 100 3,948
Petsmart, Inc. 300 10,659
Rent-A-Center, Inc.* 100 2,650
Staples, Inc. 4,000 134,840
Tiffany & Company 600 19,182
Toys 'R' Us, Inc.* 2,200 45,034
Zale Corporation* 1,000 29,870
----------
480,612
----------
STEEL - 0.3%
AK Steel Holding Corporation* 1,000 14,470
Carpenter Technology Corporation 100 5,846
Cleveland-Cliffs, Inc. 200 20,772
Nucor Corporation 600 31,404
Schnitzer Steel Industries, Inc. 100 3,393
Steel Dynamics, Inc.* 200 7,576
United States Steel Corporation 1,100 56,375
Worthington Industries, Inc. 500 9,790
----------
149,626
----------
SYSTEMS SOFTWARE - 4.2%
Adobe Systems, Inc. 600 37,644
BEA Systems, Inc.* 1,600 14,176
BMC Software, Inc.* 1,500 27,900
Computer Associates International, Inc. 1,200 37,272
Macrovision Corporation* 300 7,716
McAfee, Inc.* 1,200 34,716
Microsoft Corporation 57,800 1,543,838
MicroStrategy, Inc.* 100 6,025
Oracle Corporation* 27,500 377,300
Sybase, Inc.* 1,800 35,910
Veritas Software Corporation* 1,200 34,260
----------
2,156,757
----------
TECHNOLOGY DISTRIBUTORS - 0.1%
CDW Corporation 300 19,905
Ingram Micro, Inc.* 1,200 24,960
Tech Data Corporation* 600 27,240
----------
72,105
----------
THRIFTS & MORTGAGE FINANCE - 2.2%
Astoria Financial Corporation 500 19,985
Countrywide Financial Corporation 2,498 92,451
Fannie Mae 6,200 441,502
Freddie Mac 4,700 346,390
Fremont General Corporation 900 22,662
Golden West Financial Corporation 500 30,710
Independence Community Bank Corporation 400 17,032
IndyMac Bancorp, Inc. 300 10,335
MGIC Investment Corporation 800 55,128
PMI Group, Inc. 200 8,350
R&G Financial Corporation (Cl.B) 100 3,888
Radian Group, Inc. 700 37,268
Washington Mutual, Inc. 1,300 54,964
Webster Financial Corporation 300 15,192
----------
1,155,857
----------
TIRES & RUBBER - 0.1%
Goodyear Tire & Rubber Company* 1,700 24,922
----------
TOBACCO - 1.3%
Altria Group, Inc. 10,600 647,660
Reynolds American, Inc. 200 15,720
UST, Inc. 400 19,244
----------
682,624
----------
TRADING COMPANIES & DISTRIBUTORS - 0.0%
W.W. Grainger, Inc. 300 19,986
----------
TRUCKING - 0.1%
J.B. Hunt Transport Services, Inc. 700 31,395
Swift Transportation Company, Inc.* 700 15,036
----------
46,431
----------
See accompanying notes.
154
SERIES W
Schedule of Investments (MAIN STREET GROWTH & INCOME(R) SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS (CONTINUED)
WIRELESS TELECOMMUNICATION SERVICES
- 0.4
Alamosa Holdings, Inc.* 800 $ 9,976
Crown Castle International Corporation* 200 3,328
Nextel Communications, Inc.* 5,900 177,000
Telephone & Data Systems, Inc. 100 7,695
-----------
197,999
-----------
TOTAL COMMON STOCKS
(cost $47,091,789) 50,713,042
-----------
FOREIGN STOCKS - 0.6%
CANADA - 0.6%
Talisman Energy, Inc. 2,900 78,300
Canadian Natural Resources, Ltd. 1,934 82,725
Paramount Resources, Ltd.* 5,000 112,256
Precision Drilling Corporation* 200 12,606
-----------
285,887
-----------
HONG KONG - 0.0%
Nu Skin Enterprises, Inc. ADR 400 10,152
-----------
TOTAL FOREIGN STOCKS
(cost $127,623) 296,039
-----------
PREFERRED STOCK - 0.0%
REGIONAL BANKS - 0.0%
Wachovia Corporation(1) 200 1
-----------
TOTAL PREFERED STOCK
(cost $48) 1
-----------
TOTAL INVESTMENTS - 98.6%
(cost $47,219,460) 51,009,082
CASH & OTHER ASSETS, LESS LIABILITIES
- - 1.4% 727,787
-----------
TOTAL NET ASSETS - 100.0% $51,736,869
===========
For federal income tax purposes, the identified cost of investments owned at
December 31, 2004 was $47,663,006.
*Non-income producing security
ADR (American Depositary Receipt)
(1) Security is restricted. The total market value of restricted securities is
$1 (cost $48), or 0.0% of total net assets. The acquisition date was June
6, 2002.
See accompanying notes.
155
SERIES W
(MAIN STREET GROWTH & INCOME(R) SERIES)
Statement of Assets and Liabilities
December 31, 2004
ASSETS:
Investments, at value(1) .......................... $ 51,009,082
Cash .............................................. 595,739
Cash denominated in a foreign currency,
at value(2) ..................................... 1,966
Receivables:
Fund shares sold ................................ 81,889
Securities sold ................................. 596,005
Dividends ....................................... 65,479
Prepaid expenses .................................. 881
------------
Total assets ...................................... 52,351,041
------------
LIABILITIES:
Payable for:
Securities purchased ............................ 542,287
Fund shares redeemed ............................ 7,681
Management fees ................................. 43,099
Custodian fees .................................. 3,308
Transfer agent and administration fees .......... 8,767
Professional fees ............................... 7,100
Other ........................................... 1,930
------------
Total liabilities ................................. 614,172
------------
NET ASSETS ........................................ $ 51,736,869
============
NET ASSETS CONSIST OF:
Paid in capital ................................... $ 53,222,316
Accumulated undistributed net investment income ... 360,383
Accumulated net realized loss on sales of
investments and foreign currency transactions ... (5,635,571)
Net unrealized appreciation
in value of investments and translation
of assets and liabilities in foreign currency ..... 3,789,741
------------
Net assets ........................................ $ 51,736,869
============
Capital shares authorized ......................... indefinite
Capital shares outstanding ........................ 5,813,014
Net asset value and redemption price per share
(net assets divided by shares outstanding) ....... $ 8.90
============
(1)Investments, at cost ........................... $ 47,219,460
(2)Cash denominated in a foreign currency,
at cost ........................................... 1,847
Statement of Operations
For the Year Ended December 31, 2004
INVESTMENT INCOME:
Dividends ....................................... $ 972,226
Interest ........................................ 3,361
------------
975,587
Less: Foreign tax expense ....................... (200)
------------
Total investment income ......................... 975,387
------------
EXPENSES:
Management fees ................................. 477,984
Custodian fees .................................. 42,275
Transfer/maintenance fees ....................... 22,019
Administration fees ............................. 53,299
Directors' fees ................................. 2,333
Professional fees ............................... 8,647
Reports to shareholders ......................... 3,136
Other expenses .................................. 1,527
------------
Total expenses .................................. 611,220
------------
Net investment income ........................... 364,167
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) during the period on:
Investments ..................................... 4,880,507
Foreign currency transactions ................... (292)
------------
Net realized gain ............................... 4,880,215
------------
Net change in unrealized appreciation (depreciation)
during the period on:
Investments ..................................... (1,242,015)
Translation of assets and liabilities
in foreign currencies ........................... 93
------------
Net unrealized depreciation ..................... (1,241,922)
------------
Net gain ........................................ 3,638,293
------------
Net increase in net assets resulting from
operations .................................... $ 4,002,460
============
See accompanying notes.
156
SERIES W
Statement of Changes in Net Assets (MAIN STREET GROWTH & INCOME(R) SERIES)
YEAR ENDED YEAR ENDED
ECEMBER 31, 2004 DECEMBER 31, 2003
---------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income .............................................. $ 364,167 $ 173,318
Net realized gain (loss) during the period on investments
and foreign currency transactions ................................ 4,880,215 (636,791)
Net change in unrealized appreciation (depreciation) during the
period on investments and translation of assets and liabilities
in foreign currencies ............................................ (1,241,922) 9,157,376
------------- ------------
Net increase in net assets resulting from operations ............... 4,002,460 8,693,903
------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income .............................................. (17,331) (160,140)
------------- ------------
Total distributions to shareholders ................................ (17,331) (160,140)
------------- ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares ....................................... 17,508,541 17,409,674
Distributions reinvested ........................................... 17,331 160,140
Cost of shares redeemed ............................................ (14,950,814) (11,486,230)
------------- ------------
Net increase from capital share transactions ....................... 2,575,058 6,083,584
------------- ------------
Net increase in net assets ......................................... 6,560,187 14,617,347
------------- ------------
NET ASSETS:
Beginning of period ................................................ 45,176,682 30,559,335
------------- ------------
End of period ...................................................... $ 51,736,869 $ 45,176,682
============= ============
Accumulated undistributed net investment income at end of period ... $ 360,383 $ 13,839
============= ============
CAPITAL SHARE ACTIVITY:
Shares sold ........................................................ 2,092,659 2,448,894
Shares reinvested .................................................. 2,098 19,943
Shares redeemed .................................................... (1,800,092) (1,645,990)
------------- ------------
Total capital share activity ....................................... 294,665 822,847
============= ============
` See accompanying notes.
157
SERIES W
Financial Highlights (MAIN STREET GROWTH & INCOME(R) SERIES)
Selected data for each share of capital stock outstanding throughout each period
YEAR ENDED
DECEMBER 31,
2004 2003 2002 2001 2000(d)
----------- ----------- ------------ ------------ ------------
PER SHARE DATA
Net asset value, beginning of period $ 8.19 $ 6.51 $ 8.10 $ 9.01 $ 10.00
---------- ---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income 0.06 0.03 0.03 0.01 -
Net gain (loss) on securities (realized
and unrealized) 0.65 1.68 (1.59) (0.91) (0.98)
---------- ---------- ---------- ---------- ----------
Total from investment operations 0.71 1.71 (1.56) (0.90) (0.98)
---------- ---------- ---------- ---------- ----------
Less distributions:
Dividends from net investment income - (0.03) (0.03) (0.01) (0.01)
Distributions from realized gains - - - - -
---------- ---------- ---------- ---------- ----------
Total distributions - (0.03) (0.03) (0.01) (0.01)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 8.90 $ 8.19 $ 6.51 $ 8.10 $ 9.01
========== ========== ========== ========== ==========
TOTAL RETURN(a) 8.71% 26.26% (19.28%) (9.99%) (9.84%)
---------- ---------- ---------- ---------- ----------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $ 51,737 $ 45,177 $ 30,559 $ 37,579 $ 26,638
---------- ---------- ---------- ---------- ----------
Ratios to average net assets:
Net investment income (loss) 0.76% 0.48% 0.37% 0.14% 0.14%
Total expenses 1.28% 1.25% 1.24% 1.25% 1.23%
Gross expenses(b) 1.28% 1.25% 1.24% 1.25% 1.23%
Net expenses(c) 1.28% 1.25% 1.24% 1.24% 1.17%
---------- ---------- ---------- ---------- ----------
Portfolio turnover rate 85% 81% 92% 67% 57%
(a) Total return does not take into account any of the expenses associated
with an investment in variable insurance products offered by Security
Benefit Life Insurance Company. 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.
(b) Gross expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net expense information reflects expense ratios after expense reductions
or fee waivers and reduction of custodian expenses.
(d) Series W was initially capitalized on May 1, 2000 with a net asset value
of $10 per share. Percentage amounts for the period have been annualized,
expect for total return.
See accompanying notes.
158
SERIES X
Manager's Commentary (SMALL CAP GROWTH SERIES)
February 15, 2005 (unaudited)
[PHOTO OF BILL WOLFENDEN] [RS INVESTMENTS LOGO]
Bill Wolfenden
Portfolio Manager
Subadvisor, RS Investments
TO OUR SHAREHOLDERS:
The stock market and small-cap stocks continued their strong run in 2004. After
a strong year last year, this was a nice follow through to what is now a
multi-year small cap rally. The Small Cap Growth Series portfolio performed well
in 2004, gaining 17.18%(1) compared with 14.31% for the benchmark Russell 2000
Growth(R) Index.
Small-cap growth stocks continued their outperformance over their large-cap
brethren in 2004. The overall economy was positive for small stocks. Small-cap
stocks typically perform best coming out of recession like we saw in 2003, but
also perform well during periods of strong economic growth and high productivity
as long as interest rates remain stable. 2004 presented such a backdrop for
small caps with a third year of higher Gross Domestic Product (GDP) growth of
around 4%, stable interest rates and productivity that translated into good
profit growth for companies. Many small companies also went through tremendous
downsizing and restructuring during the recession, which helped position them
for significant operating leverage with any slight improvement in the economy.
As a result of this improvement, a number of our holdings experienced rapid
earnings and revenue growth over the past year.
The portfolio's outperformance was driven by strong stock selection and spread
mostly among four sectors: consumer, energy, transportation and health care. The
top four industries were oilwell equipment and services, consumer electronics
(which includes many of our Internet holdings), semiconductors, and medical
systems. Most had returns significantly higher than our benchmark. In the case
of semiconductors, we booked some nice gains early in the year to lock in
performance in that industry.
The portfolio was negatively impacted by the materials and processing sector,
which was underweighted, and producer durables and technology in which our stock
selection was poor. In a reversal of 2003, the computer services software and
systems area was our worst performing industry, led by Tumbleweed Communications
Corporation (one of our 2003 biggest winners) and ClickSoftware Technologies
Ltd, both of which had disappointing fundamental results in 2004. The software
industry continues to suffer as enterprise related technology spending has
failed to develop.
It was rewarding to see a number of our long-term holdings like Aaron Rents,
Inc., Scientific Games Corporation, Guitar Center, Inc., Superior Energy Ser-
vices, Inc. and Unit Corporation among the top contributors in 2004. Once again,
our Internet stocks contributed significantly to the portfolio's performance.
The top winners in that area were InfoSpace, Inc., ValueClick, Inc.,
Jupitermedia Corporation and CNET Networks, Inc.
We pride ourselves on our research process and ability to identify and
understand small domestic companies earlier than many investors. Our long-term
philosophy (a two-to-five year investment horizon) seems old fashioned in
today's myopic market, but we are staying steadfast with this approach and truly
believe that hands-on research prevails in the long run. This process truly
benefited our investors in 2004.
Sincerely,
Bill Wolfenden
Portfolio Manager
Investing in smaller companies can involve risks such as less publicly available
information than larger companies, volatility, and less liquidity. Overweighting
investments in certain sectors or industries increases the risk of loss due to
general declines in the prices of stocks in those sectors or industries.
Investments in technology companies may be highly volatile.
The discussion of specific securities mentioned in the commentaries is neither
an offer to sell nor a solicitation of an offer to buy these specific
securities. Fund holdings will vary.
159
SERIES X
Manager's Commentary (SMALL CAP GROWTH SERIES)
February 15, 2005 (unaudited)
PERFORMANCE
[PERFOMANCE GRAPH]
SBL X INVESTMENT INFORMATION
DATE value
- -------- ---------
SBL X
10/15/97 10,000.00
12/31/97 9,580.00
3/31/98 10,695.13
6/30/98 10,404.72
9/30/98 8,722.34
12/31/98 10,685.11
3/3199 10,671.07
6/30/99 11,403.20
9/30/99 13,218.49
12/31/99 20,002.66
3/31/00 25,838.49
6/30/00 22,642.18
9/30/00 22,979.77
12/31/00 18,256.90
3/31/01 13,357.19
6/30/01 14,751.16
9/30/01 11,224.62
12/31/01 13,169.94
3/31/02 12,785.03
6/30/02 11,495.09
9/30/02 9,102.45
12/31/02 9,674.60
3/31/03 9,123.25
6/30/03 11,703.14
9/30/03 13,544.44
12/31/03 15,136.07
3/31/04 16,176.35
6/30/04 15,926.68
9/30/04 15,416.94
12/31/04 17,736.76
RUSSELL 2000 GROWTH
DATE value
- ------------------ ---------
INCEPTION 10/15/97 10,000.00
12/31/97 9,181.79
03/31/98 10,273.74
06/30/98 9,682.72
09/30/98 7,518.21
12/31/98 9,295.99
03/31/99 9,139.64
06/30/99 10,487.61
09/30/99 9,972.25
12/31/99 13,302.29
03/31/00 14,537.86
06/30/00 13,465.31
09/30/00 12,930.24
12/31/00 10,317.88
3/31/01 8,748.79
6/30/01 10,333.82
9/30/01 7,431.31
12/31/01 9,376.30
3/31/02 9,192.40
6/30/02 7,749.65
9/30/02 6,081.96
12/31/02 6,538.34
3/31/03 6,284.15
6/30/03 7,801.58
9/30/03 8,618.29
12/31/03 9,711.65
3/31/04 10,254.15
6/30/04 10,263.98
9/30/04 9,646.93
12/31/04 11,101.04
SBL Fund Series X $17,737
Russell 2000 Growth Index $11,101
$10,000 SINCE INCEPTION
The chart above assumes a hypothetical $10,000 investment in Series X (Small Cap
Growth Series) on October 15, 1997 (date of inception), and reflects the fees
and expenses of Series X.
PORTFOLIO COMPOSITION BY SECTOR
Consumer Discretionary 13.17%
Energy 6.97
Financials 8.54
Health Care 22.54
Industrials 12.32
Information Technology 27.81
Cash & other assets, less liabilities 8.65
AVERAGE ANNUAL RETURNS SINCE INCEPTION
PERIODS ENDED 12-31-04(1) 1 YEAR 5 YEARS (5-3-99)
------ ------- ---------------
Series X 17.18% (2.38%) 8.27%
(1) 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.
See accompanying notes.
160
SERIES X
Manager's Commentary (SMALL CAP GROWTH SERIES)
February 15, 2005 (unaudited)
PERFORMANCE
INFORMATION ABOUT YOUR SERIES EXPENSES
CALCULATING YOUR ONGOING SERIES EXPENSES
EXAMPLE
As a shareholder of the Series, you incur ongoing costs, including management
fees and other series expenses. Performance figures and expense ratios do not
reflect fees and expenses associated with an investment in variable insurance
products. Shares of a Series of SBL Fund are available only through the purchase
of such products. This Example is intended to help you understand your ongoing
costs (in dollars) of investing in the Series and to compare these costs with
ongoing costs of investing in other mutual funds. The Example is based on an
investment of $1,000 invested at the beginning of the period and held for the
entire period, July 1, 2004 - December 31, 2004.
ACTUAL EXPENSES
The first line in the table provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR
COMPARISON PURPOSES
The second line in the table provides information about hypothetical account
values and hypothetical expenses based on the Series actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Series
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Series and other funds. To do so, compare this 5% hypothetical example with the
5% hypothetical examples that appear in the shareholder reports of the other
funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any fees and expenses associated with an
investment in variable insurance products. Therefore, the second line is useful
in comparing ongoing costs only, and will not help you determine the relative
total costs of owning different funds. In addition, if these fees and expenses
associated with an investment in variable insurance products were included, your
costs would have been higher.
FUND EXPENSES
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING
07-01-04 12-31-04(1) PERIOD(2)
------------- ------------- -------------
Series X (Small Cap Growth Series)
Actual $ 1,000.00 $ 1,113.70 $ 6.27
Hypothetical 1,000.00 1,019.20 5.99
(1) The actual ending account value is based on the actual total return of the
Series for the period July 1, 2004 to December 31, 2004 after actual
expenses and will differ from the hypothetical ending account value which is
based on the Series expense ratio and a hypothetical annual return of 5%
before expenses. The actual cumulative return at net asset value for the
period July 1, 2004 to December 31, 2004 was 11.37%.
(2) Expenses are equal to the Series annualized expense ratio 1.18% multiplied
by the average account value over the period, multiplied by 184/366 (to
reflect the one-half year period).
161
SERIES X
Schedule of Investments (SMALL CAP GROWTH SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS - 91.3%
AEROSPACE & DEFENSE - 4.2%
Applied Signal Technology, Inc. 21,830 $ 769,507
Ceradyne, Inc.* 8,280 473,699
DRS Technologies, Inc.* 20,080 857,617
Engineered Support Systems, Inc. 15,150 897,183
Mercury Computer Systems, Inc.* 27,770 824,214
-----------
3,822,220
-----------
AIR FREIGHT & LOGISTICS - 0.7%
Forward Air Corporation* 14,920 666,924
-----------
APPAREL RETAIL - 2.0%
Charlotte Russe Holding, Inc.* 67,300 679,730
Jos. A. Bank Clothiers, Inc.* 41,032 1,161,206
-----------
1,840,936
-----------
APPAREL, ACCESSORIES & LUXURY GOODS - 2.4%
Ashworth, Inc.* 99,120 1,079,417
Oxford Industries, Inc. 27,100 1,119,230
-----------
2,198,647
-----------
APPLICATION SOFTWARE - 4.7%
Epicor Software Corporation* 60,540 853,009
SafeNet, Inc.* 34,450 1,265,693
Smith Micro Software, Inc.* 63,350 566,982
Sonic Solutions* 41,200 924,528
Synplicity, Inc.* 122,150 723,128
-----------
4,333,340
-----------
AUTO PARTS & EQUIPMENT - 0.1%
IMPCO Technologies, Inc.* 5,600 42,280
-----------
BIOTECHNOLOGY - 4.4%
Alexion Pharmaceuticals, Inc.* 35,440 893,088
Connetics Corporation* 33,950 824,645
Nabi Biopharmaceuticals* 46,650 683,422
QLT, Inc.* 59,640 959,011
Rigel Pharmaceuticals, Inc.* 26,550 648,351
-----------
4,008,517
-----------
CASINOS & GAMING - 1.9%
Mikohn Gaming Corporation* 7,200 73,584
Scientific Games Corporation* 70,560 1,682,150
-----------
1,755,734
-----------
COMMUNICATIONS EQUIPMENT - 1.5%
Harmonic, Inc.* 86,480 721,243
Symmetricom, Inc.* 71,690 696,110
-----------
1,417,353
-----------
COMPUTER STORAGE & PERIPHERALS - 1.4%
M-Systems Flash Disk Pioneers, Ltd.* 38,050 750,346
Novatel Wireless, Inc.* 29,520 572,098
-----------
1,322,444
-----------
CONSUMER FINANCE - 0.9%
EZCORP, Inc.* 50,900 784,369
-----------
DATA PROCESSING & OUTSOURCED SERVICES - 0.6%
Open Solutions, Inc.* 21,790 565,668
-----------
DISTRIBUTORS - 0.9%
Beacon Roofing Supply, Inc.* 42,550 845,043
-----------
DIVERSIFIED BANKS - 0.8%
Signature Bank* 22,400 724,864
-----------
DIVERSIFIED COMMERCIAL SERVICES - 2.7%
Laureate Education, Inc.* 20,370 898,113
Marlin Business Services, Inc.* 34,820 661,580
Navigant Consulting, Inc.* 32,920 875,672
-----------
2,435,365
-----------
ELECTRICAL COMPONENTS & EQUIPMENT - 1.1%
Argon ST, Inc.* 2,200 77,990
Artesyn Technologies, Inc.* 84,400 953,720
-----------
1,031,710
-----------
ELECTRONIC EQUIPMENT MANUFACTURERS - 0.8%
BEI Technologies, Inc. 25,090 774,779
-----------
EMPLOYMENT SERVICES - 1.1%
Kforce, Inc.* 94,110 1,044,621
-----------
HEALTH CARE EQUIPMENT - 4.8%
Abaxis, Inc.* 52,700 763,623
Closure Medical Corporation* 44,700 871,650
Encore Medical Corporation* 132,700 901,033
Intuitive Surgical, Inc.* 10,350 414,207
Laserscope* 17,260 619,807
Spectranetics Corporation* 150,350 845,117
-----------
4,415,437
-----------
HEALTH CARE FACILITIES - 0.9%
Kindred Healthcare, Inc.* 27,710 829,914
-----------
HEALTH CARE SERVICES - 6.5%
America Service Group, Inc.* 36,910 988,081
Chemed Corporation 18,600 1,248,246
LabOne, Inc.* 37,400 1,198,296
Lifeline Systems, Inc.* 36,350 936,376
Merge Technologies, Inc.* 31,690 705,102
Providence Service Corporation* 41,190 863,754
-----------
5,939,855
-----------
HEALTH CARE SUPPLIES - 2.5%
Advanced Neuromodulation Systems, Inc.* 17,600 694,496
Orthovita, Inc.* 161,550 676,894
PolyMedica Corporation 25,410 947,539
-----------
2,318,929
-----------
HOME ENTERTAINMENT SOFTWARE - 1.0%
THQ, Inc.* 38,150 875,161
-----------
See accompanying notes.
162
SERIES X
Schedule of Investments (SMALL CAP GROWTH SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS (CONTINUED)
INTERNET SOFTWARE & SERVICES - 12.2%
Ask Jeeves, Inc.* 34,310 $ 917,793
CNET Networks, Inc.* 68,160 765,437
Digitas, Inc.* 125,900 1,202,345
Embarcadero Technologies, Inc.* 88,800 835,608
Equinix, Inc.* 19,290 824,455
Infocrossing, Inc.* 44,660 756,094
InfoSpace, Inc.* 19,760 939,588
j2 Global Communications, Inc.* 31,570 1,089,165
Jupitermedia Corporation* 19,930 473,935
Keynote Systems, Inc.* 89,990 1,252,661
RADVision, Ltd.* 50,430 680,805
Radware, Ltd.* 25,150 657,169
ValueClick, Inc.* 60,870 811,397
------------
11,206,452
------------
LEISURE PRODUCTS - 1.2%
K2, Inc.* 66,590 1,057,449
------------
MOVIES & ENTERTAINMENT - 0.4%
Image Entertainment, Inc.* 61,290 364,063
------------
OFFICE SERVICES & SUPPLIES - 0.6%
Knoll, Inc.* 31,550 552,125
------------
OIL & GAS DRILLING -2.9%
Grey Wolf, Inc.* 152,410 803,201
Patterson-UTI Energy, Inc. 55,900 1,087,255
Unit Corporation* 20,050 766,111
------------
2,656,567
------------
OIL & GAS EQUIPMENT & SERVICES - 4.1%
Cal Dive International, Inc.* 18,380 748,985
Key Energy Services, Inc.* 58,350 688,530
Maverick Tube Corporation* 22,550 683,265
Oil States International, Inc.* 41,470 799,956
Superior Energy Services, Inc.* 53,550 825,206
------------
3,745,942
------------
PHARMACEUTICALS - 3.5%
AtheroGenics, Inc.* 21,850 514,786
Cypress Bioscience, Inc.* 52,410 736,885
Inspire Pharmaceuticals, Inc.* 42,690 715,911
Salix Pharmaceuticals, Ltd.* 44,500 782,755
VaxGen, Inc.* 26,150 443,243
------------
3,193,580
------------
PROPERTY & CASUALTY INSURANCE - 3.3%
Affirmative Insurance Holdings, Inc. 49,150 827,686
Infinity Property & Casualty Corporation 32,350 1,138,720
Tower Group, Inc. 91,350 1,096,200
------------
3,062,606
------------
REAL ESTATE INVESTMENT TRUSTS - 1.2%
Saxon Capital, Inc. 47,600 1,141,924
------------
COMMON STOCKS (CONTINUED)
REGIONAL BANKS - 2.3%
Nara Bancorp, Inc. 39,900 848,673
PrivateBancorp, Inc. 17,450 562,413
Southwest Bancorporation of Texas, Inc. 30,970 721,291
------------
2,132,377
------------
RESTAURANTS - 1.6%
Cosi, Inc.* 93,000 562,650
Rare Hospitality International, Inc.* 28,740 915,656
------------
1,478,306
------------
SEMICONDUCTOR EQUIPMENT - 0.8%
Ultratech, Inc.* 40,310 759,844
------------
SEMICONDUCTORS - 4.0%
Microsemi Corporation* 29,750 516,460
O2Micro International, Ltd.* 98,270 1,124,209
SRS Labs, Inc.* 128,250 801,691
Sigmatel, Inc.* 12,860 456,916
SiRF Technology Holdings, Inc.* 59,900 761,928
------------
3,661,204
------------
SPECIALTY STORES - 2.7%
Aaron Rents, Inc. 25,245 631,125
Cost Plus, Inc.* 24,220 778,189
Guitar Center, Inc.* 21,070 1,110,178
------------
2,519,492
------------
SYSTEMS SOFTWARE - 0.6%
Faro Technologies, Inc.* 17,700 551,886
------------
TRUCKING - 2.0%
Old Dominion Freight Line, Inc.* 24,390 848,772
Vitran Corporation, Inc.* 57,900 990,090
------------
1,838,862
------------
TOTAL COMMON STOCKS
(cost $70,717,566) 83,916,789
------------
REPURCHASE AGREEMENT - 8.7%
United Missouri Bank, 1.74%, dated 12-31-05,
matures 01-03-05; repurchase amount
of $7,949,152 (Collateralized by FHLMC,
0.00%, 1-14-05 with a value of
$8,107,323) $7,948,000 7,948,000
------------
TOTAL REPURCHASE AGREEMENT 7,948,000
(cost $7,948,000) ------------
TOTAL INVESTMENTS - 100.0%
(cost $78,665,566) 91,864,789
CASH & OTHER ASSETS, LESS LIABILITIES - 0.0% 3,274
------------
TOTAL NET ASSETS - 100.0% $ 91,868,063
============
For federal income tax purposes, the identified cost of investments owned at
December 31, 2004 was $78,739,489.
*Non-income producing security
See accompanying notes.
163
SERIES X
(SMALL CAP GROWTH SERIES)
Statement of Assets and Liabilities
December 31, 2004
ASSETS:
Investments, at value(1) ......................... $ 91,864,789
Cash ............................................. 562
Receivables:
Fund shares sold ............................... 201,466
Securities sold ................................ 63,525
Dividends ...................................... 29,434
Prepaid expenses ................................. 1,576
------------
Total assets ..................................... 92,161,352
------------
LIABILITIES:
Payable for:
Securities purchased ........................... 30,631
Fund shares redeemed ........................... 165,440
Management fees ................................ 75,961
Custodian fees ................................. 1,503
Transfer agent and administration fees ......... 9,520
Professional fees .............................. 7,174
Other .......................................... 3,060
------------
Total liabilities .............................. 293,289
------------
NET ASSETS ..................................... $ 91,868,063
============
NET ASSETS CONSIST OF:
Paid in capital .................................. $111,913,103
Accumulated net investment income ................ -
Accumulated net realized loss
on sales of investments ........................ (33,244,263)
Net unrealized appreciation
in value of investments ........................ 13,199,223
------------
Net assets ....................................... $ 91,868,063
============
Capital shares authorized ........................ indefinite
Capital shares outstanding ....................... 5,388,271
Net asset value and redemption price
per share (net assets divided by
shares outstanding) ............................ $ 17.05
============
(1)Investments, at cost .......................... $ 78,665,566
Statement of Operations
For the Year Ended December 31, 2004
INVESTMENT INCOME:
Dividends ...................................... 183,427
Interest ....................................... 50,869
------------
Total investment income ........................ 234,296
------------
EXPENSES:
Management fees ................................ 852,064
Custodian fees ................................. 17,089
Transfer/maintenance fees ...................... 22,066
Administration fees ............................ 78,888
Directors' fees ................................ 4,474
Professional fees .............................. 9,521
Reports to shareholders ........................ 5,857
Other expenses ................................. 2,366
------------
Total expenses ................................. 992,325
------------
Net investment loss ............................ (758,029)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain during the period on:
Investments .................................... 16,327,212
------------
Realized gain .................................. 16,327,212
------------
Net change in unrealized depreciation
during the period on:
Investments .................................... (2,390,800)
------------
Unrealized depreciation ........................ (2,390,800)
------------
Net gain ....................................... 13,936,412
------------
Net increase in net assets .......................
resulting from operations ...................... $ 13,178,383
============
See accompanying notes.
164
SERIES X
Statement of Changes in Net Assets (SMALL CAP GROWTH SERIES)
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment loss ................................................................... $ (758,029) $ (617,018)
Net realized gain during the period on investments..................................... 16,327,212 13,363,753
Net change in unrealized appreciation (depreciation) during the period on investments.. (2,390,800) 14,700,791
----------------- -----------------
Net increase in net assets resulting from operations .................................. 13,178,383 27,447,526
----------------- -----------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares .......................................................... 33,797,054 39,702,411
Cost of shares redeemed .............................................................. (44,847,080) (25,603,610)
----------------- -----------------
Net increase (decrease) from capital share transactions................................ (11,050,026) 14,098,801
----------------- -----------------
Net increase in net assets ............................................................ 2,128,357 41,546,327
----------------- -----------------
NET ASSETS:
Beginning of period ................................................................... 89,739,706 48,193,379
----------------- -----------------
End of period ......................................................................... $ 91,868,063 $ 89,739,706
================= =================
Accumulated net investment income at end of period .................................... $ - $ -
================= =================
CAPITAL SHARE ACTIVITY:
Shares sold ........................................................................... 2,234,913 3,273,469
Shares redeemed........................................................................ (3,015,092) (2,286,835)
----------------- -----------------
Total capital share activity........................................................... (780,179) 986,634
================= =================
See accompanying notes.
165
SERIES X
Financial Highlights (SMALL CAP GROWTH SERIES)
Selected data for each share of capital stock outstanding throughout each period
YEAR ENDED DECEMBER 31,
2004 2003 2002(D) 2001 2000
------- ------- --------- ------- --------
PER SHARE DATA
Net asset value, beginning of period $ 14.55 $ 9.30 $ 12.66 $ 17.55 $19.40
------- ------- -------- ------- --------
Income (loss) from investment operations:
Net investment income (loss) (0.14) (0.10) (0.10) (0.09) (0.07)
Net gain (loss) on securities (realized and unrealized) 2.64 5.35 (3.26) (4.80) (1.59)
------- ------- -------- ------- --------
Total from investment operations 2.50 5.25 (3.36) (4.89) (1.66)
------- ------- -------- ------- --------
Less distributions:
Dividends from net investment income - - - - -
Distributions from realized gains - - - - -
Distributions in excess of capital gains - - - - (0.18)
Return of capital - - - - (0.01)
------- ------- -------- ------- --------
Total distributions - - - - (0.19)
------- ------- -------- ------- --------
Net asset value, end of period $ 17.05 $ 14.55 $ 9.30 $ 12.66 $ 17.55
======= ======= ======== ======= ========
TOTAL RETURN(A) 17.18% 56.45% (26.54%) (27.86%) (8.73%)
------- ------- -------- ------- --------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $91,868 $89,740 $ 48,193 $73,408 $114,283
------- ------- -------- ------- --------
Ratios to average net assets:
Net investment income (loss) (0.89%) (1.00%) (0.89%) (0.66%) (0.44%)
Total expenses 1.17% 1.17% 1.15% 1.15% 1.13%
Gross expenses(b) 1.17% 1.17% 1.15% 1.15% 1.13%
Net expenses(c) 1.17% 1.16% 1.15% 1.15% 1.13%
------- ------- -------- ------- --------
Portfolio turnover rate 146% 208% 282% 353% 335%
(a) Total return does not take into account any of the expenses associated with
an investment in variable insurance products offered by Security Benefit
Life Insurance Company. 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.
(b) Gross expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net expense information reflects expense ratios after expense reductions or
fee waivers and reduction of custodian expenses.
(d) RS Investments, Inc. became the sub-adviser of Series X effective September
3, 2002. Prior to September 3, 2002, Security Management Company, LLC paid
Strong Capital Management, Inc. for sub-advisory services.
See accompanying notes.
166
SERIES Y
Manager's Commentary (SELECT 25 SERIES)
February 15, 2005 (unaudited)
[SECURITY FUNDS LOGO]
Advisor, Security Management Company, LLC
[PHOTO OF MARK A. MITCHELL]
Mark A. Mitchell
Portfolio Manager
TO OUR SHAREHOLDERS:
With the retirement of Terry Milberger in February 2004, this marks my first
annual letter to the Select 25 Series shareholders. 2004 was a normal year in
many respects; returns were positive, but not as spectacular as in 2003. The
Select 25 Series returned 11.63%(1) in the period, beating the benchmark S&P 500
index's return of 10.88% and outperforming the Fund's peer group median return
of 8.29%. Stock selection was the key driver to our solid results in 2004.
Our approach to managing the Select 25 Series is based on our investment
philosophy described below.
We understand a company's growth potential over the long term based on our
bottom-up fundamental investment process. We invest today based on future
potential. We concentrate our investments in companies with sustainable
competitive advantages when they are undervalued. Companies must demonstrate
management ability by consistently adding shareholder value. They must have
strong financial positions and be well positioned for growth. We are patient
buyers and sellers focused on the long term, and we take advantage of investor
uncertainty and short-term thinking.
This philosophy is applied to a broad range of growth names. Each of our
research analysts recommends his or her favorite names based on this analysis.
We then narrow the list down to our favorite 25 to 30 names that are included in
the portfolio.
ENERGY AND INDUSTRIAL STOCKS TOP PERFORMERS
KFX and BJ Services drove strong performance in the Series energy holdings. KFX,
up 62%, benefited from better visibility into the potential for their clean coal
technology. While BJ Services, up 30%, was driven by industry-related spending
as a result of higher crude oil and natural gas prices.
The Series industrial holdings were up 47% compared to 18% for the index.
Positions in Shaw Group and Federal Express contributed positively to the Fund.
Shaw Group benefited from an improving global economy. Federal Express had
strong results driven by continued economic growth and business model
efficiencies.
TECHNOLOGY AND HEALTH CARE DISAPPOINTING
Following an extremely strong year in 2003, technology stocks had a difficult
time in 2004. Adverse stock selection in Analog Devices and Mindspeed
Technologies had a negative impact on the Series. Analog Devices was down 19% as
a result of an industry-wide slowdown and a corresponding inventory correction
in semiconductors, while Mindspeed's earnings breakeven was pushed out as our
expectation of the upcoming wave of telecomm related spending has yet to
materialize.
Health care, as a sector overall, underperformed the index. Cardinal Health and
Pfizer both had a negative impact on the Series. Cardinal was down more than 22%
as a result of undergoing a substantial industry change in how pharmaceutical
manufacturers distribute and price their products. Pfizer was down more than 21%
on safety concerns in its COX-2 class drugs and slowing growth prospects.
2005 MARKET OUTLOOK
Our outlook for the equity market continues to be guardedly optimistic. Like
every year, there are many potential positive and negative influences. We
believe the most significant issue facing us in 2005 will be a slowing profit
cycle. In such an environment, we believe more normal equity returns are likely.
Skilled stock picking versus owning beta will be critical. This favors our focus
on identifying good companies at attractive valuations.
We continue to believe that investing is a long-term pursuit that requires
patience and a consistent approach. Dollar cost averaging is a sound way to
build long-term value.While it does not assure profits or protect against losses
in a declining market, we think it is the best way to take advantage of the
natural highs and lows in a market cycle. We recognize there are many investment
fund alternatives available today and thank you for your business and the
confidence you place in us.
Sincerely,
Mark A. Mitchell
Portfolio Manager
167
SERIES Y
Manager's Commentary (SELECT 25 SERIES)
February 15, 2005 (unaudited)
PERFORMANCE
[PERFORMANCE GRAPHS]
SBL Y INVESTMENT INFORMATION
DATE VALUE
- ---------- ---------
SBL Y
5/3/99 10,000.00
6/30/99 10,510.00
9/30/99 10,340.00
12/31/99 12,370.00
3/31/00 12,240.00
6/30/00 11,870.00
9/30/00 11,580.00
12/31/00 10,380.00
3/31/01 8,830.00
6/30/01 9,510.00
9/30/01 7,690.00
12/31/01 9,350.00
3/31/02 9,310.00
6/30/02 7,560.00
9/30/02 6,600.00
12/31/02 6,860.00
3/31/03 6,710.00
6/30/03 7,380.00
9/30/03 7,480.00
12/31/03 8,080.00
3/31/04 8,420.00
6/30/04 8,480.00
9/30/04 8,060.00
12/31/04 9,020.00
S& P 500
DATE value
- ----------------- ---------
INCEPTION 5/03/99 10,000.00
6/30/99 10,305.90
9/30/99 9,662.23
12/31/99 11,099.83
3/31/00 11,354.94
06/30/00 11,053.83
09/30/00 10,946.91
12/31/00 10,091.15
3/31/01 8,895.28
6/30/01 9,416.16
9/30/01 8,034.87
12/31/01 8,893.97
3/31/02 8,918.14
6/30/02 7,723.63
9/30/02 6,389.69
12/31/02 6,929.34
3/31/03 6,711.11
6/30/03 7,744.15
9/30/03 7,949.11
12/31/03 8,917.03
3/31/04 9,068.30
6/30/04 9,223.74
9/30/04 9,050.82
12/31/04 9,886.55
SBL Fund Series Y $9,020
S& P 500 Index $9,887
$10,000 SINCE INCEPTION
The chart above assumes a hypothetical $10,000 investment in Series Y (Select 25
Series) on May 3, 1999 (date of inception), and reflects the fees and expenses
of Series Y.
PORTFOLIO COMPOSITION BY SECTOR
Consumer Discretionary 19.46%
Consumer Staples 11.50
Energy 10.00
Financials 7.88
Health Care 10.75
Industrials 15.00
Information Technology 11.54
Materials 3.71
Utilities 6.42
Cash & other assets, less liabilities 3.74
AVERAGE ANNUAL RETURNS
PERIODS ENDED 12-31-04(1) 1 YEAR 5 YEARS SINCE INCEPTION
(5-3-99)
- ------------------------- ------ ------- ---------------
Series Y 11.63% (6.12%) (1.80%)
(1) Performance figures do not reflect fees and expenses associated with an
investment in variable insurance products offered by Security Benefit Life
Insurance Company. 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.
See accompanying notes.
168
SERIES Y
Manager's Commentary (SELECT 25 SERIES)
February 15, 2005 (unaudited)
PERFORMANCE
INFORMATION ABOUT YOUR SERIES EXPENSES
CALCULATING YOUR ONGOING SERIES EXPENSES
EXAMPLE
As a shareholder of the Series, you incur ongoing costs, including management
fees and other series expenses. Performance figures and expense ratios do not
reflect fees and expenses associated with an investment in variable insurance
products. Shares of a Series of SBL Fund are available only through the purchase
of such products. This Example is intended to help you understand your ongoing
costs (in dollars) of investing in the Series and to compare these costs with
ongoing costs of investing in other mutual funds. The Example is based on an
investment of $1,000 invested at the beginning of the period and held for the
entire period, July 1, 2004 - December 31, 2004.
ACTUAL EXPENSES
The first line in the table provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the table provides information about hypothetical account
values and hypothetical expenses based on the Series actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Series
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Series and other funds. To do so, compare this 5% hypothetical example with the
5% hypothetical examples that appear in the shareholder reports of the other
funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any fees and expenses associated with an
investment in variable insurance products. Therefore, the second line is useful
in comparing ongoing costs only, and will not help you determine the relative
total costs of owning different funds. In addition, if these fees and expenses
associated with an investment in variable insurance products were included, your
costs would have been higher.
FUND EXPENSES
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING
07-01-04 12-31-04(1) PERIOD(2)
------------- ------------- -------------
Series Y (Select 25 Series)
Actual $ 1,000.00 $ 1,063.70 $ 5.03
Hypothetical 1,000.00 1,020.26 4.93
(1) The actual ending account value is based on the actual total return of the
Series for the period July 1, 2004 to December 31, 2004 after actual
expenses and will differ from the hypothetical ending account value which is
based on the Series expense ratio and a hypothetical annual return of 5%
before expenses. The actual cumulative return at net asset value for the
period July 1, 2004 to December 31, 2004 was 6.37%.
(2) Expenses are equal to the Series annualized expense ratio 0.97% multiplied
by the average account value over the period, multiplied by 184/366 (to
reflect the one-half year period).
169
SERIES Y
Schedule of Investments (SELECT 25 SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS - 96.3
AEROSPACE & DEFENSE - 4.6%
L-3 Communications Holdings, Inc. 21,300 $ 1,560,012
-----------
AIR FREIGHT & LOGISTICS - 5.3%
FedEx Corporation 18,200 1,792,518
-----------
BIOTECHNOLOGY - 4.2%
Amgen, Inc.* 22,000 1,411,300
-----------
BREWERS - 3.9%
Anheuser-Busch Companies, Inc. 25,700 1,303,761
-----------
COMMUNICATIONS EQUIPMENT - 6.8%
3Com Corporation* 177,000 738,090
ADC Telecommunications, Inc.* 418,200 1,120,776
Cisco Systems, Inc.* 22,300 430,390
-----------
2,289,256
-----------
CONSTRUCTION & ENGINEERING - 5.1%
Shaw Group, Inc.* 96,500 1,722,525
-----------
DATA PROCESSING & OUTSOURCED SERVICES - 3.6%
First Data Corporation 28,500 1,212,390
-----------
DEPARTMENT STORES - 3.7%
Kohl's Corporation* 25,700 1,263,669
-----------
ELECTRIC UTILITIES - 6.4%
KFx, Inc.* 149,700 2,173,644
-----------
HEALTH CARE EQUIPMENT - 2.7%
Boston Scientific Corporation* 25,900 920,745
-----------
HOME IMPROVEMENT RETAIL - 2.7%
Home Depot, Inc. 21,200 906,088
-----------
HOTELS, RESORTS & CRUISE LINES - 4.7%
Carnival Corporation 27,300 1,573,299
-----------
HYPERMARKETS & SUPERCENTERS - 3.6%
Wal-Mart Stores, Inc. 22,900 1,209,578
-----------
INDUSTRIAL GASES - 3.7%
Praxair, Inc. 28,400 1,253,860
-----------
MOTORCYCLE MANUFACTURERS - 2.0%
Harley-Davidson, Inc. 11,400 692,550
-----------
MOVIES & ENTERTAINMENT - 6.3%
Time Warner, Inc.* 42,700 830,088
Viacom, Inc. (Cl.B) 36,200 1,317,318
-----------
2,147,406
-----------
MULTI-LINE INSURANCE - 3.7%
American International Group, Inc. 19,300 1,267,431
-----------
OIL & GAS EQUIPMENT & SERVICES - 4.7%
BJ Services Company 34,000 1,582,360
-----------
OIL & GAS REFINING, MARKETING & TRANSPORTATION - 5.3%
Williams Companies, Inc. 110,500 1,800,045
COMMON STOCKS (CONTINUED)
OTHER DIVERSIFIED FINANCIAL SERVICES - 4.1%
Citigroup, Inc. 29,000 1,397,220
-----------
PHARMACEUTICALS - 3.9%
Johnson & Johnson 20,600 1,306,452
-----------
SEMICONDUCTOR EQUIPMENT - 1.2%
Mindspeed Technologies, Inc.* 145,000 403,100
-----------
SOFT DRINKS - 4.1%
PepsiCo, Inc. 26,400 1,378,080
-----------
TOTAL COMMON STOCKS
(cost $27,281,031) 32,567,289
-----------
REPURCHASE AGREEMENT - 2.7%
United Missouri Bank, 1.74%, dated 12-31-04,
matures 01-03-05; repurchase amount
of $937,136 (Collateralized by FHLMC,
0.00%, 01-14-05 with a value of
$956,095) $ 937,000 937,000
-----------
TOTAL REPURCHASE AGREEMENT
(cost $937,000) 937,000
-----------
TOTAL INVESTMENTS - 99.0%
(cost $28,218,031) 33,504,289
CASH & OTHER ASSETS, LESS LIABILITIES - 1.0% 327,729
-----------
TOTAL NET ASSETS - 100.0% $33,832,018
===========
The identified cost of investments owned at December 31, 2004 was the same for
federal income tax and financial statement purposes.
* Non-income producing security
See accompanying notes.
170
SERIES Y
(SELECT 25 SERIES)
Statement of Assets and Liabilities
December 31, 2004
ASSETS:
Investments, at value(1) ......................................... $ 33,504,289
Cash ............................................................. 394
Receivables:
Fund shares sold ............................................... 359,463
Dividends ...................................................... 16,147
Prepaid expenses ................................................. 689
------------
Total assets ..................................................... 33,880,982
------------
LIABILITIES:
Payable for:
Fund shares redeemed ........................................... 14,395
Management fees ................................................ 21,049
Custodian fees ................................................. 188
Transfer agent and administration fees ......................... 4,654
Professional fees .............................................. 6,975
Other .......................................................... 1,703
------------
Total liabilities .............................................. 48,964
------------
NET ASSETS ..................................................... $ 33,832,018
============
NET ASSETS CONSIST OF:
Paid in capital .................................................. $ 50,866,902
Accumulated net investment income ................................ -
Accumulated net realized loss
on sales of investments ........................................ (22,321,142)
Net unrealized appreciation ......................................
in value of investments ........................................ 5,286,258
------------
Net assets ....................................................... $ 33,832,018
============
Capital shares authorized ........................................ indefinite
Capital shares outstanding ....................................... 3,750,357
Net asset value and redemption price
per share (net assets divided by
shares outstanding) ............................................ $ 9.02
============
(1)Investments, at cost .......................................... $ 28,218,031
Statement of Operations
For the Year Ended December 31, 2004
INVESTMENT INCOME:
Dividends ...................................................... $ 270,595
Interest ....................................................... 10,553
------------
Total investment income ........................................ 281,148
------------
EXPENSES:
Management fees ................................................ 262,828
Custodian fees ................................................. 2,717
Transfer/maintenance fees ...................................... 21,928
Administration fees ............................................ 31,700
Directors' fees ................................................ 1,674
Professional fees .............................................. 8,356
Reports to shareholders ........................................ 3,161
Other expenses ................................................. 1,341
------------
Total expenses ................................................. 333,705
------------
Net investment loss ............................................ (52,557)
------------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain during the period on:
Investments .................................................... 870,310
------------
Realized gain .................................................. 870,310
------------
Net change in unrealized appreciation
during the period on:
Investments .................................................... 2,734,534
------------
Unrealized appreciation ........................................ 2,734,534
------------
Net gain ....................................................... 3,604,844
------------
Net increase in net assets
resulting from operations .................................... $ 3,552,287
============
See accompanying notes.
171
SERIES Y
Statement of Changes in Net Assets (SELECT 25 SERIES)
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment loss ............................................................... $ (52,557) $ (1,805)
Net realized gain (loss) during the period on investments ......................... 870,310 (7,155,460)
Net change in unrealized appreciation during the period on investments ............ 2,734,534 12,622,337
------------- -------------
Net increase in net assets resulting from operations .............................. 3,552,287 5,465,072
------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares ...................................................... 14,709,618 11,578,696
Cost of shares redeemed ........................................................... (19,219,579) (16,539,928)
------------- -------------
Net decrease from capital share transactions ...................................... (4,509,961) (4,961,232)
------------- -------------
Net increase (decrease) in net assets ............................................. (957,674) 503,840
------------- -------------
NET ASSETS:
Beginning of period ............................................................... 34,789,692 34,285,852
------------- -------------
End of period ..................................................................... $ 33,832,018 $ 34,789,692
============= =============
Accumulated net investment income at end of period ................................ $ - $ -
============= =============
CAPITAL SHARE ACTIVITY:
Shares sold ....................................................................... 1,775,427 1,606,934
Shares redeemed ................................................................... (2,329,965) (2,296,566)
------------- -------------
Total capital share activity ...................................................... (554,538) (689,632)
============= =============
See accompanying notes.
172
SERIES Y
Financial Highlights (SELECT 25 SERIES)
Selected data for each share of capital stock outstanding throughout each year
YEAR ENDED DECEMBER 31,
2004 2003 2002 2001 2000
---------- ---------- ---------- ---------- ------------
PER SHARE DATA
Net asset value, beginning of period $ 8.08 $ 6.86 $ 9.35 $ 10.38 $ 12.37
---------- ---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income (loss) (0.01) - (0.01) (0.02) (0.02)
Net gain (loss) on securities (realized and unrealized) 0.95 1.22 (2.48) (1.01) (1.97)
---------- ---------- ---------- ---------- ----------
Total from investment operations 0.94 1.22 (2.49) (1.03) (1.99)
---------- ---------- ---------- ---------- ----------
Less distributions:
Dividends from net investment income - - - - -
Distributions from realized gains - - - - -
---------- ---------- ---------- ---------- ----------
Total distributions - - - - -
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 9.02 $ 8.08 $ 6.86 $ 9.35 $ 10.38
========== ========== ========== ========== ==========
TOTAL RETURN(A) 11.63% 17.78% (26.63%) (9.92%) (16.09%)
---------- ---------- ---------- ---------- ----------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $ 33,832 $ 34,790 $ 34,286 $ 52,998 $ 65,011
---------- ---------- ---------- ---------- ----------
Ratios to average net assets:
Net investment income (loss) (0.15%) (0.01%) (0.18%) (0.20%) (0.16%)
Total expenses 0.95% 0.93% 0.89% 0.88% 0.89%
Gross expenses(b) 0.95% 0.93% 0.89% 0.88% 0.89%
Net expenses(c) 0.95% 0.93% 0.89% 0.88% 0.89%
---------- ---------- ---------- ---------- ----------
Portfolio turnover rate 42% 49% 34% 38% 68%
(a) Total return does not take into account any of the expenses associated with
an investment in variable insurance products offered by Security Benefit
Life Insurance Company. 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.
(b) Gross expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net expense information reflects expense ratios after expense reductions or
fee waivers and reduction of custodian expenses.
See accompanying notes.
173
SERIES Z
Managers' Commentary (ALPHA OPPORTUNITY SERIES)
November 15, 2004 (unaudited)
Advised by: [SECURITY FUNDS LOGO]
[PHOTO OF BILL JENKINS]
Bill Jenkins Co-Portfolio Manager
[PHOTO OF MARK LAMB]
Mark Lamb Co-Portfolio Manager
and [MAINSTREAM INVESTMENT ADVISERS LOGO] Subadvisor, Mainstream
Investment Advisers
TO OUR SHAREHOLDERS:
For the year ended December 31, 2004, the Alpha Opportunity Series total return
was 12.58%(1), which exceeded the costless S&P 500 index by 1.69%. The passive
strategy synthetically replicates the index by investing in high-quality,
short-term fixed income instruments and by being long S&P 500 index futures. The
passive strategy provides all of the daily liquidity needed for shareholder
purchases and redemptions, enabling the active strategy to focus on adding value
long term. The passive strategy is expected to experience minor deviations
compared to the costless index due to several factors: 1) bid/offer expense due
to buying/selling fixed income instruments and S&P 500 index futures; 2)
fractional over/under exposure to the index due to the ability to trade in only
whole numbers of futures contracts; 3) change in S&P 500 index futures' price
between the time of the shareholder purchase or redemption and the portfolio
manager's buy or sell of the S&P 500 index futures; 4) S&P 500 index futures'
richness or cheapness with respect to the underlying cash S&P 500 index; 5)
differences between the actual S&P 500 dividends and expected dividends implied
in the S&P 500 index futures' price; and 6) the difference in yield between the
actual fixed income assets purchased and the LIBOR rate implied in the S&P 500
index futures' price.
For 2004, the active value strategy's performance was driven primarily by long
positions in the materials, energy and producer durables sectors. We believe
favorable supply/demand fundamentals caused by years of underinvestment and
strong demand from the U.S. and emerging nations, such as China and India,
fueled these groups' relative out performance. Additionally, market strength in
value stocks and smaller capitalization issues provided further support for
these sectors as investors shunned the big winners of the bull market of the
1990s.
Sincerely,
Bill Jenkins and Mark Lamb
Portfolio Managers
174
SERIES Z
Managers' Commentary (ALPHA OPPORTUNITY SERIES)
February 15, 2005 (unaudited)
PERFORMANCE
[PERFORMANCE GRAPHS]
SBL Z INVESTMENT INFORMATION
DATE Value
- ---------- ---------
SBL Z
7/7/03 10,000.00
7/31/03 10,130.00
8/31/03 10,510.00
9/30/03 10,280.00
10/31/03 10,980.00
11/30/03 11,210.00
12/31/03 11,832.51
1/31/04 11,948.93
2/28/04 12,181.77
3/31/04 12,065.35
4/30/04 11,652.58
5/31/04 11,769.00
6/30/04 12,287.60
7/31/04 11,948.93
8/31/04 11,885.42
9/30/04 12,420.34
10/31/04 12,275.92
11/30/04 13,086.91
12/31/04 13,320.51
S& P 500
DATE value
- ----------------- --------
INCEPTION 7/07/03 10,000.00
7/31/03 10,176.34
8/31/03 10,374.77
9/30/03 10,264.66
10/31/03 10,845.24
11/30/03 10,940.66
12/31/03 11,514.53
1/31/04 11,726.39
2/28/04 11,889.39
3/31/04 11,709.86
4/30/04 11,526.02
5/31/04 11,683.92
6/30/04 11,910.59
7/31/04 11,516.35
8/31/04 11,562.42
9/30/04 11,687.29
10/31/04 11,866.11
11/30/04 12,346.68
12/31/04 12,766.47
SBL Series Z $13,321
S& P 500 Index $12,766
$10,000 SINCE INCEPTION
The chart above assumes a hypothetical $10,000 investment in Series Z (Alpha
Opportunity Series) on June 7, 2003 (date of inception), and reflects the fees
and expenses of Series Z.
PORTFOLIO COMPOSITION BY SECTOR
Consumer Discretionary 2.01%
Consumer Staples 0.91
Energy 8.72
Financials 2.54
Health Care 1.26
Industrials 7.68
Information Technology 0.37
Materials 31.34
Utilities 0.10
U.S. Agency Bonds & Notes 41.72
Cash & other assets, less liabilities 3.35
AVERAGE ANNUAL RETURNS
PERIODS ENDED 12-31-04(1) 1 YEAR SINCE INCEPTION (7-7-03)
- ------------------------- ------ ------------------------
Series Z 12.58% 21.26%
(1) 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.
See accompanying notes.
175
SERIES Z
Managers' Commentary (ALPHA OPPORTUNITY SERIES)
February 15, 2005 (unaudited)
PERFORMANCE
INFORMATION ABOUT YOUR SERIES EXPENSES
CALCULATING YOUR ONGOING SERIES EXPENSES
EXAMPLE
As a shareholder of the Series, you incur ongoing costs, including management
fees and other series expenses. Performance figures and expense ratios do not
reflect fees and expenses associated with an investment in variable insurance
products. Shares of a Series of SBL Fund are available only through the purchase
of such products. This Example is intended to help you understand your ongoing
costs (in dollars) of investing in the Series and to compare these costs with
ongoing costs of investing in other mutual funds. The Example is based on an
investment of $1,000 invested at the beginning of the period and held for the
entire period, July 1, 2004 - December 31, 2004.
ACTUAL EXPENSES
The first line in the table provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you paid over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the table
under the heading entitled "Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line in the table provides information about hypothetical account
values and hypothetical expenses based on the Series actual expense ratio and an
assumed rate of return of 5% per year before expenses, which is not the Series
actual return. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing costs of investing in the
Series and other funds. To do so, compare this 5% hypothetical example with the
5% hypothetical examples that appear in the shareholder reports of the other
funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any fees and expenses associated with an
investment in variable insurance products. Therefore, the second line is useful
in comparing ongoing costs only, and will not help you determine the relative
total costs of owning different funds. In addition, if these fees and expenses
associated with an investment in variable insurance products were included, your
costs would have been higher.
FUND EXPENSES
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING
07-01-04 12-31-04(1) PERIOD(2)
------------- ------------- -------------
Series Z (Alpha Opportunity Series)
Actual $ 1,000.00 $ 1,084,10 $ 13.62
Hypothetical 1,000.00 1,012.07 13.15
(1) The actual ending account value is based on the actual total return of the
Series for the period July 1, 2004 to December 31, 2004 after actual
expenses and will differ from the hypothetical ending account value which is
based on the Series expense ratio and a hypothetical annual return of 5%
before expenses. The actual cumulative return at net asset value for the
period July 1, 2004 to December 31, 2004 was 8.41%.
(2) Expenses are equal to the Series annualized expense ratio 2.60% multiplied
by the average account value over the period, multiplied by 184/366 (to
reflect the one-half year period).
176
SERIES Z
Schedule of Investments (ALPHA OPPORTUNITY SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS - 55.0%
ADVERTISING - 0.9%
Omnicom Group, Inc. 2,000 $ 168,640
-----------
AGRICULTURAL PRODUCTS - 0.5%
Delta & Pine Land Company 3,800 103,664
-----------
AIRLINES - 0.9%
Frontier Airlines, Inc.* 3,000 34,230
Southwest Airlines Company 8,500 138,380
-----------
172,610
-----------
ALUMINUM - 1.0%
Century Aluminum Company* 7,100 186,446
-----------
APPAREL, ACCESSORIES & LUXURY GOODS - 0.7%
Columbia Sportswear Company* 2,200 131,142
-----------
AUTO PARTS & EQUIPMENT - 0.1%
Wabtec Corporation 900 19,188
-----------
BIOTECHNOLOGY - 0.8%
Medlmmune, Inc.* 5,600 151,816
-----------
BUILDING PRODUCTS - 0.0%
Armstrong Holdings, Inc.* 1,300 3,276
-----------
COMMODITY CHEMICALS - 1.7%
Lyondell Chemical Company 4,300 124,356
Nova Chemicals Corporation 4,400 208,120
-----------
332,476
-----------
COMPUTER STORAGE & PERIPHERALS - 0.2%
QLogic Corporation* 1,200 44,076
-----------
CONSTRUCTION & FARM MACHINERY - 3.1%
AGCO Corporation* 3,500 76,615
CNH Global N.V 7,800 151,086
Terex Corporation* 3,000 142,950
Trinity Industries, Inc. 6,700 228,336
-----------
598,987
-----------
DIVERSIFIED CHEMICALS - 2.2%
Cabot Corporation 2,800 108,304
Dow Chemical Company 1,500 74,265
Hercules, Inc.* 1,900 28,215
Olin Corporation 9,300 204,786
-----------
415,570
-----------
DIVERSIFIED METALS & MINING - 15.4%
Alumina, Ltd. ADR 4,700 87,138
Amcol International Corporation 2,900 58,261
Anglo American plc ADR 7,100 168,909
Arch Coal, Inc. 4,200 149,268
BHP Billiton, Ltd. ADR 7,300 175,346
Consol Energy, Inc. 2,700 110,835
Freeport-McMoRan Copper &
Gold, Inc. (Cl.B) 10,900 416,707
Inco, Ltd.* 10,800 397,224
Ivanhoe Mines, Ltd.* 1,500 10,815
Massey Energy Company 4,000 139,800
Noranda, Inc. 13,800 242,880
Phelps Dodge Corporation* 3,700 366,004
RTI International Metals, Inc.* 5,000 102,700
Rio Tinto plc ADR 1,600 190,736
Southern Peru Copper Corporation 5,600 264,376
Titanium Metals Corporation* 3,100 74,834
-----------
2,955,833
-----------
ENVIRONMENTAL SERVICES - 0.6%
Waste Management, Inc. 3,700 110,778
-----------
FOREST PRODUCTS - 4.2%
Louisiana-Pacific Corporation 7,200 192,528
Weyerhaeuser Company 9,000 604,980
-----------
797,508
-----------
HEALTH CARE FACILITIES - 0.5%
Community Health Systems, Inc.* 3,200 89,216
-----------
HOME FURNISHINGS - 0.4%
Kimball International, Inc. (Cl.B) 4,700 69,607
INDUSTRIAL MACHINERY - 1.5%
JLG Industries, Inc. 3,200 62,816
Kennametal, Inc. 700 34,839
Lincoln Electric Holdings, Inc. 3,200 110,528
Parker Hannifin Corporation 900 68,166
Portec Rail Products, Inc. 400 4,160
Timken Company 700 18,214
-----------
298,723
-----------
INTEGRATED OIL & GAS - 1.7%
Norsk Hydro ASA ADR 2,500 196,800
Tesoro Corporation* 4,000 127,440
-----------
324,240
-----------
MARINE - 0.6%
Kirby Corporation* 2,500 110,950
-----------
MOVIES & ENTERTAINMENT - 0.1%
Imax Corporation ADR 2,400 19,798
-----------
MULTI-UTILITIES & UNREGULATED POWER - 0.1%
Duke Energy Corporation 800 20,264
-----------
OIL & GAS DRILLING - 1.3%
Rowan Companies, Inc.* 9,800 253,820
-----------
See accompanying notes.
177
SERIES Z
Schedule of Investments (ALPHA OPPORTUNITY SERIES)
December 31, 2004
NUMBER MARKET
OF SHARES VALUE
COMMON STOCKS (CONTINUED)
OIL & GAS EQUIPMENT & SERVICES - 4.5%
FMC Technologies, Inc.* 4,900 $ 157,780
Hydril* 3,800 172,938
Oceaneering International, Inc.* 3,900 145,548
Schlumberger, Ltd. 5,800 388,310
-----------
864,576
-----------
OIL & GAS REFINING, MARKETING& TRANSPORTATION - 1.2%
Ashland, Inc. 3,900 227,682
-----------
PACKAGED FOODS & MEATS - 0.4%
Pilgrim's Pride Corporation 2,300 70,564
-----------
PAPER PRODUCTS - 2.6%
Abitibi-Consolidated, Inc. 7,200 49,824
Aracruz Celulose S.A. ADR 4,300 162,110
Buckeye Technologies, Inc.* 1,300 16,913
International Paper Company 1,600 67,200
MeadWestvaco Corporation 3,200 108,448
Potlatch Corporation 1,700 85,986
-----------
490,481
-----------
RAILROADS - 0.9%
Kansas City Southern* 9,900 175,527
-----------
REAL ESTATE INVESTMENT TRUSTS - 2.1%
Plum Creek Timber Company, Inc. 4,500 172,980
Rayonier, Inc. 4,700 229,877
-----------
402,857
-----------
SPECIALIZED FINANCE - 0.4%
GATX Corporation 2,900 85,724
-----------
SPECIALTY CHEMICALS - 2.4%
A. Schulman, Inc. 4,200 89,922
Compass Minerals International, Inc. 400 9,692
Great Lakes Chemical Corporation 1,600 45,584
MacDermid, Inc. 1,700 61,370
Minerals Technologies, Inc. 1,300 86,710
OM Group, Inc.* 4,900 158,858
-----------
452,136
-----------
STEEL - 1.9%
Corus Group plc ADR* 2,800 27,496
Gerdau S.A. ADR 1,300 23,400
Mechel Steel Group ADR* 4,300 96,105
Nucor Corporation 1,900 99,446
Posco ADR 2,700 120,231
-----------
366,678
-----------
SYSTEMS SOFTWARE - 0.1%
BMC Software, Inc.* 1,500 27,900
-----------
TOTAL COMMON STOCKS
(cost $10,378,479) 10,542,753
-----------
WARRANTS - 0.0%
Inco, Ltd.* 500 6,750
------------
TOTAL WARRANTS
(cost $6,592) 6,750
------------
U.S. GOVERNMENT SPONSORED AGENCIES - 41.7%
Federal Farm Credit Bank,
2.02%, 01-21-05 $ 125,000 124,863
Federal Home Loan Bank:
1.95%, 01-14-05 $ 300,000 299,799
2.01%, 01-21-05 $ 1,900,000 1,897,920
2.094%, 02-01-05 $ 1,750,000 1,746,771
2.406%, 03-16-05 $ 815,000 811,186
Federal National Mortgage Association:
2.16%, 01-03-05 $ 530,000 529,936
2.018%, 01-05-05 $ 150,000 149,982
2.192%, 01-10-05 $ 175,000 174,906
2.02%, 01-19-05(1) $ 150,000 149,854
2.025%, 01-24-05(1) $ 325,000 324,585
2.35%, 02-07-05 $ 160,000 159,622
2.27%, 02-16-05 $ 450,000 448,740
2.313%, 02-23-05 $ 200,000 199,351
2.346%, 03-02-05 $ 250,000 249,058
2.384%, 03-09-05 $ 650,000 647,254
2.50%, 03-29-05 $ 80,000 79,525
------------
TOTAL U.S. GOVERNMENT SPONSORED AGENCIES
(cost $7,993,204) 7,993,352
------------
TOTAL INVESTMENTS - 96.7%
(cost $18,378,275) 18,542,855
------------
SHORT POSITIONS - (0.1%)
RESTAURANTS - (0.1%)
California Pizza Kitchen, Inc.* (1,000) (23,000)
------------
TOTAL SHORT POSITIONS
(proceeds $23,149) (23,000)
------------
CASH & OTHER ASSETS, LESS LIABILITIES - 3.4% 641,636
------------
TOTAL NET ASSETS - 100.0% $ 19,161,491
============
For federal income tax purposes, the identified cost of investments owned at
December 31, 2004 was $18,401,006.
*Non-income producing security
ADR (American Depositary Receipt)
plc (public limited company)
(1) Security is segregated as collateral for open futures contracts.
See accompanying notes.
178
SERIES Z
(ALPHA OPPORTUNITY SERIES)
Statement of Assets and Liabilities
December 31, 2004
ASSETS:
Investments, at value(1) ....................................... $ 18,542,855
Cash ........................................................... 970,961
Deposit for short sales ........................................ 25,274
Receivables:
Fund shares sold ............................................. 32,881
Securities sold .............................................. 654,603
Due from broker for proceeds on
securities sold short ....................................... 23,149
Dividends .................................................... 5,844
Prepaid expenses ............................................. 474
------------
Total assets ................................................... 20,256,041
------------
LIABILITIES:
Securities sold short, at value(2) ............................. 23,000
Payable for:
Securities purchased ......................................... 997,474
Fund shares redeemed ......................................... 13,820
Variation margin ............................................. 6,963
Management fees .............................................. 32,654
Custodian fees ............................................... 387
Transfer agent and administration fees ....................... 5,075
Professional fees ............................................ 13,200
Other ........................................................ 1,977
------------
Total liabilities ............................................ 1,094,550
------------
NET ASSETS ................................................... $ 19,161,491
============
NET ASSETS CONSIST OF:
Paid in capital ................................................ $ 17,965,644
Accumulated undistributed net
investment loss .............................................. -
Accumulated undistributed net realized gain
on sales of investments, futures and securities
sold short ................................................... 833,668
Net unrealized appreciation in value of
investments, futures and securities
sold short ................................................... 362,179
------------
Net assets ..................................................... $ 19,161,491
============
Capital shares authorized ...................................... indefinite
Capital shares outstanding ..................................... 1,655,952
Net asset value and redemption price
per share (net assets divided by
shares outstanding) .......................................... $ 11.57
============
(1)Investments, at cost ........................................ $ 18,378,275
(2)Securities sold short, at proceeds .......................... 23,149
Statement of Operations
For the Year Ended December 31, 2004
INVESTMENT INCOME:
Dividends .................................................... $ 79,234
Interest ..................................................... 69,856
------------
Total investment income ...................................... 149,090
------------
EXPENSES:
Management fees .............................................. 213,067
Custodian fees ............................................... 4,300
Transfer/maintenance fees .................................... 21,109
Administration fees .......................................... 26,424
Directors' fees .............................................. 419
Professional fees ............................................ 19,977
Reports to shareholders ...................................... 449
Other expenses ............................................... 1,131
------------
Total expenses ............................................... 286,876
Less: Reimbursement of expenses .............................. (22,232
------------
Net expenses ................................................. 264,644
------------
Net investment loss .......................................... (115,554)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) during the period on:
Investments .................................................. 1,270,119
Securities sold short ........................................ (57,165)
Futures ...................................................... 536,332
------------
Net realized gain ............................................ 1,749,286
------------
Net change in unrealized appreciation
during the period on:
Investments .................................................. 59,731
Securities sold short ........................................ 707
Futures ...................................................... 73,378
------------
Net unrealized appreciation .................................. 133,816
------------
Net gain ....................................................... 1,883,102
------------
Net increase in net assets
resulting from operations .................................... $ 1,767,548
============
See accompanying notes.
179
SERIES Z
Statement of Changes in Net Assets (ALPHA OPPORTUNITY SERIES)
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003*
----------------- ------------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment loss .................................................................. $ (115,554) $ (36,595)
Net realized gain during the period on investments, futures, and securities sold short 1,749,286 789,315
Net change in unrealized appreciation during the period on
investments, futures, and securities sold short ..................................... 133,816 228,363
------------ ------------
Net increase in net assets resulting from operations ................................. 1,767,548 981,083
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ................................................................ - -
Net realized gain .................................................................... (1,187,732) (365,052)
------------ ------------
Total distributions to shareholders .................................................. (1,187,732) (365,052)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares ......................................................... 13,665,469 5,831,380
Distributions reinvested ............................................................. 1,187,732 365,052
Cost of shares redeemed .............................................................. (3,009,383) (74,606)
------------ ------------
Net increase from capital share transactions ......................................... 11,843,818 6,121,826
------------ ------------
Net increase in net assets ........................................................... 12,423,634 6,737,857
------------ ------------
NET ASSETS:
Beginning of period .................................................................. 6,737,857 -
------------ ------------
End of period ........................................................................ $ 19,161,491 $ 6,737,857
============ ============
Accumulated undistributed net investment loss at end of period ....................... $ - $ -
============ ============
CAPITAL SHARE ACTIVITY:
Shares sold .......................................................................... 1,213,974 576,501
Shares reinvested .................................................................... 105,173 33,187
Shares redeemed ...................................................................... (265,886) (6,997)
------------ ------------
Total capital share activity ......................................................... 1,053,261 602,691
============ ============
*For the period beginning July 7, 2003 (commencement of operations) to December
31, 2003.
See accompanying notes.
180
SERIES Z
Financial Highlights (ALPHA OPPORTUNITY SERIES)
Selected data for each share of capital stock outstanding throughout each period
YEAR ENDED DECEMBER 31,
2004 2003(d)
---------- ------------
PER SHARE DATA
Net asset value, beginning of period $ 11.18 $ 10.00
---------- ---------
Income (loss) from investment operations:
Net investment income (loss) (0.07) (0.06)
Net gain (loss) on securities (realized and unrealized) 1.42 1.88
---------- ---------
Total from investment operations 1.35 1.82
---------- ---------
Less distributions:
Dividends from net investment income - -
Distributions from realized gains (0.96) (0.64)
---------- ---------
Total distributions (0.96) (0.64)
---------- ---------
Net asset value, end of period $ 11.57 $ 11.18
========== =========
TOTAL RETURN(a) 12.58% 18.33%
---------- ---------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $ 19,161 $ 6,738
---------- ---------
Ratios to average net assets:
Net investment income (loss) (1.12%) (1.33%)
Total expenses 2.57% 2.52%
Gross expenses(b) 2.78% 2.62%
Net expenses(c) 2.57% 2.50%
---------- ---------
Portfolio turnover rate 1054% 966%
(a) Total return does not take into account any of the expenses associated with
an investment in variable insurance products offered by Security Benefit
Life Insurance Company. 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.
(b) Gross expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net expense information reflects expense ratios after expense reductions or
fee waivers and reduction of custodian expenses.
(d) Series Z was initially capitalized on July 7, 2003 with a net asset value of
$10 per share. Percentage amounts for the period, except for total return,
have been annualized.
See accompanying notes.
181
Notes to Financial Statements
December 31, 2004
1. SIGNIFICANT ACCOUNTING POLICIES
SBL Fund (The Fund) is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company of the series
type. Each series, in effect, represents a separate fund. The Fund is required
to account for the assets of each series separately and to allocate general
liabilities of the Fund to each series based on the net asset value of each
series. Shares of the Fund will be sold only to separate accounts of Security
Benefit Life Insurance Company (SBL). The following is a summary of the
significant accounting policies followed by the Fund in the preparation of its
financial statements.
A. SECURITY VALUATION - Valuations of the Fund's securities are supplied
by pricing services approved by the Board of Directors. The Fund's officers,
under the general supervision of the Board of Directors, regularly review
procedures used by, and valuations provided by, the pricing services. Each
security owned by a Fund that is listed on a securities exchange is valued at
its last sale price on that exchange on the date as of which assets are valued.
Where the security is listed on more than one exchange, the Fund will use the
price of that exchange that it generally considers to be the principal exchange
on which the stock is traded. Fund securities listed on the Nasdaq Stock Market,
Inc. ("Nasdaq") will be valued at the Nasdaq Official Closing Price. Securities
for which market quotations are not readily available are valued by a pricing
service considering securities with similar yields, quality, type of issue,
coupon, duration and rating. If there is no bid price or if the bid price is
deemed to be unsatisfactory by the Board of Directors or by the Fund's
investment manager, then the securities are valued in good faith by such method
as the Board of Directors determines will reflect the fair value. If events
occur after the close of the foreign exchange that will affect the value of a
fund's portfolio securities before the time as of which the NAV is calculated (a
"significant event"), the security will generally be priced using a fair value
procedure. If the Valuation Committee determines a significant event has
occurred, it will evaluate the impact of that event on an affected security or
securities, to determine whether a fair value adjustment would materially affect
the fund's 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 Stock Exchange, if earlier.
All investments quoted in foreign currency are valued in U.S. dollars on the
basis of the foreign currency exchange rates prevailing at the close of
business. Investments in foreign securities may involve risks not present in
domestic investments. The Valuation Committee will determine the current value
of such foreign securities by taking into consideration certain factors which
may include those discussed above, as well as the following factors, among
others: the value of the securities traded on other foreign markets, ADR
trading, closed-end fund trading, foreign currency exchange activity, and the
trading prices of financial products that are tied to foreign securities such as
WEBS(R). In addition, the Board of Directors has authorized the Valuation
Committee and Administrator to use prices and other information supplied by
IDC's Fair Value Information Service in valuing foreign securities. Since
foreign securities may be denominated in a foreign currency and involve
settlement and pay interest or dividends in foreign currencies, changes in the
relationship of these foreign currencies to the U.S. dollar can significantly
affect the value of the investments and earnings of the Funds. Foreign
investments may also subject the Series to foreign government exchange
restrictions, expropriation, taxation or other political, social or economic
developments, all of which could affect the market value and/or credit risk of
the investments.
B. REPURCHASE AGREEMENTS - In connection with transactions in repurchase
agreements, it is the Funds' policy that its custodian take possession of the
underlying collateral and that the fair value of the collateral exceed the
principal amount of the repurchase transaction, including accrued interest, at
all times. If the seller defaults, and the fair value of the collateral
declines, realization of the collateral by the Funds may be delayed or limited.
C. FOREIGN CURRENCY TRANSACTIONS- The accounting records of the Funds are
maintained in U.S. dollars. All assets and liabilities initially expressed in
foreign currencies are converted into U.S. dollars at prevailing exchange rates.
Purchases and sales of investment securities, dividend and interest income, and
certain expenses are translated at the rates of exchange prevailing on the
respective dates of such transactions.
The Funds do not isolate that portion of the results of operations
resulting from changes in the foreign exchange rates on investments from the
fluctuations arising from changes in the market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss on
investments.
Net realized foreign exchange gains and losses arise from sales of
portfolio securities, sales of foreign currencies, and the difference between
asset and liability amounts initially stated in foreign currencies and the U.S.
dollar value of the amounts actually received or paid. Net unrealized foreign
exchange gains or losses arise from changes in the value of other assets and
liabilities at the end of the reporting period, resulting from changes in the
exchange rates.
D. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS - The Fund may enter into
forward foreign exchange contracts in order to manage foreign currency risk from
purchase or sale of securities denominated in foreign currency. A series may
also enter into such contracts to manage changes in foreign
182
Notes to Financial Statements
December 31, 2004
currency exchange rates on portfolio positions. These contracts are marked to
market daily, by recognizing the difference between the contract exchange rate
and the current market rate as unrealized gains or losses. Realized gains or
losses are recognized when contracts are settled and are reflected in the
Statement of Operations. These contracts involve market risk in excess of the
amount reflected in the Statement of Assets and Liabilities. The face or
contract amount in U.S. dollars reflects the total exposure these funds have in
that particular currency contract. Losses may arise due to changes in the value
of the foreign currency or if the counterparty does not perform under the
contract.
E. FUTURES - The Fund may utilize futures contracts to a limited extent,
with the objectives of maintaining full exposure to the underlying stock market,
enhancing returns, maintaining liquidity, minimizing transaction costs and
hedging possible variations in foreign exchange rates. The Fund may purchase or
sell financial and foreign currency futures contracts to immediately position
incoming cash in the market, thereby simulating a fully invested position in the
underlying index while maintaining a cash balance for liquidity. In the event of
redemptions, the series may pay from its cash balances and reduce their future
positions accordingly. Returns may be enhanced by purchasing futures contracts
instead of the underlying securities when futures are believed to be priced more
attractively than the underlying securities. The primary risks associated with
the use of futures contracts are imperfect correlation between changes in market
values of stocks contained in the indexes and the prices of futures contracts,
and the possibility of an illiquid market. Futures contracts are valued based
upon their quoted daily settlement prices. Upon entering into a futures
contract, the series are required to deposit and maintain as collateral either
cash or securities, representing the initial margin, equal to a certain
percentage of the contract value. Cash deposits are shown as restricted cash on
the Statement of Assets and Liabilities; securities held as collateral are noted
in the Schedule of Investments. Subsequent changes in the value of the contract
are recorded as unrealized gains or losses. The variation margin is paid or
received in cash daily by the series. The series realizes a gain or loss when
the contract is closed or expires.
F. OPTIONS WRITTEN - The Fund may purchase put and call options and write
such options on a covered basis on securities that are traded on recognized
securities exchanges and over-the-counter markets. Call and put options on
securities give the holder the right to purchase or sell (and the writer the
obligation to sell or purchase), respectively, a security at a specified price,
until a certain date. Options may be used to hedge the series portfolio, to
increase returns or to maintain exposure to the equity markets. The primary
risks associated with the use of options are an imperfect correlation between
the change in market value of the securities held by the series and the price of
the option, the possibility of an illiquid market, and the inability of the
counterparty to meet the terms of the contract.
The premium received for a written option is recorded as an asset with an
equal liability which is marked to market based on the option's quoted daily
settlement price. Fluctuations in the value of such instruments are recorded as
unrealized appreciation (depreciation) until terminated, at which time realized
gains and losses are recognized.
G. SECURITY TRANSACTIONS AND INVESTMENT INCOME - Security transactions are
accounted for on the date the securities are purchased or sold (trade date).
Realized gains and losses are reported on an identified cost basis. Dividend
income less foreign taxes withheld (if any) plus foreign taxes recoverable (if
any) are recorded on the ex-dividend date. Interest income is recognized on the
accrual basis including the amortization of premiums and accretion of discounts
on debt securities.
H. EXPENSES - Expenses that are directly related to one of the Funds are
charged directly to that Fund. Other operating expenses are allocated to the
series on the basis of relative net assets within the SBL Fund.
I. DISTRIBUTIONS TO SHAREHOLDERS - Distributions to shareholders are
recorded on the ex-dividend date. The character of distributions made during the
year from net investment income or net realized gains may differ from their
ultimate characterization for federal income tax purposes.
J. TAXES - The Fund intends to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and
distribute all of its taxable net income and net realized gains sufficient to
relieve it from all, or substantially all, federal income, excise and state
income taxes. Therefore, no provision for federal or state income tax is
required.
K. EARNINGS CREDITS - Under the fee schedule with the custodian, the Fund
earns credits based on overnight custody cash balances. These credits are
utilized to reduce related custodial expenses. The custodian fees disclosed in
the Statement of Operations are before the reduction in expense from the related
earnings credits.
L. USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted U.S. accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period. Actual
results could differ from those estimates.
M. SHORT SALES - Certain of the series may make short sales "against the
box," in which the series enters into a short sale of a security it owns. At no
time will more than 15% of the value of the series' net assets be in deposits on
short sales against the box. In a short sale that is not "against the box," a
series sells a security which it does not own, in anticipation of a decline in
the market value of the security. To complete the sale, the series must borrow
the security generally from the broker through which the short sale is made in
order to make delivery to the buyer. The series must replace the security
borrowed by purchasing it at the market price at the time of replacement. The
series is said to have a "short position" in securities sold until it delivers
them to the broker. For financial statement purposes, an amount equal to the
settlement amount is included in the Statement of Assets and Liabilities
183
Notes to Financial Statements
December 31, 2004
as an asset and an equivalent liability. The amount of the liability is
subsequently marked-to-market to reflect the current value of the short
position. Subsequent fluctuations in the market prices of securities sold, but
not yet purchased, may require purchasing the securities at prices which differ
from the market value reflected on the Statement of Assets and Liabilities. The
series are liable for any dividends or interest payable on securities while
those securities are in a short position. As collateral for its short positions,
the series are required under the Investment Company Act of 1940 to maintain
segregated assets consisting of cash, cash equivalents or liquid securities.
These segregated assets are valued consistent with Note 1A above. These
segregated assets are required to be adjusted daily to reflect changes in the
market value of the securities sold short.
N. INDEMNIFICATIONS - Under the Fund's organizational documents, its
Officers and Directors are indemnified against certain liabilities arising out
of the performance of their duties to the Funds. In addition, in the normal
course of business, the Funds enter into contracts that provide general
indemnification to other parties. The Funds' maximum exposure under these
arrangements is unknown as this would involve future claims that may be made
against the Fund that have not yet occurred, and may not occur. However, the
Funds have not had prior claims or losses pursuant to these contracts and expect
the risk of loss to be remote.
2. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Management fees are payable to Security Management Company, LLC (SMC) as
follows:
MANAGEMENT
MANAGEMENT FEE WAIVERS
FEES (AS A % (AS A % OF
OF NET ASSETS) OF NET ASSETS)
------------- -------------
Series A (Equity Series) 0.75% N/A
Series B (Large Cap Value Series) 0.75% N/A
Series C (Money Market Series) 0.50% N/A
Series D (Global Series) 1.00% N/A
Series E (Diversified Income Series) 0.75% 0.15%
Series G (Large Cap Growth Series) 1.00% 0.25%
Series H (Enhanced Index Series) 0.75% 0.25%
Series J (Mid Cap Growth Series) 0.75% N/A
Series N (Managed Asset
Allocation Series) 1.00% N/A
Series 0 (Equity Income Series) 1.00% N/A
Series P (High Yield Series) 0.75% N/A
Series Q (Small Cap Value Series) 1.00% N/A
Series S (Social Awareness Series) 0.75% N/A
Series V (Mid Cap Value Series) 0.75% N/A
Series W (Main Street Growth
and Income(R) Series) 1.00% N/A
Series X (Small Cap Growth Series) 1.00% N/A
Series Y (Select 25 Series) 0.75% N/A
Series Z (Alpha Opportunity Series)* 2.00%(1) N/A
- -----------------------
* Series's management fee will range from 1.25% to 2.75% of average daily net
assets as discussed below.
(1)SMC receives a management fee from Series Z that is composed of two
components. The first component is an annual base fee equal to 2.00% of Series
Z's average daily net assets. The second component is a performance adjustment
that either increases or decreases the base fee, depending on how Series Z
performed relative to the S&P 500 Index. The Investment Manager will receive the
2.00% annual base fee for the first year of the Fund's investment operations,
and thereafter, if Series Z's investment performance matches the investment
record of the S&P 500 Index over the prior 12 month period. If the investment
performance of the Fund exceeds the investment record of the S&P 500 Index, the
performance adjustment increases the fee paid to the investment Manager
proportionately, reaching a maximum annual fee of 2.75% if the Fund outperforms
the investment record of the S&P 500 Index by 15 percentage points over the
measurement period. If the investment performance of the Fund trails the
investment record of the S&P 500 Index, the performance adjustment decreases the
fee paid to the Investment Manager proportionately, reaching a minimum annual
fee of 1.25% if the Fund underperforms the investment record of the S&P 500
Index by 15 percentage points over the measurement period. The performance
adjustment is calculated on the basis of a "rolling" 12 month measuring period,
so that a fee rate calculated on the basis of investment performance over a 12
month period will apply only for the next succeeding month, and then will be
subject to recalculation for the following month on the basis of the Fund's
investment performance over the prior 12 month period. Performance adjustments
began on August 1, 2004 based upon Series Z's performance during the 12 months
ended December 31, 2004.
184
Notes to Financial Statements
December 31, 2004
SMC also acts as the administrative agent and transfer agent for the
Funds, and as such performs administrative functions, transfer agency and
dividend disbursing series, and the bookkeeping, accounting and pricing
functions for each series. For these servic-es, the Investment Manager receives
the following:
ADMINISTRATIVE
FEES (AS A % OF
NET ASSETS)*
---------------
Series A (Equity Series) 0.09%
Series B (Large Cap Value Series) 0.09%
Series C (Money Market Series) 0.09%
Series D (Global Series) 0.145%
Series E (Diversified Income Series) 0.09%
Series G (Large Cap Growth Series) 0.09%
Series H (Enhanced Index Series) 0.09%
Series J (Mid Cap Growth Series) 0.09%
Series N (Managed Asset Allocation Series) 0.145%
Series 0 (Equity Income Series) 0.09%
Series P (High Yield Series) 0.09%
Series Q (Small Cap Value Series) 0.09%
Series S (Social Awareness Series) 0.09%
Series V (Mid Cap Value Series) 0.09%
Series W (Main Street Growth and Income(R)
Series 0.09%
Series X (Small Cap Growth Series) 0.09%
Series Y (Select 25 Series) 0.09%
Series Z (Alpha Opportunity Series) 0.145%
- --------------------
* Effective February 1, 2004 the minimum annual charge for administrative fees
is $25,000 for each series.
SMC is paid the following for providing transfer agent services to the
Funds:
EFFECTIVE PRIOR TO
FEBRUARY 1, 2004 FEBRUARY 1, 2004
---------------- ----------------
Per account charge $ 5.00 - $ 8.00 $ 8.00
Transaction fee $ 0.60 - $ 1.10 $ 1.00
Minimum annual charge
per series $ 25,000 N/A
Certain out-of-pocket Varies N/A
charges
SMC pays the Dreyfus Corporation an annual fee equal to .25% of the
average daily closing value of the combined net assets of Series B and another
fund managed by SMC, Security Large Cap Value Fund, computed on a daily basis.
Beginning January 1, 2002, the Dreyfus Corporation agreed to waive .10% of the
average daily closing value of the combined net assets of these funds, computed
on a daily basis, until December 31, 2006.
SMC pays OppenheimerFunds, Inc. an annual fee equal to a percentage of the
average daily closing value of the combined average daily net assets of SBL
Series D and another fund managed by SMC, Security Equity Fund Global Series,
computed on a daily basis as follows:
COMBINED AVERAGE DAILY NET ASSETS ANNUAL FEES
- --------------------------------- -----------
$0 to $300 Million............... .35%
$300 Million to $750 Million..... .30%
$750 Million or more............. .25%
SMC also pays OppenheimerFunds, Inc. an annual fee equal to a percentage
of the average daily net assets of Series W, computed on a daily basis as
follows:
AVERAGE DAILY NET ASSETS OF THE SERIES ANNUAL FEES
- -------------------------------------- -----------
$0 to $50 Million...................... .35%
$50 Million to $250 Million............ .30%
$250 million or more................... .25%
SMC pays T. Rowe Price Associates, Inc. an annual fee equal to .50% of the
first $25,000,000 of average daily net assets of Series N and .35% of the
average daily net assets of Series N in excess of $25,000,000 for management
services provided to that Series. SMC also pays T. Rowe Price Associates, Inc.
an annual fee equal to .50% of the first $20,000,000 of average daily net assets
of Series 0 and .40% of the average daily net assets in excess of $20,000,000
for management services provided to Series 0.
SMC pays Strong Capital Management, Inc. with respect to Series Q, an
annual fee based on the average net assets of the Series. The fees for these
services are outlined below:
AVERAGE DAILY NET ASSETS OF THE SERIES ANNUAL FEES
- -------------------------------------- -----------
Less Than $150 Million................ 0.50%
$150 Milllion to $500 Million......... 0.45%
$500 Million or more.................. 0.40%
SMC pays RS Investments an annual fee equal to a percentage of the average
daily closing value of the combined net assets of Series X and another fund
managed by SMC, Security Equity Fund Small Cap Growth Series, computed on a
daily basis as follows:
COMBINED AVERAGE DAILY NET ASSETS ANNUAL FEES
- --------------------------------- -----------
$0 to $100 Million............... .55%
$100 Million to $400 Million..... .50%
Over $400 Million................ .45%
SMC pays Northern Trust an annual fee equal to a percentage of the average
daily closing value of the combined net assets of Series H and Security Equity
Fund Enhanced Index Series, computed on a daily basis as follows:
COMBINED AVERAGE DAILY NET ASSETS ANNUAL FEES
- --------------------------------- -----------
$0 to $100 Million............... .20%
$100 Million to $300 Million..... .15%
$300 Million or more ............ .13%
SMC pays Mainstream Investment Advisers, LLC an annual fee equal to 2.50%
of that portion of the Series Z's assets managed by Mainstream. The sub-advisory
fee will be adjusted upward or downward, depending on how that portion of Series
Z assets performed relative to the S&P 500 Index.
185
Notes to Financial Statements
December 31, 2004
The pro rata adjustment will be determined based upon the investment
performance of that portion of Series Z assets managed by Mainstream relative to
the investment record of the S&P 500 Index. The amount of any upward adjustment
in the Base Fee will be equal to 1.50% (a) multiplied by the number of
percentage points by which the investment performance of the Series Z assets
managed by Mainstream exceeds the investment record of the S&P 500 Index (b)
divided by .30, up to a maximum of 4.00% or a minimum of 1.00% in annual
subadvisory fees.
During its first 12 months of operations, the Investment Manager paid
Mainstream the base fee of 2.50% without any adjustment for performance.
Performance adjustments began on August 1, 2004 based upon the performance
during the 12 months ended July 1, 2004 of that portion of Series Z assets
managed by Mainstream. Thereafter, the Investment Manager calculates the
performance adjustment at the end of each calendar month based upon the
investment performance of the assets managed by Mainstream during the
twelve-month period ending on the last day of the prior month compared to the
investment record of the S&P 500 Index during the same period.
The Series Z assets are reallocated between Mainstream and the Investment
Manager on a monthly basis to an approximately equal allocation. This procedure
ensures that the Investment Manager cannot make allocation decisions that favor
the Investment Manager over Mainstream.
The investment advisory contract between the Fund and SMC provides that
the total annual expenses of each series (including management fees, but
excluding interest, taxes, brokerage commissions and extraordinary expenses)
will not exceed the level of expenses which the series is permitted to bear
under the most restrictive expense limitation imposed by any state in which
shares of the Fund are then offered for sale. For the year ended December 31,
2004, SMC agreed to limit the total expenses for Series P, V and X to an annual
rate of 2% of the average daily net asset value of each respective series, and
limit Series G, H, Q, W and Y to an annual rate of 1.75%. SMC has agreed to
limit the total other expenses for Series Z to 0.50%.
At December 31, 2004, Security Benefit Life Insurance Company, through
their insurance company separate accounts, owned 100% of the outstanding shares
of SBL Fund.
The Fund has directed SMC and certain of the sub-advisors to execute
certain portfolio trades with broker/dealers in a manner that will benefit the
Fund. Security Distributors, Inc. (SDI), a wholly-owned subsidiary of Security
Benefit Group, Inc., a financial services holding company, is a national
distributor for SBL Fund. These broker/dealers have agreed to either direct a
portion of their brokerage commissions to SDI for use in promoting the
distribution of Fund shares, or to provide brokerage credits, benefits or other
services to be used to promote distribution of Fund shares (the "Brokerage
Enhancement Plan"). The duty to seek best execution still applies to these
portfolio trades. For the period ended September 17, 2004, the amounts generated
under the Brokerage Enhancement Plan were as follows: Series A $0, Series B
$196,812, Series G $0, Series J $0, Series 0 $11,316, Series S $0, Series V $0,
and Series Y $0. The plan was terminated on September 17, 2004.
3. UNREALIZED APPRECIATION/DEPRECIATION
For federal income tax purposes, the amounts of unrealized appreciation
(depreciation) on investments at December 31, 2004, were as follows:
GROSS GROSS NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
APPRECIATION (DEPRECIATION) (DEPRECIATION)
------------- -------------- --------------
SERIES A
(Equity) $ 104,207,034 $ (16,240,505) $ 87,966,529
SERIES B
(Large Cap Value) 60,422,083 (4,772,511) 55,649,572
SERIES C
(Money Market) 204 (10,902) (10,698)
SERIES D
(Global) 132,922,493 (8,238,737) 124,683,756
SERIES E
(Diversified Income) 3,153,925 (1,770,234) 1,383,691
SERIES G
(Large Cap Growth) 4,023,954 (992,431) 3,031,523
SERIES H
(Enhanced Index) 2,096,360 (1,122,556) 973,804
SERIES J
(Mid Cap Growth) 132,720,888 (31,563,552) 101,157,336
SERIES N
(Managed Asset
Allocation) 12,806,599 (1,674,117) 11,132,482
SERIES 0
(Equity Income) 41,026,817 (10,163,823) 30,862,994
SERIES P
(High Yield) 5,400,305 (2,171,533) 3,228,772
SERIES Q
(Small Cap Value) 28,931,026 (2,421,360) 26,509,666
SERIES S
(Social Awareness) 19,725,903 (15,676,127) 4,049,776
SERIES V
(Mid Cap Value) 96,847,671 (5,397,030) 91,450,641
SERIES W
(Main Street Growth
& Income(R) 4,531,522 (1,185,446) 3,346,076
SERIES X
(Small Cap Growth) 14,686,351 (1,561,051) 13,125,300
SERIES Y
(Select 25(R) 6,588,948 (1,302,690) 5,286,258
SERIES Z
(Alpha Opportunity) 174,750 (32,752) 141,998
186
Notes to Financial Statements
December 31, 2004
4. INVESTMENT TRANSACTIONS
Investment transactions for the year ended December 31, 2004, (excluding
overnight investments and short-term commercial paper) were as follows:
PROCEEDS
PURCHASES FROM SALES
--------- ----------
SERIES A
(Equity) $ 144,090,932 $ 211,479,102
SERIES B
(Large Cap Value) 307,254,070 346,276,763
SERIES C
(Money Market) N/A N/A
SERIES D
(Global) 116,627,272 159,470,438
SERIES E
(Diversified Income) 63,073,716 59,905,543
SERIES G
(Large Cap Growth) 26,102,317 30,488,255
SERIES H
(Enhanced Index) 37,364,343 34,646,606
SERIES J
(Mid Cap Growth) 157,203,318 198,142,652
SERIES N
(Managed Asset Allocation) 67,669,269 70,638,132
SERIES 0
(Equity Income) 54,643,379 41,200,551
SERIES P
(High Yield) 40,553,263 47,765,679
SERIES Q
(Small Cap Value) 43,422,641 38,285,310
SERIES S
(Social Awareness) 26,629,441 42,584,309
SERIES V
(Mid Cap Value) 124,924,281 109,198,782
SERIES W
(Main Street Growth & 42,705,877 39,666,134
Income(R)
SERIES X
(Small Cap Growth) 116,600,763 128,727,500
SERIES Y
(Select 25(R)) 14,262,051 18,887,552
SERIES Z
(Alpha Opportunity) 64,926,017 59,108,893
5. OPEN FUTURES CONTRACTS
Open futures contracts for Series H and Series Z as of December 31, 2004
were as follows:
SERIES H SERIES Z
S&P 500 E-Mini Futures S&P 500 Index Futures
---------------------- ---------------------
Position Long Long
Number of Contracts 8 25
Expiration Date 3-18-2005 3-17-2005
Contract Amount $482,843 $7,388,175
Market Value $485,500 $7,585,625
Unrealized Gain $2,657 $197,450
6. OPTIONS WRITTEN
The following options written were outstanding for Series J as of December
31, 2004:
SERIES J CALL OPTIONS WRITTEN OUSTANDING
EXPIRATION EXERCISE NUMBER OF MARKET
COMMON STOCK DATE PRICE CONTRACTS VALUE
- ------------------------------ ---------- -------- --------- ---------
Cost Plus, Inc. 2-18-05 $ 35.00 399 $ 23,940
Lions Gate Entertainment
Corporation 3-18-05 10.00 2,037 244,440
Navigant Consulting, Inc. 1-21-05 25.00 809 141,575
--------- ---------
Total call options outstanding
(premiums received, $432,787) 3,245 $ 409,955
========= =========
SERIES J PUT OPTIONS WRITTEN OUTSTANDING
EXPIRATION EXERCISE NUMBER OF MARKET
COMMON STOCK DATE PRICE CONTRACTS VALUE
- ------------------------------ ---------- -------- --------- --------
Intersil Corporation 1-21-05 $ 15.00 1,290 $ 12,900
Mindspeed Technologies, Inc. 1-21-05 2.50 2,497 12,485
--------- --------
Total put options oustanding
(premiums received, $236,238) 3,787 $ 25,385
========= ========
Transactions in options written for Series J for the year ended December 31,
2004, were as follows:
SERIES J CALL OPTIONS WRITTEN
NUMBER OF PREMIUM
CONTRACTS AMOUNT
---------- ----------
Balance at December 31, 2003 - $ -
Opened 9,538 1,516,335
Bought Back (1,308) (219,991)
Expired (1,629) (237,990)
Exercised (3,356) (625,567)
---------- ----------
Balance at December 31, 2004 3,245 $ 432,787
========== ==========
SERIES J PUT OPTIONS WRITTEN
NUMBER OF PREMIUM
CONTRACTS AMOUNT
---------- ----------
Balance at December 31, 2003 5,760 $ 306,724
Opened 11,590 1,227,841
Bought Back (1,530) (211,011)
Expired (2,292) (162,301)
Exercised (9,741) (925,015)
---------- ----------
Balance at December 31, 2004 3,787 $ 236,238
========== ==========
187
Notes to Financial Statements
December 31, 2004
The following options written were outstanding for Series Q as of December 31,
2004:
SERIES Q CALL OPTIONS WRITTEN OUTSTANDING
EXPIRATION EXERCISE NUMBER OF MARKET
COMMON STOCK DATE PRICE CONTRACTS VALUE
- ------------------------ ---------- --------- ---------- ---------
ABM Industries, Inc. 07-15-05 $ 22.50 5 $ 150
Andrx Corporation 01-21-05 20.00 5 950
03-18-05 17.50 25 12,000
03-18-05 20.00 20 6,200
Applera Corporation -
Applied Biosystems Group 01-21-05 20.00 40 4,200
03-18-05 20.00 20 3,100
Armor Holdings, Inc. 01-21-05 45.00 5 1,425
02-18-05 40.00 5 3,650
02-18-05 45.00 45 18,000
02-18-05 50.00 5 725
05-20-05 50.00 10 3,500
BJ Services Company 01-21-05 47.50 15 1,350
02-18-05 45.00 5 1,500
04-15-05 50.00 20 3,500
Carpenter Technology
Corporation 01-21-05 55.00 30 13,200
01-21-05 60.00 10 1,550
02-18-05 55.00 10 5,500
02-18-05 60.00 5 1,450
03-18-05 45.00 15 20,550
03-18-05 50.00 25 24,250
03-18-05 55.00 25 15,750
06-17-05 60.00 15 10,200
Chicago Bridge & Iron
Company N.V 01-21-05 30.00 5 5,150
04-15-05 35.00 10 5,400
04-15-05 40.00 5 1,100
Coherent, Inc. 01-21-05 30.00 5 550
02-18-05 30.00 30 5,250
Credence Systems
Corporation 05-20-05 7.50 5 1,050
CV Therapeutics, Inc. 01-21-05 17.50 15 7,950
01-21-05 22.50 20 2,400
04-15-05 17.50 5 3,400
04-15-05 20.00 10 5,300
04-15-05 22.50 10 3,800
07-15-05 30.00 5 1,800
DHB Industries, Inc. 01-21-05 17.50 25 4,875
01-21-05 20.00 10 800
02-18-05 17.50 10 2,750
02-18-05 20.00 10 1,600
04-15-05 17.50 10 3,800
04-15-05 20.00 5 1,300
Earthlink, Inc. 01-21-05 10.00 30 4,950
07-15-05 10.00 5 1,050
07-15-05 12.50 25 2,000
Foot Locker, Inc. 02-18-05 25.00 10 2,200
05-20-05 25.00 10 2,900
Forest Oil Corporation 02-18-05 30.00 5 1,200
05-20-05 30.00 15 5,400
Glamis Gold, Ltd. 02-18-05 17.50 10 800
05-20-05 20.00 5 375
Goldcorp, Inc. 02-18-05 15.00 15 1,125
GrafTech International,
Ltd. 03-18-05 10.00 15 525
H.B. Fuller Company 02-18-05 25.00 25 8,000
05-20-05 25.00 50 18,000
Headwaters, Inc. 01-21-05 30.00 5 250
02-18-05 30.00 15 1,650
Helmerich & Payne, Inc. 02-18-05 35.00 15 12,75
03-18-05 30.00 5 2,150
IDX Systems Corporation 02-18-05 35.00 30 4,500
02-18-05 40.00 10 100
Input/Output, Inc. 02-18-05 7.50 5 825
02-18-05 10.00 5 100
JDA Software Group, Inc. 04-15-05 15.00 5 450
McMoRan Exploration
Company 01-21-05 17.50 5 900
Meridian Gold, Inc. 01-21-05 15.00 10 3,900
04-15-05 17.50 5 1,225
04-15-05 20.00 5 650
Newfield Exploration
Company 01-21-05 60.00 15 1,650
03-18-05 65.00 5 600
06-17-05 65.00 10 2,550
Newport Corporation 02-18-05 12.50 15 2,625
Noble Energy, Inc. 01-21-05 60.00 20 4,600
01-21-05 65.00 5 175
02-18-05 60.00 20 6,800
02-18-05 65.00 5 425
Oceaneering International,
Inc. 01-21-05 35.00 35 8,050
04-15-05 40.00 25 3,125
OSI Systems, Inc. 01-21-05 20.00 5 1,450
01-21-05 22.50 5 350
04-15-05 22.50 10 1,850
Pioneer Natural Resources
Company 06-17-05 35.00 5 1,350
R.H. Donnelley
Corporation 01-21-05 50.00 5 4,350
02-18-05 55.00 10 3,900
05-20-05 55.00 10 5,700
05-20-05 60.00 5 1,375
Randgold Resources,
Ltd. ADR 03-18-05 12.50 5 250
06-17-05 12.50 5 450
Range Resources
Corporation 01-21-05 17.50 5 1,450
01-21-05 20.00 5 450
03-18-05 17.50 20 5,400
03-18-05 20.00 10 1,450
03-18-05 22.50 10 550
Sharper Image
Corporation 05-20-05 22.50 10 200
05-20-05 25.00 10 250
ShopKo Stores, Inc. 03-18-05 17.50 10 1,950
Smith International, Inc. 04-15-05 60.00 5 725
04-15-05 65.00 5 250
Steel Dynamics, Inc. 01-21-05 35.00 20 6,800
02-18-05 35.00 25 10,250
02-18-05 40.00 20 3,900
02-18-05 45.00 25 1,375
05-20-05 35.00 5 2,800
05-20-05 40.00 5 1,600
05-20-05 45.00 5 975
Stone Energy
Corporation 03-18-05 45.00 25 6,000
06-17-05 50.00 10 1,750
Tibco Software, Inc. 02-18-05 10.00 25 8,500
188
Notes to Financial Statements
December 31, 2004
EXPIRATION EXERCISE NUMBER OF MARKET
COMMON STOCK DATE PRICE CONTRACTS VALUE
- ------------------- ---------- -------- --------- ---------
Transocean, Inc. 01-21-05 40.00 10 $ 3,100
02-18-05 40.00 20 7,000
02-18-05 45.00 15 1,575
05-20-05 45.00 10 2,600
United States Steel
Corporation 01-21-05 40.00 10 11,200
01-21-05 45.00 45 31,050
01-21-05 50.00 30 8,850
01-21-05 55.00 10 600
02-18-05 50.00 10 4,000
04-15-05 45.00 15 13,050
04-15-05 50.00 10 5,700
04-15-05 55.00 20 7,600
Unova, Inc. 01-21-05 25.00 5 475
03-18-05 22.50 20 6,800
03-18-05 25.00 5 950
06-17-05 25.00 5 1,350
York International
Corporation 02-18-05 35.00 10 1,200
05-20-05 35.00 5 950
--------- ---------
Total call options outstanding
(premiums received $471,034) 1,625 $ 493,775
========= =========
Transactions in options written for Series Q as of December 31, 2004, were as
follows:
SERIES Q CALL OPTIONS WRITTEN
NUMBER OF PREMIUM
CONTRACTS AMOUNT
--------- -----------
Balance at December 31, 2003 1,085 $ 385,257
Opened 4,700 1,186,970
Bought Back (3,785) (1,031,529)
Expired (225) (30,520)
Exercised (150) (39,144)
--------- -----------
Balance at December 31, 2004 1,625 $ 471,034
========= ===========
The following options written were outstanding for Series V as of December
31, 2004 :
SERIES V CALL OPTIONS WRITTEN OUTSTANDING
EXPIRATION EXERCISE NUMBER OF MARKET
COMMON STOCK DATE PRICE CONTRACTS VALUE
- ------------ ---------- -------- ---------- ---------
Arch Coal, Inc. 1-24-05 $ 35.00 404 $ 58,580
Nabors Industries, LTD 1-24-05 50.00 400 88,000
Potash Corporation of
Saskatchewan,Inc. 3-21-05 80.00 200 108,000
---------- ---------
Total call options
outstanding
(premiums received,
$248,682) 1,004 $ 254,580
========== =========
Transactions in options written for Series V as of December 31, 2004, were
as follows:
SERIES V CALL OPTIONS WRITTEN
NUMBER OF PREMIUM
CONTRACTS AMOUNT
--------- ---------
Balance at December 31, 2003 327 $ 72,266
Opened 5,101 911,634
Bought Back (488) (129,383)
Expired (3,367) (464,577)
Exercised (569) (141,258)
--------- ---------
Balance at December 31, 2004 1,004 $ 248,682
========= =========
SERIES V PUT OPTIONS WRITTEN
NUMBER OF PREMIUM
CONTRACTS AMOUNT
--------- ---------
Balance at December 31, 2003 500 $ 73,496
Opened 5,720 758,741
Expired (2,593) (419,837)
Exercised (3,627) (412,400)
--------- ---------
Balance at December 31, 2004 - $ -
========= =========
7. FEDERAL TAX MATTERS
Net investment income and net realized gains (losses) may differ for
financial statement and tax purposes because of temporary or permanent book/tax
differences. These differences are primarily due to interest income accrued for
defaulted and variable rate securities for tax purposes, differing book and tax
amortization methods for premium and market discount and the expiration of
capital loss carryovers. To the extent these differences are permanent
differences, adjustments are made to the appropriate equity accounts in the
period that the differences arise. The following adjustments were made to the
Statement of Assets and Liabilities to reflect permanent differences:
ACCUMULATED UNDISTRIBUTED
NET REALIZED NET INVESTMENT PAID-IN-
GAIN/(LOSS) INCOME CAPITAL
------------ -------------- -------------
Series D $ 259,547 $ (259,647) $ 100
Series E (346,291) 370,349 (24,058)
Series J - 2,269,363 (2,269,363)
Series N (131,275) 131,275 -
Series 0 5,659 (5,659) -
Series P (68,438) 68,438 -
Series Q (639,592) 639,592 -
Series V (3,273) (35,754) 39,027
Series W 292 (292) -
Series X - 758,029 (758,029)
Series Y - 52,557 (52,557)
Series Z (115,554) 115,554 -
At December 31, 2004, the following funds had capital loss carryovers and
deferred post-October losses to offset future realized capital gains as follows:
DEFERRED
CAPITAL LOSS POST-OCTOBER
CARRYOVERS EXPIRES IN LOSSES
-------------- ---------- ------------
Series A - - $ 5,754,173
Series B $ 182,619,625 2008 -
5,057,813 2009
87,172,720 2010
26,620,854 2011
--------------
$ 301,471,012
==============
Series D $ 10,014,130 2010 -
13,788,921 2011
--------------
$ 23,803,051
==============
189
Notes to Financial Statements
December 31, 2004
DEFERRED
CAPITAL LOSS POST-OCTOBER
CARRYOVERS EXPIRES IN LOSSES
---------- ---------- ------
Series E $ 3,286,357 2005
389,008 2007
9,322,945 2008
719,015 2010
350,320 2012
------------
$ 14,067,645
============
Series G $ 4,494,575 2008 $ 148,098
4,785,898 2009
4,762,728 2010
3,378,968 2011
------------
$ 17,422,169
============
Series H $ 287,483 2008 $ 18,261
2,046,119 2009
3,351,705 2010
5,084,188 2011
------------
$ 10,769,495
============
Series J $ 2,680,821 2010 --
============
Series O -- -- $ 315
Series P $ 340,864 2009 --
1,081,601 2010
671,214 2011
------------
$ 2,093,679
============
Series Q -- -- $ 1,223
Series S $ 1,235,368 2010 $ 68,453
============
Series W $ 3,788,869 2010 $ 4,396
1,398,760 2011
------------
$ 5,187,629
============
Series X $ 23,398,087 2009 --
9,772,253 2010
------------
$ 33,170,340
============
Series Y $ 91,338 2007 $ 186,717
4,034,029 2008
5,673,178 2009
5,905,423 2010
6,092,309 2011
338,148 2012
------------
$ 22,134,425
============
190
Notes to Financial Statements
December 31, 2004
7. FEDERAL TAX MATTERS (CONTINUED)
The tax character of distributions paid during the years ended December
31, 2003 and 2004 was the same for financial statement purposes, except for the
following series:
Distributions from:
ORDINARY LONG-TERM
INCOME CAPITAL GAIN TOTAL
------ ------------ -----
2003
- ----
Series 0 ........... $2,519 784 $ 1,474,867 $ 3,994,651
Series Z ........... 365,052 -- 365,052
2004
- ----
Series V ........... 1,861,428 4,229,761 6,091,189
Series Z ........... 1,014,665 173,067 1,187,732
Short term distributions are treated as ordinary distributions for federal
income tax purposes.
As of December 31, 2004, the components of accumulated distributable
earnings/(defecit) on a tax basis were the same as those reported in the
Statement of Assets and Liabilities, except as follows:
CAPITAL LOSSES
UNDISTRIBUTED UNDISTRIBUTED ACCUMULATED UNREALIZED AND UNREALIZED
ORDINARY LONG-TERM CAPITAL AND APPRECIATION APPRECIATION/
INCOME GAIN OTHER LOSSES (DEPRECIATION) (DEPRECIATION)
------ ---- ----- ------ -------------- --------------
Series A $4,363,888 $ 8,824,507 $ (5,754,173) $ 87,966,529 $ 95,400,751
Series B 4,627,033 -- (301,471,012) 55,649,572 (241,194,407)
Series D 1,542,729 -- (23,803,051) 124,732,101 102,471,779
Series E 7,294,273 -- (14,067,645) 1,383,691 (5,389,681)
Series G 212,012 -- (17,570,267) 3,031,523 (14,326,732)
Series H 480,803 -- (10,787,756) 973,804 (9,333,149)
Series J -- -- (2,680,821) 101,391,022 98,710,201
Series N 1,690,399 526,358 -- 11,133,324 13,350,081
Series 0 4,239,748 5,257,095 (315) 30,863,232 40,359,760
Series P 4,870,394 -- (2,093,679) 3,077,104 5,853,819
Series Q 1,609,496 8,934,887 (1,223) 26,486,908 37,030,068
Series S 1,093,613 -- (1,303,821) 4,049,776 3,839,568
Series V 4,212,873 22,954,717 -- 91,444,744 118,612,334
Series W 360,383 -- (5,192,025) 3,346,194 (1,485,448)
Series X -- -- (33,170,340) 13,125,300 (20,045,040)
Series Z 712,752 341,097 -- 141,998 1,195,847
The difference between book basis and tax-basis unrealized appreciation is
attributable primarily to the tax deferral of losses on wash sales, the
realization for tax purposes of unrealized gains on certain forward foreign
currency contracts, passive foreign investment companies and certain appreciated
securities at January 1, 2001.
For federal income tax purposes, the following Series hereby designate the
amounts set forth below as capital gain dividends for the fiscal year ended
December 31, 2004:
Series Q $ 617,424
Series V 4,235,183
Series Z 173,067
191
Notes to Financial Statements
December 31, 2004
8. ACQUISITION OF SERIES I OF SBL FUND
Pursuant to a plan of reorganization approved by the stockholders of
Series I of SBL Fund, Series D of SBL Fund acquired all the net assets of Series
I on October 3, 2003, which totalled $17,884,030. A total of 2,429,653 shares of
Series I were exchanged for 2,893,567 shares of Series D immediately after the
closing date. This exchange qualified as a tax-free reorganization under Section
368(a)(l)(c) of the Internal Revenue Code. Series I's net assets included
$811,441 of unrealized appreciation, $217,611 of accumulated net investment
income and $7,210,184 of accumulated realized loss on sale of investments. The
aggregate net assets of Series D immediately before the acquisition totalled
$360,601,773 and following the acquisition, the combined net assets of Series D
totalled $378,485,803.
9. ACQUISITION OF SERIES T OF SBL FUND
Pursuant to a plan of reorganization approved by the stockholders of
Series T of SBL Fund, Series J of SBL Fund acquired all the net assets of Series
T on October 3, 2003, which totalled $28,421,162. A total of 6,660,098 shares of
Series T were exchanged for 1,234,851 shares of Series J immediately after the
closing date. This exchange qualified as a tax-free reorganization under Section
368(a)(l)(c) of the Internal Revenue Code. Series T's net assets included
$3,995,908 of unrealized appreciation, $16,703,007 of accumulated realized loss
on sale of investments and $196,022 of net investment loss. The aggregate net
assets of Series J immediately before the acquisition totalled $388,839,977 and
following the acquisition, the combined net assets of Series J totalled
$417,261,139.
10.AFFILIATED COMPANY TRANSACTIONS
As defined in the 1940 Act, if a fund's holding represents ownership of 5%
or more of the voting securities of a company, the company is affiliaited. A
summary of transactions for each company which is or was an affiliate at or
during the year ended December 31, 2004 follows:
SHARE SHARE MARKET
BALANCE PURCHASE BALANCE VALUE
FUND 12-31-03 COST 12-31-04 12-31-04
- ---- -------- ------------ --------- -----------
SERIES J
Electric City Corporation* -- $ 3,823,359 2,214,000 $ 2,723,220
Electric City Warrants* -- $ 604,641 645,750 266,071
*Non-income producing.
192
Report of Independent Registered Public Accounting Firm
TO THE CONTRACTHOLDERS AND BOARD OF DIRECTORS
SBL FUND
We have audited the accompanying statements of assets and liabilities of SBL
Fund (comprised of Series A, B, C, D, E, G, H, J, N, 0, P, Q, S, V, W, X, Y and
Z portfolios) (the Fund), including the schedules of investments, as of December
31, 2004, and the related statements of operations for the year then ended,
statement of changes in net assets and the financial highlights for each of the
periods indicated therein. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion of the effectiveness of the Fund's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements and financial
highlights, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
Our procedures included confirmation of investments owned as of December 31,
2004, by correspondence with custodians and brokers. As to certain securities
relating to uncompleted transactions, we performed other audit procedures. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective portfolios constituting the Fund at December 31, 2004, the
results of their operations for the year then ended, the changes in their net
assets and the financial highlights for each of the periods indicated therein,
in conformity with U.S. generally accepted accounting principles.
Kansas City, Missouri Ernst & Young LLP
February 4, 2005
193
Directors and Officers (unaudited)
The business address of each director and officer is One Security Benefit Place,
Topeka, KS 66636-0001.
DIRECTORS
NAME
(DATE OF BIRTH)
YEAR ELECTED*** PRINCIPAL OCCUPATION(s) DURING PAST 5 YEARS
- --------------- -------------------------------------------
Donald A. Chubb, Jr.** Business broker, Griffith & Blair Realtors
(12-14-46)
1994
Harry W. Craig, Jr. Chairman, CEO, Secretary & Director, The Martin Tractor Company, Inc.; President & Director,
(05-11-39) The Martin Tractor Company, Inc.
2004
Penny A. Lumpkin** Partner, Vivians' Gift Shop (Corporate Retail)
(08-20-39) Vice President, Palmer Companies, Inc. (Small Business and Shopping Center Development)
1993 Vice President, PLB (Real Estate Equipment Leasing)
Vice President, Town Crier (Retail)
Prior to 1999:
Vice President & Treasurer, Palmer News, Inc.
Vice President, M/S News, Inc.
Secretary, Kansas City Periodicals
Prior to 2002:
Vice President, Bellaire Shopping Center (Managing and Leasing)
Partner, Goodwin Enterprises (Retail)
Maynard F. Oliverius** President & Chief Executive Officer, Stormont-Vail HealthCare
(12-18-43)
1998
John D. Cleland* Retired. Prior to January 1, 2003, Senior Vice President, Security Benefit Group, Inc. &
(05-01-36) Security Benefit Life Insurance Company
1991 (Director)
2000 (Chairman of the Board)
Michael G. Odium* President & Managing Member Representative, Security Management Company, LLC
(01-12-52) Senior Vice President and Chief Investment Officer, Security Corporation and
2004 (President) Security Benefit Life Insurance Company
2004 (Director) Director, Security Distributors, Incc.
Director, Vice President and Chief Investment Officer, First Security Benefit Life Insurance and
Annuity Company of New York
President & Chief Operating Officer, Allied Investment Advisors, Inc.
Principal, Vanguard Group
- ----------
* These directors are deemed to be "interested persons" of the Funds under
the Investment Company Act of 1940, as amended, by reason of their
positions with the Fund's Investment Manager and/or the parent of the
Investment Manager.
** These directors serve on the Funds' joint audit committee, the
purpose of which is to meet with the independent auditors, to review the
work of the auditors, and to oversee the handling by Security Management
Company, LLC of the accounting function for the Fund.
*** Each director oversees 35 Security Fund portfolios and serves until
the next annual meeting, or until a successor has been duly elected
and qualified.
194
Directors and Officers (unaudited) (continued)
OFFICERS
NAME
(DATE OF BIRTH)
TITLE
YEAR ELECTED* PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
--------------- -------------------------------------------
Steven M. Bowser Vice President & Senior Portfolio Manager, Security Management Company, LLC;
(02-11-60) Vice President & Security Benefit Life Insurance Company
Vice President
2003
Brenda M. Harwood Assistant Vice President, Chief Compliance Officer & Treasurer, Security
(11-03-63) Management Company, LLC;
Treasurer Assistant Vice President, Security Benefit Life Insurance Company
1988 Vice President & Director, Security Distributors, Inc.
Mark Lamb Vice President, Security Management Company, LLC,
(02-03-60) Security Benefit Life Insurance Company
Vice President
2003
Amy J. Lee Secretary, Security Management Company, LLC & Security Distributors, Inc.;
(06-05-61) Vice President, Associate General Counsel & Assistant Secretary,
Secretary Security Benefit Life Insurance Company
1987
Mark Mitchell Vice President & Portfolio Manager, Security Management Company, LLC
(08-24-64)
Vice President
2003
James P. Schier Vice President & Senior Portfolio Manager, Security Management Company, LLC;
(12-28-57) Vice President, Security Benefit Life Insurance Company
Vice President
1998
Cindy L. Shields Vice President & Head of Equity Asset Management, Security Management Company,LLC,
(06-05-67) Security Benefit Life Insurance Company
Vice President
1988
Christopher D. Swickard Assistant Secretary, Security Management Company, LLC
(10-09-65) Second Vice President & Counsel, Security Benefit Life Insurance Company
Assistant Secretary
1996
* Officers serve until the next annual meeting or until a successor has been
duly elected and qualified.
Each of the Security Funds files a complete schedule of portfolio holdings with
the U.S. Securities and Exchange Commission for the first and third quarters of
each fiscal year on Form N-Q. The Forms N-Q of each such Fund are available on
the Commission's website at www.sec.gov. The Forms N-Q may be reviewed and
copied at the Commission's Public Reference Room in Washington, DC. Information
on the operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330. The portfolio holdings of each of the Security Funds are
available on their website, www.securitybenefit.com or by calling
1-800-888-2461.
A description of the policies and procedures that the Security Funds use to
determine how to vote proxies relating to portfolio securities is available upon
request, free of charge by calling 1-800-888-2461, or accessing the U.S.
Securities and Exchange Commission website at www.sec.gov. Information regarding
how the Security Funds voted proxies relating to portfolio securities during the
12 month period ended June 30, 2004 is available upon request, free of charge by
calling 1-800-888-2461, or accessing the U.S. Securities and Exchange Commission
website at www.sec.gov.
The statement of additional information ("SAI") includes additional information
about the Funds' Directors and is available upon request without charge by
calling 1-800-888-2461.
195
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196
THE SECURITY GROUP OF MUTUAL FUNDS
Security Equity Fund
- Alpha Opportunity Series
- Enhanced index Series
- Equity Series
- Global Series
- Large Cap Growth Series
- Mid Cap Value Series
- Select 25(R) Series
- Small Cap Growth Series
- Social Awareness Series
Security Large Cap value Fund
Security Mid Cap Growth Fund
Security Income Fund
- Diversified Income Series
- High Yield Series
- Income opportunity Series
- Capital Preservation Series
Security Municipal Bond Fund
Security Cash Fund
SECURITY FUNDS OFFICERS AND DIRECTORS
DIRECTORS
Donald A. Chubb, Jr.
John D. Cleland
Harry W. Craig, Jr.
Penny A. Lumpkin
Michael G. Odlum
Maynard F. Oliverius
OFFICERS
John D. Cleland, Chairman of the Board
Michael G. Odlum, President
Steve M. Bowser, Vice President, Equity Fund
Mark Lamb,Vice President, Equity Fund
Mark Mitchell, Vice President, Equity Fund
James P. Schier, Vice President, Equity and Mid Cap Growth Fund
Cindy L. Shields, Vice President, Equity Fund
Amy J. Lee, Secretary
Christopher D. Swickard, Assistant Secretary
Brenda M. Harwood, Chief Compliance Officer & Treasurer
This report is submitted for the general information of the shareholders of the
Funds. The report is not authorized for distribution to prospective investors in
the Funds unless preceded or accompanied by an effective prospectus which
contains details concerning the sales charges and other pertinent information.
[SECURITY DISTRIBUTORS, INC. LOGO]
One Security Benefit Place
Topeka, KS 66636-0001
ITEM 2. CODE OF ETHICS.
The Registrant has adopted a code of ethics that applies to its principal
executive officer and principal financial officer. A copy of the Registrant's
code of ethics is filed herewith as Exhibit 10(a)(1). No amendments were made to
the provisions of the code of ethics during the period covered by this report.
No implicit or explicit waivers to the provisions of the code of ethics were
granted during the period covered by this report. The Registrant hereby
undertakes to provide any person without charge, upon request, a copy of its
Code by calling the Registrant at 1-800-888-2461.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Registrant's Board of Directors has determined that Maynard Oliverius, a
member of the Audit Committee of the Board, is an audit committee financial
expert. Mr. Oliverius is "independent" for purposes of this item.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees. The aggregate fees billed for each of the last two fiscal
years (the "Reporting Periods") for professional services rendered by the
Registrant's principal accountant (the "Auditor") for the audit of the
Registrant's annual financial statements, or services that are normally
provided by the Auditor in connection with the statutory and regulatory
filings or engagements for the Reporting Periods, were $241,000 in 2003
and $303,000 in 2004.
(b) Audit-Related Fees. The aggregate fees billed in the Reporting Periods for
assurance and related services by the Auditor that are reasonably related
to the performance of the audit of the Registrant's financial statements
and are not reported under paragraph (a) of this Item 4 were $8,000 in
2003 and $5,000 in 2004. These services consisted of a review of the
Registrant's semi-annual financial statements.
The aggregate fees billed in the Reporting Periods for assurance and
related services by the Auditor to the Registrant's investment adviser
(not including any sub-investment adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another
investment adviser), and any entity controlling, controlled by or under
common control with the investment adviser that provides ongoing services
to the Registrant ("Service Affiliates") which required pre-approval by
the Audit Committee were $14,000 in 2003 and $18,000 in 2004, which
related to the review of the transfer agent function.(1)
- ------------
(1) Prior to May 6, 2003, the Registrant's Audit Committee was not required to
pre-approve non-audit services. Therefore, the information here represents only
fees for pre-approved non-audit services rendered after May 6, 2003, to Service
Affiliates.
(c) Tax Fees. The aggregate fees billed to the Registrant in the Reporting
Periods for professional services rendered by the Auditor for tax
compliance, tax advice and tax planning ("Tax Services") were $23,000 in
2003 and $47,000 in 2004. These services consisted of (i) review or
preparation of U.S. federal, state, local and excise tax returns; (ii)
U.S. federal, state and local tax planning, advice and assistance
regarding statutory, regulatory or administrative developments, (iii) tax
advice regarding tax qualification matters and/or
treatment of various financial instruments held or proposed to be acquired
or held, and (iv) determination of Passive Foreign Investment Companies.
The aggregate fees billed in the Reporting Periods for Tax Services by the
Auditor to Service Affiliates which required pre-approval by the Audit
Committee were $0 in 2003 and $0 in 2004.(2)
- ------------
(2) Prior to May 6, 2003, the Registrant's Audit Committee was not required to
pre-approve Tax Services. Therefore, the information here represents only fees
for pre-approved Tax Services rendered after May 6, 2003, to Service Affiliates.
(d) All Other Fees. The aggregate fees billed to the Registrant in the
Reporting Periods for products and services provided by the Auditor, other
than the services reported in paragraphs (a) through (c) of this Item,
were $0 in 2003 and $0 in 2004.
The aggregate fees billed in the Reporting Periods for Non-Audit Services
by the Auditor to Service Affiliates, other than the services reported in
paragraphs (b) through (d) of this Item, which required pre-approval by
the Audit Committee were $0 in 2003 and $0 in 2004.(3)
- ------------
(3) Prior to May 6, 2003, the Registrant's Audit Committee was not required to
pre-approve these services. Therefore, the information here represents only fees
for pre-approved services rendered after May 6, 2003, to Service Affiliates.
(e) (1) Audit Committee Pre-Approval Policies and Procedures. The
Registrant's Audit Committee has established policies and procedures
for pre-approval of the auditor's engagements for audit and
non-audit services to the Registrant. Pre-approval considerations
include whether the proposed services are compatible with
maintaining the auditor's independence as specified in applicable
rules.
(e) (2) Percentage of Non-Audit Services Approved under (c)(7)(i)(C). The
percentage of the services described in each of (b) through (d) of
this Item 4 (only those that relate to the Registrant) that were
approved by the Audit Committee pursuant to paragraph (c)(7)(i)(C)
of Rule 2-01 of Regulation S-X was 1.84%, 0% and 0%, respectively.
(f) Not applicable.
(g) Non-Audit Fees. The aggregate non-audit fees billed by the Auditor for
services rendered to the Registrant, and rendered to Service Affiliates,
for the Reporting Periods were $45,000 in 2003 and $70,000 in 2004.
(h) Auditor Independence. The Registrant's Audit Committee was provided with
information relating to the provision of non-audit services by E&Y to the
Registrant (and its affiliates) that were not pre-approved by the Audit
Committee so that a determination could be made whether the provision of
such services is compatible with maintaining E&Y's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
The Schedule of Investments is included under Item 1 of this form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The registrant does not currently have in place procedures by which shareholders
may recommend nominees to the registrant's board.
There have been no changes to the procedures by which shareholders may recommend
nominees to the registrant's board.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's President and Treasurer have concluded that the
registrant's disclosure controls and procedures (as defined in rule
30a-3(c) under the Investment Company Act of 1940) are effective based on
their evaluation of these disclosure controls and procedures within 90
days of the filing date of this report on Form N-CSR.
(b) There were no significant changes in the registrant's internal controls,
or in other factors that could significantly affect these controls
subsequent to the date of their evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
ITEM 12. EXHIBITS.
(a) (1) Code of Ethics pursuant to Item 2 above.
(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 and required by Rule 30a-2(a) under the Investment Company Act
of 1940, are attached hereto.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
and required by Rule 30a-2(a) under the Investment Company Act of 1940,
are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SBL FUND
By: MICHAEL G. ODLUM
-----------------------------------
Michael G. Odlum, President
Date: March 9, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: MICHAEL G. ODLUM
-----------------------------------
Michael G. Odlum, President
Date: March 9, 2005
By: BRENDA M. HARWOOD
-----------------------------------
Brenda M. Harwood, Treasurer
Date: March 9, 2005