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, 2005
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. ss.3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
SBL FUND
ANNUAL REPORT
DECEMBER 31, 2005
- - 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 BENEFIT (SM) LOGO)
Security Distributors, Inc.
SBL FUND
DECEMBER 31, 2005
ANNUAL REPORT
TABLE OF CONTENTS
Series A (Equity Series) ................................................. 3
Series B (Large Cap Value Series) ........................................ 11
Series C (Money Market Series) ........................................... 19
Series D (Global Series) ................................................. 27
Series E (Diversified Income Series) ..................................... 37
Series G (Large Cap Growth Series) ....................................... 47
Series H (Enhanced Index Series) ......................................... 55
Series J (Mid Cap Growth Series) ......................................... 67
Series N (Managed Asset Allocation Series) ............................... 77
Series O (Equity Income Series) .......................................... 101
Series P (High Yield Series) ............................................. 111
Series Q (Small Cap Value Series) ........................................ 123
Series S (Social Awareness Series) ....................................... 133
Series V (Mid Cap Value Series) .......................................... 141
Series W (Main Street Growth & Income(R) Series) ......................... 151
Series X (Small Cap Growth Series) ....................................... 165
Series Y (Select 25 Series) .............................................. 173
Series Z (Alpha Opportunity Series) ...................................... 181
Notes to Financial Statements ............................................ 190
Report of Independent Registered Public Accounting Firm .................. 202
Directors' Disclosure .................................................... 204
Directors and Officers ................................................... 206
1
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2
SERIES A
Manager's Commentary (EQUITY SERIES)
February 15, 2006 (unaudited)
(SECURITY BENEFIT (SM) LOGO)
Security Management Company, LLC
Advisor, Security Management Company, LLC
(PHOTO OF MARK A. MITCHELL)
Mark A. Mitchell
Portfolio Manager
TO OUR SHAREHOLDERS:
Series A of the SBL Fund - Equity Series returned 4.33% in the 12-month period
ending December 31, 2005, lagging the benchmark S&P 500 Index's return of 4.91%
and the Series' peer group median return of 5.42%. Like 2004, the markets
favored lower quality, higher beta, and smaller market cap companies. In such
environments, we tend to under perform. While disappointing, we believe that our
approach delivers performance over the long-term.
Our approach to managing the 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.
FINANCIAL STOCKS TOP PERFORMERS
The Series' financial sector holdings were up 10% compared to 6% for the Index.
Positions in First Marblehead Corporation, American International Group (AIG),
and American Express Company contributed positively to the Series. Both First
Marblehead Corporation and AIG had short-term issues surrounding business
practices and subsequent management changes. Our view was that these were
temporary issues that did not significantly diminish each company's competitive
position or growth prospects. These are good examples of our ability to
capitalize on market overreactions by allowing us to invest in what we believe
are superior businesses at very reasonable prices. American Express Company
benefited from the spin-off of its investment advisory business and solid
execution within its core charge and credit card operations.
TECHNOLOGY AND UTILITIES DISAPPOINTING
Technology stocks continued to be volatile with 2005 being a recovery year
following a poor 2004. Positive results from ADC Telecommunications, Inc. (ADC),
up 19%, were not able to offset not owning Apple Computer or Hewlett Packard.
ADC benefited from the broadband build out, while Apple had tremendous success
with new product launches. Hewlett Packard benefited from a new management team
and a strategy change that allows it to compete more effectively.
The utilities sector was up 17% in 2005 following strong performance in the
prior two years as well. Utilities continued to perform due to their attractive
dividend yields, reductions made in their operating risk profiles, de-leveraging
their balance sheets, and the anticipation of an improving regulatory
environment. For some time, we have felt that all of these catalysts have
already been priced into the sector; therefore we had no exposure. We feel
comfortable with our under weight position due to a belief that some of these
variables will reverse themselves in the future.
2006 MARKET OUTLOOK
Though we are positive on the equity market for 2006, we do have several
near-term concerns. The most significant, in our opinion, is the spending
capacity of the U.S. consumer. Above average consumer spending trends have
persisted as a result of favorable monetary and fiscal policies. These favorable
policy trends are now being reversed. Additionally, higher energy prices will
continue to weigh heavily on the consumer as we move through the winter heating
season.
We continue to look for opportunities that are long-term in nature and benefit
from both an attractive valuation and the ability to improve their fundamental
competitive position.
We 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(1). 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
(1) Dollar cost averaging does not assure profits or protect against loss in a
declining market.
3
SERIES A
Manager's Commentary (EQUITY SERIES)
February 15, 2006 (unaudited)
PERFORMANCE
SERIES A VS. S&P 500 INDEX
(PERFORMANCE GRAPH)
SERIES A S&P 500 INDEX
- ------------------------------------ ---------------------
DATE VALUE DATE VALUE
- ---------- --------- -------- ---------
12/31/1995 10,000.00 INCEPTION 12/31/95 10,000.00
3/31/1996 10,732.29 3/31/96 10,536.35
6/30/1996 11,198.29 6/30/96 11,008.74
9/30/1996 11,637.66 9/30/96 11,349.07
12/31/1996 12,268.50 12/31/96 12,295.60
3/31/1997 12,278.59 3/31/97 12,624.86
6/30/1997 14,327.55 6/30/97 14,829.18
9/30/1997 15,523.09 9/30/97 15,941.24
12/31/1997 15,791.74 12/31/97 16,399.53
3/31/1998 18,065.21 3/31/98 18,687.28
6/30/1998 18,643.11 6/30/98 19,304.54
9/30/1998 16,452.87 9/30/98 17,383.58
12/31/1998 19,804.70 12/31/98 21,084.26
3/31/1999 20,147.96 3/31/99 22,137.84
6/30/1999 21,182.42 6/30/99 23,697.99
9/30/1999 19,336.03 9/30/99 22,217.90
12/31/1999 21,416.03 12/31/99 25,523.58
3/31/00 21,663.30 3/31/00 26,110.20
6/30/00 21,060.20 06/30/00 25,417.83
9/30/00 20,544.17 09/30/00 25,171.96
12/31/00 18,682.48 12/31/00 23,204.17
3/31/2001 16,358.65 3/31/2001 20,454.31
6/30/2001 17,476.36 6/30/2001 21,652.06
9/30/2001 14,833.81 9/30/2001 18,475.85
12/31/2001 16,551.10 12/31/2001 20,451.30
3/31/2002 16,459.22 3/31/2002 20,506.88
6/30/2002 13,972.15 6/30/2002 17,760.15
9/30/2002 11,782.04 9/30/2002 14,692.83
12/31/2002 12,562.35 12/31/2002 15,933.73
3/31/2003 12,211.53 3/31/2003 15,431.91
6/30/2003 13,756.63 6/30/2003 17,807.35
9/30/2003 13,972.20 9/30/2003 18,278.64
12/30/2003 15,285.01 12/31/2003 20,504.32
3/31/2004 15,472.69 3/31/2004 20,852.16
6/30/2004 15,697.91 6/30/2004 21,209.61
9/30/2004 15,316.42 9/30/2004 20,811.97
12/31/2004 16,481.31 12/31/2004 22,733.70
3/31/2005 15,962.75 3/31/2005 22,243.95
6/30/2005 16,120.57 6/30/2005 22,546.75
9/30/2005 16,646.65 9/30/2005 23,360.38
12/31/2005 17,195.27 12/31/2005 23,845.69
$10,000 OVER 10 YEARS
The chart above assumes a hypothetical $10,000 investment in Series A (Equity
Series) on December 31, 1995 and reflects the fees and expenses of Series A. The
S&P 500 Index is a capitalization-weighted index composed of 500 selected common
stocks that represent the broad domestic economy and is a widely recognized
unmanaged index of market performance.
PORTFOLIO COMPOSITION BY SECTOR
Consumer Discretionary 10.73%
Consumer Staples 11.02
Energy 7.74
Financials 16.64
Health Care 11.98
Industrials 17.53
Information Technology 12.52
Materials 3.63
Telecommunication Services 1.97
Utilities .40
Exchange Traded Funds 4.51
Commercial Paper 1.08
Repurchase Agreement 0.10
Cash & other assets, less liabilities 0.15
Total net assets 100.00%
======
AVERAGE ANNUAL RETURNS
PERIODS ENDED 12-31-05(1) 1 YEAR 5 YEARS 10 YEARS
- ------------------------- ------ ------- --------
Series A 4.33% (1.64%) 5.57%
(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.
4 See accompanying notes.
SERIES A
Manager's Commentary (EQUITY SERIES)
February 15, 2006 (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, 2005 - December 31, 2005.
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
mutual 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.
SERIES EXPENSES
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING
07-01-05 12-31-05(1) PERIOD(2)
------------- ------------- -------------
Series A (Equity Series)
Actual $1,000.00 $1,060.70 $4.62
Hypothetical 1,000.00 1,020.72 4.53
(1) The actual ending account value is based on the actual total return of the
Series for the period July 1, 2005 to December 31, 2005 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, 2005 to December 31, 2005 was 6.07%.
(2) Expenses are equal to the Series annualized expense ratio 0.89% multiplied
by the average account value over the period, multiplied by 184/365 (to
reflect the one-half year period).
5
Schedule of Investments SERIES A
December 31, 2005 (EQUITY SERIES)
NUMBER
OF SHARES MARKET VALUE
--------- ------------
COMMON STOCKS - 98.7%
AEROSPACE & DEFENSE - 6.0%
General Dynamics Corporation 106,300 $ 12,123,515
L-3 Communications Holdings, Inc. 46,000 3,420,100
United Technologies Corporation 225,900 12,630,069
------------
28,173,684
------------
AIR FREIGHT & LOGISTICS - 2.6%
FedEx Corporation 119,500 12,355,105
------------
ALUMINUM - 1.6%
Alcoa, Inc. 256,900 7,596,533
------------
BIOTECHNOLOGY - 1.3%
Amgen, Inc.* 77,450 6,107,707
------------
BROADCASTING & CABLE TV - 1.3%
Univision Communications, Inc.* 205,500 6,039,645
------------
COMMUNICATIONS EQUIPMENT - 3.2%
ADC Telecommunications, Inc.* 252,714 5,645,631
Cisco Systems, Inc.* 533,500 9,133,520
------------
14,779,151
------------
CONSTRUCTION & ENGINEERING - 1.5%
Shaw Group, Inc.* 248,200 7,220,138
------------
CONSUMER FINANCE - 2.2%
American Express Company 200,200 10,302,292
------------
DATA PROCESSING & OUTSOURCED SERVICES - 2.8%
First Data Corporation 303,200 13,040,632
------------
DRUG RETAIL - 2.4%
CVS Corporation 420,000 11,096,400
------------
ELECTRIC UTILITIES - 0.4%
KFx, Inc.* 108,000 1,847,880
------------
EXCHANGE TRADED FUNDS - 4.5%
iShares S&P 500 Index Fund 93,200 11,616,448
S&P Depositary Receipts Trust 76,000 9,456,680
------------
21,073,128
------------
HEALTH CARE EQUIPMENT - 4.3%
Medtronic, Inc. 185,650 10,687,871
Zimmer Holdings, Inc.* 140,900 9,502,296
------------
20,190,167
------------
HEALTH CARE SERVICES - 1.2%
Medco Health Soulutions, Inc.* 96,100 5,362,380
------------
HOME IMPROVEMENT RETAIL - 2.7%
Home Depot, Inc. 311,200 12,597,376
------------
HOTELS, RESORTS & CRUISE LINES - 2.7%
Carnival Corporation 237,500 12,699,125
------------
HYPERMARKETS & SUPERCENTERS - 5.2%
Costco Wholesale Corporation 231,000 11,427,570
Wal-Mart Stores, Inc. 275,800 12,907,440
------------
24,335,010
------------
INDUSTRIAL CONGLOMERATES - 7.3%
General Electric Company 627,500 $ 21,993,875
Tyco International, Ltd. 419,600 12,109,656
------------
34,103,531
------------
INDUSTRIAL GASES - 2.0%
Praxair, Inc. 177,000 9,373,920
------------
INTEGRATED OIL & GAS - 4.6%
Chevron Corporation 134,000 7,607,180
Exxon Mobil Corporation 246,900 13,868,373
------------
21,475,553
------------
IT CONSULTING & OTHER SERVICES - 1.9%
Unisys Corporation* 1,505,850 8,779,105
------------
MANAGED HEALTH CARE - 2.6%
WellPoint, Inc.* 152,600 12,175,954
------------
MOVIES & ENTERTAINMENT - 4.0%
Time Warner, Inc. 505,000 8,807,200
Viacom, Inc. (Cl.B) 305,900 9,972,340
------------
18,779,540
------------
MULTI-LINE INSURANCE - 4.6%
American International Group, Inc. 315,800 21,547,034
OIL & GAS EQUIPMENT & SERVICES - 3.1%
BJ Services Company 147,600 5,412,492
Halliburton Company 149,700 9,275,412
------------
14,687,904
------------
OTHER DIVERSIFIED FINANCIAL SERVICES - 7.1%
Citigroup, Inc. 315,600 15,316,068
First Marblehead Corporation(1) 337,800 11,100,108
JP Morgan Chase & Company 165,900 6,584,571
------------
33,000,747
------------
PACKAGED FOODS & MEATS - 1.9%
Tyson Foods, Inc. 510,000 8,721,000
------------
PHARMACEUTICALS - 2.6%
Johnson & Johnson 201,400 12,104,140
------------
PROPERTY & CASUALTY INSURANCE - 2.8%
Berkshire Hathaway, Inc.* 145 12,849,900
------------
SEMICONDUCTORS - 0.9%
Analog Devices, Inc. 120,300 4,315,161
------------
SOFT DRINKS - 1.6%
PepsiCo, Inc. 123,350 7,287,518
------------
SYSTEMS SOFTWARE - 3.8%
Microsoft Corporation 670,900 17,544,035
------------
WIRELESS TELECOMMUNICATION SERVICE - 2.0%
Sprint Nextel Corporation 392,800 9,175,808
------------
TOTAL COMMON STOCKS
(cost $381,852,388) 460,737,203
============
6 See accompanying notes.
Schedule of Investments SERIES A
December 31, 2005 (EQUITY SERIES)
PRINCIPAL MARKET
AMOUNT VALUE
---------- ------------
COMMERCIAL PAPER - 0.5%
BROKERAGE - 0.5%
Goldman Sachs Group Inc.:
4.32%, 01-03-06 $1,000,000 $ 999,760
4.32%, 01-04-06 1,500,000 1,499,455
------------
2,499,215
------------
TOTAL COMMERCIAL PAPER 2,499,215
(cost $2,499,215) ------------
ASSET BACKED COMMERCIAL PAPER - 0.5%
FINANCIAL COMPANIES - DIVERSIFIED - 0.3%
Amsterdam Funding Corporation,
4.35%, 01-06-06 1,500,000 1,499,094
------------
FINANCIAL COMPANIES - TRADE RECEIVABLES - 0.2%
Sheffield Receivables Corporation,
4.25%, 01-05-06 1,000,000 999,528
------------
TOTAL ASSET BACKED COMMERCIAL PAPER 2,498,622
(cost $2,498,622) ------------
REPURCHASE AGREEMENT - 0.1%
United Missouri Bank, 3.78%, dated 12-30-05,
matures 01-03-06; repurchase amount of
$430,181 (Collateralized by U.S. Treasury
Notes, 1.875%, 01-31-06 with a value of
$438,723) 430,000 430,000
------------
TOTAL REPURCHASE AGREEMENT 430,000
(cost $430,000) ------------
TOTAL INVESTMENTS - 99.8% 466,165,040
(cost $387,280,225)
CASH & OTHER ASSETS, LESS LIABILITIES - 0.2% 765,596
------------
TOTAL NET ASSETS - 100.0% $466,930,636
============
The identified cost of investments owned at December 31, 2005 was the same for
federal income tax and financial statement purposes.
* Non-income producing security
(1) A portion of this security is segregated as collateral for open written
options contracts.
7 See accompanying notes.
SERIES A
(EQUITY SERIES)
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2005
ASSETS:
Investments, at value(1) ...................................... $466,165,040
Cash .......................................................... 5,480
Receivables:
Fund shares sold ........................................... 1,451,403
Dividends .................................................. 379,868
Prepaid expenses .............................................. 9,084
------------
Total assets .................................................. 468,010,875
------------
LIABILITIES:
Payable for:
Fund shares redeemed ....................................... 589,378
Management fees ............................................ 301,394
Written options, at value
(Premiums received $149,266) ............................... 74,700
Custodian fees ............................................. 5,400
Transfer agent and administration fees ..................... 40,394
Professional fees .......................................... 25,772
Director's fees ............................................ 5,500
Other ...................................................... 37,701
------------
Total liabilities ............................................. 1,080,239
------------
NET ASSETS .................................................... $466,930,636
============
NET ASSETS CONSIST OF:
Paid in capital ............................................... $365,883,205
Accumulated undistributed net investment income ............... 2,686,549
Accumulated undistributed net realized gain
on sale of investments and options written ................. 19,401,500
Net unrealized appreciation in value
of investments and options written ......................... 78,959,382
Net assets .................................................... $466,930,636
Capital shares authorized ..................................... unlimited
Capital shares outstanding .................................... 20,412,067
Net asset value per share
(net assets divided by shares outstanding) ................. $ 22.88
============
(1) Investments, at cost ...................................... $387,280,225
STATEMENT OF OPERATIONS
For the Year Ended December 31, 2005
INVESTMENT INCOME:
Dividends .................................................. $ 6,663,265
Interest ................................................... 331,691
------------
Total investment income .................................... 6,994,956
------------
EXPENSES:
Management fees ............................................ 3,635,708
Administration fees ........................................ 438,796
Custodian fees ............................................. 22,715
Transfer agent/maintenance fees ............................ 25,215
Directors' fees ............................................ 26,335
Professional fees .......................................... 80,352
Reports to shareholders .................................... 53,807
Other expenses ............................................. 25,479
------------
Total expenses ............................................. 4,308,407
------------
Net investment income ...................................... 2,686,549
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain during the year on:
Investments ................................................ 24,872,487
Options written ............................................ 283,186
------------
Net realized gain .......................................... 25,155,673
------------
Net unrealized appreciation
(depreciation) during the year on:
Investments ................................................ (9,081,714)
Options written ............................................ 74,566
------------
Net unrealized depreciation ................................ (9,007,148)
------------
Net realized and unrealized gain ........................... 16,148,525
------------
Net increase in net assets resulting from operations ....... $ 18,835,074
============
8 See accompanying notes.
SERIES A
Statement of Changes in Net Assets (EQUITY SERIES)
YEAR ENDED YEAR ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income ................................................... $ 2,686,549 $ 4,366,597
Net realized gain during the period on investments and options written .. 25,155,673 32,489,299
Net unrealized appreciation (depreciation) during the period on
investments and options written ...................................... (9,007,148) 2,052,471
------------- -------------
Net increase in net assets resulting from operations .................... 18,835,074 38,908,367
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ................................................... -- (557,400)
------------- -------------
Total distributions to shareholders ..................................... -- (557,400)
------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares ............................................ 44,233,911 73,369,951
Distributions reinvested ................................................ -- 557,400
Cost of shares redeemed ................................................. (126,234,284) (141,472,304)
------------- -------------
Net decrease from capital share transactions ............................ (82,000,373) (67,544,953)
------------- -------------
Net decrease in net assets .............................................. (63,165,299) (29,193,986)
------------- -------------
NET ASSETS:
Beginning of period ..................................................... 530,095,935 559,289,921
------------- -------------
End of period ........................................................... $ 466,930,636 $ 530,095,935
============= =============
Accumulated undistributed net investment income at end of year .......... $ 2,686,549 $ 4,363,888
============= =============
CAPITAL SHARE ACTIVITY:
Shares sold ............................................................. 2,025,092 3,545,480
Shares reinvested ....................................................... -- 27,151
Shares redeemed ......................................................... (5,789,676) (6,850,984)
------------- -------------
Total capital share activity ............................................ (3,764,584) (3,278,353)
============= =============
9 See accompanying notes.
Financial Highlights
Selected data for each share of capital stock outstanding SERIES A
throughout each year (EQUITY SERIES)
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
2005 2004 2003 2002 2001
-------- -------- -------- -------- --------
PER SHARE DATA
Net asset value, beginning of period $ 21.93 $ 20.37 $ 16.83 $ 22.36 $ 28.50
Income (loss) from investment operations:
Net investment income 0.16 0.18 0.13 0.10 0.06
Net gain (loss) on securities (realized and unrealized) 0.79 1.40 3.53 (5.47) (3.14)
-------- -------- -------- -------- --------
Total from investment operations 0.95 1.58 3.66 (5.37) (3.08)
-------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income -- (0.02) (0.12) (0.16) (0.05)
Distributions from realized gains -- -- -- -- (3.01)
-------- -------- -------- -------- --------
Total distributions -- (0.02) (0.12) (0.16) (3.06)
-------- -------- -------- -------- --------
Net asset value, end of period $ 22.88 $ 21.93 $ 20.37 $ 16.83 $ 22.36
======== ======== ======== ======== ========
TOTAL RETURN(A) 4.33% 7.77% 21.74% (24.10%) (11.41%)
-------- -------- -------- -------- --------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $466,931 $530,096 $559,290 $517,837 $790,602
-------- -------- -------- -------- --------
Ratios to average net assets:
Net investment income 0.55% 0.81% 0.66% 0.49% 0.26%
Total expenses (b) 0.89% 0.87% 0.82% 0.82% 0.83%
Net expenses (c) 0.89% 0.87% 0.82% 0.82% 0.82%
Total expenses after custodian earnings credits 0.89% 0.87% 0.82% 0.82% 0.83%
-------- -------- -------- -------- --------
Portfolio turnover rate 37% 27% 53% 25% 20%
(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) Total expense information reflects expense ratios absent fund expense
reductions by the Investment Manager, as applicable.
(c) Net expense information reflects the expense ratios after voluntary expense
waivers, reimbursements and custodian earnings credits, as applicable.
10 See accompanying notes.
SERIES B
Manager's Commentary (LARGE CAP VALUE SERIES)
February 15, 2006 (unaudited)
(SECURITY BENEFIT (SM) LOGO)
Security Management Company, LLC
Advisor, Security Management Company, LLC
(PHOTO OF MARK MITCHELL)
Mark Mitchell
Portfolio Manager
TO OUR SHAREHOLDERS:
Series B of the SBL Fund - Large Cap Value Series returned 10.52% in the
12-month period ended December 31, 2005, beating the benchmark Russell 1000
Value Index's return of 7.05% and the Series' peer group median return of 5.41%.
The S&P 500 BARRA Value index's return for the same period was 4.00%.
Security Management Company assumed investment management responsibilities on
June 30, 2005. The following comments are based on results for the six months
ended on December 31, 2005.
The Series' was up 11.15% compared to up 5.20% for the Russell 1000 Value Index
for the six-month period ended December 31, 2005. Strong stock selection drove
excellent results in the second half of 2005.
Our approach to managing the 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 that have or can create
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 value names.
INDUSTRIALS AND ENERGY STOCKS TOP PERFORMERS IN LAST SIX MONTHS
The industrial sector holdings were up 26% compared to 9% for the Index.
McDermott International, Inc. appreciated 112%, driven by a favorable legacy
asbestos litigation ruling and strong demand for its energy infrastructure
construction related services. Shaw Group, Inc. was up 35% as a result of strong
demand for its infrastructure construction related services.
Energy stocks did well in the 3rd and 4th quarters as a result of continued
commodity price increases. Specifically, our energy sector return of 15%
bettered the index return of 6%. These strong results were do in part to owning
Sasol, Ltd. up 34%, Halliburton Company up 30%, and Williams Companies, Inc., up
22%.
TECHNOLOGY DISAPPOINTING OVER LAST SIX MONTHS
The Series' technology sector holdings, up 4%, lagged the benchmark's sector
return of 15%. Unisys Corporation negatively impacted our performance as the
company lowered its growth expectations due in part to a more difficult
competitive environment.
OVERVIEW OF FIRST 6 MONTHS BY PREVIOUS MANAGER
The following comments from Dreyfus cover the results prior to the investment
manager change on June 30, 2005.
The portfolio outperformed the index, S&P BARRA Value in the consumer staples,
utilities, industrials, information technology, and financials sectors. The
portfolio lagged the benchmark in the materials, energy, health care, consumer
discretionary, and telecommunication services sectors.
Within consumer staples, shares of grocer Safeway rose over 14% on improved
year-over-year sales growth and better-than-expected earnings.
Aiding the energy sector were Exxon Mobil and ConocoPhillips. Exxon Mobil, which
is not held in the benchmark, advanced over 13% and was the most significant
contributor. The company produced record 4th quarter 2004 earnings, which
translated into a 1st quarter 2005 earnings nearly 30% higher than street
estimates and drove a 20% surge in the stock price. Shares weakened during the
second quarter, but Exxon was still a top performer in the 1st half of 2005.
ConocoPhilips performed well during the period because of higher energy prices,
improved refining margins, and a solid 1st quarter earnings report released in
later April.
Within consumer discretionary, Advance Auto Parts continues to take market
share, drive traffic in newly remodeled stores, grow new stores, and expand
margins. It has grown earnings well over 20% year-over-year. And despite losing
two CEO's in the space of 15 months, Boeing benefited from the combination of
increased commercial airline orders and military hardware sales, and is expected
to raise revenues over the previous year.
Within industrials, Tyco negatively impacted the sector from a slight downward
revision in guidance for 2005 earnings and free cash flow. While this is
negative news, the thesis for owning the stock remains. Tyco is well positioned
for accelerating top line growth, steady margin expansion and significant share
repurchases. Clear Channel Communications has embarked on a major program to
reduce advertising inventory. This should ultimately make for a much healthier
radio industry. Unfortunately, weak current demand has muted impact of lower
supply and helped to hinder the consumer discretionary sector.
Within materials, International Paper was a poor performer, as demand for
industrial packaging materials and printing paper fell off - so much so that a
lack of orders forced more downtime at the company. And IBM fell short of 1st
quarter earnings expectations by 5 cents, citing soft economic conditions, while
concurrently announcing that the company will begin to expense equity
compensation and options.
2006 MARKET OUTLOOK
Though we are positive on the equity market for 2006, we do have several
near-term concerns.
The most significant, in our opinion, is the spending capacity of the U.S.
consumer. Above average consumer spending trends have persisted as a result of
favorable monetary and fiscal policies. These favorable policy trends are now
being reversed. Additionally, higher energy prices will continue to weigh
heavily on the consumer as we move through the winter heating season.
We continue to look for opportunities that are long-term in nature and benefit
from both an attractive valuation and the ability to improve their fundamental
competitive position.
We 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(1). 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
(1) Dollar cost averaging does not assure profits or protect against loss in a
declining market.
11
SERIES B
Manager's Commentary (LARGE CAP VALUE SERIES)
February 15, 2006 (unaudited)
PERFORMANCE
SERIES B VS. S&P 500/BARRA VALUE INDEX
AND RUSSELL 1000 VALUE INDEX
(PERFORMANCE GRAPH)
SERIES B S&P 500/BARRA VALUE INDEX RUSSELL 1000 VALUE INDEX
- --------------------------- -------------------------------------- ------------------------
DATE VALUE DATE RETURN VALUE DATE VALUE
---------- --------- -------- ------- --------- --------- ----------
12/31/1995 10,000.00 INCEPTION 12/31/95 10,000.00 INCEPTION 12/31/95 10,000.00
3/31/1996 10,633.28 3/31/96 2.34% 10,639.07 3/31/96 10,567.01
6/30/1996 10,989.69 6/30/96 -0.48% 10,857.51 6/30/96 10,748.34
9/30/1996 11,454.39 9/30/96 4.28% 11,143.72 9/30/96 11,061.22
12/31/1996 11,825.18 12/31/96 -1.63% 12,200.72 12/31/96 12,164.54
3/31/1997 11,925.39 3/31/97 -3.42% 12,416.66 3/31/97 12,476.10
6/30/1997 13,652.40 6/30/97 3.82% 14,212.96 6/30/97 14,315.68
9/30/1997 14,430.11 9/30/97 5.86% 15,515.03 9/30/97 15,740.85
12/31/1997 14,958.70 12/31/97 2.22% 15,857.84 12/31/97 16,444.58
3/31/1998 16,638.95 3/31/98 5.06% 17,689.48 3/31/98 18,360.95
6/30/1998 16,115.94 6/30/98 0.76% 17,779.96 6/30/98 18,443.50
9/30/1998 14,676.66 9/30/98 6.08% 15,484.67 9/30/98 16,308.07
12/31/1998 16,140.27 12/31/98 3.51% 18,183.64 12/31/98 19,016.09
3/31/1999 16,173.01 3/31/99 3.03% 18,702.11 3/31/99 19,289.14
6/30/1999 18,483.43 6/30/99 3.84% 20,720.93 6/30/99 21,463.65
9/30/1999 16,522.26 9/30/99 -3.91% 18,811.20 9/30/99 19,361.63
12/31/1999 16,381.21 12/31/99 3.76% 20,497.70 12/31/99 20,414.67
3/31/2000 15,474.50 3/31/00 10.43% 20,546.06 3/31/00 20,512.17
6/30/2000 14,648.39 06/30/00 -3.95% 19,663.03 06/30/00 19,550.84
9/30/2000 15,274.13 09/30/00 -0.02% 21,397.79 09/30/00 21,088.09
12/31/2000 15,274.13 12/31/00 5.15% 21,746.99 12/31/00 21,847.58
3/31/2001 14,201.12 3/31/2001 -3.95% 20,326.14 3/31/2001 20,568.30
6/30/2001 14,813.83 6/30/2001 -3.24% 21,221.55 6/30/2001 21,571.84
9/30/2001 12,905.87 9/30/2001 -9.50% 17,782.37 9/30/2001 19,208.63
12/31/2001 14,418.28 12/31/2001 1.52% 19,199.01 12/31/2001 20,625.40
3/31/2002 14,276.21 3/31/2002 5.12% 19,452.35 3/31/2002 21,468.95
6/30/2002 12,716.95 6/30/2002 -6.31% 17,381.09 6/30/2002 19,640.22
9/30/2002 10,264.45 9/30/2002 -11.43% 13,825.03 9/30/2002 15,953.13
12/31/2002 10,937.53 12/31/2002 -5.20% 15,191.75 12/31/2002 17,424.26
3/31/2003 10,392.24 3/31/2003 -0.13% 14,355.19 3/31/2003 16,576.75
6/30/2003 12,004.42 6/30/2003 0.73% 17,059.37 6/30/2003 19,440.61
9/30/2003 12,437.38 9/30/2003 -1.81% 17,492.87 9/30/2003 19,841.69
12/31/2003 14,088.48 12/31/2003 6.18% 20,021.48 12/31/2003 22,657.06
3/31/2004 14,558.62 3/31/2004 -0.69% 20,692.59 3/31/2004 23,341.98
6/30/2004 14,407.22 6/30/2004 2.17% 20,856.54 6/30/2004 23,547.63
9/30/2004 14,121.10 9/30/2004 1.89% 21,074.26 9/30/2004 23,910.22
12/31/2004 15,612.15 12/31/2004 3.26% 23,167.87 12/31/2004 26,392.56
3/31/2005 15,460.65 3/31/2005 -1.78% 22,604.38 3/31/2005 26,413.92
6/30/2005 15,524.44 6/30/2005 1.51% 23,190.16 6/30/2005 26,855.87
9/30/2005 16,856.02 9/30/2005 1.04% 23,988.15 9/30/2005 27,898.37
12/31/2005 17,254.69 12/31/2005 0.76% 24,635.64 12/31/2005 28,252.80
$10,000 OVER 10 YEARS
The chart above assumes a hypothetical $10,000 investment in Series B (Large Cap
Value Series) on December 31, 1995 and reflects the fees and expenses of Series
B. Effective July 1, 2005, Series B changed its benchmark to the Russell 1000
Value Index. The Investment Manager has determined that the Russell 1000 Value
Index is a more appropriate index because the Russell 1000 Value Index more
closely reflects the types of securities in which the Series invests and thus
provides shareholders with a more appropriate benchmark against which to compare
the Series' performance. The S&P 500/Barra Value Index is a
capitalization-weighted index of all stocks in the S&P 50 Index that have low
price-to-book ratios. It is designed so that approximately 50% of the market
capitalization of the S&P 500 Index is in the S&P Barra Value Index. The Russell
1000 Value Index is an unmanaged index representing the performance of those
Russell 1000 Index companies with lower price-to-book ratios and lower
forecasted growth values.
AVERAGE ANNUAL RETURNS
PERIODS ENDED 12-31-05(1) 1 YEAR 5 YEARS 10 YEARS
- ------------------------- ------ ------- --------
Series B 10.52% 2.47% 5.61%
(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
Consumer Discretionary 8.89%
Consumer Staples 10.72
Energy 14.24
Financials 15.95
Health Care 7.84
Industrials 19.53
Information Technology 5.96
Materials 6.62
Telecommunication Services 1.90
Utilities 3.85
Exchange Traded Funds 3.97
Commercial Paper 0.48
Repurchase Agreement 0.10
Liabilities, less cash & other assets (0.05)
Total net assets 100.00%
======
12 See accompanying notes.
SERIES B
Manager's Commentary (LARGE CAP VALUE SERIES)
February 15, 2006 (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, 2005 - December 31, 2005.
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
mutual 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.
SERIES EXPENSES
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING
07-01-05 12-31-05(1) PERIOD(2)
------------- ------------- --------------
Series B (Large Cap Value Series)
Actual $1,000.00 $1,100.70 $4.24
Hypothetical 1,000.00 1,021.17 4.08
(1) The actual ending account value is based on the actual total return of the
Series for the period July 1, 2005 to December 31, 2005 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, 2005 to December 31, 2005 was 10.07%.
(2) Expenses are equal to the Series annualized expense ratio 0.80% multiplied
by the average account value over the period, multiplied by 184/365 (to
reflect the one-half year period).
13
Schedule of Investments SERIES B
December 31, 2005 (LARGE CAP VALUE SERIES)
NUMBER MARKET
OF SHARES VALUE
--------- -----------
COMMON STOCKS - 99.5%
AEROSPACE & DEFENSE - 2.1%
United Technologies Corporation 151,800 $ 8,487,138
------------
AGRICULTURAL PRODUCTS - 2.3%
Archer-Daniels-Midland Company 381,400 9,405,324
------------
ALUMINUM - 0.9%
Alcoa, Inc. 119,600 3,536,572
------------
BROADCASTING & CABLE TV - 2.0%
Clear Channel Communications, Inc. 257,600 8,101,520
------------
COMMUNICATIONS EQUIPMENT - 1.8%
3Com Corporation* 2,103,400 7,572,240
------------
COMPUTER HARDWARE - 2.3%
Hewlett-Packard Company 331,200 9,482,256
------------
CONSTRUCTION & ENGINEERING - 6.7%
McDermott International, Inc.* 341,200 15,220,932
Shaw Group, Inc.* 423,700 12,325,433
----------
27,546,365
----------
DIVERSIFIED CHEMICALS - 3.7%
Dow Chemical Company 176,400 7,729,848
E.I. du Pont de Nemours & Company 178,600 7,590,500
------------
15,320,348
------------
DRUG RETAIL - 2.6%
CVS Corporation 406,600 10,742,372
----------
ELECTRIC UTILITIES - 3.9%
Edison International 196,300 8,560,643
Entergy Corporation 105,600 7,249,440
------------
15,810,083
------------
EXCHANGE TRADED FUNDS - 4.0%
iShares Russell 1000 Value Index Fund 148,100 10,236,672
iShares S&P 500/Barra
Value Index Fund 93,300 6,068,232
------------
16,304,904
------------
HEALTH CARE EQUIPMENT - 3.0%
Fisher Scientific International, Inc.* 198,000 12,248,280
------------
HEALTH CARE SERVICES - 2.3%
Medco Health Soulutions, Inc.* 165,200 9,218,160
------------
HYPERMARKETS & SUPERCENTERS - 2.3%
Costco Wholesale Corporation 191,000 9,448,770
------------
INDUSTRIAL CONGLOMERATES - 5.9%
General Electric Company 351,900 12,334,095
Tyco International, Ltd. 406,600 11,734,476
------------
24,068,571
------------
INTEGRATED OIL & GAS - 6.2%
Chevron Corporation 151,000 8,572,270
ConocoPhillips 92,500 5,381,650
Exxon Mobil Corporation 204,600 11,492,382
------------
25,446,302
------------
IT CONSULTING & OTHER SERVICES - 1.8%
Unisys Corporation* 1,273,500 $ 7,424,505
----------
LEISURE PRODUCTS - 0.1%
CCE Spinco, Inc.* 32,200 421,820
------------
MANAGED HEALTH CARE - 2.6%
WellPoint, Inc.* 134,600 10,739,734
------------
MOVIES & ENTERTAINMENT - 6.8%
News Corporation 488,800 7,600,840
Time Warner, Inc. 712,600 12,427,744
Viacom, Inc. (Cl.B) 244,200 7,960,920
------------
27,989,504
------------
MULTI-LINE INSURANCE - 4.5%
American International Group, Inc. 272,600 18,599,498
------------
OIL & GAS EQUIPMENT & SERVICES - 2.5%
Halliburton Company 166,300 10,303,948
------------
OIL & GAS REFINING & MARKETING - 3.1%
Sasol, Ltd. ADR 360,500 12,848,220
------------
OIL & GAS STORAGE & TRANSPORTATION - 2.4%
Williams Companies, Inc. 426,800 9,888,956
------------
OTHER DIVERSIFIED FINANCIAL SERVICES - 8.4%
Citigroup, Inc. 230,300 11,176,459
First Marblehead Corporation(1) 441,750 14,515,905
JP Morgan Chase & Company 221,700 8,799,273
------------
34,491,637
------------
PACKAGED FOODS & MEATS - 1.8%
Tyson Foods, Inc. 441,700 7,553,070
------------
PROPERTY & CASUALTY INSURANCE - 3.0%
Berkshire Hathaway, Inc.* 140 12,406,800
------------
RAILROADS - 2.4%
Union Pacific Corporation 122,800 9,886,628
------------
SPECIALTY CHEMICALS - 2.0%
Rohm & Haas Company 172,200 8,337,924
------------
TOBACCO - 1.7%
Altria Group, Inc. 91,800 6,859,296
------------
TRADING COMPANIES & DISTRIBUTORS - 2.5%
Hughes Supply, Inc. 285,400 10,231,590
------------
WIRELESS TELECOMMUNICATION SERVICE - 1.9%
Alltel Corporation 59,900 3,779,690
Sprint Nextel Corporation 171,400 4,003,904
------------
7,783,594
------------
TOTAL COMMON STOCKS
(cost $363,902,843) 408,505,929
------------
14 See accompanying notes.
Schedule of Investments SERIES B
December 31, 2005 (LARGE CAP VALUE SERIES)
PRINCIPAL MARKET
AMOUNT VALUE
---------- ------------
COMMERCIAL PAPER - 0.3%
BROKERAGE - 0.3%
Goldman Sachs Group, Inc.,
4.32%, 01-03-06 $1,000,000 $ 999,760
------------
TOTAL COMMERCIAL PAPER
(cost $999,760) 999,760
------------
ASSET BACKED COMMERCIAL PAPER - 0.2%
FINANCIAL COMPANIES - TRADE RECEIVABLES - 0.2%
Sheffield Receivables Corporation,
4.25% - 01-05-06 1,000,000 999,528
------------
TOTAL ASSET BACKED COMMERCIAL PAPER
(cost $999,528) 999,528
------------
REPURCHASE AGREEMENT - 0.1%
United Missouri Bank, 3.78%, dated 12-30-05,
matures 01-03-06; repurchase amount of
$399,168 (Collateralized by U.S.
Treasury Notes, 2.375%, 08-15-06
with a value of $407,668) 399,000 399,000
------------
TOTAL REPURCHASE AGREEMENT
(cost $399,000) 399,000
------------
TOTAL INVESTMENTS - 100.1%
(cost $366,301,131) 410,904,217
LIABILITIES, LESS CASH & OTHER ASSETS - (0.1%) (212,449)
------------
TOTAL NET ASSETS - 100.0% $410,691,768
============
For federal income tax purposes the identified cost of investments owned at
December 31, 2005 was $366,348,097.
* Non-income producing security
ADR (American Depositary Receipt)
(1) A portion of this security is segregated as collateral for open written
options contracts.
15 See accompanying notes.
SERIES B
(LARGE CAP VALUE SERIES)
Statement of Assets and Liabilities
December 31, 2005
ASSETS:
Investments, at value(1) ...................................... $ 410,904,217
Cash .......................................................... 6,067
Receivables:
Fund shares sold ........................................... 327,709
Dividends .................................................. 465,961
Prepaid expenses .............................................. 8,031
-------------
Total assets .................................................. 411,711,985
-------------
LIABILITIES:
Payable for:
Fund shares redeemed ....................................... 630,192
Management fees ............................................ 228,706
Written options, at value
(Premiums received $135,564) ............................ 65,000
Custodian fees ............................................. 6,600
Transfer agent and administration fees ..................... 35,719
Professional fees .......................................... 32,100
Director's fees ............................................ 5,000
Other ...................................................... 16,900
-------------
Total liabilities ............................................. 1,020,217
-------------
NET ASSETS .................................................... $ 410,691,768
=============
NET ASSETS CONSIST OF:
Paid in capital ............................................... $ 616,175,302
Accumulated undistributed net
investment income .......................................... 3,971,506
Accumulated net realized loss
on sale of investments and options written ................. (254,128,690)
Net unrealized appreciation in value of
investments and options written ............................ 44,673,650
-------------
Net assets .................................................... $ 410,691,768
=============
Capital shares authorized ..................................... unlimited
Capital shares outstanding .................................... 18,975,625
Net asset value per share
(net assets divided by shares outstanding) ................. $ 21.64
=============
(1)Investments, at cost ....................................... $ 366,301,131
Statement of Operations
For the Year Ended December 31, 2005
INVESTMENT INCOME:
Dividends ................................................... $ 7,230,008
Interest .................................................... 173,507
------------
Total investment income ..................................... 7,403,515
------------
EXPENSES:
Management fees ............................................. 2,849,047
Administration fees ......................................... 369,101
Custodian fees .............................................. 30,879
Transfer agent/maintenance fees ............................. 25,219
Directors' fees ............................................. 22,348
Professional fees ........................................... 70,413
Reports to shareholders ..................................... 44,635
Other expenses .............................................. 20,367
------------
Total expenses .............................................. 3,432,009
------------
Net investment income ....................................... 3,971,506
------------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain during the year on:
Investments ................................................. 47,858,475
Options written ............................................. 173,816
------------
Net realized gain ........................................... 48,032,291
------------
Net unrealized appreciation
(depreciation) during the year on:
Investments ................................................. (11,736,455)
Options written ............................................. 70,564
------------
Net unrealized depreciation ................................. (11,665,891)
------------
Net realized and unrealized gain ............................... 36,366,400
------------
Net increase in net assets
resulting from operations ................................... $ 40,337,906
============
16 See accompanying notes.
SERIES B
Statement of Changes in Net Assets (LARGE CAP VALUE SERIES)
YEAR ENDED YEAR ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income ........................................... $ 3,971,506 $ 4,636,660
Net realized gain during the period on investments and options
written ...................................................... 48,032,291 38,267,826
Net unrealized depreciation during the period on investments
and options written .......................................... (11,665,891) (663,053)
------------ -------------
Net increase in net assets resulting from operations ............ 40,337,906 42,241,433
------------ -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ........................................... -- (250,785)
------------ -------------
Total distributions to shareholders ............................. -- (250,785)
------------ -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares .................................... 39,815,974 56,344,672
Distributions reinvested ........................................ -- 250,785
Cost of shares redeemed ......................................... (98,954,660) (103,668,222)
------------ -------------
Net decrease from capital share transactions .................... (59,138,686) (47,072,765)
------------ -------------
Net decrease in net assets ...................................... (18,800,780) (5,082,117)
------------ -------------
NET ASSETS:
Beginning of period ............................................. 429,492,548 434,574,665
------------ -------------
End of period ................................................... $410,691,768 $ 429,492,548
============ =============
Accumulated undistributed net investment income at end of year .. $ 3,971,506 $ 4,627,033
============ =============
CAPITAL SHARE ACTIVITY:
Shares sold ..................................................... 1,980,149 3,106,269
Shares reinvested ............................................... -- 14,089
Shares redeemed ................................................. (4,944,509) (5,754,451)
------------ -------------
Total capital share activity ....................................... (2,964,360) (2,634,093)
============ =============
17 See accompanying notes.
Financial Highlights
Selected data for each share of capital stock SERIES B
outstanding throughout each year (LARGE CAP VALUE SERIES)
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
2005(E) 2004 2003 2002 2001(D)
-------- -------- -------- -------- ------------
PER SHARE DATA
Net asset value, beginning of period $ 19.58 $ 17.68 $ 13.84 $ 18.59 $ 19.93
Income (loss) from investment operations:
Net investment income 0.24 0.21 0.14 0.13 0.18
Net gain (loss) on securities (realized and unrealized) 1.82 1.70 3.84 (4.58) (1.29)
-------- -------- -------- -------- --------
Total from investment operations 2.06 1.91 3.98 (4.45) (1.11)
Less distributions:
Dividends from net investment income -- (0.01) (0.14) (0.30) (0.23)
-------- -------- -------- -------- --------
Total distributions -- (0.01) (0.14) (0.30) (0.23)
Net asset value, end of period $ 21.64 $ 19.58 $ 17.68 $ 13.84 $ 18.59
======== ======== ======== ======== ========
TOTAL RETURN(A) 10.52% 10.82% 28.81% (24.14%) (5.60%)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $410,692 $429,493 $434,575 $370,746 $563,240
Ratios to average net assets:
Net investment income 0.98% 1.09% 0.93% 0.74% 0.89%
Total expenses(b) 0.84% 0.92% 0.89% 0.91% 0.93%
Net expenses(c) 0.84% 0.87% 0.83% 0.82% 0.83%
Portfolio turnover rate 99% 73% 60% 68% 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) Total expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net expense information reflects the expense ratios after voluntary expense
waivers, reimbursements, marketing fees paid indirectly and custodian
earnings credits, as applicable.
(d) The Dreyfus Corporation became sub-adviser of Series B effective January 2,
2001. Prior to January 2, 2001, advisory services were provided by SMC.
(e) SMC became the advisor of Series B effective June 30, 2005. Prior to June
30, 2005, SMC paid Dreyfus Corporation for sub-advisory services.
18 See accompanying notes.
SERIES C
Manager's Commentary (MONEY MARKET SERIES)
February 15, 2006 (unaudited)
(SECURITY BENEFIT (SM) LOGO)
Security Management Company, LLC
Advisor, Security Management Company, LLC
(PHOTO OF CHRISTI FLETCHER)
Christi Fletcher
Portfolio Manager
TO OUR SHAREHOLDERS:
Once again, the main theme in the money market arena was the increase in the
federal funds rate by the Federal Reserve Bank's monetary policy committee. In
2005, the rate was raised 200 basis points, and yields of money market
instruments rose in step accordingly. Series C of the SBL Fund - Money Market
Series returned 2.70% for the year ended December 31, 2005.
Aside from higher short-term interest rates, the past year proved positive for
credit issuers. Companies continued to report solid cash flows and strong
earnings driven by the overall strength of the economy. One area of concern is
the growing tendency of companies to use their excess cash flow to increase
dividends or repurchase shares rather than bolster their credit quality.
CHARACTERISTICS OF PORTFOLIO ASSETS
At December 31, 2005 the average maturity of the holdings in Series C was 42
days, which was in precise alignment with the benchmark. This proved to be a
beneficial strategy to enhance the yield while providing the avenue to take
advantage of additional value adding opportunities.
The yield curve for money market instruments maintained an upward trend during
2005, thus facilitating our ability to select additional yield broadly along the
maturity spectrum and among various types of instruments. At year-end,
approximately 52% of the Series was invested in Commercial Paper, 30% in
Floating Rate securities (which includes Corporate and U.S. Government-Backed),
11% in U.S. Government/ Agency obligations, 4% in funding agreements, and 3% in
Bankers Acceptances.
OUTLOOK FOR 2006
Overall, the economy grew at a healthy pace in 2005, despite significant
increases in commodity prices, 2 percent higher short term interest rates, and
the hurricanes that battered New Orleans and other areas surrounding the Gulf of
Mexico. We expect the economy in 2006 to moderate to a 3% or lower real growth
rate that will be more attributable to business rather than consumer spending.
Therefore, our expectations for Federal Fund rates are to remain at 4.50% after
the January meeting of the Federal Reserve monetary policy committee.
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 Series C. We appreciate the confidence that
you have placed in us and remain focused on achieving the Series' investment
goals.
Sincerely,
Christi Fletcher
Portfolio Manager
19
SERIES C
Manager's Commentary (MONEY MARKET SERIES)
February 15, 2006 (unaudited)
PERFORMANCE
PORTFOLIO COMPOSITION BY QUALITY RATINGS
(BASED ON STANDARD AND POOR'S RATINGS)
AAA 19.76%
AA 43.56
A 35.52
Repurchase Agreement 0.81
Cash & other assets, less liabilities 0.35
Total net assets 100.00%
======
AVERAGE ANNUAL RETURNS
PERIODS ENDED 12-31-05(1) 1 YEAR 5 YEARS 10 YEARS
- ------------------------- ------ ------- --------
Series C 2.70% 1.78% 3.47%
(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.
20 See accompanying notes.
SERIES C
Manager's Commentary (MONEY MARKET SERIES)
February 15, 2006 (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, 2005 - December 31, 2005.
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
mutual 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.
SERIES EXPENSES
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING
07-01-05 12-31-05(1) PERIOD(2)
------------- ------------- -------------
Series C (Money Market Series)
Actual $1,000.00 $1,015.80 $3.46
Hypothetical 1,000.00 1,021.78 3.47
(1) The actual ending account value is based on the actual total return of the
Series for the period July 1, 2005 to December 31, 2005 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, 2005 to December 31, 2005 was 1.58%.
(2) Expenses are equal to the Series annualized expense ratio 0.68% multiplied
by the average account value over the period, multiplied by 184/365 (to
reflect the one-half year period).
21
Schedule of Investments SERIES C
December 31, 2005 (MONEY MARKET SERIES)
PRINCIPAL MARKET
AMOUNT VALUE
---------- -----------
CERTIFICATES OF DEPOSIT - DOMESTIC - 3.1%
Barclays Bank New York Certificate of Deposit,
4.30%, 02-03-06 $1,000,000 $ 999,978
-----------
Credit Suisse First Boston New York
Certificate of Deposit, 4.14%,
02-06-06 1,200,000 1,199,731
-----------
TOTAL CERTIFICATES OF DEPOSIT
(cost $2,200,069) 2,199,709
-----------
COMMERCIAL PAPER - 15.7%
BANKING - 5.3%
ING (US) Funding LLC, 4.05%,
01-09-06 1,500,000 1,498,920
Westpac Banking Corporation:
4.35%, 02-07-06 1,300,000 1,294,188
4.36%, 02-28-06 1,000,000 993,261
-----------
3,786,369
-----------
ELECTRIC - 2.8%
Florida Power & Light Company,
4.37%, 01-17-06 2,000,000 1,996,116
-----------
FINANCIAL - OTHER - 4.7%
Countrywide Financial, 4.30%,
01-03-06 3,400,000 3,399,174
-----------
NON U.S. BANKING - 2.9%
Danske Corporation, 4.25%,
01-17-06 1,100,000 1,097,922
Societe Generale, 4.23%, 01-27-06 1,000,000 996,945
-----------
2,094,867
-----------
TOTAL COMMERCIAL PAPER
(cost $11,275,971) 11,276,526
-----------
ASSET BACKED COMMERCIAL PAPER - 35.6%
DIVERSIFIED - 9.7%
Amstel Funding Corporation:
4.36%, 03-07-06 2,500,000 2,480,676
4.42%, 03-22-06 1,000,000 990,354
Amsterdam Funding Corporation:
4.18%, 01-04-06 1,500,000 1,499,477
4.15%, 01-09-06 2,000,000 1,998,156
-----------
6,968,663
-----------
FINANCIAL COMPANIES - CAPTIVE - 2.1%
Edison Asset Securitization, 4.34%,
02-08-06 1,500,000 1,493,128
-----------
MISCELLANEOUS RECEIVABLES - 7.8%
Falcon Asset Securitization Corporation,
4.37%, 01-04-06 2,200,000 2,199,199
Jupiter Securitization Corporation:
4.15%, 01-05-06 2,200,000 2,198,986
4.34%, 02-10-06 1,200,000 1,194,213
-----------
5,592,398
-----------
SECURITIES - 8.3%
Asset One Securitization,
4.31%, 01-10-06 $3,000,000 $ 2,996,745
Perry Global Funding LLC,
4.36%, 02-15-06 3,000,000 2,983,650
-----------
5,980,395
-----------
TRADE RECEIVABLES - 7.7%
Eureka Securitization,
4.35%, 02-16-06 2,300,000 2,287,216
Old Line Funding Corporation,
4.17%, 01-06-06 1,200,000 1,199,305
Sheffield Receivables Corporation,
4.30%, 01-19-06 2,000,000 1,995,700
-----------
5,482,221
-----------
TOTAL ASSET BACKED COMMERCIAL PAPER
(cost $25,516,272) 25,516,805
-----------
CORPORATE BONDS - 22.6%
BANKING - 4.1%
Wells Fargo & Company,
4.54%, 03-03-06(1) 2,900,000 2,900,510
-----------
BROKERAGE - 17.1%
Bear Stearns Company, Inc.,
4.25%, 01-30-06(1) 1,475,000 1,475,183
Credit Suisse First Boston USA,
4.127%, 01-05-06(1) 2,485,000 2,485,741
Goldman Sachs Group, Inc.,
4.70%, 03-21-06(1) 3,000,000 3,001,209
Merrill Lynch & Company,
4.662%, 02-14-06(1) 2,300,000 2,300,396
Morgan Stanley, 4.39%, 02-06-06(1) 3,000,000 3,000,555
-----------
12,263,084
-----------
FINANCIAL - OTHER - 1.4%
National Rural Utilities,
4.45%, 02-17-06(1) 1,000,000 999,894
-----------
TOTAL CORPORATE BONDS
(cost $16,164,338) 16,163,488
-----------
MISCELLANEOUS ASSETS - 4.2%
FUNDING AGREEMENT - 4.2%
United of Omaha Life Insurance Company,
4.34%, 01-01-06(1) 3,000,000 3,000,000
-----------
TOTAL MISCELLANEOUS ASSETS
(cost $3,000,000) 3,000,000
-----------
22 See accompanying notes.
Schedule of Investments SERIES C
December 31, 2005 (MONEY MARKET SERIES)
PRINCIPAL MARKET
AMOUNT VALUE
----------- -----------
U.S. GOVERNMENT SPONSORED AGENCIES - 17.7%
FEDERAL HOME LOAN BANK - 6.3%
3.00%, 01-18-06 $ 1,500,000 $ 1,498,962
3.25%, 02-28-06 1,000,000 997,849
4.20%, 05-10-06 2,000,000 1,997,026
-----------
4,493,837
-----------
FEDERAL HOME LOAN MORTGAGE CORPORATION - 2.1%
4.125%, 09-27-06 1,500,000 1,493,816
-----------
SMALL BUSINESS ASSOCIATION POOLS - 2.7%
#503295, 4.25%, 01-01-06(1) 187,707 187,365
#503303, 4.25%, 01-01-06(1) 216,835 216,441
#503308, 4.50%, 01-01-06(1) 155,580 155,580
#503459, 4.50%, 01-01-06(1) 338,079 336,811
#503176, 4.625%, 01-01-06(1) 92,339 92,800
#503343, 4.625%, 01-01-06(1) 248,650 248,650
#503347, 4.625%, 01-01-06(1) 435,480 435,480
#502353, 4.75%, 01-01-06(1) 57,845 57,845
#502163, 5.00%, 01-01-06(1) 238,318 238,319
-----------
1,969,291
-----------
STUDENT LOAN MARKETING ASSOCIATION - 6.6%
1997-4 A2, 4.749%, 01-01-06(1) 308,323 308,948
4.40%, 01-25-06(1) 2,200,000 2,199,862
4.691%, 03-15-06(1) 2,200,000 2,201,005
-----------
4,709,815
-----------
TOTAL U.S. GOVERNMENT SPONSORED AGENCIES
(cost $12,680,113) 12,666,759
-----------
REPURCHASE AGREEMENT - 0.8%
United Missouri Bank, 3.78%, dated
12-30-05, matures 01-03-06;
repurchase amount of $582,244
(Collateralized by U.S. Treasury Notes,
1.875%, 01-31-06 with a value of
$593,685) 582,000 582,000
-----------
TOTAL REPURCHASE AGREEMENT
(cost $582,000) 582,000
-----------
TOTAL INVESTMENTS - 99.7%
(cost $71,418,763) 71,405,287
CASH & OTHER ASSETS, LESS LIABILITIES - 0.3% 249,646
-----------
TOTAL NET ASSETS - 100.0% $71,654,933
===========
The identified cost of investments owned at December 31, 2005 was the same for
federal income tax and financial statement purposes.
(1) Variable rate security. Rate indicated is rate effective at December 31,
2005. Maturity date indicated is next interest reset date.
23 See accompanying notes.
SERIES C
(MONEY MARKET SERIES)
Statement of Assets and Liabilities
December 31, 2005
ASSETS:
Investments, at value(1) ........................................ $71,405,287
Cash ............................................................ 2,467
Receivables:
Fund shares sold ............................................. 1,513,702
Securities sold .............................................. 9,045
Interest ..................................................... 213,344
Prepaid expenses ................................................ 1,495
-----------
Total assets .................................................... 73,145,340
-----------
LIABILITIES:
Payable for:
Fund shares redeemed ......................................... 1,433,792
Management fees .............................................. 30,754
Custodian fees ............................................... 3,000
Transfer agent and administration fees ....................... 8,902
Professional fees ............................................ 8,450
Director's fees .............................................. 750
Other ........................................................ 4,759
-----------
Total liabilities ............................................ 1,490,407
-----------
NET ASSETS ................................................... $71,654,933
===========
NET ASSETS CONSIST OF:
Paid in capital ................................................. $69,666,599
Accumulated undistributed net
investment income ............................................ 2,001,810
Net unrealized depreciation in value of
investments .................................................. (13,476)
-----------
Net assets ...................................................... $71,654,933
===========
Capital shares authorized ....................................... unlimited
Capital shares outstanding ...................................... 5,880,580
Net asset value per share
(net assets divided by shares outstanding) ................... $ 12.19
===========
(1)Investments, at cost ......................................... $71,418,763
Statement of Operations
For the Year Ended December 31, 2005
INVESTMENT INCOME:
Interest ........................................................ $ 2,529,584
-----------
Total investment income ......................................... 2,529,584
-----------
EXPENSES:
Management fees .............................................. 381,866
Administration fees .......................................... 72,819
Custodian fees ............................................... 12,424
Transfer agent/maintenance fees .............................. 25,255
Directors' fees .............................................. 4,113
Professional fees ............................................ 18,445
Reports to shareholders ...................................... 9,530
Other expenses ............................................... 3,322
-----------
Total expenses ............................................... 527,774
-----------
Net investment income ........................................ 2,001,810
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain during the year on:
Investments .................................................. --
-----------
Net realized gain ............................................ --
-----------
Net unrealized depreciation during the year on:
Investments .................................................. (2,778)
-----------
Net realized and unrealized loss ................................ (2,778)
-----------
Net increase in net assets resulting
from operations .............................................. $ 1,999,032
===========
24 See accompanying notes.
SERIES C
Statement of Changes in Net Assets (MONEY MARKET SERIES)
YEAR ENDED YEAR ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income ......................................... $ 2,001,810 $ 604,667
Net unrealized depreciation during the period on investments .. (2,778) (21,134)
------------- -------------
Net increase in net assets resulting from operations .......... 1,999,032 583,533
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ......................................... -- (39,471)
------------- -------------
Total distributions to shareholders ........................... -- (39,471)
------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares .................................. 201,348,365 247,991,445
Distributions reinvested ...................................... -- 39,471
Cost of shares redeemed ....................................... (197,776,333) (268,949,230)
------------- -------------
Net increase (decrease) from capital share transactions ....... 3,572,032 (20,918,314)
------------- -------------
Net increase (decrease) in net assets ......................... 5,571,064 (20,374,252)
------------- -------------
NET ASSETS:
Beginning of period ........................................... 66,083,869 86,458,121
------------- -------------
End of period ................................................. $ 71,654,933 $ 66,083,869
============= =============
Accumulated undistributed net investment income at end of year ... $ 2,001,810 $ 598,153
============= =============
CAPITAL SHARE ACTIVITY:
Shares sold ................................................... 16,766,162 20,984,022
Shares reinvested ............................................. -- 3,337
Shares redeemed ............................................... (16,450,894) (22,752,226)
------------- -------------
Total capital share activity .................................. 315,268 (1,764,867)
============= =============
25 See accompanying notes.
Financial Highlights
Selected data for each share of capital stock outstanding SERIES C
throughout each year (MONEY MARKET SERIES)
YEAR ENDED DECEMBER 31,
-------------------------------------------------
2005 2004 2003 2002 2001
------- ------- ------- -------- --------
PER SHARE DATA
Net asset value, beginning of period $ 11.87 $ 11.79 $ 11.82 $ 12.20 $ 12.69
------- ------- ------- -------- --------
Income (loss) from investment operations:
Net investment income 0.33 0.11 0.09 0.16 0.54
Net gain (loss) on securities (realized and unrealized) (0.01) (0.02) (0.02) (0.02) (0.09)
------- ------- ------- -------- --------
Total from investment operations 0.32 0.09 0.07 0.14 0.45
------- ------- ------- -------- --------
Less distributions:
Dividends from net investment income -- (0.01) (0.10) (0.52) (0.94)
------- ------- ------- -------- --------
Total distributions -- (0.01) (0.10) (0.52) (0.94)
------- ------- ------- -------- --------
Net asset value, end of period $ 12.19 $ 11.87 $ 11.79 $ 11.82 $ 12.20
======= ======= ======= ======== ========
TOTAL RETURN(A) 2.70% 0.72% 0.55% 1.20% 3.75%
------- ------- ------- -------- --------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $71,655 $66,084 $86,458 $117,297 $131,277
------- ------- ------- -------- --------
Ratios to average net assets:
Net investment income 2.63% 0.70% 0.63% 1.26% 3.50%
Total expenses 0.69% 0.65% 0.59% 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.
26 See accompanying notes.
SERIES D
Manager's Commentary (GLOBAL SERIES)
February 15, 2006 (unaudited)
(OPPENHEIMERFUNDS(R) LOGO)
Subadvisor, OppenheimerFunds, Inc.
(PHOTO OF WILLIAM L. WILBY)
William L. Wilby
Portfolio Manager
TO OUR SHAREHOLDERS
For the 12-month period ending December 31, 2005, Series D of the SBL Fund -
Global Series posted a total return of 13.53% versus 9.49% return for its
benchmark, MSCI World Index.
It is important to bear in mind that the following discussion of the stocks that
added to or detracted from the Series' performance is provided to illustrate our
investment approach rather than suggest any attempt to make a country, sector or
thematic wager.
TOP PERFORMERS
The Series benefited from a number of holdings, mostly for company-specific
reasons. Hyundai Heavy Industries, the world's largest shipbuilder, was one of
the Series' best performing stocks. A long-term holding for the Series, Hyundai
Heavy stock was initially purchased based on the assessment that the average
tanker age of the world fleet was high and that the shipping industry's move
toward double-hulled tankers would create demand for new ship construction. The
initial investment in the stock was at a very reasonable price due to various
market concerns, including the company's ownership of non-core businesses. The
issues have now been resolved, and the stock's price more than doubled during
the reporting period.
Series performance was also enhanced by the investment in AMD, whose new dual
core processor chip achieved significant traction in the server market ahead of
Intel's competitive offering. The market's skepticism of AMD's competitive
position turned to acceptance over the period, leading to a rise in the stock's
price. Two additional contributors to the Series performance were Husky Energy,
Inc., an oil reserves company, and Transocean, Inc., an oil driller, both of
which benefited from the rising price of oil and natural gas.
DISAPPOINTMENTS
A few of the Series' holdings hindered returns during the reporting period,
including JDS Uniphase Corporation, an optical components company. The stock had
been initially purchased in previous years based on the evaluation that there
was a significant opportunity for a turnaround and that the risk was reflected
in its stock price. However, the turnaround never materialized and the stock was
sold.
Another negative contributor was Vodafone. As one of the Series' largest
holdings, Vodafone has yet to deliver performance in line with expectations. A
slow market in Europe, a greater-than-expected expenditure by the company in
Japan and a realized tax change all contributed to hurt expected results. A
lengthening of the sales cycle in video conferencing technology led to earnings
disappointments at Tandberg, one of the poorest performers in the Series.
However, we continue to view its technology as having merit with adoption of it
in the coming year. Holdings in International Game Technology, the world's
largest manufacturer of casino gaming machines, also disappointed. The company's
earnings growth did not meet investors' expectations and, consequently, its
stock price fell. Nevertheless, the company is a leader in its industry and its
long-term prospects remain strong. We, therefore, made a modest additional
investment in the company at its reasonably-priced stock level.
Our investment approach is to seek secular long-term growth opportunities that
are available at reasonable prices and hold them for a three-to-five year
timeframe in order to realize significant appreciation. We continue to seek such
opportunities as we move forward into 2006.
Sincerely,
William L. Wilby
Portfolio Manager
27
SERIES D
Manager's Commentary (GLOBAL SERIES)
February 15, 2006 (unaudited)
PERFORMANCE
Series D vs. MSCI World Index
(PERFORMANCE GRAPH)
SERIES D MSCI WORLD INDEX
- ---------------------------------- --------------------------------
DATE VALUE DATE VALUE
-------- --------- -------- ---------
12/31/95 10,000.00 12/31/95 10,000.00
03/31/96 10,665.47 03/31/96 10,419.31
06/30/96 11,258.99 06/30/96 10,732.43
09/30/96 11,421.36 09/30/96 10,887.50
12/31/96 11,746.59 12/31/96 11,399.17
03/31/97 12,052.69 03/31/97 11,444.44
06/30/97 13,238.82 06/30/97 13,180.32
09/30/97 13,706.00 09/30/97 13,570.89
12/31/97 12,504.43 12/31/97 13,249.57
03/31/98 14,369.79 03/31/98 15,160.70
06/30/98 14,191.56 06/30/98 15,482.33
09/30/98 12,698.88 09/30/98 13,639.81
12/31/98 15,015.87 12/31/98 16,534.51
03/31/99 15,356.00 03/31/99 17,138.10
06/30/99 16,738.76 06/30/99 17,971.71
09/30/99 17,102.65 09/30/99 17,719.17
12/31/99 23,074.76 12/31/99 20,724.59
03/31/00 26,200.53 03/31/00 20,949.75
06/30/00 25,336.49 06/30/00 20,221.15
09/30/00 24,818.22 09/30/00 19,219.86
12/31/00 23,889.64 12/31/00 18,044.84
03/31/01 20,297.61 03/31/01 15,739.20
06/30/01 21,858.96 06/30/01 16,176.44
09/30/01 17,872.53 09/30/01 13,862.30
12/31/01 20,962.01 12/31/01 15,063.53
03/31/02 21,327.44 03/31/02 15,127.55
06/30/02 19,301.00 06/30/02 13,766.39
09/30/02 15,779.65 09/30/02 11,246.55
12/31/02 16,201.35 12/31/02 12,117.29
03/31/03 14,903.92 03/31/03 11,504.04
06/30/03 18,097.61 06/30/03 13,463.53
09/30/03 19,804.14 09/30/03 14,114.99
12/31/03 23,240.69 12/31/03 16,127.91
03/31/04 24,307.69 03/31/04 16,549.65
06/30/04 23,974.26 06/30/04 16,693.07
09/30/04 23,707.50 09/30/04 16,526.49
12/31/04 27,608.74 12/31/04 18,501.02
03/31/05 26,641.77 03/31/05 18,297.94
06/30/05 27,442.02 06/30/05 18,374.26
09/30/05 29,976.16 09/30/05 19,656.25
12/31/05 31,343.25 12/31/05 20,277.08
$10,000 OVER TEN YEARS
The chart above assumes a hypothetical $10,000 investment in Series D (Global
Series) on December 31, 1995 and reflects the fees and expenses of Series D. The
MSCI World Index is an unmanaged capitalization-weighted index that is designed
to measure global developed market equity performance.
PORTFOLIO COMPOSITION BY SECTOR
Consumer Discretionary 18.32%
Consumer Staples 7.21
Energy 6.87
Financials 16.73
Health Care 13.65
Industrials 8.25
Information Technology 19.37
Materials 1.16
Telecommunication Services 6.36
Utilities 1.22
Repurchase Agreement 0.55
Cash & other assets, less liabilities 0.31
Total net assets 100.00%
======
AVERAGE ANNUAL RETURNS
PERIODS ENDED 12-31-05(1) 1 YEAR 5 YEARS 10 YEARS
- ------------------------- ------ ------- --------
Series D 13.53% 5.58% 12.10%
(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.
28 See accompanying notes.
SERIES D
Manager's Commentary (GLOBAL SERIES)
February 15, 2006 (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, 2005 - December 31, 2005.
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
mutual 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.
SERIES EXPENSES
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING
07-01-05 12-31-05(1) PERIOD(2)
------------- ------------- -------------
Series D (Global Series)
Actual $1,000.00 $1,140.80 $6.74
Hypothetical 1,000.00 1,018.90 6.36
(1) The actual ending account value is based on the actual total return of the
Series for the period July 1, 2005 to December 31, 2005 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, 2005 to December 31, 2005 was 14.08%.
(2) Expenses are equal to the Series annualized expense ratio 1.25% multiplied
by the average account value over the period, multiplied by 184/365 (to
reflect the one-half year period).
29
Schedule of Investments SERIES D
December 31, 2005 (GLOBAL SERIES)
NUMBER
OF SHARES MARKET VALUE
--------- ------------
COMMON STOCKS - 98.2%
AUSTRALIA - 0.5%
Australia & New Zealand Banking Group, Ltd. 65,287 $ 1,146,436
Macquarie Airports 652,701 1,517,019
------------
2,663,455
------------
BERMUDA - 0.7%
Ace, Ltd. 64,899 3,468,203
------------
BRAZIL - 1.6%
Companhia de Bebidas das Americas ADR 77,656 2,954,811
Empresa Brasileira de Aeronautica S.A. ADR 133,726 5,228,687
------------
8,183,498
------------
CANADA - 1.8%
Husky Energy, Inc. 129,700 6,582,624
Manulife Financial Corporation 46,383 2,723,929
------------
9,306,553
------------
CAYMAN ISLANDS - 0.4%
XL Capital, Ltd. 30,500 2,055,090
------------
DENMARK - 0.3%
Novo Nordisk A/S 23,400 1,316,296
------------
FINLAND - 0.5%
Fortum Oyj 126,300 2,369,387
Neste Oil OYJ* 15,975 451,807
------------
2,821,194
------------
FRANCE - 6.9%
Essilor International S.A 9,360 756,028
European Aeronautic Defence & Space Company 145,720 5,505,380
JC Decaux S.A.* 69,960 1,632,276
LVMH Moet Hennessy Louis Vuitton S.A 66,940 5,949,958
Sanofi-Aventis 96,480 8,455,640
Societe Generale 39,840 4,902,441
Technip S.A 97,870 5,888,312
Total S.A 9,193 2,310,362
------------
35,400,397
------------
GERMANY - 3.8%
Allianz AG 38,087 5,771,127
Bayerische Motoren Werke (BMW) AG 68,181 2,991,776
SAP AG 28,969 5,254,802
Siemens AG 65,284 5,597,870
------------
19,615,575
------------
HONG KONG - 2.2%
HSBC Holdings plc 309,969 4,977,126
Hong Kong & China Gas Company, Ltd. 1,120,700 2,392,095
Hutchison Whampoa, Ltd. 197,918 1,885,067
Television Broadcasts, Ltd. 419,904 2,231,199
------------
11,485,487
------------
INDIA - 2.9%
Hindustan Lever, Ltd. 804,300 $ 3,523,362
ICICI Bank, Ltd. ADR 71,850 2,069,280
Infosys Technologies, Ltd. 100,049 6,658,638
Zee Telefilms, Ltd. 782,800 2,727,696
------------
14,978,976
------------
IRELAND - 0.4%
Anglo Irish Bank Corporation plc 144,484 2,195,452
------------
JAPAN - 11.4%
Canon, Inc. 29,500 1,725,878
Chugai Pharmaceutical Company, Ltd. 106,400 2,282,449
Credit Saison Company, Ltd. 67,300 3,361,006
Fanuc, Ltd. 17,200 1,459,827
Hoya Corporation 94,800 3,408,106
JGC Corporation 69,000 1,313,422
KDDI Corporation 1,053 6,071,223
Kao Corporation 72,000 1,929,116
Keyence Corporation 9,500 2,702,433
Murata Manufacturing Company, Ltd. 70,100 4,493,437
Nidec Corporation 23,400 1,990,012
Nintendo Company, Ltd. 15,300 1,848,609
Resona Holdings, Inc.* 865 3,483,763
Shionogi & Company, Ltd. 265,000 3,732,110
Shiseido Company, Ltd. 137,000 2,555,537
Sony Corporation 158,800 6,489,876
Square Enix Corporation, Ltd. 72,600 2,037,528
Takeda Pharmaceutical Company, Ltd. 36,100 1,952,840
Toyota Motor Corporation 93,300 4,841,411
Yahoo Japan Corporation 878 1,332,559
------------
59,011,142
------------
KOREA - 2.6%
Hyundai Heavy Industries Company, Ltd. 38,990 2,974,535
SK Telecom Company, Ltd. ADR 218,380 4,430,930
Samsung Electronics Company, Ltd. 8,948 5,849,932
------------
13,255,397
------------
MEXICO - 1.9%
Fomento Economico Mexicano, S.A. de C.V 400,100 2,898,730
Grupo Modelo, S.A. de C.V. (Cl.C) 555,100 2,010,853
Grupo Televisa S.A. ADR 59,933 4,824,606
------------
9,734,189
------------
NETHERLANDS - 1.3%
Koninklijke (Royal) Philips Electronics N.V 207,300 6,444,750
------------
NORWAY - 0.2%
Tandberg ASA 197,000 1,205,545
------------
PANAMA - 0.9%
Carnival Corporation 86,400 4,619,808
------------
30 See accompanying notes.
Schedule of Investments SERIES D
December 31, 2005 (GLOBAL SERIES)
NUMBER MARKET
OF SHARES VALUE
--------- ------------
COMMON STOCKS (CONTINUED)
PORTUGAL - 0.3%
Energias de Portugal S.A 492,790 $ 1,517,444
------------
SINGAPORE - 0.4%
Singapore Press Holdings, Ltd. 822,466 2,126,897
------------
SPAIN - 0.7%
Industria de Diseno Textil S.A 108,100 3,527,157
------------
SWEDEN - 4.6%
Hennes & Mauritz AB (Cl.B) 238,700 8,111,282
Investor AB (Cl.B)** 109,265 1,911,477
Telefonaktiebolaget LM Ericsson (Cl.B) 4,018,500 13,807,019
------------
23,829,778
------------
SWITZERLAND - 3.1%
Credit Suisse Group 111,414 5,680,927
Novartis AG 56,869 2,988,436
Roche Holding AG 43,351 6,509,248
Syngenta AG* 7,878 980,253
------------
16,158,864
------------
TAIWAN - 0.7%
Taiwan Semiconductor Manufacturing
Company, Ltd. ADR 351,379 3,482,166
------------
UNITED KINGDOM - 11.4%
3i Group plc** 154,390 2,254,150
BP plc ADR 71,075 4,564,436
Burberry Group plc 217,695 1,604,195
Cadbury Schweppes plc 566,545 5,361,778
Diageo plc 17,490 253,555
GUS plc 96,982 1,723,868
Pearson plc 238,440 2,820,743
Prudential plc 420,666 3,981,180
Reckitt Benckiser plc 282,163 9,326,940
Royal Bank of Scotland Group plc 255,182 7,706,176
Smith & Nephew plc 372,983 3,436,848
Tesco plc 281,720 1,608,201
Vodafone Group plc 5,854,560 12,642,989
WPP Group plc 150,460 1,627,189
------------
58,912,248
------------
UNITED STATES - 36.7%
3M Company 52,900 4,099,750
Adobe Systems, Inc. 88,500 3,270,960
Advanced Micro Devices, Inc.* 328,000 10,036,800
Affymetrix, Inc.* 53,700 2,564,175
Altera Corporation* 124,100 2,299,573
Altria Group, Inc. 18,600 1,389,792
Amazon.com, Inc.* 39,200 1,848,280
American Express Company 82,500 4,245,450
Amgen, Inc.* 64,200 5,062,812
Amylin Pharmaceuticals, Inc.* 22,100 882,232
Avon Products, Inc. 46,100 1,316,155
Berkshire Hathaway, Inc. (Cl.B)* 1,010 2,964,855
Biomet, Inc. 51,200 1,872,384
Boeing Company 46,600 3,273,184
Boston Scientific Corporation* 106,700 $ 2,613,083
Burlington Resources, Inc. 60,200 5,189,240
Cadence Design Systems, Inc.* 95,700 1,619,244
Chevron Corporation 57,954 3,290,049
Cisco Systems, Inc.* 155,400 2,660,448
Citigroup, Inc. 28,333 1,375,000
Coach, Inc.* 82,400 2,747,216
Corning, Inc.* 312,200 6,137,852
Cree, Inc.* 95,000 2,397,800
eBay, Inc.* 160,300 6,932,975
Emerson Electric Company 43,800 3,271,860
Everest Re Group, Ltd. 17,600 1,766,160
Express Scripts, Inc.* 39,800 3,335,240
Gap, Inc. 73,400 1,294,776
Genentech, Inc.* 30,800 2,849,000
Gilead Sciences, Inc.* 75,800 3,989,354
GlobalSantaFe Corporation 104,400 5,026,860
Imclone Systems, Inc.* 32,700 1,119,648
International Business
Machines Corporation 47,175 3,877,785
International Game Technology 105,700 3,253,446
International Rectifier Corporation* 71,300 2,274,470
Intuit, Inc.* 76,200 4,061,460
JP Morgan Chase & Company 108,092 4,290,171
Juniper Networks, Inc.* 59,700 1,331,310
Lockheed Martin Corporation 37,700 2,398,851
Medtronic, Inc. 20,100 1,157,157
Microsoft Corporation 267,300 6,989,895
Morgan Stanley 97,900 5,554,846
Nektar Therapeutics*(1,2) 57,268 754,105
Northern Trust Corporation 97,700 5,062,814
Northrop Grumman Corporation 41,400 2,488,554
Novell, Inc.* 376,500 3,324,495
Pfizer, Inc. 92,599 2,159,409
Procter & Gamble Company 35,890 2,077,313
Qualcomm, Inc. 95,940 4,133,095
Quest Diagnostics, Inc. 76,100 3,917,628
Raytheon Company 80,800 3,244,120
Silicon Laboratories, Inc.* 21,900 802,854
Sirius Satellite Radio, Inc.*(2) 661,000 4,428,700
Starbucks Corporation* 81,500 2,445,815
Sun Microsystems, Inc.* 433,200 1,815,108
Theravance, Inc.* 45,400 1,022,408
Tiffany & Company 34,200 1,309,518
Transocean, Inc.* 103,100 7,185,039
Walt Disney Company 125,000 2,996,250
Wyeth 50,900 2,344,963
------------
189,443,786
------------
TOTAL COMMON STOCKS
(cost $369,737,081) 506,759,347
------------
31 See accompanying notes.
Schedule of Investments SERIES D
December 31, 2005 (GLOBAL SERIES)
PRINCIPAL
AMOUNT OR
NUMBER MARKET
OF SHARES VALUE
---------- ------------
PREFERRED STOCKS - 1.0%
BRAZIL - 0.5%
Tele Norte Leste Participacoes S.A 152,987 $ 2,731,911
------------
GERMANY - 0.5%
Porsche AG 3,170 2,278,788
------------
TOTAL PREFERRED STOCKS
(cost $4,047,386) 5,010,699
------------
REPURCHASE AGREEMENT - 0.5%
State Street, 1.75%, dated 12-30-05,
matures 01-03-06; repurchase amount
$2,838,574 (Collateralized by FHLMC,
2.325%, 04-14-06 with a value of
$2,895,850) $2,838,022 2,838,022
------------
TOTAL REPURCHASE AGREEMENT
(cost $2,838,022) 2,838,022
------------
TOTAL INVESTMENTS - 99.7%
(cost $376,622,489) 514,608,068
CASH & OTHER ASSETS, LESS LIABILITIES - 0.3% 1,604,862
------------
TOTAL NET ASSETS - 100.0% $516,212,930
============
For federal income tax purposes, the identified cost of investments owned at
December 31, 2005 was $378,082,732.
* Non-income producing security
** Passive Foreign Investment Company
ADR (American Depositary Receipt)
plc (public limited company)
(1) Security is restricted. The total market value of restricted securities is
$5,182,805 (cost $1,447,529), or 1.0% of total net assets. The acquisition
dates range from March 5, 2003 to August 5, 2004.
(2) Security is fair valued by the Board of Directors. The total market value
of fair valued securities amounts to $754,105, or 0.1% of total net assets.
INVESTMENT CONCENTRATION
At December 31, 2005, the Series' investment concentration by
industry was as follows:
Aerospace & Defense ................................................... 1.1%
Air Freight & Logistics ............................................... 3.2%
Automobiles ........................................................... 2.0%
Beverages ............................................................. 2.6%
Biotechnology ......................................................... 3.0%
Capital Markets ....................................................... 2.1%
Chemicals ............................................................. 0.2%
Commercial Banks ...................................................... 1.9%
Commercial Services & Supplies ........................................ 0.3%
Communications Equipment .............................................. 4.5%
Computers & Peripherals ............................................... 1.1%
Construction & Engineering ............................................ 0.3%
Consumer Finance ...................................................... 1.5%
Diversified Financial Services ........................................ 6.8%
Diversified Telecommunications ........................................ 3.0%
Electric Utilities .................................................... 0.3%
Electrical Equipment .................................................. 0.6%
Electronic Equipment & Instruments .................................... 1.8%
Energy Equipment & Services ........................................... 1.1%
Food & Staples Retailing .............................................. 0.3%
Gas Utilities ......................................................... 0.5%
Health Care Equipment & Services ...................................... 2.6%
Health Care Providers & Services ...................................... 1.4%
Hotels, Restaurants & Leisure Products ................................ 2.0%
Household Durables .................................................... 3.6%
Household Products .................................................... 2.9%
Industrial Conglomerates .............................................. 1.9%
Insurance ............................................................. 4.4%
Internet & Catalog Retail ............................................. 0.7%
Internet Software & Services .......................................... 2.2%
IT Services ........................................................... 1.3%
Leisure Equipment & Products .......................................... 0.4%
Machinery ............................................................. 0.9%
Media ................................................................. 4.9%
Multi-Utilities & Unregulated Power ................................... 0.5%
Oil, Gas & Consumable Fuels ........................................... 5.7%
Paper & Forest Products ............................................... 1.0%
Personal Products ..................................................... 1.1%
Pharmaceuticals ....................................................... 6.7%
Semiconductors & Semiconductor Equipment .............................. 4.0%
Software .............................................................. 4.5%
Specialty Retail ...................................................... 0.2%
Textiles, Apparel & Luxury Goods ...................................... 4.5%
Tobacco ............................................................... 0.3%
Wireless Telecommunications ........................................... 3.3%
Repurchase Agreement .................................................. 0.5%
Cash & other assets, less liabilities ................................. 0.3%
-----
100.0%
=====
32 See accompanying notes.
SERIES D
(GLOBAL SERIES)
Statement of Assets and Liabilities
December 31, 2005
ASSETS:
Investments, at value(1) ........................................ $514,608,068
Cash denominated in a foreign currency, at value(2) ............. 796,616
Receivables:
Fund shares sold ............................................. 718,219
Securities sold .............................................. 983,736
Dividends .................................................... 660,990
Foreign taxes recoverable ....................................... 71,069
Prepaid expenses ................................................ 8,802
------------
Total assets .................................................... 517,847,500
------------
LIABILITIES:
Cash overdraft .................................................. 292,397
Payable for:
Fund shares redeemed ......................................... 516,920
Management fees .............................................. 437,239
Securities purchased ......................................... 204,176
Custodian fees ............................................... 35,000
Transfer agent and administration fees ....................... 71,269
Professional fees ............................................ 51,925
Director's fees .............................................. 4,125
Other ........................................................ 21,519
------------
Total liabilities ............................................... 1,634,570
------------
NET ASSETS ...................................................... $516,212,930
============
NET ASSETS CONSIST OF:
Paid in capital ................................................. $354,131,275
Accumulated undistributed net investment income ................. 269,487
Accumulated undistributed net realized gain
on sale of investments and foreign currency transactions ..... 23,832,842
Net unrealized appreciation in value of investments and
translation of assets and liabilities in foreign currency .... 137,979,326
------------
Net assets ...................................................... $516,212,930
============
Capital shares authorized ....................................... unlimited
Capital shares outstanding ...................................... 54,904,525
Net asset value per share
(net assets divided by shares outstanding) ................... $ 9.40
============
(1)Investments, at cost ......................................... $376,622,489
(2)Cash denominated in a foreign currency, at cost .............. 803,531
Statement of Operations
For the Year Ended December 31, 2005
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $572,689) .......... $ 7,129,342
Interest ........................................................ 81,619
-----------
Total investment income ......................................... 7,210,961
-----------
EXPENSES:
Management fees .............................................. 4,674,332
Administration fees .......................................... 695,330
Custodian fees ............................................... 223,185
Transfer agent/maintenance fees .............................. 25,244
Directors' fees .............................................. 23,300
Professional fees ............................................ 89,876
Reports to shareholders ...................................... 62,778
Other expenses ............................................... 19,307
-----------
Total expenses ............................................... 5,813,352
Less: Earnings credits applied ............................... (1,570)
-----------
Net expenses ................................................. 5,811,782
-----------
Net investment income ........................................ 1,399,179
-----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain (loss) during the year on:
Investments .................................................. 48,177,501
Foreign currency transactions ................................ (857,856)
-----------
Net realized gain ............................................ 47,319,645
-----------
Net unrealized appreciation (depreciation) during the year on:
Investments .................................................. 12,488,379
Translation of assets and liabilities in foreign currencies .. (54,598)
-----------
Net unrealized appreciation .................................. 12,433,781
-----------
Net realized and unrealized gain ............................. 59,753,426
-----------
Net increase in net assets resulting from operations ......... $61,152,605
===========
33 See accompanying notes.
SERIES D
Statement of Changes in Net Assets (GLOBAL SERIES)
YEAR ENDED YEAR ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
----------------- -----------------
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income .............................. $ 1,399,179 $ 1,583,210
Net realized gain during the period on investments
and foreign currency transactions ............... 47,319,645 36,436,982
Net unrealized appreciation during the period on
investments and translation of assets and
liabilities in foreign currencies ............... 12,433,781 36,347,138
------------- -------------
Net increase in net assets resulting from operations 61,152,605 74,367,330
------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares ....................... 116,417,418 94,393,037
Cost of shares redeemed ............................ (127,933,968) (129,792,393)
------------- -------------
Net decrease from capital share transactions ....... (11,516,550) (35,399,356)
------------- -------------
Net increase in net assets ......................... 49,636,055 38,967,974
------------- -------------
NET ASSETS:
Beginning of period ................................ 466,576,875 427,608,901
------------- -------------
End of period ...................................... $ 516,212,930 $ 466,576,875
============= =============
Accumulated undistributed net investment
income at end of year ........................... $ 269,487 $ 1,270,893
============= =============
CAPITAL SHARE ACTIVITY:
Shares sold ........................................ 13,632,840 13,084,884
Shares redeemed .................................... (15,082,993) (18,060,306)
------------- -------------
Total capital share activity ....................... (1,450,153) (4,975,422)
============= =============
34 See accompanying notes.
Financial Highlights
Selected data for each share of capital SERIES D
stock outstanding throughout each year (GLOBAL SERIES)
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
2005 2004 2003(C) 2002(B) 2001
-------- -------- -------- -------- ------------
PER SHARE DATA
Net asset value, beginning of period $ 8.28 $ 6.97 $ 4.87 $ 6.31 $ 8.49
Income (loss) from investment operations:
Net investment income 0.03 0.03 0.03 0.02 --
Net gain (loss) on securities (realized and unrealized) 1.09 1.28 2.09 (1.45) (0.97)
-------- -------- -------- -------- --------
Total from investment operations 1.12 1.31 2.12 (1.43) (0.97)
-------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income -- -- (0.02) (0.01) --
Distributions from realized gains -- -- -- -- (0.94)
Distributions in excess of capital gains -- -- -- -- (0.27)
-------- -------- -------- -------- --------
Total distributions -- -- (0.02) (0.01) (1.21)
-------- -------- -------- -------- --------
Net asset value, end of period $ 9.40 $ 8.28 $ 6.97 $ 4.87 $ 6.31
======== ======== ======== ======== ========
TOTAL RETURN(A) 13.53% 18.79% 43.45% (22.71%) (12.25%)
-------- -------- -------- -------- --------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $516,213 $466,577 $427,609 $305,053 $431,252
-------- -------- -------- -------- --------
Ratios to average net assets:
Net investment income 0.30% 0.37% 0.44% 0.27% 0.07%(d)
Total expenses 1.24% 1.23% 1.25% 1.23% 1.20%
Expenses prior to custodian earnings credits 1.24% 1.23% 1.25% 1.23% 1.20%
-------- -------- -------- -------- --------
Portfolio turnover rate 33% 28% 44% 48% 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) 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.
(c) 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.
(d) Net investment income is less than $0.01 per share.
35 See accompanying notes.
This page left blank intentionally.
36
SERIES E
Managers' Commentary (DIVERSIFIED INCOME SERIES)
February 15, 2006 (unaudited)
(SECURITY BENEFIT (SM) LOGO)
Security Management Company, LLC
Advisor, Security Management Company, LLC
(PHOTO OF STEVEN M.BOWSER)
Steven M.Bowser
Portfolio Manager
(PHOTO OF CHRISTOPHER L.PHALEN)
Christopher L.Phalen
Portfolio Manager
TO OUR SHAREHOLDERS:
2005 was an unusual year in the fixed income market. Long-term interest rates
declined and economic growth was resilient despite eight consecutive interest
rate increases by the Federal Reserve Bank that cumulatively equaled 2 percent.
Two factors were instrumental in restricting an increase in longer maturity
rates: core CPI (Consumer Price Index excluding food and fuel) was contained
despite sharply rising prices of commodities, including oil and gold; and
purchases of U.S. bonds by foreign investors set a record high. Nevertheless,
bond returns were lackluster in 2005 with the broad bond market return as
represented by the Lehman Brothers Aggregate Index posting a total of 2.43% for
the year. Correspondingly, the SBL E -Diversified Income Series advanced only
1.85% for the 12-month period ended December 31, 2005.
FACTORS AFFECTING PERFORMANCE IN 2005
The sluggish bond market returns resulted from the Federal Reserve Bank's
interest rate increases that caused the interest rates of short and intermediate
maturity government bonds to move up during the year and adversely impacted the
equity market. Also contributing to the bond market's sub-par performance was
the negative impact from the credit rating agencies' downgrades of General
Motors and Ford. These actions resulted in the elimination of two very large
issuers from the investment grade indices. Corporate bonds under-performed
government bonds in 2005 despite earning a higher yield premium for the added
credit risk and the reasonably healthy economic environment.
During 2005, the Series was positioned more heavily in shorter maturity bonds to
mitigate the impact of rising interest rates. This strategy was correct in that
most rates did rise; however, shorter rates rose more steeply than intermediate
and longer rates, causing the Series to lose value due to the yield curve
effect. The yield curve flattened throughout the year benefiting portfolios with
a significant barbell structure, or over-weighting of long and short maturities
and under-weighting of intermediate maturities. The Series was slightly
over-weighted in corporate bonds to take advantage of the robust economy and a
low volatility corporate yield spread environment. Though the under-weighting of
GM and Ford was beneficial to the Series, the under-weighting of long maturity
U.S. Treasury and agency bonds was problematic. The long maturities in the
portfolio were invested primarily in corporate bonds, which under-performed long
maturity government bonds.
THE COMPOSITION OF PORTFOLIO ASSETS
At the end of the year, the Series held 38% in mortgage-backed securities, 3% in
asset-backed and commercial mortgage-backed securities, 28% in corporate issues,
17% in U.S.
Treasury issues, 8% in federal agency issues, and 6% in cash. This portfolio
composition is over-weighted in corporate bonds and mortgage-backed securities
and under-weighted in Treasury and Agency issues relative to the benchmark.
OUTLOOK FOR 2006
The economy grew at a healthy pace in 2005, despite very large increases in
commodity prices, 2 percent higher short-term interest rates, and the hurricanes
which battered New Orleans and other areas surrounding the Gulf of Mexico. We
expect the economy in 2006 to moderate to a 3% or lower real growth rate that
will be more attributable to business rather than consumer spending. Over the
past few years, consumer spending has been the main driver of the U.S. economy
due to an accommodative Federal Reserve Bank's policy. The low interest rate
environment led to large amounts of equity withdrawal from increased home
values, which then fueled consumer demand. The monetary accommodation has now
been removed after thirteen straight rate increases, leaving short-term interest
rates at or near long-term interest rates for the first time since early 2000.
Consumer spending from home equity extraction will subside in 2006 due to higher
mortgage rates and slower home price appreciation. However, employment gains
seem to be improving, which should keep consumer spending at a reasonable pace.
While the flat or inverted yield curve condition has led to slow economic growth
in the past, we do not expect significant weakness in 2006. In the past, the
curve inverted due to Federal Reserve hikes of the short-term rates well above
the inflation rate and above rising long-term interest rates. We believe the
current flatness of the yield curve is partly due to foreign purchases of U.S.
debt as well as to demand from pension funds for longer maturity debt to match
long liabilities in defined benefit plans. Growth should remain healthy in the
low long-term interest rate environment.
We expect shorter-term rates to remain around 4.50% after the January meeting of
the Federal Reserve but expect longer-term rates to continue to rise. As a
result, longer maturities will be under-weighted in the Series while shorter
maturities will be over-weighted to benefit from a steepening in the slope of
the yield curve. Interest rate volatility will most likely remain low, thereby
mitigating the need for call protection as part of the portfolio strategy. We
expect credit risk premiums to continue to increase gradually but to remain
below long-term averages for 2006.
In the coming year we are most concerned with event risk in investment grade
corporate bonds. Due to the outlook described above, we will continue to hold
larger-than-index weights in mortgage-backed securities, asset-backed
securities, and corporate debt for the yield advantage, but will avoid corporate
issuers who, we believe, are prone to increase the debt in their capital
structure.
Sincerely,
Steven M. Bowser and Christopher L. Phalen
Portfolio Managers
37
SERIES E
Managers' Commentary (DIVERSIFIED INCOME SERIES)
February 15, 2006 (unaudited)
PERFORMANCE
SERIES E VS. LEHMAN BROTHERS
AGGREGATE BOND INDEX
(PERFORMANCE GRAPH)
SERIES E LEHMAN BROTHERS AGGREGATE BOND
- ------------------------------------ --------------------------------
DATE VALUE DATE VALUE
- ---------- --------- ---------- ---------
12/31/95 10,000.00 12/31/95 10,000.00
03/31/96 9,650.08 03/31/96 9,821.62
06/30/96 9,650.08 06/30/96 9,877.69
09/30/96 9,853.90 09/30/96 10,059.57
12/31/96 9,928.37 12/31/96 10,361.46
03/31/97 9,820.81 03/31/97 10,303.91
06/30/97 10,201.40 06/30/97 10,683.46
09/30/97 10,603.41 09/30/97 11,038.57
12/31/97 10,924.46 12/31/97 11,363.77
03/31/98 11,086.73 03/31/98 11,540.27
06/30/98 11,343.23 06/30/98 11,810.02
09/30/98 11,780.24 09/30/98 12,309.18
12/31/98 11,799.24 12/31/98 12,350.67
03/31/99 11,633.47 03/31/99 12,287.91
06/30/99 11,452.01 06/30/99 12,179.65
09/30/99 11,462.09 09/30/99 12,263.05
12/31/99 11,354.55 12/31/99 12,248.12
03/31/00 11,505.23 03/31/00 12,518.50
06/30/00 11,537.51 06/30/00 12,735.46
09/30/00 11,850.03 09/30/00 13,119.83
12/31/00 12,327.06 12/31/00 13,672.68
03/31/01 12,655.30 03/31/2001 14,086.52
06/30/01 12,701.66 06/30/2001 14,165.14
09/30/01 13,223.17 09/30/2001 14,818.92
12/31/01 13,211.58 12/31/2001 14,824.37
03/31/02 13,206.28 03/31/2002 14,838.92
06/30/02 13,657.88 06/30/2002 15,388.10
09/30/02 14,243.74 09/30/2002 16,094.07
12/31/02 14,439.03 12/31/2002 16,346.74
03/31/03 14,609.91 03/31/2003 16,573.97
06/30/03 15,024.89 06/30/2003 16,988.33
09/30/03 14,884.39 09/30/2003 16,963.81
12/31/03 14,899.93 12/31/2003 17,018.21
03/31/04 15,277.83 03/31/2004 17,469.67
06/30/04 14,886.44 06/30/2004 17,044.00
09/30/04 15,305.30 09/30/2004 17,588.86
12/31/04 15,468.71 12/31/2004 17,756.59
03/31/05 15,414.24 03/31/2005 17,672.44
06/30/05 15,795.51 06/30/2005 18,204.03
09/30/05 15,686.58 09/30/2005 18,081.09
12/31/05 15,754.66 12/31/2005 18,188.34
$10,000 OVER 10 YEARS
The chart above assumes a hypothetical $10,000 investment in Series E
(Diversified Income Series) on December 31, 1995 and reflects the fees and
expenses of Series E. The Lehman Brothers Aggregate Bond Index is an unmanaged
index that tracks investment grade bonds including U.S. Treasury and agency
issues, corporate bond issues, asset-backed, commercial mortgage-backed and
mortgage-backed securities and Yankee issues.
PORTFOLIO COMPOSITION BY QUALITY RATINGS
(BASED ON STANDARD AND POOR'S RATINGS)
AAA 66.12%
AA 2.66
A 17.77
BBB 9.83
BB 2.01
NR 0.12
Repurchase Agreement 0.45
Cash & other assets, less liabilities 1.04
Total net assets 100.00%
======
AVERAGE ANNUAL RETURNS
PERIODS ENDED 12-31-05(1) 1 YEAR 5 YEARS 10 YEARS
- ------------------------- ------ ------- --------
Series E 1.85% 5.03% 4.65%
(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.
38 See accompanying notes.
SERIES E
Managers' Commentary (DIVERSIFIED INCOME SERIES)
February 15, 2006 (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, 2005 - December 31, 2005.
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
mutual 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.
SERIES EXPENSES
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING
07-01-05 12-31-05(1) PERIOD(2)
------------- ------------- -------------
Series E (Diversified Income Series)
Actual $1,000.00 $ 999.10 $3.88
Hypothetical 1,000.00 1,021.32 3.92
(1) The actual ending account value is based on the actual total return of the
Series for the period July 1, 2005 to December 31, 2005 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, 2005 to December 31, 2005 was (0.09%).
(2) Expenses are equal to the Series annualized expense ratio 0.77% (net of
expense waivers) multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
39
Schedule of Investments SERIES E
December 31, 2005 (DIVERSIFIED INCOME SERIES)
PRINCIPAL MARKET
AMOUNT VALUE
---------- ----------
CORPORATE BONDS - 27.3%
AIRLINES - 0.5%
Southwest Airlines Company,
7.875% - 2007 $ 700,000 $ 730,228
----------
AUTOMOTIVE - 0.8%
Ford Motor Credit Company,
6.50% - 2007 650,000 628,855
Johnson Controls, Inc., 4.875% - 2013 600,000 578,823
----------
1,207,678
----------
BANKING - 3.4%
BCH Cayman Islands, Ltd.,
7.70% - 2006 700,000 710,022
BankBoston Capital Trust,
5.057% - 2028(3) 1,200,000 1,157,849
Chase Capital III, 4.96% - 2027(3) 1,200,000 1,139,869
Danske Bank A/S, 7.40% - 2010(1,3) 800,000 826,706
Regions Financial Corporation,
7.00% - 2011 1,000,000 1,092,985
U.S. Central Credit Union,
2.70% - 2009 454,545 428,814
----------
5,356,245
----------
BROKERAGE - 1.2%
Credit Suisse First Boston USA,
6.125% - 2011 600,000 629,845
Legg Mason, Inc., 6.75% - 2008 650,000 676,684
Waddell & Reed Financial, Inc.,
7.50% - 2006 650,000 650,616
----------
1,957,145
----------
BUILDING MATERIALS - 0.4%
CRH America, Inc., 6.95% - 2012 600,000 652,817
----------
CHEMICALS - 0.5%
PPG Industries, Inc., 7.40% - 2019 650,000 746,829
----------
DIVERSIFIED MANUFACTURING - 0.9%
General Electric Company,
5.00% - 2013 600,000 599,688
General Motors Acceptance Corporation,
6.311% - 2007 105,000 94,998
Tyco International Group,
7.00% - 2028 650,000 715,050
----------
1,409,736
----------
ELECTRIC - 1.7%
Arizona Public Service Company,
6.375% - 2011 600,000 634,522
Cincinnati Gas & Electric Company,
5.70% - 2012 600,000 615,840
East Coast Power LLC:
6.737% - 2008 55,828 56,325
7.066% - 2012 140,867 145,967
Kansas Gas & Electric,
5.647% - 2021 650,000 643,324
Oncor Electric Delivery Company,
6.375% - 2015 600,000 636,689
----------
2,732,667
----------
ENERGY - INDEPENDENT - 0.9%
Devon Financing Corporation, ULC,
6.875% - 2011 $ 600,000 $ 656,301
Pancanadian Petroleum, 6.30% - 2011 750,000 800,689
----------
1,456,990
----------
ENERGY - INTEGRATED - 0.5%
Conoco, Inc., 6.95% - 2029 650,000 784,487
----------
FINANCIAL - OTHER - 2.3%
Bank of America Corporation,
7.80% - 2010 650,000 717,789
Berkshire Hathaway, 4.75% - 2012 1,800,000 1,779,372
Willis Group North America, Inc.,
5.625% - 2015 1,200,000 1,199,533
----------
3,696,694
----------
FINANCIAL COMPANIES - CAPTIVE - 1.5%
CIT Group Company of Canada,
4.65% - 2010(1) 1,800,000 1,762,186
General Motors Acceptance Corporation,
6.125% - 2006 650,000 631,381
----------
2,393,567
----------
FINANCIAL COMPANIES - NONCAPTIVE CONSUMER - 1.2%
Capital One Financial, 4.738% - 2007 650,000 647,860
Countrywide Capital, 8.00% - 2026 700,000 716,181
SLM Corporation, 5.05% - 2014 600,000 592,174
----------
1,956,215
----------
FINANCIAL COMPANIES - NONCAPTIVE DIVERSIFIED - 0.4%
General Electric Capital Corporation,
5.875% - 2012 600,000 625,829
----------
HEALTH CARE - 0.4%
Anthem, Inc., 6.80% - 2012 600,000 654,605
----------
HOME CONSTRUCTION - 0.8%
KB Home, 6.25% - 2015 1,250,000 1,209,681
----------
INDUSTRIAL - OTHER - 0.4%
Eaton Corporation, 5.75% - 2012 625,000 652,562
----------
INSURANCE - LIFE - 0.9%
AIG Sunamerica Global Financing X,
6.90% - 2032(1) 1,200,000 1,399,999
----------
INSURANCE - PROPERTY & CASUALTY - 1.3%
Liberty Mutual Group, 5.75% - 2014(1) 1,250,000 1,233,845
Nationwide Mutual Insurance Company,
8.25% - 2031(1) 650,000 815,703
----------
2,049,548
----------
MEDIA - CABLE - 1.0%
Comcast Corporation, 5.30% - 2014 625,000 613,155
Jones Intercable, Inc., 7.625% - 2008 500,000 525,814
Lenfest Communications, Inc.,
10.50% - 2006 500,000 510,598
----------
1,649,567
----------
40 See accompanying notes.
Schedule of Investments SERIES E
December 31, 2005 (DIVERSIFIED INCOME SERIES)
PRINCIPAL MARKET
AMOUNT VALUE
---------- -----------
CORPORATE BONDS (CONTINUED)
PHARMACEUTICALS - 0.5%
Eli Lilly & Company, 7.125% - 2025 $ 650,000 $ 782,222
-----------
PIPELINES - 0.7%
Consolidated Natural Gas Company,
6.625% - 2013 600,000 648,914
Express Pipeline LP, 6.47% - 2013(1) 386,400 389,862
-----------
1,038,776
-----------
RAILROADS - 0.8%
Canadian National Railway Company,
6.25% - 2034 1,200,000 1,335,186
-----------
REAL ESTATE INVESTMENT TRUSTS - 0.7%
Reckson Operating Partnership,
5.15% - 2011 1,200,000 1,183,836
-----------
SERVICES - 0.1%
American Eco Corporation,
9.625% - 2008*(4,5,6) 500,000 --
MasTec, Inc., 7.75% - 2008 200,000 198,500
-----------
198,500
-----------
TECHNOLOGY - 1.5%
Affiliated Computer Services,
5.20% - 2015 1,200,000 1,018,196
Pitney Bowes, Inc., 5.875% - 2006 650,000 651,611
Science Applications International
Corporation, 7.125% - 2032 600,000 705,090
-----------
2,374,897
-----------
TELECOMMUNICATIONS - WIRELESS - 0.8%
Nextel Communications, 6.875 - 2013 1,200,000 1,251,857
-----------
TRANSPORTATION SERVICES - 1.2%
Erac USA Finance Company:
7.35% - 2008(1) 600,000 629,614
6.70% - 2034(1) 600,000 645,488
TTX Company, 4.90% - 2015(1) 650,000 628,998
-----------
1,904,100
-----------
TOTAL CORPORATE BONDS
(cost $43,080,984) 43,392,463
-----------
MORTGAGE BACKED SECURITIES - 41.0%
U.S. GOVERNMENT SPONSORED AGENCIES - 36.3%
Federal Home Loan Mortgage Corporation:
#E01378, 5.00% - 2018 $2,361,865 $ 2,342,106
#E01488, 5.00% - 2018 2,114,351 2,096,394
#E01538, 5.00% - 2018 2,176,240 2,157,554
FHR #188 H, 7.00% - 2021 2,580 2,573
#C44050, 7.00% - 2030 57,792 60,208
#C01079, 7.50% - 2030 33,514 35,178
#C01172, 6.50% - 2031 102,142 104,685
#C01210, 6.50% - 2031 118,875 122,070
#C50964, 6.50% - 2031 103,682 106,263
#C50967, 6.50% - 2031 35,150 36,095
#C01277, 7.00% - 2031 172,467 179,563
#C01292, 6.00% - 2032 459,773 465,503
#C62801, 6.00% - 2032 197,833 200,299
#C01287, 6.50% - 2032 272,194 278,971
#C76358, 5.00% - 2033 2,617,969 2,545,098
#C78238, 5.50% - 2033 2,555,450 2,538,253
#A16943, 6.00% - 2033 1,502,799 1,519,575
#G08014, 5.00% - 2034 2,663,724 2,584,054
#G08015, 5.50% - 2034 2,458,929 2,438,765
#A17903, 6.00% - 2034 1,710,860 1,728,106
Federal National Mortgage Association:
#254473, 5.50% - 2017 2,178,014 2,193,068
#720714, 4.50% - 2018 2,219,298 2,164,519
FNR 2005-46 TW, 5.00% - 2018 3,000,000 2,959,286
#555549, 5.00% - 2018 2,505,982 2,479,311
#750465, 5.00% - 2018 2,135,761 2,115,981
#780952, 4.00% - 2019 2,611,757 2,496,941
FNR 1990-68 J, 6.95% - 2020 6,563 6,798
FNR 1990-103 K, 7.50% - 2020 1,933 1,957
#252806, 7.50% - 2029 102,637 107,639
#252874, 7.50% - 2029 36,574 38,357
#535277, 7.00% - 2030 64,341 67,133
#551262, 7.50% - 2030 21,322 22,346
#190307, 8.00% - 2030 42,727 45,641
#253356, 8.00% - 2030 51,166 54,656
#541735, 8.00% - 2030 50,556 54,004
#535838, 6.50% - 2031 88,180 90,471
#585348, 6.50% - 2031 84,134 86,320
#591381, 6.50% - 2031 150,934 154,856
#254477, 5.50% - 2032 1,215,181 1,203,497
#254198, 6.00% - 2032 460,681 465,058
#254377, 6.00% - 2032 761,061 769,593
#254478, 6.00% - 2032 371,827 375,995
#666750, 6.00% - 2032 789,909 797,415
#254346, 6.50% - 2032 216,645 222,274
#545691, 6.50% - 2032 330,637 339,228
#659790, 6.50% - 2032 289,953 297,994
#702879, 5.00% - 2033 1,560,736 1,517,693
#709805, 5.00% - 2033 2,185,007 2,124,747
#658077, 5.50% - 2033 1,305,573 1,296,380
#688328, 5.50% - 2033 1,336,642 1,326,840
41 See accompanying notes.
Schedule of Investments SERIES E
December 31, 2005 (DIVERSIFIED INCOME SERIES)
PRINCIPAL MARKET
AMOUNT VALUE
---------- -----------
MORTGAGE BACKED SECURITIES (CONTINUED)
U.S. GOVERNMENT SPONSORED AGENCIES (CONTINUED)
Federal National Mortgage
Association (continued):
#689108, 5.50% - 2033 $1,253,893 $ 1,245,064
#709748, 5.50% - 2033 2,214,584 2,198,991
#713971, 5.50% - 2033 2,087,841 2,072,530
#754903, 5.50% - 2033 1,341,906 1,328,602
#725033, 6.00% - 2034 1,116,758 1,128,418
#255554, 5.50% - 2035 2,551,079 2,528,541
-----------
57,919,457
-----------
U.S. GOVERNMENT SPONSORED SECURITIES - 1.5%
Government National Mortgage Association:
#301465, 9.00% - 2021 22,092 24,261
#305617, 9.00% - 2021 24,896 27,341
#313107, 7.00% - 2022 145,844 153,082
#352022, 7.00% - 2023 88,676 93,076
#369303, 7.00% - 2023 114,507 120,190
#780454, 7.00% - 2026 151,594 159,117
#462680, 7.00% - 2028 87,321 91,654
#482668, 7.00% - 2028 78,862 82,775
#518436, 7.25% - 2029 29,025 30,313
#494109, 7.50% - 2029 69,155 72,716
#510704, 7.50% - 2029 37,322 39,244
#781079, 7.50% - 2029 33,255 34,968
#479229, 8.00% - 2030 17,657 18,897
#479232, 8.00% - 2030 26,004 27,831
#508342, 8.00% - 2030 50,404 53,945
#561561, 6.50% - 2031 213,917 223,586
#564472, 6.50% - 2031 292,654 305,882
#538285, 6.50% - 2031 115,850 120,933
#781414, 5.50% - 2032 416,151 419,012
#552324, 6.50% - 2032 209,233 218,413
II #181907, 9.50% - 2020 18,202 20,234
II #2445, 8.00% - 2027 60,060 63,980
II #2909, 8.00% - 2030 34,664 36,926
-----------
2,438,376
-----------
NON-AGENCY SECURITIES - 3.2%
Chase Commercial Mortgage Securities Corporation:
1997-1B, 7.37% - 2029 1,500,000 1,533,087
1998-1B, 6.56% - 2030 500,000 516,834
Credit-Based Asset Servicing & Securitization,
2004-CB5 AV2, 4.639% - 2035(3) 3,000,000 2,999,968
Global Rate Eligible Asset Trust, 1998-A,
7.33%, 2006(5,6) 794,237 --
-----------
5,049,889
-----------
TOTAL MORTGAGE BACKED SECURITIES
(cost $67,269,143) 65,407,722
-----------
U.S. AGENCY BONDS & NOTES - 7.4%
Federal Home Loan Bank,
6.375%, 2006 $ 900,000 $ 909,302
Federal Home Loan Mortgage Corporation,
2.85% - 2007 3,000,000 2,936,649
Federal National Mortgage Association:
4.00% - 2007 3,000,000 2,966,532
6.00% - 2008 850,000 873,797
5.00% - 2013(2) 1,935,000 1,900,874
6.625% - 2030 750,000 924,774
7.125% - 2030 1,000,000 1,305,390
-----------
TOTAL U.S. AGENCY BONDS & NOTES
(cost $11,549,236) 11,817,318
-----------
U.S. GOVERNMENT SECURITIES - 17.1%
U.S. Treasury Bond:
4.00% - 2007 3,000,000 2,979,141
4.25% - 2015 650,000 641,596
4.50% - 2015 5,500,000 5,545,117
5.375% - 2031 5,000,000 5,616,405
U.S. Treasury Notes:
3.375% - 2007 4,000,000 3,951,248
3.750% - 2007 600,000 594,890
6.25% - 2007 1,750,000 1,783,633
4.125% - 2008 3,000,000 2,983,476
3.875% - 2010 2,000,000 1,958,360
4.00% - 2010 600,000 591,281
64.50% - 2010 550,000 552,965
-----------
TOTAL U.S. GOVERNMENT SECURITIES
(cost $27,171,383) 27,198,112
-----------
COMMERCIAL PAPER - 3.4%
BANKING - 0.6%
UBS Finance (De), Inc.,
4.28%, 01-03-06 1,000,000 999,762
-----------
BROKERAGE - 2.2%
Goldman Sachs Group, Inc.:
4.32%, 01-04-06 1,000,000 999,640
4.33%, 01-09-06 1,000,000 999,038
4.33%, 01-10-06 1,500,000 1,498,376
-----------
3,497,054
-----------
FINANCIAL - OTHER - 0.6%
Countrywide Financial,
4.30%, 01-03-06 1,000,000 999,757
-----------
TOTAL COMMERCIAL PAPER
(cost $5,496,573) 5,496,573
-----------
42 See accompanying notes.
Schedule of Investments SERIES E
December 31, 2005 (DIVERSIFIED INCOME SERIES)
PRINCIPAL MARKET
AMOUNT VALUE
---------- ------------
ASSET BACKED COMMERCIAL PAPER - 2.3%
FINANCIAL COMPANIES - MISCELLANEOUS
RECEIVABLES - 1.1%
Jupiter Securitization Corporation,
4.26%, 01-12-06 $1,700,000 $ 1,697,787
------------
FINANCIAL COMPANIES - SECURITIES - 0.6%
Asset One Securitization,
4.32%, 01-06-06 1,000,000 999,393
------------
FINANCIAL COMPANIES - TRADE RECEIVABLES - 0.6%
Old Line Funding Corporation,
4.31%, 01-05-06 1,000,000 999,521
------------
TOTAL ASSET BACKED COMMERCIAL PAPER
(cost $3,696,701) 3,696,701
------------
REPURCHASE AGREEMENT - 0.5%
United Missouri Bank, 3.78%, dated 12-30-05,
matures 01-03-06; repurchase amount of
$722,303 (Collateralized by U.S. Treasury
Notes, 7.00%, 07-15-06 with a value of $737,027) 722,000 722,000
------------
TOTAL REPURCHASE AGREEMENT
(cost $722,000) 722,000
------------
TOTAL INVESTMENTS - 99.0%
(cost $158,986,020) 157,730,889
CASH & OTHER ASSETS, LESS LIABILITIES - 1.0% 1,655,278
------------
TOTAL NET ASSETS - 100.0% $159,386,167
============
For federal income tax purposes, the identified cost of investments owned at
December 31, 2005 was $160,848,765.
* Non-income producing security
(1) Security is a 144A series The total market value of 144A securities is
$8,332,401 (cost $8,185,488), or 5.2% of total net assets.
(2) Security is a step bond. Rate indicated is rate effective at December 31,
2005.
(3) Variable rate security. Rate indicated is rate effective at December 31,
2005.
(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.
(6) Security is illiquid. The total market value of illiquid securities is $0
(cost $1,292,574), or 0.0% or net assets.
43 See accompanying notes.
SERIES E
(DIVERSIFIED INCOME SERIES)
Statement of Assets and Liabilities
December 31, 2005
ASSETS:
Investments, at value(1) ....................................... $157,730,889
Cash ........................................................... 19,525
Receivables:
Fund shares sold ............................................ 485,006
Interest .................................................... 1,436,198
Prepaid expenses ............................................... 2,945
------------
Total assets ................................................... 159,674,563
============
LIABILITIES:
Payable for:
Fund shares redeemed ........................................ 159,731
Management fees ............................................. 80,679
Custodian fees .............................................. 5,400
Transfer agent and administration fees ...................... 17,813
Professional fees ........................................... 13,874
Director's fees ............................................. 2,000
Other ....................................................... 8,899
------------
Total liabilities .............................................. 288,396
------------
NET ASSETS ..................................................... $159,386,167
============
NET ASSETS CONSIST OF:
Paid in capital ................................................ $166,439,444
Accumulated undistributed net investment income ................ 5,900,401
Accumulated net realized loss on sale of investments ........... (11,698,547)
Net unrealized depreciation in value of investments ............ (1,255,131)
------------
Net assets ..................................................... $159,386,167
============
Capital shares authorized ...................................... unlimited
Capital shares outstanding ..................................... 13,777,614
Net asset value per share
(net assets divided by shares outstanding) .................. $ 11.57
============
(1)Investments, at cost ........................................ $158,986,020
Statement of Operations
For the Year Ended December 31, 2005
INVESTMENT INCOME:
Interest ..................................................... $ 7,836,482
-----------
Total investment income ...................................... 7,836,482
-----------
EXPENSES:
Management fees .............................................. 1,176,444
Administration fees .......................................... 153,511
Custodian fees ............................................... 21,032
Transfer agent/maintenance fees .............................. 25,210
Directors' fees .............................................. 8,951
Professional fees ............................................ 28,809
Reports to shareholders ...................................... 17,258
Other expenses ............................................... 7,372
-----------
Total expenses ............................................... 1,438,587
Less: Expenses waived ........................................ (235,290)
-----------
Net expenses ................................................. 1,203,297
-----------
Net investment income ........................................ 6,633,185
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain during the year on:
Investments .................................................. 975,729
-----------
Net realized gain ............................................ 975,729
-----------
Net unrealized depreciation during the year on:
Investments .................................................. (4,694,841)
-----------
Net unrealized depreciation .................................. (4,694,841)
-----------
Net realized and unrealized loss ............................. (3,719,112)
-----------
Net increase in net assets resulting from operations ......... $ 2,914,073
===========
44 See accompanying notes.
SERIES E
Statement of Changes in Net Assets (DIVERSIFIED INCOME SERIES)
YEAR ENDED YEAR ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income ........................................... $ 6,633,185 $ 6,989,137
Net realized gain during the period on investments .............. 975,729 118,614
Net unrealized depreciation during the period on investments .... (4,694,841) (1,211,731)
------------ ------------
Net increase in net assets resulting from operations ............ 2,914,073 5,896,020
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ........................................... -- (1,418,099)
------------ ------------
Total distributions to shareholders ............................. -- (1,418,099)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares .................................... 63,916,593 56,833,626
Distributions reinvested ........................................ -- 1,418,099
Cost of shares redeemed ......................................... (66,971,923) (62,673,986)
------------ ------------
Net decrease from capital share transactions .................... (3,055,330) (4,422,261)
------------ ------------
Net increase (decrease) in net assets ........................... (141,257) 55,660
------------ ------------
NET ASSETS:
Beginning of period ............................................. 159,527,424 159,471,764
------------ ------------
End of period ................................................... $159,386,167 $159,527,424
============ ============
Accumulated undistributed net investment income at end of year .. $ 5,900,401 $ 6,431,543
============ ============
CAPITAL SHARE ACTIVITY:
Shares sold ..................................................... 5,569,608 5,093,132
Shares reinvested ............................................... -- 126,616
Shares redeemed ................................................. (5,836,749) (5,613,540)
------------ ------------
Total capital share activity .................................... (267,141) (393,792)
============ ============
45 See accompanying notes.
Financial Highlights
Selected data for each share of capital SERIES E
stock outstanding throughout each year (DIVERSIFIED INCOME SERIES)
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2005 2004 2003 2002 2001
-------- -------- -------- -------- ------------
PER SHARE DATA
Net asset value, beginning of period $ 11.36 $ 11.04 $ 11.83 $ 11.40 $ 11.37
-------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income 0.49 0.50 0.68 0.51 0.58
Net gain (loss) on securities (realized and unrealized) (0.28) (0.08) (0.31) 0.51 0.20
-------- -------- -------- -------- --------
Total from investment operations 0.21 0.42 0.37 1.02 0.78
-------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income -- (0.10) (1.16) (0.59) (0.75)
-------- -------- -------- -------- --------
Total distributions -- (0.10) (1.16) (0.59) (0.75)
-------- -------- -------- -------- --------
Net asset value, end of period $ 11.57 $ 11.36 $ 11.04 $ 11.83 $ 11.40
======== ======== ======== ======== ========
TOTAL RETURN(A) 1.85% 3.82% 3.19% 9.29% 7.18%
-------- -------- -------- -------- --------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $159,386 $159,527 $159,472 $195,754 $142,538
-------- -------- -------- -------- --------
Ratios to average net assets:
Net investment income 4.23% 4.42% 4.39% 5.00% 5.67%
Total expenses(b) 0.92% 0.89% 0.84% 0.83% 0.83%
Net expenses(c) 0.77% 0.75% 0.84% 0.83% 0.83%
-------- -------- -------- -------- --------
Portfolio turnover rate 60% 39% 45% 32% 46%
(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) Total expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net expense information reflects the expense ratios after voluntary expense
waivers, reimbursements and custodian earnings credits, as applicable.
46 See accompanying notes.
SERIES G
Manager's Commentary (LARGE CAP GROWTH SERIES)
February 15, 2006 (unaudited)
(SECURITY BENEFIT(SM) LOGO)
Security Management Company, LLC
Advisor, Security Management Company, LLC
(PHOTO OF MARK A. MITCHELL)
Mark A. Mitchell
Portfolio Manager
TO OUR SHAREHOLDERS:
Series G of the SBL Fund - Large Cap Growth Series returned 3.33% for the
12-month period ended December 31, 2005, lagging the benchmark Russell 1000
Growth Index's return of 5.26% and the Series' peer group median return of
6.79%. The last few years, the market favored lower quality, higher beta stocks.
In such environments, we tend to under perform. While disappointing, we believe
that our approach delivers performance over the long term.
Our approach to managing the 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.
INDUSTRIAL AND FINANCIAL STOCKS TOP PERFORMERS
The Series' industrial sector holdings were up 6% compared to up 4% for the
Index. Positions in J.B. Hunt Transport Services, Inc. (JB Hunt) and W.W.
Grainger, Inc. (Grainger) contributed positively to the Series' performance. JB
Hunt, up over 25%, benefited from solid trucking demand in a supply constrained
industry. Grainger, up 14%, was driven by strong economic growth and progress on
internal productivity initiatives.
Within the financial sector, First Marblehead Corporation was up over 48%. The
company experienced short-term issues surrounding business practices and
subsequent management changes. Our view was that these were temporary issues
that did not significantly diminish the company's competitive position or growth
prospects. This is a good example of our ability to capitalize on market
overreactions by allowing us to invest in what we believe is a superior business
at a very reasonable price.
HEALTHCARE AND TECHNOLOGY DISAPPOINTING
Healthcare, as a sector overall, under performed the index. Zimmer Holdings,
Inc. (Zimmer) and Boston Scientific both had negative impact on the Series.
Zimmer was down over 15% as a result of concerns regarding the industry pricing
environment and its longer term growth prospects. We believe these are
short-term issues that will be more than offset by Zimmer's strong competitive
position in the health industry. Boston Scientific was down over 24% as a result
of concerns regarding its long-term growth prospects and declining market share
in the drug eluting stent market in the U.S.
Technology, as a sector overall, produced limited returns in 2005. However,
there were good performers at the company level. Apple Computers, Inc. (Apple),
up 123%, benefited significantly from the excitement around new product launches
in its flagship iPod digital music player and notebook computer lines. While we
believe Apple is a good company, it does not meet our valuation criteria.
2006 MARKET OUTLOOK
Though we are positive on the equity market for 2006, we do have several
near-term concerns. The most significant, in our opinion, is the spending
capacity of the U.S. consumer. Above average consumer spending trends have
persisted as a result of favorable monetary and fiscal policies. These favorable
policy trends are now being reversed. Additionally, higher energy prices will
continue to weigh heavily on the consumer as we move through the winter heating
season.
We continue to look for opportunities that are long-term in nature and benefit
from both an attractive valuation and the ability to improve their fundamental
competitive positions.
We 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(1). 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
(1) Dollar cost averaging does not assure profits or protect against loss in a
declining market.
47
SERIES G
Manager's Commentary (LARGE CAP GROWTH SERIES)
February 15, 2006 (unaudited)
PERFORMANCE
SERIES G VS. RUSSELL 1000 GROWTH INDEX
(PERFORMANCE GRAPH)
SERIES G RUSSELL 1000 GROWTH INDEX
- ----------------------------- --------------------------
DATE VALUE DATE VALUE
---------- --------- ---------- ---------
5/1/2000 10,000.00 INCEPTION 5/01/00 10,000.00
6/30/2000 10,210.00 06/30/00 10,215.80
9/30/2000 9,650.00 09/30/00 9,665.85
12/31/2000 7,980.00 12/31/00 7,603.20
3/31/2001 6,670.00 3/31/2001 6,014.12
6/30/2001 7,170.00 6/30/2001 6,520.45
9/30/2001 5,980.00 9/30/2001 5,254.83
12/31/2001 6,750.00 12/31/2001 6,050.69
3/31/2002 6,480.00 3/31/2002 5,894.05
6/30/2002 5,350.00 6/30/2002 4,793.50
9/30/2002 4,570.00 9/30/2002 4,072.29
12/31/2002 4,920.00 12/31/2002 4,363.25
3/31/2003 4,900.00 3/31/2003 4,316.46
6/30/2003 5,520.00 6/30/2003 4,934.37
9/30/2003 5,610.00 9/30/2003 5,127.70
12/31/2003 6,100.00 12/31/2003 5,662.10
3/31/2004 6,120.00 3/31/2004 5,706.44
6/30/2004 6,210.00 6/30/2004 5,816.96
9/30/2004 5,880.00 9/30/2004 5,513.30
12/31/2004 6,300.00 12/31/2004 6,018.96
3/31/2005 5,950.00 3/31/2005 5,773.19
6/30/2005 6,100.00 6/30/2005 5,915.64
9/30/2005 6,260.00 9/30/2005 6,153.05
12/31/2005 6,510.00 12/31/2005 6,336.28
</Table>
$10,000 SINCE INCEPTION
The chart above assumes a hypothetical $10,000 investment in Series G (Large Cap
Growth Series) on May 1, 2000 (date of inception) and reflects the fees and
expenses of Series G. The Russell 1000(R) Growth Index is an unmanaged
capitalization-weighted index which includes stocks incorporated in the United
States and its territories and measures the performance of those Russell 1000
companies with higher price-to-book ratios and higher forecasted growth values.
PORTFOLIO COMPOSITION BY SECTOR
Consumer Discretionary 14.70%
Consumer Staples 7.06
Energy 6.12
Financials 10.10
Health Care 15.70
Industrials 20.39
Information Technology 18.42
Exchange Traded Funds 4.48
Commercial Paper 4.83
U.S. Government Agency 1.93
Liabilities, less cash & other assets (3.73)
Total net assets 100.00%
======
AVERAGE ANNUAL RETURNS
PERIODS ENDED 12-31-05(1) 1 YEAR 5 YEARS SINCE INCEPTION (5-1-00)
- ------------------------- ------ ------- ------------------------
Series G 3.33% (3.99%) (7.29%)
(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.
48 See accompanying notes.
SERIES G
Manager's Commentary (LARGE CAP GROWTH SERIES)
February 15, 2006 (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, 2005 - December 31, 2005.
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
mutual 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.
SERIES EXPENSES
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING
07-01-05 12-31-05(1) PERIOD(2)
------------- ------------- -------------
Series G (Large Cap Growth Series)
Actual $1,000.00 $1,056.80 $4.87
Hypothetical 1,000.00 1,020.47 4.79
(1) The actual ending account value is based on the actual total return of the
Series for the period July 1, 2005 to December 31, 2005 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, 2005 to December 31, 2005 was 5.68%.
(2) Expenses are equal to the Series annualized expense ratio (net of expense
waivers and earnings credits) of 0.94% multiplied by the average account
value over the period, multiplied by 184/365 (to reflect the one-half year
period).
49
Schedule of Investments SERIES G
December 31, 2005 (LARGE CAP GROWTH SERIES)
NUMBER MARKET
OF SHARES VALUE
---------- -----------
COMMON STOCKS - 97.0%
AEROSPACE & DEFENSE - 5.4%
General Dynamics Corporation 10,800 $ 1,231,740
United Technologies Corporation 28,300 1,582,253
-----------
2,813,993
-----------
AIR FREIGHT & LOGISTICS - 3.5%
FedEx Corporation 17,400 1,798,986
-----------
BIOTECHNOLOGY - 1.9%
Amgen, Inc.* 12,200 962,092
-----------
BROADCASTING & CABLE TV - 3.7%
Univision Communications, Inc.* 65,300 1,919,167
-----------
COMMUNICATIONS EQUIPMENT - 6.9%
3Com Corporation* 116,000 417,600
ADC Telecommunications, Inc.* 47,229 1,055,086
Cisco Systems, Inc.* 73,500 1,258,320
Qualcomm, Inc. 19,500 840,060
-----------
3,571,066
-----------
CONSUMER FINANCE - 2.2%
American Express Company 22,500 1,157,850
-----------
DATA PROCESSING & OUTSOURCED SERVICES - 3.3%
First Data Corporation 39,300 1,690,293
-----------
DRUG RETAIL - 3.1%
CVS Corporation 59,900 1,582,558
-----------
ELECTRICAL COMPONENTS & EQUIPMENT - 1.2%
Power-One, Inc.* 100,100 602,602
-----------
EXCHANGE TRADED FUNDS - 4.5%
iShares Russell 1000 Growth
Index Fund 25,200 1,286,460
iShares S&P 500 Growth Index Funds 17,400 1,031,646
-----------
2,318,106
-----------
GENERAL MERCHANDISE STORES - 0.8%
Target Corporation 8,000 439,760
-----------
HEALTH CARE EQUIPMENT - 6.5%
Medtronic, Inc. 31,900 1,836,483
Zimmer Holdings, Inc.* 22,400 1,510,656
-----------
3,347,139
-----------
HEALTH CARE SERVICES - 2.6%
Covance, Inc.* 28,100 1,364,255
-----------
HOME IMPROVEMENT RETAIL - 3.4%
Home Depot, Inc. 44,000 1,781,120
-----------
HOTELS, RESORTS & CRUISE LINES - 3.9%
Carnival Corporation 37,800 2,021,166
-----------
HYPERMARKETS & SUPERCENTERS - 2.9%
Wal-Mart Stores, Inc. 32,600 1,525,680
-----------
INDUSTRIAL CONGLOMERATES - 4.1%
General Electric Company 60,700 2,127,535
-----------
PRINCIPAL
AMOUNT OR
NUMBER MARKET
OF SHARES VALUE
---------- -----------
MANAGED HEALTH CARE - 2.3%
UnitedHealth Group, Inc. 18,800 $ 1,168,232
-----------
MOVIES & ENTERTAINMENT - 2.8%
Viacom, Inc. (Cl.B) 44,400 1,447,440
-----------
MULTI-LINE INSURANCE - 4.3%
American International Group, Inc. 32,800 2,237,944
-----------
OIL & GAS EQUIPMENT & SERVICES - 3.1%
BJ Services Company 43,600 1,598,812
-----------
OIL & GAS STORAGE & TRANSPORTATION - 3.0%
Williams Companies, Inc. 67,700 1,568,609
-----------
OTHER DIVERSIFIED FINANCIAL SERVICES - 3.5%
Citigroup, Inc. 20,200 980,306
First Marblehead Corporation 25,900 851,074
-----------
1,831,380
-----------
PHARMACEUTICALS - 2.5%
Johnson & Johnson 21,400 1,286,140
-----------
SEMICONDUCTORS - 4.5%
Analog Devices, Inc. 22,700 814,249
Applied Micro Circuits Corporation* 154,300 396,551
Intel Corporation 44,400 1,108,224
-----------
2,319,024
-----------
SOFT DRINKS - 1.1%
PepsiCo, Inc. 9,300 549,444
-----------
SYSTEMS SOFTWARE - 3.8%
Microsoft Corporation 74,800 1,956,020
-----------
TRADING COMPANIES & DISTRIBUTORS - 2.7%
W.W. Grainger, Inc. 19,900 1,414,890
-----------
TRUCKING - 3.5%
J.B. Hunt Transport Services, Inc. 79,400 1,797,616
-----------
TOTAL COMMON STOCKS
(cost $45,308,002) 50,198,919
-----------
COMMERCIAL PAPER - 4.8%
BANKING - 1.9%
UBS Finance (De) Inc.,
4.28%, 01-03-06 $1,000,000 999,762
-----------
BROKERAGE - 2.9%
Morgan Stanley, 4.43%, 01-04-06 $1,500,000 1,499,446
-----------
TOTAL COMMERCIAL PAPER
(cost $2,499,208) 2,499,208
-----------
50 See accompanying notes.
Schedule of Investments SERIES G
December 31, 2005 (LARGE CAP GROWTH SERIES)
PRINCIPAL MARKET
AMOUNT VALUE
---------- ------------
U.S. GOVERNMENT SPONSORED AGENCIES - 1.9%
Federal Home Loan Bank,
3.35%, 01-03-06 $1,000,000 $ 999,814
------------
TOTAL U.S. GOVERNMENT SPONSORED AGENCIES
(cost $999,814) 999,814
------------
TOTAL INVESTMENTS - 103.7%
(cost $48,807,024) 53,697,941
LIABILITIES, LESS CASH & OTHER ASSETS - (3.7%) (1,926,045)
------------
TOTAL NET ASSETS - 100.0% $ 51,771,896
============
For federal income tax purposes, the identified cost of investments owned at
December 31, 2005 was $49,633,872.
* Non-income producing security
51 See accompanying notes.
SERIES G
(LARGE CAP GROWTH SERIES)
Statement of Assets and Liabilities
December 31, 2005
ASSETS:
Investments, at value(1) ........................................ $ 53,697,941
Cash ............................................................ 549,540
Receivables:
Fund shares sold ............................................. 189,070
Dividends .................................................... 33,276
Prepaid expenses ................................................ 849
------------
Total assets .................................................... 54,470,676
------------
LIABILITIES:
Payable for:
Securities purchased ......................................... 2,609,432
Fund shares redeemed ......................................... 39,838
Management fees .............................................. 33,153
Transfer agent and administration fees ....................... 6,343
Professional fees ............................................ 7,743
Director's fees .............................................. 600
Other ........................................................ 1,671
------------
Total liabilities ............................................ 2,698,780
------------
NET ASSETS ...................................................... $ 51,771,896
============
NET ASSETS CONSIST OF:
Paid in capital ................................................. $ 64,614,422
Accumulated undistributed net
investment income ............................................ 40,003
Accumulated net realized loss
on sale of investments ....................................... (17,773,446)
Net unrealized appreciation
in value of investments ...................................... 4,890,917
------------
Net assets ...................................................... $ 51,771,896
============
Capital shares authorized ....................................... unlimited
Capital shares outstanding ...................................... 7,946,827
Net asset value per share
(net assets divided by shares outstanding) ................... $ 6.51
============
(1)Investments, at cost ......................................... $ 48,807,024
Statement of Operations
For the Year Ended December 31, 2005
INVESTMENT INCOME:
Dividends .................................................... $ 417,801
Interest ..................................................... 46,063
----------
Total investment income ...................................... 463,864
----------
EXPENSES:
Management fees .............................................. 447,820
Administration fees .......................................... 40,757
Custodian fees ............................................... 2,595
Transfer agent/maintenance fees .............................. 25,116
Directors' fees .............................................. 2,610
Professional fees ............................................ 12,066
Reports to shareholders ...................................... 4,696
Other expenses ............................................... 2,049
----------
Total expenses ............................................... 537,709
Less: Expenses waived ........................................ (111,955)
Earnings credits applied .................................. (1,893)
----------
Net expenses ................................................. 423,861
----------
Net investment income ........................................ 40,003
----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain during the year on:
Investments .................................................. 672,246
----------
Net realized gain ............................................ 672,246
----------
Net unrealized appreciation during the year on:
Investments .................................................. 983,969
----------
Net unrealized appreciation .................................. 983,969
----------
Net realized and unrealized gain ............................. 1,656,215
----------
Net increase in net assets
resulting from operations ................................. $1,696,218
==========
52 See accompanying notes.
SERIES G
Statement of Changes in Net Assets (LARGE CAP GROWTH SERIES)
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2005 2004
------------ ------------
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income .......................................... $ 40,003 $ 212,012
Net realized gain during the period on investments ............. 672,246 744,288
Net unrealized appreciation during the period on investments ... 983,969 431,077
------------ ------------
Net increase in net assets resulting from operations ........... 1,696,218 1,387,377
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares ................................... 23,660,378 22,090,555
Cost of shares redeemed ........................................ (17,862,928) (25,656,305)
------------ ------------
Net increase (decrease) from capital share transactions ........ 5,797,450 (3,565,750)
------------ ------------
Net increase (decrease) in net assets .......................... 7,493,668 (2,178,373)
------------ ------------
NET ASSETS:
Beginning of period ............................................ 44,278,228 46,456,601
------------ ------------
End of period .................................................. $ 51,771,896 $ 44,278,228
============ ============
Accumulated undistributed net investment income at end of year.. $ 40,003 $ 212,012
============ ============
CAPITAL SHARE ACTIVITY:
Shares sold .................................................... 3,806,380 3,634,256
Shares redeemed ................................................ (2,887,084) (4,217,797)
------------ ------------
Total capital share activity ................................... 919,296 (583,541)
============ ============
53 See accompanying notes.
Financial Highlights
Selected data for each share of capital SERIES G
stock outstanding throughout each period (LARGE CAP GROWTH SERIES)
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
2005 2004 2003 2002 (D) 2001
------- ------- ------- -------- ------------
PER SHARE DATA
Net asset value, beginning of period $ 6.30 $ 6.10 $ 4.92 $ 6.75 $ 7.98
------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income (loss) -- 0.03 -- (0.02) (0.02)
Net gain (loss) on securities (realized and unrealized) 0.21 0.17 1.18 (1.81) (1.21)
------- ------- ------- ------- ------
Total from investment operations 0.21 0.20 1.18 (1.83) (1.23)
------- ------- ------- ------- ------
Net asset value, end of period $ 6.51 $ 6.30 $ 6.10 $ 4.92 $ 6.75
======= ======= ======= ======= ======
TOTAL RETURN (A) 3.33% 3.28% 23.98% (27.11%) (15.41%)
------- ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $51,772 $44,278 $46,457 $29,099 $15,689
------- ------- ------- ------- -------
Ratios to average net assets:
Net investment income (loss) 0.09% 0.50% (0.05%)(e) (0.20%) (0.30%)
Total expenses (b) 1.20% 1.20% 1.19% 1.21% 1.23%
Net expenses (c) 0.95% 0.97% 1.19% 1.21% 1.22%
Expenses prior to custodian earnings credits and net of
expense waivers 0.95% 0.97% 1.19% 1.21% 1.23%
------- ------- ------- ------- -------
Portfolio turnover rate 40% 63% 30% 48% 4%
(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) Total expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net expense information reflects the expense ratios after voluntary expense
waivers, reimbursements and custodian earnings credits, as applicable.
(d) 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.
(e) Net investment income is less than $0.01 per share.
54 See accompanying notes.
SERIES H
Managers' Commentary (ENHANCED INDEX SERIES)
February 15, 2006 (unaudited)
(NORTHERN TRUST LOGO)
Advisor, Northern Trust
TO OUR SHAREHOLDERS:
Series H of the SBL Fund - Enhanced Index Series posted a total return of 5.04%
for the 12-month period ended December 31, 2005 versus 4.91% for its benchmark,
the S&P 500 Index.
Though U.S. equity markets posted gains in 2005, there were a number of factors
that contributed to the overall weak returns. The Federal Reserve Bank raised
interest rates eight times during the year, bringing the total to thirteen 25
basis point increases since the tightening cycle began in June 2004. As of the
end of 2005, the federal funds rate stood at 4.25%. As oil prices and the dollar
strengthened, fresh inflation concerns and speculative demand drove gold prices
to their highest level in nearly 25 years, rising 25% and peaking at $540.90
toward the end of December. In the third quarter of 2005, the impact of
hurricanes Katrina and Rita in the U.S. pushed crude oil prices briefly above
$71 before retreating during the fourth quarter and finishing the year at $61.
INVESTMENT MANAGEMENT CRITERIA
The Series is managed using a proprietary quantitative stock selection model
that assigns each company in the S&P 500 an expected return based upon multiple
factors. These factors are based on four broad characteristics: Valuation (is
the stock reasonably priced?), Momentum (Price and Earnings Momentum), Earnings
(Earnings Quality and Stability) and Management Signals (signals given by
management and insiders trading in company stock). Additionally, there are
strict risk constraints that limit deviations from the benchmark with respect to
individual stocks, sectors, industries, style and size.
KEYS TO THE SERIES' GAIN
Driving the Series' positive performance in 2005 were the portfolio's exposures
to companies with strong price momentum, high earnings yield, and positive
earnings surprises -- all factors that performed well across a broad number of
sectors.
During 2005, the market rewarded moderately valued securities that displayed
attractive growth characteristics, especially within the energy and utilities
sectors. The energy sector returned 31.3% for the year while the utilities
sector returned 16.8%. The Series' bottom up stock selection model and portfolio
construction methodology are designed to ensure the portfolio will have
exposures to all sectors, relying on stock selection within sectors to enhance
returns relative to the benchmark. For example, within the energy sector the
model recommended overweight positions in Burlington Resources and Nabors
Industries, both stocks with reasonable valuations, favorable earnings
indicators and strong price momentum characteristics. These stocks returned
99.3% and 47.7% respectively, helped by sharply rising energy prices in the wake
of the hurricanes and strong global demand.
Less favorable in the energy sector was the model's recommendation of
underweight in Valero Energy Corporation, which was rated low because of rich
valuations but that nevertheless appreciated in the strong energy markets,
rising 128% during the year.
In 2006, we expect to see continued solid economic growth and constrained
inflation, which will present an attractive backdrop for equities.
We express our gratitude to our shareholders for their confidence in the Series
and assure them that we will continue to apply our disciplined, quantitative
approach while adhering to our strict risk control process.
Sincerely,
Enhanced Index Team
55
SERIES H
Managers' Commentary (ENHANCED INDEX SERIES)
February 15, 2006 (unaudited)
PERFORMANCE
SERIES H VS. S&P 500 INDEX
(PERFORMANCE GRAPH)
SERIES H S&P 500 INDEX
- --------------------------- --------------------------
DATE VALUE DATE VALUE
---------- --------- ---------- ---------
5/3/1999 10,000.00 INCEPTION 5/03/99 10,000.00
6/30/1999 10,330.00 6/30/99 10,305.90
9/30/1999 9,700.00 9/30/99 9,662.23
12/31/1999 11,231.86 12/31/99 11,099.83
3/31/00 11,513.92 3/31/00 11,354.94
6/30/00 11,171.42 06/30/00 11,053.83
9/30/00 11,028.87 09/30/00 10,946.91
12/31/00 10,086.15 12/31/00 10,091.15
3/31/2001 8,846.84 3/31/2001 8,895.28
6/30/2001 9,345.68 6/30/2001 9,416.16
9/30/2001 7,940.77 9/30/2001 8,034.87
12/31/2001 8,775.57 12/31/2001 8,893.97
3/31/2002 8,777.35 3/31/2002 8,918.14
6/30/2002 7,579.05 6/30/2002 7,723.63
9/30/2002 6,257.83 9/30/2002 6,389.69
12/31/2002 6,758.69 12/31/2002 6,929.34
3/31/2003 6,531.68 3/31/2003 6,711.11
6/30/2003 7,501.63 6/30/2003 7,744.15
9/30/2003 7,687.37 9/30/2003 7,949.11
12/31/2003 8,636.02 12/31/2003 8,917.03
3/31/2004 8,781.51 3/31/2004 9,068.30
6/30/2004 8,906.22 6/30/2004 9,223.74
9/30/2004 8,706.68 9/30/2004 9,050.82
12/31/2004 9,486.84 12/31/2004 9,886.55
3/31/2005 9,289.20 3/31/2005 9,673.56
6/30/2005 9,393.22 6/30/2005 9,805.25
9/30/2005 9,736.50 9/30/2005 10,159.08
12/31/2005 9,965.35 12/31/2005 10,370.14
$10,000 SINCE INCEPTION
The chart above assumes a hypothetical $10,000 investment in Series H (Enhanced
Index Series) on May 3, 1999 (date of inception) and reflects the fees and
expenses of Series H. The S&P 500 Index is a capitalization-weighted index
composed of 500 selected common stocks that represent the broad domestic economy
and is a widely recognized unmanaged index of market performance.
PORTFOLIO COMPOSITION BY SECTOR
Consumer Discretionary 10.40%
Consumer Staples 9.55
Energy 9.13
Financials 20.43
Health Care 13.23
Industrials 10.82
Information Technology 15.03
Materials 2.76
Telecommunication Services 3.04
Utilities 3.36
U.S. Government Securities 0.28
Repurchase Agreement 1.56
Cash & other assets, less liabilities 0.41
Total net assets 100.00%
======
AVERAGE ANNUAL RETURNS
SINCE INCEPTION
PERIODS ENDED 12-31-05(1) 1 YEAR 5 YEARS (5-3-99)
- ------------------------- ------ ------- ---------------
Series H 5.04% (0.24%) (0.05%)
(1) Performance figures do not reflect fees and expenses associated with an
investment in variable insurance products offered by Security Benefit Life
Insurance Company. 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.
56 See accompanying notes.
SERIES
Managers' Commentary (ENHANCED INDEX SERIES)
February 15, 2006 (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, 2005 - December 31, 2005.
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
mutual 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.
SERIES EXPENSES
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING
07-01-05 12-31-05(1) PERIOD(2)
------------- ------------- -------------
Series H (Enhanced Index Series)
Actual $1,000.00 $1,053.90 $4.04
Hypothetical 1,000.00 1,021.27 3.97
(1) The actual ending account value is based on the actual total return of the
Series for the period July 1, 2005 to December 31, 2005 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, 2005 to December 31, 2005 was 5.39%.
(2) Expenses are equal to the Series annualized expense ratio (net of expense
waivers) of 0.78% multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
57
Schedule of Investments SERIES H
December 31, 2005 (ENHANCED INDEX SERIES)
NUMBER MARKET
OF SHARES VALUE
--------- ----------
COMMON STOCKS - 97.7%
AEROSPACE & DEFENSE - 2.5%
Boeing Company 2,800 $ 196,672
General Dynamics Corporation 1,400 159,670
Honeywell International, Inc. 6,700 249,575
Lockheed Martin Corporation 3,300 209,979
Northrop Grumman Corporation 1,500 90,165
Raytheon Company 400 16,060
United Technologies Corporation 1,100 61,501
----------
983,622
----------
AGRICULTURAL PRODUCTS - 0.3%
Archer-Daniels-Midland Company 4,100 101,106
----------
AIR FREIGHT & LOGISTICS - 0.8%
United Parcel Service, Inc. (Cl.B) 4,200 315,630
----------
APPAREL RETAIL - 0.3%
Gap, Inc. 7,200 127,008
Limited Brands, Inc. 100 2,235
----------
129,243
----------
APPAREL, ACCESSORIES & LUXURY GOODS - 0.1%
V.F. Corporation 700 38,738
----------
APPLICATION SOFTWARE - 0.3%
Compuware Corporation* 2,400 21,528
Mercury Interactive Corporation* 300 8,337
Parametric Technology Corporation* 14,200 86,620
----------
116,485
----------
ASSET MANAGEMENT & CUSTODY BANKS - 0.7%
Ameriprise Financial, Inc. 1,120 45,920
Franklin Resources, Inc. 1,900 178,619
Mellon Financial Corporation 1,700 58,225
----------
282,764
----------
AUTOMOTIVE RETAIL - 0.4%
AutoNation, Inc.* 7,000 152,110
----------
BIOTECHNOLOGY - 1.3%
Amgen, Inc.* 6,100 481,046
Biogen Idec, Inc.* 700 31,731
----------
512,777
----------
BROADCASTING & CABLE TV - 0.8%
Comcast Corporation* 11,800 306,328
E.W. Scripps Company 300 14,406
----------
320,734
----------
BUILDING PRODUCTS - 0.4%
American Standard Companies, Inc. 1,100 43,945
Masco Corporation 4,100 123,779
----------
167,724
----------
COMMERCIAL PRINTING - 0.3%
R.R. Donnelley & Sons Company 3,700 126,577
----------
COMMUNICATIONS EQUIPMENT - 2.9%
Ciena Corporation * 2,000 $ 5,940
Cisco Systems, Inc.* 30,000 513,600
Comverse Technology, Inc.* 4,900 130,291
Corning, Inc.* 6,300 123,858
Lucent Technologies, Inc.* 11,300 30,058
Motorola, Inc. 2,900 65,511
Qualcomm, Inc. 2,700 116,316
Scientific-Atlanta, Inc. 100 4,307
Tellabs, Inc.* 14,300 155,870
----------
1,145,751
----------
COMPUTER HARDWARE - 3.5%
Apple Computer, Inc.* 1,100 79,079
Dell, Inc.* 9,000 269,910
Hewlett-Packard Company 14,700 420,861
International Business
Machines Corporation 7,200 591,840
NCR Corporation* 900 30,546
----------
1,392,236
----------
COMPUTER STORAGE & PERIPHERALS - 0.4%
EMC Corporation* 11,200 152,544
Lexmark International, Inc.* 200 8,966
----------
161,510
----------
CONSTRUCTION & FARM MACHINERY - 0.7%
Cummins, Inc. 500 44,865
Deere & Company 1,100 74,921
Paccar, Inc. 2,500 173,075
----------
292,861
----------
CONSUMER FINANCE - 1.2%
American Express Company 2,900 149,234
Capital One Financial Corporation 1,600 138,240
MBNA Corporation 7,200 195,552
----------
483,026
----------
DATA PROCESSING & OUTSOURCED SERVICES - 0.8%
Automatic Data Processing, Inc. 1,500 68,835
Computer Sciences Corporation* 2,100 106,344
Fiserv, Inc.* 3,300 142,791
----------
317,970
----------
DEPARTMENT STORES - 0.7%
Federated Department Stores, Inc. 2,500 165,825
J.C. Penney Company, Inc. 900 50,040
Sears Holding Corporation* 400 46,212
----------
262,077
----------
DISTILLERS & VINTNERS - 0.3%
Brown-Forman Corporation (Cl.B) 1,600 110,912
----------
58 See accompanying notes.
Schedule of Investments SERIES H
December 31, 2005 (ENHANCED INDEX SERIES)
NUMBER MARKET
OF SHARES VALUE
--------- ----------
COMMON STOCKS (CONTINUED)
DIVERSIFIED BANKS - 4.2%
Bank of America Corporation 16,864 $ 778,274
Comerica, Inc. 3,000 170,280
U.S. Bancorp 8,800 263,032
Wachovia Corporation 2,900 153,294
Wells Fargo & Company 5,200 326,716
----------
1,691,596
----------
DIVERSIFIED CHEMICALS - 0.3%
Dow Chemical Company 400 17,528
Eastman Chemical Company 1,500 77,385
Engelhard Corporation 600 18,090
----------
113,003
----------
DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES - 0.3%
Cendant Corporation 6,300 108,675
----------
DIVERSIFIED METALS & MINING - 0.5%
Phelps Dodge Corporation 1,300 187,031
----------
DRUG RETAIL - 0.1%
CVS Corporation 1,000 26,420
Walgreen Company 600 26,556
----------
52,976
----------
ELECTRIC UTILITIES - 1.3%
Allegheny Energy, Inc.* 1,600 50,640
American Electric Power Company, Inc. 4,000 148,360
Edison International 4,100 178,801
Entergy Corporation 1,700 116,705
FPL Group, Inc. 200 8,312
Progress Energy, Inc. -
Contingent Value Obligation*(2) 700 46
----------
502,864
----------
ELECTRICAL COMPONENTS & EQUIPMENT - 0.2%
American Power Conversion Corporation 900 19,800
Emerson Electric Company 800 59,760
----------
79,560
----------
ELECTRONIC MANUFACTURING SERVICES - 0.2%
Molex, Inc. 3,500 90,825
Sanmina-SCI Corporation* 1,800 7,668
----------
98,493
----------
ENVIRONMENTAL & FACILITIES SERVICES - 0.2%
Waste Management, Inc. 3,100 94,085
----------
FERTILIZERS & AGRICULTURAL CHEMICALS - 0.2%
Monsanto Company 1,000 77,530
----------
FOOD RETAIL - 0.7%
Safeway, Inc. 3,400 80,444
Supervalu, Inc. 4,600 149,408
Whole Foods Market, Inc. 500 38,695
----------
268,547
----------
FOOTWEAR - 0.2%
Nike, Inc. (Cl.B) 1,000 $ 86,790
----------
FOREST PRODUCTS - 0.2%
Louisiana-Pacific Corporation 3,300 90,651
----------
GAS UTILITIES - 0.0%
Nicor, Inc. 400 15,724
----------
GENERAL MERCHANDISE STORES - 0.7%
Dollar General Corporation 5,900 112,513
Family Dollar Stores, Inc. 2,900 71,891
Target Corporation 1,900 104,443
----------
288,847
----------
HEALTH CARE DISTRIBUTORS - 0.5%
AmerisourceBergen Corporation 600 24,840
Cardinal Health, Inc. 2,600 178,750
----------
203,590
----------
HEALTH CARE EQUIPMENT - 2.1%
Baxter International, Inc. 2,400 90,360
Becton, Dickinson & Company 3,200 192,256
Fisher Scientific International, Inc.* 100 6,186
Guidant Corporation 1,100 71,225
Hospira, Inc.* 3,700 158,286
Medtronic, Inc. 2,600 149,682
Stryker Corporation 1,900 84,417
Waters Corporation* 803 30,353
Zimmer Holdings, Inc.* 900 60,696
----------
843,461
----------
HEALTH CARE FACILITIES - 0.9%
HCA, Inc. 4,100 207,050
Manor Care, Inc. 2,100 83,517
Tenet Healthcare Corporation* 11,600 88,856
----------
379,423
----------
HEALTH CARE SERVICES - 0.2%
Caremark Rx, Inc.* 1,500 77,685
IMS Health, Inc. 300 7,476
----------
85,161
----------
HOME IMPROVEMENT RETAIL - 1.0%
Home Depot, Inc. 6,700 271,216
Lowe's Companies, Inc. 2,100 139,986
----------
411,202
----------
HOMEBUILDING - 0.7%
D.R. Horton, Inc. 3,300 117,909
KB Home 1,700 123,522
Lennar Corporation 600 36,612
Pulte Homes, Inc. 300 11,808
----------
289,851
----------
59 See accompanying notes.
Schedule of Investments SERIES H
December 31, 2005 (ENHANCED INDEX SERIES)
NUMBER MARKET
OF SHARES VALUE
--------- ----------
COMMON STOCKS (CONTINUED)
HOTELS, RESORTS & CRUISE LINES - 0.9%
Hilton Hotels Corporation 7,300 $ 176,003
Marriott International, Inc. 2,600 174,122
----------
350,125
----------
HOUSEHOLD APPLIANCES - 0.2%
Black & Decker Corporation 800 69,568
----------
HOUSEHOLD PRODUCTS - 2.4%
Clorox Company 2,806 159,633
Kimberly-Clark Corporation 4,000 238,600
Procter & Gamble Company 9,565 553,622
----------
951,855
----------
HYPERMARKETS & SUPERCENTERS - 1.3%
Wal-Mart Stores, Inc. 11,400 533,520
----------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS - 0.9%
Duke Energy Corporation 7,700 211,365
Dynegy, Inc.* 1,100 5,324
TXU Corporation 2,600 130,494
----------
347,183
----------
INDUSTRIAL CONGLOMERATES - 4.4%
3M Company 3,100 240,250
General Electric Company 34,100 1,195,205
Tyco International, Ltd. 11,900 343,434
----------
1,778,889
----------
INDUSTRIAL GASES - 0.4%
Air Products & Chemicals, Inc. 2,900 171,651
----------
INDUSTRIAL MACHINERY - 0.4%
Illinois Tool Works, Inc. 100 8,799
Ingersoll-Rand Company, Ltd. 3,100 125,147
Parker Hannifin Corporation 300 19,788
----------
153,734
----------
INTEGRATED OIL & GAS - 5.2%
Chevron Corporation 8,504 482,772
ConocoPhillips 3,400 197,812
Exxon Mobil Corporation(1) 24,000 1,348,080
Murphy Oil Corporation 600 32,394
Occidental Petroleum Corporation 400 31,952
----------
2,093,010
----------
INTEGRATED TELECOMMUNICATION SERVICES - 2.4%
AT&T, Inc. 16,684 408,591
BellSouth Corporation 2,300 62,330
Qwest Communications International, Inc.* 17,300 97,745
Verizon Communications, Inc. 12,600 379,512
----------
948,178
----------
INTERNET RETAIL - 0.4%
Amazon.com, Inc.* 1,100 51,865
eBay, Inc.* 2,600 112,450
----------
164,315
----------
INTERNET SOFTWARE & SERVICES - 0.3%
Yahoo!, Inc.* 2,700 $ 105,786
----------
INVESTMENT BANKING & BROKERAGE - 2.1%
Bear Sterns Companies, Inc. 900 103,977
E*Trade Financial Corporation* 1,700 35,462
Goldman Sachs Group, Inc. 600 76,626
Lehman Brothers Holdings, Inc. 2,000 256,340
Merrill Lynch & Company, Inc. 1,300 88,049
Morgan Stanley 5,200 295,048
----------
855,502
----------
LIFE & HEALTH INSURANCE - 1.7%
Genworth Financial, Inc. 1,300 44,954
Jefferson-Pilot Corporation 1,200 68,316
MetLife, Inc. 5,400 264,600
Prudential Financial, Inc. 3,600 263,484
Torchmark Corporation 1,000 55,600
----------
696,954
----------
MANAGED HEALTH CARE - 1.7%
Aetna, Inc. 1,400 132,034
Cigna Corporation 1,600 178,720
Humana, Inc.* 3,500 190,155
UnitedHealth Group, Inc. 2,600 161,564
WellPoint, Inc.* 400 31,916
----------
694,389
----------
METAL & GLASS CONTAINERS - 0.2%
Ball Corporation 2,000 79,440
----------
MOTORCYCLE MANUFACTURERS - 0.2%
Harley-Davidson, Inc. 1,400 72,086
----------
MOVIES & ENTERTAINMENT - 2.5%
News Corporation 15,500 241,025
Time Warner, Inc. 14,900 259,856
Viacom, Inc. (Cl.B) 9,500 309,700
Walt Disney Company 8,500 203,745
----------
1,014,326
----------
MULTI-LINE INSURANCE - 1.3%
American International Group, Inc. 6,900 470,787
Hartford Financial Services Group, Inc. 500 42,945
----------
513,732
----------
MULTI-UTILITIES - 1.2%
CMS Energy Corporation* 3,200 46,432
CenterPoint Energy, Inc. 6,900 88,665
KeySpan Corporation 2,400 85,656
PG&E Corporation 3,300 122,496
Teco Energy, Inc. 8,100 139,158
----------
482,407
----------
OIL & GAS DRILLING - 1.3%
Nabors Industries, Ltd.* 2,300 174,225
Noble Corporation 2,200 155,188
Rowan Companies, Inc. 2,100 74,844
Transocean, Inc.* 1,900 132,411
----------
536,668
----------
60 See accompanying notes.
Schedule of Investments SERIES H
December 31, 2005 (ENHANCED INDEX SERIES)
NUMBER MARKET
OF SHARES VALUE
--------- ----------
COMMON STOCKS (CONTINUED)
OIL & GAS EQUIPMENT & SERVICES - 0.1%
Schlumberger, Ltd. 600 $ 58,290
----------
OIL & GAS EXPLORATION & PRODUCTION - 1.9%
Anadarko Petroleum Corporation 1,700 161,075
Burlington Resources, Inc. 2,700 232,740
Devon Energy Corporation 3,100 193,874
XTO Energy, Inc. 4,200 184,548
----------
772,237
----------
OIL & GAS REFINING & MARKETING - 0.2%
Valero Energy Corporation 1,400 72,240
----------
OIL & GAS STORAGE & TRANSPORTATION - 0.3%
El Paso Corporation 10,700 130,112
----------
OTHER DIVERSIFIED FINANCIAL SERVICES - 3.3%
Citigroup, Inc. 15,100 732,803
JP Morgan Chase & Company 10,841 430,279
Principal Financial Group, Inc. 3,700 175,491
----------
1,338,573
----------
PACKAGED FOODS & MEATS - 1.0%
Campbell Soup Company 4,900 145,873
ConAgra Foods, Inc. 1,400 28,392
General Mills, Inc. 2,600 128,232
McCormick & Company, Inc. 400 12,368
Sara Lee Corporation 4,300 81,270
Tyson Foods, Inc. 900 15,390
----------
411,525
----------
PAPER PACKAGING - 0.1%
Temple-Inland, Inc. 1,300 58,305
----------
PERSONAL PRODUCTS - 0.0%
Avon Products, Inc. 600 17,130
----------
PHARMACEUTICALS - 6.5%
Abbott Laboratories 7,400 291,782
Bristol-Myers Squibb Company 500 11,490
Eli Lilly & Company 3,100 175,429
Forest Laboratories, Inc.* 400 16,272
Johnson & Johnson 12,500 751,250
Merck & Company, Inc. 7,400 235,394
Pfizer, Inc. 31,300 729,916
Schering-Plough Corporation 1,100 22,935
Watson Pharmaceuticals, Inc.* 400 13,004
Wyeth 7,400 340,918
----------
2,588,390
----------
PROPERTY & CASUALTY INSURANCE - 1.9%
Allstate Corporation 4,600 248,722
Chubb Corporation 1,800 175,770
Cincinnati Financial Corporation 1,459 65,188
Safeco Corporation 1,500 84,750
St. Paul Travelers Companies, Inc. 4,188 187,078
----------
761,508
----------
PUBLISHING - 0.2%
Gannett Company, Inc. 1,100 $ 66,627
----------
RAILROADS - 0.6%
Burlington Northern Santa Fe Corporation 3,300 233,706
CSX Corporation 100 5,077
----------
238,783
----------
REAL ESTATE INVESTMENT TRUSTS - 1.0%
Apartment Investment &
Management Company 100 3,787
Archstone-Smith Trust 2,000 83,780
Equity Office Properties Trust 5,500 166,815
Simon Property Group, Inc. 1,700 130,271
----------
384,653
----------
REGIONAL BANKS - 1.4%
First Horizon National Corporation 2,000 76,880
KeyCorp 5,500 181,115
National City Corporation 4,100 137,637
SunTrust Banks, Inc. 100 7,276
Synovus Financial Corporation 6,000 162,060
----------
564,968
----------
RESTAURANTS - 0.5%
Darden Restaurants, Inc. 4,300 167,184
McDonald's Corporation 400 13,488
Yum! Brands, Inc. 400 18,752
----------
199,424
----------
SEMICONDUCTOR EQUIPMENT - 0.1%
KLA-Tencor Corporation 900 44,397
----------
SEMICONDUCTORS - 3.3%
Analog Devices, Inc. 600 21,522
Freescale Semiconductor, Inc. (Cl.B)* 6,472 162,900
Intel Corporation 26,200 653,952
LSI Logic Corporation* 7,100 56,800
Linear Technology Corporation 700 25,249
NVIDIA Corporation* 100 3,656
National Semiconductor Corporation 5,700 148,086
Texas Instruments, Inc. 7,300 234,111
----------
1,306,276
----------
SOFT DRINKS - 2.0%
Coca-Cola Company 10,600 427,286
Pepsi Bottling Group, Inc. 1,900 54,359
PepsiCo, Inc. 5,700 336,756
----------
818,401
----------
SPECIALIZED FINANCE - 0.2%
CIT Group, Inc. 1,400 72,492
----------
SPECIALTY CHEMICALS - 0.4%
International Flavors & Fragrances, Inc. 400 13,400
Rohm & Haas Company 3,300 159,786
----------
173,186
----------
61 See accompanying notes.
Schedule of Investments SERIES H
December 31, 2005 (ENHANCED INDEX SERIES)
PRINCIPAL
AMOUNT OR
NUMBER MARKET
OF SHARES VALUE
---------- -----------
COMMON STOCKS (CONTINUED)
SPECIALTY STORES - 0.3%
Office Depot, Inc.* 3,400 $ 106,760
-----------
STEEL - 0.4%
Nucor Corporation 2,300 153,456
-----------
SYSTEMS SOFTWARE - 3.3%
BMC Software, Inc.* 5,900 120,891
Microsoft Corporation 33,200 868,180
Oracle Corporation* 19,800 241,758
Symantec Corporation* 6,147 107,573
-----------
1,338,402
-----------
THRIFTS & MORTGAGE FINANCE - 1.4%
Countrywide Financial Corporation 1,300 44,447
Federal Home Loan Mortgage Corporation 300 19,605
Federal National Mortgage Associaton 700 34,167
Golden West Financial Corporation 200 13,200
MGIC Investment Corporation 2,400 157,968
Washington Mutual, Inc. 6,415 279,053
-----------
548,440
-----------
TIRES & RUBBER - 0.4%
Goodyear Tire & Rubber Company* 8,400 145,992
-----------
TOBACCO - 1.4%
Altria Group, Inc. 6,700 500,624
UST, Inc. 1,500 61,245
-----------
561,869
-----------
WIRELESS TELECOMMUNICATION SERVICE - 0.7%
Sprint Nextel Corporation 11,600 270,976
-----------
TOTAL COMMON STOCKS
(cost $37,288,996) 39,199,643
-----------
U.S. GOVERNMENT SECURITIES - 0.3%
U.S. Treasury Bill, 4.048%, 04-06-06 $ 115,000 113,813
-----------
TOTAL U.S. GOVERNMENT SECURITIES
(cost $113,805) 113,813
-----------
REPURCHASE AGREEMENT - 1.6%
United Missouri Bank, 3.78%, dated 12-30-05,
matures 01-03-06; repurchase amount of
$623,262 (Collateralized by U.S. Treasury
Notes, 1.875%, 01-31-06 with a value
of $635,947) $ 623,000 623,000
-----------
TOTAL REPURCHASE AGREEMENT
(cost $623,000) 623,000
-----------
TOTAL INVESTMENTS - 99.6%
(cost $38,025,801) 39,936,456
CASH & OTHER ASSETS, LESS LIABILITIES - 0.4% 164,616
-----------
TOTAL NET ASSETS - 100.0% $40,101,072
===========
For federal income tax purposes the identified cost of investments owned at
December 31, 2005 was $39,588,336.
* Non-income producing security
(1) Security is segregated as collateral for open futures contracts.
(2) Security is restricted. The total market value of restricted securities is
$46 (cost $336), or 0.0% of total net assets. The acquisition dates range
from November 8, 1999 to November 2, 2000.
62 See accompanying notes.
SERIES H
(ENHANCED INDEX SERIES)
Statement of Assets and Liabilities
December 31, 2005
ASSETS:
Investments, at value(1) ....................................... $ 39,936,456
Cash ........................................................... 3,074
Receivables:
Fund shares sold ............................................ 230,322
Securities sold ............................................. 140,594
Dividends ................................................... 60,110
Prepaid expenses ............................................... 703
------------
Total assets ................................................... 40,371,259
------------
LIABILITIES:
Payable for:
Securities purchased ........................................ 158,273
Fund shares redeemed ........................................ 68,796
Variation margin ............................................ 3,210
Management fees ............................................. 17,166
Custodian fees .............................................. 5,400
Transfer agent and administration fees ...................... 6,245
Professional fees ........................................... 8,375
Director's fees ............................................. 400
Other ....................................................... 2,322
------------
Total liabilities .............................................. 270,187
------------
NET ASSETS ..................................................... $ 40,101,072
============
NET ASSETS CONSIST OF:
Paid in capital ................................................ $ 47,959,258
Accumulated undistributed net
investment income ........................................... 436,418
Accumulated net realized loss
on sale of investments and futures .......................... (10,196,394)
Net unrealized appreciation in value of
investments and futures ..................................... 1,901,790
------------
Net assets ..................................................... $ 40,101,072
============
Capital shares authorized ...................................... unlimited
Capital shares outstanding ..................................... 4,186,037
Net asset value per share
(net assets divided by shares outstanding) .................. $ 9.58
============
(1)Investments, at cost ........................................ $ 38,025,801
Statement of Operations
For the Year Ended December 31, 2005
INVESTMENT INCOME:
Dividends ..................................................... $ 715,187
Interest ...................................................... 18,586
----------
Total investment income ....................................... 733,773
----------
EXPENSES:
Management fees ............................................... 283,895
Administration fees ........................................... 38,045
Custodian fees ................................................ 24,333
Transfer agent/maintenance fees ............................... 25,136
Directors' fees ............................................... 2,188
Professional fees ............................................. 11,284
Reports to shareholders ....................................... 5,551
Other expenses ................................................ 1,555
----------
Total expenses ................................................ 391,987
Less: Expenses waived ......................................... (94,632)
----------
Net expenses .................................................. 297,355
----------
Net investment income ......................................... 436,418
----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain during the year on:
Investments ................................................... 2,232,387
Futures ....................................................... 67,208
----------
Net realized gain ............................................. 2,299,595
----------
Net unrealized depreciation during the year on:
Investments ................................................... (768,725)
Futures ....................................................... (11,522)
----------
Net unrealized depreciation ................................... (780,247)
----------
Net realized and unrealized gain .............................. 1,519,348
----------
Net increase in net assets
resulting from operations .................................. $1,955,766
==========
63 See accompanying notes.
SERIES H
Statement of Changes in Net Assets (ENHANCED INDEX SERIES)
YEAR ENDED YEAR ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income ............................................. $ 436,418 $ 481,542
Net realized gain during the period on investments and futures .... 2,299,595 953,048
Net unrealized appreciation (depreciation) during the period on
investments and futures ........................................ (780,247) 1,941,373
------------ ------------
Net increase in net assets resulting from operations .............. 1,955,766 3,375,963
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ............................................. -- (34,570)
------------ ------------
Total distributions to shareholders ............................... -- (34,570)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares ...................................... 13,631,499 19,627,256
Distributions reinvested .......................................... -- 34,570
Cost of shares redeemed ........................................... (14,308,225) (17,552,514)
------------ ------------
Net increase (decrease) from capital share transactions ........... (676,726) 2,109,312
------------ ------------
Net increase in net assets ........................................ 1,279,040 5,450,705
------------ ------------
NET ASSETS:
Beginning of period ............................................... 38,822,032 33,371,327
------------ ------------
End of period ..................................................... $ 40,101,072 $ 38,822,032
============ ============
Accumulated undistributed net investment income at end of year .... $ 436,418 $ 480,803
============ ============
CAPITAL SHARE ACTIVITY:
Shares sold ....................................................... 1,494,268 2,314,752
Shares reinvested ................................................. -- 4,125
Shares redeemed ................................................... (1,563,791) (2,079,833)
------------ ------------
Total capital share activity ...................................... (69,523) 239,044
============ ============
64 See accompanying notes.
Financial Highlights
Selected data for each share of capital stock SERIES H
outstanding throughout each year (ENHANCED INDEX SERIES)
YEAR ENDED DECEMBER 31,
------------------------------------------------
2005 2004 2003(D) 2002 2001
------- ------- ------- ------- -------
PER SHARE DATA
Net asset value, beginning of period .................. $ 9.12 $ 8.31 $ 6.55 $ 8.62 $ 9.95
------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income ................................. 0.11 0.11 0.07 0.05 0.05
Net gain (loss) on securities (realized and
unrealized) ........................................ 0.35 0.71 1.75 (2.02) (1.34)
------- ------- ------- ------- -------
Total from investment operations ...................... 0.46 0.82 1.82 (1.97) (1.29)
------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income .................. -- (0.01) (0.06) (0.10) (0.04)
------- ------- ------- ------- -------
Total distributions ................................... -- (0.01) (0.06) (0.10) (0.04)
------- ------- ------- ------- -------
Net asset value, end of period ........................ $ 9.58 $ 9.12 $ 8.31 $ 6.55 $ 8.62
======= ======= ======= ======= =======
TOTAL RETURN(A) ....................................... 5.04% 9.85% 27.78% (22.98%) (12.99%)
------- ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) .............. $40,101 $38,822 $33,371 $25,052 $42,112
------- ------- ------- ------- -------
Ratios to average net assets:
Net investment income ................................. 1.15% 1.32% 0.94% 0.56% 0.57%
Total expenses(b)...................................... 1.04% 0.99% 0.96% 0.99% 0.91%
Net expenses(c)........................................ 0.79% 0.74% 0.77% 0.99% 0.91%
------- ------- ------- ------- -------
Portfolio turnover rate ............................... 106% 98% 44% 74% 29%
(a) Total return does not take into account any of the expenses associated with
an investment in variable insurance products offered by Security Benefit
Life Insurance Company. 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) Total expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net expense information reflects the expense ratios after voluntary expense
waivers, reimbursements and custodian earnings credits, as applicable.
(d) Northern Trust became the sub-adviser of Series H effective May 1, 2003.
Prior to May 1, 2003, Security Management Company, LLC (SMC) paid Deutsche
Asset Management for sub-advisory services.
65 See accompanying notes.
This page left blank intentionally.
66
SERIES J
Manager's Commentary (MID CAP GROWTH SERIES)
February 15, 2006 (unaudited)
(SECURITY BENEFIT (SM) LOGO)
Security Management Company, LLC
Advisor, Security Management Company, LLC
(PHOTO OF JAMES P. SCHIER)
James P. Schier
Senior Portfolio Manager
TO OUR SHAREHOLDERS:
Series J of the SBL Fund - Mid Cap Growth Series returned 7.82% in the 12-month
period ended December 31, 2005, lagging the benchmark Russell 2500 Growth
Index's return of 8.17% and the Series' peer group median return of 11.10%. A
smaller average market capitalization vs. benchmark and peers as well as
challenging stock selection in a few sectors proved problematic for the Series.
Our approach with the Series is to seek securities of companies that are able to
grow and/or reinvest in increasingly profitable ventures and hold them over 3-5
years to capture the best part of the improvements in profits or profitability.
We are focused in investing in securities when 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 FINANCIALS LED GAINS
An overweight position in energy vs. the benchmark aided performance. The energy
sector gained 57% during the year and easily outdistanced any other sector. The
Series held an average 20% in energy vs. 6.7% for the benchmark.
By limiting exposure in the financial sector, performance was helped. Northern
Trust gained 13% in a sector that posted negative total returns. Northern Trust,
which has a large recurring fee revenue component, benefited in the rising
interest rate environment.
HEALTHCARE AND INDUSTRIALS LAG
Difficult stock selection in healthcare hurt the Series. The holdings in this
sector lost 27% in value while the benchmark gained 7%. The Series bias towards
early stage biotechnology and medical device companies hurt due mostly to
product development setbacks and delays. Ligand Pharmaceuticals declined 40% as
the company delayed filing its quarterly report and also experienced
disappointing sales of one of its lead products, Avinza. Ligand remains one of
the few biotechs with numerous product opportunities and is also approaching
profitability. At current prices, we are quite content to continue holding the
stock. Sciclone Pharmaceuticals, another biotechnology holding, showed weak
results for Zadaxin, a hepatitis C drug in Phase 3 trials. With this product no
longer viable, the valuation reflected more than adequately the company's
potential in its other early stage products; hence the position was sold.
Stock selection in industrials was also sub par. Exposure in this sector while
gaining 8.6% lagged the 13.8% gain of the benchmark. Power One fell 32.5% as the
company restructured and had delays despite being on the verge of a significant
product release. 2006 should be a crucial year for the company and we continue
to hold the position in anticipation of better times.
OUTLOOK FOR 2006
The stock market has been surprisingly buoyant the past year given rising energy
prices and restrictive Federal Reserve Bank policies. Logic would tend to
suggest that an unusually conservative positioning would be prudent. However,
companies with high earnings stability and visibility currently have high
valuations suggesting that the market has already priced in this outlook. In
addition, the out-performance of value stocks over the last few years may also
reflect this conservative tendency in the market. Given this view, the Series
plans to continue to under-weight in the traditionally stable sectors such as
finance, consumer discretionary, and consumer staples. With the sizable move in
the energy sector, the Series has been trimming exposure slightly.
At present, we are finding that the most compelling opportunities lie in the
industrial and technology sectors of the market. Specifically, we favor
companies in the water, wastewater, telecommunications equipment and highway
development industries. In addition, many of the new commitments have also
tended to the larger end of our market capitalization spectrum.
On behalf of SBL Fund - Series J - Mid Cap Growth Series, thank you for trusting
your investment with us. We are excited to see what opportunities present
themselves over 2006.
Sincerely,
James P. Schier,
Senior Portfolio Manager
67
SERIES J
Manager's Commentary (MID CAP GROWTH SERIES)
February 15, 2006 (unaudited)
PERFORMANCE
SERIES J VS. S&P MIDCAP 400/BARRA GROWTH INDEX AND RUSSELL 2500 GROWTH INDEX
(PERFORMANCE GRAPH)
SERIES J S&P MIDCAP 400/BARRA GROWTH INDEX RUSSELL 2500 GROWTH INDEX
- --------------------------- --------------------------------- -------------------------
DATE VALUE DATE VALUE DATE VALUE
---------- --------- --------- --------- --------- ---------
12/31/1995 10,000.00 INCEPTION 12/31/95 10,000.00 INCEPTION 12/31/95 10,000.00
3/31/1996 10,747.20 3/31/96 10,728.22 3/31/96 10,699.61
6/30/1996 11,581.57 6/30/96 11,028.71 6/30/96 11,247.46
9/30/1996 11,869.01 9/30/96 11,470.80 9/30/96 11,402.32
12/31/1996 11,804.33 12/31/96 11,841.10 12/31/96 11,509.28
3/31/1997 10,872.92 3/31/97 11,524.73 3/31/97 10,588.43
6/30/1997 12,509.36 6/30/97 13,611.02 6/30/97 12,310.38
9/30/1997 14,424.72 9/30/97 16,057.78 9/30/97 14,358.39
12/31/1997 14,159.20 12/31/97 15,423.81 12/31/97 13,208.73
3/31/1998 15,758.94 3/31/98 17,306.90 3/31/98 14,679.27
6/30/1998 15,410.39 6/30/98 17,267.66 6/30/98 13,963.06
9/30/1998 12,872.54 9/30/98 14,647.78 9/30/98 10,862.59
12/31/98 16,700.91 12/31/98 20,798.66 12/31/98 13,616.35
3/31/1999 16,630.62 3/31/99 19,627.47 3/31/99 13,473.57
6/30/1999 19,316.09 6/30/99 22,262.70 6/30/99 15,737.81
9/30/1999 19,482.84 9/30/99 20,714.65 9/30/99 15,192.36
12/31/1999 27,031.78 12/31/99 26,492.56 12/31/99 21,173.51
3/31/2000 31,953.99 3/31/00 31,514.67 3/31/00 24,378.77
6/30/2000 30,555.33 06/30/00 30,450.59 06/30/00 22,695.96
9/30/2000 34,090.30 09/30/00 33,911.50 09/30/00 22,028.42
12/31/2000 31,561.18 12/31/00 28,917.96 12/31/00 17,767.24
3/31/2001 25,903.80 3/31/2001 23,669.10 3/31/2001 14,229.89
6/30/2001 29,010.92 6/30/2001 27,348.55 6/30/2001 17,255.44
9/30/2001 20,636.18 9/30/2001 21,836.29 9/30/2001 12,584.20
12/31/2001 26,861.55 12/31/2001 26,612.49 12/31/2001 15,842.55
3/31/2002 27,333.17 3/31/2002 27,531.15 3/31/2002 15,375.65
6/30/2002 22,340.98 6/30/2002 23,948.64 6/30/2002 12,818.72
9/30/2002 16,876.70 9/30/2002 20,462.51 9/30/2002 10,375.82
12/31/2002 18,942.03 12/31/2002 21,511.56 12/31/2002 11,234.92
3/31/2003 18,458.15 3/31/2003 20,862.81 3/31/2003 10,875.62
6/30/2003 23,769.00 6/30/2003 24,204.07 6/30/2003 13,346.71
9/30/2003 26,188.39 9/30/2003 25,658.67 9/30/2003 14,676.15
12/31/2003 29,610.94 12/31/2003 28,175.21 12/31/2003 16,437.43
3/31/2004 31,369.42 3/31/2004 29,457.62 3/31/2004 17,342.60
6/30/2004 31,275.00 6/30/2004 29,679.90 6/30/2004 17,366.35
9/30/2004 27,781.65 9/30/2004 28,665.42 9/30/2004 16,392.22
12/31/2004 32,608.62 12/31/2004 32,116.07 12/31/2004 18,836.45
3/31/2005 30,106.62 3/31/2005 32,090.95 3/31/2005 18,021.62
6/30/2005 31,652.67 6/30/2005 33,264.65 6/30/2005 18,663.93
9/30/2005 34,249.08 9/30/2005 34,721.29 9/30/2005 19,837.23
12/31/2005 35,157.83 12/31/2005 36,427.20 12/31/2005 20,376.68
$10,000 OVER 10 YEARS
The chart above assumes a hypothetical $10,000 investment in Series J (Mid Cap
Growth Series) on December 31, 1995 and reflects the fees and expenses of Series
J. The Investment Adviser has determined that the Russell 2500 Growth Index is a
more appropriate index than the S&P MidCap 400/Barra Growth Index, which is
created by Standard & Poor's and Barra by dividing the S&P MidCap 400 Index
equally between growth and value based upon a price to book value calculation
because the Russell 2500 Growth Index more closely reflects the types of
securities in which the Series invests and thus provides shareholders with a
more appropriate benchmark against which to compare the Series' performance. The
Russell 2500 Growth Index is an unmanaged index that measures the performance of
securities of small-to-mid U.S. companies with greater-than-average growth
orientation.
AVERAGE ANNUAL RETURNS
PERIODS ENDED 12-31-05(1) 1 YEAR 5 YEARS 10 YEARS
- ------------------------- ------ ------- --------
Series J 7.82% 2.18% 13.40%
(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
Consumer Discretionary 8.58%
Consumer Staples 1.55
Energy 12.40
Financials 3.55
Health Care 10.12
Industrials 24.19
Information Technology 25.88
Materials 4.77
Utilities 8.20
Warrants 0.15
Commercial Paper 0.67
Repurchase Agreement 0.05
Liabilities, less cash & other assets (0.11)
Total net assets 100.00%
======
68 See accompanying notes.
SERIES J
Manager's Commentary (MID CAP GROWTH SERIES)
February 15, 2006 (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, 2005 - December 31, 2005.
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
mutual 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.
SERIES EXPENSES
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING
07-01-05 12-31-05(1) PERIOD(2)
------------- ------------- -------------
Series J (Mid Cap Growth Series)
Actual $1,000.00 $1,109.50 $4.79
Hypothetical 1,000.00 1,020.67 4.58
(1) The actual ending account value is based on the actual total return of the
Series for the period July 1, 2005 to December 31, 2005 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, 2005 to December 31, 2005 was 10.95%.
(2) Expenses are equal to the Series annualized expense ratio 0.90% multiplied
by the average account value over the period, multiplied by 184/365 (to
reflect the one-half year period).
69
Schedule of Investments SERIES J
December 31, 2005 (MID CAP GROWTH SERIES)
NUMBER MARKET
OF SHARES VALUE
--------- -----------
COMMON STOCKS - 99.2%
APPLICATION SOFTWARE - 2.4%
Tibco Software, Inc.* 588,400 $ 4,395,348
Tyler Technologies, Inc.* 640,000 5,619,200
-----------
10,014,548
-----------
ASSET MANAGEMENT & CUSTODY BANKS - 2.4%
Northern Trust Corporation 200,000 10,364,000
-----------
BIOTECHNOLOGY - 3.2%
Cell Genesys, Inc.* 303,100 1,797,383
Charles River Laboratories
International, Inc.* 62,000 2,626,940
Human Genome Sciences, Inc.* 310,900 2,661,304
Incyte Corporation* 405,000 2,162,700
Kosan Biosciences, Inc.* 275,900 1,224,996
Vasogen, Inc.* 556,615 1,141,061
ZymoGenetics, Inc.* 102,100 1,736,721
-----------
13,351,105
-----------
BROADCASTING & CABLE TV - 0.9%
WorldSpace, Inc.* 265,300 3,849,503
-----------
CASINOS & GAMING - 1.8%
GTECH Holdings Corporation 234,000 7,427,160
-----------
COAL & CONSUMABLE FUELS - 0.6%
Hydrogen Corporation*(3,5) 432,924 2,705,775
-----------
COMMUNICATIONS EQUIPMENT - 6.8%
ADC Telecommunications, Inc.* 328,571 7,340,276
Adtran, Inc. 273,500 8,133,890
Extreme Networks, Inc.* 550,000 2,612,500
Finisar Corporation* 2,924,100 6,082,128
Symmetricom, Inc.* 507,200 4,295,984
-----------
28,464,778
-----------
COMPUTER STORAGE & PERIPHERALS - 1.3%
Mobility Electronics, Inc.* 246,500 2,381,190
M-Systems Flash Disk Pioneers, Ltd.* 100,000 3,312,000
-----------
5,693,190
-----------
CONSTRUCTION & ENGINEERING - 5.3%
Insituform Technologies, Inc.* 305,000 5,907,850
Shaw Group, Inc.* 571,300 16,619,117
-----------
22,526,967
-----------
CONSTRUCTION MATERIALS - 1.7%
Headwaters, Inc.* 200,000 7,088,000
-----------
DATA PROCESSING & OUTSOURCED SERVICES - 1.3%
Hewitt Associates, Inc.* 76,000 2,128,760
Per-Se Technologies, Inc.* 148,450 3,467,792
-----------
5,596,552
-----------
DEPARTMENT STORES - 0.5%
Maidenform Brands, Inc.* 162,500 2,057,250
-----------
DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES - 2.2%
ChoicePoint, Inc.* 84,000 $ 3,738,840
Equifax, Inc. 76,600 2,912,332
Navigant Consulting, Inc.* 123,000 2,703,540
-----------
9,354,712
-----------
ELECTRIC UTILITIES - 8.2%
KFx, Inc.* 2,016,000 34,493,760
-----------
ELECTRICAL COMPONENTS & EQUIPMENT - 7.7%
Electric City Corporation*(3) 2,214,000 1,328,400
Millennium Cell, Inc.* 262,700 344,137
Plug Power, Inc.* 936,000 4,801,680
Power-One, Inc.* 2,340,000 14,086,800
Roper Industries, Inc. 212,000 8,376,120
UQM Technologies, Inc.*(3) 887,372 3,434,130
-----------
32,371,267
-----------
ELECTRONIC EQUIPMENT MANUFACTURERS - 4.8%
Aeroflex, Inc.* 418,000 4,493,500
FLIR Systems, Inc.* 275,000 6,140,750
Identix, Inc.* 119,000 596,190
Maxwell Technologies, Inc.*(3) 629,100 8,914,347
-----------
20,144,787
-----------
GENERAL MERCHANDISE STORES - 1.6%
Fred's, Inc. 412,000 6,703,240
-----------
HEALTH CARE FACILITIES - 2.4%
U.S. Physical Therapy, Inc.* 225,300 4,161,291
United Surgical Partners
International, Inc.* 180,000 5,787,000
-----------
9,948,291
-----------
HEALTH CARE SERVICES - 1.7%
NDCHealth Corporation*(1) 120,000 2,307,600
Providence Service Corporation* 165,500 4,764,745
-----------
7,072,345
-----------
HEALTH CARE SUPPLIES - 0.7%
Orthovita, Inc.* 800,000 3,104,000
-----------
HOME FURNISHINGS - 0.3%
Kirkland's, Inc.* 221,565 1,322,743
-----------
HOUSEWARES & SPECIALTIES - 0.3%
Jarden Corporation* 45,100 1,359,765
-----------
INDUSTRIAL MACHINERY - 0.9%
Quixote Corporation 93,700 1,855,260
Tennant Company 35,500 1,846,000
-----------
3,701,260
-----------
IT CONSULTING & OTHER SERVICES - 3.0%
Acxiom Corporation 339,000 7,797,000
Keane, Inc.*(1) 430,400 4,738,704
-----------
12,535,704
-----------
70 See accompanying notes.
Schedule of Investments SERIES J
December 31, 2005 (MID CAP GROWTH SERIES)
NUMBER MARKET
OF SHARES VALUE
--------- -----------
COMMON STOCKS (CONTINUED)
METAL & GLASS CONTAINERS - 3.1%
Pactiv Corporation* 590,000 $12,980,000
-----------
MOVIES & ENTERTAINMENT - 1.4%
Lions Gate Entertainment Corporation* 750,000 5,760,000
-----------
OIL & GAS DRILLING - 1.6%
Ensco International, Inc. 150,000 6,652,500
-----------
OIL & GAS EQUIPMENT & SERVICES - 1.6%
BJ Services Company(1) 164,000 6,013,880
Superior Energy Services, Inc.* 31,300 658,865
-----------
6,672,745
-----------
OIL & GAS EXPLORATION & PRODUCTION - 5.5%
EOG Resources, Inc.(1) 65,000 4,769,050
Rentech, Inc.*(3) 3,560,000 13,563,600
Syntroleum Corporation* 523,750 4,729,462
-----------
23,062,112
-----------
OIL & GAS REFINING & MARKETING - 1.6%
Western Gas Resources, Inc. 144,800 6,818,632
-----------
OIL & GAS STORAGE & TRANSPORTATION - 1.5%
Williams Companies, Inc. 270,000 6,255,900
-----------
PACKAGED FOODS & MEATS - 1.5%
Hormel Foods Corporation(1) 200,000 6,536,000
-----------
PHARMACEUTICALS - 2.2%
Combinatorx, Inc.* 275,200 2,251,136
Hollis-Eden Pharmaceuticals, Inc.* 522,346 2,528,155
Ligand Pharmaceuticals, Inc. (Cl.B)* 389,700 4,349,052
-----------
9,128,343
-----------
RAILROADS - 1.4%
Kansas City Southern* 241,000 5,887,630
-----------
REGIONAL BANKS - 1.1%
Boston Private Financial Holdings, Inc. 150,000 4,563,000
-----------
SEMICONDUCTOR EQUIPMENT - 1.2%
Mindspeed Technologies, Inc.* 2,200,000 5,170,000
-----------
SEMICONDUCTORS - 3.6%
Applied Micro Circuits Corporation* 1,300,000 3,341,000
hi/fn, Inc.* 337,200 1,889,331
IXYS Corporation* 841,900 9,841,811
-----------
15,072,142
-----------
SPECIALTY STORES - 1.8%
Hibbett Sporting Goods, Inc.*(1) 130,500 3,716,640
Tractor Supply Company*(1) 73,500 3,891,090
-----------
7,607,730
-----------
SYSTEMS SOFTWARE - 1.5%
BEA Systems, Inc.* 660,000 6,204,000
-----------
TRADING COMPANIES & DISTRIBUTORS - 2.2%
MSC Industrial Direct Company, Inc. 235,000 9,451,700
-----------
PRINCIPAL
AMOUNT OR
NUMBER MARKET
OF SHARES VALUE
------------ ------------
COMMON STOCKS (CONTINUED)
TRUCKING - 4.4%
J.B. Hunt Transport Services, Inc. 426,000 $ 9,644,640
Old Dominion Freight Line, Inc.* 300,000 8,094,000
Universal Truckload Services, Inc.* 33,300 765,900
------------
18,504,540
------------
TOTAL COMMON STOCKS
(cost $321,257,223) 417,577,676
------------
PREFERRED STOCK - 0.2%
ENVIRONMENTAL & FACILITIES SERVICES - 0.2%
ThermoEnergy Corporation PIPE(2,3,4,5) 1,380,000 782,460
------------
TOTAL PREFERRED STOCK
(cost $1,302,103) 782,460
------------
WARRANTS - 0.1%
Bioject Medical Technologies, Inc.,
$11.00, 05-23-06 16,875 --
Electric City Corporation,
$0.40, 03-19-09(3) 645,750 136,710
Hollis-Eden Pharmaceuticals, Inc.,
$15.45, 06-19-07 18,126 14,874
Orthovita, Inc., $4.00, 06-26-08 175,000 135,869
Syntroleum Corporation,
$7.60, 05-26-08 29,100 128,040
ThermoEnergy Corporation,
$1.50, 07-14-08(2,3,4,5) 1,380,000 195,132
------------
TOTAL WARRANTS
(cost $1,414,986) 610,625
------------
COMMERCIAL PAPER - 0.5%
BANKING - 0.5%
UBS Finance (De), Inc.,
4.28%, 01-03-06 $2,000,000 1,999,523
------------
TOTAL COMMERCIAL PAPER
(cost $1,999,523) 1,999,523
------------
REPURCHASE AGREEMENT - 0.1%
United Missouri Bank, 3.78%, dated 12-30-05,
matures 01-03-06; repurchase amount of
$227,095 (Collateralized by U.S. Treasury
Notes, 2.375%, 08-15-06 with a value
of $232,241) $ 227,000 227,000
------------
TOTAL REPURCHASE AGREEMENT
(cost $227,000) 227,000
------------
TOTAL INVESTMENTS - 100.1%
(cost $326,200,835) 421,197,284
LIABILITIES, LESS CASH & OTHER ASSETS - (0.1%) (399,440)
------------
TOTAL NET ASSETS - 100.0% $420,797,844
============
71 See accompanying notes.
Schedule of Investments SERIES J
December 31, 2005 (MID CAP GROWTH SERIES)
For federal income tax purposes the identified cost of investments owned at
December 31, 2005 was $327,014,026.
* Non-income producing security
PIPE-Private Investment in Public Equity - is the term used for stock issued by
a company in the secondary market as a means of raising capital more quickly and
less expensively than through registration in a secondary public offering.
(1) A portion of this security is segregated as collateral for open written
options contracts.
(2) Security is restricted. The total market value of restricted securities is
$977,592 (cost $1,656,000), or 0.2% of total net assets. The acquisition
date is July 14, 2005.
(3) Security is illiquid. The total market value of illiquid securities is
$31,060,554 (cost $28,000,407), or 7.4% of total net assets.
(4) Security is fair valued by the Board of Directors. The total market value
is $977,592 (cost $1,656,000), or 0.2% of total net assets.
(5) Investment in an affiliated issuer. See Note 8 to the financial statements.
72 See accompanying notes.
SERIES J
(MID CAP GROWTH SERIES)
Statement of Assets and Liabilities
December 31, 2005
ASSETS:
Investments in unaffiliated issues, at value(1) ................. $417,513,917
Investments in affiliated issues, at value(1) ................... 3,683,367
Cash ............................................................ 4,211
Receivables:
Fund shares sold ............................................. 1,157,590
Dividends .................................................... 81,926
Prepaid expenses ................................................ 7,542
------------
Total assets .................................................... 422,448,553
------------
LIABILITIES:
Payable for:
Fund shares redeemed ......................................... 357,681
Written options, at value
(premiums received, $1,015,049) ........................... 925,105
Management fees .............................................. 268,321
Custodian fees ............................................... 8,700
Transfer agent and administration fees ....................... 36,520
Professional fees ............................................ 31,982
Director's fees .............................................. 5,000
Other ........................................................ 17,400
------------
Total liabilities ............................................ 1,650,709
------------
NET ASSETS ...................................................... $420,797,844
============
NET ASSETS CONSIST OF:
Paid in capital ................................................. $292,163,667
Accumulated undistributed net realized gain on sale of
investments and options written .............................. 33,547,785
Net unrealized appreciation in value
of investments and options written ........................... 95,086,392
------------
Net assets ...................................................... $420,797,844
============
Capital shares authorized ....................................... unlimited
Capital shares outstanding ...................................... 14,125,177
Net asset value per share
(net assets divided by shares outstanding) ................... $ 29.79
============
(1) Investments, at cost ........................................ $326,200,835
Statement of Operations
For the Year Ended December 31, 2005
INVESTMENT INCOME:
Dividends from securities of unaffiliated issuers ........... $ 1,511,687
Interest .................................................... 201,703
-----------
Total investment income ..................................... 1,713,390
-----------
EXPENSES:
Management fees ............................................. 2,996,393
Administration fees ......................................... 363,069
Custodian fees .............................................. 37,896
Transfer agent/maintenance fees ............................. 25,181
Directors' fees ............................................. 21,591
Professional fees ........................................... 87,132
Reports to shareholders ..................................... 46,465
Other expenses .............................................. 21,199
-----------
Total expenses .............................................. 3,598,926
-----------
Net investment loss ......................................... (1,885,536)
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain during the year on:
Investment transactions of unaffiliated issuers ............. 37,375,039
Options written ............................................. 867,390
-----------
Net realized gain ........................................... 38,242,429
-----------
Net unrealized appreciation (depreciation)
during the year on:
Investment transactions of unaffiliated issuers ............. (7,900,432)
Investment transactions of affiliated issuers ............... 95,410
Options written ............................................. (143,741)
-----------
Net unrealized depreciation ................................. (7,948,763)
-----------
Net realized and unrealized gain ............................ 30,293,666
-----------
Net increase in net assets resulting from operations ........ $28,408,130
===========
73 See accompanying notes.
SERIES J
Statement of Changes in Net Assets (MID CAP GROWTH SERIES)
YEAR ENDED YEAR ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment loss ..................................................... $ (1,885,536) $ (2,269,363)
Net realized gain during the period on investments and options written .. 38,242,429 24,942,976
Net unrealized appreciation (depreciation) during the period on
investments and options written ...................................... (7,948,763) 17,079,245
------------- -------------
Net increase in net assets resulting from operations .................... 28,408,130 39,752,858
------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares ............................................ 68,323,999 99,200,455
Cost of shares redeemed ................................................. (113,722,888) (149,093,130)
------------- -------------
Net decrease from capital share transactions ............................ (45,398,889) (49,892,675)
------------- -------------
Net decrease in net assets .............................................. (16,990,759) (10,139,817)
------------- -------------
NET ASSETS:
Beginning of period ..................................................... 437,788,603 447,928,420
------------- -------------
End of period ........................................................... $ 420,797,844 $ 437,788,603
============= =============
CAPITAL SHARE ACTIVITY:
Shares sold ............................................................. 2,526,797 3,895,387
Shares redeemed ......................................................... (4,248,530) (5,898,622)
------------- -------------
Total capital share activity ............................................ (1,721,733) (2,003,235)
============= =============
74 See accompanying notes.
Financial Highlights
Selected data for each share of capital stock SERIES J
outstanding throughout each year (MID CAP GROWTH SERIES)
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2005 2004 2003 (D) 2002 2001
-------- -------- -------- -------- --------
PER SHARE DATA
Net asset value, beginning of period $ 27.63 $ 25.09 $ 16.05 $ 24.12 $ 32.82
-------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income (loss) (0.13) (0.14) (0.11) (0.11) (0.13)
Net gain (loss) on securities (realized and unrealized) 2.29 2.68 9.15 (6.69) (4.43)
-------- -------- -------- -------- --------
Total from investment operations 2.16 2.54 9.04 (6.80) (4.56)
-------- -------- -------- -------- --------
Less distributions:
Distributions from realized gains -- -- -- (1.27) (4.14)
-------- -------- -------- -------- --------
Total distributions -- -- -- (1.27) (4.14)
-------- -------- -------- -------- --------
Net asset value, end of period $ 29.79 $ 27.63 $ 25.09 $ 16.05 $ 24.12
======== ======== ======== ======== ========
TOTAL RETURN (A) 7.82% 10.12% 56.32% (29.48%) (14.89%)
-------- -------- -------- -------- --------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $420,798 $437,789 $447,928 $293,378 $470,236
Ratios to average net assets:
Net investment income (loss) (0.47%) (0.53%) (0.55%) (0.56%) (0.53%)
Total expenses (b) 0.90% 0.88% 0.83% 0.83% 0.84%
Net expenses (c) 0.90% 0.88% 0.83% 0.83% 0.83%
-------- -------- -------- -------- --------
Portfolio turnover rate 29% 37% 61% 41% 39%
(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) Total expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net expense information reflects the expense ratios after voluntary expense
waivers, reimbursements and custodian earnings credits, as applicable.
(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.
75 See accompanying notes.
This page left blank intentionally.
76
SERIES N
Manager's Commentary (MANAGED ASSET ALLOCATION SERIES)
February 15, 2006 (unaudited)
(T. ROWE PRICE(R) LOGO)
INVEST WITH CONFIDENCE
Advisor, T. Rowe Price Associates, Inc.
(PHOTO OF EDMUND N. NOTZON)
Edmund N. Notzon
Portfolio Manager
TO OUR SHAREHOLDERS:
Series N of SBL Fund - Managed Asset Allocation Series seeks to provide a high
level of total return. The Series pursues its objective by normally investing
approximately 60% of its total assets in U.S. and foreign common stocks and 40%
in fixed-income securities. The mix may vary over shorter time periods, with the
fixed income portion between 30%-50% of assets and the equity portion between
50%-70% of assets. As the sub-advisor, we generally concentrate common stock
investments in larger, established companies but may invest in small and
medium-sized companies with good growth prospects.
ENVIRONMENT
U.S. stocks produced a third consecutive year of positive returns in 2005, but
gains were more modest than in the prior two years. Equities sagged through
April amid concerns about inflation and rising short-term interest rates. Stocks
worked their way higher as the year progressed, supported by firm economic and
corporate earnings growth and merger activity. The year ended on a weak note,
however, as investors became concerned that economic growth would slow in 2006.
U.S. bonds trailed domestic stocks in 2005. Returns were modestly positive, as
falling bond prices offset income. The Federal Reserve Bank raised the federal
funds target rate in eight quarter-point increments - from 2.25% to 4.25%, a
level not seen in four years - but hinted after the most recent rate increase in
mid-December that it may be nearing the end of its rate tightening program,
which began in June 2004 when the federal fund's rate was 1.00%.
Non-U.S. stocks outperformed domestic stocks in 2005, despite the fact that a
stronger greenback against major foreign currencies eroded returns to U.S.
investors. Japanese shares produced robust returns in U.S. dollar terms and
reached five-year highs, whereas European bourses generated solid yet more
modest gains.
We overweighted stocks relative to bonds throughout 2005. We ended the year with
a 6% overweight. The overweight aided returns, as stocks outperformed bonds.
Within our bond portfolio, we are underweight in high yield bonds, given their
rich valuations. We are roughly neutral in international stocks. The Series'
allocation to international stocks also aided relative results, given the strong
returns for non-U.S. equities.
PERFORMANCE
The Series returned 4.35% (net of fees) for the one-year period ended December
31, 2005, versus the 4.00% return of a weighted benchmark comprising 60% in the
S&P 500 Index and 40% in the Lehman Brothers U.S. Aggregate Index. The Series
was helped by overweighting stocks versus bonds in a period in which stocks
outperformed relative to bonds. The S&P 500 returned 4.91% over the past 12
months and the Lehman Brothers U.S. Aggregate Index returned 2.43%.
PORTFOLIO HIGHLIGHTS
The portfolio currently has a 6% overweight in equities relative to bonds.
Although corporate profit growth remains solid and should be supportive of
equities, it is likely to continue decelerating given the cumulative impact of
higher interest rates and energy prices,
In light of relatively rich valuations, the Series is underweight in high yield
versus investment grade bonds. In general, high yield fundamentals remain
favorable, with good corporate profits and historically low corporate default
rates.
The Series is roughly neutral in non-U.S. equity markets. Valuations are
reasonable in EAFE-related markets, as productivity increases are helping to
maintain earnings growth despite modest revenue growth.
OUTLOOK
We do not necessarily believe that the equity markets will outperform over the
next three to six months, but we believe that, given the prospects for upward
pressure on interest rates consistent with a maturing economic cycle, equities
should fare better than bonds over the next couple of years.
Thank you for investing in the SBL N - Managed Asset Allocation Series.
Sincerely,
Edmund N. Notzon
Portfolio Manager
77
SERIES N
Manager's Commentary (MANAGED ASSET ALLOCATION SERIES)
February 15, 2006 (unaudited)
PERFORMANCE
SERIES N VS. BLENDED INDEX AND S&P 500 INDEX
(PERFORMANCE GRAPH)
SERIES N BLENDED INDEX S&P 500 INDEX
- ---------------------------- ---------------------- -----------------------
DATE VALUE VALUE DATE VALUE
---------- --------- -------- ------- -------- ---------
12/31/1995 10,000.00 INCEPTION 12/31/95 10,000 INCEPTION 12/31/95 10,000.00
3/31/1996 10,223.67 3/31/96 10,247 3/31/96 10,536.35
6/30/1996 10,400.75 6/30/96 10,545 6/30/96 11,008.74
9/30/1996 10,669.79 9/30/96 10,824 9/30/96 11,349.07
12/31/1996 11,279.76 12/31/96 11,496 12/31/96 12,295.60
3/31/1997 11,373.60 3/31/97 11,660 3/31/97 12,624.86
6/30/1997 12,593.54 6/30/97 13,038 6/30/97 14,829.18
9/30/1997 13,156.78 9/30/97 13,806 9/30/97 15,941.24
12/31/1997 13,358.89 12/31/97 14,213 12/31/97 16,399.53
3/31/1998 14,486.51 3/31/98 15,480 3/31/98 18,687.28
6/30/1998 14,862.01 6/30/98 15,935 6/30/98 19,304.54
9/30/1998 14,190.06 9/30/98 15,271 9/30/98 17,383.58
12/31/1998 15,820.53 12/31/98 17,195 12/31/98 21,084.26
3/31/1999 16,148.70 3/31/99 17,675 3/31/99 22,137.84
6/30/1999 16,641.10 6/30/99 18,357 6/30/99 23,697.99
9/30/1999 17,666.09 9/30/99 17,714 9/30/99 22,217.90
12/31/1999 17,361.20 12/31/99 19,259 12/31/99 25,523.58
3/31/2000 17,781.40 3/31/00 19,718 3/31/00 26,110.20
6/30/2000 17,596.92 06/30/00 19,539 06/30/00 25,417.83
9/30/2000 17,632.51 09/30/00 19,673 09/30/00 25,171.96
12/31/2000 17,204.54 12/31/00 19,070 12/31/00 23,204.17
3/31/2001 16,030.74 3/31/2001 17,927 3/31/2001 20,454.31
6/30/2001 16,641.77 6/30/2001 18,607 6/30/2001 21,652.06
9/30/2001 15,263.94 9/30/2001 17,259 9/30/2001 18,475.85
12/31/2001 16,330.26 12/31/2001 18,363 12/31/2001 20,451.30
3/31/2002 16,487.15 3/31/2002 18,410 3/31/2002 20,506.88
6/30/2002 15,559.67 6/30/2002 17,164 6/30/2002 17,760.15
9/30/2002 13,973.19 9/30/2002 15,645 9/30/2002 14,692.83
12/31/2002 14,757.60 12/31/2002 16,562 12/31/2002 15,933.73
3/31/2003 14,557.49 3/31/2003 16,341 3/31/2003 15,431.91
6/30/2003 16,345.91 6/30/2003 17,997 6/30/2003 17,807.35
9/30/2003 16,772.27 9/30/2003 18,280 9/30/2003 18,278.64
12/31/2003 18,284.69 12/31/2003 19,623 12/31/2003 20,504.32
3/31/2004 18,767.20 3/31/2004 20,032 3/31/2004 20,852.16
6/30/2004 18,779.90 6/30/2004 20,041 6/30/2004 21,209.61
9/30/2004 18,854.02 9/30/2004 20,070 9/30/2004 20,811.97
12/31/2004 20,245.41 12/31/2004 21,251 12/31/2004 22,733.70
3/31/2005 19,887.99 3/31/2005 20,940 3/31/2005 22,243.95
6/30/2005 20,283.71 6/30/2005 21,366 6/30/2005 22,546.75
9/30/2005 20,794.31 9/30/2005 21,774 9/30/2005 23,360.38
12/31/2005 21,126.20 12/31/2005 22,099 12/31/2005 23,845.69
</Table>
$10,000 OVER 10 YEARS
The chart above assumes a hypothetical $10,000 investment in Series N (Managed
Asset Allocation Series) on December 31, 1995 and reflects the fees and expenses
of Series N. The blended index is 60% S&P 500 Index and 40% Lehman Brothers
Aggregate Bond Index. The S&P 500 Index is a capitalization-weighted index
composed of 500 selected common stocks that represent the broad domestic economy
and is a widely recognized unmanaged index of market performance. The Lehman
Brothers Aggregate Bond Index is an unmanaged index that tracks investment grade
bonds including U.S. Treasury and agency issues, corporate bond issues,
asset-backed, commercial mortgage-backed and mortgage-backed securities and
Yankee issues.
AVERAGE ANNUAL RETURNS
SINCE INCEPTION
PERIODS ENDED 12-31-05(1) 1 YEAR 5 YEARS (6-1-95)
- ------------------------- ------ ------- ---------------
Series N 4.35% 4.19% 7.77%
(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 7.47%
Consumer Staples 5.98
Energy 6.29
Financials 14.83
Health Care 7.90
Industrials 7.32
Information Technology 9.18
Materials 2.58
Telecommunication Services 2.12
Utilities 2.04
AAA 24.36
AA 0.49
A 2.43
BBB 2.94
BB 0.69
B 1.22
CCC 0.18
Not Rated 0.54
Short Term Investments 2.01
Liabilities, less cash & other assets (0.57)
Total net assets 100.00%
======
78 See accompanying notes.
SERIES N
Manager's Commentary (MANAGED ASSET ALLOCATION SERIES)
February 15, 2006 (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, 2005 - December 31, 2005.
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
mutual 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.
SERIES EXPENSES
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING
07-01-05 12-31-05(1) PERIOD(2)
------------- ------------- -------------
Series N (Managed Asset Allocation Series)
Actual $1,000.00 $1,038.30 $7.24
Hypothetical 1,000.00 1,018.10 7.17
(1) The actual ending account value is based on the actual total return of the
Series for the period July 1, 2005 to December 31, 2005 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, 2005 to December 31, 2005 was 3.83%.
(2) Expenses are equal to the Series annualized expense ratio (net of earnings
credits) of 1.41% multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
79
Schedule of Investments SERIES N
December 31, 2005 (MANAGED ASSET ALLOCATION SERIES)
NUMBER MARKET
OF SHARES VALUE
--------- ----------
COMMON STOCKS - 56.5%
ADVERTISING - 0.2%
Lamar Advertising Company* 3,100 $ 143,034
Omnicom Group, Inc. 900 76,617
WPP Group plc ADR 100 5,400
----------
225,051
----------
AEROSPACE & DEFENSE - 1.2%
Boeing Company 2,800 196,672
Engineered Support Systems, Inc. 400 16,656
General Dynamics Corporation 2,400 273,720
Goodrich Corporation 2,100 86,310
Honeywell International, Inc. 7,500 279,375
Lockheed Martin Corporation 1,000 63,630
Rockwell Colllins, Inc. 1,600 74,352
Triumph Group, Inc.* 300 10,983
United Technologies Corporation 2,400 134,184
----------
1,135,882
----------
AIR FREIGHT & LOGISTICS - 0.3%
Expeditors International of Washington, Inc. 300 20,253
UTI Worldwide, Inc. 300 27,852
United Parcel Service, Inc. (Cl.B) 2,800 210,420
----------
258,525
----------
AIRLINES - 0.1%
SkyWest, Inc. 1,500 40,290
Southwest Airlines Company 6,300 103,509
----------
143,799
----------
ALUMINUM - 0.2%
Alcan, Inc. 3,000 122,850
Alcoa, Inc. 2,800 82,796
----------
205,646
----------
APPAREL RETAIL - 0.4%
Chico's FAS, Inc.* 1,100 48,323
Hot Topic, Inc.* 3,700 52,725
Pacific Sunwear of California, Inc.* 600 14,952
Ross Stores, Inc. 3,800 109,820
TJX Companies, Inc. 6,000 139,380
----------
365,200
----------
APPAREL, ACCESSORIES & LUXURY GOODS - 0.0%
Fossil, Inc.* 600 12,906
Quiksilver, Inc.* 300 4,152
----------
17,058
----------
APPLICATION SOFTWARE - 0.1%
Cadence Design Systems, Inc.* 400 6,768
FactSet Research Systems, Inc. 250 10,290
Fair Isaac Corporation 645 28,490
Jack Henry & Associates, Inc. 300 5,724
Mercury Interactive Corporation* 900 25,011
Serena Software, Inc.* 500 11,720
Taleo Corporation* 1,200 15,936
----------
103,939
----------
ASSET MANAGEMENT & CUSTODY BANKS - 0.8%
Ameriprise Financial, Inc. 2,840 $ 116,440
Eaton Vance Corporation 700 19,152
Franklin Resources, Inc. 700 65,807
Investors Financial Services Corporation 2,900 106,807
Janus Capital Group, Inc. 1,400 26,082
Legg Mason, Inc. 900 107,721
Mellon Financial Corporation 1,600 54,800
Northern Trust Corporation 1,400 72,548
Nuveen Investments 1,700 72,454
State Street Corporation 2,500 138,600
----------
780,411
----------
AUTO PARTS & EQUIPMENT - 0.1%
Autoliv, Inc. 500 22,710
Gentex Corporation 700 13,650
Johnson Controls, Inc. 200 14,582
----------
50,942
----------
AUTOMOBILE MANUFACTURERS - 0.2%
General Motors Corporation 8,400 163,128
----------
AUTOMOTIVE RETAIL - 0.0%
O'Reilly Automotive, Inc.* 1,100 35,211
----------
BIOTECHNOLOGY - 1.2%
Abgenix, Inc.* 1,400 30,114
Alkermes, Inc.* 800 15,296
Amgen, Inc.* 6,300 496,818
Biogen Idec, Inc.* 2,000 90,660
Celgene Corporation* 800 51,840
Cephalon, Inc.* 895 57,942
Charles River Laboratories
International, Inc.* 300 12,711
Chiron Corporation* 400 17,784
Digene Corporation* 300 8,751
Genentech, Inc.* 1,600 148,000
Genzyme Corporation* 200 14,156
Gilead Sciences, Inc.* 3,200 168,416
Invitrogen Corporation* 316 21,058
Neurocrine Biosciences, Inc.* 300 18,819
Senomyx, Inc.* 200 2,424
Techne Corporation* 200 11,230
----------
1,166,019
----------
BREWERS - 0.2%
Anheuser-Busch Companies, Inc. 2,900 124,584
Boston Beer Company, Inc.* 400 10,000
Compania Cervecerias Unidas S.A. ADR 900 22,698
----------
157,282
----------
80 See accompanying notes.
Schedule of Investments SERIES N
December 31, 2005 (MANAGED ASSET ALLOCATION SERIES)
NUMBER MARKET
OF SHARES VALUE
--------- ----------
COMMON STOCKS (CONTINUED)
BROADCASTING & CABLE TV - 0.7%
Comcast Corporation* 9,400 $ 244,024
Cox Radio, Inc.* 500 7,040
DirecTV Group, Inc.* 1,940 27,393
Discovery Holding Company* 966 14,635
E.W. Scripps Company 600 28,812
EchoStar Communications Corporation* 600 16,302
Emmis Communications Corporation* 200 3,982
Liberty Global, Inc.* 303 6,817
Liberty Media Corporation* 15,164 119,341
Radio One, Inc. (Cl.D)* 1,000 10,350
Rogers Communications, Inc. (Cl.B) 2,900 122,554
Univision Communications, Inc.* 2,300 67,597
----------
668,847
----------
BUILDING PRODUCTS - 0.1%
American Standard Companies, Inc. 1,300 51,935
Trex Company, Inc.* 100 2,805
Universal Forest Products, Inc. 200 11,050
----------
65,790
----------
CASINOS & GAMING - 0.4%
Harrah's Entertainment, Inc. 1,200 85,548
International Game Technology 5,500 169,290
Shuffle Master, Inc.* 400 10,056
Station Casinos, Inc. 500 33,900
Wynn Resorts, Ltd.* 2,500 137,125
----------
435,919
----------
CATALOG RETAIL - 0.0%
IAC/InterActiveCorp* 550 15,570
Insight Enterprises, Inc.* 600 11,766
----------
27,336
----------
COAL & CONSUMABLE FUELS - 0.0%
Peabody Energy Corporation 500 41,210
----------
COMMODITY CHEMICALS - 0.1%
Nova Chemicals Corporation 1,700 56,780
----------
COMMUNICATIONS EQUIPMENT - 1.5%
Belden CDT, Inc. 300 7,329
Cisco Systems, Inc.* 32,300 552,976
Corning, Inc.* 6,500 127,790
Dolby Laboratories, Inc.* 400 6,820
F5 Networks, Inc.* 400 22,876
Inter-Tel, Inc. 600 11,742
Juniper Networks, Inc.* 3,600 80,280
Motorola, Inc. 7,600 171,684
Nokia Oyj ADR 8,100 148,230
Plantronics, Inc. 200 5,660
Polycom, Inc.* 500 7,650
Qualcomm, Inc. 7,800 336,024
----------
1,479,061
----------
COMPUTER & ELECTRONICS RETAIL - 0.1%
Best Buy Company, Inc. 2,325 $ 101,091
----------
COMPUTER HARDWARE - 1.5%
Avid Technology, Inc.* 600 32,856
Dell, Inc.* 24,200 725,758
Gateway, Inc.* 15,900 39,909
International Business Machines Corporation 7,900 649,380
----------
1,447,903
----------
COMPUTER STORAGE & PERIPHERALS - 0.3%
Applied Films Corporation* 200 4,154
EMC Corporation* 17,800 242,436
Lexmark International, Inc.* 300 13,449
----------
260,039
----------
CONSTRUCTION & ENGINEERING - 0.0%
Insituform Technologies, Inc.* 400 7,748
----------
CONSTRUCTION & FARM MACHINERY - 0.3%
Deere & Company 3,600 245,196
Joy Global, Inc. 600 24,000
Oshkosh Truck Corporation 900 40,131
----------
309,327
----------
CONSUMER ELECTRONICS - 0.0%
Digital Theater Systems, Inc.* 200 2,960
Harman International Industries, Inc. 100 9,785
----------
12,745
----------
CONSUMER FINANCE - 0.7%
American Express Company 5,900 303,614
Capital One Financial Corporation 1,900 164,160
Jackson Hewitt Tax Service, Inc. 500 13,855
SLM Corporation 3,500 192,815
----------
674,444
----------
DATA PROCESSING & OUTSOURCED SERVICES - 0.5%
Automatic Data Processing, Inc. 3,900 178,971
DST Systems, Inc.* 500 29,955
First Data Corporation 4,000 172,040
Fiserv, Inc.* 200 8,654
Global Payments, Inc. 400 18,644
Iron Mountain, Inc.* 750 31,665
----------
439,929
----------
DEPARTMENT STORES - 0.4%
Kohl's Corporation* 8,000 388,800
----------
DIVERSIFIED BANKS - 1.5%
Bank of America Corporation 11,676 538,847
Global Cash Access, Inc.* 400 5,836
Popular, Inc. 1,100 23,265
U.S. Bancorp 8,300 248,087
Wachovia Corporation 5,800 306,588
Wells Fargo & Company 5,200 326,716
----------
1,449,339
----------
81 See accompanying notes.
Schedule of Investments SERIES N
December 31, 2005 (MANAGED ASSET ALLOCATION SERIES)
NUMBER MARKET
OF SHARES VALUE
--------- --------
COMMON STOCKS (CONTINUED)
DIVERSIFIED CHEMICALS - 0.3%
Cabot Corporation 1,800 $ 64,440
Dow Chemical Company 600 26,292
E.I. du Pont de Nemours & Company 5,851 248,668
--------
339,400
--------
DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES - 0.2%
Advisory Board Company* 400 19,068
Cendant Corporation 6,400 110,400
ChoicePoint, Inc.* 266 11,840
Cintas Corporation 700 28,826
Corporate Executive Board Company 600 53,820
IntercontinentalExchange, Inc.* 100 3,635
Navigant Consulting, Inc.* 300 6,594
--------
234,183
--------
DIVERSIFIED METALS & MINING - 0.1%
BHP Billiton, Ltd. ADR 2,700 90,234
--------
DRUG RETAIL - 0.4%
CVS Corporation 3,900 103,038
Walgreen Company 5,500 243,430
--------
346,468
--------
EDUCATION SERVICES - 0.1%
Apollo Group, Inc.* 500 30,230
Corinthian Colleges, Inc.* 100 1,178
Education Management Corporation* 800 26,808
--------
58,216
--------
ELECTRIC UTILITIES - 1.0%
Edison International 2,900 126,469
Entergy Corporation 2,900 199,085
Exelon Corporation 4,900 260,386
FirstEnergy Corporation 3,200 156,768
Great Plains Energy, Inc. 800 22,368
NRG Energy, Inc.* 1,400 65,968
PPL Corporation 1,600 47,040
Pinnacle West Capital Corporation 1,900 78,565
Southern Company 1,200 41,436
--------
998,085
--------
ELECTRICAL COMPONENTS & EQUIPMENT - 0.0%
Color Kinetics, Inc.* 600 8,634
--------
ELECTRONIC EQUIPMENT MANUFACTURERS - 0.1%
Agilent Technologies, Inc.* 179 5,959
CyberOptics Corporation* 700 9,436
FLIR Systems, Inc.* 600 13,398
iRobot Corporation* 200 6,666
Littelfuse, Inc.* 200 5,450
Tektronix, Inc. 1,500 42,315
--------
83,224
--------
ELECTRONIC MANUFACTURING SERVICES - 0.3%
AVX Corporation 800 $ 11,584
Flextronics International, Ltd.* 5,400 56,376
Jabil Circuit, Inc.* 4,000 148,360
Mercury Computer Systems, Inc.* 500 10,315
Plexus Corporation* 1,100 25,014
--------
251,649
--------
ENVIRONMENTAL & FACILITIES SERVICES - 0.1%
Republic Services, Inc. 2,900 108,895
Waste Connections, Inc.* 300 10,338
--------
119,233
--------
FERTILIZERS & AGRICULTURAL CHEMICALS - 0.2%
Monsanto Company 1,200 93,036
Mosaic Company* 800 11,704
Potash Corporation of Saskatchewan, Inc. 1,600 128,352
--------
233,092
--------
FOOD DISTRIBUTORS - 0.1%
Performance Food Group Company* 300 8,511
Sysco Corporation 2,900 90,045
United Natural Foods, Inc.* 500 13,200
--------
111,756
--------
FOOD RETAIL - 0.1%
Kroger Company* 5,300 100,064
Safeway, Inc. 1,200 28,392
--------
128,456
--------
FOOTWEAR - 0.1%
Nike, Inc. (Cl.B) 1,000 86,790
--------
FOREST PRODUCTS - 0.1%
Weyerhaeuser Company 900 59,706
--------
GAS UTILITIES - 0.1%
AGL Resources, Inc. 300 10,443
National Fuel Gas Company 800 24,952
OGE Energy Corporation 1,000 26,790
WGL Holdings, Inc. 600 18,036
--------
80,221
--------
GENERAL MERCHANDISE STORES - 0.4%
Dollar General Corporation 1,300 24,791
Dollar Tree Stores, Inc.* 200 4,788
Family Dollar Stores, Inc. 3,100 76,849
Fred's, Inc. 400 6,508
Target Corporation 5,800 318,826
--------
431,762
--------
GOLD - 0.2%
Newmont Mining Corporation 3,300 176,220
--------
82 See accompanying notes.
Schedule of Investments SERIES N
December 31, 2005 (MANAGED ASSET ALLOCATION SERIES)
NUMBER MARKET
OF SHARES VALUE
--------- ----------
COMMON STOCKS (CONTINUED)
HEALTH CARE DISTRIBUTORS - 0.2%
Cardinal Health, Inc. 2,350 $ 161,563
Patterson Companies, Inc.* 1,200 40,080
----------
201,643
----------
HEALTH CARE EQUIPMENT - 1.0%
Aspect Medical Systems, Inc.* 500 17,175
Boston Scientific Corporation* 6,000 146,940
C.R. Bard, Inc. 1,000 65,920
Cytyc Corporation* 1,000 28,230
Edwards Lifesciences Corporation* 300 12,483
Inamed Corporation* 100 8,768
Medtronic, Inc. 6,600 379,962
Respironics, Inc.* 100 3,707
St. Jude Medical, Inc.* 1,500 75,300
Steris Corporation 700 17,514
Stryker Corporation 1,600 71,088
Thoratec Corporation* 700 14,483
Waters Corporation* 1,800 68,040
Zimmer Holdings, Inc.* 1,600 107,904
----------
1,017,514
----------
HEALTH CARE FACILITIES - 0.2%
Community Health Systems, Inc.* 1,300 49,842
Health Management Associates, Inc. 600 13,176
LifePoint Hospitals, Inc.* 200 7,500
Symbion, Inc.* 400 9,200
Triad Hospitals, Inc.* 2,310 90,621
United Surgical Partners International, Inc.* 400 12,860
----------
183,199
----------
HEALTH CARE SERVICES - 0.4%
Caremark Rx, Inc.* 3,100 160,549
Computer Programs & Systems, Inc. 900 37,287
DaVita, Inc.* 950 48,108
Medco Health Soulutions, Inc.* 1,563 87,215
Omnicare, Inc. 500 28,610
Quest Diagnostics, Inc. 1,100 56,628
----------
418,397
----------
HEALTH CARE SUPPLIES - 0.0%
Bausch & Lomb, Inc. 250 16,975
Dentsply International, Inc. 300 16,107
Merit Medical Systems, Inc.* 700 8,498
----------
41,580
----------
HOME ENTERTAINMENT SOFTWARE - 0.1%
Activision, Inc.* 1,333 18,315
Electronic Arts, Inc.* 1,500 78,465
----------
96,780
----------
HOME FURNISHINGS - 0.0%
Mohawk Industries, Inc.* 200 17,396
----------
HOME IMPROVEMENT RETAIL - 0.7%
Home Depot, Inc. 10,550 427,064
Lowe's Companies, Inc. 3,200 213,312
----------
640,376
----------
HOMEBUILDING - 0.2%
D.R. Horton, Inc. 2,400 $ 85,752
Lennar Corporation 1,300 79,326
Standard-Pacific Corporation 1,000 36,800
Toll Brothers, Inc.* 600 20,784
----------
222,662
----------
HOMEFURNISHING RETAIL - 0.0%
Bed Bath & Beyond, Inc.* 600 21,690
Williams-Sonoma, Inc.* 400 17,260
----------
38,950
----------
HOTELS, RESORTS & CRUISE LINES - 0.3%
Carnival Corporation 3,100 165,757
Marriott International, Inc. 1,400 93,758
----------
259,515
----------
HOUSEHOLD PRODUCTS - 1.3%
Colgate-Palmolive Company 2,500 137,125
Kimberly-Clark Corporation 1,800 107,370
Procter & Gamble Company 16,875 976,725
----------
1,221,220
----------
HOUSEWARES & SPECIALTIES - 0.1%
Fortune Brands, Inc. 600 46,812
Jarden Corporation* 100 3,015
Newell Rubbermaid, Inc. 900 21,402
----------
71,229
----------
HUMAN RESOURCE & EMPLOYMENT SERVICES - 0.1%
Manpower, Inc. 200 9,300
Robert Half International, Inc. 1,200 45,468
----------
54,768
----------
HYPERMARKETS & SUPERCENTERS - 0.7%
Wal-Mart Stores, Inc. 14,600 683,280
----------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS - 0.3%
AES Corporation* 2,800 44,324
Duke Energy Corporation 7,500 205,875
Dynegy, Inc.* 3,200 15,488
TXU Corporation 700 35,133
----------
300,820
----------
INDUSTRIAL CONGLOMERATES - 2.6%
General Electric Company 62,500 2,190,625
Teleflex, Inc. 800 51,984
Tyco International, Ltd. 11,900 343,434
----------
2,586,043
----------
83 See accompanying notes.
Schedule of Investments SERIES N
December 31, 2005 (MANAGED ASSET ALLOCATION SERIES)
NUMBER MARKET
OF SHARES VALUE
--------- ----------
COMMON STOCKS (CONTINUED)
INDUSTRIAL MACHINERY - 0.7%
Actuant Corporation 700 $ 39,060
Briggs & Stratton Corporation 400 15,516
Danaher Corporation 5,500 306,790
Eaton Corporation 700 46,963
Harsco Corporation 300 20,253
Illinois Tool Works, Inc. 2,200 193,578
Nordson Corporation 200 8,102
Pall Corporation 2,200 59,092
----------
689,354
----------
INSURANCE BROKERS - 0.3%
Arthur J. Gallagher & Company 500 15,440
Marsh & McLennan Companies, Inc. 5,900 187,384
Willis Group Holdings, Ltd. 1,800 66,492
----------
269,316
----------
INTEGRATED OIL & GAS - 3.1%
BP plc ADR 400 25,688
Chevron Corporation 10,250 581,893
ConocoPhillips 6,000 349,080
Exxon Mobil Corporation 29,020 1,630,053
Murphy Oil Corporation 3,300 178,167
Occidental Petroleum Corporation 1,400 111,832
Petroleo Brasileiro S.A. ADR 1,200 77,244
Total S.A. ADR 900 113,760
----------
3,067,717
----------
INTEGRATED TELECOMMUNICATION SERVICES - 0.7%
BellSouth Corporation 7,800 211,380
NTL, Inc.* 200 13,616
Telus Corporation (Non-Voting Shares) 6,100 245,586
Verizon Communications, Inc. 8,534 257,044
----------
727,626
----------
INTERNET RETAIL - 0.0%
Drugstore.com, Inc.* 1,500 4,275
Expedia, Inc.* 450 10,782
----------
15,057
----------
INTERNET SOFTWARE & SERVICES - 0.7%
Blue Coat Systems, Inc.* 300 13,716
CNET Networks, Inc.* 3,900 57,291
CyberSource Corporation* 500 3,300
Digital Insight Corporation* 500 16,010
EarthLink, Inc.* 1,600 17,776
Google, Inc.* 300 124,458
MatrixOne, Inc.* 5,400 26,946
Navteq Corporation* 1,400 61,418
VeriSign, Inc.* 2,200 48,224
Websense, Inc.* 400 26,256
Yahoo!, Inc.* 8,100 317,358
----------
712,753
----------
INVESTMENT BANKING & BROKERAGE - 1.4%
Ameritrade Holding Corporation* 6,400 $ 153,600
E*Trade Financial Corporation* 11,100 231,546
Goldman Sachs Group, Inc. 2,400 306,504
Lehman Brothers Holdings, Inc. 1,400 179,438
Merrill Lynch & Company, Inc. 4,400 298,012
Morgan Stanley 3,000 170,220
TradeStation Group, Inc.* 1,300 16,094
----------
1,355,414
----------
IT CONSULTING & OTHER SERVICES - 0.2%
Accenture, Ltd. 4,200 121,254
CACI International, Inc.* 100 5,738
Cognizant Technology Solutions Corporation* 300 15,105
Inforte Corporation 1,500 5,925
MTC Technologies, Inc.* 300 8,214
SRA International, Inc.* 400 12,216
----------
168,452
----------
LEISURE PRODUCTS - 0.2%
Brunswick Corporation 2,400 97,584
DreamWorks Animation SKG, Inc.* 400 9,824
Marvel Entertainment, Inc.* 400 6,552
Mattel, Inc. 2,100 33,222
SCP Pool Corporation 712 26,501
----------
173,683
----------
LIFE & HEALTH INSURANCE - 0.6%
AFLAC, Inc. 2,200 102,124
Genworth Financial, Inc. 3,100 107,198
Jefferson-Pilot Corporation 700 39,851
Lincoln National Corporation 1,800 95,454
MetLife, Inc. 1,000 49,000
Protective Life Corporation 400 17,508
Prudential Financial, Inc. 2,000 146,380
StanCorp Financial Group, Inc. 500 24,975
----------
582,490
----------
MANAGED HEALTH CARE - 0.9%
Aetna, Inc. 800 75,448
Coventry Health Care, Inc.* 500 28,480
Humana, Inc.* 2,900 157,557
UnitedHealth Group, Inc. 6,500 403,910
WellPoint, Inc.* 2,556 203,922
----------
869,317
----------
MOVIES & ENTERTAINMENT - 1.0%
News Corporation 9,200 143,060
Time Warner, Inc. 19,500 340,080
Viacom, Inc. (Cl.B) 9,000 293,400
Viacom, Inc. (Cl.B) (when-issued)(4) 2,200 90,530
Walt Disney Company 3,000 71,910
----------
938,980
----------
84 See accompanying notes.
Schedule of Investments SERIES N
December 31, 2005 (MANAGED ASSET ALLOCATION SERIES)
NUMBER MARKET
OF SHARES VALUE
--------- ----------
COMMON STOCKS (CONTINUED)
MULTI-LINE INSURANCE - 1.0%
American International Group, Inc. 12,375 $ 844,346
Hartford Financial Services Group, Inc. 2,100 180,369
----------
1,024,715
----------
MULTI-UTILITIES - 0.3%
Alliant Energy Corporation 800 22,432
Consolidated Edison, Inc. 1,000 46,330
Dominion Resources, Inc. 1,400 108,080
Energy East Corporation 900 20,520
NiSource, Inc. 3,800 79,268
Public Service Enterprise Group, Inc. 200 12,994
Teco Energy, Inc. 900 15,462
----------
305,086
----------
OFFICE SERVICES & SUPPLIES - 0.1%
Avery Dennison Corporation 1,100 60,797
Herman Miller, Inc. 1,000 28,190
----------
88,987
----------
OIL & GAS DRILLING - 0.3%
Grey Wolf, Inc.* 1,500 11,595
Helmerich & Payne, Inc. 400 24,764
Nabors Industries, Ltd.* 600 45,450
Patterson-UTI Energy, Inc. 700 23,065
Transocean, Inc.* 2,509 174,852
----------
279,726
----------
OIL & GAS EQUIPMENT & SERVICES - 1.1%
Baker Hughes, Inc. 2,400 145,872
BJ Services Company 2,000 73,340
Cooper Cameron Corporation* 500 20,700
FMC Technologies, Inc.* 2,471 106,055
Grant Prideco, Inc.* 2,700 119,124
Halliburton Company 1,200 74,352
Maverick Tube Corporation* 700 27,902
National-Oilwell Varco, Inc.* 600 37,620
Schlumberger, Ltd. 5,000 485,750
----------
1,090,715
----------
OIL & GAS EXPLORATION & PRODUCTION - 0.6%
Anadarko Petroleum Corporation 1,363 129,144
Comstock Resources, Inc.* 1,000 30,510
Devon Energy Corporation 1,400 87,556
EOG Resources, Inc. 1,200 88,044
Forest Oil Corporation* 300 13,671
Newfield Exploration Company* 900 45,063
Pioneer Natural Resources Company 800 41,016
XTO Energy, Inc. 2,400 105,456
----------
540,460
----------
OIL & GAS REFINING & MARKETING - 0.1%
Sunoco, Inc. 600 47,028
Valero Energy Corporation 1,800 92,880
----------
139,908
----------
OIL & GAS STORAGE & TRANSPORTATION - 0.2%
Williams Companies, Inc. 10,400 $ 240,968
OTHER DIVERSIFIED FINANCIAL SERVICES - 2.2%
CapitalSource, Inc.* 4,200 94,080
Citigroup, Inc. 27,273 1,323,559
Heartland Payment Systems, Inc.* 100 2,166
JP Morgan Chase & Company 19,536 775,384
----------
2,195,189
----------
PACKAGED FOODS & MEATS - 0.6%
Campbell Soup Company 3,100 92,287
Dean Foods Company* 550 20,713
General Mills, Inc. 4,000 197,280
H.J. Heinz Company 1,620 54,626
Hershey Company 1,400 77,350
Kellogg Company 2,300 99,406
Kraft Foods, Inc. 600 16,884
McCormick & Company, Inc. 700 21,644
SunOpta, Inc.* 2,500 13,150
Tootsie Roll Industries, Inc. 165 4,773
----------
598,113
----------
PAPER PACKAGING - 0.0%
Smurfit-Stone Container Corporation* 200 2,834
----------
PAPER PRODUCTS - 0.3%
Bowater, Inc. 1,200 36,864
International Paper Company 4,100 137,801
MeadWestvaco Corporation 1,300 36,439
Potlatch Corporation 1,000 50,980
----------
262,084
----------
PERSONAL PRODUCTS - 0.1%
Avon Products, Inc. 2,200 62,810
Estee Lauder Companies, Inc. 300 10,044
----------
72,854
----------
PHARMACEUTICALS - 3.2%
Abbott Laboratories 8,200 323,326
AstraZeneca plc ADR 400 19,440
Bristol-Myers Squibb Company 1,500 34,470
Eli Lilly & Company 5,300 299,927
Forest Laboratories, Inc.* 1,100 44,748
GlaxoSmithKline plc ADR 100 5,048
Johnson & Johnson 14,088 846,689
Martek Biosciences Corporation* 200 4,922
Medicis Pharmaceutical Corporation 300 9,615
Merck & Company, Inc. 8,900 283,109
Noven Pharmaceuticals, Inc.* 600 9,078
Pfizer, Inc. 31,373 731,618
Schering-Plough Corporation 6,100 127,185
Sepracor, Inc.* 600 30,960
Shire plc ADR 700 27,153
Watson Pharmaceuticals, Inc.* 400 13,004
Wyeth 6,500 299,455
----------
3,109,747
----------
85 See accompanying notes.
Schedule of Investments SERIES N
December 31, 2005 (MANAGED ASSET ALLOCATION SERIES)
NUMBER MARKET
OF SHARES VALUE
--------- ----------
COMMON STOCKS (CONTINUED)
PROPERTY & CASUALTY INSURANCE - 0.6%
Allstate Corporation 600 $ 32,442
Assurant, Inc. 1,000 43,490
Axis Capital Holdings, Ltd. 1,000 31,280
Infinity Property & Casualty Corporation 200 7,442
Markel Corporation* 70 22,194
Mercury General Corporation 200 11,644
Ohio Casualty Corporation 200 5,664
ProAssurance Corporation* 200 9,728
Progressive Corporation 1,100 128,458
Selective Insurance Group, Inc. 100 5,310
St. Paul Travelers Companies, Inc. 4,514 201,640
Triad Guaranty, Inc.* 400 17,596
XL Capital, Ltd. 1,400 94,332
----------
611,220
----------
PUBLISHING - 0.4%
Dow Jones & Company, Inc. 700 24,843
Gannett Company, Inc. 1,300 78,741
Getty Images, Inc.* 400 35,708
McGraw-Hill Companies, Inc. 2,400 123,912
Meredith Corporation 300 15,702
Scholastic Corporation* 200 5,702
Tribune Company 1,500 45,390
Washington Post Company (Cl.B) 39 29,835
----------
359,833
----------
RAILROADS - 0.3%
Norfolk Southern Corporation 3,100 138,973
Union Pacific Corporation 2,200 177,122
----------
316,095
----------
REAL ESTATE INVESTMENT TRUSTS - 0.7%
Archstone-Smith Trust 3,200 134,048
Arden Realty, Inc. 800 35,864
Boston Properties, Inc. 500 37,065
Camden Property Trust 500 28,960
CarrAmerica Realty Corporation 2,600 90,038
Duke Realty Corporation 500 16,700
EastGroup Properties, Inc. 400 18,064
LaSalle Hotel Properties 1,200 44,064
Mills Corporation 500 20,970
Prologis 1,700 79,424
Reckson Associates Realty Corporation 500 17,990
Regency Centers Corporation 500 29,475
SL Green Realty Corporation 500 38,195
Simon Property Group, Inc. 800 61,304
Weingarten Realty Investors 700 26,467
----------
678,628
----------
REGIONAL BANKS - 1.3%
City National Corporation 100 $ 7,244
Commerce Bancshares, Inc. 543 28,301
East West Bancorp, Inc. 500 18,245
Fifth Third Bancorp 13,700 516,764
First Horizon National Corporation 2,800 107,632
Mercantile Bankshares Corporation 500 28,220
National City Corporation 5,000 167,850
PNC Financial Services Group, Inc. 600 37,098
SunTrust Banks, Inc. 1,300 94,588
Synovus Financial Corporation 7,300 197,173
TCF Financial Corporation 300 8,142
Texas Regional Bancshares, Inc. 817 23,121
UCBH Holdings, Inc. 1,200 21,456
Wilmington Trust Corporation 600 23,346
----------
1,279,180
----------
REINSURANCE - 0.0%
RenaissanceRe Holdings, Ltd. 100 4,411
----------
RESTAURANTS - 0.4%
CEC Entertainment, Inc.* 300 10,212
California Pizza Kitchen, Inc.* 300 9,591
Cheesecake Factory, Inc.* 200 7,478
Outback Steakhouse, Inc. 2,400 99,864
P.F. Chang's China Bistro, Inc.* 200 9,926
Panera Bread Company* 1,100 72,248
Sonic Corporation* 600 17,700
Starbucks Corporation* 5,000 150,050
----------
377,069
----------
SEMICONDUCTOR EQUIPMENT - 0.2%
ASML Holding N.V.* 3,700 74,296
ATMI, Inc.* 400 11,188
Advanced Energy Industries, Inc.* 600 7,098
Cymer, Inc.* 300 10,653
Entegris, Inc.* 1,112 10,475
KLA-Tencor Corporation 1,500 73,995
Varian Semiconductor Equipment
Associates, Inc.* 200 8,786
----------
196,491
----------
SEMICONDUCTORS - 1.6%
Analog Devices, Inc. 6,134 220,027
Intel Corporation 31,200 778,752
Intersil Corporation 900 22,392
Linear Technology Corporation 5,100 183,957
Maxim Integrated Products, Inc. 2,800 101,472
Microchip Technology, Inc. 400 12,860
OmniVision Technologies, Inc.* 900 17,964
Semtech Corporation* 900 16,434
TTM Technologies, Inc.* 1,800 16,920
Tessera Technologies, Inc.* 400 10,340
Xilinx, Inc. 5,500 138,655
Zoran Corporation* 1,289 20,895
----------
1,540,668
----------
86 See accompanying notes.
Schedule of Investments SERIES N
December 31, 2005 (MANAGED ASSET ALLOCATION SERIES)
NUMBER MARKET
OF SHARES VALUE
--------- -----------
COMMON STOCKS (CONTINUED)
SOFT DRINKS - 1.0%
Coca-Cola Company 11,100 $ 447,441
Coca-Cola Enterprises, Inc. 2,200 42,174
PepsiCo, Inc. 8,000 472,640
-----------
962,255
-----------
SPECIALIZED FINANCE - 0.0%
Moody's Corporation 500 30,710
-----------
SPECIALTY CHEMICALS - 0.1%
Arch Chemicals, Inc. 700 20,930
Ferro Corporation 1,000 18,760
Minerals Technologies, Inc. 300 16,767
Symyx Technologies, Inc.* 700 19,103
Valspar Corporation 200 4,934
-----------
80,494
-----------
SPECIALTY STORES - 0.1%
A.C. Moore Arts & Crafts, Inc.* 300 4,365
Hibbett Sporting Goods, Inc.* 700 19,936
Petsmart, Inc. 500 12,830
Staples, Inc. 2,850 64,724
-----------
101,855
-----------
STEEL - 0.3%
Nucor Corporation 3,700 246,864
Steel Dynamics, Inc. 500 17,755
-----------
264,619
-----------
SYSTEMS SOFTWARE - 1.7%
Borland Software Corporation* 600 3,918
Macrovision Corporation* 100 1,673
Microsoft Corporation 40,500 1,059,075
NCI, Inc.* 200 2,746
Oracle Corporation* 33,700 411,477
Red Hat, Inc.* 600 16,344
Symantec Corporation* 10,121 177,118
-----------
1,672,351
-----------
TECHNOLOGY DISTRIBUTORS - 0.1%
CDW Corporation 1,400 80,598
Tech Data Corporation* 400 15,872
-----------
96,470
-----------
THRIFTS & MORTGAGE FINANCE - 0.6%
BankAtlantic Bancorp, Inc. 1,500 21,000
Countrywide Financial Corporation 3,200 109,408
Federal Home Loan Mortgage Corporation 1,300 84,955
Federal National Mortgage Association 2,000 97,620
Golden West Financial Corporation 800 52,800
IndyMac Bancorp, Inc. 500 19,510
PMI Group, Inc. 500 20,535
Radian Group, Inc. 300 17,577
Washington Mutual, Inc. 4,100 178,350
-----------
601,755
-----------
TOBACCO - 0.9%
Altria Group, Inc. 12,300 $ 919,056
-----------
TRADING COMPANIES & DISTRIBUTORS - 0.0%
Hughes Supply, Inc. 500 17,925
-----------
TRUCKING - 0.1%
Dollar Thrifty Automotive Group, Inc.* 700 25,249
Old Dominion Freight Line, Inc.* 750 20,235
-----------
45,484
-----------
WIRELESS TELECOMMUNICATION SERVICE - 1.0%
Alltel Corporation 161 10,159
America Movil S.A. de C.V. ADR 1,700 49,742
American Tower Corporation* 4,530 122,763
Crown Castle International Corporation* 5,400 145,314
Nextel Partners, Inc.* 5,300 148,082
Sprint Nextel Corporation 16,175 377,848
Telephone & Data Systems, Inc. 200 7,206
Telephone & Data Systems, Inc.
(Special Shares) 200 6,922
Vodafone Group plc ADR 5,300 113,791
Wireless Facilities, Inc.* 1,100 5,610
-----------
987,437
-----------
TOTAL COMMON STOCKS
(cost $48,946,817) 55,232,653
-----------
FOREIGN COMMON STOCKS - 9.3%
AUSTRALIA - 0.8%
Alinta, Ltd. 2,774 22,678
Australia & New Zealand
Banking Group, Ltd. 5,933 104,183
Babcock & Brown, Ltd. 4,053 50,963
BlueScope Steel, Ltd. 14,481 74,003
CSL, Ltd. 801 24,960
Coles Myer, Ltd. 6,983 52,274
Downer EDI, Ltd. 5,300 27,901
GPT Group** 6,984 20,994
Goodman Fielder, Ltd.* 9,400 14,404
Macquarie Bank, Ltd. 1,755 87,692
Oil Search, Ltd. 15,173 41,050
Pacific Brands, Ltd. 10,281 20,051
QBE Insurance Group, Ltd. 4,536 65,185
Qantas Airways, Ltd. 6,420 19,017
Sims Group, Ltd. 6,033 77,674
Westpac Banking Corporation 4,877 81,349
-----------
784,378
-----------
FINLAND - 0.3%
Cargotec Corporation (Cl. B)* 2,620 90,886
Nokia Oyj 7,982 146,055
TietoEnator Oyj* 1,600 58,459
-----------
295,400
-----------
87 See accompanying notes.
Schedule of Investments SERIES N
December 31, 2005 (MANAGED ASSET ALLOCATION SERIES)
NUMBER MARKET
OF SHARES VALUE
--------- ----------
FOREIGN COMMON STOCKS (CONTINUED)
FRANCE - 0.8%
AXA 2,223 $ 71,770
BNP Paribas S.A 1,676 135,672
Bouygues S.A 1,771 86,626
CNP Assurances 744 58,685
Casino Guichard-Perrachon S.A 464 30,911
Publicis Groupe 2,960 103,067
Sanofi-Aventis 1,547 135,581
Societe Generale 367 45,160
Total S.A 407 102,286
----------
769,758
----------
GERMANY - 0.6%
Adidas-Salomon AG 265 50,216
BASF AG 1,089 83,460
Bayerische Motoren Werke (BMW) AG 1,579 69,286
Celesio AG 415 35,712
E.ON AG 1,191 123,268
Hypo Real Estate Holding AG 1,475 76,829
Metro AG 2,155 104,132
Mobilcom AG 1,720 37,889
----------
580,792
----------
HONG KONG - 0.3%
China Overseas Land & Investment, Ltd. 104,000 44,598
China Shenhua Energy Company, Ltd.* 21,000 23,157
China Telecom Corporation, Ltd. 51,000 18,746
China Unicom, Ltd. 12,000 9,750
Espirit Holdings, Ltd. 6,000 42,638
Hong Kong Electric Holdings, Ltd. 5,000 24,762
Hutchison Whampoa, Ltd. 5,700 54,289
Sun Hung Kai Properties, Ltd. 4,000 38,949
----------
256,889
----------
IRELAND - 0.2%
Allied Irish Banks plc 1,295 27,684
Bank of Ireland 2,847 44,879
DCC plc 4,569 97,944
----------
170,507
----------
ITALY - 0.3%
Eni SpA 4,672 129,644
UniCredito Italiano SpA 19,547 134,738
----------
264,382
----------
JAPAN - 2.1%
Aiful Corporation** 800 66,814
Bank of Fukuoka, Ltd. 5,000 42,776
Bank of Yokohama, Ltd. 10,000 81,821
Bridgestone Corporation 2,000 41,631
Canon, Inc. 1,200 70,205
Eisai Company, Ltd. 900 37,773
Fanuc, Ltd. 700 59,412
Goldcrest Company, Ltd. 460 41,616
Hamamatsu Photonics K.K 1,000 29,337
Honda Motor Company, Ltd. 700 $ 39,944
KDDI Corporation 10 57,656
Kaneka Corporation 4,000 48,330
Kirin Brewery Company, Ltd. 5,000 58,292
Kobayashi Pharmaceutical Company, Ltd. 1,300 38,910
Matsumotokiyoshi Company, Ltd. 1,300 41,114
Mitsubishi Corporation 5,900 130,566
Mitsubishi Gas Chemical Company, Inc. 4,000 37,816
Mitsubishi UFJ Financial Group, Inc. 9 122,096
Mitsui Sumitomo Insurance Company, Ltd. 4,000 48,940
Nikon Corporation 3,000 47,338
Nippon Steel Corporation 29,000 103,273
Nippon Yusen Kabushiki Kaisha 10,000 68,509
Pioneer Corporation 1,900 26,356
Sony Corporation 2,200 89,910
Sumitomo Electric Industries, Ltd. 2,600 39,483
Sumitomo Trust & Banking Company, Ltd. 12,000 122,605
TDK Corporation 400 27,573
Takeda Pharmaceutical Company, Ltd. 1,200 64,914
Tokyo Electric Power Company, Inc. 2,500 60,730
Tokyo Electron, Ltd. 800 50,263
Toshiba Corporation 14,000 83,568
Toyota Motor Corporation 3,400 176,429
Uniden Corporation 1,000 19,459
Yamato Holdings Company, Ltd. 2,000 33,169
----------
2,108,628
----------
MEXICO - 0.2%
Cemex S.A. de C.V 8,048 47,759
Grupo Financiero Banorte S.A. de C.V 25,512 52,858
Organizacion Soriana S.A. de C.V. (Cl.B)* 3,900 17,669
Wal-Mart de Mexico S.A. de C.V 7,200 39,970
----------
158,256
----------
NETHERLANDS - 0.1%
ABN Amro Holding N.V 2,047 53,554
ING Groep N.V 1,912 66,349
Koninklijke (Royal) Philips Electronics N.V 1,099 34,167
----------
154,070
----------
NORWAY - 0.2%
Statoil ASA 3,997 91,798
Telenor ASA 9,614 94,375
Yara International ASA 2,032 29,582
----------
215,755
----------
SINGAPORE - 0.1%
DBS Group Holdings, Ltd. 5,000 49,615
SembCorp Industries, Ltd. 30,900 50,918
StarHub, Ltd. 24,000 29,589
----------
130,122
----------
88 See accompanying notes.
Schedule of Investments SERIES N
December 31, 2005 (MANAGED ASSET ALLOCATION SERIES)
NUMBER MARKET
OF SHARES VALUE
--------- ----------
FOREIGN COMMON STOCKS (CONTINUED)
SPAIN - 0.4%
Acciona S.A. 1,288 $ 144,077
Banco Santander Central Hispano S.A. 5,213 68,840
Gestevision Telecinco S.A. 1,154 29,139
Iberdrola S.A. 2,886 78,922
Telefonica S.A. 5,131 77,237
----------
398,215
----------
SWEDEN - 0.5%
Autoliv, Inc. 1,700 76,810
Nordea Bank AB 11,195 116,239
SSAB Svenskt Stal AB 2,753 100,133
Skandinaviska Enskilda Banken AB 3,844 79,100
Svenska Handelsbanken AB 3,539 87,744
----------
460,026
----------
SWITZERLAND - 0.5%
EFG International* 1,400 37,291
Holcim, Ltd. 540 36,781
Nestle S.A. 480 143,562
Novartis AG 3,641 191,333
UBS AG 991 94,349
----------
503,316
----------
TAIWAN - 0.0%
Acer, Inc. 3,000 7,537
----------
UNITED KINGDOM - 1.9%
Aegis Group plc 28,130 58,932
Anglo American plc 1,999 68,038
Arriva plc 6,008 60,064
AstraZeneca plc 1,127 54,862
Aviva plc 3,934 47,724
BAE Systems plc 7,410 48,707
BP plc 13,726 146,318
Barclays plc 14,804 155,644
Bradford & Bingley plc 7,340 51,815
Centrica plc 17,440 76,299
DS Smith plc 15,100 43,002
Diageo plc 5,587 80,995
Friends Provident plc 7,853 25,607
GKN plc 5,475 27,132
GlaxoSmithKline plc 5,174 130,786
HBOS plc 6,150 105,031
HSBC Holdings plc 2,777 44,583
Persimmon plc 2,747 59,369
RHM plc 6,500 29,611
Rolls-Royce Group plc* 5,790 42,617
Royal Bank of Scotland Group plc 4,637 140,032
Royal Dutch Shell plc (Cl. B) 4,091 130,795
Tesco plc 8,955 51,120
Unilever plc 3,466 34,383
Vodafone Group plc 13,782 29,762
WPP Group plc 7,046 76,201
----------
1,819,429
----------
TOTAL FOREIGN COMMON STOCKS
(cost $6,660,167) 9,077,460
----------
PRINCIPAL
AMOUNT OR
NUMBER MARKET
OF SHARES VALUE
--------- --------
PREFERRED STOCK - 0.0%
APPAREL, ACCESSORIES & LUXURY GOODS - 0.0%
Anvil Holdings, Inc. (Cl.B)*(7) 469 $ 2,345
--------
TOTAL PREFERRED STOCK
(cost $6,135) 2,345
--------
WARRANTS - 0.0%
Travelcenters of America,
$0.001, 05-01-09*(7) 150 188
--------
TOTAL WARRANTS
(cost $2) 188
--------
MUNICIPAL BONDS - 0.3%
CALIFORNIA - 0.0%
California State Public Works Board,
5.00% - 2021 $ 50,000 52,738
--------
GEORGIA - 0.1%
Atlanta, GA Airport Passenger
Facility Charge, 5.00% - 2033 $ 90,000 93,086
--------
KANSAS - 0.0%
Kansas State Financial Authority Revenue,
5.501% - 2034 $ 30,000 30,902
--------
NEW YORK - 0.1%
New York, NY General Obligation,
5.00% - 2015 $ 60,000 63,864
--------
OREGON - 0.0%
Oregon State Taxable Pension,
5.892% - 2027 $ 15,000 16,205
--------
TEXAS - 0.1%
Houston Texas Utility Systems
Revenue, 5.25% - 2016 $ 70,000 76,166
--------
TOTAL MUNICIPAL BONDS
(cost $331,583) 332,961
--------
CORPORATE BONDS - 7.6%
AEROSPACE & DEFENSE - 0.1%
BE Aerospace, Inc., 8.875% - 2011 $ 25,000 26,250
United Technologies Corporation,
5.40% - 2035 $ 40,000 39,860
--------
66,110
--------
AUTOMOTIVE - 0.2%
Adesa, Inc., 7.625% - 2012 $ 25,000 24,875
DaimlerChrysler N.A. Holdings,
6.50% - 2013 $ 50,000 52,352
Erac USA Finance Company,
5.60% - 2015(1,7) $ 40,000 39,834
Ford Motor Credit Company:
5.29% - 2006(3) $ 25,000 24,274
5.80% - 2009 $ 65,000 56,702
--------
198,037
--------
89 See accompanying notes.
Schedule of Investments SERIES N
December 31, 2005 (MANAGED ASSET ALLOCATION SERIES)
PRINCIPAL MARKET
AMOUNT VALUE
--------- --------
CORPORATE BONDS (CONTINUED)
BANKING - 0.8%
ABN Amro Bank N.V., 7.125% - 2007 $60,000 $ 61,751
BAC Capital Trust VI, 5.625% - 2035 50,000 49,325
BB&T Corporation, 6.50% - 2011 60,000 64,341
Bank of America Corporation,
4.875% - 2012 55,000 54,618
Bank One Corporation, 5.25% - 2013 75,000 75,117
Capital One Bank, 6.50% - 2013 65,000 69,058
Countrywide Home Loan,
4.125% - 2009 65,000 62,611
First Union Corporation, 6.40% - 2008 20,000 20,670
HSBC Finance Corporation,
5.00% - 2015 50,000 48,621
Huntington National Bank,
4.375% - 2010 45,000 44,112
Merrill Lynch & Company, 4.25% - 2010 45,000 43,772
Northern Trust Company, 4.60% - 2013 25,000 24,433
Residential Capital Corporation,
6.125% - 2008 25,000 25,061
U.S. Bancorp, 4.50% - 2010 60,000 58,943
Wachovia Corporation, 5.50% - 2035 25,000 24,358
Webster Financial Corporation,
5.125% - 2014 45,000 44,208
Wells Fargo & Company,
4.564% - 2007(3) 55,000 55,053
--------
826,052
--------
BROKERAGE - 0.3%
Citigroup, Inc., 5.00% - 2014 60,000 59,061
Franklin Resources, Inc., 3.70% - 2008 15,000 14,620
Goldman Sachs Group, Inc.,
6.345% - 2034 90,000 94,548
Legg Mason, Inc., 6.75% - 2008 20,000 20,821
Lehman Brothers Holdings, Inc.,
3.50% - 2008 65,000 62,735
--------
251,785
--------
BUILDING MATERIALS - 0.1%
Celulosa Arauco y Constitucion S.A.,
5.125% - 2013 40,000 38,667
Centex Corporation, 5.45% - 2012 40,000 39,318
Collins & Aikman Floor Cover,
9.75% - 2010 25,000 22,000
--------
99,985
--------
CHEMICALS - 0.2%
ARCO Chemical Company, 9.80% - 2020 25,000 28,062
Crystal US Holdings,
0.00% - 2014(2) 16,000 11,640
Dow Chemical Company, 6.125% - 2011 30,000 31,413
Huntsman LLC, 11.625% - 2010 33,000 37,579
IMC Global, Inc., 10.875% - 2013 25,000 28,719
Resolution Performance, 9.50% - 2010 25,000 25,312
--------
162,725
--------
COMMUNICATIONS - OTHER - 0.1%
Belo Corporation, 8.00% - 2008 $ 5,000 $ 5,311
CanWest Media, Inc., 8.00% - 2012 34,875 35,616
News America, Inc., 6.20% - 2034 25,000 24,832
--------
65,759
--------
CONSUMER PRODUCTS - 0.1%
Bunge, Ltd. Finance Corporation,
4.375% - 2008 50,000 49,137
Josten's IH Corporation, 7.625% - 2012 25,000 25,125
Sealy Mattress Company, 8.25% - 2014 25,000 25,750
--------
100,012
--------
DISTRIBUTORS - 0.0%
Atmos Energy Corporation, 4.00% - 2009 45,000 43,156
DIVERSIFIED MANUFACTURING - 0.1%
Hawk Corporation, 8.75% - 2014(7) 25,000 25,250
JLG Industries, Inc., 8.375% - 2012 16,000 16,880
Valmont Industries, Inc., 6.875% - 2014 25,000 25,187
--------
67,317
--------
ELECTRIC - 0.6%
AES Corporation, 9.00% - 2015(1,7) 25,000 27,375
Alabama Power Company, 4.58% - 2009(3) 60,000 60,135
Black Hills Corporation, 6.50% - 2013 40,000 40,970
CE Electric UK Funding Company,
6.995% - 2007(1,7) 35,000 35,866
Centerpoint Energy, Inc., 7.25% - 2010 25,000 26,819
El Paso Electric Company, 6.00% - 2035 45,000 45,021
Exelon Generation Company LLC,
5.35% - 2014 35,000 34,896
Firstenergy Corporation, 6.45% - 2011 40,000 42,400
PPL Capital Funding, 4.33% - 2009 45,000 43,761
Pacific Gas & Electric Company,
6.05% - 2034 35,000 36,224
Pinnacle West Capital Corporation,
6.40% - 2006 40,000 40,175
Progress Energy, Inc., 6.75% - 2006 25,000 25,078
Public Service Company of New Mexico,
4.40% - 2008 40,000 39,171
Westar Energy, Inc., 5.10% - 2020 25,000 23,897
Western Power Distributors Holdings,
6.875% - 2007(1,7) 25,000 25,620
--------
547,408
--------
ENERGY - INDEPENDENT - 0.1%
Devon Financing Corporation, ULC,
6.875% - 2011 55,000 60,161
Forest Oil Corporation, 8.00% - 2011 25,000 27,312
--------
87,473
--------
90 See accompanying notes.
Schedule of Investments SERIES N
December 31, 2005 (MANAGED ASSET ALLOCATION SERIES)
PRINCIPAL MARKET
AMOUNT VALUE
--------- --------
CORPORATE BONDS (CONTINUED)
ENERGY - INTEGRATED - 0.1%
Amerada Hess Corporation,
7.875% - 2029 $ 30,000 $ 36,326
ConocoPhillips, 5.90% - 2032 40,000 42,929
Petro-Canada, 5.95% - 2035 40,000 40,577
--------
119,832
--------
ENERGY - OTHER - 0.0%
Dresser-Rand Group, Inc.,
7.375% - 2014(1,7) 22,000 22,660
--------
ENTERTAINMENT - 0.1%
AMF Bowling Worldwide, 10.00% - 2010 25,000 24,781
International Speedway Corporation,
4.20% - 2009 20,000 19,449
K2, Inc., 7.375% - 2014 25,000 24,875
LCE Acquisition Corporation,
9.00% - 2014 25,000 25,250
Six Flags, Inc., 8.875% - 2010 25,000 24,375
--------
118,730
--------
ENVIRONMENTAL - 0.0%
Allied Waste North America,
8.50% - 2008 25,000 26,250
Casella Waste Systems, Inc.,
9.75% - 2013 25,000 26,312
--------
52,562
--------
FINANCIAL - OTHER - 0.1%
Dollar Financial Group, Inc.,
9.75% - 2011 25,000 25,750
Encana Holdings Financial Corporation,
5.80% - 2014 45,000 46,906
Kinder Morgan Finance, 5.70% - 2016(1,7) 45,000 45,389
Orion Power Holdings, Inc.,
12.00% - 2010 25,000 28,250
--------
146,295
--------
FINANCIAL COMPANIES - NONCAPTIVE CONSUMER - 0.2%
American General Finance, 5.40% - 2015 50,000 49,841
International Lease Finance Corporation:
6.375% - 2009 20,000 20,773
5.125% - 2010 20,000 19,915
SLM Corporation:
4.40% - 2009(3) 55,000 55,125
4.77% - 2009(3) 35,000 33,827
--------
179,481
--------
FINANCIAL COMPANIES - NONCAPTIVE DIVERSIFIED - 0.3%
CIT Group, Inc., 5.00% - 2015 70,000 68,309
General Electric Capital Corporation,
6.00% - 2012 100,000 105,319
John Deere Capital Corporation,
7.00% - 2012 45,000 49,703
MBNA America Bank, 4.625% - 2009 45,000 44,648
--------
267,979
--------
FOOD & BEVERAGE - 0.2%
Agrilink Foods, Inc., 11.875% - 2008(7) $ 6,000 $ 6,120
B&G Foods Holding Corporation,
8.00% - 2011 25,000 25,500
Kraft Foods, Inc., 5.625% - 2011 45,000 46,170
McCormick & Company, 5.20% - 2015 40,000 40,312
Pantry, Inc., 7.75% - 2014 25,000 25,000
W.M. Wrigley Jr. Company, 4.65% - 2015 15,000 14,606
--------
157,708
--------
GAMING - 0.1%
GTECH Holdings Corporation,
4.50%, 2009 45,000 41,478
Harrah's Operating Company, Inc.,
5.50% - 2010 45,000 44,982
--------
86,460
--------
HEALTH CARE - 0.3%
Amgen, Inc., 4.00% - 2009 25,000 24,243
Concentra Operating Corporation,
9.125% - 2012 25,000 25,750
Genesis HealthCare Corporation,
8.00% - 2013 25,000 26,313
Genetech, Inc., 4.75% - 2015 35,000 34,058
Highmark, Inc., 6.80% - 2013(1,7) 30,000 32,479
Kroger Company, 8.05% - 2010 45,000 48,860
Medtronic, Inc., 4.75% - 2015(1,7) 55,000 53,456
Vanguard Health Holdings II,
9.00% - 2014 25,000 26,563
--------
271,722
--------
HOME CONSTRUCTION - 0.2%
D.R. Horton, Inc., 4.875% - 2010 45,000 43,716
Lennar Corporation, 5.60% - 2015 60,000 57,931
M.D.C. Holdings, Inc., 5.50% - 2013 55,000 53,279
NVR, Inc., 5.00% - 2010 30,000 29,059
Pulte Homes, Inc., 7.875% - 2011 35,000 38,450
WCI Communities, Inc., 9.125% - 2012 25,000 24,875
--------
247,310
--------
INDUSTRIAL - OTHER - 0.0%
Brand Intermediate Holding,
13.00% - 2013(1,6,7) 30,198 30,953
--------
91 See accompanying notes.
Schedule of Investments SERIES N
December 31, 2005 (MANAGED ASSET ALLOCATION SERIES)
PRINCIPAL MARKET
AMOUNT VALUE
--------- --------
CORPORATE BONDS (CONTINUED)
INSURANCE - LIFE - 0.5%
Allstate Financial Global Funding,
5.25% - 2007(1,7) $45,000 $ 45,104
Genworth Financial, Inc., 5.75% - 2014 40,000 41,749
Hartford Financial Services Group, Inc.,
4.75% - 2014 55,000 53,558
John Hancock Global Funding II,
5.625% - 2006(1,7) 65,000 65,233
MetLife, Inc., 6.125% - 2011 50,000 52,983
NLV Financial Corporation,
7.50% - 2033(1,7) 30,000 33,217
Nationwide Financial Services, Inc.,
5.90% - 2012 50,000 52,128
Principal Life Global, 5.125% - 2013(1,7) 45,000 45,431
Prudential Financial, Inc., 3.75% - 2008 60,000 58,483
Transamerica Capital II, 7.65% - 2026(1,7) 20,000 23,381
--------
471,267
--------
INSURANCE - PROPERTY & CASUALTY - 0.1%
Ace INA Holdings, Inc., 5.875% - 2014 35,000 36,205
Fund American Companies, Inc.,
5.875% - 2013 45,000 45,408
Nationwide Mutual Insurance Company,
6.60% - 2034(1,7) 25,000 25,157
--------
106,770
--------
MEDIA - CABLE - 0.3%
Charter Communications Opt LLC,
8.00% - 2012(1,7) 25,000 24,875
Comcast Cable Communications Holdings,
8.375% - 2013 45,000 52,086
Comcast Corporation, 6.50% - 2035 20,000 20,381
Cox Communications, Inc., 7.75% - 2010 50,000 54,154
Rogers Cable, Inc., 5.50% - 2014 40,000 37,450
Time Warner Entertainment:
7.25% - 2008 40,000 41,867
8.375% - 2023 45,000 52,034
--------
282,847
--------
MEDIA - NONCABLE - 0.3%
Advanstar Communications, Inc.,
10.75% - 2010 25,000 27,406
Affinity Group, Inc., 9.00% - 2012 25,000 24,969
Clear Channel Communications,
7.65% - 2010 40,000 42,817
Coinmach Corporation, 9.00% - 2010 17,000 17,808
Dex Media Finance/East LLC:
9.875% - 2009 25,000 27,031
12.125% - 2012 32,000 37,440
Fisher Communications, Inc.,
8.625% - 2014 25,000 26,375
News America, Inc., 6.40% - 2035(1,7) 45,000 45,357
Warner Music Group, 7.375% - 2014 25,000 24,813
XM Satellite Radio, Inc., 12.00% - 2010 13,000 14,593
--------
288,609
--------
METALS & MINING - 0.2%
Alcan, Inc., 5.00% - 2015 $55,000 $ 53,352
Autocam Corporation, 10.875% - 2014 25,000 17,375
Freeport McMoran Resource Partners,
7.00% - 2008 75,000 76,500
Newmont Mining Corporation,
5.875% - 2035 50,000 49,341
Russel Metals, Inc., 6.375% - 2014 25,000 24,250
--------
220,818
--------
OIL FIELD SERVICES - 0.3%
Baker Hughes, Inc., 6.875% - 2029 55,000 65,210
Diamond Offshore Drilling, Inc.,
5.15% - 2014 25,000 24,998
Halliburton Company, 5.50% - 2010 60,000 61,282
Hilcorp Energy/Finance, 10.50% - 2010(1,7) 50,000 55,375
Pemex Project Funding Master Trust:
5.791% - 2010(1,3,7) 45,000 46,575
7.375% - 2014 30,000 33,330
--------
286,770
--------
PACKAGING - 0.1%
BWAY Corporation, 10.00% - 2010 25,000 26,125
Graphic Packaging International Corporation,
8.50% - 2011 25,000 25,063
Owens-Brockway Glass Containers:
8.875% - 2009 25,000 26,094
8.75% - 2012 25,000 26,875
Owens-Illinois, Inc., 7.35% - 2008 25,000 25,313
--------
129,470
--------
PAPER - 0.1%
Boise Cascade LLC, 7.125% - 2014 25,000 23,313
Sealed Air Corporation, 5.375% - 2008(1,7) 40,000 40,150
--------
63,463
--------
PHARMACEUTICALS - 0.0%
VWR International, Inc., 6.875% - 2012 25,000 24,813
--------
PIPELINES - 0.2%
ANR Pipeline Company, 8.875% - 2010 25,000 26,718
Boardwalk Pipelines, LLC., 5.50% - 2017 10,000 9,918
Duke Capital LLC:
4.302% - 2006 25,000 24,941
6.25% - 2013 25,000 26,036
Dynegy-Roseton Danskamme,
7.27% - 2010 25,000 25,188
Panhandle Eastern Pipe Line Company,
4.80% - 2008 20,000 19,774
Williams Companies, Inc.:
7.75% - 2031 25,000 26,375
8.75% - 2032 25,000 29,000
--------
187,950
--------
92 See accompanying notes.
Schedule of Investments SERIES N
December 31, 2005 (MANAGED ASSET ALLOCATION SERIES)
PRINCIPAL MARKET
AMOUNT VALUE
--------- ----------
CORPORATE BONDS (CONTINUED)
RAILROADS - 0.1%
Canadian National Railway Company,
6.25% - 2034 $ 45,000 $ 50,069
Norfolk Southern Corporation,
6.00%, 2008 50,000 50,947
----------
101,016
----------
REAL ESTATE INVESTMENT TRUSTS - 0.2%
Archstone-Smith Operating Trust,
5.25% - 2015 40,000 39,447
Developers Diversified Realty Corporation,
3.875% - 2009 35,000 33,619
iStar Financial, Inc., 5.125% - 2011 40,000 38,976
Simon Property Group LP, 3.75% - 2009 45,000 43,186
----------
155,228
----------
REFINING - 0.1%
Denbury Resources, Inc., 7.50% - 2013 25,000 25,375
Diamond Offshore Drilling, Inc.,
4.875% - 2015 30,000 29,321
----------
54,696
----------
RETAILERS - 0.1%
Jean Coutu Group (PJC), Inc.,
7.625% - 2012 25,000 24,625
Wal-Mart Stores, 5.25% - 2035 45,000 43,680
Yum! Brands, Inc., 7.70% - 2012 45,000 49,722
----------
118,027
----------
SERVICES - 0.1%
Brickman Group, Ltd., 11.75% - 2009 25,000 27,688
Petroleum Helicopters, Inc.,
9.375% - 2009 25,000 26,344
----------
54,032
----------
TECHNOLOGY - 0.0%
Freescale Semiconductor, 7.125% - 2014 25,000 26,625
Stats Chippac, Ltd., 6.75% - 2011 25,000 24,125
----------
50,750
----------
TELECOMMUNICATIONS - WIRELESS - 0.4%
America Movil S.A. de C.V., 5.50% - 2014 50,000 49,380
AT&T Wireless, 8.75% - 2031 35,000 46,369
Centennial Communications,
8.125% - 2014 25,000 25,375
Rogers Wireless Communications, Inc.,
9.625% - 2011 100,000 115,000
Sprint Capital Corporation,
6.875% - 2028 60,000 65,561
Telus Corporation, 8.00% - 2011 55,000 61,658
Ubiquitel Operating Company,
9.875% - 2011 25,000 27,688
Verizon Global Funding Corporation,
7.75% - 2030 40,000 47,546
----------
438,577
----------
TELECOMMUNICATIONS - WIRELINES - 0.2%
Eircom Funding, 8.25% - 2013 $ 25,000 $ 26,750
SBC Communications, Inc.:
5.30% - 2010 30,000 30,091
5.10% - 2014 35,000 34,191
Telecom Italia Capital, 5.25% - 2013 40,000 39,251
Telefonos de Mexico S.A. de C.V.,
5.50% - 2015 30,000 29,595
----------
159,878
----------
TOTAL CORPORATE BONDS
(cost $7,389,330) 7,412,492
----------
FOREIGN BONDS - 0.2%
CAYMAN ISLANDS - 0.0%
Transocean, Inc., 7.50% - 2031 30,000 37,799
----------
FRANCE - 0.1%
France Telecom S.A., 8.00% - 2011(2) 40,000 44,677
----------
LUXEMBOURG - 0.1%
Tyco International Group S.A.,
6.375% - 2011 50,000 51,930
----------
UNITED KINGDOM - 0.0%
HBOS plc, 6.00% - 2033(1,7) 40,000 42,262
----------
TOTAL FOREIGN BONDS
(cost $172,020) 176,668
----------
FOREIGN GOVERNMENT BONDS - 0.1%
MEXICO - 0.0%
United Mexican States, 6.375% - 2013 45,000 47,813
----------
SOUTH AFRICA - 0.1%
Republic of South Africa, 6.50% - 2014 65,000 70,281
----------
TOTAL FOREIGN GOVERNMENT BONDS
(cost $112,724) 118,094
----------
93 See accompanying notes.
Schedule of Investments SERIES N
December 31, 2005 (MANAGED ASSET ALLOCATION SERIES)
PRINCIPAL MARKET
AMOUNT VALUE
--------- ----------
MORTGAGE BACKED SECURITIES - 7.7%
U.S GOVERNMENT SPONSORED AGENCIES - 6.5%
Federal Home Loan Mortgage Corporation:
#M80714, 5.00% - 2008 $ 33,025 $ 32,955
#E81544, 6.00% - 2009 224,136 226,376
FHR 2631 IG, 4.50% - 2011(5,7) 164,000 6,513
FHR 2614 IH, 4.50% - 2016(5,7) 102,000 14,288
#B10343, 5.00% - 2018 9,068 8,991
#E99933, 5.00% - 2018 5,769 5,720
#E99966, 5.00% - 2018 32,850 32,570
#E01341, 5.50% - 2018 10,835 10,907
#G11759, 5.50% - 2018 278,372 280,207
FHR 2681 PC, 5.00% - 2019 100,000 99,714
#B19214, 5.50% - 2020 36,566 36,788
#J02272, 5.50% - 2020 98,901 99,501
#J02554, 5.50% - 2020 95,937 96,519
FHR 2882 YB, 5.00% - 2027 50,000 49,514
FHR 2890 PB, 5.00% - 2027 150,000 148,542
#1B0527, 4.535% - 2032(3) 17,944 17,914
#C72128, 6.00% - 2032 84,330 85,318
#C68205, 7.00% - 2032 11,298 11,767
#A121118, 5.00% - 2033 63,637 61,830
#A15852, 5.00% - 2033 23,721 23,048
#A15907, 5.00% - 2033 33,528 32,576
#D86309, 5.00% - 2033 36,370 35,338
#G01628, 6.00% - 2033 169,893 171,789
#A21263, 4.50% - 2034 152,692 143,972
TBA, 4.50% - 2035(4) 525,000 493,828
#G01805, 4.50% - 2035 353,262 332,360
TBA, 6.50% - 2035(4) 500,000 512,344
Federal National Mortgage Association:
FNR 2003-92 NM, 3.50% - 2013 75,000 73,297
#323322, 6.00% - 2013 71,448 73,008
FNR 2002-74 PJ, 5.00% - 2015 150,000 149,735
#254140, 5.50% - 2017 7,547 7,602
#254234, 5.50% - 2017 7,335 7,389
#625931, 5.50% - 2017 6,732 6,781
#357280, 6.50% - 2017 30,072 30,897
#254720, 4.50% - 2018 140,914 137,435
#555345, 5.50% - 2018 7,549 7,604
#555446, 5.50% - 2018 11,656 11,737
#555526, 5.50% - 2018 171,291 172,475
#555693, 5.50% - 2018 102,195 102,902
#357475, 4.50% - 2019 175,901 171,559
#725528, 5.50% - 2019 17,183 17,297
#789885, 5.50% - 2019 20,033 20,166
#735439, 6.00%, 2019 212,288 217,005
FNR 2003-40 NI, 5.50% - 2028(5,7) 25,647 1,688
#254514, 5.50% - 2032 3,934 3,906
#254550, 6.50% - 2032 27,656 28,423
#545759, 6.50% - 2032 163,107 167,346
#650075, 6.50% - 2032 26,553 27,289
#254767, 5.50% - 2033 193,807 192,385
#254983, 5.50% - 2033 92,020 91,345
#744692, 5.50% - 2033 45,875 45,539
#744750, 5.50% - 2033 $ 20,483 $ 20,333
#747387, 5.50% - 2033 28,284 28,076
#747549, 5.50% - 2033 9,442 9,373
#750362, 5.50% - 2033 38,731 38,447
#756190, 5.50% - 2033 46,984 46,639
#555417, 6.00% - 2033 111,420 112,734
#725232, 5.00% - 2034 27,399 26,643
#255028, 5.50% - 2034 22,657 22,439
#725424, 5.50% - 2034 431,920 428,752
#762076, 5.50% - 2034 55,813 55,404
#789293, 5.50% - 2034 171,377 170,200
#796104, 5.50% - 2034 45,935 45,529
#804395, 5.50% - 2034 133,640 132,459
#725162, 6.00% - 2034 105,963 107,069
#725690, 6.00% - 2034 58,909 59,467
#725704, 6.00% - 2034 61,094 61,732
#255459, 6.00% - 2034 56,869 57,407
#357883, 5.00% - 2035 37,339 36,310
#830880, 5.00% - 2035 84,695 82,066
Fannie Mae Strip,
#3192, 6.50% -2032(5,7) 18,465 4,152
----------
6,381,230
----------
U.S. GOVERNMENT SPONSORED SECURITIES - 1.2%
Government National Mortgage Association:
#780766, 7.00% - 2013 10,031 10,270
#781312, 7.00% - 2013 35,719 37,260
#67365, 11.50% - 2013 2,749 3,033
2004-23 B, 2.946% - 2019 55,000 52,401
#427029, 8.50% - 2026 8,820 9,539
#604639, 5.00% - 2033 89,499 88,451
#612919, 5.00% - 2033 255,318 252,330
#615278, 5.00% - 2033 108,449 107,180
TBA, 5.50% - 2033(4) 79,000 79,469
II #2102, 8.00% - 2025 1,622 1,730
II #3295, 5.50% - 2032 17,329 17,424
II #3442, 5.00% - 2033 213,535 210,160
II #3458, 5.00% - 2033 60,545 59,590
II #3443, 5.50% - 2033 28,174 28,325
II #3490, 6.50% - 2033 15,613 16,199
II #3513, 5.00% - 2034 76,522 75,297
II #3529, 5.00% - 2034 19,347 19,037
II #3517, 6.00% - 2034 50,681 51,791
II #3612, 6.50% - 2034 28,328 29,365
----------
1,148,851
----------
TOTAL MORTGAGE BACKED SECURITIES
(cost $7,636,493) 7,530,081
----------
94 See accompanying notes.
Schedule of Investments SERIES N
December 31, 2005 (MANAGED ASSET ALLOCATION SERIES)
PRINCIPAL MARKET
AMOUNT VALUE
----------- -----------
U.S. GOVERNMENT SPONSORED AGENCY BONDS & NOTES -
1.6%
Federal Home Loan Bank,
5.75% - 2012 $ 10,000 $ 10,530
5.25% - 2014 135,000 139,136
Federal Home Loan Mortgage Corporation,
2.75% - 2008 70,000 67,162
4.125% - 2010 145,000 141,015
Federal National Mortgage Association:
3.25% - 2008 690,000 665,241
3.375% - 2008 185,000 178,305
6.625% - 2010 140,000 151,292
6.00% - 2011 112,000 118,455
4.375% - 2012 105,000 102,597
-----------
TOTAL U.S. GOVERNMENT SPONSORED AGENCY BONDS & NOTES
(cost $1,597,297) 1,573,733
-----------
U.S. GOVERNMENT SECURITIES - 12.9%
U.S. Treasury Bonds:
3.50% - 2010 960,000 928,575
4.25% - 2013 750,000 742,852
4.25% - 2014 190,000 187,788
7.50% - 2016 230,000 288,902
8.50% - 2020 355,000 497,998
6.25% - 2023 210,000 250,770
6.00% - 2026 115,000 135,610
6.375% - 2027 85,000 105,297
5.50% - 2028 325,000 365,434
6.25% - 2030 25,000 31,049
5.375% - 2031 115,000 129,177
U.S. Treasury Notes:
1.50% - 2006 370,000 367,673
3.50% - 2006 410,000 406,781
3.00% - 2007 700,000 682,555
3.25% - 2007 445,000 436,952
3.62% - 2007 320,000 316,350
3.375% - 2008 610,000 593,630
4.00% - 2009 705,000 696,436
5.75% - 2010(8) 1,445,000 1,528,709
5.00% - 2011(8) 1,460,000 1,506,936
4.875% - 2012 1,025,000 1,052,347
4.75% - 2014 295,000 302,179
4.125% - 2015 280,000 273,864
Treasury Inflation Index,
3.375% - 2007 131,327 132,291
3.625% - 2008 67,777 69,595
2.00% - 2014 269,323 267,819
2.375% - 2025 237,638 249,762
-----------
TOTAL U.S. GOVERNMENT SECURITIES
(cost $12,613,932) 12,547,331
-----------
ASSET BACKED SECURITIES - 2.5%
AUTO - 0.1%
Chase Manhattan Auto Owner Trust,
2003-A A4, 2.06% - 2009 $ 70,000 $ 68,427
-----------
CREDIT CARDS - 0.2%
Capital One Multi-Asset Execution Trust,
2005-A7 A7, 4.70% - 2015 70,000 69,311
Chase Issuance Trust, 2005-A7 A7,
4.55% - 2013 80,000 78,959
MBNA Credit Card Master Note Trust,
2005-A6, 4.50% - 2013 50,000 49,814
-----------
198,084
-----------
HOME EQUITY LOANS - 1.9%
Bank of America Commercial Mortgage, Inc.:
2004-A 2A2, 4.121% - 2034(3) 67,856 66,560
2004-D 2A2, 4.199% - 2034(3) 5,217 5,119
2003-L 2A2, 4.263% - 2034(3) 118,111 116,119
2004-H, 2A2, 4.765% - 2034(3) 32,514 32,188
2004-I, 3A2, 4.934% - 2034(3) 32,325 31,793
2003-1 A2, 4.648% - 2036 75,000 72,996
2004-6 A1, 3.801% - 2042 16,828 16,475
BankBoston Home Equity Loan Trust,
1998-1 A6, 6.35% - 2013 36,622 36,939
Bear Stearns Commercial Mortgage
Securities, Inc.:
2004-PWR6 A1, 3.688% - 2041 13,411 13,149
2005-PWR8 A4, 4.674% - 2041 60,000 57,769
Capital One Multi-Asset Execution Trust,
2004-A8 A8, 4.499% - 2014(3) 225,000 225,868
Chase Funding Mortgage Loan,
2002-2 1M1, 5.599% - 2031 11,695 11,673
Citigroup Commercial Mortgage Trust,
2004-C2 A1, 3.787% - 2041 12,941 12,667
Citigroup/Deutsche Bank Commercial
Mortgage Trust,
2005-C1 AJ, 5.225% - 2020(3) 59,758 59,704
Commercial Mortgage, 2005-LP5 A1,
4.235% - 2043 89,534 88,224
DLJ Commercial Mortgage Corporation,
1999-CG2 A1B, 7.30% - 2032 75,000 80,155
GMAC Commercial Mortgage
Securities, Inc.:
2001-C2 A1, 6.25% - 2034 828 845
2001-C2 A2, 6.70% - 2034 125,000 133,956
Greenwich Capital Commercial Funding
Corporation,
2004-GG1 A2, 3.835% - 2036 78,094 76,623
JP Morgan Chase Commercial Mortgage
Securities Corporation:
2001-CIBC A3, 6.26% - 2033 105,000 110,410
2001-CIB2 A2, 6.244% - 2035 70,316 71,795
2005-LDP5 ASB, 4.824% - 2042 75,000 73,729
LB-UBS Commercial Mortgage Trust,
2004-C4 A2, 4.567% - 2029 75,000 74,155
95 See accompanying notes.
Schedule of Investments SERIES N
December 31, 2005 (MANAGED ASSET ALLOCATION SERIES)
PRINCIPAL
AMOUNT OR
NUMBER MARKET
OF SHARES VALUE
----------- -----------
ASSET BACKED SECURITIES (CONTINUED)
HOME EQUITY LOANS (CONTINUED)
Morgan Stanley Dean Witter Capital,
2002-TOP7 A2, 5.98% - 2039 $ 200,000 $ 209,051
New Century Home Equity Loan Trust:
2005-A A6, 4.954% - 2035(2) $ 50,000 48,472
2005-A M2, 5.34% - 2035 $ 45,000 43,773
Washington Mutual, 2004-AR1 A,
4.229% - 2034 $ 37,170 36,517
-----------
1,806,724
-----------
OTHER - 0.3%
Centerpoint Energy Transition Bond Company, LLC,
2001-1 A4, 5.63% - 2015 $ 75,000 77,639
GE Equipment Small Ticket, 2005-1A A4,
4.51% - 2014(1,7) $ 100,000 98,765
Peco Energy Transition Trust, 2001-A A1,
6.52% - 2010 $ 100,000 106,400
WFS Financial Owner Trust, 2004-1 A4,
2.81% - 2011 $ 40,000 38,944
-----------
321,748
-----------
TOTAL ASSET BACKED SECURITIES
(cost $2,435,836) 2,394,983
-----------
SHORT TERM INVESTMENTS - 2.0%
State Street General Account
Money Market Fund 147,465 147,465
T. Rowe Price Reserve
Investment Fund 1,811,865 1,811,865
-----------
TOTAL SHORT TERM INVESTMENTS
(cost $1,959,330) 1,959,330
-----------
TOTAL INVESTMENTS - 100.7%
(cost $89,861,666) 98,358,319
-----------
SHORT POSITIONS - (0.1%)
Broadcasting & Cable TV - (0.1)
CBS Corporation (Cl.B)* (4,500) (114,750)
-----------
TOTAL SHORT POSITIONS
(proceeds $112,607) (114,750)
-----------
LIABILITIES, LESS CASH & OTHER ASSETS - (0.6%) (554,001)
-----------
TOTAL NET ASSETS - 100.0% $97,689,568
===========
For federal income tax purposes the identified cost of investments owned at
December 31, 2005 was $90,608,585.
* Non-income producing security
** Passive Foreign Investment Company
ADR (American Depositary Receipt)
plc (public limited company)
(1) Security is a 144A series. The total market value of 144A securities is
$904,514 (cost $892,391), or 0.9% of total net assets.
(2) Security is a step bond. Rate indicated is rate effective at December 31,
2005.
(3) Variable rate security. Rate indicated is rate effective at December 31,
2005.
(4) Securities represent a "when issued" investment.
(5) Interest only security.
(6) Security is a pay-in-kind
(7) Security is an illiquid security. The total market value of illiquid
securities is $965,058 (cost $975,916), or 1.0% of total net assets
(8) Security is segregated as collateral for 'when issued' investments.
96 See accompanying notes.
SERIES N
(MANAGED ASSET ALLOCATION SERIES)
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
ASSETS:
Investments, at value(1) ......................................... $98,358,319
Cash ............................................................. 8,187
Cash denominated in a foreign currency,
at value(2) ...................................................... 8,451
Receivables:
Fund shares sold .............................................. 246,124
Securities sold ............................................... 257,011
Interest ...................................................... 341,733
Dividends ..................................................... 91,996
Foreign taxes recoverable ........................................ 2,919
Prepaid expenses ................................................. 1,813
-----------
Total assets ..................................................... 99,316,553
-----------
LIABILITIES:
Securities sold short, at value(3) ............................... 114,750
Payable for:
Securities purchased .......................................... 1,237,562
Fund shares redeemed .......................................... 120,292
Management fees ............................................... 84,036
Custodian fees ................................................ 10,000
Transfer agent and administration fees ........................ 43,939
Professional fees ............................................. 11,206
Director's fees ............................................... 1,200
Other ......................................................... 4,000
-----------
Total liabilities ................................................ 1,626,985
-----------
NET ASSETS $97,689,568
===========
NET ASSETS CONSIST OF:
Paid in capital .................................................. $82,476,981
Accumulated undistributed net
investment income ............................................. 1,197,845
Accumulated undistributed net realized gain
on sale of investments and foreign
currency transactions ......................................... 5,522,106
Net unrealized appreciation
in value of investments, securities sold
short and translation of assets and
liabilities in foreign currency ............................... 8,492,636
Net assets -----------
$97,689,568
===========
Capital shares authorized ........................................ unlimited
Capital shares outstanding ....................................... 5,903,722
Net asset value per share
(net assets divided by shares outstanding) .................... $ 16.55
===========
(1)Investments, at cost .......................................... $89,861,666
(2)Cash denominated in a foreign currency, at cost ............... 8,475
(3)Securites sold short, at proceeds ............................. 112,607
STATEMENT OF OPERATIONS
For the Year Ended December 31, 2005
INVESTMENT INCOME:
Dividends (net of foreign withholding
tax of $36,237) ............................................... $ 1,161,443
Interest ......................................................... 1,507,556
-----------
Total investment income .......................................... 2,668,999
-----------
EXPENSES:
Management fees ............................................... 938,323
Administration fees ........................................... 256,162
Custodian fees ................................................ 61,982
Transfer agent/maintenance fees ............................... 25,185
Directors' fees ............................................... 5,384
Professional fees ............................................. 18,912
Reports to shareholders ....................................... 10,696
Other expenses ................................................ 5,741
-----------
Total expenses ................................................ 1,322,385
Less: Earnings credits applied ................................ (343)
-----------
Net expenses .................................................. 1,322,042
-----------
Net investment income ......................................... 1,346,957
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) during the year on:
Investments ................................................... 6,134,672
Foreign currency transactions ................................. (16,586)
-----------
Net realized gain ............................................. 6,118,086
-----------
Net unrealized depreciation during the year on:
Investments ................................................... (3,411,365)
Securities sold short ......................................... (2,143)
Translation of assets and liabilities in
foreign currencies ......................................... (2,716)
-----------
Net unrealized depreciation ................................... (3,416,224)
-----------
Net realized and unrealized gain .............................. 2,701,862
-----------
Net increase in net assets
resulting from operations .................................. $ 4,048,819
===========
97 See accompanying notes.
SERIES N
Statement of Changes in Net Assets (MANAGED ASSET ALLOCATION SERIES)
YEAR ENDED YEAR ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income ............................................ $ 1,346,957 $ 1,544,640
Net realized gain during the period on investments
and foreign currency transactions ............................. 6,118,086 5,252,819
Net unrealized appreciation (depreciation) during the period
on investments, securities sold short and translation of assets
and liabilities in foreign currencies ......................... (3,416,224) 2,242,853
------------ ------------
Net increase in net assets resulting from operations ............. 4,048,819 9,040,312
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ............................................ -- (456,463)
------------ ------------
Total distributions to shareholders .............................. -- (456,463)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares ..................................... 23,341,178 21,550,471
Distributions reinvested ......................................... -- 456,463
Cost of shares redeemed .......................................... (22,787,887) (23,886,592)
------------ ------------
Net increase (decrease) from capital share transactions .......... 553,291 (1,879,658)
------------ ------------
Net increase in net assets ....................................... 4,602,110 6,704,191
------------ ------------
NET ASSETS:
Beginning of period .............................................. 93,087,458 86,383,267
------------ ------------
End of period .................................................... $ 97,689,568 $ 93,087,458
============ ============
Accumulated undistributed net investment income at end of year ... $ 1,197,845 $ 1,441,726
============ ============
CAPITAL SHARE ACTIVITY:
Shares sold ...................................................... 1,455,631 1,456,044
Shares reinvested ................................................ -- 31,052
Shares redeemed .................................................. (1,421,396) (1,618,357)
------------ ------------
Total capital share activity ..................................... 34,235 (131,261)
============ ============
98 See accompanying notes.
Financial Highlights
Selected data for each share of capital SERIES N
stock outstanding throughout each year (MANAGED ASSET ALLOCATION SERIES)
YEAR ENDED DECEMBER 31,
------------------------------------------------
2005 2004 2003 2002 2001
------- ------- ------- ------- -------
PER SHARE DATA
Net asset value, beginning of period $ 15.86 $ 14.40 $ 11.80 $ 13.63 $ 16.08
------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income 0.23 0.27 0.23 0.30 0.33
Net gain (loss) on securities (realized and unrealized) 0.46 1.27 2.59 (1.59) (1.10)
------- ------- ------- ------- -------
Total from investment operations 0.69 1.54 2.82 (1.29) (0.77)
Less distributions:
Dividends from net investment income -- (0.08) (0.22) (0.54) (0.44)
Distributions from realized gains -- -- -- -- (1.24)
------- ------- ------- ------- -------
Total distributions -- (0.08) (0.22) (0.54) (1.68)
Net asset value, end of period $ 16.55 $ 15.86 $ 14.40 $ 11.80 $ 13.63
======= ======= ======= ======= =======
TOTAL RETURN(A) 4.35% 10.72% 23.90% (9.63%) (5.08%)
------- ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $97,690 $93,087 $86,383 $67,762 $87,348
------- ------- ------- ------- -------
Ratios to average net assets:
Net investment income 1.44% 1.75% 1.86% 2.22% 2.34%
Total expenses(b) 1.41% 1.39% 1.23% 1.26% 1.25%
Net expenses(c) 1.41% 1.39% 1.23% 1.26% 1.25%
------- ------- ------- ------- -------
Portfolio turnover rate 67% 79% 98% 116% 98%
(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) Total expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net expense information reflects the expense ratios after custodian
earnings credits.
99 See accompanying notes.
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100
SERIES O
Manager's Commentary (EQUITY INCOME SERIES)
February 15, 2006 (unaudited)
(T.ROWEPRICE(R) LOGO)
INVEST WITH CONFIDENCE
Subadvisor, T. Rowe Price Associates, Inc.
(PHOTO OF BRIAN C. ROGERS)
Brian C. Rogers
Portfolio Manager
TO OUR SHAREHOLDERS:
Series O of the SBL Fund - Equity Income Series seeks to provide substantial
dividend income and also capital appreciation. The Series
pursues its objective by investing, under normal market
conditions, at least 80% of its net assets in common stocks, with 65% in the
common stocks of well-established companies paying above-average dividends. As
sub-advisor, we typically employ a value-oriented strategy in selecting
investments for the Series. Our research team identifies companies that appear
to be undervalued by various measures and may be temporarily out of favor, but
have good prospects for capital appreciation and dividend growth.
ENVIRONMENT
The widely followed Dow Jones Industrial Average was essentially flat for the
year, while most of the other major indices posted modest gains. Energy
dominated the equities markets in 2005 with a powerful advance, and utilities
were the only other sector to provide a double-digit return. Consumer
discretionary and telecommunications services were the worst sectors over the
year, affected by a weak auto sector and competition from wireless companies,
respectively.
PERFORMANCE REVIEW
The Series delivered a moderate return of 3.74% for 2005, performing in line
with the 4.91% return of the S&P 500 Index. An overweighting in the weak
consumer discretionary sector, particularly media, along with poor stock
selection within the group detracted from relative results. New York Times
Company, Comcast Corporation, Tribune Company, and Dow Jones & Company, Inc.
were four of the Series' top ten detractors from performance over the year. We
remain sanguine on the group, however, and believe it will provide significant
value in the long term based on the unique content these companies provide. Also
of note in the consumer discretionary sector is Eastman Kodak Company, one of
the top five detractors from performance. The company suffered from
disappointing growth in its digital products business and declining sales in its
traditional film business, prompting the rating agencies to cut the company's
unsecured debt to junk status. Other areas of disappointment were materials and
chemicals where International Paper and International Flavors & Fragrance,
respectively, hindered results.
Positive contributors included information technology, the Series' best relative
contributor due mostly to stock selection. Within computers and peripherals,
Hewlett-Packard Company was a major relative contributor and one of the largest
absolute contributors, driven by solid earnings and revenues. International
Business Machines Corporation also had a strong impact on relative performance
due in part to a timely purchase. Within communications equipment, Motorola,
Inc. and Nokia were beneficial, the former benefiting from new high-end cell
phone products and a stock repurchase program, and the latter from strong global
demand for handsets and an increase in market share. We have been taking profits
in Hewlett-Packard, Texas Instruments, and other stocks that have done well and
reinvesting the proceeds in strong companies with relatively low valuations such
as Cisco Systems, Inc.
The industrial and business services sector was another significant contributor
to the Series' relative return. The Series' industrial conglomerate holdings did
well, and an overweight in roads and rails also aided results. Railroad stock,
Union Pacific Corporation, was one of the five largest contributors to overall
performance thanks to stronger yields and gains from real estate sales.
OUTLOOK
Corporations are enjoying strong profits and cash flow, which together provide
the incentive for new corporate investments. We believe earnings will continue
to grow in 2006, although at a more moderate pace due to lower consumer spending
reflecting higher energy prices and mortgage rates. Stock market fundamentals
remain sound at the beginning of the year.
Globalization, competition, and high productivity growth are restraining
inflation, which reduces pressure on the Federal Reserve Bank to raise
short-term rates much higher. Our worst case scenario calls for moderate stock
market gains during the next 12 months, although significant corporate liquidity
could set the stage for better performance than we saw in 2005. We expect
companies to increase their dividend payments in 2006 and merger and acquisition
activity to remain robust, which could provide additional ballast for stocks. As
always, we will focus on reasonably valued stocks with relatively high dividend
yields in our ongoing effort to provide value for investors.
Thank you for investing in the Series O of the SBL Fund-Equity Income Series.
Sincerely,
Brian C. Rogers, Portfolio Manager
101
SERIES O
Manager's Commentary (EQUITY INCOME SERIES)
February 15, 2006 (unaudited)
PERFORMANCE
SERIES O VS. S&P 500 INDEX
(PERFORMANCE GRAPH)
SERIES O S&P 500 INDEX
- --------------------------- -------------------------
DATE VALUE DATE VALUE
---------- --------- --------- ---------
12/31/1995 10,000.00 INCEPTION 12/31/95 10,000.00
3/31/1996 10,487.18 3/31/96 10,536.35
6/30/1996 10,794.87 6/30/96 11,008.74
9/30/1996 11,181.34 9/30/96 11,349.07
12/31/1996 12,003.88 12/31/96 12,295.60
3/31/1997 12,346.60 3/31/97 12,624.86
6/30/1997 13,743.20 6/30/97 14,829.18
9/30/1997 14,818.46 9/30/97 15,941.24
12/31/1997 15,413.30 12/31/97 16,399.53
3/31/1998 16,785.17 3/31/98 18,687.28
6/30/1998 16,373.09 6/30/98 19,304.54
9/30/1998 15,136.87 9/30/98 17,383.58
12/31/1998 16,803.48 12/31/98 21,084.26
3/31/1999 16,645.58 3/31/99 22,137.84
6/30/1999 18,816.74 6/30/99 23,697.99
9/30/1999 17,193.26 9/30/99 22,217.90
12/31/1999 17,329.32 12/31/99 25,523.58
3/31/2000 16,807.54 3/31/00 26,110.20
6/30/2000 16,827.60 06/30/00 25,417.83
9/30/2000 17,963.57 09/30/00 25,171.96
12/31/2000 19,558.36 12/31/00 23,204.17
3/31/2001 18,999.41 3/31/2001 20,454.31
6/30/2001 20,076.95 6/30/2001 21,652.06
9/30/2001 18,392.51 9/30/2001 18,475.85
12/31/2001 19,816.85 12/31/2001 20,451.30
3/31/2002 20,725.18 3/31/2002 20,506.88
6/30/2002 19,068.71 6/30/2002 17,760.15
9/30/2002 15,730.08 9/30/2002 14,692.83
12/31/2002 17,156.11 12/31/2002 15,933.73
3/31/2003 16,100.95 3/31/2003 15,431.91
6/30/2003 18,784.44 6/30/2003 17,807.35
9/30/2003 19,054.30 9/30/2003 18,278.64
12/31/2003 21,487.85 12/31/2003 20,504.32
3/31/2004 21,873.94 3/31/2004 20,852.16
6/30/2004 22,140.21 6/30/2004 21,209.61
9/30/2004 22,548.98 9/30/2004 20,811.97
12/31/2004 24,589.18 12/31/2004 22,733.70
3/31/2005 24,429.17 3/31/2005 22,243.95
6/30/2005 24,469.17 6/30/2005 22,546.75
9/30/2005 25,135.91 9/30/2005 23,360.38
12/31/2005 25,509.28 12/31/2005 23,845.69
</Table>
$10,000 OVER 10 YEARS
The chart above assumes a hypothetical $10,000 investment in Series O (Equity
Income Series) on December 31, 1995, and reflects the fees and expenses of
Series O. The S&P 500 Index is a capitalization-weighted index composed of 500
selected common stocks that represent the broad domestic economy and is a widely
recognized unmanaged index of market performance.
PORTFOLIO COMPOSITION BY SECTOR
Consumer Discretionary 14.02%
Consumer Staples 9.24
Energy 8.39
Financials 19.95
Health Care 8.68
Industrials 13.01
Information Technology 7.50
Materials 5.42
Telecommunication Services 5.55
Utilities 4.14
Convertible Bond 0.35
Temporary Cash Investments 3.67
Cash & other assets, less liabilities 0.08
Total net assets 100.00%
======
AVERAGE ANNUAL RETURNS
SINCE INCEPTION
PERIODS ENDED 12-31-05(1) 1 YEAR 5 YEARS (6-1-95)
- ------------------------- ------ ------- ---------------
Series O 3.74% 5.46% 9.82%
(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.
102 See accompanying notes.
SERIES O
Manager's Commentary (EQUITY INCOME SERIES)
February 15, 2006 (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, 2005 - December 31, 2005.
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
mutual 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.
SERIES EXPENSES
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING
07-01-05 12-31-05(1) PERIOD(2)
------------- ------------- -----------
Series O
(Equity Income Series)
Actual $1,000.00 $1,034.60 $5.90
Hypothetical 1,000.00 1,019.41 5.85
(1) The actual ending account value is based on the actual total return of the
Series for the period July 1, 2005 to December 31, 2005 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, 2005 to December 31, 2005 was 3.46%.
(2) Expenses are equal to the Series annualized expense ratio (net of earnings
credits) of 1.15% multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
103
Schedule of Investments SERIES O
December 31, 2005 (EQUITY INCOME SERIES)
PRINCIPAL
AMOUNT OR
NUMBER MARKET
OF SHARES VALUE
--------- ----------
CONVERTIBLE BOND - 0.4%
COMMUNICATIONS - 0.3%
Lucent Technologies, Inc.,
8.00% - 2031 $895,000 $ 908,425
----------
TOTAL CONVERTIBLE BOND
(cost $651,495) 908,425
----------
PREFERRED STOCK - 0.3%
LIFE & HEALTH INSURANCE - 0.3%
UnumProvident Corporation 20,500 722,625
----------
TOTAL PREFERRED STOCK
(cost $512,500) 722,625
----------
COMMON STOCKS - 94.4%
AEROSPACE & DEFENSE - 3.2%
Honeywell International, Inc. 95,400 3,553,650
Lockheed Martin Corporation 39,800 2,532,474
Raytheon Company 56,400 2,264,460
----------
8,350,584
----------
ALUMINUM - 0.7%
Alcoa, Inc. 63,700 1,883,609
----------
ASSET MANAGEMENT & CUSTODY BANKS - 2.8%
Ameriprise Financial, Inc. 10,720 439,520
Janus Capital Group, Inc. 28,600 532,818
Mellon Financial Corporation 80,900 2,770,825
Northern Trust Corporation 17,300 896,486
State Street Corporation 45,900 2,544,696
----------
7,184,345
----------
AUTOMOBILE MANUFACTURERS - 0.2%
Ford Motor Company 54,600 421,512
----------
BIOTECHNOLOGY - 0.6%
MedImmune, Inc.* 45,000 1,575,900
----------
BREWERS - 1.2%
Anheuser-Busch Companies, Inc. 72,100 3,097,416
----------
BROADCASTING & CABLE TV - 1.4%
Cablevision Systems Corporation* 18,500 434,195
Comcast Corporation* 94,692 2,458,204
EchoStar Communications Corporation* 28,000 760,760
----------
3,653,159
----------
COMMUNICATIONS EQUIPMENT - 2.3%
Cisco Systems, Inc.* 89,300 1,528,816
Lucent Technologies, Inc.* 145,100 385,966
Motorola, Inc. 98,000 2,213,820
Nokia Oyj ADR 99,700 1,824,510
----------
5,953,112
----------
COMPUTER & ELECTRONICS RETAIL - 0.4%
RadioShack Corporation 43,100 906,393
----------
NUMBER MARKET
OF SHARES VALUE
--------- ----------
COMMON STOCKS (CONTINUED)
COMPUTER HARDWARE - 2.2%
Hewlett-Packard Company 80,399 $2,301,823
International Business
Machines Corporation 41,500 3,411,300
----------
5,713,123
----------
CONSTRUCTION & FARM MACHINERY - 1.2%
Deere & Company 44,500 3,030,895
----------
CONSTRUCTION MATERIALS - 0.5%
Vulcan Materials Company 20,100 1,361,775
----------
CONSUMER FINANCE - 0.3%
American Express Company 15,800 813,068
----------
DISTRIBUTORS - 0.7%
Genuine Parts Company 38,500 1,690,920
----------
DIVERSIFIED BANKS - 1.2%
Bank of America Corporation 44,688 2,062,351
Wells Fargo & Company 18,600 1,168,638
----------
3,230,989
----------
DIVERSIFIED CHEMICALS - 1.1%
E.I. du Pont de Nemours & Company 57,100 2,426,750
Hercules, Inc.* 46,000 519,800
----------
2,946,550
----------
DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES - 0.3%
Cendant Corporation 47,500 819,375
----------
DIVERSIFIED METALS & MINING - 0.1%
Inco, Ltd.* 8,600 374,702
----------
ELECTRIC UTILITIES - 1.4%
FirstEnergy Corporation 32,757 1,604,765
Pinnacle West Capital Corporation 6,700 277,045
Progress Energy, Inc. 41,700 1,831,464
----------
3,713,274
----------
ELECTRICAL COMPONENTS & EQUIPMENT - 0.8%
Cooper Industries, Ltd. 27,488 2,006,624
----------
ENVIRONMENTAL & FACILITIES SERVICES - 0.8%
Waste Management, Inc. 69,922 2,122,133
----------
FOOD DISTRIBUTORS - 0.2%
Sysco Corporation 19,100 593,055
----------
HEALTH CARE EQUIPMENT - 1.0%
Baxter International, Inc. 41,500 1,562,475
Boston Scientific Corporation* 44,200 1,082,458
----------
2,644,933
----------
HOME IMPROVEMENT RETAIL - 0.5%
Home Depot, Inc. 34,900 1,412,752
----------
HOUSEHOLD PRODUCTS - 2.0%
Colgate-Palmolive Company 58,800 3,225,180
Kimberly-Clark Corporation 30,800 1,837,220
----------
5,062,400
----------
104 See accompanying notes.
Schedule of Investments SERIES O
December 31, 2005 (EQUITY INCOME SERIES)
NUMBER MARKET
OF SHARES VALUE
--------- -----------
COMMON STOCKS (CONTINUED)
HOUSEWARES & SPECIALTIES - 1.6%
Fortune Brands, Inc. 21,000 $ 1,638,420
Newell Rubbermaid, Inc. 100,300 2,385,134
-----------
4,023,554
-----------
HYPERMARKETS & SUPERCENTERS - 1.3%
Wal-Mart Stores, Inc. 70,100 3,280,680
-----------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS - 1.1%
Duke Energy Corporation 99,600 2,734,020
-----------
INDUSTRIAL CONGLOMERATES - 2.9%
General Electric Company 187,800 6,582,390
Tyco International, Ltd. 28,200 813,852
-----------
7,396,242
-----------
INDUSTRIAL MACHINERY - 0.9%
Eaton Corporation 12,900 865,461
Pall Corporation 58,400 1,568,624
-----------
2,434,085
-----------
INSURANCE BROKERS - 1.8%
Marsh & McLennan Companies, Inc. 146,400 4,649,664
-----------
INTEGRATED OIL & GAS - 6.9%
Amerada Hess Corporation 22,400 2,840,768
BP plc ADR 34,884 2,240,250
Chevron Corporation 78,432 4,452,585
Exxon Mobil Corporation 83,768 4,705,249
Royal Dutch Shell plc ADR 61,600 3,787,784
-----------
18,026,636
-----------
INTEGRATED TELECOMMUNICATION SERVICES - 3.5%
AT&T, Inc. 145,400 3,560,846
Qwest Communications
International, Inc.* 418,701 2,365,661
Telus Corporation (Non-Voting Shares) 15,600 628,056
Telus Corporation (Voting Shares) 10,600 434,290
Verizon Communications, Inc. 73,136 2,202,856
-----------
9,191,709
-----------
INVESTMENT BANKING & BROKERAGE - 2.3%
Charles Schwab Corporation 178,200 2,614,194
Morgan Stanley 61,200 3,472,488
-----------
6,086,682
-----------
LEISURE PRODUCTS - 0.8%
Mattel, Inc. 133,000 2,104,060
-----------
LIFE & HEALTH INSURANCE - 1.6%
Lincoln National Corporation 39,324 2,085,352
UnumProvident Corporation 94,900 2,158,975
-----------
4,244,327
-----------
MOVIES & ENTERTAINMENT - 3.4%
Time Warner, Inc. 191,500 3,339,760
Viacom, Inc. (Cl.B) 103,000 3,357,800
Walt Disney Company 91,400 2,190,858
-----------
8,888,418
-----------
MULTI-LINE INSURANCE - 0.9%
American International Group, Inc. 32,200 $ 2,197,006
-----------
MULTI-UTILITIES - 1.7%
NiSource, Inc. 112,400 2,344,664
Teco Energy, Inc. 24,300 417,474
Xcel Energy, Inc. 83,700 1,545,102
-----------
4,307,240
-----------
OFFICE SERVICES & SUPPLIES - 0.8%
Avery Dennison Corporation 38,200 2,111,314
-----------
OIL & GAS EQUIPMENT & SERVICES - 0.6%
Schlumberger, Ltd. 16,800 1,632,120
-----------
OIL & GAS EXPLORATION & PRODUCTION - 0.8%
Anadarko Petroleum Corporation 22,500 2,131,875
-----------
OTHER DIVERSIFIED FINANCIAL SERVICES - 2.9%
Citigroup, Inc. 31,433 1,525,444
JP Morgan Chase & Company 152,662 6,059,155
-----------
7,584,599
-----------
PACKAGED FOODS & MEATS - 2.0%
Campbell Soup Company 64,100 1,908,257
ConAgra Foods, Inc. 5,000 101,400
General Mills, Inc. 47,700 2,352,564
McCormick & Company, Inc. 29,500 912,140
-----------
5,274,361
-----------
PAPER PRODUCTS - 2.0%
International Paper Company 121,120 4,070,843
MeadWestvaco Corporation 42,300 1,185,669
-----------
5,256,512
-----------
PERSONAL PRODUCTS - 0.7%
Avon Products, Inc. 67,100 1,915,705
-----------
PHARMACEUTICALS - 7.1%
Abbott Laboratories 36,300 1,431,309
Bristol-Myers Squibb Company 102,000 2,343,960
Eli Lilly & Company 22,600 1,278,934
Johnson & Johnson 50,200 3,017,020
Merck & Company, Inc. 113,600 3,613,616
Pfizer, Inc. 84,400 1,968,208
Schering-Plough Corporation 78,700 1,640,895
Wyeth 65,800 3,031,406
-----------
18,325,348
-----------
PHOTOGRAPHIC PRODUCTS - 0.6%
Eastman Kodak Company 64,700 1,513,980
-----------
PROPERTY & CASUALTY INSURANCE - 1.9%
Chubb Corporation 16,600 1,620,990
Safeco Corporation 19,500 1,101,750
St. Paul Travelers Companies, Inc. 51,184 2,286,389
-----------
5,009,129
-----------
105 See accompanying notes.
Schedule of Investments SERIES O
December 31, 2005 (EQUITY INCOME SERIES)
NUMBER MARKET
OF SHARES VALUE
--------- ------------
COMMON STOCKS (CONTINUED)
PUBLISHING - 3.4%
Dow Jones & Company, Inc. 58,800 $ 2,086,812
Knight Ridder, Inc. 25,400 1,607,820
New York Times Company 101,800 2,692,610
Tribune Company 80,500 2,435,930
------------
8,823,172
------------
RAILROADS - 2.1%
Norfolk Southern Corporation 38,300 1,716,989
Union Pacific Corporation 47,200 3,800,072
------------
5,517,061
------------
REAL ESTATE INVESTMENT TRUSTS - 0.5%
Simon Property Group, Inc. 16,336 1,251,828
------------
REGIONAL BANKS - 2.5%
Fifth Third Bancorp 64,100 2,417,852
Mercantile Bankshares Corporation 18,500 1,044,140
National City Corporation 27,300 916,461
SunTrust Banks, Inc. 28,600 2,080,936
Wilmington Trust Corporation 3,400 132,294
------------
6,591,683
------------
RESTAURANTS - 0.5%
McDonald's Corporation 41,500 1,399,380
------------
SEMICONDUCTORS - 1.8%
Analog Devices, Inc. 44,800 1,606,976
Intel Corporation 60,500 1,510,080
Texas Instruments, Inc. 44,900 1,439,943
------------
4,556,999
------------
SOFT DRINKS - 1.2%
Coca-Cola Company 74,800 3,015,188
------------
SPECIALTY CHEMICALS - 0.9%
Chemtura Corporation 39,900 506,730
International Flavors & Fragrances, Inc. 52,100 1,745,350
------------
2,252,080
------------
SYSTEMS SOFTWARE - 1.3%
Microsoft Corporation 124,400 3,253,060
------------
THRIFTS & MORTGAGE FINANCE - 0.5%
Federal National Mortgage Association 25,700 1,254,417
------------
TOBACCO - 0.5%
UST, Inc. 29,400 1,200,402
------------
WIRELESS TELECOMMUNICATION SERVICE - 2.0%
Alltel Corporation 41,400 2,612,340
Sprint Nextel Corporation 112,000 2,616,320
------------
5,228,660
------------
TOTAL COMMON STOCKS
(cost $221,030,850) 245,225,794
------------
FOREIGN STOCKS - 1.2%
IRELAND - 0.4%
Bank of Ireland 63,500 $ 1,000,237
------------
JAPAN - 0.6%
Sony Corporation 38,400 1,569,340
------------
NETHERLANDS - 0.2%
Unilever N.V. 8,300 568,668
------------
TOTAL FOREIGN STOCKS
(cost $2,771,817) 3,138,245
------------
TEMPORARY CASH INVESTMENTS - 3.6%
State Street General Account
Money Market Fund 836,815 836,815
T.Rowe Price Reserve
Investment Fund 8,562,578 8,562,578
------------
TOTAL TEMPORARY CASH INVESTMENTS
(cost $9,399,393) 9,399,393
------------
TOTAL INVESTMENTS - 99.9%
(cost $234,366,055) 259,394,482
CASH & OTHER ASSETS, LESS LIABILITIES - 0.1% 333,479
------------
TOTAL NET ASSETS - 100.0% $259,727,961
============
For federal income tax purposes, the identified cost of investments owned at
December 31, 2005 was $236,001,790.
* Non-income producing security
ADR (American Depositary Receipt)
plc (public limited company)
106 See accompanying notes.
SERIES O
(EQUITY INCOME SERIES)
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
ASSETS:
Investments, at value(1) ...................................... $259,394,482
Cash denominated in a foreign currency,
at value(2) ................................................ 649
RECEIVABLES:
Fund shares sold ........................................... 339,329
Interest ................................................... 60,122
Dividends .................................................. 382,760
Prepaid expenses ........................................... 4,811
------------
Total assets .................................................. 260,182,153
------------
LIABILITIES:
Payable for:
Fund shares redeemed ....................................... 169,490
Management fees ............................................ 223,223
Custodian fees ............................................. 3,000
Transfer agent and administration fees ..................... 23,964
Professional fees .......................................... 20,900
Director's fees ............................................ 2,250
Other ...................................................... 11,365
Total liabilities ............................................. 454,192
------------
NET ASSETS .................................................... $259,727,961
============
NET ASSETS CONSIST OF:
Paid in capital ............................................... $219,419,862
Accumulated undistributed net
investment income .......................................... 3,213,835
Accumulated undistributed net realized gain
on sale of investments and foreign
currency transactions ...................................... 12,065,977
Net unrealized appreciation in value of
investments and translation of assets and
liabilities in foreign currency ............................ 25,028,287
------------
Net assets .................................................... $259,727,961
============
Capital shares authorized ..................................... unlimited
Capital shares outstanding .................................... 13,577,256
Net asset value per share
(net assets divided by shares outstanding) ................. $ 19.13
============
(1) Investments, at cost ...................................... $234,366,055
(2) Cash denominated in a foreign currency,
at cost ................................................ 649
STATEMENT OF OPERATIONS
For the Year Ended December 31, 2005
INVESTMENT INCOME:
Dividends (net of foreign withholding
tax of $6,322) ............................................. $ 5,658,434
Interest ...................................................... 419,100
-----------
Total investment income ....................................... 6,077,534
-----------
EXPENSES:
Management fees ............................................ 2,496,219
Administration fees ........................................ 229,617
Custodian fees ............................................. 16,838
Transfer agent/maintenance fees ............................ 25,195
Directors' fees ............................................ 14,270
Professional fees .......................................... 38,550
Reports to shareholders .................................... 32,774
Other expenses ............................................. 9,917
-----------
Total expenses ............................................. 2,863,380
Less: Earnings credits applied ............................. (54)
-----------
Net expenses ............................................... 2,863,326
-----------
Net investment income ...................................... 3,214,208
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) during the year on: ..................
Investments ................................................ 13,986,053
Foreign currency transactions .............................. (3,279)
-----------
Net realized gain .......................................... 13,982,774
-----------
Net unrealized depreciation during the year on:
Investments ................................................ (7,751,422)
Translation of assets and liabilities in
foreign currencies ...................................... (378)
-----------
Net unrealized depreciation ................................ (7,751,800)
-----------
Net realized and unrealized gain ........................... 6,230,974
-----------
Net increase in net assets
resulting from operations ............................... $ 9,445,182
===========
107 See accompanying notes.
SERIES O
STATEMENT OF CHANGES IN NET ASSETS (EQUITY INCOME SERIES)
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2005 2004
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income ........................................... $ 3,214,208 $ 2,787,005
Net realized gain during the period on investments
and foreign currency transactions ............................ 13,982,774 6,967,181
Net unrealized appreciation (depreciation) during the period on
investments and translation of assets and liabilities in
foreign currencies ........................................... (7,751,800) 20,104,014
------------ ------------
Net increase in net assets resulting from operations ............ 9,445,182 29,858,200
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ........................................... -- (344,457)
------------ ------------
Total distributions to shareholders ............................. -- (344,457)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares .................................... 74,046,642 64,011,284
Distributions reinvested ........................................ -- 344,457
Cost of shares redeemed ......................................... (64,596,753) (49,756,700)
------------ ------------
Net increase from capital share transactions .................... 9,449,889 14,599,041
------------ ------------
Net increase in net assets ...................................... 18,895,071 44,112,784
------------ ------------
NET ASSETS:
Beginning of period ............................................. 240,832,890 196,720,106
------------ ------------
End of period ................................................... $259,727,961 $240,832,890
============ ============
Accumulated undistributed net investment income at end of year ..... $ 3,213,835 $ 2,781,731
============ ============
CAPITAL SHARE ACTIVITY:
Shares sold ..................................................... 3,984,349 3,819,116
Shares reinvested ............................................... -- 20,394
Shares redeemed ................................................. (3,466,553) (2,969,771)
------------ ------------
Total capital share activity .................................... 517,796 869,739
============ ============
108 See accompanying notes.
FINANCIAL HIGHLIGHTS
Selected data for each share of capital stock SERIES O
outstanding throughout each year (EQUITY INCOME SERIES)
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
2005 2004 2003 2002 2001
-------- -------- -------- -------- --------
PER SHARE DATA
Net asset value, beginning of period $ 18.44 $ 16.14 $ 13.17 $ 16.00 $ 17.66
-------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income 0.23 0.21 0.22 0.20 0.21
Net gain (loss) on securities (realized and unrealized) 0.46 2.12 3.09 (2.26) --
-------- -------- -------- -------- --------
Total from investment operations 0.69 2.33 3.31 (2.06) 0.21
-------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income -- (0.03) (0.20) (0.39) (0.30)
Distributions from realized gains -- -- (0.14) (0.38) (1.57)
-------- -------- -------- -------- --------
Total distributions -- (0.03) (0.34) (0.77) (1.87)
-------- -------- -------- -------- --------
Net asset value, end of period $ 19.13 $ 18.44 $ 16.14 $ 13.17 $ 16.00
======== ======== ======== ======== ========
TOTAL RETURN(A) 3.74% 14.43% 25.25% (13.43%) 1.32%
-------- -------- -------- -------- --------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $259,728 $240,833 $196,720 $163,555 $186,826
-------- -------- -------- -------- --------
Ratios to average net assets:
Net investment income 1.29% 1.31% 1.55% 1.40% 1.32%
Total expenses(b) 1.15% 1.13% 1.09% 1.09% 1.08%
Net expenses(c) 1.15% 1.13% 1.08% 1.08% 1.08%
-------- -------- -------- -------- --------
Portfolio turnover rate 20% 20% 19% 23% 21%
(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) Total expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net expense information reflects the expense ratios after custodian
earnings credits.
109 See accompanying notes.
This page left blank intentionally.
110
SERIES P
Manager's Commentary (HIGH YIELD SERIES)
February 15, 2006 (unaudited)
(SECURITY BENEFIT(SM) LOGO)
Security Management Company, LLC
Advisor, Security Management Company, LLC
(PHOTO OF DAVID TOUSSAINT)
David Toussaint
Portfolio Manager
TO OUR SHAREHOLDERS:
The high yield market, coming off two successive strong years of double-digit
percentage gains, was unable to continue its streak in 2005. The U.S. economy's
robust growth allowed corporations to increase profits and to further improve
their balance sheets, which helped keep the corporate default rate low. Although
the economic environment was favorable and corporate fundamentals improved, the
high yield market, as measured by the Lehman Brothers High Yield Index, was only
able to produce a lackluster return of 2.74% for the year. Series P of the SBL
Fund - High Yield Series was up 3.81% for the 12-month period ended December 31,
2005.
LACKLUSTER PERFORMANCE IN 2005
Although the Series' return was in the low single-digits, it performed in-line
with other competing fixed income asset classes. Specifically, government bonds
returned 2.6%, higher quality corporate bonds 2.0%, and leveraged bank loans
4.6%, while the S&P 500 could only muster a 3.0% return. The sluggish returns
resulted from the Federal Reserve Bank's eight interest rate increases during
the year which caused government bond interest rates to move up slightly during
the year and adversely impacted the equity market. Also contributing to the high
yield market's sub-par performance was the negative impact from the credit
rating agencies' downgrades of General Motors and Ford. These actions resulted
in two very large issuers being added to the high yield universe, thereby
increasing the automotive sector's weight to around 14% of the high yield
market. This sector alone was down 11.4% for the year.
During 2005, the Series was positioned in shorter maturity bonds to mitigate
rising interest rates and was slightly overweighted in lower quality bonds to
take advantage of the robust economy and a low corporate default rate. The high
yield corporate default rate, after reaching bottom at mid-year, slightly
increased during the second half of the year to finish at 2.2%, down from 2.7%
at year-end 2004. High yield corporate bond spreads, after nearly reaching
historic lows in the first quarter, trended wider throughout the year thereby
causing bond prices to decline slightly.
SHORTER MATURITY BONDS PROVIDED STABLE INCOME
The Series' core holdings in shorter maturity bonds provided solid income
generation and stable current yields for the Series during the year. These
shorter maturity bonds are not as sensitive to interest rate movements.
Therefore, as rates moved higher during the year, these bonds lost little, if
any, of their principal value while collecting their interest payments. One of
the Series' largest holdings, Qwest Communications, was one of these bonds and
it produced an 11% return.
SPECIFIC PORTFOLIO INVESTMENTS ENHANCED RETURNS
The Series was able to enhance its return by investing in some lower quality,
higher yielding securities. As the economy continued to grow robustly, many of
the Series' holdings benefited. One of the Series' best contributors was
Worldspan, a travel services company, which returned 18% as air travel and
lodging soared. Another company leveraged to the economy and residential and
commercial construction boom, United Rentals, an equipment rental company,
returned 17%. Capitalizing on rising energy prices, an oil service company, Oil
States International returned 25%. Finally, the Series' continued overweight to
the wireless telecommunications sector boosted returns due in part to its
holding in Rural Cellular which produced an 11% return.
AVOIDING AUTOMOTIVE AND PAPER SECTORS PROVED SUCCESSFUL
The Series' underweight positions in both the automotive and paper sectors
helped the Series to outperform its benchmark index. The auto sector performed
poorly because of the weak operating results from GM and Ford and consequently
their suppliers were negatively impacted as well. Some of the auto suppliers
filed for bankruptcy protection, and others were perilously close. The paper
sector also performed poorly during 2005. Higher energy prices, rising labor and
freight costs and the strengthening Canadian dollar put pressure on this sector
throughout the year.
OUTLOOK AND STRATEGY FOR 2006
For 2006, the economy is expected to maintain its growth rate during the first
half and weaken slightly into year-end. The corporate default rate is expected
to slightly increase throughout the year and possibly reach 3.5% by year-end,
but still remain well below the long run average of around 5%. The significant
increase in mergers and acquisitions and leveraged buy-outs may help the high
yield bonds for those companies being acquired. However, new issuance as a
result of these leveraging transactions will be of much lower quality and these
highly levered issuers will be much less able to weather an economic slowdown.
This lower quality issuance may cause the default rate to increase over the next
few years. Therefore, the Series will continue to hold shorter maturity bonds
and opportunistically add selective lower quality securities to enhance returns.
Finally, given the high yield market's outlook, we believe it is poised to offer
attractive returns versus other investment choices in the upcoming year.
Sincerely,
David Toussaint
Portfolio Manager
111
SERIES P
Manager's Commentary (HIGH YIELD SERIES)
February 15, 2006 (unaudited)
PERFORMANCE
SERIES P VS.
LEHMAN BROTHERS HIGH YIELD INDEX
(PERFORMANCE GRAPH)
LEHMAN BROTHERS
SERIES P HIGH YIELD INDEX
- ---------------------------- -------------------------
DATE VALUE DATE VALUE
---------- --------- ---------- ---------
8/5/1996 10,000.00 INCEPTION 8/05/96 10,000.00
9/30/1996 10,246.67 9/30/96 10,351.60
12/31/1996 10,660.00 12/31/96 10,713.39
3/31/1997 10,846.67 3/31/97 10,833.03
6/30/1997 11,320.00 6/30/97 11,336.46
9/30/1997 11,754.46 9/30/97 11,851.52
12/31/1997 12,076.97 12/31/97 12,081.46
3/31/1998 12,485.54 3/31/98 12,487.78
6/30/1998 12,628.64 6/30/98 12,625.65
9/30/1998 12,464.08 9/30/98 12,050.69
12/31/1998 12,782.48 12/31/98 12,307.03
3/31/1999 12,972.80 3/31/99 12,533.43
6/30/1999 12,957.56 6/30/99 12,566.52
9/30/1999 12,858.47 9/30/99 12,386.91
12/31/1999 12,950.59 12/31/99 12,589.80
3/31/2000 12,666.70 3/31/00 12,295.73
6/30/2000 12,700.10 06/30/00 12,437.20
9/30/2000 12,925.54 09/30/00 12,507.18
12/31/2000 12,753.20 12/31/00 11,851.92
3/31/2001 13,342.62 3/31/2001 12,604.41
6/30/2001 13,108.23 6/30/2001 12,317.36
9/30/2001 12,441.09 9/30/2001 11,796.11
12/31/2001 13,317.91 12/31/2001 12,477.29
3/31/2002 13,704.12 3/31/2002 12,687.30
6/30/2002 13,201.31 6/30/2002 11,878.19
9/30/2002 12,550.61 9/30/2002 11,529.80
12/31/2002 13,371.90 12/31/2002 12,306.90
3/31/2003 14,041.01 3/31/2003 13,243.88
6/30/2003 15,117.87 6/30/2003 14,581.95
9/30/2003 15,528.05 9/30/2003 14,985.63
12/31/2003 16,274.90 12/31/2003 15,871.49
3/31/2004 16,628.94 3/31/2004 16,243.91
6/30/2004 16,529.37 6/30/2004 16,087.61
9/30/2004 17,205.58 9/30/2004 16,867.08
12/31/2004 18,165.17 12/31/2004 17,639.12
3/31/2005 17,975.48 3/31/2005 17,354.98
6/30/2005 18,265.59 6/30/2005 17,835.42
9/30/2005 18,566.85 9/30/2005 18,000.20
12/31/2005 18,856.96 12/31/2005 18,121.66
</Table>
$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. The Lehman Brothers High Yield Index is an unmanaged index
that tracks below investment grade bonds.
QUALITY RATINGS
A 1.37%
BBB 5.11
BB 22.91
B 43.12
CCC 9.27
CC 0.01
C 0.85
NR 6.27
Common Stocks 1.03
Repurchase Agreement 8.85
Cash & other assets, less liabilities 1.21
Total net assets 100.00%
======
AVERAGE ANNUAL RETURNS
SINCE INCEPTION
PERIODS ENDED 12-31-05(1) 1 YEAR 5 YEARS (8-5-96)
- ------------------------- ------ ------- ---------------
Series P 3.81% 8.14% 6.97%
(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.
112 See accompanying notes.
SERIES P
Manager's Commentary (HIGH YIELD SERIES)
February 15, 2006 (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, 2005 - December 31, 2005.
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
mutual 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.
SERIES EXPENSES
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING
07-01-05 12-31-05(1) PERIOD(2)
------------- ------------- -------------
Series P (High Yield Series)
Actual $1,000.00 $1,033.60 $4.97
Hypothetical 1,000.00 1,020.32 4.94
(1) The actual ending account value is based on the actual total return of the
Series for the period July 1, 2005 to December 31, 2005 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, 2005 to December 31, 2005 was 3.36%.
(2) Expenses are equal to the Series annualized expense ratio 0.97% multiplied
by the average account value over the period, multiplied by 184/365 (to
reflect the one-half year period).
113
Schedule of Investments SERIES P
December 31, 2005 (HIGH YIELD SERIES)
PRINCIPAL
AMOUNT OR
NUMBER MARKET
OF SHARES VALUE
--------- ----------
CONVERTIBLE BONDS - 4.0%
AUTOMOTIVE - 0.8%
Sonic Automotive, Inc., 5.25% - 2009 $ 650,000 $ 637,000
----------
CONSTRUCTION MACHINERY - 1.4%
United Rentals, Inc., 1.875% - 2023 $ 925,000 1,064,906
----------
MEDIA-CABLE - 0.9%
Mediacom Communications Corporation,
5.25% - 2006 $ 675,000 672,469
----------
TELECOMMUNICATIONS-WIRELESS - 0.9%
Nextel Communications, 5.25% - 2010 $ 750,000 749,063
----------
TOTAL CONVERTIBLE BONDS
(cost $2,855,780) 3,123,438
----------
PREFERRED STOCK - 0.0%
STEEL - 0.0%
Weirton Steel Corporation (Cl.C)*(,5,6) 315 --
----------
TOTAL PREFERRED STOCK
cost ($264) --
----------
COMMON STOCKS - 1.0%
AIRLINES - 0.0%
ACE Aviation Holdings, Inc.* 32 1,041
----------
AIRPORT SERVICES - 0.0%
Atlas Air Worldwide Holdings, Inc.* 2 89
----------
BROADCASTING & CABLE TV - 0.0%
Classic Holdco, LLC*(,5,6) 79 --
----------
ELECTRONIC MANUFACTURING SERVICES - 0.0%
Viasystems Group, Inc.*(,5,6) 1,207 --
----------
HEALTH CARE EQUIPMENT - 0.0%
Mediq, Inc.*(,5,6) 92 --
----------
HOUSEHOLD PRODUCTS - 0.0%
WKI Holding Company, Inc.*(,5,6) 202 --
----------
MARINE - 0.4%
Double Hull Tankers, Inc.* 23,000 302,910
----------
REAL ESTATE INVESTMENT TRUSTS - 0.6%
Bimini Mortgage Management, Inc. 30,450 275,573
HomeBanc Corporation 30,000 224,400
----------
499,973
----------
TOTAL COMMON STOCKS
(cost $1,061,751) 804,013
----------
FOREIGN BONDS - 1.4%
CHILE - 0.2%
Republic of Chile:
5.625% - 2007 $ 100,000 101,130
7.125% - 2012 $ 25,000 27,632
----------
128,762
----------
MEXICO - 0.5%
United Mexican States:
8.375% - 2011 $ 85,000 $ 96,900
7.50% - 2012 200,000 223,000
----------
319,900
----------
PERU - 0.1%
Republic of Peru, 5.00% - 2017(1) 112,700 105,093
----------
PHILIPPINES - 0.0%
Republic of Philippines, 8.375% - 2009 30,000 32,025
----------
RUSSIA - 0.3%
Russia Finance Ministry, 3.00% - 2011 80,000 71,152
Russian Federation:
10.00% - 2007 100,000 106,900
8.25% - 2010(4) 36,500 38,736
----------
216,788
----------
SOUTH AFRICA - 0.2%
Republic of South Africa:
9.125% - 2009 95,000 106,519
7.375% - 2012 35,000 38,937
----------
145,456
----------
TUNISIA - 0.1%
Banque Centrale de Tunisie,
7.375% - 2012 80,000 89,000
----------
UKRAINE - 0.0%
Ukraine Government, 11.00% - 2007 21,001 21,831
----------
TOTAL FOREIGN BONDS
(cost $930,512) 1,058,855
----------
CORPORATE BONDS - 83.5%
AEROSPACE & DEFENSE - 4.0%
Bombardier, Inc., 6.75% - 2012(4) 1,075,000 994,375
Esterline Technologies Corporation,
7.75% - 2013 610,000 637,450
L-3 Communications Corporation,
7.625% - 2012 100,000 105,250
Sequa Corporation:
8.875% - 2008 280,000 291,900
9.00% - 2009 200,000 212,500
Vought Aircraft Industries, Inc.,
8.00% - 2011 900,000 841,500
----------
3,082,975
----------
AIRLINES - 0.9%
American Commercial Lines, Inc.,
9.50% - 2015 146,000 157,680
Delta Air Lines, Inc., 7.90% - 2009(3,6) 75,000 16,875
Northwest Airlines, Inc.,
9.875% - 2007(3,6) 10,000 3,900
Pegasus Aviation Lease Securitization,
8.42% - 2030*(3,5,6) 489,231 --
United Air Lines, Inc., 7.73% - 2010(6) 499,617 497,243
----------
675,698
----------
114 See accompanying notes.
Schedule of Investments SERIES P
December 31, 2005 (HIGH YIELD SERIES)
PRINCIPAL MARKET
AMOUNT VALUE
---------- ----------
CORPORATE BONDS (CONTINUED)
AUTOMOTIVE - 6.9%
Allied Holdings, Inc., 8.625% - 2007(3,6) $ 655,000 $ 520,725
Briggs & Stratton Corporation,
8.875% - 2011 625,000 700,226
Dura Operating Corporation,
8.625% - 2012 10,000 8,250
General Motors Acceptance Corporation,
8.00% - 2031 1,250,000 1,197,351
Group 1 Automotive, Inc.,
8.25% - 2013 1,050,000 992,250
Mark IV Industries, Inc.,
7.50% - 2007 1,125,000 1,036,406
Sonic Automotive, Inc.,
8.625% - 2013 600,000 580,500
TRW Automotive, Inc.,
9.375% - 2013 312,000 337,740
----------
5,373,448
----------
BANKING - 2.9%
Cardtronics, Inc., 9.25% - 2013(4) 900,000 895,500
Doral Financial Corporation,
5.004% - 2007(1) 900,000 874,840
E*Trade Financial Corporation,
8.00% - 2011 300,000 312,000
FCB/NC Capital Trust I,
8.05% - 2028 75,000 79,296
Popular North America, Inc.,
6.125% - 2006 60,000 60,339
Western Financial Bank,
9.625% - 2012 5,000 5,600
----------
2,227,575
----------
BUILDING MATERIALS - 1.8%
Building Materials Corporation:
8.00% - 2007 550,000 556,187
8.00% - 2008 825,000 834,281
----------
1,390,468
----------
CHEMICALS - 1.1%
IMC Global, Inc., 11.25% - 2011 5,000 5,375
ISP Holdings, Inc., 10.625% - 2009 800,000 840,000
Methanex Corporation, 8.75% - 2012 5,000 5,563
----------
850,938
----------
COMMUNICATIONS - OTHER - 0.8%
Block Communications, Inc.,
8.25% - 2015(4) 650,000 643,500
----------
CONSTRUCTION MACHINERY - 3.2%
Case New Holland, 9.25% - 2011 650,000 695,500
Navistar International Corporation:
9.375% - 2006 45,000 45,675
7.50% - 2011 750,000 714,375
6.25% - 2012 525,000 469,875
NMHG Holding Company, 10.00% - 2009 5,000 5,325
United Rentals NA, Inc., 7.00% - 2014 625,000 584,375
----------
2,515,125
----------
CONSUMER PRODUCTS - 0.8%
Del Laboratories, Inc., 8.00% - 2012 $ 575,000 $ 454,250
Hasbro, Inc., 6.15% - 2008 56,000 57,368
Icon Health & Fitness, 11.25% - 2012 25,000 20,937
WH Holdings/ WH Capital, 9.50% - 2011 60,000 64,800
----------
597,355
----------
ELECTRIC - 4.0%
AES Corporation, 9.50% - 2009 750,000 810,000
Avista Corporation, 9.75% - 2008 50,000 54,575
CMS Energy Corporation:
9.875% - 2007 10,000 10,700
7.50% - 2009 610,000 628,300
East Coast Power LLC:
6.737% - 2008 33,497 33,795
7.066% - 2012 84,520 87,580
Edison Mission Energy, 10.00% - 2008 550,000 602,250
Reliant Energy, Inc., 6.75% - 2014 650,000 567,125
Texas Genco LLC, 6.875% - 2014(4) 175,000 189,438
UCAR Finance, Inc., 10.25% - 2012 15,000 15,844
Western Resources, Inc., 7.125% - 2009 90,000 94,596
----------
3,094,203
----------
ENERGY - INDEPENDENT - 4.4%
Clayton William Energy, 7.75% - 2013 325,000 312,000
El Paso Production Holding Company,
7.75% - 2013 250,000 259,375
Forest Oil Corporation, 8.00% - 2008 15,000 15,637
Houston Exploration Company,
7.00% - 2013 450,000 432,000
Magnum Hunter Resources, Inc.,
9.60% - 2012 793,000 860,405
Mirant North America, LLC,
7.375% - 2013(4) 150,000 151,688
Plains E&P Company, 8.75% - 2012 40,000 43,100
Range Resources Corporation,
7.375% - 2013 75,000 77,625
TransMontaigne, Inc., 9.125% - 2010 1,300,000 1,277,250
----------
3,429,080
----------
ENERGY - INTEGRATED - 0.6%
Petrobras International Finance Company,
9.00% - 2008(1) 425,000 482,375
----------
ENERGY - OTHER - 0.4%
Massey Energy Company,
6.875% - 2013(4) 350,000 353,063
----------
ENTERTAINMENT - 3.4%
AMC Entertainment, Inc.,
9.875% - 2012 300,000 294,000
Blockbuster, Inc., 9.50% - 2012(1,4) 1,000,000 880,000
Galaxy Entertainment, 9.875 - 2012(4) 350,000 355,250
Marquee Holdings, Inc., 0.00% - 2014(1) 1,750,000 1,115,625
----------
2,644,875
----------
115 See accompanying notes.
Schedule of Investments SERIES P
December 31, 2005 (HIGH YIELD SERIES)
PRINCIPAL MARKET
AMOUNT VALUE
---------- ----------
CORPORATE BONDS (CONTINUED)
ENVIRONMENTAL - 1.1%
Allied Waste North America:
8.50% - 2008 $ 20,000 $ 21,000
8.875% - 2008 385,000 406,175
Casella Waste Systems, Inc.,
9.75% - 2013 400,000 421,000
----------
848,175
----------
FINANCIAL - OTHER - 0.3%
Arch Western Finance, 6.75% - 2013 200,000 203,750
----------
FINANCIAL COMPANIES - NONCAPTIVE DIVERSIFIED - 0.7%
AMR Real Estate Partners,
8.125% - 2012 550,000 570,625
----------
FOOD & BEVERAGE - 2.4%
Bear Creek Corporation, 9.00% - 2013(4) 250,000 251,250
Canandaigua Brands, Inc.,
8.625% - 2006 200,000 203,000
Dean Foods Company, 8.15% - 2007 350,000 359,625
Dole Foods Company, Inc.:
7.25% - 2010 400,000 388,000
8.875% - 2011 200,000 205,000
Land O' Lakes, Inc., 8.75% - 2011 60,000 63,000
Pilgrim's Pride Corporation,
9.625% - 2011 450,000 479,250
----------
1,949,125
----------
GAMING - 2.1%
American Casino & Entertainment,
7.85% - 2012 300,000 307,500
MGM Mirage, Inc.:
8.50% - 2010 15,000 16,256
8.375% - 2011 55,000 58,850
6.75% - 2012 625,000 633,594
Mandalay Resort Group:
10.25% - 2007 45,000 47,981
6.50% - 2009 300,000 303,375
Station Casinos, Inc., 6.00% - 2012 300,000 299,250
----------
1,666,806
----------
HEALTH CARE - 3.7%
Coventry Health Care, Inc.,
6.125% - 2015 575,000 589,375
HCA, Inc., 6.375% - 2015 300,000 303,250
Healthsouth Corporation, 8.50% - 2008 775,000 780,812
Johnsondiversey, Inc., 9.625% - 2012 5,000 5,025
Radiologix, Inc., 10.50% - 2008 45,000 44,100
US Oncology Holdings, Inc.,
9.264% - 2015(2) 1,150,000 1,144,250
----------
2,866,812
----------
HOME CONSTRUCTION - 0.3%
KB Home, 9.50% - 2011 35,000 36,817
Stanley-Martin Communities,
9.75% - 2015(4) 250,000 227,500
----------
264,317
----------
INDUSTRIAL - OTHER - 3.5%
Anixter International, Inc.,
5.95% - 2015 $ 250,000 $ 226,232
Corrections Corporation of America,
7.50% - 2011 200,000 207,000
Iron Mountain, Inc., 8.25% - 2011 800,000 812,000
USEC, Inc., 6.625% - 2006 1,511,000 1,511,000
----------
2,756,232
----------
INSURANCE - LIFE - 0.3%
Genamerica Capital, Inc.,
8.525% - 2027(4) 175,000 189,481
Torchmark Corporation, 6.25% - 2006 75,000 75,569
----------
265,050
----------
INSURANCE - PROPERTY & CASUALTY - 2.0%
Fairfax Financial Holdings,
7.75% - 2012 1,675,000 1,562,912
----------
LODGING - 0.8%
Starwood Hotels & Resorts,
7.375% - 2007(1) 600,000 612,000
----------
MEDIA - CABLE - 1.9%
CSC Holdings, Inc.:
7.25% - 2008 375,000 374,062
8.125% - 2009 10,000 10,100
8.125% - 2009 25,000 25,250
6.75% - 2012(4) 325,000 307,125
Coleman Cable, Inc., 9.875% - 2012 150,000 121,500
FrontierVision Holdings,
11.875% - 2007(3,6) 20,000 21,025
Jones Intercable, Inc.,
7.625% - 2008 200,000 210,325
Shaw Communications, Inc.,
7.25% - 2011 375,000 390,938
----------
1,460,325
----------
MEDIA - NONCABLE - 2.6%
Corus Entertainment, Inc., 8.75% - 2012 30,000 32,475
EchoStar DBS Corporation,
9.125% - 2009 10,000 10,462
Fisher Communications, Inc.,
8.625% - 2014 250,000 263,750
Intelsat, Ltd., 7.625% - 2012 1,875,000 1,514,062
RH Donnelley Finance Corporation,
10.875% - 2012 125,000 140,938
Time Warner, Inc., 9.125% - 2013 30,000 35,507
----------
1,997,194
----------
116 See accompanying notes.
Schedule of Investments SERIES P
December 31, 2005 (HIGH YIELD SERIES)
PRINCIPAL MARKET
AMOUNT VALUE
---------- ----------
CORPORATE BONDS (CONTINUED)
METALS & MINING - 3.6%
AK Steel Corporation, 7.875% - 2009 $1,495,000 $1,420,250
Asarco, Inc., 7.875% - 2013(3,6) 200,000 120,000
Asia Aluminum Holdings,
8.00% - 2011(4) 800,000 781,000
Bulong Operations,
12.50% - 2008*(3,5,6) 185,000 --
National Steel Corporation,
9.875% - 2009*(3,5,6) 15,915 --
Noble Group, Ltd., 6.625% - 2015(4) 550,000 506,488
Steel Dynamics, Inc., 9.50% - 2009 5,000 5,263
----------
2,833,001
----------
OIL FIELD SERVICES - 1.0%
Parker Drilling Company, 9.16% - 2010(2) 675,000 696,938
Pemex Project Funding Master Trust:
8.50% - 2008 30,000 31,950
7.875% - 2009 35,000 37,433
9.125% - 2010 40,000 46,040
----------
812,361
----------
PACKAGING - 2.9%
Ball Corporation, 6.875% - 2012 250,000 258,125
Owens-Brockway Glass Containers,
7.75% - 2011 200,000 208,750
Owens-Illinois, Inc.:
8.10% - 2007 575,000 587,938
7.50% - 2010 30,000 30,450
Plastipak Holdings, Inc., 8.50% - 2015(4) 250,000 252,500
Solo Cup Company, 8.50% - 2014 1,025,000 896,875
----------
2,234,638
----------
PAPER - 2.5%
Longview Fibre Company, 10.00% - 2009 10,000 10,500
Sino-Forest Corporation,
9.125% - 2011(4) 625,000 670,313
Smurfit-Stone Container,
9.75% - 2011 1,250,000 1,262,500
----------
1,943,313
----------
PHARMACEUTICALS - 1.4%
Elan Financial Corporation,
7.75% - 2011 700,000 654,500
Omnicare, Inc.:
6.75% - 2013 200,000 202,250
6.875 - 2015 200,000 203,000
----------
1,059,750
----------
PIPELINES - 1.4%
Sonat, Inc., 7.625% - 2011 1,050,000 1,068,375
----------
REAL ESTATE INVESTMENT TRUSTS - 1.2%
American Real Estate Partners,
7.125% - 2013(4) 400,000 400,000
iStar Financial, Inc., 7.00% - 2008 500,000 516,239
----------
916,239
----------
REFINING - 0.4%
Frontier Oil Corporation,
6.625% - 2011 $ 300,000 $ 306,000
----------
RESTAURANTS - 0.4%
Tricon Global Restaurants,
8.50% - 2006 290,000 292,833
----------
RETAILERS - 0.1%
Ames Department Stores, Inc.,
10.00% - 2006*(3,5,6) 300,000 --
JC Penney Company, Inc.,
7.375% - 2008 40,000 42,048
PCA Finance Corporation,
11.875% - 2009 30,000 7,163
----------
49,211
----------
SERVICES - 1.1%
American Eco Corporation,
9.625% - 2008*(3,5,6) 200,000 --
Mail-Well Corporation,
9.625% - 2012 10,000 10,800
MasTec, Inc., 7.75% - 2008 900,000 893,250
----------
904,050
----------
SUPERMARKETS - 0.0%
Fleming Companies, Inc.,
9.875% - 2012*(3,5,6) 400,000 --
TECHNOLOGY - 1.7%
Hewlett-Packard Company,
5.75% - 2006 110,000 110,920
Telecordia Technologies,
10.00% - 2013(4) 500,000 457,500
Worldspan LP/WS Fin Corporation,
10.59% - 2011(2) 900,000 783,000
----------
1,351,420
----------
TELECOMMUNICATIONS - WIRELESS - 3.8%
iPCS, Inc., 11.50% - 2012 500,000 573,750
Rural Cellular Corporation:
9.75% - 2010 1,175,000 1,186,750
10.041% - 2012(2,4) 650,000 654,875
Ubiquitel Operating Company,
9.875% - 2011 500,000 553,750
----------
2,969,125
----------
TELECOMMUNICATIONS - WIRELINES - 3.7%
Exodus Communications, Inc.,
11.625% - 2010*(3,5,6) 340,726 --
LCI International, Inc., 7.25% - 2007 2,675,000 2,688,375
Qwest Corporation, 7.875% - 2011 150,000 161,625
Telecommunications Technique,
9.75% - 2008*(3,5,6) 30,000 --
----------
2,850,000
----------
117 See accompanying notes.
Schedule of Investments SERIES P
December 31, 2005 (HIGH YIELD SERIES)
PRINCIPAL MARKET
AMOUNT VALUE
---------- -----------
CORPORATE BONDS (CONTINUED)
TEXTILE - 0.3%
Invista, 9.25% - 2012(4) $ 250,000 $ 266,875
-----------
TRANSPORTATION SERVICES - 1.1%
Overseas Shipholding Group, Inc.,
8.25% - 2013 400,000 423,000
Stena AB, 9.625% - 2012 425,000 461,656
Teekay Shipping Corporation,
8.32% - 2008 11,000 11,124
-----------
895,780
-----------
TOTAL CORPORATE BONDS
(cost $66,483,436) 65,136,972
-----------
REPURCHASE AGREEMENT - 8.9%
United Missouri Bank, 3.78%, dated 12-30-05,
matures 01-03-06; repurchase amount of $6,903,898
(Collateralized by U.S. Treasury Bill, 05-04-06
with a value of $7,039,339) 6,901,000 6,901,000
-----------
TOTAL REPURCHASE AGREEMENT
(cost $6,901,000) 6,901,000
-----------
TOTAL INVESTMENTS - 98.8%
(cost $78,232,743) 77,024,278
CASH & OTHER ASSETS, LESS LIABILITIES - 1.2% 947,067
-----------
TOTAL NET ASSETS - 100.0% $77,971,345
===========
For federal income tax purposes, the identified cost of investments owned at
December 31, 2005 was $77,208,995.
* Non-income producing security
(1) Security is a step bond. Rate indicated is rate effective at December 31,
2005.
(2) Variable rate security. Rate indicated is rate effective at December 31,
2005.
(3) Security is in default.
(4) Security is a 144A Series. The total market value of 144A securities is
$9,466,457 (cost $9,554,306), or 12.1% 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.
(6) Security is illiquid. The total market value of illiquid securities is
$1,179,768 (cost $3,050,146), or 1.5% of total net assets.
118 See accompanying notes.
SERIES P
(HIGH YIELD SERIES)
Statement of Assets and Liabilities
December 31, 2005
ASSETS:
Investments, at value(1) ........................................ $ 77,024,278
Cash ............................................................ 10,271
Receivables:
Fund shares sold ............................................. 272,476
Interest ..................................................... 1,404,310
Dividends .................................................... 8,400
Prepaid expenses ................................................ 1,399
------------
Total assets .................................................... 78,721,134
------------
LIABILITIES:
Payable for:
Fund shares redeemed ......................................... 43,326
Securities purchased ......................................... 628,125
Management fees .............................................. 48,286
Custodian fees ............................................... 3,600
Transfer agent and administration fees ....................... 12,700
Professional fees ............................................ 8,450
Director's fees .............................................. 650
Other ........................................................ 4,652
------------
Total liabilities ............................................... 749,789
------------
NET ASSETS ...................................................... $ 77,971,345
============
NET ASSETS CONSIST OF:
Paid in capital ................................................. $ 74,277,679
Accumulated undistributed net
investment income ............................................ 5,556,465
Accumulated net realized loss
on sale of investments ....................................... (654,334)
Net unrealized depreciation in value
of investments ............................................... (1,208,465)
------------
Net assets ...................................................... $ 77,971,345
============
Capital shares authorized unlimited
Capital shares outstanding ...................................... 4,613,164
Net asset value per share
(net assets divided by shares outstanding) ................... $ 16.90
============
(1) Investments, at cost ........................................ $ 78,232,743
Statement of Operations
For the Year Ended December 31, 2005
INVESTMENT INCOME:
Dividends ..................................................... $ 89,110
Interest ...................................................... 5,703,355
-----------
Total investment income ....................................... 5,792,465
-----------
EXPENSES:
Management fees ............................................... 536,322
Administration fees ........................................... 81,721
Custodian fees ................................................ 12,718
Transfer agent/maintenance fees ............................... 25,139
Directors' fees ............................................... 3,824
Professional fees ............................................. 17,465
Reports to shareholders ....................................... 10,356
Other expenses ................................................ 2,912
-----------
Total expenses ................................................ 690,457
-----------
Net investment income ......................................... 5,102,008
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain during the year on
Investments ................................................... 1,405,466
-----------
Net realized gain ............................................. 1,405,466
-----------
Net unrealized depreciation during the year on
Investments ................................................... (3,797,233)
-----------
Net unrealized depreciation ................................... (3,797,233)
-----------
Net realized and unrealized loss .............................. (2,391,767)
-----------
Net increase in net assets
resulting from operations .................................. $ 2,710,241
===========
119 See accompanying notes.
SERIES P
Statement of Changes in Net Assets (HIGH YIELD SERIES)
YEAR ENDED YEAR ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income .......................................................... $ 5,102,008 $ 4,919,722
Net realized gain during the period on investments ............................. 1,405,466 2,263,634
Net unrealized appreciation (depreciation) during the period on investments .... (3,797,233) 279,154
------------ ------------
Net increase in net assets resulting from operations ........................... 2,710,241 7,462,510
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income .......................................................... -- (557,357)
------------ ------------
Total distributions to shareholders ............................................ -- (557,357)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares ................................................... 47,469,252 63,392,388
Distributions reinvested ....................................................... -- 557,358
Cost of shares redeemed ........................................................ (46,523,696) (75,030,153)
------------ ------------
Net increase (decrease) from capital share transactions ........................ 945,556 (11,080,407)
------------ ------------
Net increase (decrease) in net assets .......................................... 3,655,797 (4,175,254)
------------ ------------
NET ASSETS:
Beginning of period ............................................................ 74,315,548 78,490,802
------------ ------------
End of period .................................................................. $ 77,971,345 $ 74,315,548
============ ============
Accumulated undistributed net investment income at end of year ................. $ 5,556,465 $ 5,359,745
============ ============
CAPITAL SHARE ACTIVITY:
Shares sold .................................................................... 2,888,743 4,186,326
Shares reinvested .............................................................. -- 36,476
Shares redeemed ................................................................ (2,840,004) (4,993,239)
------------ ------------
Total capital share activity ................................................... 48,739 (770,437)
============ ============
120 See accompanying notes.
Financial Highlights
Selected data for each share of capital stock outstanding SERIES P
throughout each year (HIGH YIELD SERIES)
YEAR ENDED DECEMBER 31,
-------------------------------------------------
2005 2004 2002 2002(C) 2001(B)
------- ------- ------- -------- --------
PER SHARE DATA
Net asset value, beginning of period $ 16.28 $ 14.71 $ 12.79 $ 13.60 $ 14.25
------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income 1.09 1.12 0.90 0.93 1.26
Net gain (loss) on securities (realized and unrealized) (0.47) 0.58 1.87 (0.88) (0.63)
------- ------- ------- ------- -------
Total from investment operations 0.62 1.70 2.77 0.05 0.63
------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income -- (0.13) (0.85) (0.86) (1.28)
------- ------- ------- ------- -------
Total distributions -- (0.13) (0.85) (0.86) (1.28)
------- ------- ------- ------- -------
Net asset value, end of period $ 16.90 $ 16.28 $ 14.71 $ 12.79 $ 13.60
======= ======= ======= ======= =======
TOTAL RETURN(A) 3.81% 11.61% 21.71% 0.41% 4.43%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $77,971 $74,316 $78,491 $41,381 $29,384
------- ------- ------- ------- -------
Ratios to average net assets:
Net investment income 7.13% 7.08% 7.53% 8.12% 8.73%
Total expenses 0.97% 0.94% 0.87% 0.88% 0.86%
------- ------- ------- ------- -------
Portfolio turnover rate 64% 63% 52% 80% 80%
(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) 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.
(c) 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.
121 See accompanying notes.
This page left blank intentionally.
122
SERIES Q
Manager's Commentary (SMALL CAP VALUE SERIES)
February 15, 2006 (unaudited)
(WELLS CAPITAL MANAGEMENT LOGO)
Subadvisor, Wells Capital Management
(PHOTO OF I. CHARLES RINALDI)
I. Charles Rinaldi
Portfolio Manager
TO OUR SHAREHOLDERS:
The equity markets got off to a rough start in 2005, but finished the year
firmly in positive territory. Series Q of SBL Fund - Small Cap Value Series
outperformed the Russell 2000 for the year. The Series returned 14.51% for the
year, versus the index's return of 4.55%. Soaring real-estate prices,
devastating storms and the rising values of commodities, magnified due to the
hurricane effects, marked the year. In the fourth quarter, the economy and
corporate profits continued to exhibit solid growth and oil prices eased from
all time highs reached earlier in the year. The small-cap value asset class had
positive performance during the quarter, but fell short relative to other asset
classes. Growth stocks started to creep back into the limelight, while mid and
large cap stocks outperformed small cap names.
The materials sector was the main area of positive contribution to the Series
performance. The overweighting in materials, as well as superior stock selection
within the metals and mining sector added significant value to the Series
portfolio. During the quarter, we witnessed a continued rise in the price of
commodities, particularly gold and silver. Gold reached multi-decade highs and
positively impacted stocks. The team continues to favor metals and mining
stocks, as these companies appear to be relatively cheap, exhibit positive cash
flows, and have clean balance sheets.
Technology was also an area that contributed positively to performance. Although
the portfolio was slightly underweighted relative to the benchmark, good stock
selection added value. Electronic equipment and semiconductor names in
particular produced exceptional returns during the year. The portfolio is
currently underweighted in the semiconductor industry, however we are actively
looking for opportunities within this area.
The financial sector produced mixed results. Stock selection within the area
enhanced performance, however the portfolio's underweighted exposure negatively
impacted relative performance. Insurance and commercial bank holdings were
strong during the fourth quarter, which provided alpha to the portfolio.
However, a significant underweighting in real estate investment trusts (REITs)
and commercial banks relative to the benchmark detracted from performance. The
Series' portfolio has remained underweight to financials for some time. Our
investment approach, which identifies undervalued stocks, tends not to lead us
to these names, especially at current valuations.
The Series' overweighted exposure to the energy sector was the primary area of
detraction during the fourth quarter. However, the sector has been a key driver
of performance throughout much of the year. Stock selection was weak across the
board during the quarter as energy prices declined from highs experienced
earlier in the year. Despite short-term disruptions, the team believes energy
names will add value as the supply/demand equation for oil and natural gas
remains favorable in the long-term.
Looking ahead, the team is somewhat cautious in the near-term about the
small-cap value asset class as money flows to growth stocks. However, over the
long-term we believe the asset class remains attractive as many small cap names
continue to be underfollowed. We will continue working to exploit inefficiencies
within the small-cap value asset class, as we believe the current markets reward
active managers with strong stock picking abilities. We remain focused on
identifying investment opportunities in stocks with quality management and
strong fundamentals that we believe are attractively valued.
Sincerely,
I. Charles Rinaldi
Portfolio Manager
123
SERIES Q
Manager's Commentary (SMALL CAP VALUE SERIES)
February 15, 2006 (unaudited)
PERFORMANCE
SERIES Q VS. RUSSELL 2000 INDEX
(PERFORMANCE GRAPH)
SERIES Q RUSSELL 2000 INDEX
- --------------------------- -------------------------
DATE VALUE DATE VALUE
---------- --------- ---------- ---------
5/1/2000 10,000.00 INCEPTION 5/01/00 10,000.00
6/30/2000 9,840.00 06/30/00 10,238.16
9/30/2000 10,190.00 09/30/00 10,350.97
12/31/2000 10,740.00 12/31/00 9,635.94
3/31/2001 12,005.22 3/31/2001 9,012.59
6/30/2001 13,515.94 6/30/2001 10,299.91
9/30/2001 11,169.28 9/30/2001 8,158.99
12/31/2001 13,119.68 12/31/2001 9,878.84
3/31/2002 14,571.50 3/31/2002 10,272.70
6/30/2002 14,220.63 6/30/2002 9,414.59
9/30/2002 11,496.21 9/30/2002 7,400.54
12/31/2002 12,206.51 12/31/2002 7,856.86
3/31/2003 11,402.88 3/31/2003 7,504.09
6/30/2003 14,139.57 6/30/2003 9,261.65
9/30/2003 15,301.96 9/30/2003 10,101.77
12/31/2003 18,419.22 12/31/2003 11,569.23
3/31/2004 19,480.19 3/31/2004 12,293.25
6/30/2004 19,545.82 6/30/2004 12,350.75
9/30/2004 19,869.95 9/30/2004 11,998.31
12/31/2004 22,171.96 12/31/2004 13,688.97
3/31/2005 22,127.90 3/31/2005 12,958.31
6/30/2005 22,260.07 6/30/2005 13,518.35
9/30/2005 25,377.14 9/30/2005 14,153.21
12/31/2005 25,388.16 12/31/2005 14,313.47
</Table>
$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. The Russell 2000 Index is a capitalization-weighted index
that measures the performance of the 2,000 smallest companies in the Russell
3000 Index, which represents approximately 10% of the total market
capitalization of the Russell 3000 Index.
PORTFOLIO COMPOSITION BY SECTOR
Consumer Discretionary 4.31%
Consumer Staples 1.00
Energy 26.50
Financials 4.37
Health Care 6.97
Industrials 13.39
Information Technology 9.49
Materials 22.15
Telecommunication Services 0.63
Repurchase Agreement 15.11
Liabilities, less cash & other assets (3.92)
Total net assets 100.00%
======
AVERAGE ANNUAL RETURNS
SINCE INCEPTION
PERIODS ENDED 12-31-05(1) 1 YEAR 5 YEARS (5-1-00)
- ------------------------- ------ ------- ---------------
Series Q 14.51% 18.78% 17.86%
(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.
124 See accompanying notes.
SERIES Q
Manager's Commentary (SMALL CAP VALUE SERIES)
February 15, 2006 (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, 2005 - December 31, 2005.
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
mutual 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.
SERIES EXPENSES
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING
07-01-05 12-31-05(1) PERIOD(2)
------------- ------------- -----------
Series Q (Small Cap Value Series)
Actual $1,000.00 $1,138.30 $6.63
Hypothetical 1,000.00 1,019.00 6.26
(1) The actual ending account value is based on the actual total return of the
Series for the period July 1, 2005 to December 31, 2005 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, 2005 to December 31, 2005 was 13.83%.
(2) Expenses are equal to the Series annualized expense ratio (net of earnings
credits) of 1.23% multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
125
Schedule of Investments SERIES Q
December 31, 2005 (SMALL CAP VALUE SERIES)
NUMBER MARKET
OF SHARES VALUE
--------- -----------
COMMON STOCKS - 88.4%
ADVERTISING - 1.1%
R.H. Donnelley Corporation*(1) 25,600 $ 1,577,472
-----------
AEROSPACE & DEFENSE - 0.7%
Armor Holdings, Inc.*(1) 22,700 968,155
-----------
AIR FREIGHT & LOGISTICS - 0.3%
EGL, Inc.*(1) 11,500 432,055
-----------
AIRLINES - 1.2%
Lan Airlines S.A. ADR 47,500 1,780,300
-----------
APPAREL RETAIL - 1.3%
Bakers Footwear Group, Inc.* 17,995 276,763
Foot Locker, Inc.(1) 28,865 680,925
Payless ShoeSource, Inc.*(1) 13,900 348,890
Too, Inc.* 19,800 558,558
-----------
1,865,136
-----------
APPLICATION SOFTWARE - 0.4%
Evans & Sutherland Computer
Corporation* 51,500 252,350
JDA Software Group, Inc.*(1) 19,270 327,783
-----------
580,133
-----------
AUTOMOBILE MANUFACTURERS - 0.6%
Fleetwood Enterprises, Inc.*(1) 69,000 852,150
-----------
BIOTECHNOLOGY - 2.3%
Applera Corporation - Applied
Biosystems Group(1) 20,300 539,168
CV Therapeutics, Inc.*(1) 49,700 1,229,081
Covalent Group, Inc.* 58,400 127,312
OraSure Technologies, Inc.*(1) 164,340 1,449,479
-----------
3,345,040
-----------
BROADCASTING & CABLE TV - 0.4%
Discovery Holding Company* 41,100 622,665
-----------
BUILDING PRODUCTS - 0.8%
Royal Group Technologies, Ltd.* 121,000 1,089,000
-----------
COMMODITY CHEMICALS - 0.5%
Calgon Carbon Corporation 118,650 675,118
-----------
COMMUNICATIONS EQUIPMENT - 0.5%
ADC Telecommunications, Inc.* 1 6
C-COR, Inc.* 39,200 190,512
Nortel Networks Corporation* 180,400 552,024
-----------
742,542
-----------
COMPUTER HARDWARE - 0.3%
Cray, Inc.* 312,560 415,705
-----------
COMPUTER STORAGE & PERIPHERALS - 0.6%
QLogic Corporation* 27,500 894,025
-----------
CONSTRUCTION & ENGINEERING - 3.2%
Chicago Bridge & Iron Company N.V.(1) 154,300 3,889,903
Matrix Service Company*(1) 67,112 660,382
-----------
4,550,285
-----------
CONSTRUCTION MATERIALS - 0.3%
Headwaters, Inc.* 300 $ 10,632
U.S. Concrete, Inc.* 39,510 374,555
-----------
385,187
-----------
DATA PROCESSING & OUTSOURCED SERVICES - 0.8%
Lightbridge, Inc.* 138,100 1,144,849
-----------
DISTRIBUTORS - 0.6%
Prestige Brands Holdings, Inc.* 68,990 862,375
-----------
DIVERSIFIED CHEMICALS - 0.1%
Ashland, Inc.(1) 2,700 156,330
-----------
DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES - 1.2%
Geo Group, Inc.* 53,070 1,216,895
Healthcare Services Group, Inc. 28,012 580,129
-----------
1,797,024
-----------
DIVERSIFIED METALS & MINING - 1.8%
Apex Silver Mines, Ltd.*(1) 164,400 2,613,960
-----------
ELECTRICAL COMPONENTS & EQUIPMENT - 0.6%
Encore Wire Corporation*(1) 35,250 802,290
-----------
ELECTRONIC EQUIPMENT MANUFACTURERS - 3.0%
Coherent, Inc.*(1) 17,900 531,272
Newport Corporation* 11,300 153,002
OSI Systems, Inc.* 45,800 842,262
Richardson Electronics, Ltd. 40,700 295,075
Symbol Technologies, Inc.(1) 149,300 1,914,026
Vishay Intertechnology, Inc.*(1) 42,300 582,048
-----------
4,317,685
-----------
ELECTRONIC MANUFACTURING SERVICES - 0.7%
Celestica, Inc.* 89,600 946,176
ENVIRONMENTAL & FACILITIES SERVICES - 1.9%
ABM Industries, Inc. 60,100 1,174,955
Layne Christensen Company* 60,900 1,548,687
-----------
2,723,642
-----------
GOLD - 7.9%
Glamis Gold, Ltd.*(1) 134,700 3,701,556
Goldcorp, Inc.(1) 85,700 1,909,396
Harmony Gold Mining Company,
Ltd. ADR*(1) 126,200 1,646,910
Meridian Gold, Inc.*(1) 54,400 1,189,728
Randgold Resources, Ltd. ADR*(1) 178,700 2,882,431
-----------
11,330,021
-----------
HEALTH CARE EQUIPMENT - 0.2%
Allied Healthcare Products, Inc.* 52,600 301,924
-----------
HEALTH CARE FACILITIES - 2.1%
Beverly Enterprises, Inc.* 199,100 2,323,497
Manor Care, Inc.(1) 19,050 757,619
-----------
3,081,116
-----------
126 See accompanying notes.
Schedule of Investments SERIES Q
December 31, 2005 (SMALL CAP VALUE SERIES)
NUMBER MARKET
OF SHARES VALUE
--------- -----------
COMMON STOCKS (CONTINUED)
HEALTH CARE SERVICES - 2.0%
Cross Country Healthcare, Inc.* 34,685 $ 616,699
Gentiva Health Services, Inc.* 53,650 790,801
IDX Systems Corporation* 31,200 1,370,304
Omnicare, Inc.(1) 3,000 171,660
-----------
2,949,464
-----------
HOUSEWARES & SPECIALTIES - 0.1%
Jarden Corporation*(1) 6,200 186,930
-----------
HUMAN RESOURCE & EMPLOYMENT SERVICES - 1.3%
CDI Corporation 15,100 413,740
Kforce, Inc.* 113,400 1,265,544
Watson Wyatt & Company Holdings 8,800 245,520
-----------
1,924,804
-----------
IT CONSULTING & OTHER SERVICES - 0.9%
MPS Group, Inc.* 68,575 937,420
Tier Technologies, Inc. (Cl.B)* 56,425 414,160
-----------
1,351,580
-----------
INDUSTRIAL MACHINERY - 1.8%
Robbins & Myers, Inc. 14,300 291,005
Unova, Inc.*(1) 69,700 2,355,860
-----------
2,646,865
-----------
INTEGRATED TELECOMMUNICATION SERVICES - 0.6%
Cincinnati Bell, Inc.* 260,100 912,951
-----------
INTERNET RETAIL - 0.0%
Stamps.com, Inc.*(1) 2,200 50,512
-----------
INTERNET SOFTWARE & SERVICES - 0.9%
EarthLink, Inc.*(1) 47,310 525,614
Net2Phone, Inc.* 81,500 166,260
Vignette Corporation* 38,080 621,085
-----------
1,312,959
-----------
METAL & GLASS CONTAINERS - 1.3%
Constar International, Inc.* 44,500 155,750
Intertape Polymer Group, Inc.* 185,400 1,663,038
-----------
1,818,788
-----------
OIL & GAS DRILLING - 3.8%
Grey Wolf, Inc.*(1) 103,900 803,147
Helmerich & Payne, Inc.(1) 19,700 1,219,627
Parker Drilling Company* 57,200 619,476
Pride International, Inc.*(1) 49,916 1,534,917
Transocean, Inc.*(1) 18,000 1,254,420
-----------
5,431,587
-----------
OIL & GAS EQUIPMENT & SERVICES - 10.7%
BJ Services Company(1) 27,600 $ 1,012,092
Global Industries, Ltd.* 457,800 5,196,030
Hydril*(1) 4,600 287,960
Input/Output, Inc.* 106,150 746,234
Key Energy Services, Inc.* 189,050 2,546,504
Newpark Resources, Inc.* 196,550 1,499,677
Oceaneering International, Inc.*(1) 29,500 1,468,510
Petroleum Helicopters, Inc. (Non-Voting)* 31,070 970,319
Petroleum Helicopters, Inc. (Voting)* 5,900 182,900
Smith International, Inc.(1) 15,200 564,072
Willbros Group, Inc.* 63,400 915,496
-----------
15,389,794
-----------
OIL & GAS EXPLORATION & PRODUCTION - 11.6%
Forest Oil Corporation*(1) 43,800 1,995,966
McMoRan Exploration Company*(1) 88,385 1,747,371
Newfield Exploration Company*(1) 17,500 876,225
Noble Energy, Inc.(1) 37,900 1,527,370
PetroQuest Energy, Inc.* 58,100 481,068
Petrohawk Energy Corporation*(2) 64,000 846,080
Pioneer Natural Resources Company(1) 16,900 866,463
Range Resources Corporation(1) 250,117 6,588,082
Remington Oil & Gas Corporation*(1) 26,100 952,650
Stone Energy Corporation*(1) 14,900 678,397
Toreador Resources Corporation*(1) 10,000 210,700
-----------
16,770,372
-----------
OIL & GAS STORAGE & TRANSPORTATION - 0.3%
El Paso Corporation 30,700 373,312
-----------
PACKAGED FOODS & MEATS - 1.0%
Del Monte Foods Company* 137,660 1,435,794
-----------
PAPER PACKAGING - 0.3%
Chesapeake Corporation(1) 27,100 460,158
-----------
PAPER PRODUCTS - 0.8%
Wausau Paper Corporation 97,800 1,158,930
-----------
PHARMACEUTICALS - 0.3%
Discovery Partners International* 96,400 255,460
Martek Biosciences Corporation*(1) 4,600 113,206
-----------
368,666
-----------
PROPERTY & CASUALTY INSURANCE - 2.9%
Argonaut Group, Inc.* 35,300 1,156,781
Donegal Group, Inc. 12,639 293,730
EMC Insurance Group, Inc. 10,400 207,376
Endurance Specialty Holdings, Ltd. 28,900 1,036,065
Mercury General Corporation 23,000 1,339,060
Nymagic, Inc. 5,900 146,261
-----------
4,179,273
-----------
REAL ESTATE INVESTMENT TRUSTS - 0.4%
American Financial Realty Trust 30,000 360,000
Government Properties Trust, Inc. 30,500 284,565
-----------
644,565
-----------
127 See accompanying notes.
Schedule of Investments SERIES Q
December 31, 2005 (SMALL CAP VALUE SERIES)
NUMBER MARKET
OF SHARES VALUE
--------- ------------
COMMON STOCKS (CONTINUED)
REGIONAL BANKS - 0.6%
Colonial BancGroup, Inc. 33,400 $ 795,588
------------
REINSURANCE - 0.5%
PXRE Group, Ltd. 52,550 681,048
------------
SEMICONDUCTOR EQUIPMENT - 0.6%
Credence Systems Corporation* 104,200 725,232
Kulicke & Soffa Industries, Inc.* 10,100 89,284
------------
814,516
------------
SEMICONDUCTORS - 0.8%
Stats ChipPAC, Ltd. ADR* 138,933 944,744
TriQuint Semiconductor, Inc.* 49,100 218,495
------------
1,163,239
------------
SPECIALTY CHEMICALS - 1.3%
H.B. Fuller Company(1) 2,500 80,175
OM Group, Inc.*(1) 35,850 672,546
PolyOne Corporation* 177,200 1,139,396
------------
1,892,117
------------
SPECIALTY STORES - 0.1%
Sharper Image Corporation*(1) 20,340 198,112
------------
STEEL - 7.7%
Carpenter Technology Corporation(1) 21,000 1,479,870
GrafTech International, Ltd.* 231,355 1,439,028
Ipsco, Inc.(1) 41,100 3,410,478
Roanoke Electric Steel Corporation 23,600 556,960
Steel Dynamics, Inc.(1) 47,000 1,668,970
United States Steel Corporation(1) 47,740 2,294,862
Webco Industries, Inc.* 4,740 308,100
------------
11,158,268
------------
TRUCKING - 0.4%
Covenant Transport, Inc.* 41,800 584,364
------------
TOTAL COMMON STOCKS
(cost $95,049,174) 127,506,916
------------
FOREIGN STOCKS - 0.4%
CANADA - 0.4%
Intertape Polymer Group, Inc.*(3) 3,000 26,761
Quadra Mining, Ltd.* 21,100 107,996
Southwestern Resources Corporation* 13,400 155,728
Trilogy Energy Trust 11,500 235,441
------------
525,926
------------
TOTAL FOREIGN STOCKS
(cost $497,714) 525,926
------------
REPURCHASE AGREEMENT - 15.1%
State Street, 1.75%, dated 12-30-05,
matures 01-03-06; repurchase amount
$21,784,950 (Collateralized by FNMA,
2.32%, 04-07-06 with a value of
$22,219,561) $21,780,715 $ 21,780,715
------------
TOTAL REPURCHASE AGREEMENT
(cost $21,780,715) 21,780,715
------------
TOTAL INVESTMENTS - 103.9%
(cost $117,327,603) 149,813,557
LIABILITIES, LESS CASH & OTHER ASSETS - (3.9%) (5,647,264)
------------
TOTAL NET ASSETS - 100.0% $144,166,293
============
For federal income tax purposes, the identified cost of investments owned at
December 31, 2005 was $117,818,131.
* Non-income producing security
ADR (American Depositary Receipt)
(1) A portion of this security underlies outstanding written options contracts.
(2) Security is restricted. The total market value of restricted securities is
$846,080 (cost $531,531), or 0.6% of total net assets. The acquisition date
was November 16, 2004.
(3) Security is a private placement.
128 See accompanying notes.
Statement of Assets and Liabilities SERIES Q
December 31, 2005 (SMALL CAP VALUE SERIES)
ASSETS:
Investments, at value(1) ........................................ $128,032,842
Repurchase agreement, at value(1) ............................... 21,780,715
Cash denominated in a foreign
currency, at value(2) ........................................ 21,707
Receivables:
Fund shares sold ............................................. 361,360
Securities sold .............................................. 527,902
Dividends .................................................... 28,569
Prepaid expenses ................................................ 2,270
------------
Total assets .................................................... 150,755,365
============
LIABILITIES:
Cash overdraft .................................................. 30,660
Payable for:
Securities purchased ......................................... 3,428,837
Fund shares redeemed ......................................... 47,969
Written options, at value
(premiums received, $2,559,077) ........................... 2,915,150
Management fees .............................................. 121,423
Custodian fees ............................................... 10,000
Transfer agent and administration fees ....................... 16,018
Professional fees ............................................ 10,175
Director's fees .............................................. 1,025
Other ........................................................ 7,815
------------
Total liabilities ............................................... 6,589,072
------------
NET ASSETS ...................................................... $144,166,293
============
NET ASSETS CONSIST OF:
Paid in capital ................................................. $100,415,534
Accumulated undistributed net realized gain
on sale of investments, options written
and foreign currency transactions ............................ 11,620,834
Net unrealized appreciation in value of
investments, options written and
translation of assets and liabilities
in foreign currency .......................................... 32,129,925
------------
Net assets ...................................................... $144,166,293
============
Capital shares authorized ....................................... unlimited
Capital shares outstanding ...................................... 6,255,125
Net asset value per share
(net assets divided by shares outstanding) ................... $ 23.05
============
(1)Investments, including repurchase agreement, at cost ......... $117,327,603
(2)Cash denominated in a foreign currency, at cost .............. 21,706
Statement of Operations
For the Year Ended December 31, 2005
INVESTMENT INCOME:
Dividends .................................................... $ 625,553
Interest ..................................................... 168,560
-----------
Total investment income ...................................... 794,113
-----------
EXPENSES:
Management fees .............................................. 1,223,855
Administration fees .......................................... 121,458
Custodian fees ............................................... 80,493
Transfer agent/maintenance fees .............................. 25,126
Directors' fees .............................................. 6,931
Professional fees ............................................ 18,494
Reports to shareholders ...................................... 18,926
Other expenses ............................................... 4,322
-----------
Total expenses ............................................... 1,499,605
Less: Earnings credits applied ............................... (392)
-----------
Net expenses ................................................. 1,499,213
-----------
Net investment loss .......................................... (705,100)
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) during the year on:
Investments .................................................. 14,127,315
Options written .............................................. (1,472,715)
Foreign currency transactions ................................ (362)
-----------
Net realized gain ............................................ 12,654,238
-----------
Net unrealized appreciation (depreciation)
during the year on:
Investments .................................................. 5,309,285
Options written .............................................. (333,333)
Translation of assets and liabilities in
foreign currencies ........................................ 63
-----------
Net unrealized appreciation .................................. 4,976,015
-----------
Net realized and unrealized gain ............................. 17,630,253
-----------
Net increase in net assets
resulting from operations ................................. $16,925,153
===========
129 See accompanying notes.
SERIES Q
Statement of Changes in Net Assets (SMALL CAP VALUE SERIES)
YEAR ENDED YEAR ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment loss ................. $ (705,100) $ (640,814)
Net realized gain during the
period on investments, options
written and foreign currency
transactions ..................... 12,654,238 11,046,391
Net unrealized appreciation during
the period on investments,
options written and translation
of assets and liabilities in
foreign currencies ............... 4,976,015 6,832,035
------------ ------------
Net increase in net assets
resulting from operations ........ 16,925,153 17,237,612
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain ................... -- (617,424)
------------ ------------
Total distributions to
shareholders ..................... -- (617,424)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares ........ 66,615,051 62,936,569
Distributions reinvested ............ -- 617,424
------------ ------------
Cost of shares redeemed ............. (51,506,782) (55,337,957)
Net increase from capital
------------ ------------
share transactions ............... 15,108,269 8,216,036
------------ ------------
Net increase in net assets .......... 32,033,422 24,836,224
------------ ------------
NET ASSETS:
Beginning of period ................. 112,132,871 87,296,647
------------ ------------
End of period ....................... $144,166,293 $112,132,871
============ ============
Accumulated net investment loss
at end of year ................... $ -- $ (1,222)
============ ============
CAPITAL SHARE ACTIVITY:
Shares sold ......................... 3,141,404 3,550,042
Shares reinvested ................... -- 35,444
Shares redeemed ..................... (2,458,032) (3,197,603)
------------ ------------
Total capital share activity ........ 683,372 387,883
============ ============
130 See accompanying notes.
Financial Highlights
Selected data for each share of capital stock SERIES Q
outstanding throughout each period (SMALL CAP VALUE SERIES)
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
2005 2004 2003 2002 2001
-------- -------- ------- ------- -------
PER SHARE DATA
Net asset value, beginning of period $ 20.13 $ 16.84 $ 11.24 $ 12.79 $ 10.74
-------- -------- ------- ------- -------
Income (loss) from investment operations:
Net investment income (loss) (0.11) (0.12) (0.03) (0.09) (0.04)
Net gain (loss) on securities (realized and unrealized) 3.03 3.53 5.73 (0.79) 2.41
-------- -------- ------- ------- -------
Total from investment operations 2.92 3.41 5.70 (0.88) 2.37
-------- -------- ------- ------- -------
Less distributions:
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 $ 23.05 $ 20.13 $ 16.84 $ 11.24 $ 12.79
======== ======== ======= ======= =======
TOTAL RETURN(a) 14.51% 20.37% 50.90% (6.96%) 22.16%
-------- -------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $144,166 $112,133 $87,297 $50,830 $58,198
-------- -------- ------- ------- -------
Ratios to average net assets:
Net investment income (loss) (0.58%) (0.68%) (0.28%) (0.59%) (0.42%)
Total expenses(b) 1.22% 1.19% 1.22% 1.22% 1.18%
Net expenses(c) 1.22% 1.19% 1.22% 1.22% 1.17%
-------- -------- ------- ------- -------
Portfolio turnover rate 37% 43% 37% 56% 47%
(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) Total expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net expense information reflects the expense ratios after custodian
earnings credits.
131 See accompanying notes.
This page left blank intentionally.
132
SERIES S
Manager's Commentary (SOCIAL AWARENESS SERIES)
February 15, 2006 (unaudited)
(SECURITY BENEFIT(SM) LOGO)
Security Management Company, LLC
Advisor, Security Management Company, LLC
(PHOTO OF MARK A. MITCHELL)
Mark A. Mitchell
Portfolio Manager
TO OUR SHAREHOLDERS:
2005 produced solid returns. SBL S - Social Awareness Series returned 5.00% in
the 12-month period ending December 31, 2005, slightly ahead of the benchmark,
S&P 500 Index's return of 4.91% and slightly below the Series' peer group median
return of 5.42%. For comparison purposes, the DSI 400 Index was up 3.00% for the
same period. The performance was driven primarily by strong stock selection
offset by not participating in the energy sector's strong performance due to
social criteria.
Our approach to managing the 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.
INDUSTRIAL AND CONSUMER STAPLES STOCKS TOP PERFORMERS
The industrial sector was up over 18% for the Series versus up 2% for the
benchmark. Shaw Group, Inc. and J.B. Hunt Transport Services, Inc. (JB Hunt)
were the major drivers within the sector. Shaw Group was up 63% as a result of
continued worldwide economic growth and the corresponding demand for its
infrastructure related services. JB Hunt was up 29%, benefiting from solid
trucking demand in a supply constrained industry.
Within consumer staples, CVS Corporation (CVS) and Costco Wholesale Corporation
(Costco) were up 18% and 15% respectively. CVS benefited from continued
execution in its core drug store business and good progress in the integration
of Eckard, an acquisition completed in July 2004. Costco was positively impacted
by solid execution within its core business of retail warehouse clubs.
ENERGY AND TECHNOLOGY DISAPPOINTING
The energy sector was up over 47% for the period driven by rapidly increasing
commodity prices. Many energy-related companies have environmental concerns that
do not meet our social screening criteria. These limitations are not in place in
the benchmark (S&P 500), or the core peer group we use for comparison purposes.
Technology, as a sector overall, produced limited returns in 2005. However,
there were good performers at the company level. Apple, up 123%, benefited
significantly from the excitement around new product launches in its flagship
iPod digital music player and notebook computer lines. While we believe Apple is
a good company, it does not meet our valuation criteria.
2006 MARKET OUTLOOK
Though we are positive on the equity market for 2006, we do have several
near-term concerns. The most significant, in our opinion, is the spending
capacity of the U.S. consumer. Above average consumer spending trends have
persisted as a result of favorable monetary and fiscal policies. These favorable
policy trends are now being reversed. Additionally, higher energy prices will
continue to weigh heavily on the consumer as we move through the winter heating
season.
We continue to look for opportunities that are long-term in nature and benefit
from both an attractive valuation and the ability to improve their fundamental
competitive positions.
We 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(1). 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
(1) Dollar cost averaging does not assure profits or protect against loss in a
declining market.
133
SERIES S
Manager's Commentary (SOCIAL AWARENESS SERIES)
February 15, 2006 (unaudited)
PERFORMANCE
SERIES S VS. DOMINI SOCIAL 400 INDEX
AND S&P 500 INDEX
(PERFORMANCE GRAPH)
SERIES S DOMINI SOCIAL 400 INDEX S&P 500 INDEX
- ---------------------------- ---------------------------------- ----------------------
DATE VALUE DATE VALUE DATE VALUE
---------- --------- ---------- --------- -------- ---------
12/31/1995 10,000.00 INCEPTION 12/31/95 10,000.00 INCEPTION 12/31/95 10,000.00
3/31/1996 10,729.80 3/31/1996 10,515.48 3/31/96 10,536.35
6/30/1996 11,527.99 6/30/1996 11,006.24 6/30/96 11,008.74
9/30/1996 12,076.20 9/30/1996 11,461.94 9/30/96 11,349.07
12/31/1996 11,938.54 12/31/96 12,370.85 12/31/96 12,295.60
3/31/1997 11,475.51 3/31/97 12,792.32 3/31/97 12,624.86
6/30/1997 13,252.53 6/30/97 15,071.78 6/30/97 14,829.18
9/30/1997 14,287.38 9/30/97 16,337.23 9/30/97 15,941.24
12/31/1997 14,642.76 12/31/97 17,103.37 12/31/97 16,399.53
3/31/1998 16,596.02 3/31/98 19,568.32 3/31/98 18,687.28
6/30/1998 16,955.18 6/30/98 20,340.86 6/30/98 19,304.54
9/30/1998 15,423.66 9/30/98 18,388.81 9/30/98 17,383.58
12/31/1998 19,245.69 12/31/98 23,012.82 12/31/98 21,084.26
3/31/1999 19,782.72 3/31/99 24,209.50 3/31/99 22,137.84
6/30/1999 21,265.72 6/30/99 25,852.92 6/30/99 23,697.99
9/30/1999 19,945.93 9/30/99 24,290.88 9/30/99 22,217.90
12/31/1999 22,553.04 12/31/99 28,652.34 12/31/99 25,523.58
3/31/2000 23,883.04 3/31/00 29,567.46 3/31/00 26,110.20
6/30/2000 23,093.57 06/30/00 27,978.68 06/30/00 25,417.83
9/30/2000 21,763.58 09/30/00 26,677.57 09/30/00 25,171.96
12/31/2000 19,644.12 12/31/00 24,555.19 12/31/00 23,204.17
3/31/2001 17,199.28 3/31/2001 21,600.50 3/31/2001 20,454.31
6/30/2001 18,066.41 6/30/2001 22,766.12 6/30/2001 21,652.06
9/30/2001 15,088.01 9/30/2001 19,536.02 9/30/2001 18,475.85
12/31/2001 17,071.10 12/31/2001 21,587.22 12/31/2001 20,451.30
3/31/2002 17,090.49 3/31/2002 21,630.89 3/31/2002 20,506.88
6/30/2002 14,695.40 6/30/2002 19,021.74 6/30/2002 17,760.15
9/30/2002 12,353.20 9/30/2002 15,789.66 9/30/2002 14,692.83
12/31/2002 13,327.74 12/31/2002 17,249.21 12/31/2002 15,933.73
3/31/2003 12,971.43 3/31/2003 16,668.46 3/31/2003 15,431.91
6/30/2003 14,783.33 6/30/2003 19,231.98 6/30/2003 17,807.35
9/30/2003 15,147.23 9/30/2003 19,891.84 9/30/2003 18,278.64
12/31/2003 16,522.32 12/31/2003 22,161.39 12/31/2003 20,504.32
3/31/1994 16,636.53 3/31/2004 22,622.12 3/31/2004 20,852.16
6/30/2004 16,887.79 6/30/2004 23,141.47 6/30/2004 21,209.61
9/30/2004 16,073.74 9/30/2004 22,327.22 9/30/2004 20,811.97
12/31/2004 17,376.40 12/31/2004 24,445.53 12/31/2004 22,733.70
3/31/2005 16,622.23 3/31/2005 23,321.01 3/31/2005 22,243.95
6/30/2005 17,025.97 6/30/2005 23,688.13 6/30/2005 22,546.75
9/30/2005 17,574.46 9/30/2005 24,489.72 9/30/2005 23,360.38
12/31/2005 18,244.84 12/31/2005 25,177.10 12/31/2005 23,845.69
$10,000 OVER TEN YEARS
The chart above assumes a hypothetical $10,000 investment in Series S (Social
Awareness Series) on December 31, 1995 and reflects the fees and expenses of
Series S. Series S is changing its benchmark index to the S&P 500 because, among
other reasons, the Domini Social 400 is not as widely utilized and reported an
index as the S&P 500, performance attribution analysis of the Domini Social 400
is no longer available to the Series and the change to the S&P 500 allows
shareholders to compare the Series' performance to that of a broader measure of
the stock market's overall performance as compared to the Domini 400. The Domini
Social Index, modeled on the S&P 500 Index, is a socially screened
capitalization weighted index of 400 common stocks. The S&P 500 Index is a
capitalization-weighted index composed of 500 selected common stocks that
represent the broad domestic economy and is a widely recognized unmanaged index
of market performance.
AVERAGE ANNUAL RETURNS
PERIODS ENDED 12-31-05(1) 1 YEAR 5 YEARS 10 YEARS
- ------------------------- ------ ------- --------
Series S 5.00% (1.47%) 6.15%
(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
Consumer Discretionary 15.50%
Consumer Staples 10.68
Energy 3.21
Financials 11.33
Health Care 21.37
Industrials 13.99
Information Technology 18.70
Materials 2.18
Telecommunication Services 1.96
Repurchase Agreement 0.49
Cash & other assets, less liabilities 0.59
Total net assets 100.00%
======
134 See accompanying notes.
SERIES S
Manager's Commentary (SOCIAL AWARENESS SERIES)
February 15, 2006 (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, 2005 - December 31, 2005.
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
mutual 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.
SERIES EXPENSES
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING
07-01-05 12-31-05(1) PERIOD(2)
------------- ------------- -------------
Series S (Social Awareness Series)
Actual $1,000.00 $1,066.80 $4.74
Hypothetical 1,000.00 1,020.62 4.63
(1) The actual ending account value is based on the actual total return of the
Series for the period July 1, 2005 to December 31, 2005 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, 2005 to December 31, 2005 was 6.68%.
(2) Expenses are equal to the Series annualized expense ratio 0.91% multiplied
by the average account value over the period, multiplied by 184/365 (to
reflect the one-half year period).
135
Schedule of Investments SERIES S
December 31, 2005 (SOCIAL AWARENESS SERIES)
NUMBER MARKET
OF SHARES VALUE
--------- -----------
COMMON STOCKS - 98.9%
AIR FREIGHT & LOGISTICS - 3.9%
FedEx Corporation 36,300 $ 3,753,057
-----------
BIOTECHNOLOGY - 2.1%
Amgen, Inc.* 24,950 1,967,557
-----------
BROADCASTING & CABLE TV - 4.5%
Comcast Corporation* 21,507 558,322
Univision Communications, Inc.* 127,600 3,750,164
-----------
4,308,486
-----------
COMMUNICATIONS EQUIPMENT - 5.2%
ADC Telecommunications, Inc.* 102,285 2,285,047
Cisco Systems, Inc.* 155,000 2,653,600
-----------
4,938,647
-----------
CONSTRUCTION & ENGINEERING - 3.2%
Shaw Group, Inc.* 105,800 3,077,722
-----------
CONSUMER FINANCE - 2.5%
American Express Company 46,300 2,382,598
-----------
DATA PROCESSING & OUTSOURCED SERVICES - 2.8%
First Data Corporation 61,200 2,632,212
-----------
DRUG RETAIL - 3.1%
CVS Corporation 111,200 2,937,904
-----------
ELECTRICAL COMPONENTS & EQUIPMENT - 1.8%
Power-One, Inc.* 285,400 1,718,108
-----------
GENERAL MERCHANDISE STORES - 1.5%
Target Corporation 25,500 1,401,735
-----------
HEALTH CARE EQUIPMENT - 8.9%
Fisher Scientific International, Inc.* 30,500 1,886,730
Medtronic, Inc. 64,500 3,713,265
Zimmer Holdings, Inc.* 42,900 2,893,176
-----------
8,493,171
-----------
HEALTH CARE SERVICES - 2.9%
Covance, Inc.* 56,900 2,762,495
-----------
HOME IMPROVEMENT RETAIL - 3.4%
Home Depot, Inc. 79,500 3,218,160
-----------
HYPERMARKETS & SUPERCENTERS - 2.7%
Costco Wholesale Corporation 51,400 2,542,758
-----------
INDUSTRIAL GASES - 2.2%
Praxair, Inc. 39,200 2,076,032
-----------
IT CONSULTING & OTHER SERVICES - 1.9%
Unisys Corporation* 307,900 1,795,057
-----------
MANAGED HEALTH CARE - 4.7%
UnitedHealth Group, Inc. 36,200 2,249,468
WellPoint, Inc.* 28,100 2,242,099
-----------
4,491,567
-----------
MOVIES & ENTERTAINMENT - 6.1%
Time Warner, Inc. 167,500 $ 2,921,200
Viacom, Inc. (Cl.B) 88,700 2,891,620
-----------
5,812,820
-----------
MULTI-LINE INSURANCE - 4.9%
American International Group, Inc. 67,899 4,632,749
-----------
OIL & GAS EQUIPMENT & SERVICES - 1.8%
BJ Services Company 48,000 1,760,160
-----------
OIL & GAS STORAGE & TRANSPORTATION - 1.4%
Williams Companies, Inc. 55,800 1,292,886
-----------
OTHER DIVERSIFIED FINANCIAL SERVICES - 3.9%
First Marblehead Corporation 66,000 2,168,760
JP Morgan Chase & Company 40,000 1,587,600
-----------
3,756,360
-----------
PHARMACEUTICALS - 2.7%
Johnson & Johnson 43,364 2,606,176
-----------
SEMICONDUCTORS - 4.9%
Analog Devices, Inc. 48,900 1,754,043
Intel Corporation 115,400 2,880,384
-----------
4,634,427
-----------
SOFT DRINKS - 4.9%
Coca-Cola Company 56,050 2,259,375
PepsiCo, Inc. 41,000 2,422,280
-----------
4,681,655
-----------
SYSTEMS SOFTWARE - 4.0%
Microsoft Corporation 144,600 3,781,290
-----------
TRADING COMPANIES & DISTRIBUTORS - 2.1%
W.W. Grainger, Inc. 28,000 1,990,800
-----------
TRUCKING - 2.9%
J.B. Hunt Transport Services, Inc. 122,000 2,762,080
-----------
WIRELESS TELECOMMUNICATION SERVICE - 2.0%
Sprint Nextel Corporation 80,000 1,868,800
-----------
TOTAL COMMON STOCKS
(cost $90,385,854) 94,077,469
-----------
136 See accompanying notes.
Schedule of Investments SERIES S
December 31, 2005 (SOCIAL AWARENESS SERIES)
PRINCIPAL MARKET
AMOUNT VALUE
--------- -----------
REPURCHASE AGREEMENT - 0.5%
United Missouri Bank, 3.78%, dated 12-30-05,
matures 01-03-06; repurchase amount of
$462,194 (Collateralized by U.S. Treasury
Notes, 01-31-06 with a value of
$471,929) $462,000 $ 462,000
-----------
TOTAL REPURCHASE AGREEMENT
(cost $462,000) 462,000
-----------
TOTAL INVESTMENTS - 99.4%
(cost $90,847,854) 94,539,469
CASH AND OTHER ASSETS, LESS LIABILITIES - 0.6% 572,872
-----------
TOTAL NET ASSETS - 100.0% $95,112,341
===========
The identified cost of investments owned at December 31, 2005 was the same for
federal income tax and financial statement purposes.
* Non-income producing security
137 See accompanying notes.
Statement of Assets and Liabilities SERIES S
December 31, 2005 (SOCIAL AWARENESS SERIES)
ASSETS:
Investments, at value(1) ............................................ $94,539,469
Cash ................................................................ 2,196
Receivables:
Fund shares sold .................................................... 712,493
Dividends ........................................................... 25,845
Prepaid expenses .................................................... 1,853
-----------
Total assets ........................................................ 95,281,856
-----------
LIABILITIES:
Payable for:
Fund shares redeemed ................................................ 81,074
Management fees ..................................................... 61,606
Custodian fees ...................................................... 1,950
Transfer agent and administration fees .............................. 10,022
Professional fees ................................................... 8,603
Director's fees ..................................................... 1,100
Other ............................................................... 5,160
-----------
Total liabilities ................................................... 169,515
-----------
NET ASSETS .......................................................... $95,112,341
===========
NET ASSETS CONSIST OF:
Paid in capital ..................................................... $87,999,633
Accumulated undistributed net investment income ..................... 280,972
Accumulated undistributed net realized gain on sale of investments .. 3,140,121
Net unrealized appreciation in value of investments ................. 3,691,615
-----------
Net assets .......................................................... $95,112,341
===========
Capital shares authorized ........................................... unlimited
Capital shares outstanding .......................................... 3,971,056
Net asset value per share
(net assets divided by shares outstanding) ....................... $ 23.95
===========
(1) Investments, at cost ............................................ $90,847,854
Statement of Operations
For the Year Ended December 31, 2005
INVESTMENT INCOME:
Dividends ........................................................ $1,034,497
Interest ......................................................... 144,565
----------
Total investment income .......................................... 1,179,062
----------
EXPENSES:
Management fees .................................................. 737,342
Administration fees .............................................. 89,457
Custodian fees ................................................... 8,066
Transfer agent/maintenance fees .................................. 25,205
Directors' fees .................................................. 5,245
Professional fees ................................................ 16,766
Reports to shareholders .......................................... 10,864
Other expenses ................................................... 5,145
----------
Total expenses ................................................... 898,090
----------
Net investment income ............................................ 280,972
----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain during the year on
Investments ................................................... 4,449,728
----------
Net realized gain ............................................. 4,449,728
----------
Net unrealized depreciation during the year on Investments ....... (363,949)
----------
Net unrealized depreciation ...................................... (363,949)
----------
Net realized and unrealized gain ................................. 4,085,779
----------
Net increase in net assets resulting from operations ............. $4,366,751
==========
138 See accompanying notes.
SERIES S
Statement of Changes in Net Assets (SOCIAL AWARENESS SERIES)
YEAR ENDED YEAR ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income ........................................... $ 280,972 $ 1,098,477
Net realized gain during the period on investments .............. 4,449,728 6,395,190
Net unrealized depreciation during the period on investments .... (363,949) (2,086,141)
------------ ------------
Net increase in net assets resulting from operations ............ 4,366,751 5,407,526
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ........................................... -- (55,978)
------------ ------------
Total distributions to shareholders ............................. -- (55,978)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares .................................... 9,742,999 13,188,684
Distributions reinvested ........................................ -- 55,978
Cost of shares redeemed ......................................... (27,852,550) (28,190,885)
------------ ------------
Net decrease from capital share transactions .................... (18,109,551) (14,946,223)
------------ ------------
Net decrease in net assets ...................................... (13,742,800) (9,594,675)
------------ ------------
NET ASSETS:
Beginning of period ............................................. 108,855,141 118,449,816
------------ ------------
End of period ................................................... $ 95,112,341 $108,855,141
============ ============
Accumulated undistributed net investment income at end of year .. $ 280,972 $ 1,093,613
============ ============
CAPITAL SHARE ACTIVITY:
Shares sold ..................................................... 428,029 606,902
Shares reinvested ............................................... -- 2,616
Shares redeemed ................................................. (1,228,342) (1,296,096)
------------ ------------
Total capital share activity .................................... (800,313) (686,578)
============ ============
139 See accompanying notes.
Financial Highlights
Selected data for each share of capital SERIES S
stock outstanding throughout each year (SOCIAL AWARENESS SERIES)
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2005 2004 2003 2002 2001
------- -------- -------- -------- --------
PER SHARE DATA
Net asset value, beginning of period $ 22.81 $ 21.70 $ 17.58 $ 22.64 $ 27.62
------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income 0.12 0.23 0.10 0.06 0.04
Net gain (loss) on securities (realized and unrealized) 1.02 0.89 4.11 (5.01) (3.55)
------- -------- -------- -------- --------
Total from investment operations 1.14 1.12 4.21 (4.95) (3.51)
------- -------- -------- -------- --------
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 $ 23.95 $ 22.81 $ 21.70 $ 17.58 $ 22.64
======= ======== ======== ======== ========
TOTAL RETURN(A) 5.00% 5.17% 23.97% (21.93%) (13.10%)
------- -------- -------- -------- --------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $95,112 $108,855 $118,450 $108,658 $158,686
------- -------- -------- -------- --------
Ratios to average net assets:
Net investment income 0.29% 0.97% 0.50% 0.29% 0.17%
Total expenses 0.91% 0.89% 0.83% 0.83% 0.83%
------- -------- -------- -------- --------
Portfolio turnover rate 47% 24% 19% 5% 10%
(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.
140 See accompanying notes.
SERIES V
Manager's Commentary (MID CAP VALUE SERIES)
February 15, 2006 (unaudited)
(SECURITY BENEFIT (SM) LOGO)
Security Management Company, LLC
Advisor, Security Management Company, LLC
(PHOTO OF JAMES P. SCHIER)
James P.Schier
Portfolio Manager
TO OUR SHAREHOLDERS:
Series V of SBL Fund - Mid Cap Value Series returned 16.21% in the 12-month
period that ended December 31, 2005, beating the benchmark Russell 2500 Value
Index's return of 7.74% and out James P.Schier performing the Series' peer group
median return of 9.40%. Strong stock selection and sector positioning drove
excellent results in 2005.
Our approach with Series V is to seek appreciable securities of companies that
are able to grow and/or reinvest in increasingly profitable ventures and hold
them over 3-5 years to capture the better part of the improvements in
profitability. We are focused on investing in securities when 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.
INDUSTRIALS, ENERGY AND FINANCIALS LED GAINS
For the Series, the industrial sector was the largest contributor to results,
gaining 40% vs. 9.8% for the benchmark. Energy infrastructure names such as
McDermott International, Inc. and Shaw Group, Inc. were the biggest contributors
gaining 142%, and 63% respectively. McDermott's marine construction business
received renewed interest after Hurricane Katrina and progress on asbestos
liability litigation prompted strong interest in the name. Shaw Group
experienced rapid backlog growth in utility base load construction and refinery
projects.
The energy sector was also a big contributor. Arch Coal gained 125%. The stock
rallied in sympathy with a robust coal market. Prior to this year, coal lagged
the appreciation of other fossil fuels. In addition, efforts to make coal
generation a cleaner source appear to be gaining traction in the market. This
feature serves to boost its attractiveness as a fuel.
Good stock selection in financials also benefited the Series as stocks in this
sector rose 17% vs. 5.5% for the benchmark. W.R. Berkley Corporation, a
specialty property and casualty insurer, gained 52%. The company reported
improving financial metrics despite a difficult catastrophe year for the
industry. United Rentals, Inc. gained 27% and First Marblehead Corporation
gained 23%. Both were hurt by short term events that were eventually sorted out
by the market.
TECHNOLOGY AND HEALTHCARE LAG
During 2005 stock selection in technology was difficult. The Series' holdings in
this sector declined 14%. The fiber optic component supplier Avanex Corporation
fell 58% as restructuring costs and cash burn fears were compounded with a
slower than expected up tick in its business. Merix Corporation, Inc. declined
37% as the market questioned its purchase of a high volume Asian circuit board
manufacturer.
Health care also provided turbulence. Hooper Holmes, Inc. declined 56% as the
porta-medic business continues to languish. The company also experienced a lack
of progress in a promised diversification effort. Hooper continues to have a
strong business position in its niche and generates free cash flow. The Series
continues to patiently hold this issue.
OUTLOOK FOR 2006
The stock market has been surprisingly buoyant the past year given rising energy
prices and restrictive Federal Reserve Bank policies. Logic would tend to
suggest that an unusually conservative positioning would be prudent. However,
companies with high earnings stability and visibility currently have high
valuations suggesting that the market has already priced in this outlook. In
addition, the out-performance of value stocks over the last few years may also
reflect this conservative tendency in the market. Given this view, the Series
plans to continue to under-weight the traditionally stable sectors such as
finance, consumer discretionary, and consumer staples. With the sizable move in
the energy sector, the Series has been trimming exposure slightly.
At present, we are finding that the most compelling opportunities lie in the
industrial and technology sectors of the market. Specifically, we like companies
in the water, wastewater, telecomm equipment and highway development industries.
In addition, many of the new commitments have also tended to the larger end of
our market capitalization spectrum.
On behalf of the Series, thank you for trusting your investment with us. We are
excited to see what opportunities present themselves over 2006.
Sincerely,
James P. Schier
Senior Portfolio Manager
141
SERIES V
Manager's Commentary (MID CAP VALUE SERIES)
February 15, 2006 (unaudited)
PERFORMANCE
SERIES V VS. S&P MIDCAP 400/BARRA VALUE
INDEX AND RUSSELL 2500 VALUE INDEX
(PERFORMANCE GRAPH)
SERIES V S&P MIDCAP 400/BARRA VALUE RUSSELL 2500 VALUE INDEX
- ----------------------------------- ---------------------------- ----------------------------
DATE VALUE DATE VALUE DATE VALUE
---------- --------- ---------- --------- ---------- ---------
05/01/1997 10,000.00 05/01/1997 10,000.00 05/01/1997 10,000.00
06/30/1997 11,140.00 06/30/1997 10,925.23 06/30/1997 11,200.83
09/30/1997 13,030.00 09/30/1997 12,471.40 09/30/1997 12,594.49
12/31/1997 13,130.00 12/31/1997 13,146.38 12/31/1997 12,952.70
03/31/1998 15,081.94 03/31/1998 14,440.15 03/31/1998 14,188.46
06/30/1998 14,980.18 06/30/1998 13,842.25 06/30/1998 13,681.09
09/30/1998 12,731.11 09/30/1998 11,932.74 09/30/1998 11,427.77
12/31/1998 15,307.87 12/31/1998 13,761.77 12/31/1998 12,705.04
03/31/1999 15,014.23 03/31/1999 12,653.42 03/31/1999 11,687.40
06/30/1999 18,300.24 06/30/1999 14,543.13 06/30/1999 13,558.89
09/30/1999 17,243.65 09/30/1999 13,126.61 09/30/1999 12,386.34
12/31/1999 18,197.58 12/31/1999 14,081.67 12/31/1999 12,892.04
03/31/2000 20,666.70 03/31/2000 14,964.64 03/31/2000 13,494.60
06/30/2000 20,982.14 06/30/2000 14,567.38 06/30/2000 13,413.75
09/30/2000 23,284.95 09/30/2000 16,467.23 09/30/2000 14,336.43
12/31/2000 24,349.34 12/31/2000 18,001.12 12/31/2000 15,571.76
03/31/2001 25,261.25 03/31/2001 17,381.57 03/31/2001 15,264.14
06/30/2001 27,726.32 06/30/2001 19,360.83 06/30/2001 16,787.57
09/30/2001 22,346.93 09/30/2001 16,839.62 09/30/2001 14,698.15
12/31/2001 27,058.22 12/31/2001 19,286.99 12/31/2001 17,088.66
03/31/2002 29,753.75 03/31/2002 21,200.92 03/31/2002 18,542.23
06/30/2002 27,475.48 06/30/2002 19,956.18 06/30/2002 17,895.20
09/30/2002 21,210.22 09/30/2002 16,268.59 09/30/2002 14,608.72
12/31/2002 23,250.58 12/31/2002 17,337.54 12/31/2002 15,401.82
03/31/2003 22,690.47 03/31/2003 16,331.37 03/31/2003 14,666.86
06/30/2003 29,025.88 06/30/2003 19,462.62 06/30/2003 17,788.08
09/30/2003 31,403.05 09/30/2003 20,862.99 09/30/2003 19,169.13
12/31/2003 35,868.72 12/31/2003 24,304.45 12/31/2003 22,319.49
03/31/2004 38,717.46 03/31/2004 25,648.25 03/31/2004 23,698.49
06/30/2004 39,679.70 06/30/2004 25,951.24 06/30/2004 23,817.52
09/30/2004 39,443.98 09/30/2004 25,748.69 09/30/2004 23,877.08
12/31/2004 45,542.23 12/31/2004 28,901.11 12/31/2004 27,134.02
03/31/2005 45,399.51 03/31/2005 28,696.21 03/31/2005 26,556.13
06/30/2005 46,645.11 06/30/2005 30,091.66 06/30/2005 27,969.20
09/30/2005 50,836.03 09/30/2005 31,719.04 09/30/2005 28,963.85
12/31/2005 52,925.00 12/31/2005 32,253.55 12/31/2005 29,232.64
$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. Series V changed its benchmark index to the Russell 2500
Value Index. The Investment Adviser has determined that the Russell 2500 Value
Index is a more appropriate index than the S&P MidCap 400/Barra Value Index,
which is created by Standard & Poor's and Barra by dividing the S&P MidCap 400
Index equally between growth and value based upon a price-to-book value
calculation, because the Russell 2500 Value Index more closely reflects the
types of securities in which the Series invests and thus provides shareholders
with a more appropriate benchmark against which to compare the Series'
performance. The S&P MidCap 400/Barra Value Index, which is created by Standard
& Poor's and Barra by dividing the S&P MidCap 400 Index equally between growth
and value based upon a price-to-book value calculation. The Russell 2500 Value
Index is an unmanaged index that measures the performance of Securities of
small-to-mid cap U.S. companies with greater-than-average value orientation.
AVERAGE ANNUAL RETURNS
SINCE INCEPTION
PERIODS ENDED 12-31-05(1) 1 YEAR 5 YEARS (5-1-97)
- ------------------------- ------ ------- ---------------
Series V 16.21% 16.80% 21.19%
(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
Consumer Discretionary 3.12%
Consumer Staples 5.55
Energy 10.59
Financials 13.18
Health Care 4.38
Industrials 30.85
Information Technology 15.53
Materials 5.63
Telecommunication Services 0.71
Utilities 5.37
Commercial Paper 2.77
Asset Backed Securities 2.05
Repurchase Agreement 0.17
Cash & other assets, less liabilities 0.10
Total net assets 100.00%
======
142 See accompanying notes.
SERIES V
Manager's Commentary (MID CAP VALUE SERIES)
February 15, 2006 (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, 2005 - December 31, 2005.
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
mutual 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.
SERIES EXPENSES
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING
07-01-05 12-31-05(1) PERIOD(2)
------------- ------------- -------------
Series V (Mid Cap Value Series)
Actual $1,000.00 $1,132.10 $4.89
Hypothetical 1,000.00 1,020.62 4.63
(1) The actual ending account value is based on the actual total return of the
Series for the period July 1, 2005 to December 31, 2005 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, 2005 to December 31, 2005 was 13.21%.
(2) Expenses are equal to the Series annualized expense ratio 0.91% multiplied
by the average account value over the period, multiplied by 184/365 (to
reflect the one-half year period).
143
Schedule of Investments SERIES V
December 31, 2005 (MID CAP VALUE SERIES)
PRINCIPAL
AMOUNT OR
NUMBER MARKET
OF SHARES VALUE
---------- -----------
CONVERTIBLE BOND - 0.4%
PHARMACEUTICALS - 0.4%
Ligand Pharmaceuticals, Inc.,
6.00% - 2007 $ 850,000 $ 1,535,313
-----------
TOTAL CONVERTIBLE BOND
(cost $850,000) 1,535,313
-----------
PREFERRED STOCKS - 0.4%
DIVERSIFIED METALS & MINING - 0.2%
Arch Coal, Inc. 5,200 996,450
-----------
ENVIRONMENTAL & FACILITIES SERVICES - 0.2%
ThermoEnergy Corporation PIPE(2,3,4) 1,130,000 640,710
-----------
TOTAL PREFERRED STOCKS
(cost $1,326,215) 1,637,160
-----------
COMMON STOCKS - 94.0%
AEROSPACE & DEFENSE - 2.1%
Curtiss-Wright Corporation 54,000 2,948,400
Orbital Sciences Corporation* 402,500 5,168,100
-----------
8,116,500
-----------
AGRICULTURAL PRODUCTS - 2.4%
Archer-Daniels-Midland Company 200,000 4,932,000
Corn Products International, Inc. 174,000 4,156,860
-----------
9,088,860
-----------
AIR FREIGHT & LOGISTICS - 0.3%
AirNet Systems, Inc.* 182,000 620,620
Stonepath Group, Inc.* 520,000 379,600
-----------
1,000,220
-----------
APPAREL, ACCESSORIES & LUXURY GOODS - 0.5%
Kellwood Company 83,400 1,991,592
-----------
APPLICATION SOFTWARE - 1.1%
Epiq Systems, Inc.* 139,300 2,582,622
Plato Learning, Inc.* 200,000 1,588,000
-----------
4,170,622
-----------
BUILDING PRODUCTS - 0.1%
Aaon, Inc.* 14,150 253,568
-----------
COAL & CONSUMABLE FUELS - 3.8%
Arch Coal, Inc. 125,000 9,937,500
Consol Energy, Inc. 40,100 2,613,718
Hydrogen Corporation*(3) 354,505 2,215,656
-----------
14,766,874
-----------
COMMUNICATIONS EQUIPMENT - 4.3%
3Com Corporation* 2,100,000 7,560,000
Avanex Corporation* 2,691,000 3,686,670
Dycom Industries, Inc.* 142,000 3,124,000
Oplink Communications, Inc.* 148,571 2,154,279
-----------
16,524,949
-----------
COMPUTER STORAGE & PERIPHERALS - 1.2%
Hutchinson Technology, Inc.* 160,000 $ 4,552,000
-----------
CONSTRUCTION & ENGINEERING - 14.5%
Granite Construction, Inc. 56,700 2,036,097
Insituform Technologies, Inc.* 132,100 2,558,777
MasTec, Inc.*(1) 446,400 4,673,808
McDermott International, Inc.* 332,000 14,810,520
Quanta Services, Inc.* 663,700 8,740,929
Shaw Group, Inc.*(1) 790,000 22,981,100
-----------
55,801,231
-----------
DATA PROCESSING & OUTSOURCED SERVICES - 2.2%
Computer Sciences Corporation* 165,000 8,355,600
-----------
DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES - 1.9%
FTI Consulting, Inc.* 267,000 7,326,480
-----------
DIVERSIFIED METALS & MINING - 3.0%
Inco, Ltd.*(1) 154,900 6,748,993
Usec, Inc. 413,100 4,936,545
-----------
11,685,538
-----------
ELECTRIC UTILITIES - 4.9%
Cinergy Corporation(1) 56,500 2,398,990
KFx, Inc.* 958,000 16,391,380
-----------
18,790,370
-----------
ELECTRICAL COMPONENTS & EQUIPMENT - 2.7%
Electric City Corporation*(3) 1,200,000 720,000
Power-One, Inc.* 925,000 5,568,500
Thomas & Betts Corporation* 100,000 4,196,000
-----------
10,484,500
-----------
ELECTRONIC EQUIPMENT MANUFACTURERS - 2.9%
Maxwell Technologies, Inc.*(3) 343,200 4,863,144
Merix Corporation* 611,400 4,420,422
Powell Industries, Inc.* 101,700 1,826,532
-----------
11,110,098
-----------
GAS UTILITIES - 0.5%
Southern Union Company* 78,000 1,843,140
-----------
HEALTH CARE EQUIPMENT - 0.3%
HealthTronics, Inc.* 145,400 1,112,310
-----------
HEALTH CARE FACILITIES - 2.4%
Community Health Systems, Inc.* 90,000 3,450,600
Triad Hospitals, Inc.* 60,000 2,353,800
Universal Health Services, Inc. (Cl.B.) 70,000 3,271,800
-----------
9,076,200
-----------
HEALTH CARE SERVICES - 0.9%
Hooper Holmes, Inc. 807,700 2,059,635
NDCHealth Corporation*(1) 66,000 1,269,180
-----------
3,328,815
-----------
144 See accompanying notes.
Schedule of Investments SERIES V
December 31, 2005 (MID CAP VALUE SERIES)
NUMBER MARKET
OF SHARES VALUE
--------- -----------
COMMON STOCKS (CONTINUED)
HOUSEWARES & SPECIALTIES - 0.4%
Newell Rubbermaid, Inc. 62,000 $ 1,474,360
-----------
INDUSTRIAL CONGLOMERATES - 0.8%
Alleghany Corporation* 10,716 3,043,344
-----------
INDUSTRIAL MACHINERY - 0.6%
Capstone Turbine Corporation* 105,100 314,249
Quixote Corporation 97,200 1,924,560
-----------
2,238,809
-----------
INSURANCE BROKERS - 0.3%
Hub International, Ltd. 45,700 1,179,060
-----------
INTEGRATED OIL & GAS - 2.0%
Murphy Oil Corporation 144,000 7,774,560
-----------
INTEGRATED TELECOMMUNICATION SERVICE - 0.3%
Global Crossing, Ltd.* 75,000 1,202,250
-----------
IT CONSULTING & OTHER SERVICES - 0.3%
Keane, Inc.* 100,000 1,101,000
-----------
MARINE - 1.9%
Double Hull Tankers, Inc.* 369,300 4,863,681
Frontline, Ltd. 60,700 2,301,744
-----------
7,165,425
-----------
MULTI-LINE INSURANCE - 1.3%
American Financial Group, Inc.(1) 132,000 5,056,920
-----------
OIL & GAS EQUIPMENT & SERVICES - 1.3%
Key Energy Services, Inc.* 382,000 5,145,540
-----------
OIL & GAS STORAGE & TRANSPORTATION - 3.1%
Williams Companies, Inc. 520,000 12,048,400
-----------
OTHER DIVERSIFIED FINANCIAL SERVICES - 1.6%
First Marblehead Corporation 192,200 6,315,692
-----------
PACKAGED FOODS & MEATS - 3.2%
Hain Celestial Group, Inc.* 75,000 1,587,000
Hormel Foods Corporation(1) 185,000 6,045,800
Tyson Foods, Inc. 270,000 4,617,000
-----------
12,249,800
-----------
PAPER PACKAGING - 1.7%
Bemis Company, Inc. 100,000 2,786,000
Sonoco Products Company 125,000 3,675,000
-----------
6,461,000
-----------
PHARMACEUTICALS - 0.5%
Hollis-Eden Pharmaceuticals, Inc.* 193,803 938,007
Ligand Pharmaceuticals, Inc. (Cl. B)* 77,600 866,016
-----------
1,804,023
-----------
PROPERTY & CASUALTY INSURANCE - 4.6%
First American Corporation 160,000 7,248,000
North Pointe Holdings Corporation* 165,700 2,546,809
United America Indemnity, Ltd.* 83,000 1,523,880
W. R. Berkley Corporation 130,000 6,190,600
-----------
17,509,289
-----------
REAL ESTATE INVESTMENT TRUST - 2.9%
Bimini Mortgage Management, Inc. 528,000 $ 4,778,400
HomeBanc Corporation 321,600 2,405,568
MortgageIT Holdings, Inc. 300,000 4,098,000
------------
11,281,968
------------
REGIONAL BANKS - 2.0%
Mercantile Bankshares Corporation 50,000 2,822,000
Wilmington Trust Corporation 64,200 2,498,022
Zions Bancorporation 32,000 2,417,920
------------
7,737,942
------------
SEMICONDUCTOR EQUIPMENT - 1.5%
Ultratech, Inc.* 360,000 5,911,200
------------
SEMICONDUCTORS - 2.1%
Applied Micro Circuits Corporation* 550,000 1,413,500
IXYS Corporation* 437,200 5,110,868
Stats ChipPAC, Ltd. ADR* 217,500 1,479,000
------------
8,003,368
------------
SPECIALTY CHEMICALS - 0.9%
H.B. Fuller Company 58,000 1,860,060
Material Sciences Corporation* 57,000 803,700
Minerals Technologies, Inc. 15,000 838,350
------------
3,502,110
------------
SPECIALTY STORES - 0.5%
Bombay Company, Inc.* 670,000 1,983,200
------------
THRIFTS & MORTGAGE FINANCE - 0.4%
BankAtlantic Bancorp, Inc. 114,600 1,604,400
------------
TIRES & RUBBER - 1.7%
Bandag, Inc. 153,000 6,528,510
------------
TRADING COMPANIES & DISTRIBUTORS - 4.9%
Hughes Supply, Inc. 290,000 10,396,500
United Rentals, Inc.* 366,000 8,560,740
------------
18,957,240
------------
TRUCKING - 0.8%
SCS Transportation, Inc.* 11,000 233,750
Werner Enterprises, Inc. 157,000 3,092,900
------------
3,326,650
------------
WIRELESS TELECOMMUNICATION SERVICES - 0.4%
Wireless Facilities, Inc.* 296,400 1,511,640
------------
TOTAL COMMON STOCKS
(cost $257,904,439) 361,497,167
------------
WARRANTS - 0.1%
Electric City Corporation,
$0.40, 03-19-09(3,4) 350,000 74,097
ThermoEnergy Corporation,
$1.50, 07-14-08(2,3,4) 1,130,000 159,782
------------
TOTAL WARRANTS
(cost $617,504) 233,879
------------
145 See accompanying notes.
Schedule of Investments SERIES V
December 31, 2005 (MID CAP VALUE SERIES)
PRINCIPAL MARKET
AMOUNT VALUE
----------- ------------
COMMERCIAL PAPER - 2.8%
BANKING - 0.9%
UBS Finance (DE), Inc.:
4.28%, 01-03-06 $ 1,000,000 $ 999,762
4.26%, 01-09-06 1,342,000 1,340,730
4.26%, 01-11-06 1,000,000 998,817
------------
3,339,309
------------
BROKERAGE - 0.8%
Credit Suisse First Boston,
4.32%, 01-17-06 1,000,000 998,080
Goldman Sachs Group, Inc.:
4.32%, 01-05-06 1,000,000 999,520
4.31%, 01-19-06 1,000,000 997,845
------------
2,995,445
------------
ELECTRIC - 0.3%
Florida Power & Light Company,
4.35%, 01-12-06 1,336,000 1,334,224
------------
FINANCIAL - OTHER - 0.3%
Countrywide Financial,
4.36%, 01-10-06 1,200,000 1,198,692
------------
UTILITY - OTHER - 0.5%
National Rural Cooperative Finance Corporation,
4.31%, 01-20-06 1,800,000 1,795,906
------------
TOTAL COMMERCIAL PAPER
(cost $10,663,576) 10,663,576
------------
ASSET BACKED COMMERCIAL PAPER - 2.0%
DIVERSIFIED - 0.5%
Amsterdam Funding Corporation,
4.18%, 01-04-06 1,800,000 1,799,355
------------
MISCELLANEOUS RECEIVABLES - 0.8%
Jupiter Securitization Corporation:
4.32%, 01-18-06 1,590,000 1,586,756
4.28%, 01-24-05 1,500,000 1,495,898
------------
3,082,654
------------
SECURITIES - 0.5%
Asset One Securitization:
4.32%, 01-06-06 1,000,000 999,400
4.35%, 01-23-06 1,000,000 997,342
------------
1,996,742
------------
TRADE RECEIVABLES - 0.2%
Old Line Funding Corporation,
4.32%, 01-13-06 1,000,000 998,560
------------
TOTAL ASSET BACKED COMMERCIAL PAPER
(cost $7,877,311) 7,877,311
------------
REPURCHASE AGREEMENT - 0.2%
United Missouri Bank, 3.78%, dated
12-30-05, matures 01-03-06; repurchase
amount of $655,275 (Collateralized by US
Treasury Note, 7.00%, 07-15-06 with a
value of $471,488 and US Treasury Note,
1.875%, 01-31-06 with a value of
$197,224) $ 655,000 $ 655,000
------------
TOTAL REPURCHASE AGREEMENT
(cost $655,000) 655,000
------------
TOTAL INVESTMENTS - 99.9%
(cost $279,894,045) 384,099,406
CASH & OTHER ASSETS, LESS LIABILITIES - 0.1% 394,322
------------
TOTAL NET ASSETS - 100.0% $384,493,728
============
The identified cost of investments owned at December 31, 2005 was the same for
federal income tax and financial statement purposes.
* Non-income producing security
ADR (American Depositary Receipt)
PIPE-Private Investment in Public Equity - is the term used for stock issued by
a company in the secondary market as a means of raising capital more quickly and
less expensively than through registration in a secondary public offering.
(1) A portion of this security is segregated as collateral for written options
contracts.
(2) Security is restricted. The total market value of restricted securities is
$800,492 (cost $1,356,000), or 0.2% of total net assets. The acquisition
date was July 14, 2005.
(3) Security is illiquid. The total market value of illiquid securities is
$8,673,389 (cost $10,778,893), or 2.3% of total net assets.
(4) Security is fair valued by the Board of Directors. The total market value
of fair valued securities is $874,589 (cost $1,683,719), or 0.2% of total
net assets.
146 See accompanying notes.
SERIES V
(MID CAP VALUE SERIES)
Statement of Assets and Liabilities
December 31, 2005
ASSETS:
Investments, at value(1) ........................................ $384,099,406
Cash ............................................................ 9,831
Receivables:
Fund shares sold ............................................. 785,530
Interest ..................................................... 6,481
Dividends .................................................... 360,304
Prepaid expenses ................................................ 6,258
------------
Total assets .................................................... 385,267,810
------------
LIABILITIES:
Payable for:
Securities purchased ......................................... 173,271
Fund shares redeemed ......................................... 171,682
Written options, at value (premiums received, $756,528) ...... 101,790
Management fees .............................................. 242,758
Custodian fees ............................................... 6,000
Transfer agent and administration fees ....................... 33,357
Professional fees ............................................ 23,250
Director's fees .............................................. 3,000
Other ........................................................ 18,974
------------
Total liabilities ............................................... 774,082
------------
NET ASSETS ...................................................... $384,493,728
============
NET ASSETS CONSIST OF:
Paid in capital ................................................. $241,023,044
Accumulated undistributed net investment income ................. 1,434,043
Accumulated undistributed net realized gain on
sale of investments and options written ...................... 37,176,542
Net unrealized appreciation in value of investments and
options written .............................................. 104,860,099
------------
Net assets ...................................................... $384,493,728
============
Capital shares authorized ....................................... unlimited
Capital shares outstanding ...................................... 9,425,164
Net asset value per share
(net assets divided by shares outstanding) ................... $ 40.79
============
(1)Investments, at cost ........................................ $279,894,045
Statement of Operations
For the Year Ended December 31, 2005
INVESTMENT INCOME:
Dividends ..................................................... $ 4,196,574
Interest ...................................................... 186,215
-----------
Total investment income ....................................... 4,382,789
-----------
EXPENSES:
Management fees ............................................... 2,459,475
Administration fees ........................................... 300,241
Custodian fees ................................................ 26,234
Transfer agent/maintenance fees ............................... 25,131
Directors' fees ............................................... 18,871
Professional fees ............................................. 58,863
Reports to shareholders ....................................... 47,844
Other expenses ................................................ 12,087
-----------
Total expenses ................................................ 2,948,746
-----------
Net investment income ......................................... 1,434,043
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain during the year on:
Investments ................................................... 35,388,169
Options written ............................................... 1,788,372
-----------
Net realized gain ............................................. 37,176,541
-----------
Net unrealized appreciation during the year on:
Investments ................................................... 12,754,720
Options written ............................................... 660,636
-----------
Net unrealized appreciation ................................... 13,415,356
-----------
Net realized and unrealized gain .............................. 50,591,897
-----------
Net increase in net assets
resulting from operations .................................. $52,025,940
===========
147 See accompanying notes.
SERIES V
Statement of Changes in Net Assets (MID CAP VALUE SERIES)
YEAR ENDED YEAR ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
----------------- -----------------
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income ........................................... $ 1,434,043 $ 956,660
Net realized gain during the period on investments and options
written ...................................................... 37,176,541 26,210,930
Net unrealized appreciation during the period on investments
and options written .......................................... 13,415,356 35,582,162
------------ ------------
Net increase in net assets resulting from operations ............ 52,025,940 62,749,752
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ........................................... -- (66,480)
Net realized gain ............................................... -- (6,024,709)
------------ ------------
Total distributions to shareholders ............................. -- (6,091,189)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares .................................... 112,313,976 101,360,304
Distributions reinvested ........................................ -- 6,091,189
Cost of shares redeemed ......................................... (87,382,578) (80,231,256)
------------ ------------
Net increase from capital share transactions .................... 24,931,398 27,220,237
------------ ------------
Net increase in net assets ...................................... 76,957,338 83,878,800
------------ ------------
NET ASSETS:
Beginning of period ............................................. 307,536,390 223,657,590
------------ ------------
End of period ................................................... $384,493,728 $307,536,390
============ ============
Accumulated undistributed net investment income at end of year .. $ 1,434,043 $ 956,660
============ ============
CAPITAL SHARE ACTIVITY:
Shares sold ..................................................... 3,070,386 3,302,809
Shares reinvested ............................................... -- 206,062
Shares redeemed ................................................. (2,407,774) (2,640,940)
------------ ------------
Total capital share activity .................................... 662,612 867,931
============ ============
148 See accompanying notes.
Financial Highlights
Selected data for each share of capital stock outstanding SERIES V
throughout each year (MID CAP VALUE SERIES)
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
2005 2004 2003 2002 2001
-------- --------- -------- -------- --------
PER SHARE DATA
Net asset value, beginning of period $ 35.10 $ 28.33 $ 18.68 $ 23.49 $ 22.19
-------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income 0.14 0.11 0.07 0.10 0.09
Net gain (loss) on securities (realized and unrealized) 5.55 7.39 10.03 (3.16) 2.31
-------- -------- -------- -------- --------
Total from investment operations 5.69 7.50 10.10 (3.06) 2.40
-------- -------- -------- -------- --------
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)
-------- -------- -------- -------- --------
Total distributions -- (0.73) (0.45) (1.75) (1.10)
-------- -------- -------- -------- --------
Net asset value, end of period $ 40.79 $ 35.10 $ 28.33 $ 18.68 $ 23.49
======== ======== ======== ======== ========
TOTAL RETURN(A) 16.21% 26.97% 54.27% (14.07%) 11.13%
-------- -------- -------- -------- --------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $384,494 $307,536 $223,658 $147,512 $166,860
-------- -------- -------- -------- --------
Ratios to average net assets:
Net investment income 0.44% 0.37% 0.36% 0.46% 0.43%
Total expenses(b) 0.90% 0.88% 0.83% 0.84% 0.85%
Net expenses(c) 0.90% 0.88% 0.83% 0.84% 0.83%
-------- -------- -------- -------- --------
Portfolio turnover rate 29% 43% 59% 65% 50%
(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) Total expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net expense information reflects expense ratios after custodian earnings
credits, as applicable.
149 See accompanying notes.
This page left blank intentionally.
150
SERIES W
Manager's Commentary (MAIN STREET GROWTH & INCOME(R) SERIES)
February 15, 2006 (unaudited)
(OPPENHEIMERFUNDS(R) LOGO)
Subadvisor, OppenheimerFunds, Inc.
(PHOTO OF NIKOLAOS MONOYIOUS)
Nikolaos Monoyios
Portfolio Manager
TO OUR SHAREHOLDERS:
For the 12-month period ended December 31, 2005, Series W of the SBL Fund - Main
Street Growth & Income(R) Series provided an average annual total return of
5.39%, outpacing the 4.91% return of its benchmark, the S&P 500 Index. The
Series' strong relative performance can be attributed to the securities selected
that more Portfolio Manager than offset the weakness among mega-cap stocks in
2005.
However, the Series' absolute returns were limited by relatively lackluster
conditions in the U.S. stock market during 2005. Although corporate earnings
continued to grow in a steadily expanding economy, investors became concerned
early in the reporting period that stronger-than-expected economic growth might
cause the Federal Reserve Board to raise short-term interest rates more than
many investors previously expected, potentially eroding profit margins. In
addition, investors worried during the spring and summer that soaring energy
prices might adversely affect corporate earnings. Finally, the disruptions
caused by the hurricanes gave investors cause for concern in the fall.
2005 INVESTMENT STRATEGY
The investment model guides us toward companies displaying certain desirable
criteria: high-quality earnings, attractive valuations and solid momentum behind
them. Based on these and other factors, the model led to establishing a modest
overweighting in the energy sector. The Series' energy holdings had strong
balance sheets, were highly profitable and offered attractive valuations, and
therefore performed well in the last six months of the year. By contrast, the
model led to the reduction of the portfolio's weighting in the information
technology sector. At the start of 2005, technology stocks comprised the largest
area of overweight, in part to benefit from seasonal trends. By period end,
technology became one of the largest underweights relative to the S&P 500 as the
model suggested high quality, less speculative firms would fare better. Although
various market sectors are regularly overweighted and underweighted, risk is
managed by keeping the weightings reasonably close to those of the index as well
as by avoiding excessive concentration in any individual holding.
ENERGY HOLDINGS SHOWED GAINS; INFORMATION TECHNOLOGY AND TELECOMMUNICATIONS
DISAPPOINTING
The Series' overweighted position and security selection strategy in the energy
sector proved to be particularly rewarding. In addition to identifying winners
among U.S.-based energy companies, the Series received strong contributions from
several Canadian energy firms. The Series' performance also benefited from its
relatively light exposure to consumer discretionary companies, which provided
disappointing results.
The Series' slightly overweighted exposure to information technology stocks
detracted modestly from performance, due primarily to poor returns from some of
the sector's larger companies. The Series' holdings of very large
telecommunications companies also held back returns.
Finally, the Series benefited during 2005 from a better balance across
capitalization ranges. Early in the year, emphasis on mega-cap stocks was
reduced in favor of large-cap stocks, thus avoiding the full brunt of relative
weakness among the market's largest companies.
SECOND-HALF SHIFTS IN SECTOR INVESTMENTS
During the second half of 2005 significant changes occurred in the ratings
assigned by the statistical models to individual stocks. The shifts are
attributable to seasonal factors, in which more growth-oriented,
economically-sensitive stocks historically have tended to fare better than
value-oriented shares during the fourth and first quarters of the year. As a
result, information technology companies replaced financial and energy stocks as
the Series' most overweighted market sector. Nonetheless, the Series is still
overweighted in energy and it is now overweighted in healthcare. All other
sectors are underweighted relative to its benchmark, S&P 500 Index, including
the financial sector which was the most overweighted sector in mid-2005.
In 2005, equity returns were particularly strong among mid-cap stocks. Excluding
the mega-cap stocks, large-cap stocks posted better returns in 2005 than either
small-cap or micro-cap stocks. However, mega-cap stocks continued to languish
but micro-cap stocks also faltered. Lower-quality stocks maintained their edge
over higher quality stocks, as investors favored smaller, more speculative
stocks over the well-established, multinational giants that comprise the
market's largest companies. It is important to note, however, that the market's
year-end rally was strongest among mega-cap stocks, suggesting that, should this
trend be sustained, blue-chip companies may be returning to favor.
Although we do not make investment decisions based on a macroeconomic outlook,
we are encouraged by signs that larger-cap stocks may finally be returning to
favor. Regardless of the market's direction in 2006, we will continue to employ
our quantitative models when constructing a broadly diversified, fully invested
stock fund.
Sincerely,
Nikolaos Monoyios, Portfolio Manager
151
SERIES W
Manager's Commentary (MAIN STREET GROWTH & INCOME(R) SERIES)
February 15, 2006 (unaudited)
PERFORMANCE
SERIES W VS. S&P 500 INDEX
(PERFORMANCE GRAPH)
SERIES W S&P 500 INDEX
- ---------------------------- -------------------------
DATE VALUE DATE VALUE
---------- --------- ---------- ---------
5/1/2000 10,000.00 INCEPTION 5/01/00 10,000.00
6/30/2000 9,980.00 06/30/00 10,036.94
9/30/2000 10,060.00 09/30/00 9,939.85
12/31/2000 9,016.25 12/31/00 9,162.81
3/31/2001 8,155.65 3/31/2001 8,076.96
6/30/2001 8,505.90 6/30/2001 8,549.92
9/30/2001 7,555.24 9/30/2001 7,295.70
12/31/2001 8,115.58 12/31/2001 8,075.77
3/31/2002 8,215.77 3/31/2002 8,097.71
6/30/2002 7,494.38 6/30/2002 7,013.09
9/30/2002 6,262.02 9/30/2002 5,801.87
12/31/2002 6,551.13 12/31/2002 6,291.88
3/31/2003 6,329.74 3/31/2003 6,093.72
6/30/2003 7,205.24 6/30/2003 7,031.73
9/30/2003 7,416.57 9/30/2003 7,217.83
12/31/2003 8,271.52 12/31/2003 8,096.70
3/31/2004 8,423.01 3/31/2004 8,234.06
6/30/2004 8,453.31 6/30/2004 8,375.21
9/30/2004 8,284.62 9/30/2004 8,218.19
12/31/2004 8,991.85 12/31/2004 8,977.04
3/31/2005 8,809.99 3/31/2005 8,783.64
6/30/2005 8,921.12 6/30/2005 8,903.21
9/30/2005 9,284.84 9/30/2005 9,224.50
12/31/2005 9,476.80 12/31/2005 9,416.14
$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. The S&P 500 Index is a capitalization-weighted
index composed of 500 selected common stocks that represent the broad domestic
economy and is a widely recognized unmanaged index of market performance.
PORTFOLIO COMPOSITION BY SECTOR
Consumer Discretionary 10.55%
Consumer Staples 7.30
Energy 10.37
Financials 20.02
Health Care 14.33
Industrials 10.08
Information Technology 19.58
Materials 2.54
Telecommunication Services 2.94
Utilities 0.76
Foreign Stocks 0.64
Cash & other assets, less liabilities 0.89
Total net assets 100.00%
======
AVERAGE ANNUAL RETURNS
SINCE INCEPTION
PERIODS ENDED 12-31-05(1) 1 YEAR 5 YEARS (5-1-00)
- ------------------------- ------ ------- ---------------
Series W 5.39% 1.00% (0.94%)
(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.
152 See accompanying notes.
SERIES W
Manager's Commentary (MAIN STREET GROWTH & INCOME(R) SERIES)
February 15, 2006 (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, 2005 - December 31, 2005.
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
mutual 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.
SERIES EXPENSES
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING
07-01-05 12-31-05(1) PERIOD(2)
------------- ------------- -------------
Series W (Main Street Growth & Income Series)
Actual $1,000.00 $1,053.90 $6.42
Hypothetical 1,000.00 1,018.95 6.31
(1) The actual ending account value is based on the actual total return of the
Series for the period July 1, 2005 to December 31, 2005 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, 2005 to December 31, 2005 was 5.39%.
(2) Expenses are equal to the Series annualized expense ratio (net of earnings
credits) of 1.24% multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
153
Schedule of Investments SERIES W
December 31, 2005 (MAIN STREET GROWTH & INCOME(R) SERIES)
NUMBER MARKET
OF SHARES VALUE
--------- ----------
COMMON STOCKS - 98.5%
ADVERTISING - 0.3%
Omnicom Group, Inc. 1,600 $ 136,208
R.H. Donnelley Corporation* 100 6,162
----------
142,370
----------
AEROSPACE & DEFENSE - 3.0%
Alliant Techsystems, Inc.* 300 22,851
BE Aerospace, Inc.* 400 8,800
Boeing Company 4,700 330,128
General Dynamics Corporation 1,400 159,670
Honeywell International, Inc. 5,800 216,050
Lockheed Martin Corporation 3,400 216,342
Northrop Grumman Corporation 4,200 252,462
Precision Castparts Corporation 800 41,448
Raytheon Company 5,700 228,855
United Technologies Corporation 3,900 218,049
----------
1,694,655
----------
AGRICULTURAL PRODUCTS - 0.3%
Archer-Daniels-Midland Company 5,700 140,562
----------
AIR FREIGHT & LOGISTICS - 0.0%
United Parcel Service, Inc. (Cl.B) 300 22,545
----------
AIRLINES - 0.1%
AMR Corporation* 1,400 31,122
Alaska Air Group, Inc.* 300 10,716
Continental Airlines, Inc. (Cl.B)* 600 12,780
----------
54,618
----------
ALUMINUM - 0.1%
Alcoa, Inc. 2,500 73,925
----------
APPAREL RETAIL - 0.5%
American Eagle Outfitters, Inc. 1,000 22,980
AnnTaylor Stores Corporation* 300 10,356
Chico's FAS, Inc.* 400 17,572
Children's Place Retail Stores, Inc.* 200 9,884
Gap, Inc. 8,300 146,412
Men's Wearhouse, Inc.* 450 13,248
TJX Companies, Inc. 2,900 67,367
Talbots, Inc. 300 8,346
Too, Inc.* 300 8,463
----------
304,628
----------
APPAREL, ACCESSORIES & LUXURY GOODS - 0.3%
Coach, Inc.* 4,200 140,028
Jones Apparel Group, Inc. 400 12,288
Liz Claiborne, Inc. 200 7,164
Phillips-Van Heusen Corporation 200 6,480
----------
165,960
----------
APPLICATION SOFTWARE - 0.8%
Adobe Systems, Inc. 1,700 $ 62,832
Autodesk, Inc. 3,700 158,915
Cadence Design Systems, Inc.* 1,600 27,072
Citrix Systems, Inc.* 700 20,146
Cognos, Inc.* 200 6,942
Compuware Corporation* 3,000 26,910
Fair Isaac Corporation 500 22,085
Hyperion Solutions Corporation* 750 26,865
Intuit, Inc.* 700 37,310
Parametric Technology Corporation* 2,100 12,810
Reynolds & Reynolds Company 100 2,807
Synopsys, Inc.* 1,700 34,102
----------
438,796
----------
ASSET MANAGEMENT & CUSTODY BANKS - 0.6%
Ameriprise Financial, Inc. 880 36,080
Bank of New York Company, Inc. 2,300 73,255
Janus Capital Group, Inc. 700 13,041
Mellon Financial Corporation 1,700 58,225
Northern Trust Corporation 800 41,456
State Street Corporation 1,800 99,792
----------
321,849
----------
AUTO PARTS & EQUIPMENT - 0.2%
Dana Corporation 1,100 7,898
Johnson Controls, Inc. 1,400 102,074
Lear Corporation 100 2,846
TRW Automotive Holdings Corporation* 300 7,905
Visteon Corporation* 1,000 6,260
----------
126,983
----------
AUTOMOBILE MANUFACTURERS - 0.3%
Ford Motor Company 19,974 154,199
----------
AUTOMOTIVE RETAIL - 0.1%
AutoNation, Inc.* 1,300 28,249
----------
BIOTECHNOLOGY - 1.6%
Abgenix, Inc.* 600 12,906
Alkermes, Inc.* 500 9,560
Amgen, Inc.* 7,200 567,792
Applera Corporation -
Applied Biosystems Group 1,100 29,216
Genentech, Inc.* 1,200 111,000
Genzyme Corporation* 300 21,234
Gilead Sciences, Inc.* 2,100 110,523
Kos Pharmaceuticals, Inc.* 500 25,865
Techne Corporation* 200 11,230
----------
899,326
----------
154 See accompanying notes.
Schedule of Investments SERIES W
December 31, 2005 (MAIN STREET GROWTH & INCOME(R) SERIES)
NUMBER MARKET
OF SHARES VALUE
--------- ----------
COMMON STOCKS (CONTINUED)
BROADCASTING & CABLE TV - 0.8%
Cablevision Systems Corporation* 700 $ 16,429
Clear Channel Communications, Inc. 4,500 141,525
Comcast Corporation* 8,131 211,081
Liberty Media Corporation* 12,400 97,588
----------
466,623
----------
BUILDING PRODUCTS - 0.3%
American Standard Companies, Inc. 800 31,960
Masco Corporation 3,500 105,665
USG Corporation* 400 26,000
----------
163,625
----------
CASINOS & GAMING - 0.0%
International Game Technology 700 21,546
----------
COMMODITY CHEMICALS - 0.0%
Lyondell Chemical Company 1,000 23,820
----------
COMMUNICATIONS EQUIPMENT - 3.0%
Adtran, Inc. 600 17,844
Avaya, Inc.* 1,900 20,273
Brocade Communications Systems, Inc.* 3,100 12,617
Cisco Systems, Inc.* 41,700 713,904
Corning, Inc.* 10,600 208,396
Emulex Corporation* 500 9,895
Harris Corporation 100 4,301
Juniper Networks, Inc.* 3,800 84,740
Lucent Technologies, Inc.* 18,900 50,274
Motorola, Inc. 12,600 284,634
Polycom, Inc.* 200 3,060
Qualcomm, Inc. 6,400 275,712
Scientific-Atlanta, Inc. 700 30,149
----------
1,715,799
----------
COMPUTER & ELECTRONICS RETAIL - 0.3%
Best Buy Company, Inc. 3,600 156,528
Circuit City Stores, Inc. 1,100 24,849
GameStop Corporation* 157 4,996
----------
186,373
----------
COMPUTER HARDWARE - 4.2%
Apple Computer, Inc.* 4,600 330,694
Dell, Inc.* 20,600 617,794
Hewlett-Packard Company 21,200 606,956
International Business Machines Corporation 8,900 731,580
NCR Corporation* 900 30,546
Palm, Inc.* 300 9,540
Sun Microsystems, Inc.* 7,600 31,844
----------
2,358,954
----------
COMPUTER STORAGE & PERIPHERALS - 0.8%
EMC Corporation* 21,500 $ 292,830
Komag, Inc.* 400 13,864
Lexmark International, Inc.* 600 26,898
Network Appliance, Inc.* 1,600 43,200
QLogic Corporation* 700 22,757
Western Digital Corporation* 2,400 44,664
----------
444,213
----------
CONSTRUCTION & ENGINEERING - 0.1%
Quanta Services, Inc.* 700 9,219
URS Corporation* 800 30,088
----------
39,307
----------
CONSTRUCTION & FARM MACHINERY - 0.4%
Caterpillar, Inc. 2,900 167,533
JLG Industries, Inc. 100 4,566
Terex Corporation* 400 23,760
----------
195,859
----------
CONSTRUCTION MATERIALS - 0.0%
Texas Industries, Inc. 200 9,968
----------
CONSUMER FINANCE - 1.1%
American Express Company 4,000 205,840
AmeriCredit Corporation* 1,200 30,756
Capital One Financial Corporation 2,581 222,998
MBNA Corporation 5,800 157,528
PHH Corporation* 75 2,101
----------
619,223
----------
DATA PROCESSING & OUTSOURCED SERVICES - 0.8%
Ceridian Corporation* 600 14,910
CheckFree Corporation* 400 18,360
Computer Sciences Corporation* 700 35,448
Electronic Data Systems Corporation 1,300 31,252
First Data Corporation 6,100 262,361
Fiserv, Inc.* 700 30,289
Global Payments, Inc. 400 18,644
Sabre Holdings Corporation 1,100 26,521
----------
437,785
----------
DEPARTMENT STORES - 1.1%
Federated Department Stores, Inc. 3,100 205,623
J.C. Penney Company, Inc. 3,200 177,920
Kohl's Corporation* 900 43,740
Nordstrom, Inc. 4,000 149,600
Saks, Inc.* 1,100 18,546
Sears Holding Corporation* 300 34,659
----------
630,088
----------
DISTRIBUTORS - 0.0%
Genuine Parts Company 200 8,784
----------
155 See accompanying notes.
Schedule of Investments SERIES W
December 31, 2005 (MAIN STREET GROWTH & INCOME(R) SERIES)
NUMBER MARKET
OF SHARES VALUE
--------- ----------
COMMON STOCKS (CONTINUED)
DIVERSIFIED BANKS - 4.0%
Bank of America Corporation 21,084 $ 973,027
Comerica, Inc. 1,100 62,436
U.S. Bancorp 11,933 356,677
Wachovia Corporation 8,800 465,168
Wells Fargo & Company 6,000 376,980
----------
2,234,288
----------
DIVERSIFIED CHEMICALS - 0.8%
Dow Chemical Company 5,300 232,246
E.I. du Pont de Nemours & Company 1,600 68,000
FMC Corporation* 200 10,634
PPG Industries, Inc. 2,000 115,800
----------
426,680
----------
DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES - 0.4%
Cendant Corporation 11,500 198,375
Dun & Bradstreet Corporation* 200 13,392
----------
211,767
----------
DIVERSIFIED METALS & MINING - 0.4%
Freeport-McMoRan Copper &
Gold, Inc. (Cl.B) 700 37,660
Phelps Dodge Corporation 1,200 172,644
----------
210,304
----------
DRUG RETAIL - 0.1%
Rite Aid Corporation* 2,300 8,004
Walgreen Company 1,100 48,686
----------
56,690
----------
EDUCATION SERVICES - 0.2%
Apollo Group, Inc.* 1,500 90,690
Career Education Corporation* 600 20,232
----------
110,922
----------
ELECTRIC UTILITIES - 0.1%
DPL, Inc. 200 5,202
Entergy Corporation 200 13,730
FirstEnergy Corporation 400 19,596
Progress Energy, Inc. -
Contingent Value Obligation* (1) 400 26
Sierra Pacific Resources* 600 7,824
----------
46,378
----------
ELECTRICAL COMPONENTS & EQUIPMENT - 0.4%
Emerson Electric Company 1,000 74,700
Rockwell Automation, Inc. 2,500 147,900
Roper Industries, Inc. 300 11,853
----------
234,453
----------
ELECTRONIC EQUIPMENT MANUFACTURERS - 0.3%
Agilent Technologies, Inc.* 5,200 173,108
Mettler-Toledo International, Inc.* 100 5,520
----------
178,628
----------
ELECTRONIC MANUFACTURING SERVICES - 0.2%
Jabil Circuit, Inc.* 900 $ 33,381
Sanmina-SCI Corporation* 6,200 26,412
Solectron Corporation* 8,000 29,280
----------
89,073
----------
ENVIRONMENTAL & FACILITIES SERVICES - 0.1%
Waste Management, Inc. 1,400 42,490
----------
FERTILIZERS & AGRICULTURAL CHEMICALS - 0.3%
Agrium, Inc. 900 19,791
Monsanto Company 2,000 155,060
Scotts Miracle-Gro Company 300 13,572
----------
188,423
----------
FOOD DISTRIBUTORS - 0.1%
Performance Food Group Company* 100 2,837
Sysco Corporation 1,100 34,155
----------
36,992
----------
FOOD RETAIL - 0.8%
Albertson's, Inc. 800 17,080
Kroger Company* 8,300 156,704
Safeway, Inc. 7,700 182,182
Supervalu, Inc. 700 22,736
Whole Foods Market, Inc. 1,200 92,868
----------
471,570
----------
FOOTWEAR - 0.0%
Timberland Company* 700 22,785
----------
FOREST PRODUCTS - 0.2%
Louisiana-Pacific Corporation 400 10,988
Weyerhaeuser Company 1,100 72,974
----------
83,962
----------
GENERAL MERCHANDISE STORES - 0.5%
Dollar General Corporation 800 15,256
Dollar Tree Stores, Inc.* 900 21,546
Target Corporation 4,300 236,371
----------
273,173
----------
HEALTH CARE DISTRIBUTORS - 0.9%
AmerisourceBergen Corporation 800 33,120
Andrx Corporation* 400 6,588
Cardinal Health, Inc. 3,600 247,500
Henry Schein, Inc.* 500 21,820
McKesson Corporation 4,200 216,678
----------
525,706
----------
156 See accompanying notes.
Schedule of Investments SERIES W
December 31, 2005 (MAIN STREET GROWTH & INCOME(R) SERIES)
NUMBER MARKET
OF SHARES VALUE
--------- ----------
COMMON STOCKS (CONTINUED)
HEALTH CARE EQUIPMENT - 1.2%
Baxter International, Inc. 3,000 $ 112,950
Becton, Dickinson & Company 2,100 126,168
Boston Scientific Corporation* 1,600 39,184
Guidant Corporation 1,100 71,225
Kinetic Concepts, Inc.* 200 7,952
Medtronic, Inc. 4,300 247,551
Mentor Corporation 400 18,432
PerkinElmer, Inc. 200 4,712
Stryker Corporation 200 8,886
Waters Corporation* 300 11,340
Zimmer Holdings, Inc.* 100 6,744
----------
655,144
----------
HEALTH CARE FACILITIES - 0.4%
Beverly Enterprises, Inc.* 200 2,334
Genesis HealthCare Corporation* 200 7,304
HCA, Inc. 4,400 222,200
Manor Care, Inc. 300 11,931
----------
243,769
----------
HEALTH CARE SERVICES - 1.4%
American Healthways, Inc.* 200 9,050
Caremark Rx, Inc.* 4,900 253,771
Express Scripts, Inc.* 1,800 150,840
IMS Health, Inc. 100 2,492
Medco Health Soulutions, Inc.* 3,947 220,243
Pediatrix Medical Group, Inc.* 200 17,714
Quest Diagnostics, Inc. 2,300 118,404
----------
772,514
----------
HEALTH CARE SUPPLIES - 0.0%
Millipore Corporation* 200 13,208
----------
HOME ENTERTAINMENT SOFTWARE - 0.0%
Take-Two Interactive Software, Inc.* 500 8,850
----------
HOME IMPROVEMENT RETAIL - 1.3%
Building Materials Holding Corporation 100 6,821
Home Depot, Inc. 11,700 473,616
Lowe's Companies, Inc. 3,700 246,642
----------
727,079
----------
HOMEBUILDING - 0.2%
Beazer Homes USA, Inc. 400 29,136
D.R. Horton, Inc. 1,500 53,595
Lennar Corporation 300 18,306
M.D.C. Holdings, Inc. 100 6,198
----------
107,235
----------
HOMEFURNISHING RETAIL - 0.1%
Bed Bath & Beyond, Inc.* 1,800 65,070
----------
HOTELS, RESORTS & CRUISE LINES - 0.0%
Choice Hotels International, Inc. 200 8,352
----------
HOUSEHOLD PRODUCTS - 1.6%
Energizer Holdings, Inc.* 300 $ 14,937
Kimberly-Clark Corporation 500 29,825
Procter & Gamble Company 15,102 874,104
----------
918,866
----------
HOUSEWARES & SPECIALTIES - 0.0%
American Greetings Corporation 400 8,788
----------
HUMAN RESOURCE & EMPLOYMENT SERVICES - 0.1%
Administaff, Inc. 200 8,410
Manpower, Inc. 500 23,250
Robert Half International, Inc. 600 22,734
----------
54,394
----------
HYPERMARKETS & SUPERCENTERS - 0.9%
Costco Wholesale Corporation 1,000 49,470
Wal-Mart Stores, Inc. 9,700 453,960
----------
503,430
----------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS - 0.4%
AES Corporation* 1,800 28,494
Constellation Energy Group 1,600 92,160
TXU Corporation 2,200 110,418
----------
231,072
----------
INDUSTRIAL CONGLOMERATES - 3.6%
3M Company 1,200 93,000
General Electric Company 48,600 1,703,430
Teleflex, Inc. 100 6,498
Tyco International, Ltd. 7,700 222,222
----------
2,025,150
----------
INDUSTRIAL MACHINERY - 0.9%
Danaher Corporation 900 50,202
Flowserve Corporation* 500 19,780
ITT Industries, Inc. 400 41,128
Illinois Tool Works, Inc. 2,000 175,980
Ingersoll-Rand Company, Ltd. 3,300 133,221
Parker Hannifin Corporation 300 19,788
SPX Corporation 600 27,462
Unova, Inc.* 300 10,140
----------
477,701
----------
INSURANCE BROKERS - 0.2%
Aon Corporation 3,600 129,420
----------
INTEGRATED OIL & GAS - 7.0%
Amerada Hess Corporation 800 101,456
Chevron Corporation 14,022 796,029
ConocoPhillips 10,166 591,458
Exxon Mobil Corporation 34,200 1,921,014
Marathon Oil Corporation 4,000 243,880
Occidental Petroleum Corporation 3,100 247,628
Tesoro Corporation 500 30,775
----------
3,932,240
----------
157 See accompanying notes.
Schedule of Investments SERIES W
December 31, 2005 (MAIN STREET GROWTH & INCOME(R) SERIES)
NUMBER MARKET
OF SHARES VALUE
--------- ----------
COMMON STOCKS (CONTINUED)
INTEGRATED TELECOMMUNICATION SERVICES - 1.9%
AT&T, Inc. 13,889 $ 340,142
BellSouth Corporation 8,700 235,770
CenturyTel, Inc. 700 23,212
Qwest Communications International, Inc.* 4,600 25,990
Verizon Communications, Inc. 15,500 466,860
----------
1,091,974
----------
INTERNET RETAIL - 0.3%
eBay, Inc.* 3,200 138,400
----------
INTERNET SOFTWARE & SERVICES - 0.7%
Check Point Software Technologies, Ltd.* 900 18,090
Digital River, Inc.* 300 8,922
EarthLink, Inc.* 1,700 18,887
Google, Inc.* 500 207,430
Internet Security Systems, Inc.* 600 12,570
United Online, Inc. 1,250 17,775
Websense, Inc.* 100 6,564
Yahoo!, Inc.* 2,100 82,278
----------
372,516
----------
INVESTMENT BANKING & BROKERAGE - 3.2%
Ameritrade Holding Corporation* 900 21,600
Charles Schwab Corporation 9,700 142,299
Goldman Sachs Group, Inc. 3,100 395,901
Lehman Brothers Holdings, Inc. 2,500 320,425
Merrill Lynch & Company, Inc. 6,100 413,153
Morgan Stanley 8,600 487,964
----------
1,781,342
----------
IT CONSULTING & OTHER SERVICES - 0.0%
CACI International, Inc.* 200 11,476
----------
LEISURE FACILITIES - 0.0%
Six Flags, Inc.* 200 1,542
----------
LEISURE PRODUCTS - 0.1%
CCE Spinco, Inc.* 562 7,369
Hasbro, Inc. 1,100 22,198
----------
29,567
----------
LIFE & HEALTH INSURANCE - 0.9%
AFLAC, Inc. 900 41,778
AmerUs Group Company* 400 22,668
Lincoln National Corporation 200 10,606
MetLife, Inc. 4,200 205,800
Prudential Financial, Inc. 2,800 204,932
StanCorp Financial Group, Inc. 400 19,980
----------
505,764
----------
MANAGED HEALTH CARE - 2.3%
Aetna, Inc. 1,400 $ 132,034
Cigna Corporation 1,800 201,060
Coventry Health Care, Inc.* 400 22,784
Health Net, Inc.* 500 25,775
Humana, Inc.* 800 43,464
Sierra Health Services, Inc.* 300 23,988
UnitedHealth Group, Inc. 6,954 432,122
WellCare Health Plans, Inc.* 200 8,170
WellPoint, Inc.* 4,956 395,418
----------
1,284,815
----------
MARINE - 0.0%
General Maritime Corporation 200 7,408
OMI Corporation 300 5,445
----------
12,853
----------
METAL & GLASS CONTAINERS - 0.0%
Owens-Illinois, Inc.* 1,000 21,040
----------
MOTORCYCLE MANUFACTURERS - 0.2%
Harley-Davidson, Inc. 2,600 133,874
----------
MOVIES & ENTERTAINMENT - 2.1%
News Corporation 12,200 189,710
Time Warner, Inc. 28,300 493,552
Viacom, Inc. (Cl.B) 9,404 306,570
Walt Disney Company 6,800 162,996
----------
1,152,828
----------
MULTI-LINE INSURANCE - 1.7%
American International Group, Inc. 10,637 725,763
Hartford Financial Services Group, Inc. 2,400 206,136
Loews Corporation 500 47,425
----------
979,324
----------
MULTI-UTILITIES - 0.3%
NiSource, Inc. 200 4,172
PG&E Corporation 4,000 148,480
----------
152,652
----------
OFFICE ELECTRONICS - 0.3%
Xerox Corporation* 11,100 162,615
----------
OFFICE SERVICES & SUPPLIES - 0.1%
Pitney Bowes, Inc. 1,500 63,375
----------
OIL & GAS DRILLING - 0.3%
Grey Wolf, Inc.* 1,300 10,049
Helmerich & Payne, Inc. 100 6,191
Pride International, Inc.* 400 12,300
Transocean, Inc.* 2,100 146,349
----------
174,889
----------
OIL & GAS EQUIPMENT & SERVICES - 0.2%
Halliburton Company 1,100 68,156
Lone Star Technologies, Inc.* 200 10,332
NS Group, Inc.* 200 8,362
Universal Compression Holdings, Inc.* 200 8,224
Veritas DGC, Inc.* 300 10,647
----------
105,721
----------
158 See accompanying notes.
Schedule of Investments SERIES W
December 31, 2005 (MAIN STREET GROWTH & INCOME(R) SERIES)
NUMBER MARKET
OF SHARES VALUE
--------- ----------
COMMON STOCKS (CONTINUED)
OIL & GAS EXPLORATION & PRODUCTION - 2.1%
Anadarko Petroleum Corporation 2,100 $ 198,975
Apache Corporation 2,500 171,300
Burlington Resources, Inc. 3,300 284,460
Comstock Resources, Inc.* 300 9,153
Devon Energy Corporation 3,000 187,620
EOG Resources, Inc. 1,000 73,370
KCS Energy, Inc.* 400 9,688
Kerr-McGee Corporation 1,295 117,664
Remington Oil & Gas Corporation* 200 7,300
Swift Energy Company* 200 9,014
Vintage Petroleum, Inc. 400 21,332
Whiting Petroleum Corporation* 200 8,000
XTO Energy, Inc. 2,300 101,062
----------
1,198,938
----------
OIL & GAS REFINING & MARKETING - 0.8%
Giant Industries, Inc.* 100 5,196
Sunoco, Inc. 2,300 180,274
Valero Energy Corporation 4,568 235,709
----------
421,179
----------
OIL & GAS STORAGE & TRANSPORTATION - 0.0%
Overseas Shipholding Group, Inc. 400 20,156
----------
OTHER DIVERSIFIED FINANCIAL SERVICES - 3.9%
Citigroup, Inc. 26,231 1,272,990
JP Morgan Chase & Company 18,828 747,283
Principal Financial Group, Inc. 4,000 189,720
----------
2,209,993
----------
PACKAGED FOODS & MEATS - 0.5%
Campbell Soup Company 1,300 38,701
Dean Foods Company* 500 18,830
Del Monte Foods Company* 300 3,129
General Mills, Inc. 2,000 98,640
H.J. Heinz Company 800 26,976
Pilgrim's Pride Corporation 600 19,896
Sara Lee Corporation 3,400 64,260
Tyson Foods, Inc. 700 11,970
----------
282,402
----------
PAPER PACKAGING - 0.0%
Sealed Air Corporation* 300 16,851
----------
PAPER PRODUCTS - 0.1%
International Paper Company 1,200 40,332
MeadWestvaco Corporation 800 22,424
----------
62,756
----------
PERSONAL PRODUCTS - 0.2%
Avon Products, Inc. 4,400 125,620
----------
PHARMACEUTICALS - 6.5%
Abbott Laboratories 6,100 $ 240,523
Allergan, Inc. 1,200 129,552
Alpharma, Inc. 500 14,255
Barr Pharmaceuticals, Inc.* 700 43,603
Bristol-Myers Squibb Company 4,800 110,304
Eli Lilly & Company 2,700 152,793
Endo Pharmaceuticals Holdings, Inc.* 300 9,078
Forest Laboratories, Inc.* 3,600 146,448
Johnson & Johnson 15,386 924,699
King Pharmaceuticals, Inc.* 1,700 28,764
Medicis Pharmaceutical Corporation 100 3,205
Merck & Company, Inc. 14,300 454,883
Pfizer, Inc. 43,265 1,008,940
Sepracor, Inc.* 100 5,160
Watson Pharmaceuticals, Inc.* 700 22,757
Wyeth 8,600 396,202
----------
3,691,166
----------
PROPERTY & CASUALTY INSURANCE - 1.2%
Allstate Corporation 3,200 173,024
Arch Capital Group, Ltd.* 100 5,475
Chubb Corporation 1,300 126,945
Fidelity National Financial, Inc. 790 29,064
Fidelity National Title Group, Inc. 173 4,212
LandAmerica Financial Group, Inc. 100 6,240
MBIA, Inc. 500 30,080
Progressive Corporation 600 70,068
St. Paul Travelers Companies, Inc. 5,200 232,284
----------
677,392
----------
PUBLISHING - 0.5%
Gannett Company, Inc. 2,900 175,653
McGraw-Hill Companies, Inc. 1,900 98,097
Tribune Company 600 18,156
----------
291,906
----------
RAILROADS - 0.7%
Burlington Northern Santa Fe Corporation 2,600 184,132
CSX Corporation 100 5,077
Norfolk Southern Corporation 3,400 152,422
Union Pacific Corporation 400 32,204
----------
373,835
----------
REGIONAL BANKS - 0.8%
BB&T Corporation 1,100 46,101
KeyCorp 2,800 92,204
M&T Bank Corporation 500 54,525
National City Corporation 1,900 63,783
PNC Financial Services Group, Inc. 800 49,464
Regions Financial Corporation 1,064 36,346
SunTrust Banks, Inc. 600 43,656
UnionBanCal Corporation 900 61,848
----------
447,927
----------
159 See accompanying notes.
Schedule of Investments SERIES W
December 31, 2005 (MAIN STREET GROWTH & INCOME(R) SERIES)
NUMBER
OF SHARES MARKET VALUE
--------- ------------
COMMON STOCKS (CONTINUED)
REINSURANCE - 0.0%
Everest Re Group, Ltd. 100 $ 10,035
-----------
RESTAURANTS - 0.5%
McDonald's Corporation 5,200 175,344
Yum! Brands, Inc. 2,400 112,512
-----------
287,856
-----------
SEMICONDUCTOR EQUIPMENT - 0.8%
Applied Materials, Inc. 15,100 270,894
Cymer, Inc.* 300 10,653
KLA-Tencor Corporation 1,900 93,727
Lam Research Corporation* 700 24,976
Novellus Systems, Inc.* 1,000 24,120
-----------
424,370
-----------
SEMICONDUCTORS - 4.0%
Analog Devices, Inc. 5,300 190,111
Broadcom Corporation* 4,200 198,030
Fairchild Semiconductor International, Inc.* 1,400 23,674
Freescale Semiconductor, Inc. (Cl.B)* 5,283 132,973
Genesis Microchip, Inc.* 200 3,618
Intel Corporation 41,500 1,035,840
Intersil Corporation 1,000 24,880
LSI Logic Corporation* 3,100 24,800
Micrel, Inc.* 500 5,800
Microchip Technology, Inc. 1,000 32,150
Microsemi Corporation* 300 8,298
NVIDIA Corporation* 900 32,904
National Semiconductor Corporation 1,400 36,372
OmniVision Technologies, Inc.* 600 11,976
Texas Instruments, Inc. 16,000 513,120
Zoran Corporation* 200 3,242
-----------
2,277,788
-----------
SOFT DRINKS - 1.1%
Coca-Cola Company 7,100 286,201
Pepsi Bottling Group, Inc. 1,200 34,332
PepsiCo, Inc. 5,120 302,490
-----------
623,023
-----------
SPECIALIZED FINANCE - 0.6%
CIT Group, Inc. 2,200 113,916
Chicago Mercantile Exchange Holdings, Inc. 350 128,621
Moody's Corporation 1,700 104,414
-----------
346,951
-----------
SPECIALTY CHEMICALS - 0.1%
Lubrizol Corporation 100 4,343
Rohm & Haas Company 1,500 72,630
-----------
76,973
-----------
SPECIALTY STORES - 0.6%
Barnes & Noble, Inc. 600 $ 25,602
Claire's Stores, Inc. 500 14,610
Office Depot, Inc.* 1,000 31,400
OfficeMax, Inc. 700 17,752
Sports Authority, Inc.* 300 9,339
Staples, Inc. 9,450 214,609
Tiffany & Company 100 3,829
Weight Watchers International, Inc.* 300 14,829
Zale Corporation* 100 2,515
-----------
334,485
-----------
STEEL - 0.4%
AK Steel Holding Corporation* 1,400 11,130
Carpenter Technology Corporation 200 14,094
Commercial Metals Company 300 11,262
Nucor Corporation 2,200 146,784
Quanex Corporation 200 9,994
Reliance Steel & Aluminum Company 400 24,448
Steel Dynamics, Inc. 300 10,653
United States Steel Corporation 100 4,807
Worthington Industries, Inc. 400 7,684
-----------
240,856
-----------
SYSTEMS SOFTWARE - 3.6%
BEA Systems, Inc.* 2,700 25,380
BMC Software, Inc.* 1,300 26,637
Computer Associates International, Inc. 5,000 140,950
McAfee, Inc.* 900 24,417
Microsoft Corporation 45,200 1,181,980
MicroStrategy, Inc.* 100 8,274
Novell, Inc.* 3,100 27,373
Oracle Corporation* 29,000 354,090
Red Hat, Inc.* 1,100 29,964
Symantec Corporation* 13,261 232,067
-----------
2,051,132
-----------
TECHNOLOGY DISTRIBUTORS - 0.1%
Arrow Electronics, Inc.* 800 25,624
Avnet, Inc.* 1,100 26,334
CDW Corporation 300 17,271
Tech Data Corporation* 200 7,936
-----------
77,165
-----------
THRIFTS & MORTGAGE FINANCE - 1.8%
Accredited Home Lenders Holding Company* 200 9,916
Astoria Financial Corporation 750 22,050
Countrywide Financial Corporation 4,598 157,206
Federal Home Loan Mortgage Corporation 2,600 169,910
Federal National Mortgage Association 6,100 297,741
Fremont General Corporation 100 2,323
Golden West Financial Corporation 1,000 66,000
MGIC Investment Corporation 400 26,328
PMI Group, Inc. 300 12,321
Radian Group, Inc. 500 29,295
Washington Mutual, Inc. 5,540 240,990
-----------
1,034,080
-----------
160 See accompanying notes.
Schedule of Investments SERIES W
December 31, 2005 (MAIN STREET GROWTH & INCOME(R) SERIES)
NUMBER
OF SHARES MARKET VALUE
--------- ------------
COMMON STOCKS (CONTINUED)
TIRES & RUBBER - 0.1%
Goodyear Tire & Rubber Company* 1,500 $ 26,070
-----------
TOBACCO - 1.7%
Altria Group, Inc. 10,500 784,560
Loews Corporation - Carolina Group 300 13,197
Reynolds American, Inc. 1,700 162,061
-----------
959,818
-----------
TRADING COMPANIES & DISTRIBUTORS - 0.0%
United Rentals, Inc.* 400 9,356
-----------
TRUCKING - 0.0%
Landstar System, Inc. 300 12,522
-----------
WIRELESS TELECOMMUNICATION SERVICE - 1.0%
American Tower Corporation* 1,400 37,940
Crown Castle International Corporation* 700 18,837
Dobson Communications Corporation* 1,200 9,000
Sprint Nextel Corporation 21,548 503,361
-----------
569,138
-----------
TOTAL COMMON STOCKS
(cost $52,280,900) 55,575,504
-----------
FOREIGN STOCKS - 0.6%
CANADA - 0.6%
Canadian Natural Resources, Ltd. 1,768 87,647
Paramount Resources, Ltd.* 5,300 140,877
Precision Drilling Trust 500 16,508
Talisman Energy, Inc. 1,600 84,783
Trilogy Energy Trust 1,500 30,710
-----------
360,525
-----------
TOTAL FOREIGN STOCKS
(cost $85,667) 360,525
-----------
PREFERRED STOCK - 0.0%
REGIONAL BANKS - 0.0%
Wachovia Corporation*(1) 200 1
-----------
TOTAL PREFERRED STOCK
(cost $48) 1
-----------
WARRANT - 0.0%
Dime Bancorp, Inc., $1.00, 11-22-05 1,000 $ 130
-----------
TOTAL WARRANT
(cost $375) 130
-----------
TOTAL INVESTMENTS - 99.1%
(cost $52,366,990) 55,936,160
CASH & OTHER ASSETS, LESS LIABILITIES - 0.9% 493,088
-----------
TOTAL NET ASSETS - 100.0% $56,429,248
===========
For federal income tax purposes, the identified cost of investments owned at
December 31, 2005 was $52,824,906.
* Non-income producing security
(1) Security is restricted. The total market value of restricted securities is
$27 (cost $240), or 0.0% of total net assets. The acquisition dates range
from June 16, 2000 to June 6, 2002.
161 See accompanying notes.
SERIES W
(MAIN STREET GROWTH & INCOME(R) SERIES)
Statement of Assets and Liabilities
December 31, 2005
ASSETS:
Investments, at value(1) ........................................ $55,936,160
Cash ............................................................ 534,097
Cash denominated in a foreign currency, at value(2) ............. 2,938
Receivables:
Fund shares sold ............................................. 105,274
Securities sold .............................................. 171,742
Dividends .................................................... 68,018
Prepaid expenses ................................................ 1,028
-----------
Total assets .................................................... 56,819,257
-----------
LIABILITIES:
Payable for:
Securities purchased ......................................... 266,334
Fund shares redeemed ......................................... 50,886
Management fees .............................................. 48,179
Custodian fees ............................................... 4,967
Transfer agent and administration fees ....................... 9,960
Professional fees ............................................ 7,647
Director's fees .............................................. 706
Other ........................................................ 1,330
-----------
Total liabilities ............................................... 390,009
-----------
NET ASSETS ...................................................... $56,429,248
-----------
NET ASSETS CONSIST OF:
Paid in capital ................................................. $55,465,057
Accumulated undistributed net investment income ................. 313,697
Accumulated net realized loss on sale of investments and foreign
currency transactions ........................................ (2,918,683)
Net unrealized appreciation in value of investments and
translation of assets and liabilities in foreign currency .... 3,569,177
-----------
Net assets ...................................................... $56,429,248
===========
Capital shares authorized ....................................... unlimited
Capital shares outstanding ...................................... 6,018,756
Net asset value per share
(net assets divided by shares outstanding) ................... $ 9.38
===========
(1) Investments, at cost ........................................ $52,366,990
(2) Cash denominated in a foreign currency, at cost ............. 2,931
Statement of Operations
For the Year Ended December 31, 2005
INVESTMENT INCOME:
Dividends (net of foreign withholding tax of $862) ............ $ 990,431
Interest ...................................................... 382
----------
Total investment income ....................................... 990,813
----------
EXPENSES:
Management fees ............................................... 529,945
Administration fees ........................................... 62,503
Custodian fees ................................................ 40,642
Transfer agent/maintenance fees ............................... 25,117
Directors' fees ............................................... 3,048
Professional fees ............................................. 12,221
Reports to shareholders ....................................... 5,384
Other expenses ................................................ 2,343
----------
Total expenses ................................................ 681,203
Less: Earnings credits applied ................................ (4,008)
----------
Net expenses .................................................. 677,195
----------
Net investment income ......................................... 313,618
----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain during the year on:
Investments ................................................... 2,716,888
Foreign currency transactions ................................. 79
----------
Net realized gain ............................................. 2,716,967
----------
Net unrealized depreciation during the year on:
Investments ................................................ (220,452)
Translation of assets and liabilities in
foreign currencies ......................................... (112)
----------
Net unrealized depreciation ................................... (220,564)
----------
Net realized and unrealized gain .............................. 2,496,403
----------
Net increase in net assets resulting from operations .......... $2,810,021
==========
162 See accompanying notes.
SERIES W
Statement of Changes in Net Assets (MAIN STREET GROWTH & INCOME(R) SERIES)
YEAR ENDED YEAR ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income ................................................................. $ 313,618 $ 364,167
Net realized gain during the period on investments and foreign currency transactions .. 2,716,967 4,880,215
Net unrealized depreciation during the period on investments and translation of
assets and liabilities in foreign currencies ....................................... (220,564) (1,241,922)
------------ ------------
Net increase in net assets resulting from operations .................................. 2,810,021 4,002,460
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ................................................................. -- (17,331)
------------ ------------
Total distributions to shareholders ................................................... -- (17,331)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares .......................................................... 15,897,164 17,508,541
Distributions reinvested .............................................................. -- 17,331
Cost of shares redeemed ............................................................... (14,014,806) (14,950,814)
------------ ------------
Net increase from capital share transactions .......................................... 1,882,358 2,575,058
------------ ------------
Net increase in net assets ............................................................ 4,692,379 6,560,187
------------ ------------
NET ASSETS:
Beginning of period ................................................................... 51,736,869 45,176,682
------------ ------------
End of period ......................................................................... $ 56,429,248 $ 51,736,869
============ ============
Accumulated undistributed net investment income at end of year ........................ $ 313,697 $ 360,383
============ ============
CAPITAL SHARE ACTIVITY:
Shares sold ........................................................................... 1,769,434 2,092,659
Shares reinvested ..................................................................... -- 2,098
Shares redeemed ....................................................................... (1,563,692) (1,800,092)
------------ ------------
Total capital share activity .......................................................... 205,742 294,665
============ ============
163 See accompanying notes.
Financial Highlights
Selected data for each share of capital SERIES W
stock outstanding throughout each year (MAIN STREET GROWTH & INCOME(R) SERIES)
YEAR ENDED DECEMBER 31,
------------------------------------------------
2005 2004 2003 2002 2001
------- ------- ------- ------- -------
PER SHARE DATA
Net asset value, beginning of period $ 8.90 $ 8.19 $ 6.51 $ 8.10 $ 9.01
------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income 0.05 0.06 0.03 0.03 0.01
Net gain (loss) on securities (realized and unrealized) 0.43 0.65 1.68 (1.59) (0.91)
------- ------- ------- ------- -------
Total from investment operations 0.48 0.71 1.71 (1.56) (0.90)
------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income -- -- (0.03) (0.03) (0.01)
------- ------- ------- ------- -------
Total distributions -- -- (0.03) (0.03) (0.01)
------- ------- ------- ------- -------
Net asset value, end of period $ 9.38 $ 8.90 $ 8.19 $ 6.51 $ 8.10
======= ======= ======= ======= =======
TOTAL RETURN (A) 5.39% 8.71% 26.26% (19.28%) (9.99%)
------- ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $56,429 $51,737 $45,177 $30,559 $37,579
------- ------- ------- ------- -------
Ratios to average net assets:
Net investment income 0.59% 0.76% 0.48% 0.37% 0.14%
Total expenses (b) 1.29% 1.28% 1.25% 1.24% 1.25%
Net expenses (c) 1.28% 1.28% 1.25% 1.24% 1.24%
------- ------- ------- ------- -------
Portfolio turnover rate 87% 85% 81% 92% 67%
(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) Total expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net expense information reflects the expense ratios after custodian
earnings credits, as applicable.
164 See accompanying notes.
SERIES X
Manager's Commentary (SMALL CAP GROWTH SERIES)
February 15, 2006 (unaudited)
(RS INVESTMENTS LOGO)
Subadvisor, RS Investments
(PHOTO OF BILL WOLFENDEN)
Bill Wolfenden
Portfolio Manager
TO OUR SHAREHOLDERS:
In 2005, Series X of the SBL Fund - Small Cap Growth Series outperformed its
benchmark, the Russell 2000 Growth Index, rising a strong Bill Wolfenden 8.10%
gross of fees (7.51% net of Portfolio Manager fees) compared to a 4.15% increase
in the benchmark.
The Series' continued to reap performance rewards from various companies in the
technology sector in 2005. The Series' technology holdings are broadly
diversified across different industries and use technology in varied
applications. An example is Digitas, Inc. a fast growing marketing services
company that is benefiting from large Fortune 1000 companies moving more
advertising dollars to various Internet- and Web-based mediums. New business
growth has helped drive Digitas revenue growth north of 20%. The company
produces strong gross margins that we believe will continue to fuel earnings
growth into 2006 and beyond.
The Series' benefited from a number of strong performing stocks in the financial
services sector. Two small-cap property and casualty insurance companies
provided strong returns as the calamities of late 2005 rippled through the
insurance industry. As capacity has been withdrawn from the market, pricing in
some segments has remained very strong. Tower Group, Inc., a specialty property
and casualty insurer, contributed strong returns in 2005. Tower Group focuses on
underserved niches, primarily in the greater New York markets. The company went
public in late 2004 and the stock has been a strong performer in the portfolio.
The Series' was negatively impacted by health care in 2005. Some of the poorly
performing names included QLT and VaxGen. Historically, the Series has had
strong performance in the health care sector, but 2005 was very disappointing.
The holdings in this sector have been repositioned over the past couple months,
hoping to have much better attribution from this important growth sector in
2006.
Energy has been a significant contributor to many small-cap growth managers'
returns in 2005. In fact, energy contributed more than 50% of the return to the
Russell 2000 Growth Index in calendar year 2005. While we have been bullish on
segments of energy for two years, we have taken our weighting down to slightly
under the benchmark over the last few quarters. Closing out the year, the Series
owned a number of energy-related positions, with an emphasis on energy service
companies like Superior Energy Services, Inc. and Oil States International, Inc.
While these service providers sold off in the fourth quarter, dragging down
returns in the short run, we believe they are well positioned to benefit from
continued ramp up in drilling for new oil and natural gas reserves.
Historically rising interest rates and rapidly rising oil prices have been bad
for small companies, but small-caps overcame these events in 2005. Stocks also
persevered through major hurricanes, continued unrest in Iraq, and sporadic
worldwide terrorist activities. If interest rates can stabilize and oil prices
decline or moderate, then 2006 could be another solid year for small-cap stocks.
That said, the Series is positioned today for flat to modestly positive Gross
Domestic Product in 2006. The portfolio holds companies offering unique
products, services, and/or business models that can grow sales and earnings by
creating new markets or capturing market share. We appreciate your continued
support.
Sincerely,
- -------------------------------------
Bill Wolfenden
Portfolio Manager
165
SERIES X
Manager's Commentary (SMALL CAP GROWTH SERIES)
February 15, 2006 (unaudited)
PERFORMANCE
SERIES X VS. RUSSELL 2000 GROWTH INDEX
(PERFORMANCE GRAPH)
SERIES X RUSSELL 2000 GROWTH INDEX
- --------------------------- -------------------------
DATE VALUE DATE VALUE
---------- --------- --------- ---------
10/15/1997 10,000.00 INCEPTION 10/15/97 10,000.00
12/31/1997 9,580.00 12/31/97 9,181.79
3/31/1998 10,695.13 03/31/98 10,273.74
6/30/1998 10,404.72 06/30/98 9,682.72
9/30/1998 8,722.34 09/30/98 7,518.21
12/31/1998 10,685.11 12/31/98 9,295.99
3/31/1999 10,671.07 03/31/99 9,139.64
6/30/1999 11,403.20 06/30/99 10,487.61
9/30/1999 13,218.49 09/30/99 9,972.25
12/31/1999 20,002.66 12/31/99 13,302.29
3/31/2000 25,838.49 03/31/00 14,537.86
6/30/2000 22,642.18 06/30/00 13,465.31
9/30/2000 22,979.77 09/30/00 12,930.24
12/31/2000 18,256.90 12/31/00 10,317.88
3/31/2001 13,357.19 3/31/2001 8,748.79
6/30/2001 14,751.16 6/30/2001 10,333.82
9/30/2001 11,224.62 9/30/2001 7,431.31
12/31/2001 13,169.94 12/31/2001 9,376.30
3/31/2002 12,785.03 3/31/2002 9,192.40
6/30/2002 11,495.09 6/30/2002 7,749.65
9/30/2002 9,102.45 9/30/2002 6,081.96
12/31/2002 9,674.60 12/31/2002 6,538.34
3/31/2003 9,123.25 3/31/2003 6,284.15
6/30/2003 11,703.14 6/30/2003 7,801.58
9/30/2003 13,544.44 9/30/2003 8,618.29
12/31/2003 15,136.07 12/31/2003 9,711.65
3/31/2004 16,176.35 3/31/2004 10,254.15
6/30/2004 15,926.68 6/30/2004 10,263.98
9/30/2004 15,416.94 9/30/2004 9,646.93
12/31/2004 17,736.76 12/31/2004 11,101.04
3/31/2005 16,634.07 3/31/2005 10,343.74
6/30/2005 17,674.35 6/30/2005 10,703.64
9/30/2005 18,714.63 9/30/2005 11,379.55
12/31/2005 19,068.32 12/31/2005 11,561.39
</Table>
$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. The Russell 2000 Growth Index measures the performance
of those Russell 2000 companies with higher price-to-book ratios and higher
forecasted growth values.
PORTFOLIO COMPOSITION BY SECTOR
Consumer Discretionary 12.38%
Consumer Staples 1.49
Energy 7.23
Financials 6.36
Health Care 22.93
Industrials 13.52
Information Technology 31.58
Repurchase Agreement 5.28
Liabilities, less cash & other assets (0.77)
Total net assets 100.00%
======
AVERAGE ANNUAL RETURNS
SINCE INCEPTION
PERIODS ENDED 12-31-05(1) 1 YEAR 5 YEARS (10-15-97)
- ------------------------- ------ ------- ---------------
Series X 7.51% 0.87% 8.18%
(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.
166 See accompanying notes.
SERIES X
Manager's Commentary (SMALL CAP GROWTH SERIES)
February 15, 2006 (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, 2005 - December 31, 2005.
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
mutual 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.
SERIES EXPENSES
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING
07-01-05 12-31-05(1) PERIOD(2)
------------- ------------- -------------
Series X (Small Cap Growth Series)
Actual $1,000.00 $1,079.50 $6.18
Hypothetical 1,000.00 1,019.26 6.01
(1) The actual ending account value is based on the actual total return of the
Series for the period July 1, 2005 to December 31, 2005 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, 2005 to December 31, 2005 was 7.95%.
(2) Expenses are equal to the Series annualized expense ratio (net of earnings
credits) of 1.18% multiplied by the average account value over the period,
multiplied by 184/365 (to reflect the one-half year period).
167
Schedule of Investments SERIES X
December 31, 2005 (SMALL CAP GROWTH SERIES)
NUMBER MARKET
OF SHARES VALUE
--------- ----------
COMMON STOCKS - 95.5%
AEROSPACE & DEFENSE - 2.5%
DRS Technologies, Inc. 23,490 $1,207,856
Hexcel Corporation* 59,300 1,070,365
----------
2,278,221
----------
AGRICULTURAL PRODUCTS - 1.5%
Central Garden & Pet Company* 29,460 1,353,392
----------
APPAREL RETAIL - 2.1%
Cache, Inc.* 53,620 928,698
Jos. A. Bank Clothiers, Inc.* 21,592 937,309
----------
1,866,007
----------
APPLICATION SOFTWARE - 7.9%
Bottomline Technologies, Inc.* 61,680 679,714
Concur Technologies, Inc.* 47,260 609,181
Epicor Software Corporation* 76,220 1,076,989
Retalix, Ltd.* 32,470 794,216
SafeNet, Inc.* 33,620 1,083,236
Synplicity, Inc.* 139,660 1,159,178
Ultimate Software Group, Inc.* 48,700 928,709
Witness Systems, Inc.* 41,320 812,764
----------
7,143,987
----------
BIOTECHNOLOGY - 2.1%
Adeza Biomedical Corporation* 28,880 607,924
Illumina, Inc.* 42,700 602,070
ViroPharma, Inc.* 37,130 688,761
----------
1,898,755
----------
CASINOS & GAMING - 3.9%
Century Casinos, Inc.* 99,920 859,312
Mikohn Gaming Corporation* 98,670 973,873
Scientific Games Corporation* 62,060 1,692,997
----------
3,526,182
----------
COMPUTER STORAGE & PERIPHERALS - 1.1%
M-Systems Flash Disk Pioneers, Ltd.* 30,060 995,587
----------
DATA PROCESSING & OUTSOURCED SERVICES - 1.0%
TNS, Inc.* 48,590 931,956
----------
DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES - 4.0%
FirstService Corporation* 58,720 1,506,168
McGrath Rentcorp 44,280 1,230,984
Portfolio Recovery Associates, Inc.* 19,580 909,295
----------
3,646,447
----------
EDUCATION SERVICES - 1.8%
Laureate Education, Inc.* 17,750 932,053
Universal Technical Institute, Inc.* 22,490 695,841
----------
1,627,894
----------
ELECTRONIC EQUIPMENT MANUFACTURERS - 2.9%
Itron, Inc.* 22,540 902,502
Optimal Group, Inc.* 84,140 1,704,676
----------
2,607,178
----------
ENVIRONMENTAL & FACILITIES SERVICES - 1.5%
Rollins, Inc. 70,100 $1,381,671
----------
HEALTH CARE EQUIPMENT - 6.5%
AgioDynamics, Inc.* 10,410 265,767
Encore Medical Corporation* 152,570 755,221
I-Flow Corporation* 60,320 881,878
Intermagnetics General Corporation* 25,180 803,242
Neurometrix, Inc.* 11,400 310,992
NuVasive, Inc.* 37,070 670,967
SonoSite, Inc.* 22,510 788,075
Spectranetics Corporation* 75,820 852,975
Syneron Medical, Ltd.* 17,210 546,418
----------
5,875,535
----------
HEALTH CARE FACILITIES - 2.5%
Five Star Quality Care, Inc.* 144,790 1,139,497
Health Grades, Inc.* 86,970 545,302
LCA-Vision, Inc. 12,180 578,672
----------
2,263,471
----------
HEALTH CARE SERVICES - 5.8%
AMN Healthcare Services, Inc.* 52,120 1,030,934
Amedisys, Inc.* 17,180 725,683
Lifeline Systems, Inc.* 30,940 1,131,166
Matria Healthcare, Inc.* 25,880 1,003,109
Merge Technologies, Inc.* 25,710 643,778
Providence Service Corporation* 24,560 707,082
----------
5,241,752
----------
HEALTH CARE SUPPLIES - 3.0%
Immucor, Inc.* 34,750 811,760
Orthovita, Inc.* 176,200 683,656
PolyMedica Corporation 35,886 1,201,104
----------
2,696,520
----------
HOME IMPROVEMENT RETAIL - 0.7%
Building Materials Holding Corporation 9,180 626,168
----------
HOTELS, RESORTS & CRUISE LINES - 1.3%
Steiner Leisure, Ltd.* 32,610 1,159,612
----------
HOUSEWARES & SPECIALTIES - 1.3%
Jarden Corporation* 39,175 1,181,126
----------
HUMAN RESOURCE & EMPLOYMENT SERVICES - 1.0%
Barrett Business Services, Inc.* 37,930 947,871
----------
INDUSTRIAL MACHINERY - 0.9%
Axsys Technologies, Inc.* 44,020 790,159
----------
INTERNET RETAIL - 0.5%
Ctrip.com International, Ltd. ADR 8,630 498,383
----------
168 See accompanying notes.
Schedule of Investments SERIES X
December 31, 2005 (SMALL CAP GROWTH SERIES)
NUMBER MARKET
OF SHARES VALUE
---------- -----------
COMMON STOCKS (CONTINUED)
INTERNET SOFTWARE & SERVICES - 11.7%
CyberSource Corporation* 152,130 $ 1,004,058
Digitas, Inc.* 90,480 1,132,810
Equinix, Inc.* 38,210 1,557,440
j2 Global Communications, Inc.* 34,110 1,457,861
Keynote Systems, Inc.* 77,940 1,001,529
Marchex, Inc. (Cl.B)* 18,250 410,443
Online Resources Corporation* 100,390 1,109,310
Openwave Systems, Inc.* 42,810 747,891
RADVision, Ltd.* 55,410 918,847
RightNow Technologies, Inc.* 30,080 555,277
ValueClick, Inc.* 40,350 730,739
-----------
10,626,205
-----------
LEISURE PRODUCTS - 0.4%
Nautilus, Inc. 17,100 319,086
-----------
MARINE - 1.2%
American Commercial Lines, Inc.* 35,800 1,084,382
-----------
MULTI-LINE INSURANCE - 1.2%
Amerisafe, Inc.* 104,940 1,057,795
-----------
OIL & GAS DRILLING - 3.1%
Grey Wolf, Inc.* 122,790 949,167
Patterson-UTI Energy, Inc. 27,040 890,968
Unit Corporation* 17,620 969,629
-----------
2,809,764
-----------
OIL & GAS EQUIPMENT & SERVICES - 4.1%
Hydril* 11,260 704,876
Maverick Tube Corporation* 27,780 1,107,311
Oil States International, Inc.* 28,830 913,334
Superior Energy Services, Inc.* 48,290 1,016,505
-----------
3,742,026
-----------
PHARMACEUTICALS - 3.1%
AtheroGenics, Inc.* 33,750 675,338
First Horizon Pharmaceutical Corporation* 48,210 831,623
Matrixx Initiatives, Inc.* 22,160 464,252
Salix Pharmaceuticals, Ltd.* 47,970 843,313
-----------
2,814,526
-----------
PROPERTY & CASUALTY INSURANCE - 1.5%
Navigators Group, Inc.* 17,840 778,002
Tower Group, Inc. 26,980 593,020
-----------
1,371,022
-----------
REAL ESTATE INVESTMENT TRUSTS - 1.4%
KKR Financial Corporation 54,220 1,300,738
-----------
REGIONAL BANKS - 2.2%
Boston Private Financial Holdings, Inc. 23,470 713,957
PrivateBancorp, Inc. 37,210 1,323,560
-----------
2,037,517
-----------
RESTAURANTS - 0.5%
Cosi, Inc.* 51,000 423,300
-----------
PRINCIPAL
AMOUNT OR
NUMBER MARKET
OF SHARES VALUE
---------- -----------
COMMON STOCKS (CONTINUED)
SEMICONDUCTOR EQUIPMENT - 2.6%
Advanced Analogic Technologies, Inc.* 55,530 $ 769,090
PDF Solutions, Inc.* 53,200 864,500
Ultratech, Inc.* 45,800 752,036
-----------
2,385,626
-----------
SEMICONDUCTORS - 3.4%
02Micro International, Ltd. ADR* 71,290 725,732
Microsemi Corporation* 33,650 930,759
SRS Labs, Inc.* 105,280 692,742
Volterra Semiconductor Corporation* 49,350 740,250
-----------
3,089,483
-----------
SYSTEMS SOFTWARE - 0.9%
WebSideStory, Inc.* 47,180 855,373
-----------
TRUCKING - 2.4%
Old Dominion Freight Line, Inc.* 38,230 1,031,445
Vitran Corporation, Inc.* 55,890 1,101,033
-----------
2,132,478
-----------
TOTAL COMMON STOCKS
(cost $74,991,820) 86,587,195
-----------
REPURCHASE AGREEMENT - 5.3%
United Missouri Bank, 3.78%, dated 12-30-05,
matures 01-03-06; repurchase amount of
$4,786,009 (Collateralized by U.S.
Treasury Bills, 03-09-06 with a value of
$4,879,774) $4,784,000 4,784,000
-----------
TOTAL REPURCHASE AGREEMENT
(cost $4,784,000) 4,784,000
-----------
TOTAL INVESTMENTS - 100.8%
(cost $79,775,820) 91,371,195
LIABILITIES, LESS CASH & OTHER ASSETS - (0.8%) (700,041)
-----------
TOTAL NET ASSETS - 100.0% $90,671,154
===========
For federal income tax purposes, the identified cost of investments owned at
December 31, 2005 was $80,004,478
* Non-income producing security
ADR (American Depositary Receipt)
169 See accompanying notes.
SERIES X
(SMALL CAP GROWTH SERIES)
Statement of Assets and Liabilities
December 31, 2005
ASSETS:
Investments, at value(1) ........................................ $ 91,371,195
Cash ............................................................ 4,096
Receivables:
Fund shares sold ............................................. 218,829
Securities sold .............................................. 426,839
Dividends .................................................... 1,377
Prepaid expenses ................................................ 1,658
------------
Total assets .................................................... 92,023,994
------------
LIABILITIES:
Payable for:
Securities purchased ......................................... 1,047,335
Fund shares redeemed ......................................... 201,189
Management fees .............................................. 77,645
Custodian fees ............................................... 5,100
Transfer agent and administration fees ....................... 10,000
Professional fees ............................................ 7,691
Director's fees .............................................. 1,000
Other ........................................................ 2,880
------------
Total liabilities ............................................ 1,352,840
------------
NET ASSETS ................................................... $ 90,671,154
============
NET ASSETS CONSIST OF:
Paid in capital ................................................. $104,067,516
Accumulated net realized loss
on sale of investments ....................................... (24,991,737
Net unrealized appreciation
in value of investments ...................................... 11,595,375
------------
Net assets ...................................................... $ 90,671,154
============
Capital shares authorized ....................................... unlimited
Capital shares outstanding ...................................... 4,947,404
Net asset value per share
(net assets divided by shares outstanding) ................... $ 18.33
============
(1)Investments, at cost ......................................... $ 79,775,820
STATEMENT OF OPERATIONS
For the Year Ended December 31, 2005
INVESTMENT INCOME:
Dividends ..................................................... $ 126,494
Interest ...................................................... 159,574
-----------
Total investment income ....................................... 286,068
-----------
EXPENSES:
Management fees ............................................... 855,053
Administration fees ........................................... 79,417
Custodian fees ................................................ 20,652
Transfer agent/maintenance fees ............................... 25,131
Directors' fees ............................................... 4,721
Professional fees ............................................. 14,340
Reports to shareholders ....................................... 9,784
Other expenses ................................................ 4,116
-----------
Total expenses ................................................ 1,013,214
Less: Earnings credits applied ................................ (459)
-----------
Net expenses .................................................. 1,012,755
-----------
Net investment loss ........................................... (726,687)
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain during the year on
Investments ................................................... 8,252,526
-----------
Net realized gain ............................................. 8,252,526
-----------
Net unrealized depreciation during the year on
Investments ................................................... (1,603,848)
-----------
Net unrealized depreciation ................................... (1,603,848)
-----------
Net realized and unrealized gain .............................. 6,648,678
-----------
Net increase in net assets
resulting from operations .................................. $ 5,921,991
===========
170 See accompanying notes.
SERIES X
Statement of Changes in Net Assets (SMALL CAP GROWTH SERIES)
YEAR ENDED YEAR ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment loss .......................................... $ (726,687) $ (758,029)
Net realized gain during the period on investments ........... 8,252,526 16,327,212
Net unrealized depreciation during the period on investments.. (1,603,848) (2,390,800)
------------ ------------
Net increase in net assets resulting from operations ......... 5,921,991 13,178,383
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares ................................. 25,405,430 33,797,054
Cost of shares redeemed ...................................... (32,524,330) (44,847,080)
------------ ------------
Net decrease from capital share transactions ................. (7,118,900) (11,050,026)
------------ ------------
Net increase (decrease) in net assets ........................ (1,196,909) 2,128,357
------------ ------------
NET ASSETS:
Beginning of period .......................................... 91,868,063 89,739,706
------------ ------------
End of period ................................................ $ 90,671,154 $ 91,868,063
============ ============
CAPITAL SHARE ACTIVITY:
Shares sold .................................................. 1,479,550 2,234,913
Shares redeemed .............................................. (1,920,417) (3,015,092)
------------ ------------
Total capital share activity ................................. (440,867) (780,179)
============ ============
171 See accompanying notes.
Financial Highlights
Selected data for each share of capital stock SERIES X
outstanding throughout each year (SMALL CAP GROWTH SERIES)
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2005 2004 2003 2002(D) 2001
------- ------- ------- ------- -------
PER SHARE DATA
Net asset value, beginning of period $ 17.05 $ 14.55 $ 9.30 $ 12.66 $ 17.55
------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income (loss) (0.15) (0.14) (0.10) (0.10) (0.09)
Net gain (loss) on securities (realized and unrealized) 1.43 2.64 5.35 (3.26) (4.80)
------- ------- ------- ------- -------
Total from investment operations 1.28 2.50 5.25 (3.36) (4.89)
------- ------- ------- ------- -------
Net asset value, end of period $ 18.33 $ 17.05 $ 14.55 $ 9.30 $ 12.66
======= ======= ======= ======= =======
------- ------- ------- ------- -------
TOTAL RETURN(A) 7.51% 17.18% 56.45% (26.54%) (27.86%)
------- ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $90,671 $91,868 $89,740 $48,193 $73,408
------- ------- ------- ------- -------
Ratios to average net assets:
Net investment income (loss) (0.85%) (0.89%) (1.00%) (0.89%) (0.66%)
Total expenses(b) 1.19% 1.17% 1.17% 1.15% 1.15%
Net expenses(c) 1.18% 1.17% 1.16% 1.15% 1.15%
------- ------- ------- ------- -------
Portfolio turnover rate 116% 146% 208% 282% 353%
(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) Total expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net expense information reflects the expense ratios after custodian
earnings credits.
(d) RS Investments, Inc. became the sub-adviser of Series X effective September
3, 2002. Prior to September 3, 2002, Security Management Company, LLC (SMC)
paid Strong Capital Management, Inc. for sub-advisory services.
172 See accompanying notes.
SERIES Y
Manager's Commentary (SELECT 25 SERIES)
February 15, 2006 (unaudited)
(SECURITY BENEFIT(SM) LOGO)
Security Management Company, LLC
Advisor, Security Management Company, LLC
(PHOTO OF MARK A. MITCHELL)
Mark A. Mitchell
Portfolio Manager
TO OUR SHAREHOLDERS:
Series Y of SBL Fund - Select 25 Series returned 11.75% in the 12-month period
ended December 31, 2005, beating the benchmark Russell 1000 Growth Index's
return of 5.26% and out performing the Series' peer group median return of
6.83%. Strong stock selection and sector positioning drove excellent results in
2005.
Our approach to managing Series Y 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. Our research
analysts recommend their favorite stocks based on this analysis. We then narrow
the list down to our favorite 25-30 names that get included in the portfolio.
ENERGY AND INDUSTRIALS STOCKS TOP PERFORMERS
The Series' energy sector holdings were up 41% for the year. The sector
benefited significantly as a result of the increase in the price of crude oil.
Positions in BJ Services Company (BJ Services), Williams Companies, Inc.
(Williams) and KFx, Inc. contributed positively to the Series. BJ Services and
Williams, up 59% and 44% respectively, benefited from rising oil prices. KFx
appreciated 18% as a result of progress being made in the commercialization of
the company's proprietary clean coal technology.
The industrial sector was up over 23% for the Series versus up 4% for the
benchmark. Shaw Group, Inc. and J.B. Hunt Services, Inc. (JB Hunt) were the
major drivers within the sector. Shaw Group was up 63% as a result of continued
worldwide economic growth and the corresponding demand for its infrastructure
related services. JB Hunt was up 17%, benefiting from solid trucking demand in a
supply constrained industry.
HEALTHCARE AND CONSUMER SECTORS DISAPPOINT
Healthcare, as a sector overall, under performed the index. Strong performance
by Amgen, Inc. was partially offset by the negative impact of Boston Scientific.
Amgen was up over 22% as a result of posting solid operating results and
diminishing fears regarding the reimbursement environment. Boston Scientific was
down over 18% as a result of concerns regarding its long-term growth prospects
and declining market share in the drug eluting stent market in the U.S.
Both the consumer discretionary and consumer staples sectors under performed
their respective benchmark. Harley Davidson, down 18%, and Wal-Mart, down 10%,
impacted the Series negatively. Harley Davidson was down as a result of lowering
its 2005 production schedule and general concerns over a slowdown in consumer
spending. Wal-Mart, too, was negatively impacted by consumer slowdown fears as
well as questions concerning its long-term growth prospects.
2006 MARKET OUTLOOK
Though we are positive on the equity market for 2006, we do have several
near-term concerns. The most significant, in our opinion, is the spending
capacity of the U.S. consumer. Above average consumer spending trends have
persisted as a result of favorable monetary and fiscal policies. These favorable
policy trends are now being reversed. Additionally, higher energy prices will
continue to weigh heavily on the consumer as we move through the winter heating
season.
We continue to look for opportunities that are long-term in nature and benefit
from both an attractive valuation and the ability to improve their fundamental
competitive position.
We 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(1). 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
(1) Dollar cost averaging does not assure profits or protect against loss in a
declining market.
173
SERIES Y
Manager's Commentary (SELECT 25 SERIES)
February 15, 2006 (unaudited)
PERFORMANCE
SERIES Y VS. S&P 500 INDEX AND RUSSELL 1000 GROWTH INDEX
(PERFORMANCE GRAPH)
SERIES Y S&P 500 INDEX RUSSELL 1000 GROWTH INDEX
- ---------------------------- ------------------------- -------------------------
DATE VALUE DATE VALUE DATE VALUE
---------- --------- ---------- --------- ---------- ---------
5/3/99 10,000.00 INCEPTION 5/03/99 10,000.00 INCEPTION 5/03/99 10,000.00
6/30/99 10,510.00 6/30/99 10,305.90 6/30/1999 10,371.51
9/30/99 10,340.00 9/30/99 9,662.23 9/30/1999 9,991.06
12/31/1999 12,370.00 12/31/99 11,099.83 12/31/1999 12,503.51
3/31/00 12,240.00 3/31/00 11,354.94 3/31/2000 13,394.83
6/30/00 11,870.00 06/30/00 11,053.83 06/30/00 13,032.53
9/30/00 11,580.00 09/30/00 10,946.91 09/30/00 12,330.94
12/31/00 10,380.00 12/31/00 10,091.15 12/31/00 9,699.57
3/31/2001 8,830.00 3/31/2001 8,895.28 3/31/2001 7,672.36
6/30/2001 9,510.00 6/30/2001 9,416.16 6/30/2001 8,318.29
9/30/2001 7,690.00 9/30/2001 8,034.87 9/30/2001 6,703.71
12/31/2001 9,350.00 12/31/2001 8,893.97 12/31/2001 7,719.01
3/31/2002 9,310.00 3/31/2002 8,918.14 3/31/2002 7,519.17
6/30/2002 7,560.00 6/30/2002 7,723.63 6/30/2002 6,115.18
9/30/2002 6,600.00 9/30/2002 6,389.69 9/30/2002 5,195.12
12/31/2002 6,860.00 12/31/2002 6,929.34 12/31/2002 5,566.29
3/31/2003 6,710.00 3/31/2003 6,711.11 3/31/2003 5,506.60
6/30/2003 7,380.00 6/30/2003 7,744.15 6/30/2003 6,294.89
9/30/2003 7,480.00 9/30/2003 7,949.11 9/30/2003 6,541.53
12/31/2003 8,080.00 12/31/2003 8,917.03 12/31/2003 7,223.28
3/31/2004 8,420.00 3/31/2004 9,068.30 3/31/2004 7,279.83
6/30/2004 8,480.00 6/30/2004 9,223.74 6/30/2004 7,420.84
9/30/2004 8,060.00 9/30/2004 9,050.82 9/30/2004 7,033.44
12/31/2004 9,020.00 12/31/2004 9,886.55 12/31/2004 7,678.53
3/31/2005 8,730.00 3/31/2005 9,673.56 3/31/2005 7,364.99
6/30/2005 8,830.00 6/30/2005 9,805.25 6/30/2005 7,546.72
9/30/2005 9,660.00 9/30/2005 10,159.08 9/30/2005 7,849.59
12/31/2005 10,080.00 12/31/2005 10,370.14 12/31/2005 8,083.34
$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. Series Y changed its benchmark index to the Russell 1000 Growth
Index. The Investment Manager has determined that the Russell 1000 Growth Index
is a more appropriate index than the S&P 500 Index, which is a
capitalization-weighted index composed of 500 selected common stocks that
represent the broad domestic economy and is a widely recognized unmanaged index
of market performance, because the Russell 1000 Growth Index more closely
reflects the types of securities in which the Series invests and thus provides
shareholders with a more appropriate benchmark against which to compare the
Series' performance. The S&P 500 Index is a capitalization-weighted index
composed of 500 selected common stocks that represent the broad domestic economy
and is a widely recognized unmanaged index of market performance. The Russell
1000 Growth Index is an unmanaged capitalization-weighted index which includes
stocks incorporated in the United States and its territories and measures the
performance of the Russell 1000 companies with higher price-to-book ratios and
higher forecasted growth values.
AVERAGE ANNUAL RETURNS
SINCE INCEPTION
PERIODS ENDED 12-31-05(1) 1 YEAR 5 YEARS (5-3-99)
- ------------------------- ------ ------- ---------------
Series Y 11.75% (0.58%) 0.12%
(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
Consumer Discretionary 13.35%
Consumer Staples 5.08
Energy 8.76
Financials 9.36
Health Care 12.94
Industrials 20.23
Information Technology 13.65
Materials 4.06
Utilities 6.23
Exchange Traded Funds 2.48
Commercial Paper 5.40
Repurchase Agreement 0.83
Liabilities, less cash & other assets (2.37)
Total net assets 100.00%
======
174 See accompanying notes.
SERIES Y
Manager's Commentary (SELECT 25 SERIES)
February 15, 2006 (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, 2005 - December 31, 2005.
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
mutual 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.
SERIES EXPENSES
BEGINNING ENDING EXPENSES
ACCOUNT VALUE ACCOUNT VALUE PAID DURING
07-01-05 12-31-05(1) PERIOD(2)
------------- ------------- -----------
Series Y
(Select 25 Series)
Actual $1,000.00 $1,135.10 $5.38
Hypothetical 1,000.00 1,020.16 5.09
(1) The actual ending account value is based on the actual total return of the
Series for the period July 1, 2005 to December 31, 2005 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, 2005 to December 31, 2005 was 13.51%.
(2) Expenses are equal to the Series annualized expense ratio 1.00% multiplied
by the average account value over the period, multiplied by 184/365 (to
reflect the one-half year period).
175
Schedule of Investments SERIES Y
December 31, 2005 (SELECT 25 SERIES)
NUMBER MARKET
OF SHARES VALUE
--------- ----------
COMMON STOCKS - 96.2%
AEROSPACE & DEFENSE - 4.3%
L-3 Communications Holdings, Inc. 21,300 $1,583,655
----------
AIR FREIGHT & LOGISTICS - 5.1%
FedEx Corporation 18,200 1,881,698
----------
BIOTECHNOLOGY - 2.9%
Amgen, Inc.* 13,700 1,080,382
----------
BROADCASTING & CABLE TV - 2.9%
Univision Communications, Inc.* 36,300 1,066,857
----------
COMMUNICATIONS EQUIPMENT - 8.8%
3Com Corporation* 204,000 734,400
ADC Telecommunications, Inc.* 64,742 1,446,336
Cisco Systems, Inc.* 63,300 1,083,696
----------
3,264,432
----------
CONSTRUCTION & ENGINEERING - 7.3%
Shaw Group, Inc.* 93,000 2,705,370
----------
DATA PROCESSING & OUTSOURCED SERVICES - 3.9%
First Data Corporation 33,700 1,449,437
----------
ELECTRIC UTILITIES - 6.2%
KFx, Inc.* 134,700 2,304,717
----------
EXCHANGE TRADED FUNDS - 2.5%
iShares Russell 1000 Growth Index Fund 18,000 918,900
----------
HEALTH CARE EQUIPMENT - 4.2%
Medtronic, Inc. 26,900 1,548,633
----------
HEALTH CARE SERVICES - 2.5%
Covance, Inc.* 19,000 922,450
----------
HOME IMPROVEMENT RETAIL - 2.8%
Home Depot, Inc. 25,900 1,048,432
----------
HOTELS, RESORTS & CRUISE LINES - 4.4%
Carnival Corporation 30,800 1,646,876
----------
HYPERMARKETS & SUPERCENTERS - 3.2%
Wal-Mart Stores, Inc. 25,400 1,188,720
----------
INDUSTRIAL GASES - 4.1%
Praxair, Inc. 28,400 1,504,064
----------
MOVIES & ENTERTAINMENT - 3.2%
Viacom, Inc. (Cl.B) 36,200 1,180,120
----------
MULTI-LINE INSURANCE - 4.1%
American International Group, Inc. 22,300 1,521,529
----------
OIL & GAS EQUIPMENT & SERVICES - 4.5%
BJ Services Company 45,500 1,668,485
----------
OIL & GAS STORAGE & TRANSPORTATION - 4.3%
Williams Companies, Inc. 68,000 1,575,560
----------
OTHER DIVERSIFIED FINANCIAL SERVICES - 5.3%
Citigroup, Inc. 14,000 679,420
First Marblehead Corporation(1) 38,500 1,265,110
----------
1,944,530
----------
PRINCIPAL
AMOUNT OR
NUMBER MARKET
OF SHARES VALUE
---------- -----------
COMMON STOCKS (CONTINUED)
PHARMACEUTICALS - 3.3%
Johnson & Johnson 20,600 $ 1,238,060
-----------
SEMICONDUCTOR EQUIPMENT - 0.9%
Mindspeed Technologies, Inc.* 145,000 340,750
-----------
SOFT DRINKS - 1.9%
PepsiCo, Inc. 11,700 691,236
-----------
TRUCKING - 3.6%
J.B. Hunt Transport Services, Inc. 58,200 1,317,648
-----------
TOTAL COMMON STOCKS
(cost $28,247,847) 35,592,541
-----------
ASSET BACKED COMMERCIAL PAPER - 2.7%
FINANCIAL COMPANIES - TRADE RECEIVABLES - 2.7%
Sheffield Receivables Corporation,
4.25%, 01-05-06 $1,000,000 999,528
-----------
TOTAL ASSET BACKED COMMERCIAL PAPER
(cost $999,528) 999,528
-----------
COMMERCIAL PAPER - 2.7%
BROKERAGE - 2.7%
Goldman Sachs Group Inc.,
4.32%, 01-03-06 $1,000,000 999,758
-----------
TOTAL COMMERCIAL PAPER
(cost $999,758) 999,758
-----------
REPURCHASE AGREEMENT - 0.8%
United Missouri Bank, 3.78%, dated 12-30-05,
matures 01-03-06; repurchase amount of $306,129
(Collateralized by U.S. Treasury Notes, 2.375%,
08-15-06 with a value of $312,978) $ 306,000 306,000
-----------
TOTAL REPURCHASE AGREEMENT
(cost $306,000) 306,000
-----------
TOTAL INVESTMENTS - 102.4%
(cost $30,553,133) 37,897,827
LIABILITIES, LESS CASH & OTHER ASSETS - (2.4%) (879,968)
-----------
TOTAL NET ASSETS - 100.0% $37,017,859
===========
The identified cost of investments owned at December 31, 2005 was the same for
federal income tax and financial statement purposes.
* Non-Income producing security.
(1) A portion of this security is segregated as collateral for written options
contracts.
176 See accompanying notes.
SERIES Y
(SELECT 25 SERIES)
Statement of Assets and Liabilities
December 31, 2005
ASSETS:
Investments, at value(1) ....................................... $ 37,897,827
Cash ........................................................... 744
Receivables:
Fund shares sold ............................................ 316,092
Dividends ................................................... 15,139
Prepaid expenses ............................................... 562
------------
Total assets ................................................... 38,230,364
------------
LIABILITIES:
Payable for:
Securities purchased ........................................ 1,145,585
Fund shares redeemed ........................................ 18,971
Written options, at value
(premiums received, $18,771) ................................ 9,000
Management fees ................................................ 23,134
Custodian fees ................................................. 1,200
Transfer agent and administration fees ......................... 5,049
Professional fees .............................................. 7,481
Director's fees ................................................ 400
Other .......................................................... 1,685
------------
Total liabilities .............................................. 1,212,505
------------
NET ASSETS ..................................................... $ 37,017,859
============
NET ASSETS CONSIST OF:
Paid in capital ................................................ $ 50,432,085
Accumulated net realized loss
on sale of investments ...................................... (20,768,691)
Net unrealized appreciation in
value of investments and options written .................... 7,354,465
------------
Net assets ..................................................... $ 37,017,859
============
Capital shares authorized ...................................... unlimited
Capital shares outstanding ..................................... 3,673,845
Net asset value per share
(net assets divided by shares outstanding) .................. $ 10.08
============
(1)Investments, at cost ........................................ $ 30,553,133
Statement of Operations
For the Year Ended December 31, 2005
INVESTMENT INCOME:
Dividends ..................................................... $ 258,589
Interest ...................................................... 46,069
----------
Total investment income ....................................... 304,658
----------
EXPENSES:
Management fees ............................................... 240,285
Administration fees ........................................... 29,128
Custodian fees ................................................ 5,858
Transfer agent/maintenance fees ............................... 25,131
Directors' fees ............................................... 1,702
Professional fees ............................................. 10,865
Reports to shareholders ....................................... 3,695
Other expenses ................................................ 1,655
----------
Total expenses ................................................ 318,319
----------
Net investment loss ........................................... (13,661)
----------
NET REALIZED AND UNREALIZED GAIN:
Net realized gain during the year on
Investments ................................................... 1,552,451
----------
Net realized gain ............................................. 1,552,451
----------
Net unrealized appreciation during the year on:
Investments ................................................... 2,058,436
Options written ............................................... 9,771
----------
Net unrealized appreciation ................................... 2,068,207
----------
Net realized and unrealized gain .............................. 3,620,658
----------
Net increase in net assets
resulting from operations .................................. $3,606,997
==========
177 See accompanying notes.
SERIES Y
Statement of Changes in Net Assets (SELECT 25 SERIES)
YEAR ENDED YEAR ENDED
DECEMBER 31, 2005 DECEMBER 31, 2004
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment loss ............................................... $ (13,661) $ (52,557)
Net realized gain during the period on investments ................ 1,552,451 870,310
Net unrealized appreciation during the period on
investments and options written ................................ 2,068,207 2,734,534
------------ ------------
Net increase in net assets resulting from operations .............. 3,606,997 3,552,287
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares ...................................... 13,147,535 14,709,618
Cost of shares redeemed ........................................... (13,568,691) (19,219,579)
------------ ------------
Net decrease from capital share transactions ...................... (421,156) (4,509,961)
------------ ------------
Net increase (decrease) in net assets ............................. 3,185,841 (957,674)
------------ ------------
NET ASSETS:
Beginning of period ............................................... 33,832,018 34,789,692
------------ ------------
End of period ..................................................... $ 37,017,859 $ 33,832,018
============ ============
CAPITAL SHARE ACTIVITY:
Shares sold ....................................................... 1,425,367 1,775,427
Shares redeemed ................................................... (1,501,879) (2,329,965)
------------ ------------
Total capital share activity ...................................... (76,512) (554,538)
============ ============
178 See accompanying notes.
Financial Highlights
Selected data for each share of capital stock SERIES Y
outstanding throughout each year (SELECT 25 SERIES)
YEAR ENDED DECEMBER 31,
-----------------------------------------------
2005 2004 2003 2002 2001
------- ------- ------- ------- -------
PER SHARE DATA
Net asset value, beginning of period $ 9.02 $ 8.08 $ 6.86 $ 9.35 $ 10.38
------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income (loss) -- (0.01) -- (0.01) (0.02)
Net gain (loss) on securities (realized and unrealized) 1.06 0.95 1.22 (2.48) (1.01)
------- ------- ------- ------- -------
Total from investment operations 1.06 0.94 1.22 (2.49) (1.03)
------- ------- ------- ------- -------
Net asset value, end of period $ 10.08 $ 9.02 $ 8.08 $ 6.86 $ 9.35
======= ======= ======= ======= =======
TOTAL RETURN(A) 11.75% 11.63% 17.78% (26.63%) (9.92%)
------- ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $37,018 $33,832 $34,790 $34,286 $52,998
------- ------- ------- ------- -------
Ratios to average net assets:
Net investment income (loss) (0.04%) (0.15%) (0.01%) (0.18%) (0.20%)
Total expenses 0.99% 0.95% 0.93% 0.89% 0.88%
------- ------- ------- ------- -------
Portfolio turnover rate 28% 42% 49% 34% 38%
(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.
179 See accompanying notes.
This page left blank intentionally.
180
SERIES Z
MANAGERS' COMMENTARY (ALPHA OPPORTUNITY SERIES)
February 15, 2006 (unaudited)
Advised by:
(SECURITY BENEFIT (SM) LOGO)
Security Management Company, LLC
and
(MAINSTREAM INVESTMENT ADVISERS LOGO)
Subadvisor, Mainstream
Investment Advisers
(PHOTO OF BILL JENKINS)
Bill Jenkins
Co-Portfolio Manager
(PHOTO OF MARK LAMB)
Mark Lamb
Co-Portfolio Manager
TO OUR SHAREHOLDERS:
With a strong second half of the year, Series Z of SBL Fund - Alpha Opportunity
Series, returned 6.66% for the 12-month period ended December 31, 2005,
outpacing the Series' median peer group return of 5.45%, and the 4.91% return
for the S&P 500 Total Return Index for the same timeframe. We believe our
investment approach delivers significant long-term value, as demonstrated by the
Series' total return of 42.07% since its July 7, 2003 inception, which has
exceeded the S&P 500's Total Return by 15.18%.
During the year, the active investing strategy of the Series exceeded the Index,
and the passive investing strategy performed as expected. The passive strategy
replicates the Index by investing in high-quality, short-term fixed income
instruments and by being long in index futures. While the passive strategy
provides the necessary liquidity, the active strategy focuses on adding value
long term.
Through an actively managed portfolio of mainly common stocks, both long and
short, we are investors focused on generating positive (absolute) returns over
time during various market environments while maintaining a risk profile that is
less than the marketplace in general. We are sensitive to changes in stock
prices and company and market information. This proactive approach helps keep
our investment themes fresh and risk level moderate.
TOP PERFORMERS IN WORLDWIDE INFRASTRUCTURE BUILDING
For the year 2005, the Series' most successful holdings were in the basic
materials, energy, engineering and industrial machinery sectors, all of which
benefited from worldwide infrastructure building, particularly in China. These
included Phelps Dodge Corporation, Joy Global Inc., Fluor Corporation, Arch
Coal, Inc., and Bucyrus International, Inc. There were company specific
disappointments, however. Texas Industries, Inc., Braskem S.A. and Avery
Dennison Corporation experienced earnings shortfalls and therefore were
underperformers.
As of year-end, the active portion of our portfolio was composed of
approximately 87% long equities and the balance in cash. Individual holdings
remain broadly diversified with sector concentrations in materials and
processing, producer durables and selected transports. The Series' holdings at
year-end included Weyerhaeuser Company, Caterpillar Inc., Eagle Materials, Inc.,
Southwest Airlines Company, Cascade Corporation, Arch Coal, Inc. and CNF, Inc.
OUTLOOK FOR 2006
We see opportunity ahead. Our investment approach remains intact. Our investment
process principally screens for trend, value and theme. The vast majority of
stocks are trending positively. Currently equities offer attractive value over
bonds, real estate and most other assets. We continue to be focused on the best
relative -value sectors which include the materials, energy and production
segments of the economy. Cyclicals look attractive relative to non-cyclicals.
In selected sectors, we believe a strong market rally may unfold. Investors
continue to have generally low expectations for equities and are both absolutely
and relatively underinvested in the market. Our "post boom/bust" investment
theme remains in clear focus and we expect to see a solid market rally led by
energy, materials, industrials and transportation.
We appreciate your commitment and investment in the Series and look forward to
continuing our service in 2006.
Sincerely,
Bill Jenkins, Co-Portfolio Manager
Mark Lamb, Co-Portfolio Manager
181
SERIES Z
MANAGERS' COMMENTARY (ALPHA OPPORTUNITY SERIES)
February 15, 2006 (unaudited)
PERFORMANCE
SERIES Z VS. S&P 500 INDEX
(PERFORMANCE GRAPH)
SERIES Z S&P 500 INDEX
- --------------------------- -------------------------
DATE VALUE DATE VALUE
---------- --------- ---------- ---------
7/7/03 10,000.00 INCEPTION 7/07/03 10,000.00
9/30/03 10,280.00 9/30/2003 10,264.66
12/31/03 11,832.51 12/31/2003 11,514.53
3/31/2004 12,065.35 3/31/2004 11,709.86
6/30/2004 12,287.60 6/30/2004 11,910.59
9/30/2004 12,420.34 9/30/2004 11,687.29
12/31/2004 13,320.51 12/31/2004 12,766.47
3/31/2005 13,285.97 3/31/2005 12,491.44
6/30/2005 13,090.25 6/30/2005 12,661.48
9/30/2005 13,919.18 9/30/2005 13,118.39
12/31/2005 14,207.01 12/31/2005 13,390.92
$10,000 SINCE INCEPTION
The chart above assumes a hypothetical $10,000 investment in Series Z (Alpha
Opportunity Series) on July 7, 2003 (date of inception), and reflects the fees
and expenses of Series Z. The S&P 500 Index is a capitalization weighted index
composed of 500 selected common stocks that represent the broad domestic economy
and is a widely recognized unmanaged index of market performance.
PORTFOLIO COMPOSITION BY SECTOR
Consumer Discretionary 3.99%
Consumer Staples 0.81
Energy 4.09
Exchange Traded Funds 1.42
Financials 0.91
Health Care 0.13
Industrials 26.07
Information Technology 3.08
Materials 14.26
Telecommunication Services 0.41
U.S. Agency Bonds & Notes 34.05
AAA 0.83
Cash & other assets, less liabilities 9.95
Total net assets 100.00%
======
AVERAGE ANNUAL RETURNS
PERIODS ENDED 12-31-05(1) 1 YEAR SINCE INCEPTION (7-7-03)
- ------------------------- ------ ------------------------
Series Z 6.66% 15.16%
(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.
182 See accompanying notes.
SERIES Z
MANAGERS' COMMENTARY (ALPHA OPPORTUNITY SERIES)
February 15, 2006 (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, 2005 - December 31, 2005.
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
mutual 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.
SERIES EXPENSES
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING
07-01-05 12-31-05(1) PERIOD(2)
------------- ------------- -------------
Series Z (Alpha Opportunity Series)
Actual $1,000.00 $1,079.60 $13.16
Hypothetical 1,000.00 1,012.55 12.73
(1) The actual ending account value is based on the actual total return of the
Series for the period July 1, 2005 to December 31, 2005 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, 2005 to December 31, 2005 was 7.96%.
(2) Expenses are equal to the Series annualized expense ratio 2.51% multiplied
by the average account value over the period, multiplied by 184/365 (to
reflect the one-half year period).
183
Schedule of Investments SERIES Z
December 31, 2005 (ALPHA OPPORTUNITY SERIES)
NUMBER MARKET
OF SHARES VALUE
--------- ----------
COMMON STOCKS - 55.2%
AEROSPACE & DEFENSE - 0.5%
Empresa Brasileira de Aeronautica
S.A. ADR 3,400 $ 132,940
----------
AGRICULTURAL PRODUCTS - 0.5%
Archer-Daniels-Midland Company 5,500 135,630
UAP Holding Corporation 200 4,084
----------
139,714
----------
AIRLINES - 2.5%
Alaska Air Group, Inc.* 5,200 185,744
Southwest Airlines Company 28,100 461,683
----------
647,427
----------
ALUMINUM - 0.5%
Aleris International, Inc.* 3,520 113,485
Aluminum Corporation of China, Ltd. ADR 100 7,634
----------
121,119
----------
BIOTECHNOLOGY - 0.1%
Techne Corporation* 600 33,690
----------
BUILDING PRODUCTS - 1.4%
Armstrong Holdings, Inc.* 2,500 3,875
USG Corporation* 5,600 364,000
----------
367,875
----------
COAL & CONSUMABLE FUELS - 2.7%
Arch Coal, Inc. 4,700 373,650
Peabody Energy Corporation 4,000 329,680
----------
703,330
----------
COMMUNICATIONS EQUIPMENT - 0.4%
CommScope, Inc.* 1,100 22,143
Emulex Corporation* 4,500 89,055
----------
111,198
----------
CONSTRUCTION & ENGINEERING - 3.6%
Granite Construction, Inc. 2,800 100,548
Insituform Technologies, Inc.* 3,700 71,669
Perini Corporation* 1,500 36,225
Quanta Services, Inc.* 4,400 57,948
URS Corporation* 11,100 417,471
Washington Group International, Inc.* 4,600 243,662
----------
927,523
----------
CONSTRUCTION & FARM MACHINERY - 4.0%
Cascade Corporation 7,100 333,061
Caterpillar, Inc. 6,000 346,620
Deere & Company 500 34,055
Nacco Industries, Inc. 600 70,290
Terex Corporation* 2,200 130,680
Wabtec Corporation 4,500 121,050
----------
1,035,756
----------
CONSTRUCTION MATERIALS - 2.7%
Eagle Materials, Inc. 2,900 $ 354,844
Martin Marietta Materials, Inc. 1,600 122,752
Texas Industries, Inc. 2,100 104,664
Vulcan Materials Company 1,750 118,562
----------
700,822
----------
DATA PROCESSING & OUTSOURCED SERVICES - 0.3%
Electronic Data Systems Corporation 2,700 64,908
----------
DEPARTMENT STORES - 0.7%
Nordstrom, Inc. 5,100 190,740
----------
DIVERSIFIED METALS & MINING - 4.3%
Amcol International Corporation 9,200 188,784
BHP Billiton, Ltd. ADR 13,000 434,460
Brush Engineered Materials, Inc.* 2,200 34,980
Inco, Ltd.* 4,900 213,493
RTI International Metals, Inc.* 600 22,770
Stillwater Mining Company* 17,500 202,475
----------
1,096,962
----------
ELECTRICAL COMPONENTS & EQUIPMENT - 2.4%
Franklin Electric Company, Inc. 3,000 118,620
Hubbell, Inc. (Cl.B) 8,500 383,520
Regal-Beloit Corporation 2,900 102,660
----------
604,800
----------
ELECTRONIC EQUIPMENT MANUFACTURERS - 0.3%
Agilent Technologies, Inc.* 1,700 56,593
Keithley Instruments, Inc. 1,600 22,368
----------
78,961
----------
ELECTRONIC MANUFACTURING SERVICES - 0.2%
Molex, Inc. 1,700 44,115
----------
ENVIRONMENTAL & FACILITIES SERVICES - 0.6%
Waste Management, Inc. 4,850 147,198
----------
EXCHANGE TRADED FUNDS - 1.4%
iShares FTSE/Xinhua China 25 Index Fund* 600 36,972
iShares Nasdaq Biotechnology Index Fund 3,300 255,090
Semiconductor Holders Trust 2,000 73,280
----------
365,342
----------
FOREST PRODUCTS - 2.9%
Weyerhaeuser Company 11,100 736,374
----------
HOMEBUILDING - 0.6%
Champion Enterprises, Inc.* 11,600 157,992
----------
HOMEFURNISHING RETAIL - 0.6%
Bed Bath & Beyond, Inc.* 4,500 162,675
----------
HOTELS, RESORTS & CRUISE LINES - 0.9%
Orient-Express Hotels, Ltd. 7,200 226,944
----------
184 See accompanying notes.
Schedule of Investments SERIES Z
December 31, 2005 (ALPHA OPPORTUNITY SERIES)
NUMBER MARKET
OF SHARES VALUE
--------- -----------
COMMON STOCKS (CONTINUED)
HOUSEHOLD APPLIANCES - 1.0%
Stanley Works 5,200 $ 249,808
-----------
HYPERMARKETS & SUPERCENTERS - 0.3%
Costco Wholesale Corporation 1,400 69,258
-----------
INDUSTRIAL CONGLOMERATES - 1.9%
Carlisle Companies, Inc. 4,400 304,260
General Electric Company 5,200 182,260
-----------
486,520
-----------
INDUSTRIAL GASES - 0.5%
Air Products & Chemicals, Inc. 2,250 133,177
-----------
INDUSTRIAL MACHINERY - 5.5%
Donaldson Company, Inc. 600 19,080
Dover Corporation 1,800 72,882
Flowserve Corporation* 600 23,736
Gardner Denver, Inc.* 2,200 108,460
Harsco Corporation 2,800 189,028
Idex Corporation 1,900 78,109
Kennametal, Inc. 1,100 56,144
Lincoln Electric Holdings, Inc. 9,200 364,872
Mueller Industries, Inc. 1,100 30,162
Parker Hannifin Corporation 5,300 349,588
Portec Rail Products, Inc. 2,069 27,125
Timken Company 2,550 81,651
-----------
1,400,837
-----------
INVESTMENT BANKING & BROKERAGE - 0.6%
Charles Schwab Corporation 6,400 93,888
LaBranche & Company, Inc.* 6,700 67,737
-----------
161,625
-----------
MARINE - 0.6%
Kirby Corporation* 2,800 146,076
-----------
METAL & GLASS CONTAINERS - 0.2%
Greif, Inc. 600 39,768
-----------
MOVIES & ENTERTAINMENT - 0.0%
Genius Products, Inc.* 4,000 8,080
-----------
OIL & GAS EQUIPMENT & SERVICES - 1.4%
Dresser-Rand Group, Inc.* 5,600 135,408
Halliburton Company 1,900 117,724
Hydril* 1,500 93,900
-----------
347,032
-----------
PAPER PACKAGING - 0.3%
Rock-Tenn Company 3,000 40,950
Sonoco Products Company 1,600 47,040
-----------
87,990
-----------
PAPER PRODUCTS - 1.2%
Aracruz Celulose S.A. ADR 2,700 108,027
Stora Enso Oyj ADR 5,500 74,360
UPM-Kymmene Oyj ADR 1,100 21,560
Votorantim Celulose e Papel S.A. ADR 8,700 106,923
-----------
310,870
-----------
RAILROADS - 1.7%
Genesee & Wyoming, Inc.* 8,100 $ 304,155
Kansas City Southern* 5,100 124,593
-----------
428,748
-----------
REINSURANCE - 0.3%
PartNerre, Ltd. 1,100 72,237
-----------
RESTAURANTS - 0.1%
McDonald's Corporation 800 26,976
-----------
SEMICONDUCTOR EQUIPMENT - 1.3%
MEMC Electronic Materials, Inc.* 14,900 330,333
-----------
SEMICONDUCTORS - 0.6%
Broadcom Corporation* 2,800 132,020
ARM Holdings plc ADR 4,500 27,945
-----------
159,965
-----------
SPECIALTY CHEMICALS - 0.2%
Westlake Chemical Corporation 1,700 48,977
-----------
STEEL - 1.5%
Companhia Siderurgica Nacional S.A. ADR 6,600 141,240
GrafTech International, Ltd.* 3,000 18,660
NN, Inc. 2,453 26,002
Oregon Steel Mills, Inc.* 1,720 50,602
Worthington Industries, Inc. 7,600 145,996
-----------
382,500
-----------
TRADING COMPANIES & DISTRIBUTORS - 0.5%
Fastenal Company 2,960 116,002
-----------
TRUCKING - 1.0%
CNF, Inc. 2,800 156,492
J.B. Hunt Transport Services, Inc. 2,300 52,072
Landstar System, Inc. 900 37,566
-----------
246,130
-----------
WIRELESS TELECOMMUNICATION SERVICES - 0.4%
Sprint Nextel Corporation 4,500 105,120
-----------
TOTAL COMMON STOCKS
(cost $14,236,442) 14,156,434
-----------
185 See accompanying notes.
Schedule of Investments SERIES Z
December 31, 2005 (ALPHA OPPORTUNITY SERIES)
PRINCIPAL MARKET
AMOUNT VALUE
---------- -----------
U.S. GOVERNMENT SPONSORED AGENCIES - 34.1%
Federal Home Loan Bank:
4.159%, 02-01-06(1) $ 950,000 $ 946,786
4.387%, 03-08-06(1) 125,000 124,053
Federal Home Loan Mortgage Corporation:
3.973%, 01-03-06(1) 300,000 300,000
4.014%, 01-10-06(1) 650,000 649,478
4.056%, 01-17-06(1) 1,665,000 1,662,326
4.095%, 01-24-06(1) 1,825,000 1,820,604
4.17%, 02-07-06(1) 450,000 448,163
4.208%, 02-14-06(1) 625,000 621,937
4.283%, 02-21-06(1) 750,000 745,712
Federal National Mortgage Association:
3.974%, 01-04-06(1) 125,000 124,986
4.247%, 02-15-06(1) 1,300,000 1,293,478
-----------
U.S. GOVERNMENT SPONSORED AGENCIES
(cost $8,736,089) 8,737,523
-----------
ASSET BACKED SECURITIES - 0.8%
OTHER - 0.8%
Credit-Based Asset Servicing & Securitization,
2005-CB2 AV1, 4.479% - 2036(1, 2) 211,582 211,624
-----------
TOTAL ASSET BACKED SECURITIES
(cost $211,581) 211,624
-----------
TOTAL INVESTMENTS - 90.1%
(cost $23,184,112) 23,105,581
CASH & OTHER ASSETS, LESS LIABILITIES(1)- 9.9% 2,553,920
-----------
TOTAL NET ASSETS - 100.0% $25,659,501
===========
For federal income tax purposes, the identified cost of investments owned at
December 31, 2005 was $23,243,336.
* Non-income producing security
ADR (American Depositary Receipt)
plc (publiclimited company)
(1) Security is segregated as collateral for open futures contracts.
(2) Variable rate security. Rate indicated is rate effective at December 31,
2005.
186
SERIES Z
(ALPHA OPPORTUNITY SERIES)
Statement of Assets and Liabilities
December 31, 2005
ASSETS:
Investments, at value(1) ........................................ $23,105,581
Cash ............................................................ 2,024,468
Receivables:
Fund shares sold ............................................. 111,818
Securities sold .............................................. 1,607,056
Dividends .................................................... 13,390
Interest ..................................................... 184
Prepaid expenses ................................................ 735
-----------
Total assets .................................................... 26,863,232
-----------
LIABILITIES:
Payable for:
Securities purchased ......................................... 1,095,935
Fund shares redeemed ......................................... 635
Variation margin ............................................. 39,750
Management fees .............................................. 45,051
Custodian fees ............................................... 600
Transfer agent and administration fees ....................... 6,362
Professional fees ............................................ 14,000
Director's fees .............................................. 200
Other ........................................................ 1,198
-----------
Total liabilities ............................................... 1,203,731
-----------
NET ASSETS ...................................................... $25,659,501
===========
NET ASSETS CONSIST OF:
Paid in capital ................................................. $23,961,224
Accumulated undistributed net realized gain
on sale of investments, futures and
securities sold short ........................................ 1,912,628
Net unrealized depreciation in value of
investments and futures ...................................... (214,351)
-----------
Net assets ...................................................... $25,659,501
===========
Capital shares authorized ....................................... unlimited
Capital shares outstanding ...................................... 2,078,698
Net asset value per share
(net assets divided by shares outstanding) ................... $ 12.34
===========
(1)Investments, at cost ......................................... $23,184,112
Statement of Operations
For the Year Ended December 31, 2005
INVESTMENT INCOME:
Dividends .................................................... $ 182,175
Interest ..................................................... 329,530
----------
Total investment income ...................................... 511,705
----------
EXPENSES:
Management fees .............................................. 452,811
Administration fees .......................................... 35,863
Custodian fees ............................................... 6,349
Transfer agent/maintenance fees .............................. 25,094
Directors' fees .............................................. 1,391
Professional fees ............................................ 27,465
Reports to shareholders ...................................... 2,941
Dividends on short sales ..................................... 5,377
----------
Total expenses ............................................... 557,291
----------
Net investment loss .......................................... (45,586)
----------
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) during the year on:
Investments .................................................. 1,830,975
Securities sold short ........................................ (129,904)
Futures ...................................................... 477,324
----------
Net realized gain ............................................... 2,178,395
----------
Net unrealized appreciation (depreciation)
during the year on:
Investments .................................................. (243,409)
Securities sold short ........................................ 149
Futures ...................................................... (333,270)
----------
Net unrealized depreciation .................................. (576,530)
----------
Net realized and unrealized gain ............................. 1,601,865
----------
Net increase in net assets resulting from
operations ................................................ $1,556,279
==========
187 See accompanying notes.
SERIES Z
Statement of Changes in Net Assets (ALPHA OPPORTUNITY SERIES)
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2005 2004
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment loss .............................................. $ (45,586) $ (115,554)
Net realized gain during the period on investments, futures, and
securities sold short ......................................... 2,178,395 1,749,286
Net unrealized appreciation (depreciation) during the period on
investments and futures ....................................... (576,530) 133,816
----------- -----------
Net increase in net assets resulting from operations ............. 1,556,279 1,767,548
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain ................................................ -- (1,187,732)
----------- -----------
Total distributions to shareholders .............................. -- (1,187,732)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares ..................................... 14,871,584 13,665,469
Distributions reinvested ......................................... -- 1,187,732
Cost of shares redeemed .......................................... (9,929,853) (3,009,383)
----------- -----------
Net increase from capital share transactions ..................... 4,941,731 11,843,818
----------- -----------
Net increase in net assets ....................................... 6,498,010 12,423,634
----------- -----------
NET ASSETS:
Beginning of period .............................................. 19,161,491 6,737,857
----------- -----------
End of period .................................................... $25,659,501 $19,161,491
=========== ===========
CAPITAL SHARE ACTIVITY:
Shares sold ...................................................... 1,269,271 1,213,974
Shares reinvested ................................................ -- 105,173
Shares redeemed .................................................. (846,525) (265,886)
----------- -----------
Total capital share activity ..................................... 422,746 1,053,261
=========== ===========
188 See accompanying notes.
Financial Highlights
Selected data for each share of capital stock SERIES Z
outstanding throughout each year (ALPHA OPPORTUNITY SERIES)
YEAR ENDED DECEMBER 31,
-----------------------------
2005 2004 2003(D)
------- ------- -------
PER SHARE DATA
Net asset value, beginning of period $ 11.57 $ 11.18 $10.00
------- ------- ------
Income (loss) from investment operations:
Net investment income (loss) (0.02) (0.07) (0.06)
Net gain (loss) on securities (realized and unrealized) 0.79 1.42 1.88
------- ------- ------
Total from investment operations 0.77 1.35 1.82
------- ------- ------
Less distributions:
Distributions from realized gains -- (0.96) (0.64)
------- ------- ------
Total distributions -- (0.96) (0.64)
------- ------- ------
Net asset value, end of period $ 12.34 $ 11.57 $11.18
======= ======= ======
TOTAL RETURN(A) 6.66% 12.58% 18.33%
------- ------- ------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $25,660 $19,161 $6,738
------- ------- ------
Ratios to average net assets:
Net investment income (loss) (0.21%) (1.12%) (1.33%)
Total expenses(b) 2.50% 2.78% 2.62%
Net expenses(c) 2.50% 2.57% 2.50%
Expenses prior to custodian earnings credits and net of
expense waivers 2.50% 2.57% 2.52%
Net expenses prior to performance fee adjustment(e) 2.47% -- --
Expenses with dividends on short sales 2.53% 2.57% 2.50%
------- ------- ------
Portfolio turnover rate 1,509% 1,054% 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) Total expense information reflects expense ratios absent fund expense
reductions by the Investment Manager.
(c) Net expense information reflects the expense ratios after voluntary expense
waivers, reimbursements and custodian earnings credits, as applicable.
(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.
(e) Net expenses prior to performance fee adjustment reflects expense ratios
after voluntary expense waivers, reimbursements, custodian earnings
credits, and before performance fee adjustments, as applicable.
189 See accompanying notes.
Notes to Financial Statements
December 31, 2005
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. 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 net asset value per share. Some of the factors which may be
considered by the Board of Directors in determining fair value are fundamental
analytical data relating to the investment; the nature and duration of any
restrictions on disposition; trading in similar securities of the same issuer or
comparable companies; information from broker-dealers; and an evaluation of the
forces that influence the market in which the securities are purchased and sold.
The Fund generally will value short-term debt securities at prices based on
market quotations for such securities or securities of similar type, yield,
quality and duration, except those securities purchased 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 Interactive Data Corporation's Fair
Value Information Service in valuing foreign securities. Since foreign
securities may be denominated in a foreign currency and involve settlement and
pay interest or dividends in foreign currencies, changes in the relationship of
these foreign currencies to the U.S. dollar can significantly affect the value
of the investments and earnings of the Fund. Foreign investments may also
subject the Series to foreign government exchange restrictions, expropriation,
taxation or other political, social or economic developments, all of which could
affect the market value and/or credit risk of the investments.
B. REPURCHASE AGREEMENTS - In connection with transactions in repurchase
agreements, it is the Fund's 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 Fund 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 Fund does 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 the effect of changes in
190
Notes to Financial Statements
December 31, 2005
foreign 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 its 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 is accrued as of the ex-dividend date, except that certain dividends for
foreign securities where the ex-dividend date may have passed are recorded as
soon as the fund is informed of the dividend in the exercise of reasonable
diligence. 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 series are
charged directly to that series. Other operating expenses are allocated to the
series on the basis of relative net assets within the 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
may earn 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 U.S. generally accepted 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
191
Notes to Financial Statements
December 31, 2005
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 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 Fund. In addition, in the normal
course of business, the Fund enters into contracts that provide general
indemnification to other parties. The Fund's 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
Fund has not had prior claims or losses pursuant to these contracts and expects
the risk of loss to be remote.
2. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Management fees are paid monthly to Security Management Company, LLC (SMC),
based on the following annual rates:
MANAGEMENT
MANAGEMENT FEE WAIVERS
FEES (AS A % (AS A % OF
OF NET ASSETS) NET ASSETS)
-------------- -----------
Series A (Equity Series) 0.75% N/A
Series B (Large Cap Value Series) 0.65(2) 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 O (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 Z's management fee will range from 1.25% to 2.75% of aver- age daily
net assets as discussed below.
(1) SMC receives a management fee from Series Z that consists 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 base fee
adjustment that either increases or decreases the base fee, depending upon
how Series Z performed relative to the S&P 500 Index over the prior
12-month period (the "Measuring Period"). SMC will receive the base fee of
2.00% without adjustment if the performance of Series Z matches the
performance of the S&P 500 Index. The maximum base fee adjustment at each
calculation period is equal to 1/12th of 0.75% up or down in the event that
Series Z outperforms or underperforms the S&P 500 Index by 15% or more. SMC
calculates the base fee adjustment each month based upon Series Z's
performance relative to the S&P 500 Index during the Performance Period
ending on the last day of the month. If Series Z outperforms the S&P 500
Index over the Measuring Period, the base fee is adjusted upward. The
monthly upward adjustment is equal to the amount by which Series Z's
performance exceeds that of the S&P 500 Index divided by 15 and multiplied
by the average daily net assets of Series Z during the Measuring Period to
determine the base fee adjustment for the month. If Series Z underperforms
the Index, the base fee is adjusted downward on the same basis. SMC will
determine the dollar amount of any performance adjustment each month by
multiplying the adjustment percentage by the average daily net assets of
Series Z during the Measuring Period and dividing by the number of days in
the Measuring Period and then multiplying that amount by the number of days
in the current month.
(2) Prior to June 30, 2005, management fees were payable to SMC at an annual
rate of 0.75% of the average daily net assets. Effective June 30, 2005,
management fees were payable at an annual rate of 0.65% of the average
daily net assets.
192
Notes to Financial Statements
December 31, 2005
SMC also acts as the administrative agent and transfer agent for the Fund,
and as such performs administrative functions, transfer agency and dividend
disbursing services, and the bookkeeping, accounting and pricing functions for
each series. At a meeting held on November 18, 2005, the Board of Directors
approved a new administrative fee schedule. This new fee schedule was effective
December 1, 2005. For these services, the Investment Manager receives the
following:
ADMINISTRATIVE FEES
(AS A % OF NET ASSETS)*
-----------------------
EFFECTIVE PRIOR TO
12-1-05* 12-1-05*
--------- --------
Series A (Equity Series) 0.095% 0.09%
Series B (Large Cap Value Series) 0.095% 0.09%
Series C (Money Market Series) 0.095% 0.09%
Series D (Global Series) 0.150% 0.145%
Series E (Diversified Income Series) 0.095% 0.09%
Series G (Large Cap Growth Series) 0.095% 0.09%
Series H (Enhanced Index Series) 0.095% 0.09%
Series J (Mid Cap Growth Series) 0.095% 0.09%
Series N (Managed Asset Allocation Series) 0.150% 0.145%
Series O (Equity Income Series) 0.095% 0.09%
Series P (High Yield Series) 0.095% 0.09%
Series Q (Small Cap Value Series) 0.095% 0.09%
Series S (Social Awareness Series) 0.095% 0.09%
Series V (Mid Cap Value Series) 0.095% 0.09%
Series W (Main Street Growth and Income(R) Series) 0.095% 0.09%
Series X (Small Cap Growth Series) 0.095% 0.09%
Series Y (Select 25 Series) 0.095% 0.09%
Series Z (Alpha Opportunity Series) 0.150% 0.145%
* 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
Fund:
Annual charge per account $5.00 - $8.00
Transaction fee $0.60 - $1.10
Minimum annual charge
per series $25,000
Certain out-of-pocket charges Varies
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, 2005, 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, 2005, Security Benefit Life Insurance Company, through
their insurance company separate accounts, owned 100% of the outstanding shares
of the Fund and the respective series.
3. UNREALIZED APPRECIATION/DEPRECIATION
For federal income tax purposes, the amounts of unrealized appreciation
(depreciation) on investments at December 31, 2005, were as follows:
GROSS GROSS NET UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
APPRECIATION (DEPRECIATION) (DEPRECIATION)
------------ -------------- --------------
SERIES A
(Equity) $ 91,115,936 $(12,231,121) $ 78,884,815
SERIES B
(Large Cap Value) 51,170,173 (6,614,053) 44,556,120
SERIES C
(Money Market) 1,893 (15,369) (13,476)
SERIES D
(Global) 144,996,807 (8,471,471) 136,525,336
SERIES E
(Diversified Income) 2,121,222 (5,239,098) (3,117,876)
SERIES G
(Large Cap Growth) 6,337,844 (2,273,775) 4,064,069
SERIES H
(Enhanced Index) 3,189,066 (2,840,946) 348,120
SERIES J
(Mid Cap Growth) 124,676,193 (30,492,935) 94,183,258
SERIES N
(Managed Asset Allocation) 11,088,579 (3,338,845) 7,749,734
SERIES O
(Equity Income) 40,005,664 (16,612,972) 23,392,692
SERIES P
(High Yield) 2,059,512 (2,244,229) (184,717)
SERIES Q
(Small Cap Value) 36,574,972 (4,579,547) 31,995,425
SERIES S
(Social Awareness) 16,934,519 (13,242,904) 3,691,615
SERIES V
(Mid Cap Value) 118,187,004 (13,981,643) 104,205,361
SERIES W
(Main Street Growth & Income) 5,122,065 (2,010,811) 3,111,254
SERIES X
(Small Cap Growth) 12,985,206 (1,618,489) 11,366,717
SERIES Y
(Select 25) 8,673,938 (1,329,244) 7,344,694
SERIES Z
(Alpha Opportunity) 189,838 (327,593) (137,755)
193
Notes to Financial Statements
December 31, 2005
4. INVESTMENT TRANSACTIONS
Investment transactions for the year ended December 31, 2005, (excluding
overnight investments and short-term commercial paper) were as follows:
PROCEEDS
PURCHASES FROM SALES
------------ ------------
SERIES A
(Equity) $175,959,616 $247,555,270
SERIES B
(Large Cap Value) 398,646,251 450,734,047
SERIES C
(Money Market) N/A N/A
SERIES D
(Global) 155,216,782 158,719,661
SERIES E
(Diversified Income) 87,956,339 93,341,859
SERIES G
(Large Cap Growth) 23,790,428 17,412,322
SERIES H
(Enhanced Index) 39,529,963 39,899,675
SERIES J
(Mid Cap Growth) 114,923,586 162,178,762
SERIES N
(Managed Asset Allocation) 63,893,979 61,136,112
SERIES O
(Equity Income) 60,750,713 46,794,780
SERIES P
(High Yield) 41,069,133 41,242,670
SERIES Q
(Small Cap Value) 46,557,396 41,161,814
SERIES S
(Social Awareness) 43,991,716 58,577,573
SERIES V
(Mid Cap Value) 115,359,820 96,549,075
SERIES W
(Main Street Growth & Income) 48,013,748 45,582,885
SERIES X
(Small Cap Growth) 93,728,408 97,667,678
SERIES Y
(Select 25) 8,693,771 9,279,406
SERIES Z
(Alpha Opportunity) 184,472,407 182,240,420
5. OPEN FUTURES CONTRACTS
Open futures contracts for Series H and Series Z as of December 31, 2005
were as follows:
SERIES H SERIES Z
S&P 500 E-Mini S&P 500 Index
Futures Futures
-------------- -------------
POSITION Long Long
NUMBER OF CONTRACTS 11 30
EXPIRATION DATE 3-17-2006 3-17-2006
CONTRACT AMOUNT $699,117 $9,546,820
MARKET VALUE $690,113 $9,411,000
UNREALIZED LOSS ($9,004) ($135,820)
6. OPTIONS WRITTEN
The following options written were outstanding for Series A as of December
31, 2005:
SERIES A PUT OPTIONS WRITTEN
EXPIRATION EXERCISE NUMBER OF MARKET
COMMON STOCK DATE PRICE CONTRACTS VALUE
- ------------ ---------- -------- --------- -------
First Marblehead Corporation 3-17-06 $25.00 747 $74,700
--- -------
Total put options outstanding
(premiums received, $149,266) 747 $74,700
=== =======
TRANSACTIONS IN OPTIONS WRITTEN FOR SERIES A FOR THE YEAR ENDED DECEMBER 31,
2005 WERE AS FOLLOWS:
SERIES A CALL OPTIONS WRITTEN
NUMBER OF PREMIUM
CONTRACTS AMOUNT
--------- ---------
Balance at December 31, 2004 -- $ --
Opened 1,387 283,185
Expired (1,387) (283,185)
------ --------
Balance at December 31, 2005 -- $ --
====== ========
SERIES A PUT OPTIONS WRITTEN
NUMBER OF PREMIUM
CONTRACTS AMOUNT
--------- --------
Balance at December 31, 2004 -- $ --
Opened 747 149,266
--- --------
Balance at December 31, 2005 747 $149,266
=== ========
The following options written were outstanding for Series B as of December
31, 2005:
SERIES B PUT OPTIONS WRITTEN
EXPIRATION EXERCISE NUMBER OF MARKET
COMMON STOCK DATE PRICE CONTRACTS VALUE
- ------------ ---------- -------- --------- -------
First Marblehead Corporation 3-17-06 $25.00 650 $65,000
--- -------
Total put options outstanding
(premiums received, $135,564) 650 $65,000
=== =======
TRANSACTIONS IN OPTIONS WRITTEN FOR SERIES B FOR THE YEAR ENDED DECEMBER 31,
2005 WERE AS FOLLOWS:
SERIES B CALL OPTIONS WRITTEN
NUMBER OF PREMIUM
CONTRACTS AMOUNT
--------- ---------
Balance at December 31, 2004 -- $ --
Opened 3,538 285,701
Expired (1,963) (173,816)
Exercised (1,575) (111,885)
------ ---------
Balance at December 31, 2005 -- $ --
====== =========
194
Notes to Financial Statements
December 31, 2005
6. OPTIONS WRITTEN (CONTINUED)
SERIES B PUT OPTIONS WRITTEN
NUMBER OF PREMIUM
CONTRACTS AMOUNT
--------- --------
Balance at December 31, 2004 -- $ --
Opened 650 135,564
--- --------
Balance at December 31, 2005 650 $135,564
=== ========
The following options written were outstanding for Series J as of December
31, 2005:
SERIES J CALL OPTIONS WRITTEN
EXPIRATION EXERCISE NUMBER OF MARKET
COMMON STOCK DATE PRICE CONTRACTS VALUE
- ------------ ---------- -------- --------- --------
BJ Services Company 1-20-06 $30.00 660 $435,600
EOG Resources, Inc. 1-20-06 75.00 650 130,000
Hibbett Sporting Goods, Inc. 1-20-06 30.00 390 7,800
NDCHealth Corporation 2-17-06 20.00 195 975
Tractor Supply Company 1-20-06 50.00 735 183,750
----- --------
Total call options outstanding
(premiums received, $664,314) 2,630 $758,125
===== ========
SERIES J PUT OPTIONS WRITTEN
EXPIRATION EXERCISE NUMBER OF MARKET
COMMON STOCK DATE PRICE CONTRACTS VALUE
- ------------ ---------- -------- --------- --------
Aviall, Inc. 1-20-06 $30.00 161 $ 22,540
Flir Systems, Inc. 2-17-06 22.50 1,100 132,000
First Marblehead Corporation 3-17-06 20.00 387 7,740
Murphy Oil Corporation 1-20-06 40.00 470 4,700
----- --------
Total put options outstanding
(premiums received, $350,735) 2,118 $166,980
===== ========
TRANSACTIONS IN OPTIONS WRITTEN FOR SERIES J FOR THE YEAR ENDED DECEMBER 31,
2005 WERE AS FOLLOWS:
SERIES J CALL OPTIONS WRITTEN
NUMBER OF PREMIUM
CONTRACTS AMOUNT
--------- ----------
Balance at December 31, 2004 3,245 $ 432,787
Opened 7,988 1,800,024
Expired (3,792) (643,888)
Exercised (4,811) (924,609)
----- ----------
Balance at December 31, 2005 2,630 $ 664,314
===== ==========
SERIES J PUT OPTIONS WRITTEN
NUMBER OF PREMIUM
CONTRACTS AMOUNT
--------- ----------
Balance at December 31, 2004 3,787 $ 236,238
Opened 6,957 890,475
Expired (1,292) (223,502)
Exercised (7,334) (552,476)
----- ---------
Balance at December 31, 2005 2,118 $ 350,735
===== =========
The following options written were outstanding for Series Q as of December
31, 2005:
SERIES Q CALL OPTIONS WRITTEN
EXPIRATION EXERCISE NUMBER OF MARKET
COMMON STOCK DATE PRICE CONTRACTS VALUE
- ------------ ---------- -------- --------- --------
Apex Silver Mines,Ltd. 1-23-06 $15.00 5 $ 500
Applera Corporation -
Applied Biosystems Group 1-23-06 25.00 20 3,500
Armor Holdings,Inc. 2-20-06 40.00 5 1,700
2-20-06 45.00 10 700
Ashland,Inc. 1-23-06 50.00 10 7,900
1-23-06 55.00 5 1,600
BJ Services Company 1-23-06 27.50 60 54,600
1-23-06 30.00 100 215,000
1-23-06 32.50 65 27,300
1-23-06 37.50 20 1,000
4-24-06 37.50 5 1,200
Carpenter Technology
Corporation 1-23-06 65.00 30 14,400
1-23-06 70.00 20 4,800
3-20-06 55.00 30 42,300
3-20-06 60.00 50 50,500
3-20-06 65.00 60 45,600
6-19-06 60.00 15 17,700
6-19-06 65.00 15 13,650
Chesapeake Corporation 2-20-06 17.50 10 200
5-22-06 20.00 10 100
Chicago Bridge & Iron
Company N.V. 1-23-06 22.50 20 4,800
1-23-06 25.00 75 9,375
2-20-06 25.00 30 4,500
4-24-06 25.00 135 38,475
4-24-06 30.00 40 2,400
7-24-06 25.00 5 1,550
7-24-06 30.00 25 3,000
Coherent,Inc. 2-20-06 30.00 35 5,425
CV Therapeutics,Inc. 1-23-06 25.00 35 4,375
2-20-06 25.00 5 1,375
EarthLink,Inc. 1-23-06 10.00 10 1,200
EGL,Inc. 1-23-06 35.00 10 600
2-20-06 30.00 10 8,500
2-20-06 35.00 15 4,650
2-20-06 40.00 5 650
5-22-06 25.00 75 97,500
Encore Wire Corporation 2-20-06 17.50 30 15,900
2-20-06 20.00 55 18,150
2-20-06 22.50 10 1,750
2-20-06 25.00 95 7,125
5-22-06 30.00 10 700
Fleetwood Enterprises,Inc. 2-20-06 12.50 35 2,275
Foot Locker,Inc. 1-23-06 22.50 25 2,500
Forest Oil Corporation 1-23-06 40.00 25 14,000
1-23-06 45.00 50 11,000
2-20-06 45.00 30 8,700
2-20-06 50.00 50 5,000
Glamis Gold,Ltd. 1-23-06 22.50 5 2,450
1-23-06 25.00 10 3,100
2-20-06 20.00 50 37,500
2-20-06 22.50 170 91,800
2-20-06 25.00 50 16,500
2-20-06 30.00 5 475
5-22-06 20.00 10 8,200
5-22-06 22.50 10 6,200
195
Notes to Financial Statements
December 31, 2005
EXPIRATION EXERCISE NUMBER OF MARKET
COMMON STOCK DATE PRICE CONTRACTS VALUE
- ------------ ---------- -------- --------- ----------
Glamis Gold, Ltd. (cont.) 5-22-06 $25.00 5 $ 2,350
5-22-06 30.00 95 19,950
8-21-06 30.00 10 3,400
8-21-06 35.00 20 3,500
Goldcorp, Inc. 1-23-06 20.00 80 19,200
1-23-06 22.50 15 1,125
2-20-06 22.50 5 625
4-24-06 17.50 5 2,550
4-24-06 20.00 25 8,250
4-24-06 22.50 50 9,750
4-24-06 25.00 15 1,635
Grey Wolf, Inc. 3-20-06 7.50 5 375
H. B. Fuller Company 2-20-06 25.00 10 4,800
5-22-06 25.00 10 6,000
Harmony Gold Mining
Company, Ltd. ADR 2-20-06 12.50 25 3,125
Helmerich & Payne, Inc. 1-23-06 55.00 50 38,500
1-23-06 60.00 35 11,900
3-20-06 60.00 30 15,000
Hydril 2-20-06 60.00 5 2,500
3-20-06 55.00 20 18,000
3-20-06 60.00 10 6,100
3-20-06 65.00 10 3,400
Ipsco, Inc. 1-23-06 75.00 30 24,900
2-20-06 70.00 170 232,900
2-20-06 75.00 135 126,900
3-20-06 70.00 25 36,750
3-20-06 75.00 45 47,250
6-19-06 70.00 10 16,900
Jarden Corporation 1-23-06 35.00 10 100
JDA Software Group, Inc. 1-23-06 15.00 60 12,000
4-24-06 15.00 15 4,050
Manor Care, Inc. 1-23-06 35.00 5 2,350
2-20-06 40.00 10 200
5-22-06 40.00 5 1,075
Martek Biosciences
Corporation 1-23-06 25.00 10 900
2-20-06 25.00 20 3,200
3-20-06 25.00 15 3,450
Matrix Service Company 2-20-06 7.50 45 13,050
McMoRan Exploration Company 2-20-06 20.00 15 1,350
5-22-06 20.00 15 3,075
Meridian Gold, Inc. 1-23-06 20.00 35 6,825
4-24-06 20.00 10 2,950
4-24-06 22.50 15 2,475
Newfield Exploration Company 1-23-06 45.00 5 2,600
1-23-06 50.00 5 725
3-20-06 40.00 50 52,500
3-20-06 45.00 60 39,600
3-20-06 50.00 40 14,000
3-20-06 55.00 10 1,550
6-19-06 55.00 10 3,200
Noble Energy, Inc. 2-20-06 40.00 110 24,750
2-20-06 42.50 25 2,625
2-20-06 45.00 20 1,200
5-22-06 40.00 30 10,800
5-22-06 45.00 25 4,375
5-22-06 50.00 5 350
Oceaneering International, Inc. 1-23-06 $50.00 40 $ 5,400
1-23-06 45.00 25 12,250
4-24-06 50.00 55 22,550
4-24-06 55.00 20 4,200
4-24-06 60.00 10 800
OM Group, Inc. 1-23-06 12.50 25 15,000
1-23-06 15.00 25 9,750
1-23-06 17.50 20 2,500
3-20-06 17.50 5 1,050
3-20-06 20.00 15 1,425
Omnicare, Inc. 6-19-06 47.50 15 17,850
6-19-06 50.00 10 10,000
OraSure Technologies, Inc. 4-24-06 12.50 55 1,375
4-24-06 7.50 20 4,300
4-24-06 10.00 95 6,175
Payless ShoeSource, Inc. 3-20-06 22.50 10 3,700
3-20-06 25.00 10 1,800
6-19-06 25.00 5 1,425
Pioneer Natural Resources
Company 1-23-06 50.00 45 9,900
2-20-06 50.00 10 3,300
3-20-06 50.00 15 6,000
3-20-06 55.00 40 7,200
6-19-06 60.00 15 2,850
Pride International, Inc. 1-23-06 30.00 25 2,625
1-23-06 25.00 25 13,500
2-20-06 30.00 10 1,900
4-24-06 30.00 10 2,800
4-24-06 35.00 5 425
7-24-06 30.00 10 3,600
7-24-06 35.00 10 1,650
R.H.Donnelley Corporation 1-23-06 60.00 5 1,075
Randgold Resources, Ltd.
ADR 3-20-06 15.00 15 2,700
3-20-06 17.50 25 1,750
Range Resources Corporation 1-23-06 25.00 25 4,875
3-20-06 23.38 120 63,000
3-20-06 25.00 225 65,250
3-20-06 26.63 85 23,588
3-20-06 30.00 25 2,812
Remington Oil & Gas
Corporation 1-23-06 35.00 10 2,500
3-20-06 30.00 5 3,650
6-19-06 40.00 10 2,500
Sharper Image Corporation 2-20-06 7.50 10 2,250
2-20-06 10.00 5 400
Smith International, Inc. 1-23-06 30.00 10 7,000
1-23-06 32.50 25 11,500
1-23-06 35.00 40 9,400
1-23-06 37.50 35 2,800
Stamps.com, Inc. 2-20-06 17.50 22 10,340
Steel Dynamics, Inc. 1-23-06 30.00 45 23,400
1-23-06 35.00 65 9,100
2-20-06 30.00 35 19,950
2-20-06 35.00 55 13,200
5-22-06 30.00 5 3,450
5-22-06 35.00 25 9,500
5-22-06 40.00 10 1,900
Stone Energy Corporation 1-23-06 40.00 25 13,750
1-23-06 45.00 75 13,125
Symbol Technologies, Inc. 1-23-06 10.00 25 6,875
196
Notes to Financial Statements
December 31, 2005
EXPIRATION EXERCISE NUMBER OF MARKET
COMMON STOCK DATE PRICE CONTRACTS VALUE
- ------------ ---------- -------- --------- ----------
Toreador Resources
Corporation 3-20-06 $17.50 25 $ 11,250
3-20-06 20.00 75 22,500
Transocean,Inc. 1-23-06 60.00 70 68,600
1-23-06 65.00 35 17,150
1-23-06 70.00 5 1,225
2-20-06 60.00 15 15,600
2-20-06 65.00 10 7,000
2-20-06 70.00 25 9,750
United States Steel
Corporation 4-24-06 45.00 75 48,000
1-23-06 35.00 20 26,000
1-23-06 40.00 110 90,750
1-23-06 45.00 65 24,700
4-24-06 40.00 25 24,250
4-24-06 50.00 25 9,500
4-24-06 55.00 10 2,250
Unova,Inc. 3-20-06 22.50 65 44,200
3-20-06 25.00 100 68,000
1-23-06 30.00 180 66,600
3-20-06 30.00 5 2,450
3-20-06 35.00 60 14,400
Vishay Intertechnology,Inc. 1-23-06 12.50 25 3,125
----- ----------
Total call options outstanding
(premiums received $2,559,077) 6,197 $2,915,150
===== ==========
TRANSACTIONS IN OPTIONS WRITTEN FOR SERIES Q FOR THE YEAR ENDED DECEMBER 31,
2005 WERE AS FOLLOWS:
SERIES Q CALL OPTIONS WRITTEN
NUMBER OF PREMIUM
CONTRACTS AMOUNT
--------- -----------
Balance at December 31, 2004 1,625 $ 471,034
Opened 21,725 6,819,808
Bought Back (15,316) (4,339,190)
Expired (1,455) (281,459)
Exercised (382) (111,116)
----- -----------
Balance at December 31, 2005 6,197 $ 2,559,077
===== ===========
SERIES Q PUT OPTIONS WRITTEN
NUMBER OF PREMIUM
CONTRACTS AMOUNT
--------- -----------
Balance at December 31, 2004 -- $ --
Opened 25 6,925
Bought Back (25) (6,925)
--- -------
Balance at December 31, 2005 -- $ --
=== =======
The following options written were outstanding for Series V as of December
31, 2005:
SERIES V CALL OPTIONS WRITTEN
EXPIRATION EXERCISE NUMBER OF MARKET
COMMON STOCK DATE PRICE CONTRACTS VALUE
- ------------ ---------- -------- --------- -------
Cinergy Corporation 1-23-06 $45.00 565 $11,300
Inco, Ltd. 1-23-06 45.00 400 28,000
MasTec, Inc. 1-23-06 12.50 960 4,800
NDCHealth Corporation 2-21-06 20.00 107 535
Shaw Group, Inc. 4-24-06 35.00 194 17,460
----- -------
Total call options outstanding
(premiums received, $307,776) 2,226 $62,095
===== =======
SERIES V PUT OPTIONS WRITTEN
EXPIRATION EXERCISE NUMBER OF MARKET
COMMON STOCK DATE PRICE CONTRACTS VALUE
- ------------ ---------- -------- --------- -------
Affiliated Computer Services,
Inc. 1-23-06 $50.00 350 $ 1,750
NovaStar Financial, Inc. 1-23-06 25.00 665 13,300
Redwood Tust, Inc. 1-23-06 40.00 450 18,000
Usec, Inc. 1-23-06 10.00 1,329 6,645
----- -------
Total put options outstanding
(premiums received, $448,752) 2,794 $39,695
===== =======
TRANSACTIONS IN OPTIONS WRITTEN FOR SERIES V FOR THE YEAR ENDED DECEMBER 31,
2005 WERE AS FOLLOWS:
SERIES V CALL OPTIONS WRITTEN
NUMBER OF PREMIUM
CONTRACTS AMOUNT
--------- -----------
Balance at December 31, 2004 1,004 $ 248,682
Opened 9,902 1,749,141
Expired (6,712) (1,111,456)
Exercised (1,968) (578,591)
----- -----------
Balance at December 31, 2005 2,226 $ 307,776
===== ===========
SERIES V PUT OPTIONS WRITTEN
NUMBER OF PREMIUM
CONTRACTS AMOUNT
--------- ----------
Balance at December 31, 2004 -- $ --
Opened 10,610 1,156,969
Expired (6,970) (676,916)
Exercised (846) (31,301)
----- ----------
Balance at December 31, 2005 2,794 $ 448,752
===== ==========
The following options written were outstanding for Series Y as of December
31, 2005:
SERIES Y PUT OPTIONS WRITTEN
EXPIRATION EXERCISE NUMBER OF MARKET
COMMON STOCK DATE PRICE CONTRACTS VALUE
- ------------ ---------- -------- --------- ------
First Marblehead Corporation 3-17-06 $25.00 90 $9,000
--- ------
Total put options outstanding
(premiums received, $18,771) 90 $9,000
=== ======
TRANSACTIONS IN OPTIONS WRITTEN FOR SERIES Y FOR THE YEAR ENDED DECEMBER 31,
2005 WERE AS FOLLOWS:
SERIES Y PUT OPTIONS WRITTEN
NUMBER OF PREMIUM
CONTRACTS AMOUNT
--------- -------
Balance at December 31, 2004 -- $ --
Opened 90 18,771
--- -------
Balance at December 31, 2005 90 $18,771
=== =======
197
Notes to Financial Statements
December 31, 2005
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, consent dividends,
ordinary net operating losses 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
GAIN/(LOSS) INCOME PAID-IN-CAPITAL
------------ -------------- ---------------
Series A $ (8,824,507) $(4,363,888) $13,188,395
Series B -- (4,627,033) 4,627,033
Series C -- (598,153) 598,153
Series D 857,856 (2,400,585) 1,542,729
Series E 2,586,658 (7,164,327) 4,577,669
Series G -- (212,012) 212,012
Series H -- (480,803) 480,803
Series J (369,690) 1,885,536 (1,515,846)
Series N (595,475) (1,590,838) 2,186,313
Series O (6,714,739) (2,782,104) 9,496,843
Series P 34,894 (4,905,288) 4,870,394
Series Q (10,910,785) 706,322 10,204,463
Series S -- (1,093,613) 1,093,613
Series V (26,210,930) (956,660) 27,167,590
Series W (79) (360,304) 360,383
Series X -- 726,687 (726,687)
Series Y -- 13,661 (13,661)
Series Z (1,099,435) 45,586 1,053,849
198
Notes to Financial Statements
December 31, 2005
7. FEDERAL TAX MATTERS (CONTINUED)
At December 31, 2005, the following funds had capital loss carryovers and
deferred post-October losses to offset future realized capital gains as follows:
CAPITAL LOSS
CARRYOVER DEFERRED
UTILIZED CAPITAL LOSS POST-OCTOBER
EXPIRATION IN 2005 CARRYOVERS EXPIRES IN LOSSES
---------- ------------ ------------ ---------- ------------
Series B $ -- $47,389,288 $135,230,337 2008 $ --
-- -- 5,057,813 2009
-- -- 87,172,720 2010
-- -- 26,620,854 2011
---------- ----------- ------------
$ -- $47,389,288 $254,081,724
========== =========== ============
Series D $ -- $10,014,130 $ -- 2010 599,971
-- 13,788,921 -- 2011
---------- ----------- ------------
$ -- $23,803,051 $ --
========== =========== ============
Series E $2,716,604 $ 569,753 $ -- 2005 81,563
-- -- 389,008 2007
-- -- 9,322,945 2008
-- -- 719,015 2010
-- -- 350,320 2012
---------- ----------- ------------
$2,716,604 $ 569,753 $ 10,781,288
========== =========== ============
Series G $ -- $ 475,571 $ 4,019,004 2008 --
-- -- 4,785,898 2009
-- -- 4,762,728 2010
-- -- 3,378,968 2011
---------- ----------- ------------
$ -- $ 475,571 $ 16,946,598
========== =========== ============
Series H $ -- $ 287,482 $ -- 2008 --
-- 1,838,302 207,817 2009
-- -- 3,351,705 2010
-- -- 5,084,189 2011
---------- ----------- ------------
$ -- $ 2,125,784 $ 8,643,711
========== =========== ============
Series J $ -- $ 2,680,821 $ -- 2010 --
========== =========== ============
Series O $ -- $ -- $ -- 169
Series P $ -- $ 340,864 $ -- 2009 --
-- 1,081,601 -- 2010
-- 17,895 653,319 2011
---------- ----------- ------------
$ -- $ 1,440,360 $ 653,319
========== =========== ============
Series S $ -- $ 1,235,368 $ -- 2010 --
========== =========== ============
Series W $ -- $ 2,726,862 $ 1,062,007 2010 87
1,398,760 2011
---------- ----------- ------------
$ -- $ 2,726,862 $ 2,460,767
========== =========== ============
Series X $ -- $ 8,407,261 $ 14,990,826 2009 --
-- -- 9,772,253 2010
---------- ----------- ------------
$ -- $ 8,407,261 $ 24,763,079
========== =========== ============
Series Y $ -- $ 91,338 $ -- 2007 --
-- 1,274,396 2,759,633 2008
-- -- 5,673,178 2009
-- -- 5,905,423 2010
-- -- 6,092,310 2011
-- -- 338,147 2012
---------- ----------- ------------
$ -- $ 1,365,734 $ 20,768,691
========== =========== ============
199
Notes to Financial Statements
December 31, 2005
7. FEDERAL TAX MATTERS (CONTINUED)
The character of distributions paid during the years ended December 31, 2004 and
2005 were as follows:
Distributions from:
ORDINARY LONG-TERM
INCOME CAPITAL GAIN TOTAL
---------- ------------ ----------
2004
Series A $ 557,400 -- $ 557,400
Series B 250,785 -- 250,785
Series C 39,471 -- 39,471
Series E 1,418,099 -- 1,418,099
Series H 34,570 -- 54,570
Series N 456,463 -- 456,463
Series O 344,457 -- 344,457
Series P 557,357 -- 557,357
Series Q -- 617,424 617,424
Series S 55,978 -- 55,978
Series V 1,861,428 4,229,761 6,091,189
Series W 17,331 -- 17,331
Series Z 1,014,665 173,067 1,187,732
Short term distributions are treated as ordinary distributions for federal
income tax purposes.
In addition, the Fund declared ordinary and long-term capital gain consent
dividends for the year ended December 31, 2004, as shown below. These amounts
have been deemed paid and contributed to the Fund as additional paid in capital.
ORDINARY CONSENT LONG-TERM CAPITAL GAIN
DIVIDENDS CONSENT DIVIDENDS
---------------- ----------------------
Series A $4,363,888 $ 8,824,507
Series B 4,627,033 --
Series C 598,153 --
Series D 1,542,729 --
Series E 7,294,293 --
Series G 212,012 --
Series H 480,803 --
Series N 1,724,188 462,134
Series O 4,239,748 5,257,095
Series P 4,870,394 --
Series Q 1,609,496 8,934,887
Series S 1,093,613 --
Series V 4,212,873 22,954,717
Series W 360,383 --
Series Z 712,752 341,097
It is the Fund's intent to utilize consent dividends for their 2005 taxable
earnings.
As of December 31, 2005, the components of distributable earnings/(deficit) on a
tax basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED ACCUMULATED UNREALIZED
ORDINARY LONG-TERM CAPITAL AND APPRECIATION DISTRIBUTABLE
INCOME GAIN OTHER LOSSES (DEPRECIATION) EARNINGS (DEFICIT)
------------- ------------- ------------- -------------- ------------------
Series A $2,686,549 $19,401,500 $ -- $ 78,959,382 $ 101,047,431
Series B 3,971,506 -- (254,081,724) 44,626,684 (205,483,534)
Series C 2,001,810 -- -- (13,476) 1,988,334
Series D 1,919,630 24,242,913 (599,971) 136,529,083 162,091,655
Series E 6,927,450 -- (10,862,851) (3,117,876) (7,053,277)
Series G 40,003 -- (16,946,598) 4,064,069 (12,842,526)
Series H 436,418 -- (8,643,711) 349,107 (7,858,186)
Series J -- 34,360,975 -- 94,273,202 128,634,177
Series N 2,206,882 5,259,988 -- 7,745,717 15,212,587
Series O 4,493,249 12,422,467 (169) 23,392,552 40,308,099
Series P 4,706,495 -- (653,319) (359,510) 3,693,666
Series Q -- 12,111,362 -- 31,639,397 43,750,759
Series S 280,972 3,140,119 -- 3,691,615 7,112,706
Series V 4,649,462 33,961,122 -- 104,860,099 143,470,683
Series W 313,784 -- (2,460,854) 3,111,261 964,191
Series X -- -- (24,763,079) 11,366,717 (13,396,362)
Series Y -- -- (20,768,691) 7,354,465 (13,414,226)
Series Z 1,764,168 71,864 -- (137,755) 1,698,277
The difference between book basis and tax basis unrealized appreciation
(depreciation) 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.
200
Notes to Financial Statements
December 31, 2005
For federal income tax purposes, the following Series designate the amounts
set forth below as capital gain dividends for the year ended December 31, 2005:
LONG-TERM CAPITAL
GAIN DISTRIBUTIONS*
-------------------
Series A $ 8,824,507
Series N 462,134
Series O 5,257,095
Series Q 8,934,887
Series V 22,954,717
Series Z 341,097
* Paid via consent dividends
8. AFFILIATED TRANSACTIONS*
Investments representing 5% or more of the outstanding voting securities of
a portfolio company of a fund result in that portfolio company being considered
an affiliated company of such fund, as defined in the 1940 Act. The aggregate
market value of all securities of affiliated companies held in Series J as of
December 31, 2005 amounted to $3,683,367 which represents 0.89% of net assets.
There were no affiliated companies held in any other Series. Transactions in
Series J during the year ended December 31, 2005 in which the portfolio company
is an "affiliated person" are as follows:
THERMOENERGY THERMOENERGY
HYDROGEN CORPORATION CORPORATION
CORPORATION, LLC PIPE WARRANTS
---------------- ------------ ------------
DECEMBER 31, 2004
Balance
Shares -- -- --
Cost $ -- $ -- $ --
Gross Additions
Shares 432,924 1,380,000 1,380,000
Cost $1,931,957 $1,302,103 $ 353,897
Gross Reductions
Shares -- -- --
Cost $ -- $ -- $ --
DECEMBER 31, 2005
Balance
Shares 432,924 1,380,000 1,380,000
Cost $1,931,957 $1,302,103 $ 353,897
Realized Gain/(Loss) -- -- --
Investment Income -- -- --
* As a result of Series J's beneficial ownership of the common stock of these
portfolio companies, applicable regulations require that the Series state
that it may be deemed an affiliate of the respective portfolio company. The
Series disclaims that the "affiliated persons" are affiliates of the
Distributor, Advisor, Series or any other client of the Advisor.
9. SUBSEQUENT EVENTS
At a meeting held on November 18, 2005, the Board of Directors of the SBL
Fund approved a plan of reorganization for Series G - Large Cap Growth Series.
Under the plan of reorganization, all the assets and liabilities of Series G
would be merged into the Series Y - Select 25 Series on approximately May 1,
2006. The plan of reorganization is contingent upon the approval of shareholders
of record in Series G as of approximately March 1, 2006.
At a meeting held on February 10, 2006, the Board of Directors of the SBL
Fund approved a plan of reorganization for Series W - Main Street Growth &
Income(R) Series. Under the plan of reorganization, all the assets and
liabilities of Series W would be merged into the Series H - Enhanced Index
Series on approximately May 1, 2006. The plan of reorganization is contingent
upon the approval of shareholders of record in Series H as of approximately
March 1, 2006.
At a meeting held on February 21, 2006, the Board of Directors of the SBL
Fund approved a plan of reorganization for Series S - Social Awareness Series.
Under the plan of reorganization, all the assets and liabilities of Series S
would be merged into the Neuberger Berman AMT Socially Responsive Portfolio on
approximately May 1, 2006. The plan of reorganization is contingent upon the
approval of shareholders of record in Series S as of approximately March 1,
2006.
201
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, including
the schedules of investments, of SBL Fund (comprised of Series A, B, C, D, E, G,
H, J, N, O, P, Q, S, V, W, X, Y and Z portfolios) (the Fund), as of December 31,
2005, and the related statements of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended, 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. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audits included 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, 2005, by correspondence with custodians and
brokers or by other appropriate auditing procedures where replies from brokers
were not received. 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, 2005, the
results of their operations for the year then ended, the changes in their net
assets for each of the two years in the period then ended, and the financial
highlights for each of the periods indicated therein, in conformity with U.S.
generally accepted accounting principles.
ERNST & YOUNG LLP
Kansas City, Missouri
February 10, 2006
except for Note
9, as to which the date is
February 21, 2006
202
This page left blank intentionally.
203
Directors' Disclosure
(unaudited)
DIRECTOR APPROVAL OF INVESTMENT ADVISORY AGREEMENT
At an in-person meeting of the Fund's Boards of Directors held on November
17-18, 2005, called for the purpose of, among other things, voting on the
renewal of the investment advisory and sub-advisory agreements applicable to the
Fund, the Fund's Board of Directors, including the Independent Directors,
unanimously approved the continuation for a one-year period of the investment
advisory agreement between the Fund and Security Management Company, LLC
("SMC"), as well as each investment sub-advisory agreement applicable to the
Fund. In reaching this conclusion, the Directors requested and obtained from SMC
and each investment sub-adviser such information as the Directors deemed
reasonably necessary to evaluate the proposed renewal of the agreements. The
Fund's Board of Directors carefully evaluated this information, and was advised
by legal counsel with respect to its deliberations.
In considering the proposed continuation of the investment advisory and
sub-advisory agreements, the Independent Directors evaluated a number of
considerations, including, among others, (1) the nature, extent, and quality of
the advisory services to be provided by SMC and the investment sub-advisers; (2)
the investment performance of the Fund, SMC and the various investment
sub-advisers; (3) the costs of the services to be provided and profits to be
realized by SMC and its affiliates from the relationship with the Fund; (4) the
extent to which economies of scale would be realized as the Fund grows; and (5)
whether advisory and sub-advisory fee levels reflect these economies of scale
for the benefit of Fund investors. Each Board of Directors also took into
account other considerations that it believed, in light of the legal advice
furnished to the Independent Directors by their independent legal counsel and
the Directors' own business judgment, to be relevant. Following its review, the
Fund's Board of Directors determined that the investment advisory agreement and
each investment sub-advisory agreement applicable to the Fund (if any) will
enable Fund shareholders to obtain high quality services at a cost that is
appropriate, reasonable, and in the best interests of shareholders. Accordingly,
the Directors, including the Independent Directors, unanimously approved the
renewal of the investment advisory and investment sub-advisory agreements based
upon the following considerations, among others:
- THE NATURE, EXTENT AND QUALITY OF THE ADVISORY SERVICES TO BE
PROVIDED. The Board of Directors concluded that SMC and the investment
sub-advisers retained to provide portfolio management services with
respect to the Fund are capable of providing high quality services to
the Fund, as indicated by the nature and quality of services provided
in the past, SMC's management capabilities demonstrated with respect
to the Fund and other mutual funds managed by SMC, the professional
qualifications and experience of SMC's and the various sub-advisers'
portfolio managers, and SMC's investment and management oversight
processes. The Directors also determined that SMC and the sub-advisers
proposed to provide investment and related services that were of the
same quality and quantity as services provided to the Fund in the
past, and that these services are appropriate in scope and extent in
light of the Fund's operations, the competitive landscape of the
investment company business and investor needs.
- THE INVESTMENT PERFORMANCE OF THE FUND. With respect to the Fund, the
Directors concluded on the basis of information supplied by Lipper
that SMC and the investment sub-advisers had achieved investment
performance that was acceptable, and competitive or superior relative
to comparable funds over trailing periods. On the basis of the
Directors' assessment of the nature, extent and quality of advisory
services to be provided or procured by SMC, the Directors concluded
that SMC is capable of generating a level of long-term investment
performance that is appropriate in light of the Fund's investment
objectives, policies and strategies and competitive with many other
investment companies.
- THE COST OF ADVISORY SERVICES PROVIDED AND THE LEVEL OF PROFITABILITY.
On the basis of each Board's review of the fees to be charged by SMC
for investment advisory and other services, and the estimated
profitability of SMC's relationship with the Fund, each Board
concluded that the level of investment advisory fees and SMC's
profitability are appropriate in light of the management fees and
overall expense ratios of comparable investment companies and the
anticipated profitability of the relationship between the Fund and SMC
and its affiliates. On the basis of comparative information supplied
by Lipper the Directors determined that the advisory fees and
estimated overall expense ratio of the Fund are consistent with, and
often below, industry medians, particularly with respect to mutual
funds of comparable size. With respect to the Series Z (Alpha
Opportunity Series), the Directors noted that the Series had a strong
performance record year to date, which helped to compensate for Series
Z's higher than average expense ratio. Further, the Directors noted
that the Series Z's investment advisory fee and expense ratio were
above median due, at least in part, to its strong performance relative
to its benchmark index, which increased the advisory fee payable under
that Fund's "fulcrum" advisory fee arrangement.
- WHETHER THE ADVISORY FEES REFLECT ECONOMIES OF SCALE. The Directors
concluded that the Fund's investment advisory fees appropriately
reflect the current economic environment for SMC and the competitive
nature of the mutual fund market. The Directors further determined
that the Fund has yet to achieve meaningful economies of scale, which,
therefore, cannot be reflected in the investment advisory fees.
- THE EXTENT TO WHICH ECONOMIES OF SCALE WILL BE REALIZED AS THE FUND
GROWS. While the Fund's investment advisory fees do not reduce should
Fund assets grow
204
Directors' Disclosure
(unaudited)
meaningfully, the Directors determined that the investment advisory
fees payable by the Fund other than Series Z (Alpha Opportunity
Series) (whose investment advisory fee varies depending on that Fund's
performance relative to its benchmark index) already reflect potential
future economies of scale to some extent by virtue of their
competitive levels (determined with reference to industry standards as
reported by Lipper and SMC's estimated profitability at current or
foreseeable asset levels. The Directors also considered that they will
have the opportunity to periodically reexamine whether a Fund has
achieved economies of scale, and the appropriateness of investment
advisory fees payable to SMC and fees payable by SMC to the investment
sub-advisers, in the future.
- BENEFITS (SUCH AS SOFT DOLLARS) TO SMC FROM ITS RELATIONSHIP WITH THE
FUND (AND ANY CORRESPONDING BENEFITS TO THE FUND). The Directors
concluded that other benefits described by SMC and the investment
sub-advisers from their relationships with the Fund, including "soft
dollar" benefits in connection with Fund brokerage transactions, are
reasonable and fair, and consistent with industry practice and the
best interests of the Fund and their shareholders. In addition, the
Directors determined that the administration, transfer agency and fund
accounting fees paid by the Fund to SMC are reasonable, fair and in
the best interests of Fund shareholders in light of the nature and
quality of the services provided, the associated costs, and the
necessity of the services for the Fund's operations.
- OTHER CONSIDERATIONS: In approving the investment advisory and
sub-advisory agreements, the Directors determined that SMC has made a
substantial commitment to the recruitment and retention of high
quality personnel, and maintains the financial, compliance and
operational resources reasonably necessary to manage the Fund in a
professional manner that is consistent with the best interests of the
Fund and their shareholders. In this regard, the Directors favorably
considered the compliance track record of the Fund and SMC. The
Directors also concluded that SMC has made a significant
entrepreneurial commitment to the management and success of the Fund,
which entails a substantial financial and professional commitment,
including investment advisory fee waivers and expense limitation
arrangements with respect to the Fund to the benefit of Fund
shareholders.
205
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) Director - Jayhawk Area Boy Scouts Council
1994
Harry W. Craig, Jr.** Chairman, CEO, Secretary & Director, The Martin Tractor Company, Inc.;
(05-11-39) Director - Stormont Vail Corporation
2004 Director - Concerned Citizens for Topeka
Director - Oscar S. Stauffer Executive in Residence
Jerry B. Farley** President, Washburn University
(09-20-46) President, J&J Bonanza
2005
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) DIrector - VHA Mid-America
1998 Director - Go Topeka
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. Odlum* 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, Inc.
Director, Vice President and Chief Investment Officer, First Security Benefit Life
Insurance and Annuity Company of New York
* 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 Funds' Investment Manager and/or the parent of the
Investment Manager.
** These directors serve on the Fund's 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 34 Security Fund portfolios and serves until the
next annual meeting, or until a successor has been duly elected and
qualified.
206
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 & Senior Portfolio Manager, Security Benefit Life Insurance Company
Vice President
2003
Christina Fletcher Portfolio Manager, Security Management Company, LLC
(07-25-72) Credit Analyst/Portfolio Manager, Horizon Cash Management
Vice President Senior Money Market Trader, Scudder Investments
2005
Brenda M. Harwood Assistant Vice President, Chief Compliance Officer & Treasurer, Security Management Company, LLC;
(11-03-63) Assistant Vice President, Security Benefit Life Insurance Company
Treasurer Vice President & Director, Security Distributors, Inc.
1988
Richard J. King Vice President & Head of Fixed Income Asset Management, Security Management Company, LLC;
(03-59) Partner, Head of Portfolio Management, INVESCO
Vice President
2005
Mark Lamb Vice President, Security Management Company, LLC,
(02-03-60) Vice President, Security Benefit Life Insurance Company
Vice President
2003
Amy J. Lee Secretary, Security Management Company, LLC & Security Distributors, Inc.;
(06-05-61) Secretary, Security Distributors, Inc.
Secretary Vice President, Associate General Counsel & Assistant Secretary,
1987 Security Benefit Life Insurance Company
Mark Mitchell Vice President & Portfolio Manager, Security Management Company, LLC
(08-24-64)
Vice President
2003
Christopher Phalen Vice President & Portfolio Manager, Security Management
(11-9-70) Company, LLC;
Vice President Vice President, Security Benefit Life Insurance Company
2002
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) Vice President, Security Benefit Life Insurance Company
Vice President
1988
Christopher D. Swickard Assistant Secretary, Security Management Company, LLC;
(10-09-65) Second Vice President & Counsel,
Assistant Secretary Security Benefit Life Insurance Company
1996
David G. Toussaint Assistant Vice President & Portfolio Manager, Security Management
(10-10-66) Company, LLC;
Vice President Assistant Vice President, Security Benefit Lfe Insurance Company
2001
* Officers serve until the next annual meeting or until a successor has been
duly elected and qualified.
207
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, 2005 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.
208
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 Cash Fund
SECURITY FUNDS OFFICERS AND DIRECTORS
DIRECTORS
Donald A. Chubb, Jr.
John D. Cleland
Harry W. Craig, Jr.
Jerry B. Farley
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
Christina Fletcher, Vice President
Richard J. King, Vice President
Mark Lamb, Vice President
Mark Mitchell, Vice President
Christopher Phalen, Vice President
James P. Schier, Vice President
Cindy L. Shields, Vice President
David G. Toussaint, Vice President
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 BENEFIT(SM) LOGO)
Security Distribution, Inc.
One Security Benefit Place - Topeka, Kansas 66636-0001 - securitybenefit.com
SDI 425 (R12-05) 46-04254-00
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 $303,000 in 2004
and $327,000 in 2005.
(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
$5,000 in 2004 and $5,000 in 2005. 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 $18,000 in 2004 and $17,000 in 2005, 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 $47,000 in
2004 and $37,000 in 2005. 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) consultation regarding the identification 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 2004 and $0 in 2005.(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 2004 and $0 in 2005.
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 2004 and $0 in 2005.(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 0%, 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 $70,000 in 2004 and $59,000 in 2005.
(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 8, 2006
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 8, 2006
By: BRENDA M. HARWOOD
-------------------------------
Brenda M. Harwood, Treasurer
Date: March 8, 2006