SBL FUND

                                   PROSPECTUS


                                   MAY 1, 2002
                        AS SUPPLEMENTED SEPTEMBER 3, 2002


             o  Series A (Equity Series)
             o  Series B (Large Cap Value Series)
             o  Series C (Money Market Series)
             o  Series D (Global Series)
             o  Series E (Diversified Income Series)
             o  Series G (Large Cap Growth Series)
             o  Series H (Enhanced Index Series)
             o  Series I (International Series)
             o  Series J (Mid Cap Growth Series)
             o  Series N (Managed Asset Allocation Series)
             o  Series O (Equity Income Series)
             o  Series P (High Yield Series)
             o  Series Q (Small Cap Value Series)
             o  Series S (Social Awareness Series)
             o  Series T (Technology Series)
             o  Series V (Mid Cap Value Series)
             o  Series W (Main Street Growth and Income® Series)
             o  Series X (Small Cap Growth Series)
             o  Series Y (Select 25 Series)





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     The Securities and Exchange Commission has not approved or disapproved
     these  securities  or passed  upon the  accuracy  or  adequacy of this
     prospectus. Any representation to the contrary is a criminal offense.
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                                                [SDI LOGO]
                                                A Member of The Security Benefit
                                                Group of Companies

                               TABLE OF CONTENTS
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SERIES' OBJECTIVES..........................................................   2
  Series A (Equity Series)..................................................   2
  Series B (Large Cap Value Series).........................................   2
  Series C (Money Market Series)............................................   2
  Series D (Global Series)..................................................   2
  Series E (Diversified Income Series)......................................   2
  Series G (Large Cap Growth Series)........................................   2
  Series H (Enhanced Index Series)..........................................   2
  Series I (International Series)...........................................   2
  Series J (Mid Cap Growth Series)..........................................   2
  Series N (Managed Asset Allocation Series)................................   2
  Series O (Equity Income Series)...........................................   2
  Series P (High Yield Series)..............................................   2
  Series Q (Small Cap Value Series).........................................   2
  Series S (Social Awareness Series)........................................   2
  Series T (Technology Series)..............................................   2
  Series V (Mid Cap Value Series)...........................................   2
  Series W (Main Street Growth and Income® Series)..........................   2
  Series X (Small Cap Growth Series)........................................   2
  Series Y (Select 25 Series)...............................................   2
SERIES' PRINCIPAL INVESTMENT STRATEGIES.....................................   2
  Series A (Equity Series)..................................................   2
  Series B (Large Cap Value Series).........................................   3
  Series C (Money Market Series)............................................   3
  Series D (Global Series)..................................................   4
  Series E (Diversified Income Series)......................................   4
  Series G (Large Cap Growth Series)........................................   5
  Series H (Enhanced Index Series)..........................................   5
  Series I (International Series)...........................................   6
  Series J (Mid Cap Growth Series)..........................................   6
  Series N (Managed Asset Allocation Series)................................   7
  Series O (Equity Income Series)...........................................   8
  Series P (High Yield Series)..............................................   8
  Series Q (Small Cap Value Series).........................................   9
  Series S (Social Awareness Series)........................................   9
  Series T (Technology Series)..............................................  10
  Series V (Mid Cap Value Series)...........................................  11
  Series W (Main Street Growth and Income® Series)..........................  11
  Series X (Small Cap Growth Series)........................................  11
  Series Y (Select 25 Series)...............................................  12
MAIN RISKS..................................................................  12
  Market Risk...............................................................  13
  Smaller Companies.........................................................  13
  Value Stocks..............................................................  13
  Growth Stocks.............................................................  13
  Foreign Securities........................................................  13
  Emerging Markets..........................................................  13
  Options and Futures.......................................................  13
  Short Sales...............................................................  13
  Active Trading............................................................  14
  Interest Rate Risk........................................................  14
  Credit Risk...............................................................  14
  Prepayment Risk...........................................................  14
  Mortgage-Backed Securities................................................  14
  Restricted Securities.....................................................  14
  High Yield Securities.....................................................  14
  Swap Agreements...........................................................  15
  Social Investing..........................................................  15
  Focused Investment Strategy...............................................  15
  Non-Diversification.......................................................  15
  Industry Concentration....................................................  15
  Investment in Investment Companies........................................  15
  Technology Stocks.........................................................  15
  Overweighting.............................................................  15
  Additional Information....................................................  15
PAST PERFORMANCE............................................................  15
INVESTMENT MANAGER..........................................................  24
  Management Fees...........................................................  24
  Portfolio Managers........................................................  25
PURCHASE AND REDEMPTION OF SHARES...........................................  27
BROKERAGE ENHANCEMENT PLAN..................................................  27
DISTRIBUTIONS AND FEDERAL INCOME TAX CONSIDERATIONS.........................  27
DETERMINATION OF NET ASSET VALUE............................................  27
GENERAL INFORMATION.........................................................  28
  Contractowner Inquiries...................................................  28
INVESTMENT POLICIES AND MANAGEMENT PRACTICES................................  28
  Convertible Securities and Warrants.......................................  28
  Foreign Securities........................................................  28
  Emerging Markets..........................................................  29
  Smaller Companies.........................................................  29
  Asset-Backed Securities...................................................  29
  Mortgage-Backed Securities................................................  29
  Restricted Securities.....................................................  30
  Initial Public Offering Risk..............................................  30
  High Yield Securities.....................................................  30
  Hard Asset Securities.....................................................  31
  Guaranteed Investment Contracts ("GICs")..................................  31
  Futures and Options.......................................................  31
  Hybrid Instruments........................................................  31
  Swaps, Caps, Floors and Collars...........................................  31
  When-Issued Securities and Forward Commitment Contracts...................  32
  Cash Reserves.............................................................  32
  Shares of Other Investment Companies......................................  32
  Borrowing.................................................................  32
  Securities Lending........................................................  32
FINANCIAL HIGHLIGHTS........................................................  32
APPENDIX A
  Description of Short-Term Instruments.....................................  45
  Description of Commercial Paper Ratings...................................  45
  Description of Corporate Bond Ratings.....................................  45


SERIES' OBJECTIVES

Described below are the investment objectives for each of the Series. SBL Fund's
Board of Directors  may change the  investment  objectives  without  shareholder
approval.

As with any  investment,  there can be no guarantee that the Series will achieve
their objectives.

SERIES A (EQUITY SERIES) -- Series A seeks long-term capital growth.

SERIES B (LARGE CAP VALUE SERIES) -- Series B seeks long-term growth of capital.

SERIES C (MONEY  MARKET  SERIES)  --  Series C seeks a level of  current  income
consistent with  preservation of capital by investing in money market securities
with varying maturities.

SERIES D (GLOBAL SERIES) -- Series D seeks long-term growth of capital primarily
through  investment  in common  stocks and  equivalents  of companies in foreign
countries and the United States.

SERIES E (DIVERSIFIED INCOME SERIES) -- Series E seeks to provide current income
with security of principal.

SERIES G (LARGE CAP GROWTH SERIES) -- Series G seeks long-term capital growth.

SERIES H (ENHANCED  INDEX  SERIES) -- Series H seeks to  outperform  the S&P 500
Index through stock selection resulting in different weightings of common stocks
relative to the index.

SERIES  I   (INTERNATIONAL   SERIES)  --  Series  I  seeks   long-term   capital
appreciation.

SERIES J (MID CAP GROWTH SERIES) -- Series J seeks capital appreciation.


SERIES N  (MANAGED  ASSET  ALLOCATION  SERIES) -- Series N seeks a high level of
total return.

SERIES O  (EQUITY  INCOME  SERIES)  --  Series O seeks  to  provide  substantial
dividend income and also capital appreciation.

SERIES P (HIGH  YIELD  SERIES) -- Series P seeks high  current  income.  Capital
appreciation is a secondary objective.

SERIES Q (SMALL CAP VALUE SERIES) -- Series Q seeks capital growth.

SERIES S (SOCIAL AWARENESS SERIES) -- Series S seeks capital appreciation.

SERIES T (TECHNOLOGY SERIES) -- Series T seeks long-term capital appreciation by
investing in the equity securities of technology companies.

SERIES V (MID CAP VALUE SERIES) -- Series V seeks long-term growth of capital.

SERIES W (MAIN  STREET  GROWTH AND INCOME®  SERIES) -- Series W seeks high total
return  (which  includes  growth in the value of its  shares as well as  current
income) from equity and debt securities.

SERIES X (SMALL  CAP  GROWTH  SERIES)  --  Series X seeks  long-term  growth  of
capital.

SERIES Y (SELECT 25 SERIES) -- Series Y seeks long-term growth of capital.

SERIES' PRINCIPAL INVESTMENT STRATEGIES

SERIES A (EQUITY SERIES) -- The Series pursues its objective by investing, under
normal  circumstances,  at least 80% of its net  assets in a  widely-diversified
portfolio  of  equity  securities,   which  may  include  ADRs  and  convertible
securities.

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AMERICAN DEPOSITARY RECEIPTS (ADRS) are U.S.  dollar-denominated receipts issued
generally by U.S. banks,  which represent the deposit with the bank of a foreign
company's securities. ADRs are publicly traded on exchanges or over-the-counter.
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To  choose  equity  securities,  the  Investment  Manager,  Security  Management
Company,  LLC,  uses a blended  approach,  investing in growth  stocks and value
stocks.  The  Investment  Manager  typically  chooses  larger,   growth-oriented
companies.  The Investment Manager will also invest in value-oriented  stocks to
attempt to reduce the Series' potential  volatility.  In choosing the balance of
growth stocks and value stocks,  the Investment  Manager  compares the potential
risks and rewards of each category.

The Series typically  invests in the equity  securities of companies whose total
market value is $5 billion or greater at the time of purchase.

The  Series  also may invest a portion  of its  assets in  options  and  futures
contracts.  These  instruments  may be used to hedge the Series'  portfolio,  to
increase returns, or to maintain exposure to the equity markets.

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GROWTH-ORIENTED STOCKS are stocks of established companies that typically have a
record of consistent earnings growth.

VALUE-ORIENTED   STOCKS  are  stocks  of  companies  that  are  believed  to  be
undervalued  in terms of price  or  other  financial  measurements  and that are
believed to have above average growth potential.
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The Series may invest in a variety of investment companies, including those that
seek to track the composition  and  performance of a specific index.  The Series
may use these index-based investments as a way of managing its cash position, to
gain  exposure  to the  equity  markets,  or a  particular  sector of the equity
market, while maintaining liquidity.

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INDEX-BASED   INVESTMENTS,   such  as  S&P  Depositary  Receipts  (SPDRs),  hold
substantially  all of their assets in securities  representing a specific index.
In the case of SPDRs the index represented is the S&P 500.
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The Series  typically  sells a security when the reasons for buying it no longer
apply,  or when the company begins to show  deteriorating  fundamentals  or poor
relative performance.

Under  adverse  market  conditions,  the Series  could invest some or all of its
assets in cash or money  market  securities.  Although  the Series would do this
only in  seeking  to avoid  losses,  the  Series  may be unable  to  pursue  its
investment  objective during that time, and it could reduce the benefit from any
upswing in the market.

SERIES B (LARGE  CAP VALUE  SERIES)  -- The  Series  pursues  its  objective  by
investing,  under  normal  circumstances,  at  least  80% of its net  assets  in
large-capitalization  value  companies  (those  whose total  market  value is $5
billion or greater at the time of purchase).  The Series' stock  investments may
include common stocks,  preferred stocks and convertible securities of both U.S.
issuers and U.S. dollar-denominated foreign issuers.

In choosing stocks, the Sub-Adviser,  The Dreyfus  Corporation,  looks for value
companies. The Sub-Adviser uses a blend of quantitative analysis and fundamental
research to identify  stocks that appear  favorably  priced and that may benefit
from the current market and economic  environment.  The Sub-Adviser then reviews
these stocks for factors that could signal a rise in price, such as:

o  New products or markets
o  Opportunities for greater market share
o  More effective management
o  Positive changes in corporate structure or market perception

The Series may invest a portion of its assets in options and futures  contracts.
When employed, these practices are used primarily to hedge the Series portfolio,
but may be used to increase returns.

The  Series  typically  sells a stock  when it is no longer  considered  a value
company,  appears  less likely to benefit  from the current  market and economic
environment,   shows   deteriorating   fundamentals   or  falls   short  of  the
Sub-Adviser's expectations.

Under  adverse  market  conditions,  the Series  could invest some or all of its
assets in cash, government bonds or money market securities. Although the Series
would do this only in  seeking  to avoid  losses,  the  Series  may be unable to
pursue  its  investment  objective  during  that time,  and it could  reduce the
benefit from any upswing in the market.

SERIES C (MONEY MARKET  SERIES) -- The Series pursues its objective by investing
in a diversified  and liquid  portfolio of primarily  the highest  quality money
market instruments,  which may include restricted  securities as discussed under
"Main Risks," page 14. Generally,  the Series is required to invest at least 95%
of its assets in the securities of issuers with the highest  credit rating,  and
the  remaining  assets may be invested  in  securities  with the  second-highest
credit rating. The Series is not designed to maintain a constant net asset value
of $1.00 per share, and it is possible to lose money by investing in the Series.
The  Series is  subject  to  certain  federal  requirements  which  include  the
following:

o  maintain an average dollar-weighted portfolio maturity of 90 days or less
o  buy individual securities that have remaining maturities of 13 months or less
o  invest only in high-quality, dollar-denominated, short-term obligations.

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A MONEY  MARKET  INSTRUMENT  is a  short-term  IOU issued by banks or other U.S.
corporations, or the U.S. government or state or local governments. Money market
instruments have maturity dates of 13 months or less.  Money Market  instruments
may include certificates of deposit, bankers' acceptances,  variable rate demand
notes, fixed-term obligations,  commercial paper,  asset-backed commercial paper
and repurchase agreements. See Appendix A for a more complete description of the
different money market instruments and credit quality ratings.
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The  Investment  Manager  attempts  to  increase  return and manage  risk by (1)
maintaining an average dollar-weighted  portfolio maturity within 10 days of the
Series'  benchmark,  the Money Fund Report  published by  iMoneyNet,  Inc.;  (2)
selecting  securities  that  mature at  regular  intervals  over the life of the
portfolio;  (3) purchasing only commercial  paper in the top two tiers;  and (4)
constantly evaluating alternative  investment  opportunities for diversification
without additional risk.

SERIES D (GLOBAL SERIES) -- The Series pursues its objective by investing, under
normal circumstances, in a diversified portfolio of securities with at least 65%
of its total assets in at least three countries,  one of which may be the United
States.  The Series  primarily  invests in foreign and domestic common stocks or
convertible stocks of growth-oriented  companies considered to have appreciation
possibilities.  While the Series may  invest in the United  States,  there is no
limit on its foreign investments.  The Series may also invest in emerging market
countries.  The Series may actively trade its investments  without regard to the
length  of  time  they  have  been  owned  by the  Series.  Investments  in debt
securities  may be made in  uncertain  market  conditions.  The Series  also may
invest some assets in options, futures contracts, and foreign currencies,  which
may be used to hedge the Series'  portfolio,  to increase returns or to maintain
exposure to the equity markets.

The Sub-Adviser,  OppenheimerFunds,  Inc., uses a disciplined  theme approach to
choose securities in foreign and U.S. markets.  By considering the effect of key
worldwide  growth trends,  OppenheimerFunds  focuses on areas they believe offer
some of the best opportunities for long-term growth.  These trends include:  (1)
the growth of mass  affluence;  (2) the  development  of new  technologies;  (3)
corporate restructuring; and (4) demographics.

OppenheimerFunds currently looks for the following:

o  Stocks of small, medium and large growth-oriented companies worldwide

o  Companies that stand to benefit from global growth trends

o  Businesses  with  strong  competitive  positions  and high  demand  for their
   products or services

o  Cyclical  opportunities  in the business cycle and sectors or industries that
   may benefit from those opportunities.

To  lower  the  risks  of  foreign  investing,  such as  currency  fluctuations,
OppenheimerFunds diversifies broadly across countries and industries.

Under adverse or unstable market conditions, the Series could invest some or all
of its assets in cash,  repurchase  agreements  and money market  instruments of
foreign or domestic countries and the U.S. and foreign governments. Although the
Series would do this only in seeking to avoid  losses,  the Series may be unable
to pursue its  investment  objective  during that time,  and it could reduce the
benefit from any upswing in the market.

SERIES E  (DIVERSIFIED  INCOME  SERIES) -- The Series  pursues its  objective by
investing,  under normal circumstances,  primarily in a diversified portfolio of
investment  grade debt  securities.  The Series  expects to  maintain a weighted
average  duration  of 3 to 10 years.  The debt  securities  in which the  Series
invests will  primarily  be domestic  securities,  but may also  include  dollar
denominated  foreign   securities.   To  manage  risk,  the  Investment  Manager
diversifies the Series' holdings among asset classes and individual  securities.
The asset  classes in which the Series  invests  may  include  investment  grade
corporate  debt  securities,  high yield debt  securities  (also  known as "junk
bonds"),   investment  grade   mortgage-backed   securities,   investment  grade
asset-backed  securities,  U.S.  Government  securities as well as total return,
interest and index swap agreements.

Series  E also may  invest a  portion  of its  assets  in  options  and  futures
contracts. These instruments may be used to hedge the Series' portfolio, enhance
income, or as a substitute for purchasing or selling securities.  The Series may
also invest in restricted securities.

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DEBT  SECURITIES,  which are also called BONDS or DEBT  OBLIGATIONS,  are like a
loan. The issuer of the bond, which could be the U.S. government, a corporation,
or a city or state, borrows money from investors and agrees to pay back the loan
amount (the  PRINCIPAL)  on a certain date (the  MATURITY  DATE).  Usually,  the
issuer also agrees to pay  interest  on certain  dates  during the period of the
loan. Some bonds,  such as ZERO COUPON BONDS,  do not pay interest,  but instead
pay back more at maturity than the original loan. Most bonds pay a fixed rate of
interest  (or  income).   Although  some  bonds'   interest   rates  may  adjust
periodically based upon a market rate. Payment-In-Kind bonds pay interest in the
form of additional securities.

INVESTMENT  GRADE  SECURITIES are debt securities that have been determined by a
rating agency to have a medium to high probability of being paid, although there
is always a risk of default. Investment grade securities are rated BBB, A, AA or
AAA by Standard & Poor's Corporation and Fitch Investors  Service,  Inc. or Baa,
A, Aa or Aaa by Moody's Investors Service.
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The Investment  Manager uses a "bottom-up"  approach in selecting  asset classes
and securities.  The Investment Manager emphasizes  rigorous credit analysis and
relative value in selecting securities. The Investment Manager's credit analysis
includes looking at factors such as an issuer's management experience, cashflow,
position in its market,  capital structure,  general economic factors and market
conditions, as well as world market conditions.

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BOTTOM-UP  APPROACH  means  that  the  Investment  Manager  looks  primarily  at
individual  issuers against the context of broader market  factors.  Some of the
factors which the Investment Manager looks at when analyzing  individual issuers
include relative earnings growth,  profitability  trends, the issuer's financial
strength, valuation analysis and strength of management.
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To determine the relative value of a security,  the Investment  Manager compares
the credit risk and yield of the security  relative to the credit risk and yield
of  other  securities  of the  same  or  another  asset  class.  Higher  quality
securities tend to have lower yields than lower quality  securities.  Based upon
current market  conditions,  the  Investment  Manager will consider the relative
risks  and  rewards  of  various  asset  classes  and  securities  in  selecting
securities for the Series.

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CREDIT QUALITY RATING is a measure of the issuer's  expected ability to make all
required interest and principal payments in a timely manner.

An issuer with the highest  credit  rating has a very strong degree of certainty
(or  safety)  with  respect  to  making  all   payments.   An  issuer  with  the
second-highest credit rating has a strong capacity to make all payments, but the
degree of safety is  somewhat  less.  An issuer with the lowest  credit  quality
rating may be in default  or have  extremely  poor  prospects  of making  timely
payment of interest and principal.
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The Investment Manager may determine to sell a security (1) if it can purchase a
security with a better  relative  value;  (2) if a security's  credit rating has
been changed;  (3) if the Investment  Manager  believes  diversification  of the
Series is compromised due to mergers or acquisitions;  or (4) to meet redemption
requests.

Under  adverse  market  conditions,  the Series  could invest some or all of its
assets in cash, debt obligations  consisting of repurchase  agreements and money
market  instruments  of foreign or  domestic  issuers  and the U.S.  and foreign
governments.  Although the Series would do this only in seeking to avoid losses,
the Series may be unable to pursue its  investment  objective  during that time,
and it could reduce the benefit from any upswing in the market.

SERIES G (LARGE  CAP  GROWTH  SERIES) -- The Series  pursues  its  objective  by
investing, under normal circumstances,  at least 80% of its net assets in common
stock and other equity securities of large capitalization companies that, in the
opinion of the Investment Manager, have long-term capital growth potential.  The
Series  invests  primarily  in a portfolio of common  stocks,  which may include
American  Depositary  Receipts  ("ADRs") or other  securities  with common stock
characteristics,  such as securities  convertible into common stocks. The Series
defines large  capitalization  companies as those whose total market value is at
least $5  billion at the time of  purchase.  The  Series is  non-diversified  as
defined in the  Investment  Company Act of 1940,  which means that it may hold a
larger position in a smaller number of securities than a diversified series. The
Series may also concentrate its investments in a particular industry or group of
related industries.

The Investment Manager uses a growth-oriented  strategy to choose stocks,  which
means  that it invests in  companies  whose  earnings  are  believed  to be in a
relatively  strong growth trend. In identifying  companies with favorable growth
prospects,  the  Investment  Manager  considers  factors such as  prospects  for
above-average  sales and  earnings  growth;  high  return on  invested  capital;
overall  financial  strength;   competitive  advantages,   including  innovative
products and services;  effective  research,  product development and marketing;
and stable, effective management.

Series  G also may  invest a  portion  of its  assets  in  options  and  futures
contracts.  These  instruments  may be used to hedge the Series'  portfolio,  to
increase returns or to maintain exposure to the equity markets.

The Series may invest in a variety of investment  companies including those that
seek to track the composition  and  performance of a specific index.  The Series
may use these index-based investments as a way of managing its cash position, to
gain  exposure  to the  equity  markets,  or a  particular  sector of the equity
market, while maintaining liquidity.

The  Series  typically  sells a stock when the  reasons  for buying it no longer
apply,  or when the company begins to show  deteriorating  fundamentals  or poor
relative performance.

Under  adverse  market  conditions,  the Series  could invest some or all of its
assets in cash or money  market  securities.  Although  the Series would do this
only in  seeking  to avoid  losses,  the  Series  may be unable  to  pursue  its
investment  objective during that time, and it could reduce the benefit from any
upswing in the market.

SERIES H  (ENHANCED  INDEX  SERIES)  -- The  Series  pursues  its  objective  by
investing, under normal circumstances in a portfolio of stocks representative of
the  holdings  in the  S&P  500  Index.  Using a  quantitative  discipline,  the
Sub-Adviser,  Deutsche Asset Management,  Inc. ("DAMI"),  determines whether the
Series  should  (1)  overweight  -  invest  more  in  a  particular  stock,  (2)
underweight - invest less in a particular  stock, or (3) hold a neutral position
in the stock - invest a similar  amount in a particular  stock,  relative to the
proportion of the S&P 500 Index that the stock represents. While the majority of
issues  held by the  Series  will be similar  to those  comprising  the S&P 500,
approximately  150 will be over- or  underweighted  relative  to the  index.  In
addition,  DAMI may determine  that certain S&P 500 stocks should not be held by
the Series in any amount. Under normal market conditions, the Series will invest
at least 80% of its net assets in equity  securities  of  companies in the index
and futures contracts representative of the stocks which make up the index. DAMI
believes  that its  quantitative  criteria  will result in a  portfolio  with an
overall risk similar to that of the S&P 500.

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THE S&P 500 INDEX is a well-known stock market index that includes common stocks
of  500  companies.   These  companies  are  from  several   industrial  sectors
representing  a  significant  portion of the market  value of all common  stocks
publicly traded in the U.S., most of which are listed on the NYSE.
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The  Series  also may invest a portion  of its  assets in  options  and  futures
contracts.  These  instruments  may be used to hedge the Series'  portfolio,  to
increase return potential or to maintain exposure to the equity markets.

Under  adverse  market  conditions,  the Series  could invest some or all of its
assets in cash or money  market  securities.  Although  the Series would do this
only in  seeking  to avoid  losses,  the  Series  may be unable  to  pursue  its
investment  objective during that time, and it could reduce the benefit from any
upswing in the market.


SERIES  I  (INTERNATIONAL  SERIES)  --  The  Series  pursues  its  objective  by
investing,  under normal  circumstances,  at least 65% of its assets in at least
three  different  countries,  other than the United States.  The Series normally
will invest  primarily in equity  securities  of companies  located  outside the
United States, including emerging markets.


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EQUITY  SECURITIES  include  common  stock,  preferred  stock,  trust or limited
partnership   interests,   rights  and  warrants  and   convertible   securities
(consisting  of debt  securities or preferred  stock that may be converted  into
common stock or that carry the right to purchase common stock).
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The Series may invest a portion of its assets in smaller companies. For purposes
of  this  Series,  smaller  company  stocks  are  generally  those  with  market
capitalizations  of less than $1 billion.  The Series also  invests in American,
European and Global Depositary Receipts, which are certificates typically issued
by a bank or trust  company  that  give  their  holders  the  right  to  receive
securities  issued by a foreign or domestic  company.  The Series,  from time to
time, may have significant investments in one or more countries or in particular
sectors, such as financial institutions or industrial companies.

When choosing equity  investments  for the Series,  the  Sub-Adviser,  Templeton
Investment  Counsel,  LLC  applies  a  "bottom-up",   value-oriented,  long-term
approach, focusing on the market price of a company's securities relative to the
Sub-Adviser's  evaluation of the company's long-term  earnings,  asset value and
cash flow potential.  The Sub-Adviser also considers a company's  price/earnings
ratio,  profit  margins and  liquidation  value.  In choosing  investments,  the
Series' Sub-Adviser strongly believes in onsite visits to issuers of prospective
investments  to assess  critical  factors such as management  strength and local
conditions.  In selecting securities for the Series, the Sub-Adviser attempts to
identify those  companies  that offer  above-average  opportunities  for capital
appreciation  in various  countries and industries  where economic and political
factors, including currency movements, are favorable to capital growth.

The  Series  may  invest in  futures  contracts,  options,  options  on  futures
contracts and other derivative strategies. These investments, when made, are for
hedging purposes. If the Series uses futures contracts for non-hedging purposes,
the margin and premiums required to make those investments will not exceed 5% of
the Series' net asset value after  taking into  account  unrealized  profits and
losses on the contracts.

The Series  typically  sells an  investment  when the  reasons  for buying it no
longer apply,  or when the issuer begins to show  deteriorating  fundamentals or
poor relative performance.

Under  adverse  market  conditions,  the Series  could invest some or all of its
assets in cash or money  market  securities.  Although  the Series would do this
only in  seeking  to avoid  losses,  the  Series  may be unable  to  pursue  its
investment  objective during that time, and it could reduce the benefit from any
upswing in the market.


SERIES  J (MID CAP  GROWTH  SERIES)  -- The  Series  pursues  its  objective  by
investing,  under  normal  circumstances,  at least  80% of its net  assets in a
diversified  portfolio of equity securities with market  capitalizations  of $10
billion  or less at the time of  purchase.  Some of the  companies  in which the
Series may invest  have  market  capitalizations  below $10  billion  and,  as a
result,  the Series is subject to the risks  associated  with investing in small
capitalization  companies.  Equity  securities  include  common  stock,  rights,
options, warrants and convertible debt securities.

The  Investment   Manager  selects  equity   securities  that  it  believes  are
attractively valued with the greatest potential for appreciation. The Series may
also invest in ADRs.

The  Investment  Manager  uses  a  "bottom-up"   approach  to  choose  portfolio
securities.  The Investment  Manager identifies the securities of companies that
are in the early to  middle  stages of  growth  and are  valued at a  reasonable
price. Equity securities  considered to have appreciation  potential may include
securities of smaller and less mature  companies  which have unique  proprietary
products or profitable market niches and the potential to grow very rapidly.

The  Series  also may invest a portion  of its  assets in  options  and  futures
contracts.  These  instruments  may be used to hedge the Series'  portfolio,  to
increase returns or to maintain exposure to the equity markets.

The Series may invest in a variety of investment companies, including those that
seek to track the composition  and  performance of a specific index.  The Series
may use these index-based investments as a way of managing its cash position, to
gain  exposure  to the  equity  markets,  or a  particular  sector of the equity
market, while maintaining  liquidity.  Certain investment company securities and
other securities in which the Series may invest are restricted securities, which
are illiquid.

The Series  typically  sells a stock if its  growth  prospects  diminish,  or if
better opportunities become available.

Under  adverse  market  conditions,  the Series  could invest some or all of its
assets in cash or money  market  securities.  Although  the Series would do this
only in  seeking  to avoid  losses,  the  Series  may be unable  to  pursue  its
investment  objective during that time, and it could reduce the benefit from any
upswing in the market.


SERIES N (MANAGED ASSET  ALLOCATION  SERIES) -- The Series pursues its objective
by normally investing approximately 60% of total assets in common stocks and 40%
in fixed-income securities. The mix may vary over shorter time periods where the
fixed income  portion may range between  30-50% and the equity  portion  between
50-70%.

The  Sub-Adviser,  T. Rowe Price  Associates,  Inc.,  concentrates  common stock
investments  in  larger,  established  companies  but  may  include  small-  and
medium-sized  companies  with good growth  prospects.  The  Series'  exposure to
smaller companies is not expected to be substantial and will not constitute more
than 30% of the equity portion of the Series. Up to 35% of the equity portion of
the  Series  may  be   invested  in  foreign   (non-dollar-denominated)   equity
securities.  The fixed  income  portion of the  portfolio  will be  allocated as
follows:

             Investment Grade Securities................   50-100%
             High Yield Securities ("Junk Bonds").......     0-30%
             Foreign (Non-dollar-Denominated)
               High Quality Debt Securities.............     0-30%
             Mortgage-backed Securities.................     0-30%
             Cash Reserves..............................     0-20%

The  precise  mix of equity  and fixed  income  will  depend on T. Rowe  Price's
outlook for the markets.  When deciding upon  allocations  within the prescribed
limits,  T. Rowe  Price may favor  fixed  income  securities  if the  economy is
expected to slow sufficiently to hurt corporate profit growth.  The opposite may
be true when strong economic growth is expected. Shifts between stocks and bonds
will normally be done  gradually and T. Rowe Price will not attempt to precisely
"time" the  market.  Bonds will be  primarily  investment-grade  and chosen from
across  the  entire  government,   corporate  and   mortgage-backed   (including
derivatives   such  as   collateralized   mortgage   obligations   and  stripped
mortgage-backed securities) bond market. While maturities will vary with T. Rowe
Price's view of market  conditions;  the weighted  average maturity of the fixed
income portion as a whole (except for cash reserves) may vary but is expected to
be in the range of 7-12 years.  Maturities  will reflect T. Rowe Price's outlook
for interest  rates.  The Series may also invest in foreign stocks and bonds for
diversification.  Under  normal  conditions,  T. Rowe Price will  diversify  the
Series' foreign investments among at least three different countries. The Series
may enter into  derivative  instruments,  such as stock index,  interest rate or
currency  futures  contracts  (or options  thereon)  for hedging  purposes or to
provide  an  efficient  means  of  adjusting  the  portfolio's  exposure  to the
securities  markets.  The  Series  may  enter  into  foreign  currency  exchange
contracts in connection with its foreign  investments.  To the extent the Series
uses these derivative  investments,  it will be exposed to additional volatility
and potential losses.

The  Series may sell  securities  for a variety  of  reasons,  such as to secure
gains, limit losses, or redeploy assets into more promising opportunities.

Under  adverse  market  conditions  the Series  could  invest some or all of its
assets  in cash  reserves,  which  may  include  money  market  instruments  and
repurchase  agreements.  Although  the  Series  would do this only in seeking to
avoid losses, the Series may be unable to pursue its investment objective during
that time,  and it could reduce the benefit from any upswing in the market.  The
Series may also invest up to 25% of its total assets in Reserve Investment Fund,
an internally managed money market fund of T. Rowe Price. The Reserve Investment
Fund may be used to invest the cash reserves of Series N.

SERIES  O  (EQUITY  INCOME  SERIES)  -- The  Series  pursues  its  objective  by
investing, under normal circumstances,  at least 80% of its net assets in common
stocks,  with 65% in the  common  stocks of  well-established  companies  paying
above-average dividends.

T.  Rowe  Price  typically  employs  a  value-oriented   strategy  in  selecting
investments for the Series.  T. Rowe Price's 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.

In selecting  investments,  T. Rowe Price generally looks for companies with the
following:

o  An established operating history
o  Above-average dividend yield relative to the S&P 500 Index
o  Low price/earnings ratio relative to the S&P 500 Index
o  A sound balance sheet and other financial characteristics
o  Low stock  price  relative  to a  company's  underlying  value as measured by
   assets, cash flow or business franchises

--------------------------------------------------------------------------------
PRICE/EARNINGS RATIO ("P/E") is the price of a stock divided by its earnings per
share.  The  price/earnings  ratio gives  investors an idea of how much they are
paying for a  company's  earning  power.  High P/E stocks are  typically  young,
fast-growing  companies.  Low P/E  stocks  tend to be in  low-growth  or  mature
industries,  in  stock  groups  that  have  fallen  out  of  favor,  or in  old,
established,  blue-chip  companies  with long records of earnings  stability and
regular  dividends.  Generally,  low P/E stocks have higher yields than high P/E
stocks, which often pay no dividends at all.
--------------------------------------------------------------------------------

While most of the Series' assets will be invested in U.S. common stocks, T. Rowe
Price may also invest in other securities,  including foreign  securities,  debt
securities, futures and options, in keeping with the Series' objective.

Under  adverse  market  conditions  the Series  could  invest some or all of its
assets  in cash  reserves  including  money  market  securities  and  repurchase
agreements.  Although the Series would do this only in seeking to avoid  losses,
the Series may be unable to pursue its  investment  objective  during that time,
and it could reduce the benefit  from any upswing in the market.  The Series may
also  invest  up to 25% of its total  assets  in  Reserve  Investment  Fund,  an
internally  managed money market fund of T. Rowe Price.  The Reserve  Investment
Fund may be used to invest the cash reserves of Series O.

The  Series may sell  securities  for a variety  of  reasons,  such as to secure
gains, limit losses, or redeploy assets into more promising opportunities.

SERIES P (HIGH YIELD  SERIES) -- The Series  pursues its objective by investing,
under normal  circumstances,  at least 80% of its net assets in a broad range of
high-yield, high risk debt securities rated in medium or lower rating categories
or  determined by the  Investment  Manager to be of  comparable  quality  ("junk
bonds").  The  Series  will  not  purchase  a debt  security,  if at the time of
purchase,  it is rated in  default.  The debt  securities  in which  the  Series
invests will  primarily  be domestic  securities,  but may also  include  dollar
denominated foreign securities. The Series may also invest in equity securities,
including   common  and  preferred   stocks,   American   Depositary   Receipts,
exchange-traded real estate investment trusts, warrants, rights, in a variety of
investment companies that seek to track and the composition and performance of a
specific index. The Series' average weighted  maturity is expected to be between
5 and 15 years.

--------------------------------------------------------------------------------
HIGH YIELD  SECURITIES are debt securities that have been determined by a rating
agency to have a lower  probability of being paid and have a credit rating of BB
or lower by Standard & Poor's Corporation and Fitch Investors  Service,  Inc. or
Ba or lower by Moody's Investors Service. These securities are more volatile and
normally pay higher yields than investment grade securities.
--------------------------------------------------------------------------------

The Series  may also  invest a portion  of its  assets in  options  and  futures
contracts. These instruments may be used to hedge the Series' portfolio, enhance
income or as a substitute for purchasing or selling  securities.  The Series may
also invest in restricted securities as described under "Main Risks."

The  Investment  Manager uses a  "bottom-up"  approach in  selecting  high yield
securities.  The Investment  Manager  emphasizes  rigorous  credit  analysis and
relative value in selecting securities. The Investment Manager's credit analysis
includes looking at factors such as an issuer's debt service coverage (i.e., its
ability to make interest payments on its debt), the issuer's cash flow,  general
economic factors and market conditions and world market conditions.

To determine the relative value of a security,  the Investment  Manager compares
the  security's  credit  risk and  yield to the  credit  risk and yield of other
securities.  The Investment  Manager is looking for securities that appear to be
inexpensive relative to other comparable securities and securities that have the
potential  for an upgrade of their credit  rating.  A rating  upgrade  typically
would increase the value of the security.  The Investment  Manager focuses on an
issuer's management experience, position in its market, and capital structure in
assessing  its value.  The  Investment  Manager  seeks to diversify  the Series'
holdings among securities and asset classes.

The Investment Manager may determine to sell a security (1) if it can purchase a
security with a better  relative  value;  (2) if a security's  credit rating has
been changed; or (3) to meet redemption requests.

Under  adverse  market  conditions  the Series  could  invest some or all of its
assets in cash, U.S.  government  securities,  commercial  notes or money market
securities.  Although the Series would do this only in seeking to avoid  losses,
the Series may be unable to pursue its  investment  objective  during that time,
and it could reduce the benefit from any upswing in the market.

SERIES Q (SMALL  CAP VALUE  SERIES)  -- The  Series  pursues  its  objective  by
investing, under normal circumstances,  at least 80% of its net assets in stocks
of small-capitalization  companies that the Series' Sub-Adviser,  Strong Capital
Management,  Inc.,  believes  are  undervalued  relative to the market  based on
earnings,  cash flow, or asset value.  The Series  defines  small-capitalization
companies as those companies with a market capitalization  substantially similar
to that of companies in the Russell 2500™ Index at the time of purchase.  Strong
specifically  looks for companies whose stock prices may benefit from a catalyst
event, such as a corporate restructuring,  a new product or service, or a change
in the political,  economic, or social environment. The Series may write put and
call options to limit its exposure to adverse market movements.  This means that
the Series sells an option to another party to either buy a stock from (call) or
sell a stock to (put)  the  Series at a  specified  price at a  specified  time.
Strong  may sell a stock  when it  believes  fundamental  changes  will hurt the
company over the long term or when its price becomes excessive.

--------------------------------------------------------------------------------
The RUSSELL 2500™ INDEX is a market  capitalization  weighted U.S.  equity index
published by Frank  Russell  Company.  The index is a subset of the Russell 3000
Index which measures the  performance of the 3,000 largest U.S.  companies.  The
Russell 2500™ Index measures the performance of the 2,500 smallest  companies in
the Russell 3000 Index.
--------------------------------------------------------------------------------

Under  adverse  market  conditions,  the Series  could invest some or all of its
assets in cash or cash-type securities (high-quality, short-term debt securities
issued  by  corporations,  financial  institutions,  or  the  U.S.  government).
Although  the Series would do this only in seeking to avoid  losses,  the Series
may be unable to pursue its investment  objective  during that time and it could
reduce the benefit from any upswing in the market.

SERIES S (SOCIAL  AWARENESS  SERIES)  -- The Series  pursues  its  objective  by
investing, under normal circumstances, in a well-diversified portfolio of equity
securities  that the Investment  Manager  believes have  above-average  earnings
potential and which meet certain  established  social criteria.  The Series also
may invest in companies  that are  included in the Domini 400 Social  Index(SM),
which companies will be deemed to comply with the Series' social criteria.

--------------------------------------------------------------------------------
The DOMINI 400 SOCIAL INDEX(SM) (DSI) is a market capitalization-weighted common
stock index.  It monitors the  performance  of 400 U.S.  corporations  that pass
multiple, broad-based social screens. The DSI 400 consists of approximately 250
companies  included  in the  Standard  & Poor's  500  Index,  approximately  100
additional  large  companies  not  included  in the S&P but  providing  industry
representation,  and  approximately  50 additional  companies with  particularly
strong  social  characteristics.  The DSI is  maintained  by Kinder,  Lydenberg,
Domini & Co., Inc.
--------------------------------------------------------------------------------

The   Investment   Manager   uses  a   "bottom-up"   approach   when   selecting
growth-oriented  and value-oriented  stocks. The Series typically invests in the
common stock of  companies  whose total market value is $5 billion or greater at
the time of purchase.

After identifying  potential  investments,  the Investment Manager determines if
the securities meet the Series' established social criteria. The Series does not
invest in securities of companies that engage in the production of:

o  Nuclear energy
o  Alcoholic beverages
o  Tobacco products

Additionally,  the Series does not invest in companies that significantly engage
in:

o  The manufacture of weapons
o  Practices that have a detrimental effect on the environment
o  The gambling industry

The Series seeks out companies that:

o  Contribute substantially to the communities in which they operate
o  Demonstrate a positive record on employment relations
o  Demonstrate  substantial progress in the promotion of women and minorities or
   in the implementation of benefit policies that support working parents
o  Take notably positive steps in addressing environmental challenges

The Investment Manager continues to evaluate an issuer's activities to determine
whether it engages in any practices  prohibited by the Series' social  criteria.
If the Investment  Manager  determines that securities held by the Series do not
comply with its social criteria,  the security is sold within a reasonable time.
This requirement may cause the Series to sell the security at a  disadvantageous
time.

The Series  may also  invest a portion  of its  assets in  options  and  futures
contracts.  These  instruments  may be used to hedge the Series'  portfolio,  to
increase returns, or to maintain exposure to the equity markets.

Under  adverse  market  conditions  the Series  could  invest some or all of its
assets in cash, U.S. government securities and money market securities. Although
the  Series  would do this only in seeking  to avoid  losses,  the Series may be
unable to pursue its investment  objective during that time, and it could reduce
the benefit from any upswing in the market.

SERIES T (TECHNOLOGY  SERIES) -- The Series  pursues its objective by investing,
under  normal  circumstances,  at  least  80% of its net  assets  in the  equity
securities of technology companies. The Series is non-diversified and expects to
hold  approximately  30 to 50 positions.  The Series may invest up to 40% of its
total  assets  in  foreign  securities.   The  Series  may  actively  trade  its
investments  without  regard to the  length of time they have been  owned by the
Series.

--------------------------------------------------------------------------------
The TECHNOLOGY SECTOR consists of companies that are engaged in the development,
production,  or distribution of technology-related  products or services.  These
include computer  software,  computer  hardware,  semiconductors  and equipment,
communication equipment, and Internet and new media companies.
--------------------------------------------------------------------------------

The Sub-Adviser,  Wellington  Management Company, LLP, uses fundamental analysis
to choose  technology  securities  in  foreign  and U.S.  markets.  The  Series'
investment  approach  is based on  analyzing  the  competitive  outlook  for the
technology  sector,  identifying  those  industries  likely to benefit  from the
current  and   expected   future   environment,   and   identifying   individual
opportunities. The Sub-Adviser's evaluation of technology companies rests on its
solid  knowledge of the overall  competitive  environment  including  supply and
demand characteristics,  trends,  existing product evaluations,  and new product
developments  within the technology sector.  Fundamental  research is focused on
direct contact with company management, suppliers, and competitors.

Asset  allocation  within the Series reflects the  Sub-Adviser's  opinion of the
relative  attractiveness  of stocks  within  the  industries  of the  technology
sector, near term macroeconomic events that may detract or enhance an industry's
attractiveness,  and the number of undervalued  opportunities  in each industry.
Opportunities dictate the magnitude and frequency of changes in asset allocation
among industries,  but some representation typically is maintained in each major
industry,  including  computer software,  computer hardware,  semiconductors and
equipment, communications equipment, and internet and new media.

Stocks considered for purchase typically share the following attributes:

o  A positive change in operating results is anticipated

o  Unrecognized or undervalued capabilities are present

o  The quality of management  indicates  that these factors will be converted to
   shareholder values. Stocks will be considered for sale from the Series when:

Stocks will be considered for sale from the Series when:

o  Target prices are achieved

o  Earnings  and/or  return  expectations  are  marked  down due to  fundamental
   changes in the company's operating outlook

o  More attractive value in a comparable company is available.

The Series may invest in securities  denominated in any currency. The Series may
invest a  portion  of its  assets  in  options,  futures  and  forward  currency
contracts.  Generally,  these derivative instruments involve the obligation,  in
the case of futures  and  forwards,  or the right,  in the case of  options,  to
purchase or sell financial instruments in the present or at a future date. These
derivatives strategies will be used:

o  To adjust the portfolio's exposure to a particular currency
o  To manage risk
o  As a substitute for purchasing or selling securities

Under  adverse  market  conditions,  the Series  could invest some or all of its
assets in cash, fixed-income  securities,  money market securities or repurchase
agreements.  Although the Series would do this only in seeking to avoid  losses,
it could reduce the benefit from any upswing in the market.

SERIES  V (MID  CAP  VALUE  SERIES)  -- The  Series  pursues  its  objective  by
investing,  under  normal  circumstances,  at least  80% of its net  assets in a
diversified  portfolio of equity securities with market  capitalizations  of $10
billion  or less at the time of  purchase.  Some of the  companies  in which the
Series may invest  have  market  capitalizations  below $10  billion  and,  as a
result,  the Series is subject to the risks  associated  with investing in small
capitalization  companies.  Equity  securities  include  common  stock,  rights,
options, warrants and convertible debt securities.

The  Investment   Manager   typically  chooses  equity  securities  that  appear
undervalued relative to assets, earnings, growth potential or cash flows. Due to
the nature of value companies,  the securities included in the Series' portfolio
typically  consist  of small- to  medium-sized  companies.  The  Series may also
invest in ADRs and restricted securities eligible for resale under Rule 144A.

The Series may sell a security if it is no longer considered undervalued or when
the company begins to show deteriorating fundamentals.

The  Series  also may invest a portion  of its  assets in  options  and  futures
contracts.  These  instruments  may be used to hedge the Series'  portfolio,  to
maintain exposure to the equity markets or to increase returns.

The Series may invest in a variety of investment companies, including those that
seek to track the composition  and  performance of a specific index.  The Series
may use these index-based  investments as a way of managing its cash position or
to gain  exposure  to the equity  markets or a  particular  sector of the equity
market, while maintaining liquidity.

Under  adverse  market  conditions,  the Series  could invest some or all of its
assets in cash or money  market  securities.  Although  the Series would do this
only in  seeking  to avoid  losses,  the  Series  may be unable  to  pursue  its
investment  objective during that time, and it could reduce the benefit from any
upswing in the market.

SERIES W (MAIN  STREET  GROWTH AND  INCOME®  SERIES) -- The Series  pursues  its
objective by investing  mainly in common  stocks of U.S.  companies,  but it can
also invest in other equity  securities such as preferred  stocks and securities
convertible  into  common  stocks.   Although  the  Series  does  not  have  any
requirements  as to the  capitalization  of  issuers  in which it  invests,  the
Series'  Sub-Adviser,  OppenheimerFunds,  currently  emphasizes  the  stocks  of
large-capitalization  companies  in the  portfolio.  At times,  the  Series  may
increase  the relative  emphasis of its  investments  in  small-cap  and mid-cap
stocks.  While the Series can buy foreign securities and debt securities such as
bonds and notes,  currently it does not emphasize those investments.  The Series
can also use hedging instruments and certain derivative investments.

In selecting  securities  for  purchase or sale by the Series,  OppenheimerFunds
uses an  investment  process  that  combines  quantitative  models,  fundamental
research about particular securities and individual judgment. While this process
and the  inter-relationship  of  factors  used  may  change  over  time  and its
implementation  may vary in particular  cases, in general the selection  process
involves the use of:

o  Multi-factor  quantitative models: These include a group of "top-down" models
   that  analyze  data  such as  relative  valuations,  relative  price  trends,
   interest rates and the shape of the yield curve.  These help direct portfolio
   emphasis by market  capitalization  (small, mid, or large),  industries,  and
   value or growth styles. A group of "bottom up" models helps to rank stocks in
   a universe  typically  including 2000 stocks,  selecting  stocks for relative
   attractiveness by analyzing fundamental stock and company characteristics.

o  Fundamental research: OppenheimerFunds uses internal research and analysis by
   other  market   analysts,   with   emphasis  on  current   company  news  and
   industry-related events.

o  Judgment:  The portfolio is then continuously  re-balanced,  using all of the
   tools described above.

Under adverse or unstable market  conditions,  the Series can invest some or all
of its assets in cash,  fixed-income  securities,  money  market  securities  or
repurchase  agreements.  Although  the  Series  would do this only in seeking to
avoid losses, it could reduce the benefit from any upswing in the market.


SERIES  X (SMALL  CAP  GROWTH  SERIES)  -- The  Series  pursues  its  investment
objective  by  investing,  under normal  circumstances,  at least 80% of its net
assets in equity  securities of companies  with market  capitalizations  of $750
million  or  less  at  the  time  of  investment  that,  in the  opinion  of the
Sub-Adviser,  RS Investment  Management,  L.P., have the potential for long-term
capital growth.  The Series may invest the remainder of its assets in securities
of  companies  of any  size.  The  Series  may also  engage  in  short  sales of
securities  it  expects to decline in price.  The Series  will  likely  invest a
portion of its  assets in  technology  and  Internet-related  companies.  Equity
securities  include  common and preferred  stocks,  and warrants and  securities
convertible into common or preferred stocks.


In selecting  investments for the Series,  the  Sub-Adviser  looks for companies
with sustainable revenue and earnings growth,  companies that have a sustainable
competitive   advantage,   superior   financial   characteristics,   and  strong
management;  and companies that are under-followed by Wall Street analysts.  The
Series may sell a stock when the  Sub-Adviser  believes that a company no longer
provides  these  advantages  or that the stock's  price fully  reflects what the
Sub-Adviser believes to be the company's value.

Under  adverse  market  conditions,  the Series  could invest some or all of its
assets in cash, fixed-income  securities,  money market securities or repurchase
agreements.  Although the Series would do this only in seeking to avoid  losses,
it could reduce the benefit from any upswing in the market.



SERIES Y (SELECT 25 SERIES) -- The Series  pursues its objective by focusing its
investments in a core position of 20-30 common stocks of growth  companies which
have exhibited  consistent above average earnings or revenue growth. The Fund is
non-diversified  as defined in the Investment  Company Act of 1940,  which means
that it may hold a larger  position  in a smaller  number of  securities  than a
diversified fund. The Investment  Manager selects what it believes to be premier
growth  companies as the core position for the Series.  The  Investment  Manager
uses a "bottom-up" approach in selecting growth stocks.  Portfolio holdings will
be replaced when one or more of the companies' fundamentals have changed and, in
the opinion of the Investment Manager, it is no longer a premier growth company.


The  Series  also may invest a portion  of its  assets in  options  and  futures
contracts which may be used to hedge the Series' portfolio,  to increase returns
or to maintain exposure to the equity markets.

The Series may invest in a variety of investment companies, including those that
seek to track the composition  and  performance of a specific index.  The Series
may use these index-based investments as a way of managing its cash position, to
gain  exposure  to the  equity  markets,  or a  particular  sector of the equity
market, while maintaining liquidity.

Under  adverse  market  conditions,  the Series  could invest some or all of its
assets in cash or money  market  securities.  Although  the Series would do this
only in  seeking  to avoid  losses,  the  Series  may be unable  to  pursue  its
investment  objective during that time, and it could reduce the benefit from any
upswing in the market.

MAIN RISKS


The  following  chart  indicates  which main risks apply to which  Series of the
Fund.  However,  the fact that a particular risk is not indicated as a main risk
for a Series  does not mean that the Series is  prohibited  from  investing  its
assets in securities which give rise to that risk. It simply means that the risk
is not a main  risk for that  Series.  For  example,  the risk of  investing  in
smaller  companies is not listed as a main risk for Series A. This does not mean
that Series A is prohibited from investing in smaller  companies,  only that the
risk of smaller companies is not one of the main risks associated with Series A.
The  Portfolio  Manager  for  a  Series  has  considerable  leeway  in  choosing
investment strategies and selecting securities that he or she believes will help
the Series achieve its investment  objective.  In seeking to meet its investment
objective,  a  Series'  assets  may be  invested  in any  type  of  security  or
instrument  whose  investment  characteristics  are consistent  with the Series'
investment program.

================================================================================
                      |A |B |C |D |E |G |H |I |J |N |O |P |Q |S |T |V |W |X |Y |
----------------------|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|
Market Risk           |X |X |  |X |  |X |X |X |X |X |X |  |X |X |X |X |X |X |X |
----------------------|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|
Smaller Companies     |  |  |  |  |  |  |  |X |X |  |  |  |X |  |X |X |  |X |  |
----------------------|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|
Value Stocks          |X |X |  |  |  |  |  |X |  |  |X |  |X |X |X |X |  |  |  |
----------------------|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|
Growth Stocks         |X |  |  |X |  |X |X |  |X |X |  |  |  |X |X |  |X |X |X |
----------------------|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|
Foreign Securities    |X |X |  |X |X |X |  |X |X |X |X |X |X |X |X |X |X |  |X |
----------------------|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|
Emerging Markets      |  |  |  |X |  |  |  |X |  |  |  |  |X |  |X |  |  |  |  |
----------------------|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|
Options and Futures   |X |X |  |X |X |X |X |X |X |X |X |X |X |X |X |X |X |  |X |
----------------------|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|
Short Sales           |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
----------------------|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|
Active Trading        |  |X |  |X |  |  |  |  |  |  |  |  |X |  |X |  |X |X |  |
----------------------|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|
Interest Rate Risk    |  |X |X |  |X |  |  |  |  |X |  |X |  |  |  |  |  |  |  |
----------------------|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|
Credit Risk           |  |  |X |  |X |  |  |  |  |X |  |X |  |  |  |  |  |  |  |
----------------------|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|
Prepayment Risk       |  |  |X |  |X |  |  |  |  |X |  |X |  |  |  |  |  |  |  |
----------------------|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|
Mortgage-Backed       |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities            |  |  |  |  |X |  |  |  |  |X |  |X |  |  |  |  |  |  |  |
----------------------|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|
Restricted            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities            |  |  |X |  |X |  |  |X |X |X |X |X |X |  |X |X |  |X |  |
----------------------|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|
High Yield            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities            |  |  |  |  |X |  |  |  |  |X |  |X |  |  |  |  |  |  |  |
----------------------|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|
Swap Agreements       |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
----------------------|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|
Social Investing      |  |  |  |  |  |  |  |  |  |  |  |  |  |X |  |  |  |  |  |
----------------------|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|
Focused Investment    |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Strategy              |  |  |  |  |  |  |  |  |  |  |  |  |  |  |X |  |  |  |X |
----------------------|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|
Non-Diversification   |  |  |  |  |  |X |  |  |  |  |  |  |  |  |X |  |  |  |  |
----------------------|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|
Industry              |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Concentration         |  |  |  |  |  |X |  |  |  |  |  |  |  |  |X |  |  |  |  |
----------------------|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|
Overweighting         |  |  |  |  |  |  |  |X |  |  |  |  |  |  |  |  |  |X |  |
----------------------|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|
Investment in         |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investment Companies  |X |  |  |  |  |X |  |  |X |X |X |X |  |  |  |X |  |  |X |
----------------------|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|--|
Technology Stocks     |  |  |  |  |  |  |  |  |  |  |  |  |  |  |X |  |  |X |  |
================================================================================


--------------------------------------------------------------------------------
Your  investment  in the Series is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance  Corporation or any other government
agency.  The value of an  investment  in the Series  will go up and down,  which
means investors could lose money.
--------------------------------------------------------------------------------

MARKET RISK -- While stocks have historically been a leading choice of long-term
investors,  they  fluctuate  in  price.  Their  prices  tend to  fluctuate  more
dramatically  over the shorter  term than do the prices of other asset  classes.
These movements may result from factors affecting individual companies,  or from
broader influences like changes in interest rates,  market conditions,  investor
confidence or announcements of economic, political or financial information here
or abroad.

SMALLER  COMPANIES  -- While  potentially  offering  greater  opportunities  for
capital  growth than larger,  more  established  companies,  the  securities  of
smaller  companies may be particularly  volatile,  especially  during periods of
economic  uncertainty.  Securities of smaller  companies may present  additional
risks because their earnings are less predictable, their share prices tend to be
more  volatile  and their  securities  often are less liquid than  larger,  more
established companies, among other reasons.

VALUE STOCKS --  Investments  in value stocks are subject to the risk that their
intrinsic values may never be realized by the market,  that a stock judged to be
undervalued may actually be  appropriately  priced,  or that their prices may go
down. While the Series' investments in value stocks may limit downside risk over
time, a Series may, as a trade-off, produce more modest gains than riskier stock
funds.

GROWTH  STOCKS -- While  potentially  offering  greater  or more  rapid  capital
appreciation potential than value stocks,  investments in growth stocks may lack
the dividend  yield that can cushion  stock prices in market  downturns.  Growth
companies  often are expected to increase  their  earnings at a certain rate. If
expectations are not met,  investors can punish the stocks,  even if earnings do
increase.

FOREIGN SECURITIES -- Investing in foreign securities  involves additional risks
such as currency  fluctuations,  differences in financial reporting standards, a
lack of adequate company information and political or economic instability.  The
risks may be particularly acute in underdeveloped capital markets.

EMERGING  MARKETS -- All of the risks of  investing  in foreign  securities  are
heightened  by investing in  developing  countries  and  emerging  markets.  The
markets of developing  countries  historically  have been more volatile than the
markets of developed  countries with mature economies.  These markets often have
provided higher rates of return, and greater risks, to investors.

OPTIONS  AND  FUTURES  --  Options  and  futures  may be used to hedge a Series'
portfolio,  to gain exposure to a market without buying individual securities or
to increase returns.  There is the risk that such practices sometimes may reduce
returns or  increase  volatility.  These  practices  also  entail  transactional
expenses.

SHORT  SALES -- A short  sale is a  transaction  in  which  the  Series  sells a
security or currency in  anticipation  that the market price of that security or
currency  will  decline.  A Series may make short  sales as a form of hedging to
offset  potential  declines in long positions in securities it owns and in order
to maintain portfolio  flexibility.  A Series may also enter into short sales of
securities  and  currencies  in  order  to  hedge  the  currency  exchange  risk
associated with assets denominated in foreign currencies, adjust the portfolio's
exposure  to a  particular  currency,  manage  risk or enhance  income,  or as a
substitute for purchasing or selling  securities.  The loss to a Series could be
substantial if the price of the security or currency sold short does not decline
in value.

--------------------------------------------------------------------------------
SELLING SHORT  "AGAINST THE BOX" means that the Series owns, or has the right to
acquire, without payment of any further consideration,  the security or currency
sold short.  In a short sale  against the box, the Series is exposed to the risk
of being forced to deliver  appreciated  stock or currency to close the position
if the  borrowed  stock or  currency  is  called,  causing a taxable  gain to be
recognized.
--------------------------------------------------------------------------------

ACTIVE TRADING -- Active  trading  involves  higher  expenses  including  higher
brokerage commissions.

INTEREST RATE RISK -- Investments in fixed-income  securities are subject to the
possibility  that interest  rates could rise  sharply,  causing the value of the
Series'  securities,  and share  price,  to decline.  Longer term bonds and zero
coupon  bonds are  generally  more  sensitive  to  interest  rate  changes  than
shorter-term bonds. Generally, the longer the average maturity of the bonds in a
Series,  the more a Series'  share price will  fluctuate in response to interest
rate changes.

CREDIT RISK -- It is possible that some issuers of fixed-income  securities will
not make  payments  on debt  securities  held by a  Series,  or  there  could be
defaults on repurchase  agreements held by a Series.  Also, an issuer may suffer
adverse changes in financial  condition that could lower the credit quality of a
security,  leading to greater  volatility  in the price of the  security  and in
shares of a Series.  A change in the  quality  rating of a bond can  affect  the
bond's liquidity and make it more difficult for the Series to sell.

PREPAYMENT  RISK -- The  issuers of  securities  held by a Series may be able to
prepay principal due on the securities, particularly during periods of declining
interest  rates.  Securities  subject to prepayment  risk  generally  offer less
potential  for  gains  when  interest  rates  decline,  and may  offer a greater
potential for loss when interest rates rise. In addition,  rising interest rates
may  cause  prepayments  to  occur  at a  slower  than  expected  rate,  thereby
effectively  lengthening  the  maturity of the  security and making the security
more  sensitive to interest  rate  changes.  Prepayment  risk is a major risk of
mortgage-backed securities.

MORTGAGE-BACKED   SECURITIES  --  A  Series  which  invests  in  mortgage-backed
securities  will  receive  payments  that are part  interest  and part return of
principal. These payments may vary based on the rate at which homeowners pay off
their loans.  When a homeowner makes a prepayment,  the Series receives a larger
portion  of its  principal  investment  back,  which  means that there will be a
decrease in monthly interest payments. Some mortgage-backed  securities may have
structures  that make  their  reaction  to  interest  rates  and  other  factors
difficult to predict, making their prices very volatile.

--------------------------------------------------------------------------------
WHAT ARE MORTGAGE-BACKED  SECURITIES?  Home mortgage loans are typically grouped
together into "POOLS" by banks and other lending institutions,  and interests in
these  pools  are then sold to  investors,  allowing  the bank or other  lending
institution to have more money available to loan to home buyers. When homeowners
make  interest  and  principal  payments,  these  payments  are passed on to the
investors in the pool.  Most of these pools are  guaranteed  by U.S.  government
agencies  or by  government  sponsored  private  corporations-familiarly  called
"GINNIE MAES," "FANNIE MAES" and "FREDDIE MACS."
--------------------------------------------------------------------------------

RESTRICTED  SECURITIES  --  Restricted  securities  cannot be sold to the public
without  registration  under the  Securities  Act of 1933 ("1933  Act").  Unless
registered  for  sale,  restricted  securities  can be sold  only  in  privately
negotiated   transactions  or  pursuant  to  an  exemption  from   registration.
Restricted securities may be considered illiquid and, therefore,  subject to the
Fund's limitation on illiquid securities.

Restricted securities (including Rule 144A Securities) may involve a high degree
of business  and  financial  risk which may result in  substantial  losses.  The
securities may be less liquid than publicly  traded  securities.  Although these
securities  may be resold  in  privately  negotiated  transactions,  the  prices
realized from these sales could be less than those  originally paid by a Series.
In   particular,   Rule  144A   Securities  may  be  resold  only  to  qualified
institutional  buyers in accordance  with Rule 144A under the  Securities Act of
1933.  Rule 144A  permits  the  resale to  "qualified  institutional  buyers" of
"restricted  securities"  that,  when  issued,  were  not of the  same  class as
securities  listed on a U.S.  securities  exchange  or  quoted  in the  National
Association of Securities  Dealers  Automated  Quotation  System (the "Rule 144A
Securities").

Investing in Rule 144A Securities and other restricted securities could have the
effect of  increasing  the  amount  of a Series'  assets  invested  in  illiquid
securities   to  the  extent  that   qualified   institutional   buyers   become
uninterested, for a time, in purchasing these securities.

HIGH YIELD SECURITIES -- Higher yielding,  high risk debt securities may present
additional  risk because  these  securities  may be less liquid than  investment
grade bonds and they tend to be more  susceptible  to high interest rates and to
real or perceived  adverse economic and competitive  industry  conditions.  High
yield securities are subject to more credit risk than higher quality securities.

SWAP AGREEMENTS -- Investment in swap agreements  entails both interest rate and
credit risk.  There is a risk that,  based on movements of interest rates in the
future,  the payments made by the Series under a swap  agreement will be greater
than the payments it received.  Credit risk arises from the possibility that the
counterparty will default. If the counterparty  defaults,  the Series' loss will
consist of the net amount of contractual  interest  payments that the Series has
not yet received.  The Investment Manager will monitor the  creditworthiness  of
counterparties  to the Series'  interest  rate swap  transactions  on an ongoing
basis.

SOCIAL  INVESTING -- Social  investing may present  additional risks to a Series
because it will limit the availability of investment  opportunities  compared to
those of similar funds which do not impose such  restrictions on investment.  In
addition,  if the Investment  Manager  determines  that  securities  held by the
Series do not comply with its social criteria, the Series must sell the security
at a time when it may be disadvantageous to do so.

FOCUSED INVESTMENT  STRATEGY -- The typical  diversified stock mutual fund might
hold  between 80 and 120 stocks in its  portfolio.  A Series  which  focuses its
investments  in fewer stocks than this can be expected to be more  volatile than
the typical diversified stock fund.

NON-DIVERSIFICATION  -- A non-diversified  Series may hold larger positions in a
smaller number of securities than a diversified  Series.  As a result,  a single
security's  increase or decrease in value may have a greater impact on a Series'
net asset value and total  return.  A  non-diversified  Series is expected to be
more volatile than a diversified Series.

INDUSTRY  CONCENTRATION  -- Investment  in  sector-specific  stocks,  subjects a
Series to  industry  concentration  risk,  which is the  chance  that the Series
return could be hurt  significantly by problems  affecting a particular  sector.
Because a sector fund concentrates its investments in a particular industry,  or
group of related industries,  its performance can be significantly affected, for
better or worse, by developments in that sector.

INVESTMENT IN INVESTMENT COMPANIES -- Investment in other investment  companies,
may include index-based investments such as SPDRs (based on the S&P 500), MidCap
SPDRs (based on the S&P MidCap 400 Index), Select Sector SPDRs (based on sectors
or industries of the S&P 500 Index),  Nasdaq-100 Index Tracking Stocks (based on
the Nasdaq-100 Index) and DIAMONDS (based on the Dow Jones Industrial  Average).
To the extent a Series invests in other investment companies,  it will incur its
pro rata share of the underlying  investment companies' expenses. In addition, a
Series will be subject to the effects of business  and  regulatory  developments
that affect an underlying  investment company or the investment company industry
generally.

TECHNOLOGY STOCKS -- Companies in the rapidly changing field of technology often
face unusually  high price  volatility,  both in terms of gains and losses.  The
potential for wide variation in performance is based on the special risks common
to these  stocks.  For  example,  products  or  services  that at  first  appear
promising may not prove commercially  successful or may become obsolete quickly.
Earnings disappointments can result in sharp price declines. A portfolio focused
primarily on these stocks is therefore  likely to be much more volatile than one
with broader  diversification  that includes  investments  across industries and
sectors.

The  level  of risk  will  be  increased  to the  extent  that  the  Series  has
significant  exposure to smaller or unseasoned companies (those with less than a
three-year  operating history),  which may not have established products or more
experienced management.

OVERWEIGHTING --  Overweighting  investments in certain sectors or industries of
the stock  market  increases  the risk that a Fund will suffer a loss because of
general declines in the prices of stocks in those sectors or industries.

ADDITIONAL  INFORMATION -- For more information about the investment  program of
the Series; including additional information about the risks of certain types of
investments,  please see the  "Investment  Policies  and  Management  Practices"
section of the prospectus.

PAST PERFORMANCE


The charts and tables on the  following  pages  provide some  indication  of the
risks of investing in the Series' by showing changes in each Series' performance
from year to year and by showing how the Series'  average  annual total  returns
have  compared  to those of broad  measures of market  performance.  Fee waivers
and/or expense  reimbursements for Series P, V and X during certain time periods
reduced the expenses of those  Series and in the absence of such waivers  and/or
reimbursements, the performance quoted would be reduced. The performance figures
on the  following  pages do not reflect  fees and  expenses  associated  with an
investment  in variable  insurance  products  offered by Security  Benefit  Life
Insurance Company.  Shares of the Series are available only through the purchase
of such  products.  In addition,  some Series make a comparison to an index that
more closely  reflects the  securities in which that Series  invests than does a
broad  market  index.  As with  all  mutual  funds,  past  performance  is not a
prediction of future results.


================================================================================
SERIES A (EQUITY SERIES)
================================================================================

                  [BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]

1992    1993    1994    1995    1996    1997    1998    1999     2000     2001
----    ----    ----    ----    ----    ----    ----    ----     ----     ----
11.1%   13.7%   -1.7%   36.8%   22.7%   28.7%   25.4%    8.1%   -12.8%   -11.4%

     ---------------------------------------------------------------
     HIGHEST AND LOWEST RETURNS
     (QUARTERLY 1992-2001)
     ---------------------------------------------------------------
                                                 QUARTER ENDED
     Highest                      20.4%        December 31, 1998
     Lowest                      -15.1%       September 30, 2001
     ---------------------------------------------------------------

     ---------------------------------------------------------------
     AVERAGE ANNUAL TOTAL RETURNS
     (THROUGH DECEMBER 31, 2001)
     ---------------------------------------------------------------
                      PAST 1 YEAR    PAST 5 YEARS    PAST 10 YEARS
     Series A           -11.4%           6.2%           10.9%
     S&P 500            -11.9%          10.7%           12.9%
     ---------------------------------------------------------------

================================================================================
SERIES B (LARGE CAP VALUE SERIES)
================================================================================

                  [BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]

1992    1993    1994    1995    1996    1997    1998    1999     2000     2001
----    ----    ----    ----    ----    ----    ----    ----     ----     ----
6.3%    9.6%   -3.0%   30.1%   18.3%   26.5%    7.9%    1.5%    -6.8%    -5.6%

     ---------------------------------------------------------------
     HIGHEST AND LOWEST RETURNS
     (QUARTERLY 1992-2001)
     ---------------------------------------------------------------
                                                 QUARTER ENDED
     Highest                     14.5%           June 30, 1997
     Lowest                     -12.9%        September 30, 2001
     ---------------------------------------------------------------

     ---------------------------------------------------------------
     AVERAGE ANNUAL TOTAL RETURNS
     (THROUGH DECEMBER 31, 2001)
     ---------------------------------------------------------------
                                      PAST       PAST       PAST
                                     1 YEAR    5 YEARS    10 YEARS
     Series B                         -5.6%      4.0%       7.8%
     S&P 500                         -11.9%     10.7%      12.9%
     S&P Barra Value                 -11.7%      9.5%      13.1%
     ---------------------------------------------------------------
     The  Dreyfus  Corporation  was  engaged to  provide  investment
     advisory services to Series B effective January 2, 2001.
     ---------------------------------------------------------------

================================================================================
SERIES C (MONEY MARKET SERIES)
================================================================================

            [BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]

1992    1993    1994    1995    1996    1997    1998    1999     2000     2001
----    ----    ----    ----    ----    ----    ----    ----     ----     ----
3.2%    2.6%    3.7%    5.4%    5.1%    5.2%    5.1%    4.6%     6.0%     3.8%

     ---------------------------------------------------------------
     HIGHEST AND LOWEST RETURNS
     (QUARTERLY 1992-2001)
     ---------------------------------------------------------------
                                                QUARTER ENDED
     Highest                      1.6%        September 30, 2000
     Lowest                       0.5%         December 31, 2001
     ---------------------------------------------------------------

     ---------------------------------------------------------------
     AVERAGE ANNUAL TOTAL RETURNS AND YIELD
     (THROUGH DECEMBER 31, 2001)
     ---------------------------------------------------------------
                                         PAST     PAST      PAST
                                        1 YEAR  5 YEARS   10 YEARS
     Series C                            3.8%     4.9%      4.5%
     7-Day Yield                         1.2%
     ---------------------------------------------------------------

================================================================================
SERIES D (GLOBAL SERIES)
================================================================================

            [BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]

1992    1993    1994    1995    1996    1997    1998    1999     2000     2001
----    ----    ----    ----    ----    ----    ----    ----     ----     ----
-2.6%   31.6%    2.7%   10.9%   17.5%    6.5%   20.1%   53.7%     3.5%   -12.3%

     ---------------------------------------------------------------
     HIGHEST AND LOWEST RETURNS
     (QUARTERLY 1992-2001)
     ---------------------------------------------------------------
                                                 QUARTER ENDED
     Highest                     34.9%         December 31, 1999
     Lowest                     -18.2%        September 30, 2001
     ---------------------------------------------------------------

     ---------------------------------------------------------------
     AVERAGE ANNUAL TOTAL RETURNS
     (THROUGH DECEMBER 31, 2001)
     ---------------------------------------------------------------
                                      PAST       PAST       PAST
                                     1 YEAR    5 YEARS    10 YEARS
     Series D                       -12.3%      12.3%      11.8%
     MSCI World Index               -16.8%       5.4%       8.1%
     ---------------------------------------------------------------

================================================================================
SERIES E (DIVERSIFIED INCOME SERIES)
================================================================================

            [BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]

1992    1993    1994    1995    1996    1997    1998    1999     2000     2001
----    ----    ----    ----    ----    ----    ----    ----     ----     ----
7.4%   12.6%   -6.9%   18.6%   -0.7%   10.0%    8.0%   -3.8%     8.6%     7.2%

     ---------------------------------------------------------------
     HIGHEST AND LOWEST RETURNS
     (QUARTERLY 1992-2001)
     ---------------------------------------------------------------
                                                 QUARTER ENDED
     Highest                      5.9%          March 31, 1993
     Lowest                      -4.6%          March 31, 1994
     ---------------------------------------------------------------

     ---------------------------------------------------------------
     AVERAGE ANNUAL TOTAL RETURNS
     (THROUGH DECEMBER 31, 2001)
     ---------------------------------------------------------------
                                       PAST       PAST      PAST
                                      1 YEAR    5 YEARS   10 YEARS
     Series E                          7.2%      5.9%       5.8%
     Lehman Brothers
       Government/Credit Index         8.5%      7.4%       7.3%
     Lehman Brothers Aggregate Bond
       Index                           8.4%      7.4%       7.2%
     ---------------------------------------------------------------

================================================================================
SERIES G (LARGE CAP GROWTH SERIES)
================================================================================

            [BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]

                                   2001
                                   ----
                                  -15.4%
     ---------------------------------------------------------------
     HIGHEST AND LOWEST RETURNS
     (QUARTERLY 2001)
     ---------------------------------------------------------------
                                                 QUARTER ENDED
     Highest                     12.9%         December 31, 2001
     Lowest                     -16.6%        September 30, 2001
     ---------------------------------------------------------------

     ---------------------------------------------------------------
     AVERAGE ANNUAL TOTAL RETURNS
     (THROUGH DECEMBER 31, 2001)
     ---------------------------------------------------------------
                               PAST 1 YEAR    LIFE OF SERIES
                                              (SINCE 5/1/00)
     Series G                         -15.4%          -21.0%
     S&P Barra Growth                 -12.7%          -20.2%
     ---------------------------------------------------------------

================================================================================
SERIES H (ENHANCED INDEX SERIES)
================================================================================

            [BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]

                              2000     2001
                              ----     ----
                             -10.2%   -13.0%

     ---------------------------------------------------------------
     HIGHEST AND LOWEST RETURNS
     (QUARTERLY 2000-2001)
     ---------------------------------------------------------------
                                                 QUARTER ENDED
     Highest                      2.5%          March 31, 2000
     Lowest                     -15.3%        September 30, 2001
     ---------------------------------------------------------------

     ---------------------------------------------------------------
     AVERAGE ANNUAL TOTAL RETURNS
     (THROUGH DECEMBER 31, 2001)
     ---------------------------------------------------------------
                                   PAST 1 YEAR    LIFE OF SERIES
                                             (SINCE 4/30/99)
     Series H                         -13.0%            4.8%
     S&P 500                          -11.9%           -4.3%
     ---------------------------------------------------------------

================================================================================
SERIES I (INTERNATIONAL SERIES)
================================================================================

            [BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]

                              2000     2001
                              ----     ----
                             -20.4%   -24.4%

     ---------------------------------------------------------------
     HIGHEST AND LOWEST RETURNS
     (QUARTERLY 2000-2001)
     ---------------------------------------------------------------
                                                QUARTER ENDED
     Highest                      6.68%        December 31, 2001
     Lowest                     -17.2%        September 30, 2001
     ---------------------------------------------------------------

     ---------------------------------------------------------------
     AVERAGE ANNUAL TOTAL RETURNS
     (THROUGH DECEMBER 31, 2001)
     ---------------------------------------------------------------
                                    PAST 1 YEAR    LIFE OF SERIES
                                                  (SINCE 4/30/99)
     Series I                         -24.4%           -8.8%
     MSCI EAFE Index                  -21.4%           -7.5%
     ---------------------------------------------------------------

================================================================================
SERIES J (MID CAP GROWTH SERIES)
================================================================================

            [BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]

    1993    1994    1995    1996    1997    1998    1999     2000     2001
    ----    ----    ----    ----    ----    ----    ----     ----     ----
    13.6%   -5.1%   19.5%   18.0%   20.0%   18.0%   61.9%    16.8%   -14.9%

     ---------------------------------------------------------------
     HIGHEST AND LOWEST RETURNS
     (QUARTERLY 1993-2001)
     ---------------------------------------------------------------
                                                 QUARTER ENDED
     Highest                     38.8%         December 31, 1999
     Lowest                     -28.9%        September 30, 2001
     ---------------------------------------------------------------

     ---------------------------------------------------------------
     AVERAGE ANNUAL TOTAL RETURNS
     (THROUGH DECEMBER 31, 2001)
     ---------------------------------------------------------------
                               PAST       PAST     LIFE OF SERIES
                              1 YEAR    5 YEARS    (SINCE 10/1/92)
     Series J                -14.9%      17.9%          17.1%
     S&P Midcap Growth        -8.0%      17.8%          14.5%
     ---------------------------------------------------------------

================================================================================
SERIES K (GLOBAL STRATEGIC INCOME SERIES)
================================================================================

            [BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]

           1996    1997    1998    1999     2000     2001
           ----    ----    ----    ----     ----     ----
          13.7%    5.4%    6.9%    1.2%     3.9%     6.2%

     ---------------------------------------------------------------
     HIGHEST AND LOWEST RETURNS
     (QUARTERLY 1996-2001)
     ---------------------------------------------------------------
                                                QUARTER ENDED
     Highest                     6.3%          December 31, 1998
     Lowest                     -2.8%         September 30, 1998
     ---------------------------------------------------------------

     ---------------------------------------------------------------
     AVERAGE ANNUAL TOTAL RETURNS
     (THROUGH DECEMBER 31, 2001)
     ---------------------------------------------------------------
                                  PAST     PAST     LIFE OF SERIES
                                 1 YEAR   5 YEARS   (SINCE 6/1/95)
     Series K                     6.2%      4.7%         6.8%
     Blended Index(1)             7.0%      7.2%         9.4%
     Salomon Smith Barney
     World Government
     Non-U.S. Hedged Index        6.1%      8.2%         9.2%
     ---------------------------------------------------------------
     1 Effective  July 2001, the blended index consist of 25% Lehman
       Brothers Aggregate Bond Index, 25% Lehman Brothers High Yield
       Bond  Index,   25%  Salomon  Smith  Barney  World  Government
       Non-U.S.  Hedged Index,  and 25% JP Morgan  Emerging  Markets
       Bond Index  Global  Constrained.  The blended  index prior to
       July,  2001 consists of 25% Lehman  Brothers  Aggregate  Bond
       Index, 25% Lehman Brothers High Yield Bond Index, 25% Salomon
       Smith Barney World Government  Non-U.S.  Hedged Index,and 25%
       JP Morgan Emerging Markets Bond Index Plus.

     Effective  May 14, 1999,  Wellington  Management  Company,  LLP
     became the sub-adviser for Series K.
     ---------------------------------------------------------------

================================================================================
SERIES L (CAPITAL GROWTH SERIES)
================================================================================

            [BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]

                                   2001
                                   ----
                                  -14.7%

     ---------------------------------------------------------------
     HIGHEST AND LOWEST RETURNS
     (QUARTERLY 2001)
     ---------------------------------------------------------------
                                            QUARTER ENDED
     Highest                     15.7%         December 31, 2001
     Lowest                     -17.8%        September 30, 2001
     ---------------------------------------------------------------

     ---------------------------------------------------------------
     AVERAGE ANNUAL TOTAL RETURNS
     (THROUGH DECEMBER 31, 2001)
     ---------------------------------------------------------------
                                    PAST 1 YEAR    LIFE OF SERIES
                                                   (SINCE 5/1/00)
     Series L                         -14.7%          -20.1%
     S&P 500                          -11.9%          -12.1%
     S&P Barra Growth                 -12.73%         -20.16%
     Russell 1000 Growth              -20.42%         -26.03%
     ---------------------------------------------------------------

================================================================================
SERIES M (GLOBAL TOTAL RETURN SERIES)
================================================================================

            [BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]

           1996    1997    1998    1999     2000     2001
           ----    ----    ----    ----     ----     ----
           14.2%    6.2%   12.6%   14.0%   -10.6%   -13.1%

     ---------------------------------------------------------------
     HIGHEST AND LOWEST RETURNS
     (QUARTERLY 1996-2001)
     ---------------------------------------------------------------
                                                QUARTER ENDED
     Highest                     14.1%         December 31, 1998
     Lowest                     -12.5%        September 30, 2001
     ---------------------------------------------------------------

     ---------------------------------------------------------------
     AVERAGE ANNUAL TOTAL RETURNS
     (THROUGH DECEMBER 31, 2001)
     ---------------------------------------------------------------
                                PAST      PAST     LIFE OF SERIES
                               1 YEAR    5 YEARS   (SINCE 6/1/95)
     Series M                 -13.1%       1.2%         4.0%
     S&P 500                  -11.9%      10.7%        14.2%
     Blended Index(1)         -13.7%       4.7%         6.7%
     ---------------------------------------------------------------
     1 Effective May 14, 1999,  Wellington Management Company became
       sub-adviser  for Series M. The blended index  consists of 80%
       MSCI World  Equity  Index and 20%  Salomon  World  Government
       Index-unhedged.
     ---------------------------------------------------------------

================================================================================
SERIES N (MANAGED ASSET ALLOCATION SERIES)
================================================================================

            [BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]

           1996    1997    1998    1999     2000     2001
           ----    ----    ----    ----     ----     ----
           12.8%   18.4%   18.4%    9.7%    -0.9%    -5.1%

     ---------------------------------------------------------------
     HIGHEST AND LOWEST RETURNS
     (QUARTERLY 1996-2001)
     ---------------------------------------------------------------
                                                 QUARTER ENDED
     Highest                     11.5%         December 31, 1998
     Lowest                      -8.3%        September 30, 2001
     ---------------------------------------------------------------

     ---------------------------------------------------------------
     AVERAGE ANNUAL TOTAL RETURNS
     (THROUGH DECEMBER 31, 2001)
     ---------------------------------------------------------------
                                PAST      PAST     LIFE OF SERIES
                                1 YEAR    5 YEARS   (SINCE 6/1/95)
     Series N                   -5.1%       7.7%         8.9%
     Blended Index(1)           -3.8%       9.4%        11.4%
     S&P 500                   -11.9%      10.7%        14.2%
     ---------------------------------------------------------------
     1 The  blended  index  consists  of 60% S&P 500 and 40%  Lehman
       Brothers Aggregate Bond Index.
     ---------------------------------------------------------------

================================================================================
SERIES O (EQUITY INCOME SERIES)
================================================================================

            [BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]

           1996    1997    1998    1999     2000     2001
           ----    ----    ----    ----     ----     ----
           20.0%   28.4%   9.0%    3.1%    12.9%     1.3%

     ---------------------------------------------------------------
     HIGHEST AND LOWEST RETURNS
     (QUARTERLY 1996-2001)
     ---------------------------------------------------------------
                                                 QUARTER ENDED
     Highest                        13.0%        June 30, 1999
     Lowest                         -8.6%     September 30, 1999
     ---------------------------------------------------------------

     ---------------------------------------------------------------
     AVERAGE ANNUAL TOTAL RETURNS
     (THROUGH DECEMBER 31, 2001)
     ---------------------------------------------------------------
                                 PAST      PAST     LIFE OF SERIES
                                1 YEAR    5 YEARS   (SINCE 6/1/95)
     Series O                    1.3%      10.6%        13.6%
     S&P 500                   -11.9%      10.7%        14.2%
     S&P BARRA Value           -11.7%       9.5%        12.9%
     ---------------------------------------------------------------

================================================================================
SERIES P (HIGH YIELD SERIES)
================================================================================

            [BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]

               1997    1998    1999     2000     2001
               ----    ----    ----     ----     ----
               13.4%    5.8%    1.3%    -1.5%    4.4%

     ---------------------------------------------------------------
     HIGHEST AND LOWEST RETURNS
     (QUARTERLY 1997-2001)
     ---------------------------------------------------------------
                                                 QUARTER ENDED
     Highest                      7.1%         December 31, 2001
     Lowest                      -5.1%        September 30, 2001
     ---------------------------------------------------------------


     ---------------------------------------------------------------
     AVERAGE ANNUAL TOTAL RETURNS
     (THROUGH DECEMBER 31, 2001)
     ---------------------------------------------------------------
                                 PAST       PAST       LIFE OF SERIES
                                1 YEAR    5 YEARS   (SINCE 8/5/96)
     Series P                    4.4%       4.6%         5.4%
     Lehman Brothers
     High Yield Index           -5.3%       3.1%         4.2%*
     ---------------------------------------------------------------
     *Index  performance  is only  available  to the  Series  at the
      beginning of each month.  The Lehman Brothers High Yield Index
      is for the period August 1, 1996 to December 31, 2001.
     ---------------------------------------------------------------


================================================================================
SERIES Q (SMALL CAP VALUE SERIES)
================================================================================

            [BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]

                                   2001
                                   ----
                                   22.2%

     ---------------------------------------------------------------
     HIGHEST AND LOWEST RETURNS
     (QUARTERLY 2001)
     ---------------------------------------------------------------
                                                 QUARTER ENDED
     Highest                     17.5%         December 31, 2001
     Lowest                     -17.4%        September 30, 2001
     ---------------------------------------------------------------

     ---------------------------------------------------------------
     AVERAGE ANNUAL TOTAL RETURNS
     (THROUGH DECEMBER 31, 2001)
     ---------------------------------------------------------------
                                    PAST 1 YEAR    LIFE OF SERIES
                                                   (SINCE 5/1/00)
     Series Q                          22.2%           17.6%
     Russell 2000                       2.5%           -0.8%
     Russell 2000 Value                14.02%          19.25%
     ---------------------------------------------------------------

================================================================================
SERIES S (SOCIAL AWARENESS SERIES)
================================================================================

            [BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]

1992    1993    1994    1995    1996    1997    1998    1999     2000     2001
----    ----    ----    ----    ----    ----    ----    ----     ----     ----
16.4%   11.9%   -3.7%   27.7%   18.8%   22.7%   31.4%   17.2%   -12.9%   -13.1%

     ---------------------------------------------------------------
     HIGHEST AND LOWEST RETURNS
     (QUARTERLY 1992-2001)
     ---------------------------------------------------------------
                                                QUARTER ENDED
     Highest                    24.8%          December 31, 1998
     Lowest                    -16.5%         September 30, 2001
     ---------------------------------------------------------------

     ---------------------------------------------------------------
     AVERAGE ANNUAL TOTAL RETURNS
     (THROUGH DECEMBER 31, 2001)
     ---------------------------------------------------------------
                                       PAST      PAST       PAST
                                      1 YEAR    5 YEARS   10 YEARS
     Series S                        -13.1%       7.4%     10.5%
     Domini Social Index 400         -12.1%      11.8%     13.8%
     ---------------------------------------------------------------

================================================================================
SERIES T (TECHNOLOGY SERIES)
================================================================================

            [BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]

                                   2001
                                   ----
                                  -24.1%

     ---------------------------------------------------------------
     HIGHEST AND LOWEST RETURNS
     (QUARTERLY 2001)
     ---------------------------------------------------------------
                                                 QUARTER ENDED
     Highest                     40.5%         December 31, 2001
     Lowest                     -38.9%        September 30, 2001
     ---------------------------------------------------------------

     ---------------------------------------------------------------
     AVERAGE ANNUAL TOTAL RETURNS
     (THROUGH DECEMBER 31, 2001)
     ---------------------------------------------------------------
                                          PAST     LIFE OF SERIES
                                         1 YEAR    (SINCE 5/1/00)
     Series T                            -24.1%        -36.8%
     Goldman Sachs Technology            -28.6%        -39.8%
     ---------------------------------------------------------------

================================================================================
SERIES V (MID CAP VALUE SERIES)
================================================================================

            [BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]

                     1998    1999     2000     2001
                     ----    ----     ----     ----
                     16.6%   18.9%    33.8%    11.1%

     ---------------------------------------------------------------
     HIGHEST AND LOWEST RETURNS
     (QUARTERLY 1998-2001)
     ---------------------------------------------------------------
                                                 QUARTER ENDED
     Highest                     21.9%           June 30, 1999
     Lowest                     -19.4%        September 30, 2001
     ---------------------------------------------------------------

     ---------------------------------------------------------------
     AVERAGE ANNUAL TOTAL RETURNS
     (THROUGH DECEMBER 31, 2001)
     ---------------------------------------------------------------
                                     PAST 1 YEAR    LIFE OF SERIES
                                                    (SINCE 5/1/97)
     Series V                           11.1%           23.8%
     S&P Mid Cap Value                   7.1%           15.1%
     ---------------------------------------------------------------

================================================================================
SERIES W (MAIN STREET GROWTH AND INCOME® SERIES)
================================================================================

            [BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]

                                 2001
                                 ----
                                -10.0%

     ---------------------------------------------------------------
     HIGHEST AND LOWEST RETURNS
     (QUARTERLY 2001)
     ---------------------------------------------------------------
                                                 QUARTER ENDED
     Highest                      7.4%         December 31, 2001
     Lowest                     -11.2%        September 30, 2001
     ---------------------------------------------------------------

     ---------------------------------------------------------------
     AVERAGE ANNUAL TOTAL RETURNS
     (THROUGH DECEMBER 31, 2001)
     ---------------------------------------------------------------
                                     PAST 1 YEAR    LIFE OF SERIES
                                                    (SINCE 5/1/00)
     Series W                          -10.0%          -11.7%
     S&P 500                           -11.9%          -12.1%
     ---------------------------------------------------------------

================================================================================
SERIES X (SMALL CAP GROWTH SERIES)
================================================================================

            [BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]

                     1998    1999     2000     2001
                     ----    ----     ----     ----
                     11.5%   87.2%    -8.7%   -27.9%

     ---------------------------------------------------------------
     HIGHEST AND LOWEST RETURNS
     (QUARTERLY 1998-2001)
     ---------------------------------------------------------------
                                                 QUARTER ENDED
     Highest                     51.3%         December 31, 1999
     Lowest                     -26.8%          March 31, 2001
     ---------------------------------------------------------------

     ---------------------------------------------------------------
     AVERAGE ANNUAL TOTAL RETURNS
     (THROUGH DECEMBER 31, 2001)
     ---------------------------------------------------------------
                                   PAST 1 YEAR     LIFE OF SERIES
                                                  (SINCE 10/15/97)
     Series X                       -27.9%              6.8%
     Russell 2000™ Index              2.5%              3.0%*
     Russell 2000™ Growth Index      -9.2%             -1.5%*
     ---------------------------------------------------------------
     *Index  performance  is only  available  to the  Series  at the
      beginning  of each  month.  The  Russell  2000™  Index and the
      Russell 2000 Growth  Index are each for the period  October 1,
      1997 to December 31, 2001.
     ---------------------------------------------------------------

================================================================================
SERIES Y (SELECT 25 SERIES)
================================================================================

            [BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]

                              2000     2001
                              ----     ----
                             -16.1%    -9.9%

     ---------------------------------------------------------------
     HIGHEST AND LOWEST RETURNS
     (QUARTERLY 2000-2001)
     ---------------------------------------------------------------
                                                 QUARTER ENDED
     Highest                     21.6%         December 31, 2001
     Lowest                     -19.1%        September 31, 2001
     ---------------------------------------------------------------

     ---------------------------------------------------------------
     AVERAGE ANNUAL TOTAL RETURNS
     (THROUGH DECEMBER 31, 2001)
     ---------------------------------------------------------------
                                   PAST 1 YEAR     LIFE OF SERIES
                                                  (SINCE 4/30/99)
     Series Y                         -9.9%           -1.7%
     S&P 500                         -11.9%           -4.3%
     ---------------------------------------------------------------


INVESTMENT MANAGER

Security Management  Company,  LLC, One Security Benefit Place,  Topeka,  Kansas
66636, is the Series'  Investment  Manager.  On December 31, 2001, the aggregate
assets  of all of the  mutual  funds  under  the  investment  management  of the
Investment Manager were approximately $7.9 billion.

The Investment Manager has engaged The Dreyfus Corporation, 200 Park Avenue, New
York,  New York  10166,  to provide  investment  advisory  services to Series B,
effective January 2, 2001. Founded in 1947, The Dreyfus Corporation manages more
than $193 billion in over 197 mutual fund portfolios.

The Investment Manager has engaged  OppenheimerFunds,  Inc., 498 Seventh Avenue,
New York, New York 10018, to provide  investment  advisory  services to Series D
and Series W.  OppenheimerFunds,  Inc., (including  subsidiaries and affiliates)
managed more than $130 billion in assets as of March 31, 2002,  including  other
mutual funds with more than 6.3 million shareholder accounts.


The Investment  Manager has engaged Deutsche Asset  Management,  Inc.  (formerly
Morgan Grenfell,  Inc.),  280 Park Avenue,  New York, New York 10017, to provide
investment  advisory services to Series H. Deutsche Asset  Management,  Inc. was
founded in 1838 as Morgan  Grenfell,  Inc.  and has  provided  asset  management
services since 1953. As of December 31, 2001,  Deutsche Asset  Management,  Inc.
had  approximately  $96 billion under  management.  Deutsche  Asset  Management,
Inc.'s  ultimate parent is Deutsche Bank AG. Its address is 31 West 52nd Street,
New York, New York, 10009.

The Investment Manager has engaged Templeton  Investment Counsel,  LLC, 500 East
Broward Boulevard, Ft. Lauderdale, Florida 33394, to provide investment advisory
services to Series I. Templeton, together with its affiliates, manages over $274
billion in assets.

The Investment Manager has engaged Strong Capital Management, Inc., 100 Heritage
Reserve,  Menomonee  Falls,  Wisconsin  53051,  to provide  investment  advisory
services to Series Q.  Strong was  established  in 1974 and as of  December  31,
2001, managed over $46 billion in assets.

The Investment  Manager has engaged RS Investment  Management,  L.P., 388 Market
Street, San Francisco, California 94111, to provide investment advisory services
to Series X. RS  Investments  was  established  in 1993 and as of June 30, 2002,
managed over $5.1 billion in assets.

The Investment Manager has engaged Wellington  Management Company, LLP, 75 State
Street, Boston, Massachusetts,  02109 to provide investment advisory services to
Series T.


Wellington  Management  is a limited  liability  partnership  which  traces  its
origins to 1928.  It currently  manages over $311 billion in assets on behalf of
investment companies, employee benefit plans, endowments,  foundations and other
institutions.

The  Investment  Manager has engaged T. Rowe Price  Associates,  Inc.,  100 East
Pratt Street, Baltimore,  Maryland 21202 to provide investment advisory services
to Series N and  Series O. T. Rowe  Price  Associates,  Inc.  is a  wholly-owned
subsidiary of T. Rowe Price Group,  Inc.,  which was formed in 2000 as a holding
company for the T. Rowe Price affiliated companies. T. Rowe Price was founded in
1937.  As of  December  31,  2001,  T.  Rowe  Price and its  affiliates  managed
approximately   $156.3  billion  in  investments  for  approximately  8  million
individual and institutional accounts.


The  Investment  Manager and the Series have  received from the  Securities  and
Exchange Commission an exemptive order for a multi-manager structure that allows
the Investment  Manager to hire, replace or terminate  sub-advisors  without the
approval of shareholders. The order also allows the Investment Manager to revise
a  sub-advisory  agreement  with the  approval  of Fund  Directors,  but without
shareholder approval.  If a new sub-advisor is hired,  shareholders will receive
information  about the new sub-advisor  within 90 days of the change.  The order
allows the Series to operate more efficiently and with greater flexibility.  The
Investment Manager provides the following  oversight and evaluation  services to
the Series which use a sub-advisor:

o  performing initial due diligence on prospective sub-advisors for the Series
o  monitoring the performance of the sub-advisors
o  communicating performance expectations to the sub-advisors
o  ultimately  recommending  to the Board of Directors  whether a  sub-advisor's
   contract should be renewed, modified or terminated.

The  Investment  Manager  does not  expect  to  recommend  frequent  changes  of
sub-advisors.  Although the Investment  Manager will monitor the  performance of
the  sub-advisors,  there is no certainty  that any  sub-advisor  or Series will
obtain favorable results at any given time.

MANAGEMENT FEES -- The following chart shows the investment management fees paid
by each Series during the last fiscal year, except as otherwise indicated.


               =================================================
               MANAGEMENT FEES
               (expressed as a percentage of average net assets)
               -------------------------------------------------
               Series A....   0.75%         Series O....   1.00%
               Series B....   0.75%         Series P....   0.75%
               Series C....   0.50%         Series Q....   1.00%
               Series D....   1.00%         Series S....   0.75%
               Series E....   0.75%         Series T....   1.00%
               Series G....   1.00%         Series V....   0.75%
               Series H....   0.75%         Series W....   1.00%
               Series I....   1.10%         Series X....   1.00%
               Series J....   0.75%         Series Y....   0.75%
               Series N....   1.00%
               =================================================


The Investment Manager may waive its management fee to limit the total operating
expenses of a Series to a  specified  level.  The  Investment  Manager  also may
reimburse expenses of the Series from time to time to help maintain  competitive
expense ratios.  These  arrangements  are voluntary and may be terminated at any
time.


PORTFOLIO MANAGERS -- CHARLES ALBERS, Senior Vice President at OppenheimerFunds,
has  co-managed  Series W (Main  Street  Growth and  Income®  Series)  since its
inception in May of 2000. Prior to joining Oppenheimer Funds in 1998, Mr. Albers
was with the  investment  management  subsidiary of The Guardian Life  Insurance
Company.  Mr.  Albers holds a bachelor of arts from Kenyon  College and a M.B.A.
degree  from  Columbia   University.   He  is  a  Chartered   Financial  Analyst
charterholder.


DEAN S. BARR,  President and Head of Global  Quantitative Index Strategies,  has
been  co-manager  of Series H (Enhanced  Index  Series)  since he joined DAMI in
September 1999. Prior to joining DAMI, he was Chief Investment Officer of Active
Quantitative  Strategies  at State Street Global  Advisors.  He has a bachelor's
degree from Cornell  University  and a MBA in finance  from New York  University
Graduate School of Business.

STEVEN M. BOWSER,  Vice President and Senior Portfolio Manager of the Investment
Manager, has managed Series E (Diversified Income Series) since June 1997. Prior
to joining the  Investment  Manager in 1992, he was Assistant Vice President and
Portfolio  Manager with  Federal Home Loan Bank of Topeka from 1989 to 1992.  He
was  employed at the Federal  Reserve  Bank of Kansas City in 1988 and began his
career  with  the Farm  Credit  System  from  1982 to 1987,  serving  as  Senior
Financial  Analyst and  Assistant  Controller.  He graduated  with a bachelor of
science degree from Kansas State University in 1982. He is a Chartered Financial
Analyst charterholder.


ANTONIO  T.  DOCAL,   Vice   President  at  Templeton   has  managed   Series  I
(International Series) since September 2002. Prior to joining Templeton in 2001,
Mr. Docal was vice president and director at Evergreen  Funds. Mr. Docal holds a
M.B.A. degree from the Sloan School of Management at the Massachusetts Institute
of Technology and a B.A. degree from Trinity  College in Connecticut.  Mr. Docal
is also a Chartered Financial Analyst charterholder.

MANISH  KESHIVE,  Vice  President  of DAMI,  has  been  co-manager  of  Series H
(Enhanced Index Series) since  September 1999. He joined DAMI in 1996.  Prior to
joining DAMI,  he was a student  earning a B.S.  degree in  Technology  from the
Indian Institute of Technology in 1993 and a M.S. degree from the  Massachusetts
Institute of Technology in 1995.


ERIC T. LOBBEN,  Vice  President and Head Portfolio  Manager of Enhanced  Equity
Index and Quantitative Active Equity Strategies, has been co-manager of Series H
(Enhanced  Index Series) since May of 2001.  Mr. Lobben joined DAMI in 1981 as a
researcher on various asset allocation  topics and equity alpha  strategies.  He
has a BSE from Princeton University and a MBA from New York University.


TERRY A. MILBERGER,  Senior Vice President and Senior  Portfolio  Manager of the
Investment Manager, has managed Series A (Equity Series) since 1989. He has been
the manager of Series Y (Select 25 Series) since its inception in May 1999.  Mr.
Milberger has more than 25 years of investment  experience.  He began his career
as an investment analyst in the insurance industry and from 1974 through 1978 he
served as an assistant portfolio manager for the Investment Manager. He was then
employed as Vice  President of Texas  Commerce Bank and managed its pension fund
assets until he returned to the Investment  Manager in 1981. Mr. Milberger holds
a bachelor's  degree in business and a M.B.A.  from the University of Kansas and
is a Chartered Financial Analyst charterholder.


MARK MITCHELL,  Vice President and Portfolio Manager of the Investment  Manager,
has managed  Series G (Large Cap Growth  Series) and Series S (Social  Awareness
Series) since September 2002. He joined the Investment Manager in 2002. Prior to
joining the Investment Manager, Mr. Mitchell worked for GE Asset Management as a
technology  sector portfolio  manager.  Mr. Mitchell holds a bachelor of science
from the University of Nebraska,  with an emphasis in finance. He is a Chartered
Financial Analyst charterholder.


NIKOLAOS D. MONOYIOS, Vice President at OppenheimerFunds,  has co-managed Series
W (Main Street  Growth and Income®  Series)  since its inception in May of 2000.
Prior to joining  OppenheimerFunds in 1998, Mr. Monoyios was with the investment
management subsidiary of The Guardian Life Insurance Company. Mr. Monoyios holds
a bachelor of arts in economics  from Princeton  University and a M.B.A.  degree
from Columbia University. He is a Chartered Financial Analyst charterholder.


EDMUND  M.  NOTZON,  Managing  Director  of T.  Rowe  Price  Group  and a Senior
Portfolio  Manager in the firm's Taxable Bond  Department,  has managed Series N
(Managed Asset Allocation Series) since its inception in 1995. He joined T. Rowe
Price in 1989 and has been managing  investments since 1991. Prior to joining T.
Rowe Price,  Mr. Notzon was Director of the Analysis and Evaluation  Division at
the U.S. Environmental Protection Agency.


CHRISTOPHER L. PHALEN,  Assistant  Vice  President and Portfolio  Manager of the
Investment  Manager,  has co-managed Series E (Diversified  Income Series) since
May 2000.  Prior to joining the  Investment  Manager in 1997, he was with Sprint
PCS as a pricing  analyst.  Prior to joining  Sprint PCS in 1997, Mr. Phalen was
employed by Security  Benefit Group. Mr. Phalen graduated from the University of
Kansas with a bachelor of business  administration  and accounting  degree.  Mr.
Phalen is a Chartered  Financial Analyst  charterholder  with 5 years investment
experience.

I. CHARLES RINALDI,  portfolio manager at Strong, has been the manager of Series
Q (Small Cap Value  Series)  since its  inception in May of 2000. He has over 25
years of  investment  experience.  He joined Strong in December  1997.  Prior to
joining Strong, Mr. Rinaldi was employed by Mutual of America Capital Management
Corporation  (MOA) as a Vice President from November 1989 to January 1994 and as
a Senior Vice President from January 1994 to November 1997. Mr. Rinaldi received
his bachelors in Science from St.  Michael's  College in 1965 and his Masters of
Business Administration in Finance from Babson College in 1970.

BRIAN C.  ROGERS,  Director and  Managing  Director of T. Rowe Price Group,  and
Portfolio Manager for T. Rowe Price, has managed Series O (Equity Income Series)
since its  inception  in 1995.  He  joined  T.  Rowe  Price in 1982 and has been
managing investments since 1983.


JAMES P. SCHIER,  Vice President and Senior Portfolio  Manager of the Investment
Manager,  has managed  Series J (Mid Cap Growth  Series)  since January 1998 and
Series V (Mid Cap Value  Series)  since its  inception in 1997.  He has 19 years
experience  in  the  investment  field  and  is a  Chartered  Financial  Analyst
charterholder.  While  employed by the Investment  Manager,  he also served as a
research  analyst.  Prior to joining the  Investment  Manager in 1995,  he was a
portfolio  manager for Mitchell Capital  Management from 1993 to 1995. From 1988
to 1995 he served as Vice President and Portfolio  Manager for Fourth Financial.
Prior to 1988, Mr. Schier served in various  positions in the  investment  field
for Stifel  Financial,  Josepthal & Company and Mercantile  Trust  Company.  Mr.
Schier  earned a bachelor of business  degree from the  University of Notre Dame
and a M.B.A. from Washington University.

VALERIE  J. SILL was named the  portfolio  manager  of Series B (Large Cap Value
Series) in July 2001.  Ms.  Sill has been a portfolio  manager of Dreyfus  since
1996.  She  is  also  a  senior  vice  president  of The  Boston  Company  Asset
Management,  Inc. (TBCAM), an affiliate of Dreyfus and is the chairperson of the
equity  policy  group of TBCAM.  She  previously  served as  director  of equity
research and as an equity research  analyst for TBCAM. Ms. Sill is a graduate of
Wellesley College and received her M.B.A. from Harvard Business School. She is a
Chartered Financial Analyst charterholder.


DAVID G.  TOUSSAINT,  Assistant  Vice  President  and  Portfolio  Manager of the
Investment  Manager,  has managed Series P (High Yield Series) since April 2000.
Mr. Toussaint has 11 years of investment experience and is a Chartered Financial
Analyst charterholder. In addition, Mr. Toussaint holds a CPA certificate. Prior
to joining  the  Investment  Manager  in 2000,  he was with  Allstate  Insurance
Company as an investment analyst and served in various  managerial  positions in
their  investment  operations  group.  Mr.  Toussaint  earned a bachelor of arts
degree in Economics from the University of Illinois,  a master of science degree
in  Accountancy  from DePaul  University  and a M.B.A.  from the  University  of
Chicago.

WELLINGTON  MANAGEMENT  COMPANY'S  GLOBAL  TECHNOLOGY  TEAM has managed Series T
(Technology  Series) since its inception in May of 2000.  The Global  Technology
Team is  comprised of a group of global  industry  analysts who focus on various
sub-sectors of the Technology industry.  The Global Technology Team is supported
by a significant number of specialized  fundamental,  quantitative and technical
analysts; macro-economic analysts and traders.

WILLIAM L. WILBY,  Senior Vice President and Director of International  Equities
of  OppenheimerFunds,  became  manager of Series D (Global  Series) in  November
1998. Prior to joining  Oppenheimer in 1991, he was an international  investment
strategist at Brown Brothers  Harriman & Co. Prior to Brown Brothers,  Mr. Wilby
was a managing director and portfolio manager at AIG Global Investors. He joined
AIG from Northern Trust Bank in Chicago,  where he was an international  pension
manager.  Before starting his career in portfolio  management,  Mr. Wilby was an
international  financial  economist  at  Northern  Trust Bank and at the Federal
Reserve Bank in Chicago.  Mr. Wilby is a graduate of the United States  Military
Academy and holds a M.A. and a Ph.D. in  International  Monetary  Economics from
the University of Colorado. He is a Chartered Financial Analyst charterholder.


WILLIAM J.  WOLFENDEN III has managed  Series X (Small Cap Growth  Series) since
September 2002 and has been with RS Investments since April 2001. Prior to that,
Mr.  Wolfenden had been at Dresdner RCM Global  Investors since 1994. He holds a
B.A. from Southern Methodist University and a M.B.A. from Vanderbilt University.


MARK ZAVANELLI, Associate Portfolio Manager at OppenheimerFunds,  has co-managed
Series W (Main Street  Growth and Income®  Series) since its inception in May of
2000. Prior to joining  OppenheimerFunds in 1998, Mr. Zavanelli was President of
Waterside Capital Management, a registered investment advisor (from August 1995)
and a financial  research  analyst  for Elder  Research  (from June  1997).  Mr.
Zavanelli  holds a bachelor of science from the Wharton  School,  University  of
Pennsylvania. He is a Chartered Financial Analyst charterholder.

PURCHASE AND REDEMPTION OF SHARES

Security Benefit Life Insurance  Company  purchases shares of the Series for its
variable annuity and variable life insurance separate accounts. Security Benefit
buys and sells  shares of the Series at the net asset value per share (NAV) next
determined after it submits the order to buy or sell. A Series' NAV is generally
calculated  as of the close of trading on every day the New York Stock  Exchange
is open.

The Fund may suspend the right of  redemption  during any period when trading on
the New York Stock  Exchange is  restricted or such Exchange is closed for other
than weekends or holidays, or any emergency is deemed to exist by the Securities
and Exchange Commission.

BROKERAGE ENHANCEMENT PLAN

The Fund has adopted,  in accordance with the provisions of Rule 12b-1 under the
Investment Company Act of 1940, a Brokerage  Enhancement Plan (the "Plan").  The
Plan uses available  brokerage  commissions to promote the sale and distribution
of Fund shares  (through the sale of variable  insurance  products funded by the
Fund).

Under the Plan, the Fund may direct the  Investment  Manager or a sub-advisor to
use certain broker-dealers for securities transactions.  (The duty of best price
and execution  still applies to these  transactions.)  These are  broker-dealers
that have agreed either (1) to pay a portion of their  commission  from the sale
and purchase of  securities  to the  Distributor  or other  introducing  brokers
("Brokerage  Payments"),  or (2)  to  provide  brokerage  credits,  benefits  or
services ("Brokerage Credits").  The Distributor will use all Brokerage Payments
and Credits (other than a minimal amount to defray its legal and  administrative
costs) to finance  activities that are meant to result in the sale of the Fund's
shares, including:

o  holding or participating in seminars and sales meetings promoting the sale of
   the Fund's shares
o  paying marketing fees requested by broker-dealers who sell the Fund
o  training sales personnel
o  creating and mailing advertising and sales literature
o  financing  any other  activity  that is intended to result in the sale of the
   Fund's shares.

The Plan  permits the  Brokerage  Payments and Credits  generated by  securities
transactions from one Series of the Fund to inure to the benefit of other Series
as well.  The Plan is not expected to increase the brokerage  costs of the Fund.
For more information  about the Plan,  please read the "Portfolio  Transactions"
section of the Statement of Additional Information.

DISTRIBUTIONS AND FEDERAL INCOME TAX CONSIDERATIONS

Each Series pays its  shareholders  dividends  from net investment  income,  and
distributes any net capital gains that it has realized, at least annually.  Such
dividends and  distributions  will be  reinvested  in  additional  shares of the
Series.

You may purchase shares of the Series only indirectly  through the purchase of a
variable annuity or variable life insurance  contract issued by Security Benefit
Life Insurance  Company.  The  prospectus for such variable  annuity or variable
life insurance  contract describes the federal tax consequences of your purchase
or sale of the contract.

DETERMINATION OF NET ASSET VALUE

The net asset  value per share  (NAV) of each Series is computed as of the close
of regular trading hours on the New York Stock Exchange (normally 3 p.m. Central
time) on days when the  Exchange is open.  The  Exchange is open Monday  through
Friday, except on observation of the following holidays:  New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday,  Memorial Day,  Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.

Each Series' NAV is generally  based upon the market value of securities held in
the Series'  portfolio.  If market prices are not  available,  the fair value of
securities  is  determined  using  procedures  approved by each Fund's  Board of
Directors.

Foreign  securities  are valued based on quotations  from the primary  market in
which they are  traded,  and are  converted  from the local  currency  into U.S.
dollars using current  exchange  rates.  Foreign  securities  may trade in their
primary  markets on  weekends  or other days when the Series  does not price its
shares.  Therefore,  the NAV of Series holding foreign  securities may change on
days when shareholders will not be able to buy or sell shares of the Series.

GENERAL INFORMATION


CONTRACTOWNER INQUIRIES -- If you have questions concerning your account or wish
to  obtain  additional  information,  you may write to SBL  Fund,  One  Security
Benefit  Place,   Topeka,   Kansas   66636-0001,   or  call  (785)  438-3000  or
1-800-888-2461.


INVESTMENT POLICIES AND MANAGEMENT PRACTICES

This section takes a detailed look at some of the types of securities the Series
may hold in their portfolios and the various kinds of management  practices that
may be  used in the  portfolios.  The  Series'  holdings  of  certain  types  of
investments cannot exceed a maximum  percentage of net assets.  These percentage
limitations are set forth in the Statement of Additional Information.  While the
percentage  limitations  provide  a  useful  level  of  detail  about a  Series'
investment  program,  they  should  not be  viewed as an  accurate  gauge of the
potential  risk  of  the  investment.  For  example,  in a  given  period,  a 5%
investment in futures  contracts could have a significantly  greater impact on a
Series'  share price than its  weighting in the  portfolio.  The net effect of a
particular  investment  depends on its  volatility  and the size of its  overall
return in relation to the  performance  of all the  Series'  other  investments.
Portfolio Managers have considerable  leeway in choosing  investment  strategies
and selecting  securities they believe will help a Series achieve its objective.
In seeking to meet its investment objective,  a Series may invest in any type of
security or instrument whose investment  characteristics are consistent with the
Series' investment program.

The Series are subject to certain investment policy  limitations  referred to as
"fundamental  policies."  The  fundamental  policies can not be changed  without
shareholder  approval.  Please refer to the Statement of Additional  Information
for a  complete  list  of the  fundamental  policies  applicable  to each of the
Series. Some of the more important  fundamental policies are outlined below. The
Series will not:


o  with respect to 75% of its total assets,  invest more than 5% of the value of
   its  assets  in  any  one  issuer  other  than  the  U.S.  Government  or its
   instrumentalities  (this  limitation does not apply to Series G, Series T, or
   Series Y)

o  with  respect  to 75% of its  total  assets,  purchase  more  than 10% of the
   outstanding  voting  securities  of  any  one  issuer  other  than  the  U.S.
   Government or its instrumentalities (this limitation does not apply to Series
   G, Series T, or Series Y)


o  invest 25% or more of its total assets in any one industry  (this  limitation
   does not apply to Series G or Series T).

The full text of each Series' fundamental policies are included in the Statement
of Additional Information.

The following  pages describe some of the  investments  which may be made by the
Series, as well as some of their management practices.

CONVERTIBLE  SECURITIES  AND  WARRANTS  -- Each  Series  other than Series C may
invest in debt or preferred equity securities  convertible into, or exchangeable
for,  equity  securities.   Traditionally,   convertible  securities  have  paid
dividends  or  interest  at rates  higher  than  common  stocks  but lower  than
nonconvertible  securities.  They generally  participate in the  appreciation or
depreciation of the underlying stock into which they are  convertible,  but to a
lesser degree. In recent years, convertible securities have been developed which
combine higher or lower current income with options and other features. Warrants
are  options  to buy a stated  number of shares of common  stock at a  specified
price anytime during the life of the warrants (generally, two or more years).

FOREIGN  SECURITIES  --  Foreign  investments  involve  certain  special  risks,
including,  but not limited  to, (i)  unfavorable  changes in currency  exchange
rates;  (ii) adverse  political and economic  developments;  (iii) unreliable or
untimely information; (iv) limited legal recourse; (v) limited markets; and (vi)
higher operational expenses.

Foreign investments are normally issued and traded in foreign  currencies.  As a
result,  their values may be affected by changes in the exchange  rates  between
particular  foreign currencies and the U.S. dollar.  Foreign  investments may be
subject  to  the  risks  of  seizure  by a  foreign  government,  imposition  of
restrictions  on  the  exchange  or  transport  of  foreign  currency,  and  tax
increases. There may also be less information publicly available about a foreign
company than about most U.S.  companies,  and foreign  companies are usually not
subject to accounting,  auditing and financial reporting standards and practices
comparable to those in the United  States.  The legal  remedies for investors in
foreign  investments  may be more  limited  than those  available  in the United
States.  Certain foreign investments may be less liquid (harder to buy and sell)
and more volatile than domestic  investments,  which means a Series may at times
be unable to sell its foreign  investments  at  desirable  prices.  For the same
reason,  a  Series  may  at  times  find  it  difficult  to  value  its  foreign
investments.  Brokerage  commissions  and other  fees are  generally  higher for
foreign investments than for domestic investments.  The procedures and rules for
settling foreign  transactions  may also involve delays in payment,  delivery or
recovery  of money or  investments.  Foreign  withholding  taxes may  reduce the
amount of income  available to distribute to  shareholders  of the Series.  Each
Series other than Series C may invest in foreign securities.


EMERGING MARKETS -- The risks associated with foreign  investments are typically
increased  in less  developed  and  developing  countries,  which are  sometimes
referred to as emerging markets. For example,  political and economic structures
in  these  countries  may be young  and  developing  rapidly,  which  can  cause
instability.  These  countries are also more likely to experience high levels of
inflation,  deflation or currency devaluation,  which could hurt their economies
and securities  markets.  For these and other  reasons,  investments in emerging
markets  are  often  considered  speculative.  Series D, I, N, P, Q, T and X may
invest in emerging market foreign securities.


SMALLER  COMPANIES  -- Small- or  medium-sized  companies  are more  likely than
larger companies to have limited product lines,  markets or financial resources,
or to  depend  on a  small,  inexperienced  management  group.  Stocks  of these
companies may trade less frequently and in limited volume,  and their prices may
fluctuate  more than stocks of other  companies.  Stocks of these  companies may
therefore  be more  vulnerable  to  adverse  developments  than  those of larger
companies.  Each of the Series that invests in equity  securities  may invest in
small or medium sized companies.


ASSET-BACKED  SECURITIES  -- An underlying  pool of assets,  such as credit card
receivables,  automobile loans, or corporate loans or bonds back these bonds and
provides the interest and principal payments to investors. On occasion, the pool
of assets may also include a swap  obligation,  which is used to change the cash
flows  on the  underlying  assets.  As an  example,  a swap may be used to allow
floating rate assets to back a fixed rate  obligation.  Credit  quality  depends
primarily on the quality of the underlying  assets, the level of credit support,
if any, provided by the issuer, and the credit quality of the swap counterparty,
if any. The underlying assets (i.e. loans) are subject to prepayments, which can
shorten the securities'  weighted  average life and may lower their return.  The
value of these securities also may change because of actual or perceived changes
in the  creditworthiness  of the originator,  the servicing agent, the financial
institution  providing credit support,  or swap counterparty.  Series E, N and P
may invest in asset-backed securities.

MORTGAGE-BACKED  SECURITIES  --  Series E, N and P may  invest  in a variety  of
mortgage-backed securities. Mortgage lenders pool individual home mortgages with
similar  characteristics  to  back a  certificate  or  bond,  which  is  sold to
investors such as the Series.  Interest and principal  payments generated by the
underlying  mortgages  are passed  through to the  investors.  The three largest
issuers of these  securities are the Government  National  Mortgage  Association
(GNMA), the Federal National Mortgage  Association  (Fannie Mae) and the Federal
Home Loan Mortgage  Corporation  (Freddie Mac). GNMA  certificates are backed by
the full faith and credit of the U.S.  Government,  while others, such as Fannie
Mae and Freddie Mac  certificates,  are only  supported by the ability to borrow
from the U.S.  Treasury or supported  only by the credit of the agency.  Private
mortgage bankers and other institutions also issue  mortgage-backed  securities.
Mortgage-backed  securities are subject to scheduled and  unscheduled  principal
payments as homeowners pay down or prepay their mortgages. As these payments are
received,  they must be reinvested  when  interest  rates may be higher or lower
than on the original mortgage security.  Therefore,  these securities are not an
effective  means of locking in  long-term  interest  rates.  In  addition,  when
interest rates fall, the pace of mortgage prepayments picks up. These refinanced
mortgages are paid off at face value (par),  causing a loss for any investor who
may have  purchased  the security at a price above par. In such an  environment,
this risk limits the potential price  appreciation  of these  securities and can
negatively  affect a Series' net asset  value.  When rates  rise,  the prices of
mortgage-backed  securities  can be expected to decline,  although  historically
these securities have experienced smaller price declines than comparable quality
bonds. In addition, when rates rise and prepayments slow, the effective duration
of mortgage-backed securities extends, resulting in increased volatility.


Additional  mortgage-backed  securities in which these Series may invest include
COLLATERALIZED  MORTGAGE  OBLIGATIONS  (CMOs) and stripped mortgage  securities.
CMOs are debt  securities  that  are  fully  collateralized  by a  portfolio  of
mortgages or  mortgage-backed  securities.  All interest and principal  payments
from the underlying mortgages are passed through to the CMOs in such a way as to
create,  in most  cases,  more  definite  maturities  than is the case  with the
underlying  mortgages.  CMOs may pay fixed or variable  rates of  interest,  and
certain  CMOs  have  priority  over  others  with  respect  to  the  receipt  of
prepayments.  Stripped  mortgage  securities  (a type of  potentially  high-risk
derivative)  are created by  separating  the  interest  and  principal  payments
generated by a pool of mortgage-backed  securities or a CMO to create additional
classes of  securities.  Generally,  one class  receives only interest  payments
(IOs)  and  another  receives  principal  payments  (POs).   Unlike  with  other
mortgage-backed  securities  and POs, the value of IOs tends to move in the same
direction as interest  rates.  The Series can use IOs as a hedge against falling
prepayment  rates (interest rates are rising) and/or a bear market  environment.
POs can be used as a hedge against rising  prepayment  rates (interest rates are
falling) and/or a bull market environment.  IOs and POs are acutely sensitive to
interest  rate  changes  and to the rate of  principal  prepayments.  A rapid or
unexpected  increase in prepayments can severely depress the price of IOs, while
a rapid or unexpected decrease in prepayments could have the same effect on POs.
These  securities  are very volatile in price and may have lower  liquidity than
most  other  mortgage-backed  securities.  Certain  non-stripped  CMOs  may also
exhibit these  qualities,  especially  those that pay variable rates of interest
that adjust inversely with, and more rapidly than, short-term interest rates. In
addition,  if interest  rates rise rapidly and  prepayment  rates slow more than
expected, certain CMOs, in addition to losing value, can exhibit characteristics
of  longer-term  securities  and become more  volatile.  There is no guarantee a
Series' investment in CMOs, IOs, or POs will be successful,  and a Series' total
return could be adversely affected as a result.

RESTRICTED  SECURITIES  --  Restricted  securities  cannot be sold to the public
without  registration  under the  Securities  Act of 1933 ("1933  Act").  Unless
registered  for  sale,  restricted  securities  can be sold  only  in  privately
negotiated   transactions  or  pursuant  to  an  exemption  from   registration.
Restricted securities are generally considered illiquid and, therefore,  subject
to the Fund's limitation on illiquid securities.

Restricted securities (including Rule 144A Securities) may involve a high degree
of business  and  financial  risk which may result in  substantial  losses.  The
securities may be less liquid than publicly  traded  securities.  Although these
securities  may be resold  in  privately  negotiated  transactions,  the  prices
realized  from  these  sales  could be less than  those  originally  paid by the
Series.  In  particular,  Rule 144A  Securities  may be resold only to qualified
institutional  buyers in accordance  with Rule 144A under the  Securities Act of
1933.  Rule 144A  permits  the  resale to  "qualified  institutional  buyers" of
"restricted  securities"  that,  when  issued,  were  not of the  same  class as
securities  listed on a U.S.  securities  exchange  or  quoted  in the  National
Association of Securities  Dealers  Automated  Quotation  System (the "Rule 144A
Securities").  A  "qualified  institutional  buyer"  is  defined  by  Rule  144A
generally as an  institution,  acting for its own account or for the accounts of
other qualified  institutional buyers, that in the aggregate owns and invests on
a  discretionary  basis at least $100  million  in  securities  of  issuers  not
affiliated  with the  institution.  A dealer  registered  under  the  Securities
Exchange  Act of 1934 (the  "Exchange  Act"),  acting for its own account or the
accounts of other qualified institutional buyers, that in the aggregate owns and
invests on a  discretionary  basis at least $10 million in securities of issuers
not  affiliated  with the dealer may also  qualify as a qualified  institutional
buyer,  as well as an  Exchange  Act  registered  dealer  acting  in a  riskless
principal transaction on behalf of a qualified institutional buyer.

Investing in Rule 144A Securities and other restricted securities could have the
effect of  increasing  the  amount  of a Series'  assets  invested  in  illiquid
securities   to  the  extent  that   qualified   institutional   buyers   become
uninterested, for a time, in purchasing these securities. Each of the Series can
invest in restricted securities.

INITIAL  PUBLIC  OFFERING RISK -- A Series'  investment  in  securities  offered
through initial public offerings (IPOs) may have a magnified performance impact,
either positive or negative,  on any Series and particularly  those with a small
asset base.  There is no  guarantee  that as a Series'  assets  grow,  they will
continue to experience substantially similar performance by investing in IPOs. A
Series'  investments in IPOs may make it subject to more erratic price movements
than the overall equity market.  Series T and X may be particularly  susceptible
to IPO risk.


HIGH YIELD  SECURITIES -- Higher  yielding  debt  securities in the lower rating
(higher risk) categories of the recognized rating services are commonly referred
to as "junk  bonds." The total return and yield of junk bonds can be expected to
fluctuate  more than the total return and yield of  higher-quality  bonds.  Junk
bonds  (those  rated below BBB or in  default)  are  regarded  as  predominantly
speculative  with respect to the issuer's  continuing  ability to meet principal
and interest  payments.  Successful  investment in lower-medium- and low-quality
bonds involves greater investment risk and is highly dependent on the Investment
Manager or relevant  Sub-Adviser's credit analysis. A real or perceived economic
downturn  or higher  interest  rates could  cause a decline in  high-yield  bond
prices by  lessening  the  ability  of issuers to make  principal  and  interest
payments.  These bonds are often thinly traded and can be more difficult to sell
and value accurately than high-quality bonds. Because objective pricing data may
be less available, judgment may play a greater role in the valuation process. In
addition,  the entire  junk bond  market can  experience  sudden and sharp price
swings due to a variety of factors,  including  changes in  economic  forecasts,
stock  market  activity,   large  or  sustained  sales  by  major  investors,  a
high-profile default, or just a change in the market's psychology.  This type of
volatility  is usually  associated  more with stocks  than bonds,  but junk bond
investors  should be  prepared  for it.  Series B, D, E, I, N, O, P, W and X may
invest in high yield securities.


HARD ASSET SECURITIES -- Hard Asset Securities are equity  securities of issuers
which  are  directly  or  indirectly  engaged  to a  significant  extent  in the
exploration,  development  or  distribution  of one or  more  of the  following:
precious metals;  ferrous and non-ferrous metals; gas, petroleum,  petrochemical
and/or other  commodities  (collectively,  "Hard  Assets").  The  production and
marketing of Hard Assets may be affected by actions and changes in  governments.
In addition,  Hard Asset securities may be cyclical in nature. During periods of
economic or financial  instability,  the securities of some Hard Asset companies
may be subject to broad price fluctuations,  reflecting the volatility of energy
and basic  materials  prices and the possible  instability  of supply of various
Hard Assets.  In addition,  some Hard Asset companies also may be subject to the
risks generally  associated with  extraction of natural  resources,  such as the
risks of mining and oil drilling,  and the risks of the hazard  associated  with
natural resources, such as fire, drought, increased regulatory and environmental
costs,  and  others.  Securities  of Hard Asset  companies  may also  experience
greater price  fluctuations  than the relevant Hard Asset.  In periods of rising
Hard Asset prices,  such securities may rise at a faster rate, and,  conversely,
in times of falling  Hard Asset  prices,  such  securities  may suffer a greater
price decline.  Each of the Series which invest in equity  securities as part of
their investment program may invest in hard asset securities.

GUARANTEED  INVESTMENT  CONTRACTS  ("GICS") -- Series C may invest in GICs. When
investing  in GICs, a Series  makes cash  contributions  to a deposit fund of an
insurance  company's  general  account.   The  insurance  company  then  credits
guaranteed  interest to the deposit  fund on a monthly  basis.  The GICs provide
that this guaranteed  interest will not be less than a certain minimum rate. The
insurance  company may assess  periodic  charges  against a GIC for expenses and
service  costs  allocable to it, and the charges will be deducted from the value
of the deposit  fund.  A Series may invest only in GICs that have  received  the
requisite  ratings  by one or more  nationally  recognized  statistical  ratings
organizations.  Because a Series may not receive the  principal  amount of a GIC
from the insurance  company on 7 days' notice or less,  the GIC is considered an
illiquid  investment.  In determining average portfolio  maturity,  GICs will be
deemed to have a maturity equal to the period of time  remaining  until the next
readjustment of the guaranteed interest rate.

FUTURES AND  OPTIONS -- Each  Series,  other than Series C, may utilize  futures
contracts,  options on futures and may  purchase  call and put options and write
call and put  options  on a  "covered"  basis.  Futures  (a type of  potentially
high-risk derivative) are often used to manage or hedge risk because they enable
the  investor  to buy or sell an asset in the  future at an  agreed-upon  price.
Options (another type of potentially high-risk derivative) give the investor the
right (where the investor  purchases the options),  or the obligation (where the
investor writes (sells) the options), to buy or sell an asset at a predetermined
price in the future. Those Series which invest in non-dollar denominated foreign
securities  may also  engage in forward  foreign  currency  transactions.  These
instruments  may be bought  or sold for any  number of  reasons,  including:  to
manage  exposure  to changes in  securities  prices and foreign  currencies,  to
manage exposure to changes in interest rates,  and bond prices;  as an efficient
means of adjusting overall exposure to certain markets;  in an effort to enhance
income;  to protect the value of portfolio  securities;  and to adjust portfolio
duration.  Futures  contracts and options may not always be  successful  hedges;
their  prices can be highly  volatile.  Using them could  lower a Series'  total
return,  and the  potential  loss from the use of futures can exceed the Series'
initial investment in such contracts.

HYBRID  INSTRUMENTS -- Certain hybrid  instruments  (which are  derivatives) can
combine the characteristics of securities, futures and options. For example, the
principal  amount,  redemption  or  conservation  terms of a  security  could be
related to the market price of some commodity, currency or securities index. The
risks of such  investments  would  reflect  the risks of  investing  in futures,
options and securities,  including  volatility and illiquidity.  Such securities
may bear interest or pay dividends at below market (or even relatively  nominal)
rates.  Under certain  conditions,  the  redemption  value of such an investment
could be zero.  Hybrids can have volatile prices and limited liquidity and their
use by a Series may not be  successful.  Each  Series  other  than  Series C may
invest in hybrid instruments.


SWAPS,  CAPS,  FLOORS AND COLLARS -- Interest  rate and/or index swaps,  and the
purchase  or sale of related  caps,  floors and collars  are used  primarily  to
preserve  a return  or spread  on a  particular  investment  or  portion  of its
portfolio as a technique for managing the  portfolio's  duration (i.e. the price
sensitivity to changes in interest  rates) or to protect against any increase in
the price of securities  the Series  anticipates  purchasing at a later date. To
the extent a Series enters into these types of transactions,  it will be done to
hedge and not as a speculative investment, and the Series will not sell interest
rate caps or floors if it does not own securities or other instruments providing
the income the Series may be obligated to pay.  Interest  rate swaps involve the
exchange by the Series with another party of their respective commitments to pay
or receive  interest on a notional  amount of  principal.  The purchase of a cap
entitles the purchaser to receive  payments on a notional  principal amount from
the  party  selling  the cap to the  extent  that a  specified  index  exceeds a
predetermined interest rate. The purchase of an interest rate floor entitles the
purchaser  to receive  payments  on a notional  principal  amount from the party
selling  the  floor  to  the  extent  that  a  specified  index  falls  below  a
predetermined  interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a  predetermined  range of interest
rates or  values.  Series  D, E, P, Q, W and X may  enter  into  these  types of
transactions.


WHEN-ISSUED  SECURITIES AND FORWARD  COMMITMENT  CONTRACTS -- The price of "when
issued",  "forward  commitment" or "delayed delivery" securities is fixed at the
time of the  commitment  to buy, but delivery and payment can take place a month
or more later. During the interim period, the market value of the securities can
fluctuate,  and no interest  accrues to the purchaser.  At the time of delivery,
the value of the securities may be more or less than the purchase or sale price.
When a Series  purchases  securities  on this  basis,  there is a risk  that the
securities  may not be  delivered  and that the  Series  may incur a loss.  Each
Series,  other than Series C, may purchase or sell  securities on a when issued,
forward commitment or delayed delivery basis.

CASH RESERVES -- Cash reserves maintained by a Series may include domestic,  and
for certain Series,  foreign money market instruments as well as certificates of
deposit,  bank  demand  accounts  and  repurchase  agreements.  The  Series  may
establish  and  maintain   reserves  as  the  Investment   Manager  or  relevant
Sub-Adviser  believes is  advisable  to  facilitate  the Series' cash flow needs
(e.g.,  redemptions,  expenses and,  purchases of portfolio  securities)  or for
temporary, defensive purposes.

SHARES OF OTHER  INVESTMENT  COMPANIES -- Other than as noted below for Series N
and Series O, a Series'  investment in shares of other investment  companies may
not exceed  immediately  after  purchase 10% of the Series'  total assets and no
more  than 5% of its  total  assets  may be  invested  in the  shares of any one
investment company.  Investment in the shares of other investment  companies has
the effect of requiring shareholders to pay the operating expenses of two mutual
funds.  Each  Series,  other  than  Series C, may  invest in the shares of other
investment companies. Series N and Series O may invest up to 25% of their assets
in shares of the T. Rowe Price Reserve  Investment  Fund, an internally  managed
money market fund at T. Rowe Price.

BORROWING -- Borrowings may be collateralized  with Series assets. To the extent
that a Series purchases  securities while it has outstanding  borrowings,  it is
using  leverage,  i.e.,  using borrowed funds for  investment.  Leveraging  will
exaggerate  the effect on net asset  value of any  increase  or  decrease in the
market  value of a Series'  portfolio.  Money  borrowed for  leveraging  will be
subject to interest  costs that may or may not be recovered by  appreciation  of
the securities purchased; in certain cases, interest costs may exceed the return
received on the securities purchased.  A Series also may be required to maintain
minimum  average  balances  in  connection  with  such  borrowing  or  to  pay a
commitment  or  other  fee to  maintain  a  line  of  credit;  either  of  these
requirements would increase the cost of borrowing over the stated interest rate.


SECURITIES LENDING -- For purposes of realizing additional income,  Series D, G,
I, N, O, Q, T, and W may lend their portfolio  securities to certain  borrowers.
Any such loan will be  continuously  secured by collateral at least equal to the
value of the security loaned. The risks in lending portfolio securities, as with
other  extensions of credit,  consist of possible delay in receiving  additional
collateral  or in the recovery of the  securities  or possible loss of rights in
the collateral should the borrower fail financially.  Loans will only be made to
firms deemed by the  Investment  Manager to be of good  standing and will not be
made unless, in the judgment of the Investment Manager,  the consideration to be
earned from such loans would justify the risk.


FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand certain of the
Series'  financial  performance  during the past five years, or the period since
commencement of a Series.  Certain information  reflects financial results for a
single Series share.  The total returns in the table  represent the rate that an
investor  would have earned (or lost) on an  investment  in the Series  assuming
reinvestment  of all  dividends and  distributions.  This  information  has been
derived from financial  statements  that have been audited by Ernst & Young LLP,
whose report,  along with the Fund's  financial  statements,  is included in its
annual report, which is available upon request.

==========================================================================================
SERIES A (EQUITY SERIES)
------------------------------------------------------------------------------------------
                                              FISCAL YEAR ENDED DECEMBER 31
                                ----------------------------------------------------------
                                 2001(d)     2000(d)       1999        1998(d)     1997(d)
                                 -------     -------       ----        -------     -------
PER SHARE DATA
Net asset value
  beginning of period.......     $28.50       $35.51       $34.27       $29.39     $24.31

INCOME FROM INVESTMENT
  OPERATIONS:
Net investment income (loss)       0.06         0.06         0.11         0.17       0.16
Net gain (loss) on
  securities (realized &
  unrealized)...............      (3.14)       (4.27)        2.56         7.05       6.75
                                  -----        -----        -----        -----      -----
Total from investment
  operations................      (3.08)       (4.21)        2.67         7.22       6.91

LESS DISTRIBUTIONS:
Dividends (from net
  investment income)........      (0.05)       (0.01)       (0.27)       (0.17)     (0.18)
Distributions (from
  capital gains)............      (3.01)       (2.79)       (1.16)       (2.17)     (1.65)
                                  -----        -----        -----        -----      -----
Total distributions.........      (3.06)       (2.80)       (1.43)       (2.34)     (1.83)
                                  -----        -----        -----        -----      -----
NET ASSET VALUE
  END OF PERIOD.............     $22.36       $28.50       $35.51       $34.27     $29.39
                                  =====        =====        =====        =====      =====
TOTAL RETURN (b)............     (11.4)%      (12.8)%         8.1%        25.4%      28.7%

RATIOS/SUPPLEMENTAL DATA
Net assets end of
  period (thousands)........    $790.602   $1,004,968   $1,396,995   $1,307,332   $999,929
Ratio of expenses to
  average net assets........       0.83%        0.83%        0.81%        0.81%      0.81%
Ratio of net investment
  income (loss) to
  average net assets........       0.26%        0.16%        0.31%        0.59%      0.66%
Portfolio turnover rate.....         20%          41%          49%          39%        61%
==========================================================================================

==========================================================================================
SERIES B (LARGE CAP VALUE SERIES)
------------------------------------------------------------------------------------------
                                               FISCAL YEAR ENDED DECEMBER 31
                              ------------------------------------------------------------
                              2001(d)(k)   2000(d)       1999        1998(d)      1997(d)
                              ----------   -------       ----        -------      -------
PER SHARE DATA
Net asset value
  beginning of period.......    $19.93      $24.39      $ 39.81       $41.60       $35.40

INCOME FROM INVESTMENT
  OPERATIONS:
Net investment income (loss)      0.18        0.43         0.57         0.83         0.72
Net gain (loss) on
  securities (realized &
  unrealized)...............     (1.29)      (2.06        (0.65)        2.60         8.47
                                 -----       -----       ------        -----        -----
Total from investment
  operations................     (1.11)      (1.63)       (0.08)        3.43         9.19

LESS DISTRIBUTIONS:
Dividends (from net
  investment income)........     (0.23)      (0.74)       (0.85)       (0.71)       (0.86)
Distributions (from
  capital gains)............       ---         ---       (14.49)       (4.51)       (2.13)
Distributions (in excess
  of capital gains).........       ---       (2.09)         ---          ---          ---
                                 -----       -----       ------        -----        -----
Total distributions.........     (0.23)      (2.83)      (15.34)       (5.22)       (2.99)
                                 -----       -----       ------        -----        -----
NET ASSET VALUE
  END OF PERIOD.............    $18.59      $19.93      $ 24.39       $39.81       $41.60
                                 =====       =====       ======        =====        =====
TOTAL RETURN (b)............     (5.6)%      (6.8)%         1.5%         7.9%        26.5%

RATIOS/SUPPLEMENTAL DATA
Net assets end of
  period (thousands)........   $563,240    $684,459   $1,051,832   $1,196,979   $1,198,302
Ratio of expenses to
  average net assets........      0.93%       0.83%        0.82%        0.80%        0.83%
Ratio of net investment
  income (loss) to
  average net assets........      0.89%       1.08%        2.00%        2.02%        1.89%
Portfolio turnover rate.....       145%        145%          73%         119%          62%
==========================================================================================

==========================================================================================
SERIES C (MONEY MARKET SERIES)
------------------------------------------------------------------------------------------
                                                 FISCAL YEAR ENDED DECEMBER 31
                               -----------------------------------------------------------
                                 2001        2000        1999(a)    1998(a)(d)     1997(d)
                                 ----        ----        -------    ----------     -------
PER SHARE DATA
Net asset value
  beginning of period.......    $12.69      $12.04       $12.53       $12.53       $12.56

INCOME FROM INVESTMENT
  OPERATIONS:
Net investment
  income (loss).............      0.54        0.80         0.57         0.68         0.79
Net gain (loss) on
  securities (realized &
  unrealized)...............     (0.09)      (0.08)       (0.01)       (0.06)       (0.15)
                                 -----       -----        -----        -----        -----
Total from investment
  operations................      0.45        0.72         0.56         0.62         0.64

LESS DISTRIBUTIONS:
Dividends (from net
  investment income)........     (0.94)      (0.07)       (1.05)       (0.62)       (0.67)
Distributions (from
  capital gains)............       ---         ---          ---          ---          ---
                                 -----       -----        -----        -----        -----
Total distributions.........     (0.94)      (0.07)       (1.05)       (0.62)       (0.67)
                                 -----       -----        -----        -----        -----
NET ASSET VALUE
  END OF PERIOD.............    $12.20      $12.69       $12.04       $12.53       $12.53
                                 =====       =====        =====        =====        =====
TOTAL RETURN (b)............       3.8%        6.0%         4.6%         5.1%         5.2%

RATIOS/SUPPLEMENTAL DATA
Net assets end of
  period (thousands)........   $131,277    $119,372     $153,589     $128,083      $98,015
Ratio of expenses to
  average net assets........      0.58%       0.58%        0.57%        0.57%        0.58%
Ratio of net investment
  income (loss) to
  average net assets........      3.50%       5.79%        4.61%        4.99%        5.04%
Portfolio turnover rate.....        ---         ---          ---          ---          ---
==========================================================================================

==========================================================================================
SERIES D (GLOBAL SERIES)
------------------------------------------------------------------------------------------
                                             FISCAL YEAR ENDED DECEMBER 31
                               -----------------------------------------------------------
                                 2001         2000        1999         1998         1997
                                 ----         ----        ----         ----         ----
PER SHARE DATA
Net asset value
  beginning of period.......    $ 8.49      $ 9.08       $ 6.74       $ 6.14       $ 6.14

INCOME FROM INVESTMENT
  OPERATIONS:
Net investment income (loss)       ---         ---         0.02         0.03         0.04
Net gain (loss) on
  securities (realized &
  unrealized)...............     (0.97)       0.37         3.29         1.18         0.38
                                 -----       -----        -----        -----        -----
Total from investment
  operations................     (0.97)       0.37         3.31         1.21         0.42

LESS DISTRIBUTIONS:
Dividends (from net
  investment income)........       ---         ---          ---        (0.09)       (0.13)
Distributions (from
  capital gains)............     (0.94)      (0.96)       (0.97)       (0.52)       (0.29)
Distributions (in excess
  of capital gains).........     (0.27)        ---          ---          ---          ---
                                 -----       -----        -----        -----        -----
Total distributions.........     (1.21)      (0.96)       (0.97)       (0.61)       (0.42)
                                 -----       -----        -----        -----        -----
NET ASSET VALUE
 END OF PERIOD..............    $ 6.31      $ 8.49       $ 9.08       $ 6.74       $ 6.14
                                 =====       =====        =====        =====        =====
TOTAL RETURN (b)............    (12.3)%        3.5%        53.7%        20.1%         6.5%

RATIOS/SUPPLEMENTAL DATA
Net assets end of
  period (thousands)........   $431,252    $565,950     $525,748     $349,794     $285,782
Ratio of expenses to
  average net assets........      1.20%       1.21%        1.21%        1.26%        1.24%
Ratio of net investment
  income (loss) to
  average net assets........      0.07%     (0.08)%        0.32%        0.92%        0.74%
Portfolio turnover rate.....        41%         55%          76%         166%         129%
==========================================================================================

==========================================================================================
SERIES E (DIVERSIFIED INCOME SERIES)
------------------------------------------------------------------------------------------
                                              FISCAL YEAR ENDED DECEMBER 31
                               -----------------------------------------------------------
                                2001(l)      2000         1999        1998(d)      1997(d)
                                -------      ----         ----        -------      -------
PER SHARE DATA
Net asset value
  beginning of period.......    $11.37      $10.55       $12.42       $12.25       $12.00

INCOME FROM INVESTMENT
 OPERATIONS:
Net investment income (loss)      0.58        0.75         0.76         0.74         0.86
Net gain (loss) on
  securities (realized &
  unrealized)...............      0.20        0.15        (1.22)        0.19         0.31
                                 -----       -----        -----        -----        -----
Total from investment
  operations................      0.78        0.90        (0.46)        0.93         1.17

LESS DISTRIBUTIONS:
Dividends (from net
  investment income)........     (0.75)      (0.08)       (1.41)       (0.76)       (0.92)
Distributions (from
  capital gains)............       ---         ---          ---          ---          ---
                                 -----       -----        -----        -----        -----
Total distributions.........     (0.75)      (0.08)       (1.41)       (0.76)       (0.92)
                                 -----       -----        -----        -----        -----
NET ASSET VALUE
  END OF PERIOD.............    $11.40      $11.37       $10.55       $12.42       $12.25
                                 =====       =====        =====        =====        =====
TOTAL RETURN (b)............       7.2%        8.6%       (3.8)%         8.0%        10.0%

RATIOS/SUPPLEMENTAL DATA
Net assets end of
  period (thousands)........   $142,538    $122,147     $136,632     $154,722     $140,909
Ratio of expenses to
  average net assets........      0.83%       0.84%        0.82%        0.83%        0.83%
Ratio of net investment
  income (loss) to
  average net assets........      5.67%       6.52%        6.34%        6.31%        6.67%
Portfolio turnover rate.....        46%         63%          25%          70%         106%
==========================================================================================

================================================================================
SERIES G (LARGE CAP GROWTH SERIES)
--------------------------------------------------------------------------------
                                                   FISCAL YEAR ENDED DECEMBER 31
                                                   -----------------------------
                                                   2001(d)            2000(d)(h)
                                                   -------            ----------
PER SHARE DATA
Net asset value beginning of period............    $ 7.98              $10.00

INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)...................     (0.02)              (0.02)
Net gain (loss) on securities
  (realized & unrealized)......................     (1.21)              (2.00)
                                                    -----               -----
Total from investment operations...............     (1.23)              (2.02)

LESS DISTRIBUTIONS:
Dividends (from net investment income).........       ---                 ---
Distributions (from capital gains).............       ---                 ---
                                                    -----               -----
Total distributions............................       ---                 ---
                                                    -----               -----
NET ASSET VALUE END OF PERIOD..................    $ 6.75              $ 7.98
                                                    =====               =====
TOTAL RETURN (b)...............................    (15.4)%             (20.2)%

RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)...........    $15,689             $12,139
Ratio of expenses to average net assets........      1.23%               1.28%
Ratio of net investment income
   (loss) to average net assets................    (0.30)%             (0.47)%
Portfolio turnover rate........................         4%                  5%
================================================================================

===============================================================================
SERIES H (ENHANCED INDEX SERIES)
-------------------------------------------------------------------------------
                                                FISCAL YEAR ENDED DECEMBER 31
                                              ---------------------------------
                                               2001         2000        1999(g)
                                               ----         ----        -------
PER SHARE DATA
Net asset value beginning of period........   $ 9.95       $11.15       $10.00

INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)...............     0.05         0.05         0.04
Net gain (loss) on securities
  (realized & unrealized)..................    (1.34)       (1.18)        1.19
                                               -----        -----        -----
Total from investment operations...........     1.29        (1.13)        1.23

LESS DISTRIBUTIONS:
Dividends (from net investment income).....    (0.04)         ---        (0.04)
Distributions (from capital gains).........      ---          ---        (0.04)
Distributions (in excess of capital gains).      ---        (0.07)         ---
                                               -----        -----        -----
Total distributions........................    (0.04)       (0.07)       (0.08)
                                               -----        -----        -----
NET ASSET VALUE END OF PERIOD..............   $ 8.62       $ 9.95       $11.15
                                               =====        =====        =====
TOTAL RETURN (b)...........................   (13.0)%      (10.2)%        12.3%

RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands).......   $42,112      $45,820      $25,023
Ratio of expenses to average net assets....     0.91%        0.96%        1.04%
Ratio of net investment income
  (loss) to average net assets.............     0.57%        0.55%        0.82%
Portfolio turnover rate....................       29%          58%          52%
===============================================================================

=================================================================================
SERIES I (INTERNATIONAL SERIES)
---------------------------------------------------------------------------------
                                                  FISCAL YEAR ENDED DECEMBER 31
                                              -----------------------------------
                                              2001(d)     2000(c)(d)   1999(c)(g)
                                              -------     ----------   ----------
PER SHARE DATA
Net asset value beginning of period........   $10.35       $13.00       $10.00

INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)...............    (0.04)       (0.09)       (0.04)
Net gain (loss) on securities
  (realized & unrealized)..................    (2.49)       (2.56)        3.04
                                               -----        -----        -----
Total from investment operations...........    (2.53)       (2.65)        3.00

LESS DISTRIBUTIONS:
Dividends (from net investment income).....      ---          ---          ---
Distributions (from capital gains).........      ---          ---          ---
                                               -----        -----        -----
Total distributions........................      ---          ---          ---
                                               -----        -----        -----
NET ASSET VALUE END OF PERIOD..............   $ 7.82       $10.35       $13.00
                                               =====        =====        =====
TOTAL RETURN (a)...........................   (24.4)%      (20.4)%        30.0%

RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands).......   $15,999      $18,071       $9,857
Ratio of expenses to average net assets....     2.25%        2.28%        2.25%
Ratio of net investment income
   (loss) to average net assets............   (0.54)%      (0.98)%      (0.70)%
Portfolio turnover rate....................      175%         139%          98%
=================================================================================

==========================================================================================
SERIES J (MID CAP GROWTH SERIES)
------------------------------------------------------------------------------------------
                                               FISCAL YEAR ENDED DECEMBER 31
                               -----------------------------------------------------------
                                2001(d)     2000(d)       1999        1998(d)      1997(d)
                                -------     -------       ----        -------      -------
PER SHARE DATA
Net asset value
  beginning of period.......    $32.82      $30.15       $22.51       $21.33       $18.25

INCOME FROM INVESTMENT
  OPERATIONS:
Net investment
  income (loss).............     (0.13)      (0.12)       (0.05)       (0.04)       (0.03)
Net gain (loss) on
  securities (realized &
  unrealized)...............     (4.43)       5.37        11.65         3.70         3.67
                                 -----       -----        -----        -----        -----
Total from investment
  operations................     (4.56)       5.25        11.60         3.66         3.64

LESS DISTRIBUTIONS:
Dividends (from net
  investment income)........       ---         ---          ---        (0.14)       (0.06)
Distributions (from
  capital gains)............     (4.14)      (2.58)       (3.96)       (2.34)       (0.50)
                                 -----       -----        -----        -----        -----
Total distributions.........     (4.14)       2.58        (3.96)       (2.48)       (0.56)
                                 -----       -----        -----        -----        -----
NET ASSET VALUE
  END OF PERIOD.............    $24.12      $32.82       $30.15       $22.51       $21.33
                                 =====       =====        =====        =====        =====
TOTAL RETURN (b)............    (14.9)%       16.8%        61.9%        18.0%        20.0%

RATIOS/SUPPLEMENTAL DATA
Net assets end of
  period (thousands)........   $470,236    $603,714     $429,528     $271,281     $226,297
Ratio of expenses to
  average net assets........      0.84%       0.82%        0.82%        0.82%        0.82%
Ratio of net investment
  income (loss) to
  average net assets........    (0.53)%     (0.38)%      (0.25)%      (0.21)%      (0.11)%
Portfolio turnover rate.....        39%         33%          55%          94%         107%
==========================================================================================

==========================================================================================
SERIES K (GLOBAL STRATEGIC INCOME SERIES)
------------------------------------------------------------------------------------------
                                              FISCAL YEAR ENDED DECEMBER 31
                               -----------------------------------------------------------
                                2001(d)      2000        1999(j)      1998(c)      1997(c)
                                -------      ----        -------      -------      -------
PER SHARE DATA
Net asset value
  beginning of period.......    $ 9.98      $ 9.61       $ 9.56       $10.06       $10.72

INCOME FROM INVESTMENT
  OPERATIONS:
Net investment income (loss)      0.56        0.79         0.79         1.02         1.12
Net gain (loss) on
  securities (realized &
  unrealized)...............      0.04       (0.42)       (0.68)       (0.32)       (0.56)
                                 -----       -----        -----        -----        -----
Total from investment
  operations................      0.60        0.37         0.11         0.70         0.56

LESS DISTRIBUTIONS:
Dividends (from net
  investment income)........     (0.79)        ---          ---        (1.02)       (0.94)
Distributions (from
  capital gains)............       ---         ---        (0.06)       (0.18)       (0.28)
                                 -----       -----        -----        -----        -----
Total distributions.........     (0.79)        ---        (0.06)       (1.20)       (1.22)
                                 -----       -----        -----        -----        -----
NET ASSET VALUE
  END OF PERIOD.............    $ 9.79      $ 9.98       $ 9.61       $ 9.56       $10.06
                                 =====       =====        =====        =====        =====
TOTAL RETURN (b)............       6.2%        3.9%         1.2%         6.9%         5.4%

RATIOS/SUPPLEMENTAL DATA
Net assets end of
  period (thousands)........    $15,695     $10,977      $11,369      $13,028      $14,679
Ratio of expenses to
  average net assets........      1.52%       1.76%        1.62%        1.13%        0.64%
Ratio of net investment
  income (loss) to
  average net assets........      7.23%       7.75%        7.80%       10.85%        9.81%
Portfolio turnover rate.....       124%        146%         208%          57%          85%
==========================================================================================

================================================================================
SERIES L (CAPITAL GROWTH SERIES)
--------------------------------------------------------------------------------
                                                   FISCAL YEAR ENDED DECEMBER 31
                                                   -----------------------------
                                                    2001                 2000(h)
                                                    ----                 -------
PER SHARE DATA
Net asset value beginning of period............    $ 8.05                $10.00

INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)...................     (0.02)                (0.02)
Net gain (loss) on securities
  (realized & unrealized)......................     (1.16)                (1.93)
                                                    -----                 -----
Total from investment operations...............     (1.18)                (1.95)

LESS DISTRIBUTIONS:
Dividends (from net investment income).........       ---                   ---
Distributions (from capital gains).............       ---                   ---
Distributions (in excess of capital gains).....     (0.03)                  ---
                                                    -----                 -----
Total distributions............................     (0.03)                  ---
                                                    -----                 -----
NET ASSET VALUE END OF PERIOD..................    $ 6.84                $ 8.05
                                                    =====                 =====
TOTAL RETURN (b)...............................    (14.7)%               (19.5)%

RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)...........    $21,913               $18,021
Ratio of expenses to average net assets........      1.20%                 1.26%
Ratio of net investment income
  (loss) to average net assets.................    (0.31)%               (0.43)%
Portfolio turnover rate........................        82%                   46%
================================================================================

==========================================================================================
SERIES M (GLOBAL TOTAL RETURN SERIES)
------------------------------------------------------------------------------------------
                                                  FISCAL YEAR ENDED DECEMBER 31
                               -----------------------------------------------------------
                                 2001        2000        1999(j)       1998        1997(i)
                                 ----        ----        -------       ----        -------
PER SHARE DATA
Net asset value
  beginning of period.......    $10.46      $13.09       $12.87       $12.29       $12.05

INCOME FROM INVESTMENT
  OPERATIONS:
Net investment income (loss)      0.11        0.14         0.15         0.20         0.16
Net gain (loss) on
  securities (realized &
  unrealized)...............     (1.45)      (1.44)        1.49         1.33         0.59
                                 -----       -----        -----        -----        -----
Total from investment
  operations................     (1.34)      (1.30)        1.64         1.53         0.75

LESS DISTRIBUTIONS:
Dividends (from net
  investment income)........     (0.11)        ---        (0.44)       (0.27)       (0.26)
Distributions (in excess
  of net investment income).     (0.01)        ---          ---          ---          ---
Distributions (from
  capital gains)............       ---       (1.04)       (0.98)       (0.68)       (0.25)
Distributions (in excess
  of capital gains).........       ---       (0.29)         ---          ---          ---
Return of Capital...........     (0.20)        ---          ---          ---          ---
                                 -----       -----        -----        -----        -----
Total distributions.........     (0.32)      (1.33)       (1.42)       (0.95)       (0.51)
                                 -----       -----        -----        -----        -----
NET ASSET VALUE
  END OF PERIOD.............    $ 8.80      $10.46       $13.09       $12.87       $12.29
                                 =====       =====        =====        =====        =====
TOTAL RETURN (b)............    (13.1)%     (10.6)%        14.0%        12.6%         6.2%

RATIOS/SUPPLEMENTAL DATA
Net assets end of
  period (thousands)........    $25,007     $33,527      $44,034      $45,174      $48,379
Ratio of expenses to
  average net assets........      1.53%       1.46%        1.36%        1.24%        1.26%
Ratio of net investment
  income (loss) to
  average net assets........      0.96%       1.15%        1.09%        1.33%        1.71%
Portfolio turnover rate.....       139%        150%         155%          49%          64%
==========================================================================================

==========================================================================================
SERIES N (MANAGED ASSET ALLOCATION SERIES)
------------------------------------------------------------------------------------------
                                                   FISCAL YEAR ENDED DECEMBER 31
                                ----------------------------------------------------------
                                 2001        2000         1999         1998         1997
                                 ----        ----         ----         ----         ----
PER SHARE DATA
Net asset value
  beginning of period.......    $16.08      $16.94       $16.01       $13.88       $12.02

INCOME FROM INVESTMENT
  OPERATIONS:
Net investment
  income (loss).............      0.33        0.39         0.38         0.26         0.24
Net gain (loss) on
  securities (realized &
  unrealized)...............     (1.10)      (0.52)        1.15         2.26         1.96
                                 -----       -----        -----        -----        -----
Total from investment
  operations................     (0.77)      (0.13)        1.53         2.52         2.20

LESS DISTRIBUTIONS:
Dividends (from net
  investment income)........     (0.44)      (0.04)       (0.60)       (0.24)       (0.21)
Distributions (from
  capital gains)............     (1.24)      (0.69)         ---        (0.15)       (0.13)
                                 -----       -----        -----        -----        -----
Total distributions.........     (1.68)      (0.73)       (0.60)       (0.39)       (0.34)
                                 -----       -----        -----        -----        -----
NET ASSET VALUE
  END OF PERIOD.............    $13.63      $16.08       $16.94       $16.01       $13.88
                                 =====       =====        =====        =====        =====
TOTAL RETURN (b)............     (5.1)%      (0.9)%         9.7%        18.4%        18.4%

RATIOS/SUPPLEMENTAL DATA
Net assets end of
  period (thousands)........    $87,348     $88,581      $98,487      $76,121      $38,182
Ratio of expenses to
  average net assets........      1.25%       1.25%        1.17%        1.22%        1.35%
Ratio of net investment
  income (loss) to
  average net assets........      2.34%       2.31%        2.45%        2.49%        2.71%
Portfolio turnover rate.....        98%         44%          24%          10%          28%
==========================================================================================

==========================================================================================
SERIES O (EQUITY INCOME SERIES)
------------------------------------------------------------------------------------------
                                                   FISCAL YEAR ENDED DECEMBER 31
                               -----------------------------------------------------------
                                2001(d)      2000         1999         1998         1997
                                -------      ----         ----         ----         ----
PER SHARE DATA
Net asset value
 beginning of period........    $17.66      $17.27       $18.35       $17.62       $14.01

INCOME FROM INVESTMENT
 OPERATIONS:
Net investment
 income (loss)..............      0.21        0.31         0.30         0.29         0.19
Net gain (loss)
 on securities
 (realized & unrealized)....       ---        1.76         0.19         1.30         3.77
                                 -----       -----        -----        -----        -----
Total from investment
 operations.................      0.21        2.07         0.49         1.59         3.96

LESS DISTRIBUTIONS:
Dividends (from net
 investment income).........     (0.30)      (0.04)       (0.59)       (0.25)       (0.14)
Distributions (from
 capital gains).............     (1.57)      (1.64)       (0.98)       (0.61)       (0.21)
                                 -----       -----        -----        -----        -----
Total distributions.........     (1.87)      (1.68)       (1.57)       (0.86)       (0.35)
                                 -----       -----        -----        -----        -----
NET ASSET VALUE
 END OF PERIOD..............    $16.00      $17.66       $17.27       $18.35       $17.62
                                 =====       =====        =====        =====        =====
TOTAL RETURN (a)............       1.3%       12.9%         3.1%         9.0%        28.4%

RATIOS/SUPPLEMENTAL DATA
Net assets end of
 period (thousands).........   $186,826    $178,756     $207,022     $204,070     $150,391
Ratio of expenses to
 average net assets.........      1.08%       1.10%        1.09%        1.08%        1.09%
Ratio of net investment
 income (loss) to average
 net assets.................      1.32%       1.74%        1.66%        1.93%        2.31%
Portfolio turnover rate.....        21%         68%          35%          20%          21%
==========================================================================================

==========================================================================================
SERIES P (HIGH YIELD SERIES)
------------------------------------------------------------------------------------------
                                              FISCAL YEAR ENDED DECEMBER 31
                               -----------------------------------------------------------
                               2001(d)(l)    2000       1999(c)    1998(c)(d)   1997(c)(d)
                               ----------    ----       -------    ----------   ----------
PER SHARE DATA
Net asset value
  beginning of period.......    $14.25      $15.51      $16.80      $17.60       $15.99

INCOME FROM INVESTMENT
  OPERATIONS:
Net investment income (loss)      1.26        1.12        1.30        0.89         0.68
Net gain (loss) on
  securities (realized &
  unrealized)...............     (0.63)      (1.36)      (1.08)       0.12         1.43
                                 -----       -----       -----       -----        -----
Total from investment
  operations................     (0.63)      (0.24)       0.22        1.01         2.11

LESS DISTRIBUTIONS:
Dividends (from net
  investment income)........     (1.28)      (1.02)      (1.37)      (1.63)       (0.42)
Distributions (from
  capital gains)............       ---         ---       (0.10)      (0.18)       (0.08)
Return of Capital...........       ---         ---       (0.04)        ---          ---
                                 -----       -----       -----       -----        -----
Total distributions.........     (1.28)      (1.02)      (1.51)      (1.81)       (0.50)
                                 -----       -----       -----       -----        -----
NET ASSET VALUE
  END OF PERIOD.............    $13.60      $14.25      $15.51      $16.80       $17.60
                                 =====       =====       =====       =====        =====
TOTAL RETURN (b)............       4.4%      (1.5)%        1.3%        5.8%        13.4%

RATIOS/SUPPLEMENTAL DATA
Net assets end of
  period (thousands)........    $29,384     $22,616     $19,152     $14,949       $6,767
Ratio of expenses to
  average net assets........      0.86%       0.87%       0.18%       0.18%        0.31%
Ratio of net investment
  income (loss) to
  average net assets........      8.73%       8.06%       8.55%       8.17%        8.58%
Portfolio turnover rate.....        80%         34%         29%         87%          77%
=========================================================================================

================================================================================
SERIES Q (SMALL CAP VALUE SERIES)
--------------------------------------------------------------------------------
                                                   FISCAL YEAR ENDED DECEMBER 31
                                                   -----------------------------
                                                   2001(d)            2000(d)(h)
                                                   -------            ----------
PER SHARE DATA
Net asset value beginning of period............    $10.74              $10.00

INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)...................     (0.04)              (0.02)
Net gain (loss) on securities
  (realized & unrealized)......................      2.41                0.76
                                                    -----               -----
Total from investment operations...............      2.37                0.74

LESS DISTRIBUTIONS:
Dividends (from net investment income).........       ---                 ---
Distributions (from capital gains).............     (0.32)                ---
                                                    -----               -----
Total distributions............................     (0.32)                ---
                                                    -----               -----
NET ASSET VALUE END OF PERIOD..................    $12.79              $10.74
                                                    =====               =====
TOTAL RETURN (b)...............................      22.2%                7.4%

RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)...........    $58,198             $10,427
Ratio of expenses to average net assets........      1.18%               1.49%
Ratio of net investment income
  (loss) to average net assets.................    (0.42)%             (0.41)%
Portfolio turnover rate........................        47%                 81%
================================================================================

========================================================================================
SERIES S (SOCIAL AWARENESS SERIES)
----------------------------------------------------------------------------------------
                                               FISCAL YEAR ENDED DECEMBER 31
                               ---------------------------------------------------------
                                2001(d)     2000(d)      1999      1998(d)       1997(d)
                                -------     -------      ----      -------       -------
PER SHARE DATA
Net asset value
  beginning of period.......    $27.62      $31.71      $28.40      $22.25       $19.08

INCOME FROM INVESTMENT
  OPERATIONS:
Net investment income (loss)      0.04       (0.02)       0.07        0.09         0.06
Net gain (loss) on
  securities (realized &
  unrealized)...............     (3.55)      (4.07)       4.60        6.78         4.21
                                 -----       -----       -----       -----        -----
Total from investment
  operations................     (3.51)      (4.09)       4.67        6.87         4.27

LESS DISTRIBUTIONS:
Dividends (from net
  investment income)........       ---         ---       (0.16)      (0.06)       (0.04)
Distributions (from
  capital gains)............     (0.53)        ---       (1.20)      (0.66)       (1.06)
Distributions (in excess
  of capital gains).........     (0.94)        ---         ---         ---          ---
                                 -----       -----       -----       -----        -----
Total distributions.........     (1.47)        ---       (1.36)      (0.72)       (1.10)
                                 -----       -----       -----       -----        -----
NET ASSET VALUE
  END OF PERIOD.............    $22.64      $27.62      $31.71      $28.40       $22.25
                                 =====       =====       =====       =====        =====
TOTAL RETURN (b)............    (13.1)%     (12.9)%       17.2%       31.4%        22.7%

RATIOS/SUPPLEMENTAL DATA
Net assets end of
  period (thousands)........   $158,686    $208,709    $236,576    $152,641      $89,332
Ratio of expenses to
  average net assets........      0.83%       0.83%       0.82%       0.82%        0.83%
Ratio of net investment
  income (loss) to
  average net assets........      0.17%     (0.05)%       0.29%       0.47%        0.35%
Portfolio turnover rate.....        10%         24%         24%         23%          49%
========================================================================================

================================================================================
SERIES T (TECHNOLOGY SERIES)
--------------------------------------------------------------------------------
                                                   FISCAL YEAR ENDED DECEMBER 31
                                                   -----------------------------
                                                   2001(d)            2000(d)(h)
                                                   -------            ----------
PER SHARE DATA
Net asset value beginning of period............    $ 6.13               $10.00

INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)...................     (0.05)               (0.05)
Net gain (loss) on securities
  (realized & unrealized)......................     (1.43)               (3.82)
                                                    -----                -----
Total from investment operations...............     (1.48)               (3.87)

LESS DISTRIBUTIONS:
Dividends (from net investment income).........       ---                  ---
Distributions (from capital gains).............       ---                  ---
                                                    -----                -----
Total distributions............................       ---                  ---
                                                    -----                -----
NET ASSET VALUE END OF PERIOD..................    $ 4.65               $ 6.13
                                                    =====                =====
TOTAL RETURN (B)...............................    (24.1)%             (38.70)%

RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)...........    $18,033              $16,035
Ratio of expenses to average net assets........      1.46%                1.50%
Ratio of net investment income
  (loss) to average net assets.................    (1.21)%              (1.23)%
Portfolio turnover rate........................       223%                 222%
================================================================================

==========================================================================================
SERIES V (MID CAP VALUE SERIES)
------------------------------------------------------------------------------------------
                                              FISCAL YEAR ENDED DECEMBER 31
                               -----------------------------------------------------------
                                2001(d)      2000       1999      1998(c)    1997(a)(c)(e)
                                -------      ----       ----      -------    -------------
PER SHARE DATA
Net asset value
  beginning of period.......    $22.19      $16.73     $14.83     $13.13         $10.00

INCOME FROM INVESTMENT
  OPERATIONS:
Net investment income (loss)      0.09        0.08       0.03       0.03           0.12
Net gain (loss) on
  securities (realized &
  unrealized)...............      2.31        5.57       2.66       2.14           3.01
                                 -----       -----      -----      -----          -----
Total from investment
  operations................      2.40        5.65       2.69       2.17           3.13

LESS DISTRIBUTIONS:
Dividends (from net
  investment income)........     (0.08)        ---      (0.05)     (0.08)           ---
Distributions (from
  capital gains)............     (1.02)      (0.19)     (0.74)     (0.39)           ---
                                 -----       -----      -----      -----          -----
Total distributions.........     (1.10)      (0.19)     (0.79)     (0.47)           ---
                                 -----       -----      -----      -----          -----
NET ASSET VALUE
  END OF PERIOD.............    $23.49      $22.19     $16.73     $14.83         $13.13
                                 =====       =====      =====      =====          =====
TOTAL RETURN (b)............      11.1%       33.8%      18.9%      16.6%         31.3%

RATIOS/SUPPLEMENTAL DATA
Net assets end of
  period (thousands)........   $166,860    $115,551    $42,885    $18,523        $6,491
Ratio of expenses to
  average net assets........      0.85%       0.84%      0.84%      0.71%         0.40%
Ratio of net investment
  income (loss) to
  average net assets........      0.43%       0.55%      0.32%      0.42%         1.55%
Portfolio turnover rate.....        50%         35%        57%        72%           79%
==========================================================================================

================================================================================
SERIES W (MAIN STREET GROWTH AND INCOME® SERIES)
--------------------------------------------------------------------------------
                                                   FISCAL YEAR ENDED DECEMBER 31
                                                   -----------------------------
                                                   2001(d)            2000(d)(i)
                                                   -------            ----------
PER SHARE DATA
Net asset value beginning of period............    $ 9.01              $10.00

INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)...................      0.01                 ---
Net gain (loss) on securities
  (realized & unrealized)......................     (0.91)              (0.98)
                                                    ------              -----
Total from investment operations...............     (0.90)              (0.98)

LESS DISTRIBUTIONS:
Dividends (from net investment income).........     (0.01)                ---
Distributions (from capital gains).............       ---               (0.01)
                                                    -----               -----
Total distributions............................     (0.01)              (0.01)
                                                    -----               -----
NET ASSET VALUE END OF PERIOD..................    $ 8.10              $ 9.01
                                                    =====               =====
TOTAL RETURN (B)...............................    (10.0)%              (9.8)%

RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)...........    $37,579             $26,638
Ratio of expenses to average net assets........      1.25%               1.23%
Ratio of net investment income
  (loss) to average net assets.................      0.14%               0.14%
Portfolio turnover rate........................        67%                 57%
================================================================================

========================================================================================
SERIES X (SMALL CAP GROWTH SERIES)
----------------------------------------------------------------------------------------
                                              FISCAL YEAR ENDED DECEMBER 31
                                --------------------------------------------------------
                                 2001        2000      1999(c)    1998(c)     1997(c)(f)
                                 ----        ----      -------    -------     ----------
PER SHARE DATA
Net asset value
  beginning of period.......    $17.55      $19.40     $10.67     $ 9.60       $10.00

INCOME FROM INVESTMENT
  OPERATIONS:
Net investment income (loss)     (0.09)      (0.07)       ---       0.02         0.01
Net gain (loss) on
  securities (realized &
  unrealized)...............     (4.80)      (1.59)      9.27       1.07        (0.41)
                                 -----       -----      -----      -----        -----
Total from investment
  operations................     (4.89)      (1.66)      9.27       1.09        (0.40)

LESS DISTRIBUTIONS:
Dividends (from net
  investment income)........       ---         ---      (0.02)     (0.02)         ---
Distributions (from
  capital gains)............       ---         ---      (0.52)       ---          ---
Distributions (in excess
  of capital gains).........       ---       (0.18)       ---        ---          ---
Return of capital...........       ---       (0.01)       ---        ---          ---
                                 -----       -----      -----      -----        -----
Total distributions.........       ---       (0.19)     (0.54)     (0.02)         ---
                                 -----       -----      -----      -----        -----
NET ASSET VALUE
  END OF PERIOD.............    $12.66      $17.55     $19.40     $10.67       $ 9.60
                                 =====       =====      =====      =====        =====
TOTAL RETURN (b)............    (27.9)%      (8.7)%      87.2%      11.5%       (4.0)%

RATIOS/SUPPLEMENTAL DATA
Net assets end of
  period (thousands)........    $73,408    $114,283    $44,095     $5,621       $2,640
Ratio of expenses to
  average net assets........      1.15%       1.13%      0.57%      0.59%        0.98%
Ratio of net investment
  income (loss) to
  average net assets........    (0.66)%     (0.44)%        ---      0.26%        0.73%
Portfolio turnover rate.....       353%        335%       283%       367%         402%
========================================================================================

================================================================================
SERIES Y (SELECT 25 SERIES)
--------------------------------------------------------------------------------
                                                FISCAL YEAR ENDED DECEMBER 31
                                              ----------------------------------
                                               2001        2000(d)       1999(g)
                                               ----        -------       -------
PER SHARE DATA
Net asset value beginning of period........   $10.38       $12.37        $10.00

INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)...............    (0.02)       (0.02)        (0.01)
Net gain (loss) on securities
  (realized & unrealized)..................    (1.01)       (1.97)         2.38
                                               -----        -----         -----
Total from investment operations...........    (1.03)       (1.99)         2.37

LESS DISTRIBUTIONS:
Dividends (from net investment income).....      ---          ---           ---
Distributions (from capital gains).........      ---          ---           ---
                                               -----        -----         -----
Total distributions........................      ---          ---           ---
                                               -----        -----         -----
NET ASSET VALUE END OF PERIOD..............   $ 9.35       $10.38        $12.37
                                               =====        =====         =====
TOTAL RETURN (B)...........................    (9.9)%      (16.1)%         23.7%

RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands).......   $52,998      $65,011       $31,399
Ratio of expenses to average net assets....     0.88%        0.89%         0.97%
Ratio of net investment income
  (loss) to average net assets.............   (0.20)%      (0.16)%       (0.16)%
Portfolio turnover rate....................       38%          68%           54%
================================================================================

(a)  Net  investment  income per share has been  calculated  using the  weighted
     monthly average number of capital shares outstanding.

(b)  Total return does not take into account any of the expenses associated with
     an investment in variable  insurance  products  offered by Security Benefit
     Life Insurance  Company.  Shares of a series of SBL Fund are available only
     through the purchase of such products.

(c)  Fund  expenses for Series I, K, P, V and X were  reduced by the  Investment
     Manager during the period.  Expense ratios absent such reimbursement  would
     have been as follows:

                ================================================
                              2000     1999       1998      1997
                ------------------------------------------------
                Series I     2.38%     4.20%      ---       ---
                Series K      ---       ---      1.66%     1.39%
                Series P      ---      0.86%     0.93%     1.14%
                Series V      ---       ---      0.89%     1.14%
                Series X      ---      1.33%     1.59%     1.98%
                ================================================

(d)  Expense  ratios were  calculated  without the reduction for custodian  fees
     earnings  credits and marketing fees paid  indirectly.  Expense ratios with
     such reductions would have been as follows:

            =========================================================
                         2001      2000      1999     1998      1997
            ---------------------------------------------------------
            Series A     0.82%     0.82%     ---      0.81%     0.81%
            Series B     0.83%     0.82%     ---      0.80%     0.83%
            Series C      ---       ---      ---      0.57%     0.58%
            Series E      ---       ---      ---      0.83%     0.83%
            Series G     1.22%     1.23%     ---       ---       ---
            Series I     2.24%     2.24%     ---       ---       ---
            Series J     0.83%     0.82%     ---      0.82%     0.82%
            Series K     1.52%      ---      ---       ---       ---
            Series O     1.08%      ---      ---       ---       ---
            Series P      ---       ---      ---      0.18%     0.31%
            Series Q     1.17%     1.23%     ---       ---       ---
            Series S     0.84%     0.83%     ---      0.82%     0.83%
            Series T     1.44%     1.48%     ---       ---       ---
            Series V     0.83%      ---      ---       ---       ---
            Series W     1.24%     1.17%     ---       ---       ---
            Series Y      ---      0.89%     ---       ---       ---
            =========================================================

(e)  Series V was initially  capitalized on May 1, 1997,  with a net asset value
     of $10 per share.  Percentage  amounts for the period have been annualized,
     except for total return.

(f)  Series X was initially  capitalized  on October 15, 1997,  with a net asset
     value  of $10 per  share.  Percentage  amounts  for the  period  have  been
     annualized, except for total return.

(g)  Series H, I and Y were initially capitalized on May 3, 1999, with net asset
     values of $10.00 per share.  Percentage  amounts  for the period  have been
     annualized, except for total return.

(h)  Series G, L, Q, T and W were initially capitalized on May 1, 2000, with net
     asset  values of $10.00 per share.  Percentage  amounts for the period have
     been annualized, except for total return.

(i)  Meridian   Investment   Management   Corporation   (Meridian)   became  the
     sub-advisor  of Series M (Global Total Return Series)  effective  August 1,
     1997.  Prior to August 1, 1997,  SMC paid  Templeton/  Franklin  Investment
     Services, Inc. and Meridian for research services provided to Series M.

(j)  Wellington  Management Company became sub-advisor for Series K and M on May
     15, 1999. Prior to May 15, 1999, Meridian  Investment  Management served as
     sub-advisor to Series M.

(k)  The Dreyfus  Corporation  became sub-advisor for Series B effective January
     2, 2001. Prior to January 2, 2001,  advisory  services were provided by the
     Investment Manager.

(l)  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.

                                   APPENDIX A
================================================================================


DESCRIPTION OF SHORT-TERM INSTRUMENTS

The types of  instruments  that will form the major  part of Series  C's  (Money
Market Series) investments are described below:

U.S.  GOVERNMENT  SECURITIES -- Federal agency  securities are debt  obligations
which principally result from lending programs of the U.S.  Government.  Housing
and agriculture have traditionally  been the principal  beneficiaries of federal
credit  programs,  and agencies  involved in providing credit to agriculture and
housing account for the bulk of the outstanding agency securities.

Some U.S. Government securities, such as Treasury bills and bonds, are supported
by the full faith and credit of the U.S.  Treasury;  others are supported by the
right of the issuer to borrow from the  Treasury;  others,  such as those of the
Federal  National  Mortgage  Association,  are  supported  by the  discretionary
authority of the U.S.  Government  to purchase the agency's  obligations;  still
others such as those of the Student Loan  Marketing  Association,  are supported
only by the credit of the instrumentality.

U.S.  Treasury  bills are issued with  maturities  of any period up to one year.
Three-month  bills are currently  offered by the Treasury on a 13-week cycle and
are auctioned  each week by the  Treasury.  Bills are issued in bearer form only
and are sold only on a discount basis,  and the difference  between the purchase
price  and the  maturity  value  (or the  resale  price if they are sold  before
maturity) constitutes the interest income for the investor.

CERTIFICATES  OF DEPOSIT -- A  certificate  of deposit is a  negotiable  receipt
issued by a bank or savings and loan  association in exchange for the deposit of
funds. The issuer agrees to pay the amount deposited plus interest to the bearer
of the receipt on the date specified on the certificate.

COMMERCIAL  PAPER  --  Commercial  paper  is  generally   defined  as  unsecured
short-term  notes  issued in bearer form by large  well-known  corporations  and
finance companies.  Maturities on commercial paper range from a few days to nine
months. Commercial paper is also sold on a discount basis.

BANKER'S ACCEPTANCES -- A banker's acceptance generally arises from a short-term
credit  arrangement  designed to enable  businesses  to obtain  funds to finance
commercial  transactions.  Generally,  an  acceptance is a time draft drawn on a
bank by an exporter or an importer to obtain a stated amount of funds to pay for
specific  merchandise.  The draft is then  "accepted" by a bank that, in effect,
unconditionally  guarantees  to pay the  face  value  of the  instrument  on its
maturity date.

DESCRIPTION OF COMMERCIAL PAPER RATINGS

A Prime  rating is the  highest  commercial  paper  rating  assigned  by Moody's
Investors Service, Inc. ("Moody's"). Issuers rated Prime are further referred to
by use of numbers 1, 2 and 3 to denote  relative  strength  within this  highest
classification. Among the factors considered by Moody's in assigning ratings are
the  following:  (1)  evaluation of the  management of the issuer;  (2) economic
evaluation  of  the  issuer's   industry  or  industries  and  an  appraisal  of
speculative type risks which may be inherent in certain areas; (3) evaluation of
the issuer's  products in relation to competition and customer  acceptance;  (4)
liquidity;  (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten  years;  (7)  financial  strength  of a parent  company  and the
relationships  which exist with the issuer; and (8) recognition by management of
obligations  which may be  present  or may arise as a result of public  interest
questions and preparations to meet such obligations.

Commercial  paper  rated "A" by  Standard & Poor's  Corporation  ("S&P") has the
highest  rating and is  regarded  as having  the  greatest  capacity  for timely
payment.  Commercial  paper rated A-1 by S&P has the following  characteristics:
(1)  liquidity  ratios are  adequate to meet cash  requirements;  (2)  long-term
senior  debt is rated "A" or  better;  (3) the issuer has access to at least two
additional  channels  of  borrowing;  (4) basic  earnings  and cash flow have an
upward trend with allowance made for unusual circumstances;  (5) typically,  the
issuer's  industry  is well  established  and the issuer  has a strong  position
within the  industry;  and (6) the  reliability  and quality of  management  are
unquestioned.  Relative  strength  or weakness  of the above  factors  determine
whether the issuer's commercial paper is rated A-1, A-2 or A-3.

DESCRIPTION OF CORPORATE BOND RATINGS

MOODY'S INVESTORS SERVICE,  INC. -- Aaa. Bonds which are rated Aaa are judged to
be of the best quality.  They carry the smallest  degree of investment  risk and
are generally  referred to as "gilt-edge."  Interest payments are protected by a
large or by an  exceptionally  stable margin and principal is secure.  While the
various  protective  elements  are  likely to  change,  such  changes  as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.

Aa. Bonds which are rated Aa are judged to be of high quality by all  standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds.  They are rated lower than the best bonds  because  margins of protection
may not be as large as in Aaa securities or  fluctuation of protective  elements
may be of greater  amplitude or there may be other  elements  present which make
the long-term risks appear somewhat larger than in Aaa securities.

A. Bonds which are rated A possess many favorable investment  attributes and are
to be considered as upper medium grade  obligations.  Factors giving security to
principal  and interest  are  considered  adequate,  but elements may be present
which suggest a susceptibility to impairment sometime in the future.

Baa. Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither  highly  protected nor poorly  secured.  Interest  payments and
principal  security  appear  adequate  for the present,  but certain  protective
elements may be lacking or may be  characteristically  unreliable over any great
length of time. Such bonds lack outstanding  investment  characteristics  and in
fact have speculative characteristics as well.

Ba.  Bonds  which are rated Ba are judged to have  speculative  elements;  their
future cannot be considered  as well assured.  Often the  protection of interest
and  principal  payments may be very  moderate and thereby not well  safeguarded
during  both  good  and bad  times  over the  future.  Uncertainty  of  position
characterizes bonds in this class.

B. Bonds  which are rated B  generally  lack  characteristics  of the  desirable
investment.  Assurance of interest and principal  payments or of  maintenance of
other terms of the contract over any long period of time may be small.

Caa.  Bonds  which are rated Caa are of poor  standing.  Such  issues  may be in
default or there may be present  elements of danger with respect to principal or
interest.

Ca. Bonds which are rated Ca represent  obligations  which are  speculative in a
high degree. Such issues are often in default or have other market shortcomings.

C. Bonds which are rated C are the lowest  rated  class of bonds,  and issues so
rated can be regarded as having  extremely  poor prospects of ever attaining any
real investment standing.

NOTE:  Moody's  applies  numerical  modifiers 1, 2 and 3 in each generic  rating
classification  from Aa through B. The  modifier 1 indicates  that the  security
ranks in the higher end of its generic rating category. The modifier 2 indicates
a mid-range ranking,  and modifier 3 indicates that the issue ranks in the lower
end of its generic rating category.

STANDARD & POOR'S  CORPORATION  -- AAA.  Bonds rated AAA have the highest rating
assigned by Standard & Poor's to a debt obligation. Capacity to pay interest and
repay principal is extremely strong.

AA.  Bonds  rated AA have a very  strong  capacity  to pay  interest  and  repay
principal and differ from the highest rated issues only in small degree.

A. Bonds rated A have a strong  capacity  to pay  interest  and repay  principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.

BBB. Bonds rated BBB are regarded as having an adequate capacity to pay interest
and  repay  principal.   Whereas  they  normally  exhibit  adequate   protection
parameters,  adverse  economic  conditions  or changing  circumstances  are more
likely to lead to a weakened  capacity to pay interest and repay  principal  for
bonds in this category than for bonds in higher rated categories.

BB, B, CCC,  CC.  Bonds rated BB, B, CCC and CC are  regarded,  on  balance,  as
predominantly  speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance  with the terms of  obligations.  BB indicates
the lowest degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective  characteristics,  these
are  outweighed  by large  uncertainties  or major  risk  exposures  to  adverse
conditions.

C. The rating C is reserved for income bonds in which no interest is being paid.

D. Debt rated D is in  default  and  payment of  interest  and/or  repayment  of
principal is in arrears.

NOTE:  Standard & Poor's  ratings from AA to CCC may be modified by the addition
of a plus or minus sign to show relative standing within the major categories.

FOR MORE INFORMATION

--------------------------------------------------------------------------------
BY TELEPHONE-- Call 1-800-888-2461.

BY MAIL-- Write to:
Security Management Company, LLC
One Security Benefit Place
Topeka, KS 66636-0001

ON THE  INTERNET -- Reports and other  information  about the Fund can be viewed
online or downloaded from:

SEC:  On the EDGAR Database at http://www.sec.gov

SMC, LLC:  http://www.securitybenefit.com

Additional  information  about the Fund  (including  the Statement of Additional
Information)  can  be  reviewed  and  copied  at  the  Securities  and  Exchange
Commission's  Public  Reference Room in Washington,  DC.  Information  about the
operation of the Public Reference Room may be obtained by calling the Commission
at 1-202-942-8090. Copies may be obtained, upon payment of a duplicating fee, by
electronic  request at the following  e-mail address:  publicinfo@sec.gov  or by
writing  the  Public  Reference  Section  of  the  Commission,   Washington,  DC
20549-0102.
--------------------------------------------------------------------------------

The  Fund's  prospectus  is to be used with the  attached  variable  annuity  or
variable life insurance product prospectus. The Series of the Fund correspond to
the subaccounts offered in such prospectuses.

ANNUAL/SEMI-ANNUAL REPORT -- Additional information about the Fund's investments
is available in the Fund's annual and semi-annual  reports to  shareholders.  In
the Fund's annual  report,  you will find a discussion of the market  conditions
and investment  strategies that  significantly  affected the Fund's  performance
during its last fiscal year.


STATEMENT  OF  ADDITIONAL  INFORMATION  -- The Fund's  Statement  of  Additional
Information and the Fund's annual or semi-annual  report are available,  without
charge  upon  request  by  calling  the  Fund's   toll-free   telephone   number
1-800-888-2461.  Shareholder  inquiries  should be  addressed  to SMC,  LLC, One
Security  Benefit Place,  Topeka,  Kansas  66636-0001,  or by calling the Fund's
toll-free  telephone  number  listed above.  The Fund's  Statement of Additional
Information is incorporated into this prospectus by reference.


The Fund's Investment Company Act file number is listed below:

                         SBL Fund..........   811-02753

                                    SBL FUND

                                   PROSPECTUS


                                  MAY 1, 2002
                      AS SUPPLEMENTED ON SEPTEMBER 3, 2002



                       o  Series I (International Series)

                       o  Series O (Equity Income Series)




     ----------------------------------------------------------------------
     The Securities and Exchange Commission has not approved or disapproved
     these  securities  or passed  upon the  accuracy  or  adequacy of this
     prospectus. Any representation to the contrary is a criminal offense.
     ----------------------------------------------------------------------




                                                [SDI LOGO]
                                                A Member of The Security Benefit
                                                Group of Companies

                               TABLE OF CONTENTS
--------------------------------------------------------------------------------


SERIES' OBJECTIVES..........................................................   2
  Series I (International Series)...........................................   2
  Series O (Equity Income Series) ..........................................   2

SERIES' PRINCIPAL INVESTMENT STRATEGIES.....................................   2
  Series I (International Series)...........................................   2
  Series O (Equity Income Series) ..........................................   2

MAIN RISKS..................................................................   3
  Market Risk...............................................................   3
  Smaller Companies.........................................................   3
  Value Stocks..............................................................   3
  Foreign Securities........................................................   3
  Emerging Markets..........................................................   4
  Options and Futures.......................................................   4
  Restricted Securities.....................................................   4
  Investment Companies......................................................   4
  Overweighting.............................................................   4
  Additional Information....................................................   4

PAST PERFORMANCE............................................................   4

INVESTMENT MANAGER..........................................................   6
  Management Fees...........................................................   6
  Portfolio Managers........................................................   6

PURCHASE AND REDEMPTION OF SHARES...........................................   6

BROKERAGE ENHANCEMENT PLAN..................................................   6

DISTRIBUTIONS AND FEDERAL INCOME TAX CONSIDERATIONS.........................   7

DETERMINATION OF NET ASSET VALUE............................................   7

GENERAL INFORMATION.........................................................   7
  Contractowner Inquiries...................................................   7

INVESTMENT POLICIES AND MANAGEMENT PRACTICES................................   7
  Convertible Securities and Warrants.......................................   8
  Foreign Securities........................................................   8
  Emerging Markets..........................................................   8
  Smaller Companies.........................................................   8
  Restricted Securities.....................................................   8
  Lower Rate Debt Securities................................................   9
  Futures and Options.......................................................   9
  Hybrid Instruments........................................................   9
  When-Issued Securities and Forward Commitment Contracts...................   9
  Cash Reserves.............................................................   9
  Shares of Other Investment Companies......................................   9
  Borrowing.................................................................   9
  Securities Lending........................................................  10

FINANCIAL HIGHLIGHTS........................................................  10

SERIES' OBJECTIVES

Described  below are the  investment  objectives  of Series I and  Series O. SBL
Fund's  Board  of  Directors  may  change  the  investment   objectives  without
shareholder approval.

As with any  investment,  there can be no guarantee that the Series will achieve
their objectives.

SERIES  I   (INTERNATIONAL   SERIES)  --  Series  I  seeks   long-term   capital
appreciation.

SERIES O  (EQUITY  INCOME  SERIES)  --  Series O seeks  to  provide  substantial
dividend income and also capital appreciation.

SERIES' PRINCIPAL INVESTMENT STRATEGIES


SERIES  I  (INTERNATIONAL  SERIES)  --  The  Series  pursues  its  objective  by
investing,  under normal  circumstances,  at least 65% of its assets in at least
three  different  countries,  other than the United States.  The Series normally
will invest  primarily in equity  securities  of companies  located  outside the
United States, including emerging markets.


--------------------------------------------------------------------------------
EQUITY  SECURITIES  include  common  stock,  preferred  stock,  trust or limited
partnership   interests,   rights  and  warrants  and   convertible   securities
(consisting  of debt  securities or preferred  stock that may be converted  into
common stock or that carry the right to purchase common stock).
--------------------------------------------------------------------------------

The Series may invest a portion of its assets in smaller companies. For purposes
of  this  Series,  smaller  company  stocks  are  generally  those  with  market
capitalizations  of less than $1 billion.  The Series also  invests in American,
European and Global Depositary Receipts, which are certificates typically issued
by a bank or trust  company  that  give  their  holders  the  right  to  receive
securities  issued by a foreign or domestic  company.  The Series,  from time to
time, may have significant investments in one or more countries or in particular
sectors, such as financial institutions or industrial companies.

When choosing equity  investments  for the Series,  the  Sub-Adviser,  Templeton
Investment  Counsel,  LLC  applies  a  "bottom-up",   value-oriented,  long-term
approach, focusing on the market price of a company's securities relative to the
Sub-Adviser's  evaluation of the company's long-term  earnings,  asset value and
cash flow potential.  The Sub-Adviser also considers a company's  price/earnings
ratio,  profit  margins and  liquidation  value.  In choosing  investments,  the
Series' Sub-Adviser strongly believes in onsite visits to issuers of prospective
investments  to assess  critical  factors such as management  strength and local
conditions.  In selecting securities for the Series, the Sub-Adviser attempts to
identify those  companies  that offer  above-average  opportunities  for capital
appreciation  in various  countries and industries  where economic and political
factors, including currency movements, are favorable to capital growth.

The  Series  may  invest in  futures  contracts,  options,  options  on  futures
contracts and other derivative strategies. These investments, when made, are for
hedging purposes. If the Series uses futures contracts for non-hedging purposes,
the margin and premiums required to make those investments will not exceed 5% of
the Series' net asset value after  taking into  account  unrealized  profits and
losses on the contracts.

The Series  typically  sells an  investment  when the  reasons  for buying it no
longer apply,  or when the issuer begins to show  deteriorating  fundamentals or
poor relative performance.

Under  adverse  market  conditions,  the Series  could invest some or all of its
assets in cash or money  market  securities.  Although  the Series would do this
only in  seeking  to avoid  losses,  the  Series  may be unable  to  pursue  its
investment  objective during that time, and it could reduce the benefit from any
upswing in the market.


SERIES  O  (EQUITY  INCOME  SERIES)  -- The  Series  pursues  its  objective  by
investing, under normal circumstances,  at least 80% of its net assets in common
stocks,  with 65% in the  common  stocks of  well-established  companies  paying
above-average dividends.

The  Sub-Adviser,   T.  Rowe  Price  Associates,   Inc.,   typically  employs  a
value-oriented strategy in selecting investments for the Series. T. Rowe Price's
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.

In selecting  investments,  T. Rowe Price generally looks for companies with the
following:

o  An established operating history
o  Above-average dividend yield relative to the S&P 500 Index
o  Low price/earnings ratio relative to the S&P 500 Index
o  A sound balance sheet and other financial characteristics
o  Low stock  price  relative  to a  company's  underlying  value as measured by
   assets, cash flow or business franchises

--------------------------------------------------------------------------------
PRICE/EARNINGS RATIO ("P/E") is the price of a stock divided by its earnings per
share.  The  price/earnings  ratio gives  investors an idea of how much they are
paying for a  company's  earning  power.  High P/E stocks are  typically  young,
fast-growing  companies.  Low P/E  stocks  tend to be in  low-growth  or  mature
industries,  in  stock  groups  that  have  fallen  out  of  favor,  or in  old,
established,  blue-chip  companies  with long records of earnings  stability and
regular  dividends.  Generally,  low P/E stocks have higher yields than high P/E
stocks, which often pay no dividends at all.
--------------------------------------------------------------------------------

While most of the Series' assets will be invested in U.S. common stocks, T. Rowe
Price may also invest in other securities,  including foreign  securities,  debt
securities, futures and options, in keeping with the Series' objective.

Under  adverse  market  conditions  the Series  could  invest some or all of its
assets  in cash  reserves  including  money  market  securities  and  repurchase
agreements.  Although the Series would do this only in seeking to avoid  losses,
the Series may be unable to pursue its  investment  objective  during that time,
and it could reduce the benefit  from any upswing in the market.  The Series may
invest up to 25% of its total assets in Reserve  Investment  Fund, an internally
managed money market fund of T. Rowe Price.  The Reserve  Investment Fund may be
used to invest the cash reserves of Series O.

The  Series may sell  securities  for a variety  of  reasons,  such as to secure
gains, limit losses, or redeploy assets into more promising opportunities.

MAIN RISKS


The following  provides  information on the main risks which apply to the Series
of the Fund. However, the fact that a particular risk is not indicated as a main
risk for a Series does not mean that the Series is prohibited from investing its
assets in securities which give rise to that risk. It simply means that the risk
is not a main risk for that Series. For example,  the risk of investing in value
stocks is not listed as a main risk for Series I. This does not mean that Series
I is  prohibited  from  investing in value  stocks,  only that the risk of value
stocks is not one of the main  risks  associated  with  Series I. The  Portfolio
Manager for a Series has considerable leeway in choosing  investment  strategies
and selecting  securities  that he or she believes will help the Series  achieve
its investment objective. In seeking to meet its investment objective, a Series'
assets may be invested in any type of security or  instrument  whose  investment
characteristics are consistent with the Series' investment program.


--------------------------------------------------------------------------------
Your  investment  in the Series is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance  Corporation or any other government
agency.  The value of an  investment  in the Series  will go up and down,  which
means investors could lose money.
--------------------------------------------------------------------------------

MARKET RISK -- While stocks have historically been a leading choice of long-term
investors,  they  fluctuate  in  price.  Their  prices  tend to  fluctuate  more
dramatically  over the shorter  term than do the prices of other asset  classes.
These movements may result from factors affecting individual companies,  or from
broader influences like changes in interest rates,  market conditions,  investor
confidence or announcements of economic, political or financial information here
or abroad.  By virtue of their investment  strategies to invest in stocks,  each
Series is particularly susceptible to market risk.

SMALLER COMPANIES -- Series I may invest in smaller companies. While potentially
offering greater  opportunities for capital growth than larger, more established
companies,  the securities of smaller  companies may be  particularly  volatile,
especially  during  periods  of  economic  uncertainty.  Securities  of  smaller
companies  may  present   additional  risks  because  their  earnings  are  less
predictable,  their share prices tend to be more  volatile and their  securities
often are less liquid  than  larger,  more  established  companies,  among other
reasons.

VALUE STOCKS --  Investments  in value stocks are subject to the risk that their
intrinsic values may never be realized by the market,  that a stock judged to be
undervalued may actually be  appropriately  priced,  or that their prices may go
down. While the Series' investments in value stocks may limit downside risk over
time, a Series may, as a trade-off, produce more modest gains than riskier stock
funds.  Both Series I and Series O offer the potential  reward,  and risks, of a
value oriented investment strategy.

--------------------------------------------------------------------------------
VALUE-ORIENTED   STOCKS  are  stocks  of  companies  that  are  believed  to  be
undervalued  in terms of price or other  financial  measurements  and that  have
above average growth potential.
--------------------------------------------------------------------------------

FOREIGN  SECURITIES -- Series I and, to a lesser extent,  Series O may invest in
foreign securities and/or American Depositary Receipts (ADRs). Series I may also
invest in European Depositary Receipts and Global Depositary Receipts. Investing
in foreign securities involves  additional risks such as currency  fluctuations,
differences  in  financial  reporting  standards,  a lack  of  adequate  company
information and political or economic instability. The risks may be particularly
acute in underdeveloped capital markets.

EMERGING MARKETS -- Series I may invest in securities of developing countries or
emerging  markets.  All of the risks of  investing  in  foreign  securities  are
heightened  by investing in  developing  countries  and  emerging  markets.  The
markets of developing  countries  historically  have been more volatile than the
markets of developed  countries with mature economies.  These markets often have
provided higher rates of return, and greater risks, to investors.

--------------------------------------------------------------------------------
An EMERGING MARKET FOREIGN COUNTRY  consists of all countries  determined by the
Sub-Adviser to have developing or emerging economies and markets. The definition
of  "emerging  market  foreign  country"  may  change  over  time as a result of
developments in national or regional economies and capital markets.
--------------------------------------------------------------------------------

OPTIONS  AND  FUTURES  --  Options  and  futures  may be used to hedge a Series'
portfolio,  to gain exposure to a market without buying individual securities or
to increase returns.  There is the risk that such practices sometimes may reduce
returns or  increase  volatility.  These  practices  also  entail  transactional
expenses. Series I and Series O may both use options and futures contracts.

RESTRICTED  SECURITIES  -- Series I and O may invest in  restricted  securities.
Restricted  securities cannot be sold to the public without  registration  under
the Securities Act of 1933 ("1933 Act"). Unless registered for sale,  restricted
securities can be sold only in privately negotiated  transactions or pursuant to
an exemption from registration.  Restricted  securities are generally considered
illiquid  and,   therefore,   subject  to  the  Fund's  limitation  on  illiquid
securities.

Restricted securities (including Rule 144A Securities) may involve a high degree
of business  and  financial  risk which may result in  substantial  losses.  The
securities may be less liquid than publicly  traded  securities.  Although these
securities  may be resold  in  privately  negotiated  transactions,  the  prices
realized from these sales could be less than those  originally paid by a Series.
In   particular,   Rule  144A   Securities  may  be  resold  only  to  qualified
institutional  buyers in accordance  with Rule 144A under the  Securities Act of
1933.  Rule 144A  permits  the  resale to  "qualified  institutional  buyers" of
"restricted  securities"  that,  when  issued,  were  not of the  same  class as
securities  listed on a U.S.  securities  exchange  or  quoted  in the  National
Association of Securities  Dealers  Automated  Quotation  System (the "Rule 144A
Securities").  Investing in Rule 144A Securities and other restricted securities
could have the effect of increasing the amount of a Series'  assets  invested in
illiquid  securities to the extent that  qualified  institutional  buyers become
uninterested, for a time, in purchasing these securities.

INVESTMENT  COMPANIES  -- To the  extent  Series O invests  in other  investment
companies,  it will  incur  its pro  rata  share  of the  underlying  investment
companies'  expenses.  In  addition,  Series O will be  subject to the effect of
business  and  regulatory  developments  that  affect an  underlying  investment
company or the investment industry generally.

OVERWEIGHTING --  Overweighting  investments in certain sectors or industries of
the stock  market  increases  the risk that a Fund will suffer a loss because of
general declines in the prices of stocks in those sectors or industries.  Series
I offers the risks of an overweighted investment strategy.

ADDITIONAL  INFORMATION -- For more information about the investment  program of
the Series, including additional information about the risks of certain types of
investments,  please see the  "Investment  Policies  and  Management  Practices"
section of the prospectus.

PAST PERFORMANCE

The charts and tables on the  following  pages  provide some  indication  of the
risks of  investing  in Series O by showing  changes in the Series'  performance
from year to year and by showing how the Series'  average  annual total  returns
have compared to those of broad measures of market performance.  The performance
figures on the following pages do not reflect fees and expenses  associated with
an investment in variable  insurance  products  offered by Security Benefit Life
Insurance Company.  Shares of the Series are available only through the purchase
of such products. As with all mutual funds, past performance is not a prediction
of future results.

================================================================================
SERIES I (INTERNATIONAL SERIES)
================================================================================

              [BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]

                            2000     2001
                            ----     ----
                           -20.4%   -24.4%

     ===============================================================
     HIGHEST AND LOWEST RETURNS
     (QUARTERLY 2000-2001)
     ---------------------------------------------------------------
                                                QUARTER ENDED
     Highest                     6.68%        December 31, 2001
     Lowest                    -17.2%         September 30, 2001
     ===============================================================


     ===============================================================
     AVERAGE ANNUAL TOTAL RETURNS
     (THROUGH DECEMBER 31, 2001)
     ---------------------------------------------------------------
                                                  LIFE OF SERIES
                                    PAST 1 YEAR   (SINCE 4/30/99)
     Series I                        -24.4%           -8.8%
     MSCI EAFE Index                 -21.4%           -7.5%
     ===============================================================

================================================================================
SERIES O (EQUITY INCOME SERIES)
================================================================================

             [BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]

             1996    1997    1998    1999     2000     2001
             ----    ----    ----    ----     ----     ----
             20.0%   28.4%   9.0%    3.1%     12.9%    1.3%

     ===============================================================
     HIGHEST AND LOWEST RETURNS
     (QUARTERLY 1996-2001)
     ---------------------------------------------------------------
                                                QUARTER ENDED
     Highest                    13.0%           June 30, 1999
     Lowest                     -8.6%         September 30, 1999
     ===============================================================


     ===============================================================
     AVERAGE ANNUAL TOTAL RETURNS
     (THROUGH DECEMBER 31, 2001)
     ---------------------------------------------------------------
                                 PAST      PAST     LIFE OF SERIES
                                1 YEAR    5 YEARS   (SINCE 6/1/95)
     Series O                     1.3%     10.6%        13.6%
     S&P 500                    -11.9%     10.7%        14.2%
     S&P BARRA Value            -11.7%      9.5%        12.9%

     ===============================================================

INVESTMENT MANAGER


Security Management  Company,  LLC, One Security Benefit Place,  Topeka,  Kansas
66636, is the Series'  Investment  Manager.  On December 31, 2001, the aggregate
assets  of all of the  mutual  funds  under  the  investment  management  of the
Investment Manager were approximately $7.9 billion.

The Investment Manager has engaged Templeton  Investment Counsel,  LLC, 500 East
Broward  Boulevard,  Ft. Lauderdale,  Florida , to provide  investment  advisory
services to Series I. Templeton, together with its affiliates, manages over $274
billion in assets.


The  Investment  Manager has engaged T. Rowe Price  Associates,  Inc.,  100 East
Pratt Street, Baltimore,  Maryland 21202 to provide investment advisory services
to Series O. T. Rowe Price Associates,  Inc. is a wholly-owned  subsidiary of T.
Rowe Price Group, Inc. a publicly traded financial  services holding company for
the T. Rowe Price affiliated companies. T. Rowe Price was founded in 1937. As of
December 31, 2001, T. Rowe Price and its affiliates managed approximately $156.3
billion in investments for approximately 8 million  individual and institutional
accounts.

The  Investment  Manager and the Series have  received from the  Securities  and
Exchange Commission an exemptive order for a multi-manager structure that allows
the Investment  Manager to hire, replace or terminate  sub-advisors  without the
approval of shareholders. The order also allows the Investment Manager to revise
a  sub-advisory  agreement  with the  approval  of Fund  Directors,  but without
shareholder approval.  If a new sub-advisor is hired,  shareholders will receive
information  about the new sub-advisor  within 90 days of the change.  The order
allows the Series to operate more efficiently and with greater flexibility.  The
Investment Manager provides the following  oversight and evaluation  services to
the Series which use a sub-advisor:

o  performing initial due diligence on prospective sub-advisors for the Series
o  monitoring the performance of the sub-advisors
o  communicating performance expectations to the sub-advisors
o  ultimately  recommending  to the Board of Directors  whether a  sub-advisor's
   contract should be renewed, modified or terminated.

The  Investment  Manager  does not  expect  to  recommend  frequent  changes  of
sub-advisors.  Although the Investment  Manager will monitor the  performance of
the  sub-advisors,  there is no certainty  that any  sub-advisor  or Series will
obtain favorable results at any given time.

MANAGEMENT FEES -- The following chart shows the investment management fees paid
by each Series during the last fiscal year, except as otherwise indicated.

               =================================================
               MANAGEMENT FEES
               (expressed as a percentage of average net assets)
               -------------------------------------------------
               Series I.................................   1.10%
               Series O.................................   1.00%
               =================================================

The Investment Manager may waive its management fee to limit the total operating
expenses of a Series to a  specified  level.  The  Investment  Manager  also may
reimburse expenses of the Series from time to time to help maintain  competitive
expense ratios.  These  arrangements  are voluntary and may be terminated at any
time.


PORTFOLIO  MANAGERS -- ANTONIO T. DOCAL, Vice President at Templeton has managed
Series I  (International  Series)  since  September  of 2002.  Prior to  joining
Templeton in 2001, Mr. Docal was vice president and director at Evergreen Funds.
Mr.  Docal holds an M.B.A.  degree from the Sloan  School of  Management  at the
Massachusetts  Institute of Technology and a B.A. degree from Trinity College in
Connecticut. Mr. Docal is also a Chartered Financial Analyst charterholder.

BRIAN C.  ROGERS,  Director  and  Managing  Director  of T. Rowe Price Group and
Portfolio Manager for T. Rowe Price, has managed Series O (Equity Income Series)
since its  inception  in 1995.  He  joined  T.  Rowe  Price in 1982 and has been
managing investments since 1983.


PURCHASE AND REDEMPTION OF SHARES

Security Benefit Life Insurance  Company  purchases shares of the Series for its
variable annuity and variable life insurance separate accounts. Security Benefit
buys and sells  shares of the Series at the net asset value per share (NAV) next
determined after it submits the order to buy or sell. A Series' NAV is generally
calculated  as of the close of trading on every day the New York Stock  Exchange
is open.

The Fund may suspend the right of  redemption  during any period when trading on
the New York Stock  Exchange is  restricted or such Exchange is closed for other
than weekends or holidays, or any emergency is deemed to exist by the Securities
and Exchange Commission.

BROKERAGE ENHANCEMENT PLAN

The Fund has adopted,  in accordance with the provisions of Rule 12b-1 under the
Investment Company Act of 1940, a Brokerage  Enhancement Plan (the "Plan").  The
Plan uses available  brokerage  commissions to promote the sale and distribution
of Fund shares  (through the sale of variable  insurance  products funded by the
Fund).

Under the Plan, the Fund may direct the  Investment  Manager or a sub-advisor to
use certain broker-dealers for securities transactions.  (The duty of best price
and execution  still applies to these  transactions.)  These are  broker-dealers
that have agreed either (1) to pay a portion of their  commission  from the sale
and purchase of  securities  to the  Distributor  or other  introducing  brokers
("Brokerage  Payments"),  or (2)  to  provide  brokerage  credits,  benefits  or
services ("Brokerage Credits").  The Distributor will use all Brokerage Payments
and Credits (other than a minimal amount to defray its legal and  administrative
costs) to finance  activities that are meant to result in the sale of the Fund's
shares, including:

o  holding or participating in seminars and sales meetings promoting the sale of
   the Fund's shares
o  paying marketing fees requested by broker-dealers who sell the Fund
o  training sales personnel
o  creating and mailing advertising and sales literature
o  financing  any other  activity  that is intended to result in the sale of the
   Fund's shares.

The Plan  permits the  Brokerage  Payments and Credits  generated by  securities
transactions from one Series of the Fund to inure to the benefit of other Series
as well.  The Plan is not expected to increase the brokerage  costs of the Fund.
For more information  about the Plan,  please read the "Portfolio  Transactions"
section of the Statement of Additional Information.

DISTRIBUTIONS AND FEDERAL INCOME TAX CONSIDERATIONS

Each Series pays its  shareholders  dividends  from net investment  income,  and
distributes any net capital gains that it has realized, at least annually.  Such
dividends and  distributions  will be  reinvested  in  additional  shares of the
Series.

You may purchase shares of the Series only indirectly  through the purchase of a
variable annuity or variable life insurance  contract issued by Security Benefit
Life Insurance  Company.  The  prospectus for such variable  annuity or variable
life insurance  contract describes the federal tax consequences of your purchase
or sale of the contract.

DETERMINATION OF NET ASSET VALUE

The net asset  value per share  (NAV) of each Series is computed as of the close
of regular trading hours on the New York Stock Exchange (normally 3 p.m. Central
time) on days when the  Exchange is open.  The  Exchange is open Monday  through
Friday, except on observation of the following holidays:  New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday,  Memorial Day,  Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.

Each Series' NAV is generally  based upon the market value of securities held in
the Series'  portfolio.  If market prices are not  available,  the fair value of
securities  is  determined  using  procedures  approved by each Fund's  Board of
Directors.

Foreign  securities  are valued based on quotations  from the primary  market in
which they are  traded,  and are  converted  from the local  currency  into U.S.
dollars using current  exchange  rates.  Foreign  securities  may trade in their
primary  markets on  weekends  or other days when the Series  does not price its
shares.  Therefore,  the NAV of Series holding foreign  securities may change on
days when shareholders will not be able to buy or sell shares of the Series.

GENERAL INFORMATION

CONTRACTOWNER INQUIRIES -- If you have questions concerning your account or wish
to  obtain  additional  information,  you may write to SBL  Fund,  One  Security
Benefit  Place,   Topeka,   Kansas   66636-0001,   or  call  (785)  438-3000  or
1-800-888-2461.

INVESTMENT POLICIES AND MANAGEMENT PRACTICES

This section takes a detailed look at some of the types of securities the Series
may hold in their portfolios and the various kinds of management  practices that
may be  used in the  portfolios.  The  Series'  holdings  of  certain  types  of
investments cannot exceed a maximum  percentage of net assets.  These percentage
limitations are set forth in the Statement of Additional Information.  While the
percentage  limitations  provide  a  useful  level  of  detail  about a  Series'
investment  program,  they  should  not be  viewed as an  accurate  gauge of the
potential  risk  of  the  investment.  For  example,  in a  given  period,  a 5%
investment in futures  contracts could have a significantly  greater impact on a
Series'  share price than its  weighting in the  portfolio.  The net effect of a
particular  investment  depends on its  volatility  and the size of its  overall
return in relation to the  performance  of all the  Series'  other  investments.
Portfolio Managers have considerable  leeway in choosing  investment  strategies
and selecting  securities they believe will help a Series achieve its objective.
In seeking to meet its investment objective,  a Series may invest in any type of
security or instrument whose investment  characteristics are consistent with the
Series' investment program.

The Series are subject to certain investment policy  limitations  referred to as
"fundamental  policies."  The  fundamental  policies can not be changed  without
shareholder  approval.  Some of the more important fundamental policies are that
each Series will not:

o  with respect to 75% of its total assets,  invest more than 5% of the value of
   its  assets  in  any  one  issuer  other  than  the  U.S.  Government  or its
   instrumentalities

o  with  respect  to 75% of its  total  assets,  purchase  more  than 10% of the
   outstanding  voting  securities  of  any  one  issuer  other  than  the  U.S.
   Government or its instrumentalities

o  invest 25% or more of its total assets in any one industry.

The full text of each Series' fundamental policies are included in the Statement
of Additional Information.

The following  pages describe some of the  investments  which may be made by the
Series.

CONVERTIBLE  SECURITIES  AND  WARRANTS  -- The  Series  may  invest  in  debt or
preferred  equity  securities  convertible  into, or  exchangeable  for,  equity
securities.  Traditionally,   convertible  securities  have  paid  dividends  or
interest  at rates  higher  than  common  stocks but lower  than  nonconvertible
securities.  They generally  participate in the  appreciation or depreciation of
the underlying stock into which they are convertible, but to a lesser degree. In
recent years, convertible securities have been developed which combine higher or
lower current  income with options and other  features.  Warrants are options to
buy a stated  number  of shares of common  stock at a  specified  price  anytime
during the life of the warrants (generally, two or more years).

FOREIGN  SECURITIES  --  Foreign  investments  involve  certain  special  risks,
including,  but not limited  to, (i)  unfavorable  changes in currency  exchange
rates;  (ii) adverse  political and economic  developments;  (iii) unreliable or
untimely information; (iv) limited legal recourse; (v) limited markets; and (vi)
higher operational expenses.

Foreign investments are normally issued and traded in foreign  currencies.  As a
result,  their values may be affected by changes in the exchange  rates  between
particular  foreign currencies and the U.S. dollar.  Foreign  investments may be
subject  to  the  risks  of  seizure  by a  foreign  government,  imposition  of
restrictions  on  the  exchange  or  transport  of  foreign  currency,  and  tax
increases. There may also be less information publicly available about a foreign
company than about most U.S.  companies,  and foreign  companies are usually not
subject to accounting,  auditing and financial reporting standards and practices
comparable to those in the United  States.  The legal  remedies for investors in
foreign  investments  may be more  limited  than those  available  in the United
States.  Certain foreign investments may be less liquid (harder to buy and sell)
and more volatile than domestic  investments,  which means a Series may at times
be unable to sell its foreign  investments  at  desirable  prices.  For the same
reason,  a  Series  may  at  times  find  it  difficult  to  value  its  foreign
investments.  Brokerage  commissions  and other  fees are  generally  higher for
foreign investments than for domestic investments.  The procedures and rules for
settling foreign  transactions  may also involve delays in payment,  delivery or
recovery  of money or  investments.  Foreign  withholding  taxes may  reduce the
amount of income available to distribute to shareholders of the Series.

EMERGING MARKETS -- Series I may invest in emerging markets foreign  securities.
The risks  associated with foreign  investments are typically  increased in less
developed and developing countries,  which are sometimes referred to as emerging
markets.  For example,  political and economic structures in these countries may
be young and developing  rapidly,  which can cause instability.  These countries
are also more  likely to  experience  high  levels of  inflation,  deflation  or
currency  devaluation,  which could hurt their economies and securities markets.
For  these  and  other  reasons,  investments  in  emerging  markets  are  often
considered speculative.

SMALLER  COMPANIES  -- Series I may invest in small or  medium-sized  companies.
These  companies are more likely than larger  companies to have limited  product
lines,  markets or financial resources,  or to depend on a small,  inexperienced
management  group.  Stocks of these  companies may trade less  frequently and in
limited  volume,  and their  prices  may  fluctuate  more  than  stocks of other
companies. Stocks of these companies may therefore be more vulnerable to adverse
developments than those of larger companies.

RESTRICTED  SECURITIES -- Series O may invest in restricted  securities that are
eligible  for  resale  under  Rule  144A of the  Securities  Act of 1933.  These
securities   are  sold  directly  to  a  small  number  of  investors,   usually
institutions.  Unlike public offerings, restricted securities are not registered
with the SEC. Although restricted securities which are eligible for resale under
Rule 144A may be readily  sold to  qualified  buyers,  there may not always be a
market for them and their sale may  involve  substantial  delays and  additional
costs.  Restricted securities (other than Rule 144A securities) are subject to a
limit of 15% of net assets.

FUTURES  AND  OPTIONS -- The Series may utilize  futures  contracts,  options on
futures and may purchase  call and put options and write call and put options on
a "covered"  basis.  Futures (a type of potentially  high-risk  derivative)  are
often used to manage or hedge risk  because  they enable the  investor to buy or
sell an asset in the future at an agreed-upon  price.  Options  (another type of
potentially  high-risk  derivative)  give the  investor  the  right  (where  the
investor  purchases the options),  or the obligation  (where the investor writes
(sells) the options),  to buy or sell an asset at a  predetermined  price in the
future.  The Series may also engage in forward  foreign  currency  transactions.
These instruments may be bought or sold for any number of reasons, including: to
manage  exposure  to changes in  securities  prices and foreign  currencies,  to
manage exposure to changes in interest rates,  and bond prices;  as an efficient
means of adjusting overall exposure to certain markets;  in an effort to enhance
income;  to protect the value of portfolio  securities;  and to adjust portfolio
duration.  Futures  contracts and options may not always be  successful  hedges;
their  prices can be highly  volatile.  Using them could  lower a Series'  total
return,  and the  potential  loss from the use of futures can exceed the Series'
initial investment in such contracts.

HYBRID  INSTRUMENTS  -- Series O may  invest  up to 10% of its  total  assets in
certain  hybrid  instruments.  These  instruments  (which are  derivatives)  can
combine the characteristics of securities, futures and options. For example, the
principal  amount,  redemption  or  conservation  terms of a  security  could be
related to the market price of some commodity, currency or securities index. The
risks of such  investments  would  reflect  the risks of  investing  in futures,
options and securities,  including  volatility and illiquidity.  Such securities
may bear interest or pay dividends at below market (or even relatively  nominal)
rates.  Under certain  conditions,  the  redemption  value of such an investment
could be zero.  Hybrids can have volatile prices and limited liquidity and their
use by a Series may not be successful.

WHEN-ISSUED  SECURITIES  AND  FORWARD  COMMITMENT  CONTRACTS  -- The  Series may
purchase  and  sell  securities  on a "when  issued,"  "forward  commitment"  or
"delayed  delivery" basis. The price of these securities is fixed at the time of
the  commitment  to buy, but delivery and payment can take place a month or more
later.  During the  interim  period,  the  market  value of the  securities  can
fluctuate,  and no interest  accrues to the purchaser.  At the time of delivery,
the value of the securities may be more or less than the purchase or sale price.
When a Series  purchases  securities  on this  basis,  there is a risk  that the
securities may not be delivered and that the Series may incur a loss.

CASH  RESERVES  --  The  Series  may  establish  and  maintain  reserves  as the
Investment Manager or relevant  Sub-Adviser  believes is advisable to facilitate
the Series'  cash flow needs  (e.g.,  redemptions,  expenses  and,  purchases of
portfolio  securities) or for temporary,  defensive purposes.  Such reserves may
include domestic,  and foreign money market  instruments as well as certificates
of deposit, bank demand accounts and repurchase agreements.

SHARES OF OTHER INVESTMENT COMPANIES -- The Series may invest in shares of other
investment  companies.  Other  than as  noted  below  for  Series  O, a  Series'
investment in shares of other  investment  companies may not exceed  immediately
after  purchase 10% of the Series' total assets and no more than 5% of its total
assets may be invested in the shares of any one investment  company.  Investment
in the  shares  of  other  investment  companies  has the  effect  of  requiring
shareholders  to pay the operating  expenses of two mutual  funds.  Series O may
invest up to 25% of its total  assets in the T. Rowe  Price  Reserve  Investment
Fund,  an  internally  managed  money market fund of T. Rowe Price.  The Reserve
Investment Fund may be used to invest the cash reserves of Series O.

BORROWING -- The Series may borrow money as a temporary measure or for emergency
purposes and for other purposes consistent with the Series' investment objective
and program.  Such borrowings may be  collateralized  with Series assets. To the
extent that a Series purchases  securities while it has outstanding  borrowings,
it is using leverage, i.e., using borrowed funds for investment. Leveraging will
exaggerate  the effect on net asset  value of any  increase  or  decrease in the
market  value of a Series'  portfolio.  Money  borrowed for  leveraging  will be
subject to interest  costs that may or may not be recovered by  appreciation  of
the securities purchased; in certain cases, interest costs may exceed the return
received on the securities purchased.  A Series also may be required to maintain
minimum  average  balances  in  connection  with  such  borrowing  or  to  pay a
commitment  or  other  fee to  maintain  a  line  of  credit;  either  of  these
requirements would increase the cost of borrowing over the stated interest rate.

SECURITIES LENDING -- For purposes of realizing additional income,  Series I and
Series O may lend their portfolio securities to certain borrowers. Any such loan
will be  continuously  secured by  collateral at least equal to the value of the
security  loaned.  The risks in  lending  portfolio  securities,  as with  other
extensions  of  credit,  consist  of  possible  delay  in  receiving  additional
collateral  or in the recovery of the  securities  or possible loss of rights in
the collateral should the borrower fail financially.  Loans will only be made to
firms deemed by the  Investment  Manager to be of good  standing and will not be
made unless, in the judgment of the Investment Manager,  the consideration to be
earned from such loans would justify the risk.

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand certain of the
Series  financial  performance for the period since  commencement of operations.
Certain  information  reflects  financial results for a single Series share. The
total returns in the table represent the rate that an investor would have earned
(or lost) on an investment in the Series assuming  reinvestment of all dividends
and distributions.  This information has been derived from financial  statements
that have been audited by Ernst & Young LLP, whose report, along with the Fund's
financial statements,  is included in its annual report, which is available upon
request.

================================================================================
SERIES I
--------------------------------------------------------------------------------
                                          FISCAL YEAR ENDED DECEMBER 31
                                      -------------------------------------
                                      2001(b)     2000(b)(e)     1999(c)(d)
                                      -------     ----------     ----------
PER SHARE DATA
Net asset value beginning of period   $10.35        $13.00         $10.00

INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).......    (0.04)        (0.09)         (0.04)
Net gain (loss) on securities
 (realized & unrealized)...........    (2.49)        (2.56)          3.04
                                       -----         -----          -----
Total from investment operations...    (2.53)        (2.65)          3.00

LESS DISTRIBUTIONS:
Dividends (from net
 investment income)................      ---           ---            ---
Distributions (from capital gains).      ---           ---            ---
                                       -----         -----          -----
Total distributions................      ---           ---            ---
                                       -----         -----          -----
NET ASSET VALUE END OF PERIOD......   $ 7.82        $10.35         $13.00
                                       =====         =====          =====
TOTAL RETURN (a)...................   (24.4)%       (20.4)%          30.0%

RATIOS/SUPPLEMENTAL DATA
Net assets end
 of period (thousands).............   $15,999       $18,071         $9,857
Ratio of expenses to
 average net assets................     2.25%         2.28%          2.25%
Ratio of net investment income
  (loss) to average net assets.....   (0.54)%       (0.98)%        (0.70)%
Portfolio turnover rate............      175%          139%            98%
================================================================================


==========================================================================================
SERIES O
------------------------------------------------------------------------------------------
                                                 FISCAL YEAR ENDED DECEMBER 31
                                      ----------------------------------------------------
                                        2001       2000       1999       1998       1997
                                        ----       ----       ----       ----       ----
PER SHARE DATA
Net asset value beginning of period    $17.66     $17.27     $18.35     $17.62     $14.01

INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss).......      0.21       0.31       0.30       0.29       0.19
Net gain (loss) on securities
 (realized & unrealized)...........       ---       1.76       0.19       1.30       3.77
                                        -----      -----      -----      -----      -----
Total from investment operations...      0.21       2.07       0.49       1.59       3.96

LESS DISTRIBUTIONS:
Dividends (from net
 investment income)................     (0.30)     (0.04)     (0.59)     (0.25)     (0.14)
Distributions (from capital gains).     (1.57)     (1.64)     (0.98)     (0.61)     (0.21)
                                        -----      -----      -----      -----      -----
Total distributions................     (1.87)     (1.68)      1.57      (0.86)     (0.35)
                                        -----      -----      -----      -----      -----
NET ASSET VALUE END OF PERIOD......    $16.00     $17.66     $17.27     $18.35     $17.62
                                        =====      =====      =====      =====      =====
TOTAL RETURN (a)...................       1.3%      12.9%       3.1%       9.0%      28.4%

RATIOS/SUPPLEMENTAL DATA
Net assets end of
 period (thousands)................   $186,826   $178,756   $207,022   $204,070   $150,391
Ratio of expenses to
 average net assets................      1.08%      1.10%      1.09%      1.08%      1.09%
Ratio of net investment income
  (loss) to average net assets.....      1.32%      1.74%      1.66%      1.93%      2.31%
Portfolio turnover rate............        21%        68%        35%        20%        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.  Shares of a series of SBL Fund are available only
     through the purchase of such products.

(b)  Expense ratios were calculated  without the reduction for earnings  credits
     and marketing fees paid  indirectly.  Expense  ratios with such  reductions
     would have been 2.24% for 2001 and 2000.

(c)  Fund expenses for Series I were reduced by the  Investment  Manager  during
     the period.  Expense ratios absent such reimbursement would have been 4.20%
     for 1999.

(d)  Series I was initially  capitalized on May 3, 1999,  with a net asset value
     of  $10.00  per  share.   Percentage  amounts  for  the  period  have  been
     annualized, except for total return.

(e)  Fund expenses for Series I were reduced by the  Investment  Manager  during
     the period.  Expense ratios absent such reimbursement would have been 2.38%
     for 2000.

FOR MORE INFORMATION

--------------------------------------------------------------------------------
BY TELEPHONE-- Call 1-800-888-2461.

BY MAIL-- Write to:
Security Management Company, LLC
One Security Benefit Place
Topeka, KS 66636-0001

ON THE  INTERNET -- Reports and other  information  about the Fund can be viewed
online or downloaded from:

SEC:  On the EDGAR Database at http://www.sec.gov

SMC, LLC:  http://www.securitybenefit.com

Additional  information  about the Fund  (including  the Statement of Additional
Information)  can  be  reviewed  and  copied  at  the  Securities  and  Exchange
Commission's  Public  Reference Room in Washington,  DC.  Information  about the
operation of the Public Reference Room may be obtained by calling the Commission
at 1-800-942-8090. Copies may be obtained, upon payment of a duplicating fee, by
electronic  request at the following  e-mail address:  publicinfo@sec.gov  or by
writing  the  Public  Reference  Section  of  the  Commission,   Washington,  DC
20549-6009.
--------------------------------------------------------------------------------

The  Fund's  prospectus  is to be used with the  attached  variable  annuity  or
variable life insurance product prospectus. The Series of the Fund correspond to
certain of the subaccounts offered in such prospectus.

ANNUAL/SEMI-ANNUAL REPORT -- Additional information about the Fund's investments
is available in the Fund's annual and semi-annual  reports to  shareholders.  In
the Fund's annual  report,  you will find a discussion of the market  conditions
and investment  strategies that  significantly  affected the Fund's  performance
during its last fiscal year.

STATEMENT  OF  ADDITIONAL  INFORMATION  -- The Fund's  Statement  of  Additional
Information and the Fund's annual or semi-annual  report are available,  without
charge  upon  request  by  calling  the  Fund's   toll-free   telephone   number
1-800-888-2461.  Shareholder  inquiries  should be  addressed  to SMC,  LLC, One
Security  Benefit Place,  Topeka,  Kansas  66636-0001,  or by calling the Fund's
toll-free  telephone  number  listed above.  The Fund's  Statement of Additional
Information is incorporated into this prospectus by reference.

The Fund's Investment Company Act file number is listed below:

                         SBL Fund..........   811-02753

--------------------------------------------------------------------------------

SBL FUND
Member of The Security Benefit Group of Companies
One Security Benefit Place, Topeka, Kansas 66636-0001
(785) 438-3000
(800) 888-2461




This Statement of Additional Information is not a Prospectus.  It should be read
in  conjunction  with the SBL Fund  Prospectus  dated May 1, 2002,  as it may be
supplemented  from time to time.  A  Prospectus  may be  obtained by writing the
Fund, One Security Benefit Place, Topeka, Kansas 66636-0001, or by calling (785)
438-3000 or (800) 888-2461.





STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 2002, AS SUPPLEMENTED SEPTEMBER 3, 2002
RELATING TO THE SBL FUND PROSPECTUS DATED MAY 1, 2002
AS IT MAY BE SUPPLEMENTED FROM TIME TO TIME

--------------------------------------------------------------------------------

INVESTMENT MANAGER
Security Management Company, LLC
One Security Benefit Place
Topeka, Kansas 66636-0001

CUSTODIANS
UMB Bank, N.A.
928 Grand Avenue
Kansas City, Missouri 64106

State Street Bank and Trust Company
225 Franklin
Boston, Massachusetts 02110

INDEPENDENT AUDITORS
Ernst & Young LLP
One Kansas City Place
1200 Main Street
Kansas City, Missouri 64105-2143

                                TABLE OF CONTENTS
--------------------------------------------------------------------------------



WHAT IS SBL FUND?...........................................................   3
INVESTMENT OBJECTIVES AND POLICIES OF THE SERIES............................   3
   Series A (Equity Series).................................................   4
   Series B (Large Cap Value Series)........................................   4
   Series C (Money Market Series)...........................................   5
   Series D (Global Series).................................................   7
   Series E (Diversified Income Series).....................................   8
   Series G (Large Cap Growth Series).......................................  10
   Series H (Enhanced Index Series).........................................  11
   Series I (International Series)..........................................  13
   Series J (Mid Cap Growth Series).........................................  14
   Series N (Managed Asset Allocation Series)...............................  15
   Series O (Equity Income Series)..........................................  18
   Series P (High Yield Series).............................................  20
   Series Q (Small Cap Value Series)........................................  21
   Series S (Social Awareness Series).......................................  22
   Series T (Technology Series).............................................  23
   Series V (Mid Cap Value Series)..........................................  24
   Series W (Main Street Growth and Income® Series).........................  24
   Series X (Small Cap Growth Series).......................................  25
   Series Y (Select 25 Series)..............................................  25
INVESTMENT METHODS AND RISK FACTORS.........................................  26
   American Depositary Receipts.............................................  26
   Shares of Other Investment Companies.....................................  26
   Repurchase Agreements....................................................  27
   Real Estate Securities...................................................  28
   Debt Obligations.........................................................  28
   Special Risks Associated with Low-Rated and
     Comparable Unrated Debt Securities.....................................  28
   Put and Call Options.....................................................  30
   Trading in Futures.......................................................  35
   Swaps, Caps, Floors and Collars..........................................  41
   Spread Transactions......................................................  41
   Hybrid Instruments.......................................................  41
   Lending of Portfolio Securities..........................................  42
   Leverage.................................................................  42
   Other Lending/Borrowing..................................................  42
   Zero Coupon Securities...................................................  42
   When-Issued Securities...................................................  43
   Mortgage-Backed Securities...............................................  43
   Asset-Backed Securities..................................................  44
   Guaranteed Investment Contracts ("GICs").................................  46
   Restricted Securities....................................................  46
   Warrants.................................................................  47
   Certain Risks of Foreign Investing.......................................  47
INVESTMENT POLICY LIMITATIONS...............................................  50
   Fundamental Policies.....................................................  50
   Operating Policies.......................................................  50
OFFICERS AND DIRECTORS......................................................  51
REMUNERATION OF DIRECTORS AND OTHERS........................................  53
DIRECTORS' OWNERSHIP OF SECURITIES..........................................  54
SALE AND REDEMPTION OF SHARES...............................................  56
INVESTMENT MANAGEMENT.......................................................  56
   Portfolio Management.....................................................  59
   Code of Ethics...........................................................  61
PORTFOLIO TURNOVER..........................................................  62
BROKERAGE ENHANCEMENT PLAN..................................................  62
DETERMINATION OF NET ASSET VALUE............................................  63
PORTFOLIO TRANSACTIONS......................................................  64
DISTRIBUTIONS AND FEDERAL INCOME TAX CONSIDERATIONS.........................  65
   Code Section 817(h) Diversification......................................  66
   Passive Foreign Investment Companies.....................................  66
   Options, Futures and Forward Contracts and Swap Agreements...............  67
   Market Discount..........................................................  67
   Original Issue Discount..................................................  68
   Constructive Sales.......................................................  68
   Foreign Taxation.........................................................  68
   Foreign Currency Transactions............................................  68
   Distributions............................................................  68
   Other Taxes..............................................................  68
OWNERSHIP AND MANAGEMENT....................................................  69
CAPITAL STOCK AND VOTING....................................................  69
CUSTODIANS, TRANSFER AGENT AND DIVIDEND-PAYING AGENT........................  69
INDEPENDENT AUDITORS........................................................  69
PERMISSIBLE ADVERTISING INFORMATION.........................................  69
PERFORMANCE INFORMATION.....................................................  70
FINANCIAL STATEMENTS........................................................  72
APPENDIX A
   Description of Short-Term Instruments....................................  73
   Description of Commercial Paper Ratings..................................  73
   Description of Corporate Bond Ratings....................................  73


WHAT IS SBL FUND?

SBL Fund (the "Fund"), a Kansas  corporation,  was organized by Security Benefit
Life  Insurance  Company  ("SBL") on May 26, 1977,  and serves as the investment
vehicle for certain SBL variable  annuity and variable life  insurance  separate
accounts. Shares of the Fund will be sold to SBL for allocation to such separate
accounts which are established for the purpose of funding  variable  annuity and
variable life insurance  contracts issued by SBL. The Fund reserves the right to
expand the class of persons  eligible  to  purchase  shares of any Series of the
Fund or to reject any offer.


The  Fund is an  open-end  management  investment  company  of the  series  type
registered under the Investment  Company Act of 1940, which currently issues its
shares in  nineteen  series:  Series A,  Series B, Series C, Series D, Series E,
Series G,  Series H, Series I, Series J, Series N, Series O, Series P, Series Q,
Series S, Series T, Series V,  Series W, Series X and Series Y  ("Series").  The
assets of each Series are held  separate from the assets of the other Series and
each  Series has  investment  objectives  which  differ  from those of the other
Series.


SBL,  organized  originally as a fraternal benefit society under the laws of the
State of Kansas,  commenced business February 22, 1892, and became a mutual life
insurance  company  under its present name on January 2, 1950. It became a stock
company  under a mutual  holding  company  structure on July 31, 1998.  Its home
office is located at One Security Benefit Place, Topeka, Kansas 66636-0001.  SBL
is licensed in the District of Columbia and all states except New York.

All investment  companies are required to operate within the limitations imposed
by their  fundamental  investment  policies.  (See  "Investment  Objectives  and
Policies of the Series," this page, and "Investment  Policy  Limitations,"  page
50.)


As an open-end  investment  company,  the Fund provides an  arrangement by which
investors  may invest in a company  which  itself  invests in  securities.  Each
Series  represents  a  diversified  securities  portfolio  (other than Series G,
Series T and Series Y which are non-diversified portfolios within the meaning of
the Investment Company Act of 1940) under professional management, and the value
of shares held by SBL's  separate  accounts will  fluctuate  with changes in the
value of the Series' portfolio  securities.  As an open-end company, the Fund is
obligated  to redeem its shares  upon demand at current  net asset  value.  (See
"Sale and Redemption of Shares," page 56.)

Professional  investment  advice is  provided  to the Fund and to each Series by
Security  Management  Company,  LLC (the "Investment  Manager").  The Investment
Manager has engaged The Dreyfus  Corporation  ("Dreyfus") to provide  investment
advisory   services   to   Series  B  of  the   Fund;   OppenheimerFunds,   Inc.
("Oppenheimer") to provide investment advisory services to Series D and Series W
of the Fund;  Deutsche Asset  Management,  Inc.  ("DAMI") to provide  investment
advisory services to Series H of the Fund;  Templeton  Investment  Counsel,  LLC
("Templeton") to provide  investment  advisory services to Series I of the Fund;
Wellington   Management  Company,  LLP  ("Wellington   Management")  to  provide
investment  advisory services to Series T of the Fund; T. Rowe Price Associates,
Inc. ("T. Rowe Price") to provide investment advisory services to Series N and O
of the Fund; Strong Capital  Management,  Inc.  ("Strong") to provide investment
advisory  services to Series Q of the Fund; and RS Investment  Management,  L.P.
("RS  Investments") to provide  investment  advisory services to Series X of the
Fund.

Pursuant  to an  investment  advisory  contract  with the Fund,  the  Investment
Manager  is paid an annual  advisory  fee of .75% of the  average  net assets of
Series A,  Series B,  Series E, Series H, Series J, Series P, Series S, Series V
and Series Y; .50% of the  average  net assets of Series C; 1.00% of the average
net assets of Series D, Series G, Series N, Series O, Series Q, Series T, Series
W and Series X; and 1.10% of the average net assets of Series I, computed  daily
and payable  monthly.  The  Investment  Manager has agreed that the total annual
expenses of each Series  (including  the management  compensation  but excluding
brokerage  commissions,  interest,  taxes and  extraordinary  expenses) will not
exceed  any  expense  limitation  imposed  by  any  state.  (See  page  56 for a
discussion of the Investment Manager and the Investment  Advisory Contract.) The
Fund also receives administrative,  accounting and transfer agency services from
the Investment Manager for which the Fund pays a fee.



INVESTMENT OBJECTIVES AND POLICIES OF THE SERIES

The investment  objective and policies of each Series are described below. There
are  risks  inherent  in the  ownership  of any  security  and  there  can be no
assurance that such  objectives  will be achieved.  The objectives and policies,
except those enumerated under "Investment  Policy  Limitations," page 50, may be
modified at any time without stockholder approval.

To comply with  regulations  under Section 817(h) of the Internal  Revenue Code,
each Series of the SBL Fund is required to diversify its  investments so that on
the last day of each quarter of a calendar year no more than 55% of the value of
its assets is represented  by securities of any one issuer,  no more than 70% is
represented by securities of any two issuers, no more than 80% is represented by
securities  of any  three  issuers,  and no  more  than  90% is  represented  by
securities  of any four issuers.  As to U.S.  Government  securities,  each U.S.
Government agency and instrumentality is to be treated as a separate issuer.

SERIES A (EQUITY  SERIES)  -- The  investment  objective  of Series A is to seek
long-term  capital growth by investing in those securities which, in the opinion
of the Investment  Manager,  have the most long-term  capital growth  potential.
Series A seeks to achieve its  objective  by  investing  primarily  in a broadly
diversified  portfolio of common stocks (which may include  American  Depositary
Receipts  (ADRs)  or  securities  with  common  stock  characteristics,  such as
securities  convertible  into common stocks.  See the discussion of ADRs and the
risks  associated  with  investing  in ADRs under  "Investment  Methods and Risk
Factors."  Series A may also invest in  preferred  stocks,  bonds and other debt
securities.  Income  potential  will be  considered  to the  extent  doing so is
consistent  with Series A's investment  objective of long-term  capital  growth.
Series A may invest its assets  temporarily in cash and money market instruments
for defensive  purposes.  Series A invests for  long-term  growth of capital and
does not intend to place emphasis upon short-term trading profits.

Series A may invest in a variety of investment  companies,  including those that
seek to track the composition and performance of a specific index.  Series A may
use these  index-based  investments as a way of managing its cash  position,  to
gain  exposure  to the  equity  markets,  or a  particular  sector of the equity
market, while maintaining liquidity.

From  time to time,  Series A may  purchase  securities  on a  "when-issued"  or
"delayed delivery basis" in excess of customary  settlement periods for the type
of security involved. Securities purchased on a when-issued basis are subject to
market  fluctuation  and no interest or dividends  accrue to the Series prior to
the settlement date.  Series A will segregate cash or liquid securities equal in
value to commitments for such when-issued or delayed delivery securities. Assets
may be segregated by the Series' custodian or on the Series' books. Series A may
also invest up to 5% of its total assets in warrants  (other than those attached
to other  securities)  which  entitle the holder to buy equity  securities  at a
specific price during or at the end of a particular  period. A warrant ceases to
have value if it is not exercised  prior to its  expiration  date.  Series A may
also invest in options and futures contracts.

Series A will invest, under normal circumstances, at least 80% of its net assets
in equity securities.  Should the Series change its policy of investing at least
80% of its net  assets in the type of  investment  suggested  by its  name,  the
Series will  provide  shareholders  at least 60 days notice  prior to making the
change.

SERIES B (LARGE CAP VALUE SERIES) -- The investment  objective of Series B is to
provide long-term growth of capital by investing, under normal circumstances, at
least 80% of net assets in  large-capitalization  value  companies  (those whose
total market value is $5 billion or greater at the time of purchase).  Assets of
the Series may be invested in various types of securities, which may include (i)
common stocks; (ii) securities  convertible into common stocks;  (iii) preferred
stocks; (iv) warrants;  (v) securities of other investment  companies;  and (vi)
foreign securities  denominated in U.S. dollars.  See the discussion of ADRs and
the risks associated with investing in ADRs under  "Investment  Methods and Risk
Factors."  From time to time,  Series B may purchase  government  bonds or money
market securities on a temporary basis for defensive purposes.

The Series may enter into futures  contracts (a type of derivative)  (or options
thereon) to hedge all or a portion of the  portfolio,  as an efficient  means of
adjusting  its exposure to the stock market or to increase  returns.  The Series
will not use futures  contracts for leveraging  purposes.  The Series will limit
its use of futures contracts so that initial margin deposits or premiums on such
contracts  used for  non-hedging  purposes  will not  equal  more than 5% of the
Series'  net asset  value.  The Series may also write call and put  options on a
covered  basis and  purchase put and call options on  securities  and  financial
indices.  Futures contracts,  options and risks associated with such instruments
are described in further detail under "Investment Methods and Risk Factors."

The Series may engage in short  selling.  In these  transactions  a fund sells a
security it does not own in anticipation of a decline in the market value of the
security. To complete the transaction, the fund must borrow the security to make
delivery to the buyer. The fund is obligated to replace the security borrowed by
purchasing it subsequently  at the market price at the time of replacement.  The
price at such time may be more or less than the price at which the  security was
sold by the fund, which would result in a loss or gain, respectively.

Securities  will not be sold short if,  after  effect is given to any such short
sale,  the total market value of all  securities  sold short would exceed 25% of
the value of the Series'  net assets.  The Series may not make a short sale that
would result in the Series  having sold short in the  aggregate  more than 5% of
the outstanding securities of any class of an issuer.

The Series  also 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.

Until the Series  closes its short  position or replaces the borrowed  security,
the Series will:  (a)  segregate  permissible  liquid  assets in an amount that,
together with the amount deposited with the broker as collateral,  always equals
the current value of the security sold short;  or (b) otherwise  cover its short
position.

The  Series  also may enter  into  reverse  repurchase  agreements  with  banks,
broker/dealers or other financial institutions. See the discussion of repurchase
agreements and risks  associated with investing in repurchase  agreements  under
"Investment Methods and Risk Factors."

The Series may purchase securities on a forward commitment or when-issued basis,
which means that delivery and payment take place a number of days after the date
of the  commitment  to  purchase.  For a  discussion  of  such  securities,  see
"Investment Methods and Risk Factors" - "When-Issued Securities."

The Series may invest up to 15% of the value of its net assets in  securities as
to which a liquid trading market does not exist,  provided such  investments are
consistent with the Series' investment  objective.  See "Investment  Methods and
Risk Factors" - "Restricted Securities."

Should the Series  change its policy of investing at least 80% of its net assets
in the type of  investment  suggested  by its  name,  the  Series  will  provide
shareholders at least 60 days notice prior to making the change.

SERIES C (MONEY  MARKET  SERIES) -- The  investment  objective of Series C is to
seek as high a level of current  income as is consistent  with  preservation  of
capital.  The Series will attempt to achieve its objective by investing at least
95% of its total assets,  measured at the time of  investment,  in a diversified
and liquid portfolio of primarily the highest quality money market  instruments,
which  may  include   restricted   securities  as  discussed  under  "Rule  144A
Securities"  below.  The  Series may also  invest up to 5% of its total  assets,
measured at the time of investment,  in money market instruments that are in the
second-highest  rating category for short-term debt obligations.  The Series may
invest in money market  instruments  with maturities of not longer than thirteen
months, consisting of the following:

U.S. GOVERNMENT SECURITIES. Obligations issued or guaranteed (as to principal or
interest) by the United  States  Government  or its agencies  (such as the Small
Business  Administration,  the Federal  Housing  Administration  and  Government
National Mortgage Association),  or instrumentalities (such as Federal Home Loan
Banks and Federal Land Banks),  and instruments fully  collateralized  with such
obligations, such as repurchase agreements.

Some U.S. Government securities, such as treasury bills and bonds, are supported
by the full faith and credit of the U.S.  Treasury;  others are supported by the
right of the issuer to borrow from the  Treasury;  others,  such as those of the
Federal  National  Mortgage  Association,  are  supported  by the  discretionary
authority of the U.S.  Government  to purchase the agency's  obligations;  still
others such as those of the Student Loan  Marketing  Association,  are supported
only by the credit of the instrumentality.

BANK OBLIGATIONS. Obligations of banks or savings and loan associations that are
members of the Federal Deposit  Insurance  Corporation,  and  instruments  fully
collateralized with such obligations, such as repurchase agreements.

CORPORATE OBLIGATIONS. Commercial paper issued by corporations and rated Prime-1
or Prime-2 by Moody's Investors Service, Inc. or A-1 or A-2 by Standard & Poor's
Corporation,  or other corporate debt  instruments  rated Aaa or Aa or better by
Moody's or AAA or AA or better by Standard & Poor's,  subject to the limitations
on investment in instruments in the  second-highest  rating category,  discussed
below. (See the Appendix for a description of the commercial paper and corporate
bond ratings.)

Series C may  acquire one or more of the above  types of  securities  subject to
repurchase  agreements.  A  repurchase  transaction  involves a purchase  by the
Series of a  security  from a  selling  financial  institution,  such as a bank,
savings and loan association or  broker/dealer,  which agrees to repurchase such
security  at a specified  price and at a fixed time in the  future,  usually not
more than seven days from the date of purchase. Not more than 10% of the Series'
net assets  will be  invested  in  illiquid  assets,  which  include  repurchase
agreements  with  maturities  of more than seven  days.  See the  discussion  of
repurchase agreements under "Investment Methods and Risk Factors."

Series C may borrow  money  from  banks as a  temporary  measure  for  emergency
purposes or to facilitate  redemption  requests.  Borrowing is discussed in more
detail under "Investment Methods and Risk Factors."

Series C may invest in  certificates  of  deposit  issued by banks or other bank
demand accounts,  pending  investment in other securities,  or to meet potential
redemptions or expenses.

VARIABLE RATE  INSTRUMENTS.  Series C may invest in instruments  having rates of
interest that are adjusted periodically according to a specified market rate for
such investments ("Variable Rate Instruments").  The interest rate on a Variable
Rate Instrument is ordinarily determined by reference to, or is a percentage of,
an objective  standard  such as a bank's prime rate or the 91-day U.S.  Treasury
Bill rate. The Series does not purchase  certain  Variable Rate Instruments that
have a preset cap above which the rate of interest may not rise. Generally,  the
changes in the interest rate on Variable Rate Instruments reduce the fluctuation
in the market value of such securities.  Accordingly, as interest rates decrease
or increase, the potential for capital appreciation or depreciation is less than
for  fixed-rate  obligations.  Series C determines the maturity of Variable Rate
Instruments  in accordance  with Rule 2a-7 under the  Investment  Company Act of
1940 which  generally  allows the Series to consider the  maturity  date of such
instruments  to be the  period  remaining  until  the next  readjustment  of the
interest rate rather than the maturity date on the face of the instrument.

Series C may also invest in guaranteed  investment  contracts ("GICs") issued by
insurance  companies subject to the Series' policy that not more than 10% of the
total net assets  will be  invested  in  illiquid  securities.  See  "Investment
Methods and Risk Factors" for a discussion of GICs.

RULE 144A  SECURITIES.  Certain of the  securities  acquired  by Series C may be
restricted as to disposition under federal  securities laws,  provided that such
restricted  securities  are eligible for resale  pursuant to Rule 144A under the
Securities  Act of 1933.  Rule 144A,  adopted  by the  Securities  and  Exchange
Commission  in 1990,  provides a  nonexclusive  safe harbor  exemption  from the
registration  requirements  of the  Securities  Act for the  resale  of  certain
securities to certain qualified buyers.  One of the primary purposes of the Rule
is to create resale  liquidity for certain  securities  that would  otherwise be
treated as illiquid investments. In accordance with its investment policies, the
Fund is not  permitted  to  invest  more  than 10% of its  total  net  assets in
illiquid  securities.  The Investment  Manager,  under procedures adopted by the
Board of Directors,  will determine whether securities eligible for resale under
Rule 144A are  liquid or not.  Investing  in Rule 144A  securities  may have the
effect of  increasing  the amount of the  Series'  assets  invested  in illiquid
assets. See "Investment Methods and Risk Factors" - "Restricted Securities."

Series C may invest only in U.S.  dollar  denominated  money market  instruments
that present  minimal  credit risk and, with respect to 95% of its total assets,
measured  at the  time of  investment,  that  are of the  highest  quality.  The
Investment  Manager will determine  whether a security  presents  minimal credit
risk under procedures adopted by the Fund's Board of Directors.  A security will
be considered to be highest quality (1) if rated in the highest rating category,
(e.g.,  Aaa or Prime-1 by Moody's or AAA or A-1 by Standard & Poor's) by (i) any
two nationally recognized statistical rating organizations  ("NRSRO's") or, (ii)
if rated by only one NRSRO,  by that NRSRO;  (2) if issued by an issuer that has
short-term debt obligations of comparable maturity,  priority,  and security and
that are rated in the highest rating category by (i) any two NRSRO's or, (ii) if
rated by only one NRSRO,  by that NRSRO;  or (3) an unrated  security that is of
comparable quality to a security in the highest rating category as determined by
the  Investment  Manager  and whose  acquisition  is approved or ratified by the
Board of Directors. With respect to 5% of its total assets, measured at the time
of investment,  the Series may also invest in money market  instruments that are
in the  second-highest  rating category for short-term debt  obligations  (e.g.,
rated Aa or Prime-2 by Moody's or AA or A-2 by S&P). A money  market  instrument
will  be  considered  to be in the  second-highest  rating  category  under  the
criteria described above with respect to instruments considered highest quality,
as applied to instruments in the second-highest rating category.

Series C may not invest more than 5% of its total  assets,  measured at the time
of  investment,  in the  securities  of any one issuer  that are of the  highest
quality  or more  than the  greater  of 1% of its total  assets  or  $1,000,000,
measured at the time of investment,  in securities of any one issuer that are in
the  second-highest  rating category,  except that these  limitations  shall not
apply to U.S. Government securities. The Series may exceed the 5% limitation for
up to three business days after the purchase of the securities of any one issuer
that are of the highest  quality,  provided that the Series has no more than one
such  investment  outstanding  at any  time.  In the  event  that an  instrument
acquired by the Series is downgraded,  the Investment Manager,  under procedures
approved by the Board of  Directors,  (or the Board of  Directors  itself if the
Investment  Manager becomes aware that a security has been downgraded  below the
second-highest  rating  category and the Investment  Manager does not dispose of
the security  within five business  days) shall promptly  reassess  whether such
security presents minimal credit risk and determine whether or not to retain the
instrument.  In the event that an  instrument  is  acquired  by the Series  that
ceases to be eligible  for the Series,  the  Investment  Manager  will  promptly
dispose of such  security in an orderly  manner,  unless the Board of  Directors
determines that this would not be in the best interests of the Series.

While  Series C does not  intend  to  engage in  short-term  trading,  portfolio
securities  may be sold without regard to the length of time that they have been
held. A portfolio  security could be sold prior to maturity to take advantage of
new investment  opportunities  or yield  differentials,  or to preserve gains or
limit losses due to changed  economic  conditions or the financial  condition of
the  issuer,  or for other  reasons.  While  Series C is expected to have a high
portfolio turnover due to the short maturities of its portfolio securities, this
should  not  affect  the  Fund's  income  or net  asset  value  since  brokerage
commissions  are not normally  paid in  connection  with the purchase or sale of
money market instruments.

Series C will invest in money market  instruments of varying  maturities (but no
longer than 13 months) in an effort to earn as high a level of current income as
is consistent with  preservation of capital and liquidity.  While investing only
in high quality money market instruments,  investment in Series C is not without
risk.  The market value of fixed  income  securities  is  generally  affected by
changes in the level of interest  rates.  An  increase  in  interest  rates will
generally reduce the market value of fixed income investments,  and a decline in
interest rates will  generally  increase  their value.  Instruments  with longer
maturities are subject to greater  fluctuations  in value from general  interest
rate changes than are shorter term issues. Such market value changes could cause
changes  in the net asset  value per  share.  (See  "Determination  of Net Asset
Value," page 63.) To reduce the effect of fluctuating  interest rates on the net
asset  value of its  shares,  Series C intends to  maintain  a weighted  average
maturity  in its  portfolio  of not more than 90 days.  In  addition  to general
market risks,  Series C's investments in non-government  obligations are subject
to the ability of the issuer to satisfy its obligations.  See the Appendix for a
description of the principal types of securities and instruments in which Series
C will invest.

SERIES D (GLOBAL  SERIES)  -- The  investment  objective  of Series D is to seek
long-term  growth of capital  primarily  through  investment  in  securities  of
companies  domiciled in foreign  countries and the United States.  Series D will
seek to achieve its objective through  investment in a diversified  portfolio of
securities which, under normal circumstances,  will consist primarily of various
types of common stocks,  which may include ADRs, and equivalents  (the following
constitute  equivalents:   convertible  debt  securities,  REITs,  warrants  and
options).  See  "Investment  Methods and Risk  Factors" -  "American  Depositary
Receipts." Series D may also invest in preferred stocks, swap agreements,  bonds
and other debt  obligations,  which include money market  instruments of foreign
and domestic companies and U.S. Government and foreign governments, governmental
agencies and international organizations.  For a full description of the Series'
investment objective and policies, see the Prospectus.

Certain  of  the  securities  purchased  by  Series  D may be  restricted  as to
disposition  under the federal  securities  laws,  provided that such restricted
securities are eligible for resale to qualified institutional investors pursuant
to Rule 144A under the  Securities  Act of 1933 and subject to the Fund's policy
that not more  than  10% of  total  net  assets  will be  invested  in  illiquid
securities.  The Series'  Sub-Adviser,  under procedures adopted by the Board of
Directors, will determine whether securities eligible for resale under Rule 144A
are liquid or not.  In making this  determination,  the  Sub-Adviser,  under the
supervision  of the Board of Directors,  will consider  trading  markets for the
specific  security  taking into account the  unregistered  nature of a Rule 144A
security. In addition, the Sub-Adviser may consider: (1) the frequency of trades
and  quotes;  (2) the number of dealers  and  potential  purchasers;  (3) dealer
undertakings  to make a market;  and (4) the nature of the  security  and of the
marketplace trades (e.g. the time needed to dispose of the security,  the method
of soliciting offers and the mechanics of transfer).  The liquidity of Rule 144A
securities  will be  monitored  and if as a result of changed  conditions  it is
determined that a Rule 144A security is no longer liquid, Series D's holdings of
illiquid  securities  will be  reviewed to  determine  what,  if any,  steps are
required  to assure  that it does not invest  more than 10% of its net assets in
illiquid securities.  Investing in Rule 144A securities could have the effect of
increasing the amount of the Series' assets invested in illiquid securities, and
there may be undesirable delays in selling illiquid securities.  See "Investment
Methods and Risk Factors" - "Restricted Securities."

In  seeking  to  achieve  its  investment  objective,  Series D can,  but is not
required, to engage in the following investment practices:

TRANSACTION HEDGING. When Series D enters into contracts for purchase or sale of
a portfolio  security  denominated in a foreign currency,  it may be required to
settle a purchase  transaction in the relevant  foreign  currency or receive the
proceeds of a sale in that currency. In either event, Series D will be obligated
to  acquire  or  dispose  of such  foreign  currency  as is  represented  by the
transaction by selling or buying an equivalent  amount of United States dollars.
Furthermore,  the Series may wish to "lock in" the United States dollar value of
the  transaction  at or near  the  time  of a  purchase  or  sale  of  portfolio
securities  at the  exchange  rate or rates then  prevailing  between the United
States  dollar and the  currency in which the foreign  security is  denominated.
Therefore, Series D can, for a fixed amount of United States dollars, enter into
a forward  foreign  exchange  contract for the purchase or sale of the amount of
foreign currency involved in the underlying securities transaction. In so doing,
Series D will  attempt to  insulate  itself  against  possible  losses and gains
resulting from a change in the relationship between the United States dollar and
the foreign  currency during the period between the date a security is purchased
or sold and the date on which payment is made or received. This process is known
as  "transaction  hedging." To effect the  translation  of the amount of foreign
currencies involved in the purchase and sale of foreign securities and to effect
the "transaction hedging" described above, Series D can purchase or sell foreign
currencies  on a "spot"  (i.e.  cash)  basis or on a forward  basis  whereby the
Series purchases or sells a specific amount of foreign currency,  at a price set
at the time of the contract,  for receipt of delivery at a specified  date which
may be any fixed number of days in the future.

Such spot and  forward  foreign  exchange  transactions  may also be utilized to
reduce the risk inherent in fluctuations in the exchange rate between the United
States  dollar and the relevant  foreign  currency when foreign  securities  are
purchased or sold for settlement beyond customary  settlement time (as described
below). Neither type of foreign currency transaction will eliminate fluctuations
in the prices of Series D's portfolio or securities or prevent loss if the price
of such securities should decline.

PORTFOLIO  HEDGING.  Some or all of Series D's portfolio  will be denominated in
foreign currencies. As a result, in addition to the risk of change in the market
value of  portfolio  securities,  the value of the  portfolio  in United  States
dollars is subject to  fluctuations  in the  exchange  rate between such foreign
currencies  and the United  States  dollar.  When, in the opinion of the Series'
Sub-Adviser, OppenheimerFunds, Inc. ("Oppenheimer"), it is desirable to limit or
reduce exposure in a foreign currency in order to moderate  potential changes in
the  United  States  dollar  value of the  portfolio,  Series D can enter into a
forward  foreign  currency  exchange  contract by which the United States dollar
value  of the  underlying  foreign  portfolio  securities  can be  approximately
matched by an equivalent United States dollar liability. This technique is known
as "portfolio hedging" and moderates or reduces the risk of change in the United
States dollar value of the Series'  portfolio  only during the period before the
maturity  of the  forward  contract  (which  will not be in excess of one year).
Series D, for  hedging  purposes  only,  can also  enter into  forward  currency
exchange  contracts  to  increase  its  exposure  to  a  foreign  currency  that
Oppenheimer  expects to increase in value  relative to the United States dollar.
Series D will not attempt to hedge all of its foreign  portfolio  positions  and
will enter into such transactions only to the extent, if any, deemed appropriate
by  Oppenheimer.  Hedging  against a decline in the value of  currency  does not
eliminate  fluctuations in the prices of portfolio  securities or prevent losses
if the prices of such securities decline. The Series seeks to limit its exposure
in foreign currency exchange  contracts in a particular  foreign currency to the
amount  of its  assets  denominated  in that  currency  or a  closely-correlated
currency.  The precise  matching of the amounts under forward  contracts and the
value of its securities  involved will not be possible  because the future value
of securities  denominated in foreign currencies will change as a consequence of
market  movements  between the date the forward contract is entered into and the
date it is sold.

REPURCHASE  AGREEMENTS.  A  repurchase  transaction  involves a purchase  by the
Series of a  security  from a  selling  financial  institution,  such as a bank,
savings and loan association or  broker/dealer,  which agrees to repurchase such
security  at a specified  price and at a fixed time in the  future,  usually not
more than seven days from the date of purchase. Not more than 10% of the Series'
net assets  will be  invested  in  illiquid  assets,  which  include  repurchase
agreements  with  maturities  of more than seven  days.  See the  discussion  of
repurchase agreements under "Investment Methods and Risk Factors."

FORWARD  COMMITMENTS.  Series D may make contracts to purchase  securities for a
fixed  price  at a  future  date  beyond  customary  settlement  time  ("forward
commitments")  because  new  issues  of  securities  are  typically  offered  to
investors,  such as Series D, on that basis.  Forward commitments involve a risk
of loss if the  value of the  security  to be  purchased  declines  prior to the
settlement  date.  This risk is in  addition  to the risk of decline in value of
Series D's other assets. Although the Series will enter into such contracts with
the intention of acquiring the securities,  Series D may dispose of a commitment
prior to settlement if  Oppenheimer  deems it appropriate to do so. Series D may
realize short-term profits or losses upon the sale of forward commitments.

COVERED CALL OPTIONS.  The Series can buy and sell certain kinds of put and call
options.  Series D may write only covered call options. Since it can be expected
that a call  option  will be  exercised  if the market  value of the  underlying
security  increases to a level  greater than the exercise  price,  this strategy
will generally be used when Oppenheimer  believes that the call premium received
by the Series,  plus  anticipated  appreciation  in the price of the  underlying
security,  up to the  exercise  price  of the  call,  will be  greater  than the
appreciation in the price of the security. Up to 25% of the Series' total assets
may be subject to written  calls.  Series D can  purchase  put and call  options
written by others.  Series D intends to limit such  transactions to less than 5%
of total Series assets. See the discussion of writing covered call options under
"Investment Methods and Risk Factors."

SERIES E (DIVERSIFIED INCOME SERIES) -- The investment  objective of Series E is
to provide current income with security of principal. In pursuing its investment
objective, the Series will invest in a broad range of debt securities, including
(i) securities issued by U.S. and Canadian corporations;  (ii) securities issued
or   guaranteed   by  the   U.S.   government   or  any  of  its   agencies   or
instrumentalities, including Treasury bills, certificates of indebtedness, notes
and bonds;  (iii)  securities  issued or guaranteed by the Dominion of Canada or
provinces thereof; (iv) securities issued by foreign governments, their agencies
and instrumentalities,  and foreign corporations,  provided that such securities
are denominated in U.S. dollars; (v) higher yielding,  high risk debt securities
(commonly referred to as "junk bonds"); (vi) certificates of deposit issued by a
U.S.  branch  of  a  foreign  bank  ("Yankee  CDs");   (vii)   investment  grade
mortgage-backed   securities  ("MBSs");  (viii)  investment  grade  asset-backed
securities;  (ix) zero coupon  securities and (x) interest rate, index and total
return swap agreements. It is anticipated that the Series will maintain a dollar
weighted average duration of 3 to 10 years.

Series E may invest in corporate debt securities  rated Baa or higher by Moody's
or BBB or higher by S&P at the time of purchase,  or if unrated,  of  equivalent
quality  as  determined  by  the  Investment  Manager.  See  Appendix  A  for  a
description  of  corporate  bond  ratings.  Included in such  securities  may be
convertible  bonds or bonds with warrants  attached which are rated at least Baa
or BBB at the  time  of  purchase,  or if  unrated,  of  equivalent  quality  as
determined by the Investment Manager. A "convertible bond" is a bond,  debenture
or  preferred  share  which may be  exchanged  by the owner for common  stock or
another security,  usually of the same company,  in accordance with the terms of
the issue.  A "warrant"  confers upon its holder the right to purchase an amount
of securities at a particular time and price. Securities rated Baa by Moody's or
BBB by S&P have speculative characteristics.

Series  E may  invest  up to 25% of its  net  assets  in  higher  yielding  debt
securities in the lower rating (higher risk) categories of the recognized rating
services  (commonly  referred  to as  "junk  bonds").  Such  securities  include
securities  rated Ba or lower by Moody's or BB or lower by S&P and are  regarded
as  predominantly  speculative with respect to the ability of the issuer to meet
principal and interest payments.  The Series will not invest in junk bonds which
are rated in default at the time of purchase.  However,  the Investment  Manager
will not rely  principally  on the  ratings  assigned  by the  rating  services.
Because the Series may invest in lower rated or unrated securities of comparable
quality,  the  achievement  of the  Series'  investment  objective  may be  more
dependent on the Investment  Manager's own credit analysis than would be true if
investing in higher rated securities.  See "Investment Methods and Risk Factors"
for a discussion of the risks associated with investing in such securities.

U.S.  Government  securities  are  obligations  of or  guaranteed  by  the  U.S.
Government, its agencies or instrumentalities. These include bills, certificates
of  indebtedness,  notes and bonds  issued by the  Treasury  or by  agencies  or
instrumentalities of the U.S. Government.  Some U.S. Government securities, such
as Treasury  bills and bonds,  are supported by the full faith and credit of the
U.S.  Treasury,  others are  supported by the right of the issuer to borrow from
the  Treasury;   others,   such  as  those  of  the  Federal  National  Mortgage
Association, are supported by the discretionary authority of the U.S. Government
to purchase the agency's obligations; still others, such as those of the Student
Loan   Marketing   Association,   are  supported  only  by  the  credit  of  the
instrumentality.  Although U.S. Government securities are guaranteed by the U.S.
Government,  its  agencies or  instrumentalities,  shares of the Fund are not so
guaranteed in any way. The  diversification  rules under  Section  817(h) of the
Internal  Revenue  Code limit the ability of Series E to invest more than 55% of
its  assets  in  the   securities   of  any  one  U.S.   Government   agency  or
instrumentality.

Series E may purchase securities which are obligations of, or guaranteed by, the
Dominion of Canada or provinces thereof, and Canadian corporate debt securities.
Canadian  securities  would not be purchased if subject to the foreign  interest
equalization tax and unless payable in U.S. dollars.

For fixed-income securities such as corporate debt securities or U.S. Government
securities,  the market value is  generally  affected by changes in the level of
interest  rates.  An increase  in interest  rates will tend to reduce the market
value of fixed-income investments,  and a decline in interest rates will tend to
increase their value. In addition, debt securities with longer maturities, which
tend to produce  higher  yields,  are  subject to  potentially  greater  capital
appreciation and depreciation than obligations with shorter maturities.

Series E may invest in Yankee CDs which are  certificates of deposit issued by a
U.S. branch of a foreign bank  denominated in U.S.  dollars and held in the U.S.
Yankee CDs are subject to somewhat  different  risks than are the obligations of
domestic banks. The Series also may invest in debt securities  issued by foreign
governments,  their  agencies and  instrumentalities  and foreign  corporations,
provided that such  securities  are  denominated  in U.S.  dollars.  The Series'
investments  in foreign  securities,  including  Canadian  securities,  will not
exceed 25% of the Series' net assets. See "Investment  Methods and Risk Factors"
for a discussion of the risks associated with investing in foreign securities.

Series E may invest without limit in investment grade mortgage-backed securities
(MBSs),  including mortgage pass-through  securities and collateralized mortgage
obligations  (CMOs).  The  Series  may  invest  up to 10% of its net  assets  in
securities known as "inverse floating  obligations,"  "residual interest bonds,"
or  "interest-only"  (IO) or  "principal-only"  (PO) bonds, the market values of
which generally will be more volatile than the market values of most MBSs. For a
discussion  of  MBSs  and  the  risks  associated  with  such  securities,   see
"Investment Methods and Risk Factors."

Series  E may  also  invest  without  limit  in  investment  grade  asset-backed
securities.  These include secured debt instruments  backed by automobile loans,
credit card loans,  home equity loans,  manufactured  housing  loans,  and other
types of secured loans providing the source of both principal and interest.  For
a  discussion  of the  different  types of  asset-backed  securities  and  their
associated risks, see "Investment Methods and Risk Factors."

The Series may enter into interest rate, index and total return swap agreements.
Series   E  may  buy   and   sell   futures   contracts,   exchange-traded   and
over-the-counter  put and call  options,  including  index  options,  securities
options,  and options on futures,  provided  that a call or put may be purchased
only if after such  purchase,  the value of all call and put options held by the
Series will not exceed 5% of the Series' total assets. The Series may write only
covered put and call options.

The Series may invest in zero coupon  securities  which are debt securities that
pay no cash income but are sold at substantial  discounts from their face value.
Certain  zero  coupon  securities  also are sold at  substantial  discounts  but
provide for the  commencement of regular  interest  payments at a deferred date.
See  "Investment  Methods  and Risk  Factors"  for a  discussion  of zero coupon
securities.

Series E may acquire  certain  securities  that are restricted as to disposition
under the federal  securities laws,  including  securities that are eligible for
resale to  qualified  institutional  investors  pursuant  to Rule 144A under the
Securities Act of 1933,  subject to the Series' policy that not more than 15% of
the Series' net assets will be  invested  in illiquid  assets.  See  "Investment
Methods and Risk Factors" for a discussion of restricted securities.

Series E may purchase  securities on a "when issued" or "delayed delivery" basis
in excess of  customary  settlement  periods for the type of security  involved.
Securities  purchased on a when issued basis are subject to market  fluctuations
and no interest or dividends  accrue to the Series prior to the settlement date.
Series E will segregate case or liquid  securities equal in value to commitments
for such when  issued  securities.  Assets may be  segregated  with the  Series'
custodian or on the Series' books.

Series E may invest in repurchase  agreements on an overnight basis and may also
enter into "reverse  repurchase  agreements"  and "roll  transactions."  See the
discussion of repurchase agreements under "Investment Methods and Risk Factors."
The Series may borrow  money from banks as a  temporary  measure  for  emergency
purposes or to facilitate  redemption  requests.  Borrowing is discussed in more
detail  under  "Investment  Methods and Risk  Factors."  Pending  investment  in
securities  or  to  meet  potential  redemptions,   the  Series  may  invest  in
certificates  of deposit,  bank demand  accounts and high  quality  money market
instruments.

Series E may, for defensive purposes,  invest part or all of its assets in money
market instruments such as those appropriate for investment by Series C.

SERIES G (LARGE CAP GROWTH  SERIES) -- The  investment  objective of Series G is
long-term  capital  growth.  It pursues this  objective by primarily  investing,
under normal  circumstances,  at least 80% of its net assets in common stock and
other equity securities of large  capitalization  companies that, in the opinion
of the Investment Manager,  have long-term capital growth potential.  The Series
invests  primarily in a portfolio of common stocks,  which may include  American
Depositary  Receipts  ("ADRs") or securities with common stock  characteristics,
such as securities convertible into common stocks. The Series also may invest in
preferred  stocks,  bonds and other debt securities.  Since investments are made
based on their potential for long-term  capital growth,  any current income that
the Series may earn is expected to be  incidental  to the objective of long-term
capital  growth.  Series G invests for long-term  growth of capital and does not
intend to place emphasis upon  short-term  trading  profits.  The Series defines
large capitalization  companies as those whose total market value is at least $5
billion  at the time of  purchase.  The  Series is  non-diversified  within  the
meaning of the  Investment  Company Act of 1940,  which means that it may hold a
larger position in a smaller number of securities than a diversified  series. In
addition,  Series G is permitted to concentrate  its investments in a particular
industry or group of industries.

The Investment Manager uses a growth-oriented  strategy to choose stocks,  which
means  that is invests in  companies  whose  earnings  are  believed  to be in a
relatively  strong growth trend. In identifying  companies with favorable growth
prospects,  the  Investment  Manager  considers  factors such as  prospects  for
above-average  sales and  earnings  growth;  high  return on  invested  capital;
overall  financial  strength;   competitive  advantages,   including  innovative
products and services;  effective  research,  product development and marketing;
and stable, capable management.

To manage risk in  declining or volatile  markets,  the  Investment  Manager may
invest more in cash,  fixed-income  securities  and stocks that provide  income.
Fixed-income  securities  include  U.S.  government  securities,   foreign  debt
securities that are denominated in U.S.  dollars and high yield securities (also
referred to as "junk bonds").  Although the Series would do this only in seeking
to avoid  losses,  the Series may be unable to pursue its  investment  objective
during  that time,  and it could  reduce  the  benefit  from any  upswing in the
market.

Series G may purchase securities that have not been registered under the federal
securities  laws,  provided that the securities are eligible for resale pursuant
to Rule 144A.

The Series may enter into futures  contracts (a type of derivative)  (or options
thereon) to hedge all or a portion of its portfolio or as an efficient  means of
adjusting  its exposure to the stock market or to increase  returns.  The Series
may also write call and put options on a covered basis and purchase put and call
options on securities and financial indices.

The Series may invest in a variety of Investment Companies, including those that
seek to track the composition  and  performance of a specific index.  The Series
may use these index-based investments as a way of managing its cash position, to
gain  exposure  to the  equity  markets,  or a  particular  sector of the equity
market, while maintaining liquidity.

From time to time,  the Series may purchase  securities  on a  "when-issued"  or
"delayed delivery" basis in excess of customary  settlement periods for the type
of security involved. Securities purchased on a when-issued basis are subject to
market  fluctuation  and no interest or dividends  accrue to the Series prior to
the settlement  date. The Series will segregate cash or liquid  securities equal
in value to commitments  for such  when-issued or delayed  delivery  securities.
Assets may be segregated by the Series' custodian,  or on the Series' books. The
Series  also  may  invest  in  warrants  (other  than  those  attached  to other
securities)  which  entitle  the holder to buy equity  securities  at a specific
price  during or at the end of a  particular  period.  A warrant  ceases to have
value if it is not exercised  prior to its expiration  date. For a discussion of
the risks associated with the securities and investment  techniques available to
Series  G,  see the  "Investment  Methods  and  Risk  Factors"  section  of this
statement of additional information.

Should the Series  change its policy of investing at least 80% of its net assets
in the type of  investment  suggested  by its  name,  the  Series  will  provide
shareholders at least 60 days notice prior to making the change.

SERIES H (ENHANCED INDEX SERIES) -- The investment objective of the Series is to
outperform  the  Standard & Poor's 500  Composite  Stock  Price  index (the "S&P
500® Index") through stock selection resulting in different weightings of common
stocks relative to the index.

The Series will primarily include the common stock of companies  included in the
S&P 500.  The S&P 500 is an index of 500 common  stocks,  most of which trade on
the New York Stock Exchange Inc. (the "NYSE").  The Sub-Adviser,  Deutsche Asset
Management,  Inc.  ("DAMI"),  believes that the S&P 500 is representative of the
performance of publicly traded common stocks in the U.S. in general.  The Series
may also invest in the shares of other investment companies.

In seeking to outperform the S&P 500, the Sub-Adviser starts with a portfolio of
stocks  representative  of the  holdings  of the  index.  It then  uses a set of
quantitative  criteria that are designed to indicate  whether a particular stock
will  predictably  generate  returns  that  will  exceed  or be  less  than  the
performance of the S&P 500. Based on these criteria,  the Sub-Adviser determines
whether the Series should overweight,  underweight or hold a neutral position in
the stock relative to the  proportion of the S&P 500 that the stock  represents.
While the majority of the issues held by the Series will have neutral weightings
to the S&P 500,  approximately 150 will be over or underweighted relative to the
index. In addition,  the  Sub-Adviser  may determine  based on the  quantitative
criteria  that  certain  S&P 500 stocks  should not be held by the Series in any
amount.  The Series may invest in REITs.  As an operating  policy,  under normal
market  conditions,  the Series will invest at least 80% of its assets in equity
securities of companies in the index and in futures contracts  representative of
the  stocks in the index.  The  Sub-Adviser  intends  to monitor  the sector and
security  weightings of the Series  relative to the  composition  of the S&P 500
Index. The Sub-Adviser  will overweight and underweight  securities in the index
based on whether they believe a stock will generate  returns that will exceed or
be less than the index.  While the Series seeks to modestly  outperform  the S&P
500  Index,  the  Series  expects  that  its  returns  will  have a  coefficient
correlation  of .90% to the S&P 500 Index.  The  Sub-Adviser  believes  that the
various  quantitative  criteria  used  to  determine  which  issues  to  over or
underweight  will balance each other so that the overall risk of the Series will
not be materially different than risk of the S&P 500 itself.

ABOUT THE S&P 500. The S&P 500 is a well-known  stock market index that includes
common stocks of 500 companies from several  industrial  sectors  representing a
significant  portion of the market value of all common stocks publicly traded in
the United States,  most of which are listed on the NYSE.  Stocks in the S&P 500
are  weighted  according  to their market  capitalization  (i.e.,  the number of
shares outstanding  multiplied by the stock's current price). The composition of
the S&P 500 is  determined  by S&P and is based on such  factors  as the  market
capitalization  and  trading  activity  of  each  stock  and its  adequacy  as a
representation of stocks in a particular industry group, and may be changed from
time to time.  "Standard & Poor's®,"  "S&P 500®,"  "Standard & Poor's  500," and
"500" are trademarks of the McGraw-Hill Companies, Inc.

The Series is not sponsored,  endorsed, sold or promoted by Standard & Poor's, a
division of the McGraw-Hill Companies, Inc. ("S&P").

INVESTMENT  CONSIDERATIONS.  The Series may be appropriate for investors who are
willing to endure stock market  fluctuations  in pursuit of  potentially  higher
long-term  returns.  The Series  invests  primarily  for  growth.  The Series is
intended to be a  long-term  investment  vehicle and is not  designed to provide
investors with a means of speculating on short-term market movements.

As a mutual fund investing  primarily in common stocks, the Series is subject to
market  risk--i.e.,  the possibility  that common stock prices will decline over
short or even extended periods. The U.S. stock market tends to be cyclical, with
periods  when stock  prices  generally  rise and periods  when prices  generally
decline.

As a diversified mutual fund, no more than 5% of the assets of the Series may be
invested  in  the   securities  of  one  issuer  (other  than  U.S.   Government
Securities), except that up to 25% of the Series' assets may be invested without
regard to this  limitation.  The  Series  will not  invest  more than 25% of its
assets in the  securities of issuers in any one industry.  In the unlikely event
that the S&P 500 should  concentrate to an extent greater than that amount,  the
Series'  ability to achieve its objective  may be impaired.  No more than 15% of
the Portfolio's net assets may be invested in illiquid or not readily marketable
securities (including repurchase agreements and time deposits with maturities of
more than seven days).

The Fund may maintain up to 25% of its assets in short-term  debt securities and
money market instruments to meet redemption requests or to facilitate investment
in the securities of the S&P 500. Securities index futures contracts and related
options, warrants and convertible securities may be used for several reasons: to
simulate  full  investment  in the S&P  500  while  retaining  a cash  fund  for
management  purposes,  to facilitate  trading, to reduce transaction costs or to
seek higher  investment  returns  when a futures  contract,  option,  warrant or
convertible  security is priced more  attractively  than the  underlying  equity
security  or S&P 500.  These  instruments  may be  considered  derivatives.  See
"Investment  Methods  and Risk  Factors"  for more  information  about  futures,
options and warrants.

The  following  discussion  contains more  detailed  information  about types of
instruments in which the Series may invest and strategies  the  Sub-Adviser  may
employ in pursuit of the Series' investment objective.

OTHER EQUITY SECURITIES. As part of one of the strategies used to outperform the
S&P 500, the Series may invest in the equity  securities  of companies  that are
not included in the S&P 500. These equity  securities may include  securities of
companies that are the subject of publicly announced acquisitions or other major
corporate  transactions.  Securities of some of these companies may perform much
like  a  fixed  income  investment  because  the  market  anticipates  that  the
transaction  will likely be  consummated,  resulting  in a cash  payment for the
securities.  In such cases,  the Series may enter into securities  index futures
contracts  and/or  related  options as described in this statement of additional
information  in order to  maintain  its  exposure  to the  equity  markets  when
investing  in these  companies.  While this  strategy  is  intended  to generate
additional gains for the Series without materially  increasing the risk to which
the Series is subject,  there can be no assurance that the strategy will achieve
its intended results.

SHORT-TERM  INSTRUMENTS.  When the Series experiences large cash inflows through
the sale of securities and desirable equity  securities that are consistent with
the Series' investment objective are unavailable in sufficient  quantities or at
attractive prices, the Series may hold short-term investments for a limited time
pending availability of such equity securities.  Short-term  instruments consist
of: (i) short-term  obligations  issued or guaranteed by the U.S.  Government or
any of its  agencies or  instrumentalities  or by any of the states;  (ii) other
short-term debt securities  rated AA or higher by S&P or Aa or higher by Moody's
or, if unrated,  of comparable quality in the opinion of the Sub-Adviser;  (iii)
commercial paper; (iv) bank obligations,  including  negotiable  certificates of
deposit, time deposits and bankers' acceptances;  and (v) repurchase agreements.
At the  time the  Series  invests  in  commercial  paper,  bank  obligations  or
repurchase  agreements,  the issuer or the issuer's parent must have outstanding
debt  rated AA or  higher  by S&P or Aa or  higher  by  Moody's  or  outstanding
commercial paper or bank obligations rated A-1 by S&P or Prime-1 by Moody's; or,
if no such ratings are available,  the instrument must be of comparable  quality
in the opinion of the Sub-Adviser.

U.S.  GOVERNMENT  OBLIGATIONS.  The Series may invest in  obligations  issued or
guaranteed  by  U.S.  Government,  its  agencies  or  instrumentalities.   These
obligations  may or may not be  backed by the "full  faith  and  credit"  of the
United States. In the case of securities not backed by the full faith and credit
of the United  States,  the Series must look  principally  to the federal agency
issuing or guaranteeing  the obligation for ultimate  repayment,  and may not be
able to assert a claim  against the United States itself in the event the agency
or instrumentality does not meet its commitments. Securities in which the Series
may invest that are not backed by the full faith and credit of the United States
include,  but are not limited to, obligations of the Tennessee Valley Authority,
the Federal Home Loan Mortgage Corporation and the U.S. Postal Service,  each of
which has the right to borrow from the U.S.  Treasury  to meet its  obligations,
and  obligations  of the Federal  Farm Credit  System and the Federal  Home Loan
Banks, both of whose obligations may be satisfied only by the individual credits
of each issuing agency. Securities which are backed by the full faith and credit
of the United States include  obligations of the  Government  National  Mortgage
Association, the Farmers Home Administration, and the Export-Import Bank.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES.  The Series may purchase securities
on a when-issued or delayed delivery basis. For example, delivery of and payment
for  these  securities  can  take  place a month or more  after  the date of the
purchase  commitment.  The purchase price and the interest rate payable, if any,
on the securities are fixed on the purchase  commitment  date or at the time the
settlement  date is fixed.  The value of such  securities  is  subject to market
fluctuation  and no interest  accrues to the Portfolio  until  settlement  takes
place. See "Investment  Methods and Risk Factors" - "When Issued Securities" for
more information.

EQUITY  INVESTMENTS.  The Series may invest in equity  securities  listed on any
domestic securities exchange or traded in the over-the-counter market as well as
certain restricted or unlisted securities.  They may or may not pay dividends or
carry  voting  rights.  Common  stock  occupies  the most  junior  position in a
company's capital structure.

REVERSE REPURCHASE AGREEMENTS.  The Series may borrow for temporary or emergency
purposes,  such as meeting larger than anticipated  redemption requests, and not
for leverage,  by among other things,  agreeing to sell portfolio  securities to
financial  institutions such as banks and  broker-dealers and to repurchase them
at a mutually agreed date and price (a "reverse repurchase  agreement").  At the
time the Series  enters into a reverse  repurchase  agreement it will  segregate
cash or other  liquid  assets  having a value  equal  to the  repurchase  price,
including accrued interest.  Assets may be segregated by the Series'  custodian,
or on the Series' books. Reverse repurchase agreements involve the risk that the
market  value  of the  securities  sold by the  Series  may  decline  below  the
repurchase  price  of  those  securities.   Reverse  repurchase  agreements  are
considered to be borrowings by the Series.

CONVERTIBLE  SECURITIES.  Convertible  securities  may  be  debt  securities  or
preferred stocks that may be converted into common stock or that carry the right
to purchase common stock.  Convertible securities entitle the holder to exchange
the securities for a specified number of shares of common stock,  usually of the
same company, at specified prices within a certain period of time.

The terms of any  convertible  security  determine  its  ranking in a  company's
capital  structure.  In the case of  subordinated  convertible  debentures,  the
holders'  claims on assets and earnings are  subordinated to the claims of other
creditors, and are senior to the claims of preferred and common shareholders. In
the case of  preferred  stock,  the  holders'  claims on assets and earnings are
subordinated  to the  claims of all  creditors  and are  senior to the claims of
common shareholders.

DERIVATIVES.  The Series may invest in  various  instruments  that are  commonly
known as derivatives.  Generally, a derivative is a financial  arrangement,  the
value of which is based on, or "derived" from, a traditional security, asset, or
market index. Some "derivatives" such as mortgage-related and other asset-backed
securities are in many respects like any other investment,  although they may be
more volatile or less liquid than more traditional  debt securities.  There are,
in fact,  many  different  types of  derivatives  and many different ways to use
them. There are a range of risks associated with those uses. Futures and options
are commonly used for traditional  hedging purposes to attempt to protect a fund
from exposure to changing interest rates, securities prices or currency exchange
rates and as a low cost method of gaining  exposure to a  particular  securities
market without investing directly in those securities.

The Series will only use derivatives for hedging purposes. While derivatives can
be used as  leveraged  investments,  the Series may not use them to leverage its
net assets.  Derivatives  will not be used to increase  portfolio risk above the
level that would be achieved using only traditional  investment securities or to
acquire exposure to changes in the value of assets or indices that by themselves
would not be  purchased  for the  Series.  The  Series  will not  invest in such
instruments  as part of a  temporary  defensive  strategy  (in  anticipation  of
declining  stock  prices) to protect  against  potential  market  declines.  See
"Investment  Methods and Risk  Factors" for more  information  about options and
futures.

Series H will invest, under normal circumstances, at least 80% of its net assets
in  equity   securities  of  companies  in  the  index  and  futures   contracts
representative of the stocks that make up the index.  Should the Series consider
any change to its policy of investing at least 80% of its net assets in the type
of investment  suggested by its name,  the Series will provide  shareholders  at
least 60 days notice prior to making the change.


SERIES I  (INTERNATIONAL  SERIES)  -- The  investment  objective  of Series I is
long-term capital  appreciation.  The Series pursues its objective by investing,
under  normal  circumstances,  at least  65% of its  assets  in at  least  three
different  countries,  other than the United  States.  The Series  normally will
invest  primarily in equity  securities of companies  located outside the United
States, including emerging markets.


There can be no assurance  that the  investment  objective of the Series will be
achieved.  The  Series is  designed  for  investors  who are  willing  to accept
short-term  domestic  and/or  foreign  stock market  fluctuations  in pursuit of
potentially higher long-term returns.

The Series is not itself a balanced  investment plan.  Investors should consider
their  investment  objective  and  tolerance  for risk when making an investment
decision.

The value of the  Series'  investments  varies  based upon many  factors.  Stock
values  fluctuate,  sometimes  dramatically,  in response to the  activities  of
individual  companies and general market and economic  conditions.  Because many
foreign investments are denominated in foreign currencies,  changes in the value
of these currencies can  significantly  affect the Series' share price.  General
economic  factors in the various  world  markets can also impact the value of an
investor's  investment.  When an investor  sells his or her shares,  they may be
worth more or less than what the investor paid for them.

The  following  is a discussion  of the various  investments  of and  techniques
employed by the Series.  Additional information about the investment policies of
the Series appears in "Investment Methods and Risk Factors" herein.

The Series may invest a portion of its assets in smaller companies. For purposes
of  this  Series,  smaller  company  stocks  are  generally  those  with  market
capitalizations  of less than $1 billion.  The Series also  invests in American,
European and Global Depositary Receipts, which are certificates typically issued
by a bank or trust  company  that  give  their  holders  the  right  to  receive
securities  issued by a foreign or domestic  company.  The Series,  from time to
time, may have significant investments in one or more countries or in particular
sectors, such as financial institutions or industrial companies.

The  Series  may  invest in  futures  contracts,  options,  options  on  futures
contracts and other derivative strategies. These investments, when made, are for
hedging purposes. If the Series uses futures contracts for non-hedging purposes,
the margin and premiums required to make those investments will not exceed 5% of
the Series net asset value  after  taking into  account  unrealized  profits and
losses on the contracts.

Under  adverse  market  conditions,  the Series  could invest some or all of its
assets in cash or money  market  securities.  Although  the Series would do this
only in  seeking  to avoid  losses,  the  Series  may be unable  to  pursue  its
investment  objective during that time, and it could reduce the benefit from any
upswing in the market.

The Series may also utilize the following  investments and investment techniques
and practices: borrowing, investment company securities, convertible securities,
debt   obligations   (including   low  rated  and  unrated   debt   securities),
mortgage-backed  securities,   American  Depositary  Receipts  ("ADRs"),  Global
Depositary Receipts ("GDRS"),  European Depositary Receipts ("EDRs"),  Rule 144A
securities,  when-issued and delayed  deliver  securities,  securities  lending,
repurchase  agreements,   and  foreign  currency  exchange   transactions.   See
"Investment Methods and Risk Factors" for further information.


SERIES J (MID CAP GROWTH SERIES) -- The  investment  objective of Series J is to
seek capital appreciation by investing, under normal circumstances, at least 80%
of its net assets in a diversified  portfolio of equity  securities  with market
capitalizations  of $10  billion  or  below  at the  time  of  purchase.  Equity
securities  include  common  stock,  preferred  stock,  ADRs,  rights,  options,
warrants, and convertible securities. See "Investment Methods and Risk Factors."
On a temporary basis,  there may be times when Series J may invest its assets in
cash or money market instruments for defensive purposes.

Securities  will be  selected  on the  basis of their  appreciation  and  growth
potential. Current income will not be a factor in selecting investments, and any
such income  should be  considered  incidental.  Securities  considered  to have
capital  appreciation  and growth  potential  will often  include  securities of
smaller  and  less  mature  companies.  These  companies  often  have  a  unique
proprietary  product or  profitable  market niche and the potential to grow very
rapidly.   Such  companies  may  present  greater   opportunities   for  capital
appreciation  because of high potential  earnings  growth,  but may also involve
greater  risk.  They  may have  limited  product  lines,  markets  or  financial
resources,  and they may be  dependent  on a small or  inexperienced  management
team. Their securities may trade less frequently and in limited volume, and only
in the over-the-counter  market or on smaller securities exchanges. As a result,
the securities of smaller  companies may have limited  marketability  and may be
subject to more abrupt or erratic  changes in value than  securities  of larger,
more established companies.

Series  J  may  also  invest  in  larger  companies  where   opportunities   for
above-average capital appreciation appear favorable.

Series J may purchase  securities on a "when-issued" or "delayed delivery basis"
in excess of  customary  settlement  periods for the type of security  involved.
Securities  purchased on a when-issued  basis are subject to market  fluctuation
and no interest or dividends  accrue to the Series prior to the settlement date.
Series J will segregate cash or liquid  securities equal in value to commitments
for such when-issued or delayed delivery securities. Assets may be segregated by
the Series' custodian, or on the Series' books. See "Investment Methods and Risk
Factors" -  "When-Issued  Securities."  The  Series  may also  invest in options
contracts. See "Investment Methods and Risk Factors."

The Series may enter into futures contracts (or options thereon) to hedge all or
a portion of its portfolio,  or as an efficient  means of adjusting its exposure
to the stock market.  The Series will not use futures  contracts for  leveraging
purposes.  The Series will limit its use of futures  contracts  so that  initial
margin deposits or premiums on such contracts used for non-hedging purposes will
not equal more than 5% of the Series' net asset value.  Futures  contracts  (and
options thereon) and the risks associated with such instruments are described in
further detail under "Investment Methods and Risk Factors."

The Series may invest in a variety of investment companies, including those that
seek to track the composition  and  performance of a specific index.  The Series
may use these index-based investments as a way of managing its cash position, to
gain  exposure  to the  equity  markets,  or a  particular  sector of the equity
market, while maintaining  liquidity.  Certain investment company securities and
other securities in which the Series may invest are restricted securities, which
may be illiquid.

In seeking capital appreciation,  Series J may, during certain periods, trade to
a substantial  degree in securities for the short term.  That is, the Series may
be  engaged  essentially  in  trading  operations  based  on  short-term  market
considerations,  as distinct from  long-term  investments  based on  fundamental
evaluations of securities.  This  investment  policy is speculative and involves
substantial risk.

Should the Series  change its policy of investing at least 80% of its net assets
in the type of  investment  suggested  by its  name,  the  Series  will  provide
shareholders at least 60 days notice prior to making the change.


SERIES N (MANAGED ASSET ALLOCATION SERIES) -- The investment objective of Series
N is to  seek  a  high  level  of  total  return  by  investing  primarily  in a
diversified group of fixed income and equity securities.

The Series is designed to balance the  potential  appreciation  of common stocks
with the income and  principal  stability of bonds over the long term.  Over the
long term, the Series expects to allocate its assets so that  approximately  40%
of such  assets  will be in the fixed  income  sector  (as  defined  below)  and
approximately  60% in the equity  sector (as defined  below).  This mix may vary
over shorter time periods within the ranges set forth below:

                     ======================================
                                                     RANGE
                     --------------------------------------
                     Fixed Income Sector..........   30-50%
                     Equity Sector................   50-70%
                     ======================================

The  primary  consideration  in varying  from the 60-40  allocation  will be the
outlook of the Series'  Sub-Adviser,  T. Rowe Price  Associates,  Inc. ("T. Rowe
Price"),  for the different markets in which the Series invests.  Shifts between
the fixed income and equity  sectors will normally be done gradually and T. Rowe
Price will not attempt to  precisely  "time" the market.  There is, of course no
guarantee that T. Rowe Price's gradual approach to allocating the Series' assets
will be successful in achieving the Series' objective.  The Series will maintain
cash reserves to facilitate the Series' cash flow needs  (redemptions,  expenses
and purchases of Series  securities) and it may invest in cash reserves  without
limitation for temporary defensive purposes.

Assets  allocated to the fixed income  portion of the Series  primarily  will be
invested  in  U.S.  and  foreign  investment  grade  bonds,  high  yield  bonds,
short-term  investments  and  currencies,  as needed to gain exposure to foreign
markets.  Assets allocated to the equity portion of the Series will be allocated
among growth- and  value-oriented  stocks,  domestic and  international  stocks,
small- to large-cap stocks, currencies and futures.

The Series' fixed income sector will be allocated among investment  grade,  high
yield,  U.S. and non-dollar debt securities and currencies  generally within the
ranges indicated below:

                     ======================================
                                                     RANGE
                     --------------------------------------
                     Investment Grade............   50-100%
                     High Yield..................    0-30%
                     Non-dollar..................    0-30%
                     Cash Reserves...............    0-20%
                     ======================================

Investment  grade debt  securities  include long,  intermediate  and  short-term
investment  grade  debt  securities  (e.g.,  AAA,  AA, A or BBB by S&P or if not
rated,  of  equivalent  investment  quality  as  determined  by T. Rowe  Price).
Non-dollar  debt  securities  include  non-dollar   denominated  government  and
corporate  debt  securities  or  currencies  of at least  three  countries.  See
"Investment Methods and Risk Factors" - "Certain Risks of Foreign Investing" for
a discussion of the risks involved in foreign investing.  High-yield  securities
include  high-yielding,  income-producing  debt  securities  in the lower rating
categories (commonly referred to as "junk bonds") and preferred stocks including
convertible  securities.  Quality will generally range from  lower-medium to low
and the Series may also purchase  bonds in default if, in the opinion of T. Rowe
Price, there is significant potential for capital appreciation. Lower-rated debt
obligations  are  generally   considered  to  be  high  risk  investments.   See
"Investment  Methods and Risk Factors" for a discussion of the risks involved in
investing in high-yield,  lower-rated debt  securities.  Securities which may be
held as cash reserves include liquid short-term  investments of one year or less
having the highest ratings by at least one established rating  organization,  or
if not rated, of equivalent investment quality as determined by T. Rowe Price or
shares in an internal money market fund managed by T. Rowe Price. The Series may
use currencies to gain exposure to an international market prior to investing in
non-dollar securities.

While the  maturities  of the  fixed  income  securities  will vary with T. Rowe
Price's view of market  conditions,  the weighted  average maturity of the fixed
income  portion as a whole  (except for cash  reserves) is expected to be in the
range of 7-12 years.

The Series'  equity  portion  will be allocated  among  large,  medium and small
capitalization, U.S. and non-dollar equity securities, currencies and futures.

Large Cap securities generally include stocks of well-established companies with
capitalization over $5 billion which can produce increasing dividend income. The
Series  exposure  to  smaller  market  cap  companies  is  not  expected  to  be
substantial  and will not constitute  more than 30% of the equity portion of the
portfolio.

Non-dollar  securities,  which may comprise up to 35% of the equity portfolio of
the Series, include foreign currencies and common stocks of established non-U.S.
companies. Investments may be made solely for capital appreciation or solely for
income or any  combination of both for the purpose of achieving a higher overall
return. T. Rowe Price intends to diversify the non-dollar portion of the Series'
portfolio  broadly among countries and to normally have at least three different
countries represented.  The countries of the Far East and Western Europe as well
as South  Africa,  Australia,  Canada,  and other  areas  (including  developing
countries) may be included. Under unusual circumstances, however, investment may
be  substantially  in one or two  countries.  Some of the countries in which the
Series may invest may be  considered to be  developing  and may involve  special
risks.  For a  discussion  of  the  risks  involved  in  investment  in  foreign
securities,  see  "Investment  Methods  and Risk  Factors" -  "Certain  Risks of
Foreign Investing."

Futures  may be  used  to  gain  exposure  to  equity  markets  where  there  is
insufficient cash to purchase a diversified portfolio of stocks.  Currencies may
also be held to gain exposure to an international market prior to investing in a
non-dollar stock.

Medium and small cap  securities  include  common  stocks of small  companies or
companies which offer the possibility of accelerated  earnings growth because of
rejuvenated  management,  new  products or  structural  changes in the  economy.
Current  income is not a factor in the selection of these  stocks.  Higher risks
are often  associated with smaller  companies.  These companies may have limited
product lines,  markets and financial  resources,  or they may be dependent on a
small or inexperienced management group. In addition, their securities may trade
less  frequently and in limited volume and move more abruptly than securities of
larger  companies.  However,  securities of smaller  companies may offer greater
potential  for  capital   appreciation   since  they  are  often  overlooked  or
undervalued by investors.

The Series'  foreign  investments  are also subject to currency  risk  described
under "Investment Methods and Risk Factors" - "Currency Fluctuations." To manage
this risk and facilitate the purchase and sale of foreign securities, the Series
may engage in foreign currency  transactions  involving the purchase and sale of
forward  foreign  currency   exchange   contracts.   Although  forward  currency
transactions  will be used primarily to protect the Series from adverse currency
movements,  they also involve the risk that anticipated  currency movements will
not be  accurately  predicted  and the Series'  total  return could be adversely
affected as a result. For a discussion of forward currency  transactions and the
risks  associated  with such  transactions,  see  "Investment  Methods  and Risk
Factors" - "Forward  Currency  Contracts and Related  Options" and "Purchase and
Sale of Currency Futures Contracts and Related Options." Purchases by the Series
of currencies in  substitution of purchases of stocks and bonds will subject the
Series to risks different from a fund invested solely in stocks and bonds.

The Series' investments include, but are not limited to, equity and fixed income
securities  of various types and the Series may utilize the  investment  methods
and investment vehicles described below.

The Series may enter into futures  contracts (a type of derivative)  (or options
thereon) to hedge all or a portion of its portfolio,  as a hedge against changes
in prevailing  levels of interest  rates or currency  exchange  rates,  or as an
efficient  means of  adjusting  its  exposure to the bond,  stock,  and currency
markets. The Series will not use futures contracts for leveraging purposes.  The
Series will limit its use of futures  contracts so that initial margin  deposits
or premiums on such contracts used for non-hedging  purposes will not equal more
than 5% of the Series' net asset  value.  The Series may also write call and put
options and purchase put and call options on securities,  financial indices, and
currencies.  The aggregate market value of the Series'  portfolio  securities or
currencies  covering  call or put options will not exceed 25% of the Series' net
assets. The Series may enter into foreign futures and options  transactions.  As
part of its investment program and to maintain greater  flexibility,  the Series
may invest in instruments which have the characteristics of futures, options and
securities,  known as "hybrid instruments." For a discussion of such instruments
and the risks involved in investing  therein,  see "Investment  Methods and Risk
Factors" -- "Hybrid Instruments."

The Series may acquire illiquid securities in an amount not exceeding 15% of net
assets.  Because an active trading market does not exist for such securities the
sale of such securities may be subject to delay and additional costs. The Series
will not invest more than 5% of its total assets in restricted securities (other
than  securities  eligible for resale under Rule 144A of the  Securities  Act of
1933). Series N may invest in securities on a "when-issued" or "delayed delivery
basis"  in excess  of  customary  settlement  periods  for the type of  security
involved.  For a  discussion  of  restricted  and  when-issued  securities,  see
"Investment Methods and Risk Factors."

The Series may  invest in  asset-backed  securities,  which  securities  involve
certain  risks.  For a  discussion  of  asset-backed  securities  and the  risks
involved in investment in such securities,  see the discussion under "Investment
Methods and Risk Factors." The Series may invest in  mortgage-backed  securities
issued or guaranteed by the U.S.  Government,  its agencies or instrumentalities
or institutions such as banks,  insurance  companies and savings and loans. Some
of these securities, such as GNMA certificates, are backed by the full faith and
credit of the U.S. Treasury while others, such as Freddie Mac certificates,  are
not. The Series may also invest in collateralized  mortgage  obligations  (CMOs)
and stripped  mortgage  securities  (a type of  derivative).  Stripped  mortgage
securities  are  created by  separating  the  interest  and  principal  payments
generated  by  a  pool  of  mortgage-backed  bonds  to  create  two  classes  of
securities,  "interest  only" (IO) and  "principal  only" (PO) bonds.  There are
risks  involved  in  mortgage-backed  securities,  CMOs  and  stripped  mortgage
securities.  See  "Investment  Methods  and  Risk  Factors"  for  an  additional
discussion of such securities and the risks involved therein.

The Series may invest in zero coupon  securities  which are debt securities that
pay no cash income but are sold at substantial  discounts from their face value.
Certain  zero  coupon  securities  also are sold at  substantial  discounts  but
provide for the  commencement of regular  interest  payments at a deferred date.
See  "Investment  Methods  and Risk  Factors"  for a  discussion  of zero coupon
securities.

While the Series will remain  invested in primarily  common stocks and bonds, it
may,  for  temporary  defensive  purposes,   invest  in  cash  reserves  without
limitation.  The Series may  establish  and  maintain  reserves as T. Rowe Price
believes is advisable to facilitate  the Series' cash flow needs.  Cash reserves
include money market  instruments,  including  shares of the Reserve  Investment
Fund, a T. Rowe Price money market fund established for the exclusive use of the
T. Rowe  Price  family of mutual  funds and other  clients  of T. Rowe Price and
repurchase agreements, in the two highest categories.  Short-term securities may
be  held in the  equity  sector  as  collateral  for  futures  contracts.  These
securities  are  segregated  and may not be available  for the Series' cash flow
needs.

The Series may invest in debt or preferred equity securities convertible into or
exchangeable for equity securities and warrants.  As a fundamental  policy,  for
the purpose of realizing  additional income, the Series may lend securities with
a value of up to 33 1/3% of its total  assets to  broker-dealers,  institutional
investors,  or other  persons.  Any such loan will be  continuously  secured  by
collateral  at  least  equal  to the  value  of  the  securities  loaned.  For a
discussion of the  limitations on lending and risks of lending,  see "Investment
Methods and Risk  Factors" - "Lending of Portfolio  Securities."  The Series may
also invest in real estate investment trusts (REITs).  For a discussion of REITs
and certain risks involved therein, see this Statement of Additional Information
and the Fund's Prospectus under "Investment Methods and Risk Factors."

FIXED INCOME SECURITIES.  Fixed income securities in which the Series may invest
include, but are not limited to, those described below.

U.S.  GOVERNMENT  OBLIGATIONS.  Bills,  notes,  bonds and other debt  securities
issued by the U.S. Treasury. These are direct obligations of the U.S. Government
and differ mainly in the length of their maturities.

U.S.  GOVERNMENT  AGENCY  SECURITIES.  Issued or guaranteed  by U.S.  Government
sponsored  enterprises and federal agencies.  These include securities issued by
the  Federal  National  Mortgage   Association,   Government  National  Mortgage
Association,   Federal  Home  Loan  Bank,  Federal  Land  Banks,   Farmers  Home
Administration,  Banks for  Cooperatives,  Federal  Intermediate  Credit  Banks,
Federal Financing Bank, Farm Credit Banks, the Small Business  Association,  and
the Tennessee  Valley  Authority.  Some of these securities are supported by the
full faith and credit of the U.S. Treasury, and the remainder are supported only
by the credit of the instrumentality,  which may or may not include the right of
the issuer to borrow from the Treasury.

BANK  OBLIGATIONS.  Certificates  of deposit,  bankers'  acceptances,  and other
short-term debt obligations.  Certificates of deposit are short-term obligations
of commercial banks. A bankers' acceptance is a time draft drawn on a commercial
bank  by  a  borrower,  usually  in  connection  with  international  commercial
transactions.  Certificates  of deposits may have fixed or variable  rates.  The
Series may invest in U.S. banks,  foreign branches of U.S. banks,  U.S. branches
of foreign banks and foreign branches of foreign banks.

SAVINGS  AND LOAN  OBLIGATIONS.  Negotiable  certificates  of deposit  and other
short-term debt obligations of savings and loan associations.

COLLATERALIZED   MORTGAGE   OBLIGATIONS   (CMOS).  CMOs  are  obligations  fully
collateralized  by a portfolio  of  mortgages  or  mortgage-related  securities.
Payments of principal and interest on the  mortgages  are passed  through to the
holders of the CMOs on the same schedule as they are received,  although certain
classes  of CMOs have  priority  over  others  with  respect  to the  receipt of
prepayments on the mortgages.  Therefore, depending on the type of CMOs in which
a Series  invests,  the investment may be subject to a greater or lesser risk of
prepayment than other types of mortgage-related securities.

MORTGAGE-BACKED   SECURITIES.    Mortgage-backed   securities   are   securities
representing  interest in a pool of mortgages.  After purchase by the Series,  a
security  may cease to be rated or its rating may be reduced  below the  minimum
required for purchase by the Series.  Neither  event will require a sale of such
security by the Series.  However,  T. Rowe Price will consider such event in its
determination of whether the Series should continue to hold the security. To the
extent  that the  ratings  given by  Moody's  or S&P may  change  as a result of
changes in such  organizations or their rating systems,  the Series will attempt
to use comparable  ratings as standards for  investments in accordance  with the
investment policies contained in the Fund's Prospectus.

The Series may also invest in the securities of certain supranational  entities,
such as the International Development Bank.

For a  discussion  of  mortgage-backed  securities  and certain  risks  involved
therein, see this Statement of Additional  Information and the Fund's Prospectus
under "Investment Methods and Risk Factors."

ASSET-BACKED  SECURITIES.  The Series may invest a portion of its assets in debt
obligations  known  as  asset-backed  securities.  The  credit  quality  of most
asset-backed  securities  depends  primarily on the credit quality of the assets
underlying  such  securities,  how well  the  entity  issuing  the  security  is
insulated  from  the  credit  risk of the  originator  or any  other  affiliated
entities  and the amount  and  quality of any  credit  support  provided  to the
securities.  The rate of principal payment on asset-backed  securities generally
depends on the rate of  principal  payments  received on the  underlying  assets
which in turn may be affected by a variety of economic and other  factors.  As a
result,  the yield on any  asset-backed  security is  difficult  to predict with
precision and actual yield to maturity may be more or less than the  anticipated
yield to maturity.

AUTOMOBILE  RECEIVABLE  SECURITIES.   The  Series  may  invest  in  asset-backed
securities which are backed by receivables from motor vehicle  installment sales
contracts or installment loans secured by motor vehicles ("Automobile Receivable
Securities").

CREDIT  CARD  RECEIVABLE  SECURITIES.  The  Series  may  invest in  asset-backed
securities backed by receivables from revolving credit card agreements  ("Credit
Card Receivable Securities").

OTHER ASSETS. T. Rowe Price  anticipates that asset-backed  securities backed by
assets other than those described above will be issued in the future. The Series
may invest in such  securities  in the future if such  investment  is  otherwise
consistent with its investment objective and policies. For a discussion of these
securities,  see  this  Statement  of  Additional  Information  and  the  Fund's
Prospectus under "Investment Methods and Risk Factors."

In addition to the investments  described in the Fund's  Prospectus,  the Series
may invest in the following:

ADDITIONAL  FUTURES AND OPTIONS  CONTRACTS.  Although  the Series has no current
intention of engaging in financial  futures or options  transactions  other than
those  described  above, it reserves the right to do so. Such futures or options
trading might involve risks which differ from those  involved in the futures and
options described above.

SERIES O (EQUITY INCOME  SERIES) -- The  investment  objective of Series O is to
seek to provide  substantial  dividend  income and also capital  appreciation by
investing primarily in dividend-paying  common stocks of established  companies.
In pursuing  its  objective,  the Series  emphasizes  companies  with  favorable
prospects for increasing dividend income, and secondarily, capital appreciation.
Over time, the income  component  (dividends and interest earned) of the Series'
investments  is expected to be a  significant  contributor  to the Series' total
return.  Total return is expected to consist  primarily  of dividend  income and
secondarily of capital appreciation (or depreciation).

The Series may invest up to 25% of its total assets in U.S.  dollar  denominated
and non U.S. dollar  denominated  securities  issued by foreign  issuers.  For a
discussion of the risks  involved in foreign  securities  investments,  see this
Statement of Additional Information and the Prospectus under "Investment Methods
and Risk Factors."

The investment  program of the Series is based on several  premises.  First, the
Series'  Sub-Adviser,  T. Rowe Price,  believes that, over time, dividend income
can  account  for a  significant  component  of the  total  return  from  equity
investments. Second, dividends are normally a more stable and predictable source
of return  than  capital  appreciation.  While the  price of a  company's  stock
generally  increases or decreases in response to short-term  earnings and market
fluctuations,  its dividends are generally less volatile. Finally, T. Rowe Price
believes  that stocks which  distribute  a high level of current  income tend to
have less price volatility than those which have below average dividends.

To achieve its objective, the Series, under normal circumstances, will invest at
least  80% of its net  assets  in common  stocks,  with 65% in  income-producing
common stocks,  whose prospects for dividend growth and capital appreciation are
considered   favorable  by  T.  Rowe  Price.  To  enhance  capital  appreciation
potential,  the  Series  also uses a  value-oriented  approach,  which  means it
invests in stocks it believes are currently  undervalued by various measures and
may be  temporarily  out of favor in the market place.  The Series'  investments
will  generally  be  made  in  companies  which  share  some  of  the  following
characteristics: established operating histories; above-average current dividend
yields  relative to the S&P 500; low  price-earnings  ratios relative to the S&P
500; sound balance  sheets and other  financial  characteristics;  and low stock
price relative to company's  underlying  value as measured by assets,  earnings,
cash flow or business franchises.

The Series may also  invest its assets in fixed  income  securities  (corporate,
government, and municipal bonds of various maturities).  The Series would invest
in  municipal  bonds when the expected  total return from such bonds  appears to
exceed the total  returns  obtainable  from  corporate  or  government  bonds of
similar credit quality.

Series O may invest in debt  securities of any type without regard to quality or
rating.  Such  securities  would  be  purchased  in  companies  which  meet  the
investment criteria for the Series. Such securities may include securities rated
below investment  grade (e.g.,  securities rated Ba or lower by Moody's or BB or
lower by S&P). The Series will not purchase such a security  (commonly  referred
to as a "junk bond") if  immediately  after such  purchase the Series would have
more than 10% of its total assets invested in such  securities.  See "Investment
Methods  and Risk  Factors" -  "Special  Risks  Associated  with  Low-Rated  and
Comparable  Unrated Debt  Securities"  for a discussion of the risks  associated
with investing in such securities.

Although the Series will invest  primarily in U.S.  common  stocks,  it may also
purchase other types of securities, for example, foreign securities, convertible
securities,  real estate investment trusts (REITs) and warrants, when considered
consistent  with the  Series'  investment  objective  and  program.  The Series'
investments in foreign  securities  include  non-dollar  denominated  securities
traded outside of the U.S. and dollar denominated  securities traded in the U.S.
(such as ADRs).  The Series may invest up to 25% of its total  assets in foreign
securities.  See the  discussions  of the risks  associated  with  investing  in
foreign securities under "American Depositary Receipts," "Currency Fluctuations"
and "Certain Risks of Foreign Investing."

The Series may also engage in a variety of investment management practices, such
as buying and selling  futures and options.  The Series may buy and sell futures
contracts  (and options on such  contracts) to manage its exposure to changes in
securities prices and foreign currencies; as an efficient means of adjusting its
overall exposure to certain markets;  in an effort to enhance income;  as a cash
management tool; or to protect the value of portfolio securities. The Series may
purchase or write (sell) call and put options on securities,  financial indices,
and foreign  currencies.  It is the Series' operating policy that initial margin
deposits and premiums on options used for  non-hedging  purposes  will not equal
more than 5% of the  Series'  net asset  value and,  with  respect to options on
securities,  the total market value of  securities  against which the Series has
written call or put options may not exceed 25% of its total  assets.  The Series
will not commit  more than 5% of its total  assets to premiums  when  purchasing
call or put options. The Series may also invest up to 10% of its total assets in
hybrid  instruments  which are  described  under  "Investment  Methods  and Risk
Factors" - "Hybrid  Instruments."  Also see the discussions of futures,  options
and forward currency transactions under "Investment Methods and Risk Factors."

The Series may also invest in restricted  securities described under "Investment
Methods and Risk Factors." The Series' investment in such securities, other than
Rule 144A securities, is limited to 5% of its net assets. Series O may invest in
securities  on a  "when-issued"  or "delayed  delivery  basis" as  discussed  in
"Investment  Methods and Risk  Factors."  The Series may borrow up to 33 1/3% of
its  total  assets;  however,  the  Series  may  not  purchase  securities  when
borrowings exceed 5% of its total assets.  The Series may hold a certain portion
of its assets in money market securities,  including shares of the T. Rowe Price
Reserve  Investment  Fund, a T. Rowe Price money market fund established for the
exclusive  use of the T. Rowe Price family of mutual funds and other  clients of
T. Rowe Price and repurchase  agreements,  in the two highest rating categories,
maturing in one year or less. For temporary,  defensive purposes, the Series may
invest without limitation in such securities.  The Series may lend securities to
broker-dealers,  other institutions, or other persons to earn additional income.
The value of loaned  securities  may not  exceed  33 1/3% of the  Series'  total
assets.  See  "Investment  Methods  and Risk  Factors" - "Lending  of  Portfolio
Securities" for a discussion of the risks associated with securities lending.

Should the Series  change its policy of investing at least 80% of its net assets
in the type of  investment  suggested  by its  name,  the  Series  will  provide
shareholders at least 60 days notice prior to making the change.

SERIES P (HIGH YIELD SERIES) -- The investment  objective of Series P is to seek
high current income. Capital appreciation is a secondary objective. Under normal
circumstances,  the  Series  will seek its  investment  objective  by  investing
primarily in a broad range of income producing securities,  including (i) higher
yielding,  higher risk, debt securities  (commonly referred to as "junk bonds");
(ii) preferred stock;  (iii)  securities  issued by foreign  governments,  their
agencies and  instrumentalities,  and foreign  corporations,  provided that such
securities are  denominated in U.S.  dollars;  (iv)  mortgage-backed  securities
("MBSs"); (v) asset-backed  securities;  (vi) securities issued or guaranteed by
the U.S.  Government  or any of its  agencies  or  instrumentalities,  including
Treasury bills, certificates of indebtedness,  notes and bonds; (vii) securities
issued or  guaranteed  by, the Dominion of Canada or provinces  thereof;  (viii)
zero coupon  securities;  and (ix) real estate investment  trusts.  Series P may
also invest up to 20% of its assets in common stocks  (which may include  ADRs),
warrants,  rights, and index-based  securities.  Under normal circumstances,  at
least 80% of the Series' net assets will be invested in high-yielding, high risk
debt securities.

Series P may invest up to 100% of its  assets in debt  securities  that,  at the
time of purchase,  are rated below investment grade ("high yield  securities" or
"junk  bonds"),  which  involve  a high  degree  of risk  and are  predominantly
speculative.  For a  description  of debt ratings and a discussion  of the risks
associated  with  investing  in junk  bonds,  see  "Investment  Methods and Risk
Factors."  Included in the debt  securities  which the Series may  purchase  are
convertible  bonds, or bonds with warrants  attached.  A "convertible bond" is a
bond,  debenture,  or  preferred  share which may be  exchanged by the owner for
common stock or another  security,  usually of the same  company,  in accordance
with the terms of the issue.  A "warrant"  confers  upon the holder the right to
purchase an amount of securities at a particular time and price. See "Investment
Methods and Risk  Factors" for a discussion  of the risks  associated  with such
securities.

The Series may purchase  securities  which are obligations of, or guaranteed by,
the  Dominion  of Canada or  provinces  thereof  and debt  securities  issued by
Canadian  corporations.  Canadian securities will not be purchased if subject to
the foreign interest  equalization tax and unless payable in U.S.  dollars.  The
Series  may  also  invest  in debt  securities  issued  by  foreign  governments
(including  Brady  Bonds),  their  agencies  and  instrumentalities  and foreign
corporations (including those in emerging markets), provided such securities are
denominated  in U.S.  dollars.  The Series'  investment  in foreign  securities,
excluding  Canadian  securities,  will not exceed 25% of the Series' net assets.
See  "Investment  Methods  and  Risk  Factors"  for a  discussion  of the  risks
associated  with  investing  in foreign  securities,  Brady  Bonds and  emerging
markets.

The Series may invest up to 25% of its total assets in MBSs,  including mortgage
pass-through  securities and  collateralized  mortgage  obligations  (CMOs). The
Series  may  invest  in  securities  known as  "inverse  floating  obligations,"
"residual  interest  bonds," and "interest only" (IO) and "principal  only" (PO)
bonds,  the market  values of which  generally  will be more  volatile  than the
market values of most MBSs.  This is due to the fact that such  instruments  are
more sensitive to interest rate changes and to the rate of principal prepayments
than are most other MBSs. For a discussion of MBSs and the risks associated with
such securities, see "Investment Methods and Risk Factors."

The  Series  may also  invest  up to 15% of its  total  assets  in  asset-backed
securities.  These include secured debt instruments  backed by automobile loans,
credit card loans, home equity loans, manufactured housing loans and other types
of secured loans  providing the source of both principal and interest  payments.
Asset-backed  securities  are subject to risks similar to those  discussed  with
respect to MBSs. See "Investment Methods and Risk Factors."

The Series may invest in U.S. Government securities.  U.S. Government securities
include  bills,  certificates  of  indebtedness,  notes and bonds  issued by the
Treasury or by agencies or instrumentalities of the U.S. Government.

The Series may invest in zero coupon  securities  which are debt securities that
pay no cash income but are sold at substantial  discounts from their face value.
Certain  zero  coupon  securities  also are sold at  substantial  discounts  but
provide for the  commencement of regular  interest  payments at a deferred date.
See  "Investment  Methods  and Risk  Factors"  for a  discussion  of zero coupon
securities.

Series P may acquire  certain  securities  that are restricted as to disposition
under  federal  securities  laws,  including  securities  eligible for resale to
qualified institutional investors pursuant to Rule 144A under the Securities Act
of 1933, subject to the Series' policy that not more than 15% of the Series' net
assets will be invested in illiquid  assets.  See  "Investment  Methods and Risk
Factors" for a discussion of restricted securities.

Series P may purchase securities on "when-issued" or "delayed delivery basis" in
excess of customary  settlement periods for the type of security  involved.  The
Series may also purchase or sell securities on a "forward  commitment" basis and
may enter into  "repurchase  agreements,"  "reverse  repurchase  agreements" and
"roll  transactions."  The Series may lend securities to broker/ dealers,  other
institutions  or other persons to earn  additional  income.  The value of loaned
securities may not exceed 33 1/3% of the Series' total assets. In addition,  the
Series  may  purchase  loans,  loan  participations  and  other  types of direct
indebtedness.

The Series may enter into futures  contracts (a type of derivative)  (or options
thereon) to hedge all or a portion of its portfolio,  as a hedge against changes
in prevailing levels of interest rates or as an efficient means of adjusting its
exposure  to the bond  market.  The Series will not use  futures  contracts  for
leveraging purposes.  The Series will limit its use of futures contracts so that
initial  margin  deposits  or premiums on such  contracts  used for  non-hedging
purposes will not equal more than 5% of the Series' net asset value.  The Series
may purchase  call and put options and write such options on a "covered"  basis.
The Series may also enter into interest  rate,  index and total return swaps and
purchase or sell related caps, floors and collars.  See "Investment  Methods and
Risk  Factors"  for a  discussion  of the risks  associated  with these types of
investments.

Series P may invest in real estate  investment  trusts  ("REITS") and other real
estate industry investments.  See the discussion of real estate securities under
"Investment Methods and Risk Factors."

The Series may also  invest in a variety of  investment  companies  that seek to
track the composition and performance of a specific index. See the discussion of
such investment companies under "Investment Methods and Risk Factors."

The Series' investment in warrants,  valued at the lower of cost or market, will
not exceed 5% of the Series' net assets. Included within this amount, but not to
exceed 2% of the Series' net assets, may be warrants which are not listed on the
New York or American Stock Exchange. Warrants acquired by the Series in units or
attached to securities may be deemed to be without value.

From  time to  time,  Series  P may  invest  part or all of its  assets  in U.S.
Government  securities,  commercial  notes or money  market  instruments.  It is
anticipated  that the weighted  average  maturity of the Series  portfolio  will
range from 5 to 15 years under normal circumstances.

Should the Series  change its policy of investing at least 80% of its net assets
in the type of  investment  suggested  by its  name,  the  Series  will  provide
shareholders at least 60 days notice prior to making the change.

SERIES Q (SMALL  CAP VALUE  SERIES)  -- The  objective  of  Series Q is  capital
growth.  Under  normal  circumstances,  the  Series  will  seek  its  investment
objective   by   investing  at  least  80%  of  its  net  assets  in  stocks  of
small-capitalization  companies  that the Series'  Sub-Adviser,  Strong  Capital
Management,  Inc.,  believes  are  undervalued  relative to the market  based on
earnings,  cash flow or asset  value.  In seeking its  objective  the Series can
invest in a broad array of securities and financial instruments,  including, but
not limited to (i)  convertible  securities;  (ii) debt securities in all rating
categories;   and  (iii)  foreign  securities  (including  ADRs,  EDRs,  foreign
investment  companies and foreign  currencies).  The Series may also invest in a
wide array of instruments which are commonly  referred to as derivatives,  which
may include options, futures, spread transactions, and swap agreements.

The  Series  may  invest in  options  (exchange  traded  and OTC) for any lawful
purpose  consistent  with its  investment  objective such as hedging or managing
risk. The Series may buy or write (sell) put and call options on assets, such as
securities,  currencies,  financial commodities,  and indices of debt and equity
securities and enter into closing  transactions  with respect to such options to
terminate an existing position.

Series Q may use futures  contracts for any lawful purpose  consistent  with its
investment objective such as hedging or managing risk. The Series may enter into
futures  contracts,  including,  but not  limited  to,  interest  rate and index
futures.  The Fund may also purchase put and call options, and write covered put
and call  options,  on futures in which it is allowed to invest.  The Series may
also write put options on futures  contracts  while at the same time  purchasing
call options on the same futures  contracts in order to create  synthetically  a
long futures contract  position.  Such options would have the same strike prices
and expiration  dates.  The Series will engage in this strategy only when Strong
believes  it is more  advantageous  to the Series  than  purchasing  the futures
contract.

Series Q may use spread  transactions for any lawful purpose consistent with its
investment  objective  such as hedging or managing risk. The Series may purchase
covered spread options from securities dealers.  Such covered spread options are
not  presently  exchange-listed  or  exchange-traded.  The  purchase of a spread
option gives the Series the right to put, or sell, a security  that it owns at a
fixed dollar  spread or fixed yield spread in relation to another  security that
the  Series  does not own,  but  which is used as a  benchmark.  The risk to the
Series in purchasing  covered spread options is the cost of the premium paid for
the spread option and any transactions costs. In addition, there is no assurance
that closing transactions will be available. The purchase of spread options will
be used to protect  the Series  against  adverse  changes in  prevailing  credit
quality  spreads,  i.e., the yield spread between high quality and lower quality
securities.  Such  protection  is only  provided  during  the life of the spread
option.

Series Q may enter into interest rate, securities index,  commodity, or security
and currency  exchange rate swap  agreements for any lawful  purpose  consistent
with the Series' investment objective,  such as for the purpose of attempting to
obtain or preserve a particular  desired return or spread at a lower cost to the
Series than if the Series had invested  directly in an  instrument  that yielded
that desired return or spread.  The Series also may enter into swaps in order to
protect  against an  increase  in the price of, or the  currency  exchange  rate
applicable  to,  securities  that the Series  anticipates  purchasing at a later
date.

In addition to the derivative  instruments and strategies described above and in
the Prospectus, Strong expects to discover additional derivative instruments and
other  hedging  or risk  management  techniques.  Strong may  utilize  these new
derivative  instruments  and  techniques to the extent that they are  consistent
with the Series'  investment  objective and permitted by the Series'  investment
limitations, operating policies, and applicable regulatory authorities.

The  Series  may also  invest  in  restricted  securities  (including  Rule 144A
securities),  repurchase  agreements,  reverse  repurchase  agreements,  standby
commitments,  warrants,  short sales against the box and when issued and delayed
delivery securities.

For a discussion of the risks  associated  with the  securities  and  investment
techniques  available to Series Q, see the "Investment Methods and Risk Factors"
section of this statement of additional information.

Should the Series  change its policy of investing at least 80% of its net assets
in the type of  investment  suggested  by its  name,  the  Series  will  provide
shareholders at least 60 days notice prior to making the change.

SERIES S (SOCIAL AWARENESS SERIES) -- The investment objective of Series S is to
seek capital  appreciation.  In seeking its  objective,  Series S will invest in
various types of securities  which meet certain social criteria  established for
the Series.  The Series may also invest in  companies  that are  included in the
Domini 400  Social  Index,  which  companies  will be deemed to comply  with the
Series'  social  criteria.  Series S will invest in a  diversified  portfolio of
common stocks (which may include ADRs), convertible securities, preferred stocks
and debt  securities.  See  "Investment  Methods  and Risk  Factors" - "American
Depositary  Receipts."  From time to time,  the Series may  purchase  government
bonds or commercial notes on a temporary basis for defensive purposes.

Series S will seek  investments that comply with the Series' social criteria and
that offer  investment  potential.  Because  of the  limitations  on  investment
imposed by the social criteria, the availability of investment opportunities for
the Series may be limited as  compared  to those of similar  funds  which do not
impose such restrictions on investment.

Securities  selected  for their  appreciation  possibilities  will be  primarily
common  stocks or other  securities  having the  investment  characteristics  of
common stocks,  such as securities  convertible  into common stocks.  Securities
will be  selected  on the  basis of their  appreciation  and  growth  potential.
Securities  considered to have capital  appreciation  and growth  potential will
often include  securities of smaller and less mature  companies.  Such companies
may  present  greater  opportunities  for capital  appreciation  because of high
potential  earnings  growth,  but may also involve  greater risk.  They may have
limited product lines, markets or financial resources, and they may be dependent
on a limited management group. Their securities may trade less frequently and in
limited volume, and only in the over-the-counter market or on smaller securities
exchanges.  As a result,  the  securities of smaller  companies may have limited
marketability and may be subject to more abrupt or erratic changes in value than
securities of larger, more established companies.  The Series may also invest in
larger companies where  opportunities  for  above-average  capital  appreciation
appear favorable and the Series' social criteria are satisfied.

Series S may enter into  futures  contracts (a type of  derivative)  (or options
thereon) to hedge all or a portion of its portfolio or as an efficient  means of
adjusting  its  exposure to the stock  market.  The Series will limit its use of
futures  contracts so that initial margin deposits or premiums on such contracts
used for  non-hedging  purposes  will not equal more than 5% of the  Series' net
assets.  The Series may also write call and put  options on a covered  basis and
purchase put and call  options on  securities  and  financial  indices.  See the
discussion of options and futures contracts under  "Investment  Methods and Risk
Factors."

Series  S will  not  invest  in  securities  of  companies  that  engage  in the
production of nuclear energy, alcoholic beverages or tobacco products.

In  addition,  the  Series  will not  invest in  securities  of  companies  that
significantly  engage in: (1) the manufacture of weapon  systems;  (2) practices
that,  on balance,  have a  detrimental  effect on the  environment;  or (3) the
gambling  industry.  Series S will monitor the  activities  identified  above to
determine whether they are significant to an issuer's business. Significance may
be  determined on the basis of the  percentage  of revenue  generated by, or the
size of operations attributable to, such activities. The Series may invest in an
issuer that engages in the activities  set forth above,  in a degree that is not
deemed significant by the Investment Manager. In addition,  the Series will seek
out companies that have  contributed  substantially  to the communities in which
they  operate,  have a  positive  record  on  employment  relations,  have  made
substantial  progress  in  the  promotion  of  women  and  minorities  or in the
implementation  of benefit policies that support working parents,  or have taken
notably positive steps in addressing environmental challenges.

The Investment Manager will evaluate an issuer's activities to determine whether
it engages in any  practices  prohibited  by the  Series'  social  criteria.  In
addition  to its own  research  with  respect  to an  issuer's  activities,  the
Investment   Manager  will  also  rely  on  other   organizations  that  publish
information for investors concerning the social policy implications of corporate
activities.  The  Investment  Manager  may rely  upon  information  provided  by
advisory  firms that  provide  social  research  on U.S.  corporations,  such as
Kinder,  Lydenberg,  Domini & Co.,  Inc.  Investment  selection  on the basis of
social  attributes is a relatively new practice and the sources for this type of
information are not well  established.  The Investment  Manager will continue to
identify and monitor sources of such  information to screen issuers which do not
meet the social investment restrictions of the Series.

If after purchase of an issuer's  securities by Series S, it is determined  that
such securities do not comply with the Series' social  criteria,  the securities
will be eliminated  from the Series'  portfolio  within a reasonable  time. This
requirement  may cause the Series to dispose of a security at a time when it may
be disadvantageous to do so.

SERIES T (TECHNOLOGY  SERIES) -- The objective of Series T is long-term  capital
appreciation.  The Series  pursues its  objective  by  investing,  under  normal
circumstances,  at least  80% of its net  assets  in the  equity  securities  of
technology  companies.  The  Series  will be  concentrated  and  expects to hold
approximately  30 to 50  positions.  The  Series is  non-diversified  within the
meaning of the  Investment  Company Act of 1940. The Series may invest up to 40%
of its total assets in foreign  securities.  The Series may  actively  trade its
investments  without  regard to the  length of time they have been  owned by the
Series.

The Sub-Adviser,  Wellington  Management Company, LLP, uses fundamental analysis
to choose  technology  securities  in  foreign  and U.S.  markets.  The  Series'
investment  approach  is based on  analyzing  the  competitive  outlook  for the
technology  sector,  identifying  those  industries  likely to benefit  from the
current  and   expected   future   environment,   and   identifying   individual
opportunities. The Sub-adviser's evaluation of technology companies rests on its
solid  knowledge of the overall  competitive  environment  including  supply and
demand characteristics,  trends,  existing product evaluations,  and new product
developments  within the technology sector.  Fundamental  research is focused on
direct contact with company management, suppliers, and competitors.

Asset  allocation  within the Series reflects the  Sub-Adviser's  opinion of the
relative  attractiveness  of stocks  within  the  industries  of the  technology
sector, near term macroeconomic events that may detract or enhance an industry's
attractiveness,  and the number of undervalued  opportunities  in each industry.
Opportunities dictate the magnitude and frequency of changes in asset allocation
among industries,  but some representation typically is maintained in each major
industry,  including  computer software,  computer hardware,  semiconductors and
equipment, communications equipment, and internet and new media.

Stocks considered for purchase typically share the following attributes:

o  A positive change in operating results is anticipated
o  Unrecognized or undervalued capabilities are present
o  The quality of management  indicates  that these factors will be converted to
   shareholder values.

Stocks will be considered for sale from the Series when:

o  Target prices are achieved
o  Earnings  and/or  return  expectations  are  marked  down due to  fundamental
   changes in the company's operating outlook
o  More attractive value in a comparable company is available.

The Series may invest in securities  denominated in any currency. The Series may
invest a  portion  of its  assets  in  options,  futures  and  forward  currency
contracts.  Generally,  these derivative instruments involve the obligation,  in
the case of futures  and  forwards,  or the right,  in the case of  options,  to
purchase or sell financial instruments in the present or at a future date. These
derivatives strategies will be used:

o  To adjust the portfolio's exposure to a particular currency
o  To manage risk
o  As a substitute for purchasing or selling securities

See the discussion  regarding options,  futures,  and forward currency contracts
under "Investment Methods and Risk Factors."

REPURCHASE  AGREEMENTS.  The Series intends to enter into repurchase  agreements
only with banks and  broker/  dealers  believed  by the  Sub-Adviser  to present
minimal credit risks in accordance with guidelines  approved by the Fund's Board
of Directors.  The Sub-Adviser will review and monitor the  creditworthiness  of
such counterparties.  The Series will not enter into a repurchase agreement with
a maturity  of more than seven days if, as a result,  more than 15% of the value
of its total net assets  would be invested  in such  repurchase  agreements  and
other illiquid  investments and securities for which no readily available market
exists.

Under  adverse  market  conditions,  the Series  could invest some or all of its
assets in cash, fixed-income  securities,  money market securities or repurchase
agreements.  Although the Series would do this only in seeking to avoid  losses,
it could reduce the benefit from any upswing in the market.  For a discussion of
the risks associated with the securities and investment  techniques available to
Series  T,  see the  "Investment  Methods  and  Risk  Factors"  section  of this
statement of additional information.

Should the Series  change its policy of investing at least 80% of its net assets
in the type of  investment  suggested  by its  name,  the  Series  will  provide
shareholders at least 60 days notice prior to making the change.

SERIES V (MID CAP VALUE  SERIES) -- The  investment  objective of Series V is to
seek  long-term  growth of capital.  Series V will seek to achieve its objective
through  investment  in a  diversified  portfolio  of  securities.  Under normal
circumstances  the Series  will  consist  primarily  of various  types of common
stock,  which may include ADRs,  and securities  convertible  into common stocks
which the  Investment  Manager  believes  are  undervalued  relative  to assets,
earnings,  growth  potential  or cash flows.  See the  discussion  of ADRs under
"Investment  Methods and Risk Factors." Under normal  circumstances,  the Series
will invest at least 80% of its net assets in the  securities of companies  with
total market value of $10 billion or below at the time of purchase.

Series  V may  also  invest  in  (i)  preferred  stocks;  (ii)  warrants;  (iii)
investment grade debt securities (or unrated securities of comparable  quality);
(iv) securities of other investment  companies;  (v) futures;  (vi) options; and
(vii) options on futures. Series V may also invest in convertible securities (in
any rating category),  including up to 10% of its assets in instruments known as
liquid yield option  notes or "LYONS." The Series may purchase  securities  on a
"when-issued"  or "delayed  delivery  basis" in excess of  customary  settlement
periods for the type of security  involved.  The Series may purchase  securities
which are  restricted  as to  disposition  under the  federal  securities  laws,
provided that such securities are eligible for resale to qualified institutional
investors  pursuant to Rule 144A under the Securities Act of 1933 and subject to
the Series'  policy that not more than 15% of its net assets will be invested in
illiquid  securities.   Series  V  reserves  the  right  to  invest  its  assets
temporarily  in cash and money market  instruments  when,  in the opinion of the
Investment  Manager,  it  is  advisable  to  do  so on  account  of  current  or
anticipated market conditions.  The Series may utilize repurchase  agreements on
an overnight basis or bank demand accounts,  pending investment in securities or
to meet  potential  redemptions  or expenses.  See the discussion of when-issued
securities,  Rule 144A securities and repurchase  agreements  under  "Investment
Methods and Risk Factors."

Should the Series  change its policy of investing at least 80% of its net assets
in the type of  investment  suggested  by its  name,  the  Series  will  provide
shareholders at least 60 days notice prior to making the change.

SERIES W (MAIN STREET GROWTH AND INCOME® SERIES) -- The objective of Series W is
total  return  (which  includes  growth  in the  value of its  shares as well as
current  income)  from  equity  and debt  securities.  The  Series  pursues  its
objective by investing  mainly in common  stocks of U.S.  companies,  but it can
also invest in other equity  securities such as preferred  stocks and securities
convertible  into  common  stocks.   Although  the  Series  does  not  have  any
requirements  as to the  capitalization  of  issuers  in which it  invests,  the
Series' Sub-Adviser,  OppenheimerFunds, Inc., currently emphasizes the stocks of
large-capitalization companies in the portfolio. In selecting securities for the
Series'   portfolio,   OppenheimerFunds   evaluates  the  merits  of  particular
securities  primarily  through the exercise of its own  investment  analysis and
application of the multi-factor quantitative models discussed in the prospectus.
That  process  may  include,  among other  things,  evaluation  of the  issuer's
historical  operations,  prospects for the industry of which the issuer is part,
the issuer's financial condition,  its pending product developments and business
(and those of competitors), the effect of general market and economic conditions
on the  issuer's  business,  and  legislative  proposals  that might  affect the
issuer.

In seeking its  objective  the Series can invest in a broad array of  securities
and financial instruments,  including, but not limited to (i) equity securities;
(ii)  convertible  securities;  (iii) debt securities in all rating  categories;
(iv) foreign  securities  (including  ADRs, and EDRs);  (v) rights and warrants;
(vi) all types of assets  backed  securities  and  mortgage  related  securities
(including  CMOs,  REMICs  and  stripped  mortgage  backed  securities);   (vii)
when-issued  and delayed  delivery  securities;  (viii)  repurchase  and reverse
repurchase agreements; (ix) restricted securities (including securities eligible
for resale to qualified  institutional  purchasers under Rule 144A) and (x) real
estate investment trusts ("REITs") and (xi) swap agreements. The Series may also
invest  in a wide  array  of  instruments  which  are  commonly  referred  to as
derivatives,  which  may  include  options,  futures,  forward  contract  spread
transactions, and swap agreements.

For a discussion of the risks  associated  with the  securities  and  investment
techniques  available to Series W, see the "Investment Methods and Risk Factors"
section of this statement of additional information.


SERIES X (SMALL CAP GROWTH SERIES) -- The investment objective of Series X is to
seek long-term growth of capital. The Series pursues its investment objective by
investing, under normal circumstances,  at least 80% of its net assets in equity
securities of companies with market  capitalizations  of $750 million or less at
the time of investment  that, in the opinion of the  Sub-Adviser,  RS Investment
Management,  L.P., have the potential for long-term  capital growth.  The Series
may invest the  remainder of its assets in  securities of companies of any size.
The Series may also engage in short sales of securities it expects to decline in
price.  The Series will likely invest a portion of its assets in technology  and
Internet-related companies.


While  there is  careful  selection  and  constant  supervision  by the  Series'
Sub-Adviser,  there  can be no  guarantee  that the  Series'  objective  will be
achieved.  Investing in securities of small-sized  companies may involve greater
risks than investing in larger,  more established issuers since these securities
may  have  limited  marketability  and,  thus,  they may be more  volatile  than
securities  of larger,  more  established  companies  or the market  averages in
general.  Because  small-sized  companies normally have fewer shares outstanding
than larger  companies,  it may be more  difficult for the Series to buy or sell
significant  numbers of such shares without an unfavorable  impact on prevailing
prices.  Small-sized  companies  may have  limited  product  lines,  markets  or
financial  resources and may lack  management  depth.  In addition,  small-sized
companies  are  typically  subject to wider  variations in earnings and business
prospects than are larger, more established  companies.  There is typically less
publicly available information concerning small-sized companies than for larger,
more established ones.

Under  adverse  market  conditions,  the Series  could invest some or all of its
assets in cash, fixed-income  securities,  money market securities or repurchase
agreements.  Although the Series would do this only in seeking to avoid  losses,
it could reduce the benefit from any upswing in the market.

The Series may also utilize the following  investments and investment techniques
and practices:  borrowing,  futures,  options,  options on futures,  convertible
securities,  debt obligations (including low rated and unrated debt securities),
American  Depositary  Receipts  ("ADRs"),  Global Depositary  Receipts ("GDRS"),
European  Depositary  Receipts ("EDRs"),  Rule 144A securities,  when-issued and
delayed deliver securities,  securities lending, repurchase agreements,  reverse
repurchase   agreements,   foreign   investments,   foreign  currency   exchange
transactions, zero coupon debt securities,  pay-in-kind securities and leverage.
See "Investment Methods and Risk Factors" for further information.

Should the Series  change its policy of investing at least 80% of its net assets
in the type of  investment  suggested  by its  name,  the  Series  will  provide
shareholders at least 60 days notice prior to making the change.



SERIES Y (SELECT 25 SERIES) -- The investment objective of the Series is to seek
long-term  growth of capital.  The Series pursues its objective by concentrating
its  investments  in a core position of 20-30 common stocks of growth  companies
which have exhibited  consistent above average  earnings  growth.  The Series is
non-diversified  as  defined  in the 1940 Act,  which  means  that it may hold a
larger position in a smaller number of securities than a diversified series. The
Investment Manager selects as the core position for the Series, what it believes
to be premier  growth  companies.  The  Investment  Manager  uses a  "bottom-up"
approach in selecting  growth stocks.  Portfolio  holdings will be replaced when
one or more of the companies'  fundamentals  have changed and, in the opinion of
the Investment Manager,  it is no longer a premier growth company.  There can be
no assurance that the Series' objective will be achieved.


The Series may invest in (i) common stocks; (ii) preferred stocks; (iii) foreign
securities  (including  ADRs); (iv) investment grade debt securities (or unrated
securities  of  comparable  quality);  and (v)  securities  of other  investment
companies. The Series may invest in a variety of investment companies, including
those that seek to track the  composition  and  performance of a specific index.
The Series may use these  index-based  investments as a way of managing its cash
position,  to gain exposure to the equity markets, or a particular sector of the
equity market, while maintaining  liquidity.  The Series may purchase securities
on a "when-issued" or "delayed delivery basis" in excess of customary settlement
periods for the type of security  involved.  The Series may purchase  securities
which are  restricted  as to  disposition  under the  federal  securities  laws,
including  securities  that are eligible  for resale to qualified  institutional
investors  pursuant to Rule 144A under the Securities Act of 1933 and subject to
the Series'  policy that not more than 15% of its net assets will be invested in
illiquid  securities.  The  Series  may also  invest a portion  of its assets in
options  and  futures  contracts.  These  instruments  may be used to hedge  the
Series'  portfolio,  to increase returns,  or to maintain exposure to the equity
markets.  The Series reserves the right to invest its assets temporarily in cash
and money market instruments when, in the opinion of the Investment  Manager, it
is advisable to do so on account of current or  anticipated  market  conditions.
The Series may  utilize  repurchase  agreements  on an  overnight  basis or bank
demand  accounts,   pending  investment  in  securities  or  to  meet  potential
redemptions or expenses.  See the discussion of foreign securities,  when issued
securities,  restricted  securities and repurchase  agreements under "Investment
Methods and Risk Factors."

INVESTMENT METHODS AND RISK FACTORS

Some  of the  risk  factors  related  to  certain  securities,  instruments  and
techniques  that may be used by one or more of the Series are  described  in the
"Main Risks" and "Investment Policies and Management Practices " sections of the
Prospectus and in this Statement of Additional  Information.  The following is a
description of certain  additional risk factors  related to various  securities,
instruments  and  techniques.  The risks so described only apply to those Series
which  may  invest  in  such  securities  and  instruments  or  which  use  such
techniques.  Also included is a general  description  of some of the  investment
instruments,  techniques  and  methods  which  may be used by one or more of the
Series.  The methods  described  only apply to those  Series  which may use such
methods.  Although a Series may employ the  techniques,  instruments and methods
described below,  consistent with its investment  objective and policies and any
applicable law, no Series will be required to do so.

AMERICAN  DEPOSITARY  RECEIPTS -- Each of the Series  (except Series C and E) of
the Fund may purchase  American  Depositary  Receipts  ("ADRs") which are issued
generally  by U.S.  banks and which  represent  the  deposit  with the bank of a
foreign  company's  securities.   ADRs  are  publicly  traded  on  exchanges  or
over-the-counter  in the United States.  Investors should consider carefully the
substantial  risks  involved in investing in  securities  issued by companies of
foreign  nations,  which are in addition to the usual risks inherent in domestic
investments.  ADRs and European Depositary Receipts ("EDRs") or other securities
convertible  into  securities  of  issuers  based in foreign  countries  are not
necessarily  denominated in the same currency as the securities  into which they
may be converted.  Generally,  ADRs, in registered form, are denominated in U.S.
dollars and are  designed  for use in the U.S.  securities  markets,  while EDRs
(also referred to as Continental  Depositary Receipts ("CDRs"),  in bearer form,
may be  denominated  in other  currencies  and are  designed for use in European
securities  markets.  ADRs are receipts typically issued by a U.S. bank or trust
company  evidencing  ownership of the underlying  securities.  EDRs are European
receipts   evidencing  a  similar  arrangement  and  GDRs  are  global  receipts
evidencing  a  similar  arrangement.  For  purposes  of the  Series'  investment
policies,  ADRs, EDRs and GDRs are deemed to have the same classification as the
underlying  securities  they  represent.  Thus, an ADR, EDR or GDR  representing
ownership of common stock will be treated as common stock.

Depositary receipts are issued through "sponsored" or "unsponsored"  facilities.
A sponsored  facility  is  established  jointly by the issuer of the  underlying
security and a depositary,  whereas a depositary  may  establish an  unsponsored
facility without participation by the issuer of the deposited security.  Holders
of  unsponsored  depositary  receipts  generally  bear  all  the  cost  of  such
facilities and the depositary of an unsponsored  facility frequently is under no
obligation to distribute shareholder  communications received from the issuer of
the deposited  security or to pass through  voting rights to the holders of such
receipts in respect of the deposited securities.

SHARES OF OTHER  INVESTMENT  COMPANIES -- Each of the Series may invest in other
investment  companies,  which may include index-based  investments such as SPDRs
(based on the S&P 500), MidCap SPDRs (based on the S&P MidCap 400 Index), Select
Sector SPDRs (based on sectors or industries  of the S&P 500 Index),  Nasdaq-100
Index Tracking Stocks (based on the Nasdaq-100 Index) and DIAMONDS (based on the
Dow  Jones  Industrial  Average).  The main  risk of  investing  in  index-based
investment  companies  is the same as  investing  in a portfolio  of  securities
compromising  the  index.  The market  prices of  index-based  investments  will
fluctuate  in  accordance  with  both  changes  in the  market  value  of  their
underlying portfolio securities and due to supply and demand for the instruments
on the  exchanges  on which they are  traded.  Index-based  investments  may not
replicate   exactly  the   performance  of  their  specified  index  because  of
transaction  costs  and  because  of the  temporary  unavailability  of  certain
component  securities  of the  index.  To the  extent a Series  invests in other
investment  companies,  it will  incur  its pro  rata  share  of the  underlying
investment  companies'  expenses.  In addition,  a Series will be subject to the
effects of  business  and  regulatory  developments  that  affect an  underlying
investment  company or the investment  company industry  generally.  The Series'
investment in shares of other  investment  companies  except for Series N and O,
may not exceed immediately after purchase 10% of the Series' total assets and no
more  than 5% of its  total  assets  may be  invested  in the  shares of any one
investment  company.  Series N and  Series O may each  invest up to 25% of their
assets in shares of the T. Rowe  Price  Reserve  Investment  Fund.  The  Reserve
Investment  Fund is a managed  money  market fund that is not  available  to the
public. The Reserve Investment Fund does not charge investment  management fees,
although it does incur other operating expenses.

REPURCHASE  AGREEMENTS  -- A  repurchase  agreement  involves a purchase  by the
Series of a  security  from a  selling  financial  institution  (such as a bank,
savings and loan association or  broker-dealer)  which agrees to repurchase such
security  at a specified  price and at a fixed time in the  future,  usually not
more than seven days from the date of purchase. The resale price is in excess of
the purchase price and reflects an agreed upon yield effective for the period of
time the Series' money is invested in the security.

Currently,  Series  A, B, C, E,  S,  J,  P, V and Y may  enter  into  repurchase
agreements only with federal reserve system member banks with total assets of at
least one  billion  dollars and equity  capital of at least one hundred  million
dollars and "primary" dealers in U.S.  Government  securities.  These Series may
enter into repurchase  agreements,  fully  collateralized by U.S.  Government or
agency securities, only on an overnight basis.


Repurchase  agreements  are  considered  to be  loans  by  the  Fund  under  the
Investment Company Act of 1940.  Engaging in any repurchase  transaction will be
subject to any rules or regulations of the Securities and Exchange Commission or
other regulatory  authorities.  Not more than 10% of the net assets of Series A,
B, C, D, S, J, and W and not more than 15% of the net  assets of Series E, N, O,
T, V and Y will  be  invested  in  illiquid  assets,  which  include  repurchase
agreements with maturities of over seven days.


Series D may enter into repurchase  agreements only with (a) securities  dealers
that  have a  total  capitalization  of at  least  $40,000,000  and a  ratio  of
aggregate indebtedness to net capital of no more than 4 to 1, or, alternatively,
net capital equal to 6% of aggregate debit  balances,  or (b) banks that have at
least  $1,000,000,000  in assets and a net worth of at least  $100,000,000 as of
its most recent annual report.  In addition,  the aggregate  repurchase price of
all repurchase  agreements  held by each Series with any broker shall not exceed
15% of the total assets of the Series or $5,000,000,  whichever is greater.  The
Series  will not enter into  repurchase  agreements  maturing in more than seven
days  if  the  aggregate  of  such  repurchase  agreements  and  other  illiquid
investments would exceed 10% of total assets for Series D.

Series  I  may  enter  into   repurchase   agreements  only  with  issuers  who,
individually or with issuer's  parent,  have outstanding debt rated AA or higher
by S&P or Aa or  higher  by  Moody's  or  outstanding  commercial  paper or bank
obligations  rated A-1 by S&P or Prime-1 by Moody's;  or if no such  ratings are
available,  the instrument  must be of comparable  quality in the opinion of the
Sub-Adviser.

Series  X  may  enter  into  repurchase  agreements  with  (a)  well-established
securities  dealers or (b) banks that are members of the Federal Reserve System.
Any such dealer or bank will have a credit rating with respect to its short-term
debt of at least A1 by Standard & Poor's  Corporation,  P1 by Moody's  Investors
Service,  Inc., or the equivalent  rating by the Investment  Manager or relevant
Sub-Adviser.  Series X may enter into  repurchase  agreements with maturities of
over seven  days,  provided  that the Series may not invest more than 15% of its
net assets in illiquid securities.

Series N and O may enter into  repurchase  agreements  only with (a)  securities
dealers  that  have a net  capital  in  excess of  $50,000,000,  are  reasonably
leveraged,  and are otherwise  considered as appropriate  entities with which to
enter into  repurchase  agreements,  or (b) banks that are  included  on T. Rowe
Price's  list of  established  banks.  To  determine  whether  a dealer  or bank
qualifies under these criteria,  T. Rowe Price's Credit Committee will conduct a
thorough   examination   to  determine   that  the   applicable   financial  and
profitability  standards  have  been  met.  Series  N and O will not  under  any
circumstances enter into a repurchase agreement of a duration of more than seven
business  days if, as a result,  more than 15% of the value of the  Series'  net
assets would be so invested or invested in illiquid securities.  Generally,  the
Series  will  not  commit  more  than  50% of its  gross  assets  to  repurchase
agreements or more than 5% of its total assets to  repurchase  agreements of any
one vendor.

In the  event of a  bankruptcy  or other  default  of a seller  of a  repurchase
agreement, the Series could experience both delays in liquidating the underlying
securities  and  losses,  including  (a)  possible  decline  in the value of the
underlying  security  during the period  while the Series  seeks to enforce  its
rights thereto;  (b) possible  subnormal  levels of income and lack of access to
income during this period;  and (c) expenses of enforcing its rights.  The Board
of Directors of the Fund has  promulgated  guidelines with respect to repurchase
agreements.

Certain  Series  may enter  into  reverse  repurchase  agreements  with the same
parties  with whom they may enter into  repurchase  agreements.  Under a reverse
repurchase  agreement,  the Series would sell securities and agree to repurchase
them at a  particular  price at a future  date.  Reverse  repurchase  agreements
involve  the risk that the market  value of the  securities  retained in lieu of
sale by the Series may decline below the price of the  securities the Series has
sold but is obligated to repurchase.  In the event the buyer of securities under
a reverse repurchase  agreement files for bankruptcy or becomes insolvent,  such
buyer or its trustee or receiver  may receive an  extension of time to determine
whether to enforce the Series' obligation to repurchase the securities,  and the
Series' use of the proceeds of the reverse repurchase  agreement may effectively
be restricted pending such decision.

Certain  Series also may enter into  "dollar  rolls," in which the Series  sells
fixed income  securities  for delivery in the current  month and  simultaneously
contracts to repurchase  substantially  similar (same type, coupon and maturity)
securities on a specified future date. During the roll period,  the Series would
forego  principal  and  interest  paid on such  securities.  The Series would be
compensated  by the  difference  between the current sales price and the forward
price for the future  purchase,  as well as by the  interest  earned on the cash
proceeds of the initial sale.

At the time a Series enters into reverse repurchase  agreements or dollar rolls,
it will  segregate  cash or liquid  securities  having a value not less than the
repurchase price,  including  accrued interest.  Assets may be segregated by the
Series' custodian,  or on the Series' books.  Reverse repurchase  agreements and
dollar rolls will be treated as  borrowings  and will be deducted from a Series'
borrowing limitation.

REAL ESTATE SECURITIES -- Certain Series may invest in equity securities of real
estate investment  trusts ("REITs") and other real estate industry  companies or
companies with  substantial real estate  investments and therefore,  such Series
may be subject to certain risks  associated with direct ownership of real estate
and with the real estate industry in general. These risks include, among others:
possible declines in the value of real estate;  possible lack of availability of
mortgage funds;  extended vacancies of properties;  risks related to general and
local economic  conditions;  overbuilding;  increases in  competition,  property
taxes and operating  expenses;  changes in zoning laws; costs resulting from the
clean-up  of,  and  liability  to third  parties  for  damages  resulting  from,
environmental problems;  casualty or condemnation losses; uninsured damages from
floods, earthquakes or other natural disasters; limitations on and variations in
rents; and changes in interest rates.

REITs are pooled investment  vehicles which invest primarily in income producing
real estate or real  estate  related  loans or  interests.  REITs are  generally
classified as equity REITs,  mortgage REITs or hybrid REITs. Equity REITs invest
the  majority  of their  assets  directly  in real  property  and derive  income
primarily  from the collection of rents.  Equity REITs can also realize  capital
gains by selling  properties  that have  appreciated  in value.  Mortgage  REITs
invest the majority of their assets in real estate  mortgages  and derive income
from the  collection  of  interest  payments.  REITs  are not  taxed  on  income
distributed to  shareholders  provided they comply with several  requirements of
the  Internal  Revenue  Code,  as amended ( the  "Code").  Certain  REITs may be
self-liquidating  in that a specific  term of  existence  is provided for in the
trust  document.  Such  trusts run the risk of  liquidating  at an  economically
inopportune time.

DEBT OBLIGATIONS -- Yields on short, intermediate,  and long-term securities are
dependent on a variety of factors, including the general conditions of the money
and bond  markets,  the  size of a  particular  offering,  the  maturity  of the
obligation,  and the rating of the issue. Debt securities with longer maturities
tend to produce higher yields and are generally  subject to potentially  greater
capital  appreciation and depreciation than obligations with shorter  maturities
and lower yields. The market prices of debt securities  usually vary,  depending
upon available  yields.  An increase in interest rates will generally reduce the
value of portfolio  investments,  and a decline in interest rates will generally
increase  the value of  portfolio  investments.  The  ability  of the  Series to
achieve its investment objectives is also dependent on the continuing ability of
the  issuers of the debt  securities  in which the  Series  invest to meet their
obligations for the payment of interest and principal when due.

SPECIAL RISKS  ASSOCIATED WITH LOW-RATED AND COMPARABLE  UNRATED DEBT SECURITIES
-- Low-rated and comparable unrated securities,  while generally offering higher
yields than investment-grade securities with similar maturities, involve greater
risks, including the possibility of default or bankruptcy.  They are regarded as
predominantly  speculative with respect to the issuer's capacity to pay interest
and repay  principal.  Certain Series may also purchase low rated and comparable
unrated  securities  which are in  default  when  purchased.  The  special  risk
considerations  in connection with such investments are discussed below. See the
Appendix  of this  Statement  of  Additional  Information  for a  discussion  of
securities ratings.

The low-rated and comparable  unrated  securities  market is relatively new, and
its growth  paralleled a long economic  expansion.  As a result, it is not clear
how this market may withstand a prolonged recession or economic downturn. Such a
prolonged  economic downturn could severely disrupt the market for and adversely
affect the value of such securities.

All interest-bearing  securities typically experience appreciation when interest
rates decline and  depreciation  when interest  rates rise. The market values of
low-rated and comparable unrated securities tend to reflect individual corporate
developments  to a greater extent than do higher-rated  securities,  which react
primarily to fluctuations in the general level of interest rates.  Low-rated and
comparable  unrated  securities  also  tend to be  more  sensitive  to  economic
conditions than are higher-rated securities. As a result, they generally involve
more credit risks than  securities  in the  higher-rated  categories.  During an
economic  downturn  or a  sustained  period of  rising  interest  rates,  highly
leveraged issuers of low-rated and comparable  unrated securities may experience
financial  stress and may not have  sufficient  revenues  to meet their  payment
obligations.  The issuer's  ability to service its debt  obligations may also be
adversely affected by specific corporate developments, the issuer's inability to
meet specific projected business forecasts,  or the unavailability of additional
financing.  The  risk of loss due to  default  by an  issuer  of  low-rated  and
comparable  unrated   securities  is  significantly   greater  than  issuers  of
higher-rated  securities because such securities are generally unsecured and are
often subordinated to other creditors. Further, if the issuer of a low-rated and
comparable unrated security defaulted,  a Series might incur additional expenses
to seek  recovery.  Periods  of  economic  uncertainty  and  changes  would also
generally  result in increased  volatility in the market prices of low-rated and
comparable unrated securities and thus in a Series' net asset value.

As  previously  stated,  the value of such a security  will decrease in a rising
interest rate market and  accordingly,  so will a Series' net asset value.  If a
Series experiences unexpected net redemptions in such a market, it may be forced
to  liquidate  a portion of its  portfolio  securities  without  regard to their
investment  merits.  Due to  the  limited  liquidity  of  high-yield  securities
(discussed  below) a Series may be forced to  liquidate  these  securities  at a
substantial  discount.  Any such  liquidation  would reduce a Series' asset base
over which  expenses  could be  allocated  and could result in a reduced rate of
return for a Series.

Low-rated and comparable unrated securities typically contain redemption,  call,
or prepayment  provisions which permit the issuer of such securities  containing
such provisions to, at their discretion,  redeem the securities.  During periods
of falling interest rates, issuers of high-yield securities are likely to redeem
or prepay the securities and refinance  them with debt  securities  with a lower
interest  rate. To the extent an issuer is able to refinance  the  securities or
otherwise  redeem  them,  a Series may have to  replace  the  securities  with a
lower-yielding security, which would result in a lower return for a Series.

Credit ratings issued by credit-rating agencies evaluate the safety of principal
and interest  payments of rated securities.  They do not, however,  evaluate the
market value risk of low-rated and comparable unrated securities and, therefore,
may  not  fully  reflect  the  true  risks  of  an   investment.   In  addition,
credit-rating agencies may or may not make timely changes in a rating to reflect
changes in the economy or in the  condition of the issuer that affect the market
value  of  the  security.  Consequently,  credit  ratings  are  used  only  as a
preliminary  indicator of  investment  quality.  Investments  in  low-rated  and
comparable  unrated  securities will be more dependent on the Investment Manager
or  relevant   Sub-Adviser's  credit  analysis  than  would  be  the  case  with
investments in  investment-grade  debt  securities.  The  Investment  Manager or
relevant  Sub-Adviser  employs  its own  credit  research  and  analysis,  which
includes a study of existing debt,  capital  structure,  ability to service debt
and to pay  dividends,  the issuer's  sensitivity  to economic  conditions,  its
operating history, and the current trend of earnings.  The Investment Manager or
relevant Sub-Adviser continually monitors the investments in a Series' portfolio
and  carefully  evaluates  whether  to  dispose  of or to retain  low-rated  and
comparable  unrated  securities  whose credit ratings or credit quality may have
changed.

A Series may have  difficulty  disposing  of certain  low-rated  and  comparable
unrated  securities  because  there  may  be a  thin  trading  market  for  such
securities.  Because  not all  dealers  maintain  markets in all  low-rated  and
comparable unrated  securities,  there is no established retail secondary market
for many of these securities. A Series anticipates that such securities could be
sold only to a limited  number of dealers  or  institutional  investors.  To the
extent a secondary  trading market does exist,  it is generally not as liquid as
the secondary market for higher-rated securities. The lack of a liquid secondary
market may have an  adverse  impact on the market  price of the  security.  As a
result,  a Series'  asset value and a Series'  ability to dispose of  particular
securities, when necessary to meet a Series' liquidity needs or in response to a
specific economic event, may be impacted.  The lack of a liquid secondary market
for certain  securities  may also make it more  difficult for the Fund to obtain
accurate market  quotations for purposes of valuing a Series.  Market quotations
are generally  available on many  low-rated and  comparable  unrated issues only
from a limited number of dealers and may not necessarily  represent firm bids of
such dealers or prices for actual sales.  During  periods of thin  trading,  the
spread  between  bid and asked  prices is likely to increase  significantly.  In
addition,  adverse publicity and investor  perceptions,  whether or not based on
fundamental  analysis,  may decrease the values and  liquidity of low-rated  and
comparable unrated securities, especially in a thinly-traded market.

Recent  legislation has been adopted and from time to time,  proposals have been
discussed  regarding  new  legislation  designed  to  limit  the use of  certain
low-rated and comparable  unrated  securities by certain issuers.  An example of
legislation is a recent law which requires  federally  insured  savings and loan
associations  to divest their  investment  in these  securities  over time.  New
legislation could further reduce the market because such legislation, generally,
could  negatively  affect the  financial  condition of the issuers of high-yield
securities,  and  could  adversely  affect  the  market  in  general.  It is not
currently  possible to determine  the impact of the recent  legislation  on this
market.  However, it is anticipated that if additional legislation is enacted or
proposed,  it  could  have a  material  effect  on the  value of  low-rated  and
comparable  unrated  securities and the existence of a secondary  trading market
for the securities.

LOAN  PARTICIPATIONS  AND  ASSIGNMENTS.  Certain  Series may invest in fixed and
floating rate loans ("Loans")  arranged through private  negotiations  between a
corporate or foreign entity and one or more financial institutions  ("Lenders').
Certain Series may also invest in participations in Loans ("Participations") and
assignments   of   portions  of  Loans  from  third   parties   ("Assignments").
Participations   typically   will  result  in  a  Series  having  a  contractual
relationship only with the Lender,  not with the borrower.  The Series will have
the right to receive payments of principal, interest and any fees to which it is
entitled only from the Lender selling the Participation and only upon receipt by
the Lender of the payments from the  borrower.  In  connection  with  purchasing
Participations, the Series generally will have no right to enforce compliance by
the borrower  with the terms of the loan  agreement  relating to the Loan ("Loan
Agreement"),  nor any rights of set-off against the borrower, and the Series may
not directly  benefit from any  collateral  supporting  the Loan in which it has
purchased the Participation. As a result, the Series will assume the credit risk
of both the borrower and the Lender that is selling the Participation.

In the event of the insolvency of the Lender selling a Participation, the Series
may be treated as a general  creditor of the Lender and may not benefit from any
set-off   between  the  Lender  and  the  borrower.   The  Series  will  acquire
Participations  only if the Lender  interpositioned  between  the Series and the
borrower is determined by the Investment  Manager or relevant  Sub-Adviser to be
creditworthy. Where a Series purchases Assignments from Lenders, the Series will
acquire  direct  rights  against  the  borrower  on  the  Loan.  However,  since
Assignments  are  arranged  through  private   negotiations   between  potential
assignees and assignors,  the rights and  obligations  acquired by the Series as
the purchaser of an Assignment may differ from, and be more limited than,  those
held by the assigning Lender.

A Series may have difficulty  disposing of Assignments and  Participations.  The
liquidity  of such  securities  is limited and the Series  anticipate  that such
securities  could be sold only to a limited number of  institutional  investors.
The lack of a liquid  secondary market could have an adverse impact on the value
of  such  securities  and  on the  Series'  ability  to  dispose  of  particular
Assignments or Participations when necessary to meet the Series' liquidity needs
or in response to a specific  economic  event,  such as a  deterioration  in the
creditworthiness  of the  borrower.  The lack of a liquid  secondary  market for
Assignments and  Participations  also may make it more difficult for a Series to
assign a value to those securities for purposes of valuing the Series' portfolio
and calculating its net asset value.

PUT AND CALL OPTIONS--

WRITING (SELLING)  COVERED CALL OPTIONS.  A call option gives the holder (buyer)
the "right to  purchase"  a  security  or  currency  at a  specified  price (the
exercise  price),  at expiration of the option  (European  style) or at any time
until a certain date (the  expiration  date)  (American  style).  So long as the
obligation  of the writer of a call  option  continues,  he may be  assigned  an
exercise  notice  by the  broker-dealer  through  whom  such  option  was  sold,
requiring him to deliver the underlying  security or currency against payment of
the exercise price.  This obligation  terminates upon the expiration of the call
option,  or such  earlier  time at which the writer  effects a closing  purchase
transaction by repurchasing an option identical to that previously sold.

Certain Series may write (sell)  "covered" call options and purchase  options to
close out options  previously  written by the Series.  In writing  covered  call
options,  the Series expects to generate  additional premium income which should
serve to enhance  the  Series'  total  return and reduce the effect of any price
decline of the security or currency involved in the option. Covered call options
will generally be written on securities or currencies  which,  in the opinion of
the  Investment  Manager or relevant  Sub-Adviser,  are not expected to have any
major price increases or moves in the near future but which, over the long term,
are deemed to be attractive investments for the Series.

The Series will write only covered call options. This means that the Series will
own the security or currency  subject to the option or an option to purchase the
same underlying security or currency,  having an exercise price equal to or less
than the exercise  price of the "covered"  option,  or will, for the term of the
option,  segregate  cash  or  liquid  securities  having  a value  equal  to the
fluctuating market value of the optioned securities or currencies. Assets may be
segregated by the Series' custodian, or on the Series' books.

Series  securities  or  currencies  on which call options may be written will be
purchased solely on the basis of investment  considerations  consistent with the
Series'  investment  objectives.  The  writing  of  covered  call  options  is a
conservative investment technique believed to involve relatively little risk (in
contrast to the writing of naked or uncovered options, which the Series will not
do), but capable of enhancing the Series'  total return.  When writing a covered
call option, the Series, in return for the premium, gives up the opportunity for
profit from a price  increase in the  underlying  security or currency above the
exercise price, but conversely, retains the risk of loss should the price of the
security or currency  decline.  Unlike one who owns securities or currencies not
subject to an option,  the Series has no control over when it may be required to
sell the  underlying  securities  or  currencies,  since it may be  assigned  an
exercise  notice at any time prior to the  expiration  of its  obligations  as a
writer.  If a call option which the Series has written expires,  the Series will
realize a gain in the amount of the premium; however, such gain may be offset by
a decline in the market value of the underlying  security or currency during the
option period.  If the call option is exercised,  the Series will realize a gain
or loss from the sale of the underlying security or currency.

Call options written by the Series will normally have  expiration  dates of less
than nine months from the date written. The exercise price of the options may be
below, equal to, or above the current market values of the underlying securities
or currencies at the time the options are written. From time to time, the Series
may purchase an underlying  security or currency for delivery in accordance with
an exercise  notice of a call option assigned to it, rather than delivering such
security or currency from its portfolio.  In such cases, additional costs may be
incurred.

The premium  received is the market  value of an option.  The premium the Series
will receive from writing a call option will reflect,  among other  things,  the
current market price of the underlying security or currency, the relationship of
the exercise price to such market price,  the historical price volatility of the
underlying  security or currency,  and the length of the option period. Once the
decision  to write a call  option  has been  made,  the  Investment  Manager  or
relevant Sub-Adviser,  in determining whether a particular call option should be
written on a particular  security or currency,  will consider the reasonableness
of the  anticipated  premium and the likelihood that a liquid  secondary  market
will exist for those  options.  The  premium  received by the Series for writing
covered  call  options  will be  recorded as a  liability  of the  Series.  This
liability  will be adjusted daily to the option's  current  market value,  which
will be the latest sale price at the time at which the net asset value per share
of the Series is  computed  (close of the New York Stock  Exchange),  or, in the
absence of such sale, the latest asked price. The option will be terminated upon
expiration  of the  option,  the  purchase of an  identical  option in a closing
transaction,  or  delivery  of the  underlying  security  or  currency  upon the
exercise of the option.

The Series will realize a profit or loss from a closing purchase  transaction if
the cost of the  transaction is less or more than the premium  received from the
writing of the option.  Because  increases  in the market price of a call option
will generally reflect increases in the market price of the underlying  security
or currency,  any loss  resulting from the repurchase of a call option is likely
to be offset in whole or in part by appreciation  of the underlying  security or
currency owned by the Series.

WRITING (SELLING)  COVERED PUT OPTIONS.  A put option gives the purchaser of the
option the right to sell, and the writer (seller) has the obligation to buy, the
underlying  security or currency at the exercise  price during the option period
(American style) or at the expiration of the option (European style). So long as
the obligation of the writer continues, he may be assigned an exercise notice by
the  broker-dealer  through  whom such  option was sold,  requiring  him to make
payment of the exercise  price against  delivery of the  underlying  security or
currency.  The  operation  of put  options in other  respects,  including  their
related risks and rewards,  is substantially  identical to that of call options.
Certain  Series may write  American  or European  style  covered put options and
purchase options to close out options previously written by the Series.

Certain  Series may write put options on a covered  basis,  which means that the
Series would either (i) maintain cash or liquid securities in an amount not less
than the exercise price at all times while the put option is  outstanding;  (ii)
sell short the  security  or currency  underlying  the put option at the same or
higher price than the  exercise  price of the put option;  or (iii)  purchase an
option to sell the underlying  security or currency subject to the option having
an exercise  price equal to or greater than the exercise  price of the "covered"
option  at all times  while  the put  option  is  outstanding.  (The  rules of a
clearing  corporation  currently require that such assets be deposited in escrow
to secure  payment of the  exercise  price.) The Series  would  generally  write
covered put options in  circumstances  where the Investment  Manager or relevant
Sub-Adviser  wishes to purchase  the  underlying  security  or currency  for the
Series' portfolio at a price lower than the current market price of the security
or  currency.  In such event the Series  would write a put option at an exercise
price which,  reduced by the premium received on the option,  reflects the lower
price it is willing to pay. Since the Series would also receive interest on debt
securities or currencies  maintained to cover the exercise  price of the option,
this technique  could be used to enhance current return during periods of market
uncertainty.  The risk in such a  transaction  would be that the market price of
the underlying  security or currency would decline below the exercise price less
the  premiums  received.  Such a decline  could be  substantial  and result in a
significant loss to the Series. In addition, the Series, because it does not own
the specific  securities or  currencies  which it may be required to purchase in
the exercise of the put, can not benefit from appreciation, if any, with respect
to such specific securities or currencies.

PREMIUM  RECEIVED  FROM  WRITING  CALL OR PUT  OPTIONS.  A Series will receive a
premium from writing a put or call option,  which  increases such Series' return
in the event the option expires  unexercised  or is closed out at a profit.  The
amount of the premium will reflect,  among other things, the relationship of the
market price of the underlying security to the exercise price of the option, the
term of the option and the  volatility  of the  market  price of the  underlying
security.  By writing a call option,  a Series limits its  opportunity to profit
from any  increase  in the market  value of the  underlying  security  above the
exercise price of the option. By writing a put option, a Series assumes the risk
that it may be required  to purchase  the  underlying  security  for an exercise
price  higher  than its then  current  market  value,  resulting  in a potential
capital loss if the purchase  price  exceeds the market value plus the amount of
the premium received, unless the security subsequently appreciates in value.

CLOSING TRANSACTIONS. Closing transactions may be effected in order to realize a
profit on an  outstanding  call  option,  to prevent an  underlying  security or
currency from being called, or to permit the sale of the underlying  security or
currency.  A Series may  terminate  an option that it has  written  prior to its
expiration by entering into a closing purchase transaction in which it purchases
an option having the same terms as the option  written.  A Series will realize a
profit or loss from such  transaction if the cost of such transaction is less or
more than the premium received from the writing of the option.  In the case of a
put option,  any loss so incurred  may be  partially  or entirely  offset by the
premium  received  from a  simultaneous  or  subsequent  sale of a different put
option.  Because  increases in the market price of a call option will  generally
reflect  increases  in the market  price of the  underlying  security,  any loss
resulting  from the purchase of a call option is likely to be offset in whole or
in part by unrealized  appreciation  of the  underlying  security  owned by such
Series.

Furthermore,  effecting  a closing  transaction  will permit the Series to write
another  call  option on the  underlying  security  or  currency  with  either a
different  exercise  price or expiration  date or both. If the Series desires to
sell a  particular  security  or  currency  from its  portfolio  on which it has
written a call  option,  or  purchased  a put  option,  it will seek to effect a
closing  transaction prior to, or concurrently with, the sale of the security or
currency.  There is, of course,  no  assurance  that the Series  will be able to
effect such closing  transactions  at a favorable  price.  If the Series  cannot
enter into such a transaction, it may be required to hold a security or currency
that it might otherwise have sold. When the Series writes a covered call option,
it runs the risk of not being able to  participate  in the  appreciation  of the
underlying  securities or currencies  above the exercise  price,  as well as the
risk  of  being  required  to hold  on to  securities  or  currencies  that  are
depreciating in value. This could result in higher transaction costs. The Series
will pay  transaction  costs in connection  with the writing of options to close
out previously written options.  Such transaction costs are normally higher than
those applicable to purchases and sales of portfolio securities.

PURCHASING CALL OPTIONS.  Certain Series may purchase  American or European call
options.  The Series may enter into  closing sale  transactions  with respect to
such options,  exercise  them or permit them to expire.  The Series may purchase
call options for the purpose of increasing its current return.

Call options may also be purchased by a Series for the purpose of acquiring  the
underlying securities or currencies for its portfolio. Utilized in this fashion,
the purchase of call  options  enables the Series to acquire the  securities  or
currencies  at the exercise  price of the call option plus the premium  paid. At
times the net cost of acquiring  securities  or currencies in this manner may be
less than the cost of acquiring  the  securities or  currencies  directly.  This
technique  may  also be  useful  to a  Series  in  purchasing  a large  block of
securities  or  currencies  that  would be more  difficult  to acquire by direct
market  purchases.  So long as it  holds  such a call  option  rather  than  the
underlying  security or currency itself, the Series is partially  protected from
any  unexpected  decline  in the  market  price of the  underlying  security  or
currency  and in such event could  allow the call option to expire,  incurring a
loss only to the extent of the premium paid for the option.

The Series may also purchase call options on underlying securities or currencies
it owns in order to protect  unrealized gains on call options previously written
by it. Call options may also be purchased  at times to avoid  realizing  losses.
For  example,  where  the  Series  has  written a call  option on an  underlying
security or currency having a current market value below the price at which such
security  or currency  was  purchased  by the Series,  an increase in the market
price could result in the exercise of the call option  written by the Series and
the  realization of a loss on the underlying  security or currency with the same
exercise price and expiration date as the option previously written.

PURCHASING PUT OPTIONS.  Certain Series may purchase  American or European style
put options. The Series may enter into closing sale transactions with respect to
such options,  exercise  them or permit them to expire.  A Series may purchase a
put option on an underlying  security or currency (a "protective  put") owned by
the Series as a defensive  technique in order to protect  against an anticipated
decline in the value of the  security  or  currency.  Such hedge  protection  is
provided  only during the life of the put option when the Series,  as the holder
of the put option,  is able to sell the  underlying  security or currency at the
put exercise price regardless of any decline in the underlying security's market
price or currency's  exchange value. The premium paid for the put option and any
transaction  costs  would  reduce  any  capital  gain  otherwise  available  for
distribution when the security or currency is eventually sold.

A Series may  purchase  put  options at a time when the Series  does not own the
underlying  security or  currency.  By  purchasing  put options on a security or
currency  it does not own,  the Series  seeks to  benefit  from a decline in the
market price of the  underlying  security or currency.  If the put option is not
sold when it has  remaining  value,  and if the market  price of the  underlying
security or currency  remains equal to or greater than the exercise price during
the life of the put option,  the Series will lose its entire  investment  in the
put  option.  In order for the  purchase of a put option to be  profitable,  the
market price of the  underlying  security or currency must decline  sufficiently
below the exercise price to cover the premium and transaction costs,  unless the
put option is sold in a closing sale transaction.

DEALER  OPTIONS.  Certain  Series may engage in  transactions  involving  dealer
options.  Certain risks are specific to dealer  options.  While the Series would
look to a clearing  corporation  to  exercise  exchange-traded  options,  if the
Series were to purchase a dealer  option,  it would rely on the dealer from whom
it purchased the option to perform if the option were exercised. Exchange-traded
options  generally  have a continuous  liquid  market while dealer  options have
none. Consequently,  the Series will generally be able to realize the value of a
dealer  option it has  purchased  only by  exercising  it or reselling it to the
dealer who issued it.  Similarly,  when the Series  writes a dealer  option,  it
generally will be able to close out the option prior to its  expiration  only by
entering into a closing purchase transaction with the dealer to which the Series
originally  wrote the  option.  While the Series  will seek to enter into dealer
options only with dealers who will agree to and which are expected to be capable
of entering into closing transactions with the Series, there can be no assurance
that the Series will be able to liquidate a dealer  option at a favorable  price
at any time prior to expiration.  Failure by the dealer to do so would result in
the  loss of the  premium  paid by the  Series  as well as loss of the  expected
benefit of the  transaction.  Until the Series,  as a covered dealer call option
writer, is able to effect a closing purchase transaction, it will be required to
segregate cash or liquid securities used as cover until the option expires or is
exercised.  In the event of insolvency  of the contra  party,  the Series may be
unable to  liquidate a dealer  option.  With  respect to options  written by the
Series, the inability to enter into a closing transaction may result in material
losses to the Series.  For  example,  since the Series  must  maintain a secured
position with respect to any call option on a security it writes, the Series may
not sell the assets which it has  segregated to secure the position  while it is
obligated  under the option  (unless the  securities  are replaced  with similar
assets).  This  requirement  may impair the  Series'  ability to sell  portfolio
securities at a time when such sale might be advantageous.

The Staff of the SEC has taken the position that  purchased  dealer  options and
the assets used to secure the written  dealer  options are illiquid  securities.
The  Series may treat the cover used for  written  OTC  options as liquid if the
dealer agrees that the Series may repurchase the OTC option it has written for a
maximum price to be calculated by a predetermined  formula.  In such cases,  the
OTC  option  would  be  considered  illiquid  only  to the  extent  the  maximum
repurchase price under the formula exceeds the intrinsic value of the option. To
this  extent,  the Series  will treat  dealer  options as subject to the Series'
limitation  on  illiquid  securities.  If the SEC  changes  its  position on the
liquidity  of dealer  options,  the Series  will  change its  treatment  of such
instruments accordingly.

CERTAIN  RISK FACTORS IN WRITING  CALL  OPTIONS AND IN  PURCHASING  CALL AND PUT
OPTIONS.  During the option period, a Series, as writer of a call option has, in
return for the  premium  received on the option,  given up the  opportunity  for
capital  appreciation  above the  exercise  price should the market price of the
underlying security increase, but has retained the risk of loss should the price
of the underlying security decline. The writer has no control over the time when
it may be required to fulfill its obligation as a writer of the option. The risk
of  purchasing  a call or put option is that the Series may lose the  premium it
paid plus  transaction  costs. If the Series does not exercise the option and is
unable to close out the position prior to expiration of the option, it will lose
its entire investment.

An option  position  may be closed  out only on an  exchange  which  provides  a
secondary market.  There can be no assurance that a liquid secondary market will
exist for a particular option at a particular time and that the Series can close
out its position by effecting a closing transaction.  If the Series is unable to
effect a closing purchase  transaction,  it cannot sell the underlying  security
until the option expires or the option is exercised. Accordingly, the Series may
not be able to sell the underlying security at a time when it might otherwise be
advantageous  to do so. Possible  reasons for the absence of a liquid  secondary
market  include the  following:  (i)  insufficient  trading  interest in certain
options; (ii) restrictions on transactions imposed by an exchange; (iii) trading
halts,  suspensions  or other  restrictions  imposed with respect to  particular
classes or series of options or underlying  securities;  (iv)  inadequacy of the
facilities of an exchange or the clearing  corporation to handle trading volume;
and (v) a  decision  by one or more  exchanges  to  discontinue  the  trading of
options or impose restrictions on orders. In addition,  the hours of trading for
options may not conform to the hours during which the underlying  securities are
traded.  To the extent that the options markets close before the markets for the
underlying  securities,  significant  price and rate movements can take place in
the  underlying  markets that cannot be reflected  in the options  markets.  The
purchase of options is a highly specialized  activity which involves  investment
techniques  and risks  different  from those  associated  with  ordinary  Series
securities transactions.

Each exchange has established  limitations  governing the maximum number of call
options,  whether or not  covered,  which may be  written  by a single  investor
acting alone or in concert with others  (regardless  of whether such options are
written on the same or different exchanges or are held or written on one or more
accounts or through one or more brokers).  An exchange may order the liquidation
of  positions  found to be in  violation of these limits and it may impose other
sanctions or restrictions.

OPTIONS ON STOCK  INDICES.  Options on stock  indices  are similar to options on
specific  securities except that, rather than the right to take or make delivery
of the specific  security at a specific  price, an option on a stock index gives
the holder the right to receive,  upon exercise of the option, an amount of cash
if the closing level of that stock index is greater than, in the case of a call,
or less than,  in the case of a put,  the  exercise  price of the  option.  This
amount of cash is equal to such  difference  between  the  closing  price of the
index and the exercise price of the option expressed in dollars  multiplied by a
specified  multiple.  The writer of the option is  obligated,  in return for the
premium  received,  to make delivery of this amount.  Unlike options on specific
securities,  all settlements of options on stock indices are in cash and gain or
loss  depends on general  movements  in the stocks  included in the index rather
than price movements in particular  stocks. A stock index futures contract is an
agreement  in which one party  agrees to  deliver to the other an amount of cash
equal to a specific amount  multiplied by the difference  between the value of a
specific  stock index at the close of the last  trading day of the  contract and
the price at which the agreement is made. No physical  delivery of securities is
made.

RISK FACTORS IN OPTIONS ON INDICES. Because the value of an index option depends
upon the  movements in the level of the index rather than upon  movements in the
price of a particular security, whether the Series will realize a gain or a loss
on the purchase or sale of an option on an index  depends upon the  movements in
the level of prices in the market  generally or in an industry or market segment
rather than upon movements in the price of the individual security. Accordingly,
successful  use of  positions  will depend  upon the  ability of the  Investment
Manager or relevant  Sub-Adviser to predict correctly movements in the direction
of the market  generally  or in the  direction of a  particular  industry.  This
requires  different skills and techniques than predicting  changes in the prices
of individual securities.

Index prices may be distorted if trading of securities  included in the index is
interrupted.  Trading  in index  options  also  may be  interrupted  in  certain
circumstances,  such as if  trading  were  halted  in a  substantial  number  of
securities in the index.  If this occurred,  a Series would not be able to close
out options which it had written or purchased and, if  restrictions  on exercise
were imposed,  might be unable to exercise an option it  purchased,  which would
result in substantial losses.

Price movements in Series securities will not correlate perfectly with movements
in the level of the index and therefore,  a Series bears the risk that the price
of the  securities  may not increase as much as the level of the index.  In this
event,  the Series  would bear a loss on the call which would not be  completely
offset by movements in the prices of the  securities.  It is also  possible that
the index may rise when the value of the  Series'  securities  does not. If this
occurred, a Series would experience a loss on the call which would not be offset
by an increase in the value of its securities  and might also  experience a loss
in the market value of its securities.

Unless a Series has other  liquid  assets  which are  sufficient  to satisfy the
exercise  of a call on the  index,  the Series  will be  required  to  liquidate
securities in order to satisfy the exercise.

When a Series  has  written a call on an index,  there is also the risk that the
market may decline  between the time the Series has the call  exercised  against
it, at a price which is fixed as of the  closing  level of the index on the date
of exercise, and the time the Series is able to sell securities. As with options
on securities,  the Investment  Manager or relevant  Sub-Adviser  will not learn
that a call has been exercised  until the day following the exercise date,  but,
unlike a call on  securities  where  the  Series  would be able to  deliver  the
underlying  security  in  settlement,  the  Series  may have to sell part of its
securities in order to make settlement in cash, and the price of such securities
might decline before they could be sold.

If a Series  exercises  a put option on an index which it has  purchased  before
final  determination  of the  closing  index value for the day, it runs the risk
that the level of the underlying index may change before closing. If this change
causes  the  exercised  option to fall  "out-of-the-money"  the  Series  will be
required to pay the difference  between the closing index value and the exercise
price of the option  (multiplied by the  applicable  multiplier) to the assigned
writer.  Although  the Series may be able to minimize  this risk by  withholding
exercise  instructions  until just  before the daily  cutoff  time or by selling
rather than  exercising  an option when the index level is close to the exercise
price, it may not be possible to eliminate this risk entirely because the cutoff
time for index  options  may be  earlier  than  those  fixed for other  types of
options and may occur before definitive closing index values are announced.

TRADING IN FUTURES -- Certain Series may enter into financial futures contracts,
including stock and bond index,  interest rate and currency futures ("futures or
futures  contracts").  A futures  contract  provides  for the future sale by one
party  and  purchase  by  another  party of a  specified  amount  of a  specific
financial instrument (e.g., units of a stock index) for a specified price, date,
time and place  designated at the time the contract is made.  Brokerage fees are
incurred when a futures  contract is bought or sold and margin  deposits must be
maintained. Entering into a contract to buy is commonly referred to as buying or
purchasing a contract or holding a long  position.  Entering  into a contract to
sell is commonly referred to as selling a contract or holding a short position.

Unlike when the Series purchases or sells a security,  no price would be paid or
received by the Series upon the  purchase  or sale of a futures  contract.  Upon
entering into a futures contract,  and to maintain the Series' open positions in
futures contracts, the Series would be required to deposit with its custodian in
a  segregated  account  in the name of the  futures  broker an amount of cash or
liquid  securities,  known as "initial margin." In some cases the initial margin
may be held by the futures  broker rather than with the Series'  custodian.  The
margin  required  for a  particular  futures  contract is set by the exchange on
which the contract is traded,  and may be  significantly  modified  from time to
time by the exchange  during the term of the  contract.  Futures  contracts  are
customarily  purchased  and sold on margins that may range upward from less than
5% of the value of the contract being traded.

Margin is the amount of funds  that must be  deposited  by the  Series  with its
custodian  in a  segregated  account  in  the  name  of the  futures  commission
merchant,  or directly with the futures  commission  merchant in accordance with
Rule  17f-6  under the  Investment  Company  Act of 1940,  in order to  initiate
futures trading and to maintain the Series' open position in futures  contracts.
A margin  deposit is intended to ensure the Series'  performance  of the futures
contract.  The margin required for a particular  futures  contract is set by the
exchange  on which the  futures  contract  is traded,  and may be  significantly
modified  from  time to time by the  exchange  during  the  term of the  futures
contract.

If the price of an open futures  contract  changes (by increase in the case of a
sale or by decrease  in the case of a purchase)  so that the loss on the futures
contract  reaches a point at which the margin on deposit does not satisfy margin
requirements, the broker will require an increase in the margin. However, if the
value of a position  increases because of favorable price changes in the futures
contract so that the margin deposit exceeds the required margin, the broker will
pay the excess to the Series.

These subsequent  payments,  called "variation  margin," to and from the futures
broker,  are  made  on a daily  basis  as the  price  of the  underlying  assets
fluctuate  making the long and short  positions in the futures  contract more or
less valuable, a process known as "marking to the market." The Series expects to
earn interest income on its margin deposits. Although certain futures contracts,
by their terms, require actual future delivery of and payment for the underlying
instruments,  in practice most futures  contracts are usually  closed out before
the  delivery  date.  Closing out an open futures  contract  purchase or sale is
effected by  entering  into an  offsetting  futures  contract  purchase or sale,
respectively,  for the same aggregate amount of the identical securities and the
same delivery date. If the  offsetting  purchase price is less than the original
sale price,  the Series  realizes a gain; if it is more,  the Series  realizes a
loss.  Conversely,  if the  offsetting  sale  price is more  than  the  original
purchase price, the Series realizes a gain; if it is less, the Series realizes a
loss. The transaction costs must also be included in these  calculations.  There
can be no  assurance,  however,  that the  Series  will be able to enter into an
offsetting  transaction  with  respect to a  particular  futures  contract  at a
particular  time.  If the  Series  is not  able  to  enter  into  an  offsetting
transaction,  the Series will  continue  to be  required to maintain  the margin
deposits on the futures contract.

For  example,  the Standard & Poor's 500 Stock Index is composed of 500 selected
common stocks, most of which are listed on the New York Stock Exchange.  The S&P
500 Index  assigns  relative  weightings  to the common  stocks  included in the
Index,  and the Index  fluctuates  with  changes in the  market  values of those
common  stocks.  In the case of the S&P 500 Index,  contracts are to buy or sell
500 units. Thus, if the value of the S&P 500 Index were $150, one contract would
be worth $75,000 (500 units x $150). The stock index futures contract  specifies
that no  delivery  of the  actual  stock  making up the index  will take  place.
Instead,  settlement in cash occurs. Over the life of the contract,  the gain or
loss  realized by the Fund will equal the  difference  between the  purchase (or
sale) price of the contract  and the price at which the contract is  terminated.
For example,  if the Fund enters into a futures contract to buy 500 units of the
S&P 500 Index at a specified future date at a contract price of $150 and the S&P
500 Index is at $154 on that future date, the Fund will gain $2,000 (500 units x
gain of $4). If the Fund enters into a futures contract to sell 500 units of the
stock index at a specified  future date at a contract  price of $150 and the S&P
500 Index is at $152 on that future date, the Fund will lose $1,000 (500 units x
loss of $2).

Options on futures are similar to options on underlying  instruments except that
options on futures give the purchaser the right, in return for the premium paid,
to assume a position in a futures  contract (a long  position if the option is a
call and a short  position  if the option is a put),  rather than to purchase or
sell the futures contract,  at a specified exercise price at any time during the
period of the option.  Upon exercise of the option,  the delivery of the futures
position  by the  writer of the  option  to the  holder  of the  option  will be
accompanied by the delivery of the accumulated  balance in the writer's  futures
margin  account  which  represents  the amount by which the market  price of the
futures contract,  at exercise,  exceeds (in the case of a call) or is less than
(in the case of a put) the exercise price of the option on the futures contract.
Alternatively, settlement may be made totally in cash. Purchasers of options who
fail to exercise  their  options prior to the exercise date suffer a loss of the
premium paid.

The writer of an option on a futures  contract  is  required  to deposit  margin
pursuant to requirements similar to those applicable to futures contracts.  Upon
exercise  of an  option on a  futures  contract,  the  delivery  of the  futures
position  by the  writer of the  option  to the  holder  of the  option  will be
accompanied  by  delivery  of the  accumulated  balance in the  writer's  margin
account.  This amount  will be equal to the amount by which the market  price of
the futures contract at the time of exercise exceeds,  in the case of a call, or
is less  than,  in the case of a put,  the  exercise  price of the option on the
futures contract.

Commissions on financial futures contracts and related options  transactions may
be higher  than those which would  apply to  purchases  and sales of  securities
directly.  From  time to  time,  a  single  order to  purchase  or sell  futures
contracts  (or  options  thereon)  may be made on behalf of the Series and other
mutual funds or portfolios of mutual funds for which the  Investment  Manager or
relevant  Sub-Adviser  serves as adviser or sub-adviser.  Such aggregated orders
would be  allocated  among the Series and such other  mutual  funds or series of
mutual funds in a fair and non-discriminatory manner.

A public market exists in interest rate futures contracts covering primarily the
following  financial  instruments:  U.S.  Treasury bonds;  U.S.  Treasury notes;
Government  National  Mortgage   Association   ("GNMA")  modified   pass-through
mortgage-backed  securities;  three-month U.S. Treasury bills; 90-day commercial
paper; bank certificates of deposit; and Eurodollar  certificates of deposit. It
is expected that Futures contracts trading in additional  financial  instruments
will be authorized. The standard contract size is generally $100,000 for Futures
contracts in U.S.  Treasury bonds,  U.S.  Treasury notes,  and GNMA pass through
securities and $1,000,000 for the other designated Futures  contracts.  A public
market exists in Futures contracts covering a number of indexes,  including, but
not  limited  to, the  Standard & Poor's  500 Index,  the  Standard & Poor's 100
Index,  the NASDAQ 100 Index,  the Value Line  Composite  Index and the New York
Stock Exchange Composite Index.

Stock index  futures  contracts  may be used to provide a hedge for a portion of
the Series' portfolio, as a cash management tool, or as an efficient way for the
Investment  Manager or relevant  Sub-Adviser to implement  either an increase or
decrease in portfolio market exposure in response to changing market conditions.
Stock index futures  contacts are  currently  traded with respect to the S&P 500
Index and other broad stock market indices,  such as the New York Stock Exchange
Composite Stock Index and the Value Line Composite Stock Index.  The Series may,
however,  purchase or sell  futures  contracts  with respect to any stock index.
Nevertheless, to hedge the Series' portfolio successfully,  the Series must sell
futures  contracts  with respect to indexes or subindexes  whose  movements will
have a  significant  correlation  with  movements  in the prices of the  Series'
securities.

Interest  rate or  currency  futures  contracts  may be used as a hedge  against
changes in prevailing  levels of interest  rates or currency  exchange  rates in
order to  establish  more  definitely  the  effective  return on  securities  or
currencies  held or intended to be acquired by the Series.  In this regard,  the
Series could sell  interest  rate or currency  futures as an offset  against the
effect of expected  increases in interest  rates or currency  exchange rates and
purchase  such futures as an offset  against the effect of expected  declines in
interest rates or currency exchange rates.

The Series may enter into  futures  contracts  which are traded on  national  or
foreign  futures  exchanges  and  are  standardized  as  to  maturity  date  and
underlying  financial  instrument.  The principal financial futures exchanges in
the United  States are the Board of Trade of the City of  Chicago,  the  Chicago
Mercantile Exchange, the New York Futures Exchange, and the Kansas City Board of
Trade.  Futures  exchanges and trading in the United States are regulated  under
the Commodity Exchange Act by the Commodity Futures Trading Commission ("CFTC").
Futures  are  traded in London at the  London  International  Financial  Futures
Exchange,  in Paris at the  MATIF  and in Tokyo  at the  Tokyo  Stock  Exchange.
Although  techniques other than the sale and purchase of futures contracts could
be used for the above-referenced  purposes, futures contracts offer an effective
and relatively low cost means of  implementing  the Series'  objectives in these
areas.

CERTAIN  RISKS  RELATING TO FUTURES  CONTRACTS  AND RELATED  OPTIONS.  There are
special risks involved in futures transactions.

VOLATILITY  AND LEVERAGE.  The prices of futures  contracts are volatile and are
influenced,  among other things, by actual and anticipated changes in the market
and interest rates,  which in turn are affected by fiscal and monetary  policies
and national and international policies and economic events.

Most United States futures  exchanges limit the amount of fluctuation  permitted
in  futures  contract  prices  during a single  trading  day.  The  daily  limit
establishes  the maximum  amount that the price of a futures  contract  may vary
either  up or down  from the  previous  day's  settlement  price at the end of a
trading  session.  Once the daily limit has been reached in a particular type of
futures  contract,  no  trades  may be made on that day at a price  beyond  that
limit.  The daily limit governs only price movement during a particular  trading
day and therefore does not limit potential losses, because the limit may prevent
the  liquidation  of  unfavorable   positions.   Futures  contract  prices  have
occasionally moved to the daily limit for several  consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.

Because  of the low  margin  deposits  required,  futures  trading  involves  an
extremely high degree of leverage  (although the Series' use of futures will not
result in leverage, as is more fully described below). As a result, a relatively
small  price  movement  in a  futures  contract  may  result  in  immediate  and
substantial loss, as well as gain, to the investor.  For example, if at the time
of purchase,  10% of the value of the futures contract is deposited as margin, a
subsequent  10% decrease in the value of the futures  contract would result in a
total  loss of the margin  deposit,  before any  deduction  for the  transaction
costs,  if the account  were then closed out. A 15%  decrease  would result in a
loss equal to 150% of the original margin  deposit,  if the contract were closed
out.  Thus,  a purchase  or sale of a futures  contract  may result in losses in
excess of the amount invested in the futures contract. However, the Series would
presumably have sustained comparable losses if, instead of the futures contract,
it had  invested in the  underlying  instrument  and sold it after the  decline.
Furthermore,  in the case of a futures contract purchase, in order to be certain
that the Series has sufficient assets to satisfy its obligations under a futures
contract,  the Series earmarks to the futures contract cash or liquid securities
equal in value to the current value of the underlying instrument less the margin
deposit.

LIQUIDITY. The Series may elect to close some or all of its futures positions at
any time prior to their  expiration.  The Series would do so to reduce  exposure
represented by long futures positions or increase exposure  represented by short
futures  positions.  The  Series  may close  its  positions  by taking  opposite
positions  which would operate to terminate the Series'  position in the futures
contracts.  Final  determinations  of  variation  margin  would  then  be  made,
additional  cash would be required to be paid by or released to the Series,  and
the Series would realize a loss or a gain.

Futures contracts may be closed out only on the exchange or board of trade where
the contracts were initially traded.  Although the Series intends to purchase or
sell futures  contracts only on exchanges or boards of trade where there appears
to be an  active  market,  there  is no  assurance  that a liquid  market  on an
exchange  or  board of trade  will  exist  for any  particular  contract  at any
particular  time.  In such  event,  it might not be  possible to close a futures
contract, and in the event of adverse price movements, the Series would continue
to be required to make daily cash payments of variation margin.  However, in the
event futures contracts have been used to hedge the underlying instruments,  the
Series would  continue to hold the underlying  instruments  subject to the hedge
until the futures  contracts  could be  terminated.  In such  circumstances,  an
increase in the price of the underlying instruments,  if any, might partially or
completely offset losses on the futures contract.  However,  as described below,
there is no guarantee  that the price of the  underlying  instruments  will,  in
fact,  correlate  with the price  movements  in the  futures  contract  and thus
provide an offset to losses on a futures contract.

HEDGING RISK. A decision of whether,  when,  and how to hedge involves skill and
judgment,  and even a  well-conceived  hedge may be  unsuccessful to some degree
because of unexpected market behavior, market or interest rate trends. There are
several risks in connection with the use by the Series of futures contracts as a
hedging  device.  One risk arises because of the imperfect  correlation  between
movements in the prices of the futures  contracts and movements in the prices of
the underlying  instruments  which are the subject of the hedge.  The Investment
Manager or relevant  Sub-Adviser will,  however,  attempt to reduce this risk by
entering into futures contracts whose movements,  in its, judgment,  will have a
significant  correlation with movements in the prices of the Series'  underlying
instruments sought to be hedged.

Successful use of futures  contracts by the Series for hedging  purposes is also
subject to the Investment Manager or relevant Sub-Adviser's ability to correctly
predict  movements in the direction of the market. It is possible that, when the
Series has sold futures to hedge its portfolio  against a decline in the market,
the index,  indices, or underlying  instruments on which the futures are written
might advance and the value of the  underlying  instruments  held in the Series'
portfolio might decline.  If this were to occur,  the Series would lose money on
the  futures  and also would  experience  a decline  in value in its  underlying
instruments. However, while this might occur to a certain degree, it is believed
that over time the value of the Series'  portfolio will tend to move in the same
direction  as the market  indices  which are  intended to correlate to the price
movements of the underlying instruments sought to be hedged. It is also possible
that if the Series  were to hedge  against the  possibility  of a decline in the
market  (adversely  affecting the underlying  instruments held in its portfolio)
and prices instead  increased,  the Series would lose part or all of the benefit
of increased value of those underlying  instruments that it has hedged,  because
it would have offsetting losses in its futures positions.  In addition,  in such
situations,  if the  Series  had  insufficient  cash,  it  might  have  to  sell
underlying  instruments to meet daily variation margin requirements.  Such sales
of underlying  instruments  might be, but would not necessarily be, at increased
prices  (which would reflect the rising  market).  The Series might have to sell
underlying instruments at a time when it would be disadvantageous to do so.

In addition to the possibility that there might be an imperfect correlation,  or
no correlation at all, between price movements in the futures  contracts and the
portion of the portfolio being hedged,  the price movements of futures contracts
might not correlate perfectly with price movements in the underlying instruments
due to certain market distortions. First, all participants in the futures market
are subject to margin deposit and maintenance requirements.  Rather than meeting
additional margin deposit requirements,  investors might close futures contracts
through  offsetting  transactions  which could  distort the normal  relationship
between the  underlying  instruments  and futures  markets.  Second,  the margin
requirements in the futures market are less onerous than margin  requirements in
the  securities  markets,  and as a result the futures market might attract more
speculators  than  the  securities   markets  do.  Increased   participation  by
speculators in the futures market might also cause temporary price  distortions.
Due to the  possibility  of price  distortion  in the  futures  market  and also
because of the imperfect  correlation  between price movements in the underlying
instruments  and  movements in the prices of futures  contracts,  even a correct
forecast  of  general  market  trends  by the  Investment  Manager  or  relevant
Sub-Adviser  might not result in a successful  hedging  transaction  over a very
short time period.

CERTAIN RISKS OF OPTIONS ON FUTURES CONTRACTS.  The Series may seek to close out
an option  position by writing or buying an offsetting  option covering the same
index,  underlying  instruments,  or contract and having the same exercise price
and  expiration  date.  The ability to establish and close out positions on such
options will be subject to the maintenance of a liquid secondary market. Reasons
for the  absence  of a  liquid  secondary  market  on an  exchange  include  the
following:  (i) there may be insufficient  trading  interest in certain options;
(ii)  restrictions  may be imposed by an  exchange  on opening  transactions  or
closing  transactions  or  both;  (iii)  trading  halts,  suspensions  or  other
restrictions  may be imposed  with  respect to  particular  classes or series of
options, or underlying instruments; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (v) the facilities of an exchange or
a  clearing  corporation  may not at all times be  adequate  to  handle  current
trading  volume;  or (vi) one or more  exchanges  could,  for  economic or other
reasons,  decide or be compelled at some future date to discontinue  the trading
of options  (or a  particular  class or series of  options),  in which event the
secondary  market on that exchange (or in the class or series of options)  would
cease to exist,  although  outstanding  options  on the  exchange  that had been
issued by a clearing  corporation  as a result of trades on that exchange  would
continue to be exercisable in accordance with their terms. There is no assurance
that higher than anticipated  trading activity or other unforeseen  events might
not,  at  times,  render  certain  of the  facilities  of  any  of the  clearing
corporations inadequate, and thereby result in the institution by an exchange of
special  procedures  which may interfere with the timely execution of customers'
orders.

REGULATORY  LIMITATIONS.  The  Series  will  engage in  transactions  in futures
contracts and options thereon only for bona fide hedging,  yield enhancement and
risk  management  purposes,  in each  case in  accordance  with  the  rules  and
regulations of the CFTC.

The Series may not enter into  futures  contracts  or options  thereon  if, with
respect to positions which do not qualify as bona fide hedging under  applicable
CFTC  rules,  the sum of the amounts of initial  margin  deposits on the Series'
existing futures and premiums paid for options on futures would exceed 5% of the
net asset value of the Series after taking into account  unrealized  profits and
unrealized losses on any such contracts it has entered into; provided,  however,
that in the case of an option that is in-the-money at the time of purchase,  the
in-the-money amount may be excluded in calculating the 5% limitation.

The Series' use of futures contracts will not result in leverage.  Therefore, to
the extent necessary,  in instances  involving the purchase of futures contracts
or call options thereon or the writing of put options thereon by the Series,  an
amount of cash or liquid  securities,  equal to the market  value of the futures
contracts  and options  thereon  (less any  related  margin  deposits),  will be
identified  in an  account  with the  Series'  custodian  or on the books of the
Series to cover the position, or alternative cover will be employed.

In addition,  CFTC regulations may impose  limitations on the Series' ability to
engage in certain yield enhancement and risk management strategies.  If the CFTC
or other regulatory  authorities  adopt different  (including less stringent) or
additional restrictions, the Series would comply with such new restrictions.

FOREIGN  FUTURES  AND  OPTIONS.  Participation  in foreign  futures  and foreign
options transactions involves the execution and clearing of trades on or subject
to the  rules  of a  foreign  board  of  trade.  Neither  the  National  Futures
Association nor any domestic exchange regulates activities of any foreign boards
of trade, including the execution, delivery and clearing of transactions, or has
the power to compel  enforcement of the rules of a foreign board of trade or any
applicable  foreign law. This is true even if the exchange is formally linked to
a domestic  market so that a position taken on the market may be liquidated by a
transaction on another  market.  Moreover,  such laws or  regulations  will vary
depending on the foreign country in which the foreign futures or foreign options
transaction  occurs.  For these reasons,  customers who trade foreign futures or
foreign options contracts may not be afforded certain of the protective measures
provided by the Commodity  Exchange Act, the CFTC's regulations and the rules of
the National Futures Association and any domestic exchange,  including the right
to use reparations proceedings before the Commission and arbitration proceedings
provided by the National Futures  Association or any domestic futures  exchange.
In  particular,  funds  received from the Series for foreign  futures or foreign
options  transactions may not be provided the same protections as funds received
in respect of transactions on United States futures exchanges.  In addition, the
price of any foreign futures or foreign  options  contract and,  therefore,  the
potential profit and loss thereon may be affected by any variance in the foreign
exchange rate between the time an order is placed and the time it is liquidated,
offset or exercised.

FORWARD  CURRENCY  CONTRACTS AND RELATED  OPTIONS.  A forward  foreign  currency
exchange contract involves an obligation to purchase or sell a specific currency
at a future  date,  which may be any  fixed  number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the Contract.
These  contracts  are  principally  traded  in the  interbank  market  conducted
directly between currency  traders (usually large,  commercial  banks) and their
customers.  A forward  contract  generally  has no deposit  requirement,  and no
commissions are charged at any stage for trades.

Depending on the investment policies and restrictions  applicable to a Series, a
Series will generally enter into forward  foreign  currency  exchange  contracts
under two  circumstances.  First,  when a Series  enters into a contract for the
purchase or sale of a security denominated in a foreign currency,  it may desire
to "lock in" the U.S.  dollar price of the security.  By entering into a forward
contract for the purchase or sale, for a fixed amount of dollars,  of the amount
of foreign currency involved in the underlying security transactions, the Series
will be able to protect itself against a possible loss resulting from an adverse
change in the  relationship  between  the U.S.  dollar and the  subject  foreign
currency  during the period  between the date the  security is purchased or sold
and the date on which payment is made or received.

Second,  when the Investment Manager or relevant  Sub-Adviser  believes that the
currency  of a  particular  foreign  country  may suffer or enjoy a  substantial
movement against another currency,  including the U.S. dollar, it may enter into
a forward  contract  to sell or buy the amount of the former  foreign  currency,
approximating  the  value  of some or all of the  Series'  portfolio  securities
denominated in such foreign  currency.  Alternatively,  where  appropriate,  the
Series may hedge all or part of its foreign currency exposure through the use of
a basket of currencies or a proxy currency where such currencies or currency act
as an effective proxy for other currencies. In such a case, the Series may enter
into a forward  contract  where the amount of the  foreign  currency  to be sold
exceeds the value of the securities  denominated  in such  currency.  The use of
this basket hedging technique may be more efficient and economical than entering
into  separate  forward  contracts  for each  currency  held in the Series.  The
precise matching of the forward contract amounts and the value of the securities
involved  will  not  generally  be  possible  since  the  future  value  of such
securities  in  foreign  currencies  will  change  as a  consequence  of  market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures.  The projection of short-term  currency
market  movement is  extremely  difficult,  and the  successful  execution  of a
short-term hedging strategy is highly uncertain.

The Series  will also not enter into such  forward  contracts  or maintain a net
exposure  to such  contracts  where  the  consummation  of the  contracts  would
obligate  the Series to deliver an amount of foreign  currency  in excess of the
value of the Series'  portfolio  securities or other assets  denominated in that
currency.  The  Series,  however,  in  order to avoid  excess  transactions  and
transaction costs, may maintain a net exposure to forward contracts in excess of
the  value of the  Series'  portfolio  securities  or other  assets to which the
forward  contracts  relate  (including  accrued  interest to the maturity of the
forward contract on such securities)  provided the excess amount is "covered" by
liquid securities,  denominated in any currency,  at least equal at all times to
the amount of such excess. For these purposes "the securities or other assets to
which the forward contracts relate may be securities or assets  denominated in a
single  currency,  or where proxy forwards are used,  securities  denominated in
more  than  one  currency.  Under  normal  circumstances,  consideration  of the
prospect  for  currency  parities  will be  incorporated  into the  longer  term
investment  decisions  made with regard to overall  diversification  strategies.
However,  the Investment  Manager and relevant  Sub-Advisers  believe that it is
important to have the  flexibility to enter into such forward  contracts when it
determines that the best interests of the Series will be served.

At the maturity of a forward contract,  the Series may either sell the portfolio
security  and make  delivery  of the  foreign  currency,  or it may  retain  the
security  and  terminate  its  contractual  obligation  to deliver  the  foreign
currency by purchasing an "offsetting"  contract  obligating it to purchase,  on
the same maturity date, the same amount of the foreign currency.

As indicated  above,  it is impossible  to forecast with absolute  precision the
market value of portfolio  securities at the expiration of the forward contract.
Accordingly,  it may be necessary  for a Series to purchase  additional  foreign
currency  on the spot  market  (and bear the  expense of such  purchase)  if the
market  value of the  security is less than the amount of foreign  currency  the
Series is  obligated  to deliver and if a decision is made to sell the  security
and make delivery of the foreign  currency.  Conversely,  it may be necessary to
sell on the spot market some of the foreign  currency  received upon the sale of
the  portfolio  security  if its  market  value  exceeds  the  amount of foreign
currency  the Series is  obligated to deliver.  However,  as noted,  in order to
avoid excessive  transactions  and transaction  costs, the Series may use liquid
securities,  denominated in any currency, to cover the amount by which the value
of a forward contract exceeds the value of the securities to which it relates.

If the Series  retains  the  portfolio  security  and  engages in an  offsetting
transaction,  the Series will incur a gain or a loss (as described below) to the
extent that there has been movement in forward  contract  prices.  If the Series
engages  in an  offsetting  transaction,  it may  subsequently  enter into a new
forward  contract to sell the foreign  currency.  Should  forward prices decline
during the period  between the Series  entering into a forward  contract for the
sale of a foreign  currency and the date it enters into an  offsetting  contract
for the purchase of the foreign currency,  the Series will realize a gain to the
extent the price of the  currency it has agreed to sell exceeds the price of the
currency it has agreed to purchase.  Should forward prices increase,  the Series
will  suffer a loss to the  extent  the price of the  currency  it has agreed to
purchase exceeds the price of the currency it has agreed to sell.

The  Series'  dealing  in  forward  foreign  currency  exchange  contracts  will
generally be limited to the transactions  described above.  However,  the Series
reserve the right to enter into forward foreign currency contracts for different
purposes  and under  different  circumstances.  Of  course,  the  Series are not
required  to  enter  into  forward   contracts  with  regard  to  their  foreign
currency-denominated  securities and will not do so unless deemed appropriate by
the Investment Manager or relevant Sub-Adviser.  It also should be realized that
this  method of hedging  against a decline  in the value of a currency  does not
eliminate  fluctuations in the underlying  prices of the  securities.  It simply
establishes  a rate of exchange at a future date.  Additionally,  although  such
contracts tend to minimize the risk of loss due to a decline in the value of the
hedged  currency,  at the same time, they tend to limit any potential gain which
might result from an increase in the value of that currency.

Although the Series value their assets daily in terms of U.S.  dollars,  they do
not intend to convert their holdings of foreign  currencies into U.S. dollars on
a daily basis.  They will do so from time to time, and investors should be aware
of the costs of currency  conversion.  Although  foreign exchange dealers do not
charge a fee for  conversion,  they do realize a profit based on the  difference
(the "spread")  between the prices at which they are buying and selling  various
currencies.  Thus, a dealer may offer to sell a foreign  currency to a Series at
one rate,  while offering a lesser rate of exchange  should the Series desire to
resell that currency to the dealer.

PURCHASE AND SALE OF CURRENCY FUTURES  CONTRACTS AND RELATED  OPTIONS.  As noted
above, a currency  futures  contract sale creates an obligation by a Series,  as
seller,  to deliver  the amount of  currency  called  for in the  contract  at a
specified  future  time for a  specified  price.  A  currency  futures  contract
purchase creates an obligation by a Series, as purchaser, to take delivery of an
amount of currency at a specified future time at a specified price. Although the
terms of currency futures contracts specify actual delivery or receipt,  in most
instances the contracts  are closed out before the  settlement  date without the
making or taking of delivery of the currency.  Closing out of a currency futures
contract  is  effected  by  entering  into  an   offsetting   purchase  or  sale
transaction.  Unlike a currency futures contract,  which requires the parties to
buy and sell  currency on a set date, an option on a currency  futures  contract
entitles  its holder to decide on or before a future date  whether to enter into
such a  contract.  If the holder  decides  not to enter into the  contract,  the
premium paid for the option is fixed at the point of sale.

SWAPS,  CAPS, FLOORS AND COLLARS -- Certain Series may enter into interest rate,
securities  index,  commodity,  or  security  and  currency  exchange  rate swap
agreements  for any  lawful  purpose  consistent  with  the  Series'  investment
objective,  such as for the  purpose  of  attempting  to  obtain or  preserve  a
particular  desired  return or spread at a lower cost to the Series  than if the
Series had invested  directly in an instrument  that yielded that desired return
or spread.  The Series also may enter into swaps in order to protect  against an
increase  in the  price  of,  or  the  currency  exchange  rate  applicable  to,
securities  that  the  Series  anticipates  purchasing  at a  later  date.  Swap
agreements  are  two-party  contracts  entered into  primarily by  institutional
investors for periods  ranging from a few weeks to several years.  In a standard
"swap" transaction,  two parties agree to exchange the returns (or differentials
in rates of return) earned or realized on particular  predetermined  investments
or  instruments.  The gross  returns to be exchanged  or  "swapped"  between the
parties are calculated with respect to a "notional  amount," i.e., the return on
or increase in value of a  particular  dollar  amount  invested at a  particular
interest rate, in a particular foreign currency,  or in a "basket" of securities
representing a particular index. Swap agreements may include interest rate caps,
under which,  in return for a premium,  one party agrees to make payments to the
other to the extent that  interests  rates  exceed a specified  rate,  or "cap";
interest rate floors under which,  in return for a premium,  one party agrees to
make  payments  to the other to the  extent  that  interest  rates  fall below a
specified  level,  or "floor";  and interest rate  collars,  under which a party
sells a cap and  purchases  a floor,  or vice  versa,  in an  attempt to protect
itself  against  interest  rate  movements  exceeding  given  minimum or maximum
levels.

The  "notional  amount"  of the swap  agreement  is the  agreed  upon  basis for
calculating the obligations  that the parties to a swap agreement have agreed to
exchange. Under most swap agreements entered into by the Series, the obligations
of the parties  would be exchanged on a "net basis."  Consequently,  the Series'
obligation  (or rights) under a swap  agreement  will generally be equal only to
the net amount to be paid or received under the agreement  based on the relative
value of the positions  held by each party to the agreement  (the "net amount").
The Series'  obligation  under a swap  agreement  will be accrued  daily (offset
against  amounts owed to the Series) and any accrued but unpaid net amounts owed
to a swap counterparty  will be covered by cash or liquid securities  identified
in an account with the Series custodian or on the books of the Series.

Whether a Series' use of swap  agreements  will be successful in furthering  its
investment objective will depend, in part, on the Investment Manager or relevant
Sub-Adviser's  ability to predict correctly whether certain types of investments
are likely to produce  greater returns than other  investments.  Swap agreements
may be considered to be illiquid. Moreover, the Series bears the risk of loss of
the amount  expected to be received  under a swap  agreement in the event of the
default or bankruptcy of a swap  agreement  counterparty.  Certain  restrictions
imposed on the Series by the Internal  Revenue Code may limit a Series'  ability
to use swap agreements. The swaps market is largely unregulated.

The  Series  will  enter  swap  agreements  only  with  counterparties  that the
Investment Manager or relevant  Sub-Adviser  reasonably  believes are capable of
performing under the swap  agreements.  If there is a default by the other party
to such a transaction,  the Series will have to rely on its contractual remedies
(which may be limited by bankruptcy, insolvency or similar laws) pursuant to the
agreements  related to the  transaction.  Series E and P will not enter into any
swap, cap, floor, collar or other derivative  transaction unless, at the time of
entering  into the  transaction,  the  unsecured  long-term  debt  rating of the
counterparty,  combined  with any  credit  enhancements,  is rated at least A by
Moody's  or S&P  or  has an  equivalent  rating  from  a  nationally  recognized
statistical  rating  organization  or is determined  to be of equivalent  credit
quality by the Investment Manager.

SPREAD  TRANSACTIONS -- Certain Series may purchase  covered spread options from
securities   dealers.   Such   covered   spread   options   are  not   presently
exchange-listed  or  exchange-traded.  The purchase of a spread option gives the
Series  the right to put,  or sell,  a security  that it owns at a fixed  dollar
spread or fixed yield spread in relationship to another security that the Series
does not  own,  but  which is used as a  benchmark.  The risk to the  Series  in
purchasing covered spread options is the cost of the premium paid for the spread
option and any  transaction  costs.  In  addition,  there is no  assurance  that
closing  transactions will be available.  The purchase of spread options will be
used to protect the Series against adverse changes in prevailing  credit quality
spreads,  i.e.,  the  yield  spread  between  high  quality  and  lower  quality
securities.  Such  protection  is only  provided  during  the life of the spread
option.

HYBRID  INSTRUMENTS  -- Hybrid  instruments  combine  the  elements  of  futures
contracts  or  options  with  those of debt,  preferred  equity or a  depository
instrument ("Hybrid Instruments"). Often these Hybrid Instruments are indexed to
the price of a commodity or particular currency or a domestic or foreign debt or
equity  securities  index.  Hybrid  Instruments  may take a  variety  of  forms,
including,  but not limited  to, debt  instruments  with  interest or  principal
payments or redemption  terms determined by reference to the value of a currency
or commodity  at a future point in time,  preferred  stock with  dividend  rates
determined by reference to the value of a currency,  or  convertible  securities
with the  conversion  terms  related  to a  particular  commodity.  The risks of
investing  in  Hybrid  Instruments  reflect  a  combination  of the  risks  from
investing in securities,  futures and currencies,  including volatility and lack
of  liquidity.  Reference  is made to the  discussion  of  futures  and  forward
contracts in this Statement of Additional  Information for a discussion of these
risks. Further, the prices of the Hybrid Instrument and the related commodity or
currency  may  not  move in the  same  direction  or at the  same  time.  Hybrid
Instruments  may bear  interest or pay  preferred  dividends at below market (or
even relatively  nominal)  rates. In addition,  because the purchase and sale of
Hybrid  Instruments  could  take  place in an  over-the-counter  market  or in a
private  transaction between the Series and the seller of the Hybrid Instrument,
the  creditworthiness  of the contract party to the transaction  would be a risk
factor which the Series would have to consider.  Hybrid Instruments also may not
be subject to regulation of the CFTC,  which generally  regulates the trading of
commodity futures by U.S.  persons,  the SEC, which regulates the offer and sale
of  securities  by and to U.S.  persons,  or any other  governmental  regulatory
authority.

LENDING OF  PORTFOLIO  SECURITIES  -- For the  purpose of  realizing  additional
income,  certain  of the  Series  may make  secured  loans of Series  securities
amounting  to not more than 33 1/3% of its total  assets.  Securities  loans are
made to broker/dealers,  institutional  investors,  or other persons pursuant to
agreements  requiring  that the loans be  continuously  secured by collateral at
least  equal at all  times to the  value of the  securities  lent and  marked to
market on a daily basis.  The  collateral  received  will consist of cash,  U.S.
Government  securities,  letters  of credit or such other  collateral  as may be
permitted under its investment program. While the securities are being lent, the
Series will continue to receive the equivalent of the interest or dividends paid
by the issuer on the  securities,  as well as interest on the  investment of the
collateral or a fee from the borrower.  The Series has a right to call each loan
and obtain the securities on five business  days' notice or, in connection  with
securities  trading on foreign markets,  within such longer period of time which
coincides  with the normal  settlement  period for  purchases  and sales of such
securities in such foreign  markets.  The Series will not have the right to vote
securities while they are being lent, but it will call a loan in anticipation of
any important  vote. The risks in lending  portfolio  securities,  as with other
extensions of secured credit,  consist of possible delay in receiving additional
collateral  or in the recovery of the  securities  or possible loss of rights in
the collateral should the borrower fail financially.  Loans will only be made to
persons deemed by the Investment  Manager or relevant  Sub-Adviser to be of good
standing and will not be made unless, in the judgment of the Investment  Manager
or relevant  Sub-Adviser,  the  consideration to be earned from such loans would
justify the risk.

LEVERAGE -- Certain of the Series may use leverage.  Leveraging a Series creates
an opportunity  for increased net income but, at the same time,  creates special
risk considerations.  For example,  leveraging may exaggerate changes in the net
asset  value  of a  Series'  shares  and in the  yield on a  Series'  portfolio.
Although the principal of such  borrowings  will be fixed,  a Series' assets may
change in value during the time the borrowing is outstanding.  Since any decline
in  value  of a  Series'  investments  will be  borne  entirely  by the  Series'
shareholders  (and not by those  persons  providing the leverage to the Series),
the effect of leverage in a declining  market would be a greater decrease in net
asset value than if the Series  were not so  leveraged.  Leveraging  will create
interest expenses for a Series,  which can exceed the investment return from the
borrowed  funds.  To the extent the investment  return  derived from  securities
purchased  with  borrowed  funds exceeds the interest a Series will have to pay,
the Series'  investment return will be greater than if leveraging were not used.
Conversely,  if the  investment  return from the assets  retained  with borrowed
funds is not sufficient to cover the cost of leveraging,  the investment  return
of the Series will be less than if leveraging were not used.

OTHER  LENDING/BORROWING  -- Subject to approval by the  Securities and Exchange
Commission, Series N and O may make loans to, or borrow funds from, other mutual
funds or portfolios of mutual funds  sponsored or advised by T. Rowe Price or T.
Rowe Price International, Inc. The Series have no intention of engaging in these
practices at this time.

ZERO COUPON SECURITIES -- Zero coupon securities pay no cash income and are sold
at substantial  discounts  from their value at maturity.  When held to maturity,
their entire  income,  which  consists of accretion of discount,  comes from the
difference  between  the issue price and their  value at  maturity.  Zero coupon
securities  are  subject to greater  market  value  fluctuations  from  changing
interest rates than debt obligations of comparable maturities which make current
distributions of interest (cash).  Zero coupon  securities which are convertible
into common stock offer the  opportunity  for capital  appreciation as increases
(or decreases) in market value, of such securities closely follows the movements
in the market value of the  underlying  common  stock.  Zero coupon  convertible
securities generally are expected to be less volatile than the underlying common
stocks,  as they usually are issued with  maturities of 15 years or less and are
issued with options and/or redemption features  exercisable by the holder of the
obligation  entitling the holder to redeem the  obligation and receive a defined
cash payment.

Zero coupon securities  include securities issued directly by the U.S. Treasury,
and U.S.  Treasury  bonds or notes  and their  unmatured  interest  coupons  and
receipts for their underlying principal ("coupons") which have been separated by
their holder,  typically a custodian bank or investment brokerage firm. A holder
will separate the interest coupons from the underlying  principal (the "corpus")
of the U.S.  Treasury  security.  A number of  securities  firms and banks  have
stripped  the  interest  coupons and  receipts and then resold them in custodial
receipt  programs with a number of different names,  including  "Treasury Income
Growth  Receipts"  (TIGRSTM) and Certificate of Accrual on Treasuries  (CATSTM).
The underlying U.S.  Treasury bonds and notes  themselves are held in book-entry
form at the Federal  Reserve  Bank or, in the case of bearer  securities  (i.e.,
unregistered  securities  which are  owned  ostensibly  by the  bearer or holder
thereof), in trust on behalf of the owners thereof.  Counsel to the underwriters
of these  certificates  or other  evidences of  ownership  of the U.S.  Treasury
securities have stated that, for federal tax and securities  purposes,  in their
opinion purchasers of such certificates, such as the Series, most likely will be
deemed the beneficial holder of the underlying U.S. Government securities.

The U. S.  Treasury  has  facilitated  transfers  of  ownership  of zero  coupon
securities by accounting  separately for the beneficial  ownership of particular
interest coupon and corpus payments on Treasury  securities  through the Federal
Reserve  book-entry  record  keeping  system.  The  Federal  Reserve  program as
established by the Treasury Department is known as "STRIPS" or "Separate Trading
of Registered  Interest and Principal of Securities."  Under the STRIPS program,
the  Series  will be  able  to have  its  beneficial  ownership  of zero  coupon
securities recorded directly in the book-entry  recordkeeping  system in lieu of
having to hold  certificates  or other  evidences of ownership of the underlying
U.S. Treasury securities.

When U.S.  Treasury  obligations have been stripped of their unmatured  interest
coupons  by the  holder,  the  principal  or corpus  is sold at a deep  discount
because the buyer  receives  only the right to receive a future fixed payment in
the  security  and does not  receive  any  rights to  periodic  interest  (cash)
payments.  Once  stripped  or  separated,  the  corpus and  coupons  may be sold
separately.  Typically,  the coupons are sold  separately  or grouped with other
coupons with like  maturity  dates and sold bundled in such form.  Purchasers of
stripped  obligations   acquire,  in  effect,   discount  obligations  that  are
economically  identical to the zero coupon  securities  that the Treasury  sells
itself.

WHEN-ISSUED  SECURITIES  --  Certain  Series  may  from  time to  time  purchase
securities on a "when-issued" basis. At the time the Series makes the commitment
to purchase a security on a when-issued  basis,  it will record the  transaction
and reflect the value of the security in  determining  its net asset value.  The
Series do not believe that net asset value or income will be adversely  affected
by purchase of securities on a when-issued  basis. The Series will maintain cash
and  marketable  securities  equal  in  value  to  commitments  for  when-issued
securities.

The price of when-issued  securities,  which may be expressed in yield terms, is
fixed at the time the  commitment to purchase is made,  but delivery and payment
for the  when-issued  securities  take  place  at a later  date.  Normally,  the
settlement date occurs within 90 days of the purchase. During the period between
purchase  and  settlement  no payment is made by the Series to the issuer and no
interest accrues to the Series.  Forward  commitments  involve a risk of loss if
the value of the security to be purchased declines prior to the settlement date,
which risk is in addition  to the risk of decline in value of the Series'  other
assets.  While when-issued  securities may be sold prior to the settlement date,
the Series  intends to  purchase  such  securities  for the  purpose of actually
acquiring them unless a sale appears desirable for investment reasons.

MORTGAGE-BACKED  SECURITIES  --  Mortgage-backed  securities  (MBSs),  including
mortgage pass-through securities and collateralized mortgage obligations (CMOs),
include certain  securities issued or guaranteed by the United States Government
or one of its agencies or  instrumentalities,  such as the  Government  National
Mortgage  Association (GNMA),  Federal National Mortgage  Association (FNMA), or
Federal Home Loan Mortgage  Corporation  (FHLMC);  securities  issued by private
issuers that represent an interest in or are  collateralized by  mortgage-backed
securities issued or guaranteed by the U.S. Government or one of its agencies or
instrumentalities;  and securities  issued by private  issuers that represent an
interest in or are  collateralized  by mortgage  loans. A mortgage  pass-through
security  is a pro rata  interest  in a pool of  mortgages  where  the cash flow
generated from the mortgage collateral is passed through to the security holder.
CMOs are  obligations  fully  collateralized  by a  portfolio  of  mortgages  or
mortgage-related securities.

Certain Series may invest in securities known as "inverse floating obligations,"
"residual interest bonds," and "interest-only"  (IO) and  "principal-only"  (PO)
bonds,  the market  values of which will  generally  be more  volatile  than the
market  values  of most  MBSs due to the fact  that  such  instruments  are more
sensitive to interest rate charges and to the rate of principal prepayments than
are most other MBSs. An inverse floating  obligation is a derivative  adjustable
rate security with  interest  rates that adjust or vary  inversely to changes in
market  interest rates.  The term "residual  interest" bond is used generally to
describe those  instruments  in collateral  pools,  such as CMOs,  which receive
excess cash flow generated by the pool once all other  bondholders  and expenses
have been paid. IOs and POs are created by separating the interest and principal
payments generated by a pool of  mortgage-backed  bonds to create two classes of
securities.  Generally,  one class receives  interest only payments (IO) and the
other  class  principal  only  payments  (PO).  MBSs  have been  referred  to as
"derivatives" because the performance of MBSs is dependent upon and derived from
underlying securities.

Investment in MBSs poses several risks, including prepayment,  market and credit
risks.  Prepayment  risk  reflects  the chance that  borrowers  may prepay their
mortgages faster than expected,  thereby affecting the investment's average life
and perhaps its yield.  Borrowers are most likely to exercise  their  prepayment
options  at a  time  when  it is  least  advantageous  to  investors,  generally
prepaying  mortgages as interest  rates fall,  and slowing  payments as interest
rates rise.  Certain  classes of CMOs may have priority over others with respect
to the receipt of prepayments on the mortgages and the Series may invest in CMOs
which are subject to greater risk of prepayment. Market risk reflects the chance
that the price of the security may fluctuate over time. The price of MBSs may be
particularly  sensitive to  prevailing  interest  rates,  the length of time the
security is expected to be  outstanding  and the  liquidity  of the issue.  In a
period of unstable  interest  rates,  there may be decreased  demand for certain
types of MBSs, and a Series invested in such securities wishing to sell them may
find it difficult to find a buyer, which may in turn decrease the price at which
they may be sold. IOs and POs are acutely sensitive to interest rate changes and
to the rate of principal  prepayments.  They are very  volatile in price and may
have lower liquidity than most mortgage-backed securities. Certain CMOs may also
exhibit these  qualities,  especially those which pay variable rates of interest
which adjust  inversely with and more rapidly than  short-term  interest  rates.
Credit risk  reflects  the chance that the Series may not receive all or part of
its  principal  because  the  issuer or credit  enhancer  has  defaulted  on its
obligations.   Obligations  issued  by  U.S.   Government-related  entities  are
guaranteed  by  the  agency  or   instrumentality,   and  some,   such  as  GNMA
certificates,  are supported by the full faith and credit of the U.S.  Treasury;
others are  supported  by the right of the issuer to borrow  from the  Treasury;
others, such as those of the FNMA, are supported by the discretionary  authority
of the U.S. Government to purchase the agency's  obligations;  still others, are
supported only by the credit of the instrumentality.  Although securities issued
by U.S.  Government-related  agencies are guaranteed by the U.S. Government, its
agencies or instrumentalities, shares of the Series are not so guaranteed in any
way. The performance of private label MBSs, issued by private  institutions,  is
based on the financial health of those  institutions.  There is no guarantee the
Series'  investment  in MBSs will be  successful,  and the Series'  total return
could be adversely affected as a result.

ASSET-BACKED  SECURITIES  --  Asset-backed  securities  directly  or  indirectly
represent a  participation  interest  in, or are secured by and payable  from, a
stream of payments  generated  by  particular  assets  such as motor  vehicle or
credit card receivables. Payments of principal and interest may be guaranteed up
to certain amounts and for a certain time period by a letter of credit issued by
a financial  institution  unaffiliated with the entities issuing the securities.
Asset-backed  securities  may be  classified  as  pass-through  certificates  or
collateralized obligations.

Pass-through   certificates  are  asset-backed  securities  which  represent  an
undivided  fractional  ownership  interest  in an  underlying  pool  of  assets.
Pass-through certificates usually provide for payments of principal and interest
received to be passed  through to their  holders,  usually  after  deduction for
certain  costs  and  expenses  incurred  in  administering  the  pool.   Because
pass-through  certificates  represent  an ownership  interest in the  underlying
assets,  the  holders  thereof  bear  directly  the risk of any  defaults by the
obligors on the underlying assets not covered by any credit support.  See "Types
of Credit Support."

Asset-backed  securities issued in the form of debt  instruments,  also known as
collateralized  obligations,  are  generally  issued  as the  debt of a  special
purpose  entity  organized  solely  for the  purpose of owning  such  assets and
issuing such debt.  Such assets are most often trade,  credit card or automobile
receivables. The assets collateralizing such asset-backed securities are pledged
to a trustee or custodian for the benefit of the holders  thereof.  Such issuers
generally hold no assets other than those underlying the asset-backed securities
and  any  credit  support  provided.  As a  result,  although  payments  on such
asset-backed securities are obligations of the issuers, in the event of defaults
on the underlying assets not covered by any credit support (see "Types of Credit
Support"),  the  issuing  entities  are  unlikely to have  sufficient  assets to
satisfy their obligations on the related asset-backed securities.

METHODS OF ALLOCATING CASH FLOWS. While many asset-backed  securities are issued
with only one class of security, many asset-backed securities are issued in more
than one class, each with different payment terms.  Multiple class  asset-backed
securities are issued for two main reasons.  First, multiple classes may be used
as a method of providing credit support. This is accomplished  typically through
creation of one or more  classes  whose  right to  payments on the  asset-backed
security is made  subordinate  to the right to such  payments  of the  remaining
class or classes.  See "Types of Credit Support."  Second,  multiple classes may
permit the issuance of securities  with payment  terms,  interest rates or other
characteristics  differing  both from  those of each other and from those of the
underlying assets. Examples include so-called "strips" (asset-backed  securities
entitling  the  holder  to  disproportionate   interests  with  respect  to  the
allocation of interest and principal of the assets  backing the  security),  and
securities  with a class or  classes  having  characteristics  which  mimic  the
characteristics of non-asset-backed  securities, such as floating interest rates
(i.e.,  interest  rates  which  adjust  as a  specified  benchmark  changes)  or
scheduled amortization of principal.

Asset-backed  securities in which the payment  streams on the underlying  assets
are allocated in a manner  different than those described above may be issued in
the  future.  The  Series  may invest in such  asset-backed  securities  if such
investment is otherwise  consistent with its investment  objectives and policies
and with the investment restrictions of the Series.

TYPES OF CREDIT SUPPORT.  Asset-backed  securities are often backed by a pool of
assets  representing the obligations of a number of different parties. To lessen
the effect of failures by obligors on underlying  assets to make payments,  such
securities  may contain  elements of credit  support.  Such credit support falls
into two classes:  liquidity  protection and protection against ultimate default
by an obligor  on the  underlying  assets.  Liquidity  protection  refers to the
provision of advances, generally by the entity administering the pool of assets,
to ensure that scheduled  payments on the  underlying  pool are made in a timely
fashion.  Protection  against  ultimate  default ensures ultimate payment of the
obligations on at least a portion of the assets in the pool. Such protection may
be provided through guarantees, insurance policies or letters of credit obtained
from third  parties,  through  various means of structuring  the  transaction or
through a combination of such  approaches.  Examples of asset-backed  securities
with credit  support  arising out of the  structure of the  transaction  include
"senior-subordinated  securities"  (multiple class asset-backed  securities with
certain  classes  subordinate  to other  classes as to the payment of  principal
thereon,  with the result that defaults on the underlying assets are borne first
by the holders of the subordinated class) and asset-backed  securities that have
"reserve Portfolios" (where cash or investments, sometimes funded from a portion
of the initial  payments on the underlying  assets,  are held in reserve against
future  losses) or that have been  "over  collateralized"  (where the  scheduled
payments on, or the principal  amount of, the  underlying  assets  substantially
exceeds that required to make payment of the asset-backed securities and pay any
servicing or other fees). The degree of credit support provided on each issue is
based  generally on historical  information  respecting the level of credit risk
associated with such payments. Delinquency or loss in excess of that anticipated
could adversely affect the return on an investment in an asset-backed  security.
Additionally,  if the letter of credit is  exhausted,  holders  of  asset-backed
securities may also experience  delays in payments or losses if the full amounts
due on underlying sales contracts are not realized.

AUTOMOBILE  RECEIVABLE  SECURITIES.  Asset-Backed  Securities  may be  backed by
receivables from motor vehicle  installment sales contracts or installment loans
secured  by  motor  vehicles   ("Automobile   Receivable   Securities").   Since
installment  sales  contracts for motor  vehicles or  installment  loans related
thereto  ("Automobile  Contracts")  typically  have shorter  durations and lower
incidences  of  prepayment,  Automobile  Receivable  Securities  generally  will
exhibit a shorter average life and are less susceptible to prepayment risk.

Most entities that issue Automobile  Receivable Securities create an enforceable
interest in their  respective  Automobile  Contracts  only by filing a financing
statement  and by having the  servicer  of the  Automobile  contracts,  which is
usually the originator of the Automobile  Contracts,  take custody  thereof.  In
such circumstances, if the servicer of the Automobile Contracts were to sell the
same  Automobile  Contracts to another party, in violation of its obligation not
to do so,  there is a risk that such  party  could  acquire an  interest  in the
Automobile  Contracts  superior to that of the holders of Automobile  Receivable
Securities. Also although most Automobile Contracts grant a security interest in
the motor  vehicle  being  financed,  in most states the security  interest in a
motor vehicle must be noted on the certificate of title to create an enforceable
security  interest against  competing claims of other parties.  Due to the large
number of vehicles involved,  however,  the certificate of title to each vehicle
financed,  pursuant  to  the  Automobile  Contracts  underlying  the  Automobile
Receivable  Security,  usually is not amended to reflect the  assignment  of the
seller's  security  interest  for the benefit of the  holders of the  Automobile
Receivable  Securities.  Therefore,  there is the possibility that recoveries on
repossessed  collateral may not, in some cases, be available to support payments
on the securities.  In addition,  various state and federal securities laws give
the motor  vehicle  owner the right to assert  against the holder of the owner's
Automobile Contract certain defenses such owner would have against the seller of
the motor vehicle.  The assertion of such defenses could reduce  payments on the
Automobile Receivable Securities.

CREDIT CARD  RECEIVABLE  SECURITIES.  Asset-Backed  Securities  may be backed by
receivables  from  revolving  credit card  agreements  ("Credit Card  Receivable
Securities").  Credit balances on revolving credit card agreements  ("Accounts")
are generally paid down more rapidly than are Automobile Contracts.  Most of the
Credit Card Receivable Securities issued publicly to date have been Pass-Through
Certificates.  In order to  lengthen  the  maturity  of Credit  Card  Receivable
Securities,  most such  securities  provide for a fixed period during which only
interest payments on the underlying  Accounts are passed through to the security
holder and  principal  payments  received on such  Accounts are used to fund the
transfer to the pool of assets  supporting  the related  Credit Card  Receivable
Securities  of  additional  credit card charges made on an Account.  The initial
fixed period usually may be shortened  upon the  occurrence of specified  events
which signal a potential  deterioration in the quality of the assets backing the
security,  such as the imposition of a cap on interest rates. The ability of the
issuer to extend the life of an issue of Credit Card Receivable  Securities thus
depends upon the continued  generation of  additional  principal  amounts in the
underlying  accounts  during  the  initial  period  and  the  non-occurrence  of
specified  events.  An acceleration  in cardholders'  payment rates or any other
event which shortens the period during which  additional  credit card charges on
an Account  may be  transferred  to the pool of assets  supporting  the  related
Credit Card  Receivable  Security  could  shorten the weighted  average life and
yield of the Credit Card Receivable Security.

Credit  cardholders  are  entitled  to the  protection  of a number of state and
federal  consumer  credit laws, many of which give such holders the right to set
off certain amounts against  balances owed on the credit card,  thereby reducing
amounts  paid  on  Accounts.  In  addition,   unlike  most  other  Asset  Backed
Securities, Accounts are unsecured obligations of the cardholder.

GUARANTEED  INVESTMENT  CONTRACTS ("GICS") -- Certain Series may invest in GICs.
When investing in GICs, the Series makes cash contributions to a deposit fund of
an insurance  company's  general  account.  The  insurance  company then credits
guaranteed  interest to the deposit  fund on a monthly  basis.  The GICs provide
that this guaranteed  interest will not be less than a certain minimum rate. The
insurance  company may assess  periodic  charges  against a GIC for expenses and
service  costs  allocable to it, and the charges will be deducted from the value
of the deposit  fund.  Series C may invest only in GICs that have  received  the
requisite  ratings by one or more  NRSROs.  Because a Series may not receive the
principal amount of a GIC from the insurance  company on 7 days' notice or less,
the GIC is considered an illiquid  investment.  In determining average portfolio
maturity,  GICs will be deemed to have a  maturity  equal to the  period of time
remaining until the next readjustment of the guaranteed interest rate.

RESTRICTED  SECURITIES  -- Restricted  securities  may be sold only in privately
negotiated  transactions  or in a  public  offering  with  respect  to  which  a
registration  statement is in effect under the Securities Act of 1933 (the "1933
Act"). Where registration is required, the Series may be obligated to pay all or
part of the registration  expenses and a considerable  period may elapse between
the time of the  decision  to sell and the time the Series may be  permitted  to
sell a security  under an effective  registration  statement.  If, during such a
period,  adverse market  conditions  were to develop,  the Series might obtain a
less  favorable  price  than  prevailed  when it  decided  to  sell.  Restricted
securities  will be  priced  at fair  value as  determined  in  accordance  with
procedures prescribed by the Board of Directors.  If through the appreciation of
restricted  securities or the  depreciation  of  unrestricted  securities or the
depreciation of liquid securities, the Series should be in a position where more
than the  percentage of its net assets  permitted  under the  respective  Series
operating  policy  are  invested  in  illiquid  assets,   including   restricted
securities, the Series will take appropriate steps to protect liquidity.

The Series may purchase  securities which while privately  placed,  are eligible
for  purchase  and sale under Rule 144A  under the 1933 Act.  This rule  permits
certain  qualified  institutional  buyers,  such  as the  Series,  to  trade  in
privately placed securities even though such securities are not registered under
the 1933  Act.  The  Investment  Manager  or  relevant  Sub-Adviser,  under  the
supervision of the Fund's Board of Directors,  will consider whether  securities
purchased  under  Rule  144A  are  illiquid  and  thus  subject  to the  Series'
restriction on investment of its assets in illiquid securities.  A determination
of  whether a Rule 144A  security  is liquid or not is a  question  of fact.  In
making this determination,  the Investment Manager or relevant  Sub-Adviser will
consider the trading  markets for the specific  security taking into account the
unregistered nature of a Rule 144A security.  In addition the Investment Manager
or relevant  Sub-Adviser  could consider the (1) frequency of trades and quotes,
(2) number of dealers and potential purchasers,  (3) dealer undertakings to make
a market,  and (4) the nature of the security and of  marketplace  trades (e.g.,
the time needed to dispose of the security,  the method of soliciting offers and
the  mechanics of  transfer).  The  liquidity of Rule 144A  securities  would be
monitored, and if as a result of changed conditions it is determined that a Rule
144A security is no longer liquid,  the Series' holdings of illiquid  securities
would be reviewed to determine  what, if any,  steps are required to assure that
the Series does not invest more than permitted in illiquid securities. Investing
in Rule 144A  securities  could have the effect of increasing  the amount of the
Series' assets invested in illiquid securities if qualified institutional buyers
are unwilling to purchase such securities.

WARRANTS --  Investment  in warrants  is pure  speculation  in that they have no
voting rights,  pay no dividends,  and have no rights with respect to the assets
of the  corporation  issuing  them.  Warrants  basically are options to purchase
equity  securities at a specific price valid for a specific period of time. They
do not  represent  ownership of the  securities  but only the right to buy them.
Warrants  differ from call options in that  warrants are issued by the issuer of
the security which may be purchased on their exercise,  whereas call options may
be written or issued by anyone.  The prices of warrants do not necessarily  move
parallel to the prices of the  underlying  securities,  and a warrant  ceases to
have value if it is not exercised prior to its expiration date.

CERTAIN RISKS OF FOREIGN INVESTING--

BRADY  BONDS.  Certain  Series  may  invest  in  "Brady  Bonds,"  which are debt
restructurings  that provide for the exchange of cash and loans for newly issued
bonds.  Brady Bonds are  securities  created  through  the  exchange of existing
commercial bank loans to public and private entities in certain emerging markets
for new bonds in connection with debt  restructuring  under a debt restructuring
plan  introduced by former U.S.  Secretary of the  Treasury,  Nicholas F. Brady.
Brady Bonds have been issued by the governments of Argentina,  Brazil, Bulgaria,
Costa Rica, Dominican Republic,  Ecuador, Jordan, Mexico, Nigeria, Panama, Peru,
The  Philippines,  Uruguay,  Venezuela,  and are  expected to be issued by other
emerging market  countries.  Approximately  $150 billion in principal  amount of
Brady Bonds has been issued to date. Investors should recognize that Brady Bonds
have been issued only  recently  and,  accordingly,  do not have a long  payment
history.  Brady Bonds may be collateralized or  uncollateralized,  are issued in
various  currencies  (primarily the U.S.  dollar) and are actively traded in the
secondary  market for Latin American debt. The Salomon Brothers Brady Bond Index
provides a  benchmark  that can be used to compare  returns of  emerging  market
Brady Bonds with returns in other bond markets, e.g., the U.S. bond market.


Series P may invest only in  collateralized  bonds  denominated in U.S. dollars.
U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed rate par
bonds  or  floating  rate  discount  bonds,  are  collateralized  in  full as to
principal by U.S.  Treasury  zero coupon  bonds having the same  maturity as the
bonds.  Interest payments on such bonds generally are  collateralized by cash or
securities  in an amount that,  in the case of fixed rate bonds,  is equal to at
least one year of rolling  interest  payments  or, in the case of floating  rate
bonds, initially is equal to at least one year's rolling interest payments based
on the applicable interest rate at the time and is adjusted at regular intervals
thereafter.


EMERGING  COUNTRIES.  Certain  Series may invest in debt  securities in emerging
markets.  Investing in securities in emerging countries may entail greater risks
than investing in debt  securities in developed  countries.  These risks include
(i) less social,  political and economic stability;  (ii) the small current size
of the markets for such  securities and the currently low or nonexistent  volume
of trading, which result in a lack of liquidity and in greater price volatility;
(iii)  certain  national  policies  which  may  restrict  a  Series'  investment
opportunities,  including  restrictions  on  investment in issuers or industries
deemed  sensitive  to national  interests;  (iv) foreign  taxation;  and (v) the
absence of  developed  structures  governing  private or foreign  investment  or
allowing for judicial redress for injury to private property.  Sovereign debt of
emerging countries may be in default or present a greater risk of default.

POLITICAL AND ECONOMIC RISKS. Investing in securities of non-U.S.  companies may
entail additional risks due to the potential political and economic  instability
of  certain   countries  and  the  risks  of   expropriation,   nationalization,
confiscation  or the  imposition of  restrictions  on foreign  investment and on
repatriation  of  capital  invested.   In  the  event  of  such   expropriation,
nationalization  or other  confiscation by any country,  a Series could lose its
entire investment in any such country.

An investment in a Series which invests in non-U.S.  companies is subject to the
political and economic risks  associated with  investments in emerging  markets.
Even though  opportunities  for  investment may exist in emerging  markets,  any
change in the leadership or policies of the governments of those countries or in
the leadership or policies of any other government which exercises a significant
influence  over  those  countries,  may halt the  expansion  of or  reverse  the
liberalization  of  foreign  investment   policies  now  occurring  and  thereby
eliminate any investment opportunities which may currently exist.

Investors should note that upon the accession to power of authoritarian regimes,
the governments of a number of emerging market countries previously expropriated
large  quantities of real and personal  property  similar to the property  which
will be  represented by the  securities  purchased by the Series.  The claims of
property owners against those governments were never finally settled.  There can
be no  assurance  that any property  represented  by  securities  purchased by a
Series will not also be expropriated, nationalized, or otherwise confiscated. If
such confiscation were to occur, the Series could lose a substantial  portion of
its investments in such countries.  The Series'  investments  would similarly be
adversely affected by exchange control regulation in any of those countries.

RELIGIOUS AND ETHNIC INSTABILITY. Certain countries in which a Series may invest
may have vocal  minorities  that  advocate  radical  religious or  revolutionary
philosophies or support ethnic independence. Any disturbance on the part of such
individuals   could  carry  the  potential  for   wide-spread   destruction   or
confiscation  of property  owned by  individuals  and  entities  foreign to such
country and could cause the loss of the Series' investment in those countries.

FOREIGN   INVESTMENT   RESTRICTIONS.   Certain  countries   prohibit  or  impose
substantial  restrictions on investments in their capital markets,  particularly
their equity markets,  by foreign entities such as the Series. As illustrations,
certain countries require governmental  approval prior to investments by foreign
persons,  or limit the amount of investment  by foreign  persons in a particular
company, or limit the investments by foreign persons to only a specific class of
securities of a company that may have less advantageous terms than securities of
the company available for purchase by nationals. Moreover, the national policies
of  certain  countries  may  restrict  investment  opportunities  in  issuers or
industries deemed sensitive to national interests.  In addition,  some countries
require governmental approval for the repatriation of investment income, capital
or the  proceeds of  securities  sales by foreign  investors.  A Series could be
adversely   affected  by  delays  in,  or  a  refusal  to  grant,  any  required
governmental  approval for repatriation,  as well as by the application to it of
other restrictions on investments.

NON-UNIFORM CORPORATE DISCLOSURE STANDARDS AND GOVERNMENTAL REGULATION.  Foreign
companies  are subject to  accounting,  auditing  and  financial  standards  and
requirements that differ, in some cases significantly,  from those applicable to
U.S. companies. In particular,  the assets, liabilities and profits appearing on
the  financial  statements  of such a  company  may not  reflect  its  financial
position or results of  operations  in the way they would be reflected  had such
financial  statements been prepared in accordance with U.S.  generally  accepted
accounting  principles.  Most of the  securities  held by the Series will not be
registered  with the SEC or  regulators  of any  foreign  country,  nor will the
issuers thereof be subject to the SEC's reporting requirements. Thus, there will
be less available  information  concerning foreign issuers of securities held by
the Series than is available  concerning  U.S.  issuers.  In instances where the
financial  statements  of an issuer  are not deemed to  reflect  accurately  the
financial   situation  of  the  issuer,  the  Investment  Manager  and  relevant
Sub-Adviser  will take  appropriate  steps to evaluate the proposed  investment,
which  may  include  on-site  inspection  of the  issuer,  interviews  with  its
management and consultations  with accountants,  bankers and other  specialists.
There  is  substantially  less  publicly  available  information  about  foreign
companies than there are reports and ratings published about U.S.  companies and
the U.S. Government.  In addition, where public information is available, it may
be less reliable than such information regarding U.S. issuers.

CURRENCY FLUCTUATIONS.  Because a Series, under normal circumstances, may invest
substantial  portions of its total assets in the  securities of foreign  issuers
which are  denominated  in foreign  currencies,  the strength or weakness of the
U.S. dollar against such foreign currencies will account for part of the Series'
investment  performance.  A  decline  in the  value of any  particular  currency
against  the U.S.  dollar will cause a decline in the U.S.  dollar  value of the
Series' holdings of securities denominated in such currency and, therefore, will
cause an overall  decline in the Series' net asset value and any net  investment
income and capital gains to be distributed in U.S.  dollars to  shareholders  of
the Series.

The rate of exchange  between the U.S. dollar and other currencies is determined
by several  factors  including the supply and demand for particular  currencies,
central bank efforts to support particular currencies,  the movement of interest
rates,  the pace of business  activity in certain other  countries and the U.S.,
and other economic and financial conditions affecting the world economy.

Although the Series values its assets daily in terms of U.S. dollars, the Series
does not intend to convert holdings of foreign currencies into U.S. dollars on a
daily basis.  The Series will do so from time to time,  and investors  should be
aware of the costs of currency conversion.  Although foreign exchange dealers do
not  charge  a fee for  conversion,  they  do  realize  a  profit  based  on the
difference  ("spread")  between  the prices at which they are buying and selling
various  currencies.  Thus, a dealer may offer to sell a foreign currency to the
Series at one rate,  while offering a lesser rate of exchange  should the Series
desire to sell that currency to the dealer.

ADVERSE MARKET  CHARACTERISTICS.  Securities of many foreign issuers may be less
liquid and their  prices  more  volatile  than  securities  of  comparable  U.S.
issuers.  In addition,  foreign  securities  exchanges and brokers generally are
subject to less  governmental  supervision  and regulation than in the U.S., and
foreign  securities   exchange   transactions   usually  are  subject  to  fixed
commissions,  which  generally are higher than  negotiated  commissions  on U.S.
transactions.  In addition,  foreign  securities  exchange  transactions  may be
subject to  difficulties  associated  with the settlement of such  transactions.
Delays in settlement could result in temporary periods when assets of the Series
are uninvested and no return is earned  thereon.  The inability of the Series to
make intended  security  purchases due to settlement  problems could cause it to
miss attractive opportunities.  Inability to dispose of a portfolio security due
to  settlement  problems  either  could  result in losses to the  Series  due to
subsequent  declines in value of the  portfolio  security  or, if the Series has
entered into a contract to sell the security, could result in possible liability
to the purchaser.  The Investment Manager or relevant  Sub-Adviser will consider
such difficulties when determining the allocation of the Series' assets.

NON-U.S.  WITHHOLDING  TAXES. A Series' investment income and gains from foreign
issuers may be subject to non-U.S. withholding and other taxes, thereby reducing
the  Series'   investment   income  and  gains.

INVESTMENT AND REPATRIATION  RESTRICTIONS.  Foreign investment in the securities
markets of certain  foreign  countries is  restricted  or  controlled in varying
degrees. These restrictions may at times limit or preclude investment in certain
of such  countries  and  may  increase  the  costs  and  expenses  of a  Series.
Investments  by foreign  investors are subject to a variety of  restrictions  in
many  developing  countries.  These  restrictions  may  take  the  form of prior
governmental  approval,  limits  on the  amount  or type of  securities  held by
foreigners, and limits on the types of companies in which foreigners may invest.
Additional  or  different  restrictions  may be  imposed at any time by these or
other countries in which a Series invests. In addition, the repatriation of both
investment  income and capital from several foreign  countries is restricted and
controlled  under  certain  regulations,  including  in some  cases the need for
certain  government  consents.  These  restrictions  may in the  future  make it
undesirable to invest in these countries.

MARKET CHARACTERISTICS.  Foreign securities may be purchased in over-the-counter
markets or on stock  exchanges  located in the countries in which the respective
principal offices of the issuers of the various securities are located,  if that
is the best  available  market.  Foreign  stock  markets  are  generally  not as
developed or efficient  as, and may be more volatile  than,  those in the United
States.  While growing in volume,  they usually have  substantially  less volume
than U.S. markets and a Series' portfolio securities may be less liquid and more
volatile than securities of comparable  U.S.  companies.  Equity  securities may
trade  at   price/earnings   multiples  higher  than  comparable  United  States
securities and such levels may not be sustainable.  Fixed commissions on foreign
stock  exchanges  are generally  higher than  negotiated  commissions  on United
States exchanges,  although a Series will endeavor to achieve the most favorable
net results on its portfolio  transactions.  There is generally less  government
supervision  and  regulation  of foreign  stock  exchanges,  brokers  and listed
companies  than  in  the  United  States.  Moreover,  settlement  practices  for
transactions  in foreign markets may differ from those in United States markets,
and may include delays beyond periods customary in the United States.

INFORMATION  AND  SUPERVISION.   There  is  generally  less  publicly  available
information about foreign  companies  comparable to reports and ratings that are
published  about  companies in the United  States.  Foreign  companies  are also
generally not subject to uniform  accounting,  auditing and financial  reporting
standards,  practices and requirements  comparable to those applicable to United
States companies.

COSTS.  Investors  should  understand  that the expense ratio of the Series that
invest in  foreign  securities  can be  expected  to be higher  than  investment
companies  investing in domestic  securities  since the cost of maintaining  the
custody of foreign  securities  and the rate of advisory fees paid by the Series
are higher.

OTHER.  With respect to certain  foreign  countries,  especially  developing and
emerging  ones,  there is the  possibility  of adverse  changes in investment or
exchange   control   regulations,   expropriation   or  confiscatory   taxation,
limitations on the removal of funds or other assets of the Series,  political or
social instability, or diplomatic developments which could affect investments by
U.S. persons in those countries.

EASTERN EUROPE.  Changes occurring in Eastern Europe and Russia today could have
long-term  potential  consequences.  As restrictions  fail, this could result in
rising  standards  of  living,   lower  manufacturing  costs,  growing  consumer
spending, and substantial economic growth. However,  investment in the countries
of Eastern Europe and Russia is highly  speculative at this time.  Political and
economic  reforms  are too  recent  to  establish  a  definite  trend  away from
centrally-planned economies and state owned industries. In many of the countries
of Eastern  Europe and Russia,  there is no stock  exchange or formal market for
securities.   Such  countries  may  also  have  government   exchange  controls,
currencies  with  no  recognizable  market  value  relative  to the  established
currencies of western  market  economies,  little or no experience in trading in
securities, no financial reporting standards, a lack of a banking and securities
infrastructure  to handle such  trading,  and a legal  tradition  which does not
recognize  rights in private  property.  In addition,  these  countries may have
national  policies which restrict  investments in companies  deemed sensitive to
the country's national interest.  Further, the governments in such countries may
require  governmental or  quasi-governmental  authorities to act as custodian of
the Series'  assets  invested in such  countries and these  authorities  may not
qualify as a foreign  custodian  under the  Investment  Company  Act of 1940 and
exemptive relief from such Act may be required.  All of these considerations are
among the factors  which  could cause  significant  risks and  uncertainties  to
investment in Eastern Europe and Russia.

INVESTMENT POLICY LIMITATIONS

Each  of  the  Series  operates  within  certain  fundamental  policies.   These
fundamental  policies  may not be changed  without the approval of the lesser of
(i) 67% or more of the Series'  shares present at a meeting of  shareholders  if
the holders of more than 50% of the outstanding shares of the Series are present
or represented by proxy, or (ii) more than 50% of the Series' outstanding voting
shares.  Other  restrictions  in the form of  operating  policies are subject to
change by the  Fund's  Board of  Directors  without  shareholder  approval.  Any
investment  restrictions  that involve a maximum  percentage  of  securities  or
assets  shall  not be  considered  to be  violated  unless  an  excess  over the
percentage  occurs  immediately  after,  and is  caused  by, an  acquisition  of
securities or assets of, or borrowing by, the Series. Calculation of the Series'
total assets for compliance  with any of the following  fundamental or operating
policies or any other investment restrictions set forth in the Fund's prospectus
or Statement of Additional  Information will not include cash collateral held in
connection with a Series' securities lending activities.

FUNDAMENTAL POLICIES -- The fundamental policies of the Series are:


1.  PERCENT  LIMIT ON ASSETS  INVESTED IN ANY ONE ISSUER Not to invest more than
    5% of  its  total  assets  in  the  securities  of any  issuer  (other  than
    obligations  of, or  guaranteed  by, the U.S.  Government,  its agencies and
    instrumentalities);  provided that this limitation applies only with respect
    to 75% of the Series' total assets.  (Fundamental policy number one does not
    apply to Series G, Series T, or Series Y.)

2.  PERCENT  LIMIT  ON SHARE  OWNERSHIP  OF ANY ONE  ISSUER  Not to  purchase  a
    security  if, as a result,  with  respect to 75% of the value of the Series'
    total assets,  more than 10% of the outstanding voting securities of any one
    issuer  would  be held by the  Series  (other  than  obligations  issued  or
    guaranteed  by the U.S.  Government,  its  agencies  or  instrumentalities).
    (Fundamental  policy  number  two does not apply to  Series G,  Series T, or
    Series Y.)


3.  UNDERWRITING  Not to act as  underwriter  of  securities  issued by  others,
    except to the extent that a Series may be considered an  underwriter  within
    the meaning of the Securities  Act of 1933 in the  disposition of restricted
    securities.


4.  INDUSTRY CONCENTRATION Not to invest in an amount equal to, or in excess of,
    25% or more of the Series' total assets in a particular industry (other than
    securities of the of U.S.  Government,  its agencies or  instrumentalities);
    provided  however,  that this  policy does not apply to Series G or Series T
    which are permitted to invest more than 25% of their respective total assets
    in a particular industry or group of industries.


5.  REAL ESTATE Not to purchase or sell real estate unless  acquired as a result
    of ownership of securities or other  instruments (but this shall not prevent
    a Series from  investing in securities or other  instruments  backed by real
    estate or securities of companies engaged in the real estate business).

6.  COMMODITIES  Not to purchase  or sell  physical  commodities,  except that a
    Series may enter into futures contracts and options thereon.

7.  LOANS Not to lend any security or make any other loan if, as a result,  more
    than 33 1/3% of a  Series  total  assets  would  be lent to  other  parties,
    except, (i) through the purchase of a portion of an issue of debt securities
    in  accordance  with its  investment  objectives  and  policies,  or (ii) by
    engaging in repurchase agreements with respect to portfolio securities.

8.  BORROWING Not to borrow in excess of 33 1/3% of a Series' total assets.

9.  SENIOR SECURITIES Not to issue senior securities,  except as permitted under
    the Investment Company Act of 1940.

For the purposes of Fundamental  Policies (2) and (4) above,  each  governmental
subdivision,  i.e.,  state,  territory,  possession  of the United States or any
political subdivision of any of the foregoing, including agencies,  authorities,
instrumentalities,  or similar entities, or of the District of Columbia shall be
considered a separate  issuer if its assets and revenues are separate from those
of the governmental  body creating it and the security is backed only by its own
assets and revenues.  Further, in the case of an industrial development bond, if
the  security  is backed only by the assets and  revenues of a  non-governmental
user, then such  non-governmental  user will be deemed to be the sole issuer. If
an industrial  development bond or government issued security is guaranteed by a
governmental  or other  entity,  such  guarantee  would be considered a separate
security  issued by the  guarantor.  For the purpose of  Fundamental  Policy (4)
industries are determined by reference to the  classifications of industries set
forth in the Fund's semi-annual and annual reports.

OPERATING POLICIES -- The operating policies of the Series are:

1.  LOANS The Series may not lend assets other than securities to other parties.
    (This  limitation  does not  apply to  purchases  of debt  securities  or to
    repurchase agreements.)

2.  BORROWING  The Series may not borrow  money or  securities  for any purposes
    except that  borrowing up to 10% of a Series'  total assets from  commercial
    banks is permitted for emergency or temporary purposes.

3.  OPTIONS The Series may buy and sell  exchange-  traded and  over-the-counter
    put and call options, including index options,  securities options, currency
    options and options on futures, provided that a call or put may be purchased
    only if after such  purchase,  the value all call and put options  held by a
    Series will not exceed 5% of the Series' total assets.  The Series may write
    only covered put and call options.

4.  OIL AND GAS PROGRAMS The Series may not invest in oil, gas,  mineral  leases
    or other mineral exploration or development of programs.

5.  INVESTMENT  COMPANIES  Except in  connection  with a merger,  consolidation,
    acquisition,  or reorganization,  the Series may not invest in securities of
    other investment companies, except in compliance with the Investment Company
    Act of 1940 or the  condition of an exemptive  order from the SEC  regarding
    the purchase of securities of money market funds managed by a Sub-adviser.

6.  CONTROL OF PORTFOLIO  COMPANIES  The Series may not invest in companies  for
    the purpose of exercising management or control.


7.  SHORT  SALES The Series,  except  Series B, may not sell  securities  short,
    unless a Series  owns or has the right to obtain  securities  equivalent  in
    kind and amount to the securities sold short, and provided that transactions
    in  futures  contracts  and  options  are not deemed to  constitute  selling
    securities  short.  Series B may sell  securities  short as described  under
    "Series B (Large Cap Value Series)."


8.  MARGIN The Series do not intend to  purchase  securities  on margin,  except
    that a Series may obtain such  short-term  credits as are  necessary for the
    clearance of  transactions,  and provided that margin payments in connection
    with futures contracts and options on futures contracts shall not constitute
    purchasing securities on margin.

OFFICERS AND DIRECTORS

The management of the Fund's business and affairs is the  responsibility  of the
Board of Directors.  The officers of the Fund manage its  day-to-day  operations
and are responsible to the Fund's Board of Directors. The directors and officers
of the Fund and their principal occupations for at least the last five years are
as follows.  Unless otherwise noted, the address of each officer and director is
One Security Benefit Place, Topeka, Kansas 66636-0001.

NAME,  ADDRESS,  POSITIONS HELD WITH THE FUNDS AND PRINCIPAL  OCCUPATIONS DURING
THE PAST FIVE YEARS


JOHN D. CLELAND* (66)
---------------------
(Birth Date: May 1, 1936)
POSITION HELD WITH THE FUND--Chairman of the Board and Director
PRINCIPAL OCCUPATIONS--Senior Vice President and Managing Member Representative,
   Security  Management  Company,  LLC; Senior Vice President,  Security Benefit
   Group, Inc. and Security Benefit Life Insurance Company.
TERM OF  OFFICE--Until  the next annual meeting or until their  successors shall
   have been duly elected and qualified.
LENGTH OF TIME  SERVED--Chairman  of the Board since  February 2000 and Director
   since 1991
NUMBER OF PORTFOLIOS OVERSEEN IN SECURITY FUNDS COMPLEX--36

DONALD A. CHUBB, JR.** (55)
---------------------------
(Birth Date:  December 14, 1946)
2222 SW 29th Street, Topeka, Kansas 66611
POSITION HELD WITH THE FUND--Director
PRINCIPAL  OCCUPATIONS--Business  broker,  Griffith & Blair  Realtors.  Prior to
   1997, President, Neon Tube Light Company, Inc.
TERM OF  OFFICE--Until  the next annual meeting or until their  successors shall
   have been duly elected and qualified.
LENGTH OF TIME SERVED--Director since 1994
NUMBER OF PORTFOLIOS OVERSEEN IN SECURITY FUNDS COMPLEX--36

PENNY A. LUMPKIN** (63)
-----------------------
(Birth Date: August 20, 1939)
3616 Canterbury Town Road, Topeka, Kansas 66610
POSITION HELD WITH THE FUND--Director
PRINCIPAL  OCCUPATIONS--Partner,  Vivian's Gift Shop  (Corporate  Retail);  Vice
   President,  Palmer Companies (Small Business and Shopping Center Development)
   and Bellairre  Shopping  Center  (Managing  and Leasing );  Partner,  Goodwin
   Enterprises  (Retail).  Prior to 1999,  Vice President and Treasurer,  Palmer
   News,  Inc.;  Vice  President,  M/S News,  Inc.  and  Secretary,  Kansas City
   Periodicals.
TERM OF  OFFICE--Until  the next annual meeting or until their  successors shall
   have been duly elected and qualified.
LENGTH OF TIME SERVED--Director since 1993
NUMBER OF PORTFOLIOS OVERSEEN IN SECURITY FUNDS COMPLEX--36

MARK L. MORRIS, JR.** (68)
--------------------------
(Birth Date: February 3, 1934)
5500 SW 7th Street, Topeka, Kansas 66606
POSITION HELD WITH THE FUND--Director
PRINCIPAL OCCUPATIONS--Veterinary  Nutrition Consultant. Former General Partner,
   Mark Morris Associates (Veterinary Research and Education).
TERM OF  OFFICE--Until  the next annual meeting or until their  successors shall
   have been duly elected and qualified.
LENGTH OF TIME SERVED--Director since 1991
NUMBER OF PORTFOLIOS OVERSEEN IN SECURITY FUNDS COMPLEX--36

MAYNARD F. OLIVERIUS (58)
-------------------------
(Birth Date: December 18, 1943)
1500 SW 10th Avenue, Topeka, Kansas 66604
POSITION HELD WITH THE FUND--Director
PRINCIPAL  OCCUPATIONS--President  and Chief  Executive  Officer,  Stormont-Vail
   Health Care.
TERM OF  OFFICE--Until  the next annual meeting or until their  successors shall
   have been duly elected and qualified.
LENGTH OF TIME SERVED--Director since 1998
NUMBER OF PORTFOLIOS OVERSEEN IN SECURITY FUNDS COMPLEX--36

JAMES R. SCHMANK* (49)
----------------------
(Birth Date: February 21, 1953)
POSITION HELD WITH THE FUND--President and Director
PRINCIPAL  OCCUPATIONS--President  and Managing Member Representative,  Security
   Management Company, LLC; Director, Security Distributors, Inc.; Treasurer and
   Director,   First  Advantage  Insurance  Agency,  Inc.;  Director,   Security
   Financial Resources,  Inc.; Vice President,  Treasurer,  and Director,  First
   Security Benefit Life Insurance and Annuity Company of New York;  Senior Vice
   President,  Security Benefit Group,  Inc. and Security Benefit Life Insurance
   Company.
TERM OF  OFFICE--Until  the next annual meeting or until their  successors shall
   have been duly elected and qualified.
LENGTH OF TIME SERVED--President since February, 2000 and Director since 1997
NUMBER OF PORTFOLIOS OVERSEEN IN SECURITY FUNDS COMPLEX--36


TERRY A. MILBERGER (54)
-----------------------
(Birth Date: March 10, 1948)
POSITION HELD WITH THE FUND--Vice President
PRINCIPAL  OCCUPATIONS--Senior  Vice  President  and Senior  Portfolio  Manager,
   Security  Management  Company,  LLC; Senior Vice President,  Security Benefit
   Group, Inc. and Security Benefit Life Insurance Company.
TERM OF  OFFICE--Until  the next annual meeting or until their  successors shall
   have been duly elected and qualified.
LENGTH OF TIME SERVED--Vice President since 1982


AMY J. LEE (41)
---------------
(Birth Date: June 5, 1961)
POSITION HELD WITH THE FUND--Secretary
PRINCIPAL  OCCUPATIONS--Secretary,  Security Management Company, LLC; Secretary,
   Security  Distributors,  Inc.;  Secretary First Advantage  Insurance  Agency,
   Inc.; Secretary,  Security Financial Resources Collective  Investments,  LLC;
   Vice President,  Associate General Counsel and Assistant Secretary,  Security
   Benefit Group, Inc. and Security Benefit Life Insurance Company.
TERM OF  OFFICE--Until  the next annual meeting or until their  successors shall
   have been duly elected and qualified.
LENGTH OF TIME SERVED--Secretary since 1987


BRENDA M. HARWOOD (38)
----------------------
(Birth Date: November 3, 1963)
POSITION HELD WITH THE FUND--Treasurer
PRINCIPAL   OCCUPATIONS--Assistant   Vice  President  and  Treasurer,   Security
   Management  Company,  LLC; Assistant Vice President,  Security Benefit Group,
   Inc. and Security Benefit Life Insurance Company.
TERM OF  OFFICE--Until  the next annual meeting or until their  successors shall
   have been duly elected and qualified.
LENGTH OF TIME SERVED--Treasurer since 1998.


CINDY L. SHIELDS (35)
---------------------
(Birth Date: June 5, 1967)
POSITION HELD WITH THE FUND--Vice President
PRINCIPAL  OCCUPATIONS--Vice  President and Senior Portfolio  Manager,  Security
   Management  Company,  LLC;  Vice  President  and  Senior  Portfolio  Manager,
   Security Benefit Group, Inc. and Security Benefit Life Insurance Company.
TERM OF  OFFICE--Until  the next annual meeting or until their  successors shall
   have been duly elected and qualified.
LENGTH OF TIME SERVED--Vice President since 1998.


STEVEN M. BOWSER (42)
---------------------
(Birth Date: February 11, 1960)
POSITION HELD WITH THE FUND--Vice President
PRINCIPAL  OCCUPATIONS--Vice  President and Senior Portfolio  Manager,  Security
   Management  Company,  LLC;  Vice  President  and  Senior  Portfolio  Manager,
   Security Benefit Group, Inc. and Security Benefit Life Insurance Company.
TERM OF  OFFICE--Until  the next annual meeting or until their  successors shall
   have been duly elected and qualified.
LENGTH OF TIME SERVED--Vice President since 1998.

JAMES P. SCHIER (44)
--------------------
(Birth Date: December 28, 1957)
POSITION HELD WITH THE FUND--Vice President
PRINCIPAL  OCCUPATIONS--Vice  President and Senior Portfolio  Manager,  Security
   Management  Company,  LLC;  Vice  President  and  Senior  Portfolio  Manager,
   Security  Benefit Group,  Inc. and Security  Benefit Life Insurance  Company.
   Prior to February 1997, Assistant Vice President and Senior Research Analyst,
   Security  Management Company,  LLC. Prior to August 1995,  Portfolio Manager,
   Mitchell  Capital  Management.  Prior  to  March  1993,  Vice  President  and
   Portfolio Manager, Fourth Financial.
TERM OF  OFFICE--Until  the next annual meeting or until their  successors shall
   have been duly elected and qualified.
LENGTH OF TIME SERVED--Vice President since 1998.

CHRISTOPHER D. SWICKARD (36)
----------------------------
(Birth Date: October 9, 1965)
POSITION HELD WITH THE FUND--Assistant Secretary
PRINCIPAL  OCCUPATIONS--Assistant  Secretary,  Security Management Company, LLC;
   Secretary and Director, Security Benefit Academy, Inc.; Second Vice President
   and Assistant Counsel, Security Benefit Group, Inc. and Security Benefit Life
   Insurance Company.
TERM OF  OFFICE--Until  the next annual meeting or until their  successors shall
   have been duly elected and qualified.
LENGTH OF TIME SERVED--Assistant Secretary since 1996.

CHRISTOPHER L. PHALEN (31)
--------------------------
(Birth Date: November 9, 1970)
POSITION HELD WITH THE FUND--Assistant Vice President
PRINCIPAL  OCCUPATIONS--Assistant Vice President and Portfolio Manager, Security
   Management Company, LLC.
TERM OF  OFFICE--Until  the next annual meeting or until their  successors shall
   have been duly elected and qualified.
LENGTH OF TIME SERVED--Assistant Vice President since 2002.

 *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 Funds'  joint audit  committee,  the purpose of
  which is to meet with the  independent  auditors,  to  review  the work of the
  auditors,  and to oversee the handling by Security Management Company,  LLC of
  the accounting functions for the Funds.

The  officers  of the Fund hold  identical  offices  in the  other  Funds in the
Security Group of Funds, with the exceptions noted below.  Other than his or her
position with SBL Fund:  Mr.  Milberger is a Vice  President of Security  Equity
Fund®;  Mr. Schier is a Vice President only of Security Equity Fund and Security
Mid Cap Growth Fund; Ms.  Shields is a Vice  President  only of Security  Equity
Fund; Mr. Bowser is a Vice President only of Security Income Fund®; Mr. Swank is
a Vice  President  only of Security  Income Fund.  The directors of the Fund are
also  directors of each of the other Funds in the Security  Group of Funds.  See
the table under  "Investment  Management,"  page 59, for positions  held by such
persons with the Investment  Manager.  Ms. Lee is also Secretary and Ms. Harwood
is Vice  President  and Director of Security  Distributors,  Inc.  ("SDI").  Mr.
Cleland is also Vice President and Director of SDI.

REMUNERATION OF DIRECTORS AND OTHERS

The Fund pays each of its directors,  except those directors who are "interested
persons"  of the Fund,  an annual  retainer  of $12,500  and a fee of $3,000 per
meeting,  plus reasonable  travel costs, for each meeting of the board attended.
The Fund pays a fee of $1,500 per meeting and  reasonable  travel costs for each
meeting of the Fund's audit  committee  attended by those directors who serve on
the  committee.  The meeting fee  (including  the Audit  Committee  meeting) and
travel costs are paid proportionately by each of the seven registered investment
companies  to  which  the  Adviser   provides   investment   advisory   services
(collectively, the "Security Fund Complex") based on the Fund's net assets. Such
fees and travel costs are paid by the Fund pursuant to the Fund's Administrative
Services Agreement dated April 1, 1987, as amended.

The Fund does not pay any fees to, or reimburse  expenses of, its  Directors who
are considered "interested persons" of the Fund. The aggregate compensation paid
by the Fund to each of the Directors  during its fiscal year ended  December 31,
2001,  and the  aggregate  compensation  paid to  each of the  Directors  during
calendar year 2001 by the Security Fund Complex are set forth below. Each of the
Directors is a director of each of the other registered  investment companies in
the Security Fund Complex.

=========================================================================================
                                                                                TOTAL
                                            PENSION OR                       COMPENSATION
                                            RETIREMENT        ESTIMATED        FROM THE
                                             BENEFITS          ANNUAL       SECURITY FUND
                           AGGREGATE          ACCRUED         BENEFITS         COMPLEX,
NAME OF DIRECTOR         COMPENSATION       AS PART OF          UPON          INCLUDING
OF THE FUND              FROM SBL FUND     FUND EXPENSES     RETIREMENT        THE FUND
-----------------------------------------------------------------------------------------
Donald A. Chubb, Jr.        $21,450             $0               $0            $42,900
John D. Cleland                   0              0                0                  0
Penny A. Lumpkin             21,450              0                0             42,900
Mark L. Morris, Jr.          21,450              0                0             42,900
Maynard Oliverius            15,525              0                0             37,300
James R. Schmank                  0              0                0                  0
=========================================================================================

Security Management Company,  LLC compensates its officers and directors who may
also serve as officers or directors of the Fund.  On March 31, 2002,  the Fund's
officers  and  directors  (as a group)  beneficially  owned  less than 1% of the
outstanding shares of the Fund.

DIRECTORS' OWNERSHIP OF SECURITIES

As of December 31, 2001, the directors of the Funds beneficially owned shares of
the Funds in the  dollar  ranges  set forth  below and also  beneficially  owned
shares of other  mutual  funds in the  family of mutual  funds  overseen  by the
directors in the dollar ranges set forth below:


===========================================================================================
                                                                          AGGREGATE DOLLAR
                                                                          RANGE OF EQUITY
                                                                            SECURITIES IN
                                                                           ALL REGISTERED
                                                                             INVESTMENT
                                                                           COMPANIES OVER-
                                                                           SEEN BY DIRECTOR
                                                     DOLLAR RANGE OF        IN FAMILY OF
NAME OF                                             EQUITY SECURITIES        INVESTMENT
DIRECTOR             NAME OF FUND                        IN FUND             COMPANIES
-------------------------------------------------------------------------------------------
Donald A.        Security Equity Fund,                                            over
Chubb, Jr.        Select 25 Series                   $10,001-$50,000            $100,000
                 --------------------------------------------------------------------------
                 Security Mid Cap Growth Fund        $10,001-$50,000
                 --------------------------------------------------------------------------
                 Security Equity Fund,
                  Equity Series                      $10,001-$50,000
                 --------------------------------------------------------------------------
                 Security Large Cap Value Fund          $1-$10,000
                 --------------------------------------------------------------------------
                 Security Equity Fund,
                  Global Series                      $10,001-$50,000
                 --------------------------------------------------------------------------
                 Security Income Fund,
                  Diversified Income Series             $1-$10,000
                 --------------------------------------------------------------------------
                 Security Cash Fund                     $1-$10,000
                 --------------------------------------------------------------------------
                 Security Equity Fund,
                  Total Return Series                $10,001-$50,000
                 --------------------------------------------------------------------------
                 SBL Fund, Large Cap
                  Value Series                          $1-$10,000
                 --------------------------------------------------------------------------
                 SBL Fund, Social Awareness
                  Series                                $1-$10,000
                 --------------------------------------------------------------------------
                 SBL Fund, Equity Series             $50,001-$100,000
-------------------------------------------------------------------------------------------
Penny A.         Security Equity Fund,                                          $50,001-
Lumpkin           Select 25 Series                      $1-$10,000              $100,000
                 --------------------------------------------------------------------------
                 Security Mid Cap Growth              $10,001-$50,000
                 --------------------------------------------------------------------------
                 Security Equity Fund,
                  Equity Series                      $10,001-$50,000
                 --------------------------------------------------------------------------
                 Security Large Cap Value Fund          $1-$10,000
                 --------------------------------------------------------------------------
                 Security Municipal
                  Bond Fund                             $1-$10,000
                 --------------------------------------------------------------------------
                 Security Equity Fund,
                  Global Series                      $10,001-$50,000
                 --------------------------------------------------------------------------
                 Security Income Fund,
                  Diversified Income Series             $1-$10,000
                 --------------------------------------------------------------------------
                 Security Cash Fund                     $1-$10,000
                 --------------------------------------------------------------------------
                 Security Equity Fund,
                  Mid Cap Value Series                  $1-10,000
                 --------------------------------------------------------------------------
                 SBL Fund, Large Cap
                  Value Series                          $1-$10,000
-------------------------------------------------------------------------------------------
Mark L.          Security Income Fund,                                            Over
Morris, Jr.       Diversified Income Series           $10,001-$50,000           $100,000
                 --------------------------------------------------------------------------
                 Security Mid Cap Growth Fund         Over $100,000
-------------------------------------------------------------------------------------------
Maynard          SBL Fund, Small Cap                                               Over
Oliverius         Value Series                       $50,001-$100,000           $100,000
                 --------------------------------------------------------------------------
                 Security Income Fund,
                  Capital Preservation Series         Over $100,000
===========================================================================================


The following  directors who are "interested  persons" of the Funds beneficially
owned  shares  of the  Funds in the  dollar  ranges  set  forth  below  and also
beneficially  owned  shares of other  mutual funds in the family of mutual funds
overseen by the directors in the dollar ranges set forth below:


===========================================================================================
                                                                          AGGREGATE DOLLAR
                                                                          RANGE OF EQUITY
                                                                            SECURITIES IN
                                                                           ALL REGISTERED
                                                                             INVESTMENT
                                                                           COMPANIES OVER-
                                                                           SEEN BY DIRECTOR
                                                     DOLLAR RANGE OF        IN FAMILY OF
NAME OF                                             EQUITY SECURITIES        INVESTMENT
DIRECTOR             NAME OF FUND                        IN FUND             COMPANIES
-------------------------------------------------------------------------------------------
John D.          Security Equity Fund,                                            Over
Cleland           Equity Series                       Over $100,000             $100,000
                 --------------------------------------------------------------------------
                 Security Large Cap Value Fund       $10,001-$50,000
                 --------------------------------------------------------------------------
                 Security Equity Fund,
                  Select 25 Series                    Over $100,000
                 --------------------------------------------------------------------------
                 Security Equity Fund,
                  Mid Cap Value Series                Over $100,000
                 --------------------------------------------------------------------------
                 Security Mid Cap Growth Fund        $50,001-$100,000
                 --------------------------------------------------------------------------
                 Security Equity Fund,
                  Global Series                      $10,000-$50,000
                 --------------------------------------------------------------------------
                 Security Cash Fund                     $1-$10,000
                 --------------------------------------------------------------------------
                 Security Equity Fund,
                  Technology Series                  $10,001-$50,000
                 --------------------------------------------------------------------------
                 Security Equity Fund,               $50,001-$100,000
                  Small Cap Growth Series
-------------------------------------------------------------------------------------------
James R.                                                                          Over
Schmank          Security Mid Cap Growth Fund         Over $100,000             $100,000
                 --------------------------------------------------------------------------
                 Security Equity Fund,
                  Equity Series                       Over $100,000
                 --------------------------------------------------------------------------
                 Security Cash Fund                  $10,001-$50,000
                 --------------------------------------------------------------------------
                 Security Equity Fund,
                  Global Series                       Over $100,000
                 --------------------------------------------------------------------------
                 Security Equity Fund,
                  Mid Cap Value Series                Over $100,000
                 --------------------------------------------------------------------------
                 Security Equity Fund,
                  Small Cap Growth Series            $50,001-$100,000
                 --------------------------------------------------------------------------
                 Security Equity Fund,
                  Select 25 Series                   $50,001-$100,000
                 --------------------------------------------------------------------------
                 Security Equity Fund,                  $1-$10,000
                 Large Cap Growth Series
                 --------------------------------------------------------------------------
                 Security Equity Fund,
                  Technology Series                  $10,001-$50,000
===========================================================================================


SALE AND REDEMPTION OF SHARES

Shares  of the Fund are  sold  and  redeemed  at  their  net  asset  value  next
determined  after  receipt  of a  purchase  or  redemption  order.  No  sales or
redemption charge is made. The value of shares redeemed may be more or less than
the  shareholder's  cost,  depending  upon the  market  value  of the  portfolio
securities at the time of redemption.  Payment for shares  redeemed will be made
as soon as  practicable  after  receipt,  but in no event  later than seven days
after tender,  except that the Fund may suspend the right of  redemption  during
any period when  trading on the New York Stock  Exchange is  restricted  or such
Exchange is closed for other than  weekends or  holidays,  or any  emergency  is
deemed to exist by the Securities and Exchange Commission.

INVESTMENT MANAGEMENT


Security  Management  Company,  LLC (the  "Investment  Manager"),  One  Security
Benefit Place,  Topeka,  Kansas,  serves as investment  adviser to the Fund. The
Investment  Manager  also acts as  investment  adviser to the  following  mutual
funds:  Security Equity Fund®,  Security Large Cap Value Fund (formerly Security
Growth and Income Fund®),  Security Mid Cap Growth Fund (formerly Security Ultra
Fund),  Security Income Fund®,  Security Cash Fund, and Security  Municipal Bond
Fund.


The  Investment  Manager is  controlled  by its members,  Security  Benefit Life
Insurance Company and Security Benefit Group, Inc. ("SBG").  SBG is an insurance
and financial  services  holding company  wholly-owned by Security  Benefit Life
Insurance  Company,  One Security  Benefit  Place,  Topeka,  Kansas  66636-0001.
Security Benefit Life, a stock life insurance company and incorporated under the
laws of  Kansas,  is  controlled  by  Security  Benefit  Corp.  ("SBC").  SBC is
wholly-owned by Security Mutual Holding Company,  which is in turn controlled by
Security Benefit Life policyholders.

The  Investment  Manager  serves  as  investment  adviser  to the Fund  under an
Investment Advisory Contract which was approved by the Fund's Board of Directors
on November  30, 1999 and was approved by  shareholders  on January 26, 2000 and
which  became  effective on January 27,  2000.  The  contract may be  terminated
without  penalty at any time by either party on 60 days'  written  notice and is
automatically terminated in the event of its assignment.


Pursuant to the Investment  Advisory Contract,  the Investment Manager furnishes
investment  advisory,  statistical  and  research  facilities,   supervises  and
arranges  for the  purchase and sale of  securities  on behalf of the Fund,  and
provides  for the  compilation  and  maintenance  of records  pertaining  to the
investment  advisory  function.  For such services,  the  Investment  Manager is
entitled to receive compensation on an annual basis equal to .75% of the average
net assets of Series A, Series B, Series E, Series H, Series J, Series P, Series
S,  Series V and Series Y; .50% of the  average net assets of Series C; 1.00% of
the  average  net assets of Series D,  Series G,  Series N,  Series O, Series Q,
Series T,  Series W and Series X; and 1.10% of the  average net assets of Series
I, computed on a daily basis and payable  monthly.  During the last three fiscal
years,  SBL Fund paid the following  amounts to the  Investment  Manager for its
services: 2001 - $29,562,521;  2000 - $34,714,876;  and 1999 - $32,441,129.  For
the fiscal year ended  December  31, 1998,  the  Investment  Manager  waived its
entire  advisory  fee for Series P and X in the amounts of $82,559 and  $37,804,
respectively.  For the period  January 1, 1998 to April 30, 1998, the Investment
Manager  waived the advisory fees of Series V in the amount of $22,594.  For the
period January 1, 1999 through November 30, 1999, the Investment  Manager waived
the  advisory  fee of Series P and X in the  amounts of  $120,622  and  $93,866,
respectively.


The  Investment  Manager  has entered  into a  sub-advisory  agreement  with The
Dreyfus  Corporation,  200 Park  Avenue,  New York,  New York 10166,  to provide
investment  advisory  services to Series B. Pursuant to this agreement,  Dreyfus
furnishes  investment  advisory  facilities,  supervises  and  arranges  for the
purchase  and sale of  securities  on behalf of  Series B and  provides  for the
compilation  and maintenance of records  pertaining to such investment  advisory
services,  subject  to the  control  and  supervision  of the  Fund's  Board  of
Directors and the Investment Manager. For such services,  the Investment Manager
pays Dreyfus an annual fee equal to 0.25% of the average  daily closing value of
the net assets of Series B, computed on a daily basis and paid monthly.  Dreyfus
has agreed to waive a portion  of its annual fee in an amount  equal to 0.10% of
the  average  daily  closing  value of the net assets of Series B for the period
beginning  January 2, 2002 and  terminating on the date when the total amount of
$2,750,000  has been waived but in no event  earlier  than  December  31,  2006.
Dreyfus has agreed to this waiver in connection  with repayment of an amount due
Security Benefit Life Insurance  Company ("SBL") under an agreement  between SBL
and Mellon Insurance Agency, Inc., an affiliate of Dreyfus.

Dreyfus  is  a  wholly-owned  subsidiary  of  Mellon  Bank,  N.A.,  which  is  a
wholly-owned subsidiary of Mellon Financial Corporation ("Mellon").  Mellon is a
publicly owned multibank holding company  incorporated under Pennsylvania law in
1971 and  registered  under the Federal  Bank  Holding  Company Act of 1956,  as
amended.  Founded in 1947,  Dreyfus  manages  more than $193 billion in over 197
mutual fund portfolios.

The  Investment   Manager  has  entered  into  a  sub-advisory   agreement  with
OppenheimerFunds,  Inc. ("Oppenheimer"),  498 Seventh Avenue, New York, New York
10018,  to  provide  investment  advisory  services  to  Series D and  Series W.
Pursuant  to  this  agreement,   Oppenheimer   furnishes   investment  advisory,
statistical  and research  facilities,  supervises and arranges for the purchase
and sale of  securities  on behalf of Series D and Series W and provides for the
compilation  and maintenance of records  pertaining to such investment  advisory
services,  subject  to the  control  and  supervision  of the  Fund's  Board  of
Directors and the Investment Manager. For such services,  the Investment Manager
pays  Oppenheimer  an annual  fee equal to a  percentage  of the  average  daily
closing  value of the  combined  net assets of Series D and another  fund in the
Security  Fund  complex,  computed  on a daily  basis as  follows:  0.35% of the
combined average daily net assets up to $300 million,  plus 0.30% of such assets
over $300 million up to $750 million and 0.25% of such assets over $750 million.
The Investment  Manager pays  Oppenheimer an annual fee equal to a percentage of
the average  daily  closing  value of the net assets of Series W,  computed on a
daily basis as follows: 0.35% of the average daily net assets up to $50 million,
plus 0.30% of such assets over $50 million up to $250  million and 0.25% of such
assets over $250 million.

OppenheimerFunds, Inc. (including subsidiaries and affiliates) managed more than
$130 billion in assets as of March 31, 2002,  including  other mutual funds with
more than 6.3 million shareholder accounts.


The Investment  Manager has entered into a sub-advisory  agreement with Deutsche
Asset  Management,  Inc.  ("DAMI"),  (formerly Morgan Grenfell,  Inc.), 280 Park
Avenue,  New York, New York 10017, to provide  investment  advisory  services to
Series  H.  Pursuant  to the  agreement,  DAMI  furnishes  investment  advisory,
statistical  and research  facilities,  supervises and arranges for the purchase
and sale of  securities  on behalf of Series H and provides for the  compilation
and  maintenance of records  pertaining to such  investment  advisory  services,
subject to the control and  supervision of the Fund's Board of Directors and the
Investment  Manager.  For such services to Series H, the Investment Manager pays
DAMI an annual fee equal to a percentage  of the average  daily closing value of
the  combined  net  assets of Series H and  another  fund in the  Security  Fund
complex,  the Security  Equity Fund Enhanced  Index Series,  computed on a daily
basis as follows: 0.20% of the combined average daily net assets of $100 million
or less;  and 0.15% of the  combined  average  daily net asset of more than $100
million but less than $300 million;  and 0.13% of the combined average daily net
assets of more than $300 million.  The Investment Manager also will pay DAMI the
following  minimum fees with respect to the Series H (i) $100,000 in the Series'
second year of operations; and (ii) $200,000 in the third and following years of
the Series' operations.

Deutsche Asset Management, Inc. was founded in 1838 as Morgan Grenfell, Inc. and
has provided  asset  management  services  since 1953.  As of December 31, 2000,
Deutsche Asset Management,  Inc. had approximately $96 billion under management.
Deutsche  Asset  Management  Inc.'s  ultimate  parent is  Deutsche  Bank AG. Its
address is 31 West 52nd Street, New York, New York 10009.

The Investment Manager has entered into a sub-advisory  agreement with Templeton
Investment  Counsel,  LLC, 500 East Broward Boulevard,  Ft. Lauderdale,  Florida
33394, to provide  investment  advisory services to Series I. For such services,
the  Investment  Manager  pays  Templeton,  an annual fee based on the  combined
average net assets of Series I and another fund for which the Investment Manager
has engaged Templeton to provide advisory  services.  The fee is equal to 0.625%
of the  combined  average net assets up to $50  million,  0.465% of the combined
average net assets  above $50 million to $200  million,  0.375% of the  combined
average net assets above $200 million to $500 million and 0.350% of the combined
average net assets above $500 million.

The Investment Manager has entered into a sub-advisory agreement with Wellington
Management  Company,  LLP,  75 State  Street,  Boston,  Massachusetts,  02109 to
provide  investment  advisory  services to Series T. Wellington  Management is a
limited  liability  partnership  which traces its origins to 1928.  It currently
manages over $311 billion in assets on behalf of investment companies,  employee
benefit plans, endowments,  foundations and other institutions.  Pursuant to the
agreement,  Wellington  Management  furnishes  investment  advisory and research
facilities,  supervises  and arranges for the purchase and sale of securities on
behalf of Series T and provides for the  compilation  and maintenance of records
pertaining  to such  investment  advisory  services,  subject to the control and
supervision of the Fund's Board of Directors and the Investment Manager.

For the  services  provided  to Series T under  the  agreement,  the  Investment
Manager pays Wellington Management an annual fee equal to an annual rate of .50%
of the average daily net assets.



The  Investment  Manager has engaged T. Rowe Price  Associates,  Inc.  ("T. Rowe
Price"), 100 East Pratt Street, Baltimore,  Maryland 21202 to provide investment
advisory  services  to Series N and O. T. Rowe Price was  organized  in 1937 and
later  incorporated  under the laws of the State of  Maryland by the late Thomas
Rowe Price, Jr., Pursuant to the agreements,  T. Rowe Price furnishes investment
advisory  services,  supervises  and  arranges  for  the  purchase  and  sale of
securities  on behalf of Series N and O and  provides  for the  compilation  and
maintenance of records pertaining to such investment advisory services,  subject
to the control and  supervision  of the Board of  Directors  of the Fund and the
Investment Manager. T. Rowe Price is a wholly-owned  subsidiary of T. Rowe Price
Group,  Inc., a publicly traded  financial  services  holding company for the T.
Rowe Price affiliated  companies.  T. Rowe Price,  with its affiliates,  manages
over $156.3 billion in assets for over 8 million  individuals and  institutional
investor  accounts.  The  Investment  Manager  pays T. Rowe Price,  on an annual
basis,  an amount  equal to .50% of the average net assets of Series N which are
less than $25  million  and .35% of the  average  net  assets of Series N of $25
million and over, for management  services  provided to Series N. The Investment
Manager pays T. Rowe Price,  on an annual basis,  an amount equal to .50% of the
first $20  million  of  average  daily  net  assets of Series O and .40% of such
assets in excess of $20,000,000  for management  services  provided to Series O.
For any  month in which the  average  daily  net  assets of Series O exceed  $50
million,  T. Rowe Price  will waive .10% of its fee on the first $20  million of
Series  O's  average  daily net  assets.  T. Rowe  Price's  fees for  investment
management services are calculated daily and payable monthly.


The Investment Manager has engaged Strong Capital Management, Inc., 100 Heritage
Reserve, Menomonee,  Wisconsin 53051, to provide investment advisory services to
Series Q. Strong was  established  in 1974 and as of December  31, 2001  manages
over $46 billion in assets.  With  respect to Series Q, the  Investment  Manager
pays Strong an annual fee equal to a percentage  of Series Q's average daily net
assets as follows:  .50% of the average net assets under $150  million,  .45% of
the average net assets at or above $150 million but less than $500 million,  and
.40% of the average net assets at or above $500 million.

The  Investment  Manager  has  entered  into a  sub-advisory  agreement  with RS
Investment Management, L.P., 388 Market Street, San Francisco, California 94111,
to provide  investment  advisory  services to Series X. For such  services,  the
Investment  Manager  pays RS  Investments,  an annual fee based on the  combined
average net assets of Series X and another fund for which the Investment Manager
has engaged RS Investments  to provide  advisory  services.  The fee is equal to
0.55%% of the  combined  average  net  assets up to $100  million,  0.50% of the
combined average net assets above $150 million to $400 million, and 0.45% of the
combined average net assets above $400 million.


The Investment  Manager has agreed that the total annual expenses of any Series,
including  its   compensation   from  such  Series,   but  excluding   brokerage
commissions,  interest,  taxes, and extraordinary  expenses, will not exceed the
level of expenses which the Fund 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 and,  with  respect  to Series I, has  agreed to cap the total
annual  expenses  of  that  Series  to  2.25%  and of  Series  H and Y to  1.75%
respectively (excluding interest, taxes, extraordinary expenses,  brokerage fees
and  commissions).  (The  Investment  Manager  is not  aware of any  state  that
currently  imposes limits on the level of mutual fund  expenses.) The Investment
Manager will, on a monthly basis, contribute such funds or waive such portion of
its management fee as may be necessary to insure that the aggregate  expenses of
any Series will not exceed any such limitation.

Pursuant  to an  Administrative  Services  Agreement,  dated  April 1, 1987,  as
amended,  the Investment Manager also acts as the  administrative  agent for the
Fund  and  as  such  performs  administrative  functions  and  the  bookkeeping,
accounting  and pricing  functions for the Fund. For this service the Investment
Manager receives, on an annual basis:

1.  Annual Administration Fee of:


    a.  .045%  for  Series  A, B, C, D, E, I, J, N, O, P, S, T and V of SBL Fund
        (based on average daily net asset values)

    b.  .09% for Series G, H, Q, W, X and Y of SBL Fund (based on average  daily
        net asset values)


Plus

2.  Global Administration Fee of:


    a.  For each of Series D, I, N, and T of SBL  Fund,  an annual  fee equal to
        the greater of .10% of its average net assets or $60,000.


The Global  Administration  Fee is assessed to compensate the Investment Manager
for the increased  costs  associated with providing  administrative  services to
these Series.

The administrative  fees paid by the Fund during its fiscal years ended December
31,  2001,  2000,  and  1999,  were  $2,542,778,   $2,908,997,  and  $2,411,211,
respectively.

Under the same Agreement,  the Investment Manager acts as the transfer agent for
the Fund. As such, it processes purchase and redemption transactions and acts as
the dividend disbursing agent for the separate accounts of Security Benefit Life
Insurance  Company to which shares of the Fund are sold.  For this service,  the
Investment Manager receives an annual maintenance fee of $8.00 per account,  and
a transaction fee of $1.00 per transaction. The transfer agency fees paid by the
Fund during its fiscal  years ended  December  31, 2001,  2000,  and 1999,  were
$113,535, $80,257, and $59,603, respectively.

The expense  ratio of each Series for the fiscal year ended  December  31, 2001,
was as follows:


        ================================================================
                   EXPENSE                EXPENSE                EXPENSE
         SERIES     RATIO       SERIES     RATIO       SERIES     RATIO
        ----------------------------------------------------------------
        Series A    0.83%      Series I    2.25%      Series S    0.83%
        Series B    0.93%      Series J    0.84%      Series T    1.46%
        Series C    0.58%      Series N    1.25%      Series V    0.85%
        Series D    1.20%      Series O    1.08%      Series W    1.25%
        Series E    0.83%      Series P    0.86%      Series X    1.15%
        Series G    1.23%      Series Q    1.18%      Series Y    0.88%
        Series H    0.91%
        ================================================================


The  Fund  will pay all its  expenses  not  assumed  by the  Investment  Manager
including   directors'   fees;  fees  and  expenses  of  custodian;   taxes  and
governmental fees; interest charges; any membership dues; brokerage commissions;
reports, proxy statements, and notices to stockholders; costs of stockholder and
other meetings;  and legal, auditing and accounting expenses. The Fund will also
pay all expenses in connection with the Fund's registration under the Investment
Company  Act of  1940  and the  registration  of its  capital  stock  under  the
Securities Act of 1933.

The following  persons are affiliated with the Fund and also with the Investment
Manager in the capacities indicated:

==========================================================================================
                        |                         | POSITIONS WITH SECURITY
NAME                    | POSITION WITH SBL FUND  | MANAGEMENT COMPANY, LLC
------------------------|-------------------------|---------------------------------------
James R. Schmank        | President and Director  | President and Managing
                        |                         | Member Representative
------------------------|-------------------------|---------------------------------------
John D. Cleland         | Chairman of the         | Senior Vice President and
                        | Board and Director      | Managing Member Representative
------------------------|-------------------------|---------------------------------------
Terry A. Milberger      | Vice President          | Senior Vice President and
                        |                         | Senior Portfolio Manager
------------------------|-------------------------|---------------------------------------
James P. Schier         | Vice President          | Vice President and Senior
                        |                         | Portfolio Manager
------------------------|-------------------------|---------------------------------------
Cindy L. Shields        | Vice President          | Vice President and Senior
                        |                         | Portfolio Manager
------------------------|-------------------------|---------------------------------------
Amy J. Lee              | Secretary               | Secretary
------------------------|-------------------------|---------------------------------------
Brenda M. Harwood       | Treasurer               | Assistant Vice President and Treasurer
------------------------|-------------------------|---------------------------------------
Christopher L. Phalen   | Assistant               | Assistant Vice President
                        | Vice President          | and Portfolio Manager
------------------------|-------------------------|---------------------------------------
Steven M. Bowser        | Vice President          | Vice President and Portfolio Manager
------------------------|-------------------------|---------------------------------------
Christopher D. Swickard | Assistant Secretary     | Assistant Secretary
==========================================================================================

PORTFOLIO MANAGEMENT--


CHARLES ALBERS, Senior Vice President at OppenheimerFunds, has co-managed Series
W (Main Street  Growth and Income®  Series)  since its inception in May of 2000.
Prior to joining  OppenheimerFunds  in 1998,  Mr. Albers was with the investment
management subsidiary of The Guardian Life Insurance Company. Mr. Albers holds a
bachelor  of arts  from  Kenyon  College  and an  M.B.A.  degree  from  Columbia
University. He is a Chartered Financial Analyst charterholder.

DEAN S. BARR,  President and Head of Global  Quantitative Index Strategies,  has
been  co-manager  of Series H (Enhanced  Index  Series)  since he joined DAMI in
September 1999. Prior to joining DAMI, he was Chief Investment Officer of Active
Quantitative  Strategies  at State Street Global  Advisors.  He has a bachelor's
degree from Cornell University and an M.B.A. in finance from New York University
Graduate School of Business.

STEVEN M. BOWSER,  Vice President and Senior Portfolio Manager of the Investment
Manager, has managed Series E (Diversified Income Series) since June 1997. Prior
to joining the  Investment  Manager in 1992, he was Assistant Vice President and
Portfolio  Manager  with the Federal Home Loan Bank of Topeka from 1989 to 1992.
He was employed at the Federal Reserve Bank of Kansas City in 1988 and began his
career  with  the Farm  Credit  System  from  1982 to 1987,  serving  as  Senior
Financial  Analyst and  Assistant  Controller.  He graduated  with a Bachelor of
Science degree from Kansas State University in 1982. He is a Chartered Financial
Analyst charterholder.


ANTONIO T. DOCAL,  Vice  President  at  Templeton  has been  manager of Series I
(International Series) since September 2002. Prior to joining Templeton in 2001,
Mr. Docal was vice president and director at Evergreen  Funds. Mr. Docal holds a
M.B.A. degree from the Sloan School of Management at the Massachusetts Institute
of Technology and a B.A. degree from Trinity  College in Connecticut.  Mr. Docal
is also a Chartered Financial Analyst charterholder.



ERIC T. LOBBEN,  Vice  President and Head Portfolio  Manager of Enhanced  Equity
Index and Quantitative Active Equity Strategies, has been co-manager of Series H
(Enhanced  Index  Series)  since May 2001.  Mr.  Lobben joined DAMI in 1981 as a
researcher on various asset allocation  topics and equity alpha  strategies.  He
has a BSE from Princeton University and an M.B.A. from New York University.

MANISH  KESHIVE,  Vice  President  of DAMI,  has  been  co-manager  of  Series H
(Enhanced Index Series) since  September 1999. He joined DAMI in 1996.  Prior to
joining DAMI,  he was a student  earning a B.S.  degree in  Technology  from the
Indian Institute of Technology in 1993 and an M.S. degree from the Massachusetts
Institute of Technology in 1995.


TERRY A. MILBERGER,  Senior Vice President and Senior  Portfolio  Manager of the
Investment Manager, has managed Series A (Equity Series) since 1989. He has been
the lead manager of Series Y (Select 25 Series) since its inception in May 1999.
Mr.  Milberger  has more than 25 years of  investment  experience.  He began his
career as an investment  analyst in the insurance industry and from 1974 through
1978 he served as an assistant  portfolio manager for the Investment Manager. He
was then  employed  as Vice  President  of Texas  Commerce  Bank and managed its
pension fund assets  until he returned to the  Investment  Manager in 1981.  Mr.
Milberger  holds  a  bachelor's  degree  in  business  and an  M.B.A.  from  the
University of Kansas and is a Chartered Financial Analyst charterholder.


MARK MITCHELL,  Vice President and Portfolio Manager of the Investment  Manager,
has managed  Series G (Large Cap Growth  Series) and Series S (Social  Awareness
Series) since September 2002. He joined the Investment Manager in 2002. Prior to
joining the Investment Manager, Mr. Mitchell worked for GE Asset Management as a
technology  sector portfolio  manager.  Mr. Mitchell holds a bachelor of science
from the University of Nebraska,  with an emphasis in finance. He is a Chartered
Financial Analyst charterholder.


NIKOLAOS D. MONOYIOS, Vice President at OppenheimerFunds,  has co-managed Series
W (Main Street Growth and Income®  Series)  Series since its inception in May of
2000.  Prior to joining  OppenheimerFunds  in 1998,  Mr.  Monoyios  was with the
investment  management  subsidiary of The Guardian Life Insurance  Company.  Mr.
Monoyios holds a bachelor of arts in economics from Princeton  University and an
M.B.A.  degree from Columbia  University.  He is a Chartered  Financial  Analyst
charterholder.


EDMUND  M.  NOTZON,  Managing  Director  of T.  Rowe  Price  Group  and a Senior
Portfolio  Manager in the firm's Taxable Bond  Department,  has managed Series N
(Managed Asset Allocation Series) since its inception in 1995. He joined T. Rowe
Price in 1989 and has been managing  investments since 1991. Prior to joining T.
Rowe Price,  Mr. Notzon was Director of the Analysis and Evaluation  Division at
the U.S. Environmental Protection Agency.


CHRISTOPHER L. PHALEN,  Assistant  Vice  President and Portfolio  Manager of the
Investment  Manager,  has co-managed Series E (Diversified  Income Series) since
May 2000.  Prior to joining the  Investment  Manager in 1997, he was with Sprint
PCS as a pricing  analyst.  Prior to joining  Sprint PCS in 1997, Mr. Phalen was
employed by Security  Benefit Group. Mr. Phalen graduated from the University of
Kansas with a bachelor of business  administration  and accounting  degree.  Mr.
Phalen is a Chartered Financial Analyst charterholder with 5 years of investment
experience.


I. CHARLES RINALDI,  portfolio manager at Strong, has been the manager of Series
Q (Small Cap Value  Series)  since its  inception in May of 2000. He has over 25
years of  investment  experience.  He joined Strong in December  1997.  Prior to
joining Strong, Mr. Rinaldi was employed by Mutual of America Capital Management
Corporation  (MOA) as a Vice President from November 1989 to January 1994 and as
a Senior Vice President from January 1994 to November 1997. Mr. Rinaldi received
his bachelors in Science from St.  Michael's  College in 1965 and his Masters of
Business Administration in Finance from Babson College in 1970.


BRIAN C.  ROGERS,  Director  and  Managing  Director  of T. Rowe Price Group and
Portfolio Manager for T. Rowe Price, has managed Series O (Equity Income Series)
since its  inception  in 1995.  He  joined  T.  Rowe  Price in 1982 and has been
managing investments since 1983.

JAMES P. SCHIER,  Vice President and Senior Portfolio  Manager of the Investment
Manager,  has managed  Series J (Mid Cap Growth  Series)  since January 1998 and
Series V (Mid Cap Value  Series)  since its  inception in 1997.  He has 19 years
experience  in  the  investment  field  and  is a  Chartered  Financial  Analyst
charterholder.  While  employed by the Investment  Manager,  he also served as a
research  analyst.  Prior to joining the  Investment  Manager in 1995,  he was a
portfolio  manager for Mitchell Capital  Management from 1993 to 1995. From 1988
to 1995 he served as Vice President and Portfolio  Manager for Fourth Financial.
Prior to 1988, Mr. Schier served in various  positions in the  investment  field
for Stifel  Financial,  Josepthal & Company and Mercantile  Trust  Company.  Mr.
Schier  earned a Bachelor of Business  degree from the  University of Notre Dame
and an M.B.A. from Washington University.



VALERIE  J. SILL was named the  portfolio  manager  of Series B (Large Cap Value
Series) in July 2001.  Ms.  Sill has been a portfolio  manager of Dreyfus  since
1996.  She  is  also  a  senior  vice  president  of The  Boston  Company  Asset
Management,  Inc. (TBCAM), an affiliate of Dreyfus and is the chairperson of the
equity  policy  group of TBCAM.  She  previously  served as  director  of equity
research and as an equity research  analyst for TBCAM. Ms. Sill is a graduate of
Wellesley College and received her M.B.A. from Harvard Business School. She is a
Chartered Financial Analyst charterholder.


DAVID G.  TOUSSAINT,  Assistant  Vice  President  and  Portfolio  Manager of the
Investment  Manager,  has managed Series P (High Yield Series) since April 2000.
Mr. Toussaint has 11 years of investment experience and is a Chartered Financial
Analyst charterholder. In addition, Mr. Toussaint holds a CPA certificate. Prior
to joining  the  Investment  Manager  in 2000,  he was with  Allstate  Insurance
Company as an investment analyst and served in various  managerial  positions in
their  investment  operations  group.  Mr.  Toussaint  earned a bachelor of arts
degree in Economics from the University of Illinois,  a master of science degree
in  Accountancy  from DePaul  University  and an M.B.A.  from the  University of
Chicago.

WELLINGTON  MANAGEMENT  COMPANY'S  GLOBAL  TECHNOLOGY  TEAM has managed Series T
(Technology  Series) since its inception in May of 2000. The Technology  Team is
comprised of a group of global industry analysts who focus on various industries
of the  Technology  sector.  The  Technology  Team is supported by a significant
number  of  specialized   fundamental,   quantitative  and  technical  analysts;
macro-economic analysts and traders.

WILLIAM L. WILBY, Senior Vice President of Oppenheimer, became manager of Series
D (Global Series) in November 1998. Prior to joining Oppenheimer in 1991, he was
an international managing investment strategist at Brown Brothers Harriman & Co.
Prior to Brown Brothers, Mr. Wilby was a managing director and portfolio manager
at AIG Global  Investors.  He joined AIG from  Northern  Trust Bank in  Chicago,
where he was an  international  pension  manager.  Before starting his career in
portfolio  management,  Mr. Wilby was an  international  financial  economist at
Northern Trust Bank and at the Federal  Reserve Bank in Chicago.  Mr. Wilby is a
graduate of the United States Military  Academy and holds an M.A. and a Ph.D. in
International  Monetary  Economics  from the  University  of  Colorado.  He is a
Chartered Financial Analyst charterholder.


WILLIAM J.  WOLFENDEN III has been manager of Series X (Small Cap Growth Series)
since September 2002 and has been with RS Investments since April 2001. Prior to
that,  Mr.  Wolfenden had been at Dresdner RCM Global  Investors  since 1994. He
holds a B.A. from Southern  Methodist  University and a M.B.A.  from  Vanderbilt
University.


MARK ZAVANELLI, Associate Portfolio Manager at OppenheimerFunds,  has co-managed
Series W (Main Street  Growth and Income®  Series) since its inception in May of
2000. Prior to joining  OppenheimerFunds in 1998, Mr. Zavanelli was President of
Waterside Capital Management, a registered investment advisor (from August 1995)
and a financial  research  analyst  for Elder  Research  (from June  1997).  Mr.
Zavanelli  holds a bachelor of science from the Wharton  School,  University  of
Pennsylvania. He is a Chartered Financial Analyst charterholder.

CODE OF ETHICS -- The Fund, the Investment  Manager and the  Distributor  have a
written code of ethics (the "Code of Ethics")  which requires all access persons
to  obtain  prior  clearance   before   engaging  in  any  personal   securities
transactions.  Access  persons  include  officers and  directors of the Fund and
Investment  Manager and employees  that  participate  in, or obtain  information
regarding,  the purchase or sale of  securities by the fund or whose job relates
to the making of any  recommendations  with respect to such  purchases or sales.
All access persons must report their personal securities transactions within ten
days of the end of each calendar  quarter.  Access persons will not be permitted
to effect transactions in a security if it: (a) is being considered for purchase
or sale by the Fund; (b) is being purchased or sold by the Fund; or (c) is being
offered in an initial public  offering.  Portfolio  managers are also prohibited
from purchasing or selling a security within seven calendar days before or after
a Fund that he or she manages trades in that security. Any material violation of
the Code of Ethics is reported to the Board of the Fund.  The Board also reviews
the  administration of the Code of Ethics on an annual basis. In addition,  each
Sub-Adviser has its own code of ethics to which its portfolio managers and other
access persons are subject.

PORTFOLIO TURNOVER


Generally, long-term rather than short-term investments will be made by the Fund
for  Series  A, E, P and S.  Although  portfolio  securities  generally  will be
purchased  with  a  view  to  long-term  potential,  subsequent  changes  in the
circumstances  of a  particular  company or  industry,  or in  general  economic
conditions,  may indicate that sale of a portfolio security is desirable without
regard  to the  length  of time  it has  been  held  or to the tax  consequences
thereof.  The annual  portfolio  turnover rate of Series A, B, D, J, S and V may
exceed 100% and at times may exceed 150%. The annual  turnover rate of Series E,
I and P may exceed 100%.  The annual  turnover  rate of Series H, N and O is not
generally  expected to exceed 100%.  The annual  turnover rate of Series T and X
are not generally expected to exceed 200%.

Portfolio  turnover is defined as the lesser of  purchases or sales of portfolio
securities  divided by the average  market value of portfolio  securities  owned
during the year,  determined  monthly.  The annual portfolio  turnover rates for
Series  A, B,  D, E, G, H, I, J, N, O, P, Q, S, T, V, W, X and Y for the  fiscal
years ended December 31, 2001, 2000, and 1999 are as follows:

          ============================================================
                              2001            2000              1999
          ------------------------------------------------------------
          Series A             20%            41%               49%
          ------------------------------------------------------------
          Series B            145%           145%               73%
          ------------------------------------------------------------
          Series D             41%            55%               76%
          ------------------------------------------------------------
          Series E             46%            63%               25%
          ------------------------------------------------------------
          Series G              4%             5%(2)           ---
          ------------------------------------------------------------
          Series H             29%            58%               52%(1)
          ------------------------------------------------------------
          Series I            175%           139%               98%(1)
          ------------------------------------------------------------
          Series J             39%            33%               55%
          ------------------------------------------------------------
          Series N             98%            44%               24%
          ------------------------------------------------------------
          Series O             21%            68%               35%
          ------------------------------------------------------------
          Series P             80%            34%               29%
          ------------------------------------------------------------
          Series Q             47%            81%2             ---
          ------------------------------------------------------------
          Series S             10%            24%               24%
          ------------------------------------------------------------
          Series T            223%           222%(2)           ---
          ------------------------------------------------------------
          Series V             50%            35%               57%
          ------------------------------------------------------------
          Series W             67%            57%(2)           ---
          ------------------------------------------------------------
          Series X            353%           335%              283%
          ------------------------------------------------------------
          Series Y             38%            68%               54%(1)
          ------------------------------------------------------------
          1  Annualized  portfolio turnover rate for the period May 3,
             1999 (date of inception) to December 31, 1999.
          2  Annualized  portfolio turnover rate for the period May 1,
             2000 (date of inception) to December 31, 2000.
          ============================================================


For this purpose the term "securities" does not include government securities or
debt  securities  maturing within one year after  acquisition.  Since Series C's
investment  policies  require a maturity  shorter than 13 months,  the portfolio
turnover rate will  generally be 0%,  although the portfolio will turn over many
times during a year.

BROKERAGE ENHANCEMENT PLAN

The Board of Directors of the Fund,  including  all of the Directors who are not
"interested  persons" (as defined in the Investment  Company Act of 1940) of the
Funds, the Investment Manager, the Distributor  (referred to as the "Independent
Directors") and the Fund's,  shareholders  have voted pursuant to the provisions
of Rule 12b-1  under the  Investment  Company  Act of 1940 to adopt a  Brokerage
Enhancement  Plan (the "Plan") for the purpose of utilizing the Fund's brokerage
commissions,  to the extent  available,  to promote the sale and distribution of
the Fund's shares (through the sale of variable insurance products funded by the
Fund).

Under the Plan, the  Distributor,  on behalf of the Fund is authorized to direct
the Investment  Manager or a Sub-Adviser  to effect  brokerage  transactions  in
portfolio  securities  through  certain  broker-dealers,   consistent  with  the
obligation to achieve best price and execution. These broker-dealers have agreed
either (i) to pay a portion of their  commission  from the  purchase and sale of
securities  to  the  Distributor  or  other  introducing   brokers   ("Brokerage
Payments") that provide distribution activities, or (ii) or to provide brokerage
credits,  benefits  or  other  services  ("Brokerage  Credits")  to be used  for
distribution  activities  in  addition  to  the  execution  of  the  trade.  The
Distributor  will use a part of the  Brokerage  Payments  to  defray  legal  and
administrative  costs associated with implementation of the Plan. These expenses
are expected to be minimal. The remainder of the Brokerage Payments or Brokerage
Credits  generated  will  be  used  by the  Distributor  to  finance  activities
principally  intended  to  result  in the  sale  of  the  Funds'  shares.  These
activities will include, but are not limited to:

o  holding or participating in seminars and sales meetings promoting the sale of
   the Fund's shares
o  paying marketing fees requested by broker-dealers who sell the Fund
o  training sales personnel
o  creating and mailing advertising and sales literature
o  financing  any other  activity  that is intended to result in the sale of the
   Fund's shares.

The  Distributor  is obligated to use all amounts  generated  under the Plan for
distribution  expenses,  except  for a small  amount  to be used to  defray  the
incidental  costs  associated  with  implementation  of the  Plan.  The Plan may
indirectly  benefit the Distributor in that amounts  expended under the Plan may
help defray, in whole or in part,  distribution expenses that otherwise might be
borne by the Distributor or an affiliate.

The  Plan  provides  (i)  that it will be  subject  to  annual  approval  by the
Directors and the Independent Directors;  (ii) that the Distributor must provide
the Directors a quarterly written report of payments made under the Plan and the
purpose of the  payments;  and (iii) that the Plan may be terminated at any time
by the vote of a  majority  of the  Independent  Directors.  The Plan may not be
amended to increase  materially the amount to be spent for distribution  without
shareholder  approval,  and all material Plan  amendments  must be approved by a
vote of the Independent Directors.  In addition, the selection and nomination of
the Independent  Directors must be committed to the Independent  Directors.  The
Plan  generated  $779,088 in the fiscal year ended December 31, 2001 ($56,320 by
Series A; $615,259 by Series B; $959 by Series G; $62,106 by Series J; $7,836 by
Series O;  $4,488 by Series S;  $30,580  by Series V and $1,540 by Series Y). In
addition,  $27,361 was carried forward from the previous year. In 2001, $309,295
was spent on the  distribution-related  activities  noted  above.  $497,154  was
carried forward into fiscal year 2002.

DETERMINATION OF NET ASSET VALUE

As  discussed  in the  Prospectus  for the Fund,  the net asset  value per share
("NAV") of each Series is determined as of the close of regular trading hours on
the New York Stock Exchange  (normally 3:00 p.m.  Central time) on each day that
the  Exchange  is open for  trading  (other  than a day on which no  shares of a
Series are tendered for redemption  and no order to purchase  shares of a Series
is received).  The New York Stock  Exchange is open for trading  Monday  through
Friday except when closed in observance  of the following  holidays:  New Year's
Day, Martin Luther King, Jr. Day,  President's  Day, Good Friday,  Memorial Day,
July Fourth,  Labor Day,  Thanksgiving Day and Christmas.  The  determination is
made by dividing the value of the portfolio  securities of each Series, plus any
cash or other assets (including  dividends accrued but not collected),  less all
liabilities  (including accrued expenses but excluding capital and surplus),  by
the  number  of shares  of each  Series  outstanding.  In  determining  the NAV,
securities  listed or traded on a recognized  securities  exchange are valued on
the basis of the last sale  price.  If there are no sales on a  particular  day,
then the securities  shall be valued at the last bid price. All other securities
for which market  quotations  are  available are valued on the basis of the last
current bid price.

If market prices are not  available,  the fair value of securities is determined
using  procedures  approved by the Fund's Board of  Directors.  In addition,  if
between the time trading ends on a particular  security and the close of trading
on the New York Stock Exchange, events occur that materially affect the value of
the security, the security may be valued at its fair value as determined in good
faith by the  Investment  Manager  under  procedures  approved  by the  Board of
Directors. In such a case, the Fund's NAV will be subject to the judgment of the
Investment Manager rather than being determined by the market.

The  Fund's  short-term  debt  securities  may be valued by the  amortized  cost
method. As a result of using this method,  during periods of declining  interest
rates,  the yield on shares of these Series (computed by dividing the annualized
income of the Fund by the net asset value computed as described  above) may tend
to be higher than a like computation  made by a fund with identical  investments
utilizing a method of valuation based upon market prices and estimates of market
prices for all of its portfolio instruments.  Thus, if the use of amortized cost
by the  Fund  for  instruments  with  remaining  maturities  of 60  days or less
resulted in a lower aggregate portfolio value on a particular day, a prospective
investor would be able to obtain a somewhat  higher yield than would result from
investment in a fund  utilizing  solely market values and existing  investors in
these Series would receive less investment income. The converse would apply in a
period of rising interest rates. To the extent that, in the opinion of the board
of directors,  the amortized cost value of a portfolio instrument or instruments
does not represent fair value thereof as determined in good faith,  the board of
directors will take appropriate  action which would include a revaluation of all
or an appropriate portion of the portfolio based upon current market factors.

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 used in computing the net asset value of the shares
of certain  Series of the Fund  generally are determined as of the close of such
foreign markets or the close of the New York Stock Exchange if earlier.  Foreign
currency  exchange rates are generally  determined prior to the close of the New
York Stock Exchange.  Trading on foreign exchanges and in foreign currencies may
not take  place on every day the New York  Stock  Exchange  is open.  Conversely
trading  in  various  foreign  markets  may take place on days when the New York
Stock  Exchange  is not open and on other days when the Fund's net asset  values
are not calculated.  Therefore,  the shares of a Series which invests in foreign
securities may be  significantly  affected on days when investors have no access
to the Series.  The calculation of the net asset value for Series that invest in
foreign securities may not occur contemporaneously with the determination of the
most current market prices for the securities included in such calculation,  and
events affecting the value of such securities and such exchange rates that occur
between  the times at which  they are  determined  and the close of the New York
Stock Exchange will not be reflected in the  computation of net asset value.  If
during  such  periods,  events  occur that  materially  affect the value of such
securities,  the  securities  will be  valued  at  their  fair  market  value as
determined in good faith by the directors.

For  purposes  of  determining  the net asset  value per share of the Fund,  all
assets  and  liabilities  initially  expressed  in  foreign  currencies  will be
converted  into  United  States  dollars at the mean  between  the bid and offer
prices of such currencies against United States dollars quoted by any major U.S.
bank.

PORTFOLIO TRANSACTIONS

Transactions in portfolio  securities shall be effected in such manner as deemed
to be in the best interests of the Fund and the respective Series. In reaching a
judgment relative to the qualifications of a broker-dealer  ("broker") to obtain
the best  execution  of a  particular  transaction,  all  relevant  factors  and
circumstances  will be taken into account by the Investment  Manager or relevant
Sub-Adviser,  including the overall  reasonableness  of commissions  paid to the
broker,  the firm's  general  execution  and  operational  capabilities  and its
reliability and financial condition. The execution of portfolio transactions may
be directed to brokers who furnish  investment  information or research services
to the Investment Manager or relevant Sub-Adviser. Such information and research
services  include  advice as to the value of  securities,  the  advisability  of
investing in, purchasing, or selling securities,  the availability of securities
or  purchasers or sellers of  securities,  and  furnishing  analyses and reports
concerning  issues,  industries,   securities,   economic  factors  and  trends,
portfolio strategy, and performance of accounts. Such investment information and
research  services  may be  furnished  by brokers in many ways,  including:  (1)
on-line data base  systems,  the  equipment for which is provided by the broker,
that enable registrant to have real-time access to market information, including
quotations; (2) economic research services, such as publications, chart services
and  advice  from  economists  concerning  macroeconomic  information;  and  (3)
analytical  investment  information  concerning  particular  corporations.  If a
transaction is directed to a broker supplying such information or services,  the
transaction  charges  (i.e.,  a commission  or a charge that is deemed to be the
equivalent of a commission)  paid for such  transaction  may be in excess of the
transaction  charges  another  broker  would have  charged  for  effecting  that
transaction,  provided that the Investment Manager or relevant Sub-Adviser shall
have  determined in good faith that the  transaction  charges are  reasonable in
relation  to the  value  of the  investment  information  or  research  services
provided,  viewed in terms of either that particular  transaction or the overall
responsibilities of the Investment Manager or relevant  Sub-Adviser with respect
to all accounts as to which it exercises investment  discretion.  The Investment
Manager or relevant  Sub-Adviser  may use all, none or some of such  information
and services in providing investment advisory services to the mutual funds under
its management, including the Fund.

Portfolio  transactions,  including  options,  futures  contracts and options on
futures transactions and the purchase or sale of underlying  securities upon the
exercise of options,  for the Series may be executed through an affiliate of the
Investment  Manager or an  affiliate of a  Sub-Adviser  to the extent and in the
manner permitted by applicable law.

In some cases, the computer and other equipment furnished by the broker may have
additional  uses  that are not  related  to  investment  services  and  research
information.  In such cases, the Investment Manager or Sub-Adviser must allocate
the value of the computer and other  equipment  into  research and  non-research
categories.  Since that  portion  allocated  to  research  can be paid from Fund
brokerage  commissions  rather  than  being  paid by the  Investment  Manager or
Sub-Adviser,  the  Investment  Manager or  Sub-Adviser  will have a conflict  of
interest  in  making  the  allocation.   The  investment  services  or  research
information provided to the Investment Manager or Sub-Adviser may be provided by
parties other than the broker effecting the portfolio transaction.

In addition, brokerage transactions may be placed with brokers who sell variable
contracts  offered  by SBL or  shares  of the Funds  managed  by the  Investment
Manager and who may or may not also provide investment  information and research
services.  The Investment  Manager may,  consistent with the NASD Conduct Rules,
consider sales of shares of the Fund in the selection of a broker.

The Fund may also buy securities  from, or sell securities to, dealers acting as
principals or market makers.  The Investment  Manager  generally will not obtain
investment  information or research  services in connection  with such principal
transactions.  The Investment  Manager and relevant  Sub-Adviser,  however,  may
obtain  investment  information or research services in connection with riskless
principal  transactions  that are  reported  pursuant to certain NASD rules that
ensure  transparency  as  to  security  price  and  transaction  charges,  or in
connection  with  transactions in other markets having  regulations  that ensure
comparable transparency of security prices and charges.

Securities  held by the  Series  may also be held by other  investment  advisory
clients of the  Investment  Manager or  relevant  Sub-Adviser,  including  other
investment  companies.  In addition,  Security  Benefit Life  Insurance  Company
("SBL"), may also hold some of the same securities as the Series. When selecting
securities for purchase or sale for a Series, the Investment Manager or relevant
Sub-Adviser  may at the same time be purchasing  or selling the same  securities
for one or more of such other  accounts.  Subject to the  Investment  Manager or
relevant  Sub-Adviser's  obligation to seek best  execution,  such  purchases or
sales may be  executed  simultaneously  or  "bunched."  It is the  policy of the
Investment  Manager or relevant  Sub-Adviser  not to favor one account  over the
other.  Any  purchase or sale  orders  executed  simultaneously  (which may also
include  orders from SBL) are  allocated  at the average  price and as nearly as
practicable on a pro rata basis (transaction costs will also generally be shared
on a pro rata basis) in  proportion  to the amounts  desired to be  purchased or
sold by each account.  In those  instances where it is not practical to allocate
purchase or sale orders on a pro rata basis, then the allocation will be made on
a rotating or other  equitable  basis.  While it is conceivable  that in certain
instances this procedure  could  adversely  affect the price or number of shares
involved in a Series'  transaction,  it is believed that the procedure generally
contributes to better overall execution of the Series'  portfolio  transactions.
With  respect  to the  allocation  of initial  public  offerings  ("IPOs"),  the
Investment  Manager or relevant  Sub-Adviser  may determine not to purchase such
offerings for certain of its clients (including  investment company clients) due
to the limited number of shares typically available to the Investment Manager or
relevant Sub-Adviser in an IPO.

The following  table sets forth the  brokerage  fees paid by the Fund during the
last three fiscal years and certain other information:

================================================================================
                                                   TRANSACTIONS DIRECTED TO
                                                   AND COMMISSIONS PAID TO
                             BROKERAGE             BROKER-DEALERS WHO ALSO
            TOTAL           COMMISSIONS               PERFORMED SERVICES
          BROKERAGE       PAID TO SECURITY       -------------------------------
         COMMISSIONS     DISTRIBUTORS, INC.                          BROKERAGE
YEAR        PAID          THE UNDERWRITER         TRANSACTIONS      COMMISSIONS
--------------------------------------------------------------------------------
2001     $5,672,948           $779,088           $  257,506,812     $    457,620
2000      7,591,844            195,382            1,703,529,898      108,099,222
1999      6,212,124                  0            1,019,772,582        1,722,398
================================================================================

DISTRIBUTIONS AND FEDERAL INCOME TAX CONSIDERATIONS

The following  summarizes  certain federal income tax  considerations  generally
affecting the Series.  No attempt is made to present a detailed  explanation  of
the tax treatment of the Series or their  shareholders.  The discussion is based
upon present  provisions  of the Internal  Revenue Code of 1986, as amended (the
"Code"), the regulations promulgated thereunder, and judicial and administrative
ruling  authorities,  all of which are  subject to change,  which  change may be
retroactive.

Each  Series  intends  to  qualify  annually  and to  elect to be  treated  as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code").

To qualify as a regulated  investment  company,  each Series  must,  among other
things:  (i) derive in each  taxable  year at least 90% of its gross income from
dividends,  interest,  payments with respect to certain  securities  loans,  and
gains  from  the sale or other  disposition  of  stock,  securities  or  foreign
currencies, or other income derived with respect to its business of investing in
such stock, securities, or currencies ("Qualifying Income Test"); (ii) diversify
its  holdings so that,  at the end of each quarter of the taxable  year,  (a) at
least 50% of the market value of the Series' assets is represented by cash, cash
items, U.S. Government securities,  the securities of other regulated investment
companies,  and other  securities,  with such other securities of any one issuer
limited for the purposes of this calculation to an amount not greater than 5% of
the  value  of the  Series'  total  assets  and  10% of the  outstanding  voting
securities  of such issuer,  and (b) not more than 25% of the value of its total
assets  is  invested  in the  securities  of any one  issuer  (other  than  U.S.
Government   securities  or  the  securities  of  other   regulated   investment
companies), or of two or more issuers which the Series controls (as that term is
defined in the relevant  provisions of the Code) and which are  determined to be
engaged  in the same or  similar  trades  or  businesses  or  related  trades or
businesses;  and  (iii)  distribute  at least  90% of the sum of its  investment
company taxable income (which includes, among other items, dividends,  interest,
and net short-term  capital gains in excess of any net long-term capital losses)
and its net tax-exempt  interest each taxable year.  The Treasury  Department is
authorized to promulgate  regulations  under which foreign  currency gains would
constitute  qualifying income for purposes of the Qualifying Income Test only if
such gains are  directly  related to  investing  in  securities  (or options and
futures with respect to  securities).  To date,  no such  regulations  have been
issued.

A Series  qualifying as a regulated  investment  company  generally  will not be
subject to U.S. federal income tax on its investment  company taxable income and
net  capital  gains  (any  net  long-term  capital  gains in  excess  of the net
short-term  capital losses),  if any, that it distributes to shareholders.  Each
Series  intends  to  distribute  to  its   shareholders,   at  least   annually,
substantially  all of its investment  company taxable income and any net capital
gains.

Generally,  regulated  investment  companies,  like the Series,  must distribute
amounts  on a timely  basis in  accordance  with a  calendar  year  distribution
requirement in order to avoid a nondeductible 4% excise tax. Generally, to avoid
the tax, a regulated  investment  company must  distribute  during each calendar
year,  (i) at least 98% of its  ordinary  income (not  taking  into  account any
capital gains or losses) for the calendar year, (ii) at least 98% of its capital
gains in excess of its capital losses (adjusted for certain ordinary losses) for
the 12-month  period  ending on October 31 of the calendar  year,  and (iii) all
ordinary  income and capital gains for previous years that were not  distributed
during such years.  To avoid  application of the excise tax, each Series intends
to make its  distributions  in accordance  with the calendar  year  distribution
requirement.  A  distribution  is treated as paid on December 31 of the calendar
year if it is declared by a Series in October, November or December of that year
to  shareholders  of  record  on a date in such a month  and paid by the  Series
during January of the following calendar year. Such distributions are taxable to
shareholders  in the  calendar  year in which the  distributions  are  declared,
rather than the  calendar  year in which the  distributions  are  received.  The
excise tax  provisions  described  above do not apply to a regulated  investment
company,  like a  Series,  all of whose  shareholders  at all times  during  the
calendar year are segregated  asset accounts of life insurance  companies  where
the shares are held in connection  with variable  contracts.  (For this purpose,
any shares of a Series attributable to an investment in the Series not exceeding
$250,000 made in  connection  with the  organization  of the Series shall not be
taken into account.)  Accordingly,  if this condition regarding the ownership of
shares of a Series is met, the excise tax will be inapplicable to that Series.

If, as a result of  exchange  controls  or other  foreign  laws or  restrictions
regarding  repatriation of capital, a Series were unable to distribute an amount
equal  to  substantially  all of  its  investment  company  taxable  income  (as
determined for U.S. tax purposes)  within  applicable  time periods,  the Series
would not  qualify  for the  favorable  federal  income tax  treatment  afforded
regulated investment  companies,  or, even if it did so qualify, it might become
liable for federal taxes on undistributed income. In addition,  the ability of a
Series to obtain timely and accurate  information relating to its investments is
a significant factor in complying with the requirements  applicable to regulated
investment companies, in making tax-related computations,  and in complying with
the Code Section  817(h)  diversification  requirements.  Thus, if a Series were
unable to obtain  accurate  information on a timely basis, it might be unable to
qualify as a regulated investment company, its tax computations might be subject
to  revisions  (which  could  result in the  imposition  of taxes,  interest and
penalties),   or  it  might  be  unable  to  satisfy  the  Code  Section  817(h)
diversification requirements.

CODE SECTION 817(H)  DIVERSIFICATION -- To comply with regulations under Section
817(h) of the Code, each Series will be required to diversify its investments so
that on the last day of each quarter of a calendar year, no more than 55% of the
value of its assets is  represented by any one  investment,  no more than 70% is
represented by any two investments, no more than 80% is represented by any three
investments,  and no more  than  90% is  represented  by any  four  investments.
Generally,  securities  of a single  issuer are  treated as one  investment  and
obligations of each U.S.  Government agency and  instrumentality are treated for
purposes of Section 817(h) as issued by separate issuers.

In connection with the issuance of the diversification regulations, the Treasury
Department   announced  that  it  would  issue  future  regulations  or  rulings
addressing the circumstances in which a variable  contractowner's control of the
investments of a separate account may cause the  contractowner,  rather than the
insurance company, to be treated as the owner of the assets held by the separate
account. If the variable contractowner is considered the owner of the securities
underlying the separate  account,  income and gains produced by those securities
would be included currently in the  contractowner's  gross income.  These future
rules and regulations  proscribing  investment  control may adversely affect the
ability of certain Series of the Fund to operate as described herein.  There is,
however,  no certainty as to what  standards,  if any,  Treasury will ultimately
adopt. In the event that unfavorable rules or regulations are adopted, there can
be no assurance  that the Series will be able to operate as currently  described
in the  Prospectus,  or that a Series  will not have to  change  its  investment
objective or objectives, investment policies, or investment restrictions.

PASSIVE FOREIGN INVESTMENT  COMPANIES -- Some of the Series may invest in stocks
of foreign  companies  that are  classified  under the Code as  passive  foreign
investment companies ("PFICs"). In general, a foreign company is classified as a
PFIC if at least one half of its assets  constitutes  investment-type  assets or
75% or more of its gross income is investment-type income. Under the PFIC rules,
an  "excess  distribution"  received  with  respect  to PFIC stock is treated as
having been realized ratably over a period during which the Series held the PFIC
stock.  The Series itself will be subject to tax on the portion,  if any, of the
excess  distribution  that is allocated to the Series'  holding  period in prior
taxable  years (an  interest  factor will be added to the tax, as if the tax had
actually  been  payable  in such prior  taxable  years)  even  though the Series
distributes  the  corresponding  income to  shareholders.  Excess  distributions
include  any gain from the sale of PFIC stock as well as  certain  distributions
from a PFIC. All excess distributions are taxable as ordinary income.

A Series may be able to elect  alternative  tax  treatment  with respect to PFIC
stock.  Under an election that  currently may be available,  a Series  generally
would be required to include in its gross  income its share of the earnings of a
PFIC on a current basis,  regardless of whether any  distributions  are received
from the PFIC. If this election is made,  the special  rules,  discussed  above,
relating to the taxation of excess distributions,  would not apply. In addition,
another election may be available that would involve marking to market a Series'
PFIC  stock  at the  end of  each  taxable  year  (and on  certain  other  dates
prescribed in the Code),  with the result that  unrealized  gains are treated as
though they were  realized.  If this election were made, tax at the Series level
under  the PFIC  rules  would be  eliminated,  but a Series  could,  in  limited
circumstances,  incur  nondeductible  interest  charges.  A Series' intention to
qualify  annually  as a  regulated  investment  company  may limit  the  Series'
elections with respect to PFIC stock.

Because the  application of the PFIC rules may affect,  among other things,  the
character of gains, the amount of gain or loss and the timing of the recognition
of income with respect to PFIC stock,  as well as subject a Series itself to tax
on certain  income  from PFIC  stock,  the amount  that must be  distributed  to
shareholders,  and which will be taxed to  shareholders  as  ordinary  income or
long-term capital gain, may be increased or decreased  substantially as compared
to a fund that did not invest in PFIC stock.

OPTIONS,  FUTURES AND FORWARD  CONTRACTS AND SWAP AGREEMENTS -- Certain options,
futures  contracts,  and forward  contracts  in which a Series may invest may be
"Section 1256  contracts."  Gains or losses on Section 1256 contracts  generally
are  considered  60%  long-term  and 40%  short-term  capital  gains or  losses;
however,  foreign  currency  gains or losses  arising from certain  Section 1256
contracts  may be  treated  as  ordinary  income  or loss.  Also,  Section  1256
contracts held by a Series at the end of each taxable year (and at certain other
times as prescribed pursuant to the Code) are "marked to market" with the result
that unrealized gains or losses are treated as though they were realized.

Generally,  the  hedging  transactions  undertaken  by a Series  may  result  in
"straddles" for U.S. federal income tax purposes.  The straddle rules may affect
the  character of gains (or losses)  realized by a Series.  In addition,  losses
realized by a Series on  positions  that are part of a straddle  may be deferred
under the straddle  rules,  rather than being taken into account in  calculating
the  taxable  income for the  taxable  year in which such  losses are  realized.
Because  only a few  regulations  implementing  the  straddle  rules  have  been
promulgated,  the tax consequences of transactions in options,  futures, forward
contracts,  swap  agreements and other  financial  contracts to a Series are not
entirely clear. The  transactions may increase the amount of short-term  capital
gain realized by a Series which is taxed as ordinary income when  distributed to
shareholders.

A Series may make one or more of the  elections  available  under the Code which
are applicable to straddles. If a Series makes any of the elections, the amount,
character  and timing of the  recognition  of gains or losses from the  affected
straddle  positions  will be determined  under rules that vary  according to the
election(s)  made.  The rules  applicable  under  certain of the  elections  may
operate to  accelerate  the  recognition  of gains or losses  from the  affected
straddle positions.

Because  application  of the straddle rules may affect the character of gains or
losses,  defer losses and/or  accelerate the recognition of gains or losses from
the  affected  straddle  positions,  the  amount  which must be  distributed  to
shareholders,  and which will be taxed to  shareholders  as  ordinary  income or
long-term capital gain, may be increased or decreased as compared to a fund that
did not engage in such hedging transactions.

Because only a few regulations  regarding the treatment of swap agreements,  and
related caps, floors and collars, have been implemented, the tax consequences of
such  transactions are not entirely clear. The Series intend to account for such
transactions  in a manner  deemed by them to be  appropriate,  but the  Internal
Revenue Service might not necessarily accept such treatment.  If it did not, the
status of a Series as a regulated investment company, and the Series' ability to
satisfy the Code Section 817(h) diversification requirements, might be affected.

The requirements applicable to a Series' qualification as a regulated investment
company  may  limit  the  extent  to which a Series  will be able to  engage  in
transactions in options, futures contracts,  forward contracts,  swap agreements
and other financial contracts.

MARKET  DISCOUNT -- If a Series  purchases a debt security at a price lower than
the  stated  redemption  price of such debt  security,  the excess of the stated
redemption price over the purchase price is "market discount".  If the amount of
market  discount  is more than a DE MINIMIS  amount,  a portion  of such  market
discount must be included as ordinary income (not capital gain) by the Series in
each taxable year in which the Series owns an interest in such debt security and
receives a principal  payment on it. In particular,  the Series will be required
to allocate that principal  payment first to the portion of the market  discount
on the debt security that has accrued but has not previously  been includable in
income. In general, the amount of market discount that must be included for each
period is equal to the  lesser of (i) the  amount  of market  discount  accruing
during  such period  (plus any accrued  market  discount  for prior  periods not
previously taken into account) or (ii) the amount of the principal  payment with
respect to such period. Generally,  market discount accrues on a daily basis for
each day the debt  security is held by a Series at a constant rate over the time
remaining to the debt security's  maturity or, at the election of the Series, at
a  constant  yield  to  maturity  which  takes  into  account  the   semi-annual
compounding of interest.  Gain realized on the  disposition of a market discount
obligation must be recognized as ordinary  interest income (not capital gain) to
the extent of the "accrued market discount."

ORIGINAL ISSUE DISCOUNT -- Certain debt securities acquired by the Series may be
treated as debt  securities  that were  originally  issued at a  discount.  Very
generally,  original  issue  discount is defined as the  difference  between the
price  at  which a  security  was  issued  and its  stated  redemption  price at
maturity.  Although  no cash  income on account  of such  discount  is  actually
received by a Series, original issue discount that accrues on a debt security in
a given year  generally  is treated for federal  income tax purposes as interest
and,  therefore,  such income would be subject to the distribution  requirements
applicable to regulated investment companies.

Some debt  securities  may be purchased by the Series at a discount that exceeds
the original issue  discount on such debt  securities,  if any. This  additional
discount represents market discount for federal income tax purposes (see above).

CONSTRUCTIVE SALES -- Recently enacted rules may affect the timing and character
of gain if a Series engages in transactions that reduce or eliminate its risk of
loss with respect to appreciated financial positions.  If the Series enters into
certain transactions in property while holding substantially identical property,
the Series would be treated as if it had sold and  immediately  repurchased  the
property  and would be taxed on any gain (but not  loss)  from the  constructive
sale.  The  character  of gain from a  constructive  sale would  depend upon the
Series' holding period in the property.  Loss from a constructive  sale would be
recognized  when the property was  subsequently  disposed of, and its  character
would depend on the Series'  holding period and the  application of various loss
deferral provisions of the Code.

FOREIGN  TAXATION -- Income  received by a Series from sources  within a foreign
country may be subject to  withholding  and other taxes imposed by that country.
Tax conventions  between certain  countries and the U.S. may reduce or eliminate
such taxes.  The payment of such taxes will reduce the amount of  dividends  and
distributions paid to shareholders.

FOREIGN CURRENCY TRANSACTIONS -- Under the Code, gains or losses attributable to
fluctuations  in exchange  rates which occur  between the time a Series  accrues
income or other receivables or accrues expenses or other liabilities denominated
in  a  foreign  currency  and  the  time  that  Series  actually  collects  such
receivables or pays such liabilities generally are treated as ordinary income or
ordinary loss.  Similarly,  on disposition of debt  securities  denominated in a
foreign  currency  and on  disposition  of certain  futures  contracts,  forward
contracts and options, gains or losses attributable to fluctuations in the value
of foreign  currency between the date of acquisition of the security or contract
and the date of  disposition  also are treated as ordinary  gain or loss.  These
gains or losses,  referred to under the Code as  "Section  988" gains or losses,
may  increase or decrease  the amount of a Series'  investment  company  taxable
income to be distributed to its shareholders as ordinary income.

DISTRIBUTIONS  --  Distributions  of any investment  company taxable income by a
Series are taxable to the  shareholders  as ordinary  income.  Net capital gains
designated by a Series as capital gain dividends will be treated,  to the extent
distributed,  as  long-term  capital  gains in the  hands  of the  shareholders,
regardless of the length of time the shareholders may have held the shares.  Any
distributions  that are not from a Series'  investment company taxable income or
net capital gains may be  characterized  as a return of capital to  shareholders
or, in some cases,  as capital gain. A  distribution  will be treated as paid on
December  31 of the  calendar  year if it is  declared  by a Series in  October,
November or December of that year to  shareholders of record on a date in such a
month and paid by the Series during January of the following calendar year. Such
distributions will be taxable to shareholders in the calendar year in which they
are declared, rather than the calendar year in which they are received.

OTHER TAXES -- The foregoing discussion is general in nature and is not intended
to provide an exhaustive  presentation of the tax consequences of investing in a
Series. Distributions may also be subject to additional state, local and foreign
taxes, depending on each shareholder's particular situation.  Depending upon the
nature and extent of a Series' contacts with a state or local jurisdiction,  the
Series  may be subject to the tax laws of such  jurisdiction  if it is  regarded
under applicable law as doing business in, or as having income derived from, the
jurisdiction.  Shareholders  are advised to consult  their own tax advisers with
respect to the particular tax consequences to them of an investment in a Series.

OWNERSHIP AND MANAGEMENT

As of April 30, 2002, SBL controls the Fund by virtue of its indirect  ownership
of 100% of the  outstanding  shares  of the Fund as  custodian  of SBL  Variable
Annuity  Account  III,  SBL Variable  Annuity  Account IV, SBL Variable  Annuity
Account XIV, Variflex®, Variflex LS®, Variflex Signature®, Variflex ES, Variflex
Extra Credit®, Security Elite Benefit® and Varilife®.

CAPITAL STOCK AND VOTING


The Fund has  authorized  the  issuance  of an  indefinite  number  of shares of
capital stock of $1.00 par value.  Its shares are  currently  issued in nineteen
Series:  Series A,  Series B,  Series C, Series D, Series E, Series G, Series H,
Series I,  Series J, Series N, Series O, Series P, Series Q, Series S, Series T,
Series V, Series W,  Series X and Series Y. The shares of each Series  represent
pro rata  beneficial  interest in that  Series'  assets and in the  earnings and
profits or losses derived from the investment of such assets.  Upon issuance and
sale,  such  shares  will be  fully  paid  and  nonassessable.  They  are  fully
transferable  and redeemable.  These shares have no preemptive  rights,  but the
stockholders  of each Series are  entitled to receive  dividends as declared for
that Series by the board of directors of the Fund.


The shares of each  Series have  cumulative  voting  rights for the  election of
directors.  Within each  respective  Series,  each share has equal voting rights
with each other share and there are no preferences  as to conversion,  exchange,
retirement  or  liquidation.  On other  matters,  all shares,  (irrespective  of
Series) are entitled to one vote each.  Pursuant to the rules and regulations of
the  Securities and Exchange  Commission,  in certain  instances,  a vote of the
outstanding  shares of the combined  Series may not modify the rights of holders
of a particular  Series without the approval of a majority of the shares of that
Series.

CUSTODIANS, TRANSFER AGENT AND DIVIDEND-PAYING AGENT


State  Street  Bank  and  Trust  Company  currently  acts as  custodian  for the
portfolio  securities of Series D, G, I, N, O, Q, T and W, including  those held
by foreign banks and foreign  securities  depositories which qualify as eligible
foreign custodians under the rules adopted by the SEC.


UMB Bank,  N.A.,  928 Grand Avenue,  Kansas City,  Missouri  64106,  acts as the
custodian  for the  portfolio  securities of Series A, B, C, E, H, J, P, S, V, Y
and X of the Fund. Security  Management Company,  LLC is the Fund's transfer and
dividend-paying agent.

INDEPENDENT AUDITORS

The firm of Ernst & Young LLP, has been approved by the Fund's  stockholders  to
serve as the Fund's independent auditors, and as such, the firm will perform the
annual audit of the Fund's financial statements.

PERMISSIBLE ADVERTISING INFORMATION

From  time  to  time,  the  Fund  may,  in  addition  to any  other  permissible
information, include the following types of information in advertisements, sales
literature,   reports  to   shareholders   and  other  investor   communications
("advertisements"):  (1) discussions of general economic or financial principles
(such as the effects of compounding and the benefits of dollar-cost  averaging);
(2) discussions about past, current or possible  economic,  market and political
trends and events;  (3)  presentations  of statistical  data to supplement  such
discussions; (4) published evaluations by nationally recognized ranking services
and financial or business  publications or other media including reprints of, or
selections from, such publications;  (5) descriptions and updates concerning the
Series' strategies, and past or anticipated portfolio investments;  (6) analysis
of  their  investments  by  industry,   country,  credit  quality  and/or  other
characteristics;  (7) the general  biography or work experience of the portfolio
managers  of the Series  including  information  about  awards  received  by the
portfolio managers,  mentions of a manager in the media, or announcements of the
portfolio manager's appearance on television or radio programs, or presentations
at  conferences  or trade shows;  (8)  portfolio  manager  commentary  or market
updates; (9) investment philosophy and the research methodology underlying stock
selection  or  the  Series'  investment  objective;  (10)  a  discussion  of the
risk/return  continuum  relating to different  investments;  (11) discussions on
general  principles of investing such as asset allocation,  diversification  and
risk tolerance;  (12) testimonials describing the experience of persons who have
invested in the Fund;  (13)  discussions  about  retirement  and  investing  for
retirement;  (14) data  concerning the projected cost of a college  education in
future  years based on current or recent costs of college and an assumed rate of
increase for such costs;  (15)  information  regarding the relative  reliance in
recent years on personal savings for retirement income versus reliance on Social
Security  benefits  and  company  sponsored  retirement  plans;  and (16)  other
information of interest to investors.

Advertisements  also may  include  the  Series'  performance,  goals,  risks and
expenses  compared  with (a)  various  indexes so that  investors  may compare a
Series' results with those of a group of unmanaged securities widely regarded by
investors as  representative  of the  securities  markets in general;  (b) other
groups of mutual funds tracked by Lipper Analytical  Services Inc.,  Morningstar
or  another  independent  research  firm  which  ranks  mutual  funds by overall
performance,  investment  objectives,  and assets, or tracked by other services,
companies, publications, or persons who rank mutual funds on overall performance
or other  criteria;  (c) the Consumer  Price Index  (measure for  inflation)  to
assess  the real  rate of  return  from an  investment  in the  Fund;  (d) other
statistics  such as gross  national  product  or gross  domestic  product of the
United  States or other  countries  or  regions,  net import and export  figures
derived from governmental publications (e.g., The Survey of Current Business) or
other  independent  parties  (e.g.,  the  Investment  Company   Institute),   to
illustrate investment attributes to the Fund or the general economic,  business,
investment,  or financial  environments in which the Fund  operates;(e)  various
financial,  economic and market  statistics  developed  by brokers,  dealers and
other persons to illustrate aspects of a Series' performance; (f) the sectors or
industries  in which the Fund  invests  compared to relevant  indexes or surveys
(e.g.,  S&P  Industry   Surveys)  in  order  to  evaluate  the  Fund's  historic
performance  or  current or  potential  value  with  respect  to the  particular
industry or sector;  (g) a hypothetical or model portfolio;  or (h) other mutual
funds.  The Series  also may discuss and  compare in  advertising  the  relative
performance  of  various  types of  investment  instruments  including,  but not
limited to, certificates of deposit,  ordinary interest savings accounts,  other
forms of fixed or variable time deposits,  qualified  retirement plans,  stocks,
Treasury  securities,  and bonds, over various time periods and covering various
holding periods.  Such  comparisons may compare these  investment  categories to
each other or to changes in the Consumer  Price Index.  In addition,  the Series
may  quote  various   measures  of  volatility  and  benchmark   correlation  in
advertising  and other  materials  and may  compare  these  measures to those of
indexes, other funds or types of investments.

The Series', in their advertisements, may refer to pending legislation from time
to time and the possible  effect of such  legislation  on investors,  investment
strategy and related  matters.  This would  include any tax  proposals and their
effect on marginal tax rates and tax-equivalent yields.

From time to time,  advertisements  may include  general  information  about the
services and products offered by Security Benefit Life Insurance Company and its
subsidiaries.   For  example,   such   advertisements  may  include  statistical
information  about those entities  including,  but not limited to, the number of
current  shareholder  accounts,  the amount of assets  under  management,  sales
information,  the distribution channels through which the entities' products are
available,  marketing  efforts  and  statements  about this  information  by the
entities' officers, directors and employees.

All performance information that the Fund advertises is historical in nature and
is not  intended to  represent or  guarantee  future  results.  The value of the
Series'  shares  when  redeemed  may be more or less than their  original  cost.
Performance information may be quoted numerically or presented in a table, graph
or other illustration. The Series' returns and share price are not guaranteed or
insured by the FDIC or any other  agency and will  fluctuate  daily,  while bank
depository obligations may be insured by the FDIC and may provide fixed rates of
return.

In  connection  with a ranking,  the Fund may  provide  additional  information,
regarding  a  particular  category,  the  number of funds in the  category,  the
criteria upon which the ranking is based,  and the effect of sales charges,  fee
waivers and/or expense reimbursements.  In assessing comparisons of performance,
you should keep in mind that the  composition of the investments in the reported
indexes and averages is not identical to any Series' portfolios, the indexes and
averages are generally unmanaged,  and the items included in the calculations of
the  averages  may not be identical to the formula used by a Series to calculate
its figures. For example, unmanaged indexes may assume reinvestment of dividends
but generally do not reflect deductions for administrative and management costs.
In  addition,  there can be no  assurance  that the Series will  continue  their
performance as compared to these other averages.

PERFORMANCE INFORMATION


The Fund may,  from time to time,  include the yield for Series C (Money  Market
Series) and the average  annual  total return and the total return of the Series
in advertisements or reports to shareholders or prospective investors.


For  Series C, the  current  yield will be based  upon the seven  calendar  days
ending on the date of calculation ("the base period").  The total net investment
income  earned,  exclusive of realized  capital  gains and losses or  unrealized
appreciation  and  depreciation,  during  the  base  period,  on a  hypothetical
pre-existing  account having a balance of one share will be divided by the value
of the account at the beginning of that period.  The resulting figure ("the base
period  return") will then be  multiplied by 365/7 to obtain the current  yield.
Series C's current  yield for the seven-day  period ended  December 31, 2001 was
1.19%.

Series C's  effective  (or  compound)  yield for the same period was 1.20%.  The
effective yield reflects the compounding of the current yield by reinvesting all
dividends and will be computed by compounding the base period return by adding 1
to the base period return, raising the sum to a power equal to 365 divided by 7,
and subtracting 1 from the result.

Quotations  of average  annual  total  return for a Series will be  expressed in
terms  of the  average  annual  compounded  rate  of  return  of a  hypothetical
investment in the Series over certain  periods that will include periods of 1, 5
and 10  years  (up to  the  life  of the  Series),  calculated  pursuant  to the
following formula:

                                 P(1 + T)n = ERV

(where P = a  hypothetical  initial  payment of $1,000,  T = the average  annual
total return, n = the number of years, and ERV = the ending  redeemable value of
a hypothetical  $1,000  payment made at the beginning of the period).  All total
return figures assume that all dividends and  distributions  are reinvested when
paid.

For the 1-, 5- and 10-year  periods ended  December 31, 2001, the average annual
total return was the following:


===========================================================================================
            1 YEAR     5 YEARS      10 YEARS |            1 YEAR     5 YEARS      10 YEARS
---------------------------------------------|---------------------------------------------
Series A   (11.41)%     6.17%       10.90%   |Series O     1.32%     10.55%       13.62%(2)
Series B    (5.60)%     4.04%        7.80%   |Series P     4.43%      4.55%(3)     5.44%
Series C     3.75%      4.94%        4.47%   |Series Q    22.16%     17.64%(7)     ---
Series D   (12.25)%    12.28%       11.84%   |Series S   (13.10)%     7.41%       10.52%
Series E     7.18%      5.88%        5.84%   |Series T   (24.14)%   (36.76)%(7)    ---
Series G   (15.41)%   (20.96)(7)     ---     |Series V    11.13%     23.75%(4)     ---
Series H   (12.99)%    (4.78)%(6)    ---     |Series W    (9.99)%   (11.74)%(7)    ---
Series I   (24.44)%    (8.81)%(6)    ---     |Series X   (27.86)%     6.75%(5)     ---
Series J    14.89%     17.87%       17.12%(1)|Series Y    (9.92)%    (1.70)%(6)    ---
Series N    (5.08)%     7.68%        8.89%(2)|
-------------------------------------------------------------------------------------------
1  For the period October 1, 1992 (date of inception) to December 31, 2001.
2  For the period June 1, 1995 (date of inception) to December 31, 2001.
3  For the period August 5, 1996 (date of inception) to December 31, 2001.
4  For the period May 1, 1997 (date of inception) to December 31, 2001.
5  For the period October 15, 1997 (date of inception) to December 31, 2001.
6  For the period May 3, 1999 (date of inception) to December 31, 2001.
7  For the period May 1, 2000 (date of inception) to December 31, 2001.
===========================================================================================

Quotations  of  cumulative  total  return for any Series will also be based on a
hypothetical investment in the Series for a certain period, and will assume that
all dividends and  distributions  are reinvested when paid. The cumulative total
return is calculated by subtracting the value of the investment at the beginning
of the period from the ending value and dividing the  remainder by the beginning
value. The Investment  Manager has waived the management fee for Series P, V and
X during  certain  periods and in the absence of such  waiver,  the  performance
quoted would be reduced.


For the period from December 31, 1991 to December 31, 2001, (or since  inception
where applicable) the cumulative total return was the following:


==============================================================================
             CUMULATIVE  |              CUMULATIVE  |              CUMULATIVE
SERIES      TOTAL RETURN | SERIES      TOTAL RETURN | SERIES      TOTAL RETURN
-------------------------|--------------------------|-------------------------
Series A     181.31%     | Series I     (21.80)%(6) | Series S     171.83%
Series B     111.92%     | Series J     331.66%     | Series T     (53.50)%(7)
Series C      54.84%     | Series N      75.22%(2)  | Series V     170.58%(4)
Series D     206.04%     | Series O     131.86%(2)  | Series W     (18.84)%(7)
Series E      76.47%     | Series P      33.18%(3)  | Series X      31.70%(7)
Series G     (32.50)%(7) | Series Q      31.20%(7)  | Series Y      (4.48)%(6)
Series H     (12.24)%(6) |                          |
------------------------------------------------------------------------------
1  For the period October 1, 1992 (date of inception) to December 31, 2001.
2  For the period June 1, 1995 (date of inception) to December 31, 2001.
3  For the period August 5, 1996 (date of inception) to December 31, 2001.
4  For the period May 1, 1997 (date of inception) to December 31, 2001.
5  For the period October 15, 1997 (date of inception) to December 31, 2001.
6  For the period May 3, 1999 (date of inception) to December 31, 2001.
7  For the period May 1, 2000 (date of inception) to December 31, 2001.
==============================================================================


Performance information for a Series may be compared, in reports and promotional
literature, to: (i) the Standard & Poor's 500 Stock Index ("S&P 500"), Dow Jones
Industrial  Average  ("DJIA"),  or other unmanaged indices so that investors may
compare a Series' results with those of a group of unmanaged  securities  widely
regarded by investors as  representative  of the securities  markets in general;
(ii) other  groups of mutual  funds  tracked by Lipper  Analytical  Services,  a
widely  used  independent  research  firm which  ranks  mutual  funds by overall
performance,  investment  objectives,  and assets, or tracked by other services,
companies, publications, or persons who rank mutual funds on overall performance
or other criteria; and (iii) the Consumer Price Index (measure for inflation) to
assess  the real rate of return  from an  investment  in the  Series.  Unmanaged
indices may assume the  reinvestment  of dividends  but generally do not reflect
deductions for administrative and management costs and expenses.

Such mutual fund  rating  services  include  the  following:  Lipper  Analytical
Services;  Morningstar,  Inc.;  Investment Company Data;  Schabacker  Investment
Management;  Wiesenberger  Investment  Companies  Service;  Computer  Directions
Advisory (CDA); and Johnson's Charts.

Quotations of average  annual total return or total return for the Fund will not
take into account charges and deductions  against the Separate Accounts to which
the Fund shares are sold or charges and deductions  against the Contracts issued
by Security  Benefit Life Insurance  Company.  Performance  information  for any
Series reflects only the performance of a hypothetical  investment in the Series
during  the  particular  time  period  on  which  the  calculations  are  based.
Performance  information should be considered in light of the Series' investment
objectives and policies,  characteristics  and quality of the portfolios and the
market conditions during the given time period,  and should not be considered as
a representation of what may be achieved in the future.

FINANCIAL STATEMENTS

The audited financial  statements of the Fund for the fiscal year ended December
31, 2001,  which are contained in the Annual Report of SBL Fund are incorporated
herein by  reference.  Copies of the Annual  Report are provided to every person
requesting a copy of the Statement of Additional Information.

                                   APPENDIX A
--------------------------------------------------------------------------------

DESCRIPTION OF SHORT-TERM INSTRUMENTS

U.S.  GOVERNMENT  SECURITIES -- Federal agency  securities are debt  obligations
which principally result from lending programs of the U.S.  Government.  Housing
and agriculture have traditionally  been the principal  beneficiaries of federal
credit  programs,  and agencies  involved in providing credit to agriculture and
housing account for the bulk of the outstanding agency securities.

Some U.S. Government securities, such as treasury bills and bonds, are supported
by the full faith and credit of the U.S.  Treasury,  others are supported by the
right of the issuer to borrow from the  Treasury;  others,  such as those of the
Federal  National  Mortgage  Association,  are  supported  by the  discretionary
authority of the U.S.  Government  to purchase the agency's  obligations;  still
others such as those of the Student Loan  Marketing  Association,  are supported
only by the credit of the instrumentality.

U.S.  Treasury  bills are issued with  maturities  of any period up to one year.
Three-month  bills are currently  offered by the Treasury on a 13-week cycle and
are auctioned  each week by the  Treasury.  Bills are issued in bearer form only
and are sold only on a discount basis,  and the difference  between the purchase
price  and the  maturity  value  (or the  resale  price if they are sold  before
maturity) constitutes the interest income for the investor.

CERTIFICATES  OF DEPOSIT -- A  certificate  of deposit is a  negotiable  receipt
issued by a bank or savings and loan  association in exchange for the deposit of
funds. The issuer agrees to pay the amount deposited plus interest to the bearer
of the receipt on the date specified on the certificate.

COMMERCIAL  PAPER  --  Commercial  paper  is  generally   defined  as  unsecured
short-term  notes  issued in bearer form by large  well-known  corporations  and
finance companies.  Maturities on commercial paper range from a few days to nine
months. Commercial paper is also sold on a discount basis.

BANKERS' ACCEPTANCES -- A banker's acceptance generally arises from a short-term
credit  arrangement  designed to enable  businesses  to obtain  funds to finance
commercial  transactions.  Generally,  an  acceptance is a time draft drawn on a
bank by an exporter or an importer to obtain a stated amount of funds to pay for
specific  merchandise.  The draft is then  "accepted" by a bank that, in effect,
unconditionally  guarantees  to pay the  face  value  of the  instrument  on its
maturity date.

DESCRIPTION OF COMMERCIAL PAPER RATINGS

A Prime  rating is the  highest  commercial  paper  rating  assigned  by Moody's
Investors Service, Inc. ("Moody's"). Issuers rated Prime are further referred to
by use of numbers 1, 2 and 3 to denote  relative  strength  within this  highest
classification. Among the factors considered by Moody's in assigning ratings are
the  following:  (1)  evaluation of the  management of the issuer;  (2) economic
evaluation  of  the  issuer's   industry  or  industries  and  an  appraisal  of
speculative type risks which may be inherent in certain areas; (3) evaluation of
the issuer's  products in relation to competition and customer  acceptance;  (4)
liquidity;  (5) amount and quality of long-term debt; (6) trend of earnings over
a period  of 10  years;  (7)  financial  strength  of a parent  company  and the
relationships  which exist with the issuer; and (8) recognition by management of
obligations  which may be  present  or may arise as a result of public  interest
questions and preparations to meet such obligations.

Commercial  paper  rated "A" by  Standard & Poor's  Corporation  ("S&P") has the
highest  rating and is  regarded  as having  the  greatest  capacity  for timely
payment.  Commercial  paper rated A-1 by S&P has the following  characteristics.
Liquidity ratios are adequate to meet cash  requirements.  Long-term senior debt
is rated "A" or  better.  The  issuer  has  access  to at least  two  additional
channels of  borrowing.  Basic  earnings and cash flow have an upward trend with
allowance made for unusual  circumstances.  Typically,  the issuer's industry is
well  established and the issuer has a strong position within the industry.  The
reliability  and quality of management are  unquestioned.  Relative  strength or
weakness of the above factors determine whether the issuer's commercial paper is
rated A-1, A-2 or A-3.

DESCRIPTION OF CORPORATE BOND RATINGS

MOODY'S INVESTORS SERVICE, INC.--

Aaa -- Bonds  which  are rated Aaa are  judged to be of the best  quality.  They
carry the smallest  degree of investment  risk and are generally  referred to as
"gilt-edge."  Interest  payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change,  such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

Aa --  Bonds  which  are  rated  Aa are  judged  to be of  high  quality  by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds.  They are rated lower than the best bonds  because  margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements  may be of greater  amplitude  or there may be other  elements  present
which make the long-term risks appear somewhat larger than in Aaa securities.

A -- Bonds which are rated A possess many  favorable  investment  attributes and
are to be considered as upper medium grade obligations.  Factors giving security
to principal and interest are considered  adequate,  but elements may be present
which suggest a susceptibility to impairment sometime in the future.

Baa -- Bonds which are rated Baa are  considered  as medium  grade  obligations,
i.e., they are neither highly  protected nor poorly secured.  Interest  payments
and principal  security appear adequate for the present,  but certain protective
elements may be lacking or may be  characteristically  unreliable over any great
length of time. Such bonds lack outstanding  investment  characteristics  and in
fact have speculative characteristics as well.

Ba -- Bonds which are rated Ba are judged to have  speculative  elements;  their
future cannot be considered  as well assured.  Often the  protection of interest
and  principal  payments may be very  moderate and thereby not well  safeguarded
during  both  good  and bad  times  over the  future.  Uncertainty  of  position
characterizes bonds in this class.

B -- Bonds which are rated B generally  lack  characteristics  of the  desirable
investment.  Assurance of interest and principal  payments or of  maintenance of
other terms of the contract over any long period of time may be small.

Caa -- Bonds  which are rated Caa are of poor  standing.  Such  issues may be in
default or there may be present  elements of danger with respect to principal or
interest.

Ca -- Bonds which are rated Ca represent  obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C -- Bonds  which are rated C are the lowest  rated class of bonds and issues so
rated can be regarded as having  extremely  poor prospects of ever attaining any
real investment standing.

STANDARD & POOR'S CORPORATION--

AAA -- Bonds rated AAA have the highest rating  assigned by Standard & Poor's to
debt  obligation.  Capacity to pay  interest  and repay  principal  is extremely
strong.

AA -- Bonds  rated AA have a very  strong  capacity  to pay  interest  and repay
principal and differ from the highest rated issues only in small degree.

A -- Bonds rated A have a strong  capacity to pay interest  and repay  principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.

BBB -- Bonds  rated  BBB are  regarded  as having an  adequate  capacity  to pay
interest and repay principal.  Whereas they normally exhibit adequate protection
parameters,  adverse  economic  conditions  or changing  circumstances  are more
likely to lead to a weakened  capacity to pay interest and repay  principal  for
bonds in this category than for bonds in higher rated categories.

BB, B, CCC, CC -- Bonds  rated BB, B, CCC and CC are  regarded,  on balance,  as
predominately  speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of obligation. BB indicates the
lowest degree of  speculation  and CC the highest degree of  speculation.  While
such bonds will likely have some quality and protective  characteristics,  these
are  outweighed  by large  uncertainties  or major  risk  exposures  to  adverse
conditions.

C -- The rating C is  reserved  for income  bonds on which no  interest is being
paid.

D -- Debt rated D is in default  and  payment of interest  and/or  repayment  of
principal is in arrears.