<PAGE>
SBL FUND
PROSPECTUS
OCTOBER 27, 1999
* Series I (International Series)
* Series O (Equity Income 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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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
Growth Stocks............................................................. 3
Foreign Securities........................................................ 3
Emerging Markets.......................................................... 4
Options and Futures....................................................... 4
Interest Rate Risk........................................................ 4
Credit Risk............................................................... 4
Restricted Securities..................................................... 4
High Yield Securities..................................................... 4
Investment Companies...................................................... 5
Additional Information.................................................... 5
PAST PERFORMANCE............................................................ 5
INVESTMENT MANAGER.......................................................... 5
Management Fees........................................................... 6
Portfolio Managers........................................................ 6
Year 2000 Compliance...................................................... 7
PURCHASE AND REDEMPTION OF SHARES........................................... 7
DISTRIBUTIONS AND FEDERAL INCOME TAX CONSIDERATIONS......................... 8
DETERMINATION OF NET ASSET VALUE............................................ 8
GENERAL INFORMATION......................................................... 8
Contractowner Inquiries................................................... 8
INVESTMENT POLICIES AND MANAGEMENT PRACTICES................................ 8
Convertible Securities and Warrants....................................... 8
Foreign Securities........................................................ 9
Emerging Markets.......................................................... 9
Smaller Companies......................................................... 9
Restricted Securities..................................................... 9
Lower Rate Debt Securities................................................ 9
Futures and Options....................................................... 10
Hybrid Instruments........................................................ 10
When-Issued Securities and Forward Commitment Contracts................... 10
Cash Reserves............................................................. 10
Shares of Other Investment Companies...................................... 10
Borrowing................................................................. 10
FINANCIAL HIGHLIGHTS........................................................ 11
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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 I (INTERNATIONAL SERIES) -- Series I seeks long-term capital appreciation
by investing primarily in non-U.S. equity securities and other securities with
equity characteristics.
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 equity
securities of foreign issuers. These issuers are primarily established companies
based in developed countries outside of the United States. However, the Series
may also invest in securities of issuers based in underdeveloped countries.
Investments in these countries will be based on what the Sub-Adviser, Bankers
Trust Company, believes to be an acceptable degree of risk in anticipation of
superior returns. The Series will at all times be invested in the securities of
issuers based in at least three countries other than the United States.
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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' investments will generally be diversified among several geographic
regions and countries. Bankers Trust uses the following criteria to determine
the appropriate distribution of investments among various countries and regions:
* The prospects for relative growth among foreign countries
* Expected levels of inflation
* Government policies influencing business conditions
* The outlook for currency relationships
* The range of alternative opportunities available to international investors
In countries and regions with well-developed capital markets where more
information is available, Bankers Trust will identify individual investments for
the Series. Criteria for selection of individual securities include:
* The issuer's competitive position
* Prospects for growth
* Management strength
* Earnings quality
* Underlying asset value
* Relative market value
* Overall marketability
In other countries and regions where capital markets are underdeveloped or not
easily accessed and information is difficult to obtain, Bankers Trust may choose
to invest only at the market level through use of options or futures based upon
an established index of securities of locally based issuers. Similarly, country
exposure may also be achieved through investments in other registered investment
companies.
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 65% of its total assets in the
common stocks of well-established companies paying above-average dividends.
The Sub-Adviser, T. Rowe Price, typically employs a value-oriented strategy in
selecting investments for the Series. T. Rowe Price 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 favors companies with the
following:
* An established operating history
* Above-average dividend yield relative to the S&P 500 Index
* Low price/earnings ratio relative to the S&P 500 Index
* A sound balance sheet and other financial characteristics
* Low stock price relative to a company's underlying value as measured by
assets, cash flow or business franchises
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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.
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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 maintaining the Series' objective.
Under adverse market conditions the Series could invest some or all of its
assets in money market securities, including 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 sell securities for a variety of reasons, such as to secure
gains, limit losses, or redeploy assets into more promising opportunities.
MAIN RISKS
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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.
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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 -- 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. Series O in particular offers the potential rewards, and risks, of a
value-oriented investment strategy.
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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.
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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.
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GROWTH-ORIENTED STOCKS are stocks of established companies that typically have a
record of consistent earnings growth.
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FOREIGN SECURITIES -- Series I and, to a lesser extent, Series O may invest in
foreign securities and/or American Depositary Receipts (ADRs). 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.
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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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RISKS OF CONVERSION TO EURO. On January 1, 1999, eleven countries in the
European Monetary Union adopted the euro as their official currency. However,
their current currencies (for example, the franc, the mark, and the lira) will
also continue in use until January 1, 2002. After that date, it is expected that
only the euro will be used in those countries. A common currency is expected to
provide some benefits in those markets, by consolidating the government debt
market for those countries and reducing some currency risks and costs. But the
conversion to the new currency will affect the Series operationally and also has
potential risks, some of which are listed below. Among other things, the
conversion will affect:
* issuers in which the Series invest, because of changes in the competitive
environment from a consolidated currency market and greater operational costs
from converting to the new currency. This might depress stock values.
* vendors the Series depend on to carry out their business, such as the
custodian bank (which holds the foreign securities the Series buy), the
Investment Manager (which prices the Series' investments to deal with the
conversion to the euro) and brokers, foreign markets and securities
depositories. If the vendors are not prepared, there could be delays in
settlements and additional costs to the Series.
* exchange contracts and derivatives that are outstanding during the transition
to the euro. The lack of currency rate calculations between the affected
currencies and the need to update the Series' contracts could pose extra
costs to the Series.
The Investment Manager has upgraded its computer and bookkeeping systems to deal
with the conversion. Each Series' custodian bank has advised the Investment
Manager of its plans to deal with the conversion, including how it will update
its record keeping systems and handle the redenomination of outstanding foreign
debt. The possible effect of these factors on the Series' investments cannot be
determined with certainty at this time, but they may reduce the value of some of
the Series' holdings and increase its operational costs.
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.
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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.
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OPTIONS AND FUTURES -- Each Series may invest some of its assets in options and
futures. These practices are used primarily to hedge a Series' portfolio or gain
exposure to a market without buying individual securities. There is the risk
that such practices sometimes may reduce returns or increase volatility. These
practices also entail transactional expenses.
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.
RESTRICTED SECURITIES -- The Series may invest in securities that 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. Since the market for restricted
securities is limited to certain qualified institutional investors, the
liquidity of these securities may be limited, and a Series may, from time to
time, hold a security that is illiquid.
HIGH YIELD SECURITIES -- The Series may invest in higher yielding, high risk
debt securities. These investments 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.
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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.
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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INVESTMENT COMPANIES -- Because Series I may invest in other investment
companies in order to gain exposure to a foreign securities market, it will
incur its pro rata share of the underlying investment companies' expenses to the
extent it pursues its investment objective in this manner. In addition, the
Series will be subject to the effects of business and regulatory developments
that affect an underlying investment company or the investment company industry
generally. Series O may also invest in other investment companies.
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. (Performance
figures are not yet available for Series I as it was not available for purchase
until April 30, 1999.) 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 O (EQUITY INCOME SERIES)
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1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A N/A N/A N/A N/A 20.0% 28.4% 9.0%
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HIGHEST AND LOWEST RETURNS
(QUARTERLY 1995-1998)
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QUARTER ENDED
Highest................................ 11.3% June 30, 1997
Lowest................................. -7.6% September 30, 1998
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AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1998)
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PAST LIFE OF SERIES
1 YEAR (SINCE 6/1/95)
Series O............................... 9.0% 20.7%
S&P 500................................ 28.6% 28.7%
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INVESTMENT MANAGER
Security Management Company, LLC, 700 SW Harrison Street, Topeka, Kansas 66636,
is the Series' Investment Manager. On December 31, 1998, the aggregate assets of
all of the mutual funds under the investment management of the Investment
Manager were approximately $5.5 billion.
The Investment Manager has engaged Bankers Trust Company, One Bankers Trust
Plaza, New York, New York 10006, to provide investment advisory services to
Series I. Bankers Trust was founded in 1903 and manages over $300 billion in
assets.
On March 11, 1999, Bankers Trust announced that it had reached an agreement with
the United States Attorney's Office in the Southern District of New York to
resolve an investigation concerning inappropriate transfers of unclaimed funds
and related record-keeping problems that occurred between 1994 and early 1996.
These past events led to a guilty plea by Bankers Trust, but did not arise out
of the investment advisory or mutual fund management activities of Bankers Trust
or its affiliates.
Pursuant to its agreement with the U.S. Attorney's Office, Bankers Trust pleaded
guilty to misstating entries in the bank's books and records and agreed to pay a
$60 million fine to federal authorities. Separately, Bankers Trust agreed to pay
a $3.5 million fine to the State of New York.
The SEC has granted a temporary order to permit Bankers Trust and its affiliates
to continue to provide investment advisory services to registered investment
companies. There is no assurance that the SEC will grant a permanent order. As a
result of the plea, absent an order from the SEC, Bankers Trust would not be
able to continue to provide investment advisory services to Series I.
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 was founded in 1937. As of December 31, 1998, T. Rowe
Price and its affiliates managed approximately $148 billion in investments for
approximately 7 million individual and institutional accounts.
The Series have applied to the Securities and Exchange Commission ("SEC") for an
exemptive order from the Investment Company Act of 1940 that will, if granted,
permit the Series and the Investment Manager to enter into and materially amend
sub-advisory agreements with new or existing sub-advisers without the agreements
or amendments being approved by shareholders. However, this order would not
apply to sub-advisory agreements with an affiliate of the Investment Manager. If
this order is obtained, the Series or the Investment Manager could terminate a
sub-advisory agreement with an existing sub-adviser and engage a new
sub-adviser, or materially amend a sub-advisory agreement, without shareholder
approval of the new sub-advisory agreement or the amendment.
In order for the Series to enter into and amend sub-advisory agreements without
shareholder approval, the Series and the Investment Manager must not only
receive an order from the SEC, but the shareholders of the Series must also
initially approve this method of operation. However, shareholder approval of
this method of operation may not be necessary for Series I as the sole initial
shareholder of that Series has approved this method of operation. Therefore,
Series I could be operated under the method of operation described above upon
effectiveness of the exemptive order.
There can be no assurance that the exemptive order will be issued by the SEC. It
is anticipated that if the exemptive order is granted, notice to shareholders
would be required of new sub-advisory agreements or material amendments to
sub-advisory agreements. Any material change to the investment advisory
agreement between the Series and the Investment Manager would not be subject to
the exemptive order, and therefore, would still require shareholder approval.
MANAGEMENT FEES -- The following chart shows the investment management fees paid
by each Series during the last fiscal year, except as otherwise indicated.
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MANAGEMENT FEES
(expressed as a percentage of average net assets)
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Series I*.................................. 1.10%
Series O................................... 1.00%
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*This Fund was not available until April 30, 1999.
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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 -- MICHAEL LEVY, Managing Director of Bankers Trust, has been
co-lead manager of Series I (International Series) since its inception in May
1999. He has been a portfolio manager of other investment products with similar
investment objectives since joining Bankers Trust in 1993. Mr. Levy is Bankers
Trust's International Equity Strategist and is head of the international equity
team. He has served in each of these capacities since 1993. The international
equity team is responsible for the day-to-day management of the Fund as well as
other international equity portfolios managed by Bankers Trust. Mr. Levy's
experience prior to joining Bankers Trust includes senior equity analyst with
Oppenheimer & Company, as well as positions in investment banking, technology
and manufacturing enterprises. He has 27 years of business experience, of which
seventeen years have been in the investment industry.
ROBERT REINER, Principal at Bankers Trust, has been co-lead manager of Series I
(International Series) since its inception in May 1999. He has been a portfolio
manager of other investment products with similar investment objectives since
joining Bankers Trust in 1994. At Bankers Trust, he has been involved in
developing analytical and investment tools for the group's international equity
team. His primary focus has been on Japanese and European markets. Prior to
joining Bankers Trust, he was an equity analyst and also provided macroeconomic
coverage for Scudder, Stevens & Clark from 1993 to 1994. He previously served as
Senior Analyst at Sanford C. Bernstein & Co. from 1991 to 1992, and was
instrumental in the development of Bernstein's International Value Fund. Mr.
Reiner spent more than nine years at Standard & Poor's Corporation, where he was
a member of its international ratings group. His tenure included managing the
day-to-day operations of the Standard & Poor's Corporation Tokyo office for
three years.
BRIAN C. ROGERS, Director, Managing Director 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.
JULIE WANG, Principal at Bankers Trust, has been co-manager of Series I
(International Series) since its inception in May 1999. She has been a manager
of other investment products with similar investment objectives since joining
Bankers Trust in 1994. Ms. Wang has primary focus on the Asia-Pacific region and
the Fund's emerging market exposure. Prior to joining Bankers Trust, Ms. Wang
was an investment manager at American International Group, where she assisted in
the management of $7 billion of assets in Southeast Asia, including private and
listed equities, bonds, loans and structured products. Ms. Wang received her
B.A. (economics) from Yale University and her M.B.A. from the Wharton School.
YEAR 2000 COMPLIANCE -- Like other mutual funds, as well as other financial and
business organizations around the world, the Fund could be adversely affected if
the computer systems used by the Investment Manager, and other service
providers, in performing their administrative functions do not properly process
and calculate date-related information and data before, during and after January
1, 2000. Some computer software and hardware systems currently cannot
distinguish between the year 2000 and the year 1900 or some other date because
of the way date fields were encoded. This is commonly known as the "Year 2000
Problem." If not addressed, the Year 2000 Problem could impact the management
services provided to the Fund by the Investment Manager, as well as transfer
agency, accounting, custody, distribution and other services provided to the
Fund and its shareholders.
The Investment Manager has adopted a plan to be "Year 2000 Compliant" with
respect to both its internally built systems as well as systems provided by
external vendors. The Investment Manager considers a system "Year 2000
Compliant" when it is able to correctly process, provide and/or receive data
before, during and after the Year 2000. The Investment Manager's overall
approach to addressing the Year 2000 issue is as follows: (1) to inventory its
internal and external hardware, software, telecommunications and data
transmissions to customers and conduct a risk assessment with respect to the
impact that a failure on any such system would have on its business operations;
(2) to modify or replace its internal systems and obtain vendor certifications
of Year 2000 compliance for systems provided by vendors or replace such systems
that are not Year 2000 Compliant; and (3) to implement and test its systems for
Year 2000 compliance. The Investment Manager has completed the inventory of its
internal and external systems and has made substantial progress toward
completing the modification/replacement of its internal systems as well as
towards obtaining Year 2000 Compliant certifications from its external vendors.
Overall systems testing commenced in early 1998 and will extend through year end
1999.
Although the Investment Manager has taken steps to ensure that its systems will
function properly before, during and after the Year 2000, its key operating
systems and information sources are provided by or through external vendors
which creates uncertainty to the extent the Investment Manager is relying on the
assurance of such vendors as to whether their systems will be Year 2000
Compliant. The costs or consequences of incomplete or untimely resolution of the
Year 2000 issue are unknown to the Investment Manager at this time but could
have a material adverse impact on the operations of the Fund and the Investment
Manager.
The Year 2000 Problem is also expected to impact companies, which may include
issuers of portfolio securities held by the Fund, to varying degrees based upon
various factors, including, but not limited to, the company's industry sector
and degree of technological sophistication. Moreover, it is possible that
foreign companies and markets (especially emerging markets) will not be as
prepared for the Year 2000 Problem as domestic companies and markets. To the
extent that a Series invests in foreign or emerging markets, its returns could
be adversely effected. However, the Fund and the Investment Manager are unable
to predict what impact, if any, the Year 2000 Problem will have on issuers of
the portfolio securities (foreign or domestic) held by the Fund.
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.
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, 700 SW Harrison
Street, Topeka, Kansas 66636-0001, or call (785) 431-3127 or 1-800-888-2461,
extension 3127.
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:
* 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
* purchase more than 10% of the outstanding voting securities of any one issuer
* 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, as well as some of their management practices.
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 -- The Series may invest in 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 -- The Series 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.
LOWER RATE DEBT SECURITIES -- The Series may invest in higher yielding debt
securities in the lower rating (higher risk) categories of the recognized rating
services (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's credit analysis. A real or
perceived economic downturn or higher interest rates could cause a decline in
high-yield bond prices by lessening the ability of issuers to make principal and
interest payments. These bonds are often thinly traded and can be more difficult
to sell and value accurately than high-quality bonds. Because objective pricing
data may be less available, judgment may play a greater role in the valuation
process. In addition, the entire junk bond market can experience sudden and
sharp price swings due to a variety of factors, including changes in economic
forecasts, stock market activity, large or sustained sales by major investors, a
high-profile default, or just a change in the market's psychology. This type of
volatility is usually associated more with stocks than bonds, but junk bond
investors should be prepared for it.
FUTURES AND OPTIONS -- The 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 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. 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.
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.
<PAGE>
The financial highlights table is intended to help you understand certain of
Series O's financial performance during the past five years, or the period since
commencement. 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 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. Information for Series I
is not included as it was not available for purchase until April 30, 1999.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SERIES O
- ------------------------------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED DECEMBER 31
--------------------------------------------------
1998 1997 1996 1995(A)(C)
---- ---- ---- ----------
<S> <C> <C> <C> <C>
PER SHARE DATA
Net asset value beginning of period.......................... $17.62 $14.01 $11.70 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)................................. 0.29 0.19 0.17 0.17
Net gain (loss) on securities (realized & unrealized)........ 1.30 3.77 2.17 1.53
----- ----- ----- -----
Total from investment operations............................. 1.59 3.96 2.34 1.70
LESS DISTRIBUTIONS
Dividends (from net investment income)....................... (0.25) (0.14) (0.03) ---
Distributions (from capital gains)........................... (0.61) (0.21) --- ---
----- ----- ----- -----
Total distributions.......................................... (0.86) (0.35) (0.03) ---
----- ----- ----- -----
Net asset value end of period................................ $18.35 $17.62 $14.01 $11.70
===== ===== ===== =====
Total return (b)............................................. 9.0% 28.4% 20.0% 17.0%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)......................... $204,070 $150,391 $62,377 $13,528
Ratio of expenses to average net assets...................... 1.08% 1.09% 1.15% 1.40%
Ratio of net investment income (loss) to average net assets.. 1.93% 2.31% 2.62% 3.0%
Portfolio turnover rate...................................... 20% 21% 22% 3%
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(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) Series O was initially capitalized on June 1, 1995 with a net asset value
of $10 per share. Percentage amounts for the period have been annualized,
except for total return.
</FN>
</TABLE>
<PAGE>
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
BY TELEPHONE -- Call 1-800-888-2461.
BY MAIL -- Write to:
Security Management Company, LLC
700 SW Harrison
Topeka, KS 66636-0001
ON THE INTERNET -- Reports and other information about the Fund can be viewed
online or downloaded from:
SEC: 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-SEC-0330. Copies may be obtained, upon payment of a duplicating fee, 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, extension 3127. Shareholder inquiries should be addressed to
SMC, LLC, 700 SW Harrison Street, 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
