<PAGE>
Security
Funds
Annual
Report
December 31, 1995
* Security Income
Fund
- Corporate Bond
Series
- U.S. Government
Series
- Limited Maturity
Bond Series
* Security Tax-
Exempt Fund
* Security Cash
Fund
[SDI Logo]
<PAGE>
PRESIDENT'S LETTER
- --------------------------------------------------------------------------------
February 15, 1996
SECURITY
FUNDS
To Our Shareholders:
We have just completed one of the best years in history for the combined
equity and fixed income markets. The Standard and Poor's 500 Index rose an
amazing 37.58%, and the bellwether thirty-year Treasury bond declined almost two
full percentage points from 7.87% to 5.94% over the course of the year. These
gains are evidence of the rewards reaped by patient investors who stood pat and
even continued to invest during the distressing markets of 1994.*
REASONS BEHIND THE OUTSTANDING PERFORMANCE IN 1995
The Federal Reserve Board deserves much of the credit for the success of
the markets during the year. The board's chairman, Alan Greenspan, has done a
commendable job of assessing the condition of the nation's economy and deftly
applying the brakes in the form of restrictive monetary policy as needed to keep
inflation in check. The resulting slow, steady economic growth and stable prices
were an unbeatable combination. Bond market investors' fears of surging
inflation dissipated, and long-term bond rates fell to levels not seen in
several years.
Technology was the year's primary equity market theme, reflective of an
increased focus on productivity in our nation's factories and offices. We have
seen extraordinary technological gains attributable to rapid development of
computer applications in every field from word processing to assembly line
production. These gains have led to more rapid decision making processes and
substitutions for labor which have in turn reduced costs, contributing to
diminished inflation pressures.
CAN THE EUPHORIA CONTINUE?
At the close of 1995 the nation's politicians were locked in combat over an
attempt to agree on a balanced budget, bringing the federal government to an
abrupt halt and creating immeasurable noise in the financial markets. Investors
must keep their eyes focused on the big picture--the economic fundamentals which
continue to augur well for the long-term outlook. Inflation remains well under
control, the economy continues to move at a slow, sustainable rate of growth,
and the Federal Reserve Open Market Committee is likely to recognize that
additional cuts in short-term interest rates are justified.
We believe that earnings comparisons for the fourth quarter of 1995 will,
on balance, be sufficient to support current market valuations. Earnings are not
likely to be as robust as they were a year ago; however, they should be strong
enough to sustain the markets at their present levels. There will be some
earnings disappointments, as there always are, generating daily volatility in
individual stock prices which we have come to consider routine. As we move
through the first half of 1996, the focus will be on the extended slow growth of
the economy and the ability of corporations to continue productivity improvement
in order to generate earnings gains in that slow-growth climate.
[Upper Right Hand Corner, Photo of John Cleland]
JOHN CLELAND
THE LONGER TERM GLOBAL VIEW
In the United States we see an opportunity for the economy to benefit from
the national movement toward less government involvement in all aspects of our
lives. It is clearly possible that in the future the government will get a
smaller share of our total resources, with the greater part going toward
economic growth. The implications of this are enormously positive for financial
markets--lower interest rates due to a smaller government hand in our
pocketbook. Having a greater share of available resources dedicated to economic
growth bodes well for sustained rises in stock and bond prices.
Globally the same trends are at work. European countries are beginning to
recognize that their social welfare systems have grown beyond the capacity of
the people to support them. Growth of the free market system and the elimination
of communism as a viable political structure are strong pluses for global
economic growth. Reallocation of resources to the free market system improves
the lives of citizens and further enhances economic growth and positive
financial markets.
In the following pages our portfolio managers review the factors
influencing the performance of their respective funds in 1995. They also present
their management philosophies and outlooks for the year ahead. Our goal is to
provide you with positive investment results over time and the highest quality
service in the industry. We invite your questions and comments at any time.
Sincerely,
/s/ John D. Cleland
John D. Cleland
President, Security Funds
*Although we have just experienced a very rewarding year, investors should
remember that past performance is not a guarantee of future results, and that
you may have a gain or a loss at redemption.
1
<PAGE>
MANAGERS' COMMENTARY
------------------------------------------------------------------------
SECURITY February 15, 1996
FUNDS
SECURITY INCOME FUND
CORPORATE BOND SERIES
U.S. GOVERNMENT SERIES
LIMITED MATURITY BOND SERIES
SECURITY TAX-EXEMPT FUND
SECURITY CASH FUND
Dear Shareholder:
What a difference a year makes! In 1994 bonds took the worst beating since the
Depression years, but investors who kept long term goals in mind rode out the
storm. In the first five months of 1995 those patient investors had recouped all
of their 1994 losses, and enjoyed continuing gains throughout the balance of the
year. Both the taxable and tax-exempt sectors of the fixed income markets
performed extremely well as the thirty-year Treasury bond declined in yield
almost two full percentage points.
Perhaps the single most important factor behind the 1995 bond market rally was
investors' realization that inflation was indeed under control. The Federal
Reserve's Open Market Committee remained steadfast in their fight, holding short
term interest rates at or above 5-1/2% throughout the year. Long term bonds once
again became attractive, and investor demand drove their prices higher.
PERFORMANCE OF THE CORPORATE BOND SERIES
The Corporate Bond Series with its long term orientation capitalized on rising
bond prices, returning 18.2% to its shareholders in 1995.* As usual the bulk of
the portfolio was invested in corporate issues, with generally 5% to 10% of the
assets in government or federal agency securities for liquidity purposes. The
largest percentage of corporate bonds was rated in the single-A category,
because these issues tend to outperform higher rated bonds in rising markets.
The best performing sector of the corporate bond market was industrials,
represented in our portfolio by names such as Lockheed Corporation, Ralston
Purina Company, and Southwest Airlines Company. Industrials as a group were up
nearly 23% in 1995. Financial issues were excellent performers as well, rising
over 20% during the year. This sector of our portfolio includes banks such as
BankAmerica Corporation and Wachovia Corporation, finance companies like General
Motors Acceptance Corporation, and brokerage firms including Lehman Brothers
Holdings, Inc. and Bear Stearns.
The utility sector of the corporate bond market also did very well, increasing
over 22% in value. Our portfolio was underweighted in this area because of our
fear of the impact of changing regulatory restrictions. International issues
were strong performers in the index, but again were underrepresented in our
portfolio because of prospectus limitations which allowed us to invest outside
of the United States only in Canadian issues.
[LINE GRAPH WITH FOLLOWING INFORMATION CHARTED]
CORPORATE BOND SERIES
12-31-95
CORPORATE LEHMAN BROTHERS LEHMAN BROTHERS MUTUAL FUND
BOND SERIES CORPORATE BOND INDEX A RATED CORPORATE INDEX
----------- -------------------- -----------------------
March 1986 $10,048 $10,812 $10,806
June 1986 $10,176 $10,953 $10,953
September 1986 $10,396 $11,195 $11,198
December 1986 $10,571 $11,651 $11,651
March 1987 $10,763 $11,929 $11,928
June 1987 $10,785 $11,650 $11,644
September 1987 $10,546 $11,227 $11,200
December 1987 $10,994 $11,948 $11,940
March 1988 $11,257 $12,478 $12,471
June 1988 $11,322 $12,617 $12,588
September 1988 $11,549 $12,914 $12,887
December 1988 $11,705 $13,049 $12,988
March 1989 $11,835 $13,206 $13,136
June 1989 $12,533 $14,252 $14,183
September 1989 $12,571 $14,438 $14,368
December 1989 $12,872 $14,888 $14,826
March 1990 $12,882 $14,758 $14,700
June 1990 $13,351 $15,334 $15,298
September 1990 $13,133 $15,331 $15,297
December 1990 $13,717 $15,939 $15,915
March 1991 $14,238 $16,619 $16,626
June 1991 $14,498 $16,950 $16,965
September 1991 $15,245 $17,944 $17,946
December 1991 $15,929 $18,891 $18,888
March 1992 $15,882 $18,753 $18,754
June 1992 $16,473 $19,567 $19,598
September 1992 $17,150 $20,491 $20,523
December 1992 $17,354 $20,532 $20,554
March 1993 $18,420 $21,569 $21,577
June 1993 $19,101 $22,289 $22,279
September 1993 $19,940 $23,064 $23,072
December 1993 $19,734 $23,029 $23,021
March 1994 $18,710 $22,219 $22,176
June 1994 $18,055 $21,869 $21,777
September 1994 $17,999 $22,029 $21,940
December 1994 $18,103 $22,126 $22,024
March 1995 $18,959 $23,436 $23,541
June 1995 $19,965 $25,179 $25,596
September 1995 $20,345 $25,773 $26,285
December 1995 $21,402 $27,045 $27,825
$10,000 OVER TEN YEARS
This chart references a change in Corporate Bond Series' Index. The Series' new
index is the Lehman Brothers Mutual Fund, A Rated Corporate Index. We believe
the makeup of this index more closely resembles the composition of Corporate
Bond Series' portfolio.
This chart assumes a $10,000 investment in Class A shares of Corporate Bond
Series on December 31, 1985, and reflects deduction of the 4.75% sales load. On
December 31, 1995, the value of your investment in the Series' Class A shares
(with dividends reinvested) would have grown to $21,402. By comparison, the same
$10,000 investment would have grown to $27,045 based on the performance of the
Lehman Corporate Bond Index and to $27,825 based on the performance of the
Lehman Brothers Mutual Fund A Rated Corporate Index.
The performance illustrated above is based on the performance of Class A shares.
The performance of Class B shares will be greater or less than the performance
shown for Class A shares as a result of the different loads and fees associated
with an investment in Class B shares.
The performance data illustrated above reflects past performance which is not
predictive of future results.
The Lehman Brothers Corporate Bond Index includes all publicly issued,
fixed-rate, non-convertible investment grade dollar denominated, and
SEC-registered corporate debt. Investments cannot be made directly in an index.
The Lehman Brothers Mutual Fund A Rated Corporate Index includes all corporate
debt securities rated A or higher.
- --------------------------------------------------------------------------------
CORPORATE BOND SERIES
AVERAGE ANNUAL TOTAL RETURN
AS OF DECEMBER 31, 1995
CLASS A SHARES CLASS B SHARES
1 Year 12.67% 1 Year 12.26%
5 Years 8.26% Since Inception -0.22%
10 Years 7.91% (10-19-93)
The performance data above represents past performance which is not predictive
of future results. For Class A shares these figures reflect deduction of the
maximum sales charge of 4.75%. For Class B shares the total return includes
deduction of the maximum contingent deferred sales charge.
- --------------------------------------------------------------------------------
2
<PAGE>
MANAGERS' COMMENTARY
------------------------------------------------------------------------
SECURITY February 15, 1996
FUNDS
The Corporate Bond Series in times of rising bond prices will frequently
maintain an average duration up to one year longer than its benchmark index. We
carefully monitor economic activity and other information that affects long-term
interest rates. When we believe it is appropriate, we adjust the duration and
quality to best position the portfolio for current market conditions.
PERFORMANCE OF THE U.S. GOVERNMENT SERIES
The U.S. Government Series had a particularly stellar year in 1995, returning
21.9% to its shareholders.* This Series, like the Corporate Bond Series,
capitalized on the benefits gained from long maturity bonds. The decision was
made early in the year to extend the maturities of many of the portfolio
holdings out beyond twenty years. Now at year's end, the timeliness of this
decision is apparent.
[LINE GRAPH WITH FOLLOWING INFORMATION CHARTED]
U.S. GOVERNMENT SERIES
12-31-95
LEHMAN BROTHERS
U.S. GOVERNMENT SERIES GOVERNMENT BOND INDEX
---------------------- ---------------------
March 1986 $9,864.07 $10,866.04
June 1986 $9,910.88 $11,009.41
September 1986 $10,287.67 $11,224.60
December 1986 $10,384.37 $11,531.09
March 1987 $10,562.63 $11,666.80
June 1987 $10,515.27 $11,463.43
September 1987 $10,389.52 $11,154.62
December 1987 $10,773.69 $11,783.90
March 1988 $11,033.09 $12,172.76
June 1988 $11,212.67 $12,287.96
September 1988 $11,389.33 $12,495.40
December 1988 $11,445.82 $12,613.03
March 1989 $11,565.41 $12,747.04
June 1989 $12,229.29 $13,772.22
September 1989 $12,390.30 $12,886.01
December 1989 $12,797.95 $14,408.29
March 1990 $12,787.69 $14,229.26
June 1990 $13,226.12 $14,726.60
September 1990 $13,397.18 $14,848.98
December 1990 $14,051.97 $15,665.14
March 1991 $14,401.92 $16,004.21
June 1991 $14,643.82 $16,220.62
September 1991 $15,339.74 $17,147.12
December 1991 $15,990.08 $18,066.76
March 1992 $15,792.61 $17,750.73
June 1992 $16,256.51 $18,453.17
September 1992 $16,612.21 $19,363.36
December 1992 $16,779.51 $19,372.16
March 1993 $17,553.72 $20,247.08
June 1993 $18,225.25 $20,832.98
September 1993 $18,827.45 $21,508.90
December 1993 $18,748.77 $21,436.41
March 1994 $18,013.67 $20,790.85
June 1994 $17,579.45 $20,552.41
September 1994 $17,448.78 $20,639.58
December 1994 $17,521.79 $20,713.59
March 1995 $18,292.01 $21,688.27
June 1995 $19,635.99 $23,033.88
September 1995 $20,196.41 $23,440.04
December 1995 $21,351.36 $24,510.73
$10,000 OVER TEN YEARS
This chart assumes a $10,000 investment in Class A shares of U.S. Government
Series on December 31, 1985, and reflects deduction of the 4.75% sales load. On
December 31, 1995, the value of your investment in the Series' Class A shares
(with dividends reinvested) would have grown to $21,351. By comparison, the same
$10,000 investment would have grown to $24,511 based on the performance of the
Lehman Brothers Government Bond Index.
The performance illustrated above is based on the performance of Class A shares.
The performance of Class B shares will be greater or less than the performance
shown for Class A shares as a result of the different loads and fees associated
with an investment in Class B shares.
The performance data illustrated above reflects past performance which is not
predictive of future results.
The Lehman Brothers Government Bond Index is made up of all public obligations
of the U.S. Treasury, excluding flower bonds and foreign-targeted issues, all
publicly issued debt of U.S. Government agencies and quasi-federal corporations,
and corporate debt guaranteed by the U.S. Government. Investments cannot be made
directly in an index.
- --------------------------------------------------------------------------------
U.S. GOVERNMENT SERIES
AVERAGE ANNUAL TOTAL RETURN
AS OF DECEMBER 31, 1995
CLASS A SHARES CLASS B SHARES
1 Year 15.99% 1 Year 15.94%
5 Years 7.67% Since Inception 2.40%
10 Years 7.86% (10-19-93)
The performance data above represents past performance which is not
predictive of future results. For Class A shares these figures reflect
deduction of the maximum sales charge of 4.75%. For Class B shares the total
return includes deduction of the maximum contingent deferred sales charge.
- --------------------------------------------------------------------------------
The bonds in this portfolio are all of the highest credit quality, as all are
issued by the U.S. Government, its agencies or instrumentalities.** At the close
of December about 28% of the assets were invested in GNMA mortgage pass-through
securities, on which the timely payment of principal and interest is guaranteed.
These issues were carefully selected to attempt to minimize prepayment risk.
Slightly over 22% of the holdings were U. S. Treasury bonds with maturities
ranging from thirteen to twenty-one years. The balance of the portfolio holdings
were issues of other federal agencies with maturities from twenty to thirty
years.
As with the Corporate Bond Series, the performance of the Government Series is
dependent on economic conditions and interest rate movements. We continue to
monitor reports carefully in order to adjust the holdings in the portfolio to
best serve the long-term investment objectives of its shareholders.
PERFORMANCE OF THE LIMITED MATURITY BOND SERIES
On January 17, 1995, the Limited Maturity Bond Series was introduced to fill a
gap that existed in our family of fixed income funds. With maturities generally
under ten years, it is an intermediate term fund with less volatility than
longer term funds, but with greater return potential under normal circumstances
than money market funds. Indeed, we noted at year end that the Limited Maturity
Bond Series' net asset value range from low to high was only half that of the
Corporate Bond Series. However, its total return of 13% was over 70% of the
longer fund's and well over twice that of the Security Cash Fund.*
This portfolio was managed in a "laddered" style; that is, the assets were
divided so that approximately 10% will mature in each of the next ten years.
This allows the portfolio manager to reinvest each year at then current interest
rates, which reduces volatility by spreading the maturity risk.
The assets of the Limited Maturity Bond Series were spread among U.S. Treasury
and government agency securities as well as investment grade and high yield
corporate bonds. The corporate
3
<PAGE>
MANAGERS' COMMENTARY
------------------------------------------------------------------------
SECURITY February 15, 1996
FUNDS
portion included issues in the financial, industrial, and utility sectors as
well as U. S. dollar-denominated Canadian bonds. The Treasury and agency
holdings made up nearly 32% of the portfolio, investment grade corporates 63%,
and high yield corporates the remaining 5%.
PERFORMANCE OF THE SECURITY TAX-EXEMPT FUND
Yields on municipal securities generally followed the thirty-year Treasury bond
yield's dramatic descent throughout the year. Tax-exempt issues underperformed
taxables to some extent, however, as politicians kept tax reform proposals
active in the news media. Despite lagging the taxable sector a bit, the Security
Tax-Exempt Fund returned 15.5% to its shareholders, the second-best total return
in its history.* All of the income distributions during the year are exempt from
Federal taxes; the portfolio contained no issues in 1995 that were subject to
the alternative minimum tax.
- --------------------------------------------------------------------------------
LIMITED MATURITY BOND SERIES
AVERAGE ANNUAL TOTAL RETURN
AS OF DECEMBER 31, 1995
CLASS A SHARES
Since Inception 1-17-95 7.63%*
CLASS B SHARES
Since Inception 1-17-95 7.18%*
*The percentage amounts are from inception and are not annualized.
The performance data above represents past performance which is not
predictive of future results. For Class A shares these figures reflect
deduction of the maximum sales charge of 4.75%. For Class B shares the total
return includes deduction of the maximum contingent deferred sales charge.
- --------------------------------------------------------------------------------
[LINE GRAPH WITH FOLLOWING INFORMATION CHARTED]
LIMITED MATURITY BOND SERIES
12-31-95
LEHMAN BROTHERS
INTERMEDIATE TERM
LIMITED MATURITY BOND SERIES CORPORATE BOND INDEX
---------------------------- --------------------
January 1995 $9,552 $10,192
February 1995 $9,749 $10,464
March 1995 $9,798 $10,533
April 1995 $9,933 $10,695
May 1995 $10,301 $11,104
June 1995 $10,359 $11,194
July 1995 $10,309 $11,180
August 1995 $10,404 $11,319
September 1995 $10,488 $11,424
October 1995 $10,524 $11,559
November 1995 $10,659 $11,752
December 1995 $10,762 $11,901
$10,000 OVER THE LIFE OF THE SERIES
This chart assumes a $10,000 investment in Class A shares of Limited Maturity
Bond Series on January 17, 1995 (date of inception), and reflects deduction of
the 4.75% sales load. On December 31, 1995, the value of your investment in the
Series' Class A shares (with dividends reinvested) would have grown to $10,762.
By comparison, the same $10,000 investment would have grown to $11,901 based on
the performance of the Lehman Intermediate Term Corporate Bond Index.
The performance illustrated above is based on the performance of Class A shares.
The performance of Class B shares will be greater or less than the performance
shown for Class A shares as a result of the different loads and fees associated
with an investment in Class B shares.
The performance data illustrated above reflects past performance which is not
predictive of future results.
The Lehman Brothers Intermediate Term Corporate Bond Index includes all
corporate debt securities rated A or higher. Investments cannot be made directly
in an index.
[LINE GRAPH WITH FOLLOWING INFORMATION CHARTED]
TAX-EXEMPT FUND
12-31-95
LEHMAN BROTHERS
TAX-EXEMPT FUND MUNICIPAL BOND INDEX
--------------- --------------------
March 1986 $10,141 $10,540
June 1986 $10,286 $10,758
September 1986 $10,591 $10,995
December 1986 $10,972 $11,350
March 1987 $11,269 $11,583
June 1987 $10,736 $11,454
September 1987 $10,608 $11,280
December 1987 $10,827 $11,795
March 1988 $11,147 $12,279
June 1988 $11,413 $12,404
September 1988 $11,637 $12,671
December 1988 $11,937 $12,736
March 1989 $11,729 $12,885
June 1989 $12,172 $13,730
September 1989 $12,165 $13,946
December 1989 $12,463 $14,385
March 1990 $12,478 $14,357
June 1990 $12,756 $14,857
September 1990 $12,781 $15,009
December 1990 $13,235 $15,482
March 1991 $13,513 $16,061
June 1991 $13,753 $16,407
September 1991 $14,273 $17,236
December 1991 $14,788 $18,054
March 1992 $14,793 $18,001
June 1992 $15,299 $18,770
September 1992 $15,625 $19,619
December 1992 $15,866 $19,532
March 1993 $16,340 $20,474
June 1993 $16,964 $21,070
September 1993 $17,572 $21,659
December 1993 $17,822 $21,706
March 1994 $16,537 $21,113
June 1994 $16,659 $20,948
September 1994 $16,641 $21,165
December 1994 $16,437 $21,131
March 1995 $17,449 $22,258
June 1995 $17,623 $23,654
September 1995 $18,015 $24,141
December 1995 $18,877 $25,159
$10,000 OVER TEN YEARS
This chart assumes a $10,000 investment in Class A shares of Tax-Exempt Fund on
December 31, 1985, and reflects deduction of the 4.75% sales load. On December
31, 1995, the value of your investment in the Fund's Class A shares (with
dividends reinvested) would have grown to $18,877. By comparison, the same
$10,000 investment would have grown to $25,693 based on the performance of the
Lehman Brothers Municipal Bond Index.
The performance illustrated above is based on the performance of Class A shares.
The performance of Class B shares will be greater or less than the performance
shown for Class A shares as a result of the different loads and fees associated
with an investment in Class B shares.
The performance data illustrated above reflects past performance which is not
predictive of future results.
The Lehman Brothers Municipal Bond Index is a total return performance benchmark
for the long-term, investment-grade tax-exempt bond market. Returns and
attributes are calculated semi-monthly using approximately 15,000 municipal
bonds. Investments cannot be made directly in an index.
4
<PAGE>
MANAGERS' COMMENTARY
------------------------------------------------------------------------
SECURITY February 15, 1996
FUNDS
- --------------------------------------------------------------------------------
TAX-EXEMPT FUND
AVERAGE ANNUAL TOTAL RETURN
AS OF DECEMBER 31, 1995
CLASS A SHARES CLASS B SHARES
1 Year 10.01% 1 Year 9.29%
5 Years 6.31% Since Inception -0.64%
10 Years 6.56% (10-19-93)
The performance data above represents past performance which is not
predictive of future results. For Class A shares these figures reflect
deduction of the maximum sales charge of 4.75%. For Class B shares the total
return includes deduction of the maximum contingent deferred sales charge.
- --------------------------------------------------------------------------------
Among the strongest sectors in the tax-exempt market during the year were
electric revenue and water and sewer revenue issues. Our portfolio had
approximately 40% of its assets invested in these combined sectors throughout
the year. Utility-related tax- exempt bonds appeal to investors because they
"pay their own way" -- that is, the revenue streams from utility bill payments
provide the funds to repay the bondholders. Another sector that is similarly
defeased and that also performed well in 1995 is transportation, consisting
primarily of turnpike and toll road revenue bonds.
The duration of the Security Tax-Exempt Fund stayed quite close to that of its
benchmark index throughout the year, ending December at 7.79 years. Maturities
of individual issues in the portfolio ranged generally from ten to thirty years.
As with our taxable funds, the longer maturities in the fund tend to appreciate
more rapidly in climates of falling interest rates. The average quality of the
bonds ranged from A+ to AA most of the year.
We will continue to closely monitor tax reform proposals in the months ahead.
Many municipal bond analysts feel that we will probably have tax reform of some
sort, but that the likelihood of a pure flat tax is low. In the meantime,
uncertainty is keeping prices on tax-exempt bonds weaker than those on taxables,
and this creates attractive buying opportunities for municipal bond investors.
PERFORMANCE OF SECURITY CASH FUND
Money market funds in 1995 provided interest rates that were competitive with
those of many longer-maturity bonds. Security Cash Fund returned 5.0% for the
year on a high quality portfolio that invested only in top-tier commercial paper
and government agency securities.***
The main tool of the Federal Reserve Open Market Committee in its fight against
inflation is short-term interest rates. Through-out the year they kept the
target rate on Federal Funds, the excess funds banks loan each other overnight,
between 5.50% and 5.75%. This kept interest rates on short-term investments used
in money market funds at very attractive levels, considering that inflation
remained around 3% throughout the year.
Security Cash Fund, like other money market funds, must invest its assets in
accordance with strict regulatory requirements. These regulations require that
we invest at least 95% of the Fund's assets in commercial paper that is rated in
the highest bracket by standard rating agencies. These include names such as
Coca Cola, General Electric, Wal-Mart, Winn Dixie Stores, Inc., and other major
corporations. Additionally we purchase short-term paper issued by agencies of
the Federal government, considered to be of the highest credit quality. As with
other money market funds, safety of principal is our utmost concern.
LOOKING AHEAD TO 1996
The fixed income team at Security Management Company is optimistic about bonds
in the months ahead. Although we don't expect a repeat of the outstanding
returns achieved in 1995, we believe there is still room for interest rates to
decline further. At this writing, the debate over a balanced Federal budget is
unresolved, and short term interest rates remain at historically high levels.
Once uncertainty over these two issues is removed, we believe bonds could stage
another rally taking long-term interest rates again below 6%. In our view it is
possible that rates could even go another 50 basis points lower to 5-1/2%.
Combining this upward price movement with a steady coupon interest stream, we
believe total returns for 1996 will once again reward patient long-term
investors.
Jane Tedder
Senior Portfolio Manager
Steve Bowser
Portfolio Manager
U.S. Government Series
*Performance figures are based on Class A shares and do not reflect deduction of
the sales charge.
**Although the securities purchased by the U.S. Government Series are guaranteed
as to the timely payment of principal and interest by the U. S. Government, its
agencies or instrumentalities, the shares of the Series itself are not so
guaranteed.
***The Security Cash Fund is neither insured nor guaranteed by the U.S
Government and there is no assurance that the fund will be able to maintain a
stable net asset value of $1.00 per share.
5
<PAGE>
MANAGERS' COMMENTARY
------------------------------------------------------------------------
SECURITY February 15, 1996
FUNDS
SECURITY INCOME FUND
GLOBAL AGGRESSIVE BOND SERIES
[MFR ADVISORS, INC. AND LEXINGTON MANAGEMENT CORPORATION]
SUBADVISORS - MFR ADVISORS, INC., AND LEXINGTON MANAGEMENT CORPORATION
PORTFOLIO MANAGERS, MARIA FIORINI RAMIREZ AND DENIS JAMISON
[LINE GRAPH WITH FOLLOWING INFORMATION CHARTED]
GLOBAL AGGRESSIVE BOND SERIES
12-31-95
GLOBAL AGGRESSIVE LEHMAN BROTHERS
BOND SERIES GLOBAL BOND INDEX
----------- -----------------
$10,000 $10,000
June 1995 $9,486 $10,069
July 1995 $9,619 $10,140
August 1995 $9,610 $9,907
September 1995 $9,851 $10,131
October 1995 $9,920 $10,245
November 1995 $9,969 $10,355
December 1995 $10,185 $10,508
$10,000 OVER THE LIFE OF THE SERIES
The Lehman Brothers Global Bond Index includes local currency-denominated
sovereign debt of 19 countries plus European Currency Units-denominated debt.
Investment cannot directly by made in an index.
This chart assumes a $10,000 investment in Class A shares of Global Aggressive
Bond Series on June 1, 1995 (date of inception), and reflects deduction of the
4.75% sales load. On December 31, 1995, the value of your investment in the
Series' Class A shares (with dividends reinvested) would have grown to $10,220.
By comparison, the same $10,000 investment would have grown to $10,508 based on
the performance of the Lehman Brothers Global Bond Index.
The performance illustrated above is based on the performance of Class A shares.
The performance of Class B shares will be greater or less than the performance
shown for Class A shares as a result of the different loads and fees associated
with an investment in Class B shares.
The performance data illustrated above reflects past performance which is not
predictive of future results.
- --------------------------------------------------------------------------------
GLOBAL AGGRESSIVE BOND SERIES
AVERAGE ANNUAL TOTAL RETURN
AS OF DECEMBER 31, 1995
CLASS A SHARES
Since Inception (6-1-95) 2.20%*
CLASS B SHARES
Since Inception (6-1-95) 1.87%*
*The percentage amounts are from inception and are not annualized.
The performance data above represents past performance which is not
predictive of future results. For Class A shares these figures reflect
deduction of the maximum sales charge of 4.75%. For Class B shares the total
return includes deduction of the maximum contingent deferred sales charge.
- --------------------------------------------------------------------------------
Dear Shareholder:
The Global Aggressive Bond Series enjoyed an excellent first seven months. The
Series boasts a 7.3% total return for its seven months of operation in 1995.*
The Series is off to a fast start in the new year and we are optimistic about
the prospects for all of 1996.
Investors in the Series haven't seen a decline in its income despite a drop in
U. S. interest rates. Yields overseas, particularly in certain transitional
economies, are much higher than those at home. The Series ended 1995 with a
standardized yield well in excess of 9%. We believe this level will be
maintained in the quarters ahead.
THE GLOBAL VIEW
Global bond investing often requires taking some less traveled roads. Over the
years, money managers have sold global and international bond funds as a way of
diversifying investment portfolios and reducing overall risk. They reasoned that
bond price movements in one country--the United States, for example--would move
independently of those in another country, such as Germany. Unfortunately, the
ongoing globalization of the world's economies, the ease with which capital
moves, and the flow of readily accessible financial information help to ensure
greater correlation of returns among the world's developed bond markets.
Therefore, we think investors need to expand their investment parameters and
seek out markets that offer the possibility of noncorrelated returns.
Fortunately, many of these markets offer high current income and profit
potential as well. Of course, many of these markets also present additional
risks.
PORTFOLIO POSITIONING IN 1995
The Global Aggressive Bond Series currently stresses bonds in certain
transitional markets, particularly in Eastern Europe and South Africa. We think
the U.S. bond market, and by extension most of the world's developed markets,
are fully priced. Meanwhile the economies of Eastern Europe and South Africa
need to attract capital and are offering yields and investor incentives to
assure that the capital keeps flowing.
6
<PAGE>
MANAGERS' COMMENTARY
------------------------------------------------------------------------
SECURITY February 15, 1996
FUNDS
We closed 1995 with major positions in Portugal, Poland, and South Africa.
Together they totaled 26% of the Series' assets. All three economies have strong
growth potential, relatively stable currencies, and governments committed to
fiscal restraint as well as pro-investor economic policies. Moreover, their bond
markets currently provide huge income advantages over those of the traditional
developed markets.
EMPHASIS ON DIVERSIFICATION
Aside from our concentration on transitional economies, the Series seeks to
strike a balance between developed market and LDC (less developed country) debt.
This diversification tends to mitigate volatility. Although the past volatility
of the Series is not necessarily indicative of future volatility, over the last
seven months the price volatility of the Series has been comparable to that of
ten-year U. S. Treasury notes.
We thank our investors for their continued loyalty and support.
Maria Fiorini Ramirez
Portfolio Manager
Denis P. Jamison
Portfolio Manager
*This performance figure is based on Class A shares, does not reflect deduction
of the sales charge and is not annualized.
Investing in foreign countries may involve risks, such as currency fluctuations
and political instability, not associated with investing exclusively in the U.S.
7
<PAGE>
STATEMENTS OF NET ASSETS
- --------------------------------------------------------------------------------
December 31, 1995
SECURITY INCOME FUND
CORPORATE BOND SERIES
PRINCIPAL MARKET
AMOUNT CORPORATE BONDS VALUE
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE - 5.4%
$4,900,000 Lockheed Corporation,
7.875% - 2023...................... $ 5,396,125
AIR TRANSPORTATION - 5.0%
4,500,000 Southwest Airlines Company, 7.875%
- 2007............................ 4,995,000
BANKS - 13.0%
4,000,000 BankAmerica Corporation, 7.20% - 2006 4,255,000
3,500,000 Norwest Financial, Inc., 6.75% - 2005 3,640,000
4,800,000 Wachovia Corporation, 6.80% - 2005 5,004,000
-----------
12,899,000
BROKERS, DEALERS & SERVICES - 4.5%
4,000,000 Lehman Brothers Holdings, Inc.,
8.50% - 2007....................... 4,500,000
COMPUTER EQUIPMENT - 5.0%
4,500,000 IBM Corporation, 7.50% - 2013....... 4,921,875
DRUG STORES - 5.3%
4,800,000 Rite Aid Corporation,
7.625% - 2005...................... 5,226,000
FINANCE - 9.0%
4,700,000 Ford Motor Credit Company,
6.85% - 2000....................... 4,858,625
4,000,000 General Motors Acceptance Corporation,
6.625% - 2005...................... 4,095,000
-----------
8,953,625
FOOD & BEVERAGES - 9.7%
4,500,000 Ralston Purina Company, 7.875% - 2025 4,921,875
4,500,000 Seagram Company, Ltd., 7.00% - 2008 4,719,375
-----------
9,641,250
INFORMATION PROCESSING - 4.2%
4,000,000 First Data Corporation, 6.75% - 2005 4,175,000
PAPER & LUMBER PRODUCTS - 10.2%
4,500,000 Georgia Pacific Company,
9.125% - 2022...................... 5,045,625
4,600,000 International Paper Products,
7.625% - 2007...................... 5,123,250
-----------
10,168,875
PRINCIPAL MARKET
AMOUNT CORPORATE BONDS (CONTINUED) VALUE
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT - 3.4%
3,000,000 Comsat Corporation, 8.125% - 2004... 3,360,000
UTILITIES - ELECTRIC & GAS - 4.8%
$4,750,000 Pacific Gas & Electric Company,
6.25% - 2003....................... $ 4,767,813
-----------
Total corporate bonds -
Corporate Bond Series
(cost $74,268,608) - 79.5%......... 79,004,563
GOVERNMENT & GOVERNMENT
AGENCY SECURITIES
------------------------
CANADIAN GOVERNMENT AGENCIES- 5.1%
4,750,000 Province of Ontario, 7.00% - 2005... 5,058,750
U.S. GOVERNMENT AGENCIES - 6.7%
1,500,000 Federal Home Loan Mortgage
Corporation, 7.974% - 2005 1,560,240
5,000,000 Federal National Mortgage Association,
6.85% - 2005....................... 5,105,400
-----------
6,665,640
U.S. TREASURY NOTES - 6.7%
6,500,000 6.25% - 2023........................ 6,686,484
-----------
Total government & government
agency securities - Corporate Bond
Series (cost $17,826,571) - 18.5%.. 18,410,874
-----------
Total investments - Corporate Bond
Series (cost $92,095,179) - 98.0%.. 97,415,437
Cash and other assets, less
liabilities - 2.0%................. 2,028,902
-----------
Total net assets - Corporate Bond
Series - 100.0%.................... $99,444,339
===========
SECURITY INCOME FUND
U.S. GOVERNMENT SERIES
U.S. GOVERNMENT & GOVERNMENT
AGENCY SECURITIES
---------------------------
FEDERAL NATIONAL MORTGAGE
ASSOCIATION- 47.3%
$ 500,000 8.20% - 2016....................... $ 606,335
1,000,000 8.10% - 2019....................... 1,211,240
1,000,000 9.05% - 2021....................... 1,077,110
1,250,000 7.93% - 2025....................... 1,514,700
500,000 8.28% - 2025....................... 629,735
-----------
5,039,120
See accompanying notes.
- --------------------------------------------------------------------------------
8
<PAGE>
STATEMENTS OF NET ASSETS
- --------------------------------------------------------------------------------
December 31, 1995
SECURITY INCOME FUND
U.S. GOVERNMENT SERIES (CONTINUED)
PRINCIPAL U.S. GOVERNMENT & GOVERNMENT MARKET
AMOUNT AGENCY SECURITIES (CONTINUED) VALUE
- --------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION - 27.6%
$ 680,665 9.50% - 2009....................... $ 726,787
5,103 11.00% - 2015...................... 5,681
908,946 8.50% - 2024....................... 947,225
700,217 7.75% - 2025....................... 724,940
525,170 7.50% - 2034....................... 540,261
-----------
2,944,894
U.S. TREASURY BONDS - 22.9%
600,000 8.75% - 2008....................... 714,312
1,000,000 7.25% - 2016....................... 1,141,270
500,000 7.50% - 2016....................... 586,240
-----------
2,441,822
-----------
Total investments -U.S. Government
Series (cost $9,528,784) - 97.8% .. 10,425,836
Cash and other assets, less
liabilities - 2.2%................. 236,409
-----------
Total net assets - U.S. Government
Series - 100.0%.................... $10,662,245
===========
SECURITY INCOME FUND
LIMTED MATURITY BOND SERIES
CORPORATE BONDS
----------------
AEROSPACE & DEFENSE - 2.6%
$100,000 Allied Signal, 6.75% - 2000......... $103,750
ALUMINUM - 3.9%
148,000 Alcan Aluminum, Ltd., 9.20% - 2001.. 157,990
BANKS - 6.7%
110,000 First Union Corporation,
8.125% - 2002...................... 121,688
150,000 Nationsbank Corporation, 6.50%- 2003 151,688
-----------
273,376
ELECTRIC COMPANIES - 7.7%
150,000 Consolidated Edison Company,
6.625% - 2002...................... 154,313
150,000 Texas Utilities Electric Company,
7.375% - 2001...................... 159,000
-----------
313,313
ELECTRIC & GAS COMPANIES - 4.0%
150,000 Public Service Electric & Gas
Company, 8.75% - 1999.............. 163,688
SECURITY INCOME FUND
LIMITED MATURITY BOND SERIES (CONTINUED)
PRINCIPAL MARKET
AMOUNT CORPORATE BONDS (CONTINUED) VALUE
- --------------------------------------------------------------------------------
FINANCE - 12.1%
$150,000 Ford Motor Credit Company,
8.375% - 2000...................... $162,563
150,000 Household Finance Corporation,
8.00% - 2004....................... 167,438
150,000 International Lease Finance Corporation,
8.25% - 2000....................... 162,000
-----------
492,001
GROCERY STORES - 3.5%
150,000 Penn Traffic Company,
10.65% - 2004...................... 143,625
OIL & GAS EXPLORATION COMPANIES - 4.2%
150,000 Vastar Resources, Inc.,
8.75% - 2005....................... 171,000
PETROLEUM REFINING & PRODUCTS - 4.2%
150,000 BP America, Inc. 8.75% - 2003....... 172,500
RETAIL TRADE - 4.0%
150,000 Wal-Mart Stores, Inc., 7.50% - 2004. 163,875
SANITARY SERVICES - 4.0%
150,000 WMX Technologies, Inc.,
8.25% - 1999....................... 162,375
TOBACCO PRODUCTS - 3.9%
150,000 Philip Morris Companies, Inc.,
7.625% - 2002...................... 160,313
-----------
Total corporate bonds -Limited Maturity
Bond Series (cost $2,293,147) - 60.8% 2,477,806
GOVERNMENT & GOVERNMENT
AGENCY SECURITIES
-----------------------
CANADIAN GOVERNMENT AGENCIES - 4.3%
150,000 Province of Quebec, 8.625% - 2005... 173,063
U.S. GOVERNMENT AGENCIES - 16.7%
Federal Home Loan Bank,
150,000 7.69% - 1996....................... 153,220
100,000 7.17% - 2000....................... 105,833
100,000 Federal Home Loan Mortgage
Corporation, 7.69% - 1996.......... 102,119
Federal National Mortgage Association,
150,000 7.05% - 1998....................... 156,347
150,000 8.50% - 2005....................... 163,477
-----------
680,996
See accompanying notes.
- --------------------------------------------------------------------------------
9
<PAGE>
STATEMENTS OF NET ASSETS
- --------------------------------------------------------------------------------
December 31, 1995
SECURITY INCOME FUND
LIMITED MATURITY BOND SERIES (CONTINUED)
PRINCIPAL GOVERNMENT & GOVERNMENT MARKET
AMOUNT AGENCY SECURITIES (CONTINUED) VALUE
- --------------------------------------------------------------------------------
U.S. TREASURY NOTES - 11.4%
$ 150,000 7.375% - 1997...................... $ 155,619
150,000 7.50% - 1997....................... 153,570
150,000 7.25% - 1998....................... 156,022
-----------
465,211
-----------
Total government & government
agency securities -Limited Maturity
Bond Series (cost $1,254,119)- 32.4% 1,319,270
-----------
Total investments - Limited Maturity
Bond Series (cost $3,547,266) - 93.2% 3,797,076
Cash and other assets,
less liabilities - 6.8%............ 276,728
-----------
Total net assets - Limited Maturity
Bond Series - 100.0%............... $4,073,804
===========
SECURITY INCOME FUND
GLOBAL AGGRESSIVE BOND SERIES
GOVERNMENT OBLIGATIONS
----------------------
ARGENTINA - 4.5%
$ 350,000 Republic of Argentina,
5.00% - 2023..................... 200,156
AUSTRALIA - 4.0%
210,000 Treasury Corporation of Victoria,
10.25% - 2006(2)................. 174,879
BRAZIL - 4.9%
350,000 Republic of Brazil,
7.25% - 2024..................... 215,250
CANADA - 3.6%
200,000 Stelco, Inc.,
10.40% - 2009(2)................. 157,682
ECUADOR - 4.1%
500,000 Republic of Ecuador,
3.00% - 2025..................... 181,875
GERMANY - 4.9%
300,000 Bundesrepublic Deutschland,
6.50% - 2005(2).................. 215,687
ITALY - 4.7%
340,000,000 Buoni Poliennali Del Tes,
8.50% - 2009(2).................. 206,249
SECURITY INCOME FUND
GLOBAL AGGRESSIVE BOND SERIES (CONTINUED)
PRINCIPAL MARKET
AMOUNT GOVERNMENT OBLIGATIONS (CONTINUED) VALUE
- --------------------------------------------------------------------------------
PHILIPPINES - 4.2%
$ 250,000 Central Bank of Philippines,
5.75% - 2017..................... $186,250
PORTUGAL - 9.3%
22,500,000 Obrig Do Tes Medio Prazo,
8.875% - 1997(2)................. 150,170
35,000,000 Obrig Do Tes Medio Prazo,
11.875% - 2005(2)................ 261,753
-----------
411,923
SOUTH AFRICA - 8.1%
500,000 Electricity Supply Commission,
11.00% - 2008(2)................. 111,798
1,000,000 Republic of South Africa,
12.00% - 2005(2)................. 243,682
-----------
355,480
SPAIN - 3.5%
20,000,000 Bonos Y Oblig Del Estado,
7.40% - 1999(2).................. 155,419
-----------
Total government obligations -
Global Aggressive Bond Series
(cost $2,392,436) - 55.8%........ 2,460,850
CORPORATE BONDS
---------------
BRAZIL - 3.2%
$ 150,000 Centrais Electricas Bras
8.875% - 2002.................... 140,250
CZECH REPUBLIC - 2.1%
2,500,000 CEZ, a.s., 11.30% - 2005(2)........ 93,770
DENMARK - 6.1%
898,000 Nykredit,
8.00% - 2026(2).................. 156,606
750,000 Realkredit Danmark,
6.00% - 2026(2).................. 112,264
-----------
268,870
MEXICO - 3.3%
150,000 Cemex S.A.,
8.875% - 1998.................... 144,375
UNITED STATES - 3.5%
150,000 Chiquita Brands International, Inc.,
11.50% - 2001.................... 156,750
-----------
Total corporate bonds -
Global Aggressive Bond Series
(cost $787,781) - 18.2%.......... 804,015
See accompanying notes.
- --------------------------------------------------------------------------------
10
<PAGE>
STATEMENTS OF NET ASSETS
- --------------------------------------------------------------------------------
December 31, 1995
SECURITY INCOME FUND
GLOBAL AGGRESSIVE BOND SERIES (CONTINUED)
PRINCIPAL MARKET
AMOUNT SHORT TERM INVESTMENTS VALUE
- --------------------------------------------------------------------------------
GREECE - 4.2%
50,000,000 Hellenic Treasury Bills,
0% - 12-18-96(2)................ $ 185,713
HUNGARY - 3.9%
30,000,000 Government of Hungary Treasury Bill,
0% - 12-20-96(2)................ 169,552
MEXICO - 2.0%
700,000 Cetes, 0% - 1-25-96(2)........... 89,260
POLAND - 8.2%
500,000 Government of Poland Treasury Bill,
0% - 2-28-96(2)................. 195,867
500,000 Government of Poland Treasury Bill,
0% - 11-15-96(2)................ 167,450
-----------
363,317
UNITED STATES - 2.3%
$ 100,000 U.S. Treasury Bill,
4.90% - 3-07-96................. 99,102
-----------
Total short-term investments -
Global Aggressive Bond Series
(cost $922,131) - 20.6%......... 906,944
-----------
Total investments -
Global Aggressive Bond Series
(cost $4,102,348) - 94.6% ...... 4,171,809
Cash and other assets, less
liabilities - 5.4%.............. 236,450
-----------
Total net assets -
Global Aggressive Bond Series
- 100.0%........................ $4,408,259
===========
SECURITY TAX-EXEMPT FUND
MUNICIPAL BONDS
---------------
EDUCATION REVENUE - 12.6%
1,000,000 Florida State Board of Education
Capital Outlay Refunding,
Series A, 5.50% - 2014............. $1,010,000
1,200,000 Fulton County Georgia School District,
5.625% - 2021...................... 1,216,500
1,000,000 North Brunswick Township, N.J.
Board of Education,
6.30% - 2013....................... 1,085,000
-----------
3,311,500
SECURITY TAX-EXEMPT FUND (CONTINUED)
PRINCIPAL MARKET
AMOUNT MUNICIPAL BONDS (CONTINUED) VALUE
- --------------------------------------------------------------------------------
ELECTRIC UTILITY REVENUE - 17.3%
$1,200,000 Massachusetts Municipal Wholesale
Electric Company Power Supply
System, Series B, 6.625% - 2004.... $ 1,347,000
1,000,000 Nebraska Public Power District Revenue,
Series A, 6.25% - 2022............. 1,045,000
1,000,000 Salt River Project, Arizona Agriculture
Improvement & Power District
Electric System, 6.625% - 2012..... 1,082,500
1,000,000 Washington Public Power Supply
System, Nuclear Project #2,
6.30% - 2012....................... 1,071,250
-----------
4,545,750
GENERAL OBLIGATION - 12.9%
1,000,000 Clark County, Nevada School District,
Series A, 5.50% - 2016............. 1,005,000
1,250,000 Commonwealth of Massachusetts
Series A, 6.50% - 2011............. 1,351,563
1,000,000 State of Washington,
5.80% - 2020....................... 1,016,250
-----------
3,372,813
HIGHWAY REVENUE - 10.7%
1,400,000 Harris County, TX, Series A,
Toll Road & Tax, 6.125% - 2020..... 1,489,250
1,300,000 Florida State Turnpike Authority,
Series A, 5.50% - 2021............. 1,306,500
-----------
2,795,750
SEWER REVENUE - 16.4%
1,000,000 DuPage County, IL Stormwater Project
Refunding, 5.60% - 2021............ 1,030,000
1,000,000 Houston, TX Water & Sewer Revenue
Series A, 6.20% - 2020............. 1,061,250
1,000,000 King County, WA Sewer
Revenue, Series A, 6.25% - 2034.... 1,042,500
1,100,000 Los Angeles, CA Wastewater System
Revenue, Series A, 6.00% - 2014.... 1,159,125
-----------
4,292,875
TRANSPORTATION - 18.3%
1,000,000 Illinois Regional Transportation,
6.25% - 2024....................... 1,057,500
1,300,000 Los Angeles County, CA Metropolitan
Transit, 5.625% - 2018............. 1,322,750
1,300,000 Metropolitan Transit Authority of
New York Service Contract
Refunding Series 5, 7.00% - 2012... 1,418,625
1,000,000 Michigan State Truck Line, Series A
5.70% - 2015....................... 1,012,500
-----------
4,811,375
See accompanying notes.
- --------------------------------------------------------------------------------
11
<PAGE>
STATEMENTS OF NET ASSETS
- --------------------------------------------------------------------------------
December 31, 1995
SECURITY TAX-EXEMPT FUND (CONTINUED)
PRINCIPAL MARKET
AMOUNT MUNICIPAL BONDS (CONTINUED) VALUE
- --------------------------------------------------------------------------------
VARIOUS PURPOSE REVENUE - 4.1%
$1,000,000 New York State Local Government
Assistance Corporation, Series A,
6.50% - 2020....................... $ 1,065,000
WATER SUPPLY REVENUE - 5.0%
1,250,000 New York City Municipal Water
Finance Authority, 6.00% - 2025.... 1,309,375
-----------
Total investments - Tax-Exempt Fund
(cost $24,381,254) - 97.3%......... 25,504,438
Cash and other assets - less
liabilities - 2.7%................. 711,480
-----------
Total net assets - Tax-Exempt Fund -
100.0%............................. $26,215,918
===========
SECURITY CASH FUND
PRINCIPAL MARKET
AMOUNT COMMERCIAL PAPER RATING VALUE
- --------------------------------------------------------------------------------
AIR TRANSPORTATION - 2.6%
$1,000,000 Harper Group, Inc., (The), A1
5.595%, 3-14-96............. $ 988,344
BUSINESS SERVICES - 9.9%
2,000,000 AI Credit Corporation, A1+
5.63%, 2-02-96.............. 1,989,366
1,800,000 Penney (J.C.)Funding Corporation, A1
5.65%, 2-15-96.............. 1,786,722
-----------
3,776,088
CONSTRUCTION - 5.2%
2,000,000 Stanley Works, 5.54%, 3-11-96 A1 1,977,840
DRUGS & TOILETRIES - 7.6%
2,000,000 Allergan, Inc., A1
5.68%, 2-06-96.............. 994,004
5.67%, 2-13-96.............. 992,912
900,000 Schering Corporation, A1+
5.66%, 2-08-96.............. 894,340
-----------
2,881,256
ELECTRIC COMPANIES & SYSTEMS - 10.4%
1,000,000 Allegheny Generating Company, A1
5.55%, 1-31-96.............. 995,067
1,500,000 Allegheny Power System, Inc., A1
5.59%, 2-28-96.............. 1,486,025
1,500,000 Georgia Power Company, A1
5.61%, 3-06-96.............. 1,484,339
-----------
3,965,431
ELECTRONICS - 7.0%
1,700,000 Avnet, Inc., A1
5.67%, 2-12-96.............. 695,149
5.67%, 2-16-96.............. 992,440
1,000,000 TDK U.S.A. Corporation, A1+
5.53%, 4-22-96.............. 982,488
-----------
2,670,077
FOOD PROCESSING - 2.6%
1,000,000 Philip Morris Companies, Inc., A1
5.55%, 1-26-96.............. 995,838
GAS & ELECTRIC COMPANIES - 7.8%
1,000,000 Central Illinois Light Company, A1+
5.70%, 2-06-96.............. 993,983
2,000,000 Madison Gas & Electric Company, A1+
5.67%, 2-15-96.............. 1,985,195
-----------
2,979,178
See accompanying notes.
- --------------------------------------------------------------------------------
12
<PAGE>
STATEMENTS OF NET ASSETS
- --------------------------------------------------------------------------------
December 31, 1995
SECURITY CASH FUND (CONTINUED)
PRINCIPAL MARKET
AMOUNT COMMERCIAL PAPER (CONTINUED) RATING VALUE
- --------------------------------------------------------------------------------
GAS COMPANIES & SYSTEMS - 6.2%
$2,400,000 Michigan Consolidated Gas
Company, A1
5.61%, 2-26-96.............. $ 2,378,308
GROCERY STORES - 1.3%
500,000 Winn Dixie Stores, Inc., A1
5.63%, 2-08-96.............. 496,872
PETROLEUM COMPANIES - 2.3%
900,000 Atlantic Richfield Company, A1
5.63%, 2-02-96.............. 895,214
PRINTING - 5.2%
2,000,000 McGraw Hill, Inc., A1
5.53%, 3-11-96.............. 1,977,880
TELEPHONE & TELEGRAPH - 14.3%
1,500,000 Bell Atlantic Network Funding, A1+
5.51%, 2-23-96.............. 1,487,373
2,000,000 Bellsouth Telecommunications, A1+
5.66%, 2-13-96.............. 1,985,850
2,000,000 GTE Northwest, Inc., A1
5.62%, 3-11-96.............. 1,977,520
-----------
5,450,743
-----------
Total commercial paper -
(cost $31,433,069) - 82.4%.. 31,433,069
U.S. GOVERNMENT & GOVERNMENT
AGENCY SECURITIES
----------------------------
FEDERAL FARM CREDIT BANKS - 15.7%
2,000,000 5.70%, 01-02-96............. N/A 2,000,000
2,000,000 5.73%, 03-01-96............. N/A 2,000,000
1,000,000 5.70%, 04-01-96............. N/A 1,000,000
1,000,000 5.52%, 06-03-96............. N/A 1,000,000
-----------
6,000,000
PRINCIPAL U.S. GOVERNMENT & GOVERNMENT MARKET
AMOUNT AGENCY SECURITIES (CONTINUED)RATING VALUE
- --------------------------------------------------------------------------------
SBA POOLS - 5.0%
$1,895,540 SBA Pool GCS # 501 927, NA
7.00%, 7-25-17(1)........... $ 1,913,428
-----------
Total U.S. government and
government agency securities
- (cost $7,913,428) - 20.7%. 7,913,428
-----------
Total investments - Cash Fund (cost
$39,346,497) - 103.1%....... 39,346,497
Liabilities, less cash and
other assets - (3.1%)....... (1,188,597)
-----------
Total net assets - Cash Fund-100.0% $38,157,900
===========
The identified cost of investments owned at December 31, 1995, was the same for
federal income tax and book purposes, except for Global Aggressive Bond Series
for which the identified cost of investments for federal income tax purposes was
$4,129,436.
Ratings were provided by Moody's Investor Services and Standard & Poor's
Corporation and are not covered by the report of independent auditors.
(1)Variable rate security which may be reset the first of each month.
(2)Principal amount on foreign bonds is reflected in local currency (e.g.
Japanese yen) while market value is reflected in U.S. dollars.
See accompanying notes.
- --------------------------------------------------------------------------------
13
<PAGE>
BALANCE SHEETS
- --------------------------------------------------------------------------------
December 31, 1995
<TABLE>
<CAPTION>
SECURITY INCOME FUND
--------------------------------------------------------
CORPORATE U.S. LIMITED GLOBAL SECURITY SECURITY
BOND GOVERNMENT MATURITY AGGRESSIVE TAX-EXEMPT CASH
SERIES SERIES BOND SERIES BOND SERIES FUND FUND
------ ------ ----------- ----------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments, at value (identified cost
$92,095,179, $9,528,784, $3,547,266,
$4,102,348, $24,381,254 and
$7,913,428, respectively)................ $ 97,415,437 $10,425,836 $3,797,076 $4,171,809 $25,504,438 $ 7,913,428
Commercial paper, at amortized cost
which approximates market value.......... -- -- -- -- -- 31,433,069
Cash........................................ 447,059 91,358 193,963 87,507 171,131 457,662
Receivables:
Fund shares sold......................... 9,366 160 70 153 25,000 612,336
Securities sold.......................... -- -- -- 1,261,781 -- 3,330
Interest................................. 1,735,684 155,273 85,443 97,065 541,460 149,617
Security Management Company.............. 1,802 553 -- 1,889 436 9,995
Prepaid expense............................. 2,657 3,943 1,365 -- 9,244 23,426
------------ ----------- ----------- ----------- ----------- -----------
Total assets....................... $ 99,612,005 $10,677,123 $4,077,917 $5,620,204 $26,251,709 $40,602,863
============ =========== =========== =========== =========== ===========
LIABILITIES AND NET ASSETS
Liabilities:
Payable for fund shares redeemed......... $ 65,567 $ -- $ -- $ -- $ 10,277 $ 2,377,988
Dividends payable to shareholders........ -- -- -- -- -- 13,346
Payable for securities purchased......... -- -- -- 1,202,178 -- --
Other liabilities:
Management fees........................ 38,830 4,210 1,585 1,197 10,375 16,655
12b-1 distribution plan fees........... 22,563 2,438 1,238 1,762 921 --
Custodian and transfer agent fees...... 10,457 1,431 163 3,471 1,456 14,457
Administration fees.................... 6,989 758 285 158 1,868 1,499
Professional fees...................... 14,062 3,521 842 899 8,815 7,140
Miscellaneous.......................... 9,198 2,520 -- 2,280 2,079 13,878
------------ ----------- ----------- ----------- ----------- -----------
Total liabilities.................. 167,666 14,878 4,113 1,211,945 35,791 2,444,963
Net Assets:
Paid in capital.......................... 105,114,263 10,923,844 3,846,162 4,349,563 26,623,160 38,157,900
Undistributed net investment income...... 19,734 2,672 887 (8,314) 3,785 --
Accumulated net realized loss on
sale of investments and foreign
currency transactions.................. (11,009,916) (1,161,323) (23,055) (2,410) (1,534,211) --
Net unrealized appreciation in value
of investments and translation of assets
and liabilities in foreign currency ... 5,320,258 897,052 249,810 69,420 1,123,184 --
------------ ----------- ----------- ----------- ----------- -----------
Net assets........................... 99,444,339 10,662,245 4,073,804 4,408,259 26,215,918 38,157,900
------------ ----------- ----------- ----------- ----------- -----------
Total liabilities and net assets... $ 99,612,005 $10,677,123 $4,077,917 $5,620,204 $26,251,709 $40,602,863
============ =========== =========== =========== =========== ===========
CLASS "A" SHARES
Capital shares outstanding.................. 12,675,161 2,026,423 311,533 292,448 2,516,529 38,157,900
Net assets.................................. $93,701,138 $10,079,971 $3,322,071 $2,968,493 $25,025,572 $38,157,900
Net asset value per share (net assets
divided by shares outstanding)........... $7.39 $4.97 $10.66 $10.15 $9.94 $1.00
Add:Selling commission (4.75% of
offering price) (excluding Cash Fund).... .37 0.25 0.53 .51 0.50 --
------------ ----------- ----------- ----------- ----------- -----------
Offering price per share (net asset
value divided by 95.25%)................. $7.76 $5.22 $11.19 $10.66 $10.44 $1.00
============ =========== =========== =========== =========== ===========
CLASS "B" SHARES
Capital shares outstanding.................. 773,229 117,077 70,477 141,576 119,598 --
Net assets.................................. $5,743,201 $582,274 $751,733 $1,439,766 $1,190,346 --
Net asset value per share (net assets
divided by shares outstanding)........... $7.43 $4.97 $10.67 $10.17 $9.95 --
============ =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
14
<PAGE>
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
SECURITY INCOME FUND
--------------------------------------------------------
CORPORATE U.S. LIMITED GLOBAL SECURITY SECURITY
BOND GOVERNMENT MATURITY AGGRESSIVE TAX-EXEMPT CASH
SERIES SERIES BOND SERIES* BOND SERIES** FUND FUND
------ ------ ------------ ------------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest................................. $ 7,444,118 $ 677,084 $246,945 $294,095 $ 1,513,142 $3,020,108
EXPENSES:
Management fees.......................... 485,863 44,970 18,243 16,937 128,492 254,139
Transfer/maintenance fees................ 108,743 17,120 1,364 250 16,716 152,798
12b-1 distribution plan fees............. 276,169 25,637 13,401 11,253 10,152 --
Administration fees...................... 87,455 8,094 3,118 18,362 23,129 22,898
Custodian fees........................... 6,613 1,879 1,261 3,471 1,171 6,473
Directors' fees.......................... 8,900 755 245 78 10,015 9,892
Professional fees........................ 19,517 2,680 2,367 2,058 12,779 10,568
Registration............................. 25,688 13,926 2,839 21,627 26,669 39,455
Other expenses........................... 27,575 5,119 2,077 939 8,456 24,386
------------ ----------- ----------- ----------- ----------- -----------
1,046,523 120,180 44,915 74,975 237,579 520,609
Less: Fees paid indirectly............... (2,720) (1,292) (1,261) -- (1,171) --
Reimbursement of expenses............... (15,121) (16,803) (8,640) (24,205) (4,504) (12,968)
------------ ----------- ----------- ----------- ----------- -----------
Total expenses......................... 1,028,682 102,085 35,014 50,770 231,904 503,338
------------ ----------- ----------- ----------- ----------- -----------
Net investment income.............. 6,415,436 574,999 211,931 243,325 1,281,238 2,516,770
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) during the period on:
Investments............................ 2,922,105 22,802 (23,055) 8,070 301,901 --
Foreign currency transactions.......... -- -- -- (44,420) -- --
------------ ----------- ----------- ----------- ----------- -----------
Net realized gain (loss)............. 2,922,105 22,802 (23,055) (36,350) 301,901 --
Net change in unrealized appreciation
(depreciation) during period on:
Investments............................ 6,960,323 1,209,772 249,810 69,461 2,117,941 --
Translation of assets and liabilities
in foreign currencies................ -- -- -- (41) -- --
------------ ----------- ----------- ----------- ----------- -----------
Net unrealized appreciation.......... 6,960,323 1,209,772 249,810 69,420 2,117,941 --
------------ ----------- ----------- ----------- ----------- -----------
Net gain........................... 9,882,428 1,232,574 226,755 33,070 2,419,842 --
------------ ----------- ----------- ----------- ----------- -----------
Net increase in net
assets resulting from operations $16,297,864 $1,807,573 $438,686 $276,395 $3,701,080 $2,516,770
</TABLE>
* Period January 17, 1995 (inception) through December 31, 1995.
** Period June 1, 1995 (inception) through December 31, 1995.
See accompanying notes.
- --------------------------------------------------------------------------------
15
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
SECURITY INCOME FUND
--------------------------------------------------------
CORPORATE U.S. LIMITED GLOBAL SECURITY SECURITY
BOND GOVERNMENT MATURITY AGGRESSIVE TAX-EXEMPT CASH
SERIES SERIES BOND SERIES* BOND SERIES** FUND FUND
------ ------ ------------ ------------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS:
Net investment income.................... $ 6,415,436 $ 574,999 $ 211,931 $ 243,325 $ 1,281,238 $ 2,516,770
Net realized gain (loss) ................ 2,922,105 22,802 (23,055) (36,350) 301,901 --
Unrealized appreciation during
the period............................. 6,960,323 1,209,772 249,810 69,420 2,117,941 --
------------ ----------- ----------- ----------- ----------- -----------
Net increase in net assets
resulting from operations.......... 16,297,864 1,807,573 438,686 276,395 3,701,080 2,516,770
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A................................ (6,158,758) (551,577) (177,005) (146,443) (1,241,504) (2,516,770)
Class B................................ (255,751) (24,133) (34,039) (63,361) (39,808) --
In excess of net realized gain
Class A................................ -- -- -- (5,311) -- --
Class B................................ -- -- -- (2,584) -- --
------------ ----------- ----------- ----------- ----------- -----------
Total distributions to shareholders.. (6,414,509) (575,710) (211,044) (217,699) (1,281,312) (2,516,770)
CAPITAL SHARE TRANSACTIONS (A):
Proceeds from sale of shares
Class A................................ 7,438,108 2,385,671 3,092,500 4,109,884 2,787,651 347,493,190
Class B................................ 2,180,877 240,748 681,901 1,354,123 370,386 --
Dividends reinvested
Class A................................ 4,740,285 434,084 172,699 151,754 712,138 2,479,477
Class B................................ 209,073 17,062 32,734 64,040 25,374 --
Cost of shares redeemed
Class A................................ (18,496,662) (2,223,959) (129,283) (1,330,238) (4,896,869)(369,916,482)
Class B................................ (981,865) (53,363) (4,389) -- (54,635) --
------------ ----------- ----------- ----------- ----------- -----------
Net increase (decrease) from capital
share transactions................... (4,910,184) 800,243 3,846,162 4,349,563 (1,055,955) (19,943,815)
------------ ----------- ----------- ----------- ----------- -----------
Total increase (decrease) in net assets 4,973,171 2,032,106 4,073,804 4,408,259 1,363,813 (19,943,815)
NET ASSETS:
Beginning of period...................... 94,471,168 8,630,139 -- -- 24,852,105 58,101,715
------------ ----------- ----------- ----------- ----------- -----------
End of period............................ $99,444,339 $10,662,245 $4,073,804 $4,408,259 $26,215,918 $38,157,900
============ =========== =========== =========== =========== ===========
Undistributed net investment income......... $19,734 $2,672 $887 ($8,314) $3,785 $--
============ =========== =========== =========== =========== ===========
(a) Shares issued and redeemed:
Shares sold
Class A............................ 1,055,977 507,582 307,309 406,499 289,991 347,493,190
Class B............................ 304,780 51,475 67,767 135,204 38,553 --
Dividends reinvested
Class A............................ 673,772 93,100 16,505 15,098 74,305 2,479,477
Class B............................ 29,519 3,639 3,127 6,372 2,642 --
Shares redeemed
Class A............................ (2,613,704) (485,740) (12,281) (129,149) (510,770)(369,916,482)
Class B............................ (139,145) (11,827) (417) -- (5,598) --
------------ ----------- ----------- ----------- ----------- -----------
Net increase (decrease).............. (688,801) 158,229 382,010 434,024 (110,877) (19,943,815)
============ =========== =========== =========== =========== ===========
</TABLE>
* Period January 17, 1995 (inception) through December 31, 1995.
** Period June 1, 1995 (inception) through December 31, 1995.
See accompanying notes.
- --------------------------------------------------------------------------------
16
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the Year Ended December 31, 1994
<TABLE>
<CAPTION>
SECURITY INCOME FUND
-----------------------------
CORPORATE U.S. SECURITY SECURITY
BOND GOVERNMENT TAX-EXEMPT CASH
SERIES SERIES FUND FUND
------ ------ ---- ----
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income............................... $ 7,115,246 $ 590,335 $1,432,309 $ 1,855,864
Net realized loss .................................. (13,932,021) (1,181,780) (1,836,112) --
Unrealized depreciation during the year............. (2,419,117) (67,508) (2,221,295) --
------------ ----------- ----------- -----------
Net increase (decrease) in net assets resulting
from operations............................... (9,235,892) (658,953) (2,625,098) 1,855,864
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A........................................... (6,917,267) (572,250) (1,408,315) (1,855,864)
Class B........................................... (183,907) (16,526) (19,759) --
------------ ----------- ----------- -----------
Total distributions to shareholders............. (7,101,174) (588,776) (1,428,074) (1,855,864)
CAPITAL SHARE TRANSACTIONS (A):
Proceeds from sale of shares
Class A........................................... 24,783,087 2,812,392 12,166,067 301,350,492
Class B........................................... 4,319,121 262,697 780,435 --
Dividends reinvested
Class A........................................... 5,297,609 445,310 841,591 1,707,488
Class B........................................... 151,234 7,183 12,160 --
Cost of shares redeemed
Class A........................................... (41,957,570) (3,833,454) (17,034,040) (316,825,978)
Class B........................................... (1,240,487) (54,497) (81,117) --
------------ ----------- ----------- -----------
Net decrease from capital share
transactions.................................... (8,647,006) (360,369) (3,314,904) (13,767,998)
------------ ----------- ----------- -------------
Total decrease in net assets.................. (24,984,072) (1,608,098) (7,368,076) (13,767,998)
NET ASSETS:
Beginning of year................................... 119,455,240 10,238,237 32,220,181 71,869,713
------------ ----------- ----------- -------------
End of year......................................... $ 94,471,168 $8,630,139 $24,852,105 $ 58,101,715
============ =========== =========== =============
Undistributed net investment income.................... $18,807 $3,383 $3,859 --
============ =========== =========== =============
(a) Shares issued and redeemed:
Shares sold
Class A....................................... 3,430,737 603,088 1,239,726 301,350,492
Class B....................................... 604,793 55,933 80,986 --
Dividends reinvested
Class A....................................... 747,626 97,587 88,532 1,707,488
Class B....................................... 21,813 1,631 1,306 --
Shares redeemed
Class A....................................... (5,789,251) (820,118) (1,762,983) (316,825,978)
Class B....................................... (179,031) (11,973) (8,499) --
------------ ----------- ----------- -------------
Net decrease.................................... (1,163,313) (73,852) (360,932) (13,767,998)
============ =========== =========== =============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
17
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Net Net
Fiscal asset Total Dividends Distri- assets Ratio of Ratio of Port-
period value Net Net gain from (from net butions Net asset end of expenses net in- folio
ended begin- invest- (loss) invest- invest- (from Return Total value period to aver- come to turn-
Decem- ning of ment (realized & ment ment capital of distribu- end of Total (thou- age net average over
ber 31 period income unrealized)operations income) gains) capital tions period return(a) sands) assets net assets rate
- ------------------------------------------------------------------------------------------------------------------------------------
CORPORATE BOND SERIES (CLASS A)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1991 $7.22 $0.65 $0.458 $1.108 $(0.648) $ -- $ -- $(0.648) $7.68 16.1% $85,824 1.03% 8.75% 32%
1992 7.68 0.61 0.044 0.654 (0.614) -- -- (0.614) 7.72 9.0% 104,492 1.01% 7.97% 61%
1993 7.72 0.52 0.521 1.041 (0.527) (0.424) -- (0.951) 7.81 13.4% 118,433 1.02% 6.46% 157%
1994 7.81 0.49 (1.127) (0.637) (0.493) -- -- (0.493) 6.68 (8.3%) 90,593 1.01% 6.91% 204%
1995(d) 6.68 0.47 0.708 1.178 (0.468) -- -- (0.468) 7.39 18.2% 93,701 1.02% 6.62% 200%
CORPORATE BOND SERIES (CLASS B)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1993(b) $8.59 $0.11 $(0.324) $(0.214) $(0.112) $(0.424) $ -- $(0.536) $7.84 (2.5%) $1,022 1.88% 5.16% 164%
1994(c) 7.84 0.43 (1.129) (0.699) (0.431) -- -- (0.431) 6.71 (9.0%) 3,878 1.85% 6.08% 204%
1995(c)(d) 6.71 0.40 0.725 1.125 (0.405) -- -- (0.405) 7.43 17.3% 5,743 1.85% 5.80% 200%
U.S. GOVERNMENT SERIES (CLASS A)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1991(c) $4.93 $0.40 $0.248 $0.648 $(0.404) $ -- $(.004) $(0.408) $5.17 13.8% $7,319 1.11% 7.94% 41%
1992(c) 5.17 0.37 (0.126) 0.244 (0.366) -- (.008) (0.374) 5.04 5.0% 9,364 1.11% 7.22% 157%
1993(c) 5.04 0.31 0.273 0.583 (0.310) (0.344) -- (0.654) 4.97 10.9% 10,098 1.10% 5.90% 153%
1994(c) 4.97 0.30 (0.621) (0.321) (0.299) -- -- (0.299) 4.35 (6.5%) 8,309 1.10% 6.47% 220%
1995(c)(d) 4.35 0.30 0.620 0.92 (0.30) -- -- (0.30) 4.97 21.9% 10,080 1.11% 6.41% 81%
U.S. GOVERNMENT SERIES (CLASS B)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1993(b)(c) $5.51 $0.04 $(0.193) $(0.153) $(0.043) $(0.344) $ -- $(0.387) $4.97 (1.4%) $140 1.61% 5.54% 114%
1994(c) 4.97 0.26 (0.624) (0.364) (0.256) -- -- (0.256) 4.35 (7.4%) 321 1.85% 5.76% 220%
1995(c)(d) 4.35 0.26 0.625 0.885 (0.265) -- -- (0.265) 4.97 20.9% 582 1.87% 5.69% 81%
LIMITED MATURITY BOND SERIES (CLASS A)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995(c)(d)(e)$10.00 $0.62 $0.652 $1.272 $(0.612) $ -- $ -- $(0.612) $10.66 13.0% $3,322 0.84% 5.97% 4%
LIMITED MATURITY BOND SERIES (CLASS B)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995(c)(d)(e)$10.00 $0.53 $0.664 $1.194 $(0.524) $ -- $ -- $(0.524) $10.67 12.2% $752 1.71% 5.12% 4%
GLOBAL AGGRESSIVE BOND SERIES (CLASS A)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995(c)(d)(f)$10.00 $0.63 $0.09 $0.72 $(0.55) $(0.02) $ -- $(0.57) $10.15 7.3% $2,968 2.00% 11.04% 127%
GLOBAL AGGRESSIVE BOND SERIES(CLASS B)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995(c)(d)(f)$10.00 $0.56 $0.12 $0.68 $(0.49) $(0.02) $ -- $(0.51) $10.17 6.9% $1,440 2.75% 10.24% 127%
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
18
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Net Net
Fiscal asset Total Dividends Distri- assets Ratio of Ratio of Port-
period value Net Net gain from (from net butions Net asset end of expenses net in- folio
ended begin- invest- (loss) invest- invest- (from Return Total value period to aver- come to turn-
Decem- ning of ment (realized & ment ment capital of distribu- end of Total (thou- age net average over
ber 31 period income unrealized)operations income) gains) capital tions period return(a) sands) assets net assets rate
- ------------------------------------------------------------------------------------------------------------------------------------
SECURITY TAX-EXEMPT FUND (CLASS A)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1991 $9.53 $0.63 $0.446 $1.076 $(0.636) $ -- $ -- $(0.636) $9.97 11.7% $23,218 0.89% 6.55% 38%
1992 9.97 0.61 0.092 0.702 (0.612) -- -- (0.612) 10.06 7.3% 28,608 0.84% 6.07% 91%
1993 10.06 0.51 0.702 1.212 (0.514) (0.388) -- (0.902) 10.37 11.6% 32,115 0.82% 4.92% 118%
1994 10.37 0.47 (1.317) (0.847) (0.473) -- -- (0.473) 9.05 (8.3%) 24,092 0.82% 4.74% 88%
1995(d) 9.05 0.48 0.891 1.371 (0.481) -- -- (0.481) 9.94 15.5% 25,026 0.86% 5.02% 103%
SECURITY TAX-EXEMPT FUND (CLASS B)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1993(b) $10.88 $0.10 $(0.128) $(0.028) $(0.094) $(0.388) $ -- $(0.482) $10.37 (0.2%) $106 2.89% 2.71% 90%
1994(c) 10.37 0.35 (1.321) (0.971) (0.349) -- -- (0.349) 9.05 (9.5%) 760 2.00% 3.50% 88%
1995(c)(d) 9.05 0.37 0.902 1.272 (0.372) -- -- (0.372) 9.95 14.3% 1,190 2.00% 3.90% 103%
SECURITY CASH FUND
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1991 $1.00 $0.051 $ -- $0.051 $(0.051) $ -- $ -- $(0.051) 1.00 5.2% $48,843 0.96% 5.21% --
1992(c) 1.00 0.028 -- 0.028 (0.028) -- -- (0.028) 1.00 2.8% 56,694 1.00% 2.75% --
1993(c) 1.00 0.023 -- 0.023 (0.023) -- -- (0.023) 1.00 2.4% 71,870 1.00% 2.28% --
1994 1.00 0.033 -- 0.033 (0.033) -- -- (0.033) 1.00 3.4% 58,102 0.96% 3.24% --
1995(c)(d) 1.00 0.049 -- 0.049 (0.049) -- -- (0.049) 1.00 5.0% 38,158 1.00% 5.00% --
</TABLE>
(a) Total return information does not take into account any charges paid at time
of purchase or contingent deferred sales charges paid at time of redemption.
(b) Class "B" shares were initially issued on October 19, 1993. Percentage
amounts for the period, except total return, have been annualized.
(c) Fund expenses were reduced by the Investment Manager and expense ratios
absent such reimbursement would have been as follows:
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
Corporate Bond Class B -- -- -- 2.00% 2.19%
U.S. Government Class A 1.24% 1.20% 1.20% 1.20% 1.22%
Class B -- -- 1.75% 2.91% 3.70%
Limited Maturity Class A -- -- -- -- 1.04%
Bond Class B -- -- -- -- 2.12%
Global Aggressive Class A -- -- -- -- 2.42%
Bond Class B -- -- -- -- 3.93%
Tax-Exempt Class A -- -- -- -- 0.86%
Class B -- -- -- 2.32% 2.45%
Cash -- 1.03% 1.03% -- 1.04%
(d) Net investment income was computed using the average month-end shares
outstanding throughout the period.
(e) Security Limited Maturity Bond Series was initially capitalized on January
17, 1995, with a net asset value of $10 per share. Percentage amounts for
period have been annualized, except for total return.
(f) Security Global Aggressive Bond Series was initially capitalized on June 1,
1995, with a net asset value of $10 per share. Percentage amounts for period
have been annualized, except for total return.
(g) Expense ratios were calculated without the reduction for custodian fees
earnings credits. Expense ratios with such reductions would have been as
follows:
1995
Corporate Bond Class A 1.02%
Class B 1.85%
U.S. Government Class A 1.10%
Class B 1.85%
Limited Maturity Bond Class A 0.81%
Class B 1.65%
Tax-Exempt Class A 0.85%
Class B 2.00%
See accompanying notes.
- --------------------------------------------------------------------------------
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
December 31, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
Security Income Fund, Security Tax-Exempt Fund and Security Cash Fund (the
Funds) are registered under the Investment Company Act of 1940, as amended, as
diversified, open-end management investment companies. The shares of Security
Income Fund are currently issued in four Series, the Corporate Bond Series, the
U.S. Government Series, the Limited Maturity Bond Series and the Global
Aggressive Bond Series, with each Series, in effect, representing a separate
fund. The Income Fund is required to account for each series separately and to
allocate general expenses to each series based upon the net asset value of each
Series. The following is a summary of the significant accounting policies
followed by the Funds in the preparation of their financial statements.
A. SECURITY VALUATION -- Valuations of Income Fund's and Tax-Exempt Fund's
securities are supplied by a pricing service approved by the Board of Directors.
Securities listed or traded on a national securities exchange are valued on the
basis of the last sales price. If there are no sales on a particular day, then
the securities are valued at the mean between the bid and the asked prices. If a
mean cannot be determined, then the securities for which market quotations are
available are valued on the basis of the current bid price. Securities for which
market quotations are not readily available are valued by a pricing service
considering securities with similar yields, quality, type of issue, coupon,
duration and rating. The Funds' officers, under the general supervision of the
Board of Directors, regularly review procedures used by, and valuations provided
by, the pricing service.
Cash Fund, by approval of the Board of Directors, utilizes the amortized
cost method for valuing portfolio securities, whereby all investments are valued
by reference to their acquisition cost as adjusted for amortization of premium
or accretion of discount.
Generally, trading in foreign securities markets is substantially completed
each day at various times prior to the close of the New York Stock Exchange. The
values of foreign securities are determined as of the close of such foreign
markets or the close of the New York Stock Exchange if earlier. All investments
quoted in foreign currency are valued in U.S. dollars on the basis of the
foreign currency exchange rate prevailing at the close of business. The Global
Aggressive Bond Series' investments in foreign securities may involve risks not
present in domestic investments. Since foreign securities may be denominated in
a foreign currency and involve settlement and pay interest in foreign
currencies, changes in the relationship of these foreign currencies to the U.S.
dollar can significantly affect the value of the investments and earnings of the
Funds. Foreign investments may also subject the Global Aggressive Bond Series to
foreign government exchange restrictions, expropriation, taxation or other
political, social or economic developments, all of which could affect the market
and/or credit risk of the investments.
B. FOREIGN CURRENCY TRANSACTIONS -- The accounting records of the Funds are
maintained in U. S. dollars. All assets and liabilities initially expressed in
foreign currencies are converted into U.S. dollars at prevailing exchange rates.
Purchases and sales of investment securities, dividend and interest income, and
certain expenses are translated at the rates of exchange prevailing on the
respective dates of such transactions.
The Funds isolate that portion of results of operations resulting from
changes in foreign exchange rates on investments from the fluctuations arising
from changes in the market prices of securities held.
Net realized foreign exchange gains or losses arise from sales of portfolio
securities, sales of foreign currencies, and the difference between asset and
liability amounts initially stated in foreign currencies and the U.S. dollar
value of the amounts actually received or paid. Net unrealized foreign exchange
gains or losses arise from changes in the value of portfolio securities and
other assets and liabilities at the end of the reporting period, resulting from
changes in the exchange rates.
C. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS - Global Aggressive Bond
Series may enter into forward foreign exchange contracts in connection with
foreign currency risk from purchase or sale of securities denominated in foreign
currency. The Series may also enter into such contracts to manage changes in
foreign currency exchange rates on portfolio positions. These contracts are
marked to market daily, by recognizing the difference between the contract
exchange rate and the current market rate as unrealized gains or losses.
Realized gains or losses are recognized when contracts are settled and are
reflected in the statement of operations. These contracts involve market risk in
excess of the amount reflected in the Balance Sheet. The face or contract amount
in U.S. dollars reflects the total exposure the Global Aggressive Bond Series
has in that particular currency contract. Losses may arise due to changes in the
value of the foreign currency or if the counterparty does not perform under the
contract.
D. SECURITY TRANSACTIONS AND INVESTMENT INCOME - Security transactions are
accounted for on the date the securities are purchased or sold. Realized gains
and losses are reported on an identified cost basis. Interest income is
recognized on the accrual basis. Premium and discounts (except original issue
discounts) on debt securities are not amortized, except Security Tax-Exempt Fund
which amortizes premiums.
E. DISTRIBUTIONS TO SHAREHOLDERS - Distributions to shareholders are
recorded on the ex-dividend date. The character of distributions made during the
year from net investment income or net realized gains may differ from their
ultimate characterization for federal income tax purposes. These differences are
primarily due to the recharacterization of foreign currency gains and losses.
F. TAXES - The Funds complied with the requirements of the Internal Revenue
Code applicable to regulated investment companies and distributed all of their
taxable net income and net realized gains sufficient to relieve them from all,
or substantially all, federal income, excise and state income taxes. Therefore,
no provision for federal or state income tax is required.
G. EARNINGS CREDITS - Under the fee schedule with the custodian, Security
Income Fund, Security Tax-Exempt Fund and Security Cash Fund (the Funds) earn
credits based on overnight custody cash balances. These credits are utilized to
reduce related custodial expenses. The custodian expense disclosed in the
statement of operations does not reflect the reduction in expense from the
related earnings credits.
2. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Management fees are payable to Security Management Company (SMC) under
investment advisory contracts at an annual rate of 1/2 of 1% of the average net
assets of each fund, except for Global Aggressive Bond Series which the fee is
at an annual rate of 3/4 of 1% of the average net assets of the Series. The
investment advisory contract for Income Fund provides that the total annual
expenses of each series of the Fund (including management fees, but excluding
interest, taxes, brokerage commissions and extraordinary expenses) will not
exceed the level of expenses which Income Fund is permitted to bear under the
most restrictive expense limitation imposed by any state in which shares of the
Fund are then qualified for sale. For the year ended December 31, 1995, SMC
agreed to limit the total expenses of Corporate Bond Series, U.S. Government
Series and Limited Maturity Bond Series to an annual rate of 1.1% of the average
See accompanying notes.
- --------------------------------------------------------------------------------
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
daily net asset value of Class A shares and 1.85% of Class B shares of each
respective Series. SMC also agreed to limit the total expenses of the Global
Aggressive Bond Series to 2.0% for Class A Shares and 2.75% for Class B shares.
In addition, SMC agreed to waive all of the management fees for the Limited
Maturity Bond Series to July 1, 1995 and .40% of the management fees for the
Global Aggressive Bond Series to December 31, 1995. The investment advisory
contract for Tax-Exempt and Cash Funds provide that the total annual expenses of
the Funds will not exceed an amount equal to an annual rate of 1.0% of the
average net assets of Class A shares and 2.0% of Class B shares of the
Tax-Exempt Fund as calculated on a daily basis.
The Funds have entered into contracts with SMC for transfer agent services
and certain other administrative services which SMC provides to the Funds. SMC
is paid an annual fixed charge per account and shareholder and dividend
transaction fees.
As the administrative agent for the Funds, SMC performs administrative
functions, such as regulatory filings, bookkeeping, accounting and pricing
functions for the Funds. For this service SMC receives on an annual basis, a fee
of .09 percent of the average daily net assets of Corporate Bond Series, Limited
Maturity Bond Series, U.S. Government Series, and Tax-Exempt Fund and .045
percent of the average daily net assets of Cash Fund and Global Aggressive Bond
Series, calculated daily and payable monthly. For the identified administrative
services SMC also receives, with respect to the Global Aggressive Bond Series,
an annual fee equal to the greater of .10 percent of its average net assets or
(i) $30,000 in the year ending April 29, 1996; (ii) $45,000 in the year ending
April 29, 1997; and (iii) $60,000 thereafter.
SMC pays the Sub-Advisor, Lexington Management Corporation (LMC) an annual
fee in an amount equal to .35% of the average net assets of Global Aggressive
Bond Series, for investment advisory and certain administrative services
provided to the Global Aggressive Bond Series. The Sub-Advisor has entered into
a sub-advisory contract with MFR Advisors, Inc., ("MFR"), under which MFR will
provide the Global Aggressive Bond Series with investment and economic research
services. For the service provided by MFR, MFR receives from the Sub-Advisor, a
fee equal to .15% of the average daily net assets of the Global Aggressive Bond
Series.
Income and Tax-Exempt Funds have adopted Distribution Plans related to the
offering of Class B shares pursuant to Rule 12b-1 under the Investment Company
Act of 1940. The Plans provide for payments at an annual rate of 1.0% of the
average net assets of Class B shares. Class A shares of Income Fund incur 12b-1
distribution fees at an annual rate of .25% of the average net assets of each
Series.
Security Distributors, Inc. (SDI), a wholly-owned subsidiary of SMC and the
national distributor for Income and Tax-Exempt Funds, received net underwriting
commissions after allowances to brokers and dealers for the period ended
December 31, 1995, in the amounts presented below:
LIMITED GLOBAL
CORPORATE U.S. MATURITY AGGRESSIVE TAX-
BOND GOVERNMENT BOND BOND EXEMPT
SERIES SERIES SERIES SERIES FUND
---------------------------------------------------------------
SDI Underwriting $ 6,246 $ 2,934 $ 730 $ 379 $ 4,103
Broker/Dealer 49,895 14,400 6,663 1,788 16,588
Certain officers and directors of the Funds are also officers and/or
directors of Security Benefit Life Insurance Company and its subsidiaries, which
include SMC and SDI.
3. INVESTMENT TRANSACTIONS
Investment transactions for the period ended December 31, 1995, (excluding
overnight investments and short-term debt securities) were as follows:
LIMITED GLOBAL
CORPORATE U.S. MATURITY AGGRESSIVE TAX-
BOND GOVERNMENT BOND BOND EXEMPT
SERIES SERIES SERIES SERIES FUND
--------------------------------------------------------------
Purchases $183,877,123 $7,939,142 $3,702,247 $5,494,083 $25,894,338
Proceeds
from sales 188,363,506 6,842,750 131,925 2,386,219 26,751,388
4. FEDERAL INCOME TAX MATTERS
The amounts of unrealized appreciation (depreciation) as of December 31,
1995, were as follows:
LIMITED GLOBAL
CORPORATE U.S. MATURITY AGGRESSIVE TAX-
BOND GOVERNMENT BOND BOND EXEMPT
SERIES SERIES SERIES SERIES FUND
--------------------------------------------------------------
Aggregate gross
unrealized
appreciation $5,320,258 $909,637 $254,685 $69,245 $1,123,184
Aggregate gross
unrealized
depreciation -- (12,585) (4,875) (26,872) --
--------------------------------------------------------------
Net unrealized
appreciation $5,320,258 $897,052 $249,810 $42,373 $1,123,184
--------------------------------------------------------------
5. OTHER INFORMATION
Except for tax-exempt dividends, the income dividends paid by the Funds are
taxable as ordinary income on the shareholders' tax returns. None of the amount
taxable as ordinary income for Corporate Bond Series, U.S. Government Series,
Limited Maturity Bond Series, Global Aggressive Bond Series, Tax-Exempt Fund or
Cash Fund qualifies for the dividends received deduction available to corporate
shareholders in accordance with the provisions of the Internal Revenue Code.
None of the exempt-interest dividends paid by Security Tax- Exempt Fund
have been determined to be attributable to interest from specified private
activity bonds. Thus, no portion is required to be reported as a tax preference
item on Form 4626 or 6251.
In some states, the portion of ordinary income dividends attributable to
the Funds' investment in direct obligations of the U.S. Government may not be
subject to state taxation. For the year ended December 31, 1995, interest on
U.S. Government obligations was 6%, 5%, 34% and 19% of Cash Fund, Corporate Bond
Series, U.S. Government Series and Limited Maturity Series gross investment
income, respectively. Since the qualifications for such exemption vary by state,
we suggest you consult your tax advisor for applicability.
See accompanying notes.
- --------------------------------------------------------------------------------
21
<PAGE>
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
SECURITY INCOME FUND, SECURITY TAX-EXEMPT FUND
AND SECURITY CASH FUND
We have audited the accompanying balance sheets and statements of net
assets of Security Income Fund (comprised of the Corporate Bond, U.S.
Government, Limited Maturity Bond and Global Aggressive Bond Series), Security
Tax-Exempt Fund and Security Cash Fund (the Funds) as of December 31, 1995, the
related statements of operations for the year then ended, statement of changes
in net assets for each of the two years in the period then ended and the
financial highlights for each of the five years in the period then ended of
Security Income Fund -- Corporate Bond Series, Security Income Fund -- U.S.
Government Series, Security Tax-Exempt Fund and Security Cash Fund; the related
statements of operations, changes in net assets and financial highlights for the
period from January 17, 1995 (commencement of operations) to December 31, 1995
of Security Income Fund -- Limited Maturity Bond Series and the related
statements of operations, changes in net assets and financial highlights for the
period from June 1, 1995 (commencement of operations) to December 31, 1995 of
Security Income Fund -- Global Aggressive Bond Series. These financial
statements and the financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
December 31, 1995, by correspondence with the custodian. As to securities
relating to uncompleted transactions, we performed other auditing procedures. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the Funds (including each of the Series of Security Income Fund) at
December 31, 1995, and the results of their operations, changes in their net
assets and the financial highlights for the periods indicated above in
conformity with generally accepted accounting principles.
Kansas City, Missouri
January 26, 1996
See accompanying notes.
- --------------------------------------------------------------------------------
22
<PAGE>
THE SECURITY GROUP
OF MUTUAL FUNDS
- ---------------
SECURITY GROWTH AND INCOME FUND
SECURITY EQUITY FUND
* EQUITY SERIES
* EQUITY GLOBAL SERIES
* ASSET ALLOCATION SERIES
SECURITY ULTRA FUND
SECURITY INCOME FUND
* CORPORATE BOND SERIES
* U.S. GOVERNMENT SERIES
* LIMITED MATURITY BOND SERIES
* GLOBAL AGGRESSIVE BOND SERIES
SECURITY TAX-EXEMPT FUND
SECURITY CASH FUND
This report is submitted for the general information of the shareholders of the
Funds. The report is not authorized for distribution to prospective investors in
the Funds unless preceded or accompanied by an effective prospectus which
contains details concerning the sales charges and other pertinent information.
SECURITY FUNDS
OFFICERS AND DIRECTORS
- ----------------------
DIRECTORS
- ---------
Willis A. Anton
Donald A. Chubb, Jr.
John D. Cleland
Donald L. Hardesty
Penny A. Lumpkin
Mark L. Morris, Jr., D.V.M.
Jeffrey B. Pantages
Harold G. Worswick
OFFICERS
- --------
John D. Cleland, President
James R. Schmank, Vice President and Treasurer
Jane A. Tedder, Vice President
Mark E. Young, Vice President
Greg A. Hamilton, Assistant Vice President
Amy J. Lee, Secretary
Brenda M. Luthi, Assistant Treasurer and Assistant Secretary
[SDI LOGO}
700 SW Harrison St.
Topeka, KS 66636-0001
(913) 295-3127
(800) 888-2461