<PAGE>
Security
Funds
Semi-Annual
Report
June 30, 1996
* 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
[SDI Logo]
<PAGE>
SECURITY
FUNDS
PRESIDENT'S LETTER
================================================================================
AUGUST 15, 1996
Dear Shareholder:
Financial market returns for the six months just completed were mixed.
Equity fund shareholders were amply rewarded, with the Dow Jones Industrial
Average climbing 11.70% and the Standard and Poor's 500 Stock Index up 10.10%.
Holders of fixed income funds didn't fare as well; interest rates on the
thirty-year U.S. Treasury bond rose from 5.94% at year end to 6.89% on June 30.
STEADY ECONOMIC GROWTH WITH MODEST INFLATION
Economic growth continues to be positive in spite of the rise in long-term
interest rates. Remarkably, we have seen very little inflation pressure in the
face of rising employment, a thriving housing industry and strong consumer
spending patterns. The increase in economic activity, while slow but steady in
nature, has been enough to produce corporate earnings sufficient to move stocks
to higher ground.
As we enter the second half of 1996 we will be watching to see if the
"Goldilocks" economy continues--that is, whether economic growth will be "just
right," or if it will accelerate enough to cause the Federal Open Market
Commitee to raise interest rates. Such a move on the part of the FOMC would be
taken with the intention of dampening economic growth enough to keep inflation
from getting out of hand. Although the short-term effects on financial markets
of such moves are usually negative, over the long term the benefits of low
inflation would outweigh the short-term pain.
THE EFFECT OF THE PRESIDENTIAL ELECTION
A major factor weighing on the minds of investors this fall will be the
Presidential election. Regardless of which candidate occupies the White House
after the election, market participants will be watching closely to see if
emphasis on balancing the budget and shrinking the size of government will
continue. Even if political control of Congress should change, we feel that the
fixed income investors--"bond market vigilantes," as they are known--will demand
the continuation of the balanced budget process by forcing long-term rates
higher on any sign of wavering from this goal.
[PICTURE OF JOHN CLELAND]
JOHN CLELAND
CONTINUED FAVORABLE MARKETS AHEAD
On balance we remain positive in our outlook for financial markets in the
second half of the year. We believe economic growth will remain sufficient to
generate earnings that will support the equity markets at their current levels.
We expect the stock markets to move to new highs as inflationary pressures
continue to remain modest. The election process is too difficult to predict at
this point; however, regardless which party wins, the investing public will
demand continued restraint in government spending and further shrinking of the
size of government itself.
As always, we appreciate your continued confidence in our money management
teams. We will do our best to warrant your ongoing trust as we move through the
second half of the year.
Sincerely,
JOHN CLELAND
John Cleland
President
1
<PAGE>
SECURITY
FUNDS
MANAGERS' COMMENTARY
================================================================================
AUGUST 15, 1996
SECURITY INCOME FUND
CORPORATE BOND SERIES
Following an excellent year for fixed income investments in 1995, we
entered this year with the portfolio positioned to benefit from continued low
inflation, moderate economic growth and stable to declining interest rates.
Although actual inflation has remained well under control, fear that rapid
economic growth would cause a rise in future inflation levels led investors to
shy away from bonds. When the Labor Department released its January unemployment
figures on February 2, showing much higher levels of employment than
anticipated, bond investors became inflation vigilantes and began selling
longer-maturity issues. This sell-off continued through the first six months.
The thirty-year Treasury yield peaked near 7.20% in mid-June, up from 5.94% at
the end of 1995.
STRATEGIES FOR 1996
Moving through the first half of 1996 we had in mind three principal
strategies for the Corporate Bond Series: to shorten the average duration to be
more in line with our peer group and our benchmark index; to focus on
undervalued credit situations; and to diversify a portion of the portfolio into
three new asset classes including U.S. dollar-denominated foreign bonds
("Yankee" bonds), high yield bonds and mortgage-backed securities. In February,
the Board of Directors of the Security Income Fund approved the use of the new
asset classes and we began restructuring the portfolio at that time.
INVESTMENTS IN THE NEW ASSET CLASSES
Invoking prudent portfolio management philosophy, we gradually moved into
some of these newly-permitted asset classes. In hindsight, a rapid change would
have been more beneficial, as high yield and mortgage related securities were
the best performing fixed income categories over the first half of the year.
Our largest foreign holding presently is Santander Financial Issuances,
Ltd., guaranteed by Banco Santander, one of the largest banks in Spain. It is a
full service bank with assets in excess of $132 billion (U.S. dollars). The
bonds are rated A1 by Moody's rating service and A+ by Standard and Poor's
Worldwide. Also in the Yankee sector we own bonds issued by the Bank of Montreal
(Canada) and by ABN AMRO Bank NV, located in Amsterdam.
In the high yield arena we purchased bonds issued by Continental
Cablevision, Inc. after U.S. West Inc., the telephone company, announced plans
to buy the company. The bonds were rated Ba2 and BB- at the time we purchased
them. They have subsequently been upgraded by Standard and Poor's rating service
to BBB+, in line with new ratings for U.S. West.
In the traditional investment grade portion of the portfolio, one of the
largest holdings is A-rated Auburn Hills Trust bonds. Auburn Hills is the world
headquarters of Chrysler Corporation. The bonds are secured by manufacturing and
office facilities located there. Because they carry a 12% coupon, we feel that
the company will at some point offer to buy the bonds back at an attractive
price in order to reduce their interest expense.
PLANS FOR THE NEXT SIX MONTHS
Looking ahead to the second half of 1996, we expect economic strength to
continue into the third quarter, with the Federal Reserve Open Market Committee
needing to raise interest rates at least once to bring the economy back toward a
noninflationary rate of growth. We anticipate an economic slowdown sometime
during the fourth quarter, continuing into 1997. The portfolio is positioned
defensively at this time, and will remain so until we see signs of weakening
employment gains, a softer manufacturing sector, slower consumer spending and
only modest export growth. At that time we will move out of some of our shorter
maturities and mortgage-backed securities into issues which will capture upside
movement as bond prices increase.
Greg Hamilton, Portfolio Manager
CORPORATE BOND SERIES
6-30-96
CREDIT QUALITY RATING
AVERAGE MATURITY 9.3 YEARS
AAA....................... 22%
AA........................ 2%
A......................... 34%
BBB....................... 25%
BB........................ 10%
B......................... 7%
CORPORATE BOND SERIES
AVERAGE ANNUAL TOTAL RETURN
AS OF JUNE 30, 1996
CLASS A SHARES CLASS B SHARES
1 Year -1.55% 1 Year -2.55%
5 Years 6.28% Since Inception -1.36%
10 Years 6.80% (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 figures reflect deduction of the maximum
contingent deferred sales charge, ranging from 5% in the first
year to 0% in the sixth and following years. The investment
return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or
less than their original cost.
2
<PAGE>
SECURITY
FUNDS
MANAGERS' COMMENTARY
================================================================================
AUGUST 15, 1996
SECURITY INCOME FUND
U.S. GOVERNMENT SERIES
Following a strong 1995 performance, the first six months of this year have
been disappointing for holders of fixed income securities. The optimistic
outlook for inflation which ruled last year gave way early in 1996 to fears that
a strong economy would produce inflationary growth and higher interest rates.
Although the growth has been evident, inflation has remained well in check,
despite investors' fears.
ADJUSTMENTS TO PORTFOLIO STRUCTURE
The U.S. Government Series was positioned early in the year to benefit from
continued modest inflation and falling interest rates. The yield on the
thirty-year Treasury bond, which began the year at 5.94%, had risen to 6.67% by
March 31. Over that same period the Series generated a total return of
- -3.32%.(1) In mid-February we began repositioning the portfolio in anticipation
of further increases in interest rates by shortening the duration by over two
years. In addition, we moved into more defensive issues such as mortgage-backed
agency securities in order to reduce the impact of rate declines on the net
asset value of the portfolio.
RESULTS OF RESTRUCTURING
The Series had a much better second quarter after these adjustments were
made. Although the yield on the long Treasury bond continued to rise to 6.89% at
June 30, the portfolio's total return actually recovered slightly, with a
year-to-date return at June 30 of -3.21%.(1) The assets are now invested
approximately one-fourth in mortgage-backed securities such as those issued by
Government National Mortgage Association (GNMA) and Federal National Mortgage
Association (FNMA). About 31% of the portfolio is held in U.S. Treasury issues,
and the remainder is invested in various U.S. government agency issues. We feel
that the mortgage-backed bonds will hold their value well in periods of rising
interest rates because prepayments on mortgages slow in such an environment,
making these issues more attractive to investors.
LOOKING AHEAD TO THE SECOND SIX MONTHS
The average duration of the portfolio holdings at June 30 was 4.8 years, in
line with the duration of our benchmark, the Lehman Brothers Government Bond
Index. We remain cautious as we enter the third quarter of 1996, expecting rates
to possibly move up a bit more. However, we anticipate that economic activity
will weaken again late in the third quarter and through the fourth quarter, with
inflation remaining modest and interest rates declining. With this in mind, we
remind our shareholders that dollar cost averaging is a good way for long-term
investors to take advantage of weak markets.(2)
Steven M. Bowser, Portfolio Manager
(1) Performance figures are based on Class A shares and do not reflect
deduction of the sales charge.
(2) Dollar cost averaging does not assure profits or protect against loss in a
declining market.
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.
U.S. GOVERNMENT SERIES
6-30-96
CREDIT QUALITY RATING
AAA.................... 100%
U.S. GOVERNMENT SERIES
AVERAGE ANNUAL TOTAL RETURN
AS OF JUNE 30, 1996
CLASS A SHARES CLASS B SHARES
1 Year 0.34% 1 Year -0.68%
5 Years 6.09% Since Inception 0.83%
10 Years 7.09% (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 figures reflect deduction of the maximum
contingent deferred sales charge, ranging from 5% in the first
year to 0% in the sixth and following years. The investment
return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or
less than their original cost.
3
<PAGE>
SECURITY
FUNDS
MANAGERS' COMMENTARY
================================================================================
AUGUST 15, 1996
SECURITY INCOME FUND
LIMITED MATURITY BOND SERIES
The Limited Maturity Bond Series, introduced in January 1995, has now been
tested in up markets and down markets, and has proven its worth in both
situations. Although the fixed income markets have been weak throughout the
first six months of 1996, the Limited Maturity Bond Series has held its value
well, with a total return for the period of -0.18%.(1) We originally felt that
because of its shorter duration, its downside risk would be less than the
typical corporate bond fund, and this has been our experience thus far. Its
benchmark, the Lehman Brothers Intermediate Term Corporate Bond Index, posted a
return of -0.92% for the six months just completed.
PORTFOLIO ADJUSTMENTS AT THE BEGINNING OF THE YEAR
Early in 1996 we moved approximately 20% of the assets of the Series into
collateralized mortgage obligation securities (CMOs), which are rated AAA but
have generally higher yields than comparable duration Treasury issues. These
securities added value to the portfolio's performance because of their higher
relative yields, and because prepayment risk fell in a climate of increasing
interest rates (homeowners are less likely to prepay or refinance their
mortgages as interest rates rise). These factors made the issues more attractive
to investors, and they have been one of the best performing fixed income sectors
so far this year. The coupons on the mortgage-backed securities in the portfolio
are generally in the 6.5% to 7.25% range.
THE USE OF HIGH YIELD AND FOREIGN ISSUES
Approximately 14% of the assets have been invested in non-investment grade
high-yield bonds for the added income benefit they contribute. One example in
this sector is Valassis Inserts, Inc. a bond which matures in 1999 and bears a
9.375% coupon. The company makes the cents-off coupon inserts found in the
Sunday newspapers. We felt that paper prices reached their cyclical highs last
year, and because Valassis buys all their paper stock they benefit from falling
paper costs.
Additionally, we have invested about 11% of the portfolio in U.S. dollar
denominated international issues. We hold such names as the Province of Quebec,
Banco Santander (a large bank in Spain), Panamerican Beverages, Inc. (the
largest soft drink bottler in Latin America), and Rogers Cablesystems, Ltd. (a
Canadian cable television company).
POSITIONING FOR THE SECOND SIX MONTHS
Overall, the Limited Maturity Bond Series continues to maintain a
moderately conservative investment style, with a dollar weighted average
portfolio rating in the high-A range. Approximately 36% of the portfolio is
invested in securities rated AAA. The duration currently is 3.9 years, versus
the benchmark index duration of 4.2 years.
We expect short-term interest rates to rise during the third quarter
because we believe that the Federal Reserve Open Market Committee will have to
raise rates at least once more in order to keep the economy growing at a low
inflationary level. When we believe that interest rates have peaked, probably
late in the third quarter, we plan to extend the portfolio's duration out nearer
that of the benchmark index. Our goal continues to be to generate an attractive
yield with only moderate price fluctuations.
Greg Hamilton, Portfolio Manager
(1) Performance figures are based on Class A shares and do not reflect
deduction of the sales charge.
LIMITED MATURITY BOND SERIES
6-30-96
CREDIT QUALITY RATING
AVERAGE MATURITY 5.1 YEARS
AAA........................... 36%
AA............................ 3%
A............................. 33%
BBB........................... 15%
BB............................ 13%
LIMITED MATURITY BOND SERIES
AVERAGE ANNUAL TOTAL RETURN
AS OF JUNE 30, 1996
CLASS A SHARES CLASS B SHARES
1 Year -1.24% 1 Year -2.35%
Since Inception 4.78% Since Inception 4.98%
(1-17-95) (1-17-95)
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 figures reflect deduction of the maximum
contingent deferred sales charge, ranging from 5% in the first
year to 0% in the sixth and following years. The investment
return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or
less than their original cost.
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<PAGE>
SECURITY
FUNDS
MANAGERS' COMMENTARY
================================================================================
AUGUST 15, 1996
SECURITY INCOME FUND
GLOBAL AGGRESSIVE BOND SERIES
[MFR LOGO] [LEXINGTON LOGO]
Dear Shareholder:
The first half of 1996 was treacherous for U.S. fixed income investors.
Here, an economy growing too fast brought back inflation fears. This caused the
yield of the thirty-year U.S. Treasury bond to rise from 5.94% at the end of
1995 to 6.89% by June 30. The spillover from the backup in U.S. interest rates
also affected core European bond yields, which either rose or were unchanged
despite positive fundamentals.
ADVANTAGES OF DIVERSIFICATION
Fortunately, the Global Aggressive Bond Series is a "true" global fund and
diversifies its investments across many countries. This allowed the fund to
participate in those bond markets which did perform well in the first half of
1996. In particular, the high yielding peripheral European bond markets (Italy,
Spain, Portugal and Greece) enjoyed solid gains. There, stable political
conditions, declining inflation and seemingly prudent fiscal policies pushed
bond yields lower.
"Brady" bonds also did well. These securities, named for former U.S.
Treasury Secretary Nicholas Brady, are repackaged defaulted loans of numerous
lesser-developed countries. In many classes, the maturity values of these bonds
are collateralized by U.S. Treasury bonds but interest payments are the
responsibility of the various countries. Among those emerging economies with
Brady debt outstanding, the Philippines continued a strong economic performance
and free market reforms, and Brazil indicated that it would follow Mexico's lead
and refund some of its debt outstanding.
NON-DOLLAR INVESTMENTS
The Global Aggressive Bond Series also benefited from non-dollar
denominated money market investments in Hungary, Turkey, and Mexico. Here, high
yields more than compensated investors for the currency risk. The portfolio's
investment approach which stresses diversity produced a 2.58% return for the
first six months of 1996.(1) This compares favorably with the Lipper World
Income Fund average gain of 1.3%, and with our benchmark Lehman Brothers Global
Bond Index of -0.88%.
INTERNATIONAL MARKETS IN THE SECOND HALF
Looking ahead, we see a weak U.S. bond market constraining the performance
of most of the world's major developed markets. Much like the first six months
of 1996, we see the best returns coming from lesser-followed markets.
Politicians around the world have caught the "fiscally responsible fever" and
this augurs well for the debt of lesser-developed countries. Accordingly, these
high yielding securities will remain a significant part of our portfolio.
We thank you for your support and welcome the challenge of providing you
with a diversified, high yielding fund that seeks to keep price volatility
comparable to or below that of ten-year U.S. Treasury securities.
Maria Fiorini Ramirez, Portfolio Manager
Denis P. Jamison, Portfolio Manager
(1) Performance figures are based on Class A shares and do not reflect
deduction of the sales charge.
Investing in foreign countries may involve risks, such as currency fluctuations
and political instability not associated with investing exclusively in the U.S.
GLOBAL AGGRESSIVE BOND SERIES
AVERAGE ANNUAL TOTAL RETURN
AS OF JUNE 30, 1996
CLASS A SHARES CLASS B SHARES
1 Year 5.25% 1 Year 4.82%
Since Inception 4.46% Since Inception 4.76%
(6-1-95) (6-1-95)
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 figures reflect deduction of the maximum
contingent deferred sales charge, ranging from 5% in the first
year to 0% in the sixth and following years. The investment
return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or
less than their original cost.
TOP 5 COUNTRIES
6-30-96
United States....................... 14.3%
Italy............................... 10.1%
Portugal............................ 8.8%
Poland.............................. 8.0%
New Zealand......................... 5.9%
5
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SECURITY
FUNDS
MANAGERS' COMMENTARY
================================================================================
AUGUST 15, 1996
SECURITY TAX-EXEMPT FUND
Although all fixed-income markets have experienced a decline in the first
six months of 1996, the municipal markets have lost less value than their
taxable counterparts. The converse was true in 1995, when talk of a flat tax
ruled Presidential campaigns and carried over into Congress. This talk has
diminished in recent months, allowing tax-exempt bonds to regain some of this
lost ground. We feel that after the elections there will be moves to simplify
the tax code somewhat, but that tax-exempt issues will still have a firm place
in investors' portfolios.
PORTFOLIO ADJUSTMENTS EARLY IN 1996
When 1996 began, the portfolio duration was about 9.5 years. We have worked
to shorten it to the present 7.8 years, in order to lessen the impact of rising
interest rates. We have reduced the number of callable issues, which also adds
to stability. Municipal bonds are typically issued with long maturities but with
a shorter call date, generally in five or ten years. As market prices move above
or below the call price of a bond, its price can swing very quickly up or down.
If a portfolio contains many callable bonds, its volatility increases
considerably.
THE IMPORTANCE OF CREDIT QUALITY
The quality of bonds in the portfolio is quite high, with ratings
predominantly AA or AAA. Many of the issues are insured by an independent
third-party company such as AMBAC that specializes in insuring municipal
debt.(1) We think that credit quality is especially important in a tax exempt
portfolio because it is more difficult to anticipate financial difficulties in
municipalities than in corporations. In addition, more programs once financed
and managed at the federal level are being pushed down to state and local
governments, straining finances in many localities. Most states lack the legal
ability to run deficits like the Federal government does, and their ability to
increase taxes is subject to voter approval.
We prefer to invest in revenue bond issues that "pay their own way" such as
sewer and water revenue bonds, which are repaid through revenues received when
individuals and corporations pay their monthly water bills. We found the Denver
Metropolitan Major League Baseball Stadium bonds attractive when we learned that
90% of the tickets to the Colorado Rockies' baseball games had been sold to
season ticket holders. Part of the ticket proceeds go into a fund which will
retire these bonds. The bonds are also guaranteed by the City of Denver. We have
purchased some school district bonds as well, primarily choosing insured issues
in this area.
LOOKING TOWARD THE NEXT SIX MONTHS
As we enter the second half of 1996 we plan to continue to reduce the call
risk in the portfolio. We will search for new issues that are not well
understood and present good value because of this. We plan to keep the Fund's
duration within 20% of its benchmark, the Lehman Brothers Municipal Bond Index,
and will work to maintain an attractive yield for shareholders.
Greg Hamilton, Portfolio Manager
(1) Although certain of the securities purchased by the Fund may be guaranteed,
the shares of the Fund itself are not so guaranteed.
TAX-EXEMPT FUND
6-30-96
CREDIT QUALITY RATING
AAA.............................35%
AA..............................36%
A...............................22%
BBB..............................7%
TAX-EXEMPT FUND
AVERAGE ANNUAL TOTAL RETURN
AS OF JUNE 30, 1996
CLASS A SHARES CLASS B SHARES
1 Year -0.05% 1 Year -1.31%
5 Years 5.06% Since Inception -1.20%
10 Years 5.52% (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 figures reflect deduction of the maximum
contingent deferred sales charge, ranging from 5% in the first
year to 0% in the sixth and following years. The investment
return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or
less than their original cost.
6
<PAGE>
SECURITY
FUNDS
MANAGERS' COMMENTARY
================================================================================
AUGUST 15, 1996
SECURITY CASH FUND
Security Cash Fund has been a good place for fixed income investors to be
so far this year while interest rates were rising. As you know, the Cash Fund
seeks to maintain a stable net asset value of $1.00 per share. Maturities of the
securities in this portfolio are quite short. When interest rates rise we are
able to reinvest the assets in higher-yielding issues, thus boosting the
dividends paid to shareholders without experiencing a decline in share value.(1)
HIGH QUALITY ASSETS IN THE PORTFOLIO
At June 30, 78.6% of the assets of the portfolio were invested in
"top-tier" commercial paper; that is, short-term corporate debt issues rated at
least A1 by Standard and Poor's rating agency or P1 by Moody's. The balance of
the assets were represented by investments in federal agencies such as Federal
National Mortgage Association, Federal Farm Credit Banks and the Small Business
Administration.
THE IMPORTANCE OF CREDIT RESEARCH
In order to be more competitive in the money market fund arena, we are
focusing our efforts on credit research. This intensive analysis helps us locate
commercial paper issues which are underpriced in our view, adding relative value
to our purchases. Since short-term interest rates generally fluctuate within a
narrow band across their range of maturities, we must look to areas other than
maturity selection to find additional incremental returns. We currently have 150
companies that issue commercial paper on our "approved list." We are using 24 of
these in the portfolio now.
MONITORING INTEREST RATE FORECASTS
At this time we are keeping our portfolio average maturity within five days
of the average maturity for money market funds as published weekly in the
IBC/Donoghue Money Fund Report. We are closely watching interest rate
developments, waiting for a signal from the Federal Reserve Open Market
Committee as to their intentions to raise interest rates. Because of the
short-maturity nature of money market assets, we can quickly adjust to rate
changes when they occur.
Barbara Davison, Fixed Income Team
(1) 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.
[PICTURE OF FIXED-INCOME TEAM]
THE SECURITY MANAGEMENT FIXED-INCOME TEAM:
ELAINE MILLER, JANE TEDDER, GREG HAMILTON,
JOHN CLELAND, TOM SWANK, STEVE BOWSER
7
<PAGE>
STATEMENTS OF NET ASSETS
JUNE 30, 1996
(UNAUDITED)
SECURITY INCOME FUND
CORPORATE BOND SERIES
PRINCIPAL MARKET
AMOUNT CORPORATE BONDS VALUE
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE - 2.3%
$2,000,000 Lockheed Corporation, 7.875% - 2023 ........... $ 1,957,500
AIR TRANSPORTATION - 4.2%
2,000,000 Southwest Airlines Company, 7.875% - 2007 ..... 2,042,500
1,200,000 United Airlines, 11.21% - 2014 ................ 1,521,000
----------
3,563,500
BANKS - 10.6%
2,000,000 ABN AMRO Bank NV, 7.55% - 2006 ................ 2,027,500
1,500,000 Bank of Montreal, 7.80% - 2007 ................ 1,546,875
1,500,000 Bank of New York, Inc., 6.50% - 2003 .......... 1,443,750
2,000,000 Bankers Trust New York Corporation,
7.125% - 2006 ............................... 1,940,000
2,000,000 Santander Financial Issuances, Ltd.,
7.00% - 2006 ................................ 1,937,500
----------
8,895,625
BROKERS, DEALERS & SERVICES - 12.0%
4,000,000 Bear Stearns Companies, Inc., 5.75% - 2001 .... 3,800,000
2,050,000 Lehman Brothers, Inc., 7.25% - 2003 ........... 2,029,500
2,000,000 Merrill Lynch & Company, Inc., 7.375% - 2006 .. 1,992,500
Salomon, Inc.,
1,000,000 6.70% - 1998 ................................ 998,750
1,300,000 7.00% - 2003 ................................ 1,246,375
----------
10,067,125
COMMUNICATIONS - 4.2%
1,750,000 Rogers Cablesystems, Ltd., 9.625% - 2002 ...... 1,734,688
2,000,000 Viacom, Inc., 8.00% - 2006 .................... 1,840,000
----------
3,574,688
CONSUMER GOODS & SERVICES - 1.5%
2,250,000 International Semi-Tech Microelectronics, Inc.,
0% - 2003(4) ................................ 1,302,188
ELECTRIC & GAS COMPANIES - 1.1%
1,000,000 Pacific Gas & Electric Company, 6.25% - 2003 .. 945,000
ENTERTAINMENT - 3.9%
1,500,000 Harrah's Operating Company, Inc., 8.75% - 2000 1,516,875
1,800,000 Station Casinos, Inc., 10.125% - 2006 ......... 1,752,750
----------
3,269,625
PRINCIPAL MARKET
AMOUNT CORPORATE BONDS (CONTINUED) VALUE
- --------------------------------------------------------------------------------
FINANCE - 1.9%
$2,000,000 Home Holdings, Inc., 7.75% - 1998 ............. $ 1,620,000
FOOD & BEVERAGES - 2.4%
2,000,000 Panamerican Beverages, Inc., 8.125% - 2003 .... 2,015,000
HOSPITAL MANAGEMENT - 1.8%
1,500,000 Tenet Healthcare Corporation, 8.625% - 2003 ... 1,516,875
MANUFACTURING - 4.9%
2,000,000 Auburn Hills Trust, 12.00% - 2020 ............. 2,890,000
1,200,000 Valasis Inserts, Inc., 9.375% - 1999 .......... 1,215,000
----------
4,105,000
MISCELLANEOUS - 4.9%
3,500,000 Residential Funding Mortgage Securities, Inc.,
7.25% - 2010 CMO ............................ 1,957,137
1,250,000 Securitized Asset Sales, Inc., 7.50% - 2025 CMO 1,243,727
1,000,000 Structured Asset Securities Corporation,
7.034% - 2028 CMO ........................... 952,539
----------
4,153,403
MOTION PICTURE PRODUCTION - 2.8%
2,000,000 Time Warner Entertainment Company, 10.15% - 2012 2,332,500
PAPER & LUMBER PRODUCTS - 5.6%
4,500,000 Georgia Pacific Company, 9.125% - 2022 ........ 4,674,375
PETROLEUM REFINING - 2.8%
2,000,000 Pennzoil Company, 10.125% - 2009 .............. 2,342,500
PUBLISHING & PRINTING - 1.2%
1,250,000 Marvel Holdings, Inc., 0% - 1998 .............. 1,001,563
RADIO & TELEVISION - 2.2%
1,750,000 Continental Cablevision, Inc., 8.875% - 2005 .. 1,868,125
REAL ESTATE - 3.3%
2,800,000 Chelsea GCA Realty, Inc., 7.75% - 2001 ........ 2,761,500
TELECOMMUNICATION EQUIPMENT - 3.7%
3,000,000 Comsat Corporation, 8.125% - 2004 ............. 3,123,750
----------
Total corporate bonds - Corporate Bond Series
(cost $66,103,749) - 77.3% .................. 65,089,842
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
8
<PAGE>
STATEMENTS OF NET ASSETS
JUNE 30, 1996
(UNAUDITED)
SECURITY INCOME FUND
CORPORATE BOND SERIES (CONTINUED)
PRINCIPAL MARKET
AMOUNT GOVERNMENT & GOVERNMENT AGENCY SECURITIES VALUE
- --------------------------------------------------------------------------------
CANADIAN GOVERNMENT AGENCIES - 2.5%
$2,250,000 Province of Quebec, 7.50% - 2023 .............. $ 2,145,938
U.S. GOVERNMENT AGENCIES - 10.4%
Federal Home Loan Mortgage Corporation,
1,500,000 7.974% - 2005 ............................... 1,502,040
750,000 9.00% - 2020 CMO ............................ 763,335
2,200,000 7.00% - 2021 CMO ............................ 2,163,691
Federal National Mortgage Association,
2,500,000 7.50% - 2006 CMO ............................ 2,497,431
2,500,000 8.40% - 2020 CMO ............................ 1,840,139
----------
8,766,636
U.S. TREASURY NOTES - 4.8%
1,000,000 5.00% - 1999 ................................ 970,350
2,000,000 7.50% - 1999 ................................ 2,065,440
1,000,000 5.75% - 2000 ................................ 973,900
----------
4,009,690
U.S. TREASURY BONDS - 1.2%
1,000,000 6.75% - 2000 ................................ 1,010,930
----------
Total government & government agency
securities - Corporate Bond Series -
(cost $16,221,959) - 18.9% .................. 15,933,194
----------
Total investments - Corporate Bond Series -
(cost $82,325,708) - 96.2% .................. 81,023,036
Cash and other assets, less liabilities - 3.8% 3,178,776
----------
Total net assets - Corporate Bond Series -
100.0% ...................................... $84,201,812
==========
SECURITY INCOME FUND
U.S. GOVERNMENT SERIES
PRINCIPAL MARKET
AMOUNT U.S. GOVERNMENT & GOVERNMENT AGENCY SECURITIES VALUE
- --------------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 6.8%
$775,000 7.50% - 2020 CMO ............................ $761,906
FEDERAL NATIONAL MORTGAGE CORPORATION - 41.4%
1,000,000 5.28% - 7-09-96 ............................. 998,826
700,000 5.26% - 7-12-96 ............................. 698,875
500,000 6.69% - 2011 ................................ 463,360
1,000,000 8.10% - 2019 ................................ 1,088,500
750,000 7.93% - 2025 ................................ 807,277
500,000 8.28% - 2025 ................................ 558,450
----------
4,615,288
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 17.8%
749,774 8.50% - 2024 ................................ 765,079
524,071 7.50% - 2034 ................................ 516,574
697,255 7.75% - 2025 ................................ 695,301
----------
1,976,954
U.S. TREASURY NOTES - 26.3%
2,000,000 7.25% - 1998 ................................ 2,036,360
500,000 8.00% - 1999 ................................ 522,835
350,000 7.50% - 2001 ................................ 365,396
----------
2,924,591
U.S. TREASURY BONDS - 6.0%
600,000 8.75% - 2008 ................................ 666,870
----------
Total investments - U.S. Government Series -
(cost $10,965,703) - 98.3% .................. 10,945,609
Cash and other assets, less liabilities - 1.7% 192,892
----------
Total net assets - U.S. Government Series -
100.0% $11,138,501
==========
SECURITY INCOME FUND
LIMITED MATURITY BOND SERIES
CORPORATE BONDS
AEROSPACE & DEFENSE - 1.8%
$100,000 AlliedSignal, Inc., 6.75% - 2000 .............. $99,875
ALUMINUM - 2.8%
148,000 Alcan Aluminum, Ltd., 9.20% - 2001 ............ 154,290
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
9
<PAGE>
STATEMENTS OF NET ASSETS
JUNE 30, 1996
(UNAUDITED)
SECURITY INCOME FUND
LIMITED MATURITY BOND SERIES (CONTINUED)
PRINCIPAL MARKET
AMOUNT CORPORATE BONDS (CONTINUED) VALUE
- --------------------------------------------------------------------------------
BANKS - 4.7%
$110,000 First Union Corporation, 8.125% - 2002 ........ $115,363
150,000 Santander Financial Issuances, Ltd.,
7.00% - 2006 ................................ 145,313
----------
260,676
BROKER/DEALERS - 2.7%
150,000 Lehman Brothers, Inc., 7.25% - 2003 ........... 148,500
COMMUNICATIONS - 2.7%
150,000 Rogers Cablesystems, Ltd., 9.625% - 2002 ...... 148,688
ELECTRIC COMPANIES - 5.4%
150,000 Consolidated Edison Company of New York,
6.625% - 2002 ............................... 147,000
150,000 Texas Utilities Electric Company, 7.375% - 2001 151,688
----------
298,688
ELECTRIC & GAS COMPANIES - 2.8%
150,000 Public Service Electric & Gas Company,
8.75% - 1999 ................................ 157,875
ENTERTAINMENT - 2.7%
150,000 Harrah's Operating Company, Inc., 8.75% - 2000 151,688
FINANCE - 11.1%
150,000 Ford Motor Credit Company, 8.375% - 2000 ...... 157,500
150,000 Household Finance Corporation, 8.00% - 2004 ... 156,938
150,000 International Lease Finance Corporation,
8.25% - 2000 ................................ 156,750
150,000 MCN Investment Corporation, 6.32% - 2003 ...... 143,625
----------
614,813
FOOD & BEVERAGE TRADE - 3.7%
100,000 FEMSA Fomento Economico Mexicano SA,
9.50% - 1997 ................................ 102,500
100,000 Panamerican Beverages, Inc., 8.125% - 2003 .... 100,750
----------
203,250
GROCERY STORES - 2.5%
150,000 Penn Traffic Company, 10.65% - 2004 ........... 136,125
HOSPITAL MANAGEMENT - 2.7%
150,000 Tenet Healthcare Corporation, 8.625% - 2003 ... 151,688
PRINCIPAL MARKET
AMOUNT CORPORATE BONDS (CONTINUED) VALUE
- --------------------------------------------------------------------------------
MANUFACTURING - 1.8%
$100,000 Valasis Inserts, Inc., 9.375% - 1999 .......... $ 101,250
MISCELLANEOUS - 3.5%
94,900 Residential Funding Mortgage Securities, Inc.,
7.25% - 2010 CMO ............................ 92,866
100,000 Sears Mortgage Securities Corporation,
8.50% - 2022 CMO ............................ 102,911
----------
195,777
NATURAL GAS COMPANIES - 2.9%
150,000 Vastar Resources, Inc., 8.75% - 2005 .......... 160,500
REAL ESTATE - 2.7%
145,000 Chelsea GCA Realty, Inc., 7.75% - 2001 ........ 143,006
RETAIL TRADE - 2.8%
150,000 Wal-Mart Stores, Inc., 7.50% - 2004 ........... 153,188
SANITARY SERVICES - 2.8%
150,000 WMX Technologies, Inc., 8.25% - 1999 .......... 157,125
TOBACCO PRODUCTS - 2.8%
150,000 Phillip Morris Companies, Inc., 7.625% - 2002 . 153,188
----------
Total corporate bonds - Limited Maturity Bond
Series (cost $3,542,355) - 64.9% ............ 3,590,190
GOVERNMENT & GOVERNMENT AGENCY SECURITIES
CANADIAN GOVERNMENT AGENCIES - 3.0%
150,000 Province of Quebec, 8.625% - 2005 ............. 161,625
U.S. GOVERNMENT AGENCIES - 24.7%
Federal Home Loan Bank,
150,000 7.69% - 12-16-96 ............................ 151,449
100,000 7.17% - 2000 ................................ 101,651
Federal Home Loan Mortgage Corporation,
100,000 7.69% - 12-16-96 ............................ 100,966
200,000 8.00% - 2020 CMO ............................ 203,889
44,000 8.50% - 2020 CMO ............................ 45,573
131,817 5.70% - 2008 ................................ 123,137
118,000 7.50% - 2019 ................................ 118,404
100,000 7.00% - 2020 ................................ 97,318
155,369 6.50% - 2023 ................................ 121,599
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
10
<PAGE>
STATEMENTS OF NET ASSETS
JUNE 30, 1996
(UNAUDITED)
SECURITY INCOME FUND
LIMITED MATURITY BOND SERIES (CONTINUED)
PRINCIPAL GOVERNMENT & GOVERNMENT AGENCY MARKET
AMOUNT SECURITIES (CONTINUED) VALUE
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES, CONTINUED
$150,000 Federal National Mortgage Association,
8.50% - 2005 ................................ $156,000
150,000 Government National Mortgage Association,
7.50% - 2019 CMO ............................ 146,712
----------
1,366,698
U.S. TREASURY NOTE - 0.9%
50,000 7.50% - 1997 ................................ 50,542
----------
Total government & government agency
securities - Limited Maturity Bond Series
(cost $1,583,833) - 28.6% ................... 1,578,865
----------
Total investments - Limited Maturity Bond
Series (cost $5,126,188) - 93.5% ............ 5,169,055
Cash and other assets, less liabilities - 6.5% 358,548
----------
Total net assets - Limited Maturity Bond
Series - 100.0% ............................. $5,527,603
==========
SECURITY INCOME FUND
GLOBAL AGGRESSIVE BOND SERIES
GOVERNMENT OBLIGATIONS
AUSTRALIA - 4.1%
$290,000 New South Wales Treasury Corporation,
6.50% - 2006(3) ............................. 189,975
CANADA - 3.4%
200,000 Stelco, Inc., 10.40% - 2009(3) ................ 158,689
DOMINICAN REPUBLIC - 3.3%
250,000 Central Bank of Dominican Republic,
6.5625% - 2024 .............................. 153,125
JORDAN - 2.9%
250,000 Kingdom of Jordan, 4.00% - 2023 ............... 131,250
PORTUGAL - 8.8%
Obrig Do Tes Medio Prazo,
20,000,000 11.875% - 2000(3) ........................... 142,754
35,000,000 11.875% - 2005(3) ........................... 264,757
----------
407,511
SECURITY GLOBAL AGGRESSIVE
BOND FUND (CONTINUED)
PRINCIPAL MARKET
AMOUNT GOVERNMENT OBLIGATIONS (CONTINUED) VALUE
- --------------------------------------------------------------------------------
SOUTH AFRICA - 4.3%
1,000,000 Republic of South Africa, 12.00% - 2005(3) .... $ 199,071
SPAIN - 3.7%
20,000,000 Bonos Y Oblig Del Estado, 10.15% - 2006(3) .... 168,234
URUGUAY - 4.7%
$250,000 Banco Central Del Uruguay, 6.4375% - 2007 ..... 217,500
----------
Total government obligations -
Global Aggressive Bond Series
(cost $1,642,143) - 35.2% ................... 1,625,355
CORPORATE BONDS
CANADA - 1.6%
100,000 Roger's Communications, Inc., 10.50% - 2006(3) 71,900
CZECH REPUBLIC - 2.0%
2,500,000 CEZ, a.s., 11.30 - 2005(3) .................... 92,112
DENMARK - 5.5%
894,000 Nykredit, 8.00% - 2026(3) ..................... 144,405
600,000 Realkredit Danmark, 10.00% - 2026(3) .......... 108,928
----------
253,333
THAILAND - 4.8%
5,200,000 Italian-Thai Development Company,
12.50% - 2005(3) ............................ 220,456
UNITED STATES - 3.4%
150,000 Chiquita Brands International, Inc.,
11.50% - 2001 ............................... 159,375
----------
Total corporate bonds - Global Aggressive
Bond Series (cost $802,809) - 17.3% ......... 797,176
SHORT-TERM INVESTMENTS
GREECE - 4.3%
50,000,000 Hellenic Treasury Bills, 0% - 12-18-96(3) ..... 195,633
HUNGARY - 3.9%
30,000,000 Government of Hungary Treasury Bill,
0% - 12-20-96(3) ............................ 177,521
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
11
<PAGE>
STATEMENTS OF NET ASSETS
JUNE 30, 1996
(UNAUDITED)
SECURITY GLOBAL AGGRESSIVE
BOND SERIES (CONTINUED)
PRINCIPAL MARKET
AMOUNT SHORT TERM INVESTMENTS (CONTINUED) VALUE
- --------------------------------------------------------------------------------
ITALY - 10.0%
Chase Manhattan Bank Time Deposit,
351,705,856 8.5625% - 7-01-96(3) ........................ $ 229,274
352,290,054 9.00% - 7-08-96(3) .......................... 229,655
----------
458,929
MEXICO - 2.8%
1,000,000 Cetes, 0% - 7-18-96(3) ........................ 130,174
NEW ZEALAND - 5.8%
400,000 New Zealand Government Treasury Bills,
0% - 9-11-96(3) ............................. 269,086
POLAND - 7.9%
1,070,000 Government of Poland Treasury Bills,
0% - 11-13-96(3) ............................ 365,486
TURKEY - 3.4%
13,270,000,000 Government of Turkey Treasury Bills,
0% - 7-16-96(3) ............................. 156,827
UNITED STATES - 10.7%
500,000 U.S. Treasury Bills, 5.16% - 9-12-96(3) ....... 494,675
----------
Total short-term investments -
Global Aggressive Bond Series
(cost $2,312,289) - 48.8% ................... 2,248,331
----------
Total investments - Global Aggressive
Bond Series (cost $4,757,241) - 101.3% ...... 4,670,862
Liabilities in excess of cash and
other assets - (1.3%) ....................... (58,505)
----------
Total net assets - Global Aggressive
Bond Series - 100.0% ........................ $4,612,357
==========
SECURITY TAX-EXEMPT FUND
MUNICIPAL BONDS
CIVIC CENTER DEVELOPMENT REVENUE - 1.0%
$250,000 District of Columbia Redevelopment Washington
DC Sports Arena, 5.40% - 2000 ............... $247,500
SECURITY TAX-EXEMPT FUND (CONTINUED)
PRINCIPAL MARKET
AMOUNT MUNICIPAL BONDS (CONTINUED) VALUE
- --------------------------------------------------------------------------------
EDUCATION REVENUE - 21.3%
$1,200,000 Fulton County, Georgia School District,
5.625% - 2021 ............................... $1,168,500
480,000 Iowa Higher Education St. Ambrose, 5.75% - 2011 451,800
1,000,000 Island Washington School District South
Whidbey, 6.75% - 2007 ....................... 1,112,500
1,000,000 Washington School District Federal Way,
4.80% - 2007 ................................ 942,500
1,000,000 North Brunswick Township, N.J. Board of
Education, 6.30% - 2013 ..................... 1,048,750
500,000 Northfield, Minnesota School District #659,
4.80% - 2007 ................................ 478,750
----------
5,202,800
ELECTRIC UTILITY REVENUE - 17.3%
1,000,000 Georgia Municipal Electric Authority,
5.25% - 2025 ................................ 898,750
1,200,000 Massachusetts Municipal Wholesale Electric
Company Power Supply System, Series B,
6.625% - 2004 ............................... 1,293,000
1,000,000 Nebraska Public Power District Revenue,
Series A, 6.25% - 2022 ...................... 1,013,750
1,000,000 Washington Public Power Supply System Revenue
Nuclear Project #2, 6.30% - 2012 ............ 1,028,750
----------
4,234,250
GENERAL OBLIGATION - 16.1%
1,000,000 Clark County, Nevada School District, Series A,
5.50% - 2016 ................................ 948,750
1,000,000 El Paso, Texas, 5.00% - 2015 .................. 911,250
1,000,000 State of Illinois, 6.10% - 2003 ............... 1,057,500
1,000,000 Tulsa, Oklahoma, 5.125% - 2000 ................ 1,013,750
----------
3,931,250
HIGHWAY REVENUE - 5.9%
1,400,000 Harris County, Texas, Series A, Toll Road &
Tax, 6.125% - 2020 .......................... 1,442,000
POLLUTION CONTROL - 4.0%
1,000,000 Kansas City, Kansas General Motors Corporation
Project, 5.45% - 2006 ....................... 998,750
PORTS & HARBORS - 2.1%
500,000 Kansas City, Missouri Port Authority Riverfront
Park, 5.75% - 2005 .......................... 501,875
SALES TAX REVENUE - 5.1%
1,300,000 Los Angeles, California, 5.625% - 2018 ........ 1,252,875
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
12
<PAGE>
STATEMENTS OF NET ASSETS
JUNE 30, 1996
(UNAUDITED)
SECURITY TAX-EXEMPT FUND (CONTINUED)
PRINCIPAL MARKET
AMOUNT MUNICIPAL BONDS (CONTINUED) VALUE
- --------------------------------------------------------------------------------
SEWER REVENUE - 16.8%
$1,000,000 DuPage County, Illinois Stormwater Project
Refunding, 5.60% - 2021 ..................... $968,750
1,000,000 Houston, Texas Water & Sewage System Revenue,
Series A, 6.20% - 2020 ...................... 1,020,000
1,000,000 King County Washington Sewer Revenue, Series A,
6.25% - 2034 ................................ 1,022,500
1,100,000 Los Angeles, California Wastewater System
Revenue, 6.00% - 2014 ....................... 1,109,625
----------
4,120,875
VARIOUS PURPOSE REVENUE - 4.0%
1,000,000 Denver Metropolitan Major League Baseball
Stadium Project, 4.00% - 1999 ............... 976,250
WATER SUPPLY SYSTEM REVENUE - 5.1%
1,250,000 New York City Municipal Water Finance
Authority, 6.00% - 2025 ..................... 1,242,188
----------
Total investments - Tax-Exempt Fund
(cost $24,330,257) - 98.7% .................. 24,150,613
Other assets, less liabilities - 1.3% ....... 306,819
----------
Total net assets - Tax-Exempt Fund - 100.0% . $24,457,432
==========
SECURITY CASH FUND
COMMERCIAL PAPER
AIR TRANSPORTATION - 1.7%
$800,000 Harper Group, Inc., (The), 5.34% - 7-09-96 .... $798,813
AUTOMOBILES - 4.4%
2,000,000 Toyota Motor Credit Corporation, 5.31% - 7-09-96 1,997,050
BUSINESS SERVICES - 8.7%
2,000,000 AI Credit Corporation, 5.30% - 7-19-96 ........ 1,994,111
2,000,000 Nordstrom Credit, Inc., 5.35% - 7-11-96 ....... 1,996,433
----------
3,990,544
BROKERS - 5.5%
2,506,000 Merrill Lynch &Company, Inc.,
5.32% - 7-01-96 ............................. 315,907
5.37% - 7-08-96 ............................. 689,074
SECURITY CASH FUND (CONTINUED)
PRINCIPAL MARKET
AMOUNT COMMERCIAL PAPER (CONTINUED) VALUE
- --------------------------------------------------------------------------------
BROKERS (CONTINUED)
Merrill Lynch & Company, Inc., continued
5.36% - 7-10-96 ............................. $199,672
5.35% - 7-12-96 ............................. 299,420
5.30% - 7-18-96 ............................. 997,203
----------
2,501,276
COMPUTERS - 4.4%
$2,000,000 International Business Machines Corporation,
5.32% - 7-11-96 ............................. 1,996,453
CONSTRUCTION - 0.9%
433,000 Vulcan Materials Company, 5.35% - 7-16-96 ..... 431,906
DRUGS & TOILETRIES - 2.2%
1,000,000 Allergan, Inc., 5.33% - 7-16-96 ............... 997,483
ELECTRIC UTILITIES - 8.7%
1,000,000 DelMarva Power & Light Company, 5.34% - 7-01-96 999,703
2,134,000 Interstate Power Company,
5.35% - 7-02-96 ............................. 133,940
5.38% - 7-23-96 ............................. 996,413
5.39% - 7-29-96 ............................. 995,508
850,000 Progress Capital Holdings, Inc.,
5.34% - 7-02-96 ............................. 599,733
5.37% - 7-02-96 ............................. 249,888
----------
3,975,185
ELECTRONICS - 1.3%
300,000 Avnet, Inc., 5.31% - 7-17-96 .................. 299,204
300,000 TDK, U.S.A. Corporation,
5.37% - 7-22-96 ............................. 99,657
5.43% - 7-22-96 ............................. 199,306
----------
598,167
GAS & ELECTRIC COMPANIES - 3.1%
1,405,000 Madison Gas & Electric Company, 5.33% - 7-15-96 1,401,672
GAS COMPANIES & SYSTEMS - 8.7%
2,000,000 Bay State Gas Company, 5.39% - 7-29-96 ........ 1,991,017
2,000,000 New Jersey Natural Gas Company, 5.39% - 7-02-96 1,999,102
----------
3,990,119
INSURANCE - 4.6%
2,100,000 AIG Funding, Inc., 5.30% - 7-16-96 ............ 2,094,744
LEASING COMPANIES - 7.2%
1,000,000 International Lease Finance Corporation,
5.29% - 8-19-96 ............................. 992,506
2,300,000 PHH Corporation, 5.36% - 7-23-96 .............. 2,291,781
----------
3,284,287
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
13
<PAGE>
STATEMENTS OF NET ASSETS
JUNE 30, 1996
(UNAUDITED)
SECURITY CASH FUND (CONTINUED)
PRINCIPAL MARKET
AMOUNT COMMERCIAL PAPER (CONTINUED) VALUE
- --------------------------------------------------------------------------------
NUCLEAR - 4.8%
$2,200,000 Bayshore Fuel Company,
5.32% - 7-08-96 ............................. $1,098,538
5.35% - 7-08-96 ............................. 1,098,529
----------
2,197,067
RECREATION - 4.3%
2,000,000 The Walt Disney Company,
5.30% - 9-06-96 ............................. 989,842
5.30% - 10-08-96 ............................ 985,130
----------
1,974,972
SOLID WASTE - 5.7%
2,700,000 WMX Technologies, Inc.*,
5.40% - 1-24-97 ............................. 2,615,355
TOBACCO PRODUCTS - 2.4%
600,000 B.A.T. Capital Corporation,
5.35% - 7-16-96 ............................. 598,484
500,000 Philip Morris Companies, Inc.,
5.30% - 8-13-96 ............................. 496,687
----------
1,095,171
----------
Total commercial paper - Cash Fund
(cost $35,940,264) - 78.6% .................. 35,940,264
U.S. GOVERNMENT & GOVERNMENT AGENCY SECURITIES
FEDERAL FARM CREDIT BANKS - 2.2%
1,000,000 4.95% - 3-03-97 ............................... 997,031
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 6.5%
3,000,000 4.97% - 3-10-97 ............................... 2,992,094
SBA POOLS - 11.4%
1,875,252 7.00% - 2017(1) ............................... 1,892,725
1,291,997 5.875% - 2018(2) .............................. 1,297,243
1,996,964 5.75% - 2021(2) ............................... 1,998,205
----------
5,188,173
----------
Total U.S. government & government agency
securities (cost $9,177,298) - 20.1% ........ 9,177,298
----------
Total investments - Cash fund
(cost $45,117,562) - 98.7% .................. 45,117,562
Cash and other assets, less liabilities - 1.3% 582,011
----------
Total net assets Cash fund- 100.0% .......... $45,699,573
==========
The identified cost of investments owned at June 30, 1996, was the same for
federal income tax and book purposes.
*Indicates privately placed commercial paper.
CMO (Collateralized Mortgage Obligation)
(1) Variable rate security which may be reset the first of each month.
(2) Variable rate security which may be reset the first of each quarter.
(3) Principal amount on foreign bonds is reflected in local currency (e.g.
Danish krone) while market value is reflected in U.S. dollars.
(4) Deferred interest obligation; currently zero coupon under terms of intital
offering.
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
14
<PAGE>
BALANCE SHEETS
JUNE 30, 1996
(UNAUDITED)
<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
$82,325,708, $10,965,703, $5,126,188,
$4,757,241, $24,330,257 and $9,177,298,
respectively) .............................. $81,023,036 $10,945,609 $5,169,055 $4,670,862 $24,150,613 $9,177,298
Commercial paper, at amortized cost
which approximates market value ............ --- --- --- --- --- 35,940,264
Cash ......................................... --- 19,502 390,689 108,497 --- 266,839
Receivables:
Fund shares sold ........................... 25,335 182 306 322 --- 164,063
Securities sold ............................ 1,759,985 --- --- --- --- 115,537
Interest ................................... 1,488,808 180,755 112,336 60,287 329,484 141,210
Security Management Company ................ 389 346 157 1,203 282 919
Prepaid expense .............................. 5,271 4,920 11,568 3,516 12,315 33,098
Forward foreign exchange contracts ........... --- --- --- 7,166 --- ---
----------- ----------- ----------- ----------- ----------- -----------
Total assets ........................... $84,302,824 $11,151,314 $5,684,111 $4,851,853 $24,492,694 $45,839,228
=========== =========== =========== =========== =========== ===========
LIABILITIES AND NET ASSETS
Liabilities:
Payable for fund shares redeemed ........... $3,979 $--- 153,177 --- $--- $62,265
Dividends payable to shareholders .......... --- --- --- 2,640 --- 13,615
Payable for securities purchased ........... --- --- --- 229,655 --- ---
Other liabilities:
Management fees .......................... 33,856 --- --- --- 9,278 17,854
12b-1 distribution plan fees ............. 19,726 2,503 1,485 1,827 950 ---
Custodian and transfer agent fees ........ 4,622 875 175 1,013 759 9,392
Administration fees ...................... 6,094 772 380 162 1,670 1,625
Professional fees ........................ 18,157 4,035 --- --- 15,549 14,100
Miscellaneous ............................ 14,578 4,628 1,291 4,199 7,056 20,804
----------- ----------- ----------- ----------- ----------- -----------
Total liabilities ...................... 101,012 12,813 156,508 239,496 35,262 139,655
Net Assets:
Paid in capital ............................ 96,362,238 12,077,827 5,455,161 4,620,706 26,019,657 45,699,573
Undistributed net investment income (loss) . 49,948 (6,135) 2,783 65,285 8,802 ---
Accumulated undistributed net realized gain
(loss) on sale of investments and foreign
currency transactions .................... (10,907,702) (913,097) 26,792 5,748 (1,391,383) ---
Net unrealized appreciation (depreciation)
in value of investments and translation of
assets and liabilities in foreign currency (1,302,672) (20,094) 42,867 (79,382) (179,644) ---
----------- ----------- ----------- ----------- ----------- -----------
Net assets ............................. 84,201,812 11,138,501 5,527,603 4,612,357 24,457,432 45,699,573
----------- ----------- ----------- ----------- ----------- -----------
Total liabilities and net assets ....... $84,302,824 $11,151,314 $5,684,111 $4,851,853 $24,492,694 $45,839,228
=========== =========== =========== =========== =========== ===========
CLASS "A" SHARES
Capital shares outstanding ...................... 11,491,254 2,253,756 465,833 307,282 2,440,710 45,699,573
Net assets ...................................... $79,333,307 $10,512,549 $4,796,631 $3,073,527 $23,200,834 $45,699,573
Net asset value per share (net assets
divided by shares outstanding) ............... $6.90 $4.66 $10.30 $10.00 $9.51 $1.00
Add: Selling commission (4.75% of
offering price) (excluding Cash Fund) ........ .34 0.23 0.51 0.50 0.47 ---
----------- ----------- ----------- ----------- ----------- -----------
Offering price per share (net asset
value divided by 95.25%) ..................... $7.24 $4.89 $10.81 $10.50 $9.98 $1.00
=========== =========== =========== =========== =========== ===========
CLASS "B" SHARES
Capital shares outstanding ...................... 701,712 134,185 70,969 153,888 132,096 ---
Net assets ...................................... $4,868,505 $625,952 $730,972 $1,538,830 $1,256,598 ---
Net asset value per share (net assets
divided by shares outstanding) ............... $6.94 $4.66 $10.30 $10.00 $9.51 ---
=========== =========== =========== =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
15
<PAGE>
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<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 ..................................... $3,392,566 $371,688 $172,701 $299,520 $696,359 $1,260,151
EXPENSES:
Management fees .............................. 233,104 30,316 12,921 16,690 62,878 114,466
Transfer/maintenance fees .................... 49,572 8,331 1,606 297 7,629 70,928
12b-1 distribution plan fees ................. 136,807 15,661 8,620 11,044 6,399 ---
Administration fees .......................... 41,959 4,819 2,087 998 11,318 10,310
Custodian fees ............................... 2,027 945 771 5,151 686 2,632
Directors' fees .............................. 4,023 480 325 256 6,172 5,280
Professional fees ............................ 10,426 1,634 1,115 1,680 6,941 9,000
Registration ................................. 17,043 11,357 6,840 13,747 11,614 18,661
Other expenses ............................... 14,214 3,091 1,081 18,263 5,199 11,850
----------- ----------- ----------- ----------- ----------- -----------
509,175 76,634 35,366 68,126 118,836 243,127
Less: Earnings credits ....................... (2,027) (945) (771) --- (686) (2,632)
Reimbursement of expenses .................... (5,762) (32,979) (13,269) (20,057) (1,754) (11,563)
----------- ----------- ----------- ----------- ----------- -----------
Total expenses ............................. 501,386 42,710 21,326 48,069 116,396 228,932
----------- ----------- ----------- ----------- ----------- -----------
Net investment income .................... 2,891,180 328,978 151,375 251,451 579,963 1,031,219
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) during the period on:
Investments ................................ 102,214 248,226 49,847 70,196 142,828 ---
Foreign currency transactions .............. --- --- (62,611) --- --- ---
----------- ----------- ----------- ----------- ----------- -----------
Net realized gain ........................ 102,214 248,226 49,847 7,585 142,828 ---
Net change in unrealized depreciation
during the period on:
Investments ................................ (6,622,930) (917,146) (206,943) (86,379) (1,302,828) ---
Translation of assets and liabilities
in foreign currencies .................... --- --- --- (62,423) --- ---
----------- ----------- ----------- ----------- ----------- -----------
Net unrealized depreciation .............. (6,622,930) (917,146) (206,943) (148,802) (1,302,828) ---
----------- ----------- ----------- ----------- ----------- -----------
Net loss ............................... (6,520,716) (668,920) (157,096) (141,217) (1,160,000) ---
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net
assets resulting from operations ... ($3,629,536) ($339,942) ($5,721) $110,234 ($580,037) $1,031,219
=========== =========== =========== =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
16
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<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 (DECREASE) IN NET
ASSETS FROM OPERATIONS:
Net investment income (loss) ................. $2,891,180 $328,978 $151,375 $251,451 $579,963 $1,031,219
Net realized gain ............................ 102,214 248,226 49,847 7,585 142,828 ---
Unrealized depreciation during the period .... (6,622,930) (917,146) (206,943) (148,802) (1,302,828) ---
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations ................ (3,629,536) (339,942) (5,721) 110,234 (580,037) 1,031,219
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A .................................... (2,716,241) (321,640) (129,439) (121,172) (552,581) (1,031,219)
Class B .................................... (144,725) (16,145) (20,040) (56,107) (22,365) ---
----------- ----------- ----------- ----------- ----------- -----------
Total distributions to shareholders ...... (2,860,966) (337,785) (149,479) (177,279) (574,946) (1,031,219)
CAPITAL SHARE TRANSACTIONS (A):
Proceeds from sale of shares
Class A .................................... 3,081,609 1,649,246 1,718,136 31,028 699,534 179,763,479
Class B .................................... 484,605 149,744 33,554 76,052 173,684 ---
Dividends reinvested
Class A .................................... 2,164,932 264,776 122,348 121,169 309,046 1,011,925
Class B .................................... 126,077 13,064 19,457 51,772 15,890 ---
Cost of shares redeemed
Class A .................................... (13,500,423) (842,844) (237,405) (3,878) (1,737,749) (173,233,731)
Class B .................................... (1,108,825) (80,003) (47,091) (5,000) (63,908) ---
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) from capital
share transactions ....................... (8,752,025) 1,153,983 1,608,999 271,143 (603,503) 7,541,673
----------- ----------- ----------- ----------- ----------- -----------
Total increase (decrease) in net assets .. (15,242,527) 476,256 1,453,799 204,098 (1,758,486) 7,541,673
NET ASSETS:
Beginning of period .......................... 99,444,339 10,662,245 4,073,804 4,408,259 26,215,918 38,157,900
----------- ----------- ----------- ----------- ----------- -----------
End of period ................................ $84,201,812 $11,138,501 $5,527,603 $4,612,357 $24,457,432 $45,699,573
=========== =========== =========== =========== =========== ===========
Undistributed net investment income .......... $49,948 ($6,135) $2,783 $65,285 $8,802 $---
=========== =========== =========== =========== =========== ===========
(a) Shares issued and redeemed:
Shares sold
Class A .............................. 438,650 348,972 165,360 3,055 72,663 179,763,479
Class B .............................. 68,602 31,192 3,173 7,621 17,547 ---
Dividends reinvested
Class A .............................. 308,282 55,888 11,755 12,162 32,124 1,011,925
Class B .............................. 17,867 2,757 1,864 5,193 1,650 ---
Shares redeemed
Class A .............................. (1,930,839) (177,527) (22,815) (383) (180,606) (173,233,731)
Class B .............................. (157,986) (16,841) (4,545) (502) (6,699) ---
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) ................ (1,255,424) 244,441 154,792 27,146 (63,321) 7,541,673
=========== =========== =========== =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
17
<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.
- --------------------------------------------------------------------------------
18
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Ratio
of Ratio
Net Divi- expen- of
Net gain Total dends Net Net ses net
Fiscal asset (loss) from (from Distri asset assets to income Port-
period value Net (real- invest- net butions value end of aver- to folio
ended begin- invest- ized & ment invest- (from Return Total end Total period age average turn-
Decem- ning of ment unreal- opera- ment capital of distri- of return (thou- net net over
ber 31 period income ized) tions income) gains) capital butions period (a) sands) assets assets rate
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CORPORATE BOND SERIES(CLASS A)
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%
1996(d)(h) 7.39 0.23 (0.498) (0.268) (0.222) --- --- (0.222) 6.90 (3.6%) 79,333 1.03% 6.25% 360%
CORPORATE BOND SERIES (CLASS B)
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%
1996 7.43 0.14 (0.437) (0.297) (0.193) --- --- (0.193) 6.94 (4.0%) 4,869 1.85% 5.43% 360%
(c)(d)(h)
U.S. GOVERNMENT SERIES (CLASS A)
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%
1996 4.97 0.15 (0.309) (0.159) (0.151) --- --- (0.151) 4.66 (3.2%) 10,513 0.75% 6.21% 91%
(c)(d)(h)
U.S. GOVERNMENT SERIES (CLASS B)
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%
1996 4.97 0.12 (0.306) (0.186) (0.124) --- --- (0.124) 4.66 (3.8%) 626 1.87% 5.09% 91%
(c)(d)(h)
LIMITED MATURITY BOND SERIES (CLASS A)
1995 $10.00 $0.62 $0.652 $1.272 $(0.612) $--- $--- $(0.612) $10.66 13.0% $3,322 0.84% 5.97% 4%
(c)(d)(e)
1996 10.66 0.34 (0.360) (0.020) (0.340) --- --- (0.340) 10.30 (0.2%) 4,797 0.77% 6.72% 47%
(c)(d)(h)
LIMITED MATURITY BOND SERIES (CLASS B)
1995 $10.00 $0.53 $0.664 $1.194 $(0.524) $--- $--- $(0.524) $10.67 12.2% $752 1.71% 5.12% 4%
(c)(d)(e)
1996 10.67 0.29 (0.380) (0.090) (0.280) --- --- (0.280) $10.30 (0.8%) 731 1.88% 5.52% 47%
(c)(d)(h)
GLOBAL AGGRESSIVE BOND SERIES(CLASS A)
1995 $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%
(c)(d)(f)
1996(c)(h) 10.15 0.60 (0.34) 0.26 (0.41) --- --- (0.41) 10.00 2.6% 3,074 1.87% 11.59% 93%
GLOBAL AGGRESSIVE BOND SERIES (CLASS B)
1995 $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%
(c)(d)(f)
1996(c)(h) 10.17 0.55 (0.34) 0.21 (0.38) --- --- (0.38) 10.00 2.1% 1,539 2.75% 10.71% 93%
</TABLE>
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
19
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Ratio
of Ratio
Net Divi- expen- of
Net gain Total dends Net Net ses net
Fiscal asset (loss) from (from Distri asset assets to income Port-
period value Net (real- invest- net butions value end of aver- to folio
ended begin- invest- ized & ment invest- (from Return Total end Total period age average turn-
Decem- ning of ment unreal- opera- ment capital of distri- of return (thou- net net over
ber 31 period income ized) tions income) gains) capital butions period (a) sands) assets assets rate
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SECURITY TAX-EXEMPT FUND(CLASS A)
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%
1996 9.94 0.23 (0.436) (0.206) (0.224) --- --- (0.224) 9.51 (2.1%) 23,201 0.87% 4.67% 87%
(c)(d)(h)
SECURITY TAX-EXEMPT FUND (CLASS B)
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%
1996 9.95 0.17 (0.442) (0.272) (0.168) --- --- (0.168) 9.51 (2.7%) 1,257 2.00% 3.54% 87%
(c)(d)(h)
SECURITY CASH FUND
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% --
1996 1.00 0.023 --- 0.023 (0.023) --- --- (0.023) 1.00 2.3% 45,700 1.01% 2.20% --
(c)(d)(h)
</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 1996
Corporate Bond Class B --- --- --- 2.00% 2.19% 2.07%
U.S. Government Class A 1.24% 1.20% 1.20% 1.20% 1.22% 1.32%
Class B --- --- 1.75% 2.91% 3.70% 3.31%
Limited Maturity Class A --- --- --- --- 1.04% 1.33%
Bond Class B --- --- --- --- 2.12% 2.53%
Global Aggressive Class A --- --- --- --- 2.42% 2.61%
Bond Class B --- --- --- --- 3.93% 3.99%
Tax-Exempt Class A --- --- --- --- 0.86% 0.87%
Class B --- --- --- 2.32% 2.45% 2.28%
Cash --- 1.03% 1.03% --- 1.04% 1.06%
(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 1996
Corporate Bond Class A 1.02% 1.03%
Class B 1.85% 1.85%
U.S. Government Class A 1.10% 0.73%
Class B 1.85% 1.85%
Limited Maturity Bond Class A 0.81% 0.74%
Class B 1.65% 1.85%
Tax-Exempt Class A 0.85% 0.87%
Class B 2.00% 2.00%
Cash Fund Class A 1.00% 1.00%
(h) Unaudited figures for the six months ended June 30, 1996. Percentage amounts
for the period, except total return have been annualized.
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
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 last 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 period ended June 30, 1996, 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 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
SEE ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 U.S.
Government Series, Limited Maturity Bond Series, and the Global Aggressive Bond
Series till December 31, 1996. 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) $45,000 in the year ending April 29, 1997; and (ii) $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. LMC has agreed to waive its
sub-advisory fee till December 31, 1996. 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 June
30, 1996, 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 $3,702 $1,878 $4,101 $6 $11,642
Broker/Dealer 15,887 8,210 740 --- 3,423
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 June 30, 1996, (excluding
overnight investments and short-term debt securities) were as follows:
<TABLE>
<CAPTION>
U.S. LIMITED GLOBAL
CORPORATE GOVERNMENT MATURITY AGGRESSIVE TAX-EXEMPT
BOND SERIES SERIES BOND SERIES BOND SERIES FUND
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchases $163,034,332 $4,212,957 $2,574,411 $1,453,375 $10,820,231
Proceeds from sales 171,977,117 4,554,644 1,040,073 2,233,188 11,010,189
</TABLE>
4. FEDERAL INCOME TAX MATTERS
The amounts of unrealized appreciation (depreciation) as of June 30, 1996,
were as follows:
<TABLE>
<CAPTION>
U.S. LIMITED GLOBAL
CORPORATE GOVERNMENT MATURITY AGGRESSIVE TAX-EXEMPT
BOND SERIES SERIES BOND SERIES BOND SERIES FUND
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aggregate gross unrealized appreciation $327,109 $92,635 $95,045 $58,936 $245,469
Aggregate gross unrealized depreciation (1,629,781) (112,729) (52,178) (138,318) (425,113)
------------------------------------------------------------------
Net unrealized appreciation (depreciation) ($1,302,672) ($20,094) $42,867 ($79,382) ($179,644)
==================================================================
</TABLE>
5. FORWARD FOREIGN EXCHANGE CONTACTS
At June 30, 1996, Global Aggressive Bond Series had the following open
forward foreign exchange contracts to sell currency (excluding foreign currency
contracts used for purchase and sale settlements):
UNREALIZED
SETTLEMENT CONTRACT CONTRACT CURRENT GAIN (LOSS)
CURRENCY DATE AMOUNT RATE RATE AT 6-30-96
- -------- -------------------------------------------------------------
Canadian Dollar 8-26-96 $220,751 1.3590 1.3621 $ 502
Deutsche Mark 7-17-96 333,036 1.5013 1.5232 4,780
Danish Krone 7-17-96 241,379 5.8000 5.8668 2,748
ECU 7-17-96 397,312 1.2416 1.2443 (864)
-----
$7,166
=====
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
Jack H. Hamilton
Donald L. Hardesty
Penny A. Lumpkin
Mark L. Morris, Jr., D.V.M.
Jeffrey B. Pantages
Hugh L. Thompson, Ph.D.
OFFICERS
John D. Cleland, PRESIDENT
James R. Schmank, VICE PRESIDENT AND TREASURER
Jane A. Tedder, VICE PRESIDENT
Mark E. Young, VICE PRESIDENT
Steven M. Bowser, ASSISTANT VICE PRESIDENT
Barbara J. Davison, ASSISTANT VICE PRESIDENT
Greg A. Hamilton, ASSISTANT VICE PRESIDENT
Amy J. Lee, SECRETARY
Brenda M. Luthi, ASSISTANT TREASURER AND ASSISTANT SECRETARY
Christopher D. Swickard, ASSISTANT SECRETARY
[SDI LOGO] BULK RATE
U.S. POSTAGE PAID
TOPEKA, KS
PERMIT NO. 385
