SECURITY MUNICIPAL BOND FUND, 485BPOS, 1999-04-30

SECURITY MUNICIPAL BOND FUND
485BPOS, 1999-04-30

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File No. 811-3225
File No. 2-73223

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_]
Post-Effective Amendment No. 19 [X]
----------
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
Amendment No. 19 [X]
----------

(Check appropriate box or boxes)

SECURITY MUNICIPAL BOND FUND
(Exact Name of Registrant as Specified in Charter)

700 HARRISON STREET, TOPEKA, KANSAS 66636-0001
(Address of Principal Executive Offices/Zip Code)

Registrant's Telephone Number, including area code:
(785) 431-3127

Copies To:

John D. Cleland, President Amy J. Lee, Secretary
Security Municipal Bond Fund Security Municipal Bond Fund
700 Harrison Street 700 Harrison Street
Topeka, KS 66636-0001 Topeka, KS 66636-0001
(Name and address of Agent for Service)

Approximate date of proposed public offering: April 30, 1999

It is proposed that this filing will become effective (check appropriate box):

[_] immediately upon filing pursuant to paragraph (b)
[X] on April 30, 1999, pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on April 30, 1999, pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2)
[_] on April 30, 1999, pursuant to paragraph (a)(2) of rule 485

If appropriate, check the following box:

[_] this post-effective amendment designates a new effective date for
a previously filed post-effective amendment

Title of Securities being Registered: Shares of common stock, par value $0.10.

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SECURITY MUNICIPAL BOND FUND
FORM N-1A

PART B. STATEMENT OF ADDITIONAL INFORMATION

ITEM 22. FINANCIAL STATEMENTS

Security Municipal Bond Fund's Annual Report for the period ended December 31,
1998 is incorporated herein by reference to the Registrant's N-30D filing,
Registration No. 2-73223 (March 2, 1999).

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SECURITY FUNDS
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PROSPECTUS

APRIL 30, 1999

- Security Corporate Bond Fund

- Security Limited Maturity Bond Fund

- Security U.S. Government Fund

- Security High Yield Fund

- Security Municipal Bond Fund

- Security Cash Fund

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

SECURITY DISTRIBUTORS, INC.
A Member of The Security Benefit
Group of Companies
<PAGE>
TABLE OF CONTENTS

FUNDS' OBJECTIVES........................................................... 2
Security Corporate Bond Fund.............................................. 2
Security Limited Maturity Bond Fund....................................... 2
Security U.S. Government Fund............................................. 2
Security High Yield Fund.................................................. 2
Security Municipal Bond Fund.............................................. 2
Security Cash Fund........................................................ 2
FUNDS' PRINCIPAL INVESTMENT STRATEGIES...................................... 2
Security Corporate Bond Fund.............................................. 2
Security Limited Maturity Bond Fund....................................... 3
Security U.S. Government Fund............................................. 3
Security High Yield Fund.................................................. 4
Security Municipal Bond Fund.............................................. 5
Security Cash Fund........................................................ 6
MAIN RISKS.................................................................. 6
Interest Rate Risk........................................................ 6
Credit Risk............................................................... 6
Prepayment Risk........................................................... 7
Special Risks Associated with Mortgage-Backed Securities.................. 7
Foreign Securities........................................................ 7
Restricted Securities..................................................... 7
High Yield Securities..................................................... 7
Municipal Market Risk..................................................... 7
Lack of Diversification................................................... 7
Additional Information.................................................... 7
PAST PERFORMANCE............................................................ 7
FEES AND EXPENSES OF THE FUNDS.............................................. 12

INVESTMENT MANAGER.......................................................... 14

Management Fees........................................................... 14
Portfolio Managers........................................................ 14
Year 2000 Compliance...................................................... 15
BUYING SHARES............................................................... 15
Class A Shares............................................................ 15
Class A Distribution Plan................................................. 16
Class B Shares............................................................ 16
Class B Distribution Plan................................................. 16
Cash Fund................................................................. 16
Waiver of Deferred Sales Charge........................................... 17
Confirmations and Statements.............................................. 17
SELLING SHARES.............................................................. 17
By Mail................................................................... 18
By Telephone.............................................................. 18
By Broker................................................................. 18
Cash Fund................................................................. 18
Payment of Redemption Proceeds............................................ 18
DIVIDENDS AND TAXES......................................................... 18
Tax on Distributions...................................................... 19
Taxes on Sales or Exchanges............................................... 19
Backup Withholding........................................................ 19
DETERMINATION OF NET ASSET VALUE............................................ 19
SHAREHOLDER SERVICES........................................................ 20
Accumulation Plan......................................................... 20
Systematic Withdrawal Program............................................. 20
Exchange Privilege........................................................ 20
Retirement Plans.......................................................... 21
GENERAL INFORMATION......................................................... 21
Shareholder Inquiries..................................................... 21
INVESTMENT POLICIES AND MANAGEMENT PRACTICES................................ 21
Convertible Securities.................................................... 22
Foreign Securities........................................................ 22
Asset-Backed Securities................................................... 22
Mortgage-Backed Securities................................................ 22
Restricted Securities..................................................... 23

Lower Rate Debt Securities................................................ 23
Guaranteed Investment Contracts ("GICs").................................. 23
Cash Reserves............................................................. 23
Borrowing................................................................. 24

Futures and Options....................................................... 24
Swaps, Caps, Floors and Collars........................................... 24
When-Issued Securities and Forward Commitment Contracts................... 24
Portfolio Turnover........................................................ 24
FINANCIAL HIGHLIGHTS........................................................ 25
APPENDIX A
Description of Short-Term Instruments..................................... 31
Description of Commercial Paper Ratings................................... 31
Description of Corporate Bond Ratings..................................... 31
APPENDIX B
Description of Municipal Bond Ratings..................................... 33
Ratings of Short-Term Securities.......................................... 34
APPENDIX C
Reduced Sales Charges..................................................... 35
SECURITY CASH FUND APPLICATION.............................................. 36
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FUNDS' OBJECTIVES

Described below are the investment objectives for each of the Funds. Each Fund's
Board of Directors may change the Fund's investment objective without
shareholder approval. As with any investment, there can be no guarantee the
Funds will achieve their investment objectives.

SECURITY CORPORATE BOND FUND -- The Corporate Bond Fund seeks to preserve
capital while generating interest income.

SECURITY LIMITED MATURITY BOND FUND -- The Limited Maturity Bond Fund seeks a
high level of income consistent with moderate price fluctuation by investing
primarily in short- and intermediate-term bonds.

SECURITY U.S. GOVERNMENT FUND -- The U.S. Government Fund seeks to provide a
high level of interest income with security of principal by investing primarily
in U.S. Government securities.

SECURITY HIGH YIELD FUND -- The High Yield Fund seeks high current income.
Capital appreciation is a secondary objective.

SECURITY MUNICIPAL BOND FUND -- The Municipal Bond Fund seeks to obtain as high
a level of interest income exempt from regular federal income taxes as is
consistent with preservation of stockholders' capital.

SECURITY CASH FUND -- The Cash Fund seeks as high a level of current income as
is consistent with preservation of capital and liquidity.

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WHAT DOES IT MEAN TO "PRESERVE CAPITAL"? CAPITAL, also called PRINCIPAL, refers
to the amount of money that you invest in a fund. If you choose to have your
dividends and other distributions reinvested in additional shares of a fund, the
amount of the distributions will be added to your initial investment to increase
the amount of your capital. A fund that seeks to preserve capital attempts to
conserve the investor's purchase payments and reinvested dividends. However,
there can be no assurance that any fund will be successful in preserving your
capital.
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FUNDS' PRINCIPAL INVESTMENT STRATEGIES

SECURITY CORPORATE BOND FUND -- The Fund pursues its objectives, under normal
circumstances, by investing primarily in a diversified portfolio of investment
grade corporate debt securities. The Fund's average dollar weighted maturity is
normally expected to be between 5 and 15 years. Under normal circumstances, at
least 65% of the Fund's total assets will be invested in corporate debt
securities which at the time of issuance have a maturity greater than one year.
The debt securities in which the Fund invests will primarily be domestic
securities, but may also include dollar denominated foreign securities. To
manage risk, the Investment Manager diversifies the Fund's holdings among asset
classes and individual securities. Some of the asset classes in which the Fund
may invest include investment grade corporate debt securities, high yield debt
securities (also known as "junk bonds"), mortgage-backed securities and U.S.
government securities.

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

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

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

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

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

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

SECURITY LIMITED MATURITY BOND FUND -- The Fund pursues its objective under
normal circumstances by investing in a broad range of debt securities with
maturities of 15 years or less. The Fund considers debt securities with
maturities of 15 years or less to be short to intermediate-term bonds. Under
normal circumstances, the Fund will invest at least 65% of the value of its
total assets in short to intermediate-term bonds. The Fund's average dollar
weighted maturity is normally expected to be between 2 to 10 years. The debt
securities in which the Fund invests will primarily be domestic securities, but
may also include dollar denominated foreign securities. To manage risk, the
Investment Manager diversifies the Fund's holdings among asset classes and
individual securities. Some of the asset classes in which the Fund may invest
include investment grade corporate debt securities, high yield debt securities
(also known as "junk bonds"), mortgage backed securities and U.S. government
securities.

The Investment Manager uses a "bottom-up" approach in selecting asset classes
and securities. The Investment Manager emphasizes rigorous credit analysis and
relative value in selecting securities. The Investment Manager's credit analysis
includes looking at factors such as an issuer's cash flow, general economic
factors and market conditions and world market conditions.

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

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

SECURITY U.S. GOVERNMENT FUND -- The Fund pursues its objective under normal
circumstances by investing at least 80% of the value of its total assets in U.S.
government securities. The Fund's average dollar weighted maturity is normally
expected to be between 5 and 15 years. The Investment Manager diversifies the
Fund's holdings among asset classes and individual securities. Some of the asset
classes in which the Fund may invest include U.S. Treasury securities, U.S.
Agency securities and U.S. Agency mortgage-backed securities.

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U.S. GOVERNMENT SECURITIES or obligations are bonds or other debt obligations
issued by, or whose principal and interest are guaranteed by, the U.S.
government or one of its agencies or instrumentalities. U.S. Treasury securities
and some obligations of U.S. government agencies and instrumentalities are
supported by the "full faith and credit" of the United States. Some U.S.
government obligations are backed by the right of the issuer to borrow from the
U.S. Treasury, and others only by the credit of the issuing agency or
instrumentality. U.S. government obligations generally have less credit risk
than other debt obligations.
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The Investment Manager uses a "bottom-up" approach in selecting the Fund's
securities. The Investment Manager focuses on the relative value of various
securities and asset classes and selects securities on this basis. The
Investment Manager also analyzes the maturity of the Fund's holdings relative to
its benchmark index. To maximize return, the Investment Manager seeks to take
advantage of market developments and yield disparities by using the following
strategies:

* Sell a type of U.S. government obligation and buy another when differences
arise in the relative value of each.

* Change from one U.S. government obligation to a similar U.S. government
obligation when the yields of each change due to market factors.

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Each Fund has a BENCHMARK INDEX that the Investment Manager considers in
managing the Fund. For example, the U.S. Government Fund currently uses the
Lehman Brothers Government Bond Index as its benchmark index. The Investment
Manager considers the securities that make up the index in selecting securities
for the Funds. If the Investment Manager buys debt securities with a longer
maturity than the index, the Investment Manager is taking the risk that the Fund
will outperform its peers if interest rates decline but will under-perform its
peers if interest rates increase. If the Investment Manager buys debt securities
with a shorter maturity, the Fund will under-perform if interest rates decline
and will outperform if interest rates rise.
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Under adverse market conditions, the Fund could invest some or all of its assets
in cash, money market securities including deposits and bankers' acceptances in
depository institutions insured by the FDIC, and short-term U.S. government and
agency securities. Although the Fund would do this only in seeking to avoid
losses, the Fund may be unable to pursue its investment objective during that
time, and it could reduce the benefit from any upswing in the market.

SECURITY HIGH YIELD FUND -- The Fund pursues its objective under normal
circumstances by investing in a broad range of high-yield, high risk debt
securities rated in medium or lower rating categories or determined by the
Investment Manager to be of comparable quality ("junk bonds"). However, the Fund
will not invest in debt securities which, at the time of purchase, are in
default. The debt securities in which the Fund invests will primarily be
domestic securities, but may also include dollar denominated foreign securities.
The Fund may also invest in equity securities and securities with equity
characteristics, including common and preferred stocks, American Depositary
Receipts, warrants and rights and exchange traded real estate investment trusts
("REITS"). The Fund's average dollar weighted maturity is expected to be between
5 and 15 years. Under normal circumstances, at least 65% of the Fund's total
assets will be invested in high yielding, high risk debt securities.

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HIGH YIELD SECURITIES are debt securities that have been determined by a rating
agency to have a lower probability of being paid and have a credit rating of BB
or lower by Standard & Poor's Corporation and Fitch Investors Service, Inc. or
Ba or lower by Moody's Investors Service. These securities are more volatile and
normally pay higher yields than investment grade securities.
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The Investment Manager uses a "bottom-up" approach in selecting high yield
securities. The Investment Manager emphasizes rigorous credit analysis and
relative value in selecting securities. The Investment Manager's credit analysis
includes looking at factors such as an issuer's debt service coverage (i.e. its
ability to make interest payments on its debt), the issuer's cash flow, general
economic factors and market conditions and world market conditions.

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

SECURITY MUNICIPAL BOND FUND -- The Fund pursues its objective under normal
circumstances by investing at least 80% of its net assets in investment grade
municipal bond obligations that are exempt from regular federal income taxes.
The Fund intends to emphasize investments in municipal securities with long-term
maturities between 12 and 30 years, and expects to maintain a dollar-weighted
average duration of 7 to 11 years. A portion of the Fund's dividends may be
subject to the federal alternative minimum tax. Accordingly, the Fund may not be
a suitable investment for individuals or corporations that are subject to the
federal alternative minimum tax.

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MUNICIPAL SECURITIES are debt obligations of states, cities, towns, and other
political subdivisions, agencies or public authorities, which pay interest that
is exempt from regular federal income tax. Municipal securities also include
debt obligations of other qualifying issuers such as Puerto Rico, Guam, the
Virgin Islands and Native American Tribes. Municipal securities are often issued
to raise money for public services and projects such as schools, hospitals and
public transportation systems. Some municipal securities (for example,
INDUSTRIAL DEVELOPMENT BONDS) may be backed by private companies and used to
provide financing for corporate facilities or other private projects. In most
states, municipal securities issued by entities within the state are also exempt
from that state's taxes. Municipal securities may be in the form of BONDS, NOTES
and COMMERCIAL PAPER, may have a fixed or floating rate of interest, or be
issued as ZERO COUPON BONDS.

MUNICIPAL BONDS are divided into two principal classifications: GENERAL
OBLIGATION BONDS and REVENUE BONDS. A GENERAL OBLIGATION BOND is backed by the
full faith, credit and taxing power of the issuer. A REVENUE BOND is linked to
an income-producing project that pays interest and repays principal only to the
extent adequate funds are generated by the project. A REVENUE BOND may include
PRIVATE ACTIVITY BONDS.

DURATION is a measure of a bond's price volatility. It is a tool used to
approximate the percentage change in a bond's price for a given change in its
yield. A duration of 5, for example, means the price of the bond will change by
approximately 5% in response to a 1% change in yield.
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The Fund's Sub-Adviser, Salomon Brothers Asset Management Inc, concentrates the
portfolio's investments in investment grade municipal securities, which
represent a large market segment of the municipal market and offer a higher
degree of liquidity than do municipal securities in lower rating categories.

To determine which securities to invest in, Salomon Brothers uses a "top-down"
approach, first determining a sector, then a geographic region and then
selecting individual securities within that sector/geographic region.

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TOP-DOWN APPROACH means that the Sub-Adviser looks first at the broad market
factors and on the basis of those factors, chooses certain sectors or industries
within the overall market. It then looks at individual companies within those
sectors or industries.
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Salomon Brothers seeks to identify and capture relative value within the
municipal bond market by analyzing the following factors:

* Current market environment

* Sector trends

* Credit quality

* Security characteristics (for example, type of issuer, callability, size of
issue)

* Tax considerations

Salomon Brothers uses an analytical database in analyzing sector trends and
security characteristics. Salomon Brothers also uses the database to monitor how
the Fund's portfolio will perform in different interest rate environments versus
the Fund's benchmark index ("scenario stress testing").

The Sub-Adviser may determine to sell securities (1) if a security's credit
rating has been changed; (2) if it can purchase a security with a better
relative value; (3) based on the results of scenario stress testing; or (4) to
meet redemption requests.

Under adverse market conditions, the Fund could invest in cash, short-term
municipal bonds and fixed-income obligations on which the interest is subject to
federal income tax. Although the Fund would do this only in seeking to avoid
losses, the Fund may be unable to pursue its investment objective during that
time, and it could reduce the benefit from any upswing in the market.

SECURITY CASH FUND -- The Fund pursues its objective by investing in a
diversified and liquid portfolio of primarily the highest quality money market
instruments. Generally, the Fund is required to invest at least 95% of its
assets in the securities of issuers with the highest credit rating, with the
remainder invested in securities with the second-highest credit rating. The Fund
also is designed to maintain a constant net asset value of $1.00 per share.
Although Cash Fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Fund. The Fund is
subject to certain federal requirements which include the following:

* maintain an average dollar-weighted portfolio maturity of 90 days or less

* buy individual securities that have remaining maturities of 13 months or less

* invest only in high-quality, dollar-denominated, short-term obligations.

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

MAIN RISKS

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

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

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

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

SPECIAL RISKS ASSOCIATED WITH MORTGAGE-BACKED SECURITIES -- Corporate Bond Fund,
Limited Maturity Bond Fund, U.S. Government Fund and High Yield Fund may invest
in mortgage-backed securities. A fund will receive payments on its
mortgage-backed securities that are part interest and part return of principal.
These payments may vary based on the rate at which homeowners pay off their
loans. When a homeowner makes a prepayment, the Fund receives a larger portion
of its principal investment back, which means that there will be a decrease in
monthly interest payments. Some mortgage-backed securities may have structures
that make their reaction to interest rates and other factors difficult to
predict, making their prices very volatile.

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WHAT ARE MORTGAGE-BACKED SECURITIES? Home mortgage loans are typically grouped
together into "POOLS" by banks and other lending institutions, and interests in
these pools are then sold to investors, allowing the bank or other lending
institution to have more money available to loan to home buyers. When homeowners
make interest and principal payments, these payments are passed on to the
investors in the pool. Most of these pools are guaranteed by U.S. government
agencies or by government sponsored private corporations - familiarly called
"GINNIE MAES," "FANNIE MAES" and "FREDDIE MACS."
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FOREIGN SECURITIES -- Corporate Bond Fund, Limited Maturity Bond Fund, and High
Yield Fund may invest in foreign securities that are U.S. dollar-denominated.
Investments in foreign securities may involve risks in addition to those of U.S.
investments, including increased political and economic risk.

RESTRICTED SECURITIES -- Limited Maturity Bond Fund, High Yield Fund and Cash
Fund may invest in securities that are restricted as to disposition under the
federal securities laws, provided that such securities are eligible for resale
to qualified institutional investors pursuant to Rule 144A under the Securities
Act of 1933. High Yield Fund also may purchase securities that are not eligible
for resale under Rule 144A. Since the market for restricted securities is
limited to qualified institutional investors, the liquidity of these securities
may be limited.

HIGH YIELD SECURITIES -- High Yield Fund, and to a lesser extent, Corporate Bond
Fund and Limited Maturity Bond Fund, may invest in higher yielding, high risk
debt securities. These investments may present additional risk because they may
be less liquid than investment grade bonds. In addition, the price of high yield
securities tends to be more susceptible to interest rate changes and to real or
perceived adverse economic and competitive industry conditions. High yield
securities are subject to more credit risk than higher quality securities.

MUNICIPAL MARKET RISK -- There are special factors which affect the value of
municipal securities and, as a result, a Fund's share price. These factors
include political or legislative changes, uncertainties related to the tax
status of the securities or the rights of investors in securities.

LACK OF DIVERSIFICATION -- Municipal Bond Fund may invest in issuers of
municipal securities that have similar characteristics, such as geographic
region and source of revenue. Consequently, the Fund's portfolio may be more
susceptible to the risks of adverse economic, political or regulatory
developments than would be the case with a portfolio of securities that is more
diversified as to geographic region and/or source of revenue.

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

PAST PERFORMANCE

The charts and tables on the following pages provide some indication of the
risks of investing in the Funds by showing changes in each Fund's Class A share
performance from year to year and by showing how each Fund's average annual
total return has compared to those of a broad measure of market performance. Fee
waivers and/or expense reimbursements for Security Corporate Bond Fund, Security
Limited Maturity Bond Fund and Security U.S. Government Fund reduced the
expenses of those Funds. In the absence of such waiver or reimbursements, the
performance quoted would be reduced. As with all mutual funds, past performance
is not a prediction of future results.

The bar charts on the following pages do not reflect the sales charges
applicable to Class A shares which, if reflected, would lower the returns shown.
Average annual total returns for each Fund's Class A shares include deduction of
the 4.75% front-end sales charge and for Class B shares include the appropriate
deferred sales charge, which is 5% in the first year declining to 0% in the
sixth and later years. The average annual total returns also assume that Class B
shareholders redeem all their shares at the end of the period indicated.

================================================================================
SECURITY CORPORATE BOND FUND
================================================================================

[BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
9.90% 6.60% 16.10% 9.00% 13.40% -8.30% 18.23% -0.53% 9.65% 7.57%

- --------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(QUARTERLY 1989-1998)
- --------------------------------------------------------------------------------
QUARTER ENDING
Highest ............................. 6.15% March 31, 1993
Lowest .............................. -5.19% March 31, 1994
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1998)
- --------------------------------------------------------------------------------
PAST PAST PAST
1 YEAR 5 YEARS 10 YEARS
Class A ............................. 2.48% 3.81% 7.41%
Class B ............................. 1.87% 3.76% 3.06%*
Lehman Brothers Corporate Bond Index. 8.59% 7.74% 9.87%
- --------------------------------------------------------------------------------
*For the period beginning October 19, 1993 (date of inception) to December 31,
1998. Index performance information is only available to the Fund at the
beginning of each month. The Lehman Brothers Corporate Bond Index Average
annual total return for the period October 1, 1993 to December 31, 1998 was
7.33%.
- --------------------------------------------------------------------------------

================================================================================
SECURITY LIMITED MATURITY BOND FUND
================================================================================

[BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A N/A N/A N/A N/A 2.09% 8.97% 7.50%

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

HIGHEST AND LOWEST RETURNS
(QUARTERLY 1995-1998)

- --------------------------------------------------------------------------------
QUARTER ENDING
Highest ............................. 5.72% June 30, 1995
Lowest .............................. -0.53% March 31, 1996
- --------------------------------------------------------------------------------

PAST LIFE OF FUND
1 YEAR (SINCE 1/17/95)

Class A ............................. 2.45% 6.60%
Class B ............................. 1.37% 6.20%
Lehman Brothers Intermediate Term
Corporate Bond Index .............. 8.30% 13.25%*
- --------------------------------------------------------------------------------

*Index performance is only available to the Fund at the beginning of each month.
The Lehman Brothers Intermediate Term Corporate Bond Index performance is for
the period January 1, 1995 to December 31, 1998.

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

================================================================================
SECURITY U.S. GOVERNMENT FUND
================================================================================

[BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
11.80% 9.80% 13.80% 5.00% 10.90% -6.50% 21.86% 1.26% 9.19% 9.09%

- --------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(QUARTERLY 1989-1998)
- --------------------------------------------------------------------------------
QUARTER ENDING
Highest ............................. 7.34% June 30, 1995
Lowest .............................. -3.92% March 31, 1994
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1998)
- --------------------------------------------------------------------------------
PAST PAST PAST
1 YEAR 5 YEARS 10 YEARS
Class A ............................. 3.91% 5.52% 7.92%
Class B ............................. 3.00% 5.14% 4.53%*
Lehman Brothers Government Bond Index 9.85% 7.18% 9.17%
- --------------------------------------------------------------------------------
*For the period beginning October 19, 1993 (date of inception) to December 31,
1998. Index performance information is only available to the Fund at the
beginning of each month. The Lehman Brothers Government Bond Index Average
annual total return for the period October 1, 1993 to December 31, 1998 was
6.68%.
- --------------------------------------------------------------------------------

================================================================================
SECURITY HIGH YIELD FUND
================================================================================

[BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
N/A N/A N/A N/A N/A N/A N/A N/A 12.57% 4.98%

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

HIGHEST AND LOWEST RETURNS
(QUARTERLY 1996-1998)

- --------------------------------------------------------------------------------
QUARTER ENDING
Highest ............................. 3.97% June 30, 1997
Lowest .............................. -1.69% September 30, 1998
- --------------------------------------------------------------------------------

PAST LIFE OF FUND
1 YEAR (SINCE 8/5/96)

Class A ............................. 0.01% 7.28%
Class B ............................. -0.79% 7.06%
Lehman Brothers High Yield Index .... 1.60% 9.95%*
- --------------------------------------------------------------------------------

*Index performance is only available to the Fund at the beginning of each month.
The Lehman Brothers High Yield Index is for the period August 1, 1996 to
December 31, 1998.

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

================================================================================
SECURITY MUNICIPAL BOND FUND
================================================================================

[BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
4.40% 6.20% 11.70% 7.30% 11.60% -8.30% 15.48% 2.51% 8.27% 6.05%

- --------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(QUARTERLY 1989-1998)
- --------------------------------------------------------------------------------
QUARTER ENDING
Highest ............................. 6.74% March 31, 1995
Lowest .............................. -7.21% March 31, 1994
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1998)
- --------------------------------------------------------------------------------
PAST PAST PAST
1 YEAR 5 YEARS 10 YEARS
Class A ............................. 1.04% 3.57% 5.90%
Class B ............................. -0.16% 3.02% 2.68%*
Lehman Brothers Municipal Bond Index. 6.48% 6.22% 8.22%
- --------------------------------------------------------------------------------
*For the period beginning October 19, 1993 (date of inception) to December 31,
1998. Index performance information is only available to the Fund at the
beginning of each month. The Lehman Brothers Municipal Bond Index average
annual total return for the period October 1, 1993 to December 31, 1998 was
6.04%.
- --------------------------------------------------------------------------------

================================================================================
SECURITY CASH FUND
================================================================================

[BAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
7.10% 7.60% 5.20% 2.80% 2.40% 3.43% 5.00% 4.60% 4.90% 4.70%

- --------------------------------------------------------------------------------
HIGHEST AND LOWEST RETURNS
(QUARTERLY 1989-1998)
- --------------------------------------------------------------------------------
QUARTER ENDING
Highest ............................. 2.24% June 30, 1989
Lowest .............................. 0.56% June 30, 1993
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS & YIELD
(THROUGH DECEMBER 31, 1998)
- --------------------------------------------------------------------------------
PAST PAST PAST
1 YEAR 5 YEARS 10 YEARS
Security Cash Fund .................. 4.74% 4.52% 4.90%
7-Day Yield ......................... 4.40%
- --------------------------------------------------------------------------------
<PAGE>
FEES AND EXPENSES OF THE FUNDS

THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT YOU MAY PAY IF YOU BUY AND HOLD
SHARES OF THE FUNDS.

- --------------------------------------------------------------------------------
CORPORATE BOND,
LIMITED MATURITY BOND,
U.S. GOVERNMENT,
SHAREHOLDER FEES HIGH YIELD AND CASH
(fees paid directly from your investment) MUNICIPAL BOND FUNDS FUND
- --------------------------------------------------------------------------------
CLASS A CLASS B
SHARES SHARES(1)
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)....... 4.75% None None
Maximum Deferred Sales Charge (as a
percentage of original purchase price or
redemption proceeds, whichever is lower).. None(2) 5%(3) None
- --------------------------------------------------------------------------------
1 Class B shares convert tax-free to Class A shares automatically after eight
years.

2 Purchases of Class A shares in amounts of $1,000,000 or more are not subject
to an initial sales load; however, a deferred sales charge of 1% is imposed
in the event of redemption within one year of purchase.

3 5% during the first year, decreasing to 0% in the sixth and following years.
- --------------------------------------------------------------------------------

<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>

CLASS A CLASS B
-------------------------------------------------- --------------------------------------------------
TOTAL TOTAL
DISTRIBUTION ANNUAL FUND DISTRIBUTION ANNUAL FUND
MANAGEMENT (12B-1) OTHER OPERATING MANAGEMENT (12B-1) OTHER OPERATING
FEES FEES(4) EXPENSES EXPENSES FEES FEES(4) EXPENSES EXPENSES

<S> <C> <C> <C> <C> <C> <C> <C> <C>
Corporate Bond Fund ...... 0.50% 0.25% 0.31% 1.06% 0.50% 1.00% 0.82% 2.32%*
Limited Maturity Bond Fund 0.50% 0.25% 0.63% 1.38%* 0.50% 1.00% 1.20% 2.70%*
U.S. Government Fund ..... 0.50% 0.25% 0.68% 1.43%* 0.50% 1.00% 1.53% 3.03%*
High Yield Fund .......... 0.60% 0.25% 0.51% 1.36%* 0.60% 1.00% 0.53% 2.13%*
Municipal Bond Fund ...... 0.50% 0.25% 0.32% 1.07%* 0.50% 1.00% 0.68% 2.18%*
Cash Fund ................ 0.50% None 0.39% 0.89% --- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4 Long-term holders of shares that are subject to an asset-based sales charge
may pay more than the equivalent of the maximum front-end sales charge
otherwise permitted by the National Association of Securities Dealers, Inc.
Rules.

* Each of these Fund's total annual operating expenses for the most recent
fiscal year were less than the amount shown because of a fee waiver or
reimbursement of expenses by the Funds' Investment Manager. The Investment
Manager waives a portion of its management fee and/or reimburses expenses in
order to keep each Fund's total operating expenses at or below a specified
level. The Investment Manager may eliminate all or part of the fee waiver or
reimbursement at any time. With the fee waiver and reimbursement, the Funds'
actual total annual fund operating expenses for the year ended December 31,
1998, were as follows:

---------------------------------------------
CLASS A CLASS B
---------------------------------------------
Corporate Bond Fund.... --- 1.85%
Limited Maturity Bond.. 0.83% 1.85%
U. S. Government Fund.. 0.93% 1.85%
High Yield Fund........ 0.76% 1.53%
Municipal Bond Fund.... 0.82% 2.00%
---------------------------------------------

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

EXAMPLE

This example is intended to help you compare the cost of investing in the
Funds with the cost of investing in other mutual funds.

Each Example assumes that you invest $10,000 in a Fund for the time periods
indicated. Each Example also assumes that your investment has a 5% return each
year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be as follows:

You would pay the following expenses if you redeemed your shares at the end of
each period.

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------- ------------------- ------------------- -------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Corporate Bond Fund ........... $578 $735 $796 $1,024 $1,032 $1,440 $1,708 $2,656
Limited Maturity Bond Fund .... 609 773 891 1,138 1,194 1,630 2,054 3,032
U.S. Government Fund .......... 614 806 906 1,236 1,219 1,791 2,107 3,346
High Yield Fund ............... 607 716 885 967 1,184 1,344 2,032 2,462
Municipal Bond Fund ........... 579 721 799 982 1,037 1,369 1,719 2,513
Cash Fund ..................... 91 --- 284 --- 493 --- 1,096 ---
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>

You would pay the following expenses if you did not redeem your shares.

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------- ------------------- ------------------- -------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Corporate Bond Fund ........... $578 $235 $796 $724 $1,032 $1,240 $1,708 $2,656
Limited Maturity Bond Fund .... 609 273 891 838 1,194 1,430 2,054 3,032
U.S. Government Fund .......... 614 306 906 936 1,219 1,591 2,107 3,346
High Yield Fund ............... 607 216 885 667 1,184 1,144 2,032 2,462
Municipal Bond Fund ........... 579 221 799 682 1,037 1,169 1,719 2,513
Cash Fund ..................... 91 --- 284 --- 493 --- 1,096 ---
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>

INVESTMENT MANAGER

Security Management Company, LLC (the "Investment Manager"), 700 SW Harrison
Street, Topeka, Kansas 66636-0001, is the Funds' investment manager. On December
31, 1998, the aggregate assets of all of the mutual funds under the investment
management of the Investment Manager were approximately $5.5 billion.

The Investment Manager has engaged Salomon Brothers Asset Management Inc, 7
World Trade Center, New York, New York 10048, to provide investment advisory
services to Municipal Bond Fund. Salomon Brothers was incorporated in 1987 and
currently manages, together with its affiliates, approximately $29 billion in
assets.

The Funds intend to apply to the Securities and Exchange Commission ("SEC") for
an exemptive order from the Investment Company Act of 1940 that will permit the
Funds and the Investment Manager to enter into and materially amend sub-advisory
agreements with new or existing sub-advisers without the agreements or
amendments being approved by shareholders. However, this order would not apply
to sub-advisory agreements with an affiliate of the Investment Manager. If this
order is obtained, the Funds or the Investment Manager could terminate a
sub-advisory agreement with an existing sub-adviser and engage a new
sub-adviser, or materially amend a sub-advisory agreement, without shareholder
approval of the new sub-advisory agreement or the amendment.

In order for the Funds to enter into and amend sub-advisory agreements without
shareholder approval, the Funds and the Investment Manager must not only receive
an order from the SEC, but the shareholders of the Funds must also initially
approve this method of operation. There can be no assurance that the exemptive
order will be issued by the SEC. It is anticipated that if the exemptive order
is granted, notice to shareholders would be required of new sub-advisory
agreements or material amendments to sub-advisory agreements. Any material
change to the investment advisory agreement between the Funds and the Investment
Manager would not be subject to the exemptive order, and therefore, would still
require shareholder approval.

MANAGEMENT FEES -- The following chart shows the investment management fees paid
by each Fund during the last fiscal year.

-------------------------------------------------
MANAGEMENT FEES
(expressed as a percentage of average net assets)
-------------------------------------------------
Corporate Bond Fund...................... 0.50%
Limited Maturity Bond Fund............... 0.00%
U.S. Government Fund..................... 0.00%
High Yield Fund.......................... 0.00%
Municipal Bond Fund...................... 0.50%
Cash Fund................................ 0.50%
-------------------------------------------------

PORTFOLIO MANAGERS -- ROBERT AMODEO, a Portfolio Manager at Salomon Brothers,
has managed the Municipal Bond Fund's portfolio since September 1998. Prior to
joining Salomon Brothers Asset Management in 1992, Mr. Amodeo was a member of
Salomon Brothers, Inc. Partnership Investment Group where he was responsible for
analyzing and managing various partnership investments. Mr. Amodeo pioneered
adaptation and the use of the Yield Book for municipal bond portfolio
management, analysis, performance attribution and optimization. He received a
B.S. in Business Management from Long Island University and he is a Chartered
Financial Analyst.

STEVE BOWSER, Second Vice President and Portfolio Manager of the Investment
Manager, has co-managed the Corporate Bond Fund and Limited Maturity Bond Fund
portfolios since June 1997. He has also managed the U.S. Government Fund's
portfolio since 1995. Mr. Bowser joined the Investment Manager in 1992. Prior to
joining the Investment Manager, he was Assistant Vice President and Portfolio
Manager with the Federal Home Loan Bank of Topeka from 1989 to 1992. He was
employed at the Federal Reserve Bank of Kansas City in 1988 and began his career
with the Farm Credit System from 1982 to 1987, serving as a Senior Financial
Analyst and Assistant Controller. He graduated with a bachelor of science degree
from Kansas State University in 1982. He is a Chartered Financial Analyst.

DAVID ESHNAUR, Assistant Vice President and Portfolio Manager of the Investment
Manager, has co-managed the Corporate Bond Fund and Limited Maturity Bond Fund
portfolios since June 1997. He has also managed the High Yield Fund's portfolio
since July 1997. Mr. Eshnaur has 15 years of investment experience. Prior to
joining the Investment Manager in 1997, he worked at Waddell & Reed in the
positions of Assistant Vice President, Assistant Portfolio Manager, Senior
Analyst, Industry Analyst and Account Administrator. Mr. Eshnaur earned a
bachelor of arts degree in Business Administration from Coe College and an
M.B.A. degree in Finance from the University of Missouri - Kansas City.

YEAR 2000 COMPLIANCE -- Like other mutual funds, as well as other financial and
business organizations around the world, the Funds could be adversely affected
if the computer systems used by the Investment Manager, and other service
providers, in performing their management and administrative functions do not
properly process and calculate date-related information and data before, during
and after January 1, 2000. Some computer software and hardware systems currently
cannot distinguish between the year 2000 and the year 1900 or some other date
because of the way date fields were encoded. This is commonly known as the "Year
2000 Problem." If not addressed the Year 2000 Problem could impact the
management services provided to the Funds by the Investment Manager and
Sub-Advisers, as well as transfer agency, accounting, custody, distribution and
other services provided to the Funds and their shareholders.

The Investment Manager has adopted a plan to be "Year 2000 Compliant" with
respect to both its internally built systems as well as systems provided by
external vendors. The Investment Manager considers a system Year 2000 Compliant
when it is able to correctly process, provide, and/or receive data before,
during and after the Year 2000. The Investment Manager's overall approach to
addressing the Year 2000 issue is as follows: (1) to inventory its internal and
external hardware, software, telecommunications and data transmissions to
customers and conduct a risk assessment with respect to the impact that a
failure of any such system would have on its business operations; (2) to modify
or replace its internal systems and obtain vendor certifications of Year 2000
compliance for systems provided by vendors or replace such systems that are not
Year 2000 Compliant; and (3) to implement and test its systems for Year 2000
compliance. The Investment Manager has completed the inventory of its internal
and external systems and has made substantial progress toward completing the
modification/replacement of its internal systems, as well as towards obtaining
Year 2000 Compliant certifications from its external vendors. Overall systems
testing commenced in early 1998 and will extend into the first eight months of
1999.

Although the Investment Manager has taken steps to ensure that its systems will
function properly before, during and after the Year 2000, its key operating
systems and information sources are provided by or through external vendors
which creates uncertainty to the extent the Investment Manager is relying on the
assurance of such vendors as to whether their systems will be Year 2000
Compliant. The costs or consequences of incomplete or untimely resolution of the
Year 2000 issue are unknown to the Investment Manager at this time but could
have a material adverse impact on the operations of the Funds and the Investment
Manager.

The Year 2000 Problem is expected to impact companies, which may include issuers
of portfolio securities held by the Funds, to varying degrees based upon various
factors, including, but not limited to, the company's industry and degree of
technological sophistication. The Funds and the Investment Manager are unable to
predict what impact, if any, the Year 2000 Problem will have on issuers of
portfolio securities held by the Funds and, indirectly, on the value of the
Funds' shares.

BUYING SHARES

Shares of the Funds are available through broker/dealers, banks, and other
financial intermediaries that have an agreement with the Funds' Distributor,
Security Distributors, Inc.

There are two different ways to buy shares of the Funds (except Cash
Fund)--Class A shares or Class B shares. The different classes of a Fund differ
primarily with respect to sales charges and Rule 12b-1 distribution fees to
which they are subject. Shares of Cash Fund are offered by the Fund without a
sales charge. The minimum initial investment is $100. Subsequent investments
must be $100 (or $20 under an Accumulation Plan). The Funds reserve the right to
reject any order to purchase shares.

CLASS A SHARES -- Class A shares are subject to a sales charge at the time of
purchase. An order for Class A shares will be priced at a Fund's net asset value
per share (NAV), plus the sales charge set forth below. The NAV plus the sales
charge is the "offering price." A Fund's NAV is generally calculated as of the
close of trading on every day the New York Stock Exchange is open. An order for
Class A shares is priced at the NAV next calculated after the order is accepted
by the Fund, plus the sales charge.

- --------------------------------------------------------------------------------
SALES CHARGE
-----------------------------------------
AS A PERCENTAGE AS A PERCENTAGE OF
AMOUNT OF ORDER OF OFFERING PRICE NET AMOUNT INVESTED

Less than $50,000 .................. 4.75% 4.99%
$50,000 to $99,999 ................. 3.75% 3.90%
$100,000 to $249,999 ............... 2.75% 2.83%
$250,000 to $999,999 ............... 1.75% 1.78%
$1,000,000 or more* ................ None None
- --------------------------------------------------------------------------------
*Purchases of $1,000,000 or more are not subject to a sales charge at the time
of purchase, but are subject to a deferred sales charge of 1.00% if redeemed
within one year following purchase. The deferred sales charge is a percentage
of the lesser of the NAV of the shares redeemed or the net cost of such shares.
Shares that are not subject to a deferred sales charge are redeemed first.
- --------------------------------------------------------------------------------

Please see Appendix C for options that are available for reducing the sales
charge applicable to purchases of Class A shares.

CLASS A DISTRIBUTION PLAN -- The Funds (except Cash Fund) have adopted Class A
Distribution Plans that allow each of these Funds to pay distribution fees to
the Funds' Distributor. The Distributor uses the fees to pay for activities
related to the sale of Class A shares and services provided to shareholders. The
distribution fee is equal to 0.25% of the average daily net assets of the Fund's
Class A shares. Because the distribution fees are paid out of the Fund's assets
on an ongoing basis, over time these fees will increase the cost of a
shareholder's investment and may cost an investor more than paying other types
of sales charges.

CLASS B SHARES -- Class B shares are not subject to a sales charge at the time
of purchase. An order for Class B shares will be priced at the Fund's NAV next
calculated after the order is accepted by the Fund. A Fund's NAV is generally
calculated as of the close of trading on every day the New York Stock Exchange
is open.

Class B shares are subject to a deferred sales charge if withdrawn within 5
years from the date of purchase. The deferred sales charge is a percentage of
the NAV of the shares at the time they are redeemed or the original purchase
price, whichever is less. Shares that are not subject to the deferred sales
charge are redeemed first. Then, shares held the longest will be the first to be
redeemed.

The amount of the deferred sales charge is based upon the number of years since
the shares were purchased, as follows:

--------------------------------
NUMBER OF YEARS DEFERRED
SINCE PURCHASE SALES CHARGE
--------------------------------
1 5%
2 4%
3 3%
4 3%
5 2%
6 and more 0%
--------------------------------

The Distributor will waive the deferred sales charge under certain
circumstances. See "Waiver of the Deferred Sales Charge" below.

CLASS B DISTRIBUTION PLAN -- The Funds (except Cash Fund) have adopted Class B
Distribution Plans that allow each of the Funds to pay distribution fees to the
Distributor. The Distributor uses the fees to finance activities related to the
sale of Class B shares and services to shareholders. The distribution fee is
equal to 1.00% of the average daily net assets of the Fund's Class B shares.
Because the distribution fees are paid out of the Fund's assets on an ongoing
basis, over time these fees will increase the cost of a shareholder's investment
and may cost an investor more than paying other types of sales charges.

Class B shares automatically convert to Class A shares on the eighth anniversary
of purchase. This is advantageous because Class A shares are subject to a lower
distribution fee than Class B shares. A pro rata amount of Class B shares
purchased through the reinvestment of dividends or other distributions is also
converted to Class A shares each time that shares purchased directly are
converted.

CASH FUND -- Shares of Cash Fund are offered at NAV next calculated after an
order is accepted. There is no sales charge or load. The minimum initial
investment in Cash Fund is $100 for each account. Subsequent investments may be
made in any amount of $20 or more. Cash Fund purchases may be made in any of the
following ways:

1. BY MAIL

(a) A check or negotiable bank draft should be sent to:

Security Cash Fund
P.O. Box 2548
Topeka, Kansas 66601

(b) Make check or draft payable to "SECURITY CASH FUND."

2. BY WIRE

(a) Call the Fund to advise of the investment. The Fund will supply an
account number at the time of the initial investment and provide
instructions for having your bank wire federal funds.

(b) For an initial investment, you must also send a completed investment
application to the Fund.

3. THROUGH BROKER/DEALERS

Investors may, if they wish, invest in Cash Fund by purchasing shares through
registered broker/dealers. Broker/dealers who process orders on behalf of their
customers may charge a fee for their services. Investments made directly without
the assistance of a broker/dealer are without charge.

Since Cash Fund invests in money market securities which require immediate
payment in federal funds, monies received from the sales of its shares must be
monies held by a commercial bank and be on deposit at one of the Federal Reserve
Banks. A record date for each stockholder's investment is established each
business day and used to distribute the following day's dividend. If federal
funds are received prior to 2:00 p.m. (Central time) the investment will be made
on that day and the investor will receive the following day's dividend. Federal
funds received after 2:00 p.m. on any business day will not be invested until
the following business day. The Fund will not be responsible for any delays in
the wire transfer system. All checks are accepted subject to collection at full
face value in United States funds and must be drawn in United States dollars on
a United States bank.

WAIVER OF DEFERRED SALES CHARGE -- The Distributor will waive the deferred sales
charge under the following circumstances:

* Upon the death of the shareholder if shares are redeemed within one year of
the shareholder's death

* Upon the disability of the shareholder prior to age 65 if shares are redeemed
within one year of the shareholder becoming disabled and the shareholder was
not disabled when the shares were purchased

* In connection with required minimum distributions from a retirement plan
qualified under Section 401(a), 401(k), 403(b) or 408 of the Internal Revenue
Code

* In connection with distributions from retirement plans qualified under
Section 401(a) or 401(k) of the Internal Revenue Code for:

- returns of excess contributions to the plan

- retirement of a participant in the plan

- a loan from the plan (loan repayments are treated as new sales for
purposes of the deferred sales charge)

* Upon the financial hardship (as defined in regulations under the Code) of a
participant in a plan

* Upon termination of employment of a participant in a plan

* Upon any other permissible withdrawal under the terms of the plan.

CONFIRMATIONS AND STATEMENTS -- The Funds will send you a confirmation statement
after every transaction that affects your account balance or registration.
However, certain automatic transactions may be confirmed on a quarterly basis
including systematic withdrawals, automatic purchases and reinvested dividends.
Each shareholder will receive a quarterly statement setting forth a summary of
the transactions that occurred during the preceding quarter.

SELLING SHARES

Selling your shares of a Fund is called a "redemption," because the Fund buys
back its shares. A shareholder may sell shares at any time. Shares will be
redeemed at the NAV next determined after the order is accepted by the Fund's
transfer agent, less any applicable deferred sales charge. A Fund's NAV is
generally calculated as of the close of trading on every day the New York Stock
Exchange is open. Any share certificates representing Fund shares being sold
must be returned with a request to sell the shares.

When redeeming recently purchased shares, the Fund may delay sending the
redemption proceeds until it has collected payment, which may take up to 15
days.

BY MAIL -- To sell shares by mail, send a letter of instruction that includes:

* The name and signature of the account owner(s)

* The name of the Fund

* The dollar amount or number of shares to sell

* Where to send the proceeds

* A signature guarantee if

- The check will be mailed to a payee or address different than that of the
account owner, or

- The sale of shares is more than $10,000.

- --------------------------------------------------------------------------------
A SIGNATURE GUARANTEE helps protect against fraud. Banks, brokers, credit
unions, national securities exchanges and savings associations provide signature
guarantees. A notary public is not an eligible signature guarantor. For joint
accounts, both signatures must be guaranteed.
- --------------------------------------------------------------------------------

Mail your request to:

Security Management Company, LLC
P.O. Box 750525
Topeka, KS 66675-9135

Signature requirements vary based on the type of account you have:

* INDIVIDUAL OR JOINT TENANTS: Written instructions must be signed by an
individual shareholder, or in the case of joint accounts, all of the
shareholders, exactly as the name(s) appears on the account.

* UGMA OR UTMA: Written instructions must be signed by the custodian as it
appears on the account.

* SOLE PROPRIETOR OR GENERAL PARTNER: Written instructions must be signed by an
authorized individual as it appears on the account.

* CORPORATION OR ASSOCIATION: Written instructions must be signed by the
person(s) authorized to act on the account. A certified resolution dated
within six months of the date of receipt, authorizing the signer to act, must
accompany the request if not on file with the Funds.

* TRUST: Written instructions must be signed by the trustee(s). If the name of
the current trustee(s) does not appear on the account, a certified
certificate of incumbency dated within 60 days must also be submitted.

* RETIREMENT: Written instructions must be signed by the account owner.

BY TELEPHONE -- If you selected this option on your account application, you may
make redemptions from your account by calling 1-800-888-2461, extension 3127, on
weekdays (except holidays) between 7:00 a.m. and 6:00 p.m. Central time. The
Funds require that requests for redemptions over $10,000 be in writing with
signatures guaranteed. You may not close your account by telephone or redeem
shares for which a certificate has been issued. If you would like to establish
this option on an existing account, please call 1-800-888-2461, extension 3127.
Shareholders may not redeem shares held in an IRA or 403(b)(7) account by
telephone.

BY BROKER -- You may redeem your shares through your broker. Brokers may charge
a commission upon the redemption of shares.

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

CASH FUND -- If checks are requested on the Checking Privilege Request Form, you
may redeem shares of Cash Fund by check. Such checks must be in an amount of
$100 or more. Redemption by check is not available for any shares held in
certificate form or for shares recently purchased for which the Fund has not
collected payment. Checkwriting privileges may encourage multiple redemptions on
an account.

PAYMENT OF REDEMPTION PROCEEDS -- Payments may be made by check.

BY CHECK. Redemption proceeds will be sent to the shareholder(s) of record at
the address on our records within seven days after receipt of a valid redemption
request. For a charge of $15 deducted from redemption proceeds, the Investment
Manager will provide a certified or cashier's check, or send the redemption
proceeds by express mail, upon the shareholder's request.

DIVIDENDS AND TAXES

Each Fund (except Cash Fund) pays its shareholders dividends from its net
investment income monthly, and distributes any net capital gains that it has
realized, at least annually. Cash Fund pays its shareholders dividends from its
investment income daily. Your dividends and distributions will be reinvested in
shares of the Fund, unless you instruct the Investment Manager otherwise. There
are no fees or sales charges on reinvestments.

TAX ON DISTRIBUTIONS -- Fund dividends and distributions are taxable to
shareholders (unless your investment is in an Individual Retirement Account
("IRA") or other tax-advantaged retirement account) whether you reinvest your
dividends or distributions or take them in cash.

In addition to federal tax, dividends and distributions may be subject to state
and local taxes. If a Fund declares a dividend or distribution in October,
November or December but pays it in January, you may be taxed on that dividend
or distribution as if you received it in the previous year. In general,
dividends and distributions from the Funds are taxable as follows:

- --------------------------------------------------------------------------------
TAX RATE FOR 28%
TYPE OF DISTRIBUTION TAX RATE FOR 15% BRACKET BRACKET OR ABOVE
- --------------------------------------------------------------------------------
Income dividends Ordinary Income rate Ordinary Income rate
Short-term capital gains Ordinary Income rate Ordinary Income rate
Long-term capital gains 10% 20%
- --------------------------------------------------------------------------------

A Fund has "short-term capital gains" when it sells a security within 12 months
after buying it. A Fund has "long-term capital gains" when it sells a security
that it has owned for more than 12 months. When a Fund earns interest from bonds
and other debt securities and distributes these earnings to shareholders, the
Fund has "ordinary income." The Funds (other than Municipal Bond Fund) expect
that their distributions will consist primarily of ordinary income.

The Municipal Bond Fund may make distributions called "exempt-interest
dividends" that are exempt from federal income tax. Exempt-interest dividends
will not necessarily be exempt from state and local income taxes. The Municipal
Bond Fund may also make taxable distributions (including capital gains
distributions). You generally are required to report all Fund distributions,
including exempt-interest dividends, on your federal income tax return.

Tax-deferred retirement accounts do not generate a tax liability unless you are
taking a distribution or making a withdrawal.

The Fund will mail you information concerning the tax status of the
distributions for each calendar year on or before January 31 of the following
year.

TAXES ON SALES OR EXCHANGES -- You may be taxed on any sale or exchange of Fund
shares. The amount of gain or loss will depend primarily upon how much you pay
for the shares, how much you sell them for, and how long you hold them.

The table above can provide a guide for your potential tax liability when
selling or exchanging Fund shares. "Short-term capital gains" applies to Fund
shares sold or exchanged up to one year after buying them. "Long-term capital
gains" applies to shares held for more than one year.

BACKUP WITHHOLDING -- As with all mutual funds, a Fund may be required to
withhold U.S. federal income tax at the rate of 31% of all taxable distributions
payable to you if you fail to provide the Fund with your correct taxpayer
identification number or to make required certifications, or if you have been
notified by the Internal Revenue Service that you are subject to backup
withholding. Backup withholding is not an additional tax; rather, it is a way in
which the Internal Revenue Service ensures it will collect taxes otherwise due.
Any amounts withheld may be credited against your U.S. federal income tax
liability.

You should consult your tax professional about federal, state and local tax
consequences to you of an investment in the Fund. Please see the Statement of
Additional Information for additional tax information.

DETERMINATION OF NET ASSET VALUE

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

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

SHAREHOLDER SERVICES

ACCUMULATION PLAN -- An investor may choose to invest in one of the Funds
(except Cash Fund) through a voluntary Accumulation Plan. This allows for an
initial investment of $100 minimum and subsequent investments of $20 minimum at
any time. An Accumulation Plan involves no obligation to make periodic
investments, and is terminable at will.

Payments are made by sending a check to the Distributor who (acting as an agent
for the dealer) will purchase whole and fractional shares of the Fund as of the
close of business on such day as the payment is received. The investor will
receive a confirmation and statement after each investment.

Investors may choose to use "Secur-O-Matic" (automatic bank draft) to make Fund
purchases. There is no additional charge for choosing to use Secur-O-Matic.
Withdrawals from your bank account may occur up to 3 business days before the
date scheduled to purchase Fund shares. An application for Secur-O-Matic may be
obtained from the Funds.

SYSTEMATIC WITHDRAWAL PROGRAM -- Shareholders who wish to receive regular
monthly, quarterly, semiannual, or annual payments of $25 or more may establish
a Systematic Withdrawal Program. A shareholder may elect a payment that is a
specified percentage of the initial or current account value or a specified
dollar amount. A Systematic Withdrawal Program will be allowed only if shares
with a current aggregate net asset value of $5,000 or more are deposited with
the Investment Manager, which will act as agent for the stockholder under the
Program. Shares are liquidated at net asset value. The Program may be terminated
on written notice, or it will terminate automatically if all shares are
liquidated or withdrawn from the account.

A shareholder may establish a Systematic Withdrawal Program with respect to
Class B shares without the imposition of any applicable contingent deferred
sales charge, provided that such withdrawals do not in any 12-month period,
beginning on the date the Program is established, exceed 10 percent of the value
of the account on that date ("Free Systematic Withdrawals"). Free Systematic
Withdrawals are not available if a Program established with respect to Class B
shares provides for withdrawals in excess of 10 percent of the value of the
account in any Program year and, as a result, all withdrawals under such a
Program would be subject to any applicable contingent deferred sales charge.
Free Systematic Withdrawals will be made first by redeeming those shares that
are not subject to the contingent deferred sales charge and then by redeeming
shares held the longest. The contingent deferred sales charge applicable to a
redemption of Class B shares requested while Free Systematic Withdrawals are
being made will be calculated as described under "Waiver of Deferred Sales
Charge," page 17. A Systematic Withdrawal form may be obtained from the Funds.

EXCHANGE PRIVILEGE -- Shareholders who own shares of the Funds may exchange
those shares for shares of another of the Funds, or for shares of the other
mutual funds distributed by the Distributor, which currently include Security
Growth and Income, Equity, Global, Asset Allocation, Social Awareness, Value,
Small Company, Enhanced Index, International, Select 25 and Ultra Funds.
Exchanges may be made only in those states where shares of the fund into which
an exchange is to be made are qualified for sale. No service fee or sales charge
is presently imposed on such an exchange. Class A and Class B shares of the
Funds may be exchanged for Class A and Class B shares, respectively, of another
fund distributed by the Distributor or for shares of Cash Fund, which offers a
single class of shares. Any applicable contingent deferred sales charge will be
imposed upon redemption and calculated from the date of the initial purchase
without regard to the time shares were held in Cash Fund.

For tax purposes, an exchange is a sale of shares which may result in a taxable
gain or loss. Special rules may apply to determine the amount of gain or loss on
an exchange occurring within ninety days after the exchanged shares were
acquired.

Exchanges of Class A shares from Corporate Bond, Limited Maturity Bond, U.S.
Government, High Yield and Municipal Bond Funds are made at net asset value
without a front-end sales charge if (1) the shares have been owned for at least
90 consecutive days prior to the exchange, (2) the shares were acquired pursuant
to a prior exchange from a Security Fund which assessed a sales charge on the
original purchase, or (3) the shares were acquired as a result of the
reinvestment of dividends or capital gains distributions. Exchanges of Class A
shares from Corporate Bond, Limited Maturity Bond, U.S. Government, High Yield
and Municipal Bond Funds, other than those described above, are made at net
asset value plus the sales charge described in the prospectus of the other
Security Fund being acquired, less the sales charge paid on the shares of these
Funds at the time of original purchase.

Because Cash Fund does not impose a sales charge or commission in connection
with sales of its shares, any exchange of Cash Fund shares acquired through
direct purchase or reinvestment of dividends will be based on the respective net
asset values of the shares involved and a sales charge will be imposed equal to
the sales charge that would be charged such shareholder if he or she were
purchasing for cash.

Shareholders should contact the Fund before requesting an exchange in order to
ascertain whether any sales charges are applicable to the shares to be
exchanged. In effecting the exchanges of Fund shares, the Investment Manager
will first cause to be exchanged those shares which would not be subject to any
sales charges.

Exchanges are made upon receipt of a properly completed Exchange Authorization
form. A current prospectus of the fund into which an exchange is made will be
given to each stockholder exercising this privilege.

To exchange shares by telephone, a shareholder must hold shares in
non-certificate form and must either have completed the Telephone Exchange
section of the application or a Telephone Transfer Authorization form which may
be obtained from the Investment Manager. Once authorization has been received by
the Investment Manager, a shareholder may exchange shares by telephone by
calling the Funds at (800) 888-2461, extension 3127, on weekdays (except
holidays) between the hours of 7:00 a.m. and 6:00 p.m. Central time. Exchange
requests received by telephone after the close of the New York Stock Exchange
(normally 3 p.m. Central time) will be treated as if received on the next
business day. The exchange privilege, including telephone exchanges, may be
changed or discontinued at any time by either the Investment Manager or the
Funds upon 60 days' notice to shareholders.

RETIREMENT PLANS -- The Funds have available tax-qualified retirement plans for
individuals, prototype plans for the self-employed, pension and profit sharing
plans for corporations and custodial accounts for employees of public school
systems and organizations meeting the requirements of Section 501(c)(3) of the
Internal Revenue Code. Further information concerning these plans is contained
in the Funds' Statement of Additional Information.

GENERAL INFORMATION

SHAREHOLDER INQUIRIES -- Shareholders who have questions concerning their
account or wish to obtain additional information may write to the Funds (see
back cover for address and telephone numbers), or contact their securities
dealer.

INVESTMENT POLICIES AND MANAGEMENT PRACTICES

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

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

* invest more than 5% of the value of its assets in any one issuer other than
the U.S. Government or its instrumentalities (for Cash, Municipal Bond and
High Yield Funds, this limitation applies only to 75% of the value of its
total assets)

* purchase more than 10% of the outstanding voting securities of any one issuer

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

The Municipal Bond Fund will not invest more than 20% of its assets in
securities that are not tax-exempt securities, except when in a temporary
defensive position. The full text of each Fund's fundamental policies are
included in the Statement of Additional Information.

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

CONVERTIBLE SECURITIES -- Corporate Bond Fund, Limited Maturity Bond Fund and
High Yield Fund may invest in debt or preferred equity securities convertible
into, or exchangeable for, equity securities. Traditionally, convertible
securities have paid dividends or interest at rates higher than common stocks
but lower than non-convertible securities. They generally participate in the
appreciation or depreciation of the underlying stock into which they are
convertible, but to a lesser degree.

FOREIGN SECURITIES -- Corporate Bond Fund, Limited Maturity Bond Fund and High
Yield Fund may invest in foreign securities denominated in U.S. dollars. Foreign
investments increase a Fund's diversification and may enhance return, but they
also involve some special risks, such as exposure to potentially adverse local
political and economic developments; nationalization and exchange controls;
potentially lower liquidity and higher volatility; and possible problems arising
from accounting, disclosure, settlement and regulatory practices that differ
from U.S. standards. These risks are heightened for investments in developing
countries.

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

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

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

RESTRICTED SECURITIES -- Limited Maturity Bond Fund, Cash Fund, and High Yield
Fund may invest in restricted securities that are eligible for resale under Rule
144A of the Securities Act of 1933. These securities are sold directly to a
small number of investors, usually institutions. Unlike public offerings,
restricted securities are not registered with the SEC. Although restricted
securities which are eligible for resale under Rule 144A may be readily sold to
qualified buyers, there may not always be a market for them and their sale may
involve substantial delays and additional costs. In addition, High Yield Fund
may invest in restricted securities that are not eligible for resale under Rule
144A. Because there is no active market for these types of securities, selling a
security that is not a Rule 144A security may be difficult and/or may involve
expenses that would not be incurred in the sale of securities that were freely
marketable.

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

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

Some of the management practices of the Funds include:

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

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

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

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

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

PORTFOLIO TURNOVER -- Although the Funds will not generally trade for short-term
profits, circumstances may warrant a sale without regard to the length of time a
security was held. A high turnover rate may increase transaction costs and
result in additional taxable gains.

FINANCIAL HIGHLIGHTS

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

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CORPORATE BOND FUND (CLASS A)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
--------------------------------------------------------------------------
1998(B)(C) 1997(C) 1996(C)(E) 1995(C)(E) 1994
---------- ------- ---------- ---------- ----
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value beginning of period..................... $ 7.05 $ 6.87 $ 7.39 $ 6.68 $ 7.81

INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)............................ 0.43 0.45 0.47 0.47 0.49
Net gain (loss) on securities (realized & unrealized)... 0.09 0.19 (0.52) 0.71 (1.13)
------ ------ ------ ------ ------
Total from investment operations........................ 0.52 0.64 (0.05) 1.18 (0.64)

LESS DISTRIBUTIONS
Dividends (from net investment income).................. (0.43) (0.46) (0.47) (0.47) (0.49)
Distributions (from capital gains)...................... --- --- --- --- ---
------ ------ ------ ------ ------
Total distributions..................................... (0.43) (0.46) (0.47) (0.47) (0.49)
------ ------ ------ ------ ------
Net asset value end of period........................... $ 7.14 $ 7.05 $ 6.87 $ 7.39 $ 6.68
====== ====== ====== ====== ======
Total return (a)........................................ 7.6% 9.7% (0.5)% 18.2% (8.3)%

RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands).................... $53,055 $56,487 $73,360 $93,701 $90,593
Ratio of expenses to average net assets................. 1.06% 1.07% 1.01% 1.02% 1.01%
Ratio of net investment income
(loss) to average net assets.......................... 6.01% 6.50% 6.54% 6.62% 6.91%
Portfolio turnover rate................................. 64% 120% 292% 200% 204%
</TABLE>

- --------------------------------------------------------------------------------
CORPORATE BOND FUND (CLASS B)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
--------------------------------------------------------------------------
1998(B)(C) 1997(B)(C) 1996(B)(C)(E) 1995(B)(C)(E) 1994(B)
---------- ---------- ------------- ------------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value beginning of period..................... $ 7.09 $ 6.90 $ 7.43 $ 6.71 $ 7.84

INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)............................ 0.37 0.40 0.40 0.40 0.43
Net gain (loss) on securities (realized & unrealized)... 0.10 0.19 (0.52) 0.73 (1.13)
------ ------ ------ ------ ------
Total from investment operations........................ 0.47 0.59 (0.12) 1.13 (0.70)

LESS DISTRIBUTIONS
Dividends (from net investment income).................. (0.37) (0.40) (0.41) (0.41) (0.43)
Distributions (from capital gains)...................... --- --- --- --- ---
------ ------ ------ ------ ------
Total distributions..................................... (0.37) (0.40) (0.41) (0.41) (0.43)
------ ------ ------ ------ ------
Net asset value end of period........................... $ 7.19 $ 7.09 $ 6.90 $ 7.43 $ 6.71
====== ====== ====== ====== ======
Total return (a)........................................ 6.9% 8.7% (1.4)% 17.3% (9.0)%

RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands).................... $7,982 $6,493 $7,303 $5,743 $3,878
Ratio of expenses to average net assets................. 1.85% 1.85% 1.85% 1.85% 1.85%
Ratio of net investment income
(loss) to average net assets.......................... 5.18% 5.72% 5.70% 5.80% 6.08%
Portfolio turnover rate................................. 64% 120% 292% 200% 204%
</TABLE>

- --------------------------------------------------------------------------------
LIMITED MATURITY BOND FUND (CLASS A)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
----------------------------------------------------------------
1998(B)(C)(E) 1997(B)(C)(E) 1996(B)(C)(E) 1995(B)(C)(D)(E)
------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C>
PER SHARE DATA
Net asset value beginning of period..................... $10.30 $10.14 $10.66 $10.00

INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)............................ 0.65 0.72 0.72 0.62
Net gain (loss) on securities (realized & unrealized)... 0.10 0.16 (0.51) 0.65
------ ------ ------ ------
Total from investment operations........................ 0.75 0.88 0.21 1.27

LESS DISTRIBUTIONS
Dividends (from net investment income).................. (0.65) (0.72) (0.72) (0.61)
Distributions (from capital gains)...................... --- --- --- ---
Return of capital....................................... --- --- (0.01) ---
------ ------ ------ -------
Total distributions..................................... (0.65) (0.72) (0.73) (0.61)
------ ------ ------ -------
Net asset value end of period........................... $10.40 $10.30 $10.14 $10.66
====== ====== ====== ======
Total return (a)........................................ 7.5% 9.0% 2.1% 13.0%

RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands).................... $6,365 $5,490 $4,938 $3,322
Ratio of expenses to average net assets................. 0.87% 0.55% 0.90% 0.84%
Ratio of net investment income
(loss) to average net assets.......................... 6.30% 7.10% 6.97% 5.97%
Portfolio turnover rate................................. 58% 76% 105% 4%
</TABLE>

- --------------------------------------------------------------------------------
LIMITED MATURITY BOND FUND (CLASS B)
- --------------------------------------------------------------------------------

INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)............................ 0.53 0.61 0.63 0.53
Net gain (loss) on securities (realized & unrealized)... 0.11 0.14 (0.52) 0.66
------ ------ ------ ------
Total from investment operations........................ 0.64 0.75 0.11 1.19

LESS DISTRIBUTIONS
Dividends (from net investment income).................. (0.54) (0.62) (0.63) (0.52)
Distributions (from capital gains)...................... --- --- --- ---
Return of capital....................................... --- --- (0.01) ---
------ ------ ------ ------
Total distributions..................................... (0.54) (0.62) (0.64) (0.52)
------ ------ ------ ------
Net asset value end of period........................... $10.37 $10.27 $10.14 $10.67
====== ====== ====== ======
Total return (a)........................................ 6.4% 7.7% 1.1% 12.2%

RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands).................... $1,354 $1,054 $761 $752
Ratio of expenses to average net assets................. 1.89% 1.50% 1.88% 1.71%
Ratio of net investment income
(loss) to average net assets.......................... 5.18% 6.15% 5.99% 5.12%
Portfolio turnover rate................................. 58% 76% 105% 4%
</TABLE>

- --------------------------------------------------------------------------------
U.S. GOVERNMENT FUND (CLASS A)
- --------------------------------------------------------------------------------

INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)............................ 0.27 0.32 0.31 0.30 0.30
Net gain (loss) on securities (realized & unrealized)... 0.16 0.10 (0.26) 0.62 (0.62)
------ ------ ------ ----- ------
Total from investment operations........................ 0.43 0.42 0.05 0.92 (0.32)

LESS DISTRIBUTIONS
Dividends (from net investment income).................. (0.28) (0.32) (0.31) (0.30) (0.30)
Distributions (from capital gains)...................... --- --- --- --- ---
------ ------ ------ ------ ------
Total distributions..................................... (0.28) (0.32) (0.31) (0.30) (0.30)
------ ------ ------ ------ ------
Net asset value end of period........................... $ 4.96 $ 4.81 $ 4.71 $ 4.97 $ 4.35
====== ====== ====== ====== ======
Total return (a)........................................ 9.1% 9.2% 1.3% 21.9% (6.5)%

RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands).................... $12,644 $7,652 $8,036 $10,080 $8,309
Ratio of expenses to average net assets................. 0.93% 0.60% 0.65% 1.11% 1.10%
Ratio of net investment income
(loss) to average net assets.......................... 5.62% 6.10% 6.44% 6.41% 6.47%
Portfolio turnover rate................................. 78% 39% 75% 81% 220%
</TABLE>

- --------------------------------------------------------------------------------
U.S. GOVERNMENT FUND (CLASS B)
- --------------------------------------------------------------------------------

INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)............................ 0.22 0.26 0.25 0.26 0.26
Net gain (loss) on securities (realized & unrealized)... 0.16 0.10 (0.25) 0.63 (0.62)
------ ------ ------ ------ ------
Total from investment operations........................ 0.38 0.36 (0.00) 0.89 (0.36)

LESS DISTRIBUTIONS
Dividends (from net investment income).................. (0.23) (0.27) (0.26) (0.27) (0.26)
Distributions (from capital gains)...................... --- --- --- --- ---
------ ------ ------ ------ ------
Total distributions..................................... (0.23) (0.27) (0.26) (0.27) (0.26)
------ ------ ------ ------ ------
Net asset value end of period........................... $ 4.95 $ 4.80 $ 4.71 $ 4.97 $ 4.35
====== ====== ====== ====== ======
Total return (a)........................................ 8.0% 7.9% (0.02)% 20.9% (7.4)%

RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands).................... $3,668 $1,091 $661 $582 $321
Ratio of expenses to average net assets................. 1.85% 1.68% 1.86% 1.87% 1.85%
Ratio of net investment income
(loss) to average net assets.......................... 4.66% 5.02% 5.23% 5.69% 5.76%
Portfolio turnover rate................................. 78% 39% 75% 81% 220%
</TABLE>

- --------------------------------------------------------------------------------
HIGH YIELD FUND (CLASS A)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
---------------------------------------------
1998(B)(C) 1997(B)(C) 1996(B)(C)(F)
---------- ---------- -------------
<S> <C> <C> <C>
PER SHARE DATA
Net asset value beginning of period..................... $15.71 $15.32 $15.00

INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)............................ 1.22 1.25 0.45
Net gain (loss) on securities (realized & unrealized)... (0.47) 0.60 0.32
------ ------ ------
Total from investment operations........................ 0.75 1.85 0.77

LESS DISTRIBUTIONS
Dividends (from net investment income).................. (1.22) (1.25) (0.45)
Distributions (from capital gains)...................... (0.19) (0.21) ---
------ ------ ------
Total distributions..................................... (1.41) (1.46) (0.45)
------ ------ ------
Net asset value end of period........................... $15.05 $15.71 $15.32
====== ====== ======
Total return (a)........................................ 5.0% 12.6% 5.2%

RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands).................... $5,781 $5,179 $2,780
Ratio of expenses to average net assets................. 0.76% 0.87% 1.54%
Ratio of net investment income
(loss) to average net assets.......................... 7.96% 8.14% 7.47%
Portfolio turnover rate................................. 103% 87% 168%
</TABLE>

- --------------------------------------------------------------------------------
HIGH YIELD FUND (CLASS B)
- --------------------------------------------------------------------------------

INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)............................ 1.10 1.10 0.41
Net gain (loss) on securities (realized & unrealized)... (0.47) 0.59 0.32
------ ------ ------
Total from investment operations........................ 0.63 1.69 0.73

LESS DISTRIBUTIONS
Dividends (from net investment income).................. (1.10) (1.12) (0.41)
Distributions (from capital gains)...................... (0.19) (0.21) ---
------ ------ ------
Total distributions..................................... (1.29) (1.33) (0.41)
------ ------ ------
Net asset value end of period........................... $15.02 $15.68 $15.32
====== ====== ======
Total return (a)........................................ 4.2% 11.5% 4.9%

RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands).................... $4,236 $4,432 $2,719
Ratio of expenses to average net assets................. 1.53% 1.80% 2.26%
Ratio of net investment income
(loss) to average net assets.......................... 7.17% 7.21% 6.74%
Portfolio turnover rate................................. 103% 87% 168%
</TABLE>

- --------------------------------------------------------------------------------
MUNICIPAL BOND FUND (CLASS A)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
--------------------------------------------------------------------------
1998(B)(C)(E) 1997(C)(E) 1996(B)(C)(E) 1995(B)(C)(E) 1994
------------- ---------- ------------- ------------- ----
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value beginning of period..................... $10.08 $ 9.72 $ 9.94 $ 9.05 $10.37

INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)............................ 0.43 0.42 0.45 0.48 0.47
Net gain (loss) on securities (realized & unrealized)... 0.17 0.36 (0.21) 0.89 (1.32)
------ ------ ------ ------ ------
Total from investment operations........................ 0.60 0.78 0.24 1.37 (0.85)

LESS DISTRIBUTIONS
Dividends (from net investment income).................. (0.44) (0.42) (0.46) (0.48) (0.47)
Distributions (from capital gains)...................... --- --- --- --- ---
------ ------ ------ ------ ------
Total distributions..................................... (0.44) (0.42) (0.46) (0.48) (0.47)
------ ------ ------ ------ ------
Net asset value end of period........................... $10.24 $10.08 $ 9.72 $ 9.94 $ 9.05
====== ====== ====== ====== ======
Total return (a)........................................ 6.1% 8.3% 2.5% 15.5% (8.3)%

RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands).................... $19,012 $21,953 $23,304 $25,026 $24,092
Ratio of expenses to average net assets................. 0.82% 0.82% 0.78% 0.86% 0.82%
Ratio of net investment income
(loss) to average net assets.......................... 4.23% 4.29% 4.67% 5.02% 4.74%
Portfolio turnover rate................................. 94% 48% 54% 103% 88%
</TABLE>

- --------------------------------------------------------------------------------
MUNICIPAL BOND FUND (CLASS B)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
--------------------------------------------------------------------------
1998(B)(C)(E) 1997(C)(E) 1996(B)(C)(E) 1995(B)(C)(E) 1994(B)
------------- ---------- ------------- ------------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value beginning of period..................... $10.08 $ 9.73 $ 9.95 $ 9.05 $10.37

INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)............................ 0.31 0.29 0.33 0.37 0.35
Net gain (loss) on securities (realized & unrealized)... 0.17 0.37 (0.21) 0.90 (1.32)
------ ------ ------ ------ ------
Total from investment operations........................ 0.48 0.66 0.12 1.27 (0.97)

LESS DISTRIBUTIONS
Dividends (from net investment income).................. (0.30) (0.31) (0.34) (0.37) (0.35)
Distributions (from capital gains)...................... --- --- --- --- ---
------ ------ ------ ------ ------
Total distributions..................................... (0.30) (0.31) (0.34) (0.37) (0.35)
------ ------ ------ ------ ------
Net asset value end of period........................... $10.26 $10.08 $ 9.73 $ 9.95 $ 9.05
====== ====== ====== ====== ======
Total return (a)........................................ 4.8% 6.9% 1.2% 14.3% (9.5)%

RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands).................... $1,367 $2,344 $1,510 $1,190 $760
Ratio of expenses to average net assets................. 2.01% 2.00% 2.01% 2.00% 2.00%
Ratio of net investment income
(loss) to average net assets.......................... 3.04% 3.11% 3.44% 3.90% 3.50%
Portfolio turnover rate................................. 94% 48% 54% 103% 88%
</TABLE>

- --------------------------------------------------------------------------------
CASH FUND
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
--------------------------------------------------------------------------
1998(E) 1997(C)(E) 1996(B)(C)(E) 1995(B)(C)(E) 1994
------- ---------- ------------- ------------- ----
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value beginning of period..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00

INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss)............................ 0.05 0.05 0.05 0.05 0.03
Net gain (loss) on securities (realized & unrealized)... --- --- --- --- ---
------ ------ ------ ------ ------
Total from investment operations........................ 0.05 0.05 0.05 0.05 0.03

LESS DISTRIBUTIONS
Dividends (from net investment income).................. (0.05) (0.05) (0.05) (0.05) (0.03)
Distributions (from capital gains)...................... --- --- --- --- ---
------ ------ ------ ------ ------
Total distributions..................................... (0.05) (0.05) (0.05) (0.05) (0.03)
------ ------ ------ ------ ------
Net asset value end of period........................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ======
Total return (a)........................................ 4.7% 4.9% 4.6% 5.0% 3.4%

RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands).................... $61,828 $57,441 $45,331 $38,158 $58,102
Ratio of expenses to average net assets................. 0.89% 0.90% 1.01% 1.00% 0.96%
Ratio of net investment income
(loss) to average net assets.......................... 4.60% 4.80% 4.47% 5.00% 3.24%
Portfolio turnover rate................................. --- --- --- --- ---
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(a) Total return information does not reflect deduction of any sales charge
imposed at the time of purchase for Class A shares or upon redemption for
Class B shares.

(b) Fund expenses were reduced by the Investment Manager during the period, and
expense ratios absent such reimbursement would have been as follows:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
1994 1995 1996 1997 1998
----------------- ----------------- ----------------- ----------------- -----------------
Class A Class B Class A Class B Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Corporate Bond......... N/A 2.00% N/A 2.19% N/A 2.05% N/A 2.10% N/A 2.32%
U.S. Government........ 1.20% 2.91% 1.22% 3.70% 1.17% 3.26% 1.06% 2.14% 1.43% 3.03%
Limited Maturity Bond.. N/A N/A 1.04% 2.12% 1.40% 2.60% 1.04% 1.99% 1.38% 2.70%
High Yield............. N/A N/A N/A N/A 2.11% 2.83% 1.44% 2.37% 1.36% 2.13%
Municipal Bond......... N/A 2.32% 0.86% 2.45% 0.78% 2.19% N/A N/A 0.82% 2.18%
Cash................... N/A N/A 1.04% N/A 1.01% N/A N/A N/A N/A N/A
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(d) Limited Maturity Bond Fund was initially capitalized on January 17, 1995,
with a net asset value of $10 per share. Percentage amounts for the period
have been annualized, except total return.

(e) Expense ratios including reimbursements, were calculated without the
reduction for custodian fees earnings credits beginning February 1, 1995.
Expense ratios with such reductions would have been as follows:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
1995 1996 1997 1998
----------------- ----------------- ----------------- -----------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Corporate Bond......... 1.02% 1.85% 1.01% 1.85% --- --- --- ---
U.S. Government........ 1.10% 1.85% 0.64% 1.85% --- --- --- ---
Limited Maturity Bond.. 0.81% 1.65% 0.87% 1.85% 0.51% 1.46% 0.83% 1.85%
Municipal Bond......... 0.85% 2.00% 0.77% 2.00% 0.83% 2.00% 0.82% 2.00%
Cash................... 1.00% --- 1.00% --- 1.00% --- 0.89% ---
----------------------------------------------------------------------------------------------------------
</TABLE>

(f) High Yield Fund was initially capitalized on August 5, 1996 with a net
asset value of $15.00 per share. Percentage amounts for the period have
been annualized, except total return.
<PAGE>
APPENDIX A

DESCRIPTION OF SHORT-TERM INSTRUMENTS

The types of instruments that will form the major part of Cash Fund's
investments are described below:

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

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

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

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

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

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

DESCRIPTION OF COMMERCIAL PAPER RATINGS

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

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

DESCRIPTION OF CORPORATE BOND RATINGS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

DESCRIPTION OF MUNICIPAL BOND RATINGS

The following are summaries of the ratings used by Moody's, Standard & Poor's
and Fitch's applicable to permitted investments of Municipal Bond Fund:

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

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

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

NOTE: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. Although
Industrial Revenue Bonds and Environmental Control Revenue Bonds are tax-exempt
issues, they are included in the corporate bond rating system. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category. The modifier 2 indicates a mid-range ranking, and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category. Moody's
does not apply numerical modifiers other than Aa1, A1 and Baa1 in its municipal
bond rating system, which offer the maximum security within the Aa, A and Baa
groups, respectively.

STANDARD & POOR'S CORPORATION** -- AAA. Municipal bonds rated AAA are highest
grade obligations. They possess the ultimate degree of protection as to
principal and interest.

AA. Municipal bonds rated AA also qualify as high grade obligations, and in the
majority of instances differ from AAA issues only in small degree.

A. Municipal bonds rated A are regarded as upper medium grade. They have
considerable investment strength but are not entirely free from adverse effects
of changes in economic and trade conditions. Interest and principal are regarded
as safe.

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

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

FITCH INVESTORS SERVICE, INC. -- AAA. Bonds considered to be investment grade
and of the highest credit quality. The obligor has an exceptionally strong
ability to pay interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.

AA. Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA." Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+".

A. Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

BBB. Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.

NOTE: Plus and minus signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus and minus signs,
however, are not used in the "AAA" category.

RATINGS OF SHORT-TERM SECURITIES

MOODY'S INVESTORS SERVICE -- The following ratings apply to short-term municipal
notes and loans:

MIG 1. Loans bearing this designation are of the best quality, enjoying strong
protection from established cash flows for their servicing or from established
and broadbased access to the market for refinancing, or both.

MIG 2. Loans bearing this designation are of high quality with margins of
protection ample although not so large as in the preceding group.

The following ratings apply to both commercial paper and municipal paper:

PRIME-1. Issuers receiving this rating have a superior capacity for repayment of
short-term promissory obligations.

PRIME-2. Issuers receiving this rating have a strong capacity for repayment of
short-term promissory obligations.

STANDARD & POOR'S CORPORATION -- The following ratings apply to short-term
municipal notes:

AAA. This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to repay principal and pay interest.

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

The following ratings apply both to commercial paper and municipal paper:

A-1. This designation indicates that the degree of safety regarding timely
payment is very strong.

A-2. Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.

FITCH INVESTORS SERVICE -- The following ratings apply to commercial paper:

F-1+. Exceptionally strong credit quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.

F-1. Very strong credit quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+".

F-2. Issues assigned this rating have a satisfactory degree of assurance for
timely payment but the margin of safety is not as great as for issues assigned
"F-1+" or "F-1".

*Moody's Investors Service, Inc. rates bonds of issuers which have $600,000 or
more of debt, except bonds of educational institutions, projects under
construction, enterprises without established earnings records and situations
where current financial data is unavailable.

**Standard & Poor's Corporation rates all governmental bodies having $1,000,000
or more of debt outstanding unless adequate information is not available.
<PAGE>
APPENDIX C

REDUCED SALES CHARGES

CLASS A SHARES -- Initial sales charges may be reduced or eliminated for persons
or organizations purchasing Class A shares of the Corporate Bond, Limited
Maturity Bond, U.S. Government, High Yield and Municipal Bond Funds alone or in
combination with Class A shares of certain other Security Funds.

For purposes of qualifying for reduced sales charges on purchases made pursuant
to Rights of Accumulation or a Statement of Intention (also referred to as a
"Letter of Intent"), the term "Purchaser" includes the following persons: an
individual; an individual, his or her spouse and children under the age of 21; a
trustee or other fiduciary of a single trust estate or single fiduciary account
established for their benefit; an organization exempt from federal income tax
under Section 501(c)(3) or (13) of the Internal Revenue Code; or a pension,
profit-sharing or other employee benefit plan whether or not qualified under
Section 401 of the Internal Revenue Code.

RIGHTS OF ACCUMULATION -- To reduce sales charges on purchases of Class A shares
of Corporate Bond, Limited Maturity Bond, U.S. Government, High Yield or
Municipal Bond Fund, a Purchaser may combine all previous purchases of the Fund
with a contemplated current purchase and receive the reduced applicable front
end sales charge. The Distributor must be notified when a sale takes place which
might qualify for the reduced charge on the basis of previous purchases.

Rights of accumulation also apply to purchases representing a combination of the
Class A shares of Corporate Bond, Limited Maturity Bond, U.S. Government, High
Yield, Municipal Bond, Growth and Income, Equity, Global, Asset Allocation,
Social Awareness, Value or Ultra Fund in those states where shares of the Fund
being purchased are qualified for sale.

STATEMENT OF INTENTION -- A Purchaser of Corporate Bond, Limited Maturity Bond,
U.S. Government, High Yield or Municipal Bond Fund may choose to sign a
Statement of Intention within 90 days after the first purchase to be included
thereunder, which will cover future purchases of Class A shares of those Funds,
Security Equity, Global, Asset Allocation, Social Awareness, Value, Growth and
Income or Ultra Fund. The amount of these future purchases shall be specified
and must be made within a 13-month period (or 36-month period for purchases of
$1 million or more) to become eligible for the reduced front-end sales charge
applicable to the actual amount purchased under the statement. Five percent (5%)
of the amount specified in the Statement of Intention will be held in escrow
shares until the Statement is completed or terminated. These shares may be
redeemed by the Fund if the Purchaser is required to pay additional sales
charges. Any dividends paid by the Fund will be payable with respect to escrow
shares. The Purchaser bears the risk that the escrow shares may decrease in
value.

A Statement of Intention may be revised during the 13-month (or, if applicable,
36-month) period. Additional shares received from reinvestment of income
dividends and capital gains distributions are included in the total amount used
to determine reduced sales charges.

REINSTATEMENT PRIVILEGE -- Stockholders who redeem their Class A shares of
Corporate Bond, Limited Maturity Bond, U.S. Government, High Yield or Municipal
Bond Fund have a one-time privilege (1) to reinstate their accounts by
purchasing shares without a sales charge up to the dollar amount of the
redemption proceeds; or (2) to the extent the redeemed shares would have been
eligible for the exchange privilege, to purchase shares of another of the Funds,
Security Growth and Income, Equity, Global, Asset Allocation, or Ultra Fund,
without a sales charge up to the dollar amount of the redemption proceeds. To
exercise this privilege, a stockholder must provide written notice and the
amount to be reinvested to the Fund within 30 days after the redemption request.

The reinstatement or exchange will be made at the net asset value next
determined after the reinvestment is received by the Fund.
<PAGE>
SECURITY CASH FUND APPLICATION

For IRA/KEOGH/Corporate Plans, complete this Application along with other plan
documents.
MAIL APPLICATION TO: Security Cash Fund, P.O. Box 2548, Topeka, KS 66601
- --------------------------------------------------------------------------------
INITIAL INVESTMENT [_] Enclosed is my check for $________ made payable to
(CHECK ONE BOX) Security Cash Fund.
[_] On _______ I/we wired $_______ through ____________
MINIMUM Date Name of Bank
$100
_____________________for Fund account number __________
City State

SUBSEQUENT When investing by wire, call the Fund to advise of the
INVESTMENTS investment. The Fund will supply a control number for
OF $20 CAN BE for initial investment and instructions for having your
MADE AT ANY bank wire Federal funds.
TIME
Attn:_______________________________________
(Include investor's name and account number)
- --------------------------------------------------------------------------------
DIVIDENDS [_] Reinvest automatically all daily dividends and
(CHECK ONE BOX) other distributions.
[_] Cash payment of all dividends each month and send
proceeds to investor.
- --------------------------------------------------------------------------------
CHECKING [_] Please send a supply of checks permitting me/us to
ACCOUNT redeem shares in this account by writing checks
PRIVILEGE for $100 or more made payable to any person.
COMPLETE SIGNATURE CARD ON REVERSE SIDE. Allow
three weeks for delivery of check supply.
- --------------------------------------------------------------------------------
SPECIAL OPTIONS [_] Telephone Exchange
(CHECK APPLICABLE [_] Telephone Redemption
BOXES)
By checking the applicable boxes and signing this
Application, Applicant authorizes the Investment
Manager to honor any telephone request for the
exchange and/or redemption of Fund shares (maximum
telephone redemption is $10,000), subject to the
terms of the Fund's prospectus. The Investment
Manager has established reasonable procedures to
confirm that instructions communicated by telephone
are genuine and may be liable for any losses due to
fraudulent or unauthorized instructions if it fails
to comply with its procedures. The procedures
require that any person requesting a telephone
redemption or exchange provide the account
registration and number and owner's tax
identification number and such request must be
received on a recorded line.
---------------------------------------------------

THE AUTHORIZATION ON REVERSE SIDE FOR CORPORATION,
PARTNERSHIP, TRUST, ETC., MUST BE COMPLETED AND
RETURNED WITH THIS FORM.

[_] Systematic Withdrawal Program (Minimum account
$5,000)

Beginning _______, 19___, you are hereby authorized
and instructed to send a check for $_______________
(minimum $25) drawn on approximately [_] 11th day
[_] 26th day of the month.
Draw payment [_] monthly [_] quarterly
[_] semiannually [_] annually
- --------------------------------------------------------------------------------
[_] Individual ________________________________________
[_] Corporate First Middle Last
[_] Non-Profit
[_] Profit- ________________________________________
Sharing First Middle Last
________________________________________
Owner's Taxpayer Identification No. or
Social Security No.

ACCOUNT ________________________________________
REGISTRATION Name of Corporation, Trust, Partnership,
(PLEASE PRINT) etc.

________________________________________
Street Address

________________________________________
City State Zip

Industry Type __________________________
(Farming, Mfg., Sales, etc.)

Telephone Business ( ) ________________
Home ( ) ________________

If address is outside U.S. please indicate if U.S.
Citizen [_] Yes [_] No
- --------------------------------------------------------------------------------
TAXPAYER IDENTIFICATION CERTIFICATION: Under the
penalties of perjury, I (1) certify that the number
provided on this form is my correct taxpayer
identification number and (2), *that I am not subject
to backup withholding either because I have not been
notified that I am subject to backup withholding as a
TAX result of a failure to report all interest or
WITHHOLDING dividends, or the Internal Revenue Service has notified
me that I am no longer subject to backup withholding.

* The owner must strike out the language certifying
that they are not subject to backup withholding due to
notified underreporting IF THE INTERNAL REVENUE SERVICE
NOTIFIED THEM THAT THEY ARE SUBJECT TO BACKUP
WITHHOLDING, and they have not received notice from the
service advising that backup withholding has
terminated.
- --------------------------------------------------------------------------------
The Internal Revenue Service does not require your
consent to any provision of this document other than
the certifications to avoid backup withholding.

SIGNATURE(S) _______________________________________________________
OF APPLICANTS
OWNER _________________________________________________

_______________________________________________________
INVESTMENT CORPORATE OFFICER, TRUSTEE, ETC.
DEALER
DATE __________________________________________________

NAME OF FIRM __________________________________________

STREET ADDRESS ________________________________________

_______________________________________________________
CITY STATE ZIP

JOINT OWNER ___________________________________________

_______________________________________________________
TITLE
IN CASE OF JOINT OWNERSHIP, BOTH MUST SIGN. IF NO FORM
OF OWNERSHIP IS DESIGNATED, THEN IT WILL BE ASSUMED
THE OWNERSHIP IS "AS JOINT TENANTS, WITH RIGHT OF
SURVIVORSHIP, AND NOT AS TENANTS IN COMMON."
_______________________________________________________
DEALER AUTHORIZED

_______________________________________________________
ACCOUNT REPRESENTATIVE
- --------------------------------------------------------------------------------
<PAGE>
Checking Account Privilege - If you have elected this option, the following card
must be completed. This card is similar to one which must be signed when opening
any checking account. All joint owners named in the account registration must
sign this card. Names must be signed exactly as they appear in the account
registration. All persons eligible to sign checks for corporate accounts,
partnerships, trusts, etc. must sign this card.

The payment of funds on the conditions set forth below and on the reverse side
is authorized by the signature(s) appearing on the signature card. Security
Management Company, LLC, the Fund's Transfer Agent, is hereby appointed agent by
the person(s) signing this card and will cause the Fund to redeem a sufficient
number of shares from the account to cover checks presented for payment without
requiring signature guarantees. The Fund and its agents will not be liable for
any loss, expense or cost arising out of check redemptions or checks returned
without payment. SHARES OUTSTANDING IN THE ACCOUNT FOR LESS THAN 15 DAYS WILL
NOT BE LIQUIDATED TO PAY CHECKS PRESENTED UNLESS THE TRANSFER AGENT IS ASSURED
THAT GOOD PAYMENT HAS BEEN COLLECTED THROUGH NORMAL BANKING CHANNELS. The
Transfer Agent has the right not to honor checks that are for less than $100 or
checks in an amount exceeding the value of the account at the time the check is
presented for payment. This privilege is subject to the provisions of the
current prospectus of the Fund as amended from time to time. This agreement may
be modified or terminated at any time by the Fund or the Transfer Agent upon
notification mailed to the shareholder's address of record.

SECURITY CASH FUND SIGNATURE CARD

________________________________________________________________________
Account Number

Authorized Signatures:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________

[_] Check here if two signatures are required on checks.
[_] Check here if only one signature required on checks.

In signing this card each signatory agrees to be subject to the customary rules
and regulations governing checking accounts and to the conditions set forth on
the reverse side. If the Checking Account Privilege is established after the
opening of the account, or if any change is made in the above information, all
signatures will have to be guaranteed.
- --------------------------------------------------------------------------------
RESOLUTION AUTHORIZING INDIVIDUALS TO MANAGE ACCOUNT

CORPORATE RESOLUTION

I, ______________________, duly elected and acting Secretary of
______________________, a corporation organized and existing under the laws of
______________________, certify that the following resolution is a true and
correct copy of the resolution adopted by the Board of Directors at its regular
meeting held on ______________________, which resolution is currently in full
force and effect: RESOLVED, That the below named individual(s) of this
corporation are hereby authorized to give notice, instructions, complete
necessary forms, execute withdrawals, and to transact any other business
necessary on this corporation's account invested in shares of Security Cash
Fund. FURTHER RESOLVED, That this corporation assumes entire responsibility for,
and agrees to indemnify and hold harmless Security Cash Fund and/or its agents
against any and all claims, liabilities, damages, actions, charges and expense
sustained by action of the below named individual(s).

______________________________ __________________________________________
(PRINT OR TYPE) NAME AND TITLE SIGNATURE(S)
______________________________ __________________________________________
- --------------------------------------------------------------------------------

IN WITNESS WHEREOF, I hereunto set my hand and the seal of this corporation this
_____________ day of __________________, 19_____.

(CORPORATE SEAL) SECRETARY____________________________________
- --------------------------------------------------------------------------------
AUTHORIZATION FOR PARTNERSHIP, TRUST, OR RETIREMENT PLAN

We, the undersigned, being the principal partners or the trustees of the
______________________ (Partnership or Trust/Plan) hereby state that we are
authorized to invest the assets of the partnership or trust/plan in Security
Cash Fund. We also agree that ______________________ or ______________________
have individual authority to purchase, sell, assign, and transfer securities and
to sign checks issuable by the partnership or the trust/plan redeeming shares of
the Fund. We further state that this individual authority shall continue to be
honored until revoked by written notice from either of us and is received by the
Transfer Agent (Security Management Company, LLC). By signing this
authorization, we agree that Security Cash Fund, Security Management Company,
LLC, and Security Distributors, Inc., shall be indemnified and held harmless
from any loss, damage, cost or claim that may arise from any authorized or
unauthorized use of the assets or checks of the partnership or trust/plan in
connection with the holdings of the Fund.

______________________________ __________________________________________
(PRINT OR TYPE) NAME AND TITLE SIGNATURE(S)
- --------------------------------------------------------------------------------
SIGNATURE GUARANTEED BY

________________________________________________________________________________
<PAGE>
FOR MORE INFORMATION

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

BY MAIL -- Write to:
Security Management Company, LLC
700 SW Harrison
Topeka, KS 66636-0001

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

SEC: http://www.sec.gov

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

Additional information about the Funds (including the Statement of Additional
Information) can be reviewed and copied at the Securities and Exchange
Commission's Public Reference Room in Washington, DC. Information about the
operation of the public reference room may be obtained by calling the Commission
at 1-800-SEC-0330. Copies may be obtained, upon payment of a duplicating fee, by
writing the Public Reference Section of the Commission, Washington, DC
20549-6009.
- --------------------------------------------------------------------------------

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

STATEMENT OF ADDITIONAL INFORMATION -- The Funds' Statement of Additional
Information and the Funds' annual or semi-annual reports are available, without
charge upon request by calling the Funds' toll-free telephone number
1-800-888-2461, extension 3127. Shareholder inquiries should be addressed to
SMC, LLC, 700 SW Harrison Street, Topeka, Kansas 66636-0001, or by calling the
Funds' toll-free telephone number listed above. The Funds' Statement of
Additional Information is incorporated into this prospectus by reference.

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

Security Income Fund.............. 811-2120
Security Municipal Bond Fund...... 811-3225
Security Cash Fund................ 811-3073

<PAGE>
- --------------------------------------------------------------------------------
SECURITY INCOME FUND

* CORPORATE BOND SERIES

* LIMITED MATURITY BOND SERIES

* U.S. GOVERNMENT SERIES

* HIGH YIELD SERIES

SECURITY MUNICIPAL BOND FUND
(formerly Security Tax-Exempt Fund)

SECURITY CASH FUND
Members of The Security Benefit Group of Companies
700 SW Harrison, Topeka, Kansas 66636-0001
(785) 431-3127
(800) 888-2461

This Statement of Additional Information is not a Prospectus. It should be read
in conjunction with the Prospectus dated April 30, 1999, as it may be
supplemented from time to time. A Prospectus may be obtained by writing or
calling Security Distributors, Inc., 700 SW Harrison, Topeka, Kansas 66636-0001,
or by calling (785) 431-3127 or (800) 888-2461, ext. 3127.

STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 1999
RELATING TO THE PROSPECTUS DATED APRIL 30, 1999,
AS IT MAY BE SUPPLEMENTED FROM TIME TO TIME
- --------------------------------------------------------------------------------

INVESTMENT MANAGER
Security Management Company, LLC
700 SW Harrison Street
Topeka, Kansas 66636-0001

DISTRIBUTOR
Security Distributors, Inc.
700 SW Harrison Street
Topeka, Kansas 66636-0001

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

INDEPENDENT AUDITORS
Ernst & Young LLP
One Kansas City Place
1200 Main Street
Kansas City, Missouri 64105-2143
<PAGE>
TABLE OF CONTENTS

GENERAL INFORMATION.......................................................... 3
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS.............................. 4
Security Income Fund...................................................... 4
Security Municipal Bond Fund.............................................. 9
Security Cash Fund....................................................... 14
INVESTMENT METHODS AND RISK FACTORS......................................... 15
INVESTMENT POLICY LIMITATIONS............................................... 27
Income Fund's Fundamental Policies....................................... 27
Municipal Bond Fund's Fundamental Policies............................... 28
Cash Fund's Fundamental Policies......................................... 29
OFFICERS AND DIRECTORS...................................................... 30
REMUNERATION OF DIRECTORS AND OTHERS........................................ 31

PRINCIPLE HOLDERS OF SECURITIES............................................. 32

HOW TO PURCHASE SHARES...................................................... 32
Corporate Bond, Limited Maturity Bond,U.S. Government,
High Yield and Municipal Bond Funds.................................... 33
Alternative Purchase Options............................................. 33
Class A Shares........................................................... 33
Security Income and Municipal Bond Funds' Class A
Distribution Plans..................................................... 33
Class B Shares........................................................... 34
Class B Distribution Plan................................................ 35
Calculation and Waiver of Contingent Deferred Sales Charges.............. 35
Arrangements With Broker/Dealers and Others.............................. 36
Cash Fund................................................................ 37
PURCHASES AT NET ASSET VALUE................................................ 37
ACCUMULATION PLAN........................................................... 38
SYSTEMATIC WITHDRAWAL PROGRAM............................................... 38
INVESTMENT MANAGEMENT....................................................... 39
Portfolio Management..................................................... 41
Code of Ethics........................................................... 42
DISTRIBUTOR................................................................. 42
ALLOCATION OF PORTFOLIO BROKERAGE........................................... 43
DETERMINATION OF NET ASSET VALUE............................................ 44
HOW TO REDEEM SHARES........................................................ 45
Telephone Redemptions.................................................... 47
HOW TO EXCHANGE SHARES...................................................... 47
Exchange by Telephone.................................................... 48
DIVIDENDS AND TAXES......................................................... 48
ORGANIZATION................................................................ 53
CUSTODIAN, TRANSFER AGENT AND DIVIDEND-PAYING AGENT......................... 53
INDEPENDENT AUDITORS........................................................ 53
PERFORMANCE INFORMATION..................................................... 54
RETIREMENT PLANS............................................................ 55
INDIVIDUAL RETIREMENT ACCOUNTS (IRAS)....................................... 56
ROTH IRAS................................................................... 57
EDUCATION IRAS.............................................................. 57
SIMPLE IRAS................................................................. 57
PENSION AND PROFIT-SHARING PLANS............................................ 57
403(B) RETIREMENT PLANS..................................................... 57
SIMPLIFIED EMPLOYEE PENSION PLANS (SEPPS)................................... 58
FINANCIAL STATEMENTS........................................................ 58
TAX-EXEMPT VS. TAXABLE INCOME............................................... 58
APPENDIX A.................................................................. 59
<PAGE>
GENERAL INFORMATION

Security Income Fund, Security Municipal Bond Fund (formerly Security Tax-Exempt
Fund) and Security Cash Fund, which were organized as Kansas corporations on
April 20, 1965, July 14, 1981 and March 21, 1980, respectively, are registered
with the Securities and Exchange Commission as investment companies. The name of
Security Municipal Bond Fund (formerly Security Tax-Exempt Fund) was changed
effective May 1, 1998. Such registration does not involve supervision by the
Securities and Exchange Commission of the management or policies of the Funds.
The Funds are diversified, open-end management investment companies that, upon
the demand of the investor, must redeem their shares and pay the investor the
current net asset value thereof. ( See "How to Redeem Shares," page 45.)

Each of the Corporate Bond Series ("Corporate Bond Fund"), Limited Maturity Bond
Series ("Limited Maturity Bond Fund"), U.S. Government Series ("U.S. Government
Fund") and High Yield Series ("High Yield Fund") of Security Income Fund,
Security Municipal Bond Fund ("Municipal Bond Fund"), and Security Cash Fund
("Cash Fund") (the "Funds") has its own investment objective and policies which
are described below. While there is no present intention to do so, the
investment objective and policies of each Fund, unless otherwise noted, may be
changed by its Board of Directors without the approval of stockholders. Each of
the Funds is also required to operate within limitations imposed by its
fundamental investment policies which may not be changed without stockholder
approval. These limitations are set forth below under "Investment Policy
Limitations," page 27. An investment in one of the Funds does not constitute a
complete investment program.

The value of the shares of each Fund fluctuates with the value of the portfolio
securities. Each Fund may realize losses or gains when it sells portfolio
securities and will earn income to the extent that it receives dividends or
interest from its investments. (See "Dividends and Taxes," page 48.)

The shares of Corporate Bond, Limited Maturity Bond, U.S. Government, High Yield
and Municipal Bond Funds are sold to the public at net asset value, plus a sales
commission which is divided between the principal distributor and dealers who
sell the shares ("Class A shares"), or at net asset value with a contingent
deferred sales charge ("Class B shares"). The shares of Cash Fund are sold to
the public at net asset value. There is no sales charge or load when purchasing
shares of Cash Fund. (See "How to Purchase Shares," page 32.)

The Funds receive investment advisory, administrative, accounting, and transfer
agency services from Security Management Company, LLC (the "Investment Manager")
for a fee. The Investment Manager has agreed that the aggregate annual expenses
(including the management compensation but excluding brokerage commissions,
interest, taxes, extraordinary expenses and Class B distribution fees) shall not
for Corporate Bond, Limited Maturity Bond, U.S. Government and High Yield Funds
exceed any expense limitation imposed by any state and shall not for Cash Fund
exceed 1% of the average net assets of the Fund for the year. The Investment
Manager has also agreed that the aggregate annual expenses (including the
management compensation but excluding interest, taxes, extraordinary expenses
and Class A and Class B distribution fees) shall not for Municipal Bond Fund
exceed 1% of the average net assets of the Fund for the year. (See page 39 for a
discussion of the Investment Manager and the Investment Advisory Contract.)

Each Fund will pay all of its expenses not assumed by the Investment Manager or
Security Distributors, Inc. (the "Distributor") including organization expenses;
directors' fees; fees of custodian; taxes and governmental fees; interest
charges; any membership dues; brokerage commissions; expenses of preparing and
distributing reports to stockholders; costs of stockholder and other meetings;
and legal, auditing and accounting expenses. Each Fund will also pay for the
preparation and distribution of the prospectus to its stockholders and all
expenses in connection with its registration under the Investment Company Act of
1940 and the registration of its capital stock under federal and state
securities laws. Each Fund will pay nonrecurring expenses as may arise,
including litigation expenses affecting it.

Under Distribution Plans adopted with respect to the Class A shares of Corporate
Bond, Limited Maturity Bond, U.S. Government, High Yield and Municipal Bond
Funds pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "1940
Act"), these Funds are authorized to pay to the Distributor, an annual fee of
.25% of the average daily net assets of the Class A shares of the Corporate
Bond, Limited Maturity Bond, U.S. Government, High Yield and Municipal Bond
Funds to finance various distribution-related activities. (See "Security Income
and Municipal Bond Funds' Class A Distribution Plans," page 33.)

Under Distribution Plans adopted with respect to the Class B shares of Corporate
Bond, Limited Maturity Bond, U.S. Government, High Yield and Municipal Bond
Funds pursuant to Rule 12b-1 under the 1940 Act, each Fund is authorized to pay
to the Distributor, an annual fee of 1.00% of the average daily net assets of
the Class B Shares of the respective Funds to finance various
distribution-related activities. (See "Class B Distribution Plan," page 35.)

INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS

SECURITY INCOME FUND -- Security Income Fund ("Income Fund") offers its shares
in multiple Series, each of which represents a different investment objective
and which has its own identified assets and net asset values. The investment
objectives of the Corporate Bond, Limited Maturity Bond, U.S. Government and
High Yield Series of Income Fund are each described below. There are risks
inherent in the ownership of any security and there can be no assurance that
such investment objectives will be achieved. Some of the risks are described
below.

Corporate Bond and U.S. Government Funds will purchase solely debt securities
and will not invest in securities which are not publicly traded or marketable.
Limited Maturity Bond can purchase 144A securities, which are not "publicly
traded". Short-term obligations may be purchased in any amount as the Investment
Manager deems appropriate for defensive or liquidity purposes. Each Fund's
portfolio may include a significant amount of debt securities which sell at
discounts from their face amount as a result of current market conditions. For
example, debt securities with fixed-rate coupons are generally sold at a
discount from their face amount during periods of rising interest rates.

Income Fund makes no representation that the stated investment objective of any
Series will be achieved. Although there is no present intention to do so, the
investment objective of any Series of the Fund may be altered by the Board of
Directors without the approval of stockholders of the Series.

CORPORATE BOND FUND -- The investment objective of the Corporate Bond Fund is to
conserve capital while generating interest income. In pursuing its investment
objective, the Fund will invest in a broad range of debt securities, including
(i) securities issued by U.S. and Canadian corporations; (ii) securities issued
or guaranteed by the U.S. Government or any of its agencies or
instrumentalities, including Treasury bills, certificates of indebtedness, notes
and bonds; (iii) securities issued or guaranteed by the Dominion of Canada or
provinces thereof; (iv) securities issued by foreign governments, their agencies
and instrumentalities, and foreign corporations, provided that such securities
are denominated in U.S. dollars; (v) higher yielding, high risk debt securities
(commonly referred to as "junk bonds"); (vi) certificates of deposit issued by a
U.S. branch of a foreign bank ("Yankee CDs"); (vii) investment grade
mortgage-backed securities ("MBSs"); and (viii) zero coupon securities. Under
normal circumstances, at least 65% of the Fund's total assets will be invested
in corporate debt securities which at the time of issuance have a maturity
greater than one year.

Corporate Bond Fund will invest primarily in corporate debt securities rated Baa
or higher by Moody's Investors Service, Inc. ("Moody's") or BBB or higher by
Standard & Poor's Corporation ("S&P") at the time of purchase, or if unrated, of
equivalent quality as determined by the Investment Manager. See Appendix A to
the Prospectus for a description of corporate bond ratings. Included in such
securities may be convertible bonds or bonds with warrants attached which are
rated at least Baa or BBB at the time of purchase, or if unrated, of equivalent
quality as determined by the Investment Manager. A "convertible bond" is a bond,
debenture or preferred share which may be exchanged by the owner for common
stock or another security, usually of the same company, in accordance with the
terms of the issue. A "warrant" confers upon its holder the right to purchase an
amount of securities at a particular time and price. Securities rated Baa by
Moody's or BBB by S&P have speculative characteristics. See "Investment Methods
and Risk Factors" for a discussion of the risks associated with such securities.

Corporate Bond Fund may invest up to 25% of its net assets in higher yielding
debt securities in the lower rating (higher risk) categories of the recognized
rating services (commonly referred to as "junk bonds"). Such securities include
securities rated Ba or lower by Moody's or BB or lower by S&P and are regarded
as predominantly speculative with respect to the ability of the issuer to meet
principal and interest payments. The Fund will not invest in junk bonds which
are rated in default at the time of purchase. See "Investment Methods and Risk
Factors" for a discussion of the risks associated with investing in such
securities.

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

The Fund may invest in Yankee CDs which are certificates of deposit issued by a
U.S. branch of a foreign bank denominated in U.S. dollars and held in the U.S.
Yankee CDs are subject to somewhat different risks than are the obligations of
domestic banks. The Fund also may invest in debt securities issued by foreign
governments, their agencies and instrumentalities and foreign corporations,
provided that such securities are denominated in U.S. dollars. The Fund's
investment in foreign securities, including Canadian securities, will not exceed
25% of the Fund's net assets. See "Investment Methods and Risk Factors" for a
discussion of the risks associated with investing in foreign securities. The
Fund may also invest in zero coupon securities which are debt securities that
pay no cash income but are sold at substantial discounts from their face value.
Certain zero coupon securities also provide for the commencement of regular
interest payments at a deferred date.

The Fund may invest in investment grade mortgage-backed securities (MBSs),
including mortgage pass-through securities and collateralized mortgage
obligations (CMOs). The Fund may invest up to 10% of its net assets in
securities known as "inverse floating obligations," "residual interest bonds,"
or "interest-only" (IO) or "principal-only" (PO) bonds, the market values of
which generally will be more volatile than the market values of most MBSs. The
Fund will hold less than 35% of its net assets in MBSs. For a discussion of MBSs
and the risks associated with such securities, see "Investment Methods and Risk
Factors."

Corporate Bond Fund may purchase securities on a "when issued" or "delayed
delivery" basis in excess of customary settlement periods for the types of
security involved. For a discussion of such securities, see "Investment Methods
and Risk Factors." It is anticipated that securities invested in by this Fund
will be held by the Fund on an average from one and a half to three years and
that the average weighted maturity of the Fund's portfolio will range from 5 to
15 years under normal circumstances.

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

LIMITED MATURITY BOND FUND -- The investment objective of the Limited Maturity
Bond Fund is to seek a high level of income consistent with moderate price
fluctuation by investing primarily in short- and intermediate-term bonds. As
used herein the term "short- and intermediate-term bonds" is used to describe
any debt security with a maturity of 15 years or less. In pursuing its
investment objective, the Fund will invest in a broad range of debt securities,
including (i) securities issued by U.S. and Canadian corporations; (ii)
securities issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities, including Treasury bills, certificates of indebtedness, notes
and bonds; (iii) securities issued or guaranteed by, the Dominion of Canada or
provinces thereof; (iv) securities issued by foreign governments, their
agencies, and instrumentalities, and foreign corporations, provided that such
securities are denominated in U.S. dollars; (v) higher yielding, high risk debt
securities (commonly referred to as "junk bonds"); (vi) certificates of deposit
issued by a U.S. branch of a foreign bank ("Yankee CDs"); (vii) mortgage-backed
securities ("MBSs"); (viii) investment grade asset-backed securities; and (ix)
zero coupon securities. High yield debt securities, Yankee CDs, MBSs and
asset-backed securities are described in further detail under "Investment
Methods and Risk Factors." Under normal circumstances, the Fund will invest at
least 65% of the value of its total assets in short- and intermediate-term
bonds. It is anticipated that the Fund's dollar weighted average maturity will
range from 2 to 10 years. It is not expected to exceed 10 years.

Limited Maturity Bond Fund will invest primarily in debt securities rated Baa or
higher by Moody's or BBB or higher by S&P at the time of purchase, or if
unrated, of equivalent quality as determined by the Investment Manager. Baa
securities are considered to be "medium grade" obligations by Moody's and BBB is
the lowest classification which is still considered an "investment grade" rating
by S&P. Included in such securities may be convertible bonds or bonds with
warrants attached which are rated at least Baa or BBB at the time of purchase,
or if unrated, of equivalent quality as determined by the Investment Manager. A
"convertible bond" is a bond, debenture or preferred share which may be
exchanged, by the owner, for common stock or another security, usually of the
same company, in accordance with the terms of the issue. A "warrant" confers
upon its holder the right to purchase an amount of securities at a particular
time and price. Bonds rated Baa by Moody's or BBB by S&P have speculative
characteristics and may be more susceptible than higher grade bonds to adverse
economic conditions or other adverse circumstances which may result in a
weakened capacity to make principal and interest payments. See Appendix A to the
Prospectus for a description of corporate bond ratings.

The Fund may invest in higher yielding debt securities in the lower rating
(higher risk) categories of the recognized rating services (commonly referred to
as "junk bonds"); however, the Fund will never hold more than 25% of its net
assets in junk bonds. This includes securities rated Ba or lower by Moody's or
BB or lower by S&P and are regarded as predominantly speculative with respect to
the ability of the issuer to meet principal and interest payments. The Fund will
not invest in junk bonds which are in default at the time of purchase. However,
the Investment Manager will not rely principally on the ratings assigned by the
rating services. Because the Fund may invest in lower rated or unrated
securities of comparable quality, the achievement of the Fund's investment
objective may be more dependent on the Investment Manager's own credit analysis
than would be true if investing in higher rated securities.

The Fund may invest in Yankee CDs which are Certificates of Deposit issued by a
U.S. branch of a foreign bank denominated in U.S. dollars and held in the United
States. Yankee CDs are subject to somewhat different risks than are the
obligations of domestic banks. The Fund may also invest up to 25% of its net
assets in debt securities issued by foreign governments, their agencies and
instrumentalities, and foreign corporations, provided that such securities are
denominated in U.S. dollars. The Fund's investment in foreign securities,
including Canadian securities will not exceed 25% of the Fund's net assets.
Investment in securities of foreign issuers presents certain risks, including
future political and economic developments and the possible imposition of
foreign governmental laws and restrictions, reduced availability of public
information concerning issuers, and the fact that foreign issuers are not
generally subject to uniform accounting, auditing and financial reporting
standards or to other regulatory practices and requirements comparable to those
applicable to domestic issuers.

The Fund may invest in U.S. Government securities. Some U.S. Government
securities, such as Treasury bills and bonds, are supported by the full faith
and credit of the U.S. Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others such as those of
the Student Loan Marketing Association, are supported only by the credit of the
instrumentality. U.S. Government securities include bills, certificates of
indebtedness, notes and bonds issued by the Treasury or by agencies or
instrumentalities of the U.S. Government. The Fund may also invest in zero
coupon securities which are debt securities that pay no cash income but are sold
at substantial discounts from their face value. Certain zero coupon securities
also provide for the commencement of regular interest payments at a deferred
date.

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

The Fund may invest in investment grade mortgage-backed securities (MBSs),
including mortgage pass-through securities and collateralized mortgage
obligations (CMOs). The Fund may invest up to 10% of its net assets in
securities known as "inverse floating obligations," "residual interest bonds,"
or "interest-only" (IO) and "principal-only" (PO) bonds, the market values of
which will generally be more volatile than the market values of most MBSs. The
Fund will hold less than 35% of its net assets in MBSs, including CMOs and
mortgage pass-through securities.

The Fund may also invest in investment grade "asset-backed securities." These
include secured debt instruments backed by automobile loans, credit card loans,
home equity loans, manufactured housing loans and other types of secured loans
providing the source of both principal and interest.

Limited Maturity Bond Fund may purchase securities on a "when issued" or
"delayed delivery" basis in excess of customary settlement periods for the type
of security involved. Securities purchased on a when issued basis are subject to
market fluctuations and no interest or dividends accrue to the Fund prior to the
settlement date. The Fund will establish a segregated account with its custodian
bank in which it will maintain cash or liquid securities equal in value to
commitments for such when issued securities.

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

From time to time, Limited Maturity Bond Fund may invest part or all of its
assets in commercial notes or money market instruments.

U.S. GOVERNMENT FUND -- The investment objective of the U.S. Government Fund is
to provide a high level of interest income with security of principal by
investing primarily in U.S. Government securities. U.S. Government securities
are obligations of, or guaranteed (as to principal and interest) by, the U.S.
Government, its agencies (such as the Federal Housing Administration and
Government National Mortgage Association) or instrumentalities (such as Federal
Home Loan Banks and Federal Land Banks), and instruments fully collateralized
with such obligations such as repurchase agreements. U.S. Government securities
include bills, Certificates of Indebtedness, notes and bonds issued by the
Treasury or by agencies or instrumentalities of the U.S. Government. The Fund
may, for defensive purposes, temporarily invest part or all of its assets in
money market instruments including deposits and bankers acceptances in
depository institutions insured by the FDIC, and short-term U.S. Government and
agency securities.

Some U.S. Government securities, such as treasury bills and bonds, are supported
by the full faith and credit of the U.S. Treasury, others are supported by the
right of the issuer to borrow from the Treasury, others, such as those of the
Federal National Mortgage Association, are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations; still
others such as those of the Student Loan Marketing Association, are supported
only by the credit of the instrumentality. Under normal circumstances, the Fund
will invest at least 80% of the value of its total assets in U.S. Government
securities.

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

From time to time the portfolio of the U.S. Government Fund may consist
primarily of Government National Mortgage Association (GNMA) certificates. GNMA
certificates are mortgage-backed securities representing part ownership of a
pool of mortgage loans. These loans, issued by lenders such as mortgage bankers,
commercial banks and savings and loan associations, are either issued by the
Federal Housing Administration or guaranteed by the Veterans Administration. A
"pool" or group of such mortgages is assembled and, after being approved by
GNMA, is offered to investors through securities dealers. Once approved by GNMA,
the timely payment of interest and principal on each mortgage is guaranteed by
GNMA and backed by the full faith and credit of the U.S. Government. GNMA
certificates differ from bonds in that principal is paid back monthly by the
borrower over the term of the loan rather than returned in a lump sum at
maturity. GNMA certificates are called "pass through" securities because both
interest and principal payments (including prepayments) are passed through to
the holder of the certificate.

The Fund may invest in other mortgage-backed securities (MBSs) as discussed
under "Investment Methods and Risk Factors - Mortgage-Backed Securities and
Collateralized Mortgage Obligations" in the Prospectus. MBSs include certain
securities issued by the United States government or one of its agencies or
instrumentalities, such as GNMAs, or securities issued by private issuers. The
Fund may not invest more than 20% of the value of its total assets in MBSs
issued by private issuers. The Fund may also invest in zero coupon securities
which are debt securities that pay no cash income but are sold at substantial
discounts from their face value. Certain zero coupon securities also provide for
the commencement of regular interest payments at a deferred date.

The Fund will attempt to maximize the return on its portfolio by taking
advantage of market developments and yield disparities, which may include use of
the following strategies:

1. Shortening the average maturity of its portfolio in anticipation of a rise
in interest rates so as to minimize depreciation of principal;

2. Lengthening the average maturity of its portfolio in anticipation of a
decline in interest rates so as to maximize appreciation of principal;

3. Selling one type of U.S. Government obligation and buying another when
disparities arise in the relative values of each; and

4. Changing from one U.S. Government obligation to an essentially similar U.S.
Government obligation when their respective yields are distorted due to
market factors.

These strategies may result in increases or decreases in the Fund's current
income available for distribution to Fund shareholders, and the Fund may hold
obligations which sell at moderate to substantial premiums or discounts from
face value. Moreover, if the Fund's expectations of changes in interest rates or
its evaluation of the normal yield relationship between two obligations proves
to be incorrect, the Fund's income, net asset value per share and potential
capital gain may be decreased or its potential capital loss may be increased. It
is anticipated that securities invested in by this Fund will be held by the Fund
on an average from three to five years.

While there is minimal credit risk involved in the purchase of U.S. Government
securities, as with any fixed income security the market value is generally
affected by changes in the level of interest rates. An increase in interest
rates will tend to reduce the market value of fixed income investments, and a
decline in interest rates will tend to increase their value. In addition, while
debt securities with longer maturities normally produce higher yields, they are
subject to potentially greater capital changes in market value than obligations
with shorter maturities.

The potential for appreciation in GNMAs and other MBSs, which might otherwise be
expected to occur as a result of a decline in interest rates, may be limited or
negated by increased principal prepayments of the underlying mortgages.
Prepayments of MBSs occur with increasing frequency when mortgage rates decline
because, among other reasons, mortgagors may be able to refinance their
outstanding mortgages at lower interest rates or prepay their existing
mortgages. Such prepayments would then be reinvested by the Fund at the lower
current interest rates.

While mortgages underlying GNMA certificates have a stated maturity of up to 30
years, it has been the experience of the mortgage industry that the average life
of comparable mortgages, owing to prepayments, refinancings and payments from
foreclosures, is considerably less. Yield tables, published in 1981, utilize a
12-year average life assumption for GNMA pools of 26-30 year mortgages, and GNMA
certificates continue to be traded based on this assumption. Recently it has
been observed that mortgage pools issued at high interest rates have experienced
accelerated prepayment rates as interest rates decline, which would result in a
shorter average life than 12 years.

HIGH YIELD FUND -- The investment objective of High Yield Fund is to seek high
current income. Capital appreciation is a secondary objective. Under normal
circumstances, the Fund will seek its investment objective by investing
primarily in a broad range of income producing securities, including (i) higher
yielding, higher risk, debt securities (commonly referred to as "junk bonds");
(ii) preferred stock; (iii) securities issued by foreign governments, their
agencies and instrumentalities, and foreign corporations, provided that such
securities are denominated in U.S. dollars; (iv) mortgage-backed securities
("MBSs"); (v) asset-backed securities; (vi) securities issued or guaranteed by
the U.S. Government or any of its agencies or instrumentalities, including
Treasury bills, certificates of indebtedness, notes and bonds; (vii) securities
issued or guaranteed by, the Dominion of Canada or provinces thereof; and (viii)
zero coupon securities. The Fund may also invest up to 35% of its assets in
common stock (which may include ADRs), warrants and rights. Under normal
circumstances, at least 65% of the Fund's total assets will be invested in
high-yielding, high risk debt securities.

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

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

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

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

The Fund may invest in U.S. Government securities. U.S. Government securities
include bills, certificates of indebtedness, notes and bonds issued by the
Treasury or by agencies or instrumentalities of the U.S. Government. High Yield
Fund may also invest in zero coupon securities which are debt securities that
pay no cash income but are sold at substantial discounts from their face value.
Certain zero coupon securities also provide for the commencement of regular
interest payments at a deferred date.

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

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

High Yield Fund may enter into futures contracts (a type of derivative) (or
options thereon) to hedge all or a portion of its portfolio, as a hedge against
changes in prevailing levels of interest rates or as an efficient means of
adjusting its exposure to the bond market. The Fund will not use futures
contracts for leveraging purposes. The Fund will limit its use of futures
contracts so that initial margin deposits or premiums on such contracts used for
non-hedging purposes will not equal more than 5% of the Fund's net asset value.
The Fund may purchase call and put options and write such options on a "covered"
basis. The Fund may also enter into interest rate and index swaps and purchase
or sell related caps, floors and collars. The aggregate market value of the
Fund's portfolio securities covering call or put options will not exceed 25% of
the Fund's net assets. See "Investment Methods and Risk Factors" for a
discussion of the risks associated with these types of investments.

As an operating policy, the Fund will not purchase securities on margin. The
Fund may, however, obtain such short-term credits as are necessary for the
clearance of purchases and sales of securities. In addition, the Fund may enter
into certain derivative transactions, consistent with its investment program,
which require the deposit of "margin" or a premium to initiate such a
transaction. As an operating policy, the Fund will not loan its assets to any
person or individual, except by the purchase of bonds or other debt obligations
customarily sold to institutional investors. The Fund may, however, lend
portfolio securities as described in the prospectus and this statement of
additional information. In addition, the Fund does not interpret this
restriction as prohibiting investment in loan participations and assignments as
described in the prospectus. As an operating policy, the Fund will not engage in
short sales.

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

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

SECURITY MUNICIPAL BOND FUND -- The investment objective of Municipal Bond Fund
is to obtain as high a level of interest income exempt from regular federal
income taxes as is consistent with preservation of stockholders' capital.
Municipal Bond Fund attempts to achieve its objective by investing primarily in
debt securities, the interest on which is exempt from regular federal income
taxes under the Internal Revenue Code. The Fund may invest in securities which
generate income that is subject to the federal alternative minimum tax. There is
no assurance that Municipal Bond Fund's objective will be achieved.

The tax-exempt securities in which Municipal Bond Fund invests include debt
obligations issued by or on behalf of the states, territories and possessions of
the United States, the District of Columbia, and their political subdivisions,
agencies, authorities and instrumentalities, including multi-state agencies or
authorities. These securities are referred to as "municipal securities" and are
described in more detail below.

Municipal Bond Fund's investments in municipal securities are limited to
securities of "investment grade" quality, that is securities rated within the
four highest rating categories of Moody's (Aaa, Aa, A, Baa), S&P (AAA, AA, A,
BBB) or Fitch (AAA, AA, A, BBB), except that the Fund may purchase unrated
municipal securities (i) where the securities are guaranteed as to principal and
interest by the full faith and credit of the U.S. government or are short-term
municipal securities (those having a maturity of less than one year) of issuers
having outstanding at the time of purchase an issue of municipal bonds having
one of the four highest ratings, or (ii) where, in the opinion of the
Sub-Adviser, Salomon Brothers Asset Management Inc, the unrated municipal
securities are comparable in quality to those within the four highest ratings.
However, Municipal Bond Fund will not purchase an unrated municipal security
(other than a security described in (i) above) if, after such purchase, more
than 20% of the Fund's total assets would be invested in such unrated municipal
securities.

With respect to rated securities, there is no percentage limitation on the
amount of Municipal Bond Fund's assets which may be invested in securities
within any particular rating classification. A description of the ratings is
contained in Appendix B to the Prospectus. Baa securities are considered "medium
grade" obligations by Moody's, and BBB is the lowest classification which is
still considered an "investment grade" rating by S&P and Fitch. Baa securities
are described by Moody's as obligations on which "interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time." According to Moody's, "such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well." According
to Fitch, "adverse changes in economic conditions and circumstances are more
likely to have adverse impact on these bonds, and therefore impair timely
payment." The ratings of Moody's, S&P and Fitch represent their respective
opinions of the quality of the securities they undertake to rate and such
ratings are general and are not absolute standards of quality.

Although Municipal Bond Fund invests primarily in municipal bonds with
maturities greater than one year, it also will invest for various purposes in
short-term (maturity equal to or less than one year) securities which, to the
extent practicable, will be short-term municipal securities. (See "Municipal
Securities," below.) Short-term investments may be made, pending investment of
funds in municipal bonds, in order to maintain liquidity to meet redemption
requests, or to maintain a temporary "defensive" investment position when, in
the opinion of the Investment Manager, it is advisable to do so on account of
current or anticipated market conditions. Except when in a temporary "defensive"
position, investments in short-term municipal securities will represent less
than 20% of the Fund's total assets.

From time to time, on a temporary basis, Municipal Bond Fund may invest in
fixed-income obligations on which the interest is subject to federal income tax.
Except when the Fund is in a temporary "defensive" investment position, it will
not purchase a taxable security if, as a result, more than 20% of its total
assets would be invested in taxable securities. This limitation is a fundamental
policy of Municipal Bond Fund, and may not be changed without a majority vote of
the Fund's outstanding securities. Temporary taxable investments of the Fund may
consist of obligations issued or guaranteed by the U.S. government or its
agencies or instrumentalities, commercial paper rated A-1 by S&P, Prime-1 by
Moody's or F-1 by Fitch, corporate obligations rated AAA or AA by S&P and Fitch
or Aaa or Aa by Moody's, certificates of deposit or bankers' acceptances of
domestic banks or thrifts with at least $2 billion in assets, or repurchase
agreements with such banks or with broker/dealers. Municipal Bond Fund may
invest its assets in bank demand accounts, pending investment in other
securities or to meet potential redemptions or expenses. Repurchase agreements
may be entered into with respect to any securities eligible for investment by
the Fund, including municipal securities. The Fund may also invest in zero
coupon securities which are debt securities that pay no cash income but are sold
at substantial discounts from their face value. Certain zero coupon securities
also provide for the commencement of regular interest payments at a deferred
date.

Municipal Bond Fund may invest in repurchase agreements which are agreements by
which a purchaser (e.g., Municipal Bond Fund) acquires a security and
simultaneously commits to resell that security to the seller (a bank or
broker/dealer) at an agreed upon price on an agreed upon date within a number of
days (usually not more than seven) from the date of purchase. Income earned by
the Fund on repurchase agreements is not exempt from federal income tax even if
the transaction involves municipal securities. Municipal Bond Fund may not enter
into a repurchase agreement having more than seven days remaining to maturity
if, as a result, such agreements, together with any other securities which are
illiquid or not readily marketable, would exceed 10% of the net assets of the
Fund. See the discussion of repurchase agreements under "Investment Methods and
Risk Factors."

Municipal Bond Fund may borrow money from banks as a temporary measure for
emergency purposes or to facilitate redemption requests. Borrowing is discussed
in more detail under "Investment Methods and Risk Factors." Pending investment
in securities or to meet potential redemptions, the Fund may invest in
certificates of deposit, bank demand accounts and high quality money market
instruments.

Municipal Bond Fund may purchase or sell futures contracts on (a) debt
securities that are backed by the full faith and credit of the U.S. Government,
such as long-term U.S. Treasury Bonds and Treasury Notes and (b) municipal bond
indices. Currently at least one exchange trades futures contracts on an index of
long-term municipal bonds, and the Fund reserves to right to conduct futures
transactions based on an index which may be developed in the future to correlate
with price movements in municipal obligations. It is not presently anticipated
that any of these strategies will be used to a significant degree by the Fund.
For further information regarding futures contracts, see "Investment Methods and
Risk Factors".

See Appendix B to the prospectus for a further description of Moody's, S&P and
Fitch ratings relating to municipal securities. As noted earlier, when Municipal
Bond Fund is in a temporary "defensive" position, there is no limit on its
investments in short-term municipal securities and taxable securities.

MUNICIPAL SECURITIES.

MUNICIPAL BONDS. Municipal bonds are debt obligations which generally have a
maturity at the time of issue in excess of one year. They are issued to obtain
funds for various public purposes, including construction of a wide range of
public facilities such as bridges, highways, housing, hospitals, mass
transportation, schools, streets, and water and sewer works. Other public
purposes for which municipal bonds may be issued include the refunding of
outstanding obligations, obtaining funds for general operating expenses and
obtaining funds to loan to other public institutions and facilities. In
addition, certain types of industrial development bonds and other private
activity bonds are issued by or on behalf of public authorities to obtain funds
to provide for privately-operated housing facilities, and certain facilities for
water supply, gas, electricity or sewage or solid waste disposal.

The two principal classifications of municipal bonds are "general obligation"
and "revenue" bonds. General obligation bonds are secured by the issuer's pledge
of its full faith, credit and taxing power for the payment of principal and
interest. Revenue bonds are payable only from the revenues derived from a
particular facility or class of facilities, or, in some cases, from the proceeds
of a special excise or specific revenue source. Revenue securities may include
private activity bonds. Such bonds may be issued by or on behalf of public
authorities to finance various privately operated facilities and are not payable
from the unrestricted revenues of the issuer. As a result, the credit quality of
private activity bonds is frequently related directly to the credit standing of
private corporations or other entities. In addition, the interest on private
activity bonds issued after August 7, 1986 is subject to the federal alternative
minimum tax. The Fund will not be restricted with respect to the proportion of
its assets that may be invested in such obligations. Accordingly, the Fund may
not be a suitable investment vehicle for individuals or corporations that are
subject to the federal alternative minimum tax. Municipal Bond Fund will not
invest more than 5% of its net assets in securities where the principal and
interest are the responsibility of a private corporation or other entity which
has, including predecessors, less than three years' operational history.

There are, depending on numerous factors, variations in the risks involved in
holding municipal securities, both within a particular rating classification and
between classifications. The market values of outstanding municipal bonds will
vary as a result of the rating of the issue and changing evaluations of the
ability of the issuer to meet interest and principal payments. Such market
values will also change in response to changes in the interest rates payable on
new issues of municipal bonds. Should such interest rates rise, the values of
outstanding bonds, including those held in Municipal Bond Fund's portfolio,
would decline; should such interest rates decline, the values of outstanding
bonds would increase.

As a result of litigation or other factors, the power or ability of issuers of
municipal securities to pay principal and/or interest might be adversely
affected. Municipal securities are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Code, and laws, if any, which may be enacted by
Congress or state legislatures extending the time for payment of principal or
interest or both, or imposing other constraints upon enforcement of such
obligations or upon the power of municipalities to levy taxes.

Municipal Bond Fund may invest without percentage limitations in issues of
municipal securities which have similar characteristics, such as the location of
their issuers in the same geographic region or the derivation of interest
payments from revenues on similar projects (for example, electric utility
systems, hospitals, or housing finance agencies). Thus, Municipal Bond Fund may
invest more than 25% of its total assets in securities issued in a single state.
However, it may not invest more than 25% of its total assets in one industry.
(See "Investment Policy Limitations," page 27.) Consequently, the Fund's
portfolio of municipal securities may be more susceptible to the risks of
adverse economic, political, or regulatory developments than would be the case
with a portfolio of securities required to be more diversified as to geographic
region and/or source of revenue.

Interest on certain types of private activity bonds (for example, obligations to
finance certain exempt facilities which may be leased to or used by persons
other than the issuer) will not be exempt from federal income tax when received
by "substantial users" or persons related to "substantial users" as defined in
the Internal Revenue Code. The term "substantial user" generally includes any
"non-exempt person" who regularly uses in trade or business a part of a facility
financed from the proceeds of private activity bonds. Municipal Bond Fund may
invest periodically in private activity bonds and, therefore, may not be an
appropriate investment for entities which are substantial users of facilities
financed by those bonds or "related persons" of substantial users. Generally, an
individual will not be a related person of a substantial user under the Code
unless the person or his immediate family (spouse, brothers, sisters and lineal
descendants) directly or indirectly owns in the aggregate more than 50% in value
of the equity of the substantial user.

From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on future issues of municipal securities. It can be expected that
similar proposals may be introduced in the future. If such a proposal were
enacted, the availability of municipal securities for investment by Municipal
Bond Fund and the value of the Fund's portfolio would be affected. In that
event, the Directors would reevaluate the Fund's investment objective and
policies.

WHEN-ISSUED PURCHASES. From time to time, in the ordinary course of business,
Municipal Bond Fund may purchase municipal securities on a when-issued or
delayed delivery basis--i.e., delivery and payment can take place a month or
more after the date of the transactions. Securities so purchased are subject to
market fluctuation and no interest accrues to the purchaser during this period.
At the time the Fund makes the commitment to purchase a municipal security on a
when-issued or delayed delivery basis, it will record the transaction and
thereafter reflect the value, each day, of the security in determining its net
asset value. Municipal Bond Fund will also establish a segregated account with
its custodian bank in which it will maintain cash or liquid securities equal in
value to commitments for such when-issued or delayed delivery securities.
Municipal Bond Fund does not believe that its net asset value or income will be
adversely affected by its purchase of municipal securities on a when-issued or
delayed delivery basis. Upon the settlement date of the when-issued securities,
the Fund ordinarily will meet its obligation to purchase the securities from
available cash flow, use of the cash (or liquidation of securities) held in the
segregated account or sale of other securities. Although it would not normally
expect to do so, the Fund also may meet its obligation from the sale of the
when-issued securities themselves (which may have a current market value greater
or less than the Fund's payment obligation). Sale of securities to meet such
obligations carries with it a greater potential for the realization of net
capital gains, which are not exempt from federal income tax.

PUTS OR STAND-BY COMMITMENTS. Municipal Bond Fund may purchase, from banks or
broker/dealers, municipal securities together with the right to resell the
securities to the seller at an agreed-upon price or yield within a specified
period prior to the maturity date of the securities. Such a right to resell is
commonly known as a "put" and is also referred to as a "stand-by commitment" on
the part of the seller. The price which the Fund pays for the municipal
securities with puts generally is higher than the price which otherwise would be
paid for the municipal securities alone. Municipal Bond Fund uses puts for
liquidity purposes in order to permit it to remain more fully invested in
municipal securities than would otherwise be the case by providing a ready
market for certain municipal securities in its portfolio at an acceptable price.
The put generally is for a shorter term than the maturity of the municipal
security and does not restrict in any way the Fund's ability to dispose of (or
retain) the municipal security.

In order to ensure that the interest on municipal securities subject to puts is
tax-exempt to the Fund, it will limit its use of puts in accordance with current
interpretations or rulings of the Internal Revenue Service (IRS). The IRS has
issued a ruling (Rev. Rul. 82-144) in which it determined that a regulated
investment company was the owner, for tax purposes, of municipal securities
subject to puts (with the result that interest on those securities would not
lose its tax-exempt status when paid to the company). The IRS position in Rev.
Rul. 82-144 relates to a particular factual situation, in which (i) the price
paid for the puts was in addition to the price of the municipal securities
subject to the puts, (ii) the puts established the price at which the seller
must repurchase the securities, (iii) the puts were nonassignable and terminated
upon disposal of the underlying securities by the Fund, (iv) the puts were for
periods substantially less than the terms of the underlying securities, (v) the
puts did not include call arrangements or restrict the disposal of the
underlying securities by the Fund and gave the seller no rights in the
underlying securities, and (vi) the securities were acquired by the Fund for its
own account and not as security for a loan from the seller.

Because it is difficult to evaluate the likelihood of exercise or the potential
benefit of a put, puts will be determined to have a "value" of zero, regardless
of whether any direct or indirect consideration was paid. Amounts paid by
Municipal Bond Fund for a put will be reflected as unrealized depreciation in
the underlying security for the period during which the commitment is held, and
therefore will reduce any potential gains on the sale of the underlying security
by the cost of the put. There is a risk that the seller of the put may not be
able to repurchase the security upon exercise of the put by the Fund.

SHORT-TERM MUNICIPAL SECURITIES. Although Municipal Bond Fund's portfolio
generally will consist primarily of municipal bonds, for liquidity purposes, and
from time to time for defensive purposes, a portion of its assets may be
invested in short-term municipal securities (i.e., those with less than one year
remaining to maturity).

Short-term municipal securities consist of short-term municipal notes and
short-term municipal loans and obligations, including municipal paper, master
demand notes and variable-rate demand notes. Short-term municipal notes include
tax anticipation notes (notes issued in anticipation of the receipt of tax
funds), bond anticipation notes (notes issued in anticipation of receipt of the
proceeds of bond placements), revenue anticipation notes (notes issued in
anticipation of the receipt of revenues other than taxes or bond placements),
and project notes (obligations of municipal housing agencies on which the
payment of principal and interest ordinarily is backed by the full faith and
credit of the U.S. government). Municipal paper typically consists of the very
short-term unsecured negotiable promissory notes of municipal issuers.

The Fund may invest in tax-exempt master demand notes. A municipal master demand
note is an arrangement under which the Fund participates in a note agreement
between a bank acting on behalf of its clients and a municipal borrower, whereby
amounts maintained by the Fund in an account with the bank are provided to the
municipal borrower and payments of interest and principal on the note are
credited to the Fund's account. Interest rates on master demand notes typically
are tied to market interest rates, and therefore may fluctuate daily. The
amounts borrowed under these notes may be repaid at any time by the borrower
without penalty, and must be repaid upon the demand of Municipal Bond Fund.

Municipal Bond Fund may also invest in variable-rate demand notes. Variable-rate
demand notes are tax-exempt obligations which are payable by the municipal
issuer at par value plus accrued interest on demand by the Fund (generally with
three to ten days' notice). If no demand is made, the note will mature on a
specified date from one to thirty years from its issuance. Payment on the note
may be backed by a stand-by letter of credit. The yield on a variable rate
demand note is adjusted automatically to reflect a particular market rate (which
may not be the same market rate as that applicable to a master demand note).
Variable-rate demand notes typically are callable by the issuer prior to
maturity.

Where short-term municipal securities are rated, the Municipal Bond Fund will
limit its investments to "high quality" short-term securities. For short-term
municipal notes this includes ratings of SP-2 or better by S&P, MIG 2 or better
(or VMIG-2 or better, in the case of variable rate demand notes) by Moody's or
F-2 or better by Fitch; for municipal paper this includes A-2 or better by S&P,
Prime-2 or better by Moody's or F-2 or better by Fitch. Unrated short-term
municipal securities will be included within the Fund's overall limitation on
investments in unrated municipal securities. This limitation provides that not
more than 20% of Municipal Bond Fund's total assets may be invested in unrated
municipal securities, exclusive of unrated securities which are guaranteed as to
principal and interest by the full faith and credit of the U.S. government or
are issued by an issuer having outstanding an issue of municipal bonds within
one of the four highest ratings classifications.

Municipal Bond Fund also may engage to a limited extent in portfolio trading
consistent with its investment objective. Securities may be sold in anticipation
of a market decline (a rise in interest rates) or purchased in anticipation of a
market rise (a decline in interest rates) and later sold. In addition, a
security may be sold and another of comparable quality purchased at
approximately the same time to take advantage of what the Fund believes to be a
temporary disparity in the normal yield relationship between the two securities.
These yield disparities may occur for reasons not directly related to the
investment quality of a particular issue or the general movement of interest
rates, such as changes in the overall demand for, or supply of, various types of
municipal securities.

SECURITY CASH FUND -- The investment objective of Cash Fund is to seek as high a
level of current income as is consistent with preservation of capital and
liquidity. No assurances can be given that Cash Fund will achieve its objective.
The Fund will attempt to achieve its objective by investing at least 95% of its
total assets, measured at the time of investment, in a diversified portfolio of
highest quality money market instruments. Cash Fund may also invest up to 5% of
its total assets, measured at the time of investment, in money market
instruments that are in the second-highest rating category for short-term debt
obligations. Money market instruments in which Cash Fund may invest consist of
the following:

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

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

CORPORATE OBLIGATIONS. Commercial paper issued by corporations and rated Prime-1
or Prime-2 by Moody's, or A-1 or A-2 by S&P, or other corporate debt instruments
rated Aaa or Aa or better by Moody's or AAA or AA or better by S&P, subject to
the limitations on investment in instruments in the second-highest rating
category, discussed below.

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

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

Cash Fund may not invest more than 5% of its total assets, measured at the time
of investment, in the securities of any one issuer that are of the highest
quality or more than the greater of 1% of its total assets or $1,000,000,
measured at the time of investment, in securities of any one issuer that are in
the second-highest rating category, except that these limitations shall not
apply to U.S. Government securities. The Fund may exceed the 5% limitation for
up to three business days after the purchase of the securities of any one issuer
that are of the highest quality, provided that the Fund does not have
outstanding at any time more than one such investment. In the event that an
instrument acquired by Cash Fund is downgraded, the Investment Manager, under
procedures approved by the Board of Directors, shall promptly reassess whether
such security presents minimal credit risk and determine whether or not to
retain the instrument, or Investment Manager may forego the reassessment of
credit risk if the security is disposed of or matures within five business days
of downgrade and the Board is subsequently notified of the Investment Manager's
actions. In the event that an instrument acquired by Cash Fund ceases to be of
the quality that is eligible for the Fund, the Fund shall promptly dispose of
the instrument in an orderly manner unless the Board of Directors determines
that this would not be in the best interests of the Fund.

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

Cash Fund may borrow money from banks as a temporary measure for emergency
purposes or to facilitate redemption requests. Borrowing is discussed in more
detail under "Investment Methods and Risk Factors." Pending investment in
securities or to meet potential redemptions, the Fund may invest in certificates
of deposit, bank demand accounts and high quality money market instruments.

Cash Fund may also invest in guaranteed investment contracts ("GICs") issued by
insurance companies, subject to the Fund's policy that not more than 10% of the
Fund's total assets will be invested in illiquid assets. See the discussion of
GICs under "Investment Methods and Risk Factors."

RULE 144A SECURITIES. Certain of the securities acquired by Cash Fund may be
restricted as to disposition under federal securities laws, provided that such
restricted securities are eligible for resale to qualified institutional
investors pursuant to Rule 144A under the Securities Act of 1933 (the
"Securities Act"). Rule 144A provides a nonexclusive safe harbor exemption from
the registration requirements of the Securities Act for the resale of certain
securities to certain qualified buyers. One of the primary purposes of the Rule
is to create some resale liquidity for certain securities that would otherwise
be treated as illiquid investments. In accordance with Cash Fund's policies, the
Fund is not permitted to invest more than 10% of its total net assets in
illiquid securities. See the discussion of Rule 144A Securities under
"Investment Methods and Risk Factors."

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

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

Cash Fund will invest in money market instruments of varying maturities (but no
longer than 13 months) in an effort to earn as high a level of current income as
is consistent with preservation of capital and liquidity. The Fund intends to
maintain a weighted average maturity in its portfolio of not more than 90 days.
In addition to general market risks, Fund investments in nongovernment
obligations are subject to the ability of the issuer to satisfy its obligations.

Cash Fund also intends to maintain a net asset value per share of $1.00,
although there can be no assurance it will be able to do so. It is the Fund's
policy to declare dividends on a daily basis of an amount equal to the net
income plus or minus any realized capital gains or losses. (See "Dividends and
Taxes," page 48.)

INVESTMENT METHODS AND RISK FACTORS

Some of the risk factors related to certain securities, instruments and
techniques that may be used by one or more of the Funds are described in the
sections of the Prospectus entitled "Funds' Principal Investment Strategies",
"Main Risks" and "Investment Policies and Management Practices." The following
is a description of certain additional risk factors related to various
securities, instruments and techniques. The risks so described only apply to
those Funds which may invest in such securities and instruments or which use
such techniques. Also included is a general description of some of the
investment instruments, techniques and methods which may be used by one or more
of the Funds. The methods described only apply to those Funds which may use such
methods. Although a Fund may employ the techniques, instruments and methods
described below, consistent with its investment objective and policies and any
applicable law, no Fund will be required to do so.

GENERAL RISK FACTORS -- Each Fund's net asset value will fluctuate, reflecting
fluctuations in the market value of its portfolio positions. The value of fixed
income securities held by the Funds generally fluctuates inversely with interest
rate movements. In other words, bond prices generally fall as interest rates
rise and generally rise as interest rates fall. Longer term bonds held by the
Funds are subject to greater interest rate risk. There is no assurance that any
Fund will achieve its investment objective.

REPURCHASE AGREEMENTS, REVERSE REPURCHASE AGREEMENTS AND ROLL TRANSACTIONS --
Each of the Funds may enter into repurchase agreements. Repurchase agreements
are transactions in which the purchaser buys a debt security from a bank or
recognized securities dealer and simultaneously commits to resell that security
to the bank or dealer at an agreed upon price, date and market rate of interest
unrelated to the coupon rate or maturity of the purchased security. Repurchase
agreements are considered to be loans which must be fully collateralized
including interest earned thereon during the entire term of the agreement. If
the institution defaults on the repurchase agreement, the Fund will retain
possession of the underlying securities. If bankruptcy proceedings are commenced
with respect to the seller, realization on the collateral by the Fund may be
delayed or limited and the Fund may incur additional costs. In such case, the
Fund will be subject to risks associated with changes in market value of the
collateral securities. The Fund intends to enter into repurchase agreements only
with banks and broker/dealers believed to present minimal credit risks.
Accordingly, the Funds will enter into repurchase agreements only with (a)
brokers having total capitalization of at least $40 million and a ratio of
aggregate indebtedness to net capital of no more than 4 to 1, or, alternatively,
net capital equal to 6% of aggregate debit balances, or (b) banks having at
least $1 billion in assets and a net worth of at least $100 million as of its
most recent annual report. In addition, the aggregate repurchase price of all
repurchase agreements held by the Fund with any broker shall not exceed 15% of
the total assets of the Fund or $5 million, whichever is greater.

The High Yield Fund may also enter into reverse repurchase agreements with the
same parties with whom it may enter into repurchase agreements. Under a reverse
repurchase agreement, the Fund would sell securities and agree to repurchase
them at a particular price at a future date. Reverse repurchase agreements
involve the risk that the market value of the securities retained in lieu of
sale by a Fund may decline below the price of the securities the Fund has sold
but is obligated to repurchase. In the event the buyer of securities under a
reverse repurchase agreement files for bankruptcy or becomes insolvent, such
buyer or its trustee or receiver may receive an extension of time to determine
whether to enforce the Fund's obligation to repurchase the securities, and the
Fund's use of the proceeds of the reverse repurchase agreement may effectively
be restricted pending such decision.

The High Yield Fund also may enter into "dollar rolls," in which the Fund sells
fixed income securities for delivery in the current month and simultaneously
contracts to repurchase substantially similar (same type, coupon and maturity)
securities on a specified future date. During the roll period, the Fund would
forego principal and interest paid on such securities. The Fund would be
compensated by the difference between the current sales price and the forward
price for the future purchase, as well as by the interest earned on the cash
proceeds of the initial sale.

BORROWING -- Each of the Funds may borrow money from banks as a temporary
measure for emergency purposes, or to facilitate redemption requests.

From time to time, it may be advantageous for the Funds to borrow money rather
than sell existing portfolio positions to meet redemption requests. Accordingly,
the Funds may borrow from banks and High Yield Fund may borrow through reverse
repurchase agreements and "roll" transactions, in connection with meeting
requests for the redemption of Fund shares. High Yield Fund may borrow up to 33
1/3%, Limited Maturity Bond, Municipal Bond and Cash Funds may each borrow up to
10% and Corporate Bond and U.S. Government Funds may each borrow up to 5% of
total Fund assets. To the extent that a Fund purchases securities while it has
outstanding borrowings, it is using leverage, i.e. using borrowed funds for
investment. Leveraging will exaggerate the effect on net asset value of any
increase or decrease in the market value of a Fund's portfolio. Money borrowed
for leveraging will be subject to interest costs that may or may not be
recovered by appreciation of the securities purchased; in certain cases,
interest costs may exceed the return received on the securities purchased. A
Fund also may be required to maintain minimum average balances in connection
with such borrowing or to pay a commitment or other fee to maintain a line of
credit; either of these requirements would increase the cost of borrowing over
the stated interest rate. It is not expected that Cash Fund would purchase
securities while it had borrowings outstanding.

LENDING OF PORTFOLIO SECURITIES -- For the purpose of generating income, certain
of the Funds may make secured loans of Fund securities amounting to not more
than 33 1/3% of its total assets. Securities loans are made to broker/dealers,
institutional investors, or other persons pursuant to agreements requiring that
the loans be continuously secured by collateral at least equal at all times to
the value of the securities loaned marked to market on a daily basis. The
collateral received will consist of cash, U.S. Government securities, letters of
credit or such other collateral as may be permitted under its investment
program. While the securities are being loaned, the Fund will continue to
receive the equivalent of the interest or dividends paid by the issuer on the
securities, as well as interest on the investment of the collateral or a fee
from the borrower. The Fund has a right to call each loan and obtain the
securities on five business days' notice or, in connection with securities
trading on foreign markets, within such longer period of time which coincides
with the normal settlement period for purchases and sales of such securities in
such foreign markets. The Fund will not have the right to vote securities while
they are being loaned, but it will call a loan in anticipation of any important
vote. The risks in lending portfolio securities, as with other extensions of
secured credit, consist of possible delay in receiving additional collateral or
in the recovery of the securities or possible loss of rights in the collateral
should the borrower fail financially. Loans will only be made to persons deemed
by the Investment Manager to be of good standing and will not be made unless, in
the judgment of the Investment Manager, the consideration to be earned from such
loans would justify the risk.

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

RESTRICTED SECURITIES (RULE 144A SECURITIES) -- Certain of the Funds may invest
in restricted securities which are securities that are restricted as to
disposition under the federal securities laws, provided that such securities are
eligible for resale to qualified institutional investors pursuant to Rule 144A
under the Securities Act of 1933. Rule 144A permits the resale to "qualified
institutional buyers" of "restricted securities" that, when issued, were not of
the same class as securities listed on a U.S. securities exchange or quoted in
the National Association of Securities Dealers Automated Quotation System (the
"Rule 144A Securities"). A "qualified institutional buyer" is defined by Rule
144A generally as an institution, acting for its own account or for the accounts
of other qualified institutional buyers, that in the aggregate owns and invests
on a discretionary basis at least $100 million in securities of issuers not
affiliated with the institution. A dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act"), acting for its own account or the
accounts of other qualified institutional buyers, that in the aggregate owns and
invests on a discretionary basis at least $10 million in securities of issuers
not affiliated with the dealer may also qualify as a qualified institutional
buyer, as well as an Exchange Act registered dealer acting in a riskless
principal transaction on behalf of a qualified institutional buyer.

The Funds' Board of Directors is responsible for developing and establishing
guidelines and procedures for determining the liquidity of Rule 144A Securities.
As permitted by Rule 144A, the Board of Directors has delegated this
responsibility to the Investment Manager. In making the determination regarding
the liquidity of Rule 144A Securities, the Investment Manager will consider
trading markets for the specific security taking into account the unregistered
nature of a Rule 144A security. In addition, the Investment Manager may
consider: (1) the frequency of trades and quotes; (2) the number of dealers and
potential purchasers; (3) dealer undertakings to make a market; and (4) the
nature of the security and of the market place trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
transfer). Investing in Rule 144A Securities could have the effect of increasing
the amount of a Fund's assets invested in illiquid securities to the extent that
qualified institutional buyers become uninterested, for a time, in purchasing
these securities.

The High Yield Fund also may purchase restricted securities that are not
eligible for resale pursuant to Rule 144A. The Fund may acquire such securities
through private placement transactions, directly from the issuer or from
security holders, generally at higher yields or on terms more favorable to
investors than comparable publicly traded securities. However, the restrictions
on resale of such securities may make it difficult for the Fund to dispose of
such securities at the time considered most advantageous, and/or may involve
expenses that would not be incurred in the sale of securities that were freely
marketable. Risks associated with restricted securities include the potential
obligation to pay all or part of the registration expenses in order to sell
certain restricted securities. A considerable period of time may elapse between
the time of the decision to sell a security and the time the Fund may be
permitted to sell it under an effective registration statement. If, during a
period, adverse conditions were to develop, the Fund might obtain a less
favorable price than prevailing when it decided to sell.

RISKS ASSOCIATED WITH LOWER-RATED DEBT SECURITIES (JUNK BONDS) -- Certain of the
Funds may invest in higher yielding debt securities in the lower rating (higher
risk) categories of the recognized rating services (commonly referred to as
"junk bonds"). Debt rated BB, B, CCC, CC and C by S&P and rated Ba, B, Caa, Ca
and C by Moody's, is regarded, on balance, as predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. For S&P, BB indicates the lowest
degree of speculation and C the highest degree of speculation. For Moody's, Ba
indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions. Similarly, debt rated Ba or BB and below is
regarded by the relevant rating agency as speculative. Debt rated C by Moody's
or S&P is the lowest quality debt that is not in default as to principal or
interest and such issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing. Such securities are
also generally considered to be subject to greater risk than higher quality
securities with regard to a deterioration of general economic conditions.
Ratings of debt securities represent the rating agency's opinion regarding their
quality and are not a guarantee of quality. Rating agencies attempt to evaluate
the safety of principal and interest payments and do not evaluate the risks of
fluctuations in market value. Also, rating agencies may fail to make timely
changes in credit quality in response to subsequent events, so that an issuer's
current financial condition may be better or worse than a rating indicates.

The market value of lower quality debt securities tend to reflect individual
developments of the issuer to a greater extent than do higher quality
securities, which react primarily to fluctuations in the general level of
interest rates. In addition, lower quality debt securities tend to be more
sensitive to economic conditions and generally have more volatile prices than
higher quality securities. Issuers of lower quality securities are often highly
leveraged and may not have available to them more traditional methods of
financing. For example, during an economic downturn or a sustained period of
rising interest rates, highly leveraged issuers of lower quality securities may
experience financial stress. During such periods, such issuers may not have
sufficient revenues to meet their interest payment obligations. The issuer's
ability to service its debt obligations may also be adversely affected by
specific developments affecting the issuer, such as the issuer's inability to
meet specific projected business forecasts or the unavailability of additional
financing. Similarly, certain emerging market governments that issue lower
quality debt securities are among the largest debtors to commercial banks,
foreign governments and supranational organizations such as the World Bank and
may not be able or willing to make principal and/or interest repayments as they
come due. The risk of loss due to default by the issuer is significantly greater
for the holders of lower quality securities because such securities are
generally unsecured and are often subordinated to other creditors of the issuer.

Lower quality debt securities of corporate issuers frequently have call or
buy-back features which would permit an issuer to call or repurchase the
security from the Fund. If an issuer exercises these provisions in a declining
interest rate market, the Fund may have to replace the security with a lower
yielding security, resulting in a decreased return for investors. In addition,
the Fund may have difficulty disposing of lower quality securities because there
may be a thin trading market for such securities. There may be no established
retail secondary market for many of these securities, and the Fund anticipates
that such securities could be sold only to a limited number of dealers or
institutional investors. The lack of a liquid secondary market also may have an
adverse impact on market prices of such instruments and may make it more
difficult for the Fund to obtain accurate market quotations for purposes of
valuing the securities in the portfolio of the Fund.

Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may also decrease the values and liquidity of lower quality
securities, especially in a thinly traded market. The High Yield Fund may
acquire lower quality debt securities during an initial underwriting or may
acquire lower quality debt securities which are sold without registration under
applicable securities laws. Such securities involve special considerations and
risks.

Factors having an adverse effect on the market value of lower rated securities
or their equivalents purchased by a Fund will adversely impact net asset value
of the Fund. In addition to the foregoing, such factors may include: (i)
potential adverse publicity; (ii) heightened sensitivity to general economic or
political conditions; and (iii) the likely adverse impact of a major economic
recession. The Fund also may incur additional expenses to the extent it is
required to seek recovery upon a default in the payment of principal or interest
on its portfolio holdings, and the Fund may have limited legal recourse in the
event of a default. Debt securities issued by governments in emerging markets
can differ from debt obligations issued by private entities in that remedies
from defaults generally must be pursued in the courts of the defaulting
government, and legal recourse is therefore somewhat diminished. Political
conditions, in terms of a government's willingness to meet the terms of its debt
obligations, also are of considerable significance. There can be no assurance
that the holders of commercial bank debt would not contest payments to the
holders of debt securities issued by governments in emerging markets in the
event of default by the governments under commercial bank loan agreements.

The Investment Manager will attempt to minimize the speculative risks associated
with investments in lower quality securities through credit analyses and by
carefully monitoring current trends in interest rates, political developments
and other factors. Nonetheless, investors should carefully review the investment
objectives and policies of the Funds and consider their ability to assume the
investment risks involved before making an investment in the Funds.

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

MORTGAGE-BACKED SECURITIES AND COLLATERALIZED MORTGAGE OBLIGATIONS -- Certain of
the Funds may invest in mortgage-backed securities (MBSs), including mortgage
pass-through securities and collateralized mortgage obligations (CMOs). MBSs
include certain securities issued or guaranteed by the United States Government
or one of its agencies or instrumentalities, such as the Government National
Mortgage Association (GNMA), Federal National Mortgage Association (FNMA), or
Federal Home Loan Mortgage Corporation (FHLMC); securities issued by private
issuers that represent an interest in or are collateralized by mortgage-backed
securities issued or guaranteed by the U.S. Government or one of its agencies or
instrumentalities; and securities issued by private issuers that represent an
interest in or are collateralized by mortgage loans. A mortgage pass-through
security is a pro rata interest in a pool of mortgages where the cash flow
generated from the mortgage collateral is passed through to the security holder.
CMOs are obligations fully collateralized by a portfolio of mortgages or
mortgage-related securities. Certain of the Funds may invest in securities known
as "inverse floating obligations," "residual interest bonds," or "interest-only"
(IO) and "principal-only" (PO) bonds, the market values of which will generally
be more volatile than the market values of most MBSs. An inverse floating
obligation is a derivative adjustable rate security with interest rates that
adjust or vary inversely to changes in market interest rates. The term "residual
interest" bond is used generally to describe those instruments in collateral
pools, such as CMOs, which receive any excess cash flow generated by the pool
once all other bondholders and expenses have been paid. IOs and POs are created
by separating the interest and principal payments generated by a pool of
mortgage-backed bonds to create two classes of securities. Generally, one class
receives interest only payments (IOs) and the other class principal only
payments (POs). MBSs have been referred to as "derivatives" because the
performance of MBSs is dependent upon and derived from underlying securities.

CMOs may be issued in a variety of classes and the Funds may invest in several
CMO classes, including, but not limited to Floaters, Planned Amortization
Classes (PACs), Scheduled Classes (SCHs), Sequential Pay Classes (SEQs), Support
Classes (SUPs), Target Amortization Classes (TACs) and Accrual Classes (Z
Classes). CMO classes vary in the rate and time at which they receive principal
and interest payments. SEQs, also called plain vanilla, clean pay, or current
pay classes, sequentially receive principal payments from underlying mortgage
securities when the principal on a previous class has been completely paid off.
During the months prior to their receipt of principal payments, SEQs receive
interest payments at the coupon rate on their principal. PACs are designed to
produce a stable cash flow of principal payments over a predetermined period of
time. PACs guard against a certain level of prepayment risk by distributing
prepayments to SUPs, also called companion classes. TACs pay a targeted
principal payment schedule, as long as prepayments are not made at a rate slower
than an expected constant prepayment speed. If prepayments increase, the excess
over the target is paid to SUPs. SEQs may have a less stable cash flow than PACs
and TACs and, consequently, have a greater potential yield. PACs generally pay a
lower yield than TACs because of PACs' lower risk. Because SUPs are directly
affected by the rate of prepayment of underlying mortgages, SUPs may experience
volatile cash flow behavior. When prepayment speeds fluctuate, the average life
of a SUP will vary. SUPs, therefore, are priced at a higher yield than less
volatile classes of CMOs. Z Classes do not receive payments, including interest
payments, until certain other classes are paid off. At that time, the Z Class
begins to receive the accumulated interest and principal payments. A Floater has
a coupon rate that adjusts periodically (usually monthly) by adding a spread to
a benchmark index subject to a lifetime maximum cap. The yield of a Floater is
sensitive to prepayment rates and the level of the benchmark index.

Investment in MBSs poses several risks, including prepayment, market and credit
risks. Prepayment risk reflects the chance that borrowers may prepay their
mortgages faster than expected, thereby affecting the investment's average life
and perhaps its yield. Borrowers are most likely to exercise their prepayment
options at a time when it is least advantageous to investors, generally
prepaying mortgages as interest rates fall, and slowing payments as interest
rates rise. Certain classes of CMOs may have priority over others with respect
to the receipt of prepayments on the mortgages and the Fund may invest in CMOs
which are subject to greater risk of prepayment as discussed above. Market risk
reflects the chance that the price of the security may fluctuate over time. The
price of MBSs may be particularly sensitive to prevailing interest rates, the
length of time the security is expected to be outstanding and the liquidity of
the issue. In a period of unstable interest rates, there may be decreased demand
for certain types of MBSs, and a Fund invested in such securities wishing to
sell them may find it difficult to find a buyer, which may in turn decrease the
price at which they may be sold. Credit risk reflects the chance that the Fund
may not receive all or part of its principal because the issuer or credit
enhancer has defaulted on its obligations. Obligations issued by U.S.
Government-related entities are guaranteed by the agency or instrumentality, and
some, such as GNMA certificates, are supported by the full faith and credit of
the U.S. Treasury; others are supported by the right of the issuer to borrow
from the Treasury; others, such as those of the FNMA, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, are supported only by the credit of the
instrumentality. Although securities issued by U.S. Government-related agencies
are guaranteed by the U.S. Government, its agencies or instrumentalities, shares
of the Fund are not so guaranteed in any way. The performance of private label
MBSs, issued by private institutions, is based on the financial health of those
institutions.

ASSET-BACKED SECURITIES -- Certain of the Funds may also invest in "asset-backed
securities." These include secured debt instruments backed by automobile loans,
credit card loans, home equity loans, manufactured housing loans and other types
of secured loans providing the source of both principal and interest.
Asset-backed securities are subject to risks similar to those discussed above
with respect to MBSs.

WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES -- Certain of the Funds may
purchase securities on a "when-issued" basis and may purchase or sell securities
on a "forward commitment" basis in order to hedge against anticipated changes in
interest rates and prices. The price, which is generally expressed in yield
terms, is fixed at the time the commitment is made, but delivery and payment for
the securities take place at a later date. When-issued securities and forward
commitments may be sold prior to the settlement date, but the Funds will enter
into when-issued and forward commitments only with the intention of actually
receiving or delivering the securities, as the case may be. No income accrues on
securities which have been purchased pursuant to a forward commitment or on a
when-issued basis prior to delivery of the securities. If a Fund disposes of the
right to acquire a when-issued security prior to its acquisition or disposes of
its right to deliver or receive against a forward commitment, it may incur a
gain or loss. At the time a Fund enters into a transaction on a when-issued or
forward commitment basis, a segregated account consisting of cash or liquid
securities equal to the value of the when-issued or forward commitment
securities will be established and maintained with its custodian and will be
marked to market daily. There is a risk that the securities may not be delivered
and that the Fund may incur a loss.

OPTIONS AND FUTURES STRATEGIES --

WRITING COVERED CALL OPTIONS. Certain of the Funds may write (sell) covered call
options. Covered call options generally will be written on securities and
currencies which, in the opinion of the Investment Manager are not expected to
make any major price moves in the near future but which, over the long term, are
deemed to be attractive investments.

A call option gives the holder (buyer) the right to purchase a security or
currency at a specified price (the exercise price) at any time until a certain
date (the expiration date). So long as the obligation of the writer of a call
option continues, the writer may be assigned an exercise notice by the
broker/dealer through whom such option was sold, requiring it to deliver the
underlying security or currency against payment of the exercise price. This
obligation terminates upon the expiration of the call option, or such earlier
time at which the writer effects a closing purchase transaction by purchasing an
option identical to that previously sold. The Investment Manager believes that
writing covered call options is less risky than writing uncovered or "naked"
options, which the Funds will not do.

Portfolio securities on which call options may be written will be purchased
solely on the basis of investment considerations consistent with that Fund's
investment objectives. When writing a covered call option, the Fund in return
for the premium gives up the opportunity for profit from a price increase in the
underlying security above the exercise price, and retains the risk of loss
should the price of the security decline. Unlike one who owns securities not
subject to an option, a Fund has no control over when it may be required to sell
the underlying securities, since the option may be exercised at any time prior
to the option's expiration. If a call option which a Fund has written expires,
the Fund will realize a gain in the amount of the premium; however, such gain
may be offset by a decline in the market value of the underlying security during
the option period. If the call option is exercised, a Fund will realize a gain
or loss from the sale of the underlying security.

The premium which a Fund receives for writing a call option is deemed to
constitute the market value of an option. The premium the Fund will receive from
writing a call option will reflect, among other things, the current market price
of the underlying security, the relationship of the exercise price to such
market price, the historical price volatility of the underlying security, and
the length of the option period. In determining whether a particular call option
should be written on a particular security, the Investment Manager will consider
the reasonableness of the anticipated premium and the likelihood that a liquid
secondary market will exist for those options. The premium received by a Fund
for writing covered call options will be recorded as a liability in the Fund's
statement of assets and liabilities. This liability will be adjusted daily to
the option's current market value, which will be the latest sales price at the
time which the net asset value per share of the Fund is computed at the close of
regular trading on the NYSE (currently, 3:00 p.m. Central time, unless weather,
equipment failure or other factors contribute to an earlier closing time), or,
in the absence of such sale, the latest asked price. The liability will be
extinguished upon expiration of the option, the purchase of an identical option
in a closing transaction, or delivery of the underlying security upon the
exercise of the option.

Closing transactions will be effected in order to realize a profit on an
outstanding call option, to prevent an underlying security from being called, or
to permit the sale of the underlying security. Furthermore, effecting a closing
transaction will permit a Fund to write another call option on the underlying
security with either a different exercise price, expiration date or both. If the
Fund desires to sell a particular security from its portfolio on which it has
written a call option, or purchased a put option, it will seek to effect a
closing transaction prior to, or concurrently with, the sale of the security.
There is no assurance that the Fund will be able to effect such closing
transactions at favorable prices. If the Fund cannot enter into such a
transaction, it may be required to hold a security that it might otherwise have
sold, in which case it would continue to be at market risk with respect to the
security.

The Fund will pay transaction costs in connection with the writing of options
and in entering into closing purchase contracts. Transaction costs relating to
options activity normally are higher than those applicable to purchases and
sales of portfolio securities.

Call options written by the Fund normally will have expiration dates of less
than nine months from the date written. The exercise price of the options may be
below, equal to or above the current market values of the underlying securities
at the time the options are written. From time to time, the Fund may purchase an
underlying security for delivery in accordance with the exercise of an option,
rather than delivering such security from its portfolio. In such cases,
additional costs will be incurred.

The Fund will realize a profit or loss from a closing purchase transaction if
the cost of the transaction is less or more, respectively, than the premium
received from the writing of the option. Because increases in the market price
of a call option generally will reflect increases in the market price of the
underlying security, any loss resulting from the repurchase of a call option is
likely to be offset in whole or in part by appreciation of the underlying
security owned by the Fund.

PURCHASING CALL OPTIONS. Certain Funds may purchase call options. As the holder
of a call option, the Fund would have the right to purchase the underlying
security at the exercise price at any time during the option period. The Fund
may enter into closing sale transactions with respect to such options, exercise
them or permit them to expire. Call options may be purchased by the Fund for the
purpose of acquiring the underlying security for its portfolio. Utilized in this
fashion, the purchase of call options would enable the Fund to acquire the
security at the exercise price of the call option plus the premium paid. At
times, the net cost of acquiring the security in this manner may be less than
the cost of acquiring the security directly. This technique also may be useful
to a Fund in purchasing a large block of securities that would be more difficult
to acquire by direct market purchases. So long as it holds such a call option
rather than the underlying security itself, the Fund is partially protected from
any unexpected decline in the market price of the underlying security and in
such event could allow the call option to expire, incurring a loss only to the
extent of the premium paid for the option.

The Fund also may purchase call options on underlying securities it owns in
order to protect unrealized gains on call options previously written by it. A
call option would be purchased for this purpose where tax considerations make it
inadvisable to realize such gains through a closing purchase transaction. Call
options also may be purchased at times to avoid realizing losses that would
result in a reduction of the Fund's current return. For example, the Fund has
written a call option on an underlying security having a current market value
below the price at which such security was purchased by the Fund, an increase in
the market price could result in the exercise of the call option written by the
Fund and the realization of a loss on the underlying security with the same
exercise price and expiration date as the option previously written.

Aggregate premiums paid for put and call options will not exceed 5% of the
Fund's total assets at the time of purchase.

WRITING COVERED PUT OPTIONS. Certain of the Funds may write covered put options.
A put option gives the purchaser of the option the right to sell, and the writer
(seller) the obligation to buy, the underlying security at the exercise price
during the option period. The option may be exercised at any time prior to its
expiration date. The operation of put options in other respects, including their
related risks and rewards, is substantially identical to that of call options.

The Fund would write put options only on a covered basis, which means that the
Fund would either (i) set aside cash or liquid securities in an amount not less
than the exercise price at all times while the put option is outstanding (the
rules of the Options Clearing Corporation currently require that such assets be
deposited in escrow to secure payment of the exercise price), (ii) sell short
the security underlying the put option at the same or higher price than the
exercise price of the put option, or (iii) purchase a put option, if the
exercise price of the purchased put option is the same or higher than the
exercise price of the put option sold by the Fund. The Fund generally would
write covered put options in circumstances where the Investment Manager wishes
to purchase the underlying security for the Fund's portfolio at a price lower
than the current market price of the security. In such event, the Fund would
write a put option at an exercise price which, reduced by the premium received
on the option, reflects the lower price it is willing to pay. Since the Fund
also would receive interest on debt securities maintained to cover the exercise
price of the option, this technique could be used to enhance current return
during periods of market uncertainty. The risk in such a transaction would be
that the market price of the underlying security would decline below the
exercise price less the premiums received.

PURCHASING PUT OPTIONS. Certain of the Funds may purchase put options. As the
holder of a put option, the Fund would have the right to sell the underlying
security at the exercise price at any time during the option period. The Fund
may enter into closing sale transactions with respect to such options, exercise
them or permit them to expire.

The Fund may purchase a put option on an underlying security ("protective put")
owned by the Fund as a hedging technique in order to protect against an
anticipated decline in the value of the security. Such hedge protection is
provided only during the life of the put option when the Fund, as the holder of
the put option, is able to sell the underlying security at the put exercise
price regardless of any decline in the underlying security's market price. For
example, a put option may be purchased in order to protect unrealized
appreciation of a security when the Investment Manager deems it desirable to
continue to hold the security because of tax considerations. The premium paid
for the put option and any transaction costs would reduce any capital gain
otherwise available for distribution when the security eventually is sold.

Certain Funds also may purchase put options at a time when the Fund does not own
the underlying security. By purchasing put options on a security it does not
own, the Fund seeks to benefit from a decline in the market price of the
underlying security. If the put option is not sold when it has remaining value,
and if the market price of the underlying security remains equal to or greater
than the exercise price during the life of the put option, the Fund will lose
its entire investment in the put option. In order for the purchase of a put
option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the premium and
transaction cost, unless the put option is sold in a closing sale transaction.

The premium paid by the Fund when purchasing a put option will be recorded as an
asset in the Fund's statement of assets and liabilities. This asset will be
adjusted daily to the option's current market value, which will be the latest
sale price at the time at which the net asset value per share of the Fund is
computed (at the close of regular trading on the NYSE), or, in the absence of
such sale, the latest bid price. The asset will be extinguished upon expiration
of the option, the writing of an identical option in a closing transaction, or
the delivery of the underlying security upon the exercise of the option.

INTEREST RATE FUTURES CONTRACTS. Certain Funds may enter into interest rate
futures contracts ("Futures" or "Futures Contracts") as a hedge against changes
in prevailing levels of interest rates. A Fund's hedging may include sales of
Futures as an offset against the effect of expected increases in interest rates,
and purchases of Futures as an offset against the effect of expected declines in
interest rates.

The Funds will not enter into Futures Contracts for speculation and will only
enter into Futures Contracts which are traded on national futures exchanges and
are standardized as to maturity date and underlying financial instrument. The
principal interest rate exchanges in the United States are the Board of Trade of
the City of Chicago and the Chicago Mercantile Exchange. Futures exchanges and
trading are regulated under the Commodity Exchange Act by the Commodity Futures
Trading Commission ("CFTC"). Futures are exchanged in London at the London
International Financial Futures Exchange.

Although techniques other than sales and purchases of Futures Contracts could be
used to reduce a Fund's exposure to interest rate fluctuations, the Fund may be
able to hedge exposure more effectively and at a lower cost through using
Futures Contracts.

The Fund will not enter into a Futures Contract if, as a result thereof, more
than 5% of the Fund's total assets (taken at market value at the time of
entering into the contract) would be committed to "margin" (down payment)
deposits on such Futures Contracts.

A Futures Contract provides for the future sale by one party and purchase by
another party of a specified amount of a specific financial instrument (debt
security) for a specified price at a designated date, time and place. Brokerage
fees are incurred when a Futures Contract is bought or sold, and margin deposits
must be maintained at all times the Futures Contract is outstanding.

Although Futures Contracts typically require future delivery of and payment for
financial instruments, Futures Contracts usually are closed out before the
delivery date. Closing out an open Futures Contract sale or purchase is effected
by entering into an offsetting Futures Contract purchase or sale, respectively,
for the same aggregate amount of the identical financial instrument and the same
delivery date. If the offsetting purchase price is less than the original sale
price, the Fund realizes a gain; if it is more, the Fund realizes a loss.
Conversely, if the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less, the Fund realizes a loss. The
transaction costs also must be included in these calculations. There can be no
assurance, however, that the Fund will be able to enter into an offsetting
transaction with respect to a particular Futures Contract at a particular time.
If the Fund is not able to enter into an offsetting transaction, the Fund will
continue to be required to maintain the margin deposits on the Futures Contract.

Persons who trade in Futures Contracts may be broadly classified as "hedgers"
and "speculators." Hedgers, such as the Funds, whose business activity involves
investment or other commitment in securities or other obligations, use the
Futures markets primarily to offset unfavorable changes in value that may occur
because of fluctuations in the value of the securities and obligations held or
expected to be acquired by them. Debtors and other obligors also may hedge the
interest cost of their obligations. The speculator, like the hedger, generally
expects neither to deliver nor to receive the financial instrument underlying
the Futures Contract, but, unlike the hedger, hopes to profit from fluctuations
in prevailing interest rates.

The Fund's Futures transactions will be entered into for traditional hedging
purposes; that is, Futures Contracts will be sold to protect against a decline
in the price of securities that the Fund owns, or Futures Contracts will be
purchased to protect the Fund against an increase in the price of securities it
has committed to purchase or expects to purchase.

"Margin" with respect to Futures Contracts is the amount of funds that must be
deposited by the Fund, in a segregated account with the Fund's broker, in order
to initiate Futures trading and to maintain the Fund's open positions in Futures
Contracts. A margin deposit made when the Futures Contract is entered into
("initial margin") is intended to assure the Fund's performance of the Futures
Contract. The margin required for a particular Futures Contract is set by the
exchange on which the Futures Contract is traded, and may be modified
significantly from time to time by the exchange during the term of the Futures
Contract. Futures Contracts customarily are purchased and sold on margins that
may range upward from less than 5% of the value of the Futures Contract being
traded.

If the price of an open Futures Contract changes (by increase in the case of a
sale or by decrease in the case of a purchase) so that the loss on the Futures
Contract reaches a point at which the margin on deposit does not satisfy margin
requirements, the broker will require an increase in the margin deposit ("margin
variation"). If the value of a position increases because of favorable price
changes in the Futures Contract so that the margin deposit exceeds the required
margin, however, the broker will pay the excess to the Fund. In computing daily
net asset values, the Fund will mark to market the current value of its open
Futures Contracts. The Fund expects to earn interest income on its margin
deposits.

MUNICIPAL BOND INDEX FUTURES CONTRACTS. The Municipal Bond Fund may enter into
municipal bond index futures contracts. A municipal bond index futures contract
is an agreement to take or make delivery of an amount of cash equal to the
difference between the value of the index at the beginning and at the end of the
contract period. In a substantial majority of these transactions, the Fund will
purchase such securities upon termination of the futures position but, under
unusual market conditions, a futures position may be terminated without the
corresponding purchase of securities.

RISKS OF USING FUTURES CONTRACTS. The prices of Futures Contracts are volatile
and are influenced, among other things, by actual and anticipated changes in
interest rates, which in turn are affected by fiscal and monetary policies and
national and international political and economic events.

There is a risk of imperfect correlation between changes in prices of Futures
Contracts and prices of the securities in the Fund's portfolio being hedged. The
degree of imperfection of correlation depends upon circumstances such as:
variations in speculative market demand for Futures and for debt securities,
including technical influences in Futures trading; and differences between the
financial instruments being hedged and the instruments underlying the standard
Futures Contracts available for trading, with respect to interest rate levels,
maturities, and creditworthiness of issuers. A decision of whether, when, and
how to hedge involves skill and judgment, and even a well-conceived hedge may be
unsuccessful to some degree because of unexpected market behavior or interest
rate trends.

Because of the low margin deposits required, Futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a Futures Contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the Futures Contract is deposited as margin, a subsequent 10%
decrease in the value of the Futures Contract would result in a total loss of
the margin deposit, before any deduction for the transaction costs, if the
account were then closed out. A 15% decrease would result in a loss of 150% of
the original margin deposit, if the Contract were closed out. Thus, a purchase
or sale of a Futures Contract may result in losses in excess of the amount
invested in the Futures Contract. However, the Fund presumably would have
sustained comparable losses if, instead of the Futures Contract, it had invested
in the underlying financial instrument and sold it after the decline.

Furthermore, in the case of a Futures Contract purchase, in order to be certain
that the Fund has sufficient assets to satisfy its obligations under a Futures
Contract, the Fund sets aside and commits to back the Futures Contract an amount
of cash and liquid securities equal in value to the current value of the
underlying instrument less margin deposit.

In the case of a Futures contract sale, the Fund either will set aside amounts,
as in the case of a Futures Contract purchase, own the security underlying the
contract or hold a call option permitting the Fund to purchase the same Futures
Contract at a price no higher than the contract price. Assets used as cover
cannot be sold while the position in the corresponding Futures Contract is open,
unless they are replaced with similar assets. As a result, the commitment of a
significant portion of the Fund's assets to cover could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.

Most U.S. Futures exchanges limit the amount of fluctuation permitted in Futures
Contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a Futures Contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of Futures Contract, no
trades may be made on that day at a price beyond that limit. The daily limit
governs only price movement during a particular trading day and therefore does
not limit potential losses, because the limit may prevent the liquidation of
unfavorable positions. Futures Contract prices occasionally have moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of Futures positions and subjecting some
Futures traders to substantial losses.

OPTIONS ON FUTURES CONTRACTS. Options on Futures Contracts are similar to
options on securities except that options on Futures Contracts give the
purchaser the right, in return for the premium paid, to assume a position in a
Futures Contract (a long position if the option is a call and a short position
if the option is a put), rather than to purchase or sell the Futures Contract,
at a specified exercise price at any time during the period of the option. Upon
exercise of the option, the delivery of the Futures position by the writer of
the option to the holder of the option will be accompanied by delivery of the
accumulated balance in the writer's Futures margin account which represents the
amount by which the market price of the Futures Contract, at exercise, exceeds
(in the case of a call) or is less than (in the case of a put) the exercise
price of the option on the Futures Contract. If an option is exercised on the
last trading day prior to the expiration date of the option, the settlement will
be made entirely in cash equal to the difference between the exercise price of
the option and the closing level of the securities or index upon which the
Futures Contracts are based on the expiration date. Purchasers of options who
fail to exercise their options prior to the exercise date suffer a loss of the
premium paid.

As an alternative to purchasing call and put options on Futures, the Fund may
purchase call and put options on the underlying securities themselves. Such
options would be used in a manner identical to the use of options on Futures
Contracts.

To reduce or eliminate the leverage then employed by the Fund, or to reduce or
eliminate the hedge position then currently held by the Fund, the Fund may seek
to close out an option position by selling an option covering the same
securities or contract and having the same exercise price and expiration date.
Trading in options on Futures Contracts began relatively recently. The ability
to establish and close out positions on such options will be subject to the
development and maintenance of a liquid secondary market. It is not certain that
this market will develop.

INTEREST RATE SWAPS -- The High Yield Fund may enter into interest rate and
index swaps and the purchase or sale of related caps, floors and collars. The
Fund usually will enter into interest rate swaps on a net basis if the contract
so provides, that is, the two payment streams are netted out in a cash
settlement on the payment date or dates specified in the instrument, with the
Fund receiving or paying, as the case may be, only the net amount of the two
payments. Inasmuch as swaps, caps, floors and collars are entered into for good
faith hedging purposes, the Fund and the Investment Manager, believe that they
do not constitute senior securities under the 1940 Act if appropriately covered
and, thus, will not treat them as being subject to the Fund's borrowing
restrictions. The Fund will not enter into any swap, cap, floor, collar or other
derivative transaction unless, at the time of entering into the transaction, the
unsecured long-term debt rating of the counterparty combined with any credit
enhancements is rated at least A by Moody's or S&P or has an equivalent rating
from a nationally recognized statistical rating organization or is determined to
be of equivalent credit quality by the Investment Manager. If a counterparty
defaults, the Fund may have contractual remedies pursuant to the agreements
related to the transactions. The swap market has grown substantially in recent
years, with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a result,
the swap market has become relatively liquid. Caps, floors and collars are more
recent innovations for which standardized documentation has not yet been fully
developed and, for that reason, they are less liquid than swaps.

EMERGING COUNTRIES -- Certain of the Funds may invest in debt securities in
emerging markets. Investing in securities in emerging countries may entail
greater risks than investing in debt securities in developed countries. These
risks include (i) less social, political and economic stability; (ii) the small
current size of the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of liquidity and in
greater price volatility; (iii) certain national policies which may restrict the
Fund's investment opportunities, including restrictions on investment in issuers
or industries deemed sensitive to national interests; (iv) foreign taxation; and
(v) the absence of developed structures governing private or foreign investment
or allowing for judicial redress for injury to private property.

FOREIGN INVESTMENT RESTRICTIONS -- Certain countries prohibit or impose
substantial restrictions on investments in their capital markets, particularly
their equity markets, by foreign entities such as the Funds. As illustrations,
certain countries require governmental approval prior to investments by foreign
persons, or limit the amount of investment by foreign persons in a particular
company, or limit the investments by foreign persons to only a specific class of
securities of a company that may have less advantageous terms than securities of
the company available for purchase by nationals. Moreover, the national policies
of certain countries may restrict investment opportunities in issuers or
industries deemed sensitive to national interests. In addition, some countries
require governmental approval for the repatriation of investment income, capital
or the proceeds of securities sales by foreign investors. A Fund could be
adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation, as well as by the application to it of
other restrictions on investments.

POLITICAL AND ECONOMIC RISKS -- Investing in securities of non-U.S. companies
may entail additional risks due to the potential political and economic
instability of certain countries and the risks of expropriation,
nationalization, confiscation or the imposition of restrictions on foreign
investment and on repatriation of capital invested. In the event of such
expropriation, nationalization or other confiscation by any country, a Fund
could lose its entire investment in any such country.

An investment in a Fund which invests in non-U.S. companies is subject to the
political and economic risks associated with investments in foreign markets.
Even though opportunities for investment may exist in emerging markets, any
change in the leadership or policies of the governments of those countries or in
the leadership or policies of any other government which exercises a significant
influence over those countries, may halt the expansion of or reverse the
liberalization of foreign investment policies now occurring and thereby
eliminate any investment opportunities which may currently exist.

Investors should note that upon the accession to power of authoritarian regimes,
the governments of a number of emerging market countries previously expropriated
large quantities of real and personal property similar to the property which
will be represented by the securities purchased by a Fund. The claims of
property owners against those governments were never finally settled. There can
be no assurance that any property represented by securities purchased by a Fund
will not also be expropriated, nationalized, or otherwise confiscated. If such
confiscation were to occur, the Fund could lose a substantial portion of its
investments in such countries. The Fund's investments would similarly be
adversely affected by exchange control regulation in any of those countries.

RELIGIOUS AND ETHNIC INSTABILITY -- Certain countries in which a Fund may invest
may have vocal minorities that advocate radical religious or revolutionary
philosophies or support ethnic independence. Any disturbance on the part of such
individuals could carry the potential for wide-spread destruction or
confiscation of property owned by individuals and entities foreign to such
country and could cause the loss of the Fund's investment in those countries.

NON-UNIFORM CORPORATE DISCLOSURE STANDARDS AND GOVERNMENTAL REGULATION --
Foreign companies are subject to accounting, auditing and financial standards
and requirements that differ, in some cases significantly, from those applicable
to U.S. companies. In particular, the assets, liabilities and profits appearing
on the financial statements of such a company may not reflect its financial
position or results of operations in the way they would be reflected had such
financial statements been prepared in accordance with U.S. generally accepted
accounting principles. Most of the foreign securities held by a Fund will not be
registered with the SEC or regulators of any foreign country, nor will the
issuers thereof be subject to the SEC's reporting requirements. Thus, there will
be less available information concerning foreign issuers of securities held by
the Fund than is available concerning U.S. issuers. In instances where the
financial statements of an issuer are not deemed to reflect accurately the
financial situation of the issuer, the Investment Manager will take appropriate
steps to evaluate the proposed investment, which may include on-site inspection
of the issuer, interviews with its management and consultations with
accountants, bankers and other specialists. There is substantially less publicly
available information about foreign companies than there are reports and ratings
published about U.S. companies and the U.S. Government. In addition, where
public information is available, it may be less reliable than such information
regarding U.S. issuers.

ADVERSE MARKET CHARACTERISTICS -- Securities of many foreign issuers may be less
liquid and their prices more volatile than securities of comparable U.S.
issuers. In addition, foreign securities exchanges and brokers generally are
subject to less governmental supervision and regulation than in the U.S., and
foreign securities exchange transactions usually are subject to fixed
commissions, which generally are higher than negotiated commissions on U.S.
transactions. In addition, foreign securities exchange transactions may be
subject to difficulties associated with the settlement of such transactions.
Delays in settlement could result in temporary periods when assets of the Fund
are uninvested and no return is earned thereon. The inability of the Fund to
make intended security purchases due to settlement problems could cause it to
miss attractive opportunities. Inability to dispose of a portfolio security due
to settlement problems either could result in losses to the Fund due to
subsequent declines in value of the portfolio security or, if the Fund has
entered into a contract to sell the security, could result in possible liability
to the purchaser. The Investment Manager will consider such difficulties when
determining the allocation of the Fund's assets.

NON-U.S. WITHHOLDING TAXES -- A Fund's investment income and gains from foreign
issuers may be subject to non-U.S. withholding and other taxes, thereby reducing
the Fund's investment income and gains.

COSTS -- Investors should understand that the expense ratio of the Funds that
invest in foreign securities can be expected to be higher than investment
companies investing in domestic securities since the cost of maintaining the
custody of foreign securities and the rate of advisory fees paid by the Funds
are higher.

EASTERN EUROPE -- Changes occurring in Eastern Europe and Russia today could
have long-term potential consequences. As restrictions fall, this could result
in rising standards of living, lower manufacturing costs, growing consumer
spending, and substantial economic growth. However, investment in the countries
of Eastern Europe and Russia is highly speculative at this time. Political and
economic reforms are too recent to establish a definite trend away from
centrally-planned economies and state owned industries. In many of the countries
of Eastern Europe and Russia, there is no stock exchange or formal market for
securities. Such countries may also have government exchange controls,
currencies with no recognizable market value relative to the established
currencies of western market economies, little or no experience in trading in
securities, no financial reporting standards, a lack of a banking and securities
infrastructure to handle such trading, and a legal tradition which does not
recognize rights in private property. In addition, these countries may have
national policies which restrict investments in companies deemed sensitive to
the country's national interest.

AMERICAN DEPOSITARY RECEIPTS (ADRS) -- The High Yield Fund may invest in ADRs.
ADRs are dollar-denominated receipts issued generally by U.S. banks and which
represent the deposit with the bank of a foreign company's securities. ADRs are
publicly traded on exchanges or over-the-counter in the United States. Investors
should consider carefully the substantial risks involved in investing in
securities issued by companies of foreign nations, which are in addition to the
usual risks inherent in domestic investments. See "Foreign Investment
Restrictions," above.

INVESTMENT POLICY LIMITATIONS

Each of the Funds operate within certain fundamental investment policy
limitations. These limitations may not be changed for the Funds without approval
of the lesser of (i) 67% or more of the voting securities present at a meeting
if the holders of more than 50% of the outstanding voting securities of that
Fund are present or represented by proxy, or (ii) more than 50% of the
outstanding voting securities of that Fund.

INCOME FUND'S FUNDAMENTAL POLICIES -- The fundamental investment policies of the
Income Fund, which are applicable to each of the Corporate Bond, Limited
Maturity Bond, U.S. Government and High Yield Funds are:

1. Not to invest in companies having a record of less than three years'
continuous operation, which may include the operations of predecessor
companies; provided, however, that this investment policy does not apply
to the High Yield Fund.

2. Not to invest in the securities of an issuer if the officers and directors
of the Fund, Underwriter or Manager own more than 1/2 of 1% of such
securities or if all such persons together own more than 5% of such
securities.

3. Not to invest more than 5% of its assets in the securities of any one
issuer (other than securities of the U.S. Government, its agencies or
instrumentalities); provided, however, that for the High Yield Fund, this
limitation applies only with respect to 75% of the value of its total
assets.

4. Not to purchase more than 10% of the outstanding voting securities (or of
any class of outstanding securities) of any one issuer (other than
securities of the U.S. Government, its agencies or instrumentalities).

5. Not to invest in companies for the purpose of exercising control of
management.

6. Not to act as underwriter of securities of other issuers.

7. Not to invest in an amount equal to, or in excess of, 25% of its total
assets in any particular industry (other than securities of the U.S.
Government, its agencies or instrumentalities).

8. Not to purchase or sell real estate. (This policy shall not prevent the
Fund from investing in securities or other instruments backed by real
estate or in securities of companies engaged in the real estate business.)

9. Not to buy or sell commodities or commodity contracts; provided, however,
that the Funds may, to the extent appropriate under their investment
programs, purchase securities of companies engaged in such activities, may
enter into transactions in financial futures contracts and related options
for hedging purposes, may engage in transactions on a when-issued or
forward commitment basis and may enter into forward currency contracts.

10. Not to make loans to other persons other than for the purchase of publicly
distributed debt securities and U.S. Government obligations or by entry
into repurchase agreements; provided, however, that this investment
limitation does not apply to the High Yield Fund.

11. Not to invest its assets in puts, calls, straddles, spreads, or any
combination thereof; provided, however, that this investment policy does
not apply to High Yield Fund.

12. Not to invest in limited partnerships or similar interests in oil, gas,
mineral lease, mineral exploration or development programs; provided,
however, that the Fund may invest in the securities of other corporations
whose activities include such exploration and development.

13. With respect to each of the Corporate Bond and U.S. Government Funds, not
to borrow money except for emergency purposes, and then not in excess of
5% of its total assets at the time the loan is made. (Any such borrowings
will be made on a temporary basis from banks and will not be made for
investment purposes.)

With respect to the Limited Maturity Bond Fund, not to borrow money in
excess of 10% of its total assets at the time the loan is made, and then
only as a temporary measure for emergency purposes, to facilitate
redemption requests, or for other purposes consistent with the Fund's
investment objectives and policies.

With respect to High Yield Fund, not to borrow money, except that (a) the
Fund may enter into certain futures contracts and options related thereto;
(b) the Fund may enter into commitments to purchase securities in
accordance with the Fund's investment program, including delayed delivery
and when-issued securities and reverse repurchase agreements, and (c) for
temporary emergency purposes, High Yield Fund may borrow in amounts not
exceeding 33 1/3% of the value of its total assets at the time when the
loan is made.

14. Not to purchase securities of any other investment company; provided,
however that Limited Maturity Bond Fund and the High Yield Fund may
purchase securities of any investment company if in compliance with the
Investment Company Act of 1940.

15. With respect to each of the Corporate Bond and U.S. Government Funds, not
to issue senior securities; provided, however, that Limited Maturity Bond
Fund and the High Yield Fund may issue senior securities if in compliance
with the Investment Company Act of 1940.

16. With respect to Corporate Bond and U.S. Government Funds, not to invest in
restricted securities (restricted securities are securities for which an
active and substantial market does not exist at the time of purchase or
upon subsequent valuation, or for which there are legal or contractual
restrictions as to disposition); provided, however that Limited Maturity
Bond Fund may invest in restricted securities if those securities are
eligible for resale to qualified institutional investors pursuant to Rule
144A under the Securities Act of 1933; and High Yield Fund may not invest
more than 15% of its total assets in illiquid securities.

The above limitations, other than those relating to borrowing, are applicable at
the time of investment, and later increases or decreases in percentages
resulting from changes in value of net assets will not result in violation of
such limitations. The Fund interprets Fundamental Policy (8) to prohibit the
purchase of real estate limited partnerships.

MUNICIPAL BOND FUND'S FUNDAMENTAL POLICIES -- Municipal Bond Fund's fundamental
investment policies are:

1. Not to invest less than 80% of its assets in securities which are exempt
from regular federal income tax but which may be subject to alternative
minimum tax, except for temporary defensive purposes;

2. Not to borrow money, except that borrowings from banks for temporary or
emergency purposes may be made in an amount up to 10% of the Fund's total
assets at the time the loan is made;

3. Not to issue senior securities as defined in the Investment Company Act of
1940 except insofar as the Fund may be deemed to have issued senior
securities by reason of borrowing money for temporary or emergency
purposes or purchasing securities on a when-issued or delayed delivery
basis;

4. Not to purchase any securities on margin (except for such short-term
credits as are necessary for the clearance of purchases and sales of
portfolio securities) or sell any securities short;

5. Not to make loans, except that this does not prohibit the purchase of a
portion of an issue of publicly distributed bonds, debentures, notes or
other debt securities, or entry into a repurchase agreement;

6. Not to engage in the business of underwriting securities issued by other
persons except to the extent that the Fund may technically be deemed to be
an underwriter under the Securities Act of 1933 in purchasing and selling
portfolio securities;

7. Not to invest in real estate, real estate mortgage loans, commodities,
commodity futures contracts or interests in oil, gas or other mineral
exploration or development programs, provided that this limitation shall
not prohibit the purchase of securities issued by companies, including
real estate investment trusts, which invest in real estate or interests
therein nor transactions in financial futures contracts;

8. Not to purchase a security if, as a result, with respect to 75% of the
value of the Fund's total assets, more than 5% of the value of its total
assets would be invested in securities of any one issuer (other than
obligations issued by the U.S. government, its agencies or
instrumentalities);

9. Not to purchase securities of other investment companies, or acquire
voting securities, except in connection with a merger, consolidation,
acquisition or reorganization;

10. Not to invest more than 25% of its total assets in securities the issuers
of which are in the same industry. For purposes of this limitation, the
U.S. government, its agencies or instrumentalities, and state or municipal
governments and their political subdivisions are not considered members of
any industry;

11. Not to pledge, mortgage or hypothecate its assets, except to secure
borrowings permitted by fundamental investment policy number (2) above;

12. Not to write, purchase or sell put or call options or combinations
thereof, except that it may purchase and hold puts or "stand-by
commitments" relating to municipal securities, as described in this
prospectus;

13. Not to invest in securities which are not readily marketable, securities
the disposition of which is restricted under federal securities laws or
repurchase agreements maturing in more than seven days (collectively
"illiquid securities") if, as a result, more than 10% of the Fund's net
assets would be invested in illiquid securities.

For purposes of restrictions (8) and (10) above, each governmental subdivision,
i.e., state, territory, possession of the United States or any political
subdivision of any of the foregoing, including agencies, authorities,
instrumentalities, or similar entities, or of the District of Columbia shall be
considered a separate issuer if its assets and revenues are separate from those
of the governmental body creating it and the security is backed only by its own
assets and revenues. Further, in the case of an industrial development bond, if
the security is backed only by the assets and revenues of a non-governmental
user, then such non-governmental user will be deemed to be the sole issuer. If
an industrial development bond or government issued security is guaranteed by a
governmental or other entity, such guarantee would be considered a separate
security issued by the guarantor.

The above limitations are applicable at the time of investment, and later
increases or decreases in percentages resulting from changes in value or net
assets will not result in violation of such limitations.

CASH FUND'S FUNDAMENTAL POLICIES -- Cash Fund's fundamental investment policies
are:

1. Not to purchase any securities other than those referred to under
"Security Cash Fund," page 14;

2. Not to borrow money, except that the Fund may borrow for temporary
purposes or to meet redemption requests which might otherwise require the
untimely disposition of a security (not for leveraging) in amounts not
exceeding 10% of the current value of its total assets (including the
amount borrowed) less liabilities (not including the amount borrowed) at
the time the borrowing is made. It is intended that any such borrowing
will be liquidated before additional portfolio securities are purchased;

3. Not to pledge its assets or otherwise encumber them in excess of 10% of
its net assets (taken at market value at the time of pledging) and then
only to secure borrowings effected within the limitations set forth in
restriction 2;

4. Not to make loans of money or securities, except (a) by the purchase of
debt obligations in which the Fund may invest consistent with its
investment objectives and policies or (b) by investment in repurchase
agreements, subject to limitations described under "Security Cash Fund,"
page 14;

5. Not to invest in the securities of an issuer if the officers and directors
of the Fund or Manager own more than 1/2 of 1% of such securities, or if
all such persons together own more than 5% of such securities;

6. Not to purchase a security if, as a result, with respect to 75% of the
value of the Fund's total assets, more than 5% of the value of its total
assets would be invested in the securities of any one issuer (other than
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities);

7. Not to purchase more than 10% of any class of securities of any issuer.
(For purposes of this restriction, all outstanding debt securities of any
issuer are considered one class.)

8. Not to invest more than 25% of the market or other fair value of its total
assets in the securities of issuers, all of which conduct their principal
business activities in the same industry. (For purposes of this
restriction, utilities will be divided according to their services; for
example, gas, gas transmission, electric, water and telephone utilities
will each be treated as being a separate industry. This restriction does
not apply to investment in bank obligations or obligations issued or
guaranteed by the United States Government or its agencies or
instrumentalities.)

9. Not to purchase securities on margin, except for such short-term credits
as are necessary for the clearance of purchases and sales of portfolio
securities;

10. Not to invest more than 5% of the market or other fair value of its total
assets in securities of companies having a record, together with
predecessors, of less than three years of continuous operation. (This
restriction shall not apply to banks or any obligation of the United
States Government, its agencies or instrumentalities.)

11. Not to engage in the underwriting of securities except insofar as the Fund
may be deemed an underwriter under the Securities Act of 1933 in disposing
of a portfolio security;

12. Not to make short sales of securities;

13. Not to purchase or sell real estate, although it may purchase securities
of issuers which engage in real estate operations, securities which are
secured by interests in real estate, or securities representing interests
in real estate;

14. Not to invest for the purpose of exercising control of management of
another company;

15. Not to purchase oil, gas or other mineral leases, rights, or royalty
contracts or exploration or development programs, except that the Fund may
invest in the securities of companies which invest in or sponsor such
programs;

16. Not to purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition of
assets;

17. Not to write, purchase or sell puts, calls, or combinations thereof;

18. Not to purchase or sell commodities or commodity futures contracts;

19. Not to issue senior securities as defined in the Investment Company Act of
1940.

Any investment restriction except restriction 2, which involves a maximum or
minimum percentage of securities or assets shall not be considered to be
violated unless an excess over or a deficiency under the percentage occurs
immediately after, and is caused by, an acquisition or disposition of securities
or utilization of assets by Cash Fund.

OFFICERS AND DIRECTORS

The officers and directors of the Funds and their principal occupations for at
least the last five years are as follows. Unless otherwise noted, the address of
each officer and director is 700 Harrison Street, Topeka, Kansas 66636-0001.

NAME, ADDRESS, POSITIONS HELD WITH THE FUNDS AND PRINCIPAL OCCUPATIONS DURING
THE PAST FIVE YEARS

JOHN D. CLELAND*
- -----------------
POSITION HELD WITH THE FUND--President and Director
PRINCIPAL OCCUPATIONS--Senior Vice President and Managing Member
Representative, Security Management Company, LLC; Senior Vice President,
Security Benefit Group, Inc. and Security Benefit Life Insurance Company.

DONALD A. CHUBB, JR.**
- -------------------
2222 SW 29th Street, Topeka, Kansas 66611
POSITION HELD WITH THE FUND--Director
PRINCIPAL OCCUPATIONS--Business broker, Griffith & Blair Realtors. Prior to
1997, President, Neon Tube Light Company, Inc.

PENNY A. LUMPKIN**
- ----------------
3616 Canterbury Town Road, Topeka, Kansas 66610
POSITION HELD WITH THE FUND--Director
PRINCIPAL OCCUPATIONS--Vice President, Palmer Companies (Wholesalers, Retailers
and Developers) and Bellairre Shopping Center (Leasing and Shopping Center
Management); President, Vivian's (Corporate Sales).

MARK L. MORRIS, JR.**
- ------------------
5500 SW 7th Street, Topeka, Kansas 66606
POSITION HELD WITH THE FUND--Director
PRINCIPAL OCCUPATIONS--Retired. Former General Partner, Mark Morris Associates
(Veterinary Research and Education).

MAYNARD F. OLIVERIUS
- --------------------
1500 SW 10th Avenue, Topeka, Kansas 66604
POSITION HELD WITH THE FUND--Director
PRINCIPAL OCCUPATIONS--President and Chief Executive Officer, Stormont-Vail
Health Care.

JAMES R. SCHMANK*
- ----------------
POSITION HELD WITH THE FUND--Vice President and Director
PRINCIPAL OCCUPATIONS--President and Managing Member Representative, Security
Management Company, LLC; Senior Vice President, Security Benefit Group, Inc. and
Security Benefit Life Insurance Company.

MARK E. YOUNG
- -------------
POSITION HELD WITH THE FUND--Vice President
PRINCIPAL OCCUPATIONS--Vice President, Security Management Company, LLC;
Assistant Vice President, Security Benefit Group, Inc. and Security Benefit Life
Insurance Company.

JANE A. TEDDER
- --------------
POSITION HELD WITH THE FUND--Vice President
PRINCIPAL OCCUPATIONS--Vice President and Senior Economist, Security Management
Company, LLC; Vice President, Security Benefit Group, Inc. and Security Benefit
Life Insurance Company.

AMY J. LEE
- ----------
POSITION HELD WITH THE FUND--Secretary
PRINCIPAL OCCUPATIONS--Secretary, Security Management Company, LLC; Vice
President, Associate General Counsel and Assistant Secretary, Security Benefit
Group, Inc. and Security Benefit Life Insurance Company.

BRENDA M. HARWOOD
- -----------------
POSITION HELD WITH THE FUND--Treasurer
PRINCIPAL OCCUPATIONS--Assistant Vice President and Treasurer, Security
Management Company, LLC; Assistant Vice President, Security Benefit Group, Inc.
and Security Benefit Life Insurance Company.

STEVEN M. BOWSER
- ----------------
POSITION HELD WITH THE FUND--Vice President (Income Fund)
PRINCIPAL OCCUPATIONS--Second Vice President and Portfolio Manager, Security
Management Company, LLC; Second Vice President, Security Benefit Group, Inc. and
Security Benefit Life Insurance Company.

THOMAS A. SWANK
- ---------------
POSITION HELD WITH THE FUND--Vice President (Income Fund)
PRINCIPAL OCCUPATIONS--Vice President and Portfolio Manager, Security Management
Company, LLC; Vice President and Chief Investment Officer, Security Benefit
Group, Inc. and Security Benefit Life Insurance Company.

DAVID ESHNAUR
- -------------
POSITION HELD WITH THE FUND--Vice President
PRINCIPAL OCCUPATIONS--Assistant Vice President and Portfolio Manager, Security
Management Company, LLC. Prior to July 1997, Assistant Vice President and
Assistant Portfolio Manager, Waddell & Reed.

CHRISTOPHER D. SWICKARD
- -----------------------
POSITION HELD WITH THE FUND--Assistant Secretary
PRINCIPAL OCCUPATIONS--Assistant Secretary, Security Management Company, LLC;
Assistant Vice President and Assistant Counsel, Security Benefit Group, Inc. and
Security Benefit Life Insurance Company.

*These directors are deemed to be "interested persons" of the Funds under the
Investment Company Act of 1940, as amended, by reason of their positions with
the Funds' Investment Manager and/or the parent of the Investment Manager.

**These directors serve on the Funds' joint audit committee, the purpose of
which is to meet with the independent auditors, to review the work of the
auditors, and to oversee the handling by Security Management Company, LLC of
the accounting functions for the Funds.

The officers of the Funds hold identical offices with each of the other Funds
managed by the Investment Manager, except Ms. Tedder who is also Vice President
of SBL Fund and Security Equity Fund; and Mr. Eshnaur, who is also Vice
President of SBL Fund and Security Equity Fund. The directors of the Funds also
serve as directors of each of the other Funds managed by the Investment Manager.
See the table under "Investment Management," page 39, for positions held by such
persons with the Investment Manager. Ms. Lee holds identical offices for the
Distributor (Security Distributors, Inc.). Messrs. Cleland, Schmank and Young
are also directors and Vice Presidents of the Distributor, and Ms. Harwood is
Treasurer of the Distributor.

REMUNERATION OF DIRECTORS AND OTHERS

The Funds' directors, except those directors who are "interested persons" of the
Funds, receive from each Fund an annual retainer of $1,667 and a fee of $1,000
per meeting, plus reasonable travel costs, for each meeting of the board
attended. In addition, certain directors who are members of the Funds' joint
audit committee receive a fee of $1,000 per meeting and reasonable travel costs
for each meeting of the Funds' audit committee attended. The meeting fee
(including the audit committee meeting) and travel costs are paid
proportionately by each of the seven registered investment companies to which
the Adviser provides investment advisory services (collectively, the "Security
Fund Complex") based on the Fund's net assets.

The Funds do not pay any fees to, or reimburse expenses of, their directors who
are considered "interested persons" of the Fund. The aggregate compensation paid
by the Fund to each of the directors during the fiscal year ended December 31,
1998, and the aggregate compensation paid to each of the directors during
calendar year 1998 by the Security Fund Complex, are set forth in the
accompanying chart. Each of the directors is a director of each of the other
registered investment companies in the Security Fund Complex.

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
PENSION OR RETIREMENT
BENEFITS ACCRUED AS ESTIMATED
AGGREGATE COMPENSATION PART OF FUND EXPENSES ANNUAL TOTAL COMPENSATION
--------------------------------------------------------------- BENEFITS FROM THE SECURITY
NAME OF DIRECTOR INCOME MUNICIPAL CASH INCOME MUNICIPAL CASH UPON FUND COMPLEX,
OF THE FUND FUND BOND FUND FUND FUND BOND FUND FUND RETIREMENT INCLUDING THE FUNDS
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Donald A. Chubb, Jr. $2,167 $2,167 $2,167 $0 $0 $0 $0 $26,000
John D. Cleland 0 0 0 0 0 0 0 0
Donald L. Hardesty* 500 500 500 0 0 0 0 6,000
Penny A. Lumpkin 2,167 2,167 2,167 0 0 0 0 26,000
Mark L. Morris, Jr. 2,172 2,167 2,170 0 0 0 0 26,294
Maynard Oliverius 1,500 1,500 1,500 0 0 0 0 18,000
James R. Schmank 0 0 0 0 0 0 0 0
Hugh L. Thompson* 500 500 500 0 0 0 0 6,000
Harold G. Worswick** 0 0 0 0 0 0 0 0
- ----------------------------------------------------------------------------------------------------------------------------
<FN>
*Mr. Hardesty resigned as a fund director effective April 1998. Mr. Thompson resigned as a fund director effective February
1998.

**Mr. Worswick retired as a fund director February 1996. The amount of deferred compensation accrued for Mr. Worswick as of
December 31, 1998 was $8,386. Mr. Worswick received deferred compensation in the amount of $15,266 during the year ended
December 31, 1998.
</FN>
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>

As of March 31, 1999, the Funds' officers and directors (as a group)
beneficially owned less than 1% of the total outstanding Class A shares of
Corporate Bond, Limited Maturity Bond, U.S. Government and High Yield Funds.
Cash Fund's officers and directors (as a group) beneficially owned less than 1%
of the total outstanding shares as of March 31, 1999. As of March 31, 1999,
Municipal Bond Fund's officers and directors (as a group) beneficially owned
24,407 of Class A shares of Municipal Bond Fund which represented approximately
1.3% of the total outstanding Class A shares on that date. None of the Funds'
officers or directors owned Class B shares of the Funds.

PRINCIPLE HOLDERS OF SECURITIES

As of March 31, 1999, Security Benefit Group, Inc. ("SBG"), 700 SW Harrison
Street, Topeka, Kansas, 66636-0001, owned, of record and beneficially, 42.4% of
the voting securities of Limited Maturity Bond Fund (41.2% of the total
outstanding Class A shares and 48.1% of the total outstanding Class B shares)
and 55.5% of the voting securities of High Yield Fund (47.5% of the total
outstanding Class A shares and 67.2% of the total outstanding Class B shares).
SBG's percentage ownership of Limited Maturity Bond Fund and High Yield Fund may
permit SBG to effectively control the outcome of any matters submitted to a vote
of shareholders of these two funds. SBG is an insurance and financial services
holding company wholly-owned by Security Benefit Life Insurance Company ("SBL"),
700 SW Harrison Street, Topeka, Kansas 66636-0001. SBG and SBL are incorporated
under the laws of Kansas. SBG is ultimately controlled by Security Benefit
Mutual Holding Company, 700 SW Harrison Street, Topeka, Kansas 66636-0001, a
mutual holding company organized under the laws of Kansas.

As of March 31, 1999, the following entities owned, of record and beneficially,
5% or more of a class of a Fund's outstanding securities:

- --------------------------------------------------------------------------------
NAME AND ADDRESS FUND CLASS PERCENTAGE
OF STOCKHOLDER OWNED OWNED OWNED
- --------------------------------------------------------------------------------
SBL Corporate Bond Class A 8.9
Limited Class A 8.5
Maturity Bond
High Yield Class A 11.9
- --------------------------------------------------------------------------------
Oklahoma County Employees
Retirement Fund U.S. Class A 27.4
320 Robert S. Kerr Government
Oklahoma City 73102
- --------------------------------------------------------------------------------
Sisters of St. Francis Limited
Ministry Fund Maturity Bond Class A 15.7
3390 Windsor Avenue
Dubuque, IA 52001 High Yield Class A 11.5
- --------------------------------------------------------------------------------

HOW TO PURCHASE SHARES

As discussed below, shares of Corporate Bond, Limited Maturity Bond, U.S.
Government, High Yield and Municipal Bond Funds may be purchased with either a
front-end or contingent deferred sales charge. Shares of Cash Fund are offered
by the Fund without a sales charge. Each of the Funds reserves the right to
withdraw all or any part of the offering made by this prospectus and to reject
purchase orders.

As a convenience to investors and to save operating expenses, the Funds do not
issue certificates for Fund shares except upon written request by the
stockholder.

CORPORATE BOND, LIMITED MATURITY BOND, U.S. GOVERNMENT, HIGH YIELD AND MUNICIPAL
BOND FUNDS -- Security Distributors, Inc. (the "Distributor"), 700 SW Harrison,
Topeka, Kansas, a wholly-owned subsidiary of Security Benefit Group, Inc., is
principal underwriter for Corporate Bond, Limited Maturity Bond, U.S.
Government, High Yield and Municipal Bond Funds. Investors may purchase shares
of these Funds through authorized dealers who are members of the National
Association of Securities Dealers, Inc. In addition, banks and other financial
institutions may make shares of the Funds available to their customers. (Banks
and other financial institutions that make shares of the Funds available to
their customers in Texas must be registered with that state as securities
dealers.) The minimum initial purchase must be $100 and subsequent purchases
must be $100 unless made through an Accumulation Plan which allows a minimum
initial purchase of $100 and subsequent purchases of $20. (See "Accumulation
Plan," page 38.) An application may be obtained from the Distributor.

Orders for the purchase of shares of the Funds will be confirmed at an offering
price equal to the net asset value per share next determined after receipt of
the order in proper form by the Distributor (generally as of the close of the
Exchange on that day) plus the sales charge in the case of Class A shares of the
Funds. Orders received by dealers or other firms prior to the close of the
Exchange and received by the Distributor prior to the close of its business day
will be confirmed at the offering price effective as of the close of the
Exchange on that day. Dealers and other financial services firms are obligated
to transmit orders promptly.

ALTERNATIVE PURCHASE OPTIONS -- Corporate Bond, Limited Maturity Bond, U.S.
Government, High Yield and Municipal Bond Funds offer two classes of shares:

CLASS A SHARES -- FRONT-END LOAD OPTION. Class A shares are sold with a sales
charge at the time of purchase. Class A shares are not subject to a sales charge
when they are redeemed (except that shares sold in an amount of $1,000,000 or
more without a front-end sales charge will be subject to a contingent deferred
sales charge of 1% for one year). See Appendix A for a discussion of "Rights of
Accumulation" and "Statement of Intention," which options may serve to reduce
the front-end sales charge.

CLASS B SHARES -- BACK-END LOAD OPTION. Class B shares are sold without a sales
charge at the time of purchase, but are subject to a deferred sales charge if
they are redeemed within five years of the date of purchase. Class B shares will
automatically convert tax-free to Class A shares at the end of eight years after
purchase.

The decision as to which class is more beneficial to an investor depends on the
amount and intended length of the investment. Investors who would rather pay the
entire cost of distribution at the time of investment, rather than spreading
such cost over time, might consider Class A shares. Other investors might
consider Class B shares, in which case 100% of the purchase price is invested
immediately, depending on the amount of the purchase and the intended length of
investment. The Funds will not normally accept any purchase of Class B shares in
the amount of $250,000 or more.

Dealers or others may receive different levels of compensation depending on
which class of shares they sell.

CLASS A SHARES -- Class A shares of Corporate Bond, Limited Maturity Bond, U.S.
Government, High Yield and Municipal Bond Funds are offered at net asset value
plus an initial sales charge as follows:

- --------------------------------------------------------------------------------
SALES CHARGE
-----------------------------------------------
APPLICABLE
AMOUNT OF PERCENTAGE PERCENTAGE OF PERCENTAGE
PURCHASE AT OF OFFERING NET AMOUNT REALLOWABLE
OFFERING PRICE PRICE INVESTED TO DEALERS
- --------------------------------------------------------------------------------
Less than $50,000 4.75% 4.99% 4.00%

$50,000 but less
than $100,000 3.75 3.90 3.00

$100,000 but less
than $250,000 2.75 2.83 2.20

$250,000 but less
than $1,000,000 1.75 1.78 1.40

$1,000,000 or more None None (See below)
- --------------------------------------------------------------------------------

Purchases of Class A shares of these Funds in amounts of $1,000,000 or more are
at net asset value (without a sales charge), but are subject to a contingent
deferred sales charge of 1% in the event of redemption within one year following
purchase. For a discussion of the contingent deferred sales charge, see
"Calculation and Waiver of Contingent Deferred Sales Charges" page 35. The
Distributor will pay a commission to dealers on purchases of $1,000,000 or more
as follows: 1.00% on sales up to $5,000,000, plus .50% on sales of $5,000,000 or
more up to $10,000,000, and .10% on any amount of $10,000,000 or more.

SECURITY INCOME AND MUNICIPAL BOND FUNDS' CLASS A DISTRIBUTION PLANS -- As
discussed in the prospectus, each of Corporate Bond, Limited Maturity Bond, U.S.
Government, High Yield and Municipal Bond Funds has a Distribution Plan for its
Class A shares pursuant to Rule 12b-1 under the Investment Company Act of 1940.
Each Plan authorizes these Funds to pay an annual fee to the Distributor of .25%
of the average daily net asset value of the Class A shares of each Fund to
finance various activities relating to the distribution of such shares of the
Funds to investors. These expenses include, but are not limited to, the payment
of compensation (including compensation to securities dealers and other
financial institutions and organizations) to obtain various administrative
services for each Fund. These services include, among other things, processing
new shareholder account applications and serving as the primary source of
information to customers in answering questions concerning each Fund and their
transactions with the Fund. The Distributor is also authorized to engage in
advertising, the preparation and distribution of sales literature and other
promotional activities on behalf of each Fund. The Distributor is required to
report in writing to the Board of Directors of Income Fund and the board will
review at least quarterly the amounts and purpose of any payments made under the
Plan. The Distributor is also required to furnish the board with such other
information as may reasonably be requested in order to enable the board to make
an informed determination of whether the Plan should be continued.

For Income Fund, the Plan became effective on August 15, 1985, and was renewed
by the directors of Income Fund on February 10, 1999, as to each of Corporate
Bond and U.S. Government Funds. The Plan was adopted with respect to Limited
Maturity Bond on October 21, 1994 and was renewed by the directors of Income
Fund on February 10, 1999. The Plan was adopted with respect to the High Yield
Fund on May 3, 1996, and renewed by the directors of Income Fund on February 10,
1999. For Municipal Bond Fund, the Plan became effective on May 1, 1998 and was
renewed by the directors of the Fund on February 10, 1999. Each Plan will
continue from year to year, provided that such continuance is approved at least
annually by a vote of a majority of the Board of Directors of each Fund,
including a majority of the independent directors cast in person at a meeting
called for the purpose of voting on such continuance. The Plan can also be
terminated at any time on 60 days' written notice, without penalty, if a
majority of the disinterested directors or the Class A shareholders vote to
terminate the Plan. Any agreement relating to the implementation of the Plan
terminates automatically if it is assigned. The Plans may not be amended to
increase materially the amount of payments thereunder without approval of the
Class A shareholders of the Funds.

Because all amounts paid pursuant to the Distribution Plan are paid to the
Distributor, the Investment Manager and its officers, directors and employees,
including Messrs. Cleland and Schmank (directors of the Fund), Messrs. Young,
Schmank and Swickard, Ms. Tedder, Ms. Lee and Ms. Harwood (officers of the
Fund), all may be deemed to have a direct or indirect financial interest in the
operation of the Distribution Plan. None of the independent directors has a
direct or indirect financial interest in the operation of the Distribution Plan.

Benefits from the Distribution Plan may accrue to the Funds and their
stockholders from the growth in assets due to sales of shares to the public
pursuant to the Distribution Agreement with the Distributor. Increases in the
Corporate Bond, Limited Maturity Bond, U.S. Government, High Yield and Municipal
Bond Funds' net assets from sales pursuant to its Distribution Plan and
Agreement may benefit shareholders by reducing per share expenses, permitting
increased investment flexibility and diversification of the Fund's assets, and
facilitating economies of scale (e.g., block purchases) in the Fund's securities
transactions.

Distribution fees paid by Class A stockholders of Corporate Bond, Limited
Maturity Bond, U.S. Government and High Yield Funds to the Distributor under the
Plan for the year ended December 31, 1998 totaled $190,361. In addition, $4,310
was carried forward from the previous plan year. Approximately $73,917 of this
amount was paid as a service fee to broker/dealers and $31,966 was spent on
promotions, resulting in a carry forward amount of $84,478 going into the 1999
plan year. The amount spent on promotions consists primarily of amounts
reimbursed to dealers for expenses (primarily travel, meals and lodging)
incurred in connection with attendance by their representatives at educational
meetings concerning Corporate Bond and U.S. Government Funds. The Distributor
may engage the services of an affiliated advertising agency for advertising,
preparation of sales literature and other distribution-related activities.

CLASS B SHARES -- Class B shares of Corporate Bond, Limited Maturity Bond, U.S.
Government, High Yield and Municipal Bond Funds are offered at net asset value,
without an initial sales charge. With certain exceptions, these Funds may impose
a deferred sales charge on shares redeemed within five years of the date of
purchase. No deferred sales charge is imposed on amounts redeemed thereafter. If
imposed, the deferred sales charge is deducted from the redemption proceeds
otherwise payable to the stockholder. The deferred sales charge is retained by
the Distributor.

Whether a contingent deferred sales charge is imposed and the amount of the
charge will depend on the number of years since the stockholder made a purchase
payment from which an amount is being redeemed, according to the following
schedule:

--------------------------------------------------
YEAR SINCE PURCHASE CONTINGENT DEFERRED
PAYMENT WAS MADE SALES CHARGE
--------------------------------------------------
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth and Following 0%
--------------------------------------------------

Class B shares (except shares purchased through the reinvestment of dividends
and other distributions with respect to Class B shares) will automatically
convert on the eighth anniversary of the date such shares were purchased to
Class A shares which are subject to a lower distribution fee. This automatic
conversion of Class B shares will take place without imposition of a front-end
sales charge or exchange fee. (Conversion of Class B shares represented by stock
certificates will require the return of the stock certificates to the Investment
Manager.) All shares purchased through reinvestment of dividends and other
distributions with respect to Class B shares ("reinvestment shares") will be
considered to be held in a separate subaccount. Each time any Class B shares
(other than those held in the subaccount) convert to Class A shares, a pro rata
portion of the reinvestment shares held in the subaccount will also convert to
Class A shares. Class B shares so converted will no longer be subject to the
higher expenses borne by Class B shares. Because the net asset value per share
of the Class A shares may be higher or lower than that of the Class B shares at
the time of conversion, although the dollar value will be the same, a
shareholder may receive more or less Class A shares than the number of Class B
shares converted. Under current law, it is the Funds' opinion that such a
conversion will not constitute a taxable event under federal income tax law. In
the event that this ceases to be the case, the Board of Directors will consider
what action, if any, is appropriate and in the best interests of the Class B
stockholders.

CLASS B DISTRIBUTION PLAN -- Each of Corporate Bond, Limited Maturity Bond, U.S.
Government, High Yield and Municipal Bond Funds bear some of the costs of
selling its Class B shares under a Distribution Plan adopted with respect to its
Class B shares ("Class B Distribution Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940 ("1940 Act"). This Plan was adopted by the Board
of Directors of Corporate Bond, U.S. Government and Municipal Bond Funds on July
23, 1993 and was renewed on February 10, 1999. The Plan was adopted with respect
to Limited Maturity Bond Fund on October 21, 1994 and was renewed on February
10, 1999. The Plan was adopted with respect to the High Yield Fund on May 3,
1996, and renewed by the directors of Income Fund on February 10, 1999. The Plan
provides for payments at an annual rate of 1.00% of the average daily net asset
value of Class B shares. Amounts paid by the Funds are currently used to pay
dealers and other firms that make Class B shares available to their customers
(1) a commission at the time of purchase normally equal to 4.00% of the value of
each share sold and (2) a service fee payable for the first year, initially, and
for each year thereafter, quarterly, in an amount equal to .25% annually of the
average daily net asset value of Class B shares sold by such dealers and other
firms and remaining outstanding on the books of the Funds.

Rules of the National Association of Securities Dealers, Inc. ("NASD") limit the
aggregate amount that each Fund may pay annually in distribution costs for the
sale of its Class B shares to 6.25% of gross sales of Class B shares since the
inception of the Distribution Plan, plus interest at the prime rate plus 1% on
such amount (less any contingent deferred sales charges paid by Class B
shareholders to the Distributor). The Distributor intends, but is not obligated,
to continue to pay or accrue distribution charges incurred in connection with
the Class B Distribution Plan which exceed current annual payments permitted to
be received by the Distributor from the Funds. The Distributor intends to seek
full payment of such charges from the Fund (together with annual interest
thereon at the prime rate plus 1%) at such time in the future as, and to the
extent that, payment thereof by the Funds would be within permitted limits.

Each Fund's Class B Distribution Plan may be terminated at any time by vote of
its directors who are not interested persons of the Fund as defined in the 1940
Act or by vote of a majority of the outstanding Class B shares. In the event the
Class B Distribution Plan is terminated by the Class B stockholders or the
Funds' Board of Directors, the payments made to the Distributor pursuant to the
Plan up to that time would be retained by the Distributor. Any expenses incurred
by the Distributor in excess of those payments would be absorbed by the
Distributor. Distribution fees paid by Class B stockholders of Corporate Bond,
Limited Maturity Bond, U.S. Government, High Yield and Municipal Bond Funds to
the Distributor under the Plan for the year ended December 31, 1998, totaled
$164,347. The Funds make no payments in connection with the sales of their Class
B shares other than the distribution fee paid to the Distributor.

CALCULATION AND WAIVER OF CONTINGENT DEFERRED SALES CHARGES -- Any contingent
deferred sales charge imposed upon redemption of Class A shares (purchased in an
amount of $1,000,000 or more) and Class B shares is a percentage of the lesser
of (1) the net asset value of the shares redeemed or (2) the net cost of such
shares. No contingent deferred sales charge is imposed upon redemption of
amounts derived from (1) increases in the value above the net cost of such
shares due to increases in the net asset value per share of the Fund; (2) shares
acquired through reinvestment of income dividends and capital gain
distributions; or (3) Class A shares (purchased in an amount of $1,000,000 or
more) held for more than one year or Class B shares held for more than five
years. Upon request for redemption, shares not subject to the contingent
deferred sales charge will be redeemed first. Thereafter, shares held the
longest will be the first to be redeemed.

The contingent deferred sales charge is waived: (1) following the death of a
stockholder if redemption is made within one year after death, (2) upon the
disability (as defined in Section 72(m)(7) of the Internal Revenue Code) of a
stockholder prior to age 65 if redemption is made within one year after the
disability, provided such disability occurred after the stockholder opened the
account; (3) in connection with required minimum distributions in the case of an
IRA, SAR-SEP or Keogh or any other retirement plan qualified under Section
401(a), 401(k) or 403(b) of the Code; and (4) in the case of distributions from
retirement plans qualified under Section 401(a) or 401(k) of the Internal
Revenue Code due to (i) returns of excess contributions to the plan, (ii)
retirement of a participant in the plan, (iii) a loan from the plan (repayment
of loans, however, will constitute new sales for purposes of assessing the
CDSC), (iv) "financial hardship" of a participant in the plan, as that term is
defined in Treasury Regulation Section 1.401(k)-1(d)(2), as amended from time to
time, (v) termination of employment of a participant in the plan, (vi) any other
permissible withdrawal under the terms of the plan. The contingent deferred
sales charge will also be waived in the case of redemptions of shares of the
Funds pursuant to a Systematic Withdrawal Program (refer to page 38 for
details).

ARRANGEMENTS WITH BROKER/DEALERS AND OTHERS -- The Investment Manager or
Distributor, from time to time, will provide promotional incentives or pay a
bonus to certain dealers whose representatives have sold or are expected to sell
significant amounts of the Funds and/or certain other Funds managed by the
Investment Manager. Such promotional incentives will include payment for
attendance (including travel and lodging expenses) by qualifying registered
representatives (and members of their families) to sales seminars at luxury
resorts within or without the United States. Bonus compensation may include
reallowance of the entire sales charge and may also include, with respect to
Class A shares, an amount which exceeds the entire sales charge and, with
respect to Class B shares, an amount which exceeds the maximum commission. The
Distributor, or the Investment Manager, may also provide financial assistance to
certain dealers in connection with conferences, sales or training programs for
their employees, seminars for the public, advertising, sales campaigns, and/or
shareholder services and programs regarding one or more of the funds managed by
the Investment Manager. Certain of the promotional incentives or bonuses may be
financed by payments to the Distributor under a Rule 12b-1 Distribution Plan.
The payment of promotional incentives and/or bonuses will not change the price
an investor will pay for shares or the amount that the Funds will receive from
such sale. No compensation will be offered to the extent it is prohibited by the
laws of any state or self-regulatory agency, such as the National Association of
Securities Dealers, Inc. ("NASD"). A Dealer to whom substantially the entire
sales charge of Class A shares is reallowed may be deemed to be an "underwriter"
under federal securities laws.

The Distributor also may pay banks and other financial services firms that
facilitate transactions in shares of the funds for their clients a transaction
fee up to the level of the payments made allowable to dealers for the sale of
such shares as described above. Banks currently are prohibited under the
Glass-Steagall Act from providing certain underwriting or distribution services.
If banking firms were prohibited from acting in any capacity or providing any of
the described services, the Fund's Board of Directors would consider what
action, if any, would be appropriate.

In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.

The Investment Manager or Distributor also may pay a marketing allowance to
dealers who meet certain eligibility criteria. This allowance is paid with
reference to new sales of Fund shares (except shares of Cash Fund) in a calendar
year and may be discontinued at any time. To be eligible for this allowance in
any given year, the dealer must sell a minimum of $2,000,000 of Class A and
Class B shares during that year. The applicable marketing allowance factors are
set forth below.

- --------------------------------------------------------------------------------
APPLICABLE MARKETING
AGGREGATE NEW SALES ALLOWANCE FACTOR*
- --------------------------------------------------------------------------------
Less than $2 million .00%
$2 million but less than $5 million .15%
$5 million but less than $10 million .25%
$10 million but less than $15 million .35%
$15 million but less than $20 million .50%
$20 million or more .75%
- --------------------------------------------------------------------------------
*The maximum marketing allowance factor applicable per this schedule will be
applied to all new sales in the calendar year to determine the marketing
allowance payable for such year.
- --------------------------------------------------------------------------------

For the calendar year ended December 31, 1998, the following dealers received a
marketing allowance:

- --------------------------------------------------------------------------------
DEALER AMOUNT

- --------------------------------------------------------------------------------
Legend Equities Corp.................................... $ 52,306
Investment Advisors & Consultants, Inc.................. 38,296
VSR Financial Services, Inc............................. 7,077
Hepfner Securities Corp................................. 18,988
OFG Financial Services, Inc............................. 17,405
Lincoln Investment Planning............................. 3,805
---------
$137,877
- --------------------------------------------------------------------------------

CASH FUND -- Cash Fund offers a single class of shares which is offered at net
asset value next determined after an order is accepted. There is no sales charge
or load. The minimum initial investment in Cash Fund is $100 for each account.
Subsequent investments may be made in any amount of $20 or more. Cash Fund
purchases may be made in any of the following ways:

1. BY MAIL.

(a) A check or negotiable bank draft should be sent to:

Security Cash Fund
P.O. Box 2548
Topeka, Kansas 66601-2548

(b) Make check or draft payable to "Security Cash Fund."

2. BY WIRE.

(a) Call the Fund to advise of the investment. The Fund will supply an
account number at the time of the initial investment and provide
instructions for having your bank wire federal funds.

(b) For an initial investment, you must also send a completed investment
application to the Fund.

3. THROUGH BROKER/DEALERS. Investors may, if they wish, invest in Cash Fund by
purchasing shares through registered broker/dealers. Such broker/dealers who
process orders on behalf of their customers may charge a fee for their
services. Investments made directly without the assistance of a
broker/dealer are without charge.

Since Cash Fund invests in money market securities which require immediate
payment in federal funds, monies received from the sales of its shares must be
monies held by a commercial bank and be on deposit at one of the Federal Reserve
Banks. A record date for each stockholder's investment is established each
business day and used to distribute the following day's dividend. If federal
funds are received prior to 2:00 p.m. (Central time) the investment will be made
on that day and the investor will receive the following day's dividend. Federal
funds received after 2:00 p.m. on any business day will not be invested until
the following business day. Cash Fund will not be responsible for any delays in
the wire transfer system. All checks are accepted subject to collection at full
face value in United States funds and must be drawn in United States dollars on
a United States bank.

PURCHASES AT NET ASSET VALUE

Class A shares of Corporate Bond, Limited Maturity Bond, U.S. Government, High
Yield and Municipal Bond Funds may be purchased at net asset value by (1)
directors, officers and employees of the Funds, the Funds' Investment Manager or
Distributor; directors, officers and employees of Security Benefit Life
Insurance Company and its subsidiaries; agents licensed with Security Benefit
Life Insurance Company; spouses or minor children of any such agents; as well as
the following relatives of any such directors, officers and employees (and their
spouses): spouses, grandparents, parents, children, grandchildren, siblings,
nieces and nephews; (2) any trust, pension, profit sharing or other benefit plan
established by any of the foregoing corporations for persons described above;
(3) retirement plans where third party administrators of such plans have entered
into certain arrangements with the Distributor or its affiliates provided that
no commission is paid to dealers; and (4) officers, directors, partners or
registered representatives (and their spouses and minor children) of
broker/dealers who have a selling agreement with the Distributor. Such sales are
made upon the written assurance of the purchaser that the purchase is made for
investment purposes and that the securities will not be transferred or resold
except through redemption or repurchase by or on behalf of the Funds.

Life agents and associated personnel of broker/dealers must obtain a special
application from their employer or from the Distributor, in order to qualify for
such purchases.

Class A shares of Corporate Bond, Limited Maturity Bond, U.S. Government, High
Yield and Municipal Bond Funds may also be purchased at net asset value when the
purchase is made on the recommendation of (i) a registered investment adviser,
trustee or financial intermediary who has authority to make investment decisions
on behalf of the investor; or (ii) a certified financial planner or registered
broker-dealer who either charges periodic fees to its customers for financial
planning, investment advisory or asset management services, or provides such
services in connection with the establishment of an investment account for which
a comprehensive "wrap fee" is imposed. The Distributor must be notified when a
purchase is made that qualifies under this provision.

ACCUMULATION PLAN

Investors in Corporate Bond, Limited Maturity Bond, U.S. Government, High Yield
or Municipal Bond Fund may purchase shares on a periodic basis under an
Accumulation Plan which provides for an initial investment of $100 minimum, and
subsequent investments of $20 minimum at any time. An Accumulation Plan is a
voluntary program, involving no obligation to make periodic investments, and is
terminable at will. Payments are made by sending a check to the Distributor who
(acting as an agent for the dealer) will purchase whole and fractional shares of
the Funds as of the close of business on the day such payment is received. A
confirmation and statement of account will be sent to the investor following
each investment. Certificates for whole shares will be issued upon request. No
certificates will be issued for fractional shares which may be withdrawn only by
redemption for cash.

Investors may choose to use "Secur-O-Matic" (automatic bank draft) to make their
Fund purchases. There is no additional charge for using Secur-O-Matic. An
application may be obtained from the Funds.

SYSTEMATIC WITHDRAWAL PROGRAM

A Systematic Withdrawal Program may be established by stockholders who wish to
receive regular monthly, quarterly, semiannual or annual payments of $25 or
more. A Program may also be based upon the liquidation of a fixed or variable
number of shares provided that the minimum amount is withdrawn. However, the
Funds do not recommend this (or any other amount) as an appropriate withdrawal.
Shares with a current offering price of $5,000 or more must be deposited with
the Investment Manager acting as agent for the stockholder under the Program.
There is no service charge on the Program as the Investment Manager pays the
costs involved.

Sufficient shares will be liquidated at net asset value to meet the specified
withdrawals. Liquidation of shares may deplete or possibly use up the
investment, particularly in the event of a market decline. Payments cannot be
considered as actual yield or income since part of such payments is a return of
capital and may constitute a taxable event to the stockholder. The maintenance
of a Withdrawal Program concurrently with purchases of additional shares of
Corporate Bond, Limited Maturity Bond, U.S. Government, High Yield or Municipal
Bond Fund would be disadvantageous because of the sales commission payable in
respect to such purchases. During the withdrawal period, no payments will be
accepted under an Accumulation Plan. Income dividends and capital gains
distributions are automatically reinvested at net asset value. If an investor
has an Accumulation Plan in effect, it must be terminated before a Systematic
Withdrawal Program may be initiated.

The stockholder receives confirmation of each transaction showing the source of
the payment and the share balance remaining in the Program. A Program may be
terminated on written notice by the stockholder or the Funds, and it will
terminate automatically if all shares are liquidated or withdrawn from the
account.

A stockholder may establish a Systematic Withdrawal Program with respect to
Class B shares without the imposition of any applicable contingent deferred
sales charge, provided that such withdrawals do not in any 12-month period,
beginning on the date the Program is established, exceed 10% of the value of the
account on that date ("Free Systematic Withdrawals"). Free Systematic
Withdrawals are not available if a Program established with respect to Class B
shares provides for withdrawals in excess of 10% of the value of the account in
any Program year and, as a result, all withdrawals under such a Program are
subject to any applicable contingent deferred sales charge. Free Systematic
Withdrawals will be made first by redeeming those shares that are not subject to
the contingent deferred sales charge and then by redeeming shares held the
longest. The contingent deferred sales charge applicable to a redemption of
Class B shares requested while Free Systematic Withdrawals are being made will
be calculated as described under "Calculation and Waiver of Contingent Deferred
Sales Charges," page 35. A Systematic Withdrawal form may be obtained from the
Funds.

INVESTMENT MANAGEMENT

Security Management Company, LLC (the "Investment Manager"), 700 Harrison
Street, Topeka, Kansas, has served as investment adviser to Income Fund,
Municipal Bond Fund and Cash Fund, respectively, since September 14, 1970,
October 7, 1983 and June 23, 1980. The current Investment Advisory Contracts for
Income Fund, Municipal Bond Fund and Cash Fund, respectively, are dated March
27, 1987, October 7, 1983 and June 23, 1980, and were renewed by the Funds'
Board of Directors at a regular meeting held February 10, 1999. The Investment
Manager also acts as investment adviser to Security Equity Fund, Security Growth
and Income Fund, Security Ultra Fund and SBL Fund. The Investment Manager is a
limited liability company controlled by its members, Security Benefit Life
Insurance Company and Security Benefit Group, Inc. ("SBG"). SBG is an insurance
and financial services holding company wholly-owned by Security Benefit Life
Insurance Company, 700 Harrison Street, Topeka, Kansas 66636-0001. Security
Benefit Life, a life insurance company with over $7.4 billion of insurance in
force, is incorporated under the laws of Kansas.

Pursuant to the Investment Advisory Contracts, the Investment Manager furnishes
investment advisory, statistical and research services to the Funds, supervises
and arranges for the purchase and sale of securities on behalf of the Funds,
provides for the maintenance and compilation of records pertaining to the
investment advisory functions, and also makes certain guarantees with respect to
the Funds' annual expenses. The Investment Manager guarantees that the aggregate
annual expenses of the respective Funds (including for any fiscal year, the
management fee, but excluding interest, taxes, brokerage commissions,
extraordinary expenses and Class B distribution fees) shall not for Corporate
Bond, Limited Maturity Bond, U.S. Government and High Yield Funds exceed the
level of expenses which the Fund is permitted to bear under the most restrictive
expense limitation imposed by any state in which shares of the Fund are then
qualified for sale and shall not for Cash Fund exceed 1% of the Fund's average
net assets for the year. (The Investment Manager is not aware of any state that
currently imposes limits on the level of mutual fund expenses.) For Municipal
Bond Fund, the Investment Manager guarantees that the aggregate annual expenses
of the Fund (including for any fiscal year, the management fee, but excluding
interest, taxes extraordinary expenses, and Class A and Class B distribution
fees) shall not exceed 1% of the Fund's average net assets for the year. The
Investment Manager will contribute such funds or waive such portion of its
management fee as may be necessary to insure that the aggregate expenses of the
Funds will not exceed the guaranteed maximum.

The Investment Manager has engaged Salomon Brothers Asset Management Inc
("Salomon Brothers"), 7 World Trade Center, New York, NY 10048, to provide
investment advisory services to the Municipal Bond Fund pursuant to a
Sub-Advisory Agreement dated May 1, 1998 and renewed February 10, 1999. Pursuant
to this agreement, Salomon Brothers furnishes investment advisory, statistical
and research facilities, supervises and arranges for the purchase and sale of
securities on behalf of Municipal Bond Fund and provides for the compilation and
maintenance of records pertaining to such investment advisory services, subject
to the control and supervision of the Fund's Board of Directors and the
Investment Manager. For such services, the Investment Manager pays Salomon
Brothers an amount equal to .22% of the average net assets of Municipal Bond
Fund, computed on a daily basis and payable monthly. The Sub-Advisory Agreement
may be terminated without penalty at any time by either party on 60 days'
written notice and is automatically terminated in the event of its assignment or
in the event that the Investment Advisory Contract between the Investment
Manager and the Fund is terminated, assigned or not renewed.

Salomon Brothers is a wholly-owned subsidiary of Salomon Brothers Holding
Company, Inc., which is wholly-owned by Salomon Smith Barney Holdings, Inc.,
which is, in turn, wholly-owned by Citigroup, Inc. Salomon Brothers was
incorporated in 1987 and together with Salomon Brothers affiliates in London,
Frankfurt, Tokyo and Hong Kong, provides a broad range of investment advisory
services to various individuals and institutional clients located throughout the
world and serves as investment adviser to various investment companies.Currently
Salomon Brothers and its affiliates manage approximately $29 billion in assets.

For services provided to the Funds, the Investment Manager is entitled to
receive compensation on an annual basis equal to .5% of the average daily
closing value of the Corporate Bond, Limited Maturity Bond, U.S. Government,
Municipal Bond and Cash Fund's net assets and .60% of the average daily closing
value of the High Yield Fund, each computed on a daily basis and payable
monthly. For the years ended December 31, 1998, 1997 and 1996, the Investment
Manager agreed to limit the total expenses (including its compensation, but
excluding interest, taxes and extraordinary expenses and Class B distribution
fees) of the Class A shares of Corporate Bond, U.S. Government and Limited
Maturity Bond Funds to 1.1% of the average daily net assets and the Class B
shares to 1.85% of the average daily net assets of the respective Funds. For the
years ended December 31, 1998 and 1997, the Investment Manager also agreed to
limit the total expenses (including its compensation, but excluding interest,
taxes and extraordinary expenses and Class B distribution fees) of High Yield
Fund to 1.0% of the average daily net assets of Class A shares and 2.75% of
Class B shares of the Fund. For the years ended December 31, 1998 and 1996,
expenses incurred by Municipal Bond Fund exceeded 1% of the average net assets.
In addition, the Investment Manager agreed to waive the investment advisory fees
of Limited Maturity Bond, U.S. Government and High Yield Funds for the fiscal
years ended December 31, 1998, 1997 and 1996.

Each Fund will pay all of its expenses not assumed by the Investment Manager or
the Distributor including organization expenses; directors' fees; fees and
expenses of custodian; taxes and governmental fees; interest charges; membership
dues; brokerage commissions; reports; proxy statements; costs of stockholder and
other meetings; Class B distribution fees; and legal, auditing and accounting
expenses. Each Fund will also pay for the preparation and distribution of the
prospectus to its stockholders and all expenses in connection with its
registration under federal and state securities laws. Each Fund will pay
nonrecurring expenses as may arise, including litigation affecting it.

The Investment Advisory Contracts between Security Management Company, LLC and
Income Fund, Municipal Bond Fund and Cash Fund, dated March 27, 1987, October 7,
1983 and June 23, 1980, respectively, expire on April 1, 2000, May 1, 2000 and
June 1, 2000. The contracts are renewable annually by the Funds' Board of
Directors or by a vote of a majority of a Fund's outstanding securities and, in
either event, by a majority of the board who are not parties to the contract or
interested persons of any such party. The contracts provide that they may be
terminated without penalty at any time by either party on 60 days' notice and
are automatically terminated in the event of assignment.

Pursuant to Administrative Services Agreements with the Funds dated April 1,
1987, the Investment Manager also acts as the administrative agent for the Funds
and as such performs administrative functions and the bookkeeping, accounting
and pricing functions for the Funds. For these services the Investment Manager
receives, on an annual basis, a fee of .09% of the average net assets of
Corporate Bond, Limited Maturity Bond, U.S. Government, High Yield and Municipal
Bond Funds and .045% of the average net assets of Cash Fund, calculated daily
and payable monthly.

Under the Administrative Services Agreements identified above, the Investment
Manager also acts as the transfer agent for the Funds. As such, the Investment
Manager performs all shareholder servicing functions, including transferring
record ownership, processing purchase and redemption transactions, answering
inquiries, mailing stockholder communications and acting as the dividend
disbursing agent. For these services, the Investment Manager receives an annual
maintenance fee of $8.00 per account, a fee of $1.00 per shareholder
transaction, and a fee of $1.00 ($.50 for Cash Fund) per dividend transaction.

During the fiscal years ended December 31, 1998, 1997 and 1996, the Funds paid
the following amounts to the Investment Manager for its services.

- ----------------------------------------------------------------------------------------------------------------------------
INVESTMENT INVESTMENT ADMINISTRATIVE TRANSFER
ADVISORY REIMBURSEMENT ADVISORY FEES SERVICE FEES AGENCY SERVICE
FEES PAID OF EXPENSES BY WAIVED BY PAID TO FEES PAID TO
TO INVESTMENT INVESTMENT INVESTMENT INVESTMENT INVESTMENT EXPENSE RATIO
FUND YEAR MANAGER MANAGER MANAGER MANAGER MANAGER CLASS A CLASS B
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998 $463,639 $ --- $ --- $81,783 $191,501 --- ---
Income Fund 1997 450,862 --- --- 80,734 141,412 --- ---
1996 534,366 --- --- 95,487 128,776 --- ---
1998 --- 34,672 0 --- --- 1.06% 1.85%
Corporate Bond Fund 1997 --- 17,462 0 --- --- --- ---
1996 --- 10,663 0 --- --- --- ---
1998 --- 39,398 35,063 --- --- .87% 1.89%
Limited Maturity Bond 1997 --- 30,621 27,818 --- --- --- ---
Fund 1996 --- 27,868 26,161 --- --- --- ---
1998 --- 75,262 60,492 --- --- .93% 1.85%
U.S. Government Fund 1997 --- 42,687 42,687 --- --- --- ---
1996 --- 60,974 55,727 --- --- --- ---
1998 --- 55,715 55,715 --- --- .76% 1.53%
High Yield Fund 1997 --- 41,748 41,748 --- --- --- ---
19961 --- 0 12,264 --- --- --- ---
1998 113,719 2,927 0 20,469 13,726 .82% 2.01%
Municipal Bond Fund 1997 115,812 0 0 20,846 15,105 --- ---
1996 120,946 2,358 0 22,530 16,538 --- ---
1998 326,960 0 0 29,803 125,374 .89% ---
Cash Fund 1997 238,616 0 0 21,990 119,258 --- ---
1996 247,304 0 0 21,721 130,682 --- ---
- ----------------------------------------------------------------------------------------------------------------------------
<FN>
1 High Yield Fund's figures are based on the period August 5, 1996 (date of inception) to December 31, 1996.

</FN>
- ----------------------------------------------------------------------------------------------------------------------------

</TABLE>

The following persons are affiliated with the Funds and also with the Investment
Manager in these capacities:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
NAME POSITIONS WITH THE FUNDS POSITIONS WITH SECURITY MANAGEMENT COMPANY, LLC
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
James R. Schmank Vice President and Director President and Managing Member Representative
John D. Cleland President and Director Senior Vice President and Managing Member Representative
Jane A. Tedder Vice President Vice President and Senior Economist
Mark E. Young Vice President Vice President
Amy J. Lee Secretary Secretary
Brenda M. Harwood Treasurer Assistant Vice President and Treasurer
Steven M. Bowser Vice President (Income Fund only) Second Vice President and Portfolio Manager
Thomas A. Swank Vice President (Income Fund only) Vice President and Portfolio Manager
David Eshnaur Vice President (Income Fund only) Assistant Vice President and Portfolio Manager
Christopher D. Swickard Assistant Secretary Assistant Secretary
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>

PORTFOLIO MANAGEMENT -- The Corporate Bond, Limited Maturity Bond, U.S.
Government Bond, High Yield, Municipal Bond and Cash Funds are managed by the
Investment Manager's Fixed Income Team with portfolio managers being responsible
for the day-to-day management of each particular Fund. Steve Bowser, Second Vice
President and Portfolio Manager of the Investment Manager, and David Eshnaur,
Assistant Vice President and Portfolio Manager of the Investment Manager, have
day-to-day responsibility for managing Corporate Bond and Limited Maturity Bond
Funds. Mr. Bowser has managed the Funds since June 1997 and Mr. Eshnaur has
managed the Funds since January 1998. Mr. Bowser also has had day-to-day
responsibility for managing U.S. Government Fund since 1995. David Eshnaur has
day-to-day responsibility for managing the High Yield Fund. Mr. Eshnaur has
managed the Fund since July 1997. Municipal Bond Fund is managed by Robert
Amodeo of Salomon Brothers. He has had day-to-day responsibility for managing
the Fund since September 1998.

Mr. Bowser joined the Investment Manager in 1992 and has managed the U.S.
Government Fund since 1995. Prior to joining the Investment Manager, he was
Assistant Vice President and Portfolio Manager with the Federal Home Loan Bank
of Topeka from 1989 to 1992. He was employed at the Federal Reserve Bank of
Kansas City in 1988 and began his career with the Farm Credit System from 1982
to 1987, serving as a Senior Financial Analyst and Assistant Controller. He
graduated with a Bachelor of Science degree from Kansas State University in
1982.

David Eshnaur is Assistant Vice President and Portfolio Manager of the
Investment Manager. Mr. Eshnaur has 16 years of investment experience. Prior to
joining the Investment Manager in 1997, he worked at Waddell & Reed in the
positions of Assistant Vice President, Assistant Portfolio Manager, Senior
Analyst, Industry Analyst and Account Administrator. Mr. Eshnaur earned a
Bachelor of Arts degree in Business Administration from Coe College and an
M.B.A. degree in Finance from the University of Missouri - Kansas City.

Robert Amodeo, a Portfolio Manager at Salomon Brothers, has managed the
Municipal Bond Fund's portfolio since September 1998. Prior to joining Salomon
Brothers Asset Management in 1992, Mr. Amodeo was a member of Salomon Brothers,
Inc. Partnership Investment Group where he was responsible for analyzing and
managing various partnership investments. Mr. Amodeo pioneered adaptation and
the use of the Yield Book for municipal bond portfolio management, analysis,
performance attribution and optimization. He received a B.S. in Business
Management from Long Island University and he is a Chartered Financial Analyst.

CODE OF ETHICS -- The Funds, the Investment Manager and the Distributor have a
written Code of Ethics which requires all access persons to obtain prior
clearance before engaging in any personal securities transactions. Access
persons include officers and directors of the Funds and Investment Manager and
employees that participate in, or obtain information regarding, the purchase or
sale of securities by the Funds or whose job relates to the making of any
recommendations with respect to such purchases or sales. All access persons must
report their personal securities transactions within ten days of the end of each
calendar quarter. Access persons will not be permitted to effect transactions in
a security if it: (a) is being considered for purchase or sale by one or more of
the Funds; (b) is being purchased or sold by one or more of the Funds; or (c) is
being offered in an initial public offering. In addition, portfolio managers are
prohibited from purchasing or selling a security within seven calendar days
before or after a Fund that he or she manages trades in that security. Any
material violation of the Code of Ethics is reported to the Board of the Funds.
The Board also reviews the administration of the Code of Ethics on an annual
basis.

DISTRIBUTOR

Security Distributors, Inc. (the "Distributor"), a Kansas corporation and
wholly-owned subsidiary of Security Benefit Group, Inc., serves as the principal
underwriter for shares of Corporate Bond, Limited Maturity Bond, U.S.
Government, High Yield and Municipal Bond Funds pursuant to Distribution
Agreements dated March 27, 1984, as amended, and October 7, 1983, respectively.
The Distributor also acts as principal underwriter for the following investment
companies: Security Equity Fund, Security Growth and Income Fund, Security Ultra
Fund, Variflex Variable Annuity Account (Variflex), Variflex Variable Annuity
Account (Variflex Educator Series), SBL Variable Annuity Account VIII (Variflex
LS), SBL Variable Annuity Account VIII (Variflex Signature), the Parkstone
Variable Annuity Account and Security Varilife Separate Account.

The Distributor receives a maximum commission on Class A Shares of 4.75% and
allows a maximum discount of 4.0% from the offering price to authorized dealers
on Fund shares sold. The discount is alike for all dealers, but the Distributor
may increase it for specific periods at its discretion. Salespersons employed by
dealers may also be licensed to sell insurance with Security Benefit Life.

For the fiscal years ended December 31, 1998 and December 31, 1997, the
Distributor (i) received gross underwriting commissions on Class A shares, (ii)
retained net underwriting commissions on Class A shares, and (iii) received
contingent deferred sales charges on redemptions of Class B shares in the
amounts set forth in the table below.

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
GROSS UNDERWRITING NET UNDERWRITING COMPENSATION
COMMISSIONS COMMISSIONS ON REDEMPTION
- -----------------------------------------------------------------------------------------------------------
1997 1998 1997 1998 1997 1998
<S> <C> <C> <C> <C> <C> <C>
Corporate Bond Fund $26,659 $29,315 $5,221 $4,808 $15,849 $14,332
Limited Maturity Bond Fund 11,846 3,854 2,232 448 893 803
U.S. Government Bond Fund 10,659 34,498 1,979 3,676 2,159 2,208
High Yield Fund 1,161 12,912 736 578 1,161 127
Municipal Bond Fund 3,510 18,315 2,581 3,709 3,510 5,887
- -----------------------------------------------------------------------------------------------------------
</TABLE>

The Distributor received gross underwriting commissions on sales of Class A
shares and contingent deferred sales charges on redemptions for Class B shares
of $132,788 for Income Fund and $42,066 for Municipal Bond Fund and retained net
underwriting commissions of $39,452 for Income Fund and $13,059 for Municipal
Bond Fund for the fiscal year ended December 31, 1996.

The Distributor, on behalf of the Funds, may act as a broker in the purchase and
sale of securities not effected on a securities exchange, provided that any such
transactions and any commissions shall comply with requirements of the
Investment Company Act of 1940 and all rules and regulations of the Securities
and Exchange Commission. The Distributor has not acted as a broker.

Each Fund's Distribution Agreement is renewable annually either by the Funds'
Board of Directors or by a vote of a majority of the Fund's outstanding
securities, and, in either event, by a majority of the board who are not parties
to the agreement or interested persons of any such party. The agreements may be
terminated by either party upon 60 days' written notice.

ALLOCATION OF PORTFOLIO BROKERAGE

Transactions in portfolio securities shall be effected in such manner as deemed
to be in the best interest of each respective Fund. In reaching a judgment
relative to the qualifications of a broker or dealer to obtain the best
execution of a particular transaction, all relevant factors and circumstances
will be taken into account by the Investment Manager, including consideration of
the overall reasonableness of commissions paid to a broker, the firm's general
execution and operational capabilities, and its reliability and financial
condition. The Funds do not anticipate that they will incur a significant amount
of brokerage commissions because fixed income securities are generally traded on
a "net" basis--that is, in principal amount without the addition or deduction of
a stated brokerage commission, although the net price usually includes a profit
to the dealer. The Funds will deal directly with the selling or purchasing
principal without incurring charges for the services of a broker on its behalf
unless it is determined that a better price or execution may be obtained by
utilizing the services of a broker. The Funds also may purchase portfolio
securities in underwritings where the price includes a fixed underwriter's
concession or discount. Money market instruments may be purchased directly from
the issuer at no commission or discount.

Portfolio transactions that require a broker may be directed to brokers who
furnish investment information or research services to the Investment Manager.
Such investment information and research services include advice as to the value
of securities, the advisability of investing in, purchasing or selling
securities and the availability of securities and purchasers or sellers of
securities, and furnishing analyses and reports concerning issues, industries,
securities, economic factors and trends, portfolio strategy, and performance of
accounts. Such investment information and research services may be furnished by
brokers in many ways, including: (1) on-line data base systems, the equipment
for which is provided by the broker, that enable registrant to have real-time
access to market information, including quotations; (2) economic research
services, such as publications, chart services and advice from economists
concerning macroeconomic information; and (3) analytical investment information
concerning particular corporations. If a transaction is directed to a broker
supplying such information or services, the commission paid for such transaction
may be in excess of the commission another broker would have charged for
effecting that transaction, provided that the Investment Manager shall have
determined in good faith that the commission is reasonable in relation to the
value of the investment information or the research services provided, viewed in
terms of either that particular transaction or the overall responsibilities of
the Investment Manager with respect to all accounts as to which it exercises
investment discretion. The Investment Manager may use all, none, or some of such
information and services in providing investment advisory services to each of
the mutual funds under its management, including the Funds.

In addition, brokerage transactions may be placed with broker/dealers who sell
shares of the Funds managed by the Investment Manager who may or may not also
provide investment information and research services. The Investment Manager
may, consistent with the NASD Rules of Fair Practice, consider sales of Fund
shares in the selection of a broker/dealer.

Securities held by the Funds may also be held by other investment advisory
clients of the Investment Manager, including other investment companies. In
addition, the Investment Manager's parent company, Security Benefit Life
Insurance Company ("SBL"), may also hold some of the same securities as the
Funds. When selecting securities for purchase or sale for a Fund, the Investment
Manager may at the same time be purchasing or selling the same securities for
one or more of such other accounts. Subject to the Investment Manager's
obligation to seek best execution, such purchases or sales may be executed
simultaneously or "bunched." It is the policy of the Investment Manager not to
favor one account over the other. Any purchase or sale orders executed
simultaneously (which may also include orders from SBL) are allocated at the
average price and as nearly as practicable on a pro rata basis (transaction
costs will also generally be shared on a pro rata basis) in proportion to the
amounts desired to be purchased or sold by each account. In those instances
where it is not practical to allocate purchase or sale orders on a pro rata
basis, then the allocation will be made on a rotating or other equitable basis.
While it is conceivable that in certain instances this procedure could adversely
affect the price or number of shares involved in the Fund's transaction, it is
believed that the procedure generally contributes to better overall execution of
the Funds' portfolio transactions. The Board of Directors of the Funds has
adopted guidelines governing this procedure and will monitor the procedure to
determine that the guidelines are being followed and that the procedure
continues to be in the best interest of the Fund and its stockholders. With
respect to the allocation of initial public offerings ("IPOs"), the Investment
Manager may determine not to purchase such offerings for certain of its clients
(including investment company clients) due to the limited number of shares
typically available to the Investment Manager in an IPO. No brokerage
commissions were paid by the Funds for the years ended December 31, 1998, 1997,
and 1996.

DETERMINATION OF NET ASSET VALUE

The net asset value per share of each Fund is determined as of the close of
regular trading hours on the New York Stock Exchange (normally 3:00 p.m. Central
time) on each day that the Exchange is open for trading, which is Monday through
Friday except for the following dates when the Exchange is closed in observance
of Federal holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. The determination is made by dividing the total value of the
portfolio securities of each Fund, plus any cash or other assets (including
dividends accrued but not collected), less all liabilities, by the number of
shares outstanding of the Fund.

Securities listed or traded on a national securities exchange are valued at the
last sale price. If there are no sales on a particular day, then the securities
are valued at the last bid price. All other securities, held by Corporate Bond,
Limited Maturity Bond, U.S. Government and High Yield Funds, for which market
quotations are readily available, are valued on the basis of the last current
bid price. If there is no bid price, or if the bid price is deemed to be
unsatisfactory by the Board of Directors, then the securities shall be valued in
good faith by such method as the Board of Directors determines will reflect fair
market value. Valuations of the Funds' securities are supplied by a pricing
service approved by the Board of Directors.

U.S. Government Fund will generally value securities at market value, if
available. If market value is not available, the Fund will value securities,
other than securities with 60 days or less to maturity as discussed below, at
prices based on market quotations for securities of similar type, yield, quality
and duration.

Valuations furnished by the pricing service with respect to Municipal Bond
Fund's municipal securities are based upon appraisals from recognized municipal
securities dealers derived from information concerning market transactions and
quotations. Securities for which market quotations are readily available are
valued at the last reported sale price, or, if no sales are reported on that
day, at the mean between the latest available bid and asked prices. Securities
for which market quotations are not readily available (which are expected to
constitute the majority of Municipal Bond Fund's portfolio securities) are
valued at the best available current bid price by the pricing service,
considering such factors as yields or prices of municipal bonds of comparable
quality, type of issue, coupon, maturity and rating, indications as to value
from dealers, and general market conditions. The Fund's officers, under the
general supervision of the Board of Directors, will regularly review procedures
used by, and valuations provided by, the pricing service. Municipal Bond Fund's
taxable short-term securities for which market quotations are readily available
will be valued at market value, which is the last reported sale price or, if no
sales are reported on that day, at the mean between the latest available bid and
asked prices except that securities having 60 days or less remaining to maturity
may be valued at their amortized cost as discussed below.

Cash Fund's securities are valued by the amortized cost valuation technique
which does not take into consideration unrealized gains or losses. The amortized
cost valuation technique involves valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in valuation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price Cash Fund would receive if it sold the
instrument.

During periods of declining interest rates, the daily yield on shares of Cash
Fund computed as described above may tend to be higher than a like computation
made by a fund with identical investments utilizing a method of valuation based
upon market prices and estimates of market prices for all of its portfolio
instruments. Thus, if the use of amortized cost by Cash Fund resulted in lower
aggregate portfolio value on a particular day, a prospective investor in the
Fund would be able to obtain a somewhat higher yield than would result from
investment in a fund utilizing solely market values and existing investors in
Cash Fund would receive less investment income. The converse would apply in a
period of rising interest rates.

The use of amortized cost and the maintenance of Cash Fund's per share net asset
value at $1.00 is based on its election to operate under the provisions of Rule
2a-7 under the Investment Company Act of 1940. As a condition of operating under
that rule, the Fund must maintain a dollar-weighted average portfolio maturity
of 90 days or less, purchase only instruments having remaining maturities of
thirteen months or less, and invest only in securities which are determined by
the Board of Directors to present minimal credit risks and which are of high
quality as determined by any major rating service, or in the case of any
instrument not so rated, considered by the Board of Directors to be of
comparable quality.

The Board of Directors has established procedures designed to maintain Cash
Fund's price per share, as computed for the purpose of sales and redemptions, at
$1.00. These procedures include a review of the Fund's holdings by the Board of
Directors at such intervals as they deem appropriate to determine whether the
Fund's net asset value calculated by using available market quotations deviates
from $1.00 per share based on amortized cost. If any deviation exceeds 1/2 of
1%, the Board of Directors will promptly consider what action, if any, will be
initiated. In the event the Board of Directors determines that a deviation
exists which may result in material dilution or other unfair results to
investors or existing shareholders, they have agreed to take such corrective
action as they regard as necessary and appropriate, including the sale of Cash
Fund instruments prior to maturity to shorten average Fund maturity or
withholding dividends. Cash Fund will use its best efforts to maintain a
constant net asset value per share of $1.00. See "Security Cash Fund," page 14,
and "Dividends and Taxes," page 48. Since dividends from net investment income
will be accrued daily and paid monthly, the net asset value per share of Cash
Fund will ordinarily remain at $1.00, but the Fund's daily dividends will vary
in amount.

U.S. Government Fund and Municipal Bond Fund may use the amortized cost
valuation technique utilized by Cash Fund for securities with maturities of 60
days or less. In addition, U.S. Government and Municipal Bond Funds may use a
similar procedure for securities having 60 days or less remaining to maturity
with the value of the security on the 61st day being used rather than the cost.

The Funds will accept orders from dealers on each business day up to 4:30 p.m.
(Central time).

HOW TO REDEEM SHARES

A stockholder may redeem shares at the net asset value next determined after
such shares are tendered for redemption. The amount received may be more or less
than the investor's cost, depending upon the market value of the portfolio
securities at the time of redemption.

Shares will be redeemed on request of the stockholder in proper order to the
Investment Manager, which serves as the Funds' transfer agent. A request is made
in proper order by submitting the following items to the Investment Manager: (1)
a written request for redemption signed by all registered owners exactly as the
account is registered, including fiduciary titles, if any, and specifying the
account number and the dollar amount or number of shares to be redeemed; (2) a
guarantee of all signatures on the written request or on the share certificate
or accompanying stock power; (3) any share certificates issued for any of the
shares to be redeemed; and (4) any additional documents which may be required by
the Investment Manager for redemption by corporations or other organizations,
executors, administrators, trustees, custodians or the like. Transfers of share
ownership are subject to the same requirements. A signature guarantee is not
required for redemptions of $10,000 or less, requested by and payable to all
stockholders of record for an account, to be sent to the address of record. The
signature guarantee must be provided by an eligible guarantor institution, such
as a bank, broker, credit union, national securities exchange or savings
association. The Investment Manager reserves the right to reject any signature
guarantee pursuant to its written procedures which may be revised in the future.
To avoid delay in redemption or transfer, stockholders having questions should
contact the Investment Manager.

The amount due on redemption, will be the net asset value of the shares next
computed after the redemption request in proper order is received by the
Investment Manager less any applicable deferred sales charge. In addition,
stockholders of Cash Fund will receive any undistributed dividends, including
any dividend declared on the day of the redemption. Payment of the redemption
price will be made by check (or by wire at the sole discretion of the Investment
Manager if wire transfer is requested, including name and address of the bank
and the stockholder's account number to which payment is to be wired) within
seven days after receipt of the redemption request in proper order. The check
will be mailed to the stockholder's registered address (or as otherwise
directed). Remittance by wire (to a commercial bank account in the same name(s)
as the shares are registered) or by express mail, if requested, will be at a
charge of $15, which will be deducted from the redemption proceeds.

Cash Fund offers redemption by check. If blank checks are requested on the Check
Writing Request form, the Fund will make a supply available. Checks for the Cash
Fund may be drawn payable to the order of any payee (not to cash) in any amount
of $100 or more. Checks may be cashed or deposited like any other check drawn on
a bank. When a check is presented to the Fund for payment, it will redeem
sufficient full and fractional shares to cover the check. Such shares will be
redeemed at the price next calculated following receipt of any check which does
not exceed the value of the account. The price of Cash Fund shares may fluctuate
from day-to-day and the price at the time of redemption, by check or otherwise,
may be less than the amount invested. Any check presented for payment which is
more than the value of the account will be returned without payment, marked
"Insufficient Funds." Each new stockholder will initially receive twelve checks
free of charge and such additional checks as may be required. Since the amount
available for withdrawal fluctuates daily, it is not practical for a stockholder
to attempt to withdraw the entire investment by check. The Fund reserves the
right to terminate this service at any time with respect to existing as well as
future stockholders. Redemption by check is not available if any shares are held
in certificate form or if shares being redeemed have not been on the Fund's
books for at least 15 days.

When investing in the Funds, stockholders are required to furnish their tax
identification number and to state whether or not they are subject to
withholding for prior underreporting, certified under penalties of perjury as
prescribed by the Internal Revenue Code. To the extent permitted by law, the
redemption proceeds of stockholders who fail to furnish this information will be
reduced by $50 to reimburse for the IRS penalty imposed for failure to report
the tax identification number on information reports.

Payment in cash of the amount due on redemption, less any applicable deferred
sales charge, for shares redeemed will be made within seven days after tender,
except that the Funds may suspend the right of redemption during any period when
trading on the New York Stock Exchange is restricted or such Exchange is closed
for other than weekends or holidays, or any emergency is deemed to exist by the
Securities and Exchange Commission. When a redemption request is received, the
redemption proceeds are deposited into a redemption account established by the
Distributor and the Distributor sends a check in the amount of redemption
proceeds to the stockholder. The Distributor earns interest on the amounts
maintained in the redemption account. Conversely, the Distributor causes
payments to be made to the Funds in the case of orders for purchase of Fund
shares before it actually receives federal funds.

In addition to the foregoing redemption procedure, the Funds repurchase shares
from broker/dealers at the price determined as of the close of business on the
day such offer is confirmed. Dealers may charge a commission on the repurchase
of shares.

The repurchase or redemption of shares held in a tax-qualified retirement plan
must be effected through the trustee of the plan and may result in adverse tax
consequences. (See "Retirement Plans," page 55.)

At various times the Funds may be requested to redeem shares for which they have
not yet received good payment. Accordingly, the Funds may delay the mailing of a
redemption check until such time as they have assured themselves that good
payment (e.g., cash or certified check on a U.S. bank) has been collected for
the purchase of such shares, which may take up to 15 days from the purchase
date.

Municipal Bond Fund's Articles of Incorporation provide that, in order to
minimize expenses, the Fund may, pursuant to a resolution of the Board of
Directors, adopt a procedure whereby it would redeem stockholder accounts in
which there are fewer than 50 shares (or such lesser amount as the board
determines) after having given the stockholders at least 60 days' written notice
and an opportunity to increase the account to at least 50 shares. This procedure
can be implemented only after six months' prior notice to all stockholders that
the procedure will be put into effect. The Board of Directors has no present
plan to implement an involuntary redemption procedure.

TELEPHONE REDEMPTIONS -- Stockholders of the Funds may redeem uncertificated
shares in amounts up to $10,000 by telephone request, provided that the
stockholder has completed the Telephone Redemption section of the application or
a Telephone Redemption form which may be obtained from the Investment Manager.
The proceeds of a telephone redemption will be sent to the stockholder at his or
her address as set forth in the application or in a subsequent written
authorization. Once authorization has been received by the Investment Manager, a
stockholder may redeem shares by calling the Funds at (800) 888-2461, extension
3127, on weekdays (except holidays) between the hours of 7:00 a.m. and 6:00 p.m.
Central time. Redemption requests received by telephone after the close of the
New York Stock Exchange (normally 3:00 p.m. Central time) will be treated as if
received on the next business day. Telephone redemptions are not accepted for
IRA and 403(b)(7) accounts. A stockholder who authorizes telephone redemptions
authorizes the Investment Manager to act upon the instructions of any person
identifying themselves as the owner of the account or the owner's broker. The
Investment Manager has established procedures to confirm that instructions
communicated by telephone are genuine and will be liable for any losses due to
fraudulent or unauthorized instructions if it fails to comply with its
procedures. The Investment Manager's procedures require that any person
requesting a redemption by telephone provide the account registration and
number, the owner's tax identification number, and the dollar amount or number
of shares to be redeemed, and such instructions must be received on a recorded
line. Neither the Fund, the Investment Manager, nor the Distributor will be
liable for any loss, liability, cost or expense arising out of any redemption
request provided that the Investment Manager complied with its procedures. Thus,
a stockholder who authorizes telephone redemptions may bear the risk of loss
from a fraudulent or unauthorized request. The telephone redemption privilege
may be changed or discontinued at any time by the Investment Manager or the
Funds.

During periods of severe market or economic conditions, telephone redemptions
may be difficult to implement and stockholders should make redemptions by mail
as described under "How to Redeem Shares," page 45.

HOW TO EXCHANGE SHARES

Pursuant to arrangements with the Distributor, stockholders of the Funds may
exchange their shares for shares of another of the Funds, or for shares of the
other mutual funds distributed by the Distributor, which currently include
Security Equity, Growth and Income, Global, Ultra, Asset Allocation, Social
Awareness, International, Enhanced Index, Select 25, Emerging Markets Total
Return, Global Asset Allocation and Global High Yield Funds. Such transactions
generally have the same tax consequences as ordinary sales and purchases and are
not tax-free exchanges.

Class A and Class B shares of the Funds may be exchanged for Class A and Class B
shares, respectively, of another of the funds distributed by the Distributor or
for shares of Cash Fund, which offers a single class of shares. Any applicable
contingent deferred sales charge will be calculated from the date of the initial
purchase without regard to the time shares were held in Cash Fund.

Because Cash Fund does not impose a sales charge in connection with sales of its
shares, any exchange of Cash Fund shares acquired through direct purchase or
reinvestment of dividends will be based upon the respective net asset values of
the shares involved next determined after the exchange is accepted, and a sales
charge will be imposed equal to the sales charge that would be applicable if the
stockholder were purchasing shares of the other Fund involved for cash. The
amount of such sales charge will be paid by Cash Fund on behalf of the
exchanging stockholder directly to the Distributor and the net asset value of
the shares being exchanged will be reduced by a like amount.

Stockholders making such exchanges must provide the Investment Manager with
sufficient information to permit verification of their prior ownership of shares
of one of the other Security Funds. Shares of Cash Fund begin earning dividends
on the day after the date an exchange into such shares is effected. Any such
exchange is subject to the minimum investment and eligibility requirements of
each Fund. No service fee is presently imposed on such an exchange.

Exchanges may be accomplished by submitting a written request to the Investment
Manager, 700 Harrison Street, Topeka, Kansas 66636-0001. Broker/dealers who
process exchange orders on behalf of their customers may charge a fee for their
services. Such fee would be in addition to any of the sales or other charges
referred to above but may be avoided by making exchange requests directly to the
Investment Manager. Due to the high cost of exchange activity and the
maintenance of accounts having a net value of less than $100, Cash Fund reserves
the right to totally convert the account if at any time an exchange request
results in an account being lowered below the $100 minimum.

An exchange of shares, as described above, may result in the realization of a
capital gain or loss for federal income tax purposes, depending on the cost or
other value of the shares exchanged. No representation is made as to whether
gain or loss would result from any particular exchange or as to the manner of
determining the amount of gain or loss. (See "Dividends and Taxes," page 48.)
Before effecting any exchange described herein, the investor may wish to seek
the advice of a financial or tax adviser.

Exchanges of shares of the Funds may be made only in jurisdictions where shares
of the fund being acquired may lawfully be sold. More complete information about
the other Security Funds, including charges and expenses, are contained in the
current prospectus describing each Fund. Stockholders are advised to obtain and
review carefully, the applicable prospectus prior to effecting any exchange. A
copy of such prospectus will be given any requesting stockholder by the
Distributor.

The exchange privilege may be changed or discontinued any time at the discretion
of the management of the Funds upon 60 days' notice to stockholders. It is
contemplated, however, that this privilege will be extended in the absence of
objection by regulatory authorities and provided that shares of the various
funds are available and may be lawfully sold in the jurisdiction in which the
stockholder resides.

EXCHANGE BY TELEPHONE -- To exchange shares by telephone, a stockholder must
have completed either the Telephone Exchange section of the application or a
Telephone Transfer Authorization form which may be obtained from the Investment
Manager. Authorization must be on file with the Investment Manager before
exchanges may be made by telephone. Once authorization has been received by the
Investment Manager, a stockholder may exchange shares by telephone by calling
the Funds at (800) 888-2461, extension 3127, on weekdays (except holidays)
between the hours of 7:00 a.m. and 6:00 p.m. Central time. Exchange requests
received by telephone after the close of the New York Stock Exchange (normally
3:00 p.m. Central time) will be treated as if received on the next business day.
Shares which are held in certificate form may not be exchanged by telephone. The
telephone exchange privilege is only permitted between accounts with identical
registration. The Investment Manager has established procedures to confirm that
instructions communicated by telephone are genuine and will be liable for any
losses due to fraudulent or unauthorized instructions, if it fails to comply
with its procedures. The Investment Manager's procedures require that any person
requesting an exchange by telephone provide the account registration and number,
the tax identification number, the dollar amount or number of shares to be
exchanged, and the names of the Security Funds from which and into which the
exchange is to be made, and such instructions must be received on a recorded
line. Neither the Funds, the Investment Manager, nor the Distributor will be
liable for any loss, liability, cost or expense arising out of any request,
including any fraudulent request provided the Investment Manager complied with
its procedures. Thus, a stockholder who authorizes telephone exchanges may bear
the risk of loss from a fraudulent or unauthorized request. This telephone
exchange privilege may be changed or discontinued at any time at the discretion
of the management of the Funds. In particular, the Funds may set limits on the
amount and frequency of such exchanges, in general or as to any individual who
abuses such privilege.

DIVIDENDS AND TAXES

The following summarizes certain federal income tax considerations generally
affecting the Funds and their stockholders. No attempt is made to present a
detailed explanation of the tax treatment of the Funds or their stockholders,
and the discussion here is not intended as a substitute for careful tax
planning. The discussion is based upon present provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the regulations promulgated
thereunder, and judicial and administrative ruling authorities, all of which are
subject to change, which change may be retroactive. Prospective investors should
consult their own tax advisors with regard to the federal tax consequences of
the purchase ownership, and disposition of Fund shares, as well as the tax
consequences arising under the laws of any state, foreign country, or other
taxing jurisdiction.

Each Fund intends to qualify annually and to elect to be treated as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"). To qualify as a regulated investment company, each Fund must, among
other things: (i) derive in each taxable year at least 90% of its gross income
from dividends, interest, payments with respect to certain securities loans, and
gains from the sale or other disposition of stock, securities or foreign
currencies, or other income derived with respect to its business of investing in
such stock, securities, or currencies ("Qualifying Income Test"); (ii) diversify
its holdings so that, at the end of each quarter of the taxable year, (a) at
least 50% of the market value of the Fund's assets is represented by cash, cash
items, U.S. Government securities, the securities of other regulated investment
companies, and other securities, with such other securities of any one issuer
limited for the purposes of this calculation to an amount not greater than 5% of
the value of the Fund's total assets and 10% of the outstanding voting
securities of such issuer, and (b) not more than 25% of the value of its total
assets is invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies), or of two or more issuers which the Fund controls (as that term is
defined in the relevant provisions of the Code) and which are determined to be
engaged in the same or similar trades or businesses or related trades or
businesses; and (iii) distribute at least 90% of the sum of its investment
company taxable income (which includes, among other items, dividends, interest,
and net short-term capital gains in excess of any net long-term capital losses)
and its net tax-exempt interest each taxable year. The Treasury Department is
authorized to promulgate regulations under which foreign currency gains would
constitute qualifying income for purposes of the Qualifying Income Test only if
such gains are directly related to investing in securities (or options and
futures with respect to securities). To date, no such regulations have been
issued.

A Fund qualifying as a regulated investment company generally will not be
subject to U.S. federal income tax on its investment company taxable income and
net capital gains (any net long-term capital gains in excess of the net
short-term capital losses), if any, that it distributes to shareholders. Each
Fund intends to distribute to its stockholders, at least annually, substantially
all of its investment company taxable income and any net capital gains.

Generally, regulated investment companies, like the Funds, must distribute
amounts on a timely basis in accordance with a calendar year distribution
requirement in order to avoid a nondeductible 4% excise tax. Generally, to avoid
the tax, a regulated investment company must distribute during each calendar
year, (i) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year, (ii) at least 98% of its capital
gains in excess of its capital losses (adjusted for certain ordinary losses) for
the 12-month period ending on October 31 of the calendar year, and (iii) all
ordinary income and capital gains for previous years that were not distributed
during such years. To avoid application of the excise tax, each Fund intends to
make its distributions in accordance with the calendar year distribution
requirement. A distribution, including an "exempt-interest dividend," will be
treated as paid on December 31 of the calendar year if it is declared by a Fund
in October, November or December of that year to shareholders of record on a
date in such a month and paid by the Fund during January of the following
calendar year. Such distributions are taxable to shareholders in the calendar
year in which the distributions are declared, rather than the calendar year in
which the distributions are received.

If, as a result of exchange controls or other foreign laws or restrictions
regarding repatriation of capital, a Fund were unable to distribute an amount
equal to substantially all of its investment company taxable income (as
determined for U.S. tax purposes) within applicable time periods, the Fund would
not qualify for the favorable federal income tax treatment afforded regulated
investment companies, or, even if it did so qualify, it might become liable for
federal taxes on undistributed income. In addition, the ability of a Fund to
obtain timely and accurate information relating to its investments is a
significant factor in complying with the requirements applicable to regulated
investment companies in making tax-related computations. Thus, if a Fund were
unable to obtain accurate information on a timely basis, it might be unable to
qualify as a regulated investment company, or its tax computations might be
subject to revisions (which could result in the imposition of taxes, interest
and penalties).

It is the policy of Corporate Bond, Limited Maturity Bond, U.S. Government, High
Yield and Municipal Bond Funds to pay dividends from net investment income
monthly. It is the policy of the Funds to make distributions of realized capital
gains (if any) in excess of any capital losses and capital loss carryovers at
least once a year. Because Class A shares of the Funds bear most of the costs of
distribution of such shares through payment of a front-end sales charge, while
Class B shares of the Funds bear such costs through a higher distribution fee,
expenses attributable to Class B shares, generally will be higher and as a
result, income distributions paid by the Funds with respect to Class B shares
generally will be lower than those paid with respect to Class A shares. All
dividends and distributions are automatically reinvested on the payable date in
shares of the Fund at net asset value, as of the record date (reduced by an
amount equal to the amount of the dividend or distribution), unless the
Investment Manager is previously notified in writing by the stockholder that
such dividends or distributions are to be received in cash. A stockholder may
request that such dividends or distributions be directly deposited to the
stockholder's bank account. A stockholder who elected not to reinvest dividends
or distributions paid with respect to Class A shares may, at any time within
thirty days after the payment date, reinvest the dividend check without
imposition of a sales charge.

Cash Fund's policy is to declare daily dividends of all of its net investment
income each day the Fund is open for business, increased or decreased by any
realized capital gains or losses. Such dividends are automatically credited to
stockholder accounts. Unless stockholders elect to receive cash, they will
receive such dividends in additional shares on the first business day of each
month at the net asset value on that date. If cash is desired, investors may
indicate so in the appropriate section of the application and checks will be
mailed within five business days after the beginning of the month. The amount of
dividend may fluctuate from day to day. If on any day net realized or unrealized
losses on portfolio securities exceed Cash Fund's income for that day and
results in a decline of net asset value per share below $1.00, the dividend for
that day will be omitted until the net asset value per share subsequently
returns to $1.00 per share.

The Funds will not pay dividends or distributions of less than $25 in cash but
will automatically reinvest them. Distributions of net investment income and any
short-term capital gains by Income Fund or Cash Fund are taxable as ordinary
income whether received in cash or reinvested in additional shares. To the
extent that Municipal Bond Fund's dividends are derived from interest on its
temporary taxable investments or from an excess of net short-term capital gain
over net long-term capital loss, its dividends are taxable as ordinary income
whether received in cash or reinvested in additional shares. Such dividends do
not qualify for the dividends-received deduction for corporations.

The excess of net long-term capital gains over short-term capital losses
realized and distributed by the Funds or reinvested in Fund shares will
generally be taxable to shareholders as long-term capital gain. Net capital
gains from assets held for one year or less will be taxed as ordinary income.
Distributions will be subject to these capital gains rates regardless of how
long a shareholder has held Fund shares. Because Cash Fund normally will not
invest in securities having a maturity of more than one year, it should not
realize any long-term capital gains or losses. Advice as to the tax status of
each year's dividends and distributions will be mailed annually.

Municipal Bond Fund intends to qualify to pay "exempt-interest dividends" to its
stockholders. The Fund will be so qualified if, at the close of each quarter of
its taxable year, at least 50% of the value of its total assets consists of
securities on which the interest payments are exempt from federal tax. To the
extent that Municipal Bond Fund's dividends distributed to stockholders are
derived from earnings on interest income exempt from federal tax and are
designated as "exempt-interest dividends" by the Fund, they will be excludable
from a stockholder's gross income for federal income tax purposes. Municipal
Bond Fund will inform stockholders annually as to the portion of that year's
distributions from the Fund which constituted "exempt-interest dividends."

Federal tax law imposes an alternative minimum tax with respect to both
corporations and individuals based on certain items of tax preference. Interest
on certain municipal obligations, such as bonds issued to make loans for housing
purposes or to private entities (but not to certain tax-exempt organizations
such as universities and non-profit hospitals) is included as an item of tax
preference in determining the amount of a taxpayer's alternative minimum taxable
income. To the extent that the Fund receives income from municipal obligations
treated as a tax preference item for purposes of the alternative minimum tax, a
portion of the dividends paid by it, although otherwise exempt from federal
income tax, will be taxable to shareholders to the extent that their tax
liability will be determined under the alternative minimum tax. The Fund will
annually supply shareholders with a report indicating the percentage of Fund
income attributable to municipal obligations subject to the alternative minimum
tax. Additionally, taxpayers must disclose to the Internal Revenue Service on
their tax returns the entire amount of tax-exempt interest (including
exempt-interest dividends on shares of the Fund) received or accrued during the
year.

In addition, for corporations, the alternative minimum taxable income is
increased by a percentage of the amount by which an alternative measure of
income ("adjusted current earnings", referred to as "ACE") exceeds the amount
otherwise determined to be the alternative minimum taxable income. Interest on
all municipal obligations, and therefore all exempt-interest dividends paid by
the Fund, is included in calculating ACE. Taxpayers that may be subject to the
alternative minimum tax should consult their tax advisers before investing in
the Municipal Bond Fund.

To the extent that Municipal Bond Fund's interest income is attributable to
private activity bonds, dividends allocable to such income, while exempt from
the regular federal income tax, may constitute an item of tax preference for
purposes of the alternative minimum tax. In addition, for corporate stockholders
of Municipal Bond Fund, exempt interest may comprise part or all of an
adjustment to alternative minimum taxable income.

Stockholders of the Funds who redeem their shares generally will realize gain or
loss upon the sale or redemption (including the exchange of shares for shares of
another fund) which will be capital gain or loss if the shares are capital
assets in the stockholder's hands, and will be taxable to stockholders as
long-term capital gains if the shares had been held for more than one year at
the time of sale or redemption. Net capital gains on shares held for less than
one year will be taxable to shareholders as ordinary income. Investors should be
aware that any loss realized upon the sale or redemption of shares held for six
months or less will be treated as a long-term capital loss to the extent of any
distribution of long-term capital gain to the stockholder with respect to such
shares. In addition, any loss realized on a sale or exchange of shares will be
disallowed to the extent the shares disposed of are replaced within a period of
61 days, beginning 30 days before and ending 30 days after the date the shares
are disposed of, such as pursuant to the reinvestment of dividends. In such
case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.

Under certain circumstances, the sales charge incurred in acquiring Class A
shares of a Fund may not be taken into account in determining the gain or loss
on the disposition of those shares. This rule applies in circumstances when
shares of the Fund are exchanged within 90 days after the date they were
purchased and new shares in a regulated investment company are acquired without
a sales charge or at a reduced sales charge. In that case, the gain or loss
recognized on the exchange will be determined by excluding from the tax basis of
the shares exchanged all or a portion of the sales charge incurred in acquiring
those shares. This exclusion applies to the extent that the otherwise applicable
sales charge with respect to the newly acquired shares is reduced as a result of
having incurred the sales charge initially. Instead, the portion of the sales
charge affected by this rule will be treated as an amount paid for the new
shares.

Up to 85% of an individual's Social Security benefits and certain railroad
retirement benefits may be subject to federal income tax. Along with other
factors, total tax-exempt income, including any exempt-interest dividends
received from Municipal Bond Fund, is used to calculate the portion of Social
Security benefits that is taxed.

Under the Internal Revenue Code, a stockholder may not deduct all or a portion
of interest on indebtedness incurred or continued to purchase or carry shares of
an investment company paying exempt-interest dividends. In addition, under rules
issued by the Internal Revenue Service for determining when borrowed funds are
considered used for the purposes of purchasing or carrying particular assets,
the purchase of shares may be considered to have been made with borrowed funds
even though the borrowed funds are not directly traceable to the purchase of
shares.

A deductible "environmental tax" of 0.12% is imposed on a corporation's modified
alternative minimum taxable income in excess of $2 million. The environmental
tax will be imposed even if the corporation is not required to pay an
alternative minimum tax because the corporation's regular income tax liability
exceeds its minimum tax liability. To the extent that exempt-interest dividends
paid by Municipal Bond Fund are included in alternative minimum taxable income,
corporate stockholders may be subject to the environmental tax.

Opinions relating to the validity of municipal securities and the exemption of
interest thereon from federal income tax are rendered by bond counsel to the
issuer. Neither the Investment Manager nor Municipal Bond Fund's counsel makes
any review of proceedings relating to the issuance of municipal securities or
the bases of such opinions.

The Funds are required by law to withhold 31% of taxable dividends and
distributions to stockholders who do not furnish their correct taxpayer
identification numbers, or are otherwise subject to the backup withholding
provisions of the Internal Revenue Code.

Each of Corporate Bond Fund, Limited Maturity Bond Fund, U.S. Government Fund
and High Yield Fund (the Series of Income Fund) will be treated separately in
determining the amounts of income and capital gains distributions. For this
purpose, each Fund will reflect only the income and gains, net of losses of that
Fund.

A purchase of shares shortly before payment of a dividend or distribution would
be disadvantageous because the dividend or distribution to the purchaser would
have the effect of reducing the per share net asset value of his or her shares
by the amount of the dividends or distributions. In addition all or a portion of
such dividends or distributions, although in effect a return of capital, are
subject to taxes, which may be at ordinary income tax rates.

OPTIONS, FUTURES AND FORWARD CONTRACTS AND SWAP AGREEMENTS -- Certain options,
futures contracts, and forward contracts in which a Fund may invest may be
"Section 1256 contracts." Gains or losses on Section 1256 contracts generally
are considered 60% long-term and 40% short-term capital gains or losses;
however, foreign currency gains or losses arising from certain Section 1256
contracts may be treated as ordinary income or loss. Also, Section 1256
contracts held by a Fund at the end of each taxable year (and at certain other
times as prescribed pursuant to the Code) are "marked to market" with the result
that unrealized gains or losses are treated as though they were realized.

Generally, the hedging transactions undertaken by a Fund may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by a Fund. In addition, losses
realized by a Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which such losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences of transactions in options, futures, forward
contracts, swap agreements and other financial contracts to a Fund are not
entirely clear. The transactions may increase the amount of short-term capital
gain realized by a Fund which is taxed as ordinary income when distributed to
shareholders.

A Fund may make one or more of the elections available under the Code which are
applicable to straddles. If a Fund makes any of the elections, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.

Because application of the straddle rules may affect the character of gains or
losses, defer losses and/or accelerate the recognition of gains or losses from
the affected straddle positions, the amount which must be distributed to
shareholders, and which will be taxed to shareholders as ordinary income or
long-term capital gain, may be increased or decreased as compared to a fund that
did not engage in such hedging transactions.

Because only a few regulations regarding the treatment of swap agreements, and
related caps, floors and collars, have been implemented, the tax consequences of
such transactions are not entirely clear. The Funds intend to account for such
transactions in a manner deemed by them to be appropriate, but the Internal
Revenue Service might not necessarily accept such treatment. If it did not, the
status of a Fund as a regulated investment company might be affected.

The requirements applicable to a Fund's qualification as a regulated investment
company may limit the extent to which a Fund will be able to engage in
transactions in options, futures contracts, forward contracts, swap agreements
and other financial contracts.

MARKET DISCOUNT -- If a Fund purchases a debt security at a price lower than the
stated redemption price of such debt security, the excess of the stated
redemption price over the purchase price is "market discount". If the amount of
market discount is more than a DE MINIMIS amount, a portion of such market
discount must be included as ordinary income (not capital gain) by the Fund in
each taxable year in which the Fund owns an interest in such debt security and
receives a principal payment on it. In particular, the Fund will be required to
allocate that principal payment first to the portion of the market discount on
the debt security that has accrued but has not previously been includable in
income. In general, the amount of market discount that must be included for each
period is equal to the lesser of (i) the amount of market discount accruing
during such period (plus any accrued market discount for prior periods not
previously taken into account) or (ii) the amount of the principal payment with
respect to such period. Generally, market discount accrues on a daily basis for
each day the debt security is held by a Fund at a constant rate over the time
remaining to the debt security's maturity or, at the election of the Fund, at a
constant yield to maturity which takes into account the semi-annual compounding
of interest. Gain realized on the disposition of a market discount obligation
must be recognized as ordinary interest income (not capital gain) to the extent
of the "accrued market discount."

ORIGINAL ISSUE DISCOUNT -- Certain debt securities acquired by the Funds may be
treated as debt securities that were originally issued at a discount. Very
generally, original issue discount is defined as the difference between the
price at which a security was issued and its stated redemption price at
maturity. Although no cash income on account of such discount is actually
received by a Fund, original issue discount that accrues on a debt security in a
given year generally is treated for federal income tax purposes as interest and,
therefore, such income would be subject to the distribution requirements
applicable to regulated investment companies.

Some debt securities may be purchased by the Funds at a discount that exceeds
the original issue discount on such debt securities, if any. This additional
discount represents market discount for federal income tax purposes (see above).

CONSTRUCTIVE SALES -- Recently enacted rules may affect the timing and character
of gain if a Fund engages in transactions that reduce or eliminate its risk of
loss with respect to appreciated financial positions. If the Fund enters into
certain transactions in property while holding substantially identical property,
the Fund would be treated as if it had sold and immediately repurchased the
property and would be taxed on any gain (but no loss) from the constructive
sale. The character of gain from a constructive sale would depend upon the
Fund's holding period in the property. Loss from a constructive sale would be
recognized when the property was subsequently disposed of, and its character
would depend on the Fund's holding period and the application of various loss
deferral provisions of the Code.

FOREIGN TAXATION -- Income received by a Fund from sources within a foreign
country may be subject to withholding and other taxes imposed by that country.
Tax conventions between certain countries and the U.S. may reduce or eliminate
such taxes.

The payment of such taxes will reduce the amount of dividends and distributions
paid to the Funds' stockholders. So long as a Fund qualifies as a regulated
investment company, certain distribution requirements are satisfied, and more
than 50% of such Fund's assets at the close of the taxable year consists of
securities of foreign corporation, the fund may elect, subject to limitation, to
pass through its foreign tax credits to its stockholders.

OTHER TAXES -- The foregoing discussion is general in nature and is not intended
to provide an exhaustive presentation of the tax consequences of investing in a
Fund. Distributions may also be subject to additional state, local and foreign
taxes, depending on each shareholder's particular situation. Depending upon the
nature and extent of a Fund's contacts with a state or local jurisdiction, the
Fund may be subject to the tax laws of such jurisdiction if it is regarded under
applicable law as doing business in, or as having income derived from, the
jurisdiction. Persons who may be "substantial users" (or "related persons" of
substantial users) of facilities financed by private activity bonds should
consult their tax adviser before purchasing Municipal Bond Fund shares. (See
"Municipal Securities," page 11.) Shareholders are advised to consult their own
tax advisers with respect to the particular tax consequences to them of an
investment in a Fund.

ORGANIZATION

The Articles of Incorporation of Income and Municipal Bond Funds provide for the
issuance of shares of common stock in one or more classes or series and the
Articles of Cash Fund provide for the issuance of stock in one or more series.

Income Fund has authorized the issuance of an indefinite number of shares of
capital stock of $1.00 par value and currently issues its shares in seven
series, Corporate Bond Fund, Limited Maturity Bond Fund, U.S. Government Fund,
High Yield Fund, MFR Emerging Markets Total Return Fund, MFR Global Asset
Allocation Fund and MFR Global High Yield Fund (formerly Global Aggressive Bond
Fund). The shares of each Series of Income Fund represent a pro rata beneficial
interest in that Series' net assets and in the earnings and profits or losses
derived from the investment of such assets. Municipal Bond and Cash Funds have
not issued shares in any additional series at the present time. Municipal Bond
and Cash Funds have authorized the issuance of an indefinite number of shares of
capital stock of $0.10 par value.

Each of Corporate Bond, Limited Maturity Bond, U.S. Government, High Yield and
Municipal Bond Funds currently issues two classes of shares which participate
proportionately based on their relative net asset values in dividends and
distributions and have equal voting, liquidation and other rights except that
(i) expenses related to the distribution of each class of shares or other
expenses that the Board of Directors may designate as class expenses from time
to time, are borne solely by each class; (ii) each class of shares has exclusive
voting rights with respect to any Distribution Plan adopted for that class;
(iii) each class has different exchange privileges; and (iv) each class has a
different designation. When issued and paid for, the shares of Corporate Bond,
Limited Maturity Bond, U.S. Government, High Yield, Municipal Bond and Cash
Funds will be fully paid and nonassessable by the Funds. Shares may be exchanged
as described above under "Exchange Privilege," but will have no other
preference, conversion, exchange or preemptive rights. Shares are transferable,
redeemable and assignable and have cumulative voting privileges for the election
of directors.

On certain matters, such as the election of directors, all shares of the Series
of Income Fund vote together with each share having one vote. On other matters
affecting a particular Series, such as the investment advisory contract or the
fundamental policies, only shares of that Series are entitled to vote, and a
majority vote of the shares of that Series is required for approval of the
proposal.

The Funds do not generally hold annual meetings of stockholders and will do so
only when required by law. Stockholders may remove directors from office by vote
cast in person or by proxy at a meeting of stockholders. Such a meeting will be
called at the written request of 10% of a Fund's outstanding shares.

CUSTODIAN, TRANSFER AGENT AND DIVIDEND-PAYING AGENT

UMB Bank, N.A., 928 Grand Avenue, Kansas City, Missouri 64106 acts as the
custodian for the portfolio securities of Corporate Bond Fund, Limited Maturity
Bond Fund, U.S. Government Fund, High Yield, Municipal Bond Fund and Cash Fund.
Security Management Company, LLC acts as the Funds' transfer and dividend-paying
agent.

INDEPENDENT AUDITORS

The firm of Ernst & Young LLP, One Kansas City Place, 1200 Main Street, Kansas
City, Missouri, has been selected by a majority of the independent directors of
each Fund to serve as the independent auditors of the Funds, and as such, the
firm will perform the annual audit of each Fund's financial statements.

PERFORMANCE INFORMATION

The Funds may, from time to time, include performance information in
advertisements, sales literature or reports to stockholders or prospective
investors. Performance information in advertisements or sales literature may be
expressed as yield for each of the Funds, effective yield for Cash Fund, taxable
equivalent yield for Municipal Bond Fund and average annual total return and
aggregate total return for Municipal Bond and Income Funds.

For Cash Fund, the current yield will be based upon the seven calendar days
ending on the date of calculation ("the base period"). The total net investment
income earned, exclusive of realized capital gains and losses or unrealized
appreciation and depreciation, during the base period, on a hypothetical
pre-existing account having a balance of one share will be divided by the value
of the account at the beginning of that period. The resulting figure ("the base
period return") will then be multiplied by 365/7 to obtain the current yield.
Cash Fund's current yield for the seven-day period ended December 31, 1998 was
4.40%.

Cash Fund's effective (or compound) yield for the same period was 4.50%. The
effective yield reflects the compounding of the current yield by reinvesting all
dividends and will be computed by compounding the base period return by adding 1
to the base period return, raising the sum to a power equal to 365 divided by 7,
and subtracting 1 from the result. The yield of the Fund may be obtained by
calling the Fund.

Investors should recognize that investment in Cash Fund is not guaranteed or
insured by any state, federal or government agency or by any other person.

With respect to Income Fund and Municipal Bond Fund, quotations of yield will be
based on the investment income per share earned during a particular 30-day
period, less expenses per share accrued during the period ("net investment
income") and will be computed by dividing net investment income by the maximum
offering price per share on the last day of the period, according to the
following formula:

YIELD = 2(( A -B + 1)6 - 1)
----
CD

where A = dividends and interest earned during the period, B = expenses accrued
for the period (net of any reimbursements), C = the average daily number of
shares outstanding during the period that were entitled to receive dividends,
and D = the maximum offering price per share on the last day of the period.

Municipal Bond Fund's tax-equivalent yield, like yield, is based on a 30-day
period and is computed by dividing that portion of the Fund's yield (computed as
described above) which is tax-exempt by one minus a stated income tax rate and
adding the resulting figure to that portion of the Fund's yield, if any, that is
not tax-exempt.

For the 30-day period ended December 31, 1998, the yield for each Fund was the
following:

----------------------------------------------------
CLASS A CLASS B

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

Corporate Bond Fund 5.23% 4.78%

U.S. Government Fund 4.73% 4.18%

Municipal Bond Fund 3.60% 2.72%

Limited Maturity Bond Fund 5.86% 4.68%

High Yield Fund 7.61% 7.08%
----------------------------------------------------

For the same period, the tax equivalent yield for the Class A shares of
Municipal Bond Fund assuming a 15% income tax rate and a 28% income tax rate,
respectively, was 4.24% and 5.00%.

For the same period, the tax equivalent yield for the Class B shares of
Municipal Bond Fund assuming a 15% income tax rate and a 28% income tax rate,
respectively, was 3.20% and 3.78%.

There is no assurance that a yield quoted will remain in effect for any period
of time. Inasmuch as certain estimates must be made in computing average daily
yield, actual yields may vary and will depend upon such factors as the type of
instruments in the Fund's portfolio, the portfolio quality and average maturity
of such instruments, changes in interest rates and the actual Fund expenses.
Yield computations will reflect the expense limitations described in this
Prospectus under "Investment Manager."

Quotations of average annual total return will be expressed in terms of the
average annual compounded rate of return of a hypothetical investment in Income
Fund or Municipal Bond Fund over periods of 1, 5 and 10 years (up to the life of
the Fund), calculated pursuant to the following formula:

P(1 + T)n = ERV

(where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years, and ERV = the ending redeemable value of
a hypothetical $1,000 payment made at the beginning of the period). All average
annual total return figures will reflect the deduction of the maximum initial
sales load in the case of quotations of performance of Class A shares or the
applicable contingent deferred sales charge in the case of quotations of
performance of Class B shares and a proportional share of Fund expenses on an
annual basis, and assume that all dividends and distributions are reinvested
when paid.

For the 1-, 5- and 10-year periods ended December 31, 1998, the average annual
total return for each Fund was the following:

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
------------------- ------------------ ------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
<S> <C> <C> <C> <C> <C> <C>
Corporate Bond Fund 2.48% 1.87% 3.81% 3.76% 7.41% 3.06%1

U.S. Government Fund 3.91% 3.00% 5.52% 5.14% 7.92% 4.53%1

Municipal Bond Fund 1.04% -0.16% 3.57% 3.02% 5.90% 2.68%1

Limited Maturity Bond Fund 2.45% 1.37% 6.60%2 6.20%2 --- ---

High Yield Fund 0.01% -0.79% 7.28%3 7.06%3 --- ---
- ------------------------------------------------------------------------------------------------
1 From October 19, 1993 (date of inception) to December 31, 1998
2 From January 17, 1995 (date of inception) to December 31, 1998
3 From August 5, 1996 (date of inception) to December 31, 1998
- ------------------------------------------------------------------------------------------------
</TABLE>

The aggregate total return for Income and Municipal Bond Funds is calculated for
any specified period of time pursuant to the following formula:

P(1 + T)n = ERV

(where P = a hypothetical initial payment of $1,000, T = the total return, and
ERV = the ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period). All aggregate total return figures will assume that
all dividends and distributions are reinvested when paid. The Funds may, from
time to time, include quotations of total return that do not reflect deduction
of the sales load which, if reflected, would reduce the total return data
quoted.

For the periods ended December 31, 1998, the aggregate total return on an
investment for each Fund calculated as described above was the following:

--------------------------------------------------------
CLASS A CLASS B
--------------------------------------------------------
Corporate Bond Fund 104.4%(1) 16.7%(2)
U.S. Government Fund 114.4%(1) 25.4%(2)
Municipal Bond Fund 77.3%(1) 14.5%(2)
Limited Maturity Bond Fund 28.7%(3) 26.9%(3)
High Yield Fund 18.4%(4) 17.8%(4)
--------------------------------------------------------
1 From December 31, 1987
2 From October 19, 1993
3 From January 17, 1995
4 From August 5, 1996 (date of inception)
--------------------------------------------------------

These figures reflect deduction of the maximum initial sales load and deduction
of the maximum contingent deferred sales charge. Fee waivers and/or expense
reimbursements were in effect for each of the Funds in the year ended December
31, 1998. In the absence of the waivers and/or reimbursements, the yield and
performance quoted above would be reduced.

In addition, quotations of aggregate total return will also be calculated for
several consecutive one-year periods expressing the total return as a percentage
increase or decrease in the value of the investment for each year relative to
the ending value for the previous year.

Quotations of yield, tax-equivalent yield, average annual total return and
aggregate total return will reflect only the performance of a hypothetical
investment during the particular time period shown. Such quotations will vary
based on changes in market conditions and the level of the Fund's expenses, and
no reported performance figure should be considered an indication of performance
which may be expected in the future.

In connection with communicating its yield, tax-equivalent yield, average annual
total return or aggregate total return to current or prospective stockholders,
each Fund also may compare these figures to the performance of other mutual
funds tracked by mutual fund rating services or to other unmanaged indexes which
may assume reinvestment of dividends but generally do not reflect deductions for
administrative and management costs. Each Fund will include performance data for
both Class A and Class B shares of the Fund in any advertisement or report
including performance data of the Fund. Such mutual fund rating services include
the following: Lipper Analytical Services; Morningstar, Inc.; Investment Company
Data; Schabacker Investment Management; Wiesenberger Investment Companies
Service; Computer Directions Advisory (CDA); and Johnson Charts.

RETIREMENT PLANS

Corporate Bond, Limited Maturity Bond, U.S. Government, High Yield and Cash
Funds offer tax-qualified retirement plans for individuals (Individual
Retirement Accounts, known as IRAs), several prototype retirement plans for the
self-employed (Keogh plans), pension and profit-sharing plans for corporations,
and custodial account plans for employees of public school systems and
organizations meeting the requirements of Section 501(c)(3) of the Internal
Revenue Code. Actual documents and detailed materials about the plans will be
provided upon request to the Distributor.

Purchases of Corporate Bond, Limited Maturity Bond, U.S. Government, High Yield
and Cash Fund shares under any of these plans are made at the public offering
price next determined after contributions are received by the Distributor.
Shares owned under any of the plans have full dividend, voting and redemption
privileges. Depending upon the terms of the particular plan, retirement benefits
may be paid in a lump sum or in installment payments over a specified period.
There are possible penalties for premature distributions from such plans.

Security Management Company, LLC is available to act as custodian for the plans
on a fee basis. For IRAs, SIMPLE IRAs, Section 403(b) Retirement Plans, and
Simplified Employee Pension Plans (SEPPs), service fees for such custodial
services currently are: (1) $10 for annual maintenance of the account, and (2)
benefit distribution fee of $5 per distribution. Service fees for other types of
plans will vary. These fees will be deducted from the plan assets. Optional
supplemental services are available from Security Benefit Life Insurance Company
for additional charges.

Retirement investment programs involve commitments covering future years. It is
important that the investment objective and structure of Corporate Bond, Limited
Maturity Bond, U.S. Government, High Yield and Cash Funds be considered by the
investors for such plans. Investments in insurance and annuity contracts also
may be purchased in addition to shares of the Funds.

A brief description of the available tax-qualified retirement plans is provided
below. However, the tax rules applicable to such qualified plans vary according
to the type of plan and the terms and conditions of the plan itself. Therefore,
no attempt is made to provide more than general information about the various
types of qualified plans. Because Municipal Bond Fund's investment objective is
to obtain a high level of interest income exempt from federal taxes, Municipal
Bond Fund is not an appropriate investment for retirement plans.

Investors are urged to consult their own attorneys or tax advisers when
considering the establishment and maintenance of any such plans.

INDIVIDUAL RETIREMENT ACCOUNTS (IRAS)

Individual Retirement Account Custodial Agreements are available to provide
investment in shares of Corporate Bond, Limited Maturity Bond, U.S. Government,
High Yield or Cash Fund, or in other Funds in the Security Group. An individual
may initiate an IRA through the Distributor by executing the custodial agreement
and making a minimum initial investment of at least $100. A $10 annual fee is
charged for maintaining the account.

An individual may make a contribution to a traditional IRA each year of up to
the lesser of $2,000 or 100% of earned income under current tax law. The IRAs
described in this paragraph are called "traditional IRAs" to distinguish them
from the "Roth IRAs" which became available in 1998. Roth IRAs are described
below. Spousal IRAs allow an individual and his or her spouse to contribute up
to $2,000 to their respective IRAs so long as a joint tax return is filed and
joint income is $4,000 or more. The maximum amount the higher compensated spouse
may contribute for the year is the lesser of $2,000 or 100% of that spouse's
compensation. The maximum the lower compensated spouse may contribute is the
lesser of (i) $2,000 or (ii) 100% of that spouse's compensation plus the amount
by which the higher compensated spouse's compensation exceeds the amount the
higher compensated spouse contributes to his or her IRA.

An individual may make a contribution to a traditional IRA which is deductible
for federal income tax purposes. A contribution is deductible if (i) neither the
individual nor his or her spouse is an active participant in an employer's
retirement plan, or (ii) the individual (and his or her spouse, if applicable)
has an adjusted gross income below a specified level. The income limits began
gradually increasing starting with tax years beginning in 1998, eventually
reaching $50,000-$60,000 for single filers in 2005 and thereafter (and reaching
$80,000-$100,000 if married jointly in 2007 and thereafter). In addition, for
tax years beginning after 1997, a married individual may make a deductible IRA
contribution even though the individual's spouse is an active participant in a
qualified employer's retirement plan, subject to a phase-out for adjusted gross
income between $150,000-$160,000. However, an individual not permitted to make a
deductible contribution to an IRA may nevertheless make nondeductible
contributions up to the maximum contribution limit for that year. The
deductibility of IRA contributions under state law varies from state to state.

Contributions must be made in cash no later than April 15 following the close of
the tax year. No annual contribution is permitted for the year in which the
investor reaches age 70 1/2 or any year thereafter.

In addition to annual contributions, total distributions and certain partial
distributions from certain employer-sponsored retirement plans may be eligible
to be reinvested into a traditional IRA if the reinvestment is made within 60
days of receipt of the distribution by the taxpayer. Such rollover contributions
are not subject to the limitations on annual IRA contributions described above.

ROTH IRAS

Section 408A of the Code permits eligible individuals to establish a Roth IRA
for tax years beginning in 1998. Contributions to a Roth IRA are not deductible,
but withdrawals that meet certain requirements are not subject to federal income
tax. The maximum annual contribution amount of $2,000 is phased out if the
individual is single and has an adjusted gross income between $95,000 and
$110,000, or if the individual is married and the couple has a combined adjusted
gross income between $150,000 and $160,000. In general, Roth IRAs are subject to
certain required distribution requirements. Unlike a traditional IRA, Roth IRAs
are not subject to minimum required distribution rules during the owner's
lifetime. Generally, however, the amount remaining in a Roth IRA must be
distributed by the end of the fifth year after the death of the owner.

Beginning in 1998 the owner of a traditional IRA may convert the traditional IRA
into a Roth IRA under certain circumstances. The conversion of a traditional IRA
to a Roth IRA will subject the amount of the converted traditional IRA to
federal income tax. If a traditional IRA is converted to a Roth IRA, the taxable
amount in the owner's traditional IRA will be considered taxable income for
federal income tax purposes for the year of the conversion. Generally, all
amounts in a traditional IRA are taxable except for the owner's prior
non-deductible contributions to the traditional IRA.

EDUCATION IRAS

Section 530 of the Code permits eligible individuals to establish an Education
IRA on behalf of a beneficiary for tax years beginning in 1998. Contributions to
an Education IRA are not deductible, but qualified distributions to the
beneficiary are not subject to federal income tax. The maximum annual
contribution amount of $500 is phased out if the individual is single and has an
adjusted gross income between $95,000 and $110,000, or if the individual is
married and the couple has a combined adjusted gross income between $150,000 and
$160,000. Education IRAs are subject to certain required distribution
requirements. Generally, the amount remaining in an Education IRA must be
distributed by the beneficiary's 30th birthday or rolled into a new Education
IRA for another eligible beneficiary.

SIMPLE IRAS

The Small Business Job Protection Act of 1996 created a new retirement plan, the
Savings Incentive Match Plan for Employees of Small Employers (SIMPLE Plans).
SIMPLE Plan participants must establish a SIMPLE IRA into which plan
contributions will be deposited.

The Investment Manager makes available SIMPLE IRAs to provide investment in
shares of the Funds. Contributions to a SIMPLE IRA may be either salary deferral
contributions or employer contributions. Contributions must be made in cash and
cannot exceed the maximum amount allowed under the Internal Revenue Code. On a
pre-tax basis, up to $6,000 of compensation (through salary deferrals) may be
contributed to a SIMPLE IRA. In addition, employers are required to make either
(1) a dollar-for-dollar matching contribution or (2) a nonelective contribution
to each participant's account each year. In general, matching contributions must
equal up to 3% of compensation, but under certain circumstances, employers may
make lower matching contributions. Instead of the match, employers may make a
nonelective contribution equal to 2% of compensation (compensation for purposes
of any nonelective contribution is limited to $160,000, as indexed).

Distributions from a SIMPLE IRA are (1) taxed as ordinary income; (2) includable
in gross income; and (3) subject to applicable state tax laws.

Distributions prior to age 59 1/2 may be subject to a 10% penalty tax which
increases to 25% for distributions made before a participant has participated in
the SIMPLE Plan for at least two years. An annual fee of $10 is charged for
maintaining the SIMPLE IRA.

PENSION AND PROFIT-SHARING PLANS

Prototype corporate pension or profit-sharing prototype plans meeting the
requirements of Internal Revenue Code Section 401(a) are available. Information
concerning these plans may be obtained from Security Distributors, Inc.

403(B) RETIREMENT PLANS

Employees of public school systems and tax-exempt organizations meeting the
requirements of Internal Revenue Code Section 501(c)(3) may purchase custodial
account plans funded by their employers with shares of Corporate Bond, Limited
Maturity Bond, U.S. Government, High Yield or Cash Fund or other Funds in the
Security Group in accordance with Code Section 403(b). Section 403(b) plans are
subject to numerous restrictions on the amount that may be contributed, the
persons who are eligible to participate and on the time when distributions may
commence.

SIMPLIFIED EMPLOYEE PENSION PLANS (SEPPS)

A prototype SEPP is available for corporations, partnerships or sole proprietors
desiring to adopt such a plan for purchases of IRAs for their employees.
Employers establishing a SEPP may contribute a maximum of $30,000 a year to an
IRA for each employee. This maximum is subject to a number of limitations.

FINANCIAL STATEMENTS

The audited financial statements of the Funds, which are contained in the Funds'
Annual Report dated December 31, 1998, are incorporated herein by reference.
Copies of the Annual Report are provided to every person requesting the
Statement of Additional Information.

TAX-EXEMPT VS. TAXABLE INCOME

The following table shows the approximate taxable yields for individuals that
are equivalent to tax-exempt yields using the 1998 tax rates contained in the
Code. The table illustrates what you would have to earn on taxable investments
to equal a given tax-exempt yield in your federal income tax bracket. Locate
your income (after deductions and exemptions), then locate your tax bracket
based on joint or single tax filing. Read across to the equivalent taxable yield
you would need to match a given tax-free yield. There is, of course, no
assurance that an investment in Municipal Bond Fund will result in the
realization of any particular return.

- ---------------------------------------------------------------------------------------------------------------------
IF YOUR TAXABLE INCOME IS: YOUR AND A TAX-FREE YIELD OF:
- ----------------------------------------- INCOME TAX --------------------------------------------------------------
JOINT RETURN SINGLE RETURN BRACKET IS: 5% 6% 7% 8% 9% 10% 11% 12%
- ---------------------------------------------------------------------------------------------------------------------
1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 - 42,350 0 - 25,350 15.0% 5.88 7.06 8.24 9.41 10.59 11.76 12.94 14.12

42,351 - 102,300 25,351 - 51,400 28.0 6.94 8.33 9.72 11.11 12.50 13.89 15.28 16.67

102,301 - 156,100 51,401 - 128,350 31.0 7.25 8.70 10.14 11.59 13.04 14.49 15.94 17.39

156,101 - 278,450 128,351 - 278,450 36.0 7.81 9.38 10.94 12.50 14.06 15.63 17.19 18.75

278,451 and over 278,451 and over 39.6 8.28 9.93 11.59 13.25 14.90 16.56 18.21 19.87
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

APPENDIX A

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

CLASS A SHARES OF CORPORATE
BOND, LIMITED MATURITY BOND,
U.S. GOVERNMENT, HIGH YIELD
AND MUNICIPAL BOND FUNDS

REDUCED SALES CHARGES -- Initial sales charges may be reduced or eliminated for
persons or organizations purchasing Class A shares of Corporate Bond, Limited
Maturity Bond, U.S. Government, High Yield and Municipal Bond Funds alone or in
combination with Class A shares of other Security Funds.

For purposes of qualifying for reduced sales charges on purchases made pursuant
to Rights of Accumulation, a Statement of Intention or Letters of Intent, the
term "Purchaser" includes the following persons: an individual; his or her
spouse and children under the age 21; a trustee or other fiduciary of a single
trust estate or single fiduciary account established for their benefit; an
organization exempt from federal income tax under Section 501(c)(3) or (13) of
the Internal Revenue Code; or a pension, profit-sharing or other employee
benefit plan whether or not qualified under Section 401 of the Internal Revenue
Code.

RIGHTS OF ACCUMULATION -- To reduce sales charges on purchases of Corporate Bond
Fund, Limited Maturity Bond Fund, U.S. Government Fund, High Yield or Municipal
Bond Fund, a Purchaser may combine all previous purchases with a contemplated
current purchase of Class A shares of a Fund for the purpose of determining the
sales charge applicable to the current purchase. For example, an investor who
already owns Class A shares of a Fund either worth $30,000 at the applicable
current offering price or purchased for $30,000 and who invests an additional
$25,000, is entitled to a reduced sales charge of 3.75% on the latter purchase.
The Distributor must be notified when a sale takes place which would qualify for
the reduced charge on the basis of previous purchases subject to confirmation of
the investor's holdings through the Fund's records. Rights of accumulation apply
also to purchases representing a combination of the Class A shares of Corporate
Bond Fund, Limited Maturity Bond Fund, U.S. Government Fund, High Yield,
Municipal Bond Fund, Security Growth and Income, Security Ultra Fund, or
Security Equity Fund in those states where shares of the Funds being purchased
are qualified for sale.

STATEMENT OF INTENTION -- A Purchaser in Corporate Bond, Limited Maturity Bond,
U.S. Government, High Yield or Municipal Bond Funds may sign a Statement of
Intention, which may be signed within 90 days after the first purchase to be
included thereunder, in the form provided by the Distributor covering purchases
of Corporate Bond Fund, Limited Maturity Bond Fund, U.S. Government Fund, High
Yield, Municipal Bond Fund, Security Equity Fund, Security Growth and Income
Fund, or Security Ultra Fund to be made within a period of 13 months (or a
36-month period for purchases of $1 million or more) and thereby become eligible
for the reduced front-end sales charge applicable to the actual amount purchased
under the Statement. Five percent of the amount specified in the Statement of
Intention will be held in escrow shares until the Statement is completed or
terminated. The shares so held may be redeemed by the Fund if the investor is
required to pay additional sales charge which may be due if the amount of
purchases made by the investor during the period the Statement is effective is
less than the total specified in the Statement of Intention.

A Statement of Intention may be revised during the 13-month period (or, if
applicable, 36-month period). Additional Class A shares received from
reinvestment of income dividends and capital gains distributions (if any are
realized) are included in the total amount used to determine reduced sales
charges. The Statement is not a binding obligation upon the investor to purchase
or any Fund to sell the full indicated amount. An investor considering signing
such an agreement should read the Statement of Intention carefully. A Statement
of Intention form may be obtained from the Investment Manager.

REINSTATEMENT PRIVILEGE -- Stockholders who redeem their Class A shares of
Corporate Bond Fund, Limited Maturity Bond Fund, U.S. Government Fund, High
Yield Fund or Municipal Bond Fund have a one-time privilege (1) to reinstate
their accounts by purchasing shares of the Fund without a sales charge up to the
dollar amount of the redemption proceeds, or (2) to the extent the redeemed
shares would have been eligible for the exchange privilege, to purchase Class A
shares of another of the Funds, Security Equity Fund, Security Ultra Fund, or
Security Growth and Income Fund up to the dollar amount of the redemption
proceeds at a sales charge equal to the additional sales charge, if any, which
would have been applicable had the redeemed shares been exchanged pursuant to
the exchange privilege. Written notice and a check in the amount of the
reinvestment from eligible stockholders wishing to exercise this reinstatement
privilege must be received by the Fund within thirty days after the redemption
request was received (or such longer period as may be permitted by rules and
regulations promulgated under the Investment Company Act of 1940). The net asset
value used in computing the amount of shares to be issued upon reinstatement or
exchange will be the net asset value on the day that notice of the exercise of
the privilege is received. Stockholders making use of the reinstatement
privilege should note that any gains realized upon the redemption will be
taxable while any losses may be deferred under the "wash sale" provision of the
Internal Revenue Code.

<PAGE>

PART C. OTHER INFORMATION

ITEM 23. EXHIBITS

(a) Articles of Incorporation(1)
(b) By-laws(1)
(c) Specimen copy of share certificate for Registrant's shares of capital
stock(1)
(d) (1) Investment Advisory Contract(1)
(2) Sub-Advisory Agreement
(e) (1) Distribution Agreement(1)
(2) Class B Distribution Agreement(2)
(3) Underwriter-Dealer Agreement(5)
(f) Form of Non-Qualified Deferred Compensation Plan(3)
(g) Custodian Agreement - UMB(4)
(h) Administrative Services and Transfer Agency Agreement(3)
(i) Legal Opinion(1)
(j) Consent of Independent Auditors
(k) Not applicable
(l) Not applicable
(m) (1) Class A Distribution Plan(1)
(2) Class B Distribution Plan(3)
(n) Financial Data Schedules
(o) Multiple Class Plan.(6)

(1) Incorporated herein by reference to the Exhibits filed with the Registrant's
Post-Effective Amendment No. 18 to Registration Statement No. 2-73223 (April
30, 1998).

(2) Incorporated herein by reference to the Exhibits filed with the Registrant's
Post-Effective Amendment No. 17 to Registration Statement No. 2-73223 (April
30, 1998).

(3) Incorporated herein by reference to the Exhibits filed with the Registrant's
Post-Effective Amendment No. 16 to Registration Statement No. 2-73223 (April
30, 1997).

(4) Incorporated herein by reference to the Exhibits filed with Security Income
Fund's Post-Effective Amendment No. 62 to Registration Statement No. 2-38414
(April 30, 1999).

(5) Incorporated herein by reference to the Exhibits filed with Security Equity
Fund's Post-Effective Amendment No. 84 to Registration Statement No. 2-19458
(January 28, 1999).

(6) Incorporated herein by reference to the Exhibits filed with Security Equity
Fund's Post-Effective Amendment No. 83 to Registration Statement No. 2-19458
(January 28, 1999).

<PAGE>

ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

Not applicable.

ITEM 25. INDEMNIFICATION.

A policy of insurance covering Security Management Company, LLC, its affiliates,
including Security Distributors, Inc., and all of the registered investment
companies advised by Security Management Company, LLC insures the Registrant's
directors and officers and others against liability arising by reason of an
alleged breach of duty caused by any negligent act, error or accidental omission
in the scope of their duties.

Paragraph 30 of Registrant's Bylaws, dated February 3, 1995, provides as
follows:

30. INDEMNIFICATION AND LIABILITY OF DIRECTORS AND OFFICERS. Each person who is
or was a Director or officer of the Corporation or is or was serving at the
request of the Corporation as a Director or officer of another corporation
(including the heirs, executors, administrators and estate of such person)
shall be indemnified by the Corporation as of right to the full extent
permitted or authorized by the laws of the State of Kansas, as now in effect
and as hereafter amended, against any liability, judgment, fine, amount paid
in settlement, cost and expense (including attorneys' fees) asserted or
threatened against and incurred by such person in his/her capacity as or
arising out of his/her status as a Director or officer of the Corporation
or, if serving at the request of the Corporation, as a Director or officer
of another corporation. The indemnification provided by this bylaw provision
shall not be exclusive of any other rights to which those indemnified may be
entitled under the Articles of Incorporation, under any other bylaw or under
any agreement, vote of stockholders or disinterested directors or otherwise,
and shall not limit in any way any right which the Corporation may have to
make different or further indemnification with respect to the same or
different persons or classes of persons.

No person shall be liable to the Corporation for any loss, damage, liability
or expense suffered by it on account of any action taken or omitted to be
taken by him/her as a director or officer of the Corporation or of any other
corporation which he serves as a Director or officer at the request of the
Corporation, if such person (a) exercised the same degree of care and skill
as a prudent man would have exercised under the circumstances in the conduct
of his/her own affairs, or (b) took or omitted to take such action in
reliance upon advice of counsel for the Corporation, or for such other
corporation, or upon statement made or information furnished by Directors,
officers, employees or agents of the Corporation, or of such other
corporation, which he/she had no reasonable grounds to disbelieve.

In the event any provision of this Section 30 shall be in violation of the
Investment Company Act of 1940, as amended, or of the rules and regulations
promulgated thereunder, such provisions shall be void to the extent of such
violations.

On April 22, 1988, the shareholders approved the Board of Directors'
recommendation that the Articles of Incorporation be amended by adopting the
following Article Fifteenth:

"A director shall not be personally liable to the corporation or to its
stockholders for monetary damages for breach of fiduciary duty as a
director, provided that this sentence shall not eliminate nor limit the
liability of a director:

A. for any breach of his or her duty of loyalty to the corporation or to its
stockholders;
B. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
C. for any unlawful dividend, stock purchase or redemption under the
provisions of Kansas Statutes Annotated (K.S.A.) 17-6424 and amendments
thereto; or
D. for any transaction from which the director derived an improper personal
benefit."

Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

ITEM 26. BUSINESS OR OTHER CONNECTIONS OF INVESTMENT ADVISER

Security Management Company, LLC also acts as investment adviser to Corporate
Bond, Limited Maturity Bond, U.S. Government and High Yield Series of Security
Income Fund, Security Equity Fund, Security Ultra Fund, Security Growth and
Income Fund, Security Cash Fund and SBL Fund.

NAME, BUSINESS* AND OTHER CONNECTIONS OF THE EXECUTIVE OFFICERS AND DIRECTORS OF
REGISTRANT'S ADVISER

JAMES R. SCHMANK
- ----------------
PRESIDENT AND MANAGING MEMBER REPRESENTATIVE--Security Management Company, LLC
SENIOR VICE PRESIDENT--Security Benefit Life Insurance Company; Security Benefit
Group, Inc.
VICE PRESIDENT AND DIRECTOR--Security Distributors, Inc.; Security Growth and
Income Fund; Security Cash Fund; Security Municipal Bond Fund; Security Ultra
Fund; Security Equity Fund; Security Income Fund; SBL Fund; Advisor's Fund
DIRECTOR--MFR Advisors, Inc., One Liberty Plaza, 46th Floor, New York, New York
10006; Stormont-Vail Foundation, 1500 SW 10th, Topeka, Kansas 66604
PRESIDENT AND DIRECTOR--Auburn-Washburn Public Schools Foundation, 5928 SW 53rd,
Topeka, Kansas 66610
TRUSTEE--Eugene P. Mitchell Charitable Remainder Unit Trust (Family Trust)

JOHN D. CLELAND
- ---------------
SENIOR VICE PRESIDENT AND MANAGING MEMBER REPRESENTATIVE--Security Management
Company, LLC
PRESIDENT AND DIRECTOR--Security Cash Fund; Security Income Fund; Security
Municipal Bond Fund; SBL Fund; Security Growth and Income Fund; Security
Equity Fund; Security Ultra Fund; Advisor's Fund
SENIOR VICE PRESIDENT--Security Benefit Life Insurance Company; Security Benefit
Group, Inc.
VICE PRESIDENT AND DIRECTOR--Security Distributors, Inc.
TRUSTEE AND TREASURER--Mount Hope Cemetery Corporation, 4700 SW 17th, Topeka,
Kansas
TRUSTEE AND INVESTMENT COMMITTEE CHAIRMAN--Topeka Community Foundation, 5100 SW
10th, Topeka, Kansas

MARK E. YOUNG
- -------------
VICE PRESIDENT--Security Growth and Income Fund; Security Income Fund; Security
Cash Fund; Security Municipal Bond Fund; Security Ultra Fund; Security Equity
Fund; SBL Fund; Security Management Company, LLC
SECOND VICE PRESIDENT--Security Benefit Life Insurance Company; Security Benefit
Group, Inc.
ASSISTANT VICE PRESIDENT--First Security Benefit Life Insurance and Annuity
Company of New York
VICE PRESIDENT AND DIRECTOR--Security Distributors, Inc.
TRUSTEE--Topeka Zoological Foundation, Topeka, Kansas

TERRY A. MILBERGER
- ------------------
SENIOR VICE PRESIDENT AND SENIOR PORTFOLIO MANAGER--Security Management Company,
LLC
SENIOR VICE PRESIDENT--Security Benefit Life Insurance Company; Security Benefit
Group, Inc.
VICE PRESIDENT--Security Equity Fund; SBL Fund

MICHAEL A. PETERSEN
- -------------------
VICE PRESIDENT AND SENIOR PORTFOLIO MANAGER--Security Management Company, LLC
VICE PRESIDENT--Security Benefit Life Insurance Company; Security Benefit Group,
Inc.; SBL Fund; Security Growth and Income Fund

JANE A. TEDDER
- --------------
VICE PRESIDENT AND SENIOR ECONOMIST--Security Management Company, LLC
VICE PRESIDENT--Security Benefit Life Insurance Company; Security Benefit Group,
Inc.; SBL Fund

AMY J. LEE
- ----------
VICE PRESIDENT, ASSOCIATE GENERAL COUNSEL AND ASSISTANT SECRETARY--Security
Benefit Life Insurance Company; Security Benefit Group, Inc.
SECRETARY--Security Management Company, LLC; Security Distributors, Inc.;
Security Cash Fund; Security Equity Fund; Security Municipal Bond Fund;
Security Ultra Fund; SBL Fund; Security Growth and Income Fund; Security
Income Fund; Advisor's Fund
DIRECTOR--Midland Hospice Care, Inc., 200 SW Frazier Court, Topeka, Kansas 66606

BRENDA M. HARWOOD
- -----------------
ASSISTANT VICE PRESIDENT AND TREASURER--Security Management Company, LLC
TREASURER--Security Equity Fund; Security Ultra Fund; Security Growth and Income
Fund; Security Income Fund; Security Cash Fund; SBL Fund; Security Municipal
Bond Fund; Advisor's Fund; Security Distributors, Inc.
ASSISTANT VICE PRESIDENT--Security Benefit Life Insurance Company; Security
Benefit Group, Inc.
DIRECTOR--Security Distributors, Inc.

STEVEN M. BOWSER
- ----------------
SECOND VICE PRESIDENT AND PORTFOLIO MANAGER--Security Management Company, LLC
SECOND VICE PRESIDENT--Security Benefit Life Insurance Company; Security Benefit
Group, Inc.
VICE PRESIDENT--Security Income Fund; Security Equity Fund; SBL Fund

THOMAS A. SWANK
- ---------------
VICE PRESIDENT AND PORTFOLIO MANAGER--Security Management Company, LLC
VICE PRESIDENT AND CHIEF INVESTMENT OFFICER--Security Benefit Life Insurance
Company; Security Benefit Group, Inc.
VICE PRESIDENT--SBL Fund; Security Income Fund

CINDY L. SHIELDS
- ----------------
SECOND VICE PRESIDENT AND PORTFOLIO MANAGER--Security Management Company, LLC
SECOND VICE PRESIDENT--Security Benefit Life Insurance Company; Security Benefit
Group, Inc.
VICE PRESIDENT--SBL Fund; Security Equity Fund

LARRY L. VALENCIA
- -----------------
ASSISTANT VICE PRESIDENT AND SENIOR RESEARCH ANALYST--Security Management
Company, LLC
ASSISTANT VICE PRESIDENT--Security Benefit Life Insurance Company; Security
Benefit Group, Inc.

JAMES P. SCHIER
- ---------------
SECOND VICE PRESIDENT AND PORTFOLIO MANAGER--Security Management Company, LLC
SECOND VICE PRESIDENT--Security Benefit Life Insurance Company; Security Benefit
Group, Inc.
VICE PRESIDENT--SBL Fund; Security Equity Fund; Security Ultra Fund

DAVID ESHNAUR
- -------------
ASSISTANT VICE PRESIDENT AND PORTFOLIO MANAGER--Security Management Company, LLC
ASSISTANT VICE PRESIDENT--Security Benefit Life Insurance Company; Security
Benefit Group, Inc.
VICE PRESIDENT--SBL Fund; Security Income Fund; Security Equity Fund

CHRISTOPHER D. SWICKARD
- -----------------------
ASSISTANT SECRETARY--Security Management Company, LLC; Security Cash Fund;
Security Equity Fund; Security Municipal Bond Fund; Security Ultra Fund; SBL
Fund; Security Growth and Income Fund; Security Income Fund; Advisor's Fund
ASSISTANT VICE PRESIDENT AND ASSISTANT COUNSEL--Security Benefit Life Insurance
Company; Security Benefit Group, Inc.
DIRECTOR AND SECRETARY--Security Benefit Academy, Inc.

*Located at 700 Harrison, Topeka, Kansas 66636-0001

SALOMON BROTHERS ASSET MANAGEMENT INC.:

Salomon Brothers Asset Management Inc., sub-adviser to Security Municipal Bond
Fund, provides a broad range of investment advisory services to various
individuals and institutional clients located throughout the world and serves as
investment adviser to various investment companies.

For information as to the business, profession, vocation or employment of a
substantial nature of each director, officer or partner of Salomon Brothers
Asset Management Inc., reference is made to Schedules A and D of Form ADV filed
by Salomon Brothers Asset Management Inc. under the Investment Advisers Act of
1940 (SEC File No. 801-32046) which is incorporated by reference.

ITEM 27. PRINCIPAL UNDERWRITERS

(a) Security Equity Fund
Security Ultra Fund
Security Growth and Income Fund
Security Income Fund
Variflex Variable Separate Account (Variflex)
Variflex Variable Separate Account (Variflex ES)
Varilife Variable Separate Account
Parkstone Variable Annuity
Security Varilife Separate Account
Variable Annuity Account VIII (Variflex LS)
Variable Annuity Account VIII (Variflex
Signature) SBL Variable Annuity Account X

(b) (1) (2) (3)
NAME AND PRINCIPAL POSITION AND OFFICES POSITION AND OFFICES
BUSINESS ADDRESS* WITH UNDERWRITER WITH REGISTRANT

Richard K Ryan President & Director None
John D. Cleland Vice President & Director President & Director
James R. Schmank Vice President & Director Vice President & Director
Mark E. Young Vice President & Director Vice President
Amy J. Lee Secretary Secretary
Brenda M. Harwood Treasurer and Director Treasurer
William G. Mancuso Regional Vice President None

*700 Harrison, Topeka, Kansas 66636-0001

ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.

Certain accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the rules promulgated thereunder are maintained by
Security Management Company, LLC, 700 Harrison, Topeka, Kansas 66636-0001 and
Salomon Brothers Asset Management Inc., 7 World Trade Center, New York, New York
10048. Records relating to the duties of the Registrant's custodian are
maintained by UMB Bank, n.a., 928 Grand Avenue, Kansas City, Missouri 64106.

ITEM 29. MANAGEMENT SERVICES.

Not applicable.

ITEM 30. UNDERTAKINGS.

Not applicable.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Topeka, and State of Kansas on the 10th day of April,
1999.

SECURITY MUNICIPAL BOND FUND
(The Fund)

By: JOHN D. CLELAND
-------------------------------------
John D. Cleland, President

Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated:

Date: April 10, 1999
-----------------------------------

DONALD A. CHUBB, JR. Director
- ---------------------------------
Donald A. Chubb, Jr.

JOHN D. CLELAND President and Director
- ---------------------------------
John D. Cleland

PENNY A. LUMPKIN Director
- ---------------------------------
Penny A. Lumpkin

MARK L. MORRIS, JR. Director
- ---------------------------------
Mark L. Morris, Jr.

JAMES R. SCHMANK Director
- ---------------------------------
James R. Schmank

MAYNARD OLIVERIUS Director
- ---------------------------------
Maynard Oliverius

BRENDA M. HARWOOD Treasurer (Principal Financial Officer)
- --------------------------------
Brenda M. Harwood

<PAGE>

SUBADVISORY AGREEMENT

THIS AGREEMENT is made and entered into as of the 1st day of May, 1998
between SECURITY MANAGEMENT COMPANY, LLC (the "Adviser"), a Kansas limited
liability company, registered under the Investment Advisers Act of 1940, as
amended (the "Investment Advisers Act"), and SALOMON BROTHERS ASSET MANAGEMENT
INC (the "Subadviser"), a Delaware corporation registered under the Investment
Advisers Act.

WITNESSETH:

WHEREAS, Security Tax-Exempt Fund (the "Fund"), a Kansas corporation, is
registered with the Securities and Exchange Commission (the "Commission") as an
open-end management investment company under the Investment Company Act of 1940,
as amended (the "Investment Company Act");

WHEREAS, the Fund has, pursuant to an Advisory Agreement with the Adviser
(the "Advisory Agreement"), retained the Adviser to act as investment adviser
for and to manage its assets;

WHEREAS, the Advisory Agreement permits the Adviser to delegate certain of
its duties under the Advisory Agreement to other investment advisers, subject to
the requirements of the Investment Company Act; and

WHEREAS, the Adviser desires to retain the Subadviser as subadviser for the
Fund to act as investment adviser for and to manage the Fund's Investments (as
defined below) and the Subadviser desires to render such services.

NOW, THEREFORE, the Adviser and Subadviser do mutually agree and promise as
follows:

1. APPOINTMENT AS SUBADVISER. The Adviser hereby retains the Subadviser to
act as investment adviser for and to manage certain assets of the Fund subject
to the supervision of the Adviser and the Board of Directors of the Fund and
subject to the terms of this Agreement; and the Subadviser hereby accepts such
employment. In such capacity, the Subadviser shall be responsible for the Fund's
Investments.

2. DUTIES OF SUBADVISER.

(a) INVESTMENTS. The Subadviser is hereby authorized and directed and
hereby agrees, subject to the stated investment policies and restrictions of
the Fund as set forth in its prospectus and statement of additional
information as currently in effect and as supplemented or amended from time
to time (collectively referred to hereinafter as the "Prospectus") and
subject to the directions of the Adviser and the Fund's Board to purchase,
hold and sell investments for the account of the Fund (hereinafter
"Investments") and to monitor on a continuous basis the performance of such
Investments. The Subadviser shall give the Fund the benefit of its best
efforts in rendering its services as Subadviser. The Subadviser may contract
with or consult with such banks, other securities firms, brokers or other
parties, without additional expense to the Fund, as it may deem appropriate
regarding investment advice, research and statistical data, clerical
assistance or otherwise.

(b) BROKERAGE. The Subadviser is authorized, subject to the supervision of
the Adviser and the Fund's Board to establish and maintain accounts on behalf
of the Fund with, and place orders for the purchase and sale of the Fund's
Investments with or through, such persons, brokers or dealers as Subadviser
may select and negotiate commissions to be paid on such transactions. The
Subadviser agrees that in placing such orders it shall attempt to obtain best
execution, provided that, the Subadviser may, on behalf of the Fund, pay
brokerage commissions to a broker which provides brokerage and research
services to the Subadviser in excess of the amount another broker would have
charged for effecting the transaction, provided (i) the Subadviser determines
in good faith that the amount is reasonable in relation to the value of the
brokerage and research services provided by the executing broker in terms of
the particular transaction or in terms of the Subadviser's overall
responsibilities with respect to the Fund and the accounts as to which the
Subadviser exercises investment discretion, (ii) such payment is made in
compliance with Section 28(e) of the Securities Exchange Act of 1934, as
amended, and any other applicable laws and regulations, and (iii) in the
opinion of the Subadviser, the total commissions paid by the Fund will be
reasonable in relation to the benefits to the Fund over the long term. It is
recognized that the services provided by such brokers may be useful to the
Subadviser in connection with the Subadviser's services to other clients. On
occasions when the Subadviser deems the purchase or sale of a security to be
in the best interests of a Fund as well as other clients of the Subadviser,
the Subadviser, to the extent permitted by applicable laws and regulations,
may, but shall be under no obligation to, aggregate the securities to be sold
or purchased in order to obtain the most favorable price or lower brokerage
commissions and efficient execution. In such event, allocation of securities
so sold or purchased, as well as the expenses incurred in the transaction,
will be made by the Subadviser in the manner the Subadviser considers to be
the most equitable and consistent with its fiduciary obligations to the Fund
and to such other clients. The Subadviser will report on such allocations at
the request of the Adviser, the Fund or the Fund's Board providing such
information as the number of aggregated trades to which the Fund was a party,
the broker(s) to whom such trades were directed and the basis of the
allocation for the aggregated trades.

(c) SECURITIES TRANSACTIONS. The Subadviser and any affiliated person of
the Subadviser will not purchase securities or other instruments from or sell
securities or other instruments to a Fund ("Principal Transactions");
PROVIDED, HOWEVER, the Subadviser and any affiliated person of the Subadviser
may enter into a Principal Transaction with a Fund if (i) the transaction is
permissible under applicable laws and regulations, including, without
limitation, the Investment Company Act and the Investment Advisers Act and
the rules and regulations promulgated thereunder, and (ii) the transaction
receives the express written approval of the Adviser.

The Subadviser agrees to observe and comply with Rule 17j-1 under the
Investment Company Act and its Code of Ethics, as the same may be amended
from time to time. The Subadviser agrees to provide the Adviser and the Fund
with a copy of such Code of Ethics.

(d) BOOKS AND RECORDS. The Subadviser will maintain all books and records
required to be maintained pursuant to the Investment Company Act and the
rules and regulations promulgated thereunder with respect to transactions
made by it on behalf of the Fund including, without limitation, the books and
records required by Subsections (b)(1), (5), (6), (7), (9), (10) and (11) and
Subsection (f) of Rule 31a-1 under the Investment Company Act and shall
timely furnish to the Adviser all information relating to the Subadviser's
services hereunder needed by the Adviser to keep such other books and records
of the Fund required by Rule 31a-1 under the Investment Company Act. The
Subadviser will also preserve all such books and records for the periods
prescribed in Rule 31a-2 under the Investment Company Act, and agrees that
such books and records shall remain the sole property of the Fund and shall
be immediately surrendered to the Fund upon request. The Subadviser further
agrees that all books and records maintained hereunder shall be made
available to the Fund or the Adviser at any time upon reasonable request,
including telecopy, during any business day.

(e) INFORMATION CONCERNING INVESTMENTS AND SUBADVISER. From time to time
as the Adviser or the Fund may request, the Subadviser will furnish the
requesting party reports on portfolio transactions and reports on Investments
held in the portfolio, all in such detail as the Adviser or the Fund may
reasonably request. The Subadviser will make available its officers and
employees to meet with the Fund's Board of Directors at the Fund's principal
place of business on due notice to review the Investments of the Fund.

The Subadviser will also provide such information or perform such
additional acts as are customarily performed by a subadviser and may be
required for the Fund or the Adviser to comply with their respective
obligations under applicable laws, including, without limitation, the
Internal Revenue Code of 1986, as amended (the "Code"), the Investment
Company Act, the Investment Advisers Act, the Securities Act of 1933, as
amended (the "Securities Act") and any state securities laws, and any rule or
regulation thereunder.

(f) CUSTODY ARRANGEMENTS. The Subadviser shall provide the Fund's
custodian, on each business day with information relating to all transactions
concerning the Fund's assets.

(g) COMPLIANCE WITH APPLICABLE LAWS AND GOVERNING DOCUMENTS. In all
matters relating to the performance of this Agreement, the Subadviser and its
directors, officers, partners, employees and interested persons shall act in
conformity with the Fund's Articles of Incorporation, By-Laws, and currently
effective registration statement and with the written instructions and
directions of the Fund's Board and the Adviser, and shall comply with the
requirements of the Investment Company Act, the Investment Advisers Act, the
Commodity Exchange Act, the rules thereunder, and all other applicable
federal and state laws and regulations.

In carrying out its obligations under this Agreement, the Subadviser shall
ensure that the Fund complies with all applicable statutes and regulations
necessary to qualify the Fund as a Regulated Investment Company under
Subchapter M of the Code (or any successor provision), and shall notify the
Adviser immediately upon having a reasonable basis for believing that the
Fund has ceased to so qualify or that it might not so qualify in the future.

The Adviser has furnished the Subadviser with copies of each of the
following documents and will furnish the Subadviser at its principal office
all future amendments and supplements to such documents, if any, as soon as
practicable after such documents become available: (i) the Articles of
Incorporation of the Fund, (ii) the By-Laws of the Fund and (iii) the Fund's
registration statement under the Investment Company Act and the Securities
Act of 1933, as amended, as filed with the Commission.

(h) VOTING OF PROXIES. The Subadviser shall direct the custodian as to how
to vote such proxies as may be necessary or advisable in connection with any
matters submitted to a vote of shareholders of securities held by the Fund.

3. INDEPENDENT CONTRACTOR. In the performance of its duties hereunder, the
Subadviser is and shall be an independent contractor and unless otherwise
expressly provided herein or otherwise authorized in writing, shall have no
authority to act for or represent the Fund or the Adviser in any way or
otherwise be deemed an agent of the Fund or the Adviser.

4. COMPENSATION. The Adviser shall pay to the Subadviser, for the services
rendered hereunder, an annual fee equal to 0.22 percent of the average daily
closing value of the net assets of the Fund, computed on a daily basis and
payable monthly. If this Agreement shall be effective for only a portion of a
year, then the Subadviser's compensation for said year shall be prorated for
such portion. For purposes of this paragraph 4, the value of the net assets of
the Fund shall be computed in the same manner at the end of the business day as
the value of such net assets is computed in connection with the determination of
the net asset value of the Fund's shares as described in the Fund's Prospectus.
Payment of the Subadviser's compensation for the preceding month shall be made
as promptly as possible after the end of each month.

5. EXPENSES. The Subadviser shall bear all expenses incurred by it in
connection with its services under this Agreement and will, from time to time,
at its sole expense employ or associate itself with such persons as it believes
to be particularly fitted to assist it in the execution of its duties hereunder.
However, the Subadviser shall not assign or delegate any of its duties under
this Agreement without the approval of the Adviser and the Fund's Board.

6. REPRESENTATIONS AND WARRANTIES OF SUBADVISER. The Subadviser represents
and warrants to the Adviser and the Fund as follows:

(a) The Subadviser is registered as an investment adviser under the
Investment Advisers Act;

(b) The Subadviser will immediately notify the Adviser of the occurrence
of any event that would disqualify the Subadviser from serving as an
investment adviser of an investment company pursuant to Section 9(a) of the
Investment Company Act;

(c) The Subadviser has filed a notice of exemption pursuant to Rule 4.14
under the CEA with the Commodity Futures Trading Commission (the "CFTC") and
the National Futures Association;

(d) The Subadviser is a corporation duly organized and validly existing
under the laws of the State of Delaware with the power to own and possess its
assets and carry on its business as it is now being conducted;

(e) The execution, delivery and performance by the Subadviser of this
Agreement are within the Subadviser's powers and have been duly authorized by
all necessary action on the part of its shareholders, and no action by or in
respect of, or filing with, any governmental body, agency or official is
required on the part of the Subadviser for the execution, delivery and
performance by the Subadviser of this Agreement, and the execution, delivery
and performance by the Subadviser of this Agreement do not contravene or
constitute a default under (i) any provision of applicable law, rule or
regulation, (ii) the Subadviser's governing instruments, or (iii) any
agreement, judgment, injunction, order, decree or other instrument binding
upon the Subadviser;

(f) This Agreement is a valid and binding agreement of the Subadviser;

(g) The Form ADV of the Subadviser previously provided to the Adviser is a
true and complete copy of the form filed with the Commission and the
information contained therein is accurate and complete in all material
respects and does not omit to state any material fact necessary in order to
make the statements made, in light of the circumstances under which they were
made, not misleading;

7. REPRESENTATIONS AND WARRANTIES OF ADVISER. The Adviser represents and
warrants to the Subadviser as follows:

(a) The Adviser is registered as an investment adviser under the
Investment Advisers Act;

(b) The Adviser has filed a notice of exemption pursuant to Rule 4.14
under the CEA with the Commodity Futures Trading Commission (the "CFTC") and
the National Futures Association;

(c) The Adviser is a limited liability company duly organized and validly
existing under the laws of the State of Kansas with the power to own and
possess its assets and carry on its business as it is now being conducted;

(d) The execution, delivery and performance by the Adviser of this
Agreement are within the Adviser's powers and have been duly authorized by
all necessary action on the part of its members, and no action by or in
respect of, or filing with, any governmental body, agency or official is
required on the part of the Adviser for the execution, delivery and
performance by the Adviser of this Agreement, and the execution, delivery and
performance by the Adviser of this Agreement do not contravene or constitute
a default under (i) any provision of applicable law, rule or regulation, (ii)
the Adviser's governing instruments, or (iii) any agreement, judgment,
injunction, order, decree or other instrument binding upon the Adviser;

(e) This Agreement is a valid and binding agreement of the Adviser;

(f) The Form ADV of the Adviser previously provided to the Subadviser is a
true and complete copy of the form filed with the Commission and the
information contained therein is accurate and complete in all material
respects and does not omit to state any material fact necessary in order to
make the statements made, in light of the circumstances under which they were
made, not misleading;

(g) The Adviser acknowledges that it received a copy of the Subadviser's
Form ADV at least 48 hours prior to the execution of this Agreement.

8. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; DUTY TO UPDATE INFORMATION.
All representations and warranties made by the Subadviser and the Adviser
pursuant to Sections 6 and 7 hereof shall survive for the duration of this
Agreement and the parties hereto shall promptly notify each other in writing
upon becoming aware that any of the foregoing representations and warranties are
no longer true.

9. LIABILITY AND INDEMNIFICATION.

(a) LIABILITY. In the absence of willful misfeasance, bad faith or gross
negligence on the part of the Subadviser or a breach of its duties hereunder,
the Subadviser shall not be subject to any liability to the Adviser or the
Fund or any of the Fund's shareholders, and, in the absence of willful
misfeasance, bad faith or gross negligence on the part of the Adviser or a
breach of its duties hereunder, the Adviser shall not be subject to any
liability to the Subadviser, for any act or omission in the case of, or
connected with, rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of Investments; PROVIDED, HOWEVER,
that nothing herein shall relieve the Adviser and the Subadviser from any of
their obligations under applicable law, including, without limitation, the
federal and state securities laws and the CEA.

(b) INDEMNIFICATION. The Subadviser shall indemnify the Adviser and the
Fund, and their respective officers and directors, for any liability and
expenses, including attorneys' fees, which may be sustained as a result of
the Subadviser's willful misfeasance, bad faith, gross negligence, breach of
its duties hereunder or violation of applicable law, including, without
limitation, the federal and state securities laws or the CEA. The Adviser
shall indemnify the Subadviser and its officers and directors, for any
liability and expenses, including attorneys' fees, which may be sustained as
a result of the Adviser's willful misfeasance, bad faith, gross negligence,
breach of its duties hereunder or violation of applicable law, including,
without limitation, the federal and state securities laws or the CEA.

10. DURATION AND TERMINATION.

(a) DURATION. This Agreement shall become effective upon the date first
above written, provided that this Agreement shall not take effect with
respect to the Fund unless it has first been approved (i) by a vote of a
majority of those directors of the Fund who are not parties to this Agreement
or interested persons of any such party, cast in person at a meeting called
for the purpose of voting on such approval, and (ii) by vote of a majority of
the Fund's outstanding voting securities (as defined in the Investment
Company Act). This Agreement shall continue in effect for a period of two
years from the date hereof, subject thereafter to being continued in force
and effect from year to year with respect to the Fund if specifically
approved each year by either (i) the Board of Directors of the Fund, or (ii)
by the affirmative vote of a majority of the Fund's outstanding voting
securities (as defined in the Invest Company Act). In addition to the
foregoing, each renewal of this Agreement with respect to the Fund must be
approved by the vote of a majority of the Fund's directors who are not
parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval. Prior
to voting on the renewal of this Agreement, the Board of Directors of the
Fund may request and evaluate, and the Subadviser shall furnish, such
information as may reasonably be necessary to enable the Fund's Board of
Directors to evaluate the terms of this Agreement.

(b) TERMINATION. Notwithstanding whatever may be provided herein to the
contrary, this Agreement may be terminated at any time, without payment of
any penalty:

(i) By vote of a majority of the Board of Directors of the Fund, or
by vote of a majority of the outstanding voting securities of the Fund, or
by the Adviser, in each case, upon sixty (60) days' written notice to the
Subadviser;

(ii) By the Adviser upon breach by the Subadviser of any
representation or warranty contained in Section 6 hereof, which shall not
have been cured during the notice period, upon twenty (20) days written
notice;

(iii) By the Adviser immediately upon written notice to the
Subadviser if the Subadviser becomes unable to discharge its duties and
obligations under this Agreement; or

(iv) By the Subadviser upon 60 days written notice to the Adviser and
the Fund.

This Agreement shall not be assigned (as such term is defined in the
Investment Company Act) without the prior written consent of the parties
hereto. This Agreement shall terminate automatically in the event of its
assignment without such consent or upon the termination of the Advisory
Agreement.

11. DUTIES OF THE ADVISER. The Adviser shall continue to have responsibility
for all services to be provided to the Fund pursuant to the Advisory Agreement
and shall oversee and review the Subadviser's performance of its duties under
this Agreement.

12. AMENDMENT. This Agreement may be amended by mutual consent of the
parties, provided that the terms of each such amendment with respect to the Fund
shall be approved by the Board of Directors of the Fund or by a vote of a
majority of the outstanding voting securities of the Fund (as defined in the
Investment Company Act).

13. CONFIDENTIALITY. Subject to the duties of the Adviser, the Fund and the
Subadviser to comply with applicable law, including any demand of any regulatory
or taxing authority having jurisdiction, the parties hereto shall treat as
confidential all information pertaining to the Fund and the actions of the
Subadviser, the Adviser and the Fund in respect thereof.

14. NOTICE. Any notice that is required to be given by the parties to each
other (or to the Fund) under the terms of this Agreement shall be in writing,
delivered, or mailed postpaid to the other party, or transmitted by facsimile
with acknowledgment of receipt, to the parties at the following addresses or
facsimile numbers, which may from time to time be changed by the parties by
notice to the other party:

(a) If to the Subadviser:

Salomon Brothers Asset Management Inc.
7 World Trade Center
New York, New York 10048
Attention: Marybeth Whyte
Copy to: Robert Amodeo
Facsimile: (212) 783-3601

(b) If to the Adviser:

James R. Schmank
President
Security Management Company, LLC
700 SW Harrison
Topeka, Kansas 66636-0001
Attention: James R. Schmank
Facsimile: (785) 431-3080

Amy J. Lee
Secretary
Security Tax-Exempt Fund
700 SW Harrison
Topeka, Kansas 66636-0001
Attention: Amy J. Lee, Secretary
Facsimile: (785) 431-3080

15. GOVERNING LAW; JURISDICTION. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Kansas.

16. COUNTERPARTS. This Agreement may be executed in one or more counterparts,
all of which shall together constitute one and the same instrument.

17. CAPTIONS. The captions herein are included for convenience of reference
only and shall be ignored in the construction or interpretation hereof.

18. SEVERABILITY. If any provision of this Agreement shall be held or made
invalid by a court decision or applicable law, the remainder of the Agreement
shall not be affected adversely and shall remain in full force and effect.

19. CERTAIN DEFINITIONS.

(a) "BUSINESS DAY." As used herein, business day means any customary
business day in the United States on which the New York Stock Exchange is
open.

(b) MISCELLANEOUS. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise derived from
a term or provision of the Investment Company Act shall be resolved by
reference to such term or provision of the Investment Company Act and to
interpretations thereof, if any, by the U.S. courts or, in the absence of any
controlling decisions of any such court, by rules, regulation or order of the
Commission validly issued pursuant to the Investment Company Act.
Specifically, as used herein, "investment company," "affiliated person,"
"interested person," "assignment," "broker," "dealer" and "affirmative vote
of the majority of the Fund's outstanding voting securities" shall all have
such meaning as such terms have in the Investment Company Act. The term
"investment adviser" shall have such meaning as such term has in the
Investment Advisers Act and the Investment Company Act, and in the event of a
conflict between such Acts, the most expansive definition shall control. In
addition, where the effect of a requirement of the Investment Company Act
reflected in any provision of this Agreement is relaxed by a rule, regulation
or order of the Commission, whether of special or general application, such
provision shall be deemed to incorporate the effect of such rule, regulation
or order.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first written above.

SECURITY MANAGEMENT COMPANY, LLC

By: JAMES R. SCHMANK
---------------------------------
Name: James R. Schmank
Title: President

Attest: AMY J. LEE
---------------------------------
Name: Amy J. Lee
Title: Secretary

SALOMON BROTHERS ASSET MANAGEMENT INC

By: MICHAEL S. HYLAND
---------------------------------
Name: Michael S. Hyland
Title: President

Attest: ROBERT A. VEGLIANTE
---------------------------------
Name: Robert A. Vegliante
Title: Deputy General Counsel

<PAGE>

CONSENT OF INDEPENDENT AUDITORS

We consent to the references to our firm under the captions "Financial
Highlights" and "Independent Auditors" and to the incorporation by reference of
our report dated February 5, 1999 in the Post-Effective Amendment No. 19 to the
Registration Statement (Form N-1A) and related Prospectus and Statement of
Additional Information of Security Municipal Bond Fund filed with the Securities
and Exchange Commission under the Securities Act of 1933 (Registration No.
2-73223) and under the Investment Company Act of 1940 (Registration No.
811-3225).

Ernst & Young LLP

Kansas City, Missouri
April 27, 1999

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