<PAGE>
SECURITY FUNDS
================================================================================
SEMI-ANNUAL REPORT
JUNE 30, 1997
*SECURITY INCOME FUND
- CORPORATE BOND SERIES
- U.S. GOVERNMENT SERIES
- LIMITED MATURITY BOND SERIES
- HIGH YIELD SERIES
*SECURITY TAX-EXEMPT FUND
*SECURITY CASH FUND
[SDI LOGO]
SECURITY DISTRIBUTORS, INC.
A Member of The Security Benefit
Group of Companies
<PAGE>
PRESIDENT'S LETTER
AUGUST 15, 1997
To Our Shareholders:
The first six months of 1997 have been a roller-coaster ride for fixed income
investors. At the beginning of the year the bellwether thirty-year Treasury bond
yielded 6.64%. By late April the yield had risen to 7.14% before it began its
descent to 6.78% at the end of June. As you know, bond prices move inversely to
yields, staging a "mirror" roller coaster ride which produced a 2.3% total
return on the long Treasury bond for the period.
THE INFLATION STORY IN 1997
Contrary to what this volatility might indicate, the compelling story for the
six-month period was the absence of reacceleration of inflation pressures. In
fact, evidence suggests that inflation is actually declining. This is true
particularly when one takes into account the overstatement of structural
inflation revealed by the Boskin report, the study commissioned by the Senate
Finance Committee to review the calculation of the Consumer Price Index (CPI).
This report found that the CPI probably overstates true increases in the cost of
living by approximately 1.1% per year.
This leaves us with the understanding that real interest rates on the long
Treasury bond are 300 to 400 basis points higher than might be expected given
today's actual annualized inflation rate of around 2%. We therefore conclude
that there is opportunity for further declines in long-term rates with their
commensurate increase in bond prices as we move through the second half of 1997.
CAN THE GOOD NEWS CONTINUE?
The good news on the inflation front should continue to be a positive influence
on fixed income markets for some time as the economy continues to slow its
growth rate from the torrid pace of 1997's first quarter. We believe that due to
the continuation of productivity improvements in U.S. businesses, economic
growth rates of around 3% may be sustainable without reigniting inflation. This
is in contrast to the 2% to 2.5% rates of growth that have been historically
viewed by the Federal Reserve Board as a "speed bump." Therefore, for fixed
income investors the climate should remain favorable for returns of at least the
portfolio coupon rate, with the possibility of some capital appreciation if long
term interest rates decline as we believe they will, in recognition of the
pattern of slowing global inflation pressures.
As always, we appreciate your continuing investment in the Security Funds. We
invite your questions and comments at any time.
John Cleland, President
The Security Funds
1
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MANAGER'S COMMENTARY
AUGUST 15, 1997
SECURITY INCOME FUND
CORPORATE BOND SERIES
Volatility was the key word for fixed income market behavior in the first half
of 1997. The thirty-year Treasury bond began the year yielding 6.64% and
finished June at 6.78%. In the intervening months it rose as high as 7.14%,
managing to gain only 2.3% in total return over the six months. Corporate issues
fared slightly better, as the Lehman Corporate Bond Index rose 3.07%. The
Corporate Bond Series of Security Income Fund generated a positive total return
for the six-month period of 2.35%, slightly lagging its peer group average of
2.68%.(1)
CONTRIBUTORS TO PERFORMANCE IN THE FIRST HALF
The Series underperformed in the first quarter of 1997 primarily because of its
position in property and casualty insurer Home Holdings. This company, which was
beset with problems among some of its insured risks, continued to lose value and
was ultimately sold from the portfolio.
While the first quarter's total return was negative, the second quarter was much
improved. Steps were taken to upgrade the overall credit quality of the
holdings. The high yield portion of the portfolio is now concentrated in issues
rated BB and B, the upper tiers of the high yield rating universe. Some of these
issues have the potential to be upgraded to investment grade ratings in the
not-too-distant future, which should add a capital gain return element to their
attractive coupon rates.
HOW THE PORTFOLIO LOOKS NOW
The sector composition of the portfolio at the end of June was about 53.5% high
grade corporate bonds, 20% high yield issues, 17% Yankee bonds (U.S.
dollar-denominated securities issued by foreign corporations), and 9.5%
mortgage-backed bonds issued primarily by agencies of the U.S. Government. This
sector diversification gives the portfolio some downside protection because the
various sectors will not always move up or down in value in tandem.
The average rating of the portfolio is a strong BBB, and the average coupon of
the portfolio holdings is 7.92%. Average duration of the securities is about 6.6
years, slightly longer than that of the benchmark Lehman Corporate Bond Index
duration of 5.88 years. We are working to reduce the block size of issues in the
portfolio so that each issuer will represent 2.5% or less of total assets, in
order to achieve further diversification.
LOOKING TO THE SECOND HALF
The Corporate Bond Series' portfolio is well positioned for the coming months.
Our emphasis on upgrading credit quality should help bring total returns more in
line with those of the benchmark index. Diversification among sectors and rating
classes can add a further element of safety. The mortgage-backed securities and
Yankee bonds provide cash flow through their generally higher coupon interest
rates than other classes. Finally, fundamentally improving stories among our
high yield credits provide the potential for additional return through capital
gains.
Thomas A. Swank
Portfolio Manager
Steven M. Bowser
Portfolio Manager
(1) Performance figures are based on Class A shares and do not reflect
deduction of the sales charge.
CORPORATE BOND SERIES
6-30-97
Credit Quality Rating
Average Maturity 16.8 years
AAA ................. 14.1%
AA .................. 14.6%
A ................... 32.6%
BBB ................. 18.8%
BB .................. 19.9%
CORPORATE BOND SERIES
AVERAGE ANNUAL TOTAL RETURN
AS OF JUNE 30, 1997
CLASS A SHARES CLASS B SHARES
1 Year 0.7% 1 Year -0.3%
5 Years 4.7% Since Inception 0.3%
10 Years 6.8% (10-19-93)
The performance data above represents past performance which is not predictive
of future results. For Class A shares these figures reflect deduction of the
maximum sales charge of 4.75%. For Class B shares the figures reflect deduction
of the maximum contingent deferred sales charge, ranging from 5% in the first
year to 0% in the sixth and following years. The investment return and principal
value of an investment will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
2
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MANAGER'S COMMENTARY
AUGUST 15, 1997
U.S. GOVERNMENT SERIES
The U.S. Government Series of Security Income Fund returned 2.46% in the first
half of 1997, right in line with its peer group average return of 2.47%.1 The
benchmark Lehman Government Bond Index returned a slightly higher 2.63% over the
same period.
CONTRIBUTORS TO PERFORMANCE
The portfolio had a large weighting in longer-duration Federal agency bonds,
with moderate positions in shorter Treasury issues and mortgage-backed
securities throughout the first six months. During the first quarter the
Treasuries and mortgage-backed bonds provided downside protection and allowed
the total return to be higher (actually, less negative) than that of the peer
group of funds. In March, April and May, however, the bond markets recovered and
these same defensive issues dampened returns somewhat, holding back overall
performance.
PORTFOLIO COMPOSITION AT THE END OF THE FIRST HALF
The sector weighting in the Series consisted of 41% federal agency securities,
36% GNMA mortgage-backed bonds secured by home mortgages, and 23% U.S. Treasury
issues. In general, mortgage-backed bonds and federal agency issues carry
slightly higher coupon rates than comparable Treasury bonds. This adds a small
extra increment to total return.
The duration of the portfolio at the end of June was 4.85 years, close to that
of the benchmark index's duration of 4.78 years. The average coupon, however,
was considerably higher than that of the index at 8.15%, compared with the
benchmark's 6.95% average.
PLANS FOR THE NEXT SIX MONTHS
The U.S. Government Series is designed for conservative investors, with a strong
emphasis on credit quality of the securities held in the portfolio. Because
shareholders in the Series tend to be cautious, we don't try to outguess the
markets by dramatically lengthening or shortening the duration of portfolio
holdings.
In the coming months, we anticipate maintaining our sector allocations close to
their present levels. We expect portfolio durations to also remain close to
current lengths. As always, we keep an eye on the markets to watch for sharp
movements in either direction, and retain the ability to make stronger moves
than usual if it becomes necessary.
Steven M. Bowser
Portfolio Manager
(1) Performance figures are based on Class A shares and do not reflect
deduction of the sales charge.
U.S. GOVERNMENT SERIES
6-30-97
Sectors Represented
Treasuries ................. 23%
Agencies ................... 41%
Mortgage Backed ............ 36%
U.S. GOVERNMENT SERIES
AVERAGE ANNUAL TOTAL RETURN
AS OF JUNE 30, 1997
CLASS A SHARES CLASS B SHARES
1 Year 2.2% 1 Year 1.1%
5 Years 5.4% Since Inception 2.3%
10 Years 7.2% (10-19-93)
The performance data above represents past performance which is not predictive
of future results. For Class A shares these figures reflect deduction of the
maximum sales charge of 4.75%. For Class B shares the figures reflect deduction
of the maximum contingent deferred sales charge, ranging from 5% in the first
year to 0% in the sixth and following years. The investment return and principal
value of an investment will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
3
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MANAGER'S COMMENTARY
AUGUST 15, 1997
LIMITED MATURITY BOND SERIES
Throughout a period of volatility in the bond markets, the Limited Maturity Bond
Series performed very well in the first half of 1997. The Series produced a
total return of 3.20%, comparing favorably with its peer group average of 2.74%,
and outperforming its benchmark Lehman Brothers Intermediate Corporate Bond
Index return of 3.05%.(1) The ten-year Treasury bond, representative of the
maturity structure of this portfolio, began the year yielding 6.42%, touched
6.90% in late March and early April, and fell back to close the first half at
6.50%.
CONTRIBUTORS TOWARD STRONG PERFORMANCE
Several of the high yield holdings in the portfolio experienced strong earnings
and strengthened balance sheets through debt reduction over the first six
months. These include PanAmerican Beverages, Inc., a Latin American producer and
bottler of Coca Cola and other soft drinks. Valassis Communications Corporation,
a company that produces special coupon inserts for Sunday newspapers, is
generally expected to be upgraded to investment grade in the near future after
reducing expenses and benefiting from lower paper costs.
Seagull Energy Corporation, an oil and gas explorer and developer, has lowered
overall company costs, realizing benefits of a recent acquisition. It is now on
Standard & Poor's ratings watch list for an upgrade. Comcast Corporation, a
cable television and telecommunications company, was upgraded to BB just after
the close of the first half.
COMPOSITION OF THE PORTFOLIO
The Limited Maturity Bond Series is currently comprised of about 46% high grade
bonds, 23% high yield issues (the maximum high yield allocation permitted in the
portfolio is 25%), 22% mortage-backed securities issued primarily by Federal
government agencies, and 9% Yankee bonds (dollar denominated securities issued
by foreign corporations).
The portfolio duration is approximately 4.3 years, just slightly longer than the
benchmark index's 4.21 years. The average coupon is a relatively high 8.1%,
lifted by the high yield and mortgage-backed securities holdings. The average
rating of securities remains well within the investment grade classification at
a mid-A level.
WHAT'S AHEAD FOR THE LIMITED MATURITY PORTFOLIO
We plan to maintain the overall portfolio quality at its present level, and to
keep the duration close to that of the benchmark intermediate corporate bond
index. The broad diversification of asset classes should help keep volatility at
lower levels, since the various sectors will not always move up or down in value
in tandem with each other. The intermediate-maturity bond portfolios tend to
outperform their longer counterparts in periods of rising interest rates, and so
make an attractive investment medium for a portion of shareholders' fixed income
allocations.
Thomas A. Swank
Portfolio Manager
Steven M. Bowser
Portfolio Manager
(1) Performance figures are based on Class A shares and do not reflect
deduction of the sales charge.
LIMITED MATURITY BOND SERIES
6-30-97
Credit Quality Rating
Average Maturity 6.5 Years
AAA ................ 31.6%
AA ................. 7.7%
A .................. 27.0%
BBB ................ 9.8%
BB ................. 19.5%
B .................. 0.9%
NR ................. 3.5%
LIMITED MATURITY BOND SERIES
AVERAGE ANNUAL TOTAL RETURN
AS OF JUNE 30, 1997
CLASS A SHARES CLASS B SHARES
1 Year 0.6% 1 Year -0.6%
Since Inception 5.3% Since Inception 4.8%
(1-17-95) (1-17-95)
The performance data above represents past performance which is not predictive
of future results. For Class A shares these figures reflect deduction of the
maximum sales charge of 4.75%. For Class B shares the figures reflect deduction
of the maximum contingent deferred sales charge, ranging from 5% in the first
year to 0% in the sixth and following years. The investment return and principal
value of an investment will fluctuate so tht an investor's shares, when
redeemed, may be worth more or less than their original cost.
4
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MANAGER'S COMMENTARY
AUGUST 15, 1997
HIGH YIELD SERIES
The high yield segment of the fixed income markets was the best-performing
domestic bond sector during the first half of 1997. The High Yield Series ranked
above median in its peer group, returning 5.79% for the period.(1) The peer
group average return was 5.92%, while the benchmark Lehman Brothers High Yield
Index posted a return of 5.82%.
COMPOSITION OF THE PORTFOLIO
At the end of June the High Yield Series portfolio was skewed toward the BB
rating category, the highest level on the high yield bond rating scale. With
approximately 70% of the issues in this category and the remaining ones rated B,
we feel that there is less concern about credit risk and more ability to
liquidate easily should selling become necessary. Our analysts seek out issues
which are currently rated BB, but whose financial statements show improvement
that could lead to an upgrade to investment grade in the near future.
Throughout the six months the portfolio has been underweight in basic industries
such as mining, metals, and chemicals, which have for the most part
underperformed other sectors. We were overweight in consumer cyclicals (cable
television companies, retail stores, gaming, and home construction) and
financials, including banks and insurance companies. Our underweight position in
utility bonds hurt, as this sector did very well during the period.
CONTRIBUTORS TO STRONG PERFORMANCE
Some issues in the portfolio were upgraded by the major rating agencies
recently. Knoll, Inc., which manufactures and distributes office systems and
business furniture, brought an initial public offering (IPO) to market and used
the proceeds to pay down more expensive debt. The company's securities were
subsequently upgraded from a low B to a high B level. Comcast Corporation, a
cable television and telecommunications company, was upgraded to BB just after
the close of the first half of 1997.
Other strong performers included AGCO Corporation, a worldwide manufacturer and
distributor of agricultural equipment and related replacement parts. AGCO has
benefited from the strong farm economy, both in the U.S. and abroad. Four
Seasons Hotels, Inc. offered to repurchase its 9.125% notes at a price which was
very attractive relative to their cost in our portfolio.
PLANS FOR THE REST OF 1997
We intend to continue our strategy of staying cognizant of credit quality and
looking for bonds which have a potential of being upgraded from BB to investment
grade. The high yield bond markets are similar to the equity markets in that
they have risen a good deal, but investment funds continue to pour in, driving
them up further. We plan to structure the portfolio to be sound from a credit
standpoint so that it can better withstand any unforseen shocks to the market.
Thomas A. Swank
Portfolio Manager
(1) Performance figures are based on Class A shares and do not reflect
deduction of the sales charge.
Investors should remember that while high yield bonds provide potentially higher
yields than many other types of bonds, they also present greater credit risk.
HIGH YIELD SERIES
6-30-97
Quality Credit Rating
Average Maturity 4.81 years
BBB ............ 1%
BB ............. 57%
B .............. 42%
HIGH YIELD SERIES
AVERAGE ANNUAL TOTAL RETURN
AS OF JUNE 30, 1997
CLASS A SHARES CLASS B SHARES
Since Inception 6.0% Since Inception 5.4%
(8-05-96) (8-05-96)
The performance data above represents past performance which is not predictive
of future results. For Class A shares these figures reflect deduction of the
maximum sales charge of 4.75%. For Class B shares the figures reflect deduction
of the maximum contingent deferred sales charge, ranging from 5% in the first
year to 0% in the sixth and following years. The investment return and principal
value of an investment will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
5
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MANAGER'S COMMENTARY
AUGUST 15, 1997
SECURITY TAX-EXEMPT FUND
The municipal market in the first half of the year outperformed its taxable
counterparts in the domestic fixed income markets. The Lehman Brothers Municipal
Bond Index rose 3.20% during the period, outpacing the Lehman Brothers Aggregate
Fixed Income Index return of 3.09%. The corporate and government components of
the aggregate index also showed lower returns than those of the municipal index.
PORTFOLIO PERFORMANCE IN THE FIRST HALF
The Security Tax-Exempt Fund produced a positive total return of 2.58%, modestly
underperforming its peer group average of 2.95% for the six months.(1) Our
somewhat shorter duration of 6.9 years, compared with the benchmark index
duration of 7.42 years, held back performance in the latter part of the
six-month period when interest rates were falling. Longer maturities tend to
outperform shorter bonds in such an interest rate environment.
The average credit quality of the bonds in the portfolio, currently at a mid-AA
level, while providing comfort to investors because of its strength, also holds
back performance when interest rates are declining. We generally maintain a
higher-than-average portfolio rating since financial information on many
municipal issuers is difficult to obtain, and sometimes not timely enough to
protect investors when finances deteriorate. In addition, if municipalities
experience strains on their budgets when Congress "pushes down" budget items to
the state and local levels, those bonds with higher credit quality should hold
their value better.
THE COMPOSITION OF THE PORTFOLIO CURRENTLY
The Security Tax-Exempt Fund seeks to add a measure of safety through
diversification. In municipal portfolios, this means including a large number of
geographic locations as well as diversifying by industry. At June 30, the
holdings represented 17 states plus the District of Columbia. The largest
represented, in terms of market value of the bonds, was Washington State,
followed by Illinois and California.
In terms of industry classification, the largest grouping of bonds is in the
Education Revenue sector. Education issues are viewed favorably by most
municipal bond holders, since municipalities are highly likely to support their
school systems and avoid bond defaults in this area. Second largest is Electric
Utility Revenue, another area where cash inflows to retire bonds are considered
relatively stable.
OUTLOOK FOR MUNICIPAL BONDS
A constant threat to the value of tax exempt bonds is talk of tax bracket
reductions. While various tax "breaks" are under discussion in Congress as they
try to agree on a balanced budget package, a lowering of tax brackets for those
individuals most likely to invest in municipal bonds seems unlikely at this
time. We believe that tax exempt bonds continue to be an attractive investment
for taxpayers in the upper brackets, and should be for some time to come.
Thomas A. Swank
Portfolio Manager
Steven M. Bowser
Portfolio Manager
(1) Performance figures are based on Class A shares and do not reflect
deduction of the sales charge.
TAX-EXEMPT FUND
6-30-97
Credit Quality Rating
AAA ................ 49.6%
AA ................. 25.2%
A .................. 13.6%
BBB ................ 11.6%
TAX-EXEMPT FUND
AVERAGE ANNUAL TOTAL RETURN
AS OF JUNE 30, 1997
CLASS A SHARES CLASS B SHARES
1 Year 2.3% 1 Year 1.1%
5 Years 4.3% Since Inception 0.8%
10 Years 5.8% (10-19-93)
The performance data above represents past performance which is not predictive
of future results. For Class A shares these figures reflect deduction of the
maximum sales charge of 4.75%. For Class B shares the figures reflect deduction
of the maximum contingent deferred sales charge, ranging from 5% in the first
year to 0% in the sixth and following years. The investment return and principal
value of an investment will fluctuate so tht an investor's shares, when
redeemed, may be worth more or less than their original cost.
6
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MANAGER'S COMMENTARY
AUGUST 15, 1997
SECURITY CASH FUND
The total return on money market funds in the first half of 1997 was near that
of its close relatives, the fixed income funds, as interest rates on thirty-year
Treasury bonds fluctuated in a range roughly between 6.50% and 7.25%. Security
Cash Fund posted a gain of 2.36% for the period, very near the 2.38% peer group
average yield. Money market funds, unlike longer-term fixed income securities,
generally benefit from increases in short-term interest rates such as the one
executed by the Federal Reserve Open Market Committee in March.
AVERAGE MATURITY TARGETS FOR THE FUND
At June 30, the Cash Fund had a 61-day average maturity, seven days longer than
that of the benchmark IBC Donoghue Money Fund Report. Our goal is to stay within
ten days more or less than the Donoghue average and avoid trying to outguess the
markets by moving maturities sharply shorter or longer. Because of the
short-maturity nature of money market assets we can quickly adjust to interest
rate changes when they occur, without taking unnecessary maturity risk in this
conservative portfolio.
ASSET SECTORS REPRESENTED IN THE PORTFOLIO
The assets in Security Cash Fund at the end of the six-month period consisted of
76% commercial paper, 15% federal agency securities, and 11% Small Business
Administration issues. The commercial paper we purchase is entirely in the "top
tier" of rating agency classifications, rated at least A1 by Standard and Poor's
rating agency or P1 by Moody's. Federal agency holdings may from time to time
include short-term securities issued by the Federal National Mortgage
Association, the Federal Home Loan Bank, and Federal Farm Credit Banks.
The Small Business Association (SBA) holdings are fully guaranteed by the
federal government as to timely payment of principal and interest. These issues,
while bearing stated maturities in the twenty- to thirty-year range, are
considered to be short-maturity paper because their interest rate resets
periodically (usually monthly or quarterly). This enables the issues to carry
coupons representing recent market levels, staying competitive with other
short-term investment instruments.
OUTLOOK FOR THE NEXT SIX MONTHS
Interest rates have recently been declining on long-term bonds. Although this
movement has some effect on short-term rates, until the Federal Reserve decides
to lower their short rate targets, commercial paper and short-maturity agency
interest rates should not drop substantially. We expect the Fed to maintain
their cautious stance toward a rekindling of inflationary pressures, and
therefore believe that money fund returns will not vary substantially in the
near future.
Barbara Davison
Fixed Income Team
The Security Cash Fund is neither insured nor guaranteed by the U.S. Government
and there is no assurance that the fund will be able to maintain a stable net
asset value of $1.00 per share.
7
<PAGE>
STATEMENTS OF NET ASSETS
JUNE 30, 1997
(UNAUDITED)
SECURITY INCOME FUND
CORPORATE BOND SERIES
PRINCIPAL MARKET
CORPORATE BONDS AMOUNT VALUE
- --------------------------------------------------------------------------------
AIR TRANSPORTATION - 5.6%
Southwest Airlines Company, 7.875% - 2007.......... $2,000,000 $ 2,097,500
United Airlines, 11.21% - 2014..................... 1,200,000 1,570,500
----------
3,668,000
BANKS - 11.2%
ABN AMRO Bank NV, 7.55% - 2006..................... 1,000,000 1,030,000
Abbey National PLC, 6.69% - 2005................... 1,250,000 1,225,000
BCH Cayman Islands, Ltd., 7.70% - 2006............. 1,000,000 1,025,000
Bank of New York, Inc., 6.50% - 2003............... 1,500,000 1,464,375
Malayan Bank of New York, 7.125% - 2005............ 1,250,000 1,235,937
Santander Financial Issuances, Ltd., 7.00% - 2006.. 1,400,000 1,382,500
----------
7,362,812
BROKERS, DEALERS & SERVICES - 2.2%
Lehman Brothers, Inc., 7.25% - 2003................ 1,450,000 1,455,438
COMMUNICATIONS - 12.5%
Comcast Corporation, 9.125% - 2006................. 1,000,000 1,047,500
New Jersey Bell, 6.625% - 2008..................... 3,000,000 2,872,500
Paramount Communications, 7.50% - 2023............. 1,000,000 878,750
Rogers Cablesystems, Ltd., 9.625% - 2002........... 750,000 792,188
Rogers Communication, Inc., 9.125% - 2006.......... 550,000 556,875
Valassis Communications, Inc., 9.55% - 2003........ 1,250,000 1,348,437
Westinghouse Electric Company, 8.375% - 2002....... 700,000 726,250
----------
8,222,500
CONSUMER GOODS & SERVICES - 2.2%
Nike, Inc., 6.375% - 2003.......................... 1,500,000 1,460,625
DEPARTMENT STORES - 1.5%
J.C. Penney, 7.625% - 2097......................... 1,000,000 975,000
ELECTRONICS - 1.6%
Pioneer Standard Electronics, Inc., 8.50% - 2006... 1,000,000 1,042,500
FINANCE - 3.1%
Countrywide Capital Industries, Inc., 8.00% - 2026. 1,000,000 997,500
PRINCIPAL MARKET
CORPORATE BONDS (CONTINUED) AMOUNT VALUE
- --------------------------------------------------------------------------------
FINANCE (CONTINUED)
Washington Mutual Capital, 8.375% - 2002........... $1,000,000 $ 1,016,250
----------
2,013,750
FOOD & BEVERAGES - 7.5%
Chiquita Brands International, Inc., 10.25% - 2006. 1,125,000 1,198,125
Coca-Cola Enterprises, Inc., 6.70% - 2036(3)....... 2,000,000 2,000,000
Panamerican Beverage, Inc., 8.125% - 2003.......... 1,750,000 1,780,625
----------
4,978,750
FUNERAL HOMES - 2.7%
Loewen Group International, Inc., 8.25% - 2003..... 1,750,000 1,778,438
HOSPITAL MANAGEMENT - 1.3%
Tenet Healthcare, 10.125% - 2005................... 800,000 874,000
INSURANCE - 1.5%
Travelers Capital Trust, 7.75% - 2036.............. 1,050,000 1,018,500
MEDIA - 5.0%
Time Warner Entertainment, 10.15% - 2012........... 1,250,000 1,510,937
Turner Broadcasting, 8.375% - 2013................. 1,750,000 1,811,250
----------
3,322,187
MEDICAL AND HEALTH SERVICES - 1.5%
Columbia\HCA, 7.50% - 2095......................... 1,000,000 967,500
MANUFACTURING - 1.5%
Caterpillar, Inc., 7.375% - 2097................... 1,000,000 966,250
MOTOR VEHICLES & EQUIPMENT - 3.0%
Chrysler Corporation, 7.45% - 2027................. 2,000,000 1,972,500
OIL & GAS COMPANIES - 7.4%
Petroleum Geo-Services, 7.50% - 2007............... 1,142,226 1,157,188
Petroleum Nasional Berhad, 7.125% - 2006........... 1,650,000 1,645,875
Seagull Energy Corporation, 8.625% - 2005.......... 1,000,000 1,017,500
Transocean Offshore, Inc., 8.00% - 2027............ 1,000,000 1,033,750
----------
4,854,313
PAPER & LUMBER PRODUCTS - 1.9%
Domtar, Inc., 9.50% - 2016......................... 1,250,000 1,262,500
See accompanying notes.
8
<PAGE>
STATEMENTS OF NET ASSETS
JUNE 30, 1997
(UNAUDITED)
SECURITY INCOME FUND
CORPORATE BOND SERIES (CONTINUED)
PRINCIPAL
AMOUNT OR
NUMBER OF MARKET
CORPORATE BONDS (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
PUBLISHING & PRINTING - 1.2%
K-III Communications Corporation, 10.25% - 2004.... $ 300,000 $ 316,500
Quebecor Printing Capital, 7.25% - 2007............ $ 500,000 503,750
----------
820,250
STEEL & METAL PRODUCTS - 1.2%
AK Steel, 10.75% - 2004............................ $ 750,000 808,125
UTILITIES - 2.0%
Tennessee Gas Pipeline, 7.50% - 2017............... $1,300,000 1,298,375
TRANSPORTATION - 1.5%
Union Pacific Resources Group, 7.50% - 2026........ $1,000,000 986,250
----------
Total corporate bonds - 79.1% ................... 52,108,563
TRUST PREFERRED SECURITIES(4)
- -----------------------------
FINANCE - 5.6%
Chase Capital Trust, 6.1047% - 2027(2)............. $2,500,000 2,450,725
SI Financing Inc., 9.50% - 2026.................... 48,000 1,269,000
----------
Total trust preferred securities - 5.6%.......... 3,719,725
MORTGAGE BACKED SECURITIES
- --------------------------
U.S. GOVERNMENT AGENCIES - 6.4%
Federal Home Loan Mortgage Corporation,
#1311 J, 7.50%-2021 CMO.......................... $1,050,000 1,059,595
#1930 AB, 7.50%-2023 CMO......................... $1,661,212 1,682,102
#112 H, 8.80%-2020 CMO........................... $ 646,027 659,087
Federal National Mortgage Association,
#1990-52D, 9.30%-2019 CMO........................ $ 820,825 840,941
----------
4,241,725
U.S. GOVERNMENT SECURITIES - 0.9%
Government National Mortgage Association, #2445,
8% - 2027........................................ $ 575,000 585,601
NON-AGENCY SECURITIES - 4.2%
Chase Capital Mortgage Securities Company, 1997-1B,
7.37% - 2007 CMO................................. $1,500,000 1,526,250
General Electric Capital Mortgage Securities,
1992-7A, 8.30% - 2023 CMO........................ $1,213,754 1,234,854
----------
2,761,104
----------
Total mortgage backed securities - 11.5%......... 7,588,430
----------
Total investments - 96.2%........................ 63,416,718
PRINCIPAL MARKET
AMOUNT VALUE
- --------------------------------------------------------------------------------
Cash and other assets, less liabilities - 3.8% .. $ 2,473,213
----------
Total net assets - 100.0%........................ $65,889,931
==========
SECURITY INCOME FUND
U.S. GOVERNMENT SERIES
U.S. GOVERNMENT & GOVERNMENT AGENCY SECURITIES
- ----------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORPORATION - 8.5%
7.125% - 2001.................................... $ 700,000 $ 708,526
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 18.6%
7.40% - 2004..................................... 600,000 624,450
7.875% - 2005.................................... 340,000 363,130
8.28% - 2025..................................... 500,000 566,950
----------
1,554,530
FEDERAL HOME LOAN BANK - 2.0%
8.29% - 2015..................................... 150,000 166,904
FINANCING CORPORATION - 6.1%
9.65% - 2018..................................... 400,000 507,000
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 35.2%
#365608 8.50% - 2024............................. 615,934 642,216
#411643 7.75% - 2025............................. 690,973 699,811
#1849 8.00% - 2026............................. 794,565 809,154
#2270 8.25% - 2026............................. 265,666 274,140
#9365 7.50% - 2034............................. 521,743 520,767
----------
2,946,088
STUDENT LOAN MARKETING ASSOCIATION - 5.7%
9.25% - 2004..................................... 420,000 479,695
U.S. TREASURY NOTES - 14.6%
7.25% - 1998..................................... 135,000 136,228
8.00% - 1999..................................... 460,000 476,785
8.50% - 2000..................................... 580,000 611,268
----------
1,224,281
U.S. TREASURY BONDS - 8.0%
8.75% - 2008..................................... 600,000 665,394
----------
Total investments- 98.7%......................... 8,252,418
Cash and other assets, less liabilities - 1.3%... 113,618
----------
Total net assets - 100%.......................... $ 8,366,036
==========
See accompanying notes.
9
<PAGE>
STATEMENTS OF NET ASSETS
JUNE 30, 1997
(UNAUDITED)
SECURITY INCOME FUND
LIMITED MATURITY BOND SERIES
PRINCIPAL MARKET
CORPORATE BONDS AMOUNT VALUE
- --------------------------------------------------------------------------------
AIR TRANSPORTATION - 1.8%
Atlas Air, 12.25% - 2002........................... $ 100,000 $ 111,000
ALUMINUM - 2.4%
Alcan Aluminum, Ltd., 9.20% - 2001................. 148,000 151,145
BANKS - 8.2%
Bangkok Bank Public Company, 7.25% - 2005.......... 150,000 144,188
Bank Austria, 7.25% - 2017......................... 160,000 157,200
First Union Corporation, 8.125% - 2002............. 110,000 115,500
Santander Financial Issuances, Ltd., 7.00% - 2006.. 100,000 98,750
----------
515,638
COMMUNICATIONS - 9.2%
Comcast Corporation, 9.125% - 2006................. 100,000 104,750
Heritage Media Corporation, 8.75% - 2006........... 50,000 51,875
K-III Communications Corporation, 10.25% - 2004.... 75,000 79,125
Rogers Communication, Inc., 9.125% - 2006.......... 100,000 101,250
Valassis Communications, Inc., 9.55% - 2003........ 125,000 134,844
Westinghouse Electric Company, 8.37% - 2002........ 100,000 103,750
----------
575,594
ELECTRIC COMPANIES - 2.4%
Consolidated Edison Company of New York, -
6.625% - 2002.................................... 150,000 148,687
ELECTRIC & GAS COMPANIES - 2.5%
Public Service Electric & Gas Company, 8.75% - 1999 150,000 156,187
ELECTRONICS - 1.7%
Pioneer Standard Electronics, Inc., 8.50% - 2006... 100,000 104,250
FINANCE - 9.9%
Ford Motor Credit Company, 8.375% - 2000 .......... 150,000 156,375
Household Finance Corporation, 8.00% - 2004........ 150,000 157,875
International Lease Finance Corporation 8.25% -
2000............................................. 150,000 155,813
MCN Investment Corporation, 6.32% - 2003........... 150,000 146,250
----------
616,313
PRINCIPAL MARKET
CORPORATE BONDS (CONTINUED) AMOUNT VALUE
- --------------------------------------------------------------------------------
FOOD & BEVERAGE TRADE - 4.1%
Cott Corporation, 9.375% - 2005.................... $ 100,000 $ 104,750
FEMSA Fomento Economico Mexicano SA, 9.50% - 1997.. 100,000 100,125
Panamerican Beverage, Inc., 8.125% - 2003.......... 50,000 50,875
----------
255,750
HOSPITAL MANAGEMENT - 1.7%
Tenet Healthcare, 10.125% - 2005................... 100,000 109,250
INSURANCE - 2.3%
Travelers Capital Trust, 7.75% - 2036.............. 150,000 145,500
MANUFACTURING - 1.7%
Shop Vac Corporation, 10.625% - 2003............... 100,000 106,250
NATURAL GAS COMPANIES - 2.6%
Vastar Resources, Inc., 8.75% - 2005............... 150,000 161,437
OIL & GAS COMPANIES - 4.8%
Petroleum Nasional Berhad, 7.125% - 2006........... 150,000 149,625
Seagull Energy Corporation, 8.625% - 2005.......... 150,000 152,625
----------
302,250
RETAIL TRADE - 2.5%
Walmart Stores, Inc., 7.50% - 2004................. 150,000 155,063
SANITARY SERVICES - 2.5%
WMX Technologies, Inc., 8.25% - 1999............... 150,000 155,812
TOBACCO PRODUCTS - 2.5%
Dimon, Inc., 8.875% - 2006......................... 150,000 156,375
----------
Total corporate bonds - 62.8%.................... 3,926,501
TRUST PREFERRED SECURITIES(4)
- -----------------------------
FINANCE - 1.9%
SI Financing Inc., 9.50% - 2026.................... 4,560 120,555
MORTGAGE BACKED SECURITIES
- --------------------------
U.S. GOVERNMENT AGENCIES - 21.4%
Federal Home Loan Mortgage Corporation,
#1311 J, 7.50%-2021 CMO.......................... 100,000 100,914
#1930 AB, 7.50%-2023 CMO......................... 195,437 197,894
#1102 G, 8.00%-2020 CMO.......................... 171,084 173,339
#1104 K, 8.50%-2020 CMO.......................... 44,000 45,188
#42 K, 8.00% - 2024 CMO.......................... 186,000 190,775
See accompanying notes.
10
<PAGE>
STATEMENTS OF NET ASSETS
JUNE 30, 1997
(UNAUDITED)
SECURITY INCOME FUND
LIMITED MATURITY BOND SERIES (CONTINUED)
PRINCIPAL MARKET
MORTGAGE BACKED SECURITIES (CONTINUED) AMOUNT VALUE
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES, CONTINUED
Federal National Mortgage Association
#1992-98 PJ, 7.50% - 2019 CMO ................... $ 118,000 $ 118,993
#1992-143 J, 7.00% - 2020 CMO.................... 100,000 98,110
#1993-160 ZB, 6.50%- 2023 CMO.................... 165,774 146,866
#1993-194 E, 5.70% - 2008 CMO.................... 120,265 115,102
Government National Mortgage Association,
#2445, 8.00% - 2027 ............................. 150,000 152,766
----------
1,339,947
NON AGENCY SECURITIES - 3.5%
General Electric Capital Mortgage Securities
#1992-7A, 8.30% - 2023 CMO....................... 112,753 114,713
Sears Mortgage Securities
#1994-14 T3, 8.50% - 2022 CMO.................... 100,000 103,078
----------
217,791
----------
Total mortgage backed securities - 24.9%......... 1,557,738
GOVERNMENT & GOVERNMENT AGENCY SECURITIES
- -----------------------------------------
CANADIAN GOVERNMENT AGENCIES - 2.6%
Province of Quebec, 8.625% - 2005 ................. 150,000 163,313
U.S. GOVERNMENT AGENCY SECURITIES - 2.5%
Federal National Mortgage Association, 8.50% - 2005 150,000 156,185
----------
Total government & government agency
securities - 5.1%.............................. 319,498
----------
Total investments - 94.7%........................ 5,924,292
Cash and other assets, less liabilities - 5.3%... 334,346
----------
Total net assets - 100.0%........................ $ 6,258,638
==========
SECURITY INCOME FUND
HIGH YIELD SERIES
CORPORATE BONDS
- ---------------
APPAREL - 2.3%
Tultex Corporation, 10.625% - 2005................. $ 150,000 $ 164,625
BANKS & CREDIT - 1.5%
B.F. Saul Reit, 11.625% - 2002..................... 100,000 107,500
SECURITY INCOME FUND
HIGH YIELD SERIES (CONTINUED)
PRINCIPAL MARKET
CORPORATE BONDS (CONTINUED) AMOUNT VALUE
- --------------------------------------------------------------------------------
BEVERAGES - 2.9%
Cott Corporation, 9.375% - 2005.................... $ 100,000 $ 104,750
Delta Beverage Group, 9.75% - 2003................. 100,000 104,375
----------
209,125
BROADCAST MEDIA - 2.8%
Allbritton Communications Company, 9.75% - 2004.... 135,000 99,250
Heritage Media Corporation, 8.75% - 2006........... 100,000 103,750
----------
203,000
CABLE SYSTEMS - 1.5%
Rogers Cablesystems, 9.625% - 2002................. 100,000 105,625
CHEMICALS - 2.6%
Envirodyne Industries, Inc., 12.00% - 2000......... 170,000 185,938
COMMUNICATIONS - 3.2%
K-III Communications, 10.25% - 2004................ 50,000 52,750
Rogers Communications, Inc., 9.125% - 2006......... 70,000 70,875
Valassis Communications, Inc., 9.55% - 2003........ 100,000 107,875
----------
231,500
COMMUNICATION SERVICES - 7.4%
CF Cable TV, Inc., 11.625% - 2005.................. 125,000 143,125
Cablevision Systems Corporation, 10.75% - 2004..... 100,000 103,625
Century Communications Corporation, 9.50% - 2005... 125,000 128,437
Comcast Corporation, 9.125% - 2006................. 150,000 157,125
----------
532,312
ELECTRIC UTILITIES - 4.3%
AES Corporation, 10.25% - 2006..................... 135,000 160,500
Cal Energy Company, Inc. 9.50% - 2006.............. 150,000 147,150
----------
307,650
ENTERTAINMENT - 4.2%
Harrahs Operating, Inc., 8.75% - 2000 ............. 100,000 102,375
Showboat, Inc., 9.25% - 2008....................... 100,000 102,500
Station Casinos, Inc., 9.625% - 2003............... 100,000 99,500
----------
304,375
See accompanying notes.
11
<PAGE>
STATEMENTS OF NET ASSETS
JUNE 30, 1997
(UNAUDITED)
SECURITY INCOME FUND
HIGH YIELD SERIES (CONTINUED)
PRINCIPAL MARKET
CORPORATE BONDS (CONTINUED) AMOUNT VALUE
- --------------------------------------------------------------------------------
FINANCIAL SERVICES - 3.5%
Dollar Financial Group, Inc., 10.875% - 2006....... $ 100,000 $ 107,000
Homeside Inc., 11.25% - 2003....................... 125,000 145,156
----------
252,156
FOOD AND BEVERAGES - 1.5%
Chiquita Brands International Inc., 10.25% - 2006 . 100,000 106,500
FOOD PROCESSING - 1.6%
TLC Beatrice International Holdings, Inc.,
11.50% - 2005.................................... 100,000 112,375
FOOD WHOLESALERS - 1.1%
Southland Corporation, 4.50% - 2004................ 100,000 78,750
HEALTH CARE SERVICES - 3.7%
Regency Health Services, Inc., 9.875% - 2002....... 100,000 103,250
Tenet Healthcare Corporation, 10.125% - 2005....... 150,000 163,875
----------
267,125
HOTEL/MOTEL - 1.9%
Four Seasons Hotel, Inc., 9.125% - 2000............ 125,000 134,688
MANUFACTURING - 8.7%
AAF-McQuay Inc., 8.875% - 2003..................... 100,000 100,250
AGCO Corporation, 8.50% - 2006..................... 100,000 102,625
Johns Manville International Group, Inc.,
10.875% - 2004................................... 100,000 111,250
Sequa Corporation, 9.375% - 2003................... 100,000 102,125
Shop Vac Corporation, 10.625% - 2003............... 100,000 106,250
Titan Wheel International, Inc. 8.75% - 2007....... 100,000 101,750
----------
624,250
MISCELLANEOUS - 0.8%
Packard Bioscience Company, 9.375% - 2007.......... 60,000 60,900
OIL - 4.1%
Maxus Energy Corporation, 9.50% - 2003............. 135,000 141,581
Seagull Energy Corporation, 8.625% - 2005.......... 150,000 152,625
----------
294,206
OFFICE EQUIPMENT AND SUPPLIES - 1.5%
Knoll, Inc., 10.875% - 2006........................ 100,000 110,750
PRINCIPAL MARKET
CORPORATE BONDS (CONTINUED) AMOUNT VALUE
- --------------------------------------------------------------------------------
PACKAGING & CONTAINERS - 1.8%
Plastic Containers, Inc., 10.00% - 2006............ $ 125,000 $ 129,688
PETROLEUM - 1.4%
Crown Central Petroleum, 10.875% - 2005............ 100,000 104,750
PUBLISHING - 3.6%
Golden Books Publishing, Inc., 7.65% - 2002........ 170,000 160,225
Hollinger International Publishing, 8.625% - 2005.. 100,000 101,750
----------
261,975
RECREATION - 1.5%
AMF Group, Inc., 10.875% - 2006.................... 100,000 108,000
RESTAURANTS - 2.0%
Carrols Corporation, 11.50% - 2003................. 135,000 144,618
RETAIL - 1.4%
Central Tractor, 10.625% - 2007.................... 100,000 103,750
RETAIL - GENERAL MERCHANDISING - 1.5%
Cole National Group, 9.875% - 2006................. 100,000 105,250
STEEL - 1.1%
AK Steel Corporation, 9.125% - 2006................ 75,000 77,063
TELECOMMUNICATIONS - 2.1%
Centennial Cellular, 8.875% - 2001................. 150,000 150,000
TEXTILES - 3.4%
Pillowtex Corporation, 10.00% - 2006............... 100,000 105,875
Westpoint Stevens,Inc. 9.375% - 2005............... 135,000 141,581
----------
247,456
TOBACCO - 2.0%
Dimon, Inc. 8.875% - 2006.......................... 135,000 140,738
TRANSPORTATION - 4.6%
Atlas Air, Inc., 12.25% - 2002..................... 175,000 194,250
Teekay Shipping Corporation, 8.32% - 2003.......... 135,000 136,350
----------
330,600
----------
Total corporate bonds - 87.5% ................... 6,297,238
See accompanying notes.
12
<PAGE>
STATEMENTS OF NET ASSETS
JUNE 30, 1997
(UNAUDITED)
SECURITY INCOME FUND
HIGH YIELD SERIES (CONTINUED)
PRINCIPAL
AMOUNT OR
NUMBER OF MARKET
PREFERRED STOCKS SHARES VALUE
- --------------------------------------------------------------------------------
BANKS AND CREDIT - 2.7%
California Federal Bank............................ 1,750 $ 194,250
COMMUNICATIONS - 1.7%
Cablevision Systems................................ 514 52,411
K-III Communications............................... 65,100 71,225
----------
123,636
----------
Total preferred stocks - 4.4%.................... 317,886
TRUST PREFERRED SECURITIES(4)
- -----------------------------
FINANCE - 1.5%
Salomon Brothers Financing, 9.50% -2026............ 4,000 105,750
----------
Total investments - 93.4%........................ 6,720,874
Cash and other assets, less liabilities - 6.6%... 473,573
----------
Total net assets -100.0%......................... $ 7,194,447
==========
SECURITY TAX-EXEMPT FUND
MUNICIPAL BONDS
- ---------------
CIVIC CENTER DEVELOPMENT REVENUE - 1.1%
District of Columbia Redevelopment Washington D.C.
Sports Arena 5.40% - 2000 ....................... $ 250,000 $ 250,938
EDUCATION REVENUE - 29.7%
Illinois Chicago School, Series A, 4.90% - 2005.... $1,000,000 990,000
Iowa Higher Education, St. Ambrose, 5.75% - 2011... $ 480,000 466,200
Island County Washington School District South
Whidbey, 6.75% - 2007 ........................... $1,000,000 1,153,460
Federal Way, Washington School District,
4.80% - 2007..................................... $1,000,000 977,500
Mukwanago, Wisconsin School District, 5.00% - 2004. $ 500,000 506,250
North Brunswick Township, New Jersey Board of
Education, 6.30% - 2013.......................... $1,000,000 1,071,250
Northfield, Minnesota School District #659,
4.80% - 2007 .................................... $ 500,000 493,125
Vigo County Indiana Middle School Building
Corporation, 5.80% - 2013 ....................... $1,000,000 1,012,500
----------
6,670,285
SECURITY TAX-EXEMPT FUND (CONTINUED)
PRINCIPAL MARKET
MUNICIPAL BONDS (CONTINUED) AMOUNT VALUE
- --------------------------------------------------------------------------------
ELECTRIC UTILITY REVENUE - 19.4%
Georgia Municipal Electric Authority, 5.25% - 2025. $1,000,000 $ 947,500
Massachusetts Municipal Wholesale Electric Company
Power Supply System, Series B, 6.625% - 2004....... 1,200,000 1,296,000
Nebraska Public Power District Revenue, Series A,
6.25% - 2022..................................... 1,000,000 1,038,750
Washington Public Power Supply System Revenue
Nuclear Project #2, 6.30% - 2012................. 1,000,000 1,075,000
----------
4,357,250
GENERAL OBLIGATION - 12.7%
Clark County, Nevada School District, Series A,
5.50% - 2016..................................... 1,000,000 1,000,000
Dade County Florida, 5.75% - 2001.................. 1,000,000 1,048,750
State of Illinois, 6.10% - 2003.................... 750,000 802,500
----------
2,851,250
POLLUTION CONTROL - 4.5%
Kansas City, Kansas General Motors Corporation
Project, 5.45% - 2006............................ 1,000,000 1,015,000
PORTS & HARBORS - 2.3%
Kansas City, Missouri Port Authority Riverfront
Park, 5.75% - 2005............................... 500,000 516,250
SALES TAX REVENUE - 4.4%
Los Angeles, California, 5.625% - 2018............. 1,000,000 996,250
SEWER REVENUE - 19.0%
DuPage County, Illinois Stormwater Project
Refunding, 5.60% - 2021.......................... 1,000,000 1,016,250
Houston, Texas Water & Sewer System Revenue,
Series A, 6.20% - 2020........................... 1,000,000 1,048,750
King County Washington Sewer Revenue, Series A,
6.25% - 2034..................................... 1,000,000 1,053,750
Los Angeles, CA Wastewater System Revenue,
6.00% - 2014..................................... 1,100,000 1,138,500
----------
4,257,250
See accompanying notes.
13
<PAGE>
STATEMENTS OF NET ASSETS
JUNE 30, 1997
(UNAUDITED)
SECURITY TAX-EXEMPT FUND (CONTINUED)
PRINCIPAL MARKET
MUNICIPAL BONDS (CONTINUED) AMOUNT VALUE
- --------------------------------------------------------------------------------
VARIOUS PURPOSE REVENUE - 4.5%
Denver Metropolitan Major League Baseball Stadium
Project, 4.00% - 1999............................ $1,000,000 $ 996,250
----------
Total investments - 97.6%........................ 21,910,723
Cash and other assets, less liabilities - 2.4%... 538,848
----------
Total net assets - 100.0%........................ $22,449,571
==========
SECURITY CASH FUND
COMMERCIAL PAPER
- ----------------
BEVERAGES - 1.0%
PepsiCo, Inc., 5.48%, 7-7-97....................... $ 500,000 $ 499,543
BROKERAGE - 9.9%
Bear Stearns Companies, Inc., 5.57%, 7-8-97........ 2,300,000 2,297,509
Merrill Lynch & Company, Inc.,..................... 2,252,000
5.53%, 7-3-97.................................... 1,421,563
5.56%, 7-7-97.................................... 99,907
5.55%, 7-10-97................................... 414,424
5.58%, 8-8-97.................................... 102,394
5.59%, 9-29-97................................... 209,037
----------
4,544,834
BUSINESS SERVICES - 6.5%
A1 Credit Corporation, 5.48%, 7-7-97............... 1,000,000 999,087
General Electric Capital Corporation, 5.54%, 8-8-97 2,000,000 1,988,304
----------
2,987,391
COMBINATION GAS & ELECTRIC - 9.6%
Dayton Power & Light Company, 5.56%, 7-15-97....... 2,200,000 2,195,243
Pacific Gas & Electric Company 5.56%, 7-21-97...... 2,000,000 1,993,822
South Carolina Electric & Gas Company,
5.52%, 7-18-97................................... 250,000 249,348
----------
4,438,413
COMPUTER SYSTEMS - 2.6%
International Business Machines Corporation,
5.50%, 7-14-97................................... 1,200,000 1,197,617
SECURITY CASH FUND (CONTINUED)
PRINCIPAL MARKET
COMMERCIAL PAPER (CONTINUED) AMOUNT VALUE
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES - 15.6%
Alabama Power Company, 5.55%, 7-11-97.............. $ 100,000 $ 99,846
Carolina Power & Light Company, 5.53%, 7-29-97..... 1,380,000 1,374,064
Idaho Power Company, 5.53%, 7-21-97................ 915,000 912,189
Interstate Power Company,.......................... 2,037,000
5.53%, 7-9-97.................................... 998,771
5.55%, 7-9-97.................................... 99,877
5.55%, 7-9-97.................................... 236,708
5.55%, 8-19-97................................... 694,712
New England Power Company, 5.57%, 7-14-97.......... 638,000 636,717
Progress Capital Holdings, Inc.,................... 2,150,000
5.54%, 7-11-97................................... 698,923
5.5%, 7-11-97.................................... 199,691
5.55%, 7-17-97................................... 1,246,917
----------
7,198,415
ELECTRONICS - 3.7%
AVNET, Inc., 5.57%, 8-11-97........................ 1,700,000 1,689,217
ENGINEERING - 4.8%
Fluor Corporation, 5.54%, 7-31-97.................. 2,200,000 2,189,843
INSURANCE - 2.7%
AIG Funding, Inc., 5.48%, 7-3-97................... 1,240,000 1,239,622
MANUFACTURING - 4.3%
Eaton Corporation, 5.55%, 7-25-97.................. 2,000,000 1,992,600
NATURAL GAS - 2.8%
LaClede Gas Company, 5.52%, 7-10-97................ 1,300,000 1,298,206
PHARMACEUTICALS - 3.6%
Allergan, Inc.,.................................... 1,685,000
5.56%, 7-22-97................................... 598,054
5.55%, 8-5-97.................................... 1,079,146
----------
1,677,200
PHOTOGRAPH/IMAGING - 4.7%
Eastman Kodak Company,............................. 2,170,000
5.50%, 7-18-97................................... 668,260
5.50%, 7-30-97................................... 1,493,354
----------
2,161,614
TELECOMMUNICATIONS - 4.5%
Pacific Bell, 5.60%, 7-11-97....................... 2,100,000 2,096,733
----------
Total commercial paper - 76.3%................... 35,211,248
See accompanying notes.
14
<PAGE>
STATEMENTS OF NET ASSETS
JUNE 30, 1997
(UNAUDITES)
SECURITY CASH FUND (CONTINUED)
PRINCIPAL MARKET
U.S. GOVERNMENT & AGENCIES AMOUNT VALUE
- --------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGES - 15.2%
5.90%, 7-8-98.................................... $2,000,000 $ 2,000,000
6.13%, 4-17-98................................... 1,000,000 1,000,000
5.87%, 1-30-98................................... 2,000,000 2,000,000
5.63%, 3-30-98................................... 2,000,000 2,000,000
----------
7,000,000
SMALL BUSINESS ASSOCIATION POOLS - 11.7%
#501927, 6.75%, 20171............................ 1,832,168 1,849,477
#501398, 6.125%, 20182........................... 929,169 932,654
#503152, 6.125%, 20202........................... 919,524 919,524
#503295, 6.00%, 20212............................ 813,286 813,794
#503303, 6.00%, 20212............................ 861,133 861,671
----------
5,377,120
Total U.S. government & agencies - 26.9%......... 12,377,120
----------
Total investments - 103.2%....................... 47,588,368
Liabilities in excess of cash & other
assets - (3.2%)............................... (1,496,109)
----------
Total net assets - 100%.......................... $46,092,259
==========
The identified cost of investments owned at June 30, 1997, was the same for
federal income tax and book purposes.
CMO - (Collateralized Mortgage Obligation)
(1) Varible rate security which may be reset the first of each month.
(2) Variable rate security which may be reset the first of each quarter.
(3) Put bond - a type of specialty bond that gives the holder the right to
redeem to the issuer at certain specified times before maturity.
(4) Trust preferred securities - securities issued by financial institutions to
augment their Tier 1 capital base. Issued on a subordinate basis relative
to senior notes or debentures. Institutions may defer cash payments for up
to 10 pay periods.
See accompanying notes.
15
<PAGE>
BALANCE SHEETS
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SECURITY INCOME FUND
--------------------------------------------------------
U.S. LIMITED SECURITY
CORPORATE GOVERNMENT MATURITY HIGH YIELD TAX-EXEMPT SECURITY
BOND SERIES SERIES BOND SERIES SERIES FUND CASH FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments, at value (identified cost
$63,108,877, $8,188,786, $5,862,720,
$6,495,108, $21,466,535 and
$12,377,120, respectively)............. $63,416,718 $8,252,418 $5,924,292 $6,720,874 $21,910,723 $12,377,120
Commercial paper, at amortized cost which
approximates market value.............. 35,211,248
Cash..................................... 662,349 24,189 95,820 346,845 152,424 246,222
Receivables:
Fund shares sold....................... 249,653 10,694 8,339 476 286 174,044
Securities sold........................ 539,076 --- 107,815 --- --- 163,954
Interest............................... 1,127,654 137,735 120,483 136,937 398,814 218,399
Prepaid expenses....................... 15,350 16,047 16,129 823 12,300 44,888
---------- --------- --------- --------- ---------- ----------
Total assets......................... $66,010,800 $8,441,083 $6,272,878 $7,205,955 $22,474,547 $48,435,875
========== ========= ========= ========= ========== ==========
LIABILITIES AND NET ASSETS
Liabilities:
Payable for:
Securities purchased ................ $ --- $ --- $ --- $ --- $ --- $ 2,000,000
Fund shares redeemed................. 50,865 65,955 5,000 --- 4,801 89,882
Dividends payable to shareholders.... --- --- --- --- --- 197,852
Other Liabilities:
Management fees...................... 28,063 --- --- --- 9,543 26,214
Custodian fees....................... --- 3,173 3,041 --- --- 2,488
Transfer and administration fees..... 13,713 2,184 919 841 2,972 11,775
Professional fees.................... 5,668 --- 2,299 1,771 1,411 4,979
12b-1 distribution plan fees......... 18,702 2,263 1,882 3,479 1,067 ---
Miscellaneous fees................... 3,858 1,472 1,099 5,417 5,182 10,426
---------- --------- --------- --------- ---------- ----------
Total liabilities.................. 120,869 75,047 14,240 11,508 24,976 2,343,616
Net Assets:
Paid in capital........................ 79,186,608 9,253,172 6,269,515 6,971,265 23,419,310 46,092,259
Undistributed net investment income
(loss)............................... 54,741 11,328 9,795 1,076 7,394 ---
Accumulated undistributed net realized
gain (loss)on sale of investments.... (13,659,259) (962,096) (82,244) (3,660) (1,421,321) ---
Net unrealized appreciation
(depreciation)in value of investments 307,841 63,632 61,572 225,766 444,188 ---
---------- --------- --------- --------- ---------- ----------
Net assets......................... 65,889,931 8,366,036 6,258,638 7,194,447 22,449,571 46,092,259
---------- --------- --------- --------- ---------- ----------
Total liabilities and net assets. $66,010,800 $8,441,083 $6,272,878 $7,205,955 $22,474,547 $48,435,875
========== ========= ========= ========= ========== ==========
CLASS "A" SHARES
Capital shares outstanding............. 8,605,563 1,633,517 530,358 261,532 2,174,152 46,092,259
Net assets............................. $58,539,150 $7,636,561 $5,366,418 $4,071,017 $21,191,750 $46,092,259
Net asset value per share (net assets
divided by shares outstanding)....... $6.80 $4.67 $10.12 $15.57 $9.75 $1.00
Add: Selling commission (4.75% of the
offering price)...................... 0.34 0.23 0.50 0.78 0.49 ---
---------- ---------- ---------- ---------- ---------- ----------
Offering price per share (net asset
value divided by 95.25%)............. $7.14 $4.90 $10.62 $16.35 $10.24 $1.00
========== ========== ========== ========== ========== ==========
CLASS "B" SHARES
Capital shares outstanding............. 1,074,782 156,272 88,394 200,907 128,842 ---
Net assets............................. $ 7,350,781 $ 729,475 $ 892,220 $3,123,430 $ 1,257,821 ---
Net asset value per share (net assets
divided by shares outstanding)....... $6.84 $4.67 $10.09 $15.55 $9.76 ---
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes.
16
<PAGE>
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SECURITY INCOME FUND
--------------------------------------------------------
U.S. LIMITED SECURITY
CORPORATE GOVERNMENT MATURITY HIGH YIELD TAX-EXEMPT SECURITY
BOND SERIES SERIES BOND SERIES SERIES FUND CASH FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............................. $ --- $ --- $ --- $ 14,812 $ --- $ ---
Interest............................... 2,740,937 316,292 227,482 270,997 604,384 1,363,485
---------- ------- ------- ------- ------- ---------
Total investment income.............. 2,740,937 316,292 227,482 285,809 604,384 1,363,485
EXPENSES:
Management fees........................ 175,787 21,048 14,800 16,877 57,082 122,068
Custodian fees......................... 11,666 1,475 1,172 545 641 3,796
Transfer/maintenance fees.............. 53,657 9,072 2,482 1,153 7,780 59,549
Administration fees.................... 31,641 3,788 2,664 2,826 10,275 10,986
Directors' fees........................ 3,719 477 222 145 4,873 4,751
Professional fees...................... 3,320 2,315 2,801 3,571 2,881 2,976
Reports to shareholders................ 2,889 528 254 29 1,157 4,462
Registration fees...................... 12,490 261 1,633 12,827 12,102 1,493
Other expenses......................... 4,809 743 670 851 1,404 4,699
12b-1 distribution plan fees........... 114,982 13,054 10,684 18,645 6,289 ---
---------- ------- ------- ------- ------- ---------
414,960 52,761 37,382 57,469 104,484 214,780
Less: Earnings credits applied.......... --- --- (922) --- (641) ---
Reimbursement of expenses......... (8,429) (21,048) (14,800) (16,877) (1,279) ---
---------- ------- ------- ------- ------- ---------
Total expenses.................. 406,531 31,713 21,660 40,592 102,564 214,780
---------- ------- ------- ------- ------- ---------
Net investment income......... 2,334,406 284,579 205,822 245,217 501,820 1,148,705
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) during the
period on:
Investments........................ (1,302,331) 16,281 (12,680) 32,925 56,566 ---
Net change in unrealized appreciation
(depreciation) during the period on:
Investments........................ 510,568 (97,957) (1,978) 78,699 (7,665) ---
---------- ------- ------- ------- ------- ---------
Net gain (loss).................. (791,763) (81,676) (14,658) 111,624 48,901 ---
---------- ------- ------- ------- ------- ---------
Net increase in net assets
resulting from operations...... $ 1,542,643 $202,903 $191,164 $356,841 $550,721 $1,148,705
========== ======= ======= ======= ======= =========
</TABLE>
See accompanying notes.
17
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SECURITY INCOME FUND
--------------------------------------------------------
U.S. LIMITED SECURITY
CORPORATE GOVERNMENT MATURITY HIGH YIELD TAX-EXEMPT SECURITY
BOND SERIES SERIES BOND SERIES SERIES FUND CASH FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income.................... $ 2,334,406 $ 284,579 $ 205,822 $ 245,217 $ 501,820 $ 1,148,705
Net realized gain (loss)................. (1,302,331) 16,281 (12,680) 32,925 56,566 ---
Unrealized appreciation (depreciation)
during the period...................... 510,568 (97,957) (1,978) 78,699 (7,665) ---
---------- ---------- --------- --------- ---------- ----------
Net increase in net assets
resulting from operations.......... 1,542,643 202,903 191,164 356,841 550,721 1,148,705
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A ............................... (2,065,526) (253,835) (169,955) (139,147) (480,210) (1,148,705)
Class B................................ (214,139) (19,574) (26,072) (105,715) (19,775) ---
Net realized gain
Class A ............................... --- --- --- --- --- ---
Class B ............................... --- --- --- --- --- ---
---------- ---------- --------- --------- ---------- ----------
Total distributions to
shareholders....................... (2,279,665) (273,409) (196,027) (244,862) (499,985) (1,148,705)
CAPITAL SHARE TRANSACTIONS (A):
Proceeds from sale of shares
Class A................................ 2,847,618 488,692 1,049,826 1,196,616 292,969 126,053,217
Class B................................ 2,095,075 116,369 186,411 255,623 43,996 ---
Dividends reinvested
Class A................................ 1,557,138 210,311 151,594 139,098 276,810 1,096,379
Class B................................ 196,736 16,786 26,072 105,715 13,490 ---
Shares redeemed
Class A................................ (18,556,565) (1,033,432) (770,958) (112,283) (2,729,189) (126,388,061)
Class B................................ (2,176,694) (59,583) (78,353) (1,407) (313,744) ---
---------- ---------- --------- --------- ---------- ----------
Net increase (decrease)from
capital share transactions......... (14,036,692) (260,857) 564,592 1,583,362 (2,415,668) 761,535
---------- ---------- --------- --------- ---------- ----------
Total increase (decrease)
in net assets.................. (14,773,714) (331,363) 559,729 1,695,341 (2,364,932) 761,535
NET ASSETS:
Beginning of period...................... 80,663,645 8,697,399 5,698,909 5,499,106 24,814,503 45,330,724
---------- ---------- --------- --------- ---------- ----------
End of period............................ $65,889,931 $ 8,366,036 $6,258,638 $7,194,447 $22,449,571 $46,092,259
========== ========== ========= ========= ========== ==========
Undistributed net investment income at
end of period ......................... $54,741 $11,328 $9,795 $1,076 $7,394 $---
========== ========== ========= ========= ========== ==========
(a) Shares issued and redeemed
Shares sold
Class A............................ 418,427 104,439 104,775 78,338 30,148 126,053,217
Class B............................ 307,492 25,092 18,521 16,649 4,522 ---
Dividends reinvested
Class A............................ 230,231 45,284 15,099 9,033 28,713 1,096,379
Class B............................ 167,775 3,617 2,602 6,871 1,397 ---
Shares redeemed
Class A ........................... (2,724,117) (221,050) (76,428) (7,307) (282,449) (126,388,061)
Class B............................ (319,394) (12,765) (7,820) (92) (32,347) ---
---------- ---------- --------- --------- ---------- ----------
Net increase (decrease).......... (1,919,586) (55,383) 56,749 103,492 (250,016) 761,535
========== ========== ========= ========= ========== ==========
</TABLE>
See accompanying notes.
18
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
SECURITY INCOME FUND
--------------------------------------------------------
U.S. LIMITED SECURITY
CORPORATE GOVERNMENT MATURITY HIGH YIELD TAX-EXEMPT SECURITY
BOND SERIES SERIES BOND SERIES SERIES FUND CASH FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS:
Net investment income.................... $ 5,712,167 $ 685,751 $ 351,230 $ 151,652 $ 1,153,538 $ 2,158,130
Net realized gain (loss)................. (1,347,012) 182,946 (46,509) (36,585) 56,324 ---
Unrealized appreciation (depreciation)
during the period...................... (5,522,985) (735,463) (186,260) 147,067 (671,331) ---
---------- ---------- --------- --------- ---------- ----------
Net increase (decrease) in net assets
resulting from operations.............. (1,157,830) 133,234 118,461 262,134 538,531 2,158,130
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A................................ (5,393,982) (655,579) (304,962) (79,996) (1,107,445) (2,158,130)
Class B................................ (343,417) (32,686) (47,156) (70,935) (44,319) ---
Tax return of capital
Class A................................ --- --- (5,684) --- --- ---
Class A................................ --- --- (879) --- --- ---
---------- ---------- --------- --------- ---------- ----------
Total distributions to shareholders.. (5,737,399) (688,265) (358,681) (150,931) (1,151,764) (2,158,130)
CAPITAL SHARE TRANSACTIONS (A):
Proceeds from sale of shares
Class A................................ 8,731,109 1,930,782 2,444,146 2,644,208 1,613,431 310,586,017
Class B................................ 3,464,361 375,419 269,401 2,611,381 579,929 ---
Dividends Reinvested
Class A................................ 4,241,649 543,532 284,749 79,998 626,193 1,969,086
Class B................................ 304,987 26,151 47,452 70,935 31,495 ---
Cost of shares redeemed
Class A................................ (26,834,054) (3,998,800) (913,142) (48) (3,379,177) (305,382,279)
Class B................................ (1,793,517) (286,899) (267,281) (18,571) (260,053) ---
---------- ---------- --------- --------- ---------- ----------
Net increase (decrease) from capital
share transactions................. (11,885,465) (1,409,815) 1,865,325 5,387,903 (788,182) 7,172,824
---------- ---------- --------- --------- ---------- ----------
Total increase (decrease) in net
assets........................... (18,780,694) (1,964,846) 1,625,105 5,499,106 (1,401,415) 7,172,824
NET ASSETS:
Beginning of period...................... 99,444,339 10,662,245 4,073,804 --- 26,215,918 38,157,900
---------- ---------- --------- --------- ---------- ----------
End of period............................ $80,663,645 $ 8,697,399 $5,698,909 $5,499,106 $24,814,503 $45,330,724
========== ========== ========= ========= ========== ==========
Undistributed net investment income at
end of period.......................... $ --- $ 158 $ --- $ 721 $ 5,559 $ ---
========== ========== ========= ========= ========== ==========
(a) Shares issued and redeemed
Shares sold
Class A ........................... 1,257,439 408,653 236,285 176,201 167,132 310,586,017
Class B............................ 497,238 79,022 25,885 174,028 59,521 ---
Dividends reinvested
Class A............................ 608,432 115,124 27,590 5,270 65,031 1,969,086
Class B............................ 43,584 5,533 4,593 4,677 3,268 ---
Shares redeemed
Class A............................ (3,860,010) (845,356) (88,496) (3) (350,952) (305,382,279)
Class B............................ (256,329) (61,304) (25,864) (1,226) (27,117) ---
---------- ---------- --------- --------- ---------- ----------
Net increase (decrease).......... (1,709,646) (298,328) 179,993 358,947 (83,117) 7,172,824
========== ========== ========= ========= ========== ==========
</TABLE>
See accompanying notes.
19
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for each share of capital stock outstanding throughout each period
<TABLE>
<CAPTION>
CORPORATE BOND SERIES (CLASS A) FISCAL PERIOD ENDED DECEMBER 31
---------------------------------------------------------------------------------------------
1997(D)(H) 1996(D)(F) 1995(D)(F) 1994 1993 1992
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD. $ 6.87 $7.39 $6.68 $7.81 $7.72 $7.68
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income............... 0.233 0.470 0.470 0.490 0.520 0.610
Net Gain (Loss) on Securities
(realized & unrealized)........... (0.076) (0.517) 0.708 (1.127) 0.521 0.044
------------- ------------- ------------- ------------- ------------- -------------
Total from Investment Operations.. 0.157 (0.047) 1.178 (0.637) 1.041 0.654
LESS DISTRIBUTIONS
Dividends (from Net Investment
Income)........................... (0.227) (0.473) (0.468) (0.493) (0.527) (0.614)
Distributions (from Capital Gains).. --- --- --- --- (0.424) ---
------------- ------------- ------------- ------------- ------------- -------------
Total Distributions............... (0.227) (0.473) (0.468) (0.493) (0.951) (0.614)
------------- ------------- ------------- ------------- ------------- -------------
NET ASSET VALUE END OF PERIOD....... $6.80 $6.87 $7.39 $6.68 $7.81 $7.72
============= ============= ============= ============= ============= =============
TOTAL RETURN (A).................... 2.35% (0.50%) 18.20% (8.30%) 13.40% 9.00%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) $58,539 $73,360 $93,701 $90,593 $118,433 $104,492
Ratio of Expenses to Average Net
Assets............................ 1.08% 1.01% 1.02% 1.01% 1.02% 1.01%
Ratio of Net Income (Loss) to
Average Net Assets................ 6.72% 6.54% 6.62% 6.91% 6.46% 7.97%
Portfolio Turnover Rate............. 165% 292% 200% 204% 157% 61%
</TABLE>
<TABLE>
<CAPTION>
CORPORATE BOND SERIES (CLASS B) FISCAL PERIOD ENDED DECEMBER 31
-----------------------------------------------------------------------------
1997(C)(D)(H) 1996(C)(D)(F) 1995(C)(D)(F) 1994(C) 1993(B)
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD. $ 6.90 $ 7.43 $ 6.71 $ 7.84 $8.59
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income............... 0.195 0.400 0.400 0.430 0.110
Net Gain (Loss) on Securities
(realized & unrealized)........... (0.053) (0.517) 0.725 (1.129) (0.324)
------------- ------------- ------------- ------------- -------------
Total from Investment Operations.. 0.142 (0.117) 1.125 (0.699) (0.214)
LESS DISTRIBUTIONS
Dividends (from Net Investment
Income)........................... (0.202) (0.413) (0.405) (0.431) (0.112)
Distributions (from Capital Gains).. --- --- --- --- (0.424)
------------- ------------- ------------- ------------- -------------
Total Distributions .............. (0.202) (0.413) (0.405) (0.431) (0.536)
------------- ------------- ------------- ------------- -------------
NET ASSET VALUE END OF PERIOD....... $6.84 $6.90 $7.43 $6.71 $7.84
============= ============= ============= ============= =============
TOTAL RETURN(A)..................... 2.12% (1.40%) 17.30% (9.00%) (2.50%)
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) $7,351 $7,303 $5,743 $3,878 $1,022
Ratio of Expenses to Average Net
Assets............................ 1.85% 1.85% 1.85% 1.85% 1.88%
Ratio of Net Income (Loss) to
Average Net Assets................ 5.94% 5.70% 5.80% 6.08% 5.16%
Portfolio Turnover Rate............. 165% 292% 200% 204% 164%
</TABLE>
See Accompanying Notes.
20
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for each share of capital stock outstanding throughout each period
<TABLE>
<CAPTION>
U.S. GOVERNMENT SERIES (CLASS A) FISCAL PERIOD ENDED DECEMBER 31
---------------------------------------------------------------------------------------------
1997(C)(D)(H) 1996(C)(D)(F) 1995(C)(D)(F) 1994(C) 1993(C) 1992(C)
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD. $4.71 $4.97 $4.35 $4.97 $5.04 $5.17
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income............... 0.160 0.310 0.300 0.300 0.310 0.370
Net Gain (Loss) on Securities
(realized & unrealized)........... (0.047) (0.256) 0.620 (0.621) 0.274 (0.126)
------------- ------------- ------------- ------------- ------------- -------------
Total from Investment Operations.. 0.113 0.054 0.920 (0.321) 0.584 0.244
LESS DISTRIBUTIONS
Dividends (from Net Investment
Income)........................... (0.153) (0.314) (0.300) (0.299) (0.310) (0.366)
Distributions (from Capital Gains).. --- --- --- --- (0.344) ---
Return of Capital................... --- --- --- --- --- (0.008)
------------- ------------- ------------- ------------- ------------- -------------
Total Distributions............... (0.153) (0.314) (0.300) (0.299) (0.654) (0.374)
------------- ------------- ------------- ------------- ------------- -------------
NET ASSET VALUE END OF PERIOD....... $4.67 $4.71 $4.97 $4.35 $4.97 $5.04
============= ============= ============= ============= ============= =============
TOTAL RETURN (A).................... 2.47% 1.30% 21.90% (6.50%) 10.90% 5.00%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) $7,637 $8,036 $10,080 $8,309 $10,098 $9,364
Ratio of Expenses to Average Net
Assets............................ 0.55% 0.65% 1.11% 1.10% 1.10% 1.11%
Ratio of Net Income (Loss) to
Average Net Assets................ 5.67% 6.44% 6.41% 6.47% 5.90% 7.22%
Portfolio Turnover Rate............. 25% 75% 81% 220% 153% 157%
</TABLE>
<TABLE>
<CAPTION>
U.S. GOVERNMENT SERIES (CLASS A) FISCAL PERIOD ENDED DECEMBER 31
-----------------------------------------------------------------------------
1997(C)(D)(H) 1996(C)(D)(F) 1995(C)(D)(F) 1994(C) 1993(B)(C)
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD. $4.71 $4.97 $4.35 $4.97 $5.51
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income............... 0.120 0.250 0.260 0.260 0.040
Net Gain (Loss) on Securities
(realized & unrealized)........... (0.027) (0.254) 0.625 (0.624) (0.193)
------------- ------------- ------------- ------------- -------------
Total from Investment Operations.. 0.093 (0.004) 0.885 (0.364) (0.153)
LESS DISTRIBUTIONS
Dividends (from Net Investment
Income)........................... (0.133) (0.256) (0.265) (0.256) (0.043)
Distributions (from Capital Gains).. --- --- --- --- (0.344)
Return of Capital................... --- --- --- --- ---
------------- ------------- ------------- ------------- -------------
Total Distributions............... (0.133) (0.2560) (0.265) (0.256) (0.387)
------------- ------------- ------------- ------------- -------------
NET ASSET VALUE END OF PERIOD....... $4.67 $4.71 $4.97 $4.35 $4.97
============= ============= ============= ============= =============
TOTAL RETURN (A).................... 2.03% (0.02%) 20.90% (7.40%) (1.40%)
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) $729 $661 $582 $321 $140
Ratio of Expenses to Average Net
Assets............................ 1.52% 1.86% 1.87% 1.85% 1.61%
Ratio of Net Income (Loss) to
Average Net Assets................ 4.70% 5.23% 5.69% 5.76% 5.54%
Portfolio Turnover Rate............. 25% 75% 81% 220% 114%
</TABLE>
See accompanying notes.
21
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for each share of capital stock outstanding throughout each period
<TABLE>
<CAPTION>
LIMITED MATURITY BOND SERIES (CLASS A) FISCAL PERIOD ENDED DECEMBER 31
---------------------------------------------------
1997(C)(D)(F)(H) 1996(C)(D)(F) 1995(C)(D)(E)(F)
---------------- ------------- ----------------
<S> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD. $10.14 $ 10.66 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income............... 0.354 0.720 0.620
Net Gain (Loss) on Securities
(realized & unrealized)........... (0.037) (0.507) 0.652
------------- ------------- -------------
Total from Investment Operations.. 0.317 0.213 1.272
LESS DISTRIBUTIONS
Dividends (from Net Investment
Income)........................... (0.337) (0.720) (0.612)
Distributions (from Capital Gains).. --- --- ---
Return of Capital................... --- (0.013) ---
------------- ------------- -------------
Total Distributions............... (0.337) (0.733) (0.612)
------------- ------------- -------------
NET ASSET VALUE END OF PERIOD....... $10.12 $10.14 $10.66
============= ============= =============
TOTAL RETURN (A).................... 3.20% 2.10% 13.00%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) $5,366 $4,938 $3,322
Ratio of Expenses to Average Net
Assets............................ 0.63% 0.90% 0.84%
Ratio of Net Income (Loss) to
Average Net Assets ............... 7.08% 6.97% 5.97%
Portfolio Turnover Rate............. 79% 105% 4%
</TABLE>
<TABLE>
<CAPTION>
LIMITED MATURITY BOND SERIES (CLASS B) FISCAL PERIOD ENDED DECEMBER 31
---------------------------------------------------
1997(C)(D)(F)(H) 1996(C)(D)(F) 1995(C)(D)(E)(F)
---------------- ------------- ----------------
<S> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD. $ 10.14 $ 10.67 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income............... 0.290 0.630 0.530
Net Gain (Loss) on Securities
(realized & unrealized)........... (0.044) (0.524) 0.664
------------- ------------- -------------
Total from Investment Operations.. 0.246 0.106 1.194
LESS DISTRIBUTIONS
Dividends (from Net Investment
Income)........................... (0.296) (0.624) (0.524)
Distributions (from Capital Gains).. --- --- ---
Return of Capital................... --- (0.012) ---
------------- ------------- -------------
Total Distributions............... (0.296) (0.636) (0.524)
------------- ------------- -------------
NET ASSET VALUE END OF PERIOD....... $10.09 $10.14 $10.67
============= ============= =============
TOTAL RETURN (A).................... 2.49% 1.10% 12.20%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) $892 $761 $752
Ratio of Expenses to Average Net
Assets............................ 1.53% 1.88% 1.71%
Ratio of Net Income (Loss) to
Average Net Assets................ 6.23% 5.99% 5.12%
Portfolio Turnover Rate ............ 79% 105% 4%
</TABLE>
See accompanying notes.
22
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for each share of capital stock outstanding throughout each period
<TABLE>
<CAPTION>
HIGH YIELD SERIES (CLASS A) FISCAL PERIOD ENDED DECEMBER 31
-------------------------------
1997(C)(D)(H) 1996(C)(D)(G)
------------- -------------
<S> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD. $15.32 $15.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income............... 0.610 0.450
Net Gain (Loss) on Securities
(realized & unrealized)........... 0.259 0.320
------------- -------------
Total from Investment Operations.. 0.869 0.770
LESS DISTRIBUTIONS
Dividends (from Net Investment
Income)........................... (0.619) (0.450)
Distributions (from Capital Gains).. --- ---
------------- -------------
Total Distributions............... (0.619) (0.450)
------------- -------------
NET ASSET VALUE END OF PERIOD....... $15.57 $15.32
============= =============
TOTAL RETURN (A).................... 5.79% 5.20%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) $4,701 $2,780
Ratio of Expenses to Average Net
Assets............................ 0.90% 1.54%
Ratio of Net Income (Loss) to Average
Net Assets........................ 8.21% 7.47%
Portfolio Turnover Rate............. 58% 168%
</TABLE>
<TABLE>
<CAPTION>
HIGH YIELD SERIES (CLASS B) FISCAL PERIOD ENDED DECEMBER 31
-------------------------------
1997(C)(D)(H) 1996(C)(D)(G)
------------- -------------
<S> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD. $15.32 $15.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income............... 0.550 0.410
Net Gain (Loss) on Securities
(realized & unrealized)........... 0.237 0.320
------------- -------------
Total from Investment Operations.. 0.787 0.730
LESS DISTRIBUTIONS
Dividends (from Net Investment
Income)........................... (0.557) (0.410)
Distributions (from Capital Gains).. --- ---
------------- -------------
Total Distributions............... (0.557) (0.410)
------------- -------------
NET ASSET VALUE END OF PERIOD....... $15.55 $15.32
============= =============
TOTAL RETURN (A).................... 5.24% 4.90%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) $3,123 $2,719
Ratio of Expenses to Average Net
Assets............................ 0.88% 2.26%
Ratio of Net Income (Loss) to
Average Net Assets................ 3.63% 6.74%
Portfolio Turnover Rate............. 58% 168%
</TABLE>
See accompanying notes.
23
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for each share of capital stock outstanding throughout each period
<TABLE>
<CAPTION>
SECURITY TAX-EXEMPT FUND (CLASS A) FISCAL PERIOD ENDED DECEMBER 31
---------------------------------------------------------------------------------------------
1997(C)(D)(F)(H) 1996(C)(D)(F) 1995(C)(D)(F) 1994 1993 1992
---------------- ------------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD. $9.72 $9.94 $9.05 $10.37 $10.06 $9.97
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income............... 0.220 0.450 0.480 0.470 0.510 0.610
Net Gain (Loss) on Securities
(realized & unrealized)........... 0.026 (0.215) 0.891 (1.317) 0.702 0.092
------------- ------------- ------------- ------------ ------------ ------------
Total from Investment Operations.... 0.246 0.235 1.371 (0.847) 1.212 0.702
LESS DISTRIBUTIONS
Dividends (from Net Investment
Income)........................... (0.216) (0.455) (0.481) (0.473) (0.514) (0.612)
Distributions (from Capital Gains).. --- --- --- --- (0.388) ---
------------- ------------- ------------- ------------ ------------ ------------
Total Distributions............... (0.216) (0.455) (0.481) (0.473) (0.902) (0.612)
------------- ------------- ------------- ------------ ------------ ------------
NET ASSET VALUE END OF PERIOD....... $9.75 $9.72 $9.94 $9.05 $10.37 $10.06
============= ============= ============= ============ ============ ============
TOTAL RETURN (A).................... 2.58% 2.50% 15.50% (8.30%) 11.60% 7.30%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) $21,192 $23,304 $25,026 $24,092 $32,115 $28,608
Ratio of Expenses to Average
Net Assets........................ 0.84% 0.78% 0.86% 0.82% 0.82% 0.84%
Ratio of Net Income (Loss) to
Average Net Assets................ 4.46% 4.67% 5.02% 4.74% 4.92% 6.07%
Portfolio Turnover Rate............. 4% 54% 103% 88% 118% 90%
</TABLE>
<TABLE>
<CAPTION>
SECURITY TAX-EXEMPT FUND (CLASS B) FISCAL PERIOD ENDED DECEMBER 31
------------------------------------------------------------------------------
1997(C)(D)(F)(H) 1996(C)(D)(F) 1995(C)(D)(F) 1994(C) 1993(B)
---------------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD. $9.73 $9.95 $9.05 $10.37 $10.88
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income............... 0.160 0.330 0.370 0.350 0.100
Net Gain (Loss) on Securities
(realized & unrealized)........... 0.023 (0.215) 0.902 (1.321) (0.128)
------------- ------------- ------------- ------------ ------------
Total from Investment Operations.. 0.183 0.115 1.272 (0.971) (0.028)
LESS DISTRIBUTIONS
Dividends (from Net Investment
Income)........................... (0.153) (0.335) (0.372) (0.349) (0.094)
Distributions (from Capital
Gains)............................ --- --- --- --- (0.388)
------------- ------------- ------------- ------------ ------------
Total Distributions............. (0.153) (0.335) (0.372) (0.349) (0.482)
------------- ------------- ------------- ------------ ------------
NET ASSET VALUE END OF PERIOD....... $9.76 $9.73 $9.95 $9.05 $10.37
============= ============= ============= ============ ============
TOTAL RETURN (A).................... 1.91% 1.20% 14.3% (9.50%) (0.20%)
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) $1,258 $1,510 $1,190 $760 $106
Ratio of Expenses to Average Net
Assets............................ 2.01% 2.01% 2.00% 2.00% 2.89%
Ratio of Net Income (Loss) to
Average Net Assets................ 3.29% 3.44% 3.90% 3.50% 2.71%
Portfolio Turnover Rate............. 4% 54% 103% 88% 90%
</TABLE>
See accompanying notes.
24
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for each share of capital stock outstanding throughout each period
<TABLE>
<CAPTION>
SECURITY CASH FUND FISCAL PERIOD ENDED DECEMBER 31
---------------------------------------------------------------------------------------------
1997(D)(F)(H) 1996(C)(D)(F) 1995(C)(D)(F) 1994 1993(C) 1992(C)
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income............... 0.023 0.450 0.049 0.033 0.023 0.028
Net Gain (Loss) on Securities
(realized & unrealized)........... --- --- --- --- --- ---
------------- ------------- ------------- ------------- ------------- -------------
Total from Investment Operations.... 0.023 0.045 0.049 0.033 0.023 0.028
LESS DISTRIBUTIONS
Dividends (from Net Investment
Income............................ (0.023) (0.045) (0.049) (0.033) (0.023) (0.028)
Distributions (from Capital Gains).. --- --- --- --- --- ---
------------- ------------- ------------- ------------- ------------- -------------
Total Distributions............... (0.023) (0.045) (0.049) (0.033) (0.023) (0.028)
------------- ------------- ------------- ------------- ------------- -------------
NET ASSET VALUE END OF PERIOD....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============= ============= ============= ============= ============= =============
TOTAL RETURN (A).................... 2.36% 4.60% 5.00% 3.40% 2.40% 2.80%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) $46,092 $45,331 $38,158 $58,102 $71,870 $56,694
Ratio of Expenses to Average Net
Assets............................ 0.88% 1.01% 1.00% 0.96% 1.00% 1.00%
Ratio of Net Income (Loss) to
Average Net Assets................ 2.30% 4.47% 5.00% 3.24% 2.28% 2.75%
Portfolio Turnover Rate............. --- --- --- --- --- ---
</TABLE>
(a) Total return information does not take into account any charges paid at
time of purchase or contingent deferred sales charges paid at time of
redemption.
(b) Class "B" shares were initially issued on October 19, 1993. Percentage
amounts for the period, except total return, have been annualized.
(c) Fund expenses were reduced by the Investment Manager and expense ratios
absent such reimbursement would have been as follows:
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Corporate Bond Class B --- --- 2.00% 2.19% 2.05% 2.08%
U.S. Government Class A 1.20% 1.20% 1.20% 1.22% 1.17% 0.96%
Class B --- 1.75% 2.91% 3.70% 3.26% 1.93%
Limited Maturity Class A --- --- --- 1.04% 1.40% 1.13%
Bond Class B --- --- --- 2.12% 2.60% 2.03%
High Yield Class A --- --- --- --- 2.11% 1.43%
Class B --- --- --- --- 2.83% 2.30%
Tax-Exempt Class A --- --- --- 0.86% 0.78% 0.84%
Class B --- --- 2.32% 2.45% 2.19% 2.01%
Cash 1.03% 1.03% --- 1.04% 1.01% ---
</TABLE>
(d) Net investment income was computed using the average month-end shares
outstanding throughout the period.
(e) Security Limited Maturity Bond Series was initially capitalized on January
17, 1995, with a net asset value of $10 per share. Percentage maounts for
period have been annualized, except for total return.
(f) 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>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Corporate Bond Class A 1.02% 1.01% ---
Class B 1.85% 1.85% ---
U.S. Government Class A 1.10% 0.64% ---
Class B 1.85% 1.85% ---
Limited Maturity Class A 0.81% 0.87% 0.60%
Bond Class B 1.65% 1.85% 1.50%
Tax-Exempt Class A 0.85% 0.77% 0.83%
Class B 2.00% 2.00% 2.00%
Cash Fund 1.00% 1.00% 0.88%
</TABLE>
(g) Security High Yield Bond Series was initially capitalized on August 15,
1996, with a net asset value of $15 per share. Percentage amounts for the
period have been annualized, except for total return.
(h) Unaudited figures for the six months ended June 30, 1997. Percentage
amounts for the period have been annualized, except for total return.
See accompanying notes.
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Security Income Fund, Security Tax-Exempt Fund and Security Cash Fund (the
Funds) are registered under the Investment Company Act of 1940, as amended, as
diversified open-end management investment companies. The shares of Security
Income Fund are currently issued in multiple series, with each series, in
effect, representing a separate Fund. The Income Fund is required to account for
each series separately and to allocate general expenses to each series based
upon the net asset value of each series. The following is a summary of the
significant accounting policies followed by the Funds in the preparation of
their financial statements. These policies are in conformity with generally
accepted accounting principles.
A. SECURITY VALUATION - Valuations of Income Funds' and Tax-Exempt Fund's
securities are supplied by pricing services approved by the Board of Directors.
Securities listed or traded on a national securities exchange are valued on the
basis of the last sales price. If there are no sales on a particular day, then
the securities are valued at the last bid price. Securities for which market
quotations are not readily available are valued by a pricing service considering
securities with similar yields, quality, type of issue, coupon, duration and
rating. If there is no bid price or if the bid price is deemed to be
unsatisfactory by the Board of Directors or by the Funds' investment manager,
then the securities are valued in good faith by such method as the Board of
Directors determines will reflect the fair value. The Funds' officers, under the
general supervision of the Board of Directors, regularly review procedures used
by, and valuations provided by, the pricing service.
Cash Fund, by approval of the Board of Directors, utilizes the amortized
cost method for valuing portfolio securities, whereby all investments are valued
by reference to their acquisition cost as adjusted for amortization of premium
or accretion of discount.
B. OPTIONS - The High Yield bond Series may purchase put and call options
and write such options on a covered basis on securities that are traded on
recognized securities exchanges and over-the-counter markets. Call and put
options on securities give the holder the right to purchase or sell,
respectively (and the writer the obligation to sell or purchase), a security at
a specified price, on or until a certain date. The primary risks associate d
with the use of options are an imperfect correlation between the change in
market value of the securities held by the Series and the price of the option,
the possibility of an illiquid market, and the inability of the counter-party to
meet the terms of the contract.
The premium received for a written option is recorded as an asset, with an
equal liability which is marked to market based on the option's quoted daily
settlement price. Fluctuation in the value of such instruments are recorded as
unrealized appreciation (depreciation) until terminated, at which time realized
gains and losses are recognized.
C. SECURITY TRANSACTIONS AND INVESTMENT INCOME - Security transactions are
accounted for on the date the securities are purchased or sold. Realized gains
and losses are reported on an identified cost basis.Interest income is
recognized on the accrual basis. Premium and discounts (except original issue
discounts) on debt securities are not amortized, except Security Tax-Exempt Fund
which amortizes premiums.
D. DISTRIBUTIONS TO SHAREHOLDERS - Distributions to shareholders are
recorded on the ex-dividend date. The character of distributions made during the
year from net investment income or net realized gains may differ from their
ultimate characterization for federal income tax purposes. These differences are
primarily due to the recharacterization of foreign currency gains and losses.
E. TAXES - The Funds complied with the requirements of the Internal Revenue
Code applicable to regulated investment companies and distributed all of their
taxable net income and net realized gains sufficient to relieve them from all,
or substantially all, federal income, excise and state income taxes. Therefore,
no provision for federal or state income tax is required.
F. EARNINGS CREDITS - Under the fee schedule with the custodian, the Funds
earn credits based on overnight custody cash balances. These credits are
utilized to reduce related custodial expenses. The custodian fees disclosed in
the statement of operations do not reflect the reduction in expense from the
related earnings credits.
2. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Management fees are payable to Security Management Company, LLC (SMC) under
investment advisory contracts at an annual rate of .50 of 1% of the average net
assets of each fund, except for the High Yield Bond Series whose fees are .60 of
1% of the average net assets of the Series. The investment advisory contract for
Income Fund provides that the total annual expenses of each Series of the Fund
(including management fees and custodian fees net of earnings credits, but
excluding interest, taxes, brokerage commissions and extraordinary expenses)
will not exceed the level of expenses which Income Fund is permitted to bear
under the most restrictive expense limitation imposed by any state in which
shares of the Fund are then qualified for sale. For the period ended June30,
1997, SMC agreed to limit the total expenses of Corporate Bond Series, U.S.
Government Series and Limited Maturity Bond Series to an annual rate of 1.1% of
the average daily net asset value of Class A shares and 1.85% of Class B shares
of each respective Series. SMC also agreed to limit the total expenses of the
High Yield Bond Series to 2.0% for Class A Shares and 2.75% for Class B shares.
In addition, SMC agreed to waive all of the management fees for the U.S.
Government Series, Limited Maturity Bond Series and the High Yield Bond Series
until December 31, 1997. The investment advisory contract for Tax-Exempt and
Cash Funds provides that the total annual expenses of the Funds net of custodian
fee earnings credits will not exceed an amount equal to an annual rate of 1.0%
of the average net assets of Class A shares and 2.0% of Class B shares of the
Tax-Exempt Fund as calculated on a daily basis.
The Funds have entered into contracts with SMC for transfer agent services
and certain other administrative services which SMC provides to the Funds. SMC
is paid an annual fixed charge per account and shareholder and dividend
transaction fees.
As the administrative agent for the Funds, SMC performs administrative
functions, such as regulatory filings, bookkeeping,
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
accounting and pricing functions for the Funds. For this service SMC receives on
an annual basis, a fee of .09% of the average daily net assets of Corporate Bond
Series, U.S. Government Series, Limited Maturity Bond Series, High Yield Bond
Series, and Tax-Exempt Fund and .045% of the average daily net assets of Cash
Fund calculated daily and payable monthly.
Income and Tax-Exempt Funds have adopted Distribution Plans related to the
offering of Class B shares pursuant to Rule 12b-1 under the Investment Company
Act of 1940. The Plans provide for payments at an annual rate of 1.0% of the
average net assets of Class B shares. Class A shares of Income Fund incur 12b-1
distribution fees at an annual rate of .25% of the average net assets of each
Series.
Security Distributors, Inc. (SDl), a wholly-owned subsidiary of Security
Benefit Group, Inc., a financial services holding company, is national
distributor for Income and Tax-Exempt Funds. SDI received net underwriting
commissions on sales of Class A shares and contingent deferred sales charges
(CDSC) on redemptions occurring within 5 years of the date of purchase of Class
B shares, after allowances to brokers and dealers for the period ended June30,
1997, in the amounts presented below:
<TABLE>
<CAPTION>
CORPORATE U.S. LIMITED HIGH TAX-
BOND GOVERNMENT MATURITY YIELD EXEMPT
SERIES SERIES SERIES SERIES FUND
--------- ---------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
SDI underwriting (Class A) $ 3,171 $1,992 $1,258 $ 252 $1,318
CDSC (Class B) $ 7,418 $1,365 $ 168 $ 25 $ 267
Broker/Dealer (Class A) $ 7,618 $8,315 $5,337 $1,327 $5,666
Broker/Dealer (Class B) $29,092 $4,298 $6,698 $9,970 $1,870
</TABLE>
Certain officers and directors of the Funds are also officers and/or
directors of Security Benefit Life Insurance Company and its subsidiaries, which
include SMC and SDI.
3. INVESTMENT TRANSACTIONS
Investment transactions for the period ended June 30, 1997, (excluding
overnight investments and short-term debt securities) were as follows:
CORPORATE U.S. LIMITED HIGH TAX-
BOND GOVERNMENT MATURITY YIELD EXEMPT
SERIES SERIES SERIES SERIES FUND
--------- ---------- -------- ------ ------
Purchases $55,179,626 $2,115,282 $2,951,143 $3,241,098 $1,003,130
Proceeds from
sales $66,779,015 $2,310,448 $2,137,828 $1,683,875 $3,009,341
4. FEDERAL INCOME TAX MATTERS
The amounts of unrealized appreciation (depreciation)as of June 30, 1997,
were as follows:
CORPORATE U.S. LIMITED HIGH TAX-
BOND GOVERNMENT MATURITY YIELD EXEMPT
SERIES SERIES SERIES SERIES FUND
--------- ---------- -------- ------ ------
Gross unrealized
appreciation $ 685,094 $ 93,423 $ 84,357 $229,047 $493,541
Gross unrealized
depreciation (377,253) (29,791) (22,785) (3,281) (49,353)
-------- ------- ------- ------- -------
Net unrealized
appreciation $ 307,841 $ 63,632 $ 61,572 $225,766 $444,188
5.SHAREHOLDER'S MEETING.
The Board of Directors of Security Income Fund approved a change in the
name of one of the existing series of the Fund from Global Aggressive Bond
Series to Global High Yield Series to more fully reflect the investment
objectives of the Series. The name change was effective May 1, 1997. The Global
High Yield Series, formerly Global Aggressive Bond Series, is now offered by a
separate prospectus. In addition, its annual and semi-annual reports are also
presented as part of a separate document from the report for the rest of the
Income Fund Series.
A special meeting of the stockholders of the Global Aggressive Bond Series
of Security Income Fund was held on April 28, 1997. At this meeting,
shareholders voted to approve a new investment advisory contract which replaced
Security Management Company, LLC as investment manager to the Fund with MFR
Advisors, Inc.. In addition, shareholders also voted to approve a new
sub-advisory contract between MFR Advisors, Inc. and Lexington Management
Corporation. The total number of eligible votes were 489,633. The results of the
votes are as follows: 463,099 in favor, 0 votes against and 1,508 votes
abstained.
27
<PAGE>
THIS PAGE LEFT BLANK INTENTIONALLY
<PAGE>
THE SECURITY GROUP OF MUTUAL FUNDS
Security Growth and Income Fund
Security Equity Fund
* Equity Series
* Global Series
* Asset Allocation Series
* Social Awareness Series
* Value Series
Security Ultra Fund
Security Income Fund
* Corporate Bond Series
* U.S. Government Series
* Limited Maturity Bond Series
* High Yield Series
Security Tax-Exempt Fund
Security Cash Fund
This report is submitted for the general information of the shareholders of
the Funds. The report is not authorized for distribution to prospective
investors in the Funds unless preceded or accompanied by an effective prospectus
which contains details concerning the sales charges and other pertinent
information.
SECURITY FUNDS
OFFICERS AND DIRECTORS
DIRECTORS
- ---------
Donald A. Chubb, Jr.
John D. Cleland
Donald L. Hardesty
Bruce Jensen (Income Fund only)
Penny A. Lumpkin
Mark L. Morris, Jr., D.V.M.
Jeffrey B. Pantages
Maria Fiorini Ramirez (Income Fund only)
Hugh L. Thompson, Ph.D.
OFFICERS
- --------
John D. Cleland, President
James R. Schmank, Vice President and Treasurer
Mark E. Young, Vice President
Steven M. Bowser, Vice President
Jane A. Tedder, Vice President
Barbara J. Davison, Assistant Vice President
Thomas A. Swank, Vice President
Amy J. Lee, Secretary
Christopher D. Swickard, Assistant Secretary
Brenda M. Harwood, Assistant Treasurer and Assistant Secretary
[SDI LOGO]
SECURITY DISTRIBUTORS, INC. BULK RATE
700 SW Harrison St. U.S. POSTAGE
Topeka, KS 66636-0001 PAID
(785) 431-3112 SECURITY BENEFIT
(800) 888-2461
<PAGE>
MFR
================================================================================
SEMI-ANNUAL REPORT
JUNE 30, 1997
*MFR EMERGING MARKETS TOTAL RETURN SERIES
*MFR GLOBAL ASSET ALLOCATION SERIES
*MFR GLOBAL HIGH YIELD SERIES
[MFR LOGO] MFR Advisors, Inc.
[SDI LOGO]
SECURITY DISTRIBUTORS, INC.
A Member of The Security Benefit
Group of Companies
<PAGE>
MANAGER'S COMMENTARY
JUNE 30, 1997
MFR EMERGING MARKETS TOTAL RETURN
Dear Shareholders:
Welcome to the MFR Emerging Markets TotalReturnFund. The Fund seeks to maximize
total return by investing primarily in a portfolio of emerging market equity and
fixed income securities. With many of the fastest growing economies in the world
located in emerging countries, we believe that these markets represent exciting
investment opportunities. In allocating the Fund's assets, the investment
adviser, MFR Advisors, Inc., uses the proprietary macroeconomic research of
Maria Fiorini Ramirez, Inc. (MFR), the parent company of MFR Advisors, Inc. For
many years, MFR has been providing global economic research to financial
institutions around the world, and we are now pleased to be able to offer our
investment insights through the MFR mutual funds.
Countries considered emerging markets have tremendous growth potential. With
their inexpensive labor forces, they have attracted, and will continue to
attract, direct investment in plant and equipment from many of the world's
largest manufacturers. As these countries grow, they tend to upgrade their
infrastructures, including their telephone systems, roads, railways and
utilities. State-owned monopolies in many of these industries have been
privatized and many represent excellent investment opportunities. As you can see
in the attached portfolio, the Fund owns a number of telecommunication and other
infrastructure type investments.
The Fund currently also has a high percentage (approximately 38% of net assets)
of its portfolio invested in the sovereign debt of emerging market countries.
This portion of the Fund provides a steady stream of high income and also has
significant upside potential. As countries' economies expand and governments
start putting their fiscal houses in order, the credit rating of their debt may,
in many cases, be upgraded. We have seen a good number of upgrades in recent
years and we believe this trend will continue.
Looking ahead, we see a volatile second half for 1997, which should provide some
good buying opportunities. Speculative selling pressures combined with either
poor economic fundamentals and/or currency overvaluation to force the effective
devaluations of the Thai Baht, Czech Koruna and the Philippine Peso. As of the
writing of this letter, there were also heavy selling pressures on the
Indonesian Rupiah, Malaysian Ringgit and Polish Zloty. The common theme among
these currencies is that they all had "managed levels" set by their governments,
as opposed to floating freely against other currencies. In most instances, the
governments were using a relatively (and as it turned out, unsustainable) strong
currency to mask fundamental problems, either in the economy or in governmental
policies. We believe that this string of devaluations will force more freely
floating currencies, which in turn, will eventually force sound governmental
economic policies. In the long run, this can only be positive for these markets.
In closing, we would like to add that MFR Advisors, Inc. is working for you, the
shareholder, and that as your money manager, we welcome your calls regarding
your investment.
Maria Fiorini Ramirez Bruce Jensen
President and CEO Chief Investment Officer
MFR Advisors, Inc. MFR Advisors, Inc.
Investing in foreign countries may involve risks, such as currency fluctuations
and political instability, not associated with investing exclusively in the U.S.
1
<PAGE>
MANAGER'S COMMENTARY (CONTINUED)
JUNE 30, 1997
MFR GLOBAL ASSET ALLOCATION
Dear Shareholders:
Welcome to the MFR Global Asset Allocation Fund. The Fund seeks to maximize
total return by investing primarily in a globally diverse portfolio of equity
and fixed income securities. In allocating the Fund's assets, the investment
adviser, MFR Advisors, Inc., uses the proprietary macroeconomic research of
Maria Fiorini Ramirez, Inc., (MFR), the parent company of MFR Advisors, Inc. For
many years, MFR has been providing global economic research to financial
institutions around the world, and we are now pleased to be able to offer our
investment insights through the MFR mutual funds.
Our view of the world is a positive one. Increasing globalization and investment
in new technology have resulted in strong anti-inflationary forces. Moreover,
governments have almost universally adopted strict fiscal discipline and
monetary policy makers have shown their commitment to control inflation. All of
these factors have led to a healthy environment for both stocks and bonds on a
global basis.
Looking forward, we do not see these positive trends ending anytime soon. The
labor marketplace has not yet fully absorbed the benefits of globalization,
including the addition of the inexpensive workers of former communist countries.
Structural problems related to the weakness of the financial system in Japan and
labor rigidity in Europe should keep interest rates low, providing ample
liquidity to markets. Economic activity continues to expand, and may well pick
up a little speed as European growth starts to recover.
Our investment outlook stresses three themes as represented in the attached
portfolio. First, and most important, we believe stocks should continue to
outperform bonds in this positive economic environment. This has led us to
invest approximately 70% of the portfolio (as of the date of this letter) in
equities, which we consider an overweight equity position. Second, we believe
that high yield bonds (whether foreign or domestic) will continue to outperform
high grade, lower yielding fixed income securities. And last, we believe that
growth prospects, and therefore investment opportunities, are superior in higher
growth nations outside of the G-5 (U.S., Japan, United Kingdom, Germany and
France).
In closing, we would like to add that MFR Advisors, Inc. is working for you, the
shareholder, and that as your money manager, we welcome your calls regarding
your investment.
Maria Fiorini Ramirez Bruce Jensen
President and CEO Chief Investment Officer
MFR Advisors, Inc. MFR Advisors, Inc.
Investing in foreign countries may involve risks, such as currency fluctuations
and political instability, not associated with investing exclusively in the U.S.
2
<PAGE>
MANAGER'S COMMENTARY (CONTINUED)
JUNE 30, 1997
MFR GLOBAL HIGH YIELD
Dear Shareholders:
MFR Advisors, Inc. would first like to thank the Fund's shareholders for
approving our appointment as Investment Adviser to the Fund on April 28, 1997.
Since the Fund's inception as Security Global Aggressive Bond Series, MFR
Advisors, Inc. has been the Fund's sub-investment adviser. Now named MFR Global
High Yield Series, the Fund's investment objective remains unchanged; high
current income with capital appreciation as the secondary objective.
The first half of 1997 saw mediocre returns for the global fixed investor. Many
of the world's developed government bond markets performed reasonably well. In
fact, the average 10-year yield of the G-7 (Germany, France, United Kingdom,
Italy, Japan, Canada and the United States) started the year at a 6.02% yield
and fell 0.20% (20 basis points) during the first six months of the year.
Interestingly, the United States was the only country in the G-7 that
experienced a rise in its 10-year yields (.08%). What made global bond returns
mediocre for the U.S. investor was the rise in the value of the U.S. dollar
versus most European currencies.
The two big anchors of core Europe, Germany and France, remained in the economic
doldrums. Constrained by the economic guidelines of the rapidly approaching
European Monetary Union (EMU), neither country has the fiscal latitude needed to
jump start their economies. This will not change in the near future. This
continued anemic economic growth outlook combined with the large short-term
investment rate differentials between core Europe and the U.S. (Germany's 3
month interest rates are 2.5% below the U.S.) pushed the U.S. dollar up
approximately 11% versus the deutschmark in the first half of 1997. This decline
more than offset interest income and bond gains and resulted in the Lehman
Brothers Global Bond Index being down 1.58% in the first half of the year.
MFR Global High Yield Series returned 2.18% for the first half of 1997(1). The
Fund owed much of its positive return to its investment in dollar denominated
high yield bonds. This category includes "BradyBonds", U.S high yield corporate
debt and dollar denominated mortgages. All of these high yielding sectors saw
their interest rate spreads narrow versus U.S. Treasuries as investors around
the world are seeking relatively high yielding securities. With yields in the
G-7 countries averaging about 5.8% on June 30, 1997, this comes as no surprise.
We are optimistic about the Fund's return for the second half of this year. The
global interest rate environment should remain friendly with subdued inflation
being the most important contributor. In addition, we believe that most of the
bad news regarding Europe has been priced into the U.S. dollar. These factors
combined with a continued flow of funds into the high yield sectors bode well
for MFR Global High Yield Series.
Maria Fiorini Ramirez Bruce Jensen
President and CEO Chief Investment Officer
MFR Advisors, Inc. MFR Advisors, Inc.
(1) Performance figures are based on Class A shares and do not reflect
deduction of the sales charge.
Investing in foreign countries may involve risks, such as currency fluctuations
and political instability, not associated with investing exclusively in the U.S.
3
<PAGE>
STATEMENTS OF NET ASSETS
JUNE 30, 1997
(UNAUDITED)
EMERGING MARKETS TOTAL RETURN SERIES
NUMBER MARKET
COMMON STOCKS OF SHARES VALUE
- --------------------------------------------------------------------------------
ARGENTINA - 2.7%
Telefonica de Argentina S.A. ADR................... 800 $ 27,700
BRAZIL - 9.3%
Aracruz Celulose S.A. ADR.......................... 1,200 24,450
CESP - Companhia Energetica de Sao Paulo ADR*...... 2,000 40,720
Companhia Cervejaria Brama ADR..................... 2,000 30,625
---------
95,795
CHILE - 3.3%
Maderas Y Sinteticos S.A. ADR ..................... 2,000 33,250
CZECH REPUBLIC - 1.0%
SPT Telecom A.S.*.................................. 100 10,493
GREECE - 5.4%
Hellenic Tellecommunication Organization S.A....... 1,100 25,850
Titan Cement Company S.A........................... 600 29,621
---------
55,471
HONG KONG - 4.0%
Founder Hong Kong Limited.......................... 31,000 21,007
Glorious Sun Enterprises*.......................... 42,000 19,923
---------
40,930
HUNGARY - 2.3%
Zalakeramia Rt..................................... 600 23,243
INDONESIA - 2.8%
PT Ramayana Lestari Sentosa*....................... 10,000 28,789
MEXICO - 7.9%
Cemex S.A. de C.V. (CI.B).......................... 5,000 24,075
Grupo Casa Autrey S.A. de C.V. ADR................. 1,200 24,375
Grupo Industrial Maseca S.A. de C.V. ADR........... 2,000 33,000
---------
81,450
PHILIPPINES - 2.4%
C & P Homes, Inc................................... 65,000 24,397
SINGAPORE - 5.3%
Clipsal Industries Ltd............................. 7,000 24,780
Want Want Holdings*................................ 9,000 29,880
---------
54,660
PRINCIPAL
AMOUNT OR
NUMBER OF MARKET
COMMON STOCKS SHARES VALUE
- --------------------------------------------------------------------------------
SOUTH AFRICA - 3.0%
South African Breweries Limited.................... 1,000 $ 30,702
SPAIN - 3.4%
Tele Pizza, S.A.*.................................. 600 35,085
---------
Total common stocks - 52.8%...................... 541,965
GOVERNMENT OBLIGATIONS
- ----------------------
ARGENTINA - 3.4%
Republic of Argentina, 5.50% - 2023(2)............. $ 50,000 34,625
BRAZIL - 4.4%
Government of Brazil "C" Bond, 8.00% - 2014(3)..... $ 56,033 45,001
COSTA RICA - 4.8%
Banco Costa Rica, 6.25% - 2010..................... $ 57,712 48,767
ECUADOR - 5.3%
Republic of Ecuador, 6.4375% - 2025(4)............. $ 75,000 53,719
GREECE - 4.8%
Hellenic Republic, 14.00% - 2003(1)................ 13,000,000 49,188
HUNGARY - 5.6%
Government of Hungary, 23.00% - 1999(1)............ 10,000,000 57,177
PERU - 2.4%
Peru - PDI, 4.00% - 2017........................... $ 39,000 25,350
SOUTH AFRICA - 3.8%
Republic of South Africa, 12.00% - 2005(1)......... 200,000 39,316
---------
Total government obligations - 34.5%............. 353,143
See accompanying notes.
4
<PAGE>
STATEMENTS OF NET ASSETS
JUNE 30, 1997
(UNAUDITED)
EMERGING MARKETS TOTAL RETURN SERIES (CONTINUED)
PRINCIPAL MARKET
SHORT-TERM INVESTMENTS AMOUNT VALUE
- --------------------------------------------------------------------------------
MEXICO - 3.0%
Mexico Cetes, 0% - 10/20/97(1)..................... 255,040 $ 30,860
---------
Total investments - 90.3%........................ 925,968
WRITTEN OPTIONS - (0.1%)
Call option on Government of Brazil "C" Bond,
strike price 80.50 USD - July 1997 (premium $564) $ 56,033 (479)
Cash and other assets, less liabilities - 9.8%... 97,984
---------
Total net assets - 100.0%........................ $1,023,473
=========
INVESTMENT CONCENTRATION
- --------------------------------------------------------------------------------
At June 30, 1997, Emerging Markets Total Return Series' investment
concentration, by industry, was as follows:
Brewery................................. 6.0%
Building Materials...................... 10.8%
Computer Systems........................ 2.1%
Electric Utilities...................... 4.0%
Electrical Equipment.................... 2.4%
Food Processing......................... 6.0%
Foreign Government Bonds................ 34.5%
Paper and Paper Products................ 2.4%
Pharmaceuticals......................... 2.4%
Real Estate Development................. 2.4%
Restaurants............................. 3.4%
Retail/Department Store................. 2.8%
Telecommunications...................... 3.5%
Telephone............................... 2.7%
Textiles................................ 1.9%
Cash, short term instruments and
other assets, less liabilities........ 12.7%
-----
Total net assets.................... 100.0%
=====
GLOBAL ASSET ALLOCATION SERIES
NUMBER MARKET
COMMON STOCKS OF SHARES VALUE
- --------------------------------------------------------------------------------
ARGENTINA - 2.0%
Telefonica de Argentina S.A. ADR................... 600 $ 20,775
AUSTRALIA - 2.7%
Foster's Brewing Group, Ltd........................ 15,000 27,644
AUSTRIA - 2.3%
Boehler-Uddeholm AG................................ 300 23,269
BRAZIL - 2.4%
CESP - Companhia Energetica de Sao Paulo ADR*...... 1,200 24,432
CANADA - 8.1%
Bombardier, Inc. (CI.B)............................ 1,000 22,688
Imax Corporation*.................................. 1,500 36,968
Stelco, Inc. (CI.A)*............................... 3,200 23,892
---------
83,548
CZECH REPUBLIC - 1.0%
SPT Telecom A.S.*.................................. 100 10,493
FRANCE - 4.7%
Alcatel Alsthom.................................... 200 25,073
Sidel, S.A......................................... 300 23,250
---------
48,323
GREECE - 5.4%
Hellenic Tellecommunication Organization S.A....... 1,100 25,850
Titan Cement Company S.A........................... 600 29,621
---------
55,471
HONG KONG - 2.0%
Founder Hong Kong Limited.......................... 31,000 21,007
IRELAND - 1.9%
Allied Irish Banks PLC............................. 2,600 19,896
JAPAN - 5.6%
Amway Japan, Ltd................................... 300 10,172
Mitsubishi Motors Corporation...................... 3,000 21,498
Sony Corporation................................... 300 26,191
---------
57,861
MEXICO - 2.3%
Cemex S.A. de C.V. (Cl.B).......................... 5,000 24,074
See accompanying notes.
5
<PAGE>
STATEMENTS OF NET ASSETS
JUNE 30, 1997
(UNAUDITED)
GLOBAL ASSET ALLOCATION SERIES (CONTINUED)
PRINCIPAL
AMOUNT OR
NUMBER OF MARKET
COMMON STOCKS OF SHARES VALUE
- --------------------------------------------------------------------------------
NETHERLANDS - 2.1%
Royal Dutch Petroleum Company ADR.................. 100 $ 21,600
NEW ZEALAND - 2.2%
Fletcher Challenge Building........................ 7,500 22,518
Fletcher Challenge Forests......................... 300 435
---------
22,953
PHILIPPINES - 1.8%
C & P Homes, Inc................................... 50,000 18,767
SINGAPORE - 2.9%
Want Want Holdings*................................ 9,000 29,880
SPAIN - 4.6%
Adolfo Dominguez S.A.*............................. 600 23,662
Tele Pizza, S.A.*.................................. 400 23,390
---------
47,052
SWEDEN - 2.1%
Skandinaviska Enskilda Banken...................... 2,000 21,598
SWITZERLAND - 1.9%
Saurer AG*......................................... 30 19,899
UNITED KINGDOM - 1.9%
British Telecommunications PLC..................... 2,700 20,041
UNITED STATES - 7.6%
Baxter International............................... 500 26,125
General Electric Company........................... 500 32,688
Northern Trust Corporation......................... 400 19,350
---------
78,163
---------
Total common stocks - 67.5% ..................... 696,746
CORPORATE BONDS
- ---------------
DENMARK - 4.3%
Nykredit, 7.00% - 2026(1).......................... 300,000 44,330
PRINCIPAL
AMOUNT OR
NUMBER OF MARKET
CORPORATE BONDS (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
UNITED STATES - 4.9%
Archibald Candy Corporation, 10.25% - 2004......... $ 50,000 $ 50,875
---------
Total corporate bonds - 9.2%..................... 95,205
GOVERNMENT OBLIGATIONS
- ----------------------
ARGENTINA - 3.4%
Republic of Argentina, 5.50% - 2023(2)............. $ 50,000 34,625
BRAZIL - 4.4%
Government of Brazil "C" Bond, 8.00% - 2014(3)..... $ 56,033 45,001
GREECE - 4.8%
Hellenic Republic, 14.00% - 2003(1)................ 13,000,000 49,188
SOUTH AFRICA - 1.9%
Republic of South Africa, 12.00% - 2005(1)......... 100,000 19,658
---------
Total government obligations - 14.5%............. 148,472
---------
Total investments - 91.2%....................... 940,423
WRITTEN OPTIONS - (0.1%)
Call option on Government of Brazil "C" Bond,
strike price 80.50 USD - July 1997 (premium $564) 56,033 (479)
Cash and other assets, less liabilities-8.9%..... 91,956
---------
Total net assets - 100.0%........................ $1,031,900
=========
See accompanying notes.
6
<PAGE>
STATEMENTS OF NET ASSETS
JUNE 30, 1997
(UNAUDITED)
GLOBAL ASSET ALLOCATION SERIES (CONTINUED)
INVESTMENT CONCENTRATION
- --------------------------------------------------------------------------------
At June 30, 1997, Global Asset Allocation Series' investment concentration by
industry was as follows:
Apparel................................... 2.3%
Automobiles............................... 2.1%
Banks & Credit............................ 4.0%
Brewery................................... 2.7%
Building Materials........................ 7.4%
Commercial Banks.......................... 1.9%
Computer Systems.......................... 2.0%
Electric Utilities........................ 2.4%
Electrical Equipment...................... 3.2%
Electronics............................... 2.5%
Entertainment............................. 3.6%
Financial................................. 4.3%
Food Processing........................... 2.9%
Foreign Government Bonds.................. 14.5%
Forestry.................................. 0.1%
Industrial Services....................... 4.9%
Integrated Petroleum-International........ 2.1%
Machinery................................. 4.2%
Manufacturing - Diversified............... 2.2%
Medical Supplies.......................... 2.5%
Miscellaneous............................. 1.0%
Real Estate Development................... 1.8%
Restaurants............................... 2.2%
Steel..................................... 4.5%
Telecommunications........................ 7.9%
Telephone................................. 2.0%
Cash and other assets, less liabilities. 8.8%
-----
Total net assets...................... 100.0%
=====
GLOBAL HIGH YIELD SERIES
PRINCIPAL MARKET
GOVERNMENT OBLIGATIONS AMOUNT VALUE
- --------------------------------------------------------------------------------
ARGENTINA - 4.5%
Republic of Argentina, 5.50% - 2023(2)............ $ 400,000 $ 277,000
AUSTRALIA - 3.4%
New South Wales Treasury Corporation,
6.50% - 2006(1).................................. 290,000 207,908
GLOBAL HIGH YIELD SERIES (CONTINUED)
PRINCIPAL MARKET
GOVERNMENT OBLIGATIONS (CONTINUED) AMOUNT VALUE
- --------------------------------------------------------------------------------
BRAZIL - 5.1%
Government of Brazil "C", 4.50% - 2014(3).......... $ 392,228 $ 315,008
CANADA - 2.0%
Canadian Government 8.00% - 2023(1)................ 150,000 123,205
COSTA RICA - 4.1%
Banco Costa Rica, 6.25% - 2010..................... $ 300,000 253,500
DOMINICAN REPUBLIC - 3.4%
Central Bank of Dominican Republic,
6.875% - 2024(4)................................. $ 250,000 208,750
ECUADOR - 3.5%
Republic of Ecuador, 6.4375% - 2025(4)............. $ 300,000 214,877
GREECE - 7.3%
Hellenic Republic, 14.00% - 2003(1)................ 120,000,000 454,039
HUNGARY - 5.5%
Government of Hungary, 23.00% - 1999(1)............ 30,000,000 171,532
Government of Hungary, 21.00% - 1999(1)............ 30,000,000 172,429
---------
343,961
JORDAN - 2.6%
Kingdom of Jordan, 4.00% - 2023(2)................. $ 250,000 162,500
MEXICO - 3.1%
United Mexican States, 6.25% - 2019................ $ 250,000 193,282
NEW ZEALAND - 3.3%
New Zealand Government, 6.50% - 2000(1)............ 300,000 202,516
POLAND - 5.1%
Government of Poland, 16.00% - 1998(1)............. 1,120,000 317,298
SOUTH AFRICA - 3.2%
Republic of South Africa, 12.00% - 2005(1)......... 1,000,000 196,581
SPAIN - 2.8%
Bonos Y Oblig Del Estado, 10.15% - 2006(1)......... 20,000,000 170,606
See accompanying notes.
7
<PAGE>
STATEMENTS OF NET ASSETS
JUNE 30, 1997
(UNAUDITED)
GLOBAL HIGH YIELD SERIES (CONTINUED)
PRINCIPAL MARKET
GOVERNMENT OBLIGATIONS (CONTINUED) AMOUNT VALUE
- --------------------------------------------------------------------------------
VENEZUELA - 3.8%
Venezuela - DCB, 6.75% - 2007(4)................... $ 250,000 $ 231,875
---------
Total government obligations - 62.7%............. 3,872,906
CORPORATE BONDS
- ---------------
CANADA - 8.2%
CHC Helicopter, 11.5% - 2002....................... $ 237,000 246,480
Roger's Communication, Inc., 10.50% - 2006(1)...... 100,000 80,129
Stelco, Inc., 10.40% - 2009(1)..................... 200,000 178,790
---------
505,399
CZECH REPUBLIC - 2.9%
CEZ, a.s., 11.30% - 2005(1)........................ 2,500,000 73,298
Skofin, S.R.O., a.s., 11.625% - 1998(1)............ 3,500,000 103,697
---------
176,995
DENMARK - 9.5%
Unikredit Realkredit, 7% - 2026(1)................. 1,000,000 147,344
Nykredit, 7.00% - 2026(1).......................... 1,494,000 220,764
Realkredit Danmark, 7.00% - 2026(1)................ 1,494,000 220,989
---------
589,097
UNITED STATES - 11.0%
Archibald Candy Corporation, 10.25% - 2004......... $ 250,000 254,375
Clark Materials Handling, 10.75% - 2006............ $ 250,000 262,500
Countrywide Home Loans, 7.50% - 2027............... $ 199,309 167,799
__________
684,674
_________
Total corporate bonds - 31.6%.................... 1,956,165
PRINCIPAL MARKET
SHORT-TERM INVESTMENTS AMOUNT VALUE
- --------------------------------------------------------------------------------
MEXICO - 2.8%
Mexican Cetes, 0% - 19971.......................... 1,400,000 $ 173,761
---------
Total short-term investments - 2.8%.............. 173,761
---------
Total investments - 97.1%........................ 6,002,832
WRITTEN OPTIONS - (0.1)%
Call option on Brazil "C" Bond strike price 80.5
USD - July 1997 (premium $3,947)................. $ 392,228 (3,353)
Call option on United Mexican States, strike price
78.4375 USD - July 1997 (premium $2,125)......... $ 250,000 (1,153)
---------
(4,506)
Cash and other assets, less liabilities - 3.0%... 183,505
---------
Total net assets - 100.0%........................ $6,181,831
=========
The identified cost of investments owned at June 30, 1997, was the same for
federal income tax and book purposes.
*Securities on which no cash dividend was paid during the preceding twelve
months.
ADR (American Depositary Receipt)
(1) Principal amount on foreign bond is reflected in local currency (e.g.
Japanese yen) while market value is reflected in U.S. dollars.
(2) Step-up rate security which will increase over the life of the bond.
(3) Variable rate security which may be reset over the life of the bond.
(4) Floating rate security which may be reset the first of each semi-annual
payment.
See accompanying notes.
8
<PAGE>
BALANCE SHEETS
JUNE 30, 1997
(UNAUDITED)
EMERGING GLOBAL GLOBAL
MARKETS ASSET HIGH
TOTAL RETURN ALLOCATION YIELD
SERIES SERIES SERIES
-----------------------------------------
ASSETS
Investments, at value (identified
cost $906,451, $911,891 and
$6,012,344, respectively).......... $ 925,968 $ 940,423 $6,002,832
Cash ................................ 63,719 112,589 19,874
Receivable:
Fund shares sold................... --- --- 10,233
Securities sold ................... 564 564 458,978
Forward foreign exchange contracts. --- 157 1,729
Interest........................... 12,354 7,727 178,088
Dividends.......................... 1,447 905 ---
MFR Advisors, Inc.................. 3,857 3,843 4,538
Prepaid expenses................... 20,258 20,148 10,278
Foreign taxes recoverable.......... 341 581 6,319
--------- --------- ---------
Total assets..................... $1,028,508 $1,086,937 $6,692,869
========= ========= =========
LIABILITIES AND NET ASSETS
Liabilities:
Payable for:
Securities purchased............. $ --- $ 50,000 $ 479,989
Fund shares redeemed............. --- --- 83
Written call options outstanding. 479 479 4,506
Other Liabilities:
Custodian fees .................. 921 921 8,026
Transfer and administration fees. 40 40 5,641
Professional fees................ 2,772 2,772 9,624
12b-1 distribution plan fees..... 538 539 2,324
Miscellaneous fees............... 285 286 845
--------- --------- ---------
Total liabilities.............. 5,035 55,037 511,038
Net Assets:
Paid in capital.................... 1,000,200 1,000,200 6,097,020
Undistributed net investment income 4,072 2,615 132,257
Accumulated undistributed net
realized gain (loss)on sale of
investments and foreign currency
transactions..................... (265) 394 (35,659)
Net unrealized appreciation
(depreciation)in value of
investments and translation of
assets and liabilities in
foreign currencies............... 19,466 28,691 (11,787)
--------- --------- ---------
Net assets..................... 1,023,473 1,031,900 6,181,831
--------- --------- ---------
Total liabilities and net
assets .................... $1,028,508 $1,086,937 $6,692,869
========= ========= =========
CLASS "A" SHARES
Capital shares outstanding......... 50,010 50,010 449,078
Net assets......................... $ 511,957 $ 516,173 $4,575,134
Net asset value per share (net
assets divided by shares
outstanding)..................... $10.24 $10.32 $10.19
Add: Selling commission (4.75% of
the offering price).......... 0.51 0.51 0.51
--------- --------- ---------
Offering price per share (net asset
value divided by 95.25%)......... $10.75 $10.83 $10.70
========= ========= =========
CLASS "B" SHARES
Capital shares outstanding......... 50,010 50,010 157,261
Net assets......................... $ 511,516 $ 515,727 $1,606,697
Net asset value per share (net
assets divided by shares
outstanding)..................... $10.23 $10.31 $10.22
========= ========= =========
See accompanying notes.
9
<PAGE>
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED
JUNE 30, 1997
(UNAUDITED)
EMERGING GLOBAL GLOBAL
MARKETS ASSET HIGH
TOTAL RETURN ALLOCATION YIELD
SERIES* SERIES* SERIES
-----------------------------------------
INVESTMENT INCOME:
Dividends............................ $ 2,176 $ 2,969 $ ---
Interest............................. 4,739 2,723 280,197
--------- --------- ---------
6,915 5,692 280,197
Less foreign tax expense........... --- (232) (4,274)
--------- --------- ---------
Total investment income.......... 6,915 5,460 275,923
EXPENSES:
Management fees...................... 1,162 1,163 20,362
Custodian fees....................... 921 921 4,706
Transfer/maintenance fees............ 7 7 1,546
Administration fees.................. 52 52 24,032
Director's fees...................... 29 29 91
Professional fees.................... 3,689 3,689 12,308
Reports to shareholders.............. 172 172 199
Registration fees.................... 2,357 2,357 3,258
Other expenses....................... 137 126 199
12b-1 distribution plan fees ........ 726 727 12,653
Reimbursement of expenses............ (6,409) (6,398) (26,914)
--------- --------- ---------
Total expenses..................... 2,843 2,845 52,440
--------- --------- ---------
Net investment income .......... 4,072 2,615 223,483
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) during the
period on:
Investments........................ --- --- 87,667
Foreign currency transactions...... (265) 394 (23,674)
--------- --------- ---------
Net realized gain (loss)......... (265) 394 63,993
Net change in unrealized appreciation
(depreciation) during the period on:
Investments........................ 19,517 28,532 (148,776)
Translation of assets and
liabilities in foreign currencies (51) 159 (7,499)
--------- --------- ---------
Net unrealized appreciation
(depreciation)................. 19,466 28,691 (156,275)
--------- --------- ---------
Net gain (loss)................ 19,201 29,085 (92,282)
--------- --------- ---------
Net increase in net assets
resulting from operations.. $ 23,273 $ 31,700 $ 131,201
========= ========= =========
*Period May 19, 1997 (inception) through June 30, 1997
See accompanying notes.
10
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED
JUNE 30, 1997
(UNAUDITED)
EMERGING GLOBAL GLOBAL
MARKETS ASSET HIGH
TOTAL RETURN ALLOCATION YIELD
SERIES* SERIES* SERIES
-----------------------------------------
INCREASE IN NET ASSETS FROM
OPERATIONS:
Net investment income ............... $ 4,072 $ 2,615 $ 223,483
Net realized gain (loss)............. (265) 394 63,993
Unrealized appreciation (depreciation)
during the period.................. 19,466 28,691 (156,275)
--------- --------- ---------
Net increase in net assets resulting
from operations.................. 23,273 31,700 131,201
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A............................ --- --- (154,370)
Class B............................ --- --- (54,204)
Net realized gain
Class A............................ --- --- ---
Class B............................ --- --- ---
--------- --------- ---------
Total Distributions to Shareholders.. --- --- (208,574)
CAPITAL SHARE TRANSACTION (A):
Proceeds from sale of shares
Class A............................ 500,100 500,100 995,376
Class B............................ 500,100 500,100 41,220
Dividends reinvested
Class A............................ --- --- 150,006
Class B............................ --- --- 53,140
Shares redeemed
Class A............................ --- --- (27,615)
Class B............................ --- --- (171)
--------- --------- ---------
Net increase from capital share
transactions....................... 1,000,200 1,000,200 1,211,956
--------- --------- ---------
Total increase in net assets....... 1,023,473 1,031,900 1,134,583
NET ASSETS:
Beginning of period.................. --- --- 5,047,248
--------- --------- ---------
End of period........................ $1,023,473 $1,031,900 $6,181,831
========= ========= =========
Undistributed net investment income
at end of period................... $ 4,072 $ 2,615 $ 132,257
========= ========= =========
(a) Shares issued and redeemed
Shares sold
Class A........................ 50,010 50,010 98,377
Class B........................ 50,010 50,010 4,021
Dividends reinvested
Class A........................ 0 0 14,793
Class B........................ 0 0 5,230
Shares redeemed
Class A........................ 0 0 (2,696)
Class B........................ 0 0 (17)
--------- --------- ---------
Net increase ................ 100,020 100,020 119,708
========= ========= =========
*Period May 19, 1997 (inception) through June 30, 1997.
See accompanying notes.
11
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED
DECEMBER 31, 1996
GLOBAL
AGGRESSIVE
BOND SERIES
-----------
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income.............................................. $ 472,087
Net realized loss.................................................. (40,713)
Unrealized appreciation during the period.......................... 75,068
---------
Net increase in net assets resulting from operations............. 506,442
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A.......................................................... (210,236)
Class B.......................................................... (85,158)
In excess of net realized gain
Class A.......................................................... (74,660)
Class B.......................................................... (32,900)
---------
Total distributions to shareholders.............................. (402,954)
CAPITAL SHARE TRANSACTIONS (A):
Proceeds from sale of shares
Class A.......................................................... 255,854
Class B.......................................................... 79,004
Dividends reinvested
Class A.......................................................... 283,688
Class B.......................................................... 110,636
Cost of shares redeemed
Class A.......................................................... (66,489)
Class B.......................................................... (127,192)
---------
Net increase from capital share transactions....................... 535,501
---------
Total increase in net assets..................................... 638,989
NET ASSETS:
Beginning of period................................................ 4,408,259
---------
End of period...................................................... $5,047,248
=========
Undistributed net investment income at end of period............... $ 117,348
=========
(a) Shares issued and redeemed:
Shares sold
Class A...................................................... 24,675
Class B...................................................... 7,907
Dividends reinvested
Class A...................................................... 27,930
Class B...................................................... 10,901
Shares redeemed
Class A...................................................... (6,449)
Class B...................................................... (12,357)
---------
Net increase............................................... 52,607
=========
See accompanying notes.
12
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for each share of capital stock outstanding throughout each period
EMERGING MARKETS TOTAL RETURN SERIES (CLASS A) 1997(B)(C)(E)
-------------
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD ............................. $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income ........................................... 0.040
Net Gain (Loss) on Securities (realized and unrealized) ......... 0.200
------
Total from Investment Operations .............................. 0.240
LESS DISTRIBUTIONS:
Dividends (from Net Investment Income) .......................... ---
Distributions (from Capital Gains) .............................. ---
-----
Total Distributions ........................................... ---
------
NET ASSET VALUE END OF PERIOD ................................... $10.24
======
TOTAL RETURN (A) ................................................ 2.40%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands) ............................ $512
Ratio of Expenses to Average Net Assets ......................... 2.00%
Ratio of Net Income (loss) to Average Net Assets ................ 3.88%
Portfolio Turnover Rate ......................................... 0%
Average Commission Paid Per Equity Shares Traded ................ $0.0111
EMERGING MARKETS TOTAL RETURN SERIES (CLASS B) 1997(B)(C)(E)
-------------
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD ............................. $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income ........................................... 0.040
Net Gain (Loss) on Securities (realized and unrealized) ......... 0.190
------
Total from Investment Operations .............................. 0.230
LESS DISTRIBUTIONS:
Dividends (from Net Investment Income) .......................... ---
Distributions (from Capital Gains) .............................. ---
------
Total Distributions ........................................... ---
------
NET ASSET VALUE END OF PERIOD ................................... $10.23
======
TOTAL RETURN (A) ................................................ 2.30%
RATIOS/SUPPLEMENTAL DATA:
Net Assets End of Period (thousands) ............................ $512
Ratio of Expenses to Average Net Assets ......................... 2.75%
Ratio of Net Income (loss) to Average Net Assets ................ 3.13%
Portfolio Turnover Rate ......................................... 0%
Average Commission Paid Per Equity Shares Traded ................ $0.0111
See accompanying notes.
13
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for each share of capital stock outstanding throughout each period
GLOBAL ASSET ALLOCATION SERIES (CLASS A) 1997(B)(C)(E)
-------------
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD ............................. $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income ........................................... 0.04
Net Gain (Loss) on Securities (realized and unrealized) ......... 0.28
------
Total from Investment Operations .............................. 0.32
LESS DISTRIBUTIONS:
Dividends (from Net Investment Income) .......................... ---
Distributions (from Capital Gains) .............................. ---
------
Total Distributions ........................................... ---
------
NET ASSET VALUE END OF PERIOD ................................... $10.32
======
TOTAL RETURN (A) ................................................ 3.20%
RATIOS/SUPPLEMENTAL DATA:
Net Assets End of Period (thousands) ............................ $516
Ratio of Expenses to Average Net Assets ......................... 2.00%
Ratio of Net Income (loss) to Average Net Assets ................ 2.82%
Portfolio Turnover Rate ......................................... 0%
Average Commission Paid Per Equity Shares Traded ................ 0.0181
GLOBAL ASSET ALLOCATION SERIES (CLASS B) 1997(B)(C)(E)
-------------
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD ............................. $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income ........................................... 0.030
Net Gain (Loss) on Securities (realized and unrealized) ......... 0.280
-----
Total from Investment Operations .............................. 0.310
LESS DISTRIBUTIONS:
Dividends (from Net Investment Income) .......................... ---
Distributions (from Capital Gains) .............................. ---
------
Total Distributions ........................................... ---
------
NET ASSET VALUE END OF PERIOD ................................... $10.31
======
TOTAL RETURN (A) ................................................ 3.10%
RATIOS/SUPPLEMENTAL DATA:
Net Assets End of Period (thousands) ............................ $516
Ratio of Expenses to Average Net Assets ......................... 2.75%
Ratio of Net Income (loss) to Average Net Assets ................ 2.07%
Portfolio Turnover Rate ......................................... 0%
Average Commission Paid Per Equity Shares Traded ................ $0.0181
See accompanying notes.
14
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for each share of capital stock outstanding throughout each period
FISCAL PERIOD ENDED DECEMBER 31
--------------------------------------
GLOBAL HIGH YIELD SERIES (CLASS A) 1997(C)(E) 1996(C) 1995(C)(D)
--------------------------------------
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD .... $10.36 $10.15 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income .................. 0.650 1.060 0.63
Net Gain (Loss) on Securities
(realized and unrealized) ............ (.430) .064 0.09
------ ------ ------
Total from Investment Operations ..... 0.220 1.124 0.72
LESS DISTRIBUTIONS:
Dividends (from Net Investment Income) . (0.39) (0.687) (0.55)
Distributions (from Capital Gains) ..... --- (0.227) (0.02)
------ ------ ------
Total Distributions .................. (0.39) (0.914) (0.57)
------ ------ ------
NET ASSET VALUE END OF PERIOD .......... $10.19 $10.36 $10.15
====== ====== ======
TOTAL RETURN (A) ....................... 2.2% 11.6% 7.3%
RATIOS/SUPPLEMENTAL DATA:
Net Assets End of Period (thousands) ... $4,575 $3,507 $2,968
Ratio of Expenses to Average Net Assets. 1.90% 1.98% 2.00%
Ratio of Net Income (loss) to Average
Net Assets ........................... 8.19% 10.39% 11.04%
Portfolio Turnover Rate ................ 104% 96% 127%
FISCAL PERIOD ENDED DECEMBER 31
--------------------------------------
GLOBAL HIGH YIELD SERIES (CLASS B) 1997(C)(E) 1996(C) 1995(C)(D)
--------------------------------------
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD .... $10.41 $10.17 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income .................. 0.640 0.980 0.56
Net Gain (Loss) on Securities
(realized and unrealized) ............ (.472) 0.060 0.12
------ ------ ------
Total from Investment Operations ... 0.168 1.040 0.68
LESS DISTRIBUTIONS:
Dividends (from Net Investment Income) . (0.358) (0.573) (0.49)
Distributions (from Capital Gains) ..... --- (0.227) (0.02)
------ ------ ------
Total Distributions .................. (0.358) (0.800) (0.51)
------ ------ ------
NET ASSET VALUE END OF PERIOD .......... $10.22 $10.41 $10.17
====== ====== ======
TOTAL RETURN (A) ....................... 1.7% 10.7% 6.9%
RATIOS/SUPPLEMENTAL DATA:
Net Assets End of Period (thousands) ... $1,607 $1,541 $1,440
Ratio of Expenses to Average Net Assets. 1.96% 2.75% 2.75%
Ratio of Net Income (loss) to Average
Net Assets ........................... 8.14% 9.64% 10.24%
Portfolio Turnover Rate ................ 104% 96% 127%
See accompanying notes.
15
<PAGE>
FINANCIAL HIGHLIGHTS
(a) Total return information does not take into account any charges paid at
time of purchase or contingent deferred sales paid at time of redemption.
(b) Emerging Markets Total Return Series and Global Asset Allocation Series
were initially capitalized on May 19, 1997, with a net asset value of $10
per share. Percentage amounts for the period have been annualized, except
for total return.
(c) Fund expenses were reduced by the Investment Manager and expense ratios
absent such reimbursement would have been as follows:
1995 1996 1997
---- ---- ----
Emerging Markets Total Class A --- --- 7.58%
Return Series Class B --- --- 8.34%
Global Asset Allocation Class A --- --- 7.56%
Series Class B --- --- 8.32%
Global High Yield Series Class A 2.42% 2.73% 3.59%
Class B 3.93% 3.75% 3.45%
(d) Global Aggressive Bond Series was initially capitalized on June 1, 1995,
with a net asset value of $10 per share. Percentage amounts for the period
have been annualized except for total return.
(e) Unaudited figures for the period ended June 30, 1997. Percentage amounts
for the period, except total return, have been annualized.
See accompanying notes.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
MFR Emerging Markets Total Return Series, MFR Global Asset Allocation
Series, and MFR Global High Yield Series (formally Global Aggressive Bond
Series) (the Series) are diversified series of Security Income Fund, an open-end
investment management company registered under theInvestment Company Act of
1940, as amended. Each Series is accounted for separately and general expenses
are allocated to each Series based upon the net asset value of each Series. The
following is a summary of the significant accounting policies followed by the
Series in the preparation of their financial statements. These policies are in
conformity with generally accepted accounting principles.
A. SECURITY VALUATION -- Valuations of the Series' securities are supplied by
pricing services approved by the Board of Directors. Securities listed or traded
on a national securities exchange are valued on the basis of the last sales
price. If there are no sales on a particular day, then the securities are valued
at the last bid price. Securities for which market quotations are not readily
available are valued by a pricing service considering securities with similar
yields, quality, type of issue, coupon, duration, and rating. If there is no bid
price or if the bid price is deemed to be unsatisfactory by the Board of
Directors or by the Series' investment manager, then the securities are valued
in good faith by such method as the Board of Directors determines will reflect
the fair value. The Series' officers, under the general supervision of the Board
of Directors, regularly review procedures used by, and valuations provided by,
the pricing service.
Generally, trading in foreign securities markets is substantially completed
each day at various times prior to the close of the New York Stock Exchange. The
values of foreign securities are determined as of the close of such foreign
markets or the close of the New York Stock Exchange if earlier. All investments
quoted in foreign currency are valued in U.S. dollars on the basis of the
foreign currency exchange rate prevailing at the close of business. Investments
in foreign securities may involve risks not present in domestic investments.
Since foreign securities may be denominated in a foreign currency and involve
settlement and pay interest in foreign currencies, changes in the relationship
of these foreign currencies to the U.S. dollar can significantly affect the
value of the investments and earnings of the Series. Foreign investments may
also subject the Series to foreign government exchange restrictions,
expropriation, taxation or other political, social or economic developments, all
of which could affect the market and/or credit risk of the investments.
B. FOREIGN CURRENCY TRANSACTIONS -- The accounting records of the Series' are
maintained in U.S. dollars. All assets and liabilities initially expressed in
foreign currencies are converted into U.S. dollars at prevailing exchange rates.
Purchases and sales of investment securities, dividend and interest income, and
certain expenses are translated at the rates of exchange prevailing on the
respective dates of such transactions.
The Series isolate that portion of the results of operations resulting from
changes in foreign exchange rates on investments from the fluctuations arising
from changes in the market prices of securities held.
Net realized foreign exchange gains or losses arise from sales of portfolio
securities, sales of foreign currencies, and the difference between asset and
liability amounts initially stated in foreign currencies and the U.S. dollar
value of the amounts actually received or paid. Net unrealized foreign exchange
gains or losses arise from changes in the exchange rates which effect the value
of portfolio securities and other assets and liabilities at the end of the
reporting period.
C. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- The Series may enter into
forward foreign currency exchange contracts in order to manage against foreign
currency risk from purchase or sale of securities denominated in foreign
currency. The Series may also enter into such contracts to manage changes in
foreign currency exchange rates on portfolio positions. These contracts are
marked to market daily, by recognizing the difference between the contract
exchange rate and the current market rate as unrealized gains or losses.
Realized gains or losses are recognized when contracts are settled and are
reflected in the statement of operations. These contracts involve market risk in
excess of the amount reflected in the Balance Sheet. The face or contract amount
in U.S. dollars reflects the total exposure the Series has in that particular
currency contract. Losses may arise due to changes in the value of the foreign
currency or if the counterparty does not perform under the contract.
D. OPTIONS -- The Series may purchase put and call options and write such
options on a covered basis on securities that are traded on recognized
securities exchanges and over-the-counter markets. Call and put options on
securities give the holder the right to purchase or sell, respectively (and the
writer the obligation to sell or purchase), a security at a specified price, on
or until a certain date. The primary risks associated with the use of options
are an imperfect correlation between the change in market valu e of the
securities held by the Series and the price of the option, the possibility of an
illiquid market, and the inability of the counter-party to meet the terms of the
contract.
The premium received for a written option is recorded as an asset, with an
equal liability which is marked to market based on the option's quoted daily
settlement price. Fluctuation in the value of such instruments are recorded as
unrealized appreciation (depreciation) until terminated, at which time realized
gains and losses are recognized. Below are the premiums received for the period
ended June 30, 1997, from written call options.
Fund Premium
---------------------------------------------------
Global High Yield Series $30,614
Emerging Market Total Return Series $564
Global Asset Allocation Series $564
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
E. SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the date the securities are purchased or sold. Realized gains
and losses are reported on an identified cost basis. Interest income is
recognized on the accrual basis. Premium and discounts on debt securities are
amortized.
F. DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders are recorded
on the ex-dividend date. The character of distributions made during the year
from net investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. These differences are
primarily due to the recharacterization of foreign currency gains and losses.
G. TAXES -- The Series complied with the requirements of the Internal Revenue
Code applicable to regulated investment companies and distributed all of their
taxable net income and net realized gains sufficient to relieve them from all,
or substantially all, federal income, excise and state income taxes. Therefore,
no provision for federal or state tax is required.
2. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Management fees are payable to MFR Advisors, Inc. (MFR) under investment
advisory contracts at an annual rate of .75 of 1% of the average net assets for
Global High Yield Bond Series and 1% of the average net assets for Emerging
Markets Total Return Series and Global Asset Allocation Series. MFR has agreed
to waive all of the management fees for the Series until August 31, 1997. In
addition, for the period ended June 30, 1997, MFR agreed to limit the total
expenses of each Series to an annual rate of 2.0% of the average daily net asset
value of Class A shares and 2.75% of the average daily net asset value of the
Class B shares.
As compensation for the services provided to the Global Asset Allocation
Series, MFR pays each of Lexington Management Corporation (Lexington) and
Security Management Company, LLC (SMC), as Sub-Advisors, on an annual basis, a
fee equal to .20 percent and .15 percent, respectively, of the average daily net
assets of the Series. With respect to the Global High Yield and Emerging Markets
Total Return Series, MFR pays Lexington, as Sub-Advisor, on an annual basis, a
fee equal to .20 percent of the average daily net assets of each Series. Fees
paid to the Sub-Advisors are calculated daily and payable monthly.
The Series have entered into contracts with SMC for transfer agent services
and certain other administrative services which SMC provides to the Series. SMC
is paid an annual fixed charge per account and a shareholder and dividend
transaction fee.
As the administrative agent for the Series, SMC performs administrative
functions, such as regulatory filings, bookkeeping, accounting and pricing
functions for the Series. For this service, SMC receives on an annual basis .045
percent of the average daily net assets of the Series, plus an annual fee equal
to the greater of .10 percent of the average daily net assets of each Series,
calculated daily and payable monthly, or (i) $30,000 in the year ended May 31,
1998; (ii) $45,000 in the year ended May 31, 1999; or (iii) $60,000 thereafter,
for the Global Asset Allocation Series and the Emerging Markets Total Return
Series. For the Global High Yield Series, this fee is equal to .10 percent of
the average daily net assets or $60,000 annually. For the period ending June 30,
1997, SMC has agreed to limit these fees to $15,000 for the Emerging Markets
Total Return Series and the Global Asset Allocation Series; and $45,000 for the
Global High Yield Series.
The Series have adopted Distribution Plans related to the offering of Class
B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. The
Plans provide for payments at an annual rate of 1.0% of the average net assets
of Class B shares. Class A shares incur 12b-1 fees at an annual rate of .25% of
the average net assets of each Series.
Security Distributors, Inc. (SDI), a wholly-owned subsidiary of Security
Benefit Group of Companies, Inc., is national distributor for the Series. SDI
received net underwriting commissions on sales of Class A shares and contingent
deferred sales charges on redemptions occurring within 5 years of the date of
purchase of Class B shares, after allowances to brokers and dealers for the
period ended June 30, 1997, in the amounts presented below:
Global Emerging Global
High Markets Asset
Yield Total Return Allocation
Series Series Series
-----------------------------------------------------------------------
SDI underwriting (Class A) $111 $0 $0
CDSC (Class B) $ 0 $0 $0
Broker/Dealer (Class A) $614 $0 $0
Broker/Dealer (Class B) $365 $0 $0
Certain officers and directors of the Funds are also officers and/or
directors of MFR Advisors, Inc. and Security Benefit Life Insurance Company and
its subsidiaries, which include SMC and SDI.
3. INVESTMENT TRANSACTIONS
Investment transactions for the period ended June 30, 1997, (excluding
overnight investments and short-term debt securities) were as follows:
Global Emerging Global
High Markets Asset
Yield Total Return Allocation
Series Series Series
-----------------------------------------------------------------------
Purchases $4,154,761 $906,451 $911,891
Proceeds from Sales $2,673,030 $ 0 $ 0
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. FEDERAL INCOME TAX MATTERS
The amounts of unrealized appreciation (depreciation) as of June 30, 1997,
were as follows:
Emerging Global Global
Markets Asset High
Total Return Allocation Yield
Series Series Series
----------------------------------------------------------------------------
Gross Unrealized Appreciation $ 43,629 $ 35,653 $ 227,729
Gross Unrealized Depreciation (14,938) (16,187) (239,516)
------ ------- --------
Net Unrealized Appreciation $ 28,691 $ 19,466 $ (11,787)
======= ======= ========
5. FORWARD FOREIGN EXCHANGE CONTRACTS
At June 30, 1997, the following Series had open forward foreign exchange
contracts to sell currency (excluding foreign currency contracts used for
purchase and sale settlements):
<TABLE>
<CAPTION>
Settlement Contract Contract Currency Unrealized
Currency Date Amount Rate Rate Gain (Loss)
- ----------------------------------------------------------------------------------------------------------
GLOBAL ASSET
<S> <C> <C> <C> <C> <C> <C>
ALLOCATION SERIES Aust. Dollar 7/31/97 $22,539 1.331026 1.336199 $ 87
Japanese Yen 7/10/97 $48,161 114.200000 114.430000 61
Can. Dollar 7/28/97 $72,590 1.377600 1.379600 9
-----
$ 157
GLOBAL HIGH
YIELD SERIES Aust. Dollar 7/31/97 $375,650 1.331026 1.336154 $1,442
Aust. Dollar 7/31/97 $187,100 1.336184 1.336154 4
Can. Dollar 7/9/97 $362,845 1.378000 1.379077 283
------
$1,729
</TABLE>
19
<PAGE>
THIS PAGE LEFT BLANK INTENTIONALLY
20
<PAGE>
MFR FUNDS
*Emerging Markets Total Return Fund
*Global Asset Allocation Fund
*Global High Yield Fund
This report is submitted for the general information of the shareholders of the
Funds. The report is not authorized for distribution to prospective investors in
the Funds unless preceded or accompanied by an effective prospectus which
contains details.
SECURITY FUNDS
OFFICERS AND DIRECTORS
DIRECTORS
- ---------
Donald A. Chubb, Jr.
John D. Cleland
Donald L. Hardesty
Bruce Jensen
Penny A. Lumpkin
Mark L. Morris, Jr., D.V.M.
Jeffrey B. Pantages
Maria Fiorini Ramirez
Hugh L. Thompson, Ph.D.
OFFICERS
- --------
John D. Cleland, President
James R. Schmank, Vice President and Treasurer
Mark E. Young, Vice President
Terry A. Milberger, Vice President, Equity Fund
Jane A. Tedder, Vice President
Cindy L. Shields, Assistant Vice President
Thomas A. Swank, Assistant Vice President
Amy J. Lee, Secretary
Christopher D. Swickard, Assistant Secretary
Brenda M. Harwood, Assistant Treasurer and Assistant Secretary
[SDI LOGO]
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700 SW Harrison St. U.S. POSTAGE
Topeka, KS 66636-0001 PAID
(800) 643-8188 SECURITY BENEFIT
(888) 743-6432
