<PAGE>
Security Funds
PROSPECTUS
February 5, 1997
* Security Income Fund
- Corporate Bond Series
- Limited Maturity Bond Series
- U.S. Government Series
- Global Aggressive Bond Series
- High Yield Series
* Security Tax-Exempt Fund
* Security Cash Fund
* Application
[SDI Logo]
<PAGE>
SECURITY FUNDS
PROSPECTUS
================================================================================
PROSPECTUS
FEBRUARY 5, 1997
AS SUPPLEMENTED APRIL 1, 1997
SECURITY INCOME FUND
* CORPORATE BOND SERIES
* LIMITED MATURITY BOND SERIES
* U.S. GOVERNMENT SERIES
* GLOBAL AGGRESSIVE BOND SERIES
* HIGH YIELD SERIES
SECURITY TAX-EXEMPT FUND
SECURITY CASH FUND
MEMBERS OF THE SECURITY BENEFIT GROUP OF COMPANIES,
700 HARRISON, TOPEKA, KANSAS 66636-0001
Security Income Fund consists of five diversified series, each of which has
its own identified assets, net asset values and investment objective. The
investment objective of the CORPORATE BOND SERIES ("Corporate Bond Fund") is
conservation of principal while generating interest income by investing
primarily in a diversified portfolio of investment grade corporate debt
securities. The investment objective of the LIMITED MATURITY BOND SERIES
("Limited Maturity Bond Fund") is to seek a high level of income consistent with
moderate price fluctuation by investing primarily in short-and intermediate-term
debt securities. The investment objective of the U.S. GOVERNMENT SERIES ("U.S.
Government Fund") is to provide a high level of interest income with security of
principal by investing primarily in securities which are guaranteed or issued by
the U.S. Government, its agencies or instrumentalities. The investment objective
of the GLOBAL AGGRESSIVE BOND SERIES ("Global Aggressive Bond Fund") is to seek
high current income with capital appreciation as a secondary objective through
investment in a combination of foreign and domestic high-yield, lower rated debt
securities. THE FUND INVESTS PRIMARILY (AND MAY INVEST UP TO 100% OF ITS ASSETS)
IN LOWER RATED AND UNRATED FOREIGN DEBT SECURITIES WHOSE CREDIT QUALITY IS
GENERALLY CONSIDERED THE EQUIVALENT OF U.S. CORPORATE DEBT SECURITIES COMMONLY
KNOWN AS "JUNK BONDS." INVESTMENTS OF THIS TYPE ARE SUBJECT TO A GREATER RISK OF
A LOSS OF PRINCIPAL AND INTEREST, INCLUDING THE RISK OF DEFAULT, AND THEREFORE
SHOULD BE CONSIDERED SPECULATIVE. SEE "INVESTMENT METHODS AND RISK FACTORS" ON
PAGE 13. PURCHASERS SHOULD CAREFULLY ASSESS THE RISKS ASSOCIATED WITH INVESTING
IN THE GLOBAL AGGRESSIVE BOND FUND. The investment objective of the HIGH YIELD
SERIES ("High Yield Fund") is to seek high current income. Capital appreciation
is a secondary objective. The Fund seeks to achieve its objective by investing
primarily in a broad range of income producing securities, including domestic
and foreign high-yield, lower rated debt securities. THE FUND INVESTS PRIMARILY
(AND MAY INVEST UP TO 100% OF ITS ASSETS) IN LOWER RATED BONDS, COMMONLY KNOWN
AS "JUNK BONDS," THAT ENTAIL GREATER RISKS, INCLUDING DEFAULT RISKS, THAN THOSE
FOUND IN HIGHER RATED SECURITIES. INVESTORS SHOULD CAREFULLY CONSIDER THESE
RISKS BEFORE INVESTING. SEE "INVESTMENT METHODS AND RISK FACTORS" - "RISKS
ASSOCIATED WITH LOWER RATED DEBT SECURITIES" ON PAGE 21.
The investment objective of SECURITY TAX-EXEMPT FUND ("Tax-Exempt Fund") is
to obtain as high a level of interest income exempt from federal income taxes as
is consistent with preservation of stockholders' capital by investing primarily
in debt securities which are exempt from federal income tax. Except at times
when the Fund is invested defensively, at least 80 percent of its total assets
will be invested in securities exempt from federal income taxes, including
alternative minimum tax.
The investment objective of SECURITY CASH FUND ("Cash Fund") is to earn as
high a level of current income as is consistent with preservation of capital and
liquidity through investments in money market instruments with maturities of not
longer than thirteen months. AN INVESTMENT IN CASH FUND IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT CASH FUND
WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the information that a prospective
investor should know about the Funds. It should be read and retained for future
reference. Certain additional information is contained in a Statement of
Additional Information about the Funds, dated February 5, 1997, which has been
filed with the Securities and Exchange Commission. The Statement of Additional
Information, as it may be supplemented from time to time, is incorporated by
reference in this Prospectus. It is available at no charge by writing Security
Distributors, Inc., 700 Harrison Street, Topeka, Kansas 66636-0001, or by
calling (913) 295-3127 or (800) 888-2461.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
AN INVESTMENT IN THE FUND INVOLVES RISK, INCLUDING LOSS OF PRINCIPAL, AND IS NOT
A DEPOSIT OR OBLIGATION OF, OR GUARANTEED BY ANY BANK. THE FUNDS ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY.
- --------------------------------------------------------------------------------
<PAGE>
SECURITY FUNDS
CONTENTS
================================================================================
Page
Transaction and Operating Expense Table................................... 1
Financial Highlights...................................................... 2
Investment Objective and Policies of the Funds............................ 4
Security Income Fund.................................................... 4
Corporate Bond Fund................................................... 4
Limited Maturity Bond Fund............................................ 5
U.S. Government Fund.................................................. 6
Global Aggressive Bond Fund........................................... 7
High Yield Fund....................................................... 9
Security Tax-Exempt Fund................................................ 11
Security Cash Fund...................................................... 12
Investment Methods and Risk Factors....................................... 13
Management of the Funds................................................... 22
Proposed New Advisory Agreements for the Global Aggressive Bond Fund.... 23
Portfolio Management.................................................... 23
How to Purchase Shares.................................................... 24
Corporate Bond, Limited Maturity Bond, U.S. Government,
Global Aggressive Bond, High Yield and Tax-Exempt Funds............... 24
Alternative Purchase Options............................................ 25
Class A Shares.......................................................... 25
Security Income Fund's Class A Distribution Plan........................ 25
Class B Shares.......................................................... 26
Class B Distribution Plan............................................... 27
Calculation and Waiver of Contingent Deferred Sales Charges............. 27
Arrangements with Broker-Dealers and Others............................. 27
Cash Fund............................................................... 28
Purchases at Net Asset Value.............................................. 29
Trading Practices and Brokerage........................................... 29
How to Redeem Shares...................................................... 30
Telephone Redemptions .................................................. 30
Dividends and Taxes....................................................... 31
Foreign Taxes........................................................... 32
Determination of Net Asset Value.......................................... 32
Performance............................................................... 33
Stockholder Services...................................................... 34
Accumulation Plan....................................................... 34
Systematic Withdrawal Program........................................... 34
Exchange Privilege...................................................... 35
Exchange by Telephone................................................... 35
Retirement Plans........................................................ 35
General Information....................................................... 36
Organization............................................................ 36
Stockholder Inquiries................................................... 36
Appendix A................................................................ 37
Appendix B................................................................ 39
Appendix C................................................................ 41
Security Cash Fund Application............................................ 43
<PAGE>
SECURITY FUNDS
PROSPECTUS
================================================================================
TRANSACTION AND OPERATING EXPENSE TABLE
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES CORPORATE BOND,
LIMITED MATURITY BOND,
U.S. GOVERNMENT,
GLOBAL AGGRESSIVE BOND,
HIGH YIELD AND
TAX-EXEMPT FUNDS CASH FUND
---------------------- ---------
CLASS A CLASS B(1)
Maximum Sales Load Imposed
on Purchases (as a percentage
of offering price) 4.75% None None
Maximum Sales Load Imposed on
Reinvested Dividends None None None
Deferred Sales Load (as a percentage
of original purchase price or
redemption proceeds,
whichever is lower) None(2) 5% during None
the first year,
decreasing to 0%
in the sixth and
following years
<TABLE>
<CAPTION>
CORPORATE LIMITED U.S. GLOBAL HIGH
BOND MATURITY GOVERNMENT AGGRESSIVE YIELD TAX-EXEMPT
FUND BOND FUND FUND BOND FUND FUND FUND CASH
ANNUAL FUND OPERATING EXPENSES CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS FUND
A B A B A B A B A B A B
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees (after fee waivers)(3) 0.50% 0.50% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.50% 0.50% 0.50%
12b-1 Fees(4) 0.25% 1.00% 0.25% 1.00% 0.25% 1.00% 0.25% 1.00% 0.25% 1.00% None 1.00% None
Other Expenses (after expense 0.27% 0.35% 0.29% 0.62% 0.47% 0.85% 1.75% 1.75% 0.71% 0.71% 0.36% 0.50% 0.50%
reimbursements)(5) ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Fund Operating Expenses (after fee 1.02% 1.85% 0.54% 1.62% 0.72% 1.85% 2.00% 2.75% 0.96% 1.71% 0.86% 2.00% 1.00%
waivers and expense reimbursements)(6) ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== =====
EXAMPLE
You would pay the following 1 Year $57 $69 $53 $66 $55 $69 $67 $78 $57 $67 $56 $70 $10
expenses on a $1,000 3 Years 78 88 64 81 69 88 107 115 77 84 74 93 32
investment, assuming 5 Years 101 120 76 108 86 120 93 128 55
(1) 5 percent annual 10 Years 166 217 112 192 133 217 149 233 122
return and (2) redemption
at the end of each time period
EXAMPLE
You would pay the following 1 Year $57 $19 $53 $16 $55 $19 $67 $28 $57 $17 $56 $20 $10
expenses on a $1,000 3 Years 78 58 64 51 69 58 107 85 77 54 74 63 32
investment, assuming 5 Years 101 100 76 88 86 100 93 108 55
(1) 5 percent annual 10 Years 166 217 112 192 133 217 149 233 122
return and (2) no
redemption
</TABLE>
(1) Class B shares convert tax-free to Class A shares automatically after eight
years.
(2) Purchases of Class A shares in amounts of $1,000,000 or more are not
subject to an initial sales load; however, a contingent deferred sales
charge of 1% is imposed in the event of redemption within one year of
purchase. See "Class A Shares" on page 25.
(3) During the fiscal year ended December 31, 1995, the Investment Manager
waived certain of the Management Fees of the Limited Maturity Bond, U.S.
Government, and Global Aggressive Bond Funds and, during the fiscal year
ending December 31, 1996 will waive the investment advisory fees of Limited
Maturity Bond, Global Aggressive Bond, U.S. Government and High Yield
Funds; absent such fee waivers, "Management Fees" would have been as
follows: .5% for each of the Limited Maturity Bond and U.S. Government
Funds, .6% for the High Yield Fund and .75% for the Global Aggressive Bond
Fund.
(4) Long-term holders of shares that are subject to an asset-based sales charge
may pay more than the equivalent of the maximum front-end sales charge
otherwise permitted by NASD Rules.
(5) The amount of "Other Expenses" of Global Aggressive Bond and High Yield
Funds is based on estimated amounts for the fiscal year ending December 31,
1996. During the fiscal year ended December 31, 1995, the Investment
Manager reimbursed certain expenses of the following Funds; absent such
reimbursement, "Other Expenses" would have been as follows: .29% for Class
A shares and .69% for Class B shares of Corporate Bond Fund; .47% for Class
A shares of Limited Maturity Bond Fund; 1.82% for Class A shares and 2.2%
for Class B shares of U.S. Government Fund; 2.58% for Class B shares of
Global Aggressive Bond Fund; .95% for Class B shares of Tax-Exempt Fund;
and .54% for shares of Cash Fund.
(6) During the fiscal year ended December 31, 1995, the Investment Manager
waived and/or reimbursed certain expenses of the Funds and, during the
fiscal year ending December 31, 1996 will waive the investment advisory
fees of Limited Maturity Bond, U.S. Government, Global Aggressive Bond and
High Yield Funds; absent such reimbursement and waiver, "Total Fund
Operating Expenses" would have been as follows: 1.04% for Class A shares
and 2.19% for Class B shares of Corporate Bond Fund; 1.22% for Class A
shares and 2.12% for Class B shares of Limited Maturity Bond Fund; 2.82%
for Class A shares and 3.70% for Class B shares of U.S. Government Fund;
4.33% for Class B shares of Global Aggressive Bond Fund; 1.56% for Class A
shares and 2.30% for Class B shares of High Yield Fund; 2.45% for Class B
shares of Tax-Exempt Fund; and 1.04% for shares of Cash Fund.
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AS ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. THE
ASSUMED FIVE PERCENT ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED
A REPRESENTATION OF PAST OR FUTURE ANNUAL RETURN. THE ACTUAL RETURN MAY BE
GREATER OR LESSER THAN THE ASSUMED AMOUNT.
The purpose of the foregoing fee table is to assist the investor in
understanding the various costs and expenses that an investor in Corporate Bond,
Limited Maturity Bond, U.S. Government, Global Aggressive Bond, High Yield,
Tax-Exempt or Cash Funds will bear directly or indirectly. For a more detailed
discussion of the Funds' fees and expenses, see the discussion under "Management
of the Funds," page 22. Information on the Funds' 12b-1 Plans may be found under
the headings "Security Income Fund's Class A Distribution Plan" on page 25 and
"Class B Distribution Plan" on page 26. See "How to Purchase Shares," page 24,
for more information concerning the sales load. Also, see Appendix C for a
discussion of "Rights of Accumulation" and "Statement of Intention," which
options may serve to reduce the front-end sales load on purchase of Class A
Shares.
- --------------------------------------------------------------------------------
1
<PAGE>
SECURITY FUNDS
FINANCIAL HIGHLIGHTS
================================================================================
The following financial highlights for each of the years in the period ended
December 31, 1995, have been audited by Ernst & Young LLP. Such information for
each of the five years in the period ended December 31, 1995, should be read in
conjunction with the financial statements of the Funds and the report of Ernst &
Young LLP, the Funds' independent auditors, appearing in the December 31, 1995
Annual Report which is incorporated by reference in this Prospectus. The Funds'
Annual Report also contains additional information about the performance of the
Funds and may be obtained without charge by calling Security Distributors, Inc.
at 1-800-888-2461. The information for each of the periods preceding and
including the year ended December 31, 1990, is not covered by the report of
Ernst & Young LLP.
<TABLE>
<CAPTION>
Net
gains Ratio
Net (losses) Divi- of Ratio
asset on sec- Total dends Net expenses of net
value urities from (from Distri- Net assets to income Port-
begin- Net (real- invest- net butions Return asset end of aver- to folio
Fiscal ning invest- ized & ment invest- (from of Total value Total period age average turn-
year of ment unreal- opera- ment capital capi- distri- end of return (thou- net net over
end period income ized) tions income) gains) tal butions period (a) sands) assets assets rate
- ------------------------------------------------------------------------------------------------------------------------------------
CORPORATE BOND FUND (CLASS A)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1986 $8.40 $.82 $.05 $.87 $(.95) $--- $--- $(.95) $8.32 11.0% $49,025 1.04% 10.09% 77%
1987 8.32 .79 (.48) .31 (.85) --- --- (.85) 7.78 4.0% 44,093 1.00% 9.73% 127%
1988 7.78 .77 (.292) .478 (.778) --- --- (.778) 7.48 6.5% 52,296 1.02% 10.04% 83%
1989 7.48 .74 (.031) .709 (.739) --- --- (.739) 7.45 9.9% 56,184 1.04% 9.83% 57%
1990 7.45 .69 (.232) .458 (.688) --- --- (.688) 7.22 6.6% 65,962 1.10% 9.42% 87%
1991 7.22 .65 .458 1.108 (.648) --- --- (.648) 7.68 16.1% 85,824 1.03% 8.75% 32%
1992 7.68 .61 .044 .654 (.614) --- --- (.614) 7.72 9.0% 104,492 1.01% 7.97% 61%
1993 7.72 .52 .521 1.041 (.527) (.424) --- (.951) 7.81 13.4% 118,433 1.02% 6.46% 157%
1994 7.81 .49 (1.127) (.637) (.493) --- --- (.493) 6.68 (8.3%) 90,593 1.01% 6.91% 204%
1995(d)(h)6.68 .47 0.708 1.178 (.468) --- --- (.468) 7.39 18.2% 93,701 1.02% 6.62% 200%
CORPORATE BOND FUND (CLASS B)
1993(b) $8.59 $.11 $(.324) $(.214) $(.112) $(.424) $--- $(.536) $7.84 (2.5%) $1,022 1.88%* 5.16%* 164%
1994(c) 7.84 .43 (1.129) (.699) (.431) --- --- (.431) 6.71 (9.0%) 3,878 1.85% 6.08% 204%
1995 6.71 .40 .725 1.125 (.405) --- --- (.405) 7.43 17.3% 5,743 1.85% 5.80% 200%
(c)(d)(h)
LIMITED MATURITY BOND FUND (CLASS A)
1995 $10.00 $.62 $.652 $1.272 $(.612) $--- $--- $(.612) $10.66 13.0% $3,322 0.84%* 5.97%* 4%*
(c)(d)(e)
LIMITED MATURITY BOND FUND (CLASS B)
1995 $10.00 $.53 $.664 $1.194 $(.524) $--- $--- $(.524) $10.67 12.2% $752 1.71%* 5.12%* 4%*
(c)(d)(e)
U.S. GOVERNMENT FUND (CLASS A)
1986(c) $5.32 $.47 $--- $.47 $(.50) $--- $--- $(.50) $5.29 9.1% $2,716 1.00% 9.23% 48%
1987(c) 5.29 .45 (.265) .185 (.475) --- --- (.475) 5.00 3.7% 4,467 1.00% 8.78% 166%
1988(c) 5.00 .48 (.18) .30 (.49) --- --- (.49) 4.81 6.2% 4,229 1.00% 9.83% 107%
1989(c) 4.81 .46 .078 .538 (.458) --- --- (.458) 4.89 11.8% 4,551 1.11% 9.46% 52%
1990(c) 4.89 .42 .032 .452 (.412) --- --- (.412) 4.93 9.8% 6,017 1.11% 8.60% 22%
1991(c) 4.93 .40 .248 .648 (.404) --- (.004) (.408) 5.17 13.8% 7,319 1.11% 7.94% 41%
1992(c) 5.17 .37 (.126) .244 (.366) --- (.008) (.374) 5.04 5.0% 9,364 1.11% 7.22% 157%
1993(c) 5.04 .31 .273 .583 (.310) (.344) --- (.654) 4.97 10.9% 10,098 1.10% 5.90% 153%
1994(c) 4.97 .30 (.621) (.321) (.299) --- --- (.299) 4.35 (6.5%) 8,309 1.10% 6.47% 220%
1995 4.35 .30 .620 .920 (.30) --- --- (.30) 4.97 21.9% 10,080 1.11% 6.41% 81%
(c)(d)(h)
U.S. GOVERNMENT FUND (CLASS B)
1993 $5.51 $.04 $(.193) $(.153) $(.043) $(.344) $--- $(.387) $4.97 (1.4%) $140 1.61%* 5.54%* 114%
(b)(c)
1994(c) 4.97 .26 (.624) (.364) (.256) --- --- (.256) 4.35 (7.4%) 321 1.85% 5.76% 220%
1995 4.35 .26 .625 .885 (.265) --- --- (.265) 4.97 20.9% 582 1.87% 5.69% 81%
(c)(d)(h)
GLOBAL AGGRESSIVE BOND FUND (CLASS A)
1995 $10.00 $.63 $.09 $.72 $(.55) $(.02) $--- $(.57) $10.15 7.3% $2,968 2.00%* 11.04%* 127%*
(c)(d)(f)
GLOBAL AGGRESSIVE BOND FUND (CLASS B)
1995 $10.00 $.56 $.12 $.68 $(.49) $(.02) $--- $(.51) $10.17 6.9% $1,440 2.75%* 10.24%* 127%*
(c)(d)(f)
TAX-EXEMPT FUND (CLASS A)
1986(c) $9.47 $.85 $.55 $1.40 $(.87) $--- $--- $(.87) $10.00 15.6% $8,901 1.00% 8.83% 35%
1987(c) 10.00 .82 .78 1.60 (.82) (.02) --- (.84) 10.76 15.5% 16,297 1.00% 7.79% 23%
1988(c) 10.76 .76 (.656) .104 (.774) (.12) --- (.894) 9.97 1.3% 17,814 1.00% 7.60% 83%
1989 9.97 .73 (.257) .473 (.723) --- --- (.723) 9.72 4.9% 19,898 .98% 7.47% 33%
1989(g) 9.72 .61 (.106) .504 (.624) --- --- (.624) 9.60 4.1% 20,426 .97%* 6.97%* 75%*
1990 9.60 .64 (.072) .568 (.638) --- --- (.638) 9.53 6.2% 20,566 .96% 6.75% 74%
1991 9.53 .63 .446 1.076 (.636) --- --- (.636) 9.97 11.7% 23,218 .89% 6.55% 38%
1992 9.97 .61 .092 .702 (.612) --- --- (.612) 10.06 7.3% 28,608 .84% 6.07% 91%
1993 10.06 .51 .702 1.212 (.514) (.388) --- (.902) 10.37 11.6% 32,115 .82% 4.92% 118%
1994 10.37 .47 (1.317) (.847) (.473) --- --- (.473) 9.05 (8.3%) 24,092 .82% 4.74% 88%
1995 9.05 .48 .891 1.371 (.481) --- --- (.481) 9.94 15.5% 25,026 .86% 5.02% 103%
(c)(d)(h)
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
2
<PAGE>
SECURITY FUNDS
FINANCIAL HIGHLIGHTS (CONTINUED)
================================================================================
<TABLE>
<CAPTION>
Net
gains Ratio
Net (losses) Divi- of Ratio
asset on sec- Total dends Net expenses of net
value urities from (from Distri- Net assets to income Port-
begin- Net (real- invest- net butions Return asset end of aver- to folio
Fiscal ning invest- ized & ment invest- (from of Total value Total period age average turn-
year of ment unreal- opera- ment capital capi- distri- end of return (thou- net net over
end period income ized) tions income) gains) tal butions period (a) sands) assets assets rate
- ------------------------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT FUND (CLASS B)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1993(b) $10.88 $.10 $(.128) $(.02) $(.094) $(.38) $--- $(.48) $10.37 (.2%) $106 2.89%* 2.71%* 90%
1994(c) 10.37 .35 (1.321) (.971) (.349) --- --- (.349) 9.05 (9.5%) 760 2.00% 3.50% 88%
1995 9.05 .37 .902 1.272 (.372) --- --- (.372) 9.95 14.3% 1,190 2.00% 3.90% 103%
(c)(d)(h)
CASH FUND
1986(c) $1.00 $.073 $--- $.073 $(.073) $--- $--- $(.073) $1.00 7.5% $47,292 1.00% 7.26% ---
1987(c) 1.00 .057 --- .057 (.057) --- --- (.057) 1.00 5.8% 37,773 1.00% 5.68% ---
1988(c) 1.00 .061 --- .061 (.061) --- --- (.061) 1.00 6.3% 43,038 1.00% 6.10% ---
1989(c) 1.00 .070 --- .070 (.070) --- --- (.070) 1.00 7.3% 46,625 1.00% 7.09% ---
1989(c)(g)1.00 .069 --- .069 (.069) --- --- (.069) 1.00 7.1% 54,388 1.00%* 8.26%* ---
1990(c) 1.00 .073 --- .073 (.073) --- --- (.073) 1.00 7.6% 65,018 1.00% 7.31% ---
1991 1.00 .051 --- .051 (.051) --- --- (.051) 1.00 5.2% 48,843 .96% 5.21% ---
1992(c) 1.00 .028 --- .028 (.028) --- --- (.028) 1.00 2.8% 56,694 1.00% 2.75% ---
1993(c) 1.00 .023 --- .023 (.023) --- --- (.023) 1.00 2.4% 71,870 1.00% 2.28% ---
1994 1.00 .033 --- .033 (.033) --- --- (.033) 1.00 3.4% 58,102 .96% 3.24% ---
1995(c)(d)1.00 .049 --- .049 (.049) --- --- (.049) 1.00 5.0% 38,158 1.00% 5.00% ---
</TABLE>
(a) Total return information does not reflect deduction of any sales charge
imposed at the time of purchase for Class A shares or upon redemption for
Class B shares.
(b) Class "B" shares were initially offered on October 19, 1993. Percentage
amounts for the period, except total return, have been annualized.
(c) Fund expenses were reduced by the Investment Manager during the period, and
expense ratios absent such reimbursement would have been as follows:
<TABLE>
<CAPTION>
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Corporate Bond Class A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Class B N/A N/A N/A N/A N/A N/A N/A N/A 2.00% 2.19%
U.S. Government Class A 1.60% 1.80% 1.31% 1.37% 1.34% 1.24% 1.20% 1.20% 1.20% 1.22%
Class B N/A N/A N/A N/A N/A N/A N/A 1.75% 2.91% 3.70%
Limited Maturity Bond Class A N/A N/A N/A N/A N/A N/A N/A N/A N/A 1.04%
Class B N/A N/A N/A N/A N/A N/A N/A N/A N/A 2.12%
Global Aggressive Bond Class A N/A N/A N/A N/A N/A N/A N/A N/A N/A 2.42%
Class B N/A N/A N/A N/A N/A N/A N/A N/A N/A 3.93%
Tax-Exempt Class A 1.62% 1.16% 1.03% N/A N/A N/A N/A N/A N/A 0.86%
Class B N/A N/A N/A N/A N/A N/A N/A N/A 2.32% 2.45%
Cash 1.17% 1.07% 1.04% 1.13%** 1.01% N/A 1.03% 1.03% N/A 1.04%
1.03%***
</TABLE>
(d) Net investment income was computed using the average month-end shares
outstanding throughout the period.
(e) Security Limited Maturity Bond Fund was initially capitalized on January 17,
1995, with a net asset value of $10 per share. Percentage amounts for the
period have been annualized, except for total return.
(f) Security Global Aggressive Bond Fund 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.
(g) Effective December 31, 1989, the fiscal year ends of Tax-Exempt and Cash
Funds were changed from January 31 and February 28, respectively, to
December 31. The information presented in the table above for the fiscal
year ended December 31 represents 11 months of performance for Tax-Exempt
Fund and 10 months of performance for Cash Fund. The data for years 1985
through 1989, are for the fiscal year ended January 31 for Tax-Exempt Fund
and for the fiscal year ended February 28 for Cash Fund.
(h) Expense ratios were calculated without the reduction for custodian fees
earnings credits. Expense ratios with such reductions would have been as
follows:
1995
Corporate Bond Class A 1.02%
Class B 1.85%
U.S. Government Class A 1.10%
Class B 1.85%
Limited Maturity Bond Class A 0.81%
Class B 1.65%
Tax-Exempt Class A 0.85%
Class B 2.00%
*Percentage amounts for the period, except total return, have been annualized.
**This information represents the expense ratio absent reimbursements for the
period February 1, 1989 through December 31, 1989.
***This information represents the expense ratio absent reimbursements for the
fiscal year ended February 28, 1989.
- --------------------------------------------------------------------------------
3
<PAGE>
SECURITY FUNDS
PROSPECTUS
================================================================================
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
Security Income, Tax-Exempt and Cash Funds are diversified open-end
management investment companies, which were organized as Kansas corporations on
September 9, 1970, July 14, 1981, and March 21, 1980, respectively. Each of the
Corporate Bond Fund, Limited Maturity Bond Fund, U.S. Government Fund, Global
Aggressive Bond Fund and High Yield Fund, series of Security Income Fund, and
Security Tax-Exempt Fund and Cash Fund (collectively, "the Funds") has its own
investment objective and policies which are described below. There, of course,
can be no assurance that such investment objectives will be achieved. While
there is no present intention to do so, the investment objective and policies of
each Fund may be changed by the Board of Directors of the Funds without the
approval of stockholders. However, stockholders will be given 30 days written
notice of any such change. If a change in investment objective is made,
stockholders should consider whether the Fund remains an appropriate investment
in light of their then current financial position and needs.
Each of the Funds is also subject to certain investment policy limitations,
which may not be changed without stockholder approval. Among these limitations,
some of the more important ones are that each Fund will not invest more than 5
percent of the value of its assets in any one issuer other than the U.S.
Government or its instrumentalities (for each of Cash, Global Aggressive Bond
and High Yield Funds, this limitation applies only with respect to 75 percent of
the value of its total assets), purchase more than 10 percent of the outstanding
voting securities of any one issuer or invest 25 percent or more of its total
assets in any one industry. The full text of the investment policy limitations
of each Fund is set forth in the Funds' Statement of Additional Information.
Each of the Funds may borrow money from banks as a temporary measure for
emergency purposes or to facilitate redemption requests. See "Investment Methods
and Risk Factors" for a discussion of borrowing. Pending investment in
securities or to meet potential redemptions, each of the Funds may invest in
certificates of deposit, bank demand accounts, repurchase agreements and high
quality money market instruments.
SECURITY INCOME FUND
Security Income Fund ("Income Fund") consists of five diversified series,
each of which represents a different investment objective and has its own
identified assets and net asset values. The investment objective of each series
is described below.
CORPORATE BOND FUND
The investment objective of Corporate Bond Fund is to preserve capital
while generating interest income. In pursuing its investment objective, the Fund
will invest in a broad range of debt securities, including (i) securities issued
by U.S. and Canadian corporations; (ii) securities issued or guaranteed by the
U.S. Government or any of its agencies or instrumentalities, including Treasury
bills, certificates of indebtedness, notes and bonds; (iii) securities issued or
guaranteed by the Dominion of Canada or provinces thereof; (iv) securities
issued by foreign governments, their agencies and instrumentalities, and foreign
corporations, provided that such securities are denominated in U.S. dollars; (v)
higher yielding, high risk debt securities (commonly referred to as "junk
bonds"); (vi) certificates of deposit issued by a U.S. branch of a foreign bank
("Yankee CDs"); and (vii) investment grade mortgage backed securities ("MBSs").
Under normal circumstances, at least 65 percent of the Fund's total assets will
be invested in corporate debt securities which at the time of issuance have a
maturity greater than one year.
Corporate Bond Fund will invest primarily in corporate debt securities
rated Baa or higher by Moody's Investors Service, Inc. ("Moody's") or BBB or
higher by Standard & Poor's Corporation ("S&P") at the time of purchase, or if
unrated, of equivalent quality as determined by the Investment Manager. See
Appendix A to this Prospectus for a description of corporate bond ratings.
Included in such securities may be convertible bonds or bonds with warrants
attached which are rated at least Baa or BBB at the time of purchase, or if
unrated, of equivalent quality as determined by the Investment Manager. A
"convertible bond" is a bond, debenture or preferred share which may be
exchanged by the owner for common stock or another security, usually of the same
company, in accordance with the terms of the issue. A "warrant" confers upon its
holder the right to purchase an amount of securities at a particular time and
price. Securities rated Baa by Moody's or BBB by S&P have speculative
characteristics. See "Investment Methods and Risk Factors" for a discussion of
the risks associated with such securities.
Corporate Bond Fund may invest up to 25 percent of its net assets in higher
yielding debt securities in the lower rating (higher risk) categories of the
recognized rating services (commonly referred to as "junk bonds"). Such
securities include securities rated Ba or lower by Moody's or BB or lower by S&P
and are regarded as predominantly
- --------------------------------------------------------------------------------
No dealer, salesperson, or other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus and in the Statement of Additional Information in connection with the
offer contained in this Prospectus, and, if given or made, such other
information or representations must not be relied upon as having been authorized
by the Funds, the Investment Manager, or the Distributor.
- --------------------------------------------------------------------------------
4
<PAGE>
SECURITY FUNDS
PROSPECTUS
================================================================================
speculative with respect to the ability of the issuer to meet principal and
interest payments. The Fund will not invest in junk bonds which are rated in
default at the time of purchase. See "Investment Methods and Risk Factors" for a
discussion of the risks associated with investing in such securities.
The Fund may purchase securities which are obligations of, or guaranteed
by, the Dominion of Canada or provinces thereof and debt securities issued by
Canadian corporations. Canadian securities will not be purchased if subject to
the foreign interest equalization tax and unless payable in U.S. dollars.
The Fund may invest in Yankee CDs which are certificates of deposit issued
by a U.S. branch of a foreign bank denominated in U.S. dollars and held in the
U.S. Yankee CDs are subject to somewhat different risks than are the obligations
of domestic banks. The Fund also may invest in debt securities issued by foreign
governments, their agencies and instrumentalities and foreign corporations,
provided that such securities are denominated in U.S. dollars. The Fund's
investment in foreign securities, including Canadian securities, will not exceed
25 percent of the Fund's net assets. See "Investment Methods and Risk Factors"
for a discussion of the risks associated with investing in foreign securities.
The Fund may invest in investment grade mortgage backed securities (MBSs),
including mortgage pass-through securities and collateralized mortgage
obligations (CMOs). The Fund may invest up to 10 percent of its net assets in
securities known as "inverse floating obligations," "residual interest bonds,"
or "interest-only" (IO) or "principal-only" (PO) bonds, the market values of
which generally will be more volatile than the market values of most MBSs. The
Fund will hold less than 25 percent of its net assets in MBSs. For a discussion
of MBSs and the risks associated with such securities, see "Investment Methods
and Risk Factors."
Corporate Bond Fund may purchase securities on a "when-issued" or "delayed
delivery" basis in excess of customary settlement periods for the types of
security involved. For a discussion of such securities, see "Investment Methods
and Risk Factors." It is anticipated that securities invested in by this Fund
will be held by the Fund on an average from one and a half to three years and
that the average weighted maturity of the Fund's portfolio will range from 5 to
15 years under normal circumstances.
LIMITED MATURITY BOND FUND
The investment objective of the Limited Maturity Bond Fund is to seek a
high level of income consistent with moderate price fluctuation by investing
primarily in short- and intermediate-term bonds. As used herein the term "short-
and intermediate-term bonds" is used to describe any debt security with a
maturity of 15 years or less. In pursuing its investment objective, the Fund
will invest in a broad range of debt securities, including (i) securities issued
by U.S. and Canadian corporations; (ii) securities issued or guaranteed by the
U.S. Government or any of its agencies or instrumentalities, including Treasury
bills, certificates of indebtedness, notes and bonds; (iii) securities issued or
guaranteed by, the Dominion of Canada or provinces thereof; (iv) securities
issued by foreign governments, their agencies and instrumentalities, and foreign
corporations, provided that such securities are denominated in U.S. dollars; (v)
higher yielding, high risk debt securities (commonly referred to as "junk
bonds"); (vi) certificates of deposit issued by a U.S. branch of a foreign bank
("Yankee CDs"); (vii) investment grade mortgage backed securities ("MBSs"); and
(viii) investment grade asset-backed securities. High yield debt securities,
Yankee CDs, MBSs and asset-backed securities are described in further detail
under "Investment Methods and Risk Factors." Under normal circumstances, the
Fund will invest at least 65 percent of the value of its total assets in short-
and intermediate-term bonds. It is anticipated that the dollar weighted average
maturity of the Fund's portfolio will range from 2 to 10 years. It will not
exceed 10 years.
Limited Maturity Bond Fund will invest primarily in debt securities rated
Baa or higher by Moody's or BBB or higher by S&P at the time of purchase, or if
unrated, of equivalent quality as determined by the Investment Manager. See
Appendix A to this Prospectus for a description of corporate bond ratings.
Included in such securities may be convertible bonds or bonds with warrants
attached which are rated at least Baa or BBB at the time of purchase, or if
unrated, of equivalent quality as determined by the Investment Manager. A
"convertible bond" is a bond, debenture or preferred share which may be
exchanged, by the owner, for common stock or another security, usually of the
same company, in accordance with the terms of the issue. A "warrant" confers
upon its holder the right to purchase an amount of securities at a particular
time and price. Securities rated Baa by Moody's or BBB by S&P have speculative
characteristics as described under "Investment Methods and Risk Factors"--"Baa
or BBB Securities."
The Fund may invest in higher yielding debt securities in the lower rating
(higher risk) categories of the recognized rating services (commonly referred to
as "junk bonds"); however, the Fund will not hold more than 25 percent of its
net assets in junk bonds. This includes securities rated Ba or lower by Moody's
or BB or lower by S&P, and such securities are regarded as predominantly
speculative with respect to the ability of the issuer to meet principal and
interest payments. The Fund will not invest in junk bonds which are rated in
default at the time of purchase. See "Investment Methods and Risk Factors" for a
discussion of the risks associated with investing in such securities.
For the period January 17, 1995 (date of inception) to December 31, 1995, the
dollar weighted average of Limited
- --------------------------------------------------------------------------------
5
<PAGE>
SECURITY FUNDS
PROSPECTUS
================================================================================
Maturity Bond Fund's holdings (excluding equities) had the following credit
quality characteristics.
PERCENT OF
INVESTMENT NET ASSETS
U.S. Government and
Government Agency Securities....................... 29.0%
Cash and other Assets, Less Liabilities............... 7.4%
Rated Fixed Income Securities
AA................................................. 7.9%
A.................................................. 43.1%
Baa/BBB............................................ 8.5%
Ba/BB.............................................. 4.1%
B.................................................. 0%
Caa/CCC............................................ 0%
---
100%
The foregoing table is intended solely to provide disclosure about Limited
Maturity Bond Fund's asset composition for the period January 17, 1995 (date of
inception) to December 31, 1995. The asset composition after this may or may not
be approximately the same as shown above.
The Fund may purchase securities which are obligations of, or guaranteed
by, the Dominion of Canada or provinces thereof and debt securities issued by
Canadian corporations. Canadian securities will not be purchased if subject to
the foreign interest equalization tax and unless payable in U.S.
currency.
The Fund may invest in Yankee CDs which are certificates of deposit issued
by a U.S. branch of a foreign bank denominated in U.S. dollars and held in the
United States. Yankee CDs are subject to somewhat different risks than are the
obligations of domestic banks. The Fund may also invest in debt securities
issued by foreign governments, their agencies and instrumentalities, and foreign
corporations, provided that such securities are denominated in U.S. dollars. The
Fund's investment in foreign securities, including Canadian securities, will not
exceed 25 percent of the Fund's net assets. For a discussion of the risks
associated with foreign securities, see "Investment Methods and Risk Factors."
The Fund may invest in U.S. Government securities. U.S. Government
securities include bills, certificates of indebtedness, notes and bonds issued
by the Treasury or by agencies or instrumentalities of the U.S. Government. For
a discussion of the varying levels of guarantee associated with particular types
of U.S. Government Securities, see "Investment Methods and Risk Factors" --
"U.S. Government Securities."
Limited Maturity Bond Fund may acquire certain securities that are
restricted as to disposition under the federal securities laws, provided that
such securities are eligible for resale to qualified institutional investors
pursuant to Rule 144A under the Securities Act of 1933, and subject to the
Fund's policy that not more than 15 percent of the Fund's net assets will be
invested in illiquid assets. See "Investment Methods and Risk Factors" for a
discussion of Rule 144A Securities.
The Fund may invest in investment grade mortgage backed securities (MBSs),
including mortgage pass-through securities and collateralized mortgage
obligations (CMOs). The Fund may invest up to 10 percent of its net assets in
securities known as "inverse floating obligations," "residual interest bonds,"
and "interest-only" (IO) and "principal-only" (PO) bonds, the market values of
which will generally be more volatile than the market values of most MBSs. The
Fund will hold less than 25 percent of its net assets in MBSs, including CMOs
and mortgage pass-through securities. For a discussion of MBSs and the risks
associated with such securities, see "Investment Methods and Risk Factors."
The Fund may also invest in investment grade "asset-backed securities."
These include secured debt instruments backed by automobile loans, credit card
loans, home equity loans, manufactured housing loans and other types of secured
loans providing the source of both principal and interest. Asset-backed
securities are subject to risks similar to those discussed with respect to MBSs.
See "Investment Methods and Risk Factors."
Limited Maturity Bond Fund may purchase securities on a "when-issued" or
"delayed delivery" basis in excess of customary settlement periods for the type
of security involved. See "Investment Methods and Risk Factors."
From time to time, Limited Maturity Bond Fund may invest part or all of its
assets in commercial notes or money market instruments.
U.S. GOVERNMENT FUND
The investment objective of the U.S. Government Fund is to provide a high
level of interest income with security of principal by investing primarily in
U.S. Government securities. U.S. Government securities include bills,
certificates of indebtedness, notes and bonds issued by the Treasury or by
agencies or instrumentalities of the U.S. Government. Under normal
circumstances, the Fund will invest at least 80 percent of the value of its
total assets in U.S. Government securities. For a discussion of the varying
levels of guarantee associated with particular types of U.S. Government
Securities, see "Investment Methods and Risk Practices" --"U.S. Government
Securities."
From time to time the portfolio of the U.S. Government Fund may consist
primarily of Government National Mortgage Association ("GNMA") certificates, or
"Ginnie Maes," which are mortgage-backed securities representing part ownership
of a pool of mortgage loans on which timely payment of interest and principal is
guaranteed by GNMA and backed by the full faith and credit of the U.S.
Government. These loans, issued by lenders such as mortgage bankers, commercial
banks and savings and loan
- --------------------------------------------------------------------------------
6
<PAGE>
SECURITY FUNDS
PROSPECTUS
================================================================================
associations, are either insured by the Federal Housing Administration or
guaranteed by the Veterans' Administration. A "pool" or group of such mortgages
is assembled and, after being approved by GNMA, is offered to investors through
securities dealers. Once approved by GNMA, the timely payment of interest and
principal on each mortgage is guaranteed by GNMA and backed by the full faith
and credit of the U.S. Government. Ginnie Mae certificates differ from bonds in
that principal is paid back monthly by the borrower over the term of the loan
rather than returned in a lump sum at maturity. Ginnie Mae certificates are
called "pass through" securities because both interest and principal payments
(including prepayments) are passed through to the holder of the certificate.
Upon receipt, principal payments generally will be used to purchase additional
Ginnie Mae certificates or other U.S. Government securities. Although the Fund
invests in securities guaranteed by GNMA and backed by the U.S. Government,
neither the value of the Fund's portfolio nor the value or yield of its shares
is so guaranteed. The Fund may, for defensive purposes, temporarily invest part
or all of its assets in money market instruments, including deposits and
bankers' acceptances in depository institutions insured by the FDIC, and
short-term U.S. Government and agency securities. If the deposits in a
depository institution are not fully insured by the FDIC, the Fund will analyze
the credit quality of the issuing institution prior to making any such deposit
and will retain a record of that analysis.
The potential for appreciation in GNMAs, which might otherwise be expected
to occur as a result of a decline in interest rates, may be limited or negated
by increased principal prepayments of the underlying mortgages. Prepayments of
GNMA certificates occur with increasing frequency when mortgage rates decline
because, among other reasons, mortgagors may be able to refinance their
outstanding mortgages at lower interest rates or prepay their existing
mortgages. Such prepayments would then be reinvested by the Fund at the lower
current interest rates.
While mortgages underlying GNMA certificates have a stated maturity of up
to 30 years, it has been the experience of the mortgage industry that the
average life of comparable mortgages, owing to prepayments, refinancings and
payments from foreclosures, is considerably less. Yield tables utilize a 12 year
average life assumption for GNMA pools of 26-30 year mortgages, and GNMAs
continue to be traded based on this assumption. Recently it has been observed
that mortgage pools issued at high interest rates have experienced accelerated
prepayment rates as interest rates declined, which would result in a shorter
average life than 12 years.
The Fund may invest in other mortgage backed securities (MBSs) as discussed
under "Investment Methods and Risk Factors" -- "Mortgage Backed Securities and
Collateralized Mortgage Obligations." MBSs include certain securities issued by
the United States government or one of its agencies or instrumentalities, such
as GNMAs, and securities issued by private issuers. The Fund may not invest more
than 20 percent of the value of its total assets in MBSs issued by private
issuers.
The Fund will attempt to maximize the return on its portfolio by taking
advantage of market developments and yield disparities, which may include use of
the following strategies:
1. Shortening the average maturity of its portfolio in anticipation of a
rise in interest rates so as to minimize depreciation of principal;
2. Lengthening the average maturity of its portfolio in anticipation of a
decline in interest rates so as to maximize appreciation of principal;
3. Selling one type of U.S. Government obligation and buying another when
disparities arise in the relative values of each; and
4. Changing from one U.S. Government obligation to an essentially similar
U.S. Government obligation when their respective yields are distorted due
to market factors.
These strategies may result in increases or decreases in the Fund's current
income available for distribution to Fund stockholders, and the Fund may hold
obligations which sell at moderate to substantial premiums or discounts from
face value. It is anticipated that securities invested in by this Fund will be
held by the Fund on the average from one to three years.
GLOBAL AGGRESSIVE BOND FUND
The Global Aggressive Bond Fund seeks to provide high current income.
Capital appreciation is a secondary objective. As used herein the term "bond" is
used to describe any type of debt security. Under normal circumstances the Fund
will invest at least 65 percent of its total assets in bonds as defined herein.
The Fund under normal circumstances seeks its investment objective of providing
a high level of current income by investing substantially all of its assets in a
portfolio of debt securities of issuers in three separate investment areas: (i)
the United States; (ii) developed foreign countries; and (iii) emerging markets.
The Fund may also invest up to 50 percent of its assets in certain derivative
instruments. See "Investment Methods and Risk Factors" for a discussion of the
risks associated with investing in derivative instruments. The Fund selects
particular debt securities in each sector based on their relative investment
merits. Within each area, the Fund selects debt securities from those issued by
governments, their agencies and instrumentalities; central banks; commercial
banks and other corporate entities. Debt securities in which the Fund may invest
consist of bonds, notes, debentures and other similar instruments. The Fund may
invest up to 100 percent of its total assets in U.S. and
- --------------------------------------------------------------------------------
7
<PAGE>
SECURITY FUNDS
PROSPECTUS
================================================================================
foreign debt securities and other fixed income securities that, at the time of
purchase, are rated below investment grade ("high yield securities" or "junk
bonds"), which involve a high degree of risk and are predominantly speculative.
The Fund may also invest in securities that are in default as to payment of
principal and/or interest. A description of debt ratings is included as Appendix
A to this Prospectus. See "Investment Methods and Risk Factors" for a discussion
of the risks associated with investing in junk bonds. Many emerging market debt
securities are not rated by United States rating agencies such as Moody's and
S&P. The Fund's ability to achieve its investment objectives is thus more
dependent on the manager's credit analysis than would be the case if the Fund
were to invest in higher quality bonds. INVESTORS SHOULD PURCHASE SHARES ONLY AS
A SUPPLEMENT TO AN OVERALL INVESTMENT PROGRAM AND ONLY IF WILLING TO UNDERTAKE
THE RISKS INVOLVED.
For the period June 1, 1995 (date of inception) to December 31, 1995, the
dollar weighted average of Global Aggressive Bond Fund's holdings (excluding
equities) had the following credit quality characteristics.
PERCENT OF
INVESTMENT NET ASSETS
U.S. Government and
Government Agency Securities....................... 0%
Cash and other Assets, Less Liabilities............... 2.4%
Rated Fixed Income Securities
AAA................................................ 5.1%
AA................................................. 7.9%
A.................................................. 14.8%
Baa/BBB............................................ 21.7%
Ba/BB.............................................. 17.9%
B.................................................. 13.8%
Caa/CCC............................................ 0%
Unrated Securities Comparable in Quality to
A.................................................. 6.4%
Baa/BBB............................................ 2.2%
Ba/BB.............................................. 0%
B.................................................. 7.8%
Caa/CCC............................................ 0%
---
100%
The foregoing table is intended solely to provide disclosure about Global
Aggressive Bond Fund's asset composition for the period June 1, 1995 (date of
inception) to December 31, 1995. The asset composition after this may or may not
be approximately the same as shown above.
EMERGING MARKETS. "Emerging markets" will consist of all countries
determined by the World Bank or the United Nations to have developing or
emerging economies and markets. Currently, investing in many of the emerging
countries and emerging markets is not feasible or may involve political risks.
Accordingly, Lexington Management Corporation, the Sub-Adviser to the Global
Aggressive Bond Fund (the "Sub-Adviser"), currently intends to consider
investments only in those countries in which it believes investing is feasible.
The list of acceptable countries will be reviewed by the Sub-Adviser and MFR
Advisers, Inc. ("MFR") and approved by the Board of Directors on a periodic
basis and any additions or deletions with respect to such list will be made in
accordance with changing economic and political circumstances involving such
countries. An issuer in an emerging market is an entity: (i) for which the
principal securities trading market is an emerging market, as defined above;
(ii) that (alone or on a consolidated basis) derives 50 percent or more of its
total revenue from either goods produced, sales made or services performed in
emerging markets; or (iii) organized under the laws of, and with a principal
office in, an emerging market.
The Fund's investments in emerging market securities consist substantially
of high yield, lower-rated debt securities of foreign corporations, "Brady
Bonds" and other sovereign debt securities issued by emerging market
governments. The Fund may invest in debt securities of emerging market issuers
without regard to ratings. Currently, the substantial majority of emerging
market debt securities are considered to have a credit quality below investment
grade. The Fund may invest in bank loan participations and assignments, which
are fixed and floating rate loans arranged through private negotiations between
foreign entities. The Fund may also invest up to 5 percent of its total assets
in zero coupon securities. See the discussion of sovereign debt securities,
Brady Bonds, loan participations and assignments and zero coupon securities
under "Investment Methods and Risk Factors."
TEMPORARY INVESTMENTS. The Fund intends to retain the flexibility to
respond promptly to changes in market and economic conditions. Accordingly, in
the interest of preserving shareholders' capital and consistent with the Fund's
investment objectives, the Sub-Adviser and MFR may employ a temporary defensive
investment strategy if they determine such a strategy to be warranted. Pursuant
to such a defensive strategy, the Fund temporarily may hold cash (U.S. dollars,
foreign currencies or multinational currency units) and/or invest up to 100
percent of its assets in high quality debt securities or money market
instruments of U.S. or foreign issuers, and most or all of the Fund's
investments may be made in the United States and denominated in U.S. dollars.
For debt obligations other than commercial paper, this includes securities
rated, at the time of purchase, at least AA by S&P or Aa by Moody's, or if
unrated, determined to be of comparable quality by the Sub-Adviser or MFR. For
commercial paper, this includes securities rated, at the time of purchase, at
least A-2 by S&P or Prime-2 by Moody's, or if unrated, determined to be of
comparable quality by the Sub-Adviser or MFR. It is impossible to predict
whether, when or for how long the Fund will employ defensive strategies. To the
extent the Fund adopts a temporary
- --------------------------------------------------------------------------------
8
<PAGE>
SECURITY FUNDS
PROSPECTUS
================================================================================
defensive investment posture, it will not be invested so as to achieve directly
its investment objectives. In addition, pending investment of proceeds from new
sales of Fund shares or to meet ordinary daily cash needs, the Fund temporarily
may hold cash (U.S. dollars, foreign currencies or multinational currency units)
and may invest any portion of its assets in high quality foreign or domestic
money market instruments. The Fund may from time to time invest in shares of
other investment companies as discussed under "Investment Methods and Risk
Factors," below.
INVESTMENT TECHNIQUE. The Fund invests in debt obligations allocated among
diverse markets and denominated in various currencies, including U.S. dollars,
or in multinational currency units such as European Currency Units. The Fund may
purchase securities that are issued by the government or a company or financial
institution of one country but denominated in the currency of another country
(or a multinational currency unit). The Fund is designed for investors who wish
to accept the risks entailed in such investments, which are different from those
associated with a portfolio consisting entirely of securities of U.S. issuers
denominated in U.S. dollars. See "Investment Methods and Risk Factors" for a
discussion of the risks associated with securities denominated in foreign
currencies.
The Sub-Adviser and MFR will seek to allocate the assets of the Fund in
securities of issuers in countries and in currency denominations where the
combination of fixed income market returns, the price appreciation potential of
fixed income securities and currency exchange rate movements will present
opportunities primarily for high current income and secondarily for capital
appreciation. In so doing, the Sub-Adviser and MFR intend to take full advantage
of the different yield, risk and return characteristics that investment in the
fixed income markets of different countries can provide for U.S. investors.
Fundamental economic strength, credit quality and currency and interest rate
trends will be the principal determinants of the emphasis given to various
country, geographic and industry sectors within the Fund. Securities held by the
Fund may be invested in without limitation as to maturity. The Sub-Adviser and
MFR evaluate currencies on the basis of fundamental economic criteria (e.g.,
relative inflation and interest rate levels and trends, growth rate forecasts,
balance of payments status and economic policies) as well as technical and
political data. If the currency in which a security is denominated appreciates
against the U.S. dollar, the dollar value of the security will increase.
Conversely, if the exchange rate of the foreign currency declines, the dollar
value of the security will decrease. The Fund may seek to protect itself against
such negative currency movements through the use of sophisticated investment
techniques although the Fund is not committed to using such techniques and may
be fully exposed to changes in currency exchange rates. See "Investment Methods
and Risk Factors" for a discussion of such techniques.
The Fund may purchase securities on a "when-issued" basis and may purchase
or sell securities on a "forward commitment" basis in order to hedge against
anticipated changes in interest rates and prices. See the discussion of
when-issued and forward commitment securities under "Investment Methods and Risk
Factors." The Fund may enter into repurchase agreements, reverse repurchase
agreements and "dollar rolls" which are discussed under "Investment Methods and
Risk Factors."
HIGH YIELD FUND
The investment objective of the High Yield Fund is to seek high current
income. Capital appreciation is a secondary objective. Under normal
circumstances, the Fund will seek its investment objective by investing
primarily in a broad range of income producing securities, including (i) higher
yielding, higher risk, debt securities (commonly referred to as "junk bonds");
(ii) preferred stock; (iii) securities issued by foreign governments, their
agencies and instrumentalities, and foreign corporations, provided that such
securities are denominated in U.S. dollars; (iv) mortgage-backed securities
("MBSs"); (v) asset-backed securities; (vi) securities issued or guaranteed by
the U.S. Government or any of its agencies or instrumentalities, including
Treasury bills, certificates of indebtedness, notes and bonds; (vii) securities
issued or guaranteed by, the Dominion of Canada or provinces thereof; and (viii)
zero coupon securities. The Fund may also invest up to 35 percent of its assets
in common stocks (which may include ADRs), warrants and rights. Under normal
circumstances, at least 65 percent of the Fund's total assets will be invested
in high-yielding, high risk debt securities.
High Yield Fund may invest up to 100 percent of its assets in debt
securities that, at the time of purchase, are rated below investment grade
("high yield securities" or "junk bonds"), which involve a high degree of risk
and are predominantly speculative. A description of debt ratings is included as
Appendix A to this Prospectus. See "Investment Methods and Risk Factors" for a
discussion of the risks associated with investing in junk bonds. Included in the
debt securities which the High Yield Fund may purchase are convertible bonds, or
bonds with warrants attached. A "convertible bond" is a bond, debenture, or
preferred share which may be exchanged by the owner for common stock or another
security, usually of the same company, in accordance with the terms of the
issue. A "warrant" confers upon the holder the right to purchase an amount of
securities at a particular time and price. See "Investment Methods and Risk
Factors" for a discussion of the risks associated with such securities.
For the period August 5, 1996 (date of inception) to December 31, 1996, the
dollar weighted average of High
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SECURITY FUNDS
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Yield Fund's holdings (excluding equities) had the following credit quality
characteristics.
PERCENT OF
INVESTMENT NET ASSETS
U.S. Government Securities............................ 0%
Cash and other Assets, Less Liabilities............... 11.4%
Rated Fixed Income Securities
Ba/BB.............................................. 38.2%
B.................................................. 49.4%
D.................................................. 1.0%
-----
100.0%
The foregoing table is intended solely to provide disclosure about High Yield
Fund's asset composition for the period August 5, 1996 (date of inception) to
December 31, 1996. The asset composition after this may or may not be
approximately the same as shown above.
The Fund may purchase securities which are obligations of, or guaranteed
by, the Dominion of Canada or provinces thereof and debt securities issued by
Canadian corporations. Canadian securities will not be purchased if subject to
the foreign interest equalization tax and unless payable in U.S. dollars. The
Fund may also invest in debt securities issued by foreign governments (including
Brady Bonds), their agencies and instrumentalities and foreign corporations
(including those in emerging markets), provided such securities are denominated
in U.S. dollars. The Fund's investment in foreign securities, excluding Canadian
securities, will not exceed 25 percent of the Fund's net assets. See "Investment
Method and Risk Factors" for a discussion of the risks associated with investing
in foreign securities, Brady Bonds and emerging markets.
The Fund may invest in MBSs, including mortgage pass-through securities and
collateralized mortgage obligations (CMO's). The Fund may invest in securities
known as "inverse floating obligations," "residual interest bonds," or "interest
only" (IO) or "principal only" (PO) bonds, the market values of which generally
will be more volatile that the market values of most MBSs. This is due to the
fact that such instruments are more sensitive to interest rate changes and to
the rate of principal prepayments than are most other MBSs. The Fund will hold
less than 25 percent of its net assets in MBSs. For a discussion of MBSs and the
risks associated with such securities, see "Investment Methods and Risk
Factors."
The Fund may also invest in asset-backed securities. These include secured
debt instruments backed by automobile loans, credit card loans, home equity
loans, manufactured housing loans and other types of secured loans providing the
source of both principal and interest payments. Asset-backed securities are
subject to risks similar to those discussed with respect to MBSs. See
"Investment Methods and Risk Factors."
The Fund may invest in U.S. Government securities. U.S. Government
securities include bills, certificates of indebtedness, notes and bonds issued
by the Treasury or by agencies or instrumentalities of the U.S. Government. For
a discussion of the varying levels of guarantee associated with particular types
of U.S. Government Securities, see "Investment Methods and Risk Factors" - "U.S.
Government Securities."
The Fund may invest in zero coupon securities which are debt securities
that pay no cash income but are sold at substantial discounts from their face
value. Certain zero coupon securities also provide for the commencement of
regular interest payments at a deferred date. See "Investment Methods and Risk
Factors" for a discussion of zero coupon securities.
The High Yield Fund may acquire certain securities that are restricted as
to disposition under federal securities laws, including securities eligible for
resale to qualified institutional investors pursuant to Rule 144A under the
Securities Act of 1933, subject to the Fund's policy that not more than 10
percent of the Fund's net assets will be invested in illiquid assets. See
"Investment Methods and Risk Factors" for a discussion of restricted securities.
The High Yield Fund may purchase securities on "when issued" or "delayed
delivery" basis in excess of customary settlement periods for the type of
security involved. The Fund may also purchase or sell securities on a "forward
commitment" basis and may enter into "repurchase agreements," "reverse
repurchase agreements" and "roll transactions." The Fund may lend securities to
broker-dealers, other institutions or other persons to earn additional income.
The value of loaned securities may not exceed 33 1/3 percent of the Fund's total
assets. In addition, the Fund may purchase loans, loan participations and other
types of direct indebtedness. See "Investment Methods and Risk Factors" for a
discussion of the risks associated with these investment practices.
The Fund may enter into futures contracts (a type of derivative) (or
options thereon) to hedge all or a portion of its portfolio, as a hedge against
changes in prevailing levels of interest rates or as an efficient means of
adjusting its exposure to the bond market. The Fund will not use futures
contracts for leveraging purposes. The Fund will limit its use of futures
contracts so that initial margin deposits or premiums on such contracts used for
non-hedging purposes will not equal more than 5 percent of the Funds net asset
value. The Fund may purchase call and put options and write such options on a
"covered" basis. The Fund may also enter into interest rate and index swaps and
purchase or sell related caps, floors and collars. The aggregate market value of
the Fund's portfolio securities covering call or put options will not exceed 25
percent of the Fund's net assets. See the discussion of "Options, Futures and
Forward Currency
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SECURITY FUNDS
PROSPECTUS
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Transactions," and "Swaps, Caps, Floors and Collars" under "Investment Methods
and Risk Factors."
From time to time, the High Yield Fund may invest part or all of its assets
in U.S. Government securities, commercial notes or money market instruments. It
is anticipated that the dollar weighted average maturity of the Fund's portfolio
will range from 5 to 15 years under normal circumstances.
SECURITY TAX-EXEMPT FUND
The investment objective of Tax-Exempt Fund is to obtain as high a level of
interest income exempt from federal income taxes as is consistent with
preservation of stockholders' capital. Tax-Exempt Fund attempts to achieve its
objective by investing primarily in debt securities, the interest on which is
exempt from federal income taxes, including the alternative minimum tax. Under
normal circumstances, at least 80 percent of the Fund's net assets will be
invested in such tax-exempt securities.
The securities in which the Fund invests include debt obligations issued by
or on behalf of the states, territories and possessions of the United States,
the District of Columbia, and their political subdivisions, agencies,
authorities and instrumentalities, including multi-state agencies or authorities
(and may include certain private activity bonds the interest on which is subject
to the alternative minimum tax). These securities are referred to as "municipal
securities" and are described in more detail in the Funds' Statement of
Additional Information.
The Fund's investments in municipal securities are limited to securities of
"investment grade" quality, that is, securities rated within the four highest
rating categories of Moody's (Aaa, Aa, A, Baa) or S&P (AAA, AA, A, BBB), except
that the Fund may purchase unrated municipal securities (i) where the securities
are guaranteed as to principal and interest by the full faith and credit of the
U.S. Government or are short-term municipal securities (those having a maturity
of less than one year) of issuers having outstanding at the time of purchase an
issue of municipal bonds having one of the four highest ratings, or (ii) where,
in the opinion of the Investment Manager, the unrated municipal securities are
comparable in quality to those within the four highest ratings. However,
Tax-Exempt Fund will not purchase an unrated municipal security (other than a
security described in (i) above) if, after such purchase, more than 20 percent
of the Fund's total assets would be invested in such unrated municipal
securities.
With respect to rated securities, there is no percentage limitation on the
amount of the Fund's assets which may be invested in securities within any
particular rating classification, but the Fund anticipates that it will invest
no more than 25 percent of its total assets in securities rated Baa by Moody's
or BBB by Standard & Poor's. A description of the ratings is contained in
Appendix B to this Prospectus. Such securities have speculative characteristics
as discussed under "Investment Methods and Risk Factors."
If the Fund holds a security whose rating drops below Baa or BBB, the
Investment Manager will reevaluate the credit risk presented by the security in
light of current market conditions and determine whether to retain or dispose of
such security. The Fund will not retain securities rated below Baa or BBB in an
amount that exceeds 5 percent of its net assets.
Tax-Exempt Fund invests primarily in municipal bonds with maturities
greater than one year. It is expected that the Fund's average portfolio maturity
under normal circumstances will be in the 15- to 25-year range. Tax-Exempt Fund
also will invest for various purposes in short-term (maturity equal to or less
than one year) securities which, to the extent practicable will be short-term
municipal securities. Short-term investments may be made, pending investment of
funds in municipal bonds, in order to maintain liquidity, to meet redemption
requests, or to maintain a temporary "defensive" investment position when, in
the opinion of the Investment Manager, it is advisable to do so on account of
current or anticipated market conditions. Except when in a temporary defensive
position, investments in short-term municipal securities will represent less
than 20 percent of the Fund's total assets.
From time to time, on a temporary basis, Tax-Exempt Fund may invest in
fixed income obligations on which the interest is subject to federal income tax.
Except when the Fund is in a temporary "defensive" investment position, it will
not purchase a taxable security if, as a result, more than 20 percent of its
total assets would be invested in taxable securities. This limitation is a
fundamental policy of Tax-Exempt Fund, and may not be changed without a majority
vote of the Fund's outstanding shares. Temporary taxable investments of the Fund
may consist of obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, commercial paper rated A-1 by S&P or Prime-1 by
Moody's, corporate obligations rated AAA or AA by S&P or Aaa or Aa by Moody's,
certificates of deposit or bankers' acceptances of domestic banks or thrifts
with at least $2 billion in assets, or repurchase agreements with such banks or
with broker-dealers.
Tax-exempt interest on private activity bonds and exempt-interest dividends
attributable to private activity bonds generally are treated as tax preference
items for purposes of the alternative minimum tax. The Fund may purchase private
activity bonds, such as industrial development bonds, when other bonds are not
available and when the yield differential between private activity bonds and
other municipal bonds justifies their purchase.
From time to time, Tax-Exempt Fund may purchase municipal securities on a
when-issued or delayed delivery basis. The Fund does not believe that its net
asset value or income will be adversely affected by its purchase of
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SECURITY FUNDS
PROSPECTUS
================================================================================
municipal securities on a when-issued or delayed delivery basis. For further
information regarding when-issued purchases, see "Investment Methods and Risk
Factors" and the Funds' Statement of Additional Information.
Tax-Exempt Fund may also purchase from banks or broker/dealers, municipal
securities together with the right to resell the securities to the seller at an
agreed-upon price or yield within a specified period prior to the maturity date
of the securities. Such a right to resell is commonly known as a "put" and is
also referred to as a "stand-by commitment" on the part of the seller. The price
which Tax-Exempt Fund pays for the municipal securities with puts generally is
higher than the price which otherwise would be paid for the municipal securities
alone. The Fund uses puts for liquidity purposes in order to permit it to remain
more fully invested in municipal securities than would otherwise be the case by
providing a ready market for certain municipal securities in its portfolio at an
acceptable price. The put generally is for a shorter term than the maturity of
the municipal security and does not restrict in any way the Fund's ability to
dispose of (or retain) the municipal security. In order to ensure that the
interest on municipal securities subject to puts is tax-exempt to the Fund, it
will limit its use of puts in accordance with current interpretations or rulings
of the Internal Revenue Service. Because it is difficult to evaluate the
likelihood of exercise or the potential benefit of a put, puts will be
determined to have a "value" of zero, regardless of whether any direct or
indirect consideration was paid. There is a risk that the seller of the put may
not be able to repurchase the security upon exercise of the put by Tax-Exempt
Fund. For further information regarding puts and stand-by commitments, see the
Funds' Statement of Additional Information.
SECURITY CASH FUND
The investment objective of Cash Fund is to seek as high a level of current
income as is consistent with preservation of capital and liquidity. Cash Fund
will attempt to achieve its objective by investing at least 95 percent of its
total assets, measured at the time of investment, in a diversified portfolio of
highest quality money market instruments. Cash Fund may also invest up to 5
percent of its total assets, measured at the time of investment, in money market
instruments that are in the second-highest rating category for short-term debt
obligations. Money market instruments in which the Fund may invest consist of
the following:
U.S. Government Securities -- Obligations issued or guaranteed (as to
principal or interest) by the United States Government or its agencies (such as
the Small Business Administration and Government National Mortgage Association)
or instrumentalities (such as Federal Home Loan Banks and Federal Land Banks)
and instruments fully collateralized with such obligations.
Bank Obligations -- Obligations of banks or savings and loan associations
that are members of the Federal Deposit Insurance Corporation and instruments
fully collateralized with such obligations.
Corporate Obligations -- Commercial paper issued by corporations and rated
Prime-1 or Prime-2 by Moody's or A-1 or A-2 by S&P, or other corporate debt
instruments rated Aaa or Aa or better by Moody's or AAA or AA or better by S&P,
subject to the limitations on investment in instruments in the second-highest
rating category, discussed below.
Cash Fund may invest only in U.S. dollar denominated money market
instruments that present minimal credit risk and, with respect to 95 percent of
its total assets, measured at the time of investment, that are of the highest
quality. The Investment Manager will determine whether a security presents
minimal credit risk under procedures adopted by Cash Fund's Board of Directors.
A security will be considered to be highest quality (1) if rated in the highest
category, (e.g., Aaa or Prime-1 by Moody's or AAA or A-1 by S&P) by (i) any two
nationally recognized statistical rating organizations ("NRSROs") or, (ii) if
rated by only one NRSRO, by that NRSRO, and whose acquisition is approved or
ratified by the Board of Directors; (2) if issued by an issuer that has
short-term debt obligations of comparable maturity, priority, and security and
that are rated in the highest rating category by (i) any two NRSROs or, (ii) if
rated by only one NRSRO, by that NRSRO, and whose acquisition is approved or
ratified by the Board of Directors; or (3) an unrated security that is of
comparable quality to a security in the highest rating category as determined by
the Investment Manager and whose acquisition is approved or ratified by the
Board of Directors. With respect to 5 percent of its total assets, measured at
the time of investment, Cash Fund may also invest in money market instruments
that are in the second-highest rating category for short-term debt obligations
(e.g., rated Aa or Prime 2 by Moody's or AA or A-2 by S&P). A money market
instrument will be considered to be in the second-highest rating category under
the criteria described above with respect to investments considered highest
quality, as applied to instruments in the second-highest rating category. See
Appendix A to this Prospectus for a description of the principal types of
securities and instruments in which Cash Fund will invest as well as a
description of the above mentioned ratings.
Cash Fund may not invest more than 5 percent of its total assets, measured
at the time of investment, in the securities of any one issuer that are of the
highest quality or more than the greater of 1 percent of its total assets or
$1,000,000, measured at the time of investment, in securities of any one issuer
that are in the second-highest rating category, except that these limitations
shall not apply to U.S. Government securities. The Fund may exceed the 5 percent
limitation for up to three business days after the purchase of the securities of
any one issuer that are of the
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SECURITY FUNDS
PROSPECTUS
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highest quality, provided that the Fund has outstanding at any time not more
than one such investment. In the event that an instrument acquired by Cash Fund
ceases to be of the quality that is eligible for the Fund, the Fund shall
promptly dispose of the instrument in an orderly manner unless the Board of
Directors determines that this would not be in the best interests of the Fund.
Cash Fund will invest in money market instruments of varying maturities
(but no longer than thirteen months) in an effort to earn as high a level of
current income as is consistent with preservation of capital and liquidity. Cash
Fund intends to maintain a dollar-weighted average maturity in its portfolio of
not more than 90 days. The Fund seeks to maintain a stable net asset value of
$1.00 per share, although there can be no assurance that it will be able to do
so.
Cash Fund may acquire one or more of the types of securities listed above
subject to repurchase agreement. Not more than 10 percent of the Fund's total
assets may be invested in illiquid assets, which include repurchase agreements
with maturities of over seven days. Cash Fund may invest in instruments having
rates of interest that are adjusted periodically according to a specified market
rate for such investments ("Variable Rate Instruments"). The interest rate on a
Variable Rate Instrument is ordinarily determined by reference to, or is a
percentage of, an objective standard such as a bank's prime rate or the 91-day
U.S. Treasury Bill rate. Generally, the changes in the interest rate on Variable
Rate Instruments reduce the fluctuation in the market value of such securities.
Accordingly, as interest rates decrease or increase, the potential for capital
appreciation or depreciation is less than for fixed-rate obligations. Cash Fund
determines the maturity of Variable Rate Instruments in accordance with Rule
2a-7 under the Investment Company Act of 1940 which allows the Fund to consider
the maturity date of such instruments to be the period remaining until the next
readjustment of the interest rate rather than the maturity date on the face of
the instrument.
Cash Fund may acquire certain securities that are restricted as to
disposition under the federal securities laws, provided that such securities are
eligible for resale to qualified institutional investors pursuant to Rule 144A
under the Securities Act of 1933, and subject to the Fund's policy that not more
than 10 percent of the Fund's total assets will be invested in illiquid assets.
See "Investment Methods and Risk Factors" for a discussion of Rule 144A
Securities.
INVESTMENT METHODS AND RISK FACTORS
Some of the risk factors related to certain securities, instruments and
techniques that may be used by one or more of the Funds are described in the
"Investment Objective and Policies" section of this Prospectus and in the
"Investment Objectives and Policies" and "Investment Policy Limitations"
sections of the Funds' Statement of Additional Information. The following is a
description of certain additional risk factors related to various securities,
instruments and techniques. The risks so described only apply to those Funds
which may invest in such securities and instruments or use such techniques. Also
included is a general description of some of the investment instruments,
techniques and methods which may be used by one or more of the Funds. The
methods described only apply to those Funds which may use such methods.
INVESTMENT VEHICLES
BAA OR BBB SECURITIES -- Certain of the Funds may invest in medium grade
debt securities (debt securities rated Baa by Moody's or BBB by S&P at the time
of purchase, or if unrated, of equivalent quality as determined by the
Investment Manager). Baa securities are considered to be "medium grade"
obligations by Moody's and BBB is the lowest classification which is still
considered an "investment grade" rating by S&P. Bonds rated Baa by Moody's or
BBB by S&P have speculative characteristics and may be more susceptible than
higher grade bonds to adverse economic conditions or other adverse circumstances
which may result in a weakened capacity to make principal and interest payments.
Corporate Bond, Limited Maturity Bond, Global Aggressive Bond and High Yield
Funds may invest in higher yield debt securities in the lower rating (higher
risk) categories of the recognized rating services (commonly referred to as
"junk bonds"). See Appendix A to this Prospectus for a complete description of
corporate bond ratings and see "Risks Associated with Lower-Rated Debt
Securities (Junk Bonds)."
U.S. GOVERNMENT SECURITIES -- Each of the Funds may invest in U.S.
Government securities which include obligations issued or guaranteed (as to
principal and interest) by the United States Government or its agencies (such as
the Small Business Administration, the Federal Housing Administration, and
Government National Mortgage Association), or instrumentalities (such as Federal
Home Loan Banks and Federal Land Banks), and instruments fully collateralized
with such obligations such as repurchase agreements. Some U.S. Government
securities, such as Treasury bills and bonds, are supported by the full faith
and credit of the U.S. Treasury; others are supported by the right of the issuer
to borrow from the Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as those of
the Student Loan Marketing Association, are supported only by the credit of the
instrumentality. Government National Mortgage Association (GNMA) certificates
are mortgage-backed securities representing part ownership of a pool of mortgage
loans on which timely payment of interest and principal is guaranteed
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SECURITY FUNDS
PROSPECTUS
================================================================================
by the full faith and credit of the U.S. Government. Although U.S. Government
securities are guaranteed by the U.S. Government, its agencies or
instrumentalities, shares of the Funds are not so guaranteed in any way.
SHARES OF OTHER INVESTMENT COMPANIES -- The Global Aggressive Bond Fund may
invest in shares of other investment companies. A Fund's investment in shares of
other investment companies may not exceed immediately after purchase 10 percent
of the Fund's total assets and no more than 5 percent of its total assets may be
invested in the shares of any one investment company. Investment in the shares
of other investment companies has the effect of requiring shareholders to pay
the operating expenses of two mutual funds.
CONVERTIBLE SECURITIES AND WARRANTS -- Certain of the Funds may invest in
debt or preferred equity securities convertible into or exchangeable for equity
securities. Traditionally, convertible securities have paid dividends or
interest at rates higher than common stocks but lower than non-convertible
securities. They generally participate in the appreciation or depreciation of
the underlying stock into which they are convertible, but to a lesser degree. In
recent years, convertibles have been developed which combine higher or lower
current income with options and other features. Warrants are options to buy a
stated number of shares of common stock at a specified price any time during the
life of the warrants (generally two or more years).
MORTGAGE BACKED SECURITIES AND COLLATERALIZED MORTGAGE OBLIGATIONS --
Certain of the Funds may invest in mortgage-backed securities (MBSs), including
mortgage pass through securities and collateralized mortgage obligations (CMOs).
MBSs include certain securities issued or guaranteed by the United States
government or one of its agencies or instrumentalities, such as the Government
National Mortgage Association (GNMA), Federal National Mortgage Association
(FNMA), or Federal Home Loan Mortgage Corporation (FHLMC); securities issued by
private issuers that represent an interest in or are collateralized by
mortgage-backed securities issued or guaranteed by the U.S. government or one of
its agencies or instrumentalities; and securities issued by private issuers that
represent an interest in or are collateralized by mortgage loans. A mortgage
pass through security is a pro rata interest in a pool of mortgages where the
cash flow generated from the mortgage collateral is passed through to the
security holder. CMOs are obligations fully collateralized by a portfolio of
mortgages or mortgage-related securities. Certain of the Funds may invest in
securities known as "inverse floating obligations," "residual interest bonds,"
and "interest only" (IO) and "principal only" (PO) bonds, the market values of
which will generally be more volatile than the market values of most MBSs. An
inverse floating obligation is a derivative adjustable rate security with
interest rates that adjust or vary inversely to changes in market interest
rates. The term "residual interest" bond is used generally to describe those
instruments in collateral pools, such as CMOs, which receive any excess cash
flow generated by the pool once all other bondholders and expenses have been
paid. IOs and POs are created by separating the interest and principal payments
generated by a pool of mortgage-backed bonds to create two classes of
securities. Generally, one class receives interest only payments (IOs) and the
other class principal only payments (POs). MBSs have been referred to as
"derivatives" because the performance of MBSs is dependent upon and derived from
underlying securities.
Investment in MBSs poses several risks, including prepayment, market and
credit risks. PREPAYMENT RISK reflects the chance that borrowers may prepay
their mortgages faster than expected, thereby affecting the investment's average
life and perhaps its yield. Borrowers are most likely to exercise their
prepayment options at a time when it is least advantageous to investors,
generally prepaying mortgages as interest rates fall, and slowing payments as
interest rates rise. Certain classes of CMOs may have priority over others with
respect to the receipt of prepayments on the mortgages and the Fund may invest
in CMOs which are subject to greater risk of prepayment. MARKET RISK reflects
the chance that the price of the security may fluctuate over time. The price of
MBSs may be particularly sensitive to prevailing interest rates, the length of
time the security is expected to be outstanding and the liquidity of the issue.
In a period of unstable interest rates, there may be decreased demand for
certain types of MBSs, and a fund invested in such securities wishing to sell
them may find it difficult to find a buyer, which may in turn decrease the price
at which they may be sold. CREDIT RISK reflects the chance that the Fund may not
receive all or part of its principal because the issuer or credit enhancer has
defaulted on its obligations. Obligations issued by U.S. Government-related
entities are guaranteed by the agency or instrumentality, and some, such as GNMA
certificates, are supported by the full faith and credit of the U.S. Treasury;
others are supported by the right of the issuer to borrow from the Treasury;
others, such as those of the FNMA, are supported by the discretionary authority
of the U.S. Government to purchase the agency's obligations; still others, are
supported only by the credit of the instrumentality. Although securities issued
by U.S. Government-related agencies are guaranteed by the U.S. Government, its
agencies or instrumentalities, shares of the Fund are not so guaranteed in any
way. The performance of private label MBSs, issued by private institutions, is
based on the financial health of those institutions.
ASSET-BACKED SECURITIES -- Certain of the Funds may also invest in
"asset-backed securities." These include secured debt instruments backed by
automobile loans, credit card loans, home equity loans, manufactured housing
loans and other types of secured loans providing the source
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SECURITY FUNDS
PROSPECTUS
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of both principal and interest. Asset-backed securities are subject to risks
similar to those discussed above with respect to MBSs.
WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES -- Certain of the Funds may
purchase securities on a "when-issued" basis and may purchase or sell securities
on a "forward commitment" basis in order to hedge against anticipated changes in
interest rates and prices. The price, which is generally expressed in yield
terms, is fixed at the time the commitment is made, but delivery and payment for
the securities take place at a later date. When-issued securities and forward
commitments may be sold prior to the settlement date, but the Funds will enter
into when-issued and forward commitments only with the intention of actually
receiving or delivering the securities, as the case may be. No income accrues on
securities which have been purchased pursuant to a forward commitment or on a
when-issued basis prior to delivery of the securities. If a Fund disposes of the
right to acquire a when-issued security prior to its acquisition or disposes of
its right to deliver or receive against a forward commitment, it may incur a
gain or loss. At the time a Fund enters into a transaction on a when-issued or
forward commitment basis, a segregated account consisting of cash or liquid
securities equal to the value of the when-issued or forward commitment
securities will be established and maintained with its custodian and will be
marked to market daily. There is a risk that the securities may not be delivered
and that the Fund may incur a loss.
RESTRICTED SECURITIES (RULE 144A SECURITIES) -- Certain of the Funds may
invest in restricted securities which are securities that are restricted as to
disposition under the federal securities laws, provided that such securities are
eligible for resale to qualified institutional investors pursuant to Rule 144A
under the Securities Act of 1933.
The Global Aggressive Bond Fund and High Yield Fund may purchase restricted
securities, including securities that are not eligible for resale pursuant to
Rule 144A. These Funds may acquire such securities through private placement
transactions, directly from the issuer or from security holders, generally at
higher yields or on terms more favorable to investors than comparable publicly
traded securities. However, the restrictions on resale of such securities may
make it difficult for the Fund to dispose of such securities at the time
considered most advantageous, and/or may involve expenses that would not be
incurred in the sale of securities that were freely marketable. Risks associated
with restricted securities include the potential obligation to pay all or part
of the registration expenses in order to sell certain restricted securities. A
considerable period of time may elapse between the time of the decision to sell
a security and the time the Fund may be permitted to sell it under an effective
registration statement. If, during a period, adverse conditions were to develop,
the Fund might obtain a less favorable price than prevailing when it decided to
sell.
The Funds' Board of Directors is responsible for developing and
establishing guidelines and procedures for determining the liquidity of Rule
144A securities. As permitted by Rule 144A, the Board of Directors has delegated
this responsibility to the Investment Manager. In making the determination
regarding the liquidity of Rule 144A securities, the Investment Manager will
consider trading markets for the specific security taking into account the
unregistered nature of a Rule 144A security. In addition, the Investment Manager
may consider: (1) the frequency of trades and quotes; (2) the number of dealers
and potential purchasers; (3) dealer undertakings to make a market; and (4) the
nature of the security and of the market place trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
transfer). Investing in Rule 144A securities could have the effect of increasing
the amount of a Fund's assets invested in illiquid securities to the extent that
qualified institutional buyers become uninterested, for a time, in purchasing
these securities.
SOVEREIGN DEBT. The Global Aggressive Bond Fund may invest in sovereign
debt securities of emerging market governments, including Brady Bonds. The High
Yield Fund may also invest in such securities provided they are denominated in
U.S. dollars. Sovereign debt securities are those issued by emerging market
governments that are traded in the markets of developed countries or groups of
developed countries. Investments in such securities involve special risks. The
issuer of the debt or the governmental authorities that control the repayment of
the debt may be unable or unwilling to repay principal or interest when due in
accordance with the terms of such debt. Periods of economic uncertainty may
result in the volatility of market prices of sovereign debt, and in turn the
Fund's net asset value, to a greater extent than the volatility inherent in
domestic fixed income securities. A sovereign debtor's willingness or ability to
repay principal and pay interest in a timely manner may be affected by, among
other factors, its cash flow situation, the extent of its foreign reserves, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the
sovereign debtor's policy toward principal international lenders and the
political constraints to which a sovereign debtor may be subject. Emerging
market governments could default on their sovereign debt. Such sovereign debtors
also may be dependent on expected disbursements from foreign governments,
multilateral agencies and other entities abroad to reduce principal and interest
arrearages on their debt. The commitment on the part of these governments,
agencies and others to make such disbursements may be conditioned on a sovereign
debtor's implementation of economic reforms and/or economic performance and the
timely service of
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such debtor's obligations. Failure to implement such reforms, achieve such
levels of economic performance or repay principal or interest when due, may
result in the cancellation of such third parties' commitments to lend funds to
the sovereign debtor, which may further impair such debtor's ability or
willingness to timely service its debt.
The occurrence of political, social or diplomatic changes in one or more of
the countries issuing sovereign debt could adversely affect the Fund's
investments. Emerging markets are faced with social and political issues and
some of them have experienced high rates of inflation in recent years and have
extensive internal debt. Among other effects, high inflation and internal debt
service requirements may adversely affect the cost and availability of future
domestic sovereign borrowing to finance governmental programs, and may have
other adverse social, political and economic consequences. Political changes or
a deterioration of a country's domestic economy or balance of trade may affect
the willingness of countries to service their sovereign debt. Although the
Investment Manager, in the case of the High Yield Fund or the Sub-Adviser and
MFR, in the case of the Global Aggressive Bond Fund, intend to manage the Funds
in a manner that will minimize the exposure to such risks, there can be no
assurance that adverse political changes will not cause a Fund to suffer a loss
of interest or principal on any of its holdings.
In recent years, some of the emerging market countries in which the Global
Aggressive Bond Fund expects to invest have encountered difficulties in
servicing their sovereign debt obligations. Some of these countries have
withheld payments of interest and/or principal of sovereign debt. These
difficulties have also led to agreements to restructure external debt
obligations -- in particular, commercial bank loans, typically by rescheduling
principal payments, reducing interest rates and extending new credits to finance
interest payments on existing debt. In the future, holders of emerging market
sovereign debt securities may be requested to participate in similar
rescheduling of such debt. Certain emerging market countries are among the
largest debtors to commercial banks and foreign governments. At times certain
emerging market countries have declared a moratorium on the payment of principal
and interest on external debt; such a moratorium is currently in effect in
certain emerging market countries. There is no bankruptcy proceeding by which a
creditor may collect in whole or in part sovereign debt on which an emerging
market government has defaulted.
The ability of emerging market governments to make timely payments on their
sovereign debt securities is likely to be influenced strongly by a country's
balance of trade and its access to trade and other international credits. A
country whose exports are concentrated in a few commodities could be vulnerable
to a decline in the international prices of one or more of such commodities.
Increased protectionism on the part of a country's trading partners could also
adversely affect its exports. Such events could diminish a country's trade
account surplus, if any. To the extent that a country receives payment for its
exports in currencies other than hard currencies, its ability to make hard
currency payments could be affected.
Investors should also be aware that certain sovereign debt instruments in
which a Fund may invest involve great risk. As noted above, sovereign debt
obligations issued by emerging market governments generally are deemed to be the
equivalent in terms of quality to securities rated below investment grade by
Moody's and S&P. Such securities are regarded as predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligations and involve major risk exposure to
adverse conditions. Some of such securities, with respect to which the issuer
currently may not be paying interest or may be in payment default, may be
comparable to securities rated D by S&P or C by Moody's. The Fund may have
difficulty disposing of and valuing certain sovereign debt obligations because
there may be a limited trading market for such securities. Because there is no
liquid secondary market for many of these securities, the Fund anticipates that
such securities could be sold only to a limited number of dealers or
institutional investors. Certain sovereign debt securities may be illiquid.
BRADY BONDS. Certain of the Funds may invest in "Brady Bonds," which are
debt restructurings that provide for the exchange of cash and loans for newly
issued bonds. Brady Bonds are securities created through the exchange of
existing commercial bank loans to public and private entities in certain
emerging markets for new bonds in connection with debt restructuring under a
debt restructuring plan introduced by former U.S. Secretary of the Treasury,
Nicholas F. Brady. Brady Bonds recently have been issued by the governments of
Argentina, Brazil, Bulgaria, Costa Rica, Dominican Republic, Jordan, Mexico,
Nigeria, The Philippines, Uruguay, Venezuela, Ecuador and Poland and are
expected to be issued by other emerging market countries. Approximately $150
billion in principal amount of Brady Bonds has been issued to date. Fund
investors should recognize that Brady Bonds have been issued only recently and,
accordingly, do not have a long payment history. Brady Bonds may be
collateralized or uncollateralized, are issued in various currencies (primarily
the U.S. dollar) and are actively traded in the secondary market for Latin
American debt. The Salomon Brothers Brady Bond Index provides a benchmark that
can be used to compare returns of emerging market Brady Bonds with returns in
other bond markets, e.g., the U.S. bond market.
The Global Aggressive Bond Fund may invest in either collateralized or
uncollateralized Brady Bonds in various currencies. The High Yield Fund may
invest only in collateralized Brady Bonds, denominated in U.S. dollars.
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U.S. dollar-denominated, collateralized Brady Bonds, which may be fixed rate par
bonds or floating rate discount bonds, are collateralized in full as to
principal by U.S. Treasury zero coupon bonds having the same maturity as the
bonds. Interest payments on such bonds generally are collateralized by cash or
securities in an amount that, in the case of fixed rate bonds, is equal to at
least one year of rolling interest payments or, in the case of floating rate
bonds, initially is equal to at least one year's rolling interest payments based
on the applicable interest rate at the time and is adjusted at regular intervals
thereafter.
LOAN PARTICIPATIONS AND ASSIGNMENTS. The Global Aggressive Bond Fund and
the High Yield Fund may invest in fixed and floating rate loans ("Loans")
arranged through private negotiations between a corporate or foreign entity and
one or more financial institutions ("Lenders"). The majority of Global
Aggressive Bond Fund's investments in Loans in emerging markets is expected to
be in the form of participations in Loans ("Participations") and assignments of
portions of Loans from third parties ("Assignments"). Participations typically
will result in the Fund having a contractual relationship only with the Lender,
not with the borrower. The Fund will have the right to receive payments of
principal, interest and any fees to which it is entitled only from the Lender
selling the Participation and only upon receipt by the Lender of the payments
from the borrower. In connection with purchasing Participations, the Fund
generally will have no right to enforce compliance by the borrower with the
terms of the loan agreement relating to the Loan ("Loan Agreement"), nor any
rights of set-off against the borrower, and the Fund may not directly benefit
from any collateral supporting the Loan in which it has purchased the
Participation. As a result, the Fund will assume the credit risk of both the
borrower and the Lender that is selling the Participation.
In the event of the insolvency of the Lender selling a Participation, the
Fund may be treated as a general creditor of the Lender and may not benefit from
any set-off between the Lender and the borrower. The Fund will acquire
Participations only if the Lender interpositioned between the Fund and the
borrower is determined by the Investment Manager, in the case of the High Yield
Fund, or Sub-Adviser and MFR, in the case of the Global Aggressive Bond Fund, to
be creditworthy. When the Fund purchases Assignments from Lenders, the Fund will
acquire direct rights against the borrower on the Loan. However, since
Assignments are arranged through private negotiations between potential
assignees and assignors, the rights and obligations acquired by the Fund as the
purchaser of an Assignment may differ from, and be more limited than, those held
by the assigning Lender.
The Fund may have difficulty disposing of Assignments and Participations.
The liquidity of such securities is limited and the Fund anticipates that such
securities could be sold only to a limited number of institutional investors.
The lack of a liquid secondary market could have an adverse impact on the value
of such securities and on the Fund's ability to dispose of particular
Assignments or Participations when necessary to meet the Fund's liquidity needs
or in response to a specific economic event, such as a deterioration in the
creditworthiness of the borrower. The lack of a liquid secondary market for
Assignments and Participations also may make it more difficult for the fund to
assign a value to those securities for purposes of valuing the Fund's portfolio
and calculating its net asset value.
ZERO COUPON SECURITIES -- Global Aggressive Bond Fund and High Yield Fund
may invest in certain zero coupon securities that are "stripped" U.S. Treasury
notes and bonds. These Funds also may invest in zero coupon and other deep
discount securities issued by foreign governments and domestic and foreign
corporations, including certain Brady Bonds and other foreign debt and
payment-in-kind securities. Zero coupon securities pay no interest to holders
prior to maturity, and payment-in-kind securities pay interest in the form of
additional securities. However, a portion of the original issue discount on zero
coupon securities and the "interest" on payment-in-kind securities will be
included in the investing Fund's income. Accordingly, for the Fund to qualify
for tax treatment as a regulated investment company and to avoid certain taxes
(see "Taxes" in the Statement of Additional Information), the Fund may be
required to distribute an amount that is greater than the total amount of cash
it actually receives. These distributions must be made from the Fund's cash
assets or, if necessary, from the proceeds of sales of portfolio securities. The
Fund will not be able to purchase additional income-producing securities with
cash used to make such distributions and its current income ultimately may be
reduced as a result. Zero coupon and payment-in-kind securities usually trade at
a deep discount from their face or par value and will be subject to greater
fluctuations of market value in response to changing interest rates than debt
obligations of comparable maturities that make current distributions of interest
in cash.
REPURCHASE AGREEMENTS, REVERSE REPURCHASE AGREEMENTS AND ROLL TRANSACTIONS
- -- Each of the Funds may enter into repurchase agreements. Repurchase agreements
are transactions in which the purchaser buys a debt security from a bank or
recognized securities dealer and simultaneously commits to resell that security
to the bank or dealer at an agreed upon price, date and market rate of interest
unrelated to the coupon rate or maturity of the purchased security. Repurchase
agreements are considered to be loans which must be fully collateralized
including interest earned thereon during the entire term of the agreement. If
the institution defaults on the repurchase agreement, the Fund will retain
possession of the underlying securities. If bankruptcy proceedings are commenced
with
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respect to the seller, realization on the collateral by the Fund may be delayed
or limited and the Fund may incur additional costs. In such case, the Fund will
be subject to risks associated with changes in market value of the collateral
securities. The Fund intends to enter into repurchase agreements only with banks
and broker/dealers believed to present minimal credit risks.
The Global Aggressive Bond Fund and the High Yield Fund may also enter into
reverse repurchase agreements with the same parties with whom they may enter
into repurchase agreements. Under a reverse repurchase agreement, a Fund would
sell securities and agree to repurchase them at a particular price at a future
date. Reverse repurchase agreements involve the risk that the market value of
the securities retained in lieu of sale by a Fund may decline below the price of
the securities the Fund has sold but is obligated to repurchase. In the event
the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the Fund's
obligation to repurchase the securities, and the Fund's use of the proceeds of
the reverse repurchase agreement may effectively be restricted pending such
decision.
The Global Aggressive Bond Fund and the High Yield Fund also may enter into
"dollar rolls," in which the Fund sells fixed income securities for delivery in
the current month and simultaneously contracts to repurchase substantially
similar (same type, coupon and maturity) securities on a specified future date.
During the roll period, the Fund would forego principal and interest paid on
such securities. The Fund would be compensated by the difference between the
current sales price and the forward price for the future purchase, as well as by
the interest earned on the cash proceeds of the initial sale. See "Investment
Objectives and Policies" in the Statement of Additional Information.
INVESTMENT METHODS
BORROWING -- Each of the Funds may borrow money from banks as a temporary
measure for emergency purposes, or to facilitate redemption requests.
From time to time, it may be advantageous for the Funds to borrow money
rather than sell existing portfolio positions to meet redemption requests.
Accordingly, the Funds may borrow from banks and the Global Aggressive Bond Fund
and the High Yield Fund may borrow through reverse repurchase agreements and
"roll" transactions, in connection with meeting requests for the redemption of
Fund shares. High Yield Fund may borrow up to 33 1/3 percent; Limited Maturity
Bond, Tax-Exempt and Cash Funds may each borrow up to 10 percent and Corporate
Bond, U.S. Government and Global Aggressive Bond Funds may each borrow up to 5
percent of total Fund assets. To the extent that a Fund purchases securities
while it has outstanding borrowings, it is using leverage, i.e., using borrowed
funds for investment. Leveraging will exaggerate the effect on net asset value
of any increase or decrease in the market value of a Fund's portfolio. Money
borrowed for leveraging will be subject to interest costs that may or may not be
recovered by appreciation of the securities purchased; in certain cases,
interest costs may exceed the return received on the securities purchased. A
Fund also may be required to maintain minimum average balances in connection
with such borrowing or to pay a commitment or other fee to maintain a line of
credit; either of these requirements would increase the cost of borrowing over
the stated interest rate. It is not expected that Cash Fund would purchase
securities while it had borrowings outstanding.
OPTIONS, FUTURES AND FORWARD CURRENCY TRANSACTIONS -- In seeking to protect
against interest rate changes and currency exchange rate changes that are
adverse to its present or prospective positions, certain of the Funds may employ
certain risk management practices involving the use of forward currency
contracts and options contracts, futures contracts and options on futures
contracts on U.S. and foreign government securities and currencies. The Funds
also may enter into interest rate, currency and index swaps and purchase or sell
related caps, floors and collars. The Fund's investment in derivative securities
will be utilized for hedging purposes and not for speculation. See "Swaps, Caps,
Floors and Collars" below. See also "Derivative Instruments: Options, Futures
and Forward Currency Strategies" in the Statement of Additional Information.
There can be no assurance that a Fund's risk management practices will succeed.
Only a limited market, if any, currently exists for forward currency contracts
and options and futures instruments relating to currencies of most emerging
markets, to securities denominated in such currencies or to securities of
issuers domiciled or principally engaged in business in such emerging markets.
To the extent that such a market does not exist, the Fund may not be able to
effectively hedge its investment in such emerging markets.
To attempt to hedge against adverse movements in exchange rates between
currencies, certain Funds may enter into forward currency contracts for the
purchase or sale of a specified currency at a specified future date. Such
contracts may involve the purchase or sale of a foreign currency against the
U.S. dollar or may involve two foreign currencies. Such Funds may enter into
forward currency contracts either with respect to specific transactions or with
respect to its portfolio positions. For example, when a Fund anticipates making
a purchase or sale of a security, it may enter into a forward currency contract
in order to set the rate (either relative to the U.S. dollar or another
currency) at which a currency exchange transaction related to the purchase or
sale will be made. Further, when it is anticipated that a particular currency
may decline compared
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to the U.S. dollar or another currency, the Fund may enter into a forward
contract to sell the currency expected to decline in an amount up to the value
of the portfolio securities held by the Fund denominated in a foreign currency.
In addition, certain Funds 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 ("OTC") markets. The Fund will cause
its custodian to segregate cash or liquid securities having a value sufficient
to meet the Fund's obligations under the option. The Funds also may enter into
interest rate futures contracts and purchase and write options to buy and sell
such futures contracts, to the extent permitted under regulations of the
Commodities Futures Trading Commission ("CFTC"). The Funds will not employ these
practices for speculation; however, these practices may result in the loss of
principal under certain conditions. In addition, certain provisions of the
Internal Revenue Code of 1986, as amended ("Code"), limit the extent to which a
Fund may enter into forward contracts or futures contracts or engage in options
transactions. See "Taxes" in the Statement of Additional Information. Certain
Funds also may purchase put or call options or futures contracts on currencies
for the same purposes as it may use forward currency contracts.
A Fund's use of forward currency contracts or options and futures
transactions thereon, involve certain investment risks and transaction costs to
which it might not otherwise be subject. These risks include: an inability to
predict movements in exchange rates; imperfect correlation between movements in
exchange rates and movements in the currency hedged; and the fact that the
skills needed to effectively hedge against the Fund's currency risks are
different from those needed to select the securities in which a Fund invests.
The Fund also may conduct its foreign currency exchange transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market.
SWAPS, CAPS, FLOORS AND COLLARS -- Certain Funds may enter into interest
rate, index and currency swaps, and the purchase or sale of related caps, floors
and collars. The Fund expects to enter into these transactions primarily to
preserve a return or spread on a particular investment or portion of its
portfolio, to protect against currency fluctuations as a technique for managing
the portfolio's duration (i.e., the price sensitivity to changes in interest
rates) or to protect against any increase in the price of securities the Fund
anticipates purchasing at a later date. The Funds intend to use these
transactions as hedges and not as speculative investments, and will not sell
interest rate caps or floors if it does not own securities or other instruments
providing the income the Fund may be obligated to pay.
Interest rate swaps involve the exchange by the Fund with another party of
their respective commitments to pay or receive interest (for example, an
exchange of floating rate payments for fixed rate payments) with respect to a
notional amount of principal. A currency swap is an agreement to exchange cash
flows on a notional amount based on changes in the values of the reference
indices.
The purchase of a cap entitles the purchaser to receive payments on a
notional principal amount from the party selling the cap to the extent that a
specified index exceeds a predetermined interest rate. The purchase of an
interest rate floor entitles the purchaser to receive payments on a notional
principal amount from the party selling the floor to the extent that a specified
index falls below a predetermined interest rate or amount. A collar is a
combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values.
AMERICAN DEPOSITARY RECEIPTS (ADRS) -- The High Yield Fund may invest in
sponsored ADRs. ADRs are dollar-denominated receipts issued generally by U.S.
banks and which represent the deposit with the bank of a foreign company's
securities. ADRs are publicly traded on exchanges or over-the-counter in the
United States. Investors should consider carefully the substantial risks
involved in investing in securities issued by companies of foreign nations,
which are in addition to the usual risks inherent in domestic investments. See
"Foreign Investment Risks," below.
LENDING OF PORTFOLIO SECURITIES -- Certain Funds may lend securities to
broker-dealers, institutional investors, or other persons to earn income. The
principal risk is the potential insolvency of the broker-dealer or other
borrower. In this event, the Fund could experience delays in recovering its
securities and possibly capital losses. Any loan will be continuously secured by
collateral at least equal to the value of the security loaned. Such lending
could result in delays in receiving additional collateral or in the recovery of
the securities or possible loss of rights in the collateral should the borrower
fail financially.
RISK FACTORS
GENERAL RISK FACTORS -- Each Fund's net asset value will fluctuate,
reflecting fluctuations in the market value of its portfolio positions and, if
applicable, its net currency exposure. The value of fixed income securities held
by the Funds generally fluctuates inversely with interest rate movements. In
other words, bond prices generally fall as interest rates rise and generally
rise as interest rates fall. Longer term bonds held by the Funds are subject to
greater interest rate risk. There is no assurance that any Fund will achieve its
investment objective.
FOREIGN INVESTMENT RISK -- Investment in foreign securities involves risks
and considerations not present in domestic investments. Foreign companies
generally are not subject to uniform accounting, auditing and financial
reporting standards, practices and requirements comparable
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to those applicable to U.S. companies. The securities of non-U.S. issuers
generally are not registered with the SEC, nor are the issuers thereof usually
subject to the SEC's reporting requirements. Accordingly, there may be less
publicly available information about foreign securities and issuers than is
available with respect to U.S. securities and issuers. A Fund's income and gains
from foreign issuers may be subject to non-U.S. withholding or other taxes,
thereby reducing their income and gains. In addition, with respect to some
foreign countries, there is the increased possibility of expropriation or
confiscatory taxation, limitations on the removal of funds or other assets of
the Fund, political or social instability, or diplomatic developments which
could affect the investments of the Fund in those countries. Moreover,
individual foreign economies may differ favorably or unfavorably from the U.S.
economy in such respects as growth of gross national product, rate of inflation,
rate of savings and capital reinvestment, resource self-sufficiency and balance
of payments positions.
CURRENCY RISK -- Since the Global Aggressive Bond Fund normally invests
substantially in securities denominated in currencies other than the U.S.
dollar, and since it may hold foreign currencies, the value of such securities
will be affected favorably or unfavorably by exchange control regulations or
changes in the exchange rates between such currencies and the U.S. dollar.
Changes in currency exchange rates will influence the value of the Fund's
shares, and also may affect the value of dividends and interest earned by the
Fund and gains and losses realized by the Fund. Currencies generally are
evaluated on the basis of fundamental economic criteria (e.g., relative
inflation and interest rate levels and trends, growth rate forecasts, balance of
payments status and economic policies) as well as technical and political data.
The exchange rates between the U.S. dollar and other currencies are determined
by supply and demand in the currency exchange markets, the international balance
of payments, governmental intervention, speculation and other economic and
political conditions.
If the currency in which a security is denominated appreciates against the
U.S. dollar, the dollar value of the security will increase. Conversely, a
decline in the exchange rate of the currency would adversely affect the value of
the security expressed in U.S. dollars.
RISKS ASSOCIATED WITH INVESTMENT IN EMERGING MARKETS -- Certain of the
Funds may invest in emerging markets. Because of the special risks associated
with investing in emerging markets, an investment in a Fund making such
investments should be considered speculative. Investors are strongly advised to
consider carefully the special risks involved in emerging markets, which are in
addition to the usual risks of investing in developed foreign markets around the
world. Investing in emerging markets involves risks relating to potential
political economic instability within such markets and the risks of
expropriation, nationalization, confiscation of assets and property or the
imposition of restrictions on foreign investment and on repatriation of capital
invested. In the event of such expropriation, nationalization or other
confiscation in any emerging market, the Fund could lose its entire investment
in that market. Many emerging market countries have experienced substantial, and
in some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had and may continue to have negative
effects on the economies and securities markets of certain emerging market
countries. Economies in emerging markets generally are dependent heavily upon
international trade and, accordingly, have been and may continue to be affected
adversely by trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by the
countries with which they trade. These economies also have been and may continue
to be affected adversely by economic conditions in the countries with which they
trade.
The securities markets of emerging countries are substantially smaller,
less developed, less liquid and more volatile than the securities markets of the
United States and other more developed countries. Disclosure and regulatory
standards in many respects are less stringent than in the United States and
other major markets. There also may be a lower level of monitoring and
regulation of emerging securities markets and the activities of investors in
such markets, and enforcement of existing regulations has been extremely
limited. Investments may also be made in former communist countries. There is a
possibility that these countries may revert to communism. In addition, brokerage
commissions, custodial services and other costs relating to investment in
foreign markets generally are more expensive than in the United States,
particularly with respect to emerging markets. Such markets have different
settlement and clearance procedures. In certain markets there have been times
when settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. The inability of
a Fund to make intended securities purchases due to settlement problems could
cause it to forego attractive investment opportunities. Inability to dispose of
a portfolio security caused by settlement problems could result either in losses
to a Fund due to subsequent declines in value of the portfolio security or, if a
Fund has entered into a contract to sell the security, could result in possible
liability to the purchaser.
The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading of securities may cease or may be
substantially curtailed and prices for a Fund's portfolio securities in such
markets may not be readily available. Section 22(e) of the
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1940 Act permits a registered investment company to suspend redemption of its
shares for any period during which an emergency exists, as determined by the
SEC. Accordingly, when a Fund believes that appropriate circumstances warrant,
it will promptly apply to the SEC for a determination that an emergency exists
within the meaning of Section 22(e) of the 1940 Act. During the period
commencing from a Fund's identification of such conditions until the date of SEC
action, the portfolio securities of a Fund in the affected markets will be
valued at fair value as determined in good faith by or under the direction of
the Fund's Board of Directors.
RISKS ASSOCIATED WITH LOWER-RATED DEBT SECURITIES (JUNK BONDS) -- Certain
of the Funds may invest in higher yielding debt securities in the lower rating
(higher risk) categories of the recognized rating services (commonly referred to
as "junk bonds"). Debt rated BB, B, CCC, CC and C by S&P and rated Ba, B, Caa,
Ca and C by Moody's, is regarded, on balance, as predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. For S&P, BB indicates the lowest
degree of speculation and C the highest degree of speculation. For Moody's, Ba
indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions. Similarly, debt rated Ba or BB and below is
regarded by the relevant rating agency as speculative. Debt rated C by Moody's
or S&P is the lowest quality debt that is not in default as to principal or
interest and such issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing. Such securities are
also generally considered to be subject to greater risk than higher quality
securities with regard to a deterioration of general economic conditions. The
Global Aggressive Bond Fund may invest in debt securities rated below C, which
are in default as to principal and/or interest. Ratings of debt securities
represent the rating agency's opinion regarding their quality and are not a
guarantee of quality. Rating agencies attempt to evaluate the safety of
principal and interest payments and do not evaluate the risks of fluctuations in
market value. Also, rating agencies may fail to make timely changes in credit
quality in response to subsequent events, so that an issuer's current financial
condition may be better or worse than a rating indicates.
The market value of lower quality debt securities tend to reflect
individual developments of the issuer to a greater extent than do higher quality
securities, which react primarily to fluctuations in the general level of
interest rates. In addition, lower quality debt securities tend to be more
sensitive to economic conditions and generally have more volatile prices than
higher quality securities. Issuers of lower quality securities are often highly
leveraged and may not have available to them more traditional methods of
financing. For example, during an economic downturn or a sustained period of
rising interest rates, highly leveraged issuers of lower quality securities may
experience financial stress. During such periods, such issuers may not have
sufficient revenues to meet their interest payment obligations. The issuer's
ability to service its debt obligations may also be adversely affected by
specific developments affecting the issuer, such as the issuer's inability to
meet specific projected business forecasts or the unavailability of additional
financing. Similarly, certain emerging market governments that issue lower
quality debt securities are among the largest debtors to commercial banks,
foreign governments and supranational organizations such as the World Bank and
may not be able or willing to make principal and/or interest repayments as they
come due. The risk of loss due to default by the issuer is significantly greater
for the holders of lower quality securities because such securities are
generally unsecured and are often subordinated to other creditors of the issuer.
Lower quality debt securities of corporate issuers frequently have call or
buy-back features which would permit an issuer to call or repurchase the
security from the Fund. If an issuer exercises these provisions in a declining
interest rate market, the Fund may have to replace the security with a lower
yielding security, resulting in a decreased return for investors. In addition,
the Fund may have difficulty disposing of lower quality securities because there
may be a thin trading market for such securities. There may be no established
retail secondary market for many of these securities, and the Fund anticipates
that such securities could be sold only to a limited number of dealers or
institutional investors. The lack of a liquid secondary market also may have an
adverse impact on market prices of such instruments and may make it more
difficult for the Fund to obtain accurate market quotations for purposes of
valuing the securities in the portfolio of the Fund.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may also decrease the values and liquidity of lower
quality securities, especially in a thinly traded market. The Global Aggressive
Bond Fund and the High Yield Fund also may acquire lower quality debt securities
during an initial underwriting or may acquire lower quality debt securities
which are sold without registration under applicable securities laws. Such
securities involve special considerations and risks.
Factors having an adverse effect on the market value of lower rated
securities or their equivalents purchased by the Fund will adversely impact net
asset value of the Fund. See "Risk Factors" in the Statement of Additional
Information. In addition to the foregoing, such factors may include: (i)
potential adverse publicity; (ii) heightened sensitivity to general economic or
political conditions; and (iii) the likely adverse impact of a major economic
recession. The Fund
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also may incur additional expenses to the extent it is required to seek recovery
upon a default in the payment of principal or interest on its portfolio
holdings, and the Fund may have limited legal recourse in the event of a
default. Debt securities issued by governments in emerging markets can differ
from debt obligations issued by private entities in that remedies from defaults
generally must be pursued in the courts of the defaulting government, and legal
recourse is therefore somewhat diminished. Political conditions, in terms of a
government's willingness to meet the terms of its debt obligations, also are of
considerable significance. There can be no assurance that the holders of
commercial bank debt may not contest payments to the holders of debt securities
issued by governments in emerging markets in the event of default by the
governments under commercial bank loan agreements.
The Investment Manager and, with respect to the Global Aggressive Bond
Fund, the Sub-Adviser and MFR, will attempt to minimize the speculative risks
associated with investments in lower quality securities through credit analyses
and by carefully monitoring current trends in interest rates, political
developments and other factors. Nonetheless, investors should carefully review
the investment objectives and policies of the Funds and consider their ability
to assume the investment risks involved before making an investment in the
Funds.
MANAGEMENT OF THE FUNDS
The management of the Funds' business and affairs is the responsibility of
the Board of Directors. Security Management Company, LLC (the "Investment
Manager"), 700 Harrison Street, Topeka, Kansas, is responsible for selection and
management of the Funds' portfolio investments. The Investment Manager is a
limited liability company which is ultimately controlled by Security Benefit
Life Insurance Company, a mutual life insurance company with over $15.5 billion
of insurance in force. The Investment Manager also acts as investment adviser to
Security Equity, Growth and Income, and Ultra Funds and SBL Fund. The Investment
Manager currently manages approximately $3.5 billion in assets.
The Investment Manager has engaged Lexington Management Corporation (the
"Sub-Adviser"), Park 80 West Plaza Two, Saddle Brook, New Jersey 07663, to
provide certain investment advisory services to Global Aggressive Bond Fund. The
Sub-Adviser is a wholly-owned subsidiary of Lexington Global Asset Managers,
Inc., a Delaware corporation with offices at Park 80 West, Plaza Two, Saddle
Brook, New Jersey 07663. Descendants of Lunsford Richardson, Sr., their spouses,
trusts and other related entities have a majority voting control of the
outstanding shares of Lexington Global Asset Managers, Inc. The Sub-Adviser was
established in 1938 and currently manages over $3.8 billion in assets.
The Sub-Adviser has entered into a sub-advisory contract with MFR Advisors,
Inc., ("MFR"), One World Financial Center, 200 Liberty Street, New York, New
York 10281, under which MFR will provide the Global Aggressive Bond Fund with
investment and economic research services. MFR currently acts as Sub-Adviser to
the Lexington Ramirez Global Income Fund and also serves as an institutional
manager for private clients. MFR is a subsidiary of Maria Fiorini Ramirez, Inc.
("Ramirez"), which was established in August of 1992 to provide global economic
consulting, investment advisory and broker-dealer services. Ramirez is the
successor firm to Maria Ramirez Capital Consultants, Inc. ("MRCC"). MRCC was
formed in April 1990 as a subsidiary of John Hancock Freedom Securities
Corporation and offered in-depth economic consulting services to clients.
Subject to the supervision and direction of the Funds' Board of Directors,
the Investment Manager, and, with respect to Global Aggressive Bond Fund, the
Sub-Adviser and MFR, manage the Fund portfolios in accordance with each Fund's
stated investment objective and policies and make all investment decisions. The
Investment Manager has agreed that total annual expenses of the respective Funds
(including for any fiscal year, the management fee, but excluding interest,
taxes, brokerage commissions, extraordinary expenses and Class B distribution
fees) shall not for the Corporate Bond, Limited Maturity Bond, U.S. Government,
Global Aggressive Bond and High Yield Funds exceed the level of expenses which
the Funds are permitted to bear under the most restrictive expense limitation
imposed by any state in which shares of the Fund are then qualified for sale and
shall not for Tax-Exempt and Cash Funds exceed one percent of each Fund's
average net assets for the year. The Investment Manager will contribute such
funds to the Funds or waive such portion of its compensation as may be necessary
to insure that such total annual expenses do not exceed any such limitation. As
compensation for its management services, the Investment Manager receives on an
annual basis, .5 percent of the average daily net assets of Corporate Bond,
Limited Maturity Bond, U.S. Government, Tax-Exempt and Cash Funds; .6 percent of
the average daily net assets of the High Yield Fund and .75 percent of the
average daily net assets of Global Aggressive Bond Fund, computed on a daily
basis and payable monthly. As compensation for the services provided to the
Global Aggressive Bond Fund, the Investment Manager pays the Sub-Adviser, on an
annual basis, a fee equal to .35 percent of the average daily net assets of such
Fund, calculated daily and payable monthly. For the services provided by MFR,
MFR receives from the Sub-Adviser, on an annual basis, a fee equal to .15
percent
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of the average daily net assets of the Global Aggressive Bond Fund, calculated
daily and payable monthly.
The Investment Manager also acts as the administrative agent for the Funds,
and as such performs administrative functions, and the bookkeeping, accounting
and pricing functions for the Funds. For this service the Investment Manager
receives on an annual basis, a fee of .09 percent of the average daily net
assets of Corporate Bond, Limited Maturity Bond, U.S. Government, High Yield and
Tax-Exempt Funds and .045 percent of the average daily net assets of Cash and
Global Aggressive Bond Funds, calculated daily and payable monthly. For the
identified administrative services the Investment Manager also receives, with
respect to the Global Aggressive Bond Fund, an annual fee equal to the greater
of .10 percent of its average net assets or (i) $30,000 in the year ended April
29, 1996; (ii) $45,000 in the year ending April 29, 1997; and (iii) $60,000
thereafter. The Investment Manager also acts as the transfer agent and dividend
disbursing agent for the Funds. The Investment Manager has arranged for the
Sub-Adviser to provide certain administrative services to Global Aggressive Bond
Fund including performing certain accounting and pricing functions. The Funds'
expenses include fees paid to the Investment Manager as well as expenses of
brokerage commissions, interest, taxes, Class B distribution fees and
extraordinary expenses approved by the Board of Directors of the Funds.
For the year ended December 31, 1995, the total expenses, as a percentage
of average net assets, were 1.02 percent for Class A and 1.85 percent for Class
B shares of Corporate Bond Fund; 1.11 percent for Class A and 1.87 percent for
Class B shares of U.S. Government Fund; .86 percent for Class A and 2.00 percent
for Class B shares of Tax-Exempt Fund; and 1.00 percent for Cash Fund. For the
period January 17, 1995 (date of inception) to December 31, 1995 and the period
June 1, 1995 (date of inception) to December 31, 1995, the total expenses were
.84 percent for Class A shares and 1.71 percent for Class B shares of Limited
Maturity Bond Fund and 2.00 percent for Class A shares and 2.75 percent for
Class B shares of Global Aggressive Bond Fund, respectively. Expense information
is not yet available for the High Yield Fund as it did not begin operations
until August of 1996.
PROPOSED NEW ADVISORY AGREEMENTS FOR THE GLOBAL AGGRESSIVE BOND FUND
The Board of Directors of Security Income Fund has approved (i) a new
investment advisory agreement between MFR Advisors, Inc. ("MFR") and Security
Income Fund and (ii) a new sub-advisory agreement between MFR and Lexington
Management Corporation ("Lexington"). MFR and Lexington currently serve as
sub-advisers of the Global Aggressive Bond Fund. The new agreements provide for
MFR and Lexington to provide investment advisory and sub-advisory services,
respectively, to the Global Aggressive Bond Fund. Security Management Company,
LLC (the "Investment Manager") which currently serves as investment adviser to
Global Aggressive Bond Fund proposed the new advisory agreements to the Board of
Directors. The Board of Directors, including a majority of the disinterested
directors of the Fund, approved the agreements at a meeting of the Board held on
February 7, 1997. The stockholders will vote on approval of the proposed
investment advisory and sub-advisory agreements at a special meeting of
stockholders to be held April 28, 1997. If the stockholders approve the new
investment advisory and sub-advisory agreements, the existing advisory and
sub-advisory agreements will terminate effective May 1, 1997, and the proposed
agreements will be in effect on that date. The terms of the new advisory and
sub-advisory agreements are identical in all material respects to the existing
agreements, including the investment management fee payable by the Fund under
the agreements.
Security Benefit Life Insurance Company ("SBL"), parent company of the
Investment Manager, is negotiating with Maria Fiorini Ramirez, Inc. ("Ramirez"),
which owns 100 percent of the outstanding common stock of MFR, to acquire stock
rights that would enable SBL to acquire up to 100 percent of the ownership
interest in MFR upon the exercise of those rights. Maria Fiorini Ramirez, an
individual, owns 100 percent of the common stock of Ramirez.
See "Management of the Funds" above for more information about the existing
investment advisory and sub-advisory agreements.
PORTFOLIO MANAGEMENT
Corporate Bond, Limited Maturity Bond, U.S. Government, High Yield,
Tax-Exempt and Cash Funds will be managed by the Fixed Income Team of the
Investment Manager consisting of John Cleland, Chief Investment Strategist, Jane
Tedder, Tom Swank, Steve Bowser, Barb Davison, Greg Hamilton and Elaine Miller.
Greg Hamilton, Second Vice President of the Investment Manager, has had
day-to-day responsibility for managing Corporate Bond, Limited Maturity Bond and
Tax-Exempt Funds since January 1996. Steve Bowser, Assistant Vice President and
Portfolio Manager of the Investment Manager, has had day-to-day responsibility
for managing U.S. Government Fund since 1995. Tom Swank, Second Vice President
and Portfolio Manager for the Investment Manager, has had day-to-day
responsibility for managing the High Yield Fund since its inception in 1996.
Mr. Hamilton has been in the investment field since 1983. He received his
Bachelor of Arts degree in Business from Washburn University in 1984. Prior to
joining Security Management Company in January of 1993, he was First Vice
President, Treasurer and Portfolio Manager with Mercantile National Bank, Los
Angeles, California, from 1990 to 1993.
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From 1986 to 1990, he was Managing Director of Consulting Services for Sendero
Corporation, Scottsdale, Arizona. Prior to Sendero Corporation, he was employed
as Fixed Income Research Analyst at Peoples Heritage Savings and Loan from 1983
to 1986.
Mr. Bowser joined the Investment Manager in 1992. Prior to joining the
Investment Manager, he was Assistant Vice President and Portfolio Manager with
the Federal Home Loan Bank of Topeka from 1989 to 1992. He was employed at the
Federal Reserve Bank of Kansas City in 1988 and began his career with the Farm
Credit System from 1982 to 1987, serving as a Senior Financial Analyst and
Assistant Controller. He graduated with a Bachelor of Science degree from Kansas
State University in 1982.
Tom Swank has over ten years of experience in the investment field. He is a
Chartered Financial Analyst. Prior to joining the Investment Manager in 1992, he
was an Investment Underwriter and Portfolio Manager for U.S. West Financial
Services, Inc. from 1986 to 1992. From 1984 to 1986, he was a Commercial Credit
Officer for United Bank of Denver. From 1982 to 1984, he was employed as a Bank
Holding Company examiner for the Federal Reserve Bank of Kansas City - Denver
Branch. Mr. Swank graduated from Miami University in Ohio with a Bachelor of
Science degree in finance in 1982 and earned a Master of Business Administration
degree from the University of Colorado.
Global Aggressive Bond Fund is managed by an investment management team of
the Sub-Adviser and MFR. Denis P. Jamison and Maria Fiorini Ramirez have been
the lead managers since the Fund's inception in June 1995.
Mr. Jamison, C.F.A., Senior Vice President, Director Fixed Income Strategy
of the Sub-Adviser, is responsible for fixed-income portfolio management. He is
a member of the New York Society of Security Analysts. Mr. Jamison has more than
20 years investment experience. Prior to joining the Sub-Adviser in 1981, Mr.
Jamison spent nine years at Arnold Bernhard & Company, an investment counseling
and financial services organization. At Bernhard, he was a Vice President
supervising the security analyst staff and managing investment portfolios. He is
a specialist in government, corporate and municipal bonds. Mr. Jamison is a
graduate of the City College of New York with a B.A. in Economics.
Maria Fiorini Ramirez, President and Chief Executive Officer of MFR, began
her career as a credit analyst with American Express International Banking
Corporation in 1968. In 1972, she moved to Banco Nazionale De Lavoro in New
York. The following year, she started a ten year association with Merrill Lynch,
serving as Vice President and Senior Money Market Economist. She joined Becker
Paribas in 1984 as Vice President and Senior Money Market Economist before
joining Drexel Burnham Lambert that same year as First Vice President and Money
Market Economist. She was promoted to Managing Director of Drexel in 1986. From
April 1990 to August 1992, Ms. Ramirez was the President and Chief Executive
Officer of Maria Ramirez Capital Consultants, Inc., a subsidiary of John Hancock
Freedom Securities Corporation. Ms. Ramirez established MFR in August 1992. She
is known in international financial, banking and economic circles for her
assessment of the interaction between global economic policy and political
trends and their effect on investments. Ms. Ramirez holds a B.A. in Business
Administration/ Economics from Pace University.
HOW TO PURCHASE SHARES
As discussed below, shares of Corporate Bond, Limited Maturity Bond, U.S.
Government, Global Aggressive Bond, High Yield and Tax-Exempt Funds may be
purchased with either a front-end or contingent deferred sales charge. Shares of
Cash Fund are offered by the Fund without a sales charge. Each of the Funds
reserves the right to withdraw all or any part of the offering made by this
prospectus and to reject purchase orders.
As a convenience to investors and to save operating expenses, the Funds do
not issue certificates for Fund shares except upon written request by the
stockholder.
CORPORATE BOND, LIMITED MATURITY BOND, U.S. GOVERNMENT, GLOBAL AGGRESSIVE BOND,
HIGH YIELD AND TAX-EXEMPT FUNDS
Security Distributors, Inc. (the "Distributor"), a wholly-owned subsidiary
of Security Benefit Group, Inc., is principal underwriter for Corporate Bond,
Limited Maturity Bond, U.S. Government, Global Aggressive Bond, High Yield and
Tax-Exempt Funds. Shares of these Funds may be purchased through authorized
investment dealers. In addition, banks and other financial institutions that
have an agreement with the Distributor may make shares of these Funds available
to their customers. The minimum initial purchase must be $100 and subsequent
purchases must be $100 unless made through an Accumulation Plan which allows
subsequent purchases of $20.
Orders for the purchase of shares of Corporate Bond, Limited Maturity Bond,
U.S. Government, Global Aggressive Bond, High Yield and Tax-Exempt Funds will be
confirmed at an offering price equal to the net asset value per share next
determined after receipt of the order in proper form by the Distributor
(generally as of the close of the Exchange on that day) plus the sales charge in
the case of Class A shares. Orders received by dealers or other firms prior to
the close of the Exchange and received by the Distributor prior to the close of
its business day will be confirmed at the offering price effective as of the
close of the Exchange on that day.
Orders for shares received by broker/dealers prior to that day's close of
trading on the New York Stock Exchange and transmitted to the Fund prior to its
close of business that day will receive the offering price equal to the net
asset value per share computed at the close of trading on the
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SECURITY FUNDS
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Exchange on the same day plus, in the case of Class A shares, the sales charge.
Orders received by broker/dealers after that day's close of trading on the
Exchange and transmitted to the Fund prior to the close of business on the next
business day will receive the next business day's offering price.
ALTERNATIVE PURCHASE OPTIONS
Corporate Bond, Limited Maturity Bond, U.S. Government, Global Aggressive
Bond, High Yield and Tax-Exempt Funds offer two classes of shares:
CLASS A SHARES - FRONT-END LOAD OPTION. Class A shares are sold with a
sales charge at the time of purchase. Class A shares are not subject to a sales
charge when they are redeemed (except that shares sold in an amount of
$1,000,000 or more without a front-end sales charge will be subject to a
contingent deferred sales charge for one year.) See Appendix C on page 41 for a
discussion of possible reductions in the front-end sales charge.
CLASS B SHARES - BACK-END LOAD OPTION. Class B shares are sold without a
sales charge at the time of purchase, but are subject to a deferred sales charge
if they are redeemed within five years of the date of purchase. Class B shares
will automatically convert tax-free to Class A shares at the end of eight years
after purchase.
The decision as to which class is more beneficial to an investor depends on
the amount and intended length of the investment. Investors who would rather pay
the entire cost of distribution at the time of investment, rather than spreading
such cost over time, might consider Class A shares. Other investors might
consider Class B shares, in which case 100 percent of the purchase price is
invested immediately, depending on the amount of the purchase and the intended
length of investment. The Funds will not normally accept any purchase of Class B
shares in the amount of $250,000 or more.
Dealers or others receive different levels of compensation depending on
which class of shares they sell.
CLASS A SHARES
Class A shares of Corporate Bond, Limited Maturity Bond, U.S. Government,
Global Aggressive Bond, High Yield and Tax-Exempt Funds are offered at net asset
value plus an initial sales charge as follows:
SALES CHARGE
--------------------------------------------
Amount of Applicable Percentage of Percentage
Purchases at Percentage of Net Amount Reallowable
Offering Price Offering Price Invested to Dealers
- ------------------------------------------------------------------------------
Less than $50,000 4.75% 4.99% 4.00%
$50,000 but less than $100,000 3.75% 3.90% 3.00%
$100,000 but less than $250,000 2.75% 2.83% 2.20%
$250,000 but less than $1,000,000 1.75% 1.78% 1.40%
$1,000,000 and over None None (See below)
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Purchases of Class A shares of the Corporate Bond, Limited Maturity Bond,
U.S. Government, Global Aggressive Bond, High Yield and Tax-Exempt Funds in
amounts of $1,000,000 or more are made at net asset value (without a sales
charge), but are subject to a contingent deferred sales charge of one percent in
the event of redemption within one year following purchase. For a discussion of
the contingent deferred sales charge, see "Calculation and Waiver of Contingent
Deferred Sales Charges" on page 27.
The Distributor will pay a commission to dealers on such purchases of
$1,000,000 or more as follows: 1.00 percent on sales up to $5,000,000, plus .50
percent on sales of $5,000,000 or more up to $10,000,000 and .10 percent on any
amount of $10,000,000 or more.
The Investment Manager may, at its expense, pay a service fee to dealers
who satisfy certain criteria established by the Investment Manager from time to
time relating to the volume of their sales of Class A shares of Tax-Exempt Fund
and certain other Security Funds during prior periods and certain other factors,
including providing certain services to their clients who are stockholders of
such Funds. Such services include assisting stockholders in changing account
options or enrolling in specific plans, and providing stockholders with
information regarding the Funds and related developments.
Currently, service fees are paid on the aggregate value of accounts opened
after July 31, 1990, in Security Tax-Exempt, Equity, Asset Allocation, Global,
Ultra and Growth and Income Funds at the following annual rates: .25 percent of
aggregate net asset value for amounts of $100,000 but less than $5 million and
.30 percent for amounts of $5,000,000 or more.
SECURITY INCOME FUND'S CLASS A DISTRIBUTION PLAN
In addition to the sales charge deducted from Class A shares at the time of
purchase, each of Corporate Bond, Limited Maturity Bond, U.S. Government, Global
Aggressive Bond and High Yield Funds is authorized, under a Distribution Plan
pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "Class A
Distribution Plan"), to use its assets to finance certain activities relating to
the distribution of its shares to investors. This Plan permits payments to be
made by these Funds to the Distributor, to finance various activities relating
to the distribution of their
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SECURITY FUNDS
PROSPECTUS
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Class A shares to investors, including, but not limited to, the payment of
compensation (including incentive compensation to securities dealers and other
financial institutions and organizations) to obtain various distribution-related
and/or administrative services for the Funds.
Under the Class A Distribution Plan, a monthly payment is made to the
Distributor in an amount computed at an annual rate of .25 percent of the
average daily net asset value of Corporate Bond, Limited Maturity Bond, U.S.
Government, Global Aggressive Bond and High Yield Funds' Class A shares. The
distribution fee is charged to each Fund in proportion to the relative net
assets of their Class A shares. The distribution fees collected may be used by
Corporate Bond, Limited Maturity Bond, U.S. Government, Global Aggressive Bond
and High Yield Funds to finance joint distribution activities, for example joint
advertisements, and the costs of such joint activities will be allocated among
the Funds on a fair and equitable basis, including on the basis of the relative
net assets of their Class A shares.
The Class A Distribution Plan authorizes payment by the Class A shares of
these Funds of the cost of preparing, printing and distributing prospectuses and
Statements of Additional Information to prospective investors and of
implementing and operating the Plan.
In addition, compensation to securities dealers and others is paid from
distribution fees at an annual rate of .25 percent of the average daily net
asset value of Class A shares sold by such dealers and remaining outstanding on
the Fund's books to obtain certain administrative services for the Funds' Class
A stockholders. The services include, among other things, processing new
stockholder account applications and serving as the primary source of
information to customers in answering questions concerning the Funds and their
transactions with the Funds. The Distributor is also authorized to engage in
advertising, the preparation and distribution of sales literature and other
promotional activities on behalf of Corporate Bond, Limited Maturity Bond, U.S.
Government, Global Aggressive Bond and High Yield Funds. Other promotional
activities which may be financed pursuant to the Plan include (i) informational
meetings concerning these Funds for registered representatives interested in
selling shares of the Funds and (ii) bonuses or incentives offered to all or
specified dealers on the basis of sales of a specified minimum dollar amount of
Class A shares of these Funds by the registered representatives employed by such
dealer(s). The expenses associated with the foregoing activities will include
travel expenses, including lodging. Additional information may be obtained by
referring to the Funds' Statement of Additional Information.
Corporate Bond, Limited Maturity Bond, U.S. Government, Global Aggressive
Bond and High Yield Funds' Class A Distribution Plan may be terminated at any
time by vote of the directors of Income Fund, who are not interested persons of
the Fund as defined in the 1940 Act or by vote of a majority of the outstanding
Class A shares. In the event the Class A Distribution Plan is terminated by the
Funds' Class A stockholders or the Board of Directors, the payments made to the
Distributor pursuant to the Plan up to that time would be retained by the
Distributor. Any expenses incurred by the Distributor in excess of those
payments would be absorbed by the Distributor.
CLASS B SHARES
Class B shares of Corporate Bond, Limited Maturity Bond, U.S. Government,
Global Aggressive Bond, High Yield and Tax-Exempt Funds are offered at net asset
value, without an initial sales charge. With certain exceptions, these Funds may
impose a deferred sales charge on Class B shares redeemed within five years of
the date of purchase. No deferred sales charge is imposed on amounts redeemed
thereafter. If imposed, the deferred sales charge is deducted from the
redemption proceeds otherwise payable. The deferred sales charge is retained by
the Distributor.
Whether a contingent deferred sales charge is imposed and the amount of the
charge will depend on the number of years since the stockholder made a purchase
payment from which an amount is being redeemed, according to the following
schedule:
YEAR SINCE CONTINGENT DEFERRED
PURCHASE WAS MADE SALES CHARGE
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth and following 0%
Class B shares (except shares purchased through the reinvestment of
dividends and other distributions paid with respect to Class B shares) will
automatically convert on the eighth anniversary of the date such shares were
purchased to Class A shares which are subject to a lower distribution fee. This
automatic conversion of Class B shares will take place without imposition of a
front-end sales charge or exchange fee. (Conversion of Class B shares
represented by stock certificates will require the return of the stock
certificates to the Investment Manager.) All shares purchased through
reinvestment of dividends and other distributions paid with respect to Class B
shares ("reinvestment shares") will be considered to be held in a separate
subaccount. Each time any Class B shares (other than those held in the
subaccount) convert to Class A shares, a pro rata portion of the reinvestment
shares held in the subaccount will also convert to Class A shares. Class B
shares so converted will no longer be subject to the higher expenses borne by
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SECURITY FUNDS
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Class B shares. Because the net asset value per share of the Class A shares may
be higher or lower than that of the Class B shares at the time of conversion,
although the dollar value will be the same, a stockholder may receive more or
less Class A shares than the number of Class B shares converted. Under current
law, it is the Funds' opinion that such a conversion will not constitute a
taxable event under federal income tax law. In the event that this ceases to be
the case, the Board of Directors will consider what action, if any, is
appropriate and in the best interests of the Class B stockholders.
CLASS B DISTRIBUTION PLAN
Each of Corporate Bond, Limited Maturity Bond, U.S. Government, Global
Aggressive Bond, High Yield and Tax-Exempt Funds bears some of the costs of
selling its Class B shares under a Distribution Plan adopted with respect to its
Class B shares ("Class B Distribution Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940 ("1940 Act"). Each Fund's Plan provides for
payments at an annual rate of 1.00 percent of the average daily net asset value
of its Class B shares. Amounts paid by the Funds are currently used to pay
dealers and other firms that make Class B shares available to their customers
(1) a commission at the time of purchase normally equal to 4.00 percent of the
value of each share sold and (2) a service fee payable for the first year,
initially, and for each year thereafter, quarterly, in an amount equal to .25
percent annually of the average daily net asset value of Class B shares sold by
such dealers and other firms and remaining outstanding on the books of the
Funds.
NASD Rules limit the aggregate amount that each of the Funds may pay
annually in distribution costs for the sale of its Class B shares to 6.25
percent of gross sales of Class B shares since the inception of the Distribution
Plan, plus interest at the prime rate plus one percent on such amount (less any
contingent deferred sales charges paid by Class B stockholders to the
Distributor). The Distributor intends, but is not obligated, to continue to
apply or accrue distribution charges incurred in connection with the Class B
Distribution Plan which exceed current annual payments permitted to be received
by the Distributor from the Funds. The Distributor intends to seek full payment
of such charges from the Fund (together with annual interest thereon at the
prime rate plus one percent) at such time in the future as, and to the extent
that, payment thereof by the Funds would be within permitted limits.
Each Fund's Class B Distribution Plan may be terminated at any time by vote
of its directors who are not interested persons of the Fund as defined in the
1940 Act or by vote of a majority of the outstanding Class B shares. In the
event the Class B Distribution Plan is terminated by the Class B stockholders or
the Funds' Board of Directors, the payments made to the Distributor pursuant to
the Plan up to that time would be retained by the Distributor. Any expenses
incurred by the Distributor in excess of those payments would be absorbed by the
Distributor. The Funds make no payments in connection with the sale of their
Class B shares other than the distribution fee paid to the Distributor.
CALCULATION AND WAIVER OF CONTINGENT DEFERRED SALES CHARGES
Any contingent deferred sales charge imposed upon redemption of Class A
shares (purchased in an amount of $1,000,000 or more) and Class B shares is a
percentage of the lesser of (1) the net asset value of the shares redeemed or
(2) the net cost of such shares. No contingent deferred sales charge is imposed
upon redemption of amounts derived from (1) increases in the value above the net
cost of such shares due to increases in the net asset value per share of the
Fund; (2) shares acquired through reinvestment of income dividends and capital
gain distributions; or (3) Class A shares (purchased in an amount of $1,000,000
or more) held for more than one year or Class B shares held for more than five
years. Upon request for redemption, shares not subject to the contingent
deferred sales charge will be redeemed first. Thereafter, shares held the
longest will be the first to be redeemed.
The contingent deferred sales charge is waived: (1) following the death of
a stockholder if redemption is made within one year after death; (2) upon the
disability (as defined in Section 72(m)(7) of the Internal Revenue Code) of a
stockholder prior to age 65 if redemption is made within one year after the
disability, provided such disability occurred after the stockholder opened the
account; (3) in connection with required minimum distributions in the case of an
IRA, SAR-SEP or Keogh or any other retirement plan qualified under section
401(a), 401(k) or 403(b) of the Code; and (4) in the case of distributions from
retirement plans qualified under section 401(a) or 401(k) of the Internal
Revenue Code due to (i) returns of excess contributions to the plan, (ii)
retirement of a participant in the plan, (iii) a loan from the plan (repayment
of loans, however, will constitute new sales for purposes of assessing the
contingent deferred sales charge, (iv) "financial hardship" of a participant in
the plan, as that term is defined in Treasury Regulation section
1.401(k)1(d)(2), as amended from time to time, (v) termination of employment of
a participant in the plan, (vi) any other permissible withdrawal under the terms
of the plan. The contingent deferred sales charge will also be waived in the
case of redemptions of Class B shares of the Funds pursuant to a systematic
withdrawal program. See "Systematic Withdrawal Program," page 34 for details.
ARRANGEMENTS WITH BROKER-DEALERS AND OTHERS
The Distributor, from time to time, will provide promotional incentives or
pay a bonus to certain dealers
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whose representatives have sold or are expected to sell significant amounts of
the Corporate Bond, Limited Maturity Bond, U.S. Government, Global Aggressive
Bond, High Yield and Tax-Exempt Funds and/or certain other Funds managed by the
Investment Manager. Such promotional incentives will include payment for
attendance (including travel and lodging expenses) by qualifying registered
representatives (and members of their families) at sales seminars at luxury
resorts within or outside the United States. Bonus compensation may include
reallowance of the entire sales charge and may also include, with respect to
Class A shares, an amount which exceeds the entire sales charge and, with
respect to Class B shares, an amount which exceeds the maximum commission. The
Distributor, or the Investment Manager, may also provide financial assistance to
certain dealers in connection with conferences, sales or training programs for
their employees, seminars for the public, advertising, sales campaigns, and/or
shareholder services and programs regarding one or more of the funds managed by
the Investment Manager. Certain of the promotional incentives or bonuses may be
financed by payments to the Distributor under a Rule 12b-1 Distribution Plan.
The payment of promotional incentives and/or bonuses will not change the price
an investor will pay for shares or the amount that the Funds will receive from
such sale. No compensation will be offered to the extent it is prohibited by the
laws of any state or self-regulatory agency, such as the National Association of
Securities Dealers, Inc. ("NASD"). A Dealer to whom substantially the entire
sales charge on Class A shares is reallowed may be deemed to be an "underwriter"
under federal securities laws.
The Distributor also may pay banks and other financial services firms that
facilitate transactions in shares of the Funds for their clients a transaction
fee up to the level of the payments made allowable to dealers for the sale of
such shares as described above. Banks currently are prohibited under the
Glass-Steagall Act from providing certain underwriting or distribution services.
If banking firms were prohibited from acting in any capacity or providing any of
the described services, the Funds' Board of Directors would consider what
action, if any, would be appropriate.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
The Investment Manager or Distributor also may pay a marketing allowance to
dealers who meet certain eligibility criteria. This allowance is paid with
reference to new sales of shares of Corporate Bond, Limited Maturity Bond, U.S.
Government, Global Aggressive Bond, High Yield and Tax-Exempt Funds in a
calendar year. To be eligible for this allowance in any given year, the dealer
must sell a minimum of $2,000,000 of Class A and Class B shares during that
year. The marketing allowance ranges from .15 percent to .75 percent of
aggregate new sales depending upon the volume of shares sold. See the Funds'
Statement of Additional Information for more detailed information about the
marketing allowance.
CASH FUND
Shares of Cash Fund are offered at net asset value next determined after an
order is accepted. There is no sales charge or load. The minimum initial
investment in Cash Fund is $100 for each account. Subsequent investments may be
made in any amount of $20 or more. Cash Fund purchases may be made in any of the
following ways:
1. BY MAIL
(a) A check or negotiable bank draft should be sent to:
Security Cash Fund
P.O. Box 2548
Topeka, Kansas 66601
(b) Make check or draft payable to "SECURITY CASH FUND."
(c) For initial investment include a completed investment application found
on page 43 of this prospectus.
2. BY WIRE
(a) Call the Fund to advise of the investment. The Fund will supply an
account number at the time of the initial investment and provide
instructions for having your bank wire federal funds.
(b) Wire federal funds to:
Bank IV of Topeka
Security Distributors, Inc.
Topeka, Kansas 66603
Include investor's name and the Cash Fund account number.
(c) For initial investment, send a completed investment application to the
Fund at the above address.
3. THROUGH BROKER/DEALERS
Investors may, if they wish, invest in Cash Fund by purchasing shares
through registered broker/dealers. Such broker/dealers who process orders on
behalf of their customers may charge a fee for their services. Investments made
directly without the assistance of a broker/dealer are without charge.
Since Cash Fund invests in money market securities which require immediate
payment in federal funds, monies received from the sales of its shares must be
monies held by a commercial bank and be on deposit at one of the Federal Reserve
Banks. A record date for each stockholder's investment is established each
business day and used to distribute the following day's dividend. If federal
funds are received prior to 2:00 p.m. (Central time) the investment will be made
on that day and the investor will receive the following day's dividend. Federal
funds received after 2:00 p.m. on any business day will not be invested until
the following business day. The Fund will not be responsible for
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any delays in the wire transfer system. All checks are accepted subject to
collection at full face value in United States funds and must be drawn in United
States dollars on a United States bank.
The Investment Manager may, at its expense, pay a service fee to dealers
who satisfy certain criteria established by the Investment Manager from time to
time relating to the volume of their sales of Cash Fund during prior periods and
certain other factors, including providing certain services to their clients who
are stockholders of the Fund. Currently, service fees are paid on the aggregate
value of Cash Fund accounts opened after July 31, 1990, at the following annual
rate: .25 percent of aggregate net asset value for amounts of $1,000,000 or
more.
PURCHASES AT NET ASSET VALUE
Class A shares of Corporate Bond, Limited Maturity Bond Fund, U.S.
Government, Global Aggressive Bond, High Yield and Tax-Exempt Funds may be
purchased at net asset value by (1) directors, officers and employees of the
Funds, the Funds' Investment Manager or Distributor; directors, officers and
employees of Security Benefit Life Insurance Company and its subsidiaries;
agents licensed with Security Benefit Life Insurance Company; spouses or minor
children of any such agents; as well as the following relatives of any such
directors, officers and employees (and their spouses): spouses, grandparents,
parents, children, grandchildren, siblings, nieces and nephews; (2) any trust,
pension, profit sharing or other benefit plan established by any of the
foregoing corporations for persons described above; (3) retirement plans where
third party administrators of such plans have entered into certain arrangements
with the Distributor or its affiliates provided that no commission is paid to
dealers; and (4) officers, directors, partners or registered representatives
(and their spouses and minor children) of broker/dealers who have a selling
agreement with the Distributor. Such sales are made upon the written assurance
of the purchaser that the purchase is made for investment purposes and that the
securities will not be transferred or resold except through redemption or
repurchase by or on behalf of the Funds.
Class A shares of Corporate Bond, Limited Maturity Bond, U.S. Government,
Global Aggressive Bond, High Yield and Tax-Exempt Funds may also be purchased at
net asset value when the purchase is made on the recommendation of (i) a
registered investment adviser, trustee or financial intermediary who has
authority to make investment decisions on behalf of the investor; or (ii) a
certified financial planner or registered broker-dealer who either charges
periodic fees to its customers for financial planning, investment advisory or
asset management services, or provides such services in connection with the
establishment of an investment account for which a comprehensive "wrap fee" is
imposed. The Distributor must be notified when a purchase is made that qualifies
under this provision.
TRADING PRACTICES AND BROKERAGE
The portfolio turnover rate for the Corporate Bond, U.S. Government and
Tax-Exempt Funds, respectively, for the fiscal year ended December 31, 1995, was
as follows: Corporate Bond Fund - 200 percent; U.S. Government Fund - 81
percent; and Tax-Exempt Fund - 103 percent. The annualized portfolio turnover
rate for the Limited Maturity Bond Fund for the period January 17, 1995 (date of
inception) to December 31, 1995, and the Global Aggressive Bond Fund for the
period June 1, 1995 (date of inception) to December 31, 1995, was as follows:
Limited Maturity Bond - 4 percent; and Global Aggressive Bond - 127 percent.
Portfolio turnover information is not yet available for the High Yield Fund as
it did not begin operations until August of 1996. The Corporate Bond and Limited
Maturity Bond Funds' portfolio turnover rate generally is expected to be less
than 100 percent, and that of the U.S. Government and Global Aggressive Bond
Funds may exceed 100 percent, but is not expected to do so. The portfolio
turnover rate for the High Yield Fund may exceed 100 percent but it is generally
not expected to exceed 150 percent. Higher portfolio turnover subjects a fund to
increased brokerage costs and may, in some cases, have adverse tax effects on a
fund or its stockholders.
Cash Fund is expected to have a high portfolio turnover rate due to the
short maturities of its portfolio securities; this should not, however, affect
the Fund's income or net asset value since brokerage commissions are not
normally paid in connection with the purchase or sale of money market
instruments.
Transactions in portfolio securities are effected in the manner deemed to
be in the best interests of each Fund. In selecting a broker or dealer to
execute a specific transaction, all relevant factors will be considered.
Portfolio transactions may be directed to brokers who furnish investment
information or research services to the Investment Manager or who sell shares of
the Funds. The Investment Manager may, consistent with the NASD Rules of Fair
Practice, consider sales of shares of the Fund in the selection of a broker.
Securities held by the Funds may also be held by other investment advisory
clients of the Investment Manager, including other investment companies, and by
the Investment Manager's parent company, Security Benefit Life Insurance Company
("SBL"). Purchases or sales of the same security occurring on the same day
(which may include orders from SBL) may be aggregated and executed as a single
transaction, subject to the Investment Manager's obligation to seek best
execution. Aggregated purchases or
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sales are generally effected at an average price and on a pro rata basis
(transaction costs will also be shared on a pro rata basis) in proportion to the
amounts desired to be purchased or sold. See the Funds' Statement of Additional
Information for a more detailed description of aggregated transactions.
HOW TO REDEEM SHARES
A stockholder may redeem shares at the net asset value next determined
after the time when such shares are tendered for redemption.
Shares will be redeemed on request of the stockholder in proper order to
the Funds' Investment Manager, Security Management Company, LLC, which serves as
the Funds' transfer agent. A request is made in proper order by submitting the
following items to the Investment Manager: (1) a written request for redemption
signed by all registered owners exactly as the account is registered, including
fiduciary titles, if any, and specifying the account number and the dollar
amount or number of shares to be redeemed; (2) a guarantee of all signatures on
the written request or on the share certificate or accompanying stock power; (3)
any share certificates issued for any of the shares to be redeemed; and (4) any
additional documents which may be required by the Investment Manager for
redemption by corporations or other organizations, executors, administrators,
trustees, custodians or the like. Transfers of shares are subject to the same
requirements. The signature guarantee must be provided by an eligible guarantor
institution, such as a bank, broker, credit union, national securities exchange
or savings association. A signature guarantee is not required for redemptions of
$10,000 or less, requested by and payable to all stockholders of record for an
account, to be sent to the address of record. The Investment Manager reserves
the right to reject any signature guarantee pursuant to its written procedures
which may be revised in the future. To avoid delay in redemption or transfer,
stockholders having questions should contact the Investment Manager by calling
1-800-888-2461, extension 3127.
The redemption price will be the net asset value of the shares next
computed after the redemption request in proper order is received by the
Investment Manager. In addition, stockholders of Cash Fund will receive any
undistributed dividends, including any dividend declared on the day of the
redemption. Payment of the amount due on redemption, less any applicable
deferred sales charge, will be made by check, or by wire at the sole discretion
of the Investment Manager, within seven days after receipt of the redemption
request in proper order. If a wire transfer is requested, the Investment Manager
must be provided with the name and address of the stockholder's bank as well as
the account number to which payment is to be wired. Checks will be mailed to the
stockholder's registered address (or as otherwise directed). Remittance by wire
(to a commercial bank account in the same name(s) as the shares are registered),
by certified or cashier's check, or by express mail, if requested, will be at a
charge of $15, which will be deducted from the redemption proceeds.
Cash Fund offers redemption by check and Corporate Bond, Limited Maturity
Bond, U.S. Government and Tax-Exempt Funds offer redemption by check on Class A
shares only. The Global Aggressive Bond Fund and the High Yield Fund do not
offer checkwriting privileges. If blank checks are requested on the Checking
Privilege Request Form, the Fund will make a supply available. Such checks for
Corporate Bond, Limited Maturity Bond, U.S. Government and Tax-Exempt Funds may
be drawn payable to the order of any payee (not to cash) in any amount of $250
or more, if the account value is $1,000 or more. Such checks for Cash Fund may
be drawn in any amount of $100 or more. When a check is presented to the Fund
for payment, it will redeem sufficient full and fractional shares to cover the
check. Such shares will be redeemed at the price next calculated following
receipt of any check which does not exceed the value of the account. The price
of Fund shares fluctuates from day-to-day and the price at the time of
redemption, by check or otherwise, may be less than the amount invested.
Redemption by check is not available if any shares are held in certificate form
or if shares being redeemed have not been on the Fund's books for at least 15
days. The availability of checkwriting privileges may encourage multiple
redemptions on an account. Whenever multiple redemptions occur, the difficulty
of monitoring the shareholder's cost basis in his or her investment increases.
In addition to the foregoing redemption procedures, the Funds repurchase
shares from broker/dealers at the price determined as of the close of business
on the day such offer is confirmed. Dealers may charge a commission on the
repurchase of shares.
At various times, requests may be made to redeem shares for which good
payment has not yet been received. Accordingly, payment of redemption proceeds
may be delayed until such time as good payment has been collected for the
purchase of the shares in question, which may take up to 15 days from the
purchase date.
Requests may also be made to redeem shares in an account for which the
stockholder's tax identification number has not been provided. To the extent
permitted by law, the redemption proceeds from such an account will be reduced
by $50 to reimburse for the penalty imposed by the Internal Revenue Service for
failure to report the tax identification number.
TELEPHONE REDEMPTIONS
Stockholders may redeem uncertificated shares in amounts up to $10,000 by
telephone request, provided that the stockholder has completed the Telephone
Redemption section of the application or a Telephone Redemption form
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which may be obtained from the Investment Manager. The proceeds of a telephone
redemption will be sent to the stockholder at his or her address as set forth in
the application or in a subsequent written authorization with a signature
guarantee. Once authorization has been received by the Investment Manager, a
stockholder may redeem shares by calling the Funds at (800) 888-2461, extension
3127, on weekdays (except holidays) between the hours of 7:00 a.m. and 6:00 p.m.
Central time. Redemption requests received by telephone after the close of the
New York Stock Exchange (normally 3 p.m. Central time) will be treated as if
received on the next business day. A stockholder who authorizes telephone
redemptions authorizes the Investment Manager to act upon the instructions of
any person identifying themselves as the owner of the account or the owner's
broker. The Investment Manager has established procedures to confirm that
instructions communicated by telephone are genuine and will be liable for any
losses due to fraudulent or unauthorized instructions if it fails to comply with
its procedures. The Investment Manager's procedures require that any person
requesting a telephone redemption provide the account registration and number
and the owner's tax identification number, and such instructions must be
received on a recorded line. Neither the Fund, the Investment Manager, nor the
Distributor shall be liable for any loss, liability, cost or expense arising out
of any telephone redemption request, provided the Investment Manager complied
with its procedures. Thus, a stockholder who authorizes telephone redemptions
may bear the risk of loss from a fraudulent or unauthorized request. The
telephone redemption privilege may be changed or discontinued at any time by the
Investment Manager or the Funds.
During periods of severe market or economic conditions, telephone
redemptions may be difficult to implement and stockholders should make
redemptions by mail as described in "How to Redeem Shares" on page 29.
DIVIDENDS AND TAXES
It is the policy of Corporate Bond, Limited Maturity Bond, U.S. Government,
High Yield and Tax-Exempt Funds to pay dividends from net investment income
monthly and for the Global Aggressive Bond Fund to pay dividends from net
investment income quarterly. It is the policy of Corporate Bond, Limited
Maturity Bond, U.S. Government, Global Aggressive Bond, High Yield and
Tax-Exempt Funds to distribute realized capital gains (if any) in excess of any
capital losses and capital loss carryovers, at least once a year. Because Class
A shares of Corporate Bond, Limited Maturity Bond, U.S. Government, Global
Aggressive Bond, High Yield and Tax-Exempt Funds bear most of the costs of
distribution of such shares through payment of a front-end sales charge, while
Class B shares of these Funds bear such costs through a higher distribution fee,
expenses attributable to Class B shares, generally, will be higher and as a
result, income distributions paid by these Funds with respect to Class B shares
generally will be lower than those paid with respect to Class A shares. Any such
dividend payment or capital gains distribution will result in a decrease of the
net asset value of the shares in an amount equal to the payment or distribution.
All dividends and distributions are automatically reinvested on the payable date
in shares of the Funds at net asset value as of the record date (reduced by an
amount equal to the amount of the dividend or distribution) unless the
Investment Manager is previously notified in writing by the stockholder that
such dividends or distributions are to be received in cash. A stockholder may
also request that such dividends or distributions be directly deposited to the
stockholder's bank account. Dividends or distributions paid with respect to
Class A shares and received in cash may, within 30 days of the payment date, be
reinvested without a sales charge.
Each of Corporate Bond, Limited Maturity Bond, U.S. Government, Global
Aggressive Bond and High Yield Funds (series of Income Fund), is to be treated
separately in determining the amounts of income and capital gains distributions.
For this purpose, each series will reflect only the income and gains, net of
losses, of that series.
Certain requirements relating to the qualification of a Fund as a regulated
investment company may limit the extent to which a Fund will be able to engage
in certain investment practices, including transactions in options, futures
contracts, forwards, swaps and other types of derivative securities
transactions. In addition, if a Fund were unable to dispose of portfolio
securities due to settlement problems relating to foreign investments or due to
the holding of illiquid securities, the Fund's ability to qualify as a regulated
investment company might be affected.
Cash Fund's policy is to declare daily dividends of all of its net income
each day the Fund is open for business, increased or decreased by any realized
capital gains or losses. Such dividends are automatically credited to
stockholder accounts. Unless stockholders elect to receive cash, they will
receive such dividends in additional shares on the last business day of each
month at the net asset value on that date. If cash payment of dividends is
desired, investors may so indicate in the appropriate section of the Cash Fund
application and checks will be mailed within five business days after the
beginning of the month. Confirmation of Cash Fund dividends will be sent
quarterly, and confirmations of purchases and redemptions will be sent monthly.
The amount of dividends may fluctuate from day to day. If on any day net
realized or unrealized losses on portfolio securities exceed Cash Fund's income
for that day and results in a decline of net asset value per share below $1.00,
the dividend for that day will be omitted until the net asset value per share
subsequently returns to $1.00 per share.
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The Funds will not pay dividends or distributions of less than $25 in cash
but will automatically reinvest them.
Each of the Funds intends to qualify as a "regulated investment company"
under the Internal Revenue Code. Such qualification generally removes the
liability for federal income taxes from the Fund, and makes federal income tax
upon income and capital gains generated by a Fund's investments, the sole
responsibility of its stockholders provided the Fund continues to so qualify and
distributes all of its net investment income and net realized capital gain to
its stockholders. Furthermore, the Funds generally will not be subject to excise
taxes imposed on certain regulated investment companies provided that each Fund
distributes 98 percent of its ordinary income and 98 percent of its net capital
gain income each year.
Tax-Exempt Fund intends to qualify to pay "exempt interest dividends" to
its stockholders. Tax-Exempt Fund will be so qualified if, at the close of each
quarter of its taxable year, at least 50 percent of the value of its total
assets consists of securities on which the interest payments are exempt from
federal tax. To the extent that Tax-Exempt Fund's dividends distributed to
stockholders are derived from earnings on interest income exempt from federal
tax and are designated as "exempt-interest dividends" by the Fund, they will be
excludable from a stockholder's gross income for federal income tax purposes.
The Fund will inform stockholders annually as to the portion of that year's
distributions from the Fund which constituted "exempt-interest dividends." To
the extent that Tax-Exempt Fund's dividends are derived from interest on its
temporary taxable investments or from an excess of net short-term capital gain
over net long-term capital loss, they are considered taxable ordinary income for
federal income tax purposes. Such dividends do not qualify for the
dividends-received deduction for corporations. Distributions by Tax-Exempt Fund,
if any, of net long-term capital gains in excess of net short-term capital
losses from the sale of securities are taxable to stockholders as long-term
capital gain regardless of the length of time the stockholder has owned Fund
shares. Furthermore, a loss realized by a stockholder on the redemption, sale or
exchange of shares of Tax-Exempt Fund with respect to which exempt-interest
dividends have been paid will be disallowed to the extent of the amount of such
exempt-interest dividends if such shares have been held by the stockholder for
six months or less.
Distributions of net investment income and realized net short-term capital
gain by Corporate Bond, Limited Maturity Bond, U.S. Government, Global
Aggressive Bond, High Yield and Cash Funds are taxable to stockholders as
ordinary income whether received in cash or reinvested in additional shares.
Distributions (designated by Corporate Bond, Limited Maturity Bond, U.S.
Government, Global Aggressive Bond and High Yield Funds as "capital gain
dividends") of the excess, if any, of net long-term capital gains over net
short-term capital losses are taxable to stockholders as long-term capital gain
regardless of how long a stockholder has held the Fund's shares and regardless
of whether received in cash or reinvested in additional shares. Since Cash Fund
normally will not invest in securities having a maturity of more than one year,
it should not realize any long-term capital gains or losses.
At December 31, 1995, Corporate Bond, Limited Maturity Bond, U.S.
Government, Global Aggressive Bond and Tax-Exempt Funds, respectively, had
accumulated net realized losses on sales of investments in the following
amounts: $11,009,916, $23,055, $1,161,323, $2,410 and $1,534,211.
Certain dividends declared in October, November or December of a calendar
year are taxable to stockholders as though received on December 31 of that year
if paid to stockholders during January of the following calendar year.
Advice as to each year's taxable dividends and distributions, if
applicable, will be mailed on or before January 31 of the following year.
Stockholders should consult their tax adviser to determine the effect of
federal, state and local tax consequences to them from an investment in the
Funds.
The Funds are required by law to withhold 31 percent of taxable dividends
and distributions (including redemption proceeds) to stockholders who do not
furnish their correct taxpayer identification numbers, or are otherwise subject
to the backup withholding provisions of the Internal Revenue Code.
FOREIGN TAXES
Investment income and gains received from sources within foreign countries
may be subject to foreign income and other taxes. In this regard, withholding
tax rates in countries with which the United States does not have a tax treaty
are often as high as 30 percent or more. The United States has entered into tax
treaties with many foreign countries which entitle certain investors to a
reduced tax rate (generally ten to fifteen percent) or to exemptions from tax.
If applicable, the Funds will operate so as to qualify for such reduced tax
rates or tax exemptions whenever possible. While stockholders of the Funds will
indirectly bear the cost of any foreign tax withholding, they will not be able
to claim foreign tax credit or deduction for taxes paid by the Funds.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each Fund is determined as of the close of
regular trading hours on the New York Stock Exchange (normally 3 p.m. Central
time) on each day that the Exchange is open for trading. The
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determination is made by dividing the value of the portfolio securities of each
Fund plus any cash or other assets, less all liabilities, by the number of
shares outstanding of the Fund.
Securities which are listed or traded on a national securities exchange are
valued at the last sale price. If there are no sales on a particular day, then
the securities are valued at the last bid price. All other securities for which
market quotations are readily available are valued on the basis of the last
current bid price. If there is no bid price or if the bid price is deemed to be
unsatisfactory by the Board of Directors or by the Investment Manager, then the
securities are valued in good faith by such method as the Board of Directors
determines will reflect the fair market value.
Valuations of Tax-Exempt Fund's municipal securities are supplied by a
pricing service approved by the Board of Directors. Valuations furnished by the
pricing service are based upon appraisals from recognized municipal securities
dealers derived from information concerning market transactions and quotations.
Securities for which market quotations are not readily available (which are
expected to constitute the majority of Tax-Exempt Fund's portfolio securities)
are valued by the pricing service considering such factors as yields or prices
of municipal bonds of comparable quality, type of issue, coupon, maturity and
rating, indications as to value from dealers, and general market conditions. The
Fund's officers, under the general supervision of its Board of Directors, will
regularly review procedures used by, and valuations provided by, the pricing
service.
U.S. Government Fund values U.S. Government securities at market value, if
available. If market quotations are not available, the Fund will value
securities, other than securities with 60 days or less to maturity as discussed
below, at fair prices based on market quotations for securities of similar type,
yield, quality and duration.
The securities held by Cash Fund are valued on the basis of the amortized
cost valuation technique which does not take into account unrealized gains or
losses. The amortized cost valuation technique involves valuing an instrument at
its cost and thereafter assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the instrument. A similar procedure may be used for valuing
securities held by the U.S. Government and Tax-Exempt Funds having 60 days or
less remaining to maturity, with the value of the security on the 61st day being
used rather than cost.
Because the expenses of distribution are borne by Class A shares of
Corporate Bond, Limited Maturity Bond, U.S. Government, Global Aggressive Bond,
High Yield and Tax-Exempt Funds through a front-end sales charge and by Class B
shares of such Funds through an ongoing distribution fee, the expenses
attributable to each class of shares will differ, resulting in different net
asset values. The net asset value of Class B shares will generally be lower than
the net asset value of Class A shares as a result of the distribution fee
charged to Class B shares. It is expected, however, that the net asset value per
share will tend to converge immediately after the payment of dividends which
will differ in amount for Class A and B shares by approximately the amount of
the different distribution expenses attributable to Class A and B shares.
PERFORMANCE
The Funds may, from time to time, include performance data in
advertisements or reports to stockholders or prospective investors. Such
performance data may include quotations of "yield" for each of the Funds,
"effective yield" for Cash Fund, "taxable-equivalent yield" for Tax-Exempt Fund
and "average annual total return" and "aggregate total return" for Corporate
Bond, Limited Maturity Bond, U.S. Government, Global Aggressive Bond, High Yield
and Tax-Exempt Funds.
For Cash Fund, yield is calculated by measuring the income generated by a
hypothetical investment in the Fund over a seven-day period. This income is then
annualized by assuming that the amount of income generated over the seven-day
period is generated each week over a 52-week period and is shown as a percentage
of the investment.
Cash Fund's effective yield will be calculated similarly but, when
annualized, income earned by an investment in the Fund is assumed to be
reinvested. The effective yield will be slightly higher than the yield because
of the compounding effect of this assumed reinvestment.
With respect to Corporate Bond, Limited Maturity Bond, U.S. Government,
Global Aggressive Bond, High Yield and Tax-Exempt Funds, yield is based on the
investment income per share earned during a particular 30-day period (including
dividends and interest), less expenses accrued during the period ("net
investment income"), and will be computed by dividing net investment income per
share by the maximum public offering price per share on the last day of the
period.
Tax-Exempt Fund's taxable-equivalent yield begins with that portion of the
Fund's yield which is tax-exempt (determined using the same general formula used
to calculate yield), which is then adjusted by an amount necessary to give the
taxable yield equivalent to the tax-exempt yield at a stated income tax rate,
and added to that portion of the Fund's yield, if any, which is not tax-exempt.
Average annual total return will be expressed in terms of the average
annual compounded rate of return of a hypothetical investment in Corporate Bond,
Limited Maturity Bond, U.S. Government, Global Aggressive Bond, High Yield or
Tax-Exempt Fund over periods of one, five and ten years (up to the life of the
Fund). Such average annual total return figures will reflect the deduction of
the
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33
<PAGE>
SECURITY FUNDS
PROSPECTUS
================================================================================
maximum sales charge and a proportional share of Fund expenses on an annual
basis, and will assume that all dividends and distributions are reinvested when
paid.
Aggregate total return will be calculated for any specified period by
assuming a hypothetical investment in Corporate Bond, Limited Maturity Bond,
U.S. Government, Global Aggressive Bond, High Yield or Tax-Exempt Fund on the
date of the commencement of the period and assuming that all dividends and
distributions are reinvested when paid. The net increase or decrease in the
value of the investment over the period will be divided by its beginning value
to arrive at aggregate total return.
In addition, total return may also be calculated for several consecutive
one-year periods, expressing the total return as a percentage increase or
decrease in the value of the investment for each year relative to the ending
value for the previous year. Corporate Bond, Limited Maturity Bond, U.S.
Government, Global Aggressive Bond, High Yield and Tax-Exempt Funds may from
time to time quote total return that does not reflect deduction of any
applicable sales charge, which charges, if reflected, would reduce the total
return quoted.
Quotations of performance reflect only the performance of a hypothetical
investment in a Fund during the particular time period on which the calculations
are based. Such quotations for the Funds will vary based on changes in market
conditions and the level of the Fund's expenses, and no reported performance
figure should be considered an indication of performance which may be expected
in the future.
In connection with communicating performance to current or prospective
stockholders, the Funds also may compare these figures to the performance of
other mutual funds tracked by mutual fund rating services or other unmanaged
indexes which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs and expenses. Corporate Bond,
Limited Maturity Bond, U.S. Government, Global Aggressive Bond, High Yield and
Tax-Exempt Funds will include performance data for both Class A and Class B
shares of the Funds in any advertisement or report including performance data of
the Fund.
For a more detailed description of the methods used to calculate
performance, see the Funds' Statement of Additional Information.
STOCKHOLDER SERVICES
ACCUMULATION PLAN
An investor in Corporate Bond, Limited Maturity Bond, U.S. Government,
Global Aggressive Bond, High Yield or Tax-Exempt Fund may choose to begin a
voluntary Accumulation Plan. This allows for an initial investment of $100
minimum and subsequent investments of $20 minimum at any time. An Accumulation
Plan involves no obligation to make periodic investments and is terminable at
will.
Payments are made by sending a check to the Distributor who (acting as an
agent for the dealer) will purchase whole and fractional Fund shares as of the
close of business on such day as the payment is received. The investor will
receive a confirmation and statement after each investment. Investors may choose
to use "Secur-O-Matic" (automatic bank draft) to make their Fund purchases.
There is no additional charge for choosing to use Secur-O-Matic. An application
may be obtained by writing Security Distributors, Inc., 700 SW Harrison Street,
Topeka, Kansas 66636-0001 or by calling (913) 295-3127 or (800) 888-2461,
extension 3127.
SYSTEMATIC WITHDRAWAL PROGRAM
Stockholders who wish to receive regular payments of $25 or more may
establish a Systematic Withdrawal Program. Liquidation in this manner will only
be allowed if shares with a current offering price of $5,000 or more are
deposited with the Investment Manager, which will act as agent for the
stockholder under the program. Payments are available on a monthly, quarterly,
semiannual or annual basis. Shares are liquidated at net asset value. The
stockholder will receive a confirmation following each transaction. The program
may be terminated on written notice, or it will terminate automatically if all
shares are liquidated or withdrawn from the account.
A stockholder may establish a Systematic Withdrawal Program with respect to
Class B shares without the imposition of any applicable contingent deferred
sales charge, provided that such withdrawals do not in any 12-month period,
beginning on the date the Program is established, exceed 10 percent of the value
of the account on that date ("Free Systematic Withdrawals"). Free Systematic
Withdrawals are not available if a Program established with respect to Class B
shares provides for withdrawals in excess of 10 percent of the value of the
account in any Program year and, as a result, all withdrawals under such a
Program would be subject to any applicable contingent deferred sales charge.
Free Systematic Withdrawals will be made first by redeeming those shares that
are not subject to the contingent deferred sales charge and then by redeeming
shares held the longest. The contingent deferred sales charge applicable to a
redemption of Class B shares requested while Free Systematic Withdrawals are
being made will be calculated as described under "Calculation and Waiver of
Contingent Deferred Sales Charges," page 27. A Systematic Withdrawal form may be
obtained from the Funds.
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34
<PAGE>
SECURITY FUNDS
PROSPECTUS
================================================================================
EXCHANGE PRIVILEGE
Stockholders who own shares of the Funds may exchange those shares for
shares of another of the Funds, Security Growth and Income, Equity, Global,
Asset Allocation or Ultra Funds. Exchanges may be made only in those states
where shares of the fund into which an exchange is to be made are qualified for
sale. No service fee is presently imposed on such an exchange. Class A and Class
B shares of the Funds may be exchanged for Class A and Class B shares,
respectively, of another fund or for shares of Cash Fund, which offers a single
class of shares. Any applicable contingent deferred sales charge will be
calculated from the date of the initial purchase without regard to the time
shares were held in Cash Fund.
For tax purposes, an exchange is a sale of shares which may result in a
taxable gain or loss. Special rules may apply to determine the amount of gain or
loss on an exchange occurring within ninety days after the exchanged shares were
acquired.
Exchanges of Class A shares from Corporate Bond, Limited Maturity Bond,
U.S. Government, Global Aggressive Bond, High Yield and Tax-Exempt Funds are
made at net asset value without a front-end sales charge if (1) the shares have
been owned for not less than 90 consecutive days prior to the exchange, (2) the
shares were acquired pursuant to a prior exchange from a Security Fund which
assessed a sales charge on the original purchase, or (3) the shares were
acquired as a result of the reinvestment of dividends or capital gains
distributions. Exchanges of Class A shares from Corporate Bond, Limited Maturity
Bond, U.S. Government, Global Aggressive Bond, High Yield and Tax-Exempt Funds,
other than those described above, are made at net asset value plus the sales
charge described in the prospectus of the other Security Fund being acquired,
less the sales charge paid on the shares of these Funds at the time of original
purchase.
Because Cash Fund does not impose a sales charge or commission in
connection with sales of its shares, any exchange of Cash Fund shares acquired
through direct purchase or reinvestment of dividends will be based on the
respective net asset values of the shares involved and a sales charge will be
imposed equal to the sales charge that would be charged such stockholder if he
or she were purchasing for cash.
Stockholders should contact the Fund before requesting an exchange in order
to ascertain whether any sales charges are applicable to the shares to be
exchanged. In effecting the exchanges of Fund shares, the Investment Manager
will first cause to be exchanged those shares which would not be subject to any
sales charges.
Exchanges are made upon receipt of a properly completed Exchange
Authorization form. This privilege may be changed or discontinued at any time at
the discretion of the management of the Funds upon 60 days' notice to
stockholders. A current prospectus of the fund into which an exchange is made
will be given to each stockholder exercising this privilege.
EXCHANGE BY TELEPHONE
To exchange shares by telephone, a stockholder must hold shares in
non-certificate form and must either have completed the Telephone Exchange
section of the application or a Telephone Transfer Authorization form which may
be obtained from the Investment Manager. Once authorization has been received by
the Investment Manager, a stockholder may exchange shares by telephone by
calling the Funds at (800) 888-2461, extension 3127, on weekdays (except
holidays) between the hours of 7:00 a.m. and 6:00 p.m. Central time. Exchange
requests received by telephone after the close of the New York Stock Exchange
(normally 3 p.m. Central time) will be treated as if received on the next
business day.
A stockholder who authorizes telephone exchanges authorizes the Investment
Manager to act upon the instructions of any person by telephone to exchange
shares between any identically registered accounts with the Funds listed above.
The Investment Manager has established procedures to confirm that instructions
communicated by telephone are genuine and will be liable for any losses due to
fraudulent or unauthorized instructions if it fails to comply with its
procedures. The Investment Manager's procedures require that any person
requesting an exchange by telephone provide the account registration and number
and the owner's tax identification number and such instructions must be received
on a recorded line. Neither the Fund, the Investment Manager nor the Distributor
will be liable for any loss, liability, cost or expense arising out of any
request, including any fraudulent request, provided the Investment Manager
complied with its procedures. Thus, a stockholder who authorizes telephone
exchanges may bear the risk of loss from a fraudulent or unauthorized request.
In periods of severe market or economic conditions, the telephone exchange
of shares may be difficult to implement and stockholders should make exchanges
by writing to Security Distributors, Inc., 700 Harrison Street, Topeka, Kansas
66636-0001. The telephone exchange privilege may be changed or discontinued at
any time at the discretion of the management of the Funds.
RETIREMENT PLANS
The Funds have available tax-qualified retirement plans for individuals,
prototype plans for the self-employed, pension and profit sharing plans for
corporations and custodial accounts for employees of public school systems and
organizations meeting the requirements of Section 501(c)(3) of the Internal
Revenue Code. Further information concerning these plans is contained in the
Funds' Statement of Additional Information.
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35
<PAGE>
SECURITY FUNDS
PROSPECTUS
================================================================================
GENERAL INFORMATION
ORGANIZATION
The Articles of Incorporation of Income and Tax-Exempt Funds provide for
the issuance of an indefinite number of shares of capital stock in one or more
classes or series, and the Articles of Incorporation of Cash Fund provide for
the issuance of an indefinite number of shares of capital stock in one or more
series.
Income Fund has authorized capital stock of $1.00 par value. Its shares are
currently issued in five series, Corporate Bond Fund, Limited Maturity Bond
Fund, Global Aggressive Bond Fund, U.S. Government Fund and High Yield Fund. The
shares of each series represent a pro rata beneficial interest in that series'
net assets and in the earnings and profits or losses derived from the investment
of such assets.
Tax-Exempt and Cash Funds have authorized capital stock of $0.10 par value
per share.
Each of the Corporate Bond, Limited Maturity Bond, U.S. Government, Global
Aggressive Bond, High Yield and Tax-Exempt Funds currently issues two classes of
shares which participate proportionately based on their relative net asset
values in dividends and distributions and have equal voting, liquidation and
other rights except that (i) expenses related to the distribution of each class
of shares or other expenses that the Board of Directors may designate as class
expenses from time to time, are borne solely by each class; (ii) each class of
shares has exclusive voting rights with respect to any Distribution Plan adopted
for that class; (iii) each class has different exchange privileges; and (iv)
each class has a different designation.
When issued and paid for, each Fund's shares will be fully paid and
nonassessable by the Funds. Shares may be exchanged as described above under
"Exchange Privilege," but will have no other preference, conversion, exchange or
preemptive rights. Shares are transferable, redeemable and assignable and have
cumulative voting privileges for the election of directors.
On certain matters, such as the election of directors, all shares of each
series of Income Fund vote together, with each share having one vote. On other
matters affecting a particular series, such as the Investment Advisory Contract
or the fundamental investment policies, only shares of that series are entitled
to vote, and a majority vote of the shares of that series is required for
approval of the proposal.
The Funds do not generally hold annual meetings of stockholders and will do
so only when required by law. Stockholders may remove directors from office by
votes cast in person or by proxy at a meeting of stockholders. Such a meeting
will be called at the written request of the holders of 10 percent of a Fund's
outstanding shares.
Although each Fund offers only its own shares, it is possible one Fund
might become liable for any misstatement, inaccuracy or incomplete disclosure in
this prospectus relating to another of the Funds. The Board of Directors of the
Funds has considered this risk and has approved the use of a combined
prospectus.
STOCKHOLDER INQUIRIES
Stockholders who have questions concerning their account or wish to obtain
additional information may write to the Security Funds at 700 SW Harrison
Street, Topeka, Kansas 66636-0001, or call (913) 295-3127 or 1-800-888-2461,
extension 3127.
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36
<PAGE>
SECURITY FUNDS
PROSPECTUS APPENDIX A
================================================================================
APPENDIX A
DESCRIPTION OF SHORT-TERM INSTRUMENTS
The types of instruments that will form the major part of Cash Fund's
investments are described below:
U.S. GOVERNMENT SECURITIES. Federal agency securities are debt obligations
which principally result from lending programs of the U.S. Government. Housing
and agriculture have traditionally been the principal beneficiaries of federal
credit programs, and agencies involved in providing credit to agriculture and
housing account for the bulk of the outstanding agency securities.
Some U.S. Government securities, such as Treasury bills and bonds, are
supported by the full faith and credit of the U.S. Treasury; others are
supported by the right of the issuer to borrow from the Treasury; others, such
as those of the Federal National Mortgage Association, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality.
U.S. Treasury bills are issued with maturities of any period up to one
year. Three-month bills are currently offered by the Treasury on a 13-week cycle
and are auctioned each week by the Treasury. Bills are issued in bearer form
only and are sold only on a discount basis, and the difference between the
purchase price and the maturity value (or the resale price if they are sold
before maturity) constitutes the interest income for the investor.
CERTIFICATES OF DEPOSIT. A certificate of deposit is a negotiable receipt
issued by a bank or savings and loan association in exchange for the deposit of
funds. The issuer agrees to pay the amount deposited plus interest to the bearer
of the receipt on the date specified on the certificate.
COMMERCIAL PAPER. Commercial paper is generally defined as unsecured
short-term notes issued in bearer form by large well-known corporations and
finance companies. Maturities on commercial paper range from a few days to nine
months. Commercial paper is also sold on a discount basis.
BANKER'S ACCEPTANCES. A banker's acceptance generally arises from a
short-term credit arrangement designed to enable businesses to obtain funds to
finance commercial transactions. Generally, an acceptance is a time draft drawn
on a bank by an exporter or an importer to obtain a stated amount of funds to
pay for specific merchandise. The draft is then "accepted" by a bank that, in
effect, unconditionally guarantees to pay the face value of the instrument on
its maturity date.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
A Prime rating is the highest commercial paper rating assigned by Moody's
Investors Service, Inc. ("Moody's"). Issuers rated Prime are further referred to
by use of numbers 1, 2 and 3 to denote relative strength within this highest
classification. Among the factors considered by Moody's in assigning ratings are
the following: (1) evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations.
Commercial paper rated "A" by Standard & Poor's Corporation ("S&P") has the
highest rating and is regarded as having the greatest capacity for timely
payment. Commercial paper rated A-1 by S&P has the following characteristics:
(1) liquidity ratios are adequate to meet cash requirements; (2) long-term
senior debt is rated "A" or better; (3) the issuer has access to at least two
additional channels of borrowing; (4) basic earnings and cash flow have an
upward trend with allowance made for unusual circumstances; (5) typically, the
issuer's industry is well established and the issuer has a strong position
within the industry; and (6) the reliability and quality of management are
unquestioned. Relative strength or weakness of the above factors determine
whether the issuer's commercial paper is rated A-1, A-2 or A-3.
DESCRIPTION OF CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.
AAA -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
AA -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
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37
<PAGE>
SECURITY FUNDS
PROSPECTUS APPENDIX A (CONTINUED)
================================================================================
which make the long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
BAA -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
BA -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
CAA -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
CA -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other market
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
NOTE: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category. The modifier 2 indicates
a mid-range ranking, and modifier 3 indicates that the issue ranks in the lower
end of its generic rating category.
STANDARD & POOR'S CORPORATION
AAA -- Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A -- Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
BB, B, CCC, CC -- Bonds rated BB, B, CCC and CC are regarded, on balance,
as predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of obligations. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C -- The rating C is reserved for income bonds in which no interest is
being paid. D -- Debt rated D is in default and payment of interest and/or
repayment of principal is in arrears.
NOTE: Standard & Poor's ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
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38
<PAGE>
SECURITY FUNDS
PROSPECTUS APPENDIX B
================================================================================
APPENDIX B
DESCRIPTION OF MUNICIPAL BOND RATINGS
The following are summaries of the ratings used by Moody's and Standard &
Poor's applicable to permitted investments of Tax-Exempt Fund:
MOODY'S INVESTORS SERVICE, INC.*
AAA -- Municipal bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
AA -- Municipal bonds which are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A -- Municipal bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
BAA -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
NOTE: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. Although
Industrial Revenue Bonds and Environmental Control Revenue Bonds are tax-exempt
issues, they are included in the corporate bond rating system. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category. The modifier 2 indicates a mid-range ranking, and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category. Moody's
does not apply numerical modifiers other than Aa1, A1 and Baa1 in its municipal
bond rating system, which offer the maximum security within the Aa, A and Baa
groups, respectively.
STANDARD & POOR'S CORPORATION**
AAA -- Municipal bonds rated AAA are highest grade obligations. They
possess the ultimate degree of protection as to principal and interest.
AA -- Municipal bonds rated AA also qualify as high grade obligations, and
in the majority of instances differ from AAA issues only in small degree.
A -- Municipal bonds rated A are regarded as upper medium grade. They have
considerable investment strength but are not entirely free from adverse effects
of changes in economic and trade conditions.
Interest and principal are regarded as safe.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
NOTE: Standard & Poor's ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
RATINGS OF SHORT-TERM SECURITIES
MOODY'S INVESTORS SERVICE
The following ratings apply to short-term municipal notes and loans:
MIG 1 -- Loans bearing this designation are of the best quality, enjoying
strong protection from established cash flows for their servicing or from
established and broadbased access to the market for refinancing, or both.
MIG 2 -- Loans bearing this designation are of high quality with margins of
protection ample although not so large as in the preceding group.
The following ratings apply to both commercial paper and municipal paper:
PRIME-1: Issuers receiving this rating have a superior capacity for
repayment of short-term promissory obligations.
PRIME-2: Issuers receiving this rating have a strong capacity for repayment
of short-term promissory obligations.
STANDARD & POOR'S CORPORATION
The following ratings apply to short-term municipal notes:
AAA: This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to repay principal and pay interest.
AA: Notes rated AA have a very strong capacity to repay principal and pay
interest and differ from AAA issues only in small degree.
The following ratings apply both to commercial paper and municipal paper:
A-1: This designation indicates that the degree of safety regarding timely
payment is very strong.
A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.
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39
<PAGE>
SECURITY FUNDS
PROSPECTUS APPENDIX B (CONTINUED)
================================================================================
* Moody's Investors Service, Inc. rates bonds of issuers which have $600,000 or
more of debt, except bonds of educational institutions, projects under
construction, enterprises without established earnings records and situations
where current financial data is unavailable.
** Standard & Poor's Corporation rates all governmental bodies having $1,000,000
or more of debt outstanding unless adequate information is not available.
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40
<PAGE>
SECURITY FUNDS
PROSPECTUS APPENDIX C
================================================================================
APPENDIX C
REDUCED SALES CHARGES
CLASS A SHARES
Initial sales charges may be reduced or eliminated for persons or
organizations purchasing Class A shares of the Corporate Bond, Limited Maturity
Bond, U.S. Government, Global Aggressive Bond, High Yield and Tax-Exempt Funds
alone or in combination with Class A shares of certain other Security Funds.
For purposes of qualifying for reduced sales charges on purchases made
pursuant to Rights of Accumulation or a Statement of Intention (also referred to
as a "Letter of Intent"), the term "Purchaser" includes the following persons:
an individual; an individual, his or her spouse and children under the age of
21; a trustee or other fiduciary of a single trust estate or single fiduciary
account established for their benefit; an organization exempt from federal
income tax under Section 501(c)(3) or (13) of the Internal Revenue Code; or a
pension, profit-sharing or other employee benefit plan whether or not qualified
under Section 401 of the Internal Revenue Code.
RIGHTS OF ACCUMULATION
To reduce sales charges on purchases of Class A shares of Corporate Bond,
Limited Maturity Bond, U.S. Government, Global Aggressive Bond, High Yield or
Tax-Exempt Fund, a Purchaser may combine all previous purchases of the Fund with
a contemplated current purchase and receive the reduced applicable front end
sales charge. The Distributor must be notified when a sale takes place which
might qualify for the reduced charge on the basis of previous purchases.
Rights of accumulation also apply to purchases representing a combination
of the Class A shares of Corporate Bond, Limited Maturity Bond, U.S. Government,
Global Aggressive Bond, High Yield, Tax-Exempt, Growth and Income, Equity,
Global, Asset Allocation or Ultra Fund in those states where shares of the Fund
being purchased are qualified for sale.
STATEMENT OF INTENTION
A Purchaser of Corporate Bond, Limited Maturity Bond, U.S. Government,
Global Aggressive Bond, High Yield or Tax-Exempt Fund may choose to sign a
Statement of Intention within 90 days after the first purchase to be included
thereunder, which will cover future purchases of Class A shares of those Funds,
Security Equity, Global, Asset Allocation, Growth and Income or Ultra Fund. The
amount of these future purchases shall be specified and must be made within a
13-month period (or 36-month period for purchases of $1 million or more) to
become eligible for the reduced front-end sales charge applicable to the actual
amount purchased under the statement. Five percent (5%) of the amount specified
in the Statement of Intention will be held in escrow shares until the Statement
is completed or terminated. These shares may be redeemed by the Fund if the
Purchaser is required to pay additional sales charges. Any dividends paid by the
Fund will be payable with respect to escrow shares. The Purchaser bears the risk
that the escrow shares may decrease in value.
A Statement of Intention may be revised during the 13-month (or, if
applicable, 36-month) period. Additional shares received from reinvestment of
income dividends and capital gains distributions are included in the total
amount used to determine reduced sales charges.
REINSTATEMENT PRIVILEGE
Stockholders who redeem their Class A shares of Corporate Bond, Limited
Maturity Bond, U.S. Government, Global Aggressive Bond, High Yield or Tax-Exempt
Fund have a one-time privilege (1) to reinstate their accounts by purchasing
shares without a sales charge up to the dollar amount of the redemption
proceeds; or (2) to the extent the redeemed shares would have been eligible for
the exchange privilege, to purchase shares of another of the Funds, Security
Growth and Income, Equity, Global, Asset Allocation, or Ultra Fund, without a
sales charge up to the dollar amount of the redemption proceeds. To exercise
this privilege, a stockholder must provide written notice and the amount to be
reinvested to the Fund within 30 days after the redemption request.
The reinstatement or exchange will be made at the net asset value next
determined after the reinvestment is received by the Fund.
- --------------------------------------------------------------------------------
41
<PAGE>
THIS PAGE LEFT BLANK INTENTIONALLY
- --------------------------------------------------------------------------------
42
<PAGE>
SECURITY FUNDS
SECURITY CASH FUND APPLICATION
================================================================================
For IRA/KEOGH/Corporate Plans, complete this Application along with other plan
documents.
MAIL APPLICATION TO: Security Cash Fund, P.O. Box 2548, Topeka, KS 66601
- --------------------------------------------------------------------------------
INITIAL INVESTMENT (CHECK ONE BOX)
[ ] Enclosed is my check for $ made payable to Security Cash Fund.
--------------
[ ] On I/we wired $ through
--------------- --------------- ---------------------
Date Name of Bank
MINIMUM $100
for Fund account number
- ----------------------------- -------------------------
City State
SUBSEQUENT INVESTMENTS OF $20 CAN BE MADE AT ANY TIME
When investing by wire, call the Fund to advise of the investment. The Fund will
supply a control number for initial investment. Wire federal funds to Bank IV of
Topeka, Trust Department, Topeka, Kansas.
Attn:
----------------------------------------------------------
(Include investor's name and account number)
- --------------------------------------------------------------------------------
DIVIDENDS (CHECK ONE BOX)
[ ] Reinvest automatically all daily dividends and other distributions.
[ ] Cash payment of all dividends each month and send proceeds to investor.
- --------------------------------------------------------------------------------
CHECKING ACCOUNT PRIVILEGE
[ ] Please send a supply of checks permitting me/us to redeem shares in this
account by writing checks for $100 or more made payable to any person.
COMPLETE SIGNATURE CARD ON REVERSE SIDE. Allow three weeks for delivery of
check supply.
- --------------------------------------------------------------------------------
SPECIAL OPTIONS (CHECK APPLICABLE BOXES)
[ ] Telephone Exchange
[ ] Telephone Redemption
By checking the applicable boxes and signing this Application, Applicant
authorizes the Investment Manager to honor any telephone request for the
exchange and/or redemption of Fund shares (maximum telephone redemption is
$10,000), subject to the terms of the Fund's prospectus. The Investment Manager
has established reasonable procedures to confirm that instructions communicated
by telephone are genuine and may be liable for any losses due to fraudulent or
unauthorized instructions if it fails to comply with its procedures. The
procedures require that any person requesting a telephone redemption or exchange
provide the account registration and number and owner's tax identification
number and such request must be received on a recorded line.
THE AUTHORIZATION ON REVERSE SIDE FOR CORPORATION, PARTNERSHIP, TRUST, ETC.,
MUST BE COMPLETED AND RETURNED WITH THIS FORM.
- --------------------------------------------------------------------------------
[ ] Systematic Withdrawal Program (Minimum account $5,000)
Beginning , 19 , you are hereby authorized and
----------------------- -------
instructed to send a check for $
-----------------------
(minimum $25) drawn on approximately [ ] 11th day [ ] 26th day of the month.
Draw payment [ ]monthly [ ]quarterly [ ]semianually [ ]annually
- --------------------------------------------------------------------------------
ACCOUNT REGISTRATION (PLEASE PRINT)
[ ] Individual
[ ] Corporate
[ ] Non-Profit
[ ] Profit-Sharing
- ---------------------------------------------- --------------------------------
First Middle Last Owner's Taxpayer Identification
No. or Social Security No.
- ----------------------------------------------
First Middle Last
Industry Type
- ---------------------------------------------- ------------------
Name of Corporation, Trust, Partnership, etc. (Farming, Mgf., Sales, etc.)
Telephone
Business ( )
- ---------------------------------------------- -----------------
Street Address
Home ( )
- ---------------------------------------------- -----------------
City State Zip
If address is outside U.S. please indicate if U.S. Citizen [ ] Yes [ ] No
- --------------------------------------------------------------------------------
TAX WITHHOLDING
TAXPAYER IDENTIFICATION CERTIFICATION: Under the penalties of perjury, I (1)
certify that the number provided on this form is my correct taxpayer
identification number and (2),* that I am not subject to backup withholding
either because I have not been notified that I am subject to backup withholding
as a result of a failure to report all interest or dividends, or the Internal
Revenue Service has notified me that I am no longer subject to backup
withholding.
*The owner must strike out the language certifying that they are not subject to
backup withholding due to notified underreporting IF THE INTERNAL REVENUE
SERVICE NOTIFIED THEM THAT THEY ARE SUBJECT TO BACKUP WITHHOLDING, and they have
not received notice from the service advising that backup withholding has
terminated.
- --------------------------------------------------------------------------------
SIGNATURE(S) OF APPLICANTS
The Internal Revenue Service does not require your consent to any provision of
this document other than the certifications to avoid backup withholding.
- ------------------------------------------- -----------------------------------
Owner Joint Owner
- ------------------------------------------- -----------------------------------
Corporate Officer, Trustee, etc. Title
Date In case of joint ownership, both
--------------------------------------- must sign. If no form of ownership
is designated, then it will be
INVESTMENT DEALER assumed the ownership is "as
joint tenants, with right of
- ------------------------------------------- survivorship, and not as tenants
Name of Firm in common."
- ------------------------------------------- -----------------------------------
Street Dealer Authorized
- ------------------------------------------- -----------------------------------
City State Zip Account Representative
- --------------------------------------------------------------------------------
43
<PAGE>
SECURITY FUNDS
SECURITY CASH FUND APPLICATION (CONTINUED)
================================================================================
Checking Account Privilege - If you have elected this option, the following card
must be completed. This card is similar to one which must be signed when opening
any checking account. All joint owners named in the account registration must
sign this card. Names must be signed exactly as they appear in the account
registration. All persons eligible to sign checks for corporate accounts,
partnerships, trusts, etc. must sign this card.
- --------------------------------------------------------------------------------
The payment of funds on the conditions set forth below and on the reverse side
is authorized by the signature(s) appearing on the signature card. Security
Management Company, LLC, the Fund's Transfer Agent, is hereby appointed agent by
the person(s) signing this card and will cause the Fund to redeem a sufficient
number of shares from the account to cover checks presented for payment without
requiring signature guarantees. The Fund and its agents will not be liable for
any loss, expense or cost arising out of check redemptions or checks returned
without payment. SHARES OUTSTANDING IN THE ACCOUNT FOR LESS THAN 15 DAYS WILL
NOT BE LIQUIDATED TO PAY CHECKS PRESENTED UNLESS THE TRANSFER AGENT IS ASSURED
THAT GOOD PAYMENT HAS BEEN COLLECTED THROUGH NORMAL BANKING CHANNELS. The
Transfer Agent has the right not to honor checks that are for less than $100 or
checks in an amount exceeding the value of the account at the time the check is
presented for payment. This privilege is subject to the provisions of the
current prospectus of the Fund as amended from time to time. This agreement may
be modified or terminated at any time by the Fund or the Transfer Agent upon
notification mailed to the shareholder's address of record.
- --------------------------------------------------------------------------------
SECURITY CASH FUND SIGNATURE CARD
- --------------------------------------------------------------------------------
-------------------------------------------
Account Number
Authorized Signatures:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[ ] Check here if two signatures are required on checks
[ ] Check here if only one signature required on checks.
In signing this card each signatory agrees to be subject to the customary rules
and regulations governing checking accounts and to the conditions set forth on
the reverse side. If the Checking Account Privilege is established after the
opening of the account, or if any change is made in the above information, all
signatures will have to be guaranteed.
- --------------------------------------------------------------------------------
AUTHORIZATION FOR REDEMPTION
CORPORATE RESOLUTION
I, , duly elected and acting Secretary of
---------------------------------------
, a corporation
- -----------------------------------------------------------------
organized and existing under the laws of
--------------------------------------,
certify that the following resolution is a true and correct copy of the
resolution adopted by the Board of Directors at its regular meeting held on
, which resolution is currently in
- ----------------------------------------------
full force and effect:
RESOLVED, That the below named individual(s) of this corporation are hereby
authorized to give notice, instructions, complete necessary forms, execute
withdrawals, and to transact any other business necessary on this corporation's
account invested in shares of Security Cash Fund. FURTHER RESOLVED, That this
corporation assumes entire responsibility for, and agrees to indemnify and hold
harmless Security Cash Fund and/or its agents against any and all claims,
liabilities, damages, actions, charges and expense sustained by action of the
below named individual(s).
- --------------------------------------- ---------------------------------------
(Print or type) Name and Title Signature(s)
- --------------------------------------- ---------------------------------------
- --------------------------------------------------------------------------------
IN WITNESS WHEREOF, I hereunto set my
hand and the seal of this corporation
this day of , 19
------ ------------ ----.
(CORPORATE SEAL) SECRETARY
-----------------------------
- --------------------------------------------------------------------------------
AUTHORIZATION FOR PARTNERSHIP, TRUST, OR RETIREMENT PLAN
We, the undersigned, being the principal partners or the trustees of the
- --------------------------------------------------------------------------------
(Partnership or Trust/Plan)
hereby state that we are authorized to invest the assets of the partnership or
trust/plan in Security Cash Fund. We also agree that
- --------------------------------------------------------------------------------
or -----------------------------------------------------------------------------
have individual authority to purchase, sell, assign, and transfer securities and
to sign checks issuable by the partnership or the trust/plan redeeming shares of
the Fund. We further state that this individual authority shall continue to be
honored until revoked by written notice from either of us and is received by the
Transfer Agent (Security Management Company, LLC). By signing this
authorization, we agree that Security Cash Fund, Security Management Company,
LLC, and Security Distributors, Inc., shall be indemnified and held harmless
from any loss, damage, cost or claim that may arise from any authorized or
unauthorized use of the assets or checks of the partnership or trust/plan in
connection with the holdings of the Fund.
- --------------------------------------- ---------------------------------------
Print or type name Signature(s)
- --------------------------------------------------------------------------------
SIGNATURE GUARANTEED BY
- --------------------------------------------------------------------------------
44
<PAGE>
SECURITY FUNDS
APPLICATION
1. ACCOUNT REGISTRATION (THE OWNER(S) MUST COMPLETE SECTION 10 "CERTIFICATION
AND SIGNATURE" TO ESTABLISH AN ACCOUNT.)
I hereby authorize the establishment of the account marked below and acknowledge
receipt of the Fund's current prospectus. Check is enclosed for
$ (minimum $100) payable to SECURITY DISTRIBUTORS, INC. as
------------------
an initial investment. I am of legal age in the state of my residence and wish
to purchase shares of the Fund indicated below. By the execution of this
application, the undersigned represents and warrants that the investor has full
right, power and authority to make this investment and the undersigned is duly
authorized to sign this application and to purchase or redeem shares of the Fund
on behalf of the investor. No stock certificate is to be issued unless I so
request. See the prospectus for information about an Accumulation Plan which
allows a minimum investment of $100 and subsequent investments of $20.
- -------------------------------------------------------------
Owner/Custodian/Trustee Name (Print)
- -------------------------------------------------------------
Social Security Number Date of Birth
- -------------------------------------------------------------
Joint Owner/Minor Name (Print) [ ] Check if UGMA/UTMA Account
- -------------------------------------------------------------
Social Security Number Date of Birth
2. ADDRESS AND TELEPHONE NUMBER
- ------------------------------ -----------------------------------------------
Street Address Daytime Telephone
(for first individual)
- ------------------------------ Citizenship [ ] U.S. [ ] Other
City, State, Zip Code ----------------
Indicate Country
3. INITIAL INVESTMENT
CLASS OF SHARES (MUST SELECT ONE ONLY) ( ) A SHARES ( ) B SHARES (IF NO CLASS IS
SELECTED, PURCHASE(S) WILL BE MADE OF A SHARES)
<TABLE>
<S> <C> <C> <C>
SECURITY EQUITY FUND $ SECURITY LIMITED MATURITY BOND FUND $
------ ------
SECURITY GLOBAL FUND $ SECURITY U.S. GOVERNMENT FUND $
------ ------
SECURITY ASSET ALLOCATION FUND $ SECURITY GLOBAL AGGRESSIVE BOND FUND $
------ ------
SECURITY GROWTH & INCOME FUND $ SECURITY HIGH YIELD FUND $
------ ------
SECURITY ULTRA FUND $ SECURITY TAX-EXEMPT FUND $
------ ------
SECURITY CASH FUND $ SECURITY SOCIAL AWARENESS FUND $
------ ------
SECURITY CORPORATE BOND FUND $
------
</TABLE>
4. DIVIDEND OPTION (CHECK ONE ONLY)
(If no option is selected, distributions will be reinvested into the Fund that
pays them.)
[ ] Reinvest all dividends and capital gains
[ ] Reinvest only capital gains and pay dividends in cash
[ ] Cash payment of dividends and capital gains
[ ] Invest dividends and capital gains into another Security Fund account
(must be same class of shares; if new account, number will be assigned)
Fund Name Account Number
------------------------------------ ------------------
[ ] Send distributions to third party below
Account No. (if applicable)
----------------------------------------------------
Name
---------------------------------------------------------------------------
Address
------------------------------------------------------------------------
5. SYSTEMATIC WITHDRAWAL PROGRAM (FOR ACCOUNTS OF $5,000 OR MORE)
You are hereby authorized to send a check(s) beginning:
Month Day [ ] 11th or [ ] 26th 19
---------------- ----
(if no date is selected withdrawal will be made on the 26th)
Payable: [ ] monthly [ ] quarterly [ ] semi-annually [ ] annually
Fund Name Fund Name
----------------------------- ------------------------------
Account No. (if known) Account No. (if known)
---------------- ---------------
(if 3 or more funds, please send written instructions)
Level Payment $ ($25 minimum) Level Payment $ ($25 minimum)
-------- --------
Variable Payment based on fixed number Variable Payment based on fixed number
of shares or a percentage of account of shares or a percentage of account
value ($25 minimum) value ($25 minimum)
Number of shares: or Number of shares: or
----------- -----------
Percentage of account value: Percentage of account value:
--------- ---------
Note: For Class B shares, annual withdrawals in excess of 10% of value of
account at time program is established may be subject to a contingent deferred
sales charge.
Complete this section only if you want check payable and sent to another address
(please print):
Name Signature(s) of all registered owners required
----------------------------
Address Individual Signature
------------------------- -------------------------
City, State, Zip Code Joint Owner Signature
------------ ------------------------
6. SECUR-O-MATIC[Registration Mark] BANK DRAFT PLAN
I wish to make investments directly from my checking account. (Please attach a
voided check to this application.)
Fund Name Account Number (if known) Amount $
------------------ ------- -------
Fund Name Account Number (if known) Amount $
------------------ ------- -------
Date: [ ] 7th Day of Month [ ] 14th Day of Month [ ] 21st Day of Month
[ ] 28th Day of Month
(if no date is selected investment will be made on the 21st)
Mode: [] Monthly ($20 minimum) [] Bi-Monthly ($40 minimum)
[] Quarterly ($50 minimum) [] Semiannually ($100 minimum)
[] Annually ($200 minimum)
You should notify your bank that you are going to use this service to ensure
they accept preauthorized electronic drafts.
(continued on back)
<PAGE>
7. RIGHTS OF ACCUMULATION
I own shares in other Security Funds which may entitle this purchase to have a
reduced sales charge under the provisions in the Fund Prospectus.
- -------------------------------- --------------------------- -----------------
Current Account Registration Fund Name Account Number(s)
- -------------------------------- --------------------------- -----------------
- -------------------------------- --------------------------- -----------------
8. STATEMENT OF INTENTION
[ ] Please check here if you wish to receive a Statement of Intention. This form
allows you to purchase shares at reduced sales charges if you plan to invest
more than: (Please check one) [ ] $50,000 [ ] $100,000 [ ] $250,000 [ ] $500,000
[ ] $1,000,000 in installments during the next 13 months (36 months for
purchases of $1 million or more). See the current prospectus for more
information.
9. TELEPHONE EXCHANGE AND REDEMPTION PRIVILEGE
If you would like to have telephone exchange and/or redemption privileges,
please mark one or more of the boxes below:
Yes, I want [ ] telephone exchange [ ] telephone redemption privileges.
By checking the applicable box(es) and signing this Application, you authorize
the Investment Manager to honor any telephone request for the exchange and/or
redemption of Fund shares (maximum telephone redemption is $10,000), subject to
the terms of the Fund prospectus. The Investment Manager has established
reasonable procedures to confirm that instructions communicated by telephone are
genuine and may be liable for any losses due to fraudulent or unauthorized
instructions if it fails to comply with its procedures. The procedures require
that any person requesting a telephone redemption or exchange provide the
account registration and number and owner's tax identification number and such
request must be received on a recorded line. Neither the Fund, the Investment
Manager nor the Underwriter will be liable for any loss, liability, cost or
expense arising out of any telephone request, provided that the Investment
Manager complied with its procedures. Thus, a stockholder may bear the risk of
loss from a fraudulent or unauthorized request.
10. CERTIFICATION AND SIGNATURE
TAX IDENTIFICATION NUMBER CERTIFICATION
UNDER PENALTIES OF PERJURY I CERTIFY THAT:
1. The number shown on this form is my correct taxpayer identification number
(or I am waiting for a number to be issued to me); and
2. I am not subject to backup withholding because: (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue Service
(IRS) that I am subject to backup withholding as a result of a failure to
report all interest or dividends, or (c) the IRS has notified me that I am no
longer subject to backup withholding.
The Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid backup
withholding.
- --------------------------------------------------------------------------------
Signature of Owner Date
- --------------------------------------------------------------------------------
Signature of Joint Owner Date
In case of joint ownership, both must sign. If no form of ownership is indicated
then it will be assumed the ownership is as "joint tenants, with right of
survivorship" and not as "tenants in common."
CERTIFICATION INSTRUCTIONS - You must cross out item (2) to the left if you have
been notified by IRS that you are currently subject to backup withholding
because of underreporting interest or dividends on your tax return.
11. INVESTMENT DEALER
I (we) agree to act as dealer under this account in accordance with the
provisions of the Dealer Agreement and appoint Security Distributors, Inc. to
act as my (our) agent pursuant thereto. I (we) represent that the appropriate
prospectus was delivered to the above indicated owner(s).
- --------------------------------------------------------------------------------
Name of Firm (Print)
- --------------------------------------------------------------------------------
Business Address
- --------------------------------------------------------------------------------
City, State, Zip Code
- --------------------------------------------------------------------------------
Signature of Authorized Dealer
- ----------------------------------------------------- ------------------------
Representative's Name Account Executive Number
- --------------------------------------------------------------------------------
Business Address
- --------------------------------------------------------------------------------
City, State, Zip Code
- --------------------------------------------------------------------------------
Representative's Telephone Number
SEND COMPLETED APPLICATION TO SECURITY DISTRIBUTORS, INC., 700 SW HARRISON ST.,
TOPEKA, KS 66636-0001
1-800-888-2461, EXT. 3127
Attach Voided Check Here
(Check must be preprinted with the bank account registration)
<PAGE>
[SDI LOGO}
700 SW Harrison St.
Topeka, KS 66636-0001
(913) 295-3127
(800) 888-2461
