SECURITY INCOME FUND /KS/, 497, 1998-05-05

SECURITY INCOME FUND /KS/
497, 1998-05-05

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<PAGE>
SECURITY FUNDS
PROSPECTUS
- --------------------------------------------------------------------------------

SECURITY INCOME FUND
CORPORATE BOND SERIES PROSPECTUS
LIMITED MATURITY BOND SERIES MAY 1, 1998
U.S. GOVERNMENT SERIES
HIGH YIELD SERIES

SECURITY MUNICIPAL BOND FUND
SECURITY CASH FUND
MEMBERS OF THE SECURITY BENEFIT GROUP OF COMPANIES, 700 HARRISON, TOPEKA, KANSAS
66636-0001

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 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. HIGH YIELD 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 20.

The investment objective of SECURITY MUNICIPAL BOND FUND ("Municipal Bond
Fund") (formerly Security Tax-Exempt Fund) is to obtain as high a level of
interest income exempt from regular federal income taxes as is consistent with
preservation of stockholders' capital 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. The Fund may invest in
securities which generate income that is subject to the federal 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 May 1, 1998, 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 (785) 431-3127 or (800) 888-2461.

The SEC maintains a web site (http://www.sec.gov) that contains the Statement
of Additional Information, material incorporated by reference and other
information regarding companies that file electronically with the SEC.

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

Transaction and Operating Expense Table.................................. 1
Financial Highlights..................................................... 2
Investment Objective and Policies of the Funds........................... 6
Security Income Fund................................................... 6
Corporate Bond Fund.................................................. 6
Limited Maturity Bond Fund........................................... 7
U.S. Government Fund................................................. 9
High Yield Fund...................................................... 10
Security Municipal Bond Fund........................................... 11
Security Cash Fund..................................................... 13
Investment Methods and Risk Factors...................................... 23
Management of the Funds.................................................. 24
Portfolio Management................................................... 24
Year 2000 Compliance................................................... 23
How to Purchase Shares................................................... 25
Corporate Bond, Limited Maturity Bond, U.S. Government, High Yield and
Municipal Bond Funds................................................. 25
Alternative Purchase Options........................................... 26
Class A Shares......................................................... 26
Security Income and Municipal Bond Funds' Class A Distribution Plans... 26
Class B Shares......................................................... 27
Class B Distribution Plans............................................. 28
Calculation and Waiver of Contingent Deferred Sales Charges............ 28
Arrangements with Broker-Dealers and Others............................ 28
Cash Fund.............................................................. 29
Purchases at Net Asset Value............................................. 30
Trading Practices and Brokerage.......................................... 30
How to Redeem Shares..................................................... 31
Telephone Redemptions ................................................. 31
Dividends and Taxes...................................................... 32
Foreign Taxes.......................................................... 34
Determination of Net Asset Value......................................... 34
Performance.............................................................. 35
Stockholder Services..................................................... 35
Accumulation Plan...................................................... 35
Systematic Withdrawal Program.......................................... 36
Exchange Privilege..................................................... 36
Exchange by Telephone.................................................. 36
Retirement Plans....................................................... 37
General Information...................................................... 37
Organization........................................................... 37
Stockholder Inquiries.................................................. 38
Appendix A .............................................................. 39
Appendix B .............................................................. 41
Appendix C .............................................................. 43
Security Cash Fund Application........................................... 45
<PAGE>
SECURITY FUNDS
PROSPECTUS

TRANSACTION AND OPERATING EXPENSE TABLE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES CORPORATE BOND, LIMITED
MATURITY BOND, U.S. GOVERNMENT,
HIGH YIELD AND MUNICIPAL BOND FUNDS CASH FUND
------------------------------------ ---------
CLASS A CLASS B(1)
------- --------
<S> <C> <C> <C>
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 the first year, None
decreasing to 0% in the
sixth and following years
</TABLE>

<TABLE>
<CAPTION>
LIMITED U.S.
CORPORATE MATURITY GOVERNMENT HIGH YIELD MUNICIPAL CASH
BOND FUND BOND FUND FUND FUND BOND FUND FUND
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees
(after fee waivers)(3)........... 0.50% 0.50% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.50% 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

Other Expenses (after
expense eimbursements)(5).......... 0.32% 0.35% 0.30% 0.50% 0.35% 0.68% 0.62% 0.80% 0.33% 0.56% 0.40%
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total Fund Operating Expenses
(after fee waivers and expense
reimbursements)(6)............... 1.07% 1.85% 0.55% 1.50% 0.60% 1.68% 0.87% 1.80% 1.08% 2.06% 0.90%
==== ==== ==== ==== ==== ==== ==== ==== ==== ==== ====
EXAMPLE

You would pay the following
expenses on a $1,000 investment, 1 Year $ 58 $ 69 $ 53 $ 65 $ 53 $ 67 $ 56 $ 68 $ 58 $ 71 $ 9
assuming (1) 5 percent annual 3 Years 80 88 64 77 66 83 74 87 80 95 29
return and (2) redemption at 5 Years 104 120 77 102 79 111 93 127 104 130 50
the end of each time period 10 Years 172 217 113 179 119 199 150 212 173 239 111

EXAMPLE

You would pay the following 1 Year $ 58 $ 19 $ 53 $ 15 $ 53 $ 17 $56 $18 $ 58 $ 21 $ 9
expenses on a $1,000 investment, 3 Years 80 58 64 47 66 53 74 57 80 65 29
assuming (1) 5 percent annual 5 Years 104 100 77 82 79 91 93 97 104 110 50
return and (2) no redemption 10 Years 172 217 113 179 119 199 150 212 173 239 111
</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 26.

3 During the fiscal year ended December 31, 1997, the Investment Manager waived
the investment advisory fees of the Limited Maturity Bond, U.S. Government
and High Yield Funds and, during the fiscal year ending December 31, 1998
will waive the investment advisory fees of such Funds; absent such fee
waivers, "Management Fees" would have been as follows: .50% for each of the
Limited Maturity Bond and U.S. Government Funds and .60% for the High Yield
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 During the fiscal year ended December 31, 1997, the Investment Manager
reimbursed certain expenses of Corporate Bond Fund. Absent such
reimbursement, "Other Expenses" would have been .60% for Class B shares of
Corporate Bond Fund.

6 During the fiscal year ended December 31, 1997, the Investment Manager waived
and/or reimbursed certain expenses of the Funds and, during the fiscal year
ending December 31, 1998 will waive the investment advisory fees of Limited
Maturity Bond, U.S. Government and High Yield Funds. Absent such
reimbursement and waiver, "Total Fund Operating Expenses" would have been as
follows: 2.10% for Class B shares of Corporate Bond Fund; 1.04% for Class A
shares and 1.99% for Class B shares of Limited Maturity Bond Fund; 1.06% for
Class A shares and 2.14% for Class B shares of U.S. Government Fund; and
1.44% for Class A shares and 2.37% for Class B shares of High Yield Fund.

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, High Yield, Municipal Bond 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
1922. Information on the Funds' 12b-1 Plans may be found under the headings
"Security Income and Municipal Bond Funds' Class A Distribution Plans" on page
225 and "Class B Distribution Plan" on page 246. See "How to Purchase Shares,"
page 214, 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 purchases of Class A
Shares.
<PAGE>
SECURITY FUNDS
FINANCIAL HIGHLIGHTS

The following financial highlights for each of the years in the period ended
December 31, 1997, have been audited by Ernst & Young LLP. Such information for
each of the five years in the period ended December 31, 1997, 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, 1997
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, 1992, is not covered by the report of
Ernst & Young LLP.
<TABLE>
<CAPTION>
Net gain
(loss) on Distri- Net Net
Net asset securities Dividends butions asset assets Ratio of
value Net (realized Total from (from net (from Return Total value Total end of expenses
Fiscal beginning investment & investment investment capital of distri- end of return period to average
year end of period income unrealized) operations income) gains) capital butions period (a) (thousands) net assets
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CORPORATE BOND FUND (CLASS A)

1988 $ 7.78 $.77 $ (.292) $ .478 $(.778) $ --- $ --- $(.778) $7.48 6.5% $ 52,296 1.02%
1989 7.48 .74 (.031) .709 (.739) --- --- (.739) 7.45 9.9% 56,184 1.04%
1990 7.45 .69 (.232) .458 (.688) --- --- (.688) 7.22 6.6% 65,962 1.10%
1991 7.22 .65 .458 1.108 (.648) --- --- (.648) 7.68 16.1% 85,824 1.03%
1992 7.68 .61 .044 .654 (.614) --- --- (.614) 7.72 9.0% 104,492 1.01%
1993 7.72 .52 .521 1.041 (.527) (.424) --- (.951) 7.81 13.4% 118,433 1.02%
1994 7.81 .49 (1.127) (.637) (.493) --- --- (.493) 6.68 (8.3%) 90,593 1.01%
1995(d)(g) 6.68 .47 0.708 1.178 (.468) --- --- (.468) 7.39 18.2% 93,701 1.02%
1996(d)(g) 7.39 .47 (.517) (.047) (.473) --- --- (.473) 6.87 (.5%) 73,360 1.01%
1997(d) 6.87 .45 .19 .64 (.46) --- --- (.46) 7.05 9.7% 56,487 1.07%

CORPORATE BOND FUND (CLASS B)

1993(b) $ 8.59 $.11 $ (.324) $ (.214) $(.112) $(.424) $ --- $(.536) $ 7.84 (2.5%) $ 1,022 1.88%
1994(c) 7.84 .43 (1.129) (.699) (.431) --- --- (.431) 6.71 (9.0%) 3,878 1.85%
1995(c)(d)(g) 6.71 .40 .725 1.125 (.405) --- --- (.405) 7.43 17.3% 5,743 1.85%
1996(c)(d)(g) 7.43 .40 (.517) (.117) (.413) --- --- (.413) 6.90 (1.4%) 7,303 1.85%
1997(c)(d) 6.90 .40 .19 .59 (.40) --- --- (.40) 7.09 8.7% 6,493 1.85%

LIMITED MATURITY BOND FUND (CLASS A)

1995(c)(d)(e)$10.00 $.62 $ .652 $1.272 $(.612) $ --- $ --- $(.612) $10.66 13.0% $ 3,322 .84%
1996(c)(d)(g) 10.66 .72 (.507) .213 (.720) --- (.013) (.733) 10.14 2.1% 4,938 .90%
1997(c)(d)(g) 10.14 .72 .16 .88 (.72) --- --- (.72) 10.30 9.0% 5,490 .55%

LIMITED MATURITY BOND FUND (CLASS B)

1995(c)(d)(e)%10.00 $.53 $ .664 $1.194 $(.524) $ --- $ --- $(.524) $10.67 12.2% $ 752 1.71%
1996(c)(d)(g) 10.67 .63 (.524) .106 (.624) --- (.012) (.636) 10.14 1.1% 761 1.88%
1997(c)(d)(g) 10.14 .61 .14 .75 (.62) --- --- (.62) 10.27 7.7% 1,054 1.50%

U.S. GOVERNMENT FUND (CLASS A)

1988(c) $ 5.00 $.48 $ (.18) $ .30 $(.49) $ --- $ --- $(.49) $ 4.81 6.2% $ 4,229 1.00%
1989(c) 4.81 .46 .078 .538 (.458) --- --- (.458) 4.89 11.8% 4,551 1.11%
1990(c) 4.89 .42 .032 .452 (.412) --- --- (.412) 4.93 9.8% 6,017 1.11%
1991(c) 4.93 .40 .248 .648 (.404) --- (.004) (.408) 5.17 13.8% 7,319 1.11%
1992(c) 5.17 .37 (.126) .244 (.366) --- (.008) (.374) 5.04 5.0% 9,364 1.11%
1993(c) 5.04 .31 .273 .583 (.310) (.344) --- (.654) 4.97 10.9% 10,098 1.10%
1994(c) 4.97 .30 (.621) (.321) (.299) --- --- (.299) 4.35 (6.5%) 8,309 1.10%
1995(c)(d)(g) 4.35 .30 .620 .920 (.30) --- --- (.30) 4.97 21.9% 10,080 1.11%
1996(c)(d)(g) 4.97 .31 (.256) .054 (.314) --- --- (.314) 4.71 1.3% 8,036 .65%
1997(c)(d) 4.71 .32 .10 .42 (.32) --- --- (.32) 4.81 9.2% 7,652 .60%

U.S. GOVERNMENT FUND (CLASS B)

1993(b)(c) $ 5.51 $.04 $ (.193) $ (.153) $(.043) $(.344) $ --- $(.387$ 4.97 (1.4%) $ 140 1.61%
1994(c) 4.97 .26 (.624) (.364) (.256) --- --- (.256) 4.35 (7.4%) 321 1.85%
1995(c)(d)(g) 4.35 .26 .625 .885 (.265) --- --- (.265) 4.97 20.9% 582 1.87%
1996(c)(d)(g) 4.97 .25 (.254) (.004) (.256) --- --- (.256) 4.71 (0.02%) 661 1.86%
1997(c)(d) 4.71 .26 .10 .36 (.27) --- --- (.27) 4.80 7.9% 1,091 1.68%

HIGH YIELD FUND (CLASS A)

1996(c)(d)(h)$15.00 $.45 $ .32 $ .77 $(.45) $ --- $ --- $(.45) $15.32 5.2% $ 2,780 1.54%
1997(c)(d) 15.32 1.25 .60 1.85 (1.25) (.21) --- (1.46) 15.71 12.6% 5,179 .87%

HIGH YIELD FUND (CLASS B)

1996(c)(d)(h)$15.00 $.41 $ .32 $ .73 $(.41) $ --- $ --- $(.41) $15.32 4.9% $ 2,719 2.26%
1997(c)(d) 15.32 1.10 .59 1.69 (1.12) (.21) --- (1.33) 15.68 11.5% 4,432 1.80%

MUNICIPAL BOND FUND (CLASS A)

1988(c) $10.76 $.76 $ (.656) $.104 $(.774) $(.12) $ --- $(.894) $ 9.97 1.3% $ 17,814 1.00%
1989 9.97 .73 (.257) .473 (.723) --- --- (.723) 9.72 4.9% 19,898 .98%
1989(f) 9.72 .61 (.106) .504 (.624) --- --- (.624) 9.60 4.1% 20,426 .97%*
1990 9.60 .64 (.072) .568 (.638) --- --- (.638) 9.53 6.2% 20,566 .96%
1991 9.53 .63 .446 1.076 (.636) --- --- (.636) 9.97 11.7% 23,218 .89%
1992 9.97 .61 .092 .702 (.612) --- --- (.612) 10.06 7.3% 28,608 .84%
</TABLE>
Ratio
of net
income Portfolio
to average turnover
net assets rate
- ----------------------------------------------
CORPORATE BOND FUND (CLASS A)

1988 10.04% 83%
1989 9.83% 57%
1990 9.42% 87%
1991 8.75% 32%
1992 7.97% 61%
1993 6.46% 157%
1994 6.91% 204%
1995(d)(g) 6.62% 200%
1996(d)(g) 6.54% 292%
1997(d) 6.50% 120%

CORPORATE BOND FUND (CLASS B)

1993(b) $ 5.16% 164%
1994(c) 6.08% 204%
1995(c)(d)(g) 5.80% 200%
1996(c)(d)(g) 5.70% 292%
1997(c)(d) 5.72% 120%

LIMITED MATURITY BOND FUND (CLASS A)

1995(c)(d)(e)(g)5.97% 4%
1996(c)(d)(g) 6.97% 105%
1997(c)(d)(g) 7.10% 76%

LIMITED MATURITY BOND FUND (CLASS B)

1995(c)(d)(e)(g)5.12% 4%
1996(c)(d)(g) 5.99% 105%
1997(c)(d)(g) 6.15% 76%

U.S. GOVERNMENT FUND (CLASS A)

1988(c) $ 9.83% 107%
1989(c) 9.46% 52%
1990(c) 8.60% 22%
1991(c) 7.94% 41%
1992(c) 7.22% 157%
1993(c) 5.90% 153%
1994(c) 6.47% 220%
1995(c)(d)(g) 6.41% 81%
1996(c)(d)(g) 6.44% 75%
1997(c)(d) 6.10% 39%

U.S. GOVERNMENT FUND (CLASS B)

1993(b)(c) $ 5.54% 114%
1994(c) 5.76% 220%
1995(c)(d)(g) 5.69% 81%
1996(c)(d)(g) 5.23% 75%
1997(c)(d) 5.02% 39%

HIGH YIELD FUND (CLASS A)

1996(c)(d)(h) 7.47% 168%
1997(c)(d) 8.14% 87%

HIGH YIELD FUND (CLASS B)

1996(c)(d)(h) 6.74% 168%
1997(c)(d) 7.21% 87%

MUNICIPAL BOND FUND (CLASS A)

1988(c) 7.60% 83%
1989 7.47% 33%
1989(f) 6.97% 75%
1990 6.75% 74%
1991 6.55% 38%
1992 6.07% 91%
<PAGE>
SECURITY FUNDS
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
Net gain Ratio of
(loss) on Distri- Net expenses
Net asset securities Dividends butions asset Net assets to
value Net (realized Total from (from net (from Return Total value Total end of average
Fiscal beginning investment & investment investment capital of distri- end of return period net
year end of period income unrealized) operations income) gains) capital butions period (a) (thousands) assets
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

MUNICIPAL BOND FUND (CLASS A) (CONTINUED)

1993 $10.06 $.51 $ .702 $1.212 $(.514) $(.388) $ --- $(.902) $10.37 11.6% $32,115 .82%
1994 10.37 .47 (1.317) (.847) (.473) --- --- (.473) 9.05 (8.3%) 24,092 .82%
1995(c)(d)(g) 9.05 .48 .891 1.371 (.481) --- --- (.481) 9.94 15.5% 25,026 .86%
1996(c)(d)(g) 9.94 .45 (.215) .235 (.455) --- --- (.455) 9.72 2.5% 23,304 .78%
1997(d)(g) 9.72 .42 .36 .78 (.42) --- --- (.42) 10.08 8.3% 21,953 .82%

MUNICIPAL BOND FUND (CLASS B)

1993(b) $10.88 $.10 $ (.128) $ (.028) $(.094) $(.388) $--- $(.482) $10.37 (.2%) $ 106 2.89%
1994(c) 10.37 .35 (1.321) (.971) (.349) --- --- (.349) 9.05 (9.5%) 760 2.00%
1995(c)(d)(g) 9.05 .37 .902 1.272 (.372) --- --- (.372) 9.95 14.3% 1,190 2.00%
1996(c)(d)(g) 9.95 .33 (.215) .115 (.335) --- --- (.335) 9.73 1.2% 1,510 2.01%
1997(d)(g) 9.73 .29 .37 .66 (.31) --- --- (.31) 10.08 6.9% 2,344 2.00%

CASH FUND

1988(c) $ 1.00 $.061 $ --- $ .061 $(.061) $ --- $ $(.061) $ 1.00 6.3% $ 43,038 1.00%
1989(c) 1.00 .070 --- .070 (.070) --- --- (.070) 1.00 7.3% 46,625 1.00%
1989(c)(f) 1.00 .069 --- .069 (.069) --- --- (.069) 1.00 7.1% 54,388 1.00%
1990(c) 1.00 .073 --- .073 (.073) --- --- (.073) 1.00 7.6% 65,018 1.00%
1991 1.00 .051 --- .051 (.051) --- --- (.051) 1.00 5.2% 48,843 .96%
1992(c) 1.00 .028 --- .028 (.028) --- --- (.028) 1.00 2.8% 56,694 1.00%
1993(c) 1.00 .023 --- .023 (.023) --- --- (.023) 1.00 2.4% 71,870 1.00%
1994 1.00 .033 --- .033 (.033) --- --- (.033) 1.00 3.4% 58,102 .96%
1995(c)(d)(g) 1.00 .049 --- .049 (.049) --- --- (.049) 1.00 5.0% 38,158 1.00%
1996(c)(d)(g) 1.00 .045 --- .045 (.045) --- --- (.045) 1.00 4.6% 45,331 1.01%
1997(d)(g) 1.00 .05 --- .05 (.05) --- --- (.05) 1.00 4.9% 57,441 .90%
</TABLE>
Ratio
of net
income Portfolio
to average turnover
net assets rate
- ----------------------------------------------
MUNICIPAL BOND FUND (CLASS A) (CONTINUED)

1993 4.92% 118%
1994 4.74% 88%
1995(c)(d)(g) 5.02% 103%
1996(c)(d)(g) 4.67% 54%
1997(d)(g) 4.29% 48%

MUNICIPAL BOND FUND (CLASS B)

1993(b) 2.71% 90%
1994(c) 3.50% 88%
1995(c)(d)(g) 3.90% 103%
1996(c)(d)(g) 3.44% 54%
1997(d)(g) 3.11% 48%

CASH FUND

1988(c) 6.10% ---
1989(c) 7.09% ---
1989(c)(f) 8.26% ---
1990(c) 7.31% ---
1991 5.21% ---
1992(c) 2.75% ---
1993(c) 2.28% ---
1994 3.24% ---
1995(c)(d)(g) 5.00% ---
1996(c)(d)(g) 4.47% ---
1997(d)(g) 4.80% ---

(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>
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <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 2.00% 2.19% 2.05% 2.10%
U.S. Government Class A 1.31% 1.37% 1.34% 1.24% 1.20% 1.20% 1.20% 1.22% 1.17% 1.06%
Class B N/A N/A N/A N/A N/A 1.75% 2.91% 3.70% 3.26% 2.14%
Limited Maturity Bond Class A N/A N/A N/A N/A N/A N/A N/A 1.04% 1.40% 1.04%
Class B N/A N/A N/A N/A N/A N/A N/A 2.12% 2.60% 1.99%
High Yield Class A N/A N/A N/A N/A N/A N/A N/A N/A 2.11% 1.44%
Class B N/A N/A N/A N/A N/A N/A N/A N/A 2.83% 2.37%
Municipal Bond Class A 1.03% N/A N/A N/A N/A N/A N/A 0.86% 0.78% N/A
Class B N/A N/A N/A N/A N/A N/A 2.32% 2.45% 2.19% N/A
Cash 1.04% 1.13%* 1.01% N/A 1.03% 1.03% N/A 1.04% 1.01% N/A
1.03%**
</TABLE>
* 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.

(d) Net investment income was computed using the average month-end shares
outstanding throughout the period.

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

(f) Effective December 31, 1989, the fiscal year ends of Municipal Bond 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 Municipal
Bond Fund and 10 months of performance for Cash Fund. The data for years
1988 and 1989, are for the fiscal year ended January 31 for Municipal Bond
Fund and for the fiscal year ended February 28 for Cash Fund. Percentage
amounts for the period, except total return, have been annualized.

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

1995 1996 1997
---- ---- ----
Corporate Bond Class A 1.02% 1.01% ---
Class B 1.85% 1.85% ---
U.S. Government Class A 1.10% 0.64% ---
Class B 1.85% 1.85% ---
Limited Maturity Bond Class A 0.81% 0.87% 0.51%
Class B 1.65% 1.85% 1.46%
Municipal Bond Class A 0.85% 0.77% 0.83%
Class B 2.00% 2.00% 2.00%
Cash 1.00% 1.00% 1.00%

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

INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS

Security Income, Municipal Bond 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 and High
Yield Fund, series of Security Income Fund, and Security Municipal Bond 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 Cash, Municipal 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 Municipal Bond Fund will not invest more than 20 percent
of its assets in securities that are not tax-exempt securities, except for
temporary defensive purposes. In addition, 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") is a series investment company, with
each Series representing a different investment objective and having its own
identified assets and net asset values. The investment objectives of Corporate
Bond, Limited Maturity Bond, U.S. Government and High Yield Funds are 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.

- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
<PAGE>
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 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 year ended December 31, 1997, the dollar weighted average of
Corporate Bond Fund's holdings (excluding equities) had the following credit
quality characteristics

PERCENT OF
INVESTMENT NET ASSETS
- ---------- ----------
U.S. Government and
Government Agency Securities ............................. 10.6%
Cash and other Assets, Less Liabilities..................... 4.1%
Rated Fixed Income Securities
AAA....................................................... 5.1%
AA........................................................ 8.9%
A......................................................... 32.0%
Baa/BBB................................................... 15.7%
Ba/BB..................................................... 20.8%
B......................................................... 2.8%
Caa/CCC................................................... 0%
Unrated Securities Comparable in Quality to
A......................................................... 0%
Baa/BBB................................................... 0%
Ba/BB..................................................... 0%
B......................................................... 0%
Caa/CCC................................................... 0%
-----
100%

The foregoing table is intended solely to provide disclosure about Corporate
Bond Fund's asset composition for the year ended December 31, 1997. The asset
composition after this may or may not be approximately the same as shown above.

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
35 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 35 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 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.

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 year ended December 31, 1997, the dollar weighted average of Limited
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....................... 19.9%
Cash and other Assets, Less Liabilities............... 5.5%
Rated Fixed Income Securities
AAA................................................ 5.4%
AA................................................. 10.3%
A.................................................. 24.5%
Baa/BBB............................................ 9.4%
Ba/BB.............................................. 20.9%
B.................................................. 4.1%
Caa/CCC............................................ 0%
Unrated Securities Comparable in Quality to
A.................................................. 0%
Baa/BBB............................................ 0%
Ba/BB.............................................. 0%
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 year ended December 31, 1997. The
asset composition after this may or may not be approximately the same as shown
above.

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 35 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 also may 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 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.

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.

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.

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 also may 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 year ended December 31, 1997, the dollar weighted average of High
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............... 4.9%
Rated Fixed Income Securities
AAA................................................ 0.8%
AA................................................. 0%
A.................................................. 1.8%
Baa/BBB............................................ 2.8%
Ba/BB.............................................. 46.4%
B.................................................. 43.3%
D.................................................. 0%
Unrated Securities Comparable in Quality to
A.................................................. 0%
Baa/BBB............................................ 0%
Ba/BB.............................................. 0%
B.................................................. 0%
Caa/CCC............................................ 0%
---------
100.0%

The foregoing table is intended solely to provide disclosure about High Yield
Fund's asset composition for the year ended December 31, 1997. 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 also may 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
Methods 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 than the market values of most MBSs. This is due to the
fact that such instruments are more sensitive to interest rate changes and to
the rate of principal prepayments than are most other MBSs. 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 also may invest in asset-backed securities which 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 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 also may 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 also may 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 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 MUNICIPAL BOND FUND

The investment objective of Municipal Bond Fund is to obtain as high a level
of interest income exempt from regular federal income taxes as is consistent
with preservation of stockholders' capital. Municipal Bond Fund attempts to
achieve its objective by investing primarily in debt securities, the interest on
which is exempt from federal income taxes. Under normal circumstances, at least
80 percent of the Fund's net assets will be invested in municipal obligations
the interest on which is exempt from regular federal income tax. A portion of
the Fund's dividends paid in respect of its shares may be subject to the federal
alternative minimum tax.

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."

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

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

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

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

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

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), S&P (AAA, AA, A, BBB) or Fitch
(AAA, AA, A, BBB), except that the Fund may purchase unrated municipal
securities (i) where the securities are guaranteed as to principal and interest
by the full faith and credit of the U.S. Government or are short-term municipal
securities (those having a maturity of less than one year) of issuers having
outstanding at the time of purchase an issue of municipal bonds having one of
the four highest ratings, or (ii) where, in the opinion of the Sub-Adviser,
Salomon Brothers Asset Management Inc. ("Salomon Brothers"), the unrated
municipal securities are comparable in quality to those within the four highest
ratings. However, Municipal Bond Fund will not purchase an unrated municipal
security (other than a security described in (i) above) if, after such purchase,
more than 20 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 or Fitch. 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, Salomon
Brothers 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.

Municipal Bond 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. Municipal Bond
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, Municipal Bond Fund may invest in
fixed income obligations on which the interest is subject to federal income tax.
Except when the Fund is in a temporary "defensive" investment position, it will
not purchase a taxable security if, as a result, more than 20 percent of its
total assets would be invested in taxable securities. This limitation is a
fundamental policy of Municipal Bond Fund, and may not be changed without a
majority vote of the Fund's outstanding 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, Prime-1
by Moody's or F-1 by Fitch, corporate obligations rated AAA or AA by S&P or
Fitch or Aaa or Aa by Moody's, certificates of deposit or bankers' acceptances
of domestic banks or thrifts with at least $2 billion in assets, or repurchase
agreements with such banks or with broker-dealers.

From time to time, Municipal Bond 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 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.

Municipal Bond 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 Municipal Bond 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.

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

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 and Fitch 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 and Fitch. Bonds rated Baa by
Moody's or BBB by S&P and Fitch 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 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 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.

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 generally
will 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 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.

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

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 High Yield Fund may purchase restricted securities, including securities
that are not eligible for resale pursuant to Rule 144A. The 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 Fund's 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 -- Certain of the Funds may invest in sovereign debt
securities of emerging market governments, including Brady Bonds, 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 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 intends 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 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 also should 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, Ecuador, Jordan,
Mexico, Nigeria, The Philippines, Poland, Uruguay, and Venezuela, 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 High Yield Fund may invest only in collateralized Brady Bonds,
denominated in U.S. dollars. 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 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"). Certain of the Fund's investments in Loans in emerging markets are
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 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 -- Certain of the Funds may invest in certain zero
coupon securities that are "stripped" U.S. Treasury notes and bonds. The 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 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 High Yield Fund may also enter into reverse repurchase agreements with
the same parties with whom it may enter into repurchase agreements. Under a
reverse repurchase agreement, the Fund would sell securities and agree to
repurchase them at a particular price at a future date. Reverse repurchase
agreements involve the risk that the market value of the securities retained in
lieu of sale by the Fund may decline below the price of the securities the Fund
has sold but is obligated to repurchase. In the event the buyer of securities
under a reverse repurchase agreement files for bankruptcy or becomes insolvent,
such buyer or its trustee or receiver may receive an extension of time to
determine whether to enforce the Fund's obligation to repurchase the securities,
and the Fund's use of the proceeds of the reverse repurchase agreement may
effectively be restricted pending such decision.

The High Yield Fund also may enter into "dollar rolls," in which the Fund
sells fixed income securities for delivery in the current month and
simultaneously contracts to repurchase substantially similar (same type, coupon
and maturity) securities on a specified future date. During the roll period, the
Fund would forego principal and interest paid on such securities. The Fund would
be compensated by the difference between the current sales price and the forward
price for the future purchase, as well as by the interest earned on the cash
proceeds of the initial sale. 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 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, Municipal Bond and Cash
Funds may each borrow up to 10 percent; and Corporate Bond and U.S. Government
Fund may 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 AND FUTURES TRANSACTIONS -- In seeking to protect against interest
rate changes that are adverse to its present or prospective positions, the High
Yield Fund may employ certain risk management practices involving the use of
options and futures contracts and options on futures contracts on U.S. and
foreign government securities. The Municipal Bond Fund may employ the use of
futures contracts on U.S. government securities and municipal bond indices. The
High Yield Fund also may enter into interest rate and index swaps and purchase
or sell related caps, floors and collars. 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 and Futures
Strategies" in the Statement of Additional Information. There can be no
assurance that a Fund's risk management practices will succeed.

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.

SWAPS, CAPS, FLOORS AND COLLARS -- High Yield Fund may enter into interest
rate and index swaps, and the purchase or sale of related caps, floors and
collars. The Fund expects to enter into these transactions primarily to preserve
a return or spread on a particular investment or portion of its portfolio as a
technique for managing the portfolio's duration (i.e., the price sensitivity to
changes in interest rates) or to protect against any increase in the price of
securities the Fund anticipates purchasing at a later date. The Fund intends 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.

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. 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 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.

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 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.
Ratings of debt securities represent the rating agency's opinion regarding their
quality and are not a guarantee of quality. Rating agencies attempt to evaluate
the safety of principal and interest payments and do not evaluate the risks of
fluctuations in market value. Also, rating agencies may fail to make timely
changes in credit quality in response to subsequent events, so that an issuer's
current financial condition may be better or worse than a rating indicates.

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

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

Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may also decrease the values and liquidity of lower
quality securities, especially in a thinly traded market. The High Yield Fund
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 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 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 life insurance company with over $7.4 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 $4.6 billion in assets.

The Investment Manager has engaged Salomon Brothers Asset Management Inc
("Salomon Brothers"), 7 World Trade Center, New York, NY 10048, to provide
investment advisory services to the Municipal Bond Fund. Salomon Brothers is a
wholly-owned subsidiary of Salomon Brothers Holding Company, Inc., which is
wholly-owned by Salomon Smith Barney Holdings, Inc., which is, in turn,
wholly-owned by Travelers Group, Inc. ("Travelers"). Salomon Brothers was
incorporated in 1987 and together with Salomon Brothers affiliates in London,
Frankfurt, Tokyo and Hong Kong, provides a broad range of investment advisory
services to various individuals and institutional clients located throughout the
world and serves as investment adviser to various investment companies.
Currently Salomon Brothers and its affiliates manage approximately $26.6 billion
in assets. On April 6, 1998, Travelers announced that it had entered into a
Merger Agreement with Citicorp. The transaction, which is expected to be
completed during the third quarter of 1998, is subject to various regulatory
approvals, including approval by the Federal Reserve Board. The transaction is
also subject to approval by the stockholders of each of Travelers and Citicorp.
Upon consummation of the merger, the surviving corporation would be a bank
holding company subject to regulation under the Bank Holding Company Act of 1956
(the "BHCA"), the requirements of the Glass-Steagall Act and certain other laws
and regulations. Although the effects of the merger of Travelers and Citicorp
and compliance with the requirements of the BHCA and the Glass-Steagall Act are
still under review, Salomon Brothers does not believe that its compliance with
applicable law following the merger of Travelers and Citicorp will have a
material adverse effect on its ability to continue to provide the Fund with
investment advisory services.

Subject to the supervision and direction of the Funds' Board of Directors,
the Investment Manager manages the Fund portfolios in accordance with each
Fund's stated investment objective and policies and makes all investment
decisions. As to the Municipal Bond Fund, the Investment Manager supervises the
management of the Fund's portfolio by the Sub-Adviser, Salomon Brothers. 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
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 Cash Fund
exceed one percent of each Fund's average net assets for the year. (The
Investment Manager is not aware of any state that currently imposes limits on
the level of mutual fund expenses.) The Investment Manager has agreed that total
expenses of Municipal Bond Fund (including for any fiscal year, the management
fee, but excluding interest, taxes, extraordinary expenses and Class A and Class
B distribution fees) shall not exceed one percent of the 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, Municipal Bond and Cash Funds and .6
percent of the average daily net assets of the High Yield Fund, computed on a
daily basis 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
Municipal Bond Funds and .045 percent of the average daily net assets of Cash
Fund, calculated daily and payable monthly. The Investment Manager also acts as
the transfer agent and dividend disbursing agent for the Funds. 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, 1997, the total expenses, as a percentage of
average net assets, were 1.07 percent for Class A and 1.85 percent for Class B
shares of Corporate Bond Fund; .60 percent for Class A and 1.68 percent for
Class B shares of U.S. Government Fund; .55 percent for Class A and 1.50 percent
for Class B shares of Limited Maturity Bond Fund; .87 percent of Class A shares
and 1.80 percent of Class B shares of High Yield Fund; .82 percent for Class A
shares and 2.00 percent for Class B shares of Municipal Bond Fund; and .90
percent for Cash Fund.

PORTFOLIO MANAGEMENT

The Corporate Bond, Limited Maturity Bond, U.S. Government Bond, High Yield,
Municipal Bond and Cash Funds are managed by the Investment Manager's Fixed
Income Team with certain portfolio managers being responsible for the day-to-day
management of each particular Fund. Steve Bowser, Second Vice President and
Portfolio Manager, and David Eshnaur, Assistant Vice President and Portfolio
Manager of the Investment Manager, have day-to-day responsibility for managing
Corporate Bond and Limited Maturity Bond Funds. Mr. Bowser has managed the Funds
since June 1997 and Mr. Eshnaur has managed the Funds since January 1998. Mr.
Bowser also has day-to-day responsibility for managing U.S. Government Fund
since 1995. Tom Swank, Vice President and Portfolio Manager of the Investment
Manager, and David Eshnaur have day-to-day responsibility for managing the High
Yield Fund. Mr. Swank has managed the Fund since its inception in 1996 and Mr.
Eshnaur has managed the Fund since July 1997. Municipal Bond Fund is managed by
Marybeth Whyte of Salomon Brothers. Ms. Whyte has had day-to-day responsibility
for managing the Fund since May 1998.

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

David Eshnaur is Assistant Vice President and Portfolio Manager of the
Investment Manager. Mr. Eshnaur has 15 years of investment experience. Prior to
joining the Investment Manager in 1997, he worked at Waddell & Reed in the
positions of Assistant Vice President, Assistant Portfolio Manager, Senior
Analyst, Industry Analyst and Account Administrator. Mr. Eshnaur earned a
Bachelor of Arts degree in Business Administration from Coe College and an
M.B.A. degree in Finance from the University of Missouri - Kansas City.

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.

Marybeth Whyte is a Senior Portfolio Manager at Salomon Brothers. Prior to
joining Salomon Brothers in 1994, Ms. Whyte was a Senior Vice President and head
of the Municipal Bond Area at Fiduciary Trust Company International, where her
responsibilities included actively managing and advising portfolios with assets
of approximately $1.3 billion. Ms. Whyte was a member of the Fixed Income
Investment Policy Committee at Fiduciary Trust Company International. Ms.
Whyte's previous experience includes managing high net worth individual
portfolios, mutual funds and pension funds while employed by U.S. Trust Company
and Bernstein-Macaulay Inc. Ms. Whyte received a Bachelor of Arts in Psychology
from S.U.N.Y Oneonta and an M.B.A. in Finance from Bernard M. Baruch College.

YEAR 2000 COMPLIANCE

Like other mutual funds, as well as other financial and business
organizations around the world, the Funds could be adversely affected if the
computer systems used by the Investment Manager, and other service providers, in
performing its administrative functions do not properly process and calculate
date-related information and data before, during and after January 1, 2000. Some
computer software and hardware systems currently cannot distinguish between the
year 2000 and the year 1900 or some other date because for the way date fields
were encoded.

The Investment Manager has adopted a plan to be "Year 2000 Compliant" with
respect to both its internally built systems as well as systems provided by
external vendors. "Year 2000 Compliant" means that systems and programs which
require modification will have the date fields expanded to include the century
information and that for interfaces to external organizations as well as new
systems development the year portion of the date field will be expanded to four
digits using the format YYYYMMDD. The Investment Manager's overall approach to
addressing the Year 2000 issue is as follows: (1) to inventory its internal and
external hardware, software, telecommunications and data transmissions to
customers and conduct a risk assessment with respect to the impact that a
failure of any such system would have on its business operations; (2) to modify
or replace its internal systems and obtain vendor certifications of Year 2000
compliance for systems provided by vendors or replace such systems that are not
Year 2000 Compliant; and (3) to implement and test its systems for Year 2000
compliance. The Investment Manager has completed the inventory of its internal
and external systems and has made substantial progress toward completing the
modification/replacement of its internal systems as well as towards obtaining
Year 2000 Compliant certifications from its external vendors. Overall systems
testing is scheduled to commence in December 1998 and extend into the first six
months of 1999.

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

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

HOW TO PURCHASE SHARES

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

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

CORPORATE BOND, LIMITED MATURITY BOND, U.S. GOVERNMENT, HIGH YIELD AND MUNICIPAL
BOND FUNDS

Security Distributors, Inc. (the "Distributor"), a wholly-owned subsidiary of
Security Benefit Group, Inc., is principal underwriter for Corporate Bond,
Limited Maturity Bond, U.S. Government, High Yield and Municipal Bond Funds.
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, High Yield and Municipal Bond 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 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, High Yield and
Municipal Bond Funds offer two classes of shares:

CLASS A SHARES - FRONT-END LOAD OPTION. Class A shares are sold with a sales
charge at the time of purchase. Class A shares are not subject to a sales charge
when they are redeemed (except that shares sold in an amount of $1,000,000 or
more without a front-end sales charge will be subject to a contingent deferred
sales charge for one year.) See Appendix C on page 3941 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,
High Yield and Municipal Bond Funds are offered at net asset value plus an
initial sales charge as follows:

SALES CHARGE
---------------------------------------------
Applicable
Amount of Percentage Percentage of Percentage
Purchases at of Offering Net Amount Reallowable
Offering Price Price Invested to Dealers
- --------------------------------------------------------------------------------
Less than $50,000 ............... 4.75% 4.99% 4.00%
$50,000 but less than $100,000 .. 3.75% 3.90% 3.00%
$100,000 but less than $250,000 . 2.75% 2.83% 2.20%
$250,000 but less than $1,000,000 1.75% 1.78% 1.40%
$1,000,000 and over ............. None None (See below)
- --------------------------------------------------------------------------------

Purchases of Class A shares of the Corporate Bond, Limited Maturity Bond,
U.S. Government, High Yield and Municipal Bond 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.

CLASS A DISTRIBUTION PLANS

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, High
Yield and Municipal Bond 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. Each Fund's Plan permits payments
to be made by these Funds to the Distributor, to finance various activities
relating to the distribution of their 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 each Fund's 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, High Yield and Municipal Bond 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 and High Yield Funds to
finance joint distribution activities, for example advertisements promoting each
of the Funds 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.

Each 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 Funds' 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, High Yield and Municipal Bond Funds. Other promotional activities
which may be financed pursuant to the Plans 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, High Yield and
Municipal Bond Funds' Class A Distribution Plan may be terminated at any time by
vote of the directors of the respective Fund, who are not interested persons of
the Fund as defined in the 1940 Act or by vote of a majority of the Fund's
outstanding Class A shares. In the event any Class A Distribution Plan is
terminated by its Class A stockholders or the Board of Directors, the payments
made to the Distributor pursuant to the Plans 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,
High Yield and Municipal Bond Funds are offered at net asset value, without an
initial sales charge. With certain exceptions, these Funds may impose a deferred
sales charge on 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 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 PLANS

Each of Corporate Bond, Limited Maturity Bond, U.S. Government, High Yield
and Municipal Bond 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 also will 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 whose representatives have sold or are expected
to sell significant amounts of the Corporate Bond, Limited Maturity Bond, U.S.
Government, High Yield and Municipal Bond 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, High Yield and Municipal Bond 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."

2. BY WIRE

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

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

3. THROUGH BROKER/DEALERS

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

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

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

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

TRADING PRACTICES AND BROKERAGE

The portfolio turnover rate for the fiscal year ended December 31, 1997, was
as follows: Corporate Bond Fund - 120 percent; U.S. Government Fund - 39
percent; Limited Maturity Bond Fund - 76 percent; High Yield Fund - 87 percent;
Municipal Bond Fund - 48 percent. 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 Fund 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's Conduct Rules, consider sales
of shares of the Fund in the selection of a broker.

Securities held by the Funds also may 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 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. If blank checks are requested on the
Checking Privilege Request Form, the Fund will make a supply available. Such
checks may be drawn in any amount of $100 or more. When a check is presented to
Cash Fund for payment, it will redeem sufficient full and fractional shares to
cover the check. Such shares will be redeemed at the price next calculated
following receipt of any check which does not exceed the value of the account.
The price of Cash Fund shares may fluctuate from day-to-day and the price at the
time of redemption, by check or otherwise, may be less than the amount invested.
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 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. Telephone redemptions are not accepted for IRA and
403(b)(7) accounts. A stockholder who authorizes telephone redemptions
authorizes the Investment Manager to act upon the instructions of any person
identifying themselves as the owner of the account or the owner's broker. The
Investment Manager has established procedures to confirm that instructions
communicated by telephone are genuine and will be liable for any losses due to
fraudulent or unauthorized instructions if it fails to comply with its
procedures. The Investment Manager's procedures require that any person
requesting a 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 Municipal Bond Funds to pay dividends from net investment income
monthly. It is the policy of Corporate Bond, Limited Maturity Bond, U.S.
Government, High Yield and Municipal Bond 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, High Yield and Municipal Bond 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 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.

The following summarizes certain federal income tax considerations generally
affecting the Funds, their stockholders and each underlying Series. See the
Statement of Additional Information for further details. No attempt is made to
present a detailed explanation of the tax treatment of the Funds or their
stockholders, and the discussion here and in the Statement of Additional
Information is not intended as a substitute for careful tax planning. The
discussion is based upon present provisions of the Internal Revenue Code of
1986, as amended (the "Code"), the regulations promulgated thereunder, and
judicial and administrative ruling authorities, all of which are subject to
change, which change may be retroactive. The discussion applies only to
beneficial owners of Fund shares in whose hands such shares are capital assets
within the meaning of Section 1221 of the Code, and may not apply to certain
types of beneficial owners of shares (such as insurance companies, tax-exempt
organizations, and broker-dealers who may be subject to special rules. Persons
who may be subject to tax in more than one country should consult the provisions
of any applicable tax treaty to determine the potential tax consequences to
them. Prospective investors should consult their own tax advisors with regard to
the federal tax consequences of the purchase ownership, and disposition of Fund
shares, as well as the tax consequences arising under the laws of any state,
foreign country, or other taxing jurisdiction.

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.

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 to be taxed seperately as a "regulated
investment company" under the Internal Revenue Code. As a regulated investment
company, each Fund generally is exempt from federal income tax on its net
investment income and realized capital gains which it distributes to
stockholders, provided the Fund continues to so qualify and distributes all or
substantially 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.

Municipal Bond Fund intends to qualify to pay "exempt interest dividends" to
its stockholders. Municipal Bond 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 Municipal Bond Fund's dividends distributed to
stockholders are derived from earnings on interest income exempt from federal
tax and are designated as "exempt-interest dividends" by the Fund, they will be
excludable from a stockholder's gross income for federal income tax purposes.
The Fund will inform stockholders annually as to the portion of that year's
distributions from the Fund which constituted "exempt-interest dividends."

Although exempt-interest dividends paid by the Municipal Bond Fund will be
excluded by shareholders of the Fund from their gross income for regular federal
income tax purposes, under the Code all or a portion of such dividends may be
(i) a preference item for purposes of the alternative minimum tax, (ii) a
component of the "ACE" adjustment for purposes of determining the amount of
corporate alternative minimum tax or (iii) a factor in determining the extent to
which a shareholder's Social Security or railroad retirement benefits are
taxable. Moreover, the receipt of exempt-interest dividends from the Fund affect
the federal tax liability of certain foreign corporations, S Corporations and
insurance companies. Furthermore, under the Code, interest on indebtedness
incurred or continued to purchase or carry portfolio shares, which interest is
deemed to relate to exempt-interest dividends, will not be deductible by
shareholders of the Fund for federal income tax purposes.

The exemption of exempt-interest dividend income from regular federal income
taxation does not necessarily result in similar exemptions for such income under
tax laws of state or local taxing authorities. In general, states exempt from
state income tax only that portion of any exempt-interest dividend that is
derived from interest received by a regulated investment company on its holdings
of obligations issued by that state or its political subdivisions and
instrumentalities.

To the extent that Municipal Bond Fund's dividends are derived from interest
on its temporary taxable investments or from an excess of net short-term capital
gain over net long-term capital loss, 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 Municipal Bond
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, and will be taxable at a maximum rate of 20% or 28%, depending upon the
Fund's holding period for the securities sold. Furthermore, a loss realized by a
stockholder on the redemption, sale or exchange of shares of Municipal Bond 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, High Yield and
Cash Funds are taxable to stockholders as ordinary income whether received in
cash or reinvested in additional shares. Distributions of net capital gain,
whether received in cash or reinvested in Fund shares, will generally be taxable
to shareholders as either "20% Rate Gain" or "28% Rate Gain" depending upon the
Fund's holding period for the assets sold. "20% Rate Gains" arise from sales of
assets held by a Fund for more than 18 months and are subject to a maximum tax
rate of 20%; "28% Rate Gains" arise from sales of assets held by a Fund for more
than one year but no more than 18 months and are subject to a maximum tax rate
of 28%. Net capital gains from assets held for one year or less will be taxed as
ordinary income. Distributions will be subject to these capital gains rates
regardless of how long shareholder has held Fund 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, 1997, Corporate Bond, Limited Maturity Bond, U.S. Government
and Municipal Bond Funds, respectively, had accumulated net realized losses on
sales of investments in the following amounts: $13,192,318, $62,591, $960,570
and $1,246,957.

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. The payment of such taxes will reduce
the amount of dividends and distributions paid to the Funds' stockholders. So
long as a Fund qualifies as a regulated investment company, certain distribution
requirements are satisfied, and more than 50% of such Fund's assets at the close
of the taxable year consists of securities of foreign corporation, the Fund may
elect, subject to limitation, to pass through its foreign tax credits to its
stockholders.

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 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 Municipal Bond 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 Municipal Bond 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 Municipal Bond 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, High Yield and Municipal Bond
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 Municipal Bond Fund and "average annual
total return" and "aggregate total return" for Corporate Bond, Limited Maturity
Bond, U.S. Government, High Yield and Municipal Bond 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, High
Yield and Municipal Bond 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.

Municipal Bond 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, High Yield or Municipal Bond 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 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, High Yield or Municipal Bond 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, High Yield and Municipal Bond 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, High Yield and Municipal Bond 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, High
Yield or Municipal Bond 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 (785) 431-3127 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 247. A Systematic Withdrawal form may
be obtained from the Funds.

EXCHANGE PRIVILEGE

Stockholders who own shares of the Funds may exchange those shares for shares
of another of the Funds, or for shares of the other mutual funds distributed by
the Distributor, which currently include Security Growth and Income, Equity,
Global, Asset Allocation, Social Awareness, Value, Ultra, Emerging Markets Total
Return, Global Asset Allocation and Global High Yield 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 distributed by the Distributor
or for shares of Cash Fund, which offers a single class of shares. Any
applicable contingent deferred sales charge will be calculated from the date of
the initial purchase without regard to the time shares were held in Cash Fund.

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

Exchanges of Class A shares from Corporate Bond, Limited Maturity Bond, U.S.
Government, High Yield, Municipal Bond, Emerging Markets Total Return, Global
Asset Allocation and Global High Yield 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, High Yield,
Municipal Bond, Emerging Markets Total Return, Global Asset Allocation and
Global High Yield 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.

GENERAL INFORMATION

ORGANIZATION

The Articles of Incorporation of Income and Municipal Bond 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 seven series, Corporate Bond Fund, Limited Maturity Bond
Fund, U.S. Government Fund, High Yield Fund, Emerging Markets Total Return Fund,
Global Asset Allocation Fund and Global 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.

Municipal Bond and Cash Funds have authorized capital stock of $0.10 par
value per share.

Each of the Funds (except Cash Fund) 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 (785) 431-3127 or 1-800-888-2461,
extension 3127.
<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
which make the long-term risks appear somewhat larger than in Aaa securities.

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

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

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

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

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

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

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

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

STANDARD & POOR'S CORPORATION

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

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

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

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

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

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

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

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

APPENDIX B

DESCRIPTION OF MUNICIPAL BOND RATINGS

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

MOODY'S INVESTORS SERVICE, INC.*

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

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

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

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

STANDARD & POOR'S CORPORATION**

AAA -- Municipal bonds rated AAA are highest grade obligations. They possess
the ultimate degree of protection as to principal and interest.

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

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

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

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

FITCH INVESTORS SERVICE, INC.

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

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

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

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

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

RATINGS OF SHORT-TERM SECURITIES

MOODY'S INVESTORS SERVICE

The following ratings apply to short-term municipal notes and loans:

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

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

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

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

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

STANDARD & POOR'S CORPORATION

The following ratings apply to short-term municipal notes:

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

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

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

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

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

FITCH INVESTORS SERVICE

The following ratings apply to commercial paper:

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

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

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

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

**Standard & Poor's Corporation rates all governmental bodies having $1,000,000
or more of debt outstanding unless adequate information is not available.
<PAGE>
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, High Yield and Municipal Bond Funds alone or in
combination with Class A shares of certain other Security Funds.

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

RIGHTS OF ACCUMULATION

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

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

STATEMENT OF INTENTION

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

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

REINSTATEMENT PRIVILEGE

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

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

* MFR EMERGING MARKETS TOTAL RETURN SERIES
* MFR GLOBAL ASSET ALLOCATION SERIES PROSPECTUS
* MFR GLOBAL HIGH YIELD SERIES MAY 1, 1998

700 SW HARRISON STREET
TOPEKA, KS 66636-0001

MFR Emerging Markets Total Return Series, MFR Global Asset Allocation
Series and MFR Global High Yield Series (formerly Global Aggressive Bond Series)
are diversified series of an open-end management investment company. Each series
has its own identified assets, net asset values and investment objective.

The investment objective of the Emerging Markets Total Return Series is to
maximize total return. To achieve this goal, the Series invests in a combination
of equity and/or debt securities of companies domiciled in, or doing business
in, emerging countries and emerging markets and sovereign debt securities of
emerging market countries.

The investment objective of the Global Asset Allocation Series is to seek
a high level of total return consisting of capital appreciation and current
income. To achieve its investment objective the Series follows an asset
allocation strategy that contemplates shifts among a wide range of investment
categories and market sectors, including equity and debt securities of domestic
and foreign issuers.

The investment objective of the Global High Yield Series is to seek high
current income with capital appreciation as a secondary objective through
investment primarily in a combination of foreign and domestic high yield, lower
rated securities.

EACH OF THE SERIES MAY INVEST IN DEBT SECURITIES THAT INCLUDE DOMESTIC AND
FOREIGN DEBT SECURITIES RATED BELOW INVESTMENT GRADE AND FOREIGN DEBT SECURITIES
WHOSE CREDIT QUALITY IS GENERALLY CONSIDERED THE EQUIVALENT OF SUCH SECURITIES,
WHICH ARE COMMONLY KNOWN AS "JUNK BONDS." INVESTMENTS OF THIS TYPE ARE SUBJECT
TO A GREATER RISK OF LOSS OF PRINCIPAL AND INTEREST, INCLUDING THE RISK OF
DEFAULT, AND THEREFORE SHOULD BE CONSIDERED SPECULATIVE. SEE "INVESTMENT METHODS
AND RISK FACTORS" ON PAGE 15. PURCHASERS SHOULD CAREFULLY ASSESS THE RISKS
ASSOCIATED WITH INVESTING IN THE SERIES.

This Prospectus sets forth concisely the information that a prospective
investor should know about the Series. It should be read and retained for future
reference. Certain additional information is contained in a Statement of
Additional Information about the Series, dated May 1, 1998, which has been filed
with the Securities and Exchange Commission ("SEC"). 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 (800) 643-8188.

The SEC maintains a web site (http://www.sec.gov) that contains the
Statement of Additional Information regarding companies that file electronically
with the SEC.

- --------------------------------------------------------------------------------
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>
CONTENTS

Page
Transaction and Operating Expense Table.................................. 1
Financial Highlights..................................................... 2
Investment Objective and Policies of the Series.......................... 6
MFR Emerging Markets Total Return Series........................... 6
MFR Global Asset Allocation Series................................. 9
MFR Global High Yield Series....................................... 13
Investment Methods and Risk Factors...................................... 15
Management of the Series................................................. 31
Portfolio Management............................................... 33
Year 2000 Compliance..................................................... 33
How to Purchase Shares................................................... 34
Alternative Purchase Options....................................... 35
Class A Shares..................................................... 35
Class A Distribution Plan.......................................... 36
Class B Shares..................................................... 36
Class B Distribution Plan.......................................... 37
Calculation and Waiver of Contingent Deferred Sales Charges........ 38
Arrangements with Broker-Dealers and Others........................ 38
Purchases at Net Asset Value............................................. 39
Trading Practices and Brokerage.......................................... 40
How to Redeem Shares..................................................... 40
Telephone Redemptions ............................................. 41
Dividends and Taxes...................................................... 42
Foreign Taxes...................................................... 43
Determination of Net Asset Value......................................... 44
Performance.............................................................. 44
Stockholder Services..................................................... 45
Accumulation Plan.................................................. 45
Systematic Withdrawal Program...................................... 45
Exchange Privilege................................................. 46
Exchange by Telephone.............................................. 46
Retirement Plans................................................... 46
General Information...................................................... 47
Organization....................................................... 47
Stockholder Inquiries.............................................. 47
Appendix A .............................................................. 48
Appendix B .............................................................. 50
<PAGE>
PROSPECTUS

TRANSACTION AND OPERATING EXPENSE TABLE
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
CLASS A CLASS B(1)
<S> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) 4.75% None

Maximum Sales Load Imposed on Reinvested Dividends None None

Deferred Sales Load (as a percentage of original purchase price
or redemption proceeds, whichever is lower) None(2) 5% during the first year,
decreasing to 0% in the
sixth and following years
<CAPTION>
MFR EMERGING MFR GLOBAL MFR
MARKETS TOTAL RETURN ASSET ALLOCATION GLOBAL HIGH YIELD
ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Management Fees (after fee waivers)(3) 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
12b-1 Fees(4) 0.25% 1.00% 0.25% 1.00% 0.25% 1.00%
Other Expenses (after expense reimbursements)(5)
1.75% 1.72% 1.60% 1.72% 1.51% 1.51%
----- ----- ----- ----- ----- -----
Total Fund Operating Expenses(6) 2.00% 2.72% 1.85% 2.72% 1.76% 2.51%
===== ===== ===== ===== ===== =====
EXAMPLE
You would pay the following expenses on a $1,000 1 Year $ 67 $ 78 $ 65 $ 78 $ 64 $ 75
investment, assuming (1) 5 percent annual return 3 Years 107 115 103 115 100 108
and (2) redemption at the end of each time period 5 Years 150 164 143 164 138 154
10 Years 269 305 254 305 245 285
EXAMPLE
You would pay the following expenses on a $1,000 1 Year $ 67 $ 28 $ 65 $ 28 $ 64 $ 25
investment, assuming (1) 5 percent annual return 3 Years 107 85 103 85 100 78
and (2) no redemption 5 Years 150 144 143 144 138 134
10 Years 269 305 254 305 245 285
</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 35.

3 The Investment Manager has agreed to waive the management fee of
Emerging Markets Total Return Series, Global Asset Allocation Series
and Global High Yield Series for the fiscal year ending December 31,
1998; absent such fee waivers, "Management Fees" would have been 1.00%
for Emerging Markets Total Return Series and Global Asset Allocation
Series and .75% for Global High Yield Series.

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 the Emerging Markets Total Return
and Global Asset Allocation Series is based on estimated amounts for
the fiscal year ending December 31, 1997.

6 The Investment Manager has agreed to waive the management fee of 1.00%
of Emerging Markets Total Return Series and Global Asset Allocation
Series and .75% of Global High Yield Series for the fiscal year ending
December 31, 1998. The Investment Manager has also voluntarily agreed
to limit the expenses of each Series and the Series' administrator has
agreed to limit the administrative fees of each Series for the fiscal
year 1998. In the absence of such reimbursement and waiver, the amount
of "Other Expenses" during fiscal year 1997 would have been 4.63% for
Class A shares and 4.60% for Class B shares of Emerging Markets Total
Return Series; and 4.42% for Class A shares and 4.54% for Class B
shares of Global Asset Allocation Series, and "Total Fund Expenses"
would have been 5.88% for Class A shares and 6.60% for Class B shares
of Emerging Markets Total Return Series; 5.67% for Class A shares and
6.54% for Class B shares of Global Asset Allocation Series; and 2.51%
for Class A shares and 3.25% for Class B shares of Global High Yield
Series.

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.
<PAGE>
The purpose of the foregoing fee table is to assist the investor in
understanding the various costs and expenses that an investor in the Series will
bear directly or indirectly. For a more detailed discussion of the Series' fees
and expenses, see the discussion under "Management of the Series," page 31.
Information on the Series' 12b-1 Plans may be found under the headings "Class A
Distribution Plan" on page 36 and "Class B Distribution Plan" on page 37. See
"How to Purchase Shares," page 34, for more information concerning the sales
load. Also, see Appendix B for a discussion of "Rights of Accumulation" and
"Statement of Intention," which options may serve to reduce the front-end sales
load on purchases of Class A Shares.
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

The following financial highlights for each of the years in the period ended
December 31, 1997, have been audited by Ernst & Young LLP. Such information for
each of the years in the period ended December 31, 1997, should be read in
conjunction with the financial statements of the Series and the report of Ernst
& Young LLP, the Series' independent auditors, appearing in the December 31,
1997 Annual Report which is incorporated by reference in this Prospectus. The
Annual Report also contains additional information about the performance of the
Series and may be obtained without charge by calling Security Distributors, Inc.
at 1-800-643-8188.

GLOBAL HIGH YIELD SERIES (CLASS A)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
---------------------------------------------------------------
1997(b)(c) 1996(b)(c) 1995(b)(c)(d)
---------- ---------- -------------
<S> <C> <C> <C>
PER SHARE DATA
Net asset value beginning of period........................... $10.36 $10.15 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income......................................... .88 1.06 .63
Net gain (loss) on securities (realized & unrealized)......... (.42) .064 .09
---------- --------- -------
Total from investment operations.............................. .46 1.124 .72
LESS DISTRIBUTIONS
Dividends (from net investment income)........................ (.63) (.687) (.55)
Distributions (from capital gains)............................ (.25) (.227) (.02)
---------- --------- --------
Total distributions........................................... (.88) (.914) (.57)
---------- --------- --------
Net asset value end of period................................. $ 9.94 $10.36 $10.15
========== ========= ========
Total return (a).............................................. 4.6% 11.6% 7.3%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands).......................... $ 4,647 $3,507 $2,968
Ratio of expenses to average net assets....................... 1.76% 1.98% 2.00%
Ratio of net investment income to average net assets.......... 8.77% 10.39% 11.04%
Portfolio turnover rate....................................... 88% 96% 127%
Average commission paid per equity share traded (f)........... N/A N/A N/A
</TABLE>
GLOBAL HIGH YIELD SERIES (CLASS B)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31
---------------------------------------------------------------
1997(b)(c) 1996(b)(c) 1995(b)(c)(d)
---------- ---------- -------------
<S> <C> <C> <C>
PER SHARE DATA
Net asset value beginning of period........................... $10.41 $10.17 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income......................................... .85 .98 .56
Net gain (loss) on securities (realized & unrealized)......... (.49) .06 .12
-------- ---------- -------
Total from investment operations.............................. .36 1.04 .68
LESS DISTRIBUTIONS
Dividends (from net investment income)........................ (.54) (.573) (.49)
Distributions (from capital gains)............................ (.25) (.227) (.02)
-------- --------- --------
Total distributions........................................... (.79) (.80) (.51)
-------- ---------- --------
Net asset value end of period................................. $ 9.98 $10.41 $10.17
======== ========== =======
Total return (a).............................................. 3.6% 10.7% 6.9%
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands).......................... $1,618 $1,541 $1,440
Ratio of expenses to average net assets....................... 2.51% 2.75% 2.75%
Ratio of net investment income to average net assets.......... 8.02% 9.64% 10.24%
Portfolio turnover rate....................................... 88% 96% 127%
Average commission paid per equity share traded (f)........... N/A N/A N/A
</TABLE>
EMERGING MARKETS TOTAL RETURN SERIES (CLASS A)

FISCAL PERIOD ENDED
DECEMBER 31
--------------------
1997(b)(c)(e)
PER SHARE DATA
Net asset value beginning of period....................... $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................................... .21
Net gain (loss) on securities (realized & unrealized)..... (.77)
---------
Total from investment operations.......................... (.56)
LESS DISTRIBUTIONS
Dividends (from net investment income).................... (.19)
Distributions (from capital gains)........................ --
---------
Total distributions....................................... (.19)
---------
Net asset value end of period............................. $ 9.25
========
Total return (a).......................................... (5.6%)
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)...................... $497
Ratio of expenses to average net assets................... 2.00%
Ratio of net investment income to average net assets...... 3.38%
Portfolio turnover rate................................... 22%
Average commission paid per equity share traded (f)....... $.0138

EMERGING MARKETS TOTAL RETURN SERIES (CLASS B)

FISCAL PERIOD ENDED
DECEMBER 31
---------------------
1997(b)(c)(e)
PER SHARE DATA

Net asset value beginning of period........................ $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income...................................... .16
Net gain (loss) on securities (realized & unrealized)...... (.77)
--------
Total from investment operations........................... (.61)
LESS DISTRIBUTIONS
Dividends (from net investment income)..................... (.14)
Distributions (from capital gains)......................... --
--------
Total distributions........................................ (.14)
--------
Net asset value end of period.............................. $ 9.25
======
Total return (a)........................................... (6.1%)
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)....................... $497
Ratio of expenses to average net assets.................... 2.72%
Ratio of net investment income to average net assets....... 2.66%
Portfolio turnover rate.................................... 22%
Average commission paid per equity share traded (f)........ $.0138

GLOBAL ASSET ALLOCATION SERIES (CLASS A)

FISCAL PERIOD ENDED
DECEMBER 31
-------------------
1997(b)(c)(e)
PER SHARE DATA
Net asset value beginning of period.......................... $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................................ .14
Net gain (loss) on securities (realized & unrealized)........ (.24)
---------
Total from investment operations............................. (.10)
LESS DISTRIBUTIONS
Dividends (from net investment income)....................... (.08)
Distributions (from capital gains)........................... --
---------
Total distributions.......................................... (.08)
---------
Net asset value end of period................................ $ 9.82
======
Total return (a)............................................. (1.0%)
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)......................... $567
Ratio of expenses to average net assets...................... 1.85%
Ratio of net investment income to average net assets......... 2.24%
Portfolio turnover rate...................................... 28%
Average commission paid per equity share traded (f).......... $.0178

GLOBAL ASSET ALLOCATION SERIES (CLASS B)

FISCAL PERIOD ENDED
DECEMBER 31
--------------------
1997(b)(c)(e)
PER SHARE DATA
Net asset value beginning of period......................... $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income....................................... .09
Net gain (loss) on securities (realized & unrealized)....... (.24)
--------
Total from investment operations............................ (.15)
LESS DISTRIBUTIONS
Dividends (from net investment income)...................... (.03)
Distributions (from capital gains).......................... --
--------
Total distributions......................................... (.03)
--------
Net asset value end of period............................... $ 9.82
======
Total return (a)............................................ (1.5%)
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (thousands)........................ $513
Ratio of expenses to average net assets..................... 2.72%
Ratio of net investment income to average net assets........ 1.40%
Portfolio turnover rate..................................... 28%
Average commission paid per equity share traded (f)......... $.0178

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

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

- ----------------------------------- --------- --------- ---------- ---------
1997 1996 1995
Global High Yield Series Class A 2.51% 2.73% 2.42%
Class B 3.25% 3.75% 3.93%
Emerging Markets Total Return
Series Class A 5.88%* --- ---
Class B 6.60%* --- ---
Global Asset Allocation Series Class A 5.67%* --- ---
Class B 6.54%* --- ---

*For the period May 19, 1997 (date of inception) to December 31, 1997.
- ----------------------------------------------------------------------------

(d) Global High Yield Series (formerly referred to as Global Aggressive Bond
Series) was initially capitalized on June 1, 1995, with a net asset value
of $10 per share. Percentage amounts for the period have been annualized,
except total return.

(e) Emerging Markets Total Return Series and Global Asset Allocation Series
were initially capitalized on May 19, 1997, with a net asset value of $10
per share. Percentage amounts for the period have been annualized, except
total return.

(f) Brokerage commissions paid on portfolio transactions increase the cost of
securities purchased or reduce the proceeds of securities sold and are not
reflected in the Fund's statement of operations. Shares traded on a
principal basis, such as most over-the-counter and fixed-income
transactions pay a "spread" or "mark-up" rather than a commission and are
therefore excluded from this calculation. Generally, non-U.S. commissions
are lower than U.S. commissions when expressed as cents per share but
higher when expressed as a percentage of transactions because of the lower
per-share prices of many non-U.S. securities.
<PAGE>

PROSPECTUS

INVESTMENT OBJECTIVES AND POLICIES OF THE SERIES

MFR Emerging Markets Total Return Series, MFR Global Asset Allocation
Series and MFR Global High Yield Series (the "Series") are diversified series of
an open-end management investment company (commonly known as a mutual fund),
Security Income Fund (the "Fund"). The Fund was organized as a Kansas
corporation on September 9, 1970. Each of the Series has its own investment
objective and policies which are discussed in more detail below. Although the
Emerging Markets Total Return Series and Global Asset Allocation Series are
series of Security Income Fund, each series may invest to a substantial degree
in equity securities as discussed below. There, of course, can be no assurance
that the Series will achieve their investment objectives. While there is no
present intention to do so, the investment objective and policies of each Series
may be changed by the Board of Directors of the Fund without the approval of
stockholders. If a change in investment objective is made, stockholders should
consider whether the Series remains an appropriate investment in light of their
then current financial position and needs.

Each of the Series is subject to certain investment policy limitations,
which may not be changed without stockholder approval. Among these limitations,
some of the more important ones are: (1) with respect to 75 percent of the value
of its total assets, no Series will invest more than 5 percent of the value of
its assets in any one issuer other than the U.S. Government or its
instrumentalities; (2) no Series will purchase more than 10 percent of the
outstanding voting securities of any one issuer; nor (3) invest 25 percent or
more of its total assets in any one industry. The full text of the investment
policy limitations of each Series is set forth in the Series' Statement of
Additional Information.

Each of the Series 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 Series may invest in
certificates of deposit, bank demand accounts, repurchase agreements and high
quality money market instruments.

MFR EMERGING MARKETS TOTAL RETURN SERIES

The investment objective of MFR Emerging Markets Total Return Series is to
seek to maximize total return. The Series under normal circumstances invests
substantially all of its assets in a portfolio of emerging country and emerging
market equity and debt securities. Equity securities will consist of all types
of common stocks and equivalents (the following constitute equivalents:
convertible debt securities and warrants). The Series also may invest in
preferred stocks, bonds, money market instruments of foreign and domestic
companies, U.S. government, and governmental agencies and debt securities of
sovereign emerging market issuers. The Series may invest up to 100 percent of
its total assets in U.S. and 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 Series also may invest in zero coupon
securities and securities that are in default as to payment of principal and/or
interest. A description of certain 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 and zero coupon securities.
Many emerging market debt securities are not rated by United States rating
agencies such as Moody's and Standard & Poor's. The Series' ability to achieve
its investment objective is thus more dependent on the credit analysis of MFR
Advisors, Inc. ("MFR") than would be the case if the Series were to invest in
higher quality bonds. The Series may invest in fixed income securities without
limitation as to maturity. INVESTORS SHOULD PURCHASE SHARES ONLY AS A SUPPLEMENT
TO AN OVERALL INVESTMENT PROGRAM AND ONLY IF WILLING TO UNDERTAKE THE RISKS
INVOLVED.

"Emerging markets" will consist of all countries determined by the World
Bank or the United Nations to have developing or emerging economies and markets.
These countries are generally expected to include every country in the world
except the United States, Canada, Japan, Australia, New Zealand and most
countries in Western Europe.

Currently, investing in many of the emerging countries and emerging
markets is not feasible. Accordingly, MFR 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 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.

- --------------------------------------------------------------------------------
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 FUND, THE INVESTMENT MANAGER, OR THE DISTRIBUTOR.
- --------------------------------------------------------------------------------

The Series' investments in emerging country securities are not subject to
any maximum limit, and it is the intention of MFR to invest substantially all of
the Series' assets in emerging country and emerging market securities. However,
to the extent that the Series' assets are not invested in emerging country and
emerging market securities, the remaining 35 percent of the assets may be
invested in (i) other equity and debt securities without regard to whether they
qualify as emerging country or emerging market securities, and (ii) cash
reserves of the type described under "Investment Methods and Risk Factors." In
addition, for temporary defensive purposes, the Series may invest less than 65
percent of its assets in emerging country and emerging market securities, in
which case the Series may invest in other equity or debt securities or may
invest in cash reserves without limitation.

The Series' investments in emerging market debt securities consist
substantially of high yield, lower-rated debt securities of foreign
corporations, and "Brady Bonds" and other sovereign debt securities issued by
emerging market governments. "Sovereign debt securities" are those issued by
emerging market governments that are traded in the markets of developed
countries or groups of developed countries. MFR may invest in debt securities of
emerging market issuers that it determines to be suitable investments for the
Series without regard to ratings. Currently, the substantial majority of
emerging market debt securities are considered to have a credit quality below
investment grade. The Series may invest up to 100 percent of its total assets in
debt securities with credit quality below investment grade (known as junk
bonds). Such securities are predominantly speculative and involve a high degree
of risk as discussed under "Investment Methods and Risk Factors."

For the period May 19, 1997 (date of inception) to December 31, 1997, the
dollar weighted average of Emerging Markets Total Return Series' 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......... 8.6%
Rated Fixed Income Securities
AAA.......................................... 0%
AA........................................... 0%
A............................................ 7.7%
Baa/BBB...................................... 8.4%
Ba/BB........................................ 14.2%
B............................................ 4.9%
Caa/CCC...................................... 0%
Unrated Securities Comparable in Quality to
A............................................ 0%
Baa/BBB...................................... 0%
Ba/BB........................................ 0%
B............................................ 0%
Caa/CCC...................................... 0%
------
43.8%

The foregoing table is intended solely to provide disclosure about Emerging
Markets Total Return Series' asset composition for the period ended December 31,
1997. The asset composition in the future may or may not be approximately the
same as shown above.

The Series may invest in bank loan participations and assignments, which
are fixed and floating rate loans arranged through private negotiations between
foreign or domestic entities.

The Series invests in securities allocated among diverse markets and
denominated in various currencies, including U.S. dollars, or in multinational
currency units such as European Currency Units. The Series 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 Series 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 the discussion of such risks, including
currency risk, under "Investment Methods and Risk Factors."

MFR selectively will allocate the assets of the Series in securities of
issuers in countries and in currency denominations where the combination of
market returns, the price appreciation potential of securities and currency
exchange rate movements will present opportunities for maximum total return. In
so doing, MFR intends to take advantage of the different yield, risk and return
characteristics that investment in the security markets of different countries
can provide for U.S. investors. Fundamental economic strength, credit quality,
earnings growth potential and currency and market trends will be the principal
determinants of the emphasis given to various country, geographic and industry
sectors within the Series.

MFR evaluates 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. However, the Series may seek to
protect itself against such negative currency movements through the use of
sophisticated investment techniques. See the discussion of forward currency
transactions, options and futures under "Investment Methods and Risk Factors."

Futures may be used to gain exposure to markets where there is
insufficient cash to purchase a diversified portfolio of securities. Currencies
may be held to gain exposure to an international market prior to investing in a
non-dollar security.

The Series 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 currency exchange rates, or as
an efficient means of adjusting its exposure to the bond, stock, and currency
markets. The Series will not use futures contracts for leveraging purposes. The
Series 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 Series' net asset value. The Series may also write call
and put options on a covered basis and purchase put and call options on
securities, financial indices, and currencies. The aggregate market value of the
Series' portfolio securities or currencies covering call or put options will not
exceed 25 percent of the Series' net assets. The Series may enter into foreign
futures and options transactions. See the discussion of options and futures
contracts under "Investment Methods and Risk Factors." As part of its investment
program and to maintain greater flexibility, the Series may invest in
instruments which have the characteristics of futures, options and securities,
known as "hybrid instruments." For a discussion of such instruments and the
risks involved in investing therein, see "Investment Methods and Risk Factors."

The Series 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 Series may enter into repurchase agreements, reverse repurchase
agreements and "dollar rolls" which are discussed under "Investment Methods and
Risk Factors." The Series may also invest in restricted securities as discussed
under "Investment Methods and Risk Factors."

MFR GLOBAL ASSET ALLOCATION SERIES

The investment objective of MFR Global Asset Allocation Series is to seek
a high level of total return by investing primarily in a diversified portfolio
of fixed income and equity securities. The Series is designed to balance the
potential appreciation of common stocks with the income and relative stability
of principal of bonds over the long term. The primary consideration in changing
the asset allocation mix will be the fundamental economic outlook of the Series'
Adviser, MFR, for the different markets in which the Series invests. Shifts
between the fixed income and equity sectors will normally be done gradually and
MFR will not attempt to precisely "time" the market. There is, of course, no
guarantee that MFR's gradual approach to allocating the Series' assets will be
successful in achieving the Series' objective. The Series will maintain cash
reserves to facilitate the Series' cash flow needs (redemptions, expenses and
purchases of Series securities) and it may invest in cash reserves without
limitation for temporary defensive purposes. See the discussion of cash reserves
under "Investment Methods and Risk Factors."

Assets allocated to the fixed income portion of the Series will be
invested primarily in U.S. and foreign investment grade bonds, high yield bonds
(U.S. and foreign, including "Brady Bonds"), short-term investments and
currencies, as needed to gain exposure to foreign markets. Investment grade debt
securities include long, intermediate and short-term investment grade debt
securities (e.g., AAA, AA, A or BBB by S&P or if not rated, of equivalent
investment quality as determined by MFR). The weighted average maturity for this
portion (investment grade debt securities) of the Series' portfolio is generally
expected to be intermediate (3-10 years), although it may vary significantly.
Non-dollar debt securities include non-dollar denominated government and
corporate debt securities or currencies. See "Investment Methods and Risk
Factors" for a discussion of the risks involved in foreign investing. High-yield
securities include high-yielding, income-producing debt securities in the lower
rating categories (commonly referred to as "junk bonds") and preferred stocks
including convertible securities. High yield bonds may be purchased without
regard to maturity; however, the average maturity is expected to be
approximately 10 years, although it may vary if market conditions warrant.
Quality will generally range from lower medium to low and the Series may also
purchase bonds in default if, in the opinion of MFR, there is significant
potential for capital appreciation. Lower-rated debt obligations are generally
considered to be high risk investments. See "Investment Methods and Risk
Factors" for a discussion of the risks involved in investing in high-yield,
lower-rated debt securities. The Series may invest in zero coupon securities
that pay no interest prior to maturity and payment in kind securities that pay
interest in the form of additional securities. See the discussion of such
securities under "Investment Methods and Risk Factors." Securities which may be
held as cash reserves include liquid short-term investments of one year or less
rated within the top two categories by at least one established rating
organization, or if not rated, of equivalent investment quality as determined by
MFR. The Series may use currencies to gain exposure to an international market
prior to investing in non-dollar securities.

For the period May 19, 1997 (date of inception) to December 31, 1997, the
dollar weighted average of Global Asset Allocation Series' 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......... 6.7%
Rated Fixed Income Securities
AAA.......................................... 0.7%
AA........................................... 3.8%
A............................................ 4.7%
Baa/BBB...................................... 1.9%
Ba/BB........................................ 7.4%
B............................................ 7.4%
Caa/CCC...................................... 0%
Unrated Securities Comparable in Quality to
A............................................ 0%
Baa/BBB...................................... 0%
Ba/BB........................................ 0%
B............................................ 0%
Caa/CCC...................................... 0%
------
32.6%

The foregoing table is intended solely to provide disclosure about Global Asset
Allocation Series' asset composition for the period ended December 31, 1997. The
asset composition in the future may or may not be approximately the same as
shown above.

The Series' equity sector will be allocated among large and small capital
("Large Cap" and "Small Cap" respectively) U.S. and non-dollar equity
securities, currencies, real estate investment trusts ("REITs") and futures. See
the discussion of REITs under "Investment Methods and Risk Factors." Large Cap
securities generally include stocks of well established companies with
capitalization over $1 billion which can produce increasing dividend income.
Non-dollar securities include foreign currencies and common stocks of
established non-U.S. companies. Investments may be made solely for capital
appreciation or solely for income or any combination of both for the purpose of
achieving a higher overall return. MFR intends to diversify the non-dollar
portion of the Series' portfolio broadly among countries and normally to have at
least three different countries represented. The countries of the Far East and
Western Europe as well as South Africa, Australia, Canada, and other areas
(including developing countries) may be included. Under unusual circumstances,
however, investment may be substantially in one or two countries.

Futures may be used to gain exposure to equity markets where there is
insufficient cash to purchase a diversified portfolio of stocks. Currencies also
may be held to gain exposure to an international market prior to investing in a
non-dollar stock.

Small Cap securities include common stocks of small companies or companies
which offer the possibility of accelerated earnings growth because of
rejuvenated management, new products or structural changes in the economy.
Current income is not a factor in the selection of these stocks. Higher risks
are often associated with small companies. These companies may have limited
product lines, markets and financial resources, or they may be dependent on a
small or inexperienced management group. In addition, their securities may trade
less frequently and in limited volume and move more abruptly than securities of
larger companies. However, securities of smaller companies may offer greater
potential for capital appreciation since they are often overlooked or
undervalued by investors.

Until the Series reaches approximately $20 million in assets, the Series
may be unable to prudently achieve diversification among the described asset
classes. During this initial period, the Series may use futures contracts and
purchase foreign currencies to a greater extent than it will once the start-up
period is over. See "Investment Methods and Risk Factors."

Some of the countries in which the Series may invest may be considered to
be developing and may involve special risks. For a discussion of the risks
involved in investment in foreign securities, including investment in emerging
markets, see "Investment Methods and Risk Factors." The Series' foreign
investments are also subject to currency risk described under "Investment
Methods and Risk Factors." To manage this risk and facilitate the purchase and
sale of foreign securities, the Series may engage in foreign currency
transactions involving the purchase and sale of forward foreign currency
exchange contracts. Although forward currency transactions will be used
primarily to protect the Series from adverse currency movements, they also
involve the risk that anticipated currency movements will not be accurately
predicted and the Series' total return could be adversely affected as a result.
For a discussion of forward currency transactions and the risks associated with
such transactions, see "Investment Methods and Risk Factors." Purchases by the
Series of currencies in substitution of purchases of stocks and bonds will
subject the Series to risks different from a fund invested solely in stocks and
bonds.

The Series' investments include, but are not limited to, equity and fixed
income securities of any type and the Series may utilize the investment methods
and investment vehicles described below.

The Series may acquire illiquid securities in an amount not exceeding 15
percent of net assets. Because an active trading market does not exist for such
securities the sale of such securities may be subject to delay and additional
costs. The Series will not invest more than 15 percent of its total assets in
restricted securities (other than securities eligible for resale under Rule 144A
of the Securities Act of 1933). For a discussion of restricted securities, see
"Investment Methods and Risk Factors."

The Series may invest in asset-backed securities, which securities involve
certain risks. For a discussion of asset-backed securities and the risks
involved in investment in such securities, see the discussion under "Investment
Methods and Risk Factors." The Series may invest in mortgage-backed securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
or institutions such as banks, insurance companies and savings and loans. Some
of these securities, such as GNMA certificates, are backed by the full faith and
credit of the U.S. Treasury while others, such as Freddie Mac certificates, are
not. The Series also may invest in collateralized mortgage obligations (CMOs)
and stripped mortgage securities (a type of derivative). Stripped mortgage
securities are created by separating the interest and principal payments
generated by a pool of mortgage-backed bonds to create two classes of
securities, "interest only" (IO) and "principal only" (PO) bonds. There are
risks involved in mortgage-backed securities, CMOs and stripped mortgage
securities. See "Investment Methods and Risk Factors" for an additional
discussion of such securities and the risks involved therein.

While the Series will remain invested in primarily common stocks and bonds,
it may, for temporary defensive purposes, invest in cash reserves without
limitation. The Series may establish and maintain reserves as MFR believes is
advisable to facilitate the Series' cash flow needs. Cash reserves include money
market instruments, including repurchase agreements, in the two highest rating
categories. Short-term securities may be held in the equity sector as collateral
for futures contracts. These securities are segregated and may not be available
for the Series' cash flow needs.

The Series may invest in debt or preferred equity securities convertible
into or exchangeable for equity securities and warrants. As a fundamental
policy, for the purpose of realizing additional income, the Series may lend
securities with a value of up to 33 1/3 percent of its total assets to
broker-dealers, institutional investors, or other persons. Any such loan will be
continuously secured by collateral at least equal to the value of the securities
loaned. For a discussion of the limitations on lending and risks of lending, see
"Investment Methods and Risk Factors."

The Series may purchase securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis as discussed under
"Investment Methods and Risk Factors." The Series may enter into repurchase
agreements, reverse repurchase agreements, and "dollar rolls" also as discussed
under "Investment Methods and Risk Factors."

MFR GLOBAL HIGH YIELD SERIES

The MFR Global High Yield Series 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
Series will invest at least 65 percent of its total assets in high yield bonds
as discussed herein. High yield bonds consist of debt securities rated below
investment grade ("junk bonds") and foreign debt securities that yield, as
determined by MFR or Lexington, in excess of domestic investment grade debt
securities. The Series 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 Series also may 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 Series selects particular debt securities in each sector based
on their relative investment merits. Within each area, the Series 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 Series may invest consist of bonds, notes,
debentures and other similar instruments. The Series may invest up to 100
percent of its total assets in U.S. and 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 Series 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 Series' ability to
achieve its investment objectives is thus more dependent on MFR's credit
analysis than would be the case if the Series 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 year ended December 31, 1997, the dollar weighted average of Global
High Yield Series' holdings (excluding equities) had the following credit
quality characteristics.

PERCENT OF
INVESTMENT NET ASSETS

U.S. Government and Government Agency Securities 1.7%
Cash and other Assets, Less Liabilities......... 4.4%
Rated Fixed Income Securities
AAA.......................................... 12.8%
AA........................................... 6.8%
A............................................ 11.9%
Baa/BBB...................................... 16.1%
Ba/BB........................................ 27.1%
B............................................ 19.2%
Caa/CCC...................................... 0%
Unrated Securities Comparable in Quality to
A............................................ 0%
Baa/BBB...................................... 0%
Ba/BB........................................ 0%
B............................................ 0%
Caa/CCC...................................... 0%
------
100%
The foregoing table is intended solely to provide disclosure about Global High
Yield Series' asset composition for the year ended December 31, 1997. The asset
composition in the future 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. Accordingly, MFR 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 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 Series' investments in emerging market securities consist
substantially of high yield, lower-rated debt securities of foreign corporations
and "Brady Bonds" and other sovereign debt securities issued by emerging market
governments. The Series 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 Series may invest in bank loan participations and assignments, which
are fixed and floating rate loans arranged through private negotiations between
foreign entities. The Series may also invest 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 Series 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 Series'
investment objectives, MFR may employ a temporary defensive investment strategy
if it determines such a strategy to be warranted. Pursuant to such a defensive
strategy, the Series 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 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 MFR. It is impossible to predict
whether, when or for how long the Series will employ defensive strategies. To
the extent the Fund adopts a temporary 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.

INVESTMENT TECHNIQUE. The Series 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
Series 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 Series 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.

MFR will seek to allocate the assets of the Series 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, MFR intends 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 Series. Securities held by the Series may be invested in without limitation
as to maturity.

MFR evaluates 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 Series may seek to protect
itself against such negative currency movements through the use of sophisticated
investment techniques although the Series 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 Series 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 Series may enter into repurchase agreements, reverse repurchase
agreements and "dollar rolls" which are discussed under "Investment Methods and
Risk Factors." The Series may purchase restricted securities as discussed under
"Investment Methods and Risk Factors."

MORTGAGE-BACKED SECURITIES AND COLLATERALIZED MORTGAGE OBLIGATIONS. The
Series may invest in mortgage-backed securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities or institutions such as banks,
insurance companies and savings and loans. Some of these securities, such as
GNMA certificates, are backed by the full faith and credit of the U.S. Treasury
while others, such as Freddie Mac certificates, are not. The Series also may
invest in collateralized mortgage obligations (CMOs). There are risks involved
in mortgage-backed securities and CMOs. See "Investment Methods and Risk
Factors" for an additional discussion of such securities and the risks involved
therein.

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 Series are described in the
"Investment Objectives and Policies" section of this Prospectus and in the
"Investment Objectives and Policies" and "Investment Policy Limitations"
sections of the Series' 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 Series
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 Series. The
methods described only apply to those Series which may use such methods.

INVESTMENT VEHICLES

BAA OR BBB SECURITIES -- Each of the Series 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 MFR). 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. Each Series also 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 Series 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 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 Series are not so guaranteed in any way.

CONVERTIBLE SECURITIES AND WARRANTS -- The Emerging Markets Total Return
and Global Asset Allocation Series 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).

REAL ESTATE INVESTMENT TRUSTS (REITS) -- The Global Asset Allocation
Series may invest in REITs. A REIT is a trust that invests in a diversified
portfolio of real estate holdings. Investment in REITs involves certain special
risks. Equity REITs may be affected by any changes in the value of the
underlying property owned by the trusts, while mortgage REITs may be affected by
the quality of any credit extended. Further, equity and mortgage REITs are
dependent upon management skill, are not diversified, and are therefore subject
to the risk of financing single or a limited number of projects. Such trusts are
also subject to heavy cash flow dependency, defaults by borrowers, self
liquidation, and the possibility of failing to qualify for special tax treatment
under Subchapter M of the Internal Revenue Code and to maintain an exemption
under the Investment Company Act of 1940. Finally, certain REITs may be
self-liquidating in that a specific term of existence is provided for in the
trust document. Such trusts run the risk of liquidating at an economically
inopportune time.

MORTGAGE BACKED SECURITIES AND COLLATERALIZED MORTGAGE OBLIGATIONS -- The
Global Asset Allocation Series and Global High Yield Series 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.

The Global Asset Allocation Series 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 Global Asset
Allocation Series 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 Series 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 Series 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 -- The Global Asset Allocation Series may invest
in asset-backed securities which represent a participation in, or are secured by
and payable from, a stream of payments generated by particular assets, for
example, automobile, credit card or trade receivables. Asset-backed commercial
paper, one type of asset-backed security, is issued by a special purpose entity,
organized solely to issue the commercial paper and to purchase interests in the
assets. The credit quality of these securities depends primarily upon the
quality of the underlying assets and the level of credit support and/or
enhancement provided. The underlying assets (e.g., loans) are subject to
prepayments which shorten the securities' weighted average life and may lower
their return. If the credit support or enhancement is exhausted, losses or
delays in payment may result if the required payments of principal and interest
are not made. The value of these securities also may change because of changes
in the market's perception of the creditworthiness of the servicing agent for
the pool, the originator of the pool, or the financial institution providing the
credit support or enhancement. Asset-backed securities are subject to risks
similar to those discussed above with respect to MBSs.

WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES -- Each of the Series 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 Series 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 Series 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 Series 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 Series may incur a loss.

RESTRICTED SECURITIES (RULE 144A SECURITIES) -- Each of the Series may
invest in restricted securities which are securities that are restricted as to
disposition under the federal securities laws. The Series 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 Series 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 Series may be
permitted to sell it under an effective registration statement. If, during a
period, adverse conditions were to develop, the Series might obtain a less
favorable price than prevailing when it decided to sell.

Trading restricted securities pursuant to Rule 144A may enable a Series to
dispose of restricted securities at a time considered to be advantageous and/or
at a more favorable price than would be available if such securities were not
traded pursuant to Rule 144A. However, the Rule 144A market is relatively new
and liquidity of a Series' investment in such market could be impaired if
trading does not develop or declines.

The Fund's 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 MFR. In making the determination regarding the liquidity
of Rule 144A securities, MFR will consider trading markets for the specific
security taking into account the unregistered nature of a Rule 144A security. In
addition, MFR 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 Series' assets invested in illiquid
securities to the extent that qualified institutional buyers become
uninterested, for a time, in purchasing these securities.

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

SOVEREIGN DEBT - Each of the Series may invest in sovereign debt
securities of emerging market governments, including Brady Bonds. 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 Series' 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 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 Series'
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 MFR
intends to manage the Series in a manner that will minimize the exposure to such
risks, there can be no assurance that adverse political changes will not cause a
Series 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 Series
expect 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 Series 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 Series 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 Series 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 - Each of the Series 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 have been issued by the governments of Argentina,
Brazil, Bulgaria, Costa Rica, Dominican Republic, Ecuador, Jordan, Mexico,
Nigeria, Panama, Peru, The Philippines, Poland, Uruguay and Venezuela 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. Series
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 Series may invest in either collateralized or uncollateralized Brady
Bonds in various currencies. 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 Emerging Markets Total Return
and Global High Yield Series may invest in fixed and floating rate loans
("Loans") arranged through private negotiations between a foreign entity and one
or more financial institutions ("Lenders"). The majority of the Series'
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
Series having a contractual relationship only with the Lender, not with the
borrower. The Series 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 Series 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 Series may not directly benefit from any
collateral supporting the Loan in which it has purchased the Participation. As a
result, the Series 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
Series 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 Series will acquire
Participations only if the Lender interpositioned between the Series and the
borrower is determined by MFR to be creditworthy. When the Series purchases
Assignments from Lenders, the Series 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 Series as the purchaser of an Assignment may differ
from, and be more limited than, those held by the assigning Lender.

The Series may have difficulty disposing of Assignments and
Participations. The liquidity of such securities is limited and the Series
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 Series' ability to
dispose of particular Assignments or Participations when necessary to meet the
Series' 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 Series to assign a value to those securities for purposes of
valuing the Series' portfolio and calculating its net asset value.

ZERO COUPON SECURITIES -- Each of the Series may invest in certain zero
coupon securities that are "stripped" U.S. Treasury notes and bonds. The Series
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 Series' income.
Accordingly, for the Series to qualify for tax treatment as a regulated
investment company and to avoid certain taxes (see "Dividends and Taxes" in the
Statement of Additional Information), the Series 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 Series' cash assets or, if necessary,
from the proceeds of sales of portfolio securities. The Series 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 Series 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 Series
will retain possession of the underlying securities. If bankruptcy proceedings
are commenced with respect to the seller, realization on the collateral by the
Series may be delayed or limited and the Series may incur additional costs. In
such case, the Series will be subject to risks associated with changes in market
value of the collateral securities. The Series intends to enter into repurchase
agreements only with banks and broker/dealers believed to present minimal credit
risks.

Each Series also may enter into reverse repurchase agreements with the
same parties with whom they may enter into repurchase agreements. Under a
reverse repurchase agreement, a Series 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 Series may decline below the price of the securities the
Series 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 Series' obligation to repurchase the
securities, and the Series' use of the proceeds of the reverse repurchase
agreement may effectively be restricted pending such decision.

Each Series also may enter into "dollar rolls," in which the Series 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 Series would
forego principal and interest paid on such securities. The Series 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. At the time a Series enters into reverse
repurchase agreements or dollar rolls, it will establish and maintain a
segregated account with its custodian containing cash or liquid high grade debt
securities having a value not less than the repurchase price, including accrued
interest. Reverse repurchase agreements and dollar rolls will be treated as
borrowings and will be deducted from the Series' assets for purposes of
calculating compliance with the Series' borrowing limitation. See the discussion
under "Borrowing" below.

INVESTMENT METHODS

CASH RESERVES -- Each of the Series may establish and maintain reserves as
MFR believes is advisable to facilitate the Series' cash flow needs (e.g.,
redemptions, expenses and, purchases of portfolio securities) or for temporary,
defensive purposes. Such reserves may be invested in domestic and foreign money
market instruments rated within the top two credit categories by a national
rating organization, or if unrated, the MFR equivalent. Each Series may invest
in shares of other investment companies. A Series' investment in shares of other
investment companies may not exceed immediately after purchase 10 percent of the
Series' 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.

BORROWING -- Each of the Series may borrow money from banks as a temporary
measure for emergency purposes, to facilitate redemption requests, or for other
purposes consistent with the Series' investment objective and policies.

From time to time, it may be advantageous for a Series to borrow money
rather than sell existing portfolio positions to meet redemption requests.
Accordingly, each Series may borrow from banks or through reverse repurchase
agreements and "roll" transactions. Global High Yield Series may borrow up to 5
percent of its total assets and the Global Asset Allocation and Emerging Markets
Total Return Series each may borrow up to 33 1/3 percent of total assets. To the
extent that a Series 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 Series' 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 Series 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.

OPTIONS, FUTURES AND FORWARD CURRENCY TRANSACTIONS -- To manage exposure
to changes in securities prices, interest rates and currency exchange rates and
as an efficient means of adjusting overall exposure to certain markets, each
Series may employ certain risk management practices involving the use of forward
currency contracts and options contracts, futures contracts and options on
futures contracts. Each Series also may enter into interest rate, currency and
index swaps and purchase or sell related caps, floors and collars. The Series'
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
Series' 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 Series 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, the Series 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. The Series may enter into
forward currency contracts either with respect to specific transactions or with
respect to portfolio positions. For example, when a Series 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 to the U.S. dollar or another currency, the Series 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 Series denominated in a foreign
currency.

In addition, each Series may purchase put and call options and write such
options on a "covered" basis on securities that are traded on recognized
securities exchanges and over-the-counter ("OTC") markets. The Series will cause
its custodian to segregate cash or liquid securities having a value sufficient
to meet the Series' obligations under the option. Each Series also may enter
into interest rate futures contracts and stock index futures contracts and may
purchase and write options to buy and sell such futures contracts, to the extent
permitted under regulations of the Commodities Futures Trading Commission
("CFTC").

An interest rate futures contract obligates the seller of the contract to
deliver, and the purchaser to take delivery of, interest rate securities called
for in a contract at a specified future time at a specified price. A stock index
assigns relative values to common stocks included in the index and the index
fluctuates with changes in the market values of the common stocks included. A
stock index futures contract is a bilateral contract pursuant to which two
parties agree to take or make delivery of an amount of cash equal to a specified
dollar amount times the difference between the stock index value at the close of
the last trading day of the contract and the price at which the futures contract
is originally struck. An option on a financial futures contract gives the
purchaser the right to assume a position in the contract (a long position if the
option is a call and a short position if the option is a put) at a specified
exercise price at any time during the period of the option.

The Series 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 Series may enter into forward contracts or
futures contracts or engage in options transactions. See "Dividends and Taxes"
in the Statement of Additional Information. The Series also may purchase put or
call options or futures contracts on currencies for the same purposes as they
may use forward currency contracts.

A Series' 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 Series' currency risks are
different from those needed to select the securities in which a Series invests.
The Series 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 -- Each Series may enter into interest
rate, index and currency swaps, and the purchase or sale of related caps, floors
and collars. The Series expect 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 Series
anticipates purchasing at a later date. The Series intend to use these
transactions as hedges and not as speculative investments, and a Series will not
sell interest rate caps or floors if it does not own securities or other
instruments providing the income the Series may be obligated to pay.

Interest rate swaps involve the exchange by the Series 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.

HYBRID INSTRUMENTS -- The Global Asset Allocation and Emerging Markets
Total Return Series may invest in hybrid instruments which combine the elements
of futures contracts or options with those of debt, preferred equity or a
depository instrument ("Hybrid Instruments"). Often these Hybrid Instruments are
indexed to the price of a commodity or particular currency or a domestic or
foreign debt or equity securities index. Hybrid Instruments may take a variety
of forms, including, but not limited to, debt instruments with interest or
principal payments or redemption terms determined by reference to the value of a
currency or commodity at a future point in time, preferred stock with dividend
rates determined by reference to the value of a currency, or convertible
securities with the conversion terms related to a particular commodity. The
risks of investing in Hybrid Instruments reflect a combination of the risks from
investing in securities, futures and currencies, including volatility and lack
of liquidity. Reference is made to the discussion of futures and forward
contracts in the Statement of Additional Information for a discussion of these
risks. Further, the prices of the Hybrid Instrument and the related commodity or
currency may not move in the same direction or at the same time. Hybrid
Instruments may bear interest or pay preferred dividends at below market (or
even relatively nominal) rates. In addition, because the purchase and sale of
Hybrid Instruments could take place in an over-the-counter market or in a
private transaction between the Series and the seller of the Hybrid Instrument,
the creditworthiness of the contract party to the transaction would be a risk
factor which the Series would have to consider. Hybrid Instruments also may not
be subject to regulation of the CFTC, which generally regulates the trading of
commodity futures by U.S. persons, the SEC, which regulates the offer and sale
of securities by and to U.S. persons, or any other governmental regulatory
authority.

LENDING OF PORTFOLIO SECURITIES -- The Global Asset Allocation Series 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 Series 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 Series' net asset value will fluctuate,
reflecting fluctuations in the market value of its portfolio positions and its
net currency exposure. The value of fixed income securities held by the Series
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 Series are subject to greater interest
rate risk. There is no assurance that any Series will achieve its investment
objective.

FUTURES AND OPTIONS RISK -- Futures contracts and options can be highly
volatile and could result in reduction of a Series' total return, and a Series'
attempt to use such investments for hedging purposes may not be successful.
Successful futures strategies require the ability to predict future movements in
securities prices, interest rates and other economic factors. Losses from
options and futures could be significant if a Series is unable to close out its
position due to distortions in the market or lack of liquidity. A Series' risk
of loss from the use of futures extends beyond its initial investment and could
potentially be unlimited.

The use of futures, options and forward contracts involves investment
risks and transaction costs to which a Series would not be subject absent the
use of these strategies. If MFR, Lexington or SMC seeks to protect a Series
against potential adverse movements in the securities, foreign currency or
interest rate markets using these instruments, and such markets do not move in a
direction adverse to such Series, such Series could be left in a less favorable
position than if such strategies had not been used. Risks inherent in the use of
futures, options and forward contracts include: (a) the risk that interest
rates, securities prices and currency markets will not move in the directions
anticipated; (b) imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; (c) the fact that skills needed to use these strategies are
different from those needed to select portfolio securities; (d) the possible
absence of a liquid secondary market for any particular instrument at any time;
and (e) the possible need to defer closing out certain hedged positions to avoid
adverse tax consequences. A Series' ability to terminate option positions
established in the over-the-counter market may be more limited than in the case
of exchange-traded options and may also involve the risk that securities dealers
participating in such transactions would fail to meet their obligations to such
Series.

The use of options and futures involves the risk of imperfect correlation
between movements in options and futures prices and movements in the price of
securities which are the subject of a hedge. Such correlation, particularly with
respect to options on stock indices and stock index futures, is imperfect, and
such risk increases as the composition of the Series diverges from the
composition of the relevant index. The successful use of these strategies also
depends on the ability of MFR and the relevant sub-adviser to correctly forecast
interest rate movements and general stock market price movements.

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 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 Series' 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 Series, political or social
instability, or diplomatic developments which could affect the investments of
the Series 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 each Series may invest substantially in securities
denominated in currencies other than the U.S. dollar, and since they 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 Series' shares, and also may affect the value of
dividends and interest earned by the Series and gains and losses realized by the
Series. In addition, the Series will incur costs in connection with the
conversion or transfer of foreign currencies. 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 -- Each of the Series
may invest in emerging markets. Because of the special risks associated with
investing in emerging markets, an investment in a Series 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 and
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, a Series 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 Series 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 Series due to subsequent declines in value of the portfolio security or, if
a Series 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 Series' portfolio securities in such
markets may not be readily available. Section 22(e) of the 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
the 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 the Fund's
identification of such conditions until the date of SEC action, the portfolio
securities of a Series 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) -- Each of
the Series 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. Each
Series 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 Series. If an issuer exercises these provisions in a declining
interest rate market, the Series may have to replace the security with a lower
yielding security, resulting in a decreased return for investors. In addition,
the Series 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 Series
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 portfolios of the Series.

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 Series 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 Series will adversely impact
net asset value of the Series. 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 Series also may incur additional expenses to the extent they are
required to seek recovery upon a default in the payment of principal or interest
on portfolio holdings, and the Series 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.

MFR and Lexington 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 Series and consider their ability
to assume the investment risks involved before making an investment in the
Series.

MANAGEMENT OF THE SERIES

The management of the Series' business and affairs is the responsibility
of the Fund's Board of Directors. MFR Advisors, Inc. ("MFR"), One Liberty Plaza,
New York, New York 10006 is responsible for selection and management of the
Series' portfolio investments. MFR currently acts as subadviser to the Lexington
Ramirez Global Income Fund and SBL Fund-Global Aggressive Bond Series and also
serves as an institutional manager for private clients. Maria Fiorini Ramirez,
Inc. ("Ramirez") owns 80 percent of the outstanding common stock of MFR. Ramirez
which was established in August of 1992 to provide global economic consulting,
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. Maria
Fiorini Ramirez owns 100 percent of the common stock of Ramirez and Freedom
Securities Corporation owns preferred securities which would under certain
circumstances be convertible to 20 percent of Ramirez's common stock. Security
Benefit Life Insurance Company ("SBL") owns the remaining 20 percent of the
outstanding common stock of MFR and has stock rights that would enable SBL in
the future to acquire up to 100 percent of the ownership in MFR.

MFR has engaged Security Management Company, LLC ("SMC"), 700 SW Harrison
Street, Topeka, Kansas 66636, to provide certain investment advisory services to
the Global Asset Allocation Series with respect to the Series' investments in
domestic equity securities. SMC is a wholly-owned subsidiary of SBL. MFR has
also engaged Lexington Management Corporation ("Lexington"), Park 80 West, Plaza
Two, Saddle Brook, New Jersey 07663, to provide certain investment advisory
services to the Global High Yield Series, Global Asset Allocation Series and
Emerging Markets Total Return Series. Lexington 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. Lexington was established in 1938 and currently manages over $3.4
billion in assets.

Subject to the supervision and direction of the Fund's Board of Directors,
MFR and Lexington, and with respect to the Global Asset Allocation Series, SMC,
manage the Series' portfolios in accordance with each Series' stated investment
objective and policies and make all investment decisions. MFR has agreed that
total annual expenses of the respective Series (including for any fiscal year,
the management fee, but excluding interest, taxes, brokerage commissions,
extraordinary expenses and Class B distribution fees) shall not exceed the level
of expenses which the Series are permitted to bear under the most restrictive
expense limitation imposed by any state in which shares of the Series are then
qualified for sale. MFR will contribute such funds to the Series 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 investment
management services, MFR receives on an annual basis, .75 percent of the average
daily net assets of the Global High Yield Series, and 1 percent of the average
daily net assets of each of the Global Asset Allocation Series and Emerging
Markets Total Return Series, computed on a daily basis and payable monthly. As
compensation for the services provided to the Global Asset Allocation Series,
MFR pays each of Lexington and SMC, as Sub-Advisers, on an annual basis, a fee
equal to .20 percent and .15 percent, respectively, of the average daily net
assets of the Series. With respect to the Global High Yield and Emerging Markets
Total Return Series, MFR pays Lexington, as Sub-Adviser, on an annual basis, a
fee equal to .20 percent of the average daily net assets of each such Series.
Fees paid to the Sub-Advisers are calculated daily and payable monthly.

SMC also acts as the administrative agent for the Series, and as such
performs administrative functions, and the bookkeeping, accounting and pricing
functions for the Funds. For this service, SMC receives on an annual basis, an
administrative fee of .045 percent of the average daily net assets of each
Series calculated daily and payable monthly. In addition, SMC receives, with
respect to Global High Yield Series, an accounting fee equal to the greater of
.10 percent of its average daily net assets or $60,000 and with respect to the
Emerging Markets Total Return and Asset Allocation Series, an accounting fee
equal to the greater of .10 percent of the average daily net assets of each
Series, calculated daily and payable monthly, or (i) $30,000 in the year ended
May 1, 1998; (ii) $45,000 in the year ending May 1, 1999; or (iii) $60,000
thereafter. For the year ended December 31, 1997, SMC limited the accounting fee
for Global High Yield Series to $45,000, and for the period ended December 31,
1997, SMC limited the accounting fees for Emerging Markets Total Return Series
and Global Asset Allocation Series to $15,000. For the year ending December 31,
1998, SMC expects to continue to limit the accounting fees for Emerging Markets
Total Return Series, Global Asset Allocation Series and Global High Yield
Series. There can be no assurance that SMC will continue to waive these fees in
the future.

SMC also acts as the transfer agent and dividend disbursing agent for the
Series. The Series' expenses include fees paid to MFR and SMC as well as
expenses of brokerage commissions, interest, taxes, distribution fees and
extraordinary expenses approved by the Board of Directors of the Fund.

For the year ended December 31, 1997, the total expenses, as a percentage
of average net assets, were 1.76 percent for Class A shares and 2.51 percent for
Class B shares of Global High Yield Series. For the period May 19, 1997 (date of
inception) to December 31, 1997, the total expenses, as a percentage of average
net assets, were 2.00 percent for Class A shares and 2.72 percent for Class B
shares of Emerging Markets Total Return Series and 1.85 percent for Class A
shares and 2.72 percent for Class B shares of Global Asset Allocation Series.

PORTFOLIO MANAGEMENT

The Global Asset Allocation Series is managed by an investment management
team of MFR. Bruce Jensen, Chief Investment Officer, has day-to-day
responsibility for managing the Series and directs the allocation of investments
among common stocks and fixed income securities. The common stock portion of the
Series' portfolio receives sub-investment advisory services from Lexington for
international equities and SMC for domestic equities. The Global High Yield
Series is managed by an investment management team of Lexington and MFR. Denis
P. Jamison and Maria Fiorini Ramirez have day-to-day responsibility for managing
the Series and have managed the Series since its inception in 1995. The Emerging
Markets Total Return Series is managed by an investment management team of MFR.
Bruce Jensen, Chief Investment Officer, has day-to-day responsibility for
managing the Series and directs the allocation of investments among common
stocks and fixed income securities. The common stock portion of the Series
receives sub-investment advisory services from Lexington.

Denis Jamison, C.F.A., Senior Vice President, Director Fixed Income
Strategy of Lexington, 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 Lexington 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.

Bruce Jensen, Chief Investment Officer of MFR, holds a bachelor's degree
in Accounting from Boston University and an M.B.A. in Finance from Fairleigh
Dickinson University. Prior to joining MFR in 1992, he spent six years with the
Pilgrim Group in Los Angeles and was Senior Vice President in charge of Fixed
Income. Prior to Pilgrim, Mr. Jensen was a fixed income Portfolio Manger with
Lexington. Mr. Jensen has managed the Emerging Markets Total Return and Global
Asset Allocation Series since their inception, May 1997.

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.

YEAR 2000 COMPLIANCE

Like other mutual funds, as well as other financial and business
organizations around the world, the Fund could be adversely affected if the
computer systems used by MFR, and other service providers, in performing its
administrative functions do not properly process and calculate date-related
information and data before, during and after January 1, 2000. Some computer
software and hardware systems currently cannot distinguish between the year 2000
and the year 1900 or some other date because of the way date fields were
encoded.

SMC, which provides administrative services to the Fund, has adopted a
plan to be "Year 2000 Compliant" with respect to both its internally built
systems as well as systems provided by external vendors. "Year 2000 Compliant"
means that systems and programs which require modification will have the date
fields expanded to include the century information and that for interfaces to
external organizations as well as new systems development the year portion of
the date field will be expanded to four digits using the format YYYYMMDD. SMC's
overall approach to addressing the Year 2000 issue is as follows: (1) to
inventory its internal and external hardware, software, telecommunications and
data transmissions to customers and conduct a risk assessment with respect to
the impact that a failure of any such system would have on its business
operations; (2) to modify or replace its internal systems and obtain vendor
certifications of Year 2000 compliance for systems provided by vendors or
replace such systems that are not Year 2000 Compliant; and (3) to implement and
test its systems for Year 2000 compliance. SMC has completed the inventory of
its internal and external systems and has made substantial progress toward
completing the modification/replacement of its internal systems as well as
towards obtaining Year 2000 Compliant certifications from its external vendors.
Overall systems testing is scheduled to commence in December 1998 and extend
into the first six months of 1999.

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

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

HOW TO PURCHASE SHARES

As discussed below, shares of the Series may be purchased with either a
front-end or contingent deferred sales charge. Each Series 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 Series
do not issue certificates for Series shares except upon written request by the
stockholder.

Security Distributors, Inc. (the "Distributor"), is principal underwriter
for the Series. Shares of the Series 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 the Series 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 the Series 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 Distributor 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 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 Distributor prior to the close of business on the next
business day will receive the next business day's offering price.

ALTERNATIVE PURCHASE OPTIONS The Series 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 B on page 50 for a
discussion of possible reductions in the front-end sales charge.

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 Series 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 the Series are offered at net asset value plus an
initial sales charge as follows:

APPLICABLE SALES CHARGE
PERCENTAGE PERCENTAGE OF PERCENTAGE
AMOUNT OF PURCHASE OF OFFERING NET AMOUNT REALLOWABLE
AT OFFERING PRICE PRICE INVESTED TO DEALERS
- --------------------------------------------------------------------------------
Less than $50,000 ................... 4.75% 4.99% 4.00%
$50,000 but less than $100,000 ...... 3.75% 3.90% 3.00%
$100,000 but less than $250,000 ..... 2.75% 2.83% 2.20%
$250,000 but less than $1,000,000.... 1.75% 1.78% 1.40%
$1,000,000 and over ................. None None (See below)
- --------------------------------------------------------------------------------

Purchases of Class A shares 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 38.

CLASS A DISTRIBUTION PLAN

In addition to the sales charge deducted from Class A shares at the time
of purchase, each Series 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 the Series to the Distributor, to finance various activities relating to the
distribution of 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 Series.

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 each Series' Class A shares. The distribution
fee is charged to each Series in proportion to the relative net assets of their
Class A shares. The distribution fees collected may be used by the Series to
finance joint distribution activities, for example joint advertisements, and the
costs of such joint activities will be allocated among the Series 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
the Series 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 Series' books to obtain certain administrative services for the Series'
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 Series and their
transactions with the Series. The Distributor is also authorized to engage in
advertising, the preparation and distribution of sales literature and other
promotional activities on behalf of the Series. Other promotional activities
which may be financed pursuant to the Plan include (i) informational meetings
concerning the Series for registered representatives interested in selling
shares of the Series 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 the Series 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 Series' Statement of Additional Information.

The Series' Class A Distribution Plan may be terminated at any time by
vote of the directors of the 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 of the Series. In the event the Class A Distribution Plan is terminated
by the Series' 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 the Series are offered at net asset value, without an
initial sales charge. With certain exceptions, the Series 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 SMC.) 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 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 Fund's 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 the Series 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 Series' 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 Series 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 each year after the first, 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 Series.

NASD Rules limit the aggregate amount that each Series 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 Series. The Distributor intends to seek full payment of such charges
from the Series (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 Series would be within permitted limits.

Each Series' 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 Fund's 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 Series 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

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 Series pursuant to a systematic
withdrawal program. See "Systematic Withdrawal Program," page 45 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 whose representatives have sold or are expected
to sell significant amounts of the Series. 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 MFR 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
Series. 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 Series 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 Series for their clients a transaction
fee up to the level of the payments made allowable to dealers for the sale of
such shares as described above. Banks currently are prohibited under the
Glass-Steagall Act from providing certain underwriting or distribution services.
If banking firms were prohibited from acting in any capacity or providing any of
the described services, the Fund's Board of Directors would consider what
action, if any, would be appropriate.

PURCHASES AT NET ASSET VALUE

Class A shares of the Series may be purchased at net asset value by (1)
directors, officers and employees of the Fund, MFR (and its affiliates) or the
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 Series.

Class A shares of the Series also may 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 Global High Yield Series for the
fiscal years ended December 31, 1997 and 1996, were 88 percent and 96 percent,
respectively. The annualized portfolio turnover rate for the Emerging Markets
Total Return Series and Global Asset Allocation Series for the period May 19,
1997 (date of inception) to December 31, 1997 was 22 percent and 28 percent,
respectively. The portfolio turnover rate of each Series may exceed 100 percent,
but is not expected to do so. Higher portfolio turnover subjects a Series to
increased brokerage costs and may, in some cases, have adverse tax effects on a
Series or its stockholders.

Transactions in portfolio securities are effected in the manner deemed to
be in the best interests of each Series. 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 MFR or Lexington or who sell shares of the
Series. MFR may, consistent with the NASD's Conduct Rules, consider sales of
shares of the Series in the selection of a broker.

Securities held by the Series also may be held by other investment
advisory clients of MFR, including other investment companies. Purchases or
sales of the same security occurring on the same day may be aggregated and
executed as a single transaction, subject to MFR's obligation to seek best
execution. Aggregated purchases or 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 Series' 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 Series' Transfer Agent, Security Management Company, LLC ("SMC"). A request
is made in proper order by submitting the following items to SMC: (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
SMC 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. SMC
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 SMC by calling
1-800-643-8188.

The redemption price will be the net asset value of the shares next
computed after the redemption request in proper order is received by SMC.
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 SMC, within
seven days after receipt of the redemption request in proper order. If a wire
transfer is requested, SMC 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.

In addition to the foregoing redemption procedures, the Series 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.

Requests also may 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 which may
be obtained from SMC. 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 SMC, a stockholder may redeem shares by calling the Series
at 1-800-643-8188, on weekdays (except holidays) between the hours of 7:00 a.m.
and 6:00 p.m. Central time. Telephone redemptions are not accepted for IRA and
403(b)(7) accounts. 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 SMC to act upon the instructions of any person
identifying themselves as the owner of an account or the owner's broker. SMC 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. SMC'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, SMC, nor the
Distributor shall be liable for any loss, liability, cost or expense arising out
of any redemption request, provided SMC 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 SMC or the Fund.

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 40.

DIVIDENDS AND TAXES

It is the policy of the Global High Yield Series to pay dividends from net
investment income quarterly and to distribute realized capital gains (if any) in
excess of any capital losses and capital loss carryovers, at least once a year.
The other Series expect to distribute, at least once a year, substantially all
of the Series' net investment income and net realized capital gains. Because
Class A shares of the Series bear most of the costs of distribution of such
shares through payment of a front-end sales charge, while Class B shares of the
Series bear such costs through a higher distribution fee, expenses attributable
to Class B shares, generally, will be higher and as a result, income
distributions paid by the Series 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 Series at net asset value as of the record date (reduced by an
amount equal to the amount of the dividend or distribution) unless SMC is
previously notified in writing by the stockholder that such dividends or
distributions are to be received in cash. A stockholder also may 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 Series 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.

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

Certain requirements relating to the qualification of a Series as a
regulated investment company may limit the extent to which a Series 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 Series were unable to dispose of portfolio
securities due to settlement problems relating to foreign investments or due to
the holding of illiquid securities, the Series' ability to qualify as a
regulated investment company might be affected.

The Series will not pay dividends or distributions of less than $25 in cash
but will automatically reinvest them.

Each of the Series 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 Series, and makes federal income tax
upon income and capital gains generated by a Series' investments, the sole
responsibility of its stockholders provided the Series continues to so qualify
and distributes all of its net investment income and net realized capital gain
to its stockholders. Furthermore, the Series generally will not be subject to
excise taxes imposed on certain regulated investment companies provided that
each Series distributes 98 percent of its ordinary income and 98 percent of its
net capital gain income each year.

Distributions of net investment income and realized net short-term capital
gain by the Series are taxable to stockholders as ordinary income whether
received in cash or reinvested in additional shares. Distributions of net
capital gain, whether received in cash or reinvested in Fund shares, will
generally be taxable to shareholders as either "20% Gain" or "28% Gain,"
depending upon the Series' holding period for the assets sold. "20% Gains" arise
from sales of assets held by a Series for more than 18 months and are subject to
a maximum tax rate of 20%; "28% Gains" arise from sales of assets held by a
Series for more than one year but no more than 18 months and are subject to a
maximum tax rate of 28%. Net capital gains from assets held for one year or less
will be taxed as ordinary income. Distributions will be subject to these capital
gains rates regardless of how long a shareholder has held Fund shares.

At December 31, 1997, Emerging Markets Total Series had accumulated net
realized losses on sales of investments in the amount of $4,464.

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
Series.

The Series 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 10 to 15 percent) or to exemptions from tax. If
applicable, the Series will operate so as to qualify for such reduced tax rates
or tax exemptions whenever possible. The payment of such taxes will reduce the
amount of dividends and distributions paid to the Funds' stockholders. So long
as a Series qualifies as a regulated investment company, certain distribution
requirements are satisfied, and more than 50% of such Series' assets at the
close of the taxable year consists of securities of foreign corporations, the
Series may elect, subject to limitation, to pass through its foreign tax credits
to its stockholders.

DETERMINATION OF NET ASSET VALUE

The net asset value per share of each Series 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 determination is
made by dividing the value of the portfolio securities of each Series plus any
cash or other assets, less all liabilities, by the number of shares outstanding
of the Series.

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 SMC, then the securities
are valued in good faith by such method as the Board of Directors determines
will reflect the fair market value.

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.

Because the expenses of distribution are borne by Class A shares of the
Series through a front-end sales charge and by Class B shares of such Series
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 Series 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," "average annual total
return" and "aggregate total return."

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.

Average annual total return will be expressed in terms of the average
annual compounded rate of return of a hypothetical investment in the Series over
periods of one, five and ten years (up to the life of the Series). Such average
annual total return figures will reflect the deduction of the maximum sales
charge and a proportional share of Series 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 the Series 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.

Quotations of performance reflect only the performance of a hypothetical
investment in a Series during the particular time period on which the
calculations are based. Such quotations for the Series will vary based on
changes in market conditions and the level of the Series' 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 Series 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. The Series will
include performance data for both Class A and Class B shares of the Series in
any advertisement or report including performance data of the Series.

For a more detailed description of the methods used to calculate
performance, see the Series' Statement of Additional Information.

STOCKHOLDER SERVICES

ACCUMULATION PLAN

An investor in the Series 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 Series 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 Series 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 (800) 643-8188.

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 be
allowed only if shares with a current offering price of $5,000 or more are
deposited with SMC, 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 38. A Systematic Withdrawal form may be
obtained from the Series.

EXCHANGE PRIVILEGE

Stockholders who own shares of the Series may exchange those shares for
shares of another of the Series or for shares of other mutual funds distributed
by the Distributor (the "Security Funds"). Exchanges may be made only in those
states where shares of the Series or the Security 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 Series may be exchanged for Class
A and Class B shares, respectively, of another Series or Security Fund. Any
applicable contingent deferred sales charge will be calculated from the date of
the initial purchase. Exchanges of Class A shares are made at net asset value
without a front-end sales charge.

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 Fund upon 60 days' notice to
stockholders. A current prospectus of the Series 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 SMC. Once authorization has been received by SMC, a stockholder
may exchange shares by telephone by calling the Funds at 1-800-643-8188, 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 SMC to act
upon the instructions of any person by telephone to exchange shares between any
identically registered accounts with the Series. SMC 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. SMC'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, SMC nor the Distributor will be liable for
any loss, liability, cost or expense arising out of any request, including any
fraudulent request, provided SMC 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 Fund.

RETIREMENT PLANS

The Series 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
Series' Statement of Additional Information.

GENERAL INFORMATION

ORGANIZATION

The Articles of Incorporation of the Fund provide for the issuance of an
indefinite number of shares of capital stock in one or more classes or series.

The Fund has authorized capital stock of $1.00 par value. Its shares are
currently issued in seven series: Emerging Markets Total Return, Global Asset
Allocation, Global High Yield, Corporate Bond, Limited Maturity Bond, U.S.
Government, and High Yield Series. 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.

Each of the Series 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 Series' shares will be fully paid and
nonassessable by the Series. 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 the 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 Fund does 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 the Fund's
outstanding shares.

STOCKHOLDER INQUIRIES

Stockholders who have questions concerning their account or wish to obtain
additional information may write to the Series at 700 SW Harrison Street,
Topeka, Kansas 66636-0001, or call 1-800-643-8188.

APPENDIX A

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.

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.

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.

APPENDIX B

REDUCED SALES CHARGES
CLASS A SHARES

Initial sales charges may be reduced or eliminated for persons or
organizations purchasing Class A shares of the Series.

RIGHTS OF ACCUMULATION

To reduce sales charges on purchases of Class A shares of the Series a
Purchaser may combine all previous purchases of the Series 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 the Class A
shares of a Series and one or more of the other Series in those states where
shares of the Series being purchased are qualified for sale.

STATEMENT OF INTENTION

A Purchaser of the Series 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 the Series. 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 Series if the Purchaser is
required to pay additional sales charges. Any dividends paid by the Series will
be payable with respect to escrow shares. The Purchaser bears the risk that the
escrow shares may decrease in value.

REINSTATEMENT PRIVILEGE

Stockholders who redeem their Class A shares of the Series 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 Series, 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
Series 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 Series.
<PAGE>
SECURITY INCOME FUND
* CORPORATE BOND SERIES
* LIMITED MATURITY BOND SERIES
* U.S. GOVERNMENT SERIES
* HIGH YIELD SERIES

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

SECURITY CASH FUND

STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1998
RELATING TO THE PROSPECTUS DATED MAY 1, 1998,
AS IT MAY BE SUPPLEMENTED FROM TIME TO TIME
(785) 431-3127
(800) 888-2461
- -------------------------------------------------------------------------------

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

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

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

INDEPENDENT AUDITORS
Ernst & Young LLP
One Kansas City Place
1200 Main Street
Kansas City, Missouri 64105-2143
<PAGE>
SECURITY INCOME FUND
SECURITY MUNICIPAL BOND FUND
(formerly Security Tax-Exempt Fund)
SECURITY CASH FUND

Members of The Security Benefit Group of Companies
700 SW Harrison, Topeka, Kansas 66636-0001

STATEMENT OF
ADDITIONAL INFORMATION
May 1, 1998
(RELATING TO THE PROSPECTUS DATED MAY 1, 1998,
AS IT MAY BE SUPPLEMENTED FROM TIME TO TIME)

This Statement of Additional Information is not a Prospectus. It should be
read in conjunction with the Prospectus dated May 1, 1998, as it may be
supplemented from time to time. A Prospectus may be obtained by writing or
calling Security Distributors, Inc., 700 SW Harrison, Topeka, Kansas 66636-0001,
or by calling (785) 431-3127 or (800) 888-2461, ext. 3127.

TABLE OF CONTENTS

Page
General Information....................................................... 1
Investment Objectives and Policies of the Funds........................... 2
Security Income Fund.................................................... 2
Corporate Bond Fund................................................... 2
Limited Maturity Bond Fund............................................ 3
U.S. Government Fund.................................................. 5
High Yield Fund....................................................... 7
Security Municipal Bond Fund............................................ 8
Security Cash Fund...................................................... 12
Investment Methods and Risk Factors....................................... 14
Investment Policy Limitations............................................. 26
Income Fund's Fundamental Policies...................................... 26
Municipal Bond Fund's Fundamental Policies.............................. 27
Cash Fund's Fundamental Policies........................................ 28
Officers and Directors.................................................... 29
Remuneration of Directors and Others...................................... 31
How to Purchase Shares.................................................... 31
Corporate Bond, Limited Maturity Bond, U.S. Government, High Yield
and Municipal Bond Funds.............................................. 32
Alternative Purchase Options............................................ 32
Class A Shares.......................................................... 32
Security Income Fund's and Municipal Bond Funds'
Class A Distribution Plans............................................ 33
Class B Shares.......................................................... 34
Class B Distribution Plan............................................... 35
Calculation and Waiver of Contingent Deferred Sales Charges............. 35
Arrangements With Broker/Dealers and Others............................. 36
Cash Fund............................................................... 37
Purchases at Net Asset Value.............................................. 38
Accumulation Plan......................................................... 38
Systematic Withdrawal Program............................................. 38
Investment Management..................................................... 39
Portfolio Management.................................................... 41
Code of Ethics.......................................................... 42
Distributor............................................................... 42
Allocation of Portfolio Brokerage......................................... 43
Determination of Net Asset Value.......................................... 44
How to Redeem Shares...................................................... 45
Telephone Redemptions................................................... 47
How to Exchange Shares.................................................... 47
Exchange by Telephone................................................... 48
Dividends and Taxes....................................................... 48
Organization.............................................................. 53
Custodian, Transfer Agent and Dividend-Paying Agent....................... 54
Independent Auditors...................................................... 54
Performance Information................................................... 54
Retirement Plans.......................................................... 56
Individual Retirement Accounts (IRAs)..................................... 57
Roth IRAs................................................................. 57
Education IRAs............................................................ 57
SIMPLE IRAs............................................................... 57
Pension and Profit-Sharing Plans.......................................... 58
403(b) Retirement Plans................................................... 58
Simplified Employee Pension Plans (SEPPs)................................. 59
Financial Statements...................................................... 59
Tax-Exempt vs. Taxable Income............................................. 59
Appendix A................................................................ 60
<PAGE>
GENERAL INFORMATION

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

Each of the Corporate Bond Series ("Corporate Bond Fund"), Limited Maturity
Bond Series ("Limited Maturity Bond Fund"), U.S. Government Series ("U.S.
Government Fund") and High Yield Series ("High Yield Fund") of Security Income
Fund, Security Municipal Bond Fund ("Municipal Bond Fund"), and Security Cash
Fund ("Cash Fund") (the "Funds") has its own investment objective and policies
which are described below. While there is no present intention to do so, the
investment objective and policies of each Fund, unless otherwise noted, may be
changed by its Board of Directors without the approval of stockholders. Each of
the Funds is also required to operate within limitations imposed by its
fundamental investment policies which may not be changed without stockholder
approval. These limitations are set forth below under "Investment Policy
Limitations," page 256. An investment in one of the Funds does not constitute a
complete investment program.

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

The shares of Corporate Bond, Limited Maturity Bond, U.S. Government, High
Yield and Municipal Bond Funds are sold to the public at net asset value, plus a
sales commission which is divided between the principal distributor and dealers
who sell the shares ("Class A shares"), or at net asset value with a contingent
deferred sales charge ("Class B shares"). The shares of Cash Fund are sold to
the public at net asset value. There is no sales charge or load when purchasing
shares of Cash Fund. (See "How to Purchase Shares," page 312.)

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

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

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

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

The Funds may utilize short-term trading to a limited extent in order to take
advantage of differentials in bond yields consistent with their respective
investment objectives. The portfolio turnover rate for the Funds' Class A and B
shares for the fiscal year ended December 31, 1997 was: Corporate Bond - 120% ;
U.S. Government - 39%; Limited Maturity Bond - 76%; High Yield - 87%; and
Municipal Bond - 48%. The portfolio turnover rate for the Funds' Class A and B
shares for the fiscal year ended December 31, 1996, was: Corporate Bond - 292%;
U.S. Government - 75%; Limited Maturity Bond -105%; and Municipal Bond - 54%.
The annualized portfolio turnover rate for the Class A and B shares of High
Yield Fund for the period August 5, 1996 (date of inception) to December 31,
1996 was 168%. Portfolio turnover is the percentage of the lower of security
sales or purchases to the average portfolio value and would be 100% if all
securities in the Fund were replaced within a period of one year.

INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS

SECURITY INCOME FUND

Security Income Fund ("Income Fund") consists of seven diversified Series
(Corporate Bond, Limited Maturity Bond, U.S. Government, High Yield, MFR
Emerging Markets Total Return, MFR Global Asset Allocation and MFR Global High
Yield (formerly Global Aggressive Bond) Funds), each of which represents a
different investment objective and which has its own identified assets and net
asset values. The investment objectives of Corporate Bond, Limited Maturity
Bond, U.S. Government and High Yield Funds are each described below. There are
risks inherent in the ownership of any security and there can be no assurance
that such investment objectives will be achieved. Some of the risks are
described below.

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

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

CORPORATE BOND FUND

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

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

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

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

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

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

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

LIMITED MATURITY BOND FUND

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

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

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

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

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

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

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

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

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

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

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

U.S. GOVERNMENT FUND

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

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

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

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

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

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

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

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

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

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

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

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

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

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

HIGH YIELD FUND

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

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

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

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

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

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

High Yield Fund may acquire certain securities that are restricted as to
disposition under federal securities laws, including securities eligible for
resale to qualified institutional investors pursuant to Rule 144A under the
Securities Act of 1933, subject to the Fund's policy that not more than 10% of
the Fund's net assets will be invested in illiquid assets. See "Investment
Methods and Risk Factors" for a discussion of restricted securities.

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

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

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

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

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

SECURITY MUNICIPAL BOND FUND

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

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

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

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

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

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

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

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

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

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

MUNICIPAL SECURITIES

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

Municipal Bond Fund may invest without percentage limitations in issues of
municipal securities which have similar characteristics, such as the location of
their issuers in the same geographic region or the derivation of interest
payments from revenues on similar projects (for example, electric utility
systems, hospitals, or housing finance agencies). Thus, Municipal Bond Fund may
invest more than 25% of its total assets in securities issued in a single state.
However, it may not invest more than 25% of its total assets in one industry.
(See "Investment Policy Limitations," page 256.) Consequently, the Fund's
portfolio of municipal securities may be more susceptible to the risks of
adverse economic, political, or regulatory developments than would be the case
with a portfolio of securities required to be more diversified as to geographic
region and/or source of revenue.

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

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

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

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

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

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

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

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

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

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

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

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

SECURITY CASH FUND

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

INVESTMENT METHODS AND RISK FACTORS

Some of the risk factors related to certain securities, instruments and
techniques that may be used by one or more of the Funds are described in the
"Investment Objectives and Policies" and "Investment Methods and Risk Factors"
sections of the Prospectus and in this 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 which use
such techniques. Also included is a general description of some of the
investment instruments, techniques and methods which may be used by one or more
of the Funds. The methods described only apply to those Funds which may use such
methods. Although a Fund may employ the techniques, instruments and methods
described below, consistent with its investment objective and policies and any
applicable law, no Fund will be required to do so.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

DERIVATIVE INSTRUMENTS: OPTIONS AND FUTURES STRATEGIES

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

INVESTMENT POLICY LIMITATIONS

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

INCOME FUND'S FUNDAMENTAL POLICIES

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

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

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

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

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

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

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

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

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

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

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

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

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

13. With respect to each of the Corporate Bond and U.S. Government Funds, not
to borrow money except for emergency purposes, and then not in excess of 5%
of its total assets at the time the loan is made. (Any such borrowings will
be made on a temporary basis from banks and will not be made for investment
purposes.) With respect to the Limited Maturity Bond Fund, not to borrow
money in excess of 10% of its total assets at the time the loan is made,
and then only as a temporary measure for emergency purposes, to facilitate
redemption requests, or for other purposes consistent with the Fund's
investment objectives and policies. With respect to High Yield Fund, not to
borrow money, except that (a) the Fund may enter into certain futures
contracts and options related thereto; (b) the Fund may enter into
commitments to purchase securities in accordance with the Fund's investment
program, including delayed delivery and when-issued securities and reverse
repurchase agreements, and (c) for temporary emergency purposes, High Yield
Fund may borrow in amounts not exceeding 33 1/3% of the value of its total
assets at the time when the loan is made.

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

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

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

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

MUNICIPAL BOND FUND'S FUNDAMENTAL POLICIES

Municipal Bond Fund's fundamental investment policies are:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

CASH FUND'S FUNDAMENTAL POLICIES

Cash Fund's fundamental investment policies are:

1. Not to purchase any securities other than those referred to under "Security
Cash Fund," page 12;

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

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

4. Not to make loans of money or securities, except (a) by the purchase of
debt obligations in which the Fund may invest consistent with its
investment objectives and policies or (b) by investment in repurchase
agreements, subject to limitations described under "Security Cash Fund,"
page 12;

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

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

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

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

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

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

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

12. Not to make short sales of securities;

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

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

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

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

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

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

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

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

OFFICERS AND DIRECTORS

The officers and directors of the Funds and their principal occupations for
at least the last five years are as follows. Unless otherwise noted, the address
of each officer and director is 700 Harrison Street, Topeka, Kansas 66636-0001.
<TABLE>
<CAPTION>
- --------------------------------------------------------------- --------------------------------------------------------------------
NAME, ADDRESS AND POSITIONS HELD WITH THE FUNDS PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
- --------------------------------------------------------------- --------------------------------------------------------------------
<S> <C>
JOHN D. CLELAND,* President and Director Senior Vice President and Managing Member Representative, Security
Management Company, LLC; Senior Vice President, Security Benefit
Group, Inc. and Security Benefit Life Insurance Company.

DONALD A. CHUBB, JR.,** Director Business broker, Griffith & Blair Realtors. Prior to 1997,
2222 SW 29th Street President, Neon Tube Light Company, Inc.
Topeka, Kansas 66611

PENNY A. LUMPKIN,** Director Vice President, Palmer Companies, Inc. (Wholesalers, Retailers and
3616 Canterbury Town Road Developers) and Bellaire Shopping Center (Leasing and Shopping
Topeka, Kansas 66610 Center Management); Secretary Treasurer, Palmer News, Inc.
(Wholesale Distributors).

MARK L. MORRIS, JR.,** Director Retired Former General Partner, Mark Morris Associates
5500 SW 7th Street (Veterinary Research and Education).
Topeka, Kansas 66606

MAYNARD OLIVERIUS, Director President and Chief Executive Officer, Stormont-Vail HealthCare.
1500 SW 10th Avenue
Topeka, Kansas 66604

JAMES R. SCHMANK,* Vice President and Director President and Managing Member Representative, Security Management
(Municipal Bond and Cash Funds) Company, LLC; Senior Vice President, Security Benefit Group, Inc.
and Security Benefit Life Insurance Company.

MARIA FIORINI RAMIREZ,* Director (Income Fund) President and Chief Executive Officer, Maria Fiorini Ramirez, Inc.
One Liberty Plaza, 46th Floor
New York, New York 10006

MARK E. YOUNG, Vice President Vice President, Security Management Company, LLC; Second Vice
President, Security Benefit Group, Inc. and Security Benefit Life
Insurance Company.

JANE A. TEDDER, Vice President Vice President and Senior Economist, Security Management Company,
LLC; Vice President, Security Benefit Group, Inc. and Security
Benefit Life Insurance Company.

AMY J. LEE, Secretary Secretary, Security Management Company, LLC; Vice President,
Associate General Counsel and Assistant Secretary, Security Benefit
Group, Inc. and Security Benefit Life Insurance Company.

BRENDA M. HARWOOD, Treasurer Assistant Vice President and Treasurer, Security Management Company,
LLC; Assistant Vice President, Security Benefit Group, Inc. and
Security Benefit Life Insurance Company.

STEVEN M. BOWSER, Vice President Second Vice President and Portfolio Manager, Security Management
(Income Fund) Company, LLC; Second Vice President, Security Benefit Group, Inc.
and Security Benefit Life Insurance Company. Prior to October 1992,
Assistant Vice President and Portfolio Manager, Federal Home Loan
Bank.

THOMAS A. SWANK, Vice President Vice President and Portfolio Manager, Security Management Company,
(Income Fund) LLC; Vice President and Chief Investment Officer, Security Benefit
Group, Inc. and Security Benefit Life Insurance Company.

DAVID ESHNAUR, Vice President Assistant Vice President and Portfolio Manager, Security Management
Company, LLC. Prior to July 1997, Assistant Vice President and
Assistant Portfolio Manager, Waddell & Reed.

CHRISTOPHER D. SWICKARD, Assistant Secretary Assistant Secretary, Security Management Company, LLC; Assistant
Vice President and Assistant Counsel, Security Benefit Group, Inc.
and Security Benefit Life Insurance Company. Prior to June 1992,
student at Washburn University School of Law.
</TABLE>
- --------------------------------------------------------------------------------
*These directors are deemed to be "interested persons" of the Funds under the
Investment Company Act of 1940, as amended.

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

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

REMUNERATION OF DIRECTORS AND OTHERS

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

The Funds do not pay any fees to, or reimburse expenses of, their directors
who are considered "interested persons" of the Fund. The aggregate compensation
paid by the Fund to each of the directors during the fiscal year ended December
31, 1997, and the aggregate compensation paid to each of the directors during
calendar year 1997 by the Security Fund Complex, are set forth in the
accompanying chart. Each of the directors is a director of each of the other
registered investment companies in the Security Fund Complex.
<TABLE>
<CAPTION>
PENSION OR RETIREMENT
BENEFITS ACCRUED AS ESTIMATED
AGGREGATE COMPENSATION PART OF FUND EXPENSES ANNUAL TOTAL COMPENSATION
NAME OF ------------------------------- ------------------------------- BENEFITS FROM THE SECURITY
DIRECTOR OF INCOME MUNICIPAL CASH INCOME MUNICIPAL CASH UPON FUND COMPLEX,
THE FUND FUND BOND FUND FUND FUND BOND FUND FUND RETIREMENT INCLUDING THE FUNDS
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Willis A. Anton, Jr.* $ 394 $ 394 $ 394 $ 0 $ 0 $ 0 $ 0 $ 4,725
Donald A. Chubb, Jr. 1,971 1,971 1,971 0 0 0 0 23,650
John D. Cleland 0 0 0 0 0 0 0 0
Donald L. Hardesty* 1,788 1,788 1,788 0 0 0 0 21,450
Penny A. Lumpkin 1,971 1,971 1,971 0 0 0 0 23,650
Mark L. Morris, Jr. 1,971 1,971 1,971 0 0 0 0 23,650
James R. Schmank 0 0 0 0 0 0 0 0
Harold G. Worswick** 0 0 0 0 0 0 0 0
Hugh L. Thompson 1,788 1,788 1,788 0 0 0 0 21,450
</TABLE>
- --------------------------------------------------------------------------------
*Mr. Anton retired as a fund director February 1997. Mr. Hardesty resigned as a
fund director effective April 1998.

**Mr. Worswick retired as a fund director February 1996. The amount of deferred
compensation accrued for Mr. Worswick as of December 31, 1997, was $22,560.
Mr. Worswick received deferred compensation in the amount of $15,266 during
the year ended December 31, 1997.
- --------------------------------------------------------------------------------

As of March 31, 1998, the Funds' officers and directors (as a group)
beneficially owned less than 1% of the total outstanding Class A shares of
Corporate Bond, Limited Maturity Bond, U.S. Government and High Yield Funds.
Cash Fund's officers and directors (as a group) beneficially owned less than 1%
of the total outstanding shares as of March 31, 1998. As of March 31, 1998,
Municipal Bond Fund's officers and directors (as a group) beneficially owned
27,067 of Class A shares of Municipal Bond Fund which represented approximately
1.24% of the total outstanding Class A shares on that date.

HOW TO PURCHASE SHARES

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

CORPORATE BOND, LIMITED MATURITY BOND, U.S. GOVERNMENT, HIGH YIELD AND MUNICIPAL
BOND FUNDS

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

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

ALTERNATIVE PURCHASE OPTIONS

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

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

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

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

CLASS A SHARES

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

SALES CHARGE
--------------------------------------------
APPLICABLE PERCENTAGE OF PERCENTAGE
AMOUNT OF PURCHASE PERCENTAGE OF NET AMOUNT REALLOWABLE
AT 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 or more.................. None None (See below)
- --------------------------------------------------------------------------------

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

SECURITY INCOME AND MUNICIPAL BOND FUNDS' CLASS A DISTRIBUTION PLANS

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

For Income Fund, the Plan became effective on August 15, 1985, and was
renewed by the directors of Income Fund on February 6, 1998, as to each of
Corporate Bond and U.S. Government Funds. The Plan was adopted with respect to
Limited Maturity Bond on October 21, 1994 and was renewed by the directors of
Income Fund on February 6, 1998. The Plan was adopted with respect to the High
Yield Fund on May 3, 1996, and renewed by the directors of Income Fund on
February 6, 1998. For Municipal Bond Fund, the Plan became effective on May 1,
1998. Each Plan will continue from year to year, provided that such continuance
is approved at least annually by a vote of a majority of the Board of Directors
of each Fund, including a majority of the independent directors cast in person
at a meeting called for the purpose of voting on such continuance. The Plan can
also be terminated at any time on 60 days' written notice, without penalty, if a
majority of the disinterested directors or the Class A shareholders vote to
terminate the Plan. Any agreement relating to the implementation of the Plan
terminates automatically if it is assigned. The Plans may not be amended to
increase materially the amount of payments thereunder without approval of the
Class A shareholders of the Funds.

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

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

Distribution fees paid by Class A stockholders of Corporate Bond, Limited
Maturity Bond, U.S. Government and High Yield Funds to the Distributor under the
Plan for the year ended December 31, 1997, totaled $194,234. In addition, $4,310
was carried forward from the previous plan year. Approximately $112,360 of this
amount was paid as a service fee to broker/dealers and $90,489 was spent on
promotions, resulting in a deficit of $12,926 going into the 1998 plan year. The
amount spent on promotions consists primarily of amounts reimbursed to dealers
for expenses (primarily travel, meals and lodging) incurred in connection with
attendance by their representatives at educational meetings concerning Corporate
Bond and U.S. Government Funds. The Distributor may engage the services of an
affiliated advertising agency for advertising, preparation of sales literature
and other distribution-related activities.

CLASS B SHARES

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

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

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

CLASS B DISTRIBUTION PLAN

Each of Corporate Bond, Limited Maturity Bond, U.S. Government, High Yield
and Municipal Bond Funds bear some of the costs of selling its Class B shares
under a Distribution Plan adopted with respect to its Class B shares ("Class B
Distribution Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940 ("1940 Act"). This Plan was adopted by the Board of Directors of Corporate
Bond, U.S. Government and Municipal Bond Funds on July 23, 1993 and was renewed
on February 6, 1998. The Plan was adopted with respect to Limited Maturity Bond
Fund on October 21, 1994 and was renewed on February 6, 1998. The Plan was
adopted with respect to the High Yield Fund on May 3, 1996, and renewed by the
directors of Income Fund on February 6, 1998. The Plan provides for payments at
an annual rate of 1.00% of the average daily net asset value of Class B shares.
Amounts paid by the Funds are currently used to pay dealers and other firms that
make Class B shares available to their customers (1) a commission at the time of
purchase normally equal to 4.00% of the value of each share sold and (2) a
service fee payable for the first year, initially, and for each year thereafter,
quarterly, in an amount equal to .25% annually of the average daily net asset
value of Class B shares sold by such dealers and other firms and remaining
outstanding on the books of the Funds.

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

Each Fund's Class B Distribution Plan may be terminated at any time by vote
of its directors who are not interested persons of the Fund as defined in the
1940 Act or by vote of a majority of the outstanding Class B shares. In the
event the Class B Distribution Plan is terminated by the Class B stockholders or
the Funds' Board of Directors, the payments made to the Distributor pursuant to
the Plan up to that time would be retained by the Distributor. Any expenses
incurred by the Distributor in excess of those payments would be absorbed by the
Distributor. Distribution fees paid by Class B stockholders of Corporate Bond,
Limited Maturity Bond, U.S. Government, High Yield and Municipal Bond Funds to
the Distributor under the Plan for the year ended December 31, 1997, totaled
$134,594. The Funds make no payments in connection with the sales of their Class
B shares other than the distribution fee paid to the Distributor.

CALCULATION AND WAIVER OF CONTINGENT DEFERRED SALES CHARGES

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

ARRANGEMENTS WITH BROKER/DEALERS AND OTHERS

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

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

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

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

For the calendar year ended December 31, 1997, the following dealers received
a marketing allowance:

DEALER AMOUNT
- --------------------------------------------------------- ---------
Legend Equities Corp.................................... $ 149,054
Investment Advisors & Consultants, Inc.................. 24,480
VSR Financial Services, Inc............................. 19,859
Hepfner Securities Corp................................. 13,671
OFG Financial Services, Inc............................. 6,555
Berthel Fisher & Company Financial Services, Inc........ 6,038
SunAmerica.............................................. 4,022
J. D. Andrews........................................... 3,493
George K. Baum & Co., Inc............................... 3,799
KMS..................................................... 3,034
---------
$ 231,932
=========

CASH FUND

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

1. BY MAIL.

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

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

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

2. BY WIRE.

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

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

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

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

PURCHASES AT NET ASSET VALUE

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

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

ACCUMULATION PLAN

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

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

SYSTEMATIC WITHDRAWAL PROGRAM

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

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

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

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

INVESTMENT MANAGEMENT

Security Management Company, LLC (the "Investment Manager"), 700 Harrison
Street, Topeka, Kansas, has served as investment adviser to Income Fund,
Municipal Bond Fund and Cash Fund, respectively, since September 14, 1970,
October 7, 1983 and June 23, 1980. The current Investment Advisory Contracts for
Income Fund, Municipal Bond Fund and Cash Fund, respectively, are dated March
27, 1987, October 7, 1983 and June 23, 1980, and were renewed by the Funds'
Board of Directors at a regular meeting held February 6, 1998. The Investment
Manager also acts as investment adviser to Security Equity Fund, Security Growth
and Income Fund, Security Ultra Fund and SBL Fund. The Investment Manager is a
limited liability company controlled by its members, Security Benefit Life
Insurance Company and Security Benefit Group, Inc. ("SBG"). SBG is an insurance
and financial services holding company wholly-owned by Security Benefit Life
Insurance Company, 700 Harrison Street, Topeka, Kansas 66636-0001. Security
Benefit Life, a life insurance company with over $7.4 billion of insurance in
force, is incorporated under the laws of Kansas.

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

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

Salomon Brothers is a wholly-owned subsidiary of Salomon Brothers Holding
Company, Inc., which is wholly-owned by Salomon Smith Barney Holdings, Inc.,
which is, in turn, wholly-owned by Travelers Group, Inc. ("Travelers"). Salomon
Brothers was incorporated in 1987 and together with Salomon Brothers affiliates
in London, Frankfurt, Tokyo and Hong Kong, provides a broad range of investment
advisory services to various individuals and institutional clients located
throughout the world and serves as investment adviser to various investment
companies. Currently Salomon Brothers and its affiliates manage approximately
$26.6 billion in assets. On April 6, 1998, Travelers announced that it had
entered into a Merger Agreement with Citicorp. The transaction, which is
expected to be completed during the third quarter of 1998, is subject to various
regulatory approvals, including approval by the Federal Reserve Board. The
transaction is also subject to approval by the stockholders of each of Travelers
and Citicorp. Upon consummation of the merger, the surviving corporation would
be a bank holding company subject to regulation under the Bank Holding Company
Act of 1956 (the "BHCA"), the requirements of the Glass-Steagall Act and certain
other laws and regulations. Although the effects of the merger of Travelers and
Citicorp and compliance with the requirements of the BHCA and the Glass-Steagall
Act are still under review, Salomon Brothers does not believe that its
compliance with applicable law following the merger of Travelers and Citicorp
will have a material adverse effect on its ability to continue to provide the
Fund with investment advisory services.

For services provided to the Funds, the Investment Manager is entitled to
receive compensation on an annual basis equal to .5% of the average daily
closing value of the Corporate Bond, Limited Maturity Bond, U.S. Government,
Municipal Bond and Cash Fund's net assets and .60% of the average daily closing
value of the High Yield Fund, each computed on a daily basis and payable
monthly. During the fiscal years ended December 31, 1997, 1996 and 1995, the
Funds paid the following amounts to the Investment Manager for its services:
1997 - $450,862, 1996 - $534,366, and 1995 - $549,076 for Income Fund; 1997 -
$115,812, 1996 - $120,946, and 1995 - $128,492 for Municipal Bond Fund; and 1997
- - $238,616, 1996 - $247,304, and 1995 - $254,139 for Cash Fund. For the years
ended December 31, 1997, 1996, 1995 , the Investment Manager agreed to limit the
total expenses (including its compensation, but excluding interest, taxes and
extraordinary expenses and Class B distribution fees) of the Class A shares of
Corporate Bond, U.S. Government and Limited Maturity Bond Funds to 1.1% of the
average daily net assets and the Class B shares to 1.85% of the average daily
net assets of the respective Funds. Accordingly, the Investment Manager
reimbursed those Funds in the following amounts: 1997 - $42,687, 1996 - $60,974,
and 1995 - $16,803 for U.S. Government Fund; 1997 - $17,462, 1996 - $10,663, and
1995 - $15,121 for Corporate Bond Fund; and 1997 - $30,621; 1996 - $27,868 and
1995 - $8,640 for Limited Maturity Bond Fund. For the year ended December 31,
1997, the Investment Manager also agreed to limit the total expenses (including
its compensation, but excluding interest, taxes and extraordinary expenses and
Class B distribution fees) of High Yield Fund to 1.0% of the average daily net
assets of Class A shares and 2.75% of Class B shares of the Fund. Accordingly,
the Investment Manager reimbursed the High Yield Fund the amount of $41,748. For
the year ended December 31, 1995, expenses incurred by Cash Fund exceeded 1% of
the average net assets and accordingly, the Investment Manager reimbursed Cash
Fund in the amount of $12,968. For the years ended December 31, 1996 and 1995,
expenses incurred by Municipal Bond Fund exceeded 1% of the average net assets
and accordingly, the Investment Manager reimbursed Municipal Bond Fund the
following amounts: 1996 - $2,358 and 1995 - $4,504. In addition, the Investment
Manager agreed to waive the investment advisory fees of Limited Maturity Bond,
U.S. Government and High Yield Funds for the fiscal years ended December 31,
1998, 1997 and 1996.

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

The Investment Advisory Contracts between Security Management Company, LLC
and Income Fund, Municipal Bond Fund and Cash Fund, dated March 27, 1987,
October 7, 1983 and June 23, 1980, respectively, expire on April 1, 1999, May 1,
1999 and June 1, 1999. The contracts are renewable annually by the Funds' Board
of Directors or by a vote of a majority of a Fund's outstanding securities and,
in either event, by a majority of the board who are not parties to the contract
or interested persons of any such party. The contracts provide that they may be
terminated without penalty at any time by either party on 60 days' notice and
are automatically terminated in the event of assignment.

Pursuant to Administrative Services Agreements with the Funds dated April 1,
1987, the Investment Manager also acts as the administrative agent for the Funds
and as such performs administrative functions and the bookkeeping, accounting
and pricing functions for the Funds. For these services the Investment Manager
receives, on an annual basis, a fee of .09% of the average net assets of
Corporate Bond, Limited Maturity Bond, U.S. Government, High Yield and Municipal
Bond Funds and .045% of the average net assets of Cash Fund, calculated daily
and payable monthly. During the fiscal years ended December 31, 1997, 1996, and
1995 , the Funds paid the following amounts for administrative services: 1997 -
$80,734, 1996 - $95,487, and 1995 - $98,667 for Income Fund; 1997 - $20,846,
1996 - $22,530, and 1995 - $23,129 for Municipal Bond Fund; and 1997 - $21,990,
1996 - $21,721, and 1995 - $22,898 for Cash Fund.

Under the Administrative Services Agreements identified above, the Investment
Manager also acts as the transfer agent for the Funds. As such, the Investment
Manager performs all shareholder servicing functions, including transferring
record ownership, processing purchase and redemption transactions, answering
inquiries, mailing stockholder communications and acting as the dividend
disbursing agent. For these services, the Investment Manager receives an annual
maintenance fee of $8.00 per account, a fee of $1.00 per shareholder
transaction, and a fee of $1.00 ($.50 for Cash Fund) per dividend transaction.
During the fiscal years ended December 31, 1997, 1996, and 1995, the Funds paid
the following amounts for transfer agency services: 1997 - $141,412, 1996 -
$128,776, and 1995 - $127,227 for Income Fund; 1997 - $15,105, 1996 - $16,538,
and 1995 - $16,716 for Municipal Bond Fund; and 1997 - $119,258, 1996 -
$130,682, and 1995 - $152,798 for Cash Fund.

The total expenses of the Corporate Bond, Limited Maturity Bond, U.S.
Government, High Yield, Municipal Bond and Cash Funds for the fiscal year ended
December 31, 1997 were $779,490, $40,141, $66,075, $93,993, $207,999, and
$420,214, respectively. The expense ratio for fiscal year 1997 was 1.07% and
1.85%, respectively of the average net assets of Class A and B shares of the
Corporate Bond Fund and .55% and 1.50%, respectively, of the average net assets
of Class A and Class B shares of Limited Maturity Bond Fund. The expense ratio
for the fiscal year 1997 was .60% and 1.68%, respectively, of the net assets of
Class A and Class B shares of U.S. Government Fund; .87% and 1.80%,
respectively, of the net assets of Class A and Class B shares of High Yield
Fund; .82% and 2.00%, respectively, of the net assets of Class A and Class B
shares of Municipal Bond Fund; and .90% of Cash Fund. The expense figures quoted
are net of expense reimbursements and by fees paid indirectly as a result of
earnings credits earned on overnight cash balances.

The following persons are affiliated with the Funds and also with the
Investment Manager in these capacities:

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

PORTFOLIO MANAGEMENT

The Corporate Bond, Limited Maturity Bond, U.S. Government Bond, High Yield,
Municipal Bond and Cash Funds are managed by the Investment Manager's Fixed
Income Team with portfolio managers being responsible for the day-to-day
management of each particular Fund. Steve Bowser, Second Vice President and
Portfolio Manager of the Investment Manager, and David Eshnaur, Assistant Vice
President and Portfolio Manager of the Investment Manager, have day-to-day
responsibility for managing Corporate Bond and Limited Maturity Bond Funds. Mr.
Bowser has managed the Funds since June 1997 and Mr. Eshnaur has managed the
Funds since January 1998. Mr. Bowser also has had day-to-day responsibility for
managing U.S. Government Fund since 1995. Tom Swank and David Eshnaur have
day-to-day responsibility for managing the High Yield Fund. Mr. Swank has
managed the Fund since its inception in 1996 and Mr. Eshnaur has managed the
Fund since July 1997. Municipal Bond Fund is managed by Marybeth Whyte of
Salomon Brothers. She has had day-to-day responsibility for managing the Fund
since May 1998.

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

Tom Swank, Portfolio Manager of the Investment Manager, 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.

CODE OF ETHICS

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

DISTRIBUTOR

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

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

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

GROSS NET
UNDERWRITING UNDERWRITING COMPENSATION
FUND COMMISSIONS COMMISSIONS ON REDEMPTION
- --------------------------------------------------------------------------------
Corporate Bond Fund.............. $26,659 $5,221 $15,849
Limited Maturity Bond Fund....... 11,846 2,232 893
U.S. Government Bond Fund........ 10,659 1,979 2,159
High Yield Fund.................. 1,161 736 1,161
Municipal Bond Fund.............. 3,510 2,581 3,510
- --------------------------------------------------------------------------------

The Distributor received gross underwriting commissions on sales of Class A
shares and contingent deferred sales charges on redemptions for Class B shares
of $132,788 for Income Fund and $42,066 for Municipal Bond Fund and retained net
underwriting commissions of $39,452 for Income Fund and $13,059 for Municipal
Bond Fund for the fiscal year ended December 31, 1996. The Distributor received
gross underwriting commissions on sales of Class A shares of $80,868 and
$244,043 for Income Fund and $20,691 and $64,008 for Municipal Bond Fund and
retained net underwriting commissions of $9,910 and $48,307 for Income Fund and
$4,103 and $13,009 for Municipal Bond Fund for the fiscal years ended December
31, 1995 and 1994, respectively.

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

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

ALLOCATION OF PORTFOLIO BROKERAGE

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

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

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

Securities held by the Funds may also be held by other investment advisory
clients of the Investment Manager, including other investment companies. In
addition, the Investment Manager's parent company, Security Benefit Life
Insurance Company ("SBL"), may also hold some of the same securities as the
Funds. When selecting securities for purchase or sale for a Fund, the Investment
Manager may at the same time be purchasing or selling the same securities for
one or more of such other accounts. Subject to the Investment Manager's
obligation to seek best execution, such purchases or sales may be executed
simultaneously or "bunched." It is the policy of the Investment Manager not to
favor one account over the other. Any purchase or sale orders executed
simultaneously (which may also include orders from SBL) are allocated at the
average price and as nearly as practicable on a pro rata basis (transaction
costs will also generally be shared on a pro rata basis) in proportion to the
amounts desired to be purchased or sold by each account. In those instances
where it is not practical to allocate purchase or sale orders on a pro rata
basis, then the allocation will be made on a rotating or other equitable basis.
While it is conceivable that in certain instances this procedure could adversely
affect the price or number of shares involved in the Fund's transaction, it is
believed that the procedure generally contributes to better overall execution of
the Funds' portfolio transactions. The Board of Directors of the Funds has
adopted guidelines governing this procedure and will monitor the procedure to
determine that the guidelines are being followed and that the procedure
continues to be in the best interest of the Fund and its stockholders. With
respect to the allocation of initial public offerings ("IPOs"), the Investment
Manager may determine not to purchase such offerings for certain of its clients
(including investment company clients) due to the limited number of shares
typically available to the Investment Manager in an IPO. No brokerage
commissions were paid by the Funds for the years ended December 31, 1997, 1996,
and 1995.

DETERMINATION OF NET ASSET VALUE

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

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

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

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

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

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

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

The Board of Directors has established procedures designed to maintain Cash
Fund's price per share, as computed for the purpose of sales and redemptions, at
$1.00. These procedures include a review of the Fund's holdings by the Board of
Directors at such intervals as they deem appropriate to determine whether the
Fund's net asset value calculated by using available market quotations deviates
from $1.00 per share based on amortized cost. If any deviation exceeds 1/2 of
1%, the Board of Directors will promptly consider what action, if any, will be
initiated. In the event the Board of Directors determines that a deviation
exists which may result in material dilution or other unfair results to
investors or existing shareholders, they have agreed to take such corrective
action as they regard as necessary and appropriate, including the sale of Cash
Fund instruments prior to maturity to shorten average Fund maturity or
withholding dividends. Cash Fund will use its best efforts to maintain a
constant net asset value per share of $1.00. See "Security Cash Fund," page 12,
and "Dividends and Taxes," page 48. Since dividends from net investment income
will be accrued daily and paid monthly, the net asset value per share of Cash
Fund will ordinarily remain at $1.00, but the Fund's daily dividends will vary
in amount.

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

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

HOW TO REDEEM SHARES

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

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

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

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

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

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

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

The repurchase or redemption of shares held in a tax-qualified retirement
plan must be effected through the trustee of the plan and may result in adverse
tax consequences. (See "Retirement Plans," page 56.)

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

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

TELEPHONE REDEMPTIONS

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

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

HOW TO EXCHANGE SHARES

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

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

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

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

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

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

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

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

EXCHANGE BY TELEPHONE

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

DIVIDENDS AND TAXES

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

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

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

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

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

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

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

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

Distributions of net capital gain, whether received in cash or reinvested in
Fund shares, will generally be taxable to shareholders as either "20% Rate Gain"
or "28% Rate Gain," depending upon the Fund's holding period for the assets
sold. "20% Rate Gains" arise from sales of assets held by a Fund for more than
18 months and are subject to a maximum tax rate of 20%; "28% Rate Gains" arise
from sales of assets held by a Fund for more than one year but no more than 18
months and are subject to a maximum tax rate of 28%. Net capital gains from
assets held for one year or less will be taxed as ordinary income. Distributions
will be subject to these capital gains rates regardless of how long a
shareholder has held Fund shares. Because Cash Fund normally will not invest in
securities having a maturity of more than one year, it should not realize any
long-term capital gains or losses. Advice as to the tax status of each year's
dividends and distributions will be mailed annually.

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

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

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

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

Stockholders of the Funds who redeem their shares generally will realize gain
or loss upon the sale or redemption (including the exchange of shares for shares
of another fund) which will be capital gain or loss if the shares are capital
assets in the stockholder's hands, and will be taxable to stockholders as "20%
Rate Gains" if the shares had been held for more than 18 months or as "28% Rate
Gains" if the shares had been held for more than one year but no more than 18
months. Investors should be aware that any loss realized upon the sale or
redemption of shares held for six months or less will be treated as a long-term
capital loss to the extent of any distribution of long-term capital gain to the
stockholder with respect to such shares. In addition, any loss realized on a
sale or exchange of shares will be disallowed to the extent the shares disposed
of are replaced within a period of 61 days, beginning 30 days before and ending
30 days after the date the shares are disposed of, such as pursuant to the
reinvestment of dividends. In such case, the basis of the shares acquired will
be adjusted to reflect the disallowed loss.

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

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

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

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

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

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

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

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

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

Generally, the hedging transactions undertaken by a Fund may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by a Fund. In addition, losses
realized by a Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which such losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences of transactions in options, futures, forward
contracts, swap agreements and other financial contracts to a Fund are not
entirely clear. The transactions may increase the amount of short-term capital
gain realized by a Fund which is taxed as ordinary income when distributed to
shareholders.

A Fund may make one or more of the elections available under the Code which
are applicable to straddles. If a Fund makes any of the elections, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.

Because application of the straddle rules may affect the character of gains
or losses, defer losses and/or accelerate the recognition of gains or losses
from the affected straddle positions, the amount which must be distributed to
shareholders, and which will be taxed to shareholders as ordinary income or
long-term capital gain, may be increased or decreased as compared to a fund that
did not engage in such hedging transactions.

Because only a few regulations regarding the treatment of swap agreements,
and related caps, floors and collars, have been implemented, the tax
consequences of such transactions are not entirely clear. The Funds intend to
account for such transactions in a manner deemed by them to be appropriate, but
the Internal Revenue Service might not necessarily accept such treatment. If it
did not, the status of a Fund as a regulated investment company might be
affected.

The requirements applicable to a Fund's qualification as a regulated
investment company may limit the extent to which a Fund will be able to engage
in transactions in options, futures contracts, forward contracts, swap
agreements and other financial contracts.

MARKET DISCOUNT. If a Fund purchases a debt security at a price lower than
the stated redemption price of such debt security, the excess of the stated
redemption price over the purchase price is "market discount". If the amount of
market discount is more than a DE MINIMIS amount, a portion of such market
discount must be included as ordinary income (not capital gain) by the Fund in
each taxable year in which the Fund owns an interest in such debt security and
receives a principal payment on it. In particular, the Fund will be required to
allocate that principal payment first to the portion of the market discount on
the debt security that has accrued but has not previously been includable in
income. In general, the amount of market discount that must be included for each
period is equal to the lesser of (i) the amount of market discount accruing
during such period (plus any accrued market discount for prior periods not
previously taken into account) or (ii) the amount of the principal payment with
respect to such period. Generally, market discount accrues on a daily basis for
each day the debt security is held by a Fund at a constant rate over the time
remaining to the debt security's maturity or, at the election of the Fund, at a
constant yield to maturity which takes into account the semi-annual compounding
of interest. Gain realized on the disposition of a market discount obligation
must be recognized as ordinary interest income (not capital gain) to the extent
of the "accrued market discount."

ORIGINAL ISSUE DISCOUNT. Certain debt securities acquired by the Funds may be
treated as debt securities that were originally issued at a discount. Very
generally, original issue discount is defined as the difference between the
price at which a security was issued and its stated redemption price at
maturity. Although no cash income on account of such discount is actually
received by a Fund, original issue discount that accrues on a debt security in a
given year generally is treated for federal income tax purposes as interest and,
therefore, such income would be subject to the distribution requirements
applicable to regulated investment companies.

Some debt securities may be purchased by the Funds at a discount that exceeds
the original issue discount on such debt securities, if any. This additional
discount represents market discount for federal income tax purposes (see above).

CONSTRUCTIVE SALES. Recently enacted rules may affect the timing and
character of gain if a Fund engages in transactions that reduce or eliminate its
risk of loss with respect to appreciated financial positions. If the Fund enters
into certain transactions in property while holding substantially identical
property, the Fund would be treated as if it had sold and immediately
repurchased the property and would be taxed on any gain (but no loss) from the
constructive sale. The character of gain from a constructive sale would depend
upon the Fund's holding period in the property. Loss from a constructive sale
would be recognized when the property was subsequently disposed of, and its
character would depend on the Fund's holding period and the application of
various loss deferral provisions of the Code.

FOREIGN TAXATION. Income received by a Fund from sources within a foreign
country may be subject to withholding and other taxes imposed by that country.
Tax conventions between certain countries and the U.S. may reduce or eliminate
such taxes. The payment of such taxes will reduce the amount of dividends and
distributions paid to the Funds' stockholders. So long as a Fund qualifies as a
regulated investment company, certain distribution requirements are satisfied,
and more than 50% of such Fund's assets at the close of the taxable year
consists of securities of foreign corporation, the fund may elect, subject to
limitation, to pass through its foreign tax credits to its stockholders.

OTHER TAXES. The foregoing discussion is general in nature and is not
intended to provide an exhaustive presentation of the tax consequences of
investing in a Fund. Distributions may also be subject to additional state,
local and foreign taxes, depending on each shareholder's particular situation.
Depending upon the nature and extent of a Fund's contacts with a state or local
jurisdiction, the Fund may be subject to the tax laws of such jurisdiction if it
is regarded under applicable law as doing business in, or as having income
derived from, the jurisdiction. Persons who may be "substantial users" (or
"related persons" of substantial users) of facilities financed by private
activity bonds should consult their tax adviser before purchasing Municipal Bond
Fund shares. (See "Municipal Securities," page 910.) Shareholders are advised to
consult their own tax advisers with respect to the particular tax consequences
to them of an investment in a Fund.

ORGANIZATION

The Articles of Incorporation of Income and Municipal Bond Funds provide for
the issuance of shares of common stock in one or more classes or series and the
Articles of Cash Fund provide for the issuance of stock in one or more series.

Income Fund has authorized the issuance of an indefinite number of shares of
capital stock of $1.00 par value and currently issues its shares in seven
series, Corporate Bond Fund, Limited Maturity Bond Fund, U.S. Government Fund,
High Yield Fund, MFR Emerging Markets Total Return Fund, MFR Global Asset
Allocation Fund and MFR Global High Yield Fund (formerly Global Aggressive Bond
Fund). The shares of each Series of Income Fund represent a pro rata beneficial
interest in that Series' net assets and in the earnings and profits or losses
derived from the investment of such assets. Municipal Bond and Cash Funds have
not issued shares in any additional series at the present time. Municipal Bond
and Cash Funds have authorized the issuance of an indefinite number of shares of
capital stock of $0.10 par value.

Each of Corporate Bond, Limited Maturity Bond, U.S. Government, High Yield
and Municipal Bond Funds currently issues two classes of shares which
participate proportionately based on their relative net asset values in
dividends and distributions and have equal voting, liquidation and other rights
except that (i) expenses related to the distribution of each class of shares or
other expenses that the Board of Directors may designate as class expenses from
time to time, are borne solely by each class; (ii) each class of shares has
exclusive voting rights with respect to any Distribution Plan adopted for that
class; (iii) each class has different exchange privileges; and (iv) each class
has a different designation. When issued and paid for, the shares of Corporate
Bond, Limited Maturity Bond, U.S. Government, High Yield, Municipal Bond and
Cash Funds will be fully paid and nonassessable by the Funds. Shares may be
exchanged as described above under "Exchange Privilege," but will have no other
preference, conversion, exchange or preemptive rights. Shares are transferable,
redeemable and assignable and have cumulative voting privileges for the election
of directors.

On certain matters, such as the election of directors, all shares of the
Series of Income Fund vote together with each share having one vote. On other
matters affecting a particular Series, such as the investment advisory contract
or the fundamental policies, only shares of that Series are entitled to vote,
and a majority vote of the shares of that Series is required for approval of the
proposal.

The Funds do not generally hold annual meetings of stockholders and will do
so only when required by law. Stockholders may remove directors from office by
vote cast in person or by proxy at a meeting of stockholders. Such a meeting
will be called at the written request of 10% of a Fund's outstanding shares.

CUSTODIAN, TRANSFER AGENT AND DIVIDEND-PAYING AGENT

UMB Bank, N.A., 928 Grand Avenue, Kansas City, Missouri 64106 acts as the
custodian for the portfolio securities of Corporate Bond Fund, Limited Maturity
Bond Fund, U.S. Government Fund, High Yield, Municipal Bond Fund and Cash Fund.
Security Management Company, LLC acts as the Funds' transfer and dividend-paying
agent.

INDEPENDENT AUDITORS

The firm of Ernst & Young LLP, One Kansas City Place, 1200 Main Street,
Kansas City, Missouri, has been selected by a majority of the independent
directors of each Fund to serve as the independent auditors of the Funds, and as
such, the firm will perform the annual audit of each Fund's financial
statements.

PERFORMANCE INFORMATION

The Funds may, from time to time, include performance information in
advertisements, sales literature or reports to stockholders or prospective
investors. Performance information in advertisements or sales literature may be
expressed as yield for each of the Funds, effective yield for Cash Fund, taxable
equivalent yield for Municipal Bond Fund and average annual total return and
aggregate total return for Municipal Bond and Income Funds.

For Cash Fund, the current yield will be based upon the seven calendar days
ending on the date of calculation ("the base period"). The total net investment
income earned, exclusive of realized capital gains and losses or unrealized
appreciation and depreciation, during the base period, on a hypothetical
pre-existing account having a balance of one share will be divided by the value
of the account at the beginning of that period. The resulting figure ("the base
period return") will then be multiplied by 365/7 to obtain the current yield.
Cash Fund's current yield for the seven-day period ended December 31, 1997 was
5.18%.

Cash Fund's effective (or compound) yield for the same period was 5.32%. The
effective yield reflects the compounding of the current yield by reinvesting all
dividends and will be computed by compounding the base period return by adding 1
to the base period return, raising the sum to a power equal to 365 divided by 7,
and subtracting 1 from the result. The yield of the Fund may be obtained by
calling the Fund.

Investors should recognize that investment in Cash Fund is not guaranteed or
insured by any state, federal or government agency or by any other person.

With respect to Income Fund and Municipal Bond Fund, quotations of yield will
be based on the investment income per share earned during a particular 30-day
period, less expenses per share accrued during the period ("net investment
income") and will be computed by dividing net investment income by the maximum
offering price per share on the last day of the period, according to the
following formula:

A-B
YEILD = 2((--- + 1)^6 - 1)
CD

where A = dividends and interest earned during the period, B = expenses accrued
for the period (net of any reimbursements), C = the average daily number of
shares outstanding during the period that were entitled to receive dividends,
and D = the maximum offering price per share on the last day of the period.

Municipal Bond Fund's tax-equivalent yield, like yield, is based on a 30-day
period and is computed by dividing that portion of the Fund's yield (computed as
described above) which is tax-exempt by one minus a stated income tax rate and
adding the resulting figure to that portion of the Fund's yield, if any, that is
not tax-exempt.

For the 30-day period ended December 31, 1997, the yield for the Class A
shares of the following Funds was 5.95% for Corporate Bond Fund, 6.78% for
Limited Maturity Bond Fund, 5.78% for the U.S. Government Fund, 11.77% for High
Yield Fund, and 3.70% for Municipal Bond Fund. For the same period, the tax
equivalent yield for the Class A shares of Municipal Bond Fund assuming a 15%
income tax rate and a 28% income tax rate, respectively, was 4.35% and 5.14%.

For the 30-day period ended December 31, 1997, the yield for the Class B
shares of the following Funds was 5.07% for the Corporate Bond Fund, 6.16% for
Limited Maturity Bond Fund, 4.83% for the U.S. Government Fund, 7.10% for High
Yield Fund, and 2.67% for Municipal Bond Fund. For the same period, the tax
equivalent yield for the Class B shares of Municipal Bond Fund assuming a 15%
income tax rate and a 28% income tax rate, respectively, was 3.14% and 3.71%.

There is no assurance that a yield quoted will remain in effect for any
period of time. Inasmuch as certain estimates must be made in computing average
daily yield, actual yields may vary and will depend upon such factors as the
type of instruments in the Fund's portfolio, the portfolio quality and average
maturity of such instruments, changes in interest rates and the actual Fund
expenses. Yield computations will reflect the expense limitations described in
this Prospectus under "Investment Manager."

Quotations of average annual total return will be expressed in terms of the
average annual compounded rate of return of a hypothetical investment in Income
Fund or Municipal Bond Fund over periods of 1, 5 and 10 years (up to the life of
the Fund), calculated pursuant to the following formula:

P(1+T)^N = ERV

(where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years, and ERV = the ending redeemable value of
a hypothetical $1,000 payment made at the beginning of the period). All average
annual total return figures will reflect the deduction of the maximum initial
sales load in the case of quotations of performance of Class A shares or the
applicable contingent deferred sales charge in the case of quotations of
performance of Class B shares and a proportional share of Fund expenses on an
annual basis, and assume that all dividends and distributions are reinvested
when paid.

For the 1-, 5- and 10-year periods ended December 31, 1997, the average
annual total return for Class A shares of the Corporate Bond Fund was 4.47%,
5.10% and 7.30%, respectively. For the 1-year period ended December 31, 1997,
the average annual total return for Class B shares of Corporate Bond Fund was
3.74%. For the period October 19, 1993 (date of inception) to December 31, 1997,
the average annual total return for Class B shares of the Corporate Bond Fund
was 1.85%.

For the 1-, 5- and 10-year periods ended December 31, 1997, the average
annual total return for Class A shares of the U.S. Government Fund was 4.12%,
6.04% and 7.64%, respectively. For the 1-year period ended December 31, 1997,
the average annual total return for Class B shares of U.S. Government Fund was
2.86%. For the period October 19, 1993 (date of inception) to December 31, 1997,
the average annual total return for Class B shares of the U.S. Government Fund
was 3.38%.

For the 1-, 5- and 10-year periods ended December 31, 1997, the average
annual total return for Class A shares of Municipal Bond Fund was 3.17%, 4.70%
and 6.31%, respectively. For the 1-year period ended December 31, 1997, the
average annual total return for Class B shares of Municipal Bond Fund was 1.94%.
For the period October 19, 1993 (date of inception) to December 31, 1997, the
average annual total return for Class B shares of Municipal Bond Fund was 1.87%.

For the 1-year period ended December 31, 1997, the average annual total
return for Class A and B shares of Limited Maturity Bond Fund was 3.76% and
2.70%, respectively. For the period January 17, 1995 (date of inception) to
December 31, 1997, the average annual total return for Class A and B shares of
Limited Maturity Bond Fund was 6.29% and 5.79%, respectively.

For the 1-year period ended December 31, 1997, the average annual total
return for Class A and B shares of High Yield Fund was 7.25% and 6.45%,
respectively. For the period August 5, 1996 (date of inception) to December 31,
1997, the average annual total return for Class A and B shares of High Yield
Fund was 8.94% and 9.02%, respectively.

The aggregate total return for Income and Municipal Bond Funds is calculated
for any specified period of time pursuant to the following formula:

P(1+T)^N = ERV

(where P = a hypothetical initial payment of $1,000, T = the total return, and
ERV = the ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period). All aggregate total return figures will assume that
all dividends and distributions are reinvested when paid. The Funds may, from
time to time, include quotations of total return that do not reflect deduction
of the sales load which, if reflected, would reduce the total return data
quoted.

The aggregate total return on an investment made in Class A shares of the
Corporate Bond Fund, the U.S. Government Fund and Municipal Bond Fund calculated
as described above for the period from December 31, 1987, for the Corporate Bond
Fund, U.S. Government Fund and Municipal Bond Fund, through December 31, 1997
was 102.2%, 108.7% and 84.3%, respectively. These figures reflect deduction of
the maximum initial sales load.

The aggregate total return on an investment made in Class B shares of the
Corporate Bond Fund, the U.S. Government Fund and Municipal Bond Fund calculated
as described above for the period October 19, 1993 through December 31, 1997 was
8.0%, 15.0% and 8.1%, respectively. These figures reflect deduction of the
maximum contingent deferred sales charge.

The aggregate total return on an investment made in Class A and B shares of
the Limited Maturity Bond Fund for the period January 17, 1995 through December
31, 1997 was 19.7% and 18.1%, respectively. These figures reflect deduction of
the maximum initial sales load and deduction of the maximum contingent deferred
sales charge.

The aggregate total return on an investment made in Class A and B shares of
the High Yield Fund for the period August 5, 1996 (date of inception) through
December 31, 1997, was 12.8% and 12.9%, respectively. These figures reflect
deduction of the maximum initial sales load and deduction of the maximum
contingent deferred sales charge.

In addition, quotations of aggregate total return will also be calculated for
several consecutive one-year periods expressing the total return as a percentage
increase or decrease in the value of the investment for each year relative to
the ending value for the previous year.

Quotations of yield, tax-equivalent yield, average annual total return and
aggregate total return will reflect only the performance of a hypothetical
investment during the particular time period shown. Such quotations will vary
based on changes in market conditions and the level of the Fund's expenses, and
no reported performance figure should be considered an indication of performance
which may be expected in the future.

In connection with communicating its yield, tax-equivalent yield, average
annual total return or aggregate total return to current or prospective
stockholders, each Fund also may compare these figures to the performance of
other mutual funds tracked by mutual fund rating services or to other unmanaged
indexes which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs. Each Fund will include
performance data for both Class A and Class B shares of the Fund in any
advertisement or report including performance data of the Fund. Such mutual fund
rating services include the following: Lipper Analytical Services; Morningstar,
Inc.; Investment Company Data; Schabacker Investment Management; Wiesenberger
Investment Companies Service; Computer Directions Advisory (CDA); and Johnson
Charts.

RETIREMENT PLANS

Corporate Bond, Limited Maturity Bond, U.S. Government, High Yield and Cash
Funds offer tax-qualified retirement plans for individuals (Individual
Retirement Accounts, known as IRAs), several prototype retirement plans for the
self-employed (Keogh plans), pension and profit-sharing plans for corporations,
and custodial account plans for employees of public school systems and
organizations meeting the requirements of Section 501(c)(3) of the Internal
Revenue Code. Actual documents and detailed materials about the plans will be
provided upon request to the Distributor.

Purchases of Corporate Bond, Limited Maturity Bond, U.S. Government, High
Yield and Cash Fund shares under any of these plans are made at the public
offering price next determined after contributions are received by the
Distributor. Shares owned under any of the plans have full dividend, voting and
redemption privileges. Depending upon the terms of the particular plan,
retirement benefits may be paid in a lump sum or in installment payments over a
specified period. There are possible penalties for premature distributions from
such plans.

Security Management Company, LLC is available to act as custodian for the
plans on a fee basis. For IRAs, SIMPLE IRAs, Section 403(b) Retirement Plans,
and Simplified Employee Pension Plans (SEPPs), service fees for such custodial
services currently are: (1) $10 for annual maintenance of the account, and (2)
benefit distribution fee of $5 per distribution. Service fees for other types of
plans will vary. These fees will be deducted from the plan assets. Optional
supplemental services are available from Security Benefit Life Insurance Company
for additional charges.

Retirement investment programs involve commitments covering future years. It
is important that the investment objective and structure of Corporate Bond,
Limited Maturity Bond, U.S. Government, High Yield and Cash Funds be considered
by the investors for such plans. Investments in insurance and annuity contracts
also may be purchased in addition to shares of the Funds.

A brief description of the available tax-qualified retirement plans is
provided below. However, the tax rules applicable to such qualified plans vary
according to the type of plan and the terms and conditions of the plan itself.
Therefore, no attempt is made to provide more than general information about the
various types of qualified plans. Because Municipal Bond Fund's investment
objective is to obtain a high level of interest income exempt from federal
taxes, Municipal Bond Fund is not an appropriate investment for retirement
plans.

Investors are urged to consult their own attorneys or tax advisers when
considering the establishment and maintenance of any such plans.

INDIVIDUAL RETIREMENT ACCOUNTS (IRAS)

Individual Retirement Account Custodial Agreements are available to provide
investment in shares of Corporate Bond, Limited Maturity Bond, U.S. Government,
High Yield or Cash Fund, or in other Funds in the Security Group. An individual
may initiate an IRA through the Distributor by executing the custodial agreement
and making a minimum initial investment of at least $100. A $10 annual fee is
charged for maintaining the account.

An individual may make a contribution to a traditional IRA each year of up to
the lesser of $2,000 or 100% of earned income under current tax law. The IRAs
described in this paragraph are called "traditional IRAs" to distinguish them
from the new "Roth IRAs" which become available in 1998. Roth IRAs are described
below. Spousal IRAs allow an individual and his or her spouse to contribute up
to $2,000 to their respective IRAs so long as a joint tax return is filed and
joint income is $4,000 or more. The maximum amount the higher compensated spouse
may contribute for the year is the lesser of $2,000 or 100% of that spouse's
compensation. The maximum the lower compensated spouse may contribute is the
lesser of (i) $2,000 or (ii) 100% of that spouse's compensation plus the amount
by which the higher compensated spouse's compensation exceeds the amount the
higher compensated spouse contributes to his or her IRA.

An individual may make a contribution to a traditional IRA which is
deductible for federal income tax purposes. A contribution is deductible if (i)
neither the individual nor his or her spouse is an active participant in an
employer's retirement plan, or (ii) the individual (and his or her spouse, if
applicable) has an adjusted gross income below a specified level. The income
limits will gradually increase starting with tax years beginning in 1998,
eventually reaching $50,000 - $60,000 for single filers in 2005 and thereafter
(and reaching $80,000 - $100,000 if married jointly in 2007 and thereafter). In
addition, for tax years beginning after 1997, a married individual may make a
deductible IRA contribution even though the individual's spouse is an active
participant in a qualified employer's retirement plan, subject to a phase-out
for adjusted gross income between $150,000 - $160,000. However, an individual
not permitted to make a deductible contribution to an IRA may nevertheless make
nondeductible contributions up to the maximum contribution limit for that year.
The deductibility of IRA contributions under state law varies from state to
state.

Contributions must be made in cash no later than April 15 following the close
of the tax year. No annual contribution is permitted for the year in which the
investor reaches age 70 1/2 or any year thereafter.

In addition to annual contributions, total distributions and certain partial
distributions from certain employer-sponsored retirement plans may be eligible
to be reinvested into a traditional IRA if the reinvestment is made within 60
days of receipt of the distribution by the taxpayer. Such rollover contributions
are not subject to the limitations on annual IRA contributions described above.

ROTH IRAS

Section 408A of the Code permits eligible individuals to establish a Roth IRA
for tax years beginning in 1998. Contributions to a Roth IRA are not deductible,
but withdrawals that meet certain requirements are not subject to federal income
tax. The maximum annual contribution amount of $2,000 is phased out if the
individual is single and has an adjusted gross income between $95,000 and
$110,000, or if the individual is married and the couple has a combined adjusted
gross income between $150,000 and $160,000. In general, Roth IRAs are subject to
certain required distribution requirements. Unlike a traditional IRA, Roth IRAs
are not subject to minimum required distribution rules during the owner's life
time. Generally, however, the amount remaining in a Roth IRA must be distributed
by the end of the fifth year after the death of the owner.

Beginning in 1998 the owner of a traditional IRA may convert the traditional
IRA into a Roth IRA under certain circumstances. The conversion of a traditional
IRA to a Roth IRA will subject the amount of the converted traditional IRA to
federal income tax. If a traditional IRA is converted to a Roth IRA in 1998, the
taxable amount in the owner's traditional IRA will be includable in income over
a four-year period; for conversions after 1998, the taxable amount in the
owner's traditional IRA will be considered taxable income for federal income tax
purposes for the year of the conversion. Generally, all amounts in a traditional
IRA are taxable except for the owner's prior non-deductible contributions to the
traditional IRA.

EDUCATION IRAS

Section 530 of the Code permits eligible individuals to establish an
Education IRA on behalf of a beneficiary for tax years beginning in 1998.
Contributions to an Education IRA are not deductible, but qualified
distributions to the beneficiary are not subject to federal income tax. The
maximum annual contribution amount of $500 is phased out if the individual is
single and has an adjusted gross income between $95,000 and $110,000, or if the
individual is married and the couple has a combined adjusted gross income
between $150,000 and $160,000. Education IRAs are subject to certain required
distribution requirements. Generally, the amount remaining in an Education IRA
must be distributed by the beneficiary's 30th birthday or rolled into a new
Education IRA for another eligible beneficiary.

SIMPLE IRAS

The Small Business Job Protection Act of 1996 created a new retirement plan,
the Savings Incentive Match Plan for Employees of Small Employers (SIMPLE
Plans). SIMPLE Plan participants must establish a SIMPLE IRA into which plan
contributions will be deposited.

The Investment Manager makes available SIMPLE IRAs to provide investment in
shares of the Funds. Contributions to a SIMPLE IRA may be either salary deferral
contributions or employer contributions. Contributions must be made in cash and
cannot exceed the maximum amount allowed under the Internal Revenue Code. On a
pre-tax basis, up to $6,000 of compensation (through salary deferrals) may be
contributed to a SIMPLE IRA. In addition, employers are required to make either
(1) a dollar-for-dollar matching contribution or (2) a nonelective contribution
to each participant's account each year. In general, matching contributions must
equal up to 3% of compensation, but under certain circumstances, employers may
make lower matching contributions. Instead of the match, employers may make a
nonelective contribution equal to 2% of compensation (compensation for purposes
of any nonelective contribution is limited to $160,000, as indexed).

Distributions from a SIMPLE IRA are (1) taxed as ordinary income; (2)
includable in gross income; and (3) subject to applicable state tax laws.

Distributions prior to age 59 1/2 may be subject to a 10% penalty tax which
increases to 25% for distributions made before a participant has participated in
the SIMPLE Plan for at least two years. An annual fee of $10 is charged for
maintaining the SIMPLE IRA.

PENSION AND PROFIT-SHARING PLANS

Prototype corporate pension or profit-sharing prototype plans meeting the
requirements of Internal Revenue Code Section 401(a) are available. Information
concerning these plans may be obtained from Security Distributors, Inc.

403(B) RETIREMENT PLANS

Employees of public school systems and tax-exempt organizations meeting the
requirements of Internal Revenue Code Section 501(c)(3) may purchase custodial
account plans funded by their employers with shares of Corporate Bond, Limited
Maturity Bond, U.S. Government, High Yield or Cash Fund or other Funds in the
Security Group in accordance with Code Section 403(b). Section 403(b) plans are
subject to numerous restrictions on the amount that may be contributed, the
persons who are eligible to participate and on the time when distributions may
commence.

SIMPLIFIED EMPLOYEE PENSION PLANS (SEPPS)

A prototype SEPP is available for corporations, partnerships or sole
proprietors desiring to adopt such a plan for purchases of IRAs for their
employees. Employers establishing a SEPP may contribute a maximum of $30,000 a
year to an IRA for each employee. This maximum is subject to a number of
limitations.

FINANCIAL STATEMENTS

The audited financial statements of the Funds, which are contained in the
Funds' Annual Report dated December 31, 1997, are incorporated herein by
reference. Copies of the Annual Report are provided to every person requesting
the Statement of Additional Information.

TAX-EXEMPT VS. TAXABLE INCOME

The following table shows the approximate taxable yields for individuals that
are equivalent to tax-exempt yields using the 1998 tax rates contained in the
Code. The table illustrates what you would have to earn on taxable investments
to equal a given tax-exempt yield in your federal income tax bracket. Locate
your income (after deductions and exemptions), then locate your tax bracket
based on joint or single tax filing. Read across to the equivalent taxable yield
you would need to match a given tax-free yield. There is, of course, no
assurance that an investment in Municipal Bond Fund will result in the
realization of any particular return.
<TABLE>
<CAPTION>
Your
income
tax
If your taxable income is: bracket And a tax-free yield of:
Joint Return Single Return is: 5% 6% 7% 8% 9% 10% 11% 12%
- ------- -------------------- -------------------- ---------- ------- ------- ------- ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998
0 - 36,900 0 - 22,100 15.0% 5.88 7.06 8.24 9.41 10.59 11.76 12.94 14.12
36,901 - 89,150 22,101 - 53,500 28.0 6.94 8.33 9.72 11.11 12.50 13.89 15.28 16.67
89,151 - 140,000 53,501 - 115,000 31.0 7.25 8.70 10.14 11.59 13.04 14.49 15.94 17.39
140,001 - 250,000 115,001 - 250,000 36.0 7.81 9.38 10.94 12.50 14.06 15.63 17.19 18.75
250,001 and over 250,001 and over 39.6 8.28 9.93 11.59 13.25 14.90 16.56 18.21 19.87
</TABLE>
<PAGE>
APPENDIX A

CLASS A SHARES OF CORPORATE BOND, LIMITED MATURITY BOND, U.S. GOVERNMENT, HIGH
YIELD AND MUNICIPAL BOND FUNDS

REDUCED SALES CHARGES

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

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

RIGHTS OF ACCUMULATION

To reduce sales charges on purchases of Corporate Bond Fund, Limited Maturity
Bond Fund, U.S. Government Fund, High Yield or Municipal Bond Fund, a Purchaser
may combine all previous purchases with a contemplated current purchase of Class
A shares of a Fund for the purpose of determining the sales charge applicable to
the current purchase. For example, an investor who already owns Class A shares
of a Fund either worth $30,000 at the applicable current offering price or
purchased for $30,000 and who invests an additional $25,000, is entitled to a
reduced sales charge of 3.75% on the latter purchase. The Distributor must be
notified when a sale takes place which would qualify for the reduced charge on
the basis of previous purchases subject to confirmation of the investor's
holdings through the Fund's records. Rights of accumulation apply also to
purchases representing a combination of the Class A shares of Corporate Bond
Fund, Limited Maturity Bond Fund, U.S. Government Fund, High Yield, Municipal
Bond Fund, Security Growth and Income, Security Ultra Fund, or Security Equity
Fund in those states where shares of the Funds being purchased are qualified for
sale.

STATEMENT OF INTENTION

A Purchaser in Corporate Bond, Limited Maturity Bond, U.S. Government, High
Yield or Municipal Bond Funds may sign a Statement of Intention, which may be
signed within 90 days after the first purchase to be included thereunder, in the
form provided by the Distributor covering purchases of Corporate Bond Fund,
Limited Maturity Bond Fund, U.S. Government Fund, High Yield, Municipal Bond
Fund, Security Equity Fund, Security Growth and Income Fund, or Security Ultra
Fund to be made within a period of 13 months (or a 36-month period for purchases
of $1 million or more) and thereby become eligible for the reduced front-end
sales charge applicable to the actual amount purchased under the Statement. Five
percent of the amount specified in the Statement of Intention will be held in
escrow shares until the Statement is completed or terminated. The shares so held
may be redeemed by the Fund if the investor is required to pay additional sales
charge which may be due if the amount of purchases made by the investor during
the period the Statement is effective is less than the total specified in the
Statement of Intention.

A Statement of Intention may be revised during the 13-month period (or, if
applicable, 36-month period). Additional Class A shares received from
reinvestment of income dividends and capital gains distributions (if any are
realized) are included in the total amount used to determine reduced sales
charges. The Statement is not a binding obligation upon the investor to purchase
or any Fund to sell the full indicated amount. An investor considering signing
such an agreement should read the Statement of Intention carefully. A Statement
of Intention form may be obtained from the Investment Manager.

REINSTATEMENT PRIVILEGE

Stockholders who redeem their Class A shares of Corporate Bond Fund, Limited
Maturity Bond Fund, U.S. Government Fund, High Yield Fund or Municipal Bond Fund
have a one-time privilege (1) to reinstate their accounts by purchasing shares
of the Fund without a sales charge up to the dollar amount of the redemption
proceeds, or (2) to the extent the redeemed shares would have been eligible for
the exchange privilege, to purchase Class A shares of another of the Funds,
Security Equity Fund, Security Ultra Fund, or Security Growth and Income Fund up
to the dollar amount of the redemption proceeds at a sales charge equal to the
additional sales charge, if any, which would have been applicable had the
redeemed shares been exchanged pursuant to the exchange privilege. Written
notice and a check in the amount of the reinvestment from eligible stockholders
wishing to exercise this reinstatement privilege must be received by the Fund
within thirty days after the redemption request was received (or such longer
period as may be permitted by rules and regulations promulgated under the
Investment Company Act of 1940). The net asset value used in computing the
amount of shares to be issued upon reinstatement or exchange will be the net
asset value on the day that notice of the exercise of the privilege is received.
Stockholders making use of the reinstatement privilege should note that any
gains realized upon the redemption will be taxable while any losses may be
deferred under the "wash sale" provision of the Internal Revenue Code.
<PAGE>
MFR EMERGING MARKETS TOTAL RETURN SERIES

MFR GLOBAL ASSET ALLOCATION SERIES

MFR GLOBAL HIGH YIELD SERIES
(formerly Global Aggressive Bond Series)

STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1998
RELATING TO THE PROSPECTUS DATED MAY 1, 1998,
AS IT MAY BE SUPPLEMENTED FROM TIME TO TIME

(800) 643-8188
- --------------------------------------------------------------------------------
<PAGE>
INVESTMENT ADVISER
MFR Advisors, Inc.
One Liberty Plaza, 46th Floor
New York, New York 10006

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

SUB-ADVISERS
Lexington Management Corporation
Park 80 West, Plaza Two
Saddle Brook, New Jersey 07663

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

CUSTODIAN
Chase Manhattan Bank
4 Chase MetroTech Center
Brooklyn, New York 11245

INDEPENDENT AUDITORS
Ernst & Young LLP
One Kansas City Place
1200 Main Street
Kansas City, Missouri 64105-2143
<PAGE>
MFR EMERGING MARKETS TOTAL RETURN SERIES
MFR GLOBAL ASSET ALLOCATION SERIES
MFR GLOBAL HIGH YIELD SERIES
700 SW Harrison, Topeka, Kansas 66636-0001

STATEMENT OF
ADDITIONAL INFORMATION

May 1, 1998
(RELATING TO THE PROSPECTUS DATED MAY 1, 1998,
AS IT MAY BE SUPPLEMENTED FROM TIME TO TIME)

This Statement of Additional Information is not a Prospectus. It should be
read in conjunction with the Prospectus dated May 1, 1998, as it may be
supplemented from time to time. A Prospectus may be obtained by writing Security
Distributors, Inc., 700 SW Harrison, Topeka, Kansas 66636-0001, or by calling
(800) 643-8188.

TABLE OF CONTENTS
Page

General Information............................................... 1
Investment Objectives and Policies of the Series.................. 2
MFR Emerging Markets Total Return Series....................... 2
MFR Global Asset Allocation Series............................. 4
MFR Global High Yield Series................................... 6
Investment Methods and Risk Factors............................... 8
Investment Policy Limitations..................................... 23
Officers and Directors............................................ 25
Remuneration of Directors and Others.............................. 26
How to Purchase Shares............................................ 27
Alternative Purchase Options................................... 27
Class A Shares................................................. 28
Class A Distribution Plan...................................... 28
Class B Shares................................................. 29
Class B Distribution Plan...................................... 30
Calculation and Waiver of Contingent Deferred Sales Charges.... 30
Arrangements With Broker/Dealers and Others....................... 31
Purchases at Net Asset Value...................................... 31
Accumulation Plan................................................. 32
Systematic Withdrawal Program..................................... 32
Investment Management............................................. 32
Portfolio Management........................................... 35
Code of Ethics................................................. 36
Distributor....................................................... 36
Allocation of Portfolio Brokerage................................. 37
Determination of Net Asset Value.................................. 38
How to Redeem Shares.............................................. 38
Telephone Redemptions.......................................... 39
How to Exchange Shares............................................ 39
Exchange by Telephone.......................................... 40
Dividends and Taxes............................................... 40
Organization...................................................... 44
Custodian, Transfer Agent and Dividend-Paying Agent............... 45
Independent Auditors.............................................. 45
Performance Information........................................... 45
Retirement Plans.................................................. 46
Individual Retirement Accounts (IRAs)............................. 47
Roth IRAs......................................................... 48
Education IRAs.................................................... 48
SIMPLE IRAs....................................................... 48
Pension and Profit-Sharing Plans.................................. 48
403(b) Retirement Plans........................................... 49
Simplified Employee Pension Plans (SEPPs)......................... 49
Financial Statements.............................................. 49
Appendix A........................................................ 50
<PAGE>
GENERAL INFORMATION

MFR Emerging Markets Total Return Series, MFR Global Asset Allocation
Series, and MFR Global High Yield Series (the "Series") are series of Security
Income Fund (the "Fund"), a diversified open-end management investment company
(commonly known as a mutual fund). The Fund was organized as a Kansas
corporation on April 20, 1965. The Fund is registered with the Securities and
Exchange Commission ("SEC"), which registration does not involve supervision by
the SEC of the management or policies of the Series. The name of the Global High
Yield Series was Global Aggressive Bond Series prior to May 1, 1997. The
investment objective and policies of the Series under its former name were
identical to those of the Series presently. The Series, upon the demand of the
investor, must redeem their shares and pay the investor the current net asset
value thereof. ( See "How to Redeem Shares," page 38.)

Each Series has its own investment objective and policies which are
described below. While there is no present intention to do so, the investment
objective and policies of any Series, unless otherwise noted, may be changed by
the Fund's Board of Directors without the approval of stockholders. Each of the
Series is also required to operate within limitations imposed by its fundamental
investment policies which may not be changed without stockholder approval. These
limitations are set forth below under "Investment Policy Limitations," page 23.
An investment in one of the Series does not constitute a complete investment
program.

The value of the shares of each Series fluctuates with the value of the
portfolio securities. Each Series may realize losses or gains when it sells
portfolio securities and will earn income to the extent that it receives
dividends or interest from its investments. (See "Dividends and Taxes," page
40.)

The shares of the Series are sold to the public at net asset value, plus a
sales commission which is divided between the principal distributor and dealers
who sell the shares ("Class A shares"), or at net asset value with a contingent
deferred sales charge ("Class B shares"). (See "How to Purchase Shares," page
27.)

The Series receive investment advisory services from MFR Advisors, Inc.
("MFR") and administrative, accounting, and transfer agency services from
Security Management Company, LLC ("SMC") for a fee. MFR has guaranteed that the
aggregate annual expenses of the Series (including management compensation but
excluding brokerage commissions, interest, taxes, extraordinary expenses and
Class B distribution fees) shall not exceed any expense limitation imposed by
any state. MFR has engaged Lexington Management Corporation ("Lexington") to
provide certain sub-advisory services to each Series and SMC to provide
sub-advisory services to the Global Asset Allocation Series with respect to its
investments in domestic equity securities. (See page 32 for a discussion of MFR
and the Investment Advisory Contract.)

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

Under a Distribution Plan adopted with respect to the Class A shares of
the Series pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"1940 Act"), the Series are authorized to pay to the Distributor, an annual fee
equal to .25% of the average daily net assets of the Class A shares of the
Series to finance various distribution-related activities. (See "Class A
Distribution Plan," page 28.)

Under a Distribution Plan adopted with respect to the Class B shares of
the Series pursuant to Rule 12b-1 under the 1940 Act, each Series is authorized
to pay to the Distributor, an annual fee of 1.00% of the average daily net
assets of the Class B Shares of the respective Series to finance various
distribution-related activities. (See "Class B Distribution Plan," page 29.)

The portfolio turnover rate for the Global High Yield Series for the
fiscal years ended December 31, 1997 and 1996, was 88% and 96%, respectively.
The annualized portfolio turnover rate for the Emerging Markets Total Return
Series and Global Asset Allocation Series for the period May 19, 1997 (date of
inception) to December 31, 1997 was 22% and 28%, respectively. Portfolio
turnover is the percentage of the lower of security sales or purchases to the
average portfolio value and would be 100% if all securities in the Series were
replaced within a period of one year.

INVESTMENT OBJECTIVES AND POLICIES OF THE SERIES

Each Series represents a different investment objective and has its own
identified assets and net asset values. The investment objective of each Series
is described below. There are risks inherent in the ownership of any security
and there can be no assurance that such investment objective will be achieved.
Some of the risks are described below.

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

MFR EMERGING MARKETS TOTAL RETURN SERIES

The investment objective of MFR Emerging Markets Total Return Series is to
seek to maximize total return. The Series under normal circumstances invests
substantially all of its assets in a portfolio of emerging country and emerging
market equity and debt securities. Equity securities will consist of all types
of common stocks and equivalents (the following constitute equivalents:
convertible debt securities and warrants). The Series also may invest in
preferred stocks, bonds, money market instruments of foreign and domestic
companies, U.S. government, and governmental agencies and debt securities of
sovereign emerging market issuers. The Series may invest up to 100% of its total
assets in U.S. and 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 Series also may invest in zero coupon securities
and securities that are in default as to payment of principal and/or interest. A
description of certain debt ratings is included as Appendix A to the Prospectus.
See "Investment Methods and Risk Factors" for a discussion of the risks
associated with investing in junk bonds and zero coupon securities. Many
emerging market debt securities are not rated by United States rating agencies
such as Moody's and Standard & Poor's. The Series' ability to achieve its
investment objective is thus more dependent on the credit analysis of MFR
Advisors, Inc. ("MFR") than would be the case if the Series were to invest in
higher quality bonds. The Series may invest in fixed income securities without
limitation as to maturity. INVESTORS SHOULD PURCHASE SHARES ONLY AS A SUPPLEMENT
TO AN OVERALL INVESTMENT PROGRAM AND ONLY IF WILLING TO UNDERTAKE THE RISKS
INVOLVED.

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% 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 Series' investments in emerging country securities are not subject to
any maximum limit, and it is the intention of MFR to invest substantially all of
the Series' assets in emerging country and emerging market securities. However,
to the extent that the Series' assets are not invested in emerging country and
emerging market securities, the remaining 35% of the assets may be invested in
(i) other equity and debt securities without regard to whether they qualify as
emerging country or emerging market securities, and (ii) cash reserves of the
type described under "Investment Methods and Risk Factors" in the Prospectus. In
addition, for temporary defensive purposes, the Series may invest less than 65%
of its assets in emerging country and emerging market securities, in which case
the Series may invest in other equity or debt securities or may invest in cash
reserves without limitation.

The Series' investments in emerging market debt securities consist
substantially of high yield, lower-rated debt securities of foreign
corporations, and "Brady Bonds" and other sovereign debt securities issued by
emerging market governments. "Sovereign debt securities" are those issued by
emerging market governments that are traded in the markets of developed
countries or groups of developed countries. MFR may invest in debt securities of
emerging market issuers that it determines to be suitable investments for the
Series without regard to ratings. Currently, the substantial majority of
emerging market debt securities are considered to have a credit quality below
investment grade. The Series may invest up to 100% of its total assets in debt
securities with credit quality below investment grade (known as "junk bonds").
Such securities are predominantly speculative and involve a high degree of risk
as discussed under "Investment Methods and Risk Factors." The Series may invest
in bank loan participations and assignments, which are fixed and floating rate
loans arranged through private negotiations between foreign or domestic
entities.

MFR GLOBAL ASSET ALLOCATION SERIES

The investment objective of MFR Global Asset Allocation Series is to seek
a high level of total return by investing primarily in a diversified portfolio
of fixed income and equity securities. The Series is designed to balance the
potential appreciation of common stocks with the income and relative stability
of principal of bonds over the long term. The primary consideration in varying
the asset allocation mix will be the fundamental economic outlook of the Series'
Adviser, MFR, for the different markets in which the Series invests. Shifts
between the fixed income and equity sectors will normally be done gradually and
MFR will not attempt to precisely "time" the market. There is, of course, no
guarantee that MFR's gradual approach to allocating the Series' assets will be
successful in achieving the Series' objective. The Series will maintain cash
reserves to facilitate the Series' cash flow needs (redemptions, expenses and
purchases of Series securities) and it may invest in cash reserves without
limitation for temporary defensive purposes. See the discussion of cash reserves
under "Investment Methods and Risk Factors" in the Prospectus.

Assets allocated to the fixed income portion of the Series will be
invested primarily in U.S. and foreign investment grade bonds, high yield bonds
(U.S. and foreign, including "Brady Bonds"), short-term investments and
currencies, as needed to gain exposure to foreign markets. Investment grade debt
securities include long, intermediate and short-term investment grade debt
securities (e.g., AAA, AA, A or BBB by S&P or if not rated, of equivalent
investment quality as determined by MFR). The weighted average maturity for this
portion (investment grade debt securities) of the Series' portfolio is generally
expected to be intermediate (3-10 years), although it may vary significantly.
Non-dollar debt securities include non-dollar denominated government and
corporate debt securities or currencies. See "Investment Methods and Risk
Factors" for a discussion of the risks involved in foreign investing. High-yield
securities include high-yielding, income-producing debt securities in the lower
rating categories (commonly referred to as "junk bonds") and preferred stocks
including convertible securities. High yield bonds may be purchased without
regard to maturity; however, the average maturity is expected to be
approximately 10 years, although it may vary if market conditions warrant.
Quality will generally range from lower medium to low and the Series may also
purchase bonds in default if, in the opinion of MFR, there is significant
potential for capital appreciation. Lower-rated debt obligations are generally
considered to be high risk investments. See "Investment Methods and Risk
Factors" for a discussion of the risks involved in investing in high-yield,
lower-rated debt securities. The Series may invest in zero coupon securities
that pay no interest prior to maturity and payment in kind securities that pay
interest in the form of additional securities. See the discussion of such
securities under "Investment Methods and Risk Factors" in the Prospectus.
Securities which may be held as cash reserves include liquid short-term
investments of one year or less rated within the top two categories by at least
one established rating organization, or if not rated, of equivalent investment
quality as determined by MFR. The Series may use currencies to gain exposure to
an international market prior to investing in non-dollar securities.

The Series' equity sector will be allocated among large and small capital
("Large Cap" and "Small Cap" respectively) U.S. and non-dollar equity
securities, currencies, real estate investment trusts ("REITs"), and futures.
See the discussion of REITs under "Investment Methods and Risk Factors" in the
Prospectus. Large Cap securities generally include stocks of well established
companies with capitalization over $1 billion which can produce increasing
dividend income. Non-dollar securities include foreign currencies and common
stocks of established non-U.S. companies. Investments may be made solely for
capital appreciation or solely for income or any combination of both for the
purpose of achieving a higher overall return. MFR intends to diversify the
non-dollar portion of the Series' portfolio broadly among countries and normally
to have at least three different countries represented. The countries of the Far
East and Western Europe as well as South Africa, Australia, Canada, and other
areas (including developing countries) may be included. Under unusual
circumstances, however, investment may be substantially in one or two countries.

Some of the countries in which the Series may invest may be considered to
be developing and may involve special risks. For a discussion of the risks
involved in investment in foreign securities, including investment in emerging
markets, see "Investment Methods and Risk Factors." The Series' foreign
investments are also subject to currency risk described under "Investment
Methods and Risk Factors". To manage this risk and facilitate the purchase and
sale of foreign securities, the Series may engage in foreign currency
transactions involving the purchase and sale of forward foreign currency
exchange contracts. Although forward currency transactions will be used
primarily to protect the Series from adverse currency movements, they also
involve the risk that anticipated currency movements will not be accurately
predicted and the Series' total return could be adversely affected as a result.
For a discussion of forward currency transactions and the risks associated with
such transactions, see "Investment Methods and Risk Factors." Purchases by the
Series of currencies in substitution of purchases of stocks and bonds will
subject the Series to risks different from a fund invested solely in stocks and
bonds.

The Series' investments include, but are not limited to, equity and fixed
income securities of any type and the Series may utilize the investment methods
and investment vehicles described below.

The Series 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 currency exchange rates, or as
an efficient means of adjusting its exposure to the bond, stock, and currency
markets. The Series will not use futures contracts for leveraging purposes. The
Series will limit its use of futures contracts so that initial margin deposits
or premiums on such contracts used for non-hedging purposes will not equal more
than 5% of the Series' net asset value. The Series may also write call and put
options on a covered basis and purchase put and call options on securities,
financial indices, and currencies. The aggregate market value of the Series'
portfolio securities or currencies covering call or put options will not exceed
25% of the Series' net assets. The Series may enter into foreign futures and
options transactions. See the discussion of options and futures contracts under
"Investment Methods and Risk Factors." As part of its investment program and to
maintain greater flexibility, the Series may invest in instruments which have
the characteristics of futures, options and securities, known as "hybrid
instruments." For a discussion of such instruments and the risks involved in
investing therein, see "Investment Methods and Risk Factors" in the Prospectus.

The Series may acquire illiquid securities in an amount not exceeding 15%
of net assets. Because an active trading market does not exist for such
securities the sale of such securities may be subject to delay and additional
costs. The Series will not invest more than 15% of its total assets in
restricted securities (other than securities eligible for resale under Rule 144A
of the Securities Act of 1933). For a discussion of restricted securities, see
"Investment Methods and Risk Factors."

While the Series will remain invested in primarily common stocks and
bonds, it may, for temporary defensive purposes, invest in cash reserves without
limitation. The Series may establish and maintain reserves as MFR believes is
advisable to facilitate the Series' cash flow needs. Cash reserves include money
market instruments, including repurchase agreements, in the two highest rating
categories. Short-term securities may be held in the equity sector as collateral
for futures contracts. These securities are segregated and may not be available
for the Series' cash flow needs.

The Series may invest in debt or preferred equity securities convertible
into or exchangeable for equity securities and warrants. As a fundamental
policy, for the purpose of realizing additional income, the Series may lend
securities with a value of up to 33 1/3% of its total assets to broker-dealers,
institutional investors, or other persons. Any such loan will be continuously
secured by collateral at least equal to the value of the securities loaned. For
a discussion of the limitations on lending and risks of lending, see "Investment
Methods and Risk Factors."

MFR GLOBAL HIGH YIELD SERIES

The investment objective of the Global High Yield Series is to seek high
current income. Capital appreciation is a secondary objective. The Series, under
normal circumstances, invests substantially all of its assets in debt securities
of issuers in the United States, developed foreign countries and emerging
markets. For purposes of its investment objective, Global High Yield Series
considers an emerging country to be any country whose economy and market the
World Bank or United Nations considers to be emerging or developing. The Series
also may invest in debt securities traded in any market, of companies that
derive 50% or more of their total revenue from either goods or services produced
in such emerging countries and emerging markets or sales made in such countries.
Determinations as to eligibility will be made by MFR and the Series'
Sub-Adviser, Lexington Management Corporation ("Lexington"), based on publicly
available information and inquiries made to the companies. It is possible in the
future that sufficient numbers of emerging country or emerging market debt
securities would be traded on securities markets in industrialized countries so
that a major portion, if not all, of the Series' assets would be invested in
securities traded on such markets, although such a situation is unlikely at
present.

Currently, investing in many of the emerging countries and emerging
markets is not feasible. Accordingly, MFR 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 MFR and Lexington and
approved by the Board of Directors of the Series 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. The
Series also may invest in shares of other investment companies as discussed
under "Investment Methods and Risk Factors," below.

SELECTION OF DEBT INVESTMENTS. In determining the appropriate distribution
of investments among various countries and geographic regions for the Global
High Yield Series, MFR ordinarily will consider the following factors: prospects
for relative economic growth among the different countries in which the Series
may invest; expected levels of inflation; government policies influencing
business conditions; the outlook for currency relationships; and the range of
the individual investment opportunities available to international investors.

Although the Series values assets daily in terms of U.S. dollars, the
Series does not intend to convert holdings of foreign currencies into U.S.
dollars on a daily basis. The Series will do so from time to time, and investors
should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference ("spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to the Series at one rate, while offering a lesser rate of exchange should the
Series desire to sell that currency to the dealer.

Global High Yield Series may invest in the following types of money market
instruments (i.e., debt instruments with less than 12 months remaining until
maturity) denominated in U.S. dollars or other currencies: (a) obligations
issued or guaranteed by the U.S. or foreign governments, their agencies,
instrumentalities or municipalities; (b) obligations of international
organizations designed or supported by multiple foreign governmental entities to
promote economic reconstruction or development; (c) finance company obligations,
corporate commercial paper and other short-term commercial obligations; (d) bank
obligations (including certificates of deposit, time deposits, demand deposits
and bankers' acceptances), subject to the restriction that the Series may not
invest 25% or more of its total assets in bank securities; (e) repurchase
agreements with respect to the foregoing; and (f) other substantially similar
short-term debt securities with comparable characteristics.

SAMURAI AND YANKEE BONDS. Subject to its fundamental investment
restrictions, Global High Yield Series may invest in yen-denominated bonds sold
in Japan by non-Japanese issuers ("Samurai bonds"), and may invest in
dollar-denominated bonds sold in the United States by non-U.S. issuers ("Yankee
bonds"). It is the policy of the Series to invest in Samurai or Yankee bond
issues only after taking into account considerations of quality and liquidity,
as well as yield.

COMMERCIAL BANK OBLIGATIONS. For the purposes of Global High Yield Series'
investment policies with respect to bank obligations, obligations of foreign
branches of U.S. banks and of foreign banks are obligations of the issuing bank
and may be general obligations of the parent bank. Such obligations, however,
may be limited by the terms of a specific obligation and by government
regulation. As with investment in non-U.S. securities in general, investments in
the obligations of foreign branches of U.S. banks and of foreign banks may
subject the Series to investment risks that are different in some respects from
those of investments in obligations of domestic issuers. Although the Series
typically will acquire obligations issued and supported by the credit of U.S. or
foreign banks having total assets at the time of purchase in excess of $1
billion, this $1 billion figure is not a fundamental investment policy or
restriction of the Series. For the purposes of calculation with respect to the
$1 billion figure, the assets of a bank will be deemed to include the assets of
its U.S. and non-U.S. branches.

REPURCHASE AGREEMENTS, REVERSE REPURCHASE AGREEMENTS AND ROLL
TRANSACTIONS. Global High Yield Series may invest in repurchase agreements which
are agreements by which a purchaser acquires a security and simultaneously
commits to resell that security to the seller (a bank or broker/dealer) at an
agreed upon price on an agreed upon date within a number of days (usually not
more than seven) from the date of purchase. Global High Yield Series will not
enter into a repurchase agreement with a maturity of more than seven days if, as
a result, more than 15% of the value of its total net assets would be invested
in such repurchase agreements and other illiquid investments and securities for
which no readily available market exists. Repurchase agreements are discussed in
more detail under "Investment Methods and Risk Factors."

Global High Yield Series may enter into reverse repurchase agreements. A
reverse repurchase agreement is a borrowing transaction in which the Series
transfers possession of a security to another party, such as a bank or
broker/dealer, in return for cash, and agrees to repurchase the security in the
future at an agreed upon price, which includes an interest component. The Series
also may engage in "roll" borrowing transactions which involve the Series' sale
of fixed income securities together with a commitment (for which the Series may
receive a fee) to purchase similar, but not identical, securities at a future
date. Global High Yield Series will maintain, in a segregated account with a
custodian, cash or liquid securities in an amount sufficient to cover its
obligation under "roll" transactions and reverse repurchase agreements.

BORROWING. Global High Yield Series is prohibited from borrowing money in
order to purchase securities. The Series may borrow up to 5% of its total assets
for temporary or emergency purposes other than to meet redemptions. See the
discussion of borrowing under "Investment Methods and Risk Factors."

SHORT SALES. The Series is authorized to make short sales of securities,
although it has no current intention of doing so. A short sale is a transaction
in which the Series sells a security in anticipation that the market price of
that security will decline. The Series may make short sales as a form of hedging
to offset potential declines in long positions in securities it owns and in
order to maintain portfolio flexibility. The Series only may make short sales
"against the box." In this type of short sale, at the time of the sale, the
Series owns the security it has sold short or has the immediate and
unconditional right to acquire the identical security at no additional cost.

In a short sale, the seller does not immediately deliver the securities
sold and does not receive the proceeds from the sale. To make delivery to the
purchaser, the executing broker borrows the securities being sold short on
behalf of the seller. The seller is said to have a short position in the
securities sold until it delivers the securities sold, at which time it receives
the proceeds of the sale. To secure its obligation to deliver securities sold
short, the Series will deposit in a separate account with its custodian an equal
amount of the securities sold short or securities convertible into or
exchangeable for such securities at no cost. The Series could close out a short
position by purchasing and delivering an equal amount of the securities sold
short, rather than by delivering securities already held by the Series, because
the Series might want to continue to receive interest and dividend payments on
securities in its portfolio that are convertible into the securities sold short.

Global High Yield Series might make a short sale "against the box" in
order to hedge against market risks when MFR believes that the price of a
security may decline, causing a decline in the value of a security owned by the
Series or a security convertible into or exchangeable for such security, or when
MFR wants to sell the security the Series owns at a current attractive price,
but also wishes to defer recognition of gain or loss for federal income tax
purposes and for purposes of satisfying certain tests applicable to regulated
investment companies under the Internal Revenue Code of 1986, as amended (the
"Code"). In such case, any future losses in the Series' long position should be
reduced by a gain in the short position. Conversely, any gain in the long
position should be reduced by a loss in the short position. The extent to which
such gains or losses in the long position are reduced will depend upon the
amount of the securities sold short relative to the amount of the securities the
Series owns, either directly or indirectly, and, in the case where a Series owns
convertible securities, changes in the investment values or conversion premiums
of such securities. There will be certain additional transaction costs
associated with short sales "against the box," but the Series will endeavor to
offset these costs with income from the investment of the cash proceeds of short
sales.

ILLIQUID SECURITIES. The Series may invest up to 15% of total net assets
in illiquid securities. Securities may be considered illiquid if the Series
cannot reasonably expect to receive approximately the amount at which the Series
values such securities within seven days. The sale of illiquid securities, if
they can be sold at all, generally will require more time and result in higher
brokerage charges or dealer discounts and other selling expenses than will the
sale of liquid securities, such as securities eligible for trading on U.S.
securities exchanges or in the over-the-counter markets. Moreover, restricted
securities, which may be illiquid for purposes of this limitation often sell, if
at all, at a price lower than similar securities that are not subject to
restrictions on resale.

With respect to liquidity determinations generally, the Fund's Board of
Directors has the ultimate responsibility for determining whether specific
securities, including restricted securities pursuant to Rule 144A under the
Securities Act of 1933, are liquid or illiquid. The Fund's Board has delegated
the function of making day-to-day determinations of liquidity to MFR in
accordance with procedures approved by the Fund's Board of Directors. MFR takes
into account a number of factors in reaching liquidity decisions, including, but
not limited to: (i) the frequency of trades and quotes; (ii) the number of
dealers and potential purchasers; (iii) the number of dealers that have
undertaken to make a market in the security; and (iv) the nature of the security
and how trading is effected (e.g., the time needed to sell the security, how
offers are solicited and the mechanics of transfer). MFR will monitor the
liquidity of securities held by the Series and report periodically on such
decisions to the Board of Directors.

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 Series are described in the
"Investment Objectives and Policies" and "Investment Methods and Risk Factors"
sections of the Prospectus and in this 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 Series which may invest in such securities and instruments or which use
such techniques. Also included is a general description of some of the
investment instruments, techniques and methods which may be used by one or more
of the Series. The methods described only apply to those Series which may use
such methods. Although a Series may employ the techniques, instruments and
methods described below, consistent with its investment objective and policies
and any applicable law, no Series will be required to do so.

GENERAL RISK FACTORS. Each Series' net asset value will fluctuate,
reflecting fluctuations in the market value of its portfolio positions and its
net currency exposure. The value of fixed income securities held by the Series
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 Series are subject to greater interest
rate risk. There is no assurance that any Series will achieve its investment
objective.

SHARES OF OTHER INVESTMENT COMPANIES. Each of the Series may invest in
shares of other investment companies. A Series' investment in shares of other
investment companies may not exceed immediately after purchase 10% of the
Series' total assets and no more than 5% 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.

REPURCHASE AGREEMENTS, REVERSE REPURCHASE AGREEMENTS AND ROLL
TRANSACTIONS. Each of the Series 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
Series will retain possession of the underlying securities. If bankruptcy
proceedings are commenced with respect to the seller, realization on the
collateral by the Series may be delayed or limited and the Series may incur
additional costs. In such case, the Series will be subject to risks associated
with changes in market value of the collateral securities. The Series intends to
enter into repurchase agreements only with banks and broker/dealers believed to
present minimal credit risks. Accordingly, the Series will enter into repurchase
agreements only with (a) brokers having total capitalization of at least $40
million and a ratio of aggregate indebtedness to net capital of no more than 4
to 1, or, alternatively, net capital equal to 6% of aggregate debit balances, or
(b) banks having at least $1 billion in assets and a net worth of at least $100
million as of its most recent annual report. In addition, the aggregate
repurchase price of all repurchase agreements held by the Series with any broker
shall not exceed 15% of the total assets of the Series or $5 million, whichever
is greater.

BORROWING. Each of the Series 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 Series to borrow money
rather than sell existing portfolio positions to meet redemption requests.
Accordingly, the Series may borrow from banks and through reverse repurchase
agreements and "roll" transactions, in connection with meeting requests for the
redemption of Series shares. The Emerging Markets Total Return and Global Asset
Allocation Series may borrow up to 33 1/3%, and Global High Yield Series may
borrow up to 5% of total Series assets. To the extent that a Series 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 Series'
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 Series 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.

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

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

The Fund's 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 MFR or the relevant sub-adviser. In making the
determination regarding the liquidity of Rule 144A Securities, MFR or the
relevant sub-adviser will consider trading markets for the specific security
taking into account the unregistered nature of a Rule 144A security. In
addition, it 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 Series' assets invested in illiquid
securities to the extent that qualified institutional buyers become
uninterested, for a time, in purchasing these securities.

Each Series also may purchase restricted securities that are not eligible
for resale pursuant to Rule 144A. The Series 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 Series 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 Series may be
permitted to sell it under an effective registration statement. If, during a
period, adverse conditions were to develop, the Series might obtain a less
favorable price than prevailing when it decided to sell.

RISKS ASSOCIATED WITH LOWER-RATED DEBT SECURITIES AND COMPARABLE UNRATED
SECURITIES (JUNK BONDS). Each of the Series 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") and unrated securities of
similar credit quality. 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
Series 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 Series. If an issuer exercises these provisions in a declining
interest rate market, the Series may have to replace the security with a lower
yielding security, resulting in a decreased return for investors. In addition,
the Series 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 Series
anticipate 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 Series to obtain accurate market quotations for purposes
of valuing the securities in the portfolio of the Series.

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 Series 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 Series will adversely impact
net asset value of the Series. See "Risk Factors" in the Prospectus. 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 Series 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 Series 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.

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

MORTGAGE-BACKED SECURITIES AND COLLATERALIZED MORTGAGE OBLIGATIONS. The
Global Asset Allocation Series and Global High Yield Series 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. The
Global Asset Allocation Series may invest in securities known as "inverse
floating obligations," "residual interest bonds," or "interest-only" (IO) and
"principal-only" (PO) bonds, the market values of which will generally be more
volatile than the market values of most MBSs. An inverse floating obligation is
a derivative adjustable rate security with interest rates that adjust or vary
inversely to changes in market interest rates. The term "residual interest" bond
is used generally to describe those instruments in collateral pools, such as
CMOs, which receive any excess cash flow generated by the pool once all other
bondholders and expenses have been paid. IOs and POs are created by separating
the interest and principal payments generated by a pool of mortgage-backed bonds
to create two classes of securities. Generally, one class receives interest only
payments (IOs) and the other class principal only payments (POs). MBSs have been
referred to as "derivatives" because the performance of MBSs is dependent upon
and derived from underlying securities.

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

Investment in MBSs poses several risks, including prepayment, market and
credit risks. Prepayment risk reflects the chance that borrowers may prepay
their mortgages faster than expected, thereby affecting the investment's average
life and perhaps its yield. Borrowers are most likely to exercise their
prepayment options at a time when it is least advantageous to investors,
generally prepaying mortgages as interest rates fall, and slowing payments as
interest rates rise. Certain classes of CMOs may have priority over others with
respect to the receipt of prepayments on the mortgages and the Series may invest
in CMOs which are subject to greater risk of prepayment as discussed above.
Market risk reflects the chance that the price of the security may fluctuate
over time. The price of MBSs may be particularly sensitive to prevailing
interest rates, the length of time the security is expected to be outstanding
and the liquidity of the issue. In a period of unstable interest rates, there
may be decreased demand for certain types of MBSs, and a Series 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 Series 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 Series 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. The Global Asset Allocation Series also may
invest in "asset-backed securities." These include secured debt instruments
backed by automobile loans, credit card loans, home equity loans, manufactured
housing loans and other types of secured loans providing the source of both
principal and interest. Asset-backed securities are subject to risks similar to
those discussed above with respect to MBSs. See the discussion of asset-backed
securities in the Prospectus.

WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES. Each of the Series 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 Series 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 Series 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 Series 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 Series may incur a loss.

DERIVATIVE INSTRUMENTS: OPTIONS, FUTURES AND FORWARD CURRENCY STRATEGIES

WRITING COVERED CALL OPTIONS. Each of the Series may write (sell) covered
call options. Covered call options generally will be written on securities and
currencies which, in the opinion of MFR or the relevant sub-adviser, as
applicable, are not expected to make any major price moves in the near future
but which, over the long term, are deemed to be attractive investments.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Each of the Series may attempt to accomplish objectives similar to those
involved in using Forward Contracts (defined below), as described in the
Prospectus, by purchasing put or call options on currencies. A put option gives
the Series as purchaser the right (but not the obligation) to sell a specified
amount of currency at the exercise price until the expiration of the option. A
call option gives the Series as purchaser the right (but not the obligation) to
purchase a specified amount of currency at the exercise price until its
expiration. The Series might purchase a currency put option, for example, to
protect itself during the contract period against a decline in the dollar value
of a currency in which it holds or anticipates holding securities. If the
currency's value should decline against the dollar, the loss in currency value
should be offset, in whole or in part, by an increase in the value of the put.
If the value of the currency instead should rise against the dollar, any gain to
the Series would be reduced by the premium it had paid for the put option. A
currency call option might be purchased, for example, in anticipation of, or to
protect against, a rise in the value against the dollar of a currency in which
the Series anticipates purchasing securities.

Currency options may be either listed on an exchange or traded
over-the-counter ("OTC options"). Listed options are third-party contracts
(i.e., performance of the obligations of the purchaser and seller is guaranteed
by the exchange or clearing corporation), and have standardized strike prices
and expiration dates. OTC options are two-party contracts with negotiated strike
prices and expiration dates. The Securities and Exchange Commission ("SEC")
staff considers OTC options and their cover to be illiquid securities. OTC
options will not be purchased unless the Series believes that daily valuations
for such options are readily obtainable. OTC options differ from exchange-traded
options in that OTC options are transacted with dealers directly and not through
a clearing corporation (which guarantees performance). Consequently, there is a
risk of non-performance by the dealer. Since no exchange is involved, OTC
options are valued on the basis of a quote provided by the dealer. In the case
of OTC options, there can be no assurance that a liquid secondary market will
exist for any particular option at any specific time.

OPTIONS ON STOCK INDICES. Options on stock indices are similar to options
on specific securities except that, rather than the right to take or make
delivery of the specific security at a specific price, an option on a stock
index gives the holder the right to receive, upon exercise of the option, an
amount of cash if the closing level of that stock index is greater than, in the
case of a call, or less than, in the case of a put, the exercise price of the
option. This amount of cash is equal to such difference between the closing
price of the index and the exercise price of the option expressed in dollars
multiplied by a specified multiple. The writer of the option is obligated, in
return for the premium received, to make delivery of this amount. Unlike options
on specific securities, all settlements of options on stock indices are in cash
and gain or loss depends on general movements in the stocks included in the
index rather than price movements in particular stocks. A stock index futures
contract is an agreement in which one party agrees to deliver to the other an
amount of cash equal to a specific amount multiplied by the difference between
the value of a specific stock index at the close of the last trading day of the
contract and the price at which the agreement is made. No physical delivery of
securities is made.

RISK FACTORS IN OPTIONS ON INDICES. Because the value of an index option
depends upon the movements in the level of the index rather than upon movements
in the price of a particular security, whether the Series will realize a gain or
a loss on the purchase or sale of an option on an index depends upon the
movements in the level of prices in the market generally or in an industry or
market segment rather than upon movements in the price of the individual
security. Accordingly, successful use of positions will depend upon the ability
of MFR or the relevant sub-adviser to predict correctly movements in the
direction of the market generally or in the direction of a particular industry.
This requires different skills and techniques than predicting changes in the
prices of individual securities.

Index prices may be distorted if trading of securities included in the
index is interrupted. Trading in index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number of
securities in the index. If this occurred, a Series would not be able to close
out options which it had written or purchased and, if restrictions on exercise
were imposed, might be unable to exercise an option it purchased, which would
result in substantial losses.

Price movements in Series securities will not correlate perfectly with
movements in the level of the index and therefore, a Series bears the risk that
the price of the securities may not increase as much as the level of the index.
In this event, the Series would bear a loss on the call which would not be
completely offset by movements in the prices of the securities. It is also
possible that the index may rise when the value of the Series' securities does
not. If this occurred, a Series would experience a loss on the call which would
not be offset by an increase in the value of its securities and might also
experience a loss in the market value of its securities.

Unless a Series has other liquid assets which are sufficient to satisfy
the exercise of a call on the index, the Series will be required to liquidate
securities in order to satisfy the exercise.

When a Series has written a call on an index, there is also the risk that
the market may decline between the time the Series has the call exercised
against it, at a price which is fixed as of the closing level of the index on
the date of exercise, and the time the Series is able to sell securities. As
with options on securities, MFR or the relevant sub-adviser will not learn that
a call has been exercised until the day following the exercise date, but, unlike
a call on securities where the Series would be able to deliver the underlying
security in settlement, the Series may have to sell part of its securities in
order to make settlement in cash, and the price of such securities might decline
before they could be sold.

If a Series exercises a put option on an index which it has purchased
before final determination of the closing index value for the day, it runs the
risk that the level of the underlying index may change before closing. If this
change causes the exercised option to fall "out-of-the-money" the Series will be
required to pay the difference between the closing index value and the exercise
price of the option (multiplied by the applicable multiplier) to the assigned
writer. Although the Series may be able to minimize this risk by withholding
exercise instructions until just before the daily cutoff time or by selling
rather than exercising an option when the index level is close to the exercise
price, it may not be possible to eliminate this risk entirely because the cutoff
time for index options may be earlier than those fixed for other types of
options and may occur before definitive closing index values are announced.

TRADING IN FUTURES CONTRACTS. Each of the Series may enter into financial
futures contracts, including stock index, interest rate and currency Futures
("Futures" or "Futures Contracts") as a hedge against changes in prevailing
levels of interest rates or currency exchange rates in order to establish more
definitely the effective return on securities or currencies held or intended to
be acquired by the Series. A Series' hedging may include sales of Futures as an
offset against the effect of expected increases in interest rates or currency
exchange rates, and purchases of Futures as an offset against the effect of
expected declines in interest rates or currency exchange rates.

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

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

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

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

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

As an example of an offsetting transaction, the contractual obligations
arising from the sale of one Futures Contract of October Deutschemarks on an
exchange may be fulfilled at any time before delivery under the Futures Contract
is required (i.e., on a specified date in October, the "delivery month") by the
purchase of another Futures Contract of October Deutschemarks on the same
exchange. In such instance, the difference between the price at which the
Futures Contract was sold and the price paid for the offsetting purchase, after
allowance for transaction costs, represents the profit or loss to the Series.

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

The Series' Futures transactions will be entered into primarily for
traditional hedging purposes; that is, Futures Contracts will be sold to protect
against a decline in the price of securities or currencies that the Series'
owns, or Futures Contracts will be purchased to protect the Series against an
increase in the price of securities or currencies it has committed to purchase
or expects to purchase. Stock index futures contracts may be used to provide a
hedge for a portion of the Series' portfolio, as a cash management tool, or as
an efficient way for MFR or the relevant sub-adviser to implement either an
increase or decrease in portfolio market exposure in response to changing market
conditions. Stock index futures contracts are currently traded with respect to
the S&P 500 Index and other broad stock market indices, such as the New York
Stock Exchange Composite Stock Index and the Value Line Composite Stock Index.
The Series may, however, purchase or sell futures contracts with respect to any
stock index. Nevertheless, to hedge the Series' portfolio successfully, the
Series must sell futures contracts with respect to indexes or subindexes whose
movements will have a significant correlation with movements in the prices of
the Series' securities.

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

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

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

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

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

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

Successful use of futures contracts by the Series for hedging purposes is
subject to MFR or the relevant sub-adviser's ability to correctly predict
movements in the direction of the market. It is possible that, when the Series
has sold futures to hedge its portfolio against a decline in the market, the
index, indices, or underlying instruments on which the futures are written might
advance and the value of the underlying instruments held in the Series'
portfolio might decline. If this were to occur, the Series would lose money on
the futures and also would experience a decline in value in its underlying
instruments. However, while this might occur to a certain degree, it is believed
that over time the value of the Series' portfolio will tend to move in the same
direction as the market indices which are intended to correlate to the price
movements of the underlying instruments sought to be hedged. It is also possible
that if the Series were to hedge against the possibility of a decline in the
market (adversely affecting the underlying instruments held in its portfolio)
and prices instead increased, the Series would lose part or all of the benefit
of increased value of those underlying instruments that it has hedged, because
it would have offsetting losses in its futures positions. In addition, in such
situations, if the Series had insufficient cash, it might have to sell
underlying instruments to meet daily variation margin requirements. Such sales
of underlying instruments might be, but would not necessarily be, at increased
prices (which would reflect the rising market). The Series might have to sell
underlying instruments at a time when it would be disadvantageous to do so.

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

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

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

FORWARD CURRENCY CONTRACTS AND OPTIONS ON CURRENCY. Each of the Series may
enter into forward currency contracts and related options. A forward currency
contract ("Forward Contract") is an obligation, generally arranged with a
commercial bank or other currency dealer, to purchase or sell a currency against
another currency at a future date and price as agreed upon by the parties. The
Series may accept or make delivery of the currency at the maturity of the
Forward Contract or, prior to maturity, enter into a closing transaction
involving the purchase or sale of an offsetting contract. The Series will
utilize Forward Contracts only on a covered basis. The Series engage in forward
currency transactions in anticipation of, or to protect against, fluctuations in
exchange rates. The Series might sell a particular foreign currency forward, for
example, when it holds bonds denominated in a foreign currency but anticipates,
and seeks to be protected against, a decline in the currency against the U.S.
dollar. Similarly, the Series might sell the U.S. dollar forward when it holds
bonds denominated in U.S. dollars but anticipates, and seeks to be protected
against, a decline in the U.S. dollar relative to other currencies. Further, the
Series might purchase a currency forward to "lock in" the price of securities
denominated in that currency which it anticipates purchasing.

Forward Contracts are transferable in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A Forward Contract generally has no deposit requirement, and no
commissions are charged at any stage for trades. The Series will enter into such
Forward Contracts with major U.S. or foreign banks and securities or currency
dealers in accordance with guidelines approved by the Fund's Board of Directors.

The Series may enter into Forward Contracts either with respect to
specific transactions or with respect to the Series' portfolio positions. The
precise matching of the Forward Contract amounts and the value of specific
securities generally will not be possible because the future value of such
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the Forward Contract
is entered into and the date it matures. Accordingly, it may be necessary for
the Series to purchase additional foreign currency on the spot (i.e., cash)
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Series is obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency. Conversely, it may be necessary to sell on the spot market
some of the foreign currency the Series is obligated to deliver. The projection
of short-term currency market movements is extremely difficult, and the
successful execution of a short-term hedging strategy is highly uncertain.
Forward Contracts involve the risk that anticipated currency movements will not
be predicted accurately, causing the Series to sustain losses on these Contracts
and transaction costs. Forward Contracts may be considered illiquid investments.

At or before the maturity of a Forward Contract requiring the Series to
sell a currency, the Series either may sell a portfolio security and use the
sale proceeds to make delivery of the currency or retain the security and offset
its contractual obligation to deliver the currency by purchasing a second
contract pursuant to which the Series will obtain, on the same maturity date,
the same amount of the currency which it is obligated to deliver. Similarly, the
Series may close out a Forward Contract requiring it to purchase a specified
currency by entering into a second Contract entitling it to sell the same amount
of the same currency on the maturity date of the first Contract. The Series
would realize a gain or loss as a result of entering into such an offsetting
Forward Contract under either circumstance to the extent the exchange rate or
rates between the currencies involved moved between the execution dates of the
first Contract and the offsetting Contract.

The cost to the Series of engaging in Forward Contracts varies with
factors such as the currencies involved, the length of the contract period and
the market conditions then prevailing. Because Forward Contracts usually are
entered into on a principal basis, no fees or commissions are involved. The use
of Forward Contracts does not eliminate fluctuations in the prices of the
underlying securities the Series owns or intends to acquire, but it does
establish a rate of exchange in advance. In addition, while Forward Contracts
limit the risk of loss due to a decline in the value of the hedged currencies,
they also limit any potential gain that might result should the value of the
currencies increase. Although Forward Contracts presently are not regulated by
the CFTC, the CFTC, in the future, may assert authority to regulate Forward
Contracts. In that event, the Series' ability to utilize Forward Contracts in
the manner set forth above may be restricted.

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

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

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

CURRENCY FLUCTUATIONS. Because each of the Series, under normal
circumstances, may invest substantial portions of their total assets in the
securities of foreign issuers which are denominated in foreign currencies, the
strength or weakness of the U.S. dollar against such foreign currencies will
account for part of the Series' investment performance. A decline in the value
of any particular currency against the U.S. dollar will cause a decline in the
U.S. dollar value of the Series' holdings of securities denominated in such
currency and, therefore, will cause an overall decline in the Series' net asset
value and any net investment income and capital gains to be distributed in U.S.
dollars to shareholders of the Series.

The rate of exchange between the U.S. dollar and other currencies is
determined by several factors including the supply and demand for particular
currencies, central bank efforts to support particular currencies, the movement
of interest rates, the pace of business activity in certain other countries and
the U.S., and other economic and financial conditions affecting the world
economy.

Although the Series value their assets daily in terms of U.S. dollars, the
Series do not intend to convert holdings of foreign currencies into U.S. dollars
on a daily basis. The Series will do so from time to time, and investors should
be aware of the costs of currency conversion. Although foreign exchange dealers
do not charge a fee for conversion, they do realize a profit based on the
difference ("spread") between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to the
Series at one rate, while offering a lesser rate of exchange should the Series
desire to sell that currency to the dealer.

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

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

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

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

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

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

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

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

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

INVESTMENT POLICY LIMITATIONS

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

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

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

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

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

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

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

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

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

9. Not to make loans to other persons other than for the purchase of publicly
distributed debt securities and U.S. Government obligations or by entry
into repurchase agreements; provided, however, that Emerging Markets Total
Return and Global Asset Allocation Series may make loans consistent with
the 1940 Act.

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

11. With respect to the Global High Yield Series, not to borrow money, except
that the Series may (a) enter into certain futures contracts and options
related thereto; (b) enter into commitments to purchase securities in
accordance with the Series' investment program, including delayed delivery
and when-issued securities and reverse repurchase agreements, and (c) for
temporary emergency purposes, borrow money in amounts not exceeding 5% of
the value of its total assets at the time the loan is made. The Emerging
Markets Total Return and Global Asset Allocation Series may borrow in
amounts not exceeding 33 1/3% of the value of total assets at the time the
loan is made.

12. With respect to Global High Yield Series, not to purchase securities of any
other investment company; provided, however that it may purchase securities
of another investment company or investment trust, if purchased in the open
market and then only if no profit, other than the customary broker's
commission, results to a sponsor or dealer, or by merger or other
reorganization.

13. With respect to Global High Yield Series not to issue senior securities (as
defined in the 1940 Act) except as follows: (a) the Series may enter into
commitments to purchase securities in accordance with the Series'
investment program, including reverse repurchase agreements, delayed
delivery and when-issued securities, which may be considered the issuance
of senior securities to the extent permitted under applicable regulations;
(b) the Series may engage in transactions that may result in the issuance
of a senior security to the extent permitted under applicable regulations,
the interpretation of the 1940 Act or an exemptive order; (c) the Series
may engage in short sales of securities to the extent permitted in its
investment program and other restrictions; (d) the purchase or sale of
futures contracts and related options shall not be considered to involve
the issuance of senior securities; and (e) subject to fundamental
restrictions, the Series may borrow money as authorized by the 1940 Act.
The Emerging Markets Total Return and Global Asset Allocation Series may
issue senior securities in compliance with the 1940 Act.

14. With respect to Global High Yield Series, not to invest more than 15% of
its total assets in illiquid securities.

The Global High Yield Series will not purchase securities on margin except
as provided below. The following investment policy of Global High Yield Series
is not a fundamental policy and may be changed by a vote of a majority of the
Fund's Board of Directors without shareholder approval. Global High Yield Series
may purchase and sell futures contracts and related options under the following
conditions: (a) the then current aggregate futures market prices of financial
instruments required to be delivered and purchased under open futures contracts
shall not exceed 30% of the Series' total assets, at market value; and (b) no
more than 5% of the Series' total assets, at market value at the time of
entering into a contract, shall be committed to margin deposits in relation to
futures contracts.

The above limitations, other than those relating to borrowing, are
applicable at the time of investment, and later increases or decreases in
percentages resulting from changes in value of net assets will not result in
violation of such limitations. The Series interpret Fundamental Policy (7) to
prohibit the purchase of real estate limited partnerships.

OFFICERS AND DIRECTORS

The officers and directors of the Fund and their principal occupations for
at least the last five years are as follows. Unless otherwise noted, the address
of each officer and director is 700 Harrison Street, Topeka, Kansas 66636-0001.
<TABLE>
<CAPTION>
- ---------------------------------------------------- ------------------------------------------------------------------------
NAME, ADDRESS AND POSITIONS HELD WITH THE FUND PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
- ---------------------------------------------------- ------------------------------------------------------------------------
<S> <C>
JOHN D. CLELAND,* President and Director Senior Vice President and Managing Member Representative, Security
Management Company, LLC; Senior Vice President, Security Benefit
Group, Inc. and Security Benefit Life Insurance Company.

DONALD A. CHUBB, JR.,** Director Business broker, Griffith & Blair Realtors. Prior to 1997,
2222 SW 29th Street President, Neon Tube Light Company, Inc.
Topeka, Kansas 66611

PENNY A. LUMPKIN,** Director Vice President, Palmer Companies (Wholesalers, Retailers and
3616 Canterbury Town Road Developers) and Bellairre Shopping Center (Leasing and Shopping Center
Topeka, Kansas 66610 Management); Secretary-Treasurer, Palmer News, Inc. (Wholesale
Distributors).

MARK L. MORRIS, JR.,** Director Retired. Former General Partner, Mark Morris Associates (Veterinary
5500 SW 7th Street Research and Education).
Topeka, Kansas 66606

MAYNARD F. OLIVERIUS, Director President and Chief Executive Officer,
1500 SW 10th Avenue Stormont-Vail Health Care.
Topeka, Kansas 66604

MARIA FIORINI RAMIREZ, *Director President and Chief Executive Officer, Maria Fiorini Ramirez, Inc.
One Liberty Plaza, 46th Floor
New York, New York 10006

JAMES R. SCHMANK, Vice President President and Managing Member Representative, Security Management
Company, LLC; Senior Vice President, Security Benefit Group, Inc. and
Security Benefit Life Insurance Company.

MARK E. YOUNG, Vice President Vice President, Security Management Company, LLC; Second Vice
President, Security Benefit Group, Inc. and Security Benefit Life
Insurance Company.

JANE A. TEDDER, Vice President Vice President and Senior Economist, Security Management Company, LLC;
Vice President, Security Benefit Group, Inc. and Security Benefit Life
Insurance Company.

AMY J. LEE, Secretary Secretary, Security Management Company, LLC; Vice President, Associate
General Counsel and Assistant Secretary, Security Benefit Group, Inc.
and Security Benefit Life Insurance Company.

STEVEN M. BOWSER, Vice President Second Vice President and Portfolio Manager, Security Management
Company, LLC; Second Vice President, Security Benefit Group, Inc. and
Security Benefit Life Insurance Company. Prior to October 1992,
Assistant Vice President and Portfolio Manager, Federal Home Loan Bank.

THOMAS A. SWANK, Vice President Vice President and Portfolio Manager, Security Management
Company, LLC; Vice President, Security Benefit Group, Inc. and
Security Benefit Life Insurance Company.

DAVID ESHNAUR, Vice President Assistant Vice President and Portfolio Manager, Security Management
Company, LLC; Assistant Vice President, Security Benefit Group, Inc.
and Security Benefit Life Insurance Company. Prior to July 1997,
Assistant Vice President and Assistant Portfolio Manager, Waddell &
Reed.

</TABLE>
- --------------------------------------------------------------------------------
* These directors are deemed to be "interested persons" of the Fund under the
Investment Company Act of 1940, as amended.

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

The officers of the Fund hold identical offices with each of the funds in
the Security Funds' complex, which consists of Security Equity, Security Ultra,
Security Growth and Income, Security Tax-Exempt, Security Cash and SBL Funds,
except Mr. Bowser who is also Vice President of SBL Fund and Security Tax-Exempt
Fund and Mr. Swank who is also Vice President of SBL Fund, Security Growth and
Income and Security Tax-Exempt Funds. The directors of the Fund, except Ms.
Ramirez and Mr. Schmank, also serve as directors of the other Funds in the
Security Funds' complex. See the table under "Investment Management," page 32,
for positions held by such persons with SMC and MFR. Ms. Lee holds the identical
office for the Distributor (Security Distributors, Inc.). Messrs. Cleland,
Schmank and Young are also directors and Vice Presidents of the Distributor and
Ms. Harwood is Treasurer of the Distributor.

REMUNERATION OF DIRECTORS AND OTHERS

The Fund directors, except those directors who are "interested persons" of
the Fund, receive from the Fund an annual retainer of $1,667 and a fee of $1,000
per meeting, plus reasonable travel costs, for each meeting of the board
attended. Each of the seven Series of the Fund paid a pro rata portion of the
directors' fees based on the amount of its net assets. Certain directors who are
members of the Fund's audit committee receive a fee of $1,000 per meeting and
reasonable travel costs for each meeting of the audit committee attended.

The Fund does not pay any fees to, or reimburse expenses of, directors who
are considered "interested persons" of the Fund. The aggregate compensation paid
by the Fund to each of the directors, during the fiscal year ended December 31,
1997, and the aggregate compensation paid to each of the directors during
calendar year 1997 by all seven of the registered investment companies in the
"Security Fund Complex," are set forth in the accompanying chart. Each of the
directors, except Ms. Ramirez, is a director of each of the other registered
investment companies in the Security Fund Complex.
<TABLE>
<CAPTION>
TOTAL COMPENSATION
NAME OF PENSION OR RETIREMENT FROM THE SECURITY
DIRECTOR OF AGGREGATE COMPENSATION BENEFITS ACCRUED AS PART ESTIMATED ANNUAL BENEFITS FUND COMPLEX,
THE FUND FROM THE FUND OF FUND EXPENSES UPON RETIREMENT INCLUDING THE FUND
- ----------------------------- ------------------------- ------------------------- ---------------------------- --------------------
<S> <C> <C> <C> <C>
Willis A. Anton, Jr. $ 394 $0 $0 $4,725
Donald A. Chubb, Jr. 1,971 0 0 23,650
John D. Cleland 0 0 0 0
Donald L. Hardesty 1,788 0 0 21,450
Penny A. Lumpkin 1,971 0 0 23,650
Mark L. Morris, Jr. 1,971 0 0 23,650
Maria Fiorini Ramirez 0 0 0 0
James R. Schmank 0 0 0 0
Harold G. Worswick* 0 0 0 0
Hugh L. Thompson 1,788 0 0 21,450
- ----------------------------- ------------------------- ------------------------- ---------------------------- --------------------
</TABLE>
*Mr. Anton retired as a fund director February 1997. Mr Hardesty resigned as a
fund director effective April 1998.

**Mr. Worswick retired as a fund director February 1996. The amount of
deferred compensation accrued for Mr. Worswick as of December 31, 1997, was
$22,560. Mr. Worswick received deferred compensation in the amount of $15,266
during the year ended December 31, 1997.

On April 1, 1998, the Fund's officers and directors (as a group) owned
less than 1% of the Fund.

HOW TO PURCHASE SHARES

As discussed below, shares of the Series may be purchased with either a
front-end or contingent deferred sales charge. Each of the Series 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 Series
do not issue certificates for Series shares except upon written request by the
stockholder.

Security Distributors, Inc. (the "Distributor"), 700 SW Harrison, Topeka,
Kansas, a wholly-owned subsidiary of Security Benefit Group, Inc., is principal
underwriter for the Series. Investors may purchase shares of the Series through
authorized dealers who are members of the National Association of Securities
Dealers, Inc. In addition, banks and other financial institutions may make
shares of the Series available to their customers. (Banks and other financial
institutions that make shares of the Series available to their customers in
Texas must be registered with that state as securities dealers.) The minimum
initial purchase must be $100 and subsequent purchases must be $100 unless made
through an Accumulation Plan which allows a minimum initial purchase of $100 and
subsequent purchases of $20. (See "Accumulation Plan," page 321.) An application
may be obtained from the Distributor.

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

ALTERNATIVE PURCHASE OPTIONS

The Series offers two classes of shares:

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

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

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

CLASS A SHARES

Class A shares of the Series are offered at net asset value plus an
initial sales charge as follows:

Purchases of Class A shares of the Series in amounts of $1,000,000 or more
are at net asset value (without a sales charge), but are subject to a contingent
deferred sales charge of 1% in the event of redemption within one year following
purchase. For a discussion of the contingent deferred sales charge, see
"Calculation and Waiver of Contingent Deferred Sales Charges" page 30. The
Distributor will pay a commission to dealers on purchases of $1,000,000 or more
as follows: 1.00% on sales up to $5,000,000, plus .50% on sales of $5,000,000 or
more up to $10,000,000, and .10% on any amount of $10,000,000 or more.

CLASS A DISTRIBUTION PLAN

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

The Plan became effective with respect to Global High Yield Series on June
1, 1995, and the other Series on May 1, 1997, and was renewed by the directors
of the Fund on February 6, 1998. The Plan will continue from year to year,
provided that such continuance is approved at least annually by a vote of a
majority of the Board of Directors of the Fund, including a majority of the
independent directors cast in person at a meeting called for the purpose of
voting on such continuance. The Plan may be terminated at any time on 60 days'
written notice, without penalty, if a majority of the disinterested directors or
the Class A shareholders of a Series vote to terminate the Plan. Any agreement
relating to the implementation of the Plan terminates automatically if it is
assigned. The Plan may not be amended to increase materially the amount of
payments thereunder without approval of the Class A shareholders of the Series.

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

Benefits from the Distribution Plan may accrue to the Series and their
stockholders from the growth in assets due to sales of shares to the public
pursuant to the Distribution Agreement with the Distributor. Increases in the
Series' net assets from sales pursuant to its Distribution Plan and Agreement
may benefit shareholders by reducing per share expenses, permitting increased
investment flexibility and diversification of the Series' assets, and
facilitating economies of scale (e.g., block purchases) in the Series'
securities transactions.

Distribution fees paid by Class A stockholders of the Global High Yield
Series to the Distributor under the Plan for the year ended December 31, 1997,
totaled $10,747. Approximately $746 of this amount was paid as a service fee to
broker/dealers and $797 was spent on promotions. Distribution fees paid by Class
A stockholders of each of the Emerging Markets Total Return Series and Global
Asset Allocation Series to the Distributor under the Plan for the period May 19,
1997 (dates of inception) to December 31, 1997 totaled $796 and $841,
respectively. The amount spent on promotions consists primarily of amounts
reimbursed to dealers for expenses (primarily travel, meals and lodging)
incurred in connection with attendance by their representatives at educational
meetings concerning the Series. The Distributor may engage the services of an
affiliated advertising agency for advertising, preparation of sales literature
and other distribution-related activities.

CLASS B SHARES

Class B shares of the Series are offered at net asset value, without an
initial sales charge. With certain exceptions, these Series may impose a
deferred sales charge on shares redeemed within five years of the date of
purchase. No deferred sales charge is imposed on amounts redeemed thereafter. If
imposed, the deferred sales charge is deducted from the redemption proceeds
otherwise payable to the stockholder. The deferred sales charge is retained by
the Distributor.

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

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

Class B shares (except shares purchased through the reinvestment of
dividends and other distributions with respect to Class B shares) will
automatically convert on the eighth anniversary of the date such shares were
purchased to Class A shares which are subject to a lower distribution fee. This
automatic conversion of Class B shares will take place without imposition of a
front-end sales charge or exchange fee. (Conversion of Class B shares
represented by stock certificates will require the return of the stock
certificates to SMC.) All shares purchased through reinvestment of dividends and
other distributions with respect to Class B shares ("reinvestment shares") will
be considered to be held in a separate subaccount. Each time any Class B shares
(other than those held in the subaccount) convert to Class A shares, a pro rata
portion of the reinvestment shares held in the subaccount will also convert to
Class A shares. Class B shares so converted will no longer be subject to the
higher expenses borne by Class B shares. Because the net asset value per share
of the Class A shares may be higher or lower than that of the Class B shares at
the time of conversion, although the dollar value will be the same, a
shareholder may receive more or less Class A shares than the number of Class B
shares converted. Under current law, it is the Fund's 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 the Series 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"). This Plan was adopted by the Board of Directors of the Fund
with respect to Global High Yield Series on February 3, 1995, and with respect
to the Emerging Markets Total Return and Global Asset Allocation Series, on
February 7, 1997. The Plan was renewed on February 6, 1998. The Plan provides
for payments at an annual rate of 1.00% of the average daily net asset value of
Class B shares. Amounts paid by the Series are currently used to pay dealers and
other firms that make Class B shares available to their customers (1) a
commission at the time of purchase normally equal to 4.00% of the value of each
share sold and (2) a service fee payable for each year after the first,
quarterly, in an amount equal to .25% annually of the average daily net asset
value of Class B shares sold by such dealers and other firms and remaining
outstanding on the books of the Series.

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

Each Series' Class B Distribution Plan may be terminated at any time with
respect to any Series by vote of the 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 of the Series. In the event the Class B Distribution Plan is
terminated by the Class B stockholders or the Fund's Board of Directors, the
payments made to the Distributor pursuant to the Plan up to that time would be
retained by the Distributor. Any expenses incurred by the Distributor in excess
of those payments would be absorbed by the Distributor. Distribution fees paid
by Class B stockholders of Global High Yield Series to the Distributor under the
Plan for the year ended December 31, 1997, totaled $15,832. For the period
October 15, 1997 (date of inception) to February 28, 1998, distribution fees
paid by Class B stockholders of Emerging Markets Total Return Series and Global
Asset Allocation Series to the Distributor under the Plan totaled $3,193 and
$3,191, respectively. The Series make no payments in connection with the sales
of their Class B shares other than the distribution fee paid to the Distributor.

CALCULATION AND WAIVER OF CONTINGENT DEFERRED SALES CHARGES

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

The contingent deferred sales charge is waived: (1) following the death of
a stockholder if redemption is made within one year after death, (2) upon the
disability (as defined in Section 72(m)(7) of the Internal Revenue Code) of a
stockholder prior to age 65 if redemption is made within one year after the
disability, provided such disability occurred after the stockholder opened the
account; (3) in connection with required minimum distributions in the case of an
IRA, SAR-SEP or Keogh or any other retirement plan qualified under Section
401(a), 401(k) or 403(b) of the Code; and (4) in the case of distributions from
retirement plans qualified under Section 401(a) or 401(k) of the Internal
Revenue Code due to (i) returns of excess contributions to the plan, (ii)
retirement of a participant in the plan, (iii) a loan from the plan (repayment
of loans, however, will constitute new sales for purposes of assessing the
CDSC), (iv) "financial hardship" of a participant in the plan, as that term is
defined in Treasury Regulation Section 1.401(k)-1(d)(2), as amended from time to
time, (v) termination of employment of a participant in the plan, (vi) any other
permissible withdrawal under the terms of the plan. The contingent deferred
sales charge also may be waived in the case of certain redemptions of shares of
the Series pursuant to a Systematic Withdrawal Program (refer to page 32 for
details).

ARRANGEMENTS WITH BROKER/DEALERS AND OTHERS

The Distributor, from time to time, may provide promotional incentives or
pay a bonus to certain dealers whose representatives have sold or are expected
to sell significant amounts of the Series. Such promotional incentives may
include payment for attendance (including travel and lodging expenses) by
qualifying registered representatives (and members of their families) to sales
seminars at luxury resorts within or without the United States. Bonus
compensation may include reallowance of the entire sales charge and also may
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 also may 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 Series. 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 Series will receive from such sale. No
compensation will be offered to the extent it is prohibited by the laws of any
state or self-regulatory agency, such as the National Association of Securities
Dealers, Inc. ("NASD"). A Dealer to whom substantially the entire sales charge
of Class A shares is reallowed may be deemed to be an "underwriter" under
federal securities laws.

PURCHASES AT NET ASSET VALUE

Class A shares of the Series may be purchased at net asset value by (1)
directors, officers and employees of the Funds, MFR (and its affiliates) or the
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.

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

ACCUMULATION PLAN

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

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

SYSTEMATIC WITHDRAWAL PROGRAM

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

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

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

A stockholder may establish a Systematic Withdrawal Program with respect
to Class B shares without the imposition of any applicable contingent deferred
sales charge, provided that such withdrawals do not in any 12-month period,
beginning on the date the Program is established, exceed 10% of the value of the
account on that date ("Free Systematic Withdrawals"). Free Systematic
Withdrawals are not available if a Program established with respect to Class B
shares provides for withdrawals in excess of 10% of the value of the account in
any Program year and, as a result, all withdrawals under such a Program are
subject to any applicable contingent deferred sales charge. Free Systematic
Withdrawals will be made first by redeeming those shares that are not subject to
the contingent deferred sales charge and then by redeeming shares held the
longest. The contingent deferred sales charge applicable to a redemption of
Class B shares requested while Free Systematic Withdrawals are being made will
be calculated as described under "Calculation and Waiver of Contingent Deferred
Sales Charges," page 30. A Systematic Withdrawal form may be obtained from the
Fund.

INVESTMENT MANAGEMENT

MFR Advisors, Inc. ("MFR"), One Liberty Plaza, New York, New York 10006,
has served as investment adviser to the Series since May 1, 1997 (date of
inception of Emerging Markets Total Return and Global Asset Allocation Series).
Prior to that date, MFR served as a sub-adviser to the Global High Yield Series
and SMC served as investment adviser. The current Investment Advisory Contract
for the Series is dated April 28, 1997 and was approved by the Fund's Board of
Directors at a regular meeting held February 6, 1998. MFR is a subsidiary of
Maria Fiorini Ramirez, Inc. ("Ramirez") which was established in August of 1992
to provide global economic consulting. Ramirez owns 80% of the outstanding
common stock of MFR. Maria Fiorini Ramirez owns 100% of the outstanding capital
stock of Ramirez, and Freedom Securities Corporation owns preferred securities
which would under certain circumstances be convertible to 20 percent of
Ramirez's common stock. Security Benefit Life Insurance Company ("SBL") owns the
remaining 20% of MFR's outstanding common stock and has stock rights that would
enable SBL in the future to acquire up to 100% of the ownership interest in MFR.
MFR currently acts as sub-adviser to the Lexington Ramirez Global Income Fund
and SBL Fund, Global Aggressive Bond Series and also serves as an institutional
manager for private clients.

Pursuant to the Investment Advisory Contract, MFR furnishes investment
advisory, statistical and research services to the Series, supervises and
arranges for the purchase and sale of securities on behalf of the Series,
provides for the maintenance and compilation of records pertaining to the
investment advisory functions, and provides certain limits with respect to the
Series' annual expenses. MFR guarantees that the aggregate annual expenses of
the respective Series (including for any fiscal year, the management fee, but
excluding interest, taxes, brokerage commissions, extraordinary expenses and
Class B distribution fees) shall not exceed the level of expenses which the
Series is permitted to bear under the most restrictive expense limitation
imposed by any state in which shares of the Series are then qualified for sale.
(MFR is not aware of any state that currently imposes limits on the level of
mutual fund expenses.) MFR will contribute such funds or waive such portion of
its management fee as may be necessary to insure that the aggregate expenses of
the Series do not exceed the guaranteed maximum.

MFR has retained Lexington Management Corporation ("Lexington") to furnish
certain advisory services to the Series pursuant to a Sub-Advisory Agreement,
effective May 1, 1997. Pursuant to this agreement, Lexington furnishes
investment advisory, statistical and research facilities, supervises and
arranges for the purchase and sale of securities on behalf of the Series and
provides for the compilation and maintenance of records pertaining to such
investment advisory services, subject to the control and supervision of the
Board of Directors of the Fund, and MFR. For such services, MFR pays Lexington
an amount equal to .20% of the average net assets of the Series, computed on a
daily basis and payable monthly. The Sub-Advisory Agreement may be terminated
without penalty at any time by either party on 60 days' written notice and is
automatically terminated in the event of its assignment or in the event that the
Investment Advisory Contract between MFR and the Fund is terminated, assigned or
not renewed.

Lexington 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. Lexington was
established in 1938 and currently manages over $3.4 billion in assets.

MFR has entered into a Sub-Advisory Agreement with Security Management
Company, LLC ("SMC"), 700 SW Harrison Street, Topeka, Kansas 66636-0001, to
provide investment advisory services with respect to the Global Asset Allocation
Series' investments in domestic equities, subject to the control and supervision
of the Board of Directors of the Fund. For such services, MFR pays SMC an amount
equal to .15% of the average net assets of the Global Asset Allocation Series,
computed on a daily basis and payable monthly. SMC is a wholly-owned subsidiary
of SBL.

For its services, MFR is entitled to receive compensation on an annual
basis equal to 1.0% of the average daily closing value of the net assets of each
of Emerging Markets Total Return and Global Asset Allocation Series and .75% of
the average daily closing value of the net assets of Global High Yield Series,
computed on a daily basis and payable monthly. During the fiscal year ended
December 31, 1996 and the period June 1, 1995 (date of inception) to December
31, 1995, the former Investment Adviser, SMC, waived its advisory fee in the
amount of $34,900 and $9,033, respectively; after the fee waiver, Global High
Yield Series paid $0 and $7,904, respectively, to SMC for its services. For the
year ended December 31, 1997, the former Investment Adviser (SMC) and MFR waived
their advisory fees in the amount of $43,925 for Gobal High Yield Series. For
the fiscal year ended December 31, 1996 and the period June 1, 1995 (date of
inception) through December 31, 1995, expenses incurred by Global High Yield
Series exceeded 2.0% of the average net assets and accordingly, the former
investment adviser, SMC, reimbursed the Series $3,690 and $15,172, respectively.
For the period May 19, 1997 (date of inception) to December 31, 1997, the
investment adviser waived its advisory fee in the amount of $6,377 for Emerging
Markets Total Return Series and $6,553 for Global Asset Allocation Series. For
this same period, expenses incurred by Emerging Markets Total Return Series and
Global Asset Allocation Series exceeded 2.0% of the average net assets of their
Class A shares and 2.75% of the average net assets of their Class B shares, and
accordingly, the investment adviser reimbursed the Emerging Markets Total Return
Series the amount of $18,378 and the Global Asset Allocation Series the amount
of $18,480.

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

The Investment Advisory Contract between MFR and the Fund expires on May
1, 1999. The contract is renewable annually by the Fund's Board of Directors or
by a vote of a majority of a Series' outstanding securities and, in either
event, by a majority of the board who are not parties to the contract or
interested persons of any such party. The contract provides that it may be
terminated without penalty at any time by either party on 60 days' notice and is
automatically terminated in the event of assignment.

Pursuant to an Administrative Services Agreement with the Fund, SMC also
acts as the administrative agent for the Fund and as such performs
administrative functions and the bookkeeping, accounting and pricing functions
for the Series. For these services, SMC receives, on an annual basis, a fee of
.045% of the average net assets of the Series, calculated daily and payable
monthly. In addition, SMC receives, with respect to Global High Yield Series, an
annual fee equal to the greater of .10% of its average daily net assets or
$60,000 and with respect to the Emerging Markets Total Return and Asset
Allocation Series, an annual fee equal to the greater of .10% of its average
daily net assets or (i) $30,000 in the year ended May 1, 1998; (ii) $45,000 in
the year ending May 1, 1999; or (iii) $60,000 thereafter. For the year ended
December 31, 1997, SMC limited the accounting fee for Global High Yield Series
to $45,000, and for the year ended December 31, 1997, SMC limited the accounting
fees for Emerging Markets Total Return Series and Global Asset Allocation Series
to $15,000. For the year ending December 31, 1998, SMC expects to continue to
limit the accounting fee for Global High Yield Series, Emerging Markets Total
Return Series, and Global Asset Allocation Series. There can be no assurance
that SMC will continue to waive these fees in the future.

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

For the fiscal year ended December 31, 1997, the expense ratios were 1.76%
and 2.51%, respectively of the average net assets of Class A and B shares of the
Global High Yield Series. For the period May 19, 1997 (date of inception) to
December 31, 1997, the expense ratios were 2.00% and 2.72%, respectively of the
average net assets of Class A and B shares of the Emerging Markets Total Return
Series, and 1.85% and 2.72%, respectively of the average net assets of Class A
and B shares of the Global Asset Allocation Series. The expense figures quoted
are net of expense reimbursements and fees paid indirectly as a result of
earnings credits earned on overnight cash balances.

The following persons are affiliated with the Funds and also with MFR in
these capacities:

- --------------------------------------------------------------------------------
POSITIONS WITH
NAME POSITIONS WITH THE FUND MFR ADVISORS, INC.
- --------------------------------------------------------------------------------
Maria Fiorini Ramirez Director President
Bruce Jensen None Chief Investment Officer
Tim Downing None Chief Financial Officer
- --------------------------------------------------------------------------------

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

The Global Asset Allocation Series is managed by an investment team of
MFR. Bruce Jensen, Chief Investment Officer, has day-to-day responsibility for
managing the Series and directs the allocation of investments among common
stocks and fixed income securities. The common stock portion of the Series'
portfolio receives sub-investment advisory services from Lexington for
international equities and SMC for domestic equities. The Global High Yield
Series is managed by an investment management team of Lexington and MFR. Denis
P. Jamison and Maria Fiorini Ramirez have day-to-day responsibility for managing
the Series and have managed the Series since its inception in 1995. The Emerging
Markets Total Return Series is managed by an investment team of MFR. Bruce
Jensen, Chief Investment Officer, has day-to-day responsibility for managing the
Series and directs the allocation of investments among common stocks and fixed
income securities. The common stock portion of the Series receives
sub-investment advisory services from Lexington.

Denis P. Jamison, C.F.A., Senior Vice President, Director Fixed Income
Strategy of Lexington 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 Lexington in 1981, Mr.
Jamison had 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.

Bruce Jensen, Chief Investment Officer of MFR, holds a bachelor's degree
in Accounting from Boston University and an M.B.A. in Finance from Fairleigh
Dickinson University. Prior to joining the Investment Manager in 1992, he spent
six years with the Pilgrim Group in Los Angeles and was Senior Vice President in
Charge of Fixed Income. Prior to Pilgrim, Mr. Jensen was a fixed income
Portfolio Manger with Lexington. Mr. Jensen has managed the Emerging Markets
Total Return and Global Asset Allocation Series since their inception, May 1,
1997.

CODE OF ETHICS

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

DISTRIBUTOR

Security Distributors, Inc. (the "Distributor"), a Kansas corporation and
wholly-owned subsidiary of Security Benefit Group, Inc., serves as the principal
underwriter for shares of the Series and the other Series of the Fund: Corporate
Bond, Limited Maturity Bond, U.S. Government and High Yield Series pursuant to
Class A and Class B Distribution Agreements. The Distributor also acts as
principal underwriter for the following investment companies: Security Equity
Fund, Security Growth and Income Fund, Security Ultra Fund, Security Tax-Exempt
Fund, Variflex Variable Annuity Account, SBL Variable Annuity Account VIII, the
Parkstone Variable Annuity Account and Security Varilife Separate Account.

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

GROSS NET
UNDERWRITING UNDERWRITING COMPENSATION
SERIES COMMISSIONS COMMISSIONS ON REDEMPTION
- --------------------------------------------------------------------------------
Global High Yield Series............. $663 $119 $0
Emerging Markets Total Return Series* 449 71 0
Global Asset Allocation Series*...... 741 145 0
- --------------------------------------------------------------------------------
*For the period May 19, 1997 (date of inception) to December 31, 1997.
- --------------------------------------------------------------------------------

The Distributor received gross underwriting commissions on sales of Class
A shares and contingent deferred sales charges on redemptions of Class B shares
of Global High Yield Series of $8,510 and $2,167, and retained net underwriting
commissions of $4,824 and $379 for the fiscal year ended December 31, 1996 and
the period June 1, 1995 (date of inception) to December 31, 1995, respectively.

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

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

ALLOCATION OF PORTFOLIO BROKERAGE

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

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

In addition, brokerage transactions may be placed with broker/dealers who
sell shares of the Series who may or may not also provide investment information
and research services. MFR (or, if applicable, Lexington or SMC) may, consistent
with the NASD Rules of Fair Practice, consider sales of such shares in the
selection of a broker/dealer.

Securities held by the Series also may be held by other investment
advisory clients of MFR (or, if applicable, Lexington or SMC), including other
investment companies. In addition, SMC's parent company, Security Benefit Life
Insurance Company ("SBL"), also may hold some of the same securities as the
Series. When selecting securities for purchase or sale for a Series, MFR (or, if
applicable, Lexington or SMC) may, at the same time, be purchasing or selling
the same securities for one or more of such other accounts. Subject to each
adviser's obligation to seek best execution, such purchases or sales may be
executed simultaneously or "bunched." It is the policy of MFR, Lexington and SMC
not to favor one account over the other. Any purchase or sale orders executed
simultaneously (which with respect to SMC, may also include orders from SBL) are
allocated at the average price and as nearly as practicable on a pro rata basis
(transaction costs will also generally be shared on a pro rata basis) in
proportion to the amounts desired to be purchased or sold by each account. In
those instances where it is not practical to allocate purchase or sale orders on
a pro rata basis, then the allocation will be made on a rotating or other
equitable basis. While it is conceivable that in certain instances this
procedure could adversely affect the price or number of shares involved in the
Series' transaction, it is believed that the procedure generally contributes to
better overall execution of the Series' portfolio transactions. The Board of
Directors of the Fund has adopted guidelines governing this procedure and will
monitor the procedure to determine that the guidelines are being followed and
that the procedure continues to be in the best interest of the Fund and its
stockholders. With respect to the allocation of initial public offerings
("IPOs"), MFR (and Lexington and SMC) may determine not to purchase such
offerings for certain of its clients (including investment company clients) due
to the limited number of shares typically available in an IPO. No brokerage
commissions were paid by Global High Yield Series for the fiscal years ended
December 31, 1997 and 1996 and the period June 1, 1995 (date of inception) to
December 31, 1995. For the period May 19, 1997 to December 31, 1997, Emerging
Markets Total Return Series and Global Asset Allocation Series paid brokerage
commissions in the amount of $3,182 and $3,163, respectively.

DETERMINATION OF NET ASSET VALUE

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

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

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

HOW TO REDEEM SHARES

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

Shares will be redeemed on request of the stockholder in proper order to
SMC which serves as the Series' transfer agent. A request is made in proper
order by submitting the following items to SMC: (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 SMC for
redemption by corporations or other organizations, executors, administrators,
trustees, custodians or the like. Transfers of share ownership are subject to
the same requirements. A signature guarantee is not required for redemptions of
$10,000 or less, requested by and payable to all stockholders of record for an
account, to be sent to the address of record. The signature guarantee must be
provided by an eligible guarantor institution, such as a bank, broker, credit
union, national securities exchange or savings association. SMC 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 SMC.

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

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

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

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

TELEPHONE REDEMPTIONS

Stockholders of the Series may redeem uncertificated shares in amounts up
to $10,000 by telephone request, provided that the stockholder has completed the
Telephone Redemption section of the application or a Telephone Redemption form
which may be obtained from SMC. The proceeds of a telephone redemption will be
sent to the stockholder at his or her address as set forth in the application or
in a subsequent written authorization. Once authorization has been received by
SMC, a stockholder may redeem shares by calling the Fund at (800) 643-8188, on
weekdays (except holidays) between the hours of 7:00 a.m. and 6:00 p.m. Central
time. Redemption requests received by telephone after the close of the New York
Stock Exchange (normally 3:00 p.m. Central time) will be treated as if received
on the next business day. Telephone redemptions are not accepted for IRA and
403(b)(7) accounts. A stockholder who authorizes telephone redemptions
authorizes SMC to act upon the instructions of any person identifying themselves
as the owner of the account or the owner's broker. SMC 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. SMC's procedures require that any
person requesting a redemption by telephone provide the account registration and
number, the owner's tax identification number, and the dollar amount or number
of shares to be redeemed, and such instructions must be received on a recorded
line. Neither the Fund, SMC, nor the Distributor will be liable for any loss,
liability, cost or expense arising out of any redemption request provided that
SMC 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
SMC or the Funds.

During periods of severe market or economic conditions, telephone
redemptions may be difficult to implement and stockholders should make
redemptions by mail as described under "How to Redeem Shares," page 38.

HOW TO EXCHANGE SHARES

Pursuant to arrangements with the Distributor, stockholders of the Series
may exchange their shares for shares of another of the Series or for shares of
other mutual funds distributed by the Distributor (the "Security Funds"). Such
transactions generally have the same tax consequences as ordinary sales and
purchases and are not tax-free exchanges.

Class A and Class B shares of the Series may be exchanged for Class A and
Class B shares, respectively, of another of the Series or a Security Fund. Any
applicable contingent deferred sales charge will be calculated from the date of
the initial purchase.

Stockholders making such exchanges must provide SMC with sufficient
information to permit verification of their prior ownership of shares of one of
the other Series or Security Fund. Any such exchange is subject to the minimum
investment and eligibility requirements of each Series. No service fee is
presently imposed on such an exchange.

Exchanges may be accomplished by submitting a written request to SMC, 700
Harrison Street, Topeka, Kansas 66636-0001. Broker/dealers who process exchange
orders on behalf of their customers may charge a fee for their services. Such
fee may be avoided by making exchange requests directly to SMC.

An exchange of shares, as described above, may result in the realization
of a capital gain or loss for federal income tax purposes, depending on the cost
or other value of the shares exchanged. No representation is made as to whether
gain or loss would result from any particular exchange or as to the manner of
determining the amount of gain or loss. (See "Dividends and Taxes," page 40.)
Before effecting any exchange described herein, the investor may wish to seek
the advice of a financial or tax adviser.

Exchanges of shares of the Series may be made only in jurisdictions where
shares of the Series being acquired may lawfully be sold. Stockholders are
advised to obtain and review carefully, the applicable prospectus prior to
effecting any exchange. A copy of such prospectus will be given any requesting
stockholder by the Distributor.

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

EXCHANGE BY TELEPHONE

To exchange shares by telephone, a stockholder must have completed either
the Telephone Exchange section of the application or a Telephone Transfer
Authorization form which may be obtained from SMC. Authorization must be on file
with SMC before exchanges may be made by telephone. Once authorization has been
received by SMC, a stockholder may exchange shares by telephone by calling (800)
643-8188, on weekdays (except holidays) between the hours of 7:00 a.m. and 6:00
p.m. Central time. Exchange requests received by telephone after the close of
the New York Stock Exchange (normally 3:00 p.m. Central time) will be treated as
if received on the next business day. Shares which are held in certificate form
may not be exchanged by telephone. The telephone exchange privilege is only
permitted between accounts with identical registration. SMC 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. SMC's procedures require that any
person requesting an exchange by telephone provide the account registration and
number, the tax identification number, the dollar amount or number of shares to
be exchanged, and the names of the Series from which and into which the exchange
is to be made, and such instructions must be received on a recorded line.
Neither the Fund, SMC, nor the Distributor will be liable for any loss,
liability, cost or expense arising out of any request, including any fraudulent
request provided SMC complied with its procedures. Thus, a stockholder who
authorizes telephone exchanges may bear the risk of loss from a fraudulent or
unauthorized request. This telephone exchange privilege may be changed or
discontinued at any time at the discretion of the management of the Fund. In
particular, the Fund may set limits on the amount and frequency of such
exchanges, in general or as to any individual who abuses such privilege.

DIVIDENDS AND TAXES

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

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

Certain requirements relating to the qualification of a Fund as regulated
investment company may limit the extent to which a Fund will be able to engage
in certain investment practices, including transactions in futures contracts and
other types of derivative securities transactions. In addition, if a Fund were
unable to dispose of securities, the Fund's ability to qualify as a regulated
investment company might be affected.

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

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

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

It is the policy of the Global High Yield Series to pay dividends from net
investment income quarterly and of the Emerging Markets Total Return and Global
Asset Allocation Series to distribute at least once a year substantially all of
its net investment income. It is the policy of the Series to make distributions
of realized capital gains (if any) in excess of any capital losses and capital
loss carryovers at least once a year. Because Class A shares of the Series bear
most of the costs of distribution of such shares through payment of a front-end
sales charge, while Class B shares of the Series bear such costs through a
higher distribution fee, expenses attributable to Class B shares, generally will
be higher and as a result, income distributions paid by the Series with respect
to Class B shares generally will be lower than those paid with respect to Class
A shares. All dividends and distributions are automatically reinvested on the
payable date in shares of the Series at net asset value, as of the record date
(reduced by an amount equal to the amount of the dividend or distribution),
unless SMC is previously notified in writing by the stockholder that such
dividends or distributions are to be received in cash. A stockholder may request
that such dividends or distributions be directly deposited to the stockholder's
bank account. A stockholder who elected not to reinvest dividends or
distributions paid with respect to Class A shares may, at any time within thirty
days after the payment date, reinvest the dividend check without imposition of a
sales charge. The Series will not pay dividends or distributions of less than
$25 in cash but will automatically reinvest them. Distributions of net
investment income and any short-term capital gains by the Series are taxable as
ordinary income whether received in cash or reinvested in additional shares.

Distributions of net capital gain, whether received in cash or reinvested
in Fund shares, will generally be taxable to shareholders as either "20% Gain"
or "28% Gain," depending upon the Series holding period for the assets sold.
"20% Gains" arise from sales of assets held by a Series for more than 18 months
and are subject to a maximum tax rate of 20%; "28% Gains" arise from sales of
assets held by a Series for more than one year but no more than 18 months and
are subject to a maximum tax rate of 28%. Net capital gains from assets held for
one year or less will be taxed as ordinary income. Distributions will be subject
to these capital gains rates regardless of how long shareholder has held Fund
shares. Advice as to the tax status of each year's dividends and distributions
will be mailed annually.

Stockholders of the Series who redeem their shares generally will realize
gain or loss upon the sale or redemption (including the exchange of shares for
shares of another fund) which will be capital gain or loss if the shares are
capital assets in the stockholder's hands, and will be taxable to stockholders
as "20% Gains" if the shares had been held for more than 18 months or as "28%
Gains" if the shares had been held for more than one year but no more than 18
months. Investors should be aware that any loss realized upon the sale or
redemption of shares held for six months or less will be treated as a long-term
capital loss to the extent of any distribution of long-term capital gain to the
stockholder with respect to such shares. In addition, any loss realized on a
sale or exchange of shares will be disallowed to the extent the shares disposed
of are replaced within a period of 61 days, beginning 30 days before and ending
30 days after the date the shares are disposed of, such as pursuant to the
reinvestment of dividends. In such case, the basis of the shares acquired will
be adjusted to reflect the disallowed loss.

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

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

Each Series will 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.

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

Generally, the hedging transactions undertaken by a Series may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by a Series. In addition, losses
realized by a Series on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which such losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences of transactions in options, futures, forward
contracts, swap agreements and other financial contracts to a Series are not
entirely clear. The transactions may increase the amount of short-term capital
gain realized by a Series which is taxed as ordinary income when distributed to
shareholders.

A Series may make one or more of the elections available under the Code
which are applicable to straddles. If a Series makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.

Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased as compared to a
fund that did not engage in such hedging transactions.

Because only a few regulations regarding the treatment of swap agreements,
and related caps, floors and collars, have been implemented, the tax
consequences of such transactions are not entirely clear. The Series intend to
account for such transactions in a manner deemed by them to be appropriate, but
the Internal Revenue Service might not necessarily accept such treatment. If it
did not, the status of a Series as a regulated investment company might be
affected.

The requirements applicable to a Series' qualification as a regulated
investment company may limit the extent to which a Series will be able to engage
in transactions in options, futures contracts, forward contracts, swap
agreements and other financial contracts.

MARKET DISCOUNT. If a Fund purchases a debt security at a price lower than
the state redemption price of such debt security, the excess of the stated
redemption price over the purchase price is "market discount". If the amount of
market discount is more than a DE MINIMIS amount, a portion of such market
discount must be included as ordinary income (not capital gain) by the Fund in
each taxable year in which the Fund owns an interest in such debt security and
receives a principal payment on it. In particular, the Fund will be required to
allocate that principal payment first to the portion of the market discount on
the debt security that has accrued but has not previously been includable in
income. In general, the amount of market discount that must be included for each
period is equal to the lesser of (i) the amount of market discount accruing
during such period (plus any accrued market discount for prior periods not
previously taken into account) or (ii) the amount of the principal payment with
respect to such period. Generally, market discount accrues on a daily basis for
each day the debt security is held by a Fund at a constant rate over the time
remaining to the debt security's maturity or, at the election of the Fund at a
constant yield to maturity which takes into account the semi-annual compounding
of interest. Gain realized on the disposition of a market discount obligation
must be recognized as ordinary interest income (not capital gain) to the extent
of the "accrued market discount."

ORIGINAL ISSUE DISCOUNT. Certain debt securities acquired by the Funds may
be treated as debt securities that were originally issued at a discount. Very
generally, original issue discount is defined as the difference between the
price at which a security was issued and its stated redemption price at
maturity. Although no cash income on account of such discount is actually
received by a Fund, original issue discount that accrues on a debt security in a
given year generally is treated for federal income tax purposes as interest and,
therefore, such income would be subject to the distribution requirements
applicable to regulated investment companies.

Some debt securities may be purchased by the Funds at a discount that
exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for federal income tax purposes
(see above).

FOREIGN TAXATION. Income received by a Series from sources within a foreign
country may be subject to withholding and other taxes imposed by that country.
Tax conventions between certain countries and the U.S. may reduce or eliminate
such taxes.

The payment of such taxes will reduce the amount of dividends and
distributions paid to the Fund's stockholders. So long as a Series qualified as
a regulated investment company, certain distribution requirements are satisfied,
and more than 50% of such Series' assets at the close of the taxable year
consists of securities of foreign corporations, the Series may elect, subject to
limitation, to pass through its foreign tax credits to its stockholders.

FOREIGN CURRENCY TRANSACTIONS. Under the Code, gains or losses
attributable to fluctuations in exchange rates which occur between the time a
Series accrues income or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time that Series actually
collects such receivables or pays such liabilities generally are treated as
ordinary income or ordinary loss. Similarly, on disposition of debt securities
denominated in a foreign currency and on disposition of certain futures
contracts, forward contracts and options, gains or losses attributable to
fluctuations in the value of foreign currency between the date of acquisition of
the security or contract and the date of disposition also are treated as
ordinary gain or loss. These gains or losses, referred to under the Code as
"Section 988" gains or losses, may increase or decrease the amount of a Series'
investment company taxable income to be distributed to its shareholders as
ordinary income.

OTHER TAXES. The foregoing discussion is general in nature and is not
intended to provide an exhaustive presentation of the tax consequences of
investing in a Series. Distributions may also be subject to additional state,
local and foreign taxes, depending on each shareholder's particular situation.
Depending upon the nature and extent of a Series' contacts with a state or local
jurisdiction, the Series may be subject to the tax laws of such jurisdiction if
it is regarded under applicable law as doing business in, or as having income
derived from, the jurisdiction. Shareholders are advised to consult their own
tax advisers with respect to the particular tax consequences to them of an
investment in a Series.

ORGANIZATION

The Articles of Incorporation of the Fund provide for the issuance of
shares of common stock in one or more classes or series.

The Fund has authorized the issuance of an indefinite number of shares of
capital stock of $1.00 par value and currently issues its shares in the
following series: Emerging Markets Total Return, Global Asset Allocation, Global
High Yield, Corporate Bond, Limited Maturity Bond, U.S. Government and High
Yield Series. The shares of each Series of the Fund represent a pro rata
beneficial interest in that Series' net assets and in the earnings and profits
or losses derived from the investment of such assets.

Each of the series of the Fund currently issues two classes of shares
which participate proportionately based on their relative net asset values in
dividends and distributions and have equal voting, liquidation and other rights
except that (i) expenses related to the distribution of each class of shares or
other expenses that the Board of Directors may designate as class expenses from
time to time, are borne solely by each class; (ii) each class of shares has
exclusive voting rights with respect to any Distribution Plan adopted for that
class; (iii) each class has different exchange privileges; and (iv) each class
has a different designation. When issued and paid for, the shares of the Series
will be fully paid and nonassessable. Shares may be exchanged as described above
under "Exchange Privilege," but will have no other preference, conversion,
exchange or preemptive rights. Shares are transferable, redeemable and
assignable and have cumulative voting privileges for the election of directors.

On certain matters, such as the election of directors, all shares of the
series of the Fund vote together with each share having one vote. On other
matters affecting a particular Series, such as the investment advisory contract
or the fundamental policies, only shares of that Series are entitled to vote,
and a majority vote of the shares of that Series is required for approval of the
proposal.

The Fund does not generally hold annual meetings of stockholders and will
do so only when required by law. Stockholders may remove directors from office
by vote cast in person or by proxy at a meeting of stockholders. Such a meeting
will be called at the written request of 10% of the Fund's outstanding shares.

CUSTODIAN, TRANSFER AGENT AND DIVIDEND-PAYING AGENT

Chase Manhattan Bank, 4 Chase MetroTech Center, Brooklyn, New York, acts
as custodian for the portfolio securities of the Series, including those held by
foreign banks and foreign securities depositories which qualify as eligible
foreign custodians under the rules adopted by the Securities and Exchange
Commission. SMC acts as the Series' transfer and dividend-paying agent.

INDEPENDENT AUDITORS

The firm of Ernst & Young LLP, One Kansas City Place, 1200 Main Street,
Kansas City, Missouri, has been selected by a majority of the independent
directors of the Fund to serve as the independent auditors of the Series, and as
such, the firm will perform the annual audit of each Series' financial
statements.

PERFORMANCE INFORMATION

The Series may, from time to time, include performance information in
advertisements, sales literature or reports to stockholders or prospective
investors. Performance information in advertisements or sales literature may be
expressed as yield and average annual total return and aggregate total return
for each Series.

Quotations of yield will be based on the investment income per share
earned during a particular 30-day period, less expenses per share accrued during
the period ("net investment income") and will be computed by dividing net
investment income by the maximum offering price per share on the last day of the
period, according to the following formula:

A-B
YEILD = 2((----- + 1)^6 - 1)
CD

For the 30-day period ended December 31, 1997, the yield for the Class A
shares of the Global High Yield Series was 11.77% and for the Class B shares
was 11.43%.

There is no assurance that a yield quoted will remain in effect for any
period of time. Inasmuch as certain estimates must be made in computing
average daily yield, actual yields may vary and will depend upon such factors as
the type of instruments in the Series' portfolio, the portfolio quality and
average maturity of such instruments, changes in interest rates and the actual
Series expenses. Yield computations will reflect the expense limitations
described in this Prospectus under "Investment Management."

Quotations of average annual total return will be expressed in terms of
the average annual compounded rate of return of a hypothetical investment in a
Series over periods of 1, 5 and 10 years (up to the life of the Series),
calculated pursuant to the following formula:

P(1+T)^N = ERV

(where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years, and ERV = the ending redeemable value of
a hypothetical $1,000 payment made at the beginning of the period). All average
annual total return figures will reflect the deduction of the maximum initial
sales load in the case of quotations of performance of Class A shares or the
applicable contingent deferred sales charge in the case of quotations of
performance of Class B shares and a proportional share of Series expenses on an
annual basis, and assume that all dividends and distributions are reinvested
when paid.

For the 1-year period ended December 31, 1997, the average annual total
return for Class A and B shares respectively of Global High Yield Series was
- -0.43% and -1.44%. For the period June 1, 1995 (date of inception) to December
31, 1997 the average annual total return for Class A and B shares respectively
of Global High Yield Series was -7.04% and -6.78%.

For the period May 19, 1997 (date of inception) to December 31, 1997, the
average annual total return for the Class A shares of the Emerging Markets Total
Return Series and Global Asset Allocation Series was -10.11% and -5.73%,
respectively. For the period May 19, 1997 (date of inception) to December 31,
1997 the average annual total return for the Class B shares of the Emerging
Markets Total Return and Global Asset Allocation Series was -10.75% and -6.43%,
respectively.

The aggregate total return for the Series is calculated for any specified
period of time pursuant to the following formula:

P(1+T)^N = ERV

(where P = a hypothetical initial payment of $1,000, T = the total return, and
ERV = the ending redeemable value of a hypothetical $1,000 00 payment made at
the beginning of the period). All aggregate total return figures will assume
that all dividends and distributions are reinvested when paid. The Series may,
from time to time, include quotations of total return that do not reflect
deduction of the sales load which, if reflected, would reduce the total return
data quoted.

The aggregate total return on an investment made in Class A shares of
Global High Yield Series calculated as described above for the period from June
1, 1995 (date of inception) through December 31, 1997 was 19.3%. This figure
reflects deduction of the maximum initial sales load.

The aggregate total return on an investment made in Class B shares of
Global High Yield Series for the same period was 18.5%. This figure reflects
deduction of the maximum contingent deferred sales charge.

The aggregate total return on an investment made in Class A shares of
Emerging Markets Total Return Series and Global Asset Allocation Series
calculated as described above for the period May 19, 1997 (date of inception) to
December 31, 1997 was -10.11% and -5.73%, 00 respectively. These figures reflect
deduction of the maximum initial sales load.

The aggregate total return on an investment made in Class B shares of
Emerging Markets Total Return Series and Global Asset Allocation Series for the
same period was -10.75% and -6.43%. These figures reflect deduction of the
maximum contingent deferred sales charge.

In addition, quotations of aggregate total return will also be calculated
for several consecutive one-year periods expressing the total return as a
percentage increase or decrease in the value of the investment for each year
relative to the ending value for the previous year.

Quotations of yield, average annual total return and aggregate total
return will reflect only the performance of a hypothetical investment during the
particular time period shown. Such quotations will vary based on changes in
market conditions and the level of the Series' expenses, and no reported
performance figure should be considered an indication of performance which may
be expected in the future.

In connection with communicating its yield, average annual total return or
aggregate total return to current or prospective stockholders, each Series also
may compare these figures to the performance of other mutual funds tracked by
mutual fund rating services or to other unmanaged indexes which may assume
reinvestment of dividends but generally do not reflect deductions for
administrative and management costs. Each Series will include performance data
for both Class A and Class B shares of the Series in any advertisement or report
including performance data of the Series. Such mutual fund rating services
include the following: Lipper Analytical Services; Morningstar, Inc.; Investment
Company Data; Schabacker Investment Management; Wiesenberger Investment
Companies Service; Computer Directions Advisory (CDA); and Johnson Charts.

RETIREMENT PLANS

The Series offers tax-qualified retirement plans for individuals
(Individual Retirement Accounts, known as IRAs), SIMPLE IRAs, several prototype
retirement plans for the self-employed (Keogh plans), pension and profit-sharing
plans for corporations, and custodial account plans for employees of public
school systems and organizations meeting the requirements of Section 501(c)(3)
of the Internal Revenue Code. Actual documents and detailed materials about the
plans will be provided upon request to the Distributor.

Purchases of shares of the Series under any of these plans are made at the
public offering price next determined after contributions are received by the
Distributor. Shares owned under any of the plans have full dividend, voting and
redemption privileges. Depending upon the terms of the particular plan,
retirement benefits may be paid in a lump sum or in installment payments over a
specified period. There are possible penalties for premature distributions from
such plans.

SMC is available to act as custodian for the plans on a fee basis. For
IRAs, SIMPLE IRAs, Section 403(b) Retirement Plans, and Simplified Employee
Pension Plans (SEPPs), service fees for such custodial services currently are:
(1) $10 for annual maintenance of the account, and (2) benefit distribution fee
of $5 per distribution. Service fees for other types of plans will vary. These
fees will be deducted from the plan assets. Optional supplemental services are
available from Security Benefit Life Insurance Company for additional charges.

Retirement investment programs involve commitments covering future years.
It is important that the investment objective and structure of the Series be
considered by the investors for such plans. Investments in insurance and annuity
contracts also may be purchased in addition to shares of the Series.

Investors are urged to consult their own attorneys or tax advisers when
considering the establishment and maintenance of any such plans.

INDIVIDUAL RETIREMENT ACCOUNTS (IRAS)

Individual Retirement Account Custodial Agreements are available to
provide investment in shares of the Series. An individual may initiate a
traditional IRA through the Distributor by executing the custodial agreement and
making a minimum initial investment of at least $100. A $10 annual fee is
charged for maintaining the account.

An individual may make a contribution to a traditional IRA each year of up
to the lesser of $2,000 or 100% of earned income under current tax law. The IRAs
described in this paragraph are called "traditional IRAs" to distinguish them
from the new "Roth IRAs" which became available in 1998. Roth IRAs are described
below. Spousal IRAs allow an individual and his or her spouse to contribute up
to $2,000 to their respective IRAs so long as a joint tax return is filed and
joint income is $4,000 or more. The maximum amount the higher compensated spouse
may contribute for the year is the lesser of $2,000 or 100% of that spouse's
compensation. The maximum the lower compensated spouse may contribute is the
lesser of (i) $2,000 or (ii) 100% of that spouse's compensation plus the amount
by which the higher compensated spouse's compensation exceeds the amount the
higher compensated spouse contributes to his or her IRA.

Generally if a taxpayer is not covered by an employer-sponsored retirement
plan, the amount the taxpayer may deduct for federal income tax purposes in a
year for contributions to an IRA is the lesser of $2,000 or the taxpayer's
compensation for the year. If the taxpayers is covered by an employer-sponsored
retirement plan, the amount of IRA contributions the taxpayer may deduct in a
year may be reduced or eliminated based on the taxpayer's adjusted gross income
for the year. The adjusted gross income level at which a single taxpayer's
deduction for 1997 is affected, $25,000, will increase annually to $50,000 in
the year 2005. The adjusted gross income level at which the deduction for 1997
for a married taxpayer (who does not file a separate return) is affected,
$40,000, will increase annually to $80,000 in the year 2007. If the taxpayer is
married, files a separate tax return, and is covered by a qualified retirement
plan, the taxpayer may not make a deductible contribution to an IRA if the
taxpayer's income exceeds $10,000. If the taxpayer is not covered by an
employer-sponsored retirement plan, but the taxpayer's spouse is, the amount the
taxpayer may deduct for IRA contributions will be phased out if the taxpayer's
adjusted gross income is between $150,000 and $160,000.

Contributions must be made in cash no later than April 15 following the
close of the tax year. No annual contribution is permitted for the year in which
the investor reaches age 70 1/2 or any year thereafter.

In addition to annual contributions, total distributions and certain
partial distributions from certain employer-sponsored retirement plans may be
eligible to be reinvested into an IRA if the reinvestment is made within 60 days
of receipt of the distribution by the taxpayer. Such rollover contributions are
not subject to the limitations on annual IRA contributions described above.

ROTH IRAS

Section 408A of the Code permits eligible individuals to establish a Roth
IRA, a new type of IRA which became available in 1998. Contributions to a Roth
IRA are not deductible, but withdrawals that meet certain requirements are not
subject to federal income tax. The maximum annual contribution amount of $2,000
is phased out if the individual is single and has an adjusted gross income
between $95,000 and $110,000, or if the individual is married and the couple has
a combined adjusted gross income between $150,000 and $160,000. In general, Roth
IRAs are subject to certain required distribution requirements. Unlike a
traditional IRA, Roth IRAs are not subject to minimum required distribution
rules during the owner's life time. Generally, however, the amount in a
remaining Roth IRA must be distributed by the end of the fifth year after the
death of the owner.

Beginning in 1998 the owner of a traditional IRA may convert the
traditional IRA into a Roth IRA under certain circumstances. The conversion of a
traditional IRA to a Roth IRA will subject the amount of the converted
traditional IRA to federal income tax. If a traditional IRA is converted to a
Roth IRA, the taxable amount in the owner's traditional IRA will be considered
taxable income for federal income tax purposes for the year of the conversion.
Generally, all amounts in a traditional IRA are taxable except for the owner's
prior non-deductible contributions to the traditional IRA.

EDUCATION IRAS

Section 530 of the Code permits eligible individuals to establish an
Education IRA on behalf of a beneficiary for tax years beginning in 1998.
Contributions to an Education IRA are not deductible, but qualified
distributions to the beneficiary are not subject to federal income tax. The
maximum annual contribution amount of $500 is phased out if the individual is
single and has an adjusted gross income between $95,000 and $110,000, or if the
individual is married and the couple has a combined adjusted gross income
between $150,000 and $160,000. Education IRAs are subject to certain required
distribution requirements. Generally, the amount reamining in an Education IRA
must be distributed by the beneficiary's 30th birthday or rolled into a new
Education IRA for another eligible beneficiary.

SIMPLE IRAS

The Small Business Job Protection Act of 1996 created a new retirement
plan, the Savings Incentive Match Plan for Employees of Small Employers (SIMPLE
Plans). SIMPLE Plan participants must establish a SIMPLE IRA into which plan
contributions will be deposited.

The Investment Manager makes available SIMPLE IRAs to provide investment
in shares of the Series. Contributions to a SIMPLE IRA may be either salary
deferral contributions or employer contributions. Contributions must be made in
cash and cannot exceed the maximum amount allowed under the Internal Revenue
Code. On a pre-tax basis, up to $6,000 of compensation (through salary
deferrals) may be contributed to a SIMPLE IRA. In addition, employers are
required to make either (1) a dollar-for-dollar matching contribution or (2) a
nonelective contribution to each participant's account each year. In general,
matching contributions must equal up to 3% of compensation, but under certain 00
circumstances, employers may make lower matching contributions. Instead of the
match, employers may make a nonelective contribution equal to 2% of compensation
(compensation for purposes of any nonelective contribution is limited to
$160,000, as indexed).

Distributions from a SIMPLE IRA are (1) taxed as ordinary income; (2)
includable in gross income; and (3) subject to applicable state tax laws.

Distributions prior to age 59 1/2 may be subject to a 10% penalty tax
which increases to 25% for distributions made before a participant has
participated in the SIMPLE Plan for at least two years. An annual fee of $10 is
charged for maintaining the SIMPLE IRA.

PENSION AND PROFIT-SHARING PLANS

403(b) RETIREMENT PLANS

Employees of public school systems and tax-exempt organizations meeting
the requirements of Internal Revenue Code Section 501(c)(3) may purchase
custodial account plans funded by their employers with shares of the Series in
accordance with Code Section 403(b). Section 403(b) plans are subject to
numerous restrictions on the amount that may be contributed, the persons who are
eligible to participate and on the time when distributions may commence.

SIMPLIFIED EMPLOYEE PENSION PLANS (SEPPS)

FINANCIAL STATEMENTS

The audited financial statements of the Series, which are contained in the
Fund's Annual Report dated December 31, 1997, are incorporated herein by
reference. Copies of the Annual Report are provided to every person requesting
the Statement of Additional Information.

APPENDIX A

REDUCED SALES CHARGES

Initial sales charges may be reduced or eliminated for persons or
organizations purchasing Class A shares of a Series alone or in combination with
Class A shares of another of the Series.

RIGHTS OF ACCUMULATION

To reduce sales charges on purchases of Class A shares of the Series, a
Purchaser may combine all previous purchases with a contemplated current
purchase of Class A shares of a Series for the purpose of determining the sales
charge applicable to the current purchase. For example, an investor who already
owns Class A shares of a Series either worth $30,000 at the applicable current
offering price or purchased for $30,000 and who invests an additional $25,000,
is entitled to a reduced sales charge of 3.75% on the latter purchase. The
Distributor must be notified when a sale takes place which would qualify for the
reduced charge on the basis of previous purchases subject to confirmation of the
investor's holdings through the Fund's records. Rights of accumulation apply
also to purchases representing a combination of the Class A shares of two or
more of the Series in those states where shares of the Series being purchased
are qualified for sale.

STATEMENT OF INTENTION

A Purchaser may sign a Statement of Intention, which may be signed within
90 days after the first purchase to be included thereunder, in the form provided
by the Distributor covering purchases of the Series to be made within a period
of 13 months (or a 36-month period for purchases of $1 million or more) and
thereby become eligible for the reduced front-end sales charge applicable to the
actual amount purchased under the Statement. Five percent of the amount
specified in the Statement of Intention will be held in escrow shares until the
Statement is completed or terminated. The shares so held may be redeemed by the
Fund if the investor is required to pay additional sales charge which may be due
if the amount of purchases made by the investor during the period the Statement
is effective is less than the total specified in the Statement of Intention.

A Statement of Intention may be revised during the 13-month period (or, if
applicable, 36-month period). Additional Class A shares received from
reinvestment of income dividends and capital gains distributions (if any are
realized) are included in the total amount used to determine reduced sales
charges. The Statement is not a binding obligation upon the investor to purchase
or any Series to sell the full indicated amount. An investor considering signing
such an agreement should read the Statement of Intention carefully. A Statement
of Intention form may be obtained from SMC.

REINSTATEMENT PRIVILEGE

Stockholders who redeem their Class A shares of a Series have a one-time
privilege (1) to reinstate their accounts by purchasing shares of the Series
without a sales charge up to the dollar amount of the redemption proceeds, or
(2) to the extent the redeemed shares would have been eligible for the exchange
privilege, to purchase Class A shares of another of the Series up to the dollar
amount of the redemption proceeds at a sales charge equal to the additional
sales charge, if any, which would have been applicable had the redeemed shares
been exchanged pursuant to the exchange privilege. Written notice and a check in
the amount of the reinvestment from eligible stockholders wishing to exercise
this reinstatement privilege must be received by the Fund within thirty days
after the redemption request was received (or such longer period as may be
permitted by rules and regulations promulgated under the Investment Company Act
of 1940). The net asset value used in computing the amount of shares to be
issued upon reinstatement or exchange will be the net asset value on the day
that notice of the exercise of the privilege is received. Stockholders making
use of the reinstatement privilege should note that any gains realized upon the
redemption will be taxable while any losses may be deferred under the "wash
sale" provision of the Internal Revenue Code.