<PAGE> 1
SECURITY
FUNDS
SEMI-ANNUAL
REPORT
JUNE 30, 1998
* SECURITY INCOME
FUND
-CORPORATE BOND
SERIES
-U.S. GOVERNMENT
SERIES
-LIMITED MATURITY
BOND SERIES
-HIGH YIELD SERIES
* SECURITY MUNICIPAL
BOND FUND
* SECURITY CASH
FUND
[LOGO] SECURITY DISTRIBUTORS, INC.
A MEMBER OF THE SECURITY BENEFIT
GROUP OF COMPANIES
<PAGE> 2
PRESIDENT'S LETTER
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August 15, 1998
SECURITY
FUNDS
TO OUR SHAREHOLDERS:
[PHOTO JOHN CLELAND]
The six months just completed have been rewarding for fixed income investors.
The yield on the bellwether thirty-year U.S. Treasury Bond declined from an
already-low 5.92% at the end of 1997 to a near-record level of 5.63% on June 30
of this year. Long-maturity Treasury bonds were the star performers, benefitting
from the "flight-to-quality" effect of funds leaving the Pacific Rim area in
search of safer investments. Investment grade corporate, high yield, and
municipal bonds, however, generated favorable returns as well.
INFLATION EXPECTATIONS LOW
One of the primary factors affecting total return for fixed income investments
is inflation expectations. The ongoing financial crisis in Pacific Rim countries
has played a major role in keeping the inflation rate low in the U.S. so far
this year. As many of these countries try to export their way out of their
problems the cheap imports flooding U.S. markets keep prices on
U.S.-manufactured goods from rising. If U.S. goods are to sell, they must remain
price-competitive. Additionally, increased productivity on the part of U.S.
manufacturers is helping to offset the potentially inflationary pressures of
rising nominal wages.
We believe that the Federal Reserve Open Market Committee (FOMC) will continue
to leave their short-term interest rate targets unchanged for the remainder of
the year, depending on the severity of the Asian crisis. If conditions in Japan
should worsen, the FOMC might cut short rates in order to sustain our own
economic growth in the face of declining orders from foreign countries for U.S.
goods and services. Even under our worst-case scenario for the next six months
we would expect interest rates to remain near their current levels. If the FOMC
elects to keep the rate on Federal Funds at the current 5.50% level, it will be
difficult for long-maturity Treasury bond rates to decline much further. In the
absence of inflationary pressures, however, today's real interest rates (the
interest rate after inflation is subtracted) remain at historically high levels.
WELCOME TO OUR NEW SUBADVISOR
We are delighted to welcome Salomon Brothers Asset Management Inc. to our family
of subadvisors for the Security Funds. The municipal bond staff, led by
portfolio manager Marybeth Whyte, assumed management of our Municipal Bond Fund
(formerly the Security Tax-Exempt Fund) at the beginning of May. For investors
seeking income exempt from regular Federal income taxes this portfolio offers
the opportunity for attractive taxable-equivalent returns from a
well-diversified portfolio of investment grade municipal bonds.
In the pages that follow, our portfolio managers offer their views on the
performance of their particular portfolios for the past six months and discuss
their expectations for the remainder of 1998. As always, we appreciate your
continuing investments in Security products. We invite your questions and
comments at any time.
Sincerely,
/S/ JOHN CLELAND
- ------------------------
John Cleland, President
Security Funds
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1
<PAGE> 3
MANAGER'S COMMENTARY
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August 15, 1998
SECURITY FUNDS
SECURITY INCOME
FUND
CORPORATE BOND SERIES
[PHOTO OF STEVEN M. BOWSER]
Interest rates during the first half of the year traded in a fairly narrow
range, with the bellwether thirty-year Treasury bond beginning the year at 5.92%
and ending June at 5.63%. Within the time period, however, volatility reigned as
rates rose and fell frequently depending on whether the news story of the moment
related to Asian-induced economic weakness or to consumer-led strength in our
economy. The Corporate Bond Series returned 3.58% for the six months, slightly
underperforming the Lipper peer group average of 3.78%.1 The benchmark Lehman
Brothers Corporate Bond Index rose 4.15% over the same time period.
MORTGAGE-BACKED SECURITIES HOLDINGS INCREASED
In the second quarter we increased the percentage of mortgage-backed securities
in the portfolio to almost 20%. These bonds generally will lose less of their
value in periods of rising interest rates than Treasury or corporate issues,
because in periods of higher rates fewer homeowners are inclined to refinance
their mortgages. As the risk of prepayment on the securities falls, their prices
become more stable. The mortgage-backed pools we select for the portfolio
generally have been outstanding for five years or more (so-called "seasoned
collateral" pools), which also tends to lower their prepayment speeds.
CORPORATE SECTOR PERFORMANCE
Performance of the investment grade corporate bonds, which make up over half of
the portfolio, was mixed. Industrial issues performed well because of the
strength in the U.S. economy. Our U.S. West bonds added in this sector when the
company tendered for the bonds at a premium over our cost as a part of
reorganization of their corporate structure.
On the negative side, our gaming sector bonds issued by MGM Grand, Inc., and by
Mirage Resorts, Inc., weakened because of the "Asian effect"part of their
revenue, especially in their casino operations, comes from guests from Asian
countries. The Asian crisis also forced spreads on Yankee bonds to widen. We
felt this primarily in our banks with Asian exposure, including ABN AMRO Bank NV
and Santander Financial Issuances, Ltd. A third, Banco Central Hispanoamerica,
was also a negative as the emerging market countries felt the pain of the Asian
situation. Overall, however, we believe all of these companies provide good long
term potential for the portfolio.
THE HIGH YIELD HOLDINGS
The high yield corporate bonds, at 17% of portfolio assets, performed well in
three of the six months, and were neutral in the remaining months. The
additional yield provided by this sector makes it attractive for inclusion in
the portfolio.
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2
<PAGE> 4
MANAGER'S COMMENTARY
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August 15, 1998
SECURITY FUNDS
LOOKING AHEAD
With interest rates on U.S. Treasury notes and bonds at historic low levels, we
expect to look to other sectors such as corporate bonds and mortgage-backed
securities for their additional incremental return. We continue to keep our
average duration close to that of the benchmark index, refraining from making
interest rate bets with our maturity structure at this time.
Steven M. Bowser
Portfolio Manager
(1) Performance figures are based on Class A shares and do not reflect deduction
of the sales charge.
Corporate Bond Series
6/30/98
Credit Quality Rating
[ A GRAPH ]
AAA 29.2%
AA 11.7%
A 24.2%
BBB 15.9%
BB 17.0%
B 2.0%
Corporate Bond Series
Average Annual Total Return
as of June 30, 1998
<TABLE>
<CAPTION>
Class A Shares Class B Shares
<S> <C> <C> <C>
1 Year 5.67% 1 Year 5.04%
5 Years 3.82% Since Inception 2.36%
10 Years 7.36% (10-19-93)
</TABLE>
The performance data above represents past performance which is not predictive
of future results. For Class A shares these figures reflect deduction of the
maximum sales charge of 4.75%. For Class B shares the figures reflect deduction
of the maximum contingent deferred sales charge, ranging from 5% in the first
year to 0% in the sixth and following years. The investment return and principal
value of an investment will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
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3
<PAGE> 5
MANAGER'S COMMENTARY
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August 15, 1998
SECURITY FUNDS
[PHOTO OF STEVEN M. BOWSER]
U.S. GOVERNMENT SERIES
Interest rates during the first half of 1998 favored fixed income investments,
with yields on the thirty-year Treasury bond declining from 5.92% on December
31, 1997, to 5.63% on June 30, 1998. The ride down wasn't a smooth one, however.
Between those two dates the long bond yield rose as high as 6.07% in early
February and again in late April, and fell to lows of 5.79% in mid-February and
early April before moving down further in June.
Although this sort of volatility makes fixed income portfolios more of a
challenge to manage, the U.S. Government Series weathered the changes quite
well, generating a 4.03% return over the period and performing substantially
better than the Lipper peer group average of 3.62%.1 The benchmark Lehman
Brothers U.S. Government Bond Index returned 4.18% over the six months.
FOCUS ON FEDERAL AGENCIES HELPS RETURN
At June 30 about 38% of the portfolio's assets were held in Treasury notes and
bonds, just over 33% in Federal agency issues, and almost 26% in GNMA
mortgage-backed securities. The agency bonds bear slightly higher yields than
straight Treasury debt, and are placed in the portfolio to add incremental
income. Additionally, the agency securities in the portfolio have longer
durations, and tend to appreciate more than shorter-maturity issues in periods
of falling interest rates.
GNMA MORTGAGE-BACKED SECURITIES ACT AS BUFFERS
Like the Federal agencies, the GNMA mortgage-backed issues bear higher yields
than Treasuries, but also serve as a buffer in the portfolio because they tend
to drop less in value than Treasuries and agencies when interest rates rise.
This "buffer effect" happens because in periods of rising interest rates fewer
homeowners refinance their mortgages, and the risk of prepayments on the GNMA
securities diminishes.
In periods when the economic outlook is uncertain and interest rate volatility
is high, a mix of asset classes and characteristics helps keep the portfolio
performance more steady. For this reason we use a combination of intermediate
and long maturities, a broad range of coupon interest rates, and a variety of
asset classes such as agencies and mortgage-backed securities in the portfolio.
Our goal is to minimize wide swings in net asset value from day to day.
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4
<PAGE> 6
MANAGER'S COMMENTARY
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AUGUST 15, 1998
SECURITY
FUNDS
PLANS FOR THE COMING MONTHS
With interest rates on U.S. Treasury securities near historic lows, we will in
all likelihood increase the percentage of Federal agency debentures in order to
take advantage of their higher yields. We also plan to keep the portfolio's
average duration in line with that of the benchmark index, preferring to avoid
making bets on interest rate movements in uncertain times.
Steven M. Bowser
Portfolio Manager
(1) Performance figures are based on Class A shares and do not reflect deduction
of the sales charge. Fee waivers reduced expenses of the Fund and in the absence
of such waiver the performance quoted would be reduced.
Although the securities purchased by the U.S. Government Series are guaranteed
as to the timely payment of principal and interest by the U.S. Government, its
agencies or instrumentalities, the shares of the series itself are not so
guaranteed.
U.S. Government Series
6/30/98
Sectors Represented
[ A GRAPH ]
Treasuries 39.5%
Agencies 34.0%
Mortgage Backed 26.5%
U.S. Government Series
Average Annual Total Return
as of June 30, 1998
<TABLE>
<CAPTION>
Class A Shares Class B Shares
<S> <C> <C> <C>
1 Year 5.67% 1 Year 4.29%
5 Years 5.14% Since Inception 3.77%
10 Years 7.63% (10-19-93)
</TABLE>
The performance data above represents past performance which is not predictive
of future results. For Class A shares these figures reflect deduction of the
maximum sales charge of 4.75%. For Class B shares the figures reflect deduction
of the maximum contingent deferred sales charge, ranging from 5% in the first
year to 0% in the sixth and following years. Fee waivers reduced expenses of the
Fund and in the absence of such waiver, the performance quoted would be reduced.
The investment return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than their
original cost.
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5
<PAGE> 7
MANAGER'S COMMENTARY
- --------------------------------------------------------------------------------
August 15, 1998
SECURITY FUNDS
[PHOTO of STEVEN M. BOWSER]
Steven M. Bowser
Portfolio Manager
LIMITED MATURITY
BOND SERIES
Yields on intermediate maturity fixed income securities fell and prices rose
during the first half of the year as market participants came to realize that
inflation was likely to remain low, influenced by a continuing slide in
commodities prices and weakened conditions in Asian countries. The five-year
Treasury note, at 5.71% on December 31, 1997, declined to 5.46% at June 30. The
companion ten-year note dropped from 5.74% to 5.44% over the same period.
The Limited Maturity Bond Series performed fairly close to its Lipper peer group
average, returning 3.45% in the first half of the year compared with the peers'
3.61%.(1) The benchmark Lehman Brothers Intermediate Corporate Bond Index rose
3.71% in the six months.
COMPOSITION OF THE PORTFOLIO
At June 30 investment grade corporate issues made up the largest part of the
portfolio at 56.5%. High yield corporates added another 22.3%. Along with high
yields, mortgage-backed securities have a slightly heavier weighting at 17.6% in
the Limited Maturity Bond Series than in our other fixed income portfolios
because of their generally shorter durations and maturities. The average
duration of the assets was 4.31 years, longer than the benchmark index duration
of 4.12 years.
DIVERGING SECTOR PERFORMANCE
Our holdings of bonds issued by MGM Grand, Inc. and Mirage Resorts, Inc.,
weakened in the first half because of the "Asian effect"part of their revenues,
especially in their casino operations, come from guests from Asian countries,
and this inflow has slowed along with Asian economies. Despite lower revenues,
we believe the underlying credits remain strong and that the situation will be
temporary.
A second underperforming area was real estate investment trusts (REITs). Our
Equity Office Properties limited partnership bonds and B.F. Saul securities lost
ground because of an increased supply of new REIT issues. Again, this is a
condition we believe to be temporary.
Conversely, airline issues have performed especially well as low oil prices keep
fuel costs down. Our Southwest Airlines Company and United Air Lines securities
have made strong contributions to total return in the past six months. Because
the entire energy sector has been depressed by low oil prices, we are beginning
to see some attractive buys within that sector and may begin purchasing there in
the coming months.
MORTGAGE BACKED SECURITIES HELP IN WEAK MARKETS
The large weighting in mortgage-backed bonds--17.6% at June 30--in the portfolio
is helpful in periods when interest rates move up. As interest rates rise,
homeowners are less likely to refinance their mortgages, thus slowing the
prepayments on mortgage-backed securities. Investors' reduced fear of
prepayments helps the bonds hold their value better in such economic
circumstances.
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6
<PAGE> 8
MANAGER'S COMMENTARY
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August 15, 1998
SECURITY
FUNDS
High yield bonds can also help reduce volatility. In periods of steady interest
rates, the additional coupon interest is a benefit to total return. At June 30
high yield holdings made up slightly over 22% of the total portfolio assets.
PLANS FOR THE SECOND HALF
We may elect to extend the average duration of the portfolio slightly to stay in
line with other funds in our peer group. We believe that interest rates will
remain in a narrow range for the next few months, so we will keep our emphasis
on high grade corporate, mortgage-backed and high yield issues.
Steven M. Bowser
Portfolio Manager
(1)Performance figures are based on Class A shares and do not reflect deduction
of the sales charge. The Investment Manager waived its advisory fee for the six
month period ended June 30, 1998 and in the absence of such waiver the
performance quoted would be reduced.
Limited Maturity Series
6/30/98
Credit Quality Rating
[ A GRAPH ]
AAA 23.9%
AA 11.3%
A 27.3%
BBB 12.5%
BB 21.8%
B 3.2%
Limited Maturity Bond Series
Average Annual Total Return
as of June 30, 1998
<TABLE>
<CAPTION>
Class A Shares Class B Shares
<S> <C> <C> <C>
1 Year 4.09% 1 Year 3.21%
Since Inception 6.40% Since Inception 6.11%
(1-17-95) (1-17-95)
</TABLE>
The performance data above represents past performance which is not predictive
of future results. For Class A shares these figures reflect deduction of the
maximum sales charge of 4.75%. For Class B shares the figures reflect deduction
of the maximum contingent deferred sales charge, ranging from 5% in the first
year to 0% in the sixth and following years. Fee waivers reduced expenses of the
Fund and in the absence of such waiver, the performance quoted would be reduced.
The investment return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than their
original cost.
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7
<PAGE> 9
MANAGER'S COMMENTARY
- --------------------------------------------------------------------------------
August 15, 1998
SECURITY
FUNDS
[PHOTO] [PHOTO]
David Eshnaur Thomas A. Swank
Portfolio Manager Portfolio Manager
HIGH YIELD SERIES
High yield bonds were the best performing sector of the U.S. fixed income
markets in the first half of 1998. The strong upward movement relative to other
sectors was largely a result of an inflow of $11.5 billion in new cash. This is
27% more than in the same period last year, which was a record year. The high
yield market has now topped the $400 billion level, 33% above the 1997 year end
total.
PORTFOLIO PERFORMANCE
The High Yield Series modestly underperformed its peers, returning 4.17% over
the six months versus the Lipper peer group average of 4.42%.1 The benchmark
Lehman Brothers High Yield Index rose 4.50% in the same period. We maintain an
emphasis on higher quality BB and upper B rated issues in our portfolio. In
periods of declining interest rates lower-quality issues often outperform, but
when rates rise the higher-rated bonds are expected to hold their value better.
POSITIVE CONTRIBUTORS TO TOTAL RETURN
Our overweighting in sectors which performed well worked in our favor. In the
capital goods sector our Plastic Containers, Inc., bonds rose in price when the
company tendered for them as part of their overall refinancing process. Knoll
Inc., a manufacturer of office furniture, saw its bond prices climb as the
company benefited from a strong business environment.
The cable industry also fared well in the first half. We hold bonds issued by
Cablevision Systems, Comcast Cellular Holdings, Inc., Adelphia Communications
Corporation, and Diamond Cable U.S. in this sector. These companies, many of
which have heavy borrowings, gain when interest rates fall. Mergers and
acquisitions such as the AT&T/Telecommunications, Inc. union also drive up the
sector as a whole.
WHAT WE DIDN'T OWN HELPED, TOO
The High Yield Series was helped overall by having only small positions in some
sectors. Energy-related securities generally underperformed as oil prices
continued to fall. Some telecommunications bonds lost value, along with their
corresponding stock issues, as a result of the weak Asian economies. Many
chemicals declined as well, in sympathy with the closely-related energy sector.
THE HIGH YIELD MARKET OUTLOOK
We believe that the high yield market will continue to be volatile, since it
reacts to swings in both the bond and stock markets. Adding to the wide
fluctuations in the high yield arena as a whole is the volatility in emerging
markets-related issues, as world economies suffer the effects of the Asian
crisis. Fortunately, our portfolio has no exposure to emerging markets at this
time.
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8
<PAGE> 10
MANAGER'S COMMENTARY
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August 15, 1998
SECURITY
FUNDS
We plan to maintain our emphasis on the higher-quality issues. We note that
defaults on high yield issues moved up to 0.85% of total market value in the
first half, compared with 0.80% at the end of 1997. We believe the risk that
this implies justifies our somewhat more conservative approach to high yield
investing.
David Eshnaur and Thomas A. Swank
Portfolio Managers
(1) Performance figures are based on Class A shares and do not reflect deduction
of the sales charge. The Investment Manager waived its advisory fee for the six
month period ended June 30, 1998 and in the absence of such waiver the
performance quoted would be reduced
Investors should remember that while high yield bonds provide potentially higher
yields than many other types of bonds, they also present greater credit risk.
High Yield Series
6/30/98
Credit Quality Rating
[ A GRAPH ]
BBB 1%
BB 57%
B 42%
High Yield Series
Average Annual Total Return
as of June 30, 1998
<TABLE>
<CAPTION>
Class A Shares Class B Shares
<S> <C> <C> <C>
1 Year 5.56% 1 Year 4.88%
Since Inception 8.85% Since Inception 8.75%
(8-05-96) (8-05-96)
</TABLE>
The performance data above represents past performance which is not predictive
of future results. For Class A shares these figures reflect deduction of the
maximum sales charge of 4.75%. For Class B shares the figures reflect deduction
of the maximum contingent deferred sales charge, ranging from 5% in the first
year to 0% in the sixth and following years. Fee waivers reduced expenses of the
Fund and in the absence of such waiver, the performance quoted would be reduced.
The investment return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than their
original cost.
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9
<PAGE> 11
MANAGER'S COMMENTARY
- -------------------------------------------------------------------------------=
August 15, 1998
SECURITY
FUNDS
[PHOTO]
Marybeth Whyte
Portfolio Manager
SECURITY MUNICIPAL
BOND FUND
Beginning May 1, 1998, management of Security Municipal Bond Fund, formerly
Security Tax-Exempt Fund, was assumed by Salomon Brothers Asset Management, Inc.
(SBAM), acting as subadvisor to Security Management Company, LLC. SBAM is a
wholly-owned separate subsidiary of the Travelers Group, Inc., one of the
largest diversified financial services companies in the world. As of June 30,
1998, SBAM had $27 billion in assets under management, including $3.1 billion of
municipal assets. The investment professionals dedicated to managing the
portfolio have an average of fifteen years of experience in the industry.
FIRST HALF PERFORMANCE
During the first half of 1998 the Security Municipal Bond Fund generated a 2.01%
total return, slightly less than the 2.26% average of its Lipper peer group.1
This underperformance is not unusual in a period of change such as was
occasioned by the selection of a subadvisor for the fund.
Bond prices fluctuated during this period as the focus of the market shifted
between domestic economic growth and international concerns. Earlier in the year
the perceived strength of the domestic economy heightened the potential for a
resurgence in inflation. However, we expect that domestic economic growth will
be tempered due to a decline in international demand for U.S. exports.
Additionally, we believe that inflation is not a near-term threat to the bond
market and should remain benign. Fixed income securities also benefited from the
economic turmoil in Asia as investors sought U.S. Treasury bonds as a safe
haven.
MUNICIPAL NEW ISSUE VOLUME
Municipal bonds posted positive returns during the first half of 1998, but
failed to keep pace with advances in U.S. Treasuries. State and local
governments took advantage of relatively low nominal interst rates by issuing
more than $146 billion of debt. Municipal new issue volume for the first six
months of this year is 51% ahead of the similar period last year. Strong demand
from property and casualty insurance companies, corporations and mutual funds
helped absorb the supply.
The portfolio at June 30, 1998, consisted of 22 issues in 13 different states.
It had an average maturity of 14.6 years and a duration of slightly more than
eight years. The portfolio's credit quality remains high with an average
double-A rating. The industry sector weightings are well diversified, with the
greatest emphasis in education, water and sewer revenue, and general obligation
bonds.
The portfolio managers at Salomon Brothers Asset Management, Inc., are excited
to be a part of the Security Funds family. We look forward to our challenge of
providing attractive total returns and a solid income stream of Federally tax
exempt dividends to shareholders in the Municipal Bond Fund in the months and
years to come.
Marybeth Whyte
Portfolio Manager
(1) Performance figures are based on Class A shares and do not reflect deduction
of the sales charge.
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10
<PAGE> 12
MANAGER'S COMMENTARY
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August 15, 1998
SECURITY
FUNDS
A special meeting of the stockholders of Security Tax-Exempt Fund was held on
April 24, 1998. The following matters were voted on by the shareholders:
* A new sub-advisory contract between Security Management Company,
LLC, and Salomon Brothers Asset Management, Inc.(SBAM) was voted on.
The total number of eligible votes were 2,275,855. The results of the
votes are as follows: 1,370,352 in favor, 21,024 votes against and
112,202 votes abstained.
* A name change from Security Tax Exempt Fund to Security Municipal
Bond Fund. The results of the votes are as follows: 1,381,224 in
favor, 28,218 votes against and 94,136 votes abstained.
* A change in the fundamental policy to allow investment of the Fund's
assets in tax-exempt securities which may be subject to alternative
minimum tax. The results of the votes are as follows: 1,150,115 in
favor, 58,084 votes against, 184,774 broker non-votes and 110,607
votes abstained.
* A vote was taken to approve a Distribution plan for Class A shares.
The results of the votes are as follows: 1,115,408 shares in favor, 0
shares against, 184,773 shares broker non-votes and 98,596 shares
abstained.
* The last item voted on was an amendment to the Investment Advisory
Contract. The results of the votes are as follows: 1,115,408 shares in
favor, 109,453 shares against, 184,774 shares broker non-votes and
123,175 shares abstained.
Municipal Bond Fund
6/30/98
Credit Quality Rating
[ A GRAPH ]
AAA 57.6%
AA 35.3%
A 4.8%
BBB 2.3%
Municipal Bond Fund
Average Annual Total Return
as of June 30, 1998
<TABLE>
<CAPTION>
Class A Shares Class B Shares
<S> <C> <C> <C>
1 Year 2.51% 1 Year 1.41%
5 Years 3.72% Since Inception 1.98%
10 Years 5.95% (10-19-93)
</TABLE>
The performance data above represents past performance which is not
predictive of future results. For Class A shares these figures reflect
deduction of the maximum sales charge of 4.75%. For Class B shares the
figures reflect deduction of the maximum contingent deferred sales charge,
ranging from 5% in the first year to 0% in the sixth and following years. The
investment return and principal value of an investment will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than their
original cost.
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11
<PAGE> 13
MANAGER'S COMMENTARY
- --------------------------------------------------------------------------------
August 15, 1998
SECURITY
FUNDS
SECURITY CASH FUND
Short-term interest rates on U.S. Treasury Bills generally declined about 0.25%
between the beginning of the year and the end of June, although the descent was
not a smooth one. Security Cash Fund has held its yield well despite the
volatility, generating a 2.38% return for the six-month period. This is in line
with the 2.42% average of its Lipper peer group.
CHARACTERISTICS OF THE PORTFOLIO
As usual, during the period we bought only investments which are rated in the
top tier by the major rating agencies, or which are Federal government or
government agency issues. We target an average maturity for the portfolio which
is within approximately ten days of that of the benchmark Money Fund Report
published by IBC Donoghue. At June 30 that benchmark maturity was 58 days, while
the Fund had an average of 54 days. We believe that the best strategy is not to
try to outguess the markets by dramatically lengthening or shortening the
average maturity. Instead, we maintain a "laddered" structure, with holdings
maturing at regular intervals over the life of the portfolio. This allows us to
adjust quickly should short-term interest rates change quickly.
ASSET SECTORS REPRESENTED IN THE PORTFOLIO
At June 30 the assets in the Cash Fund consisted of 82.4% commercial paper, 6.0%
Small Business Administration issues, and 11.2% Federal agency securities. We
have received approval from the Board of Directors of the Fund to purchase
securities known as "funding agreements" (also known as guaranteed investment
contracts). These agreements are contracts which are issued by insurance
companies, and are liabilities backed by the issuing company's general account
assets. These contracts are ranked on the same level as insurance policies. The
Fund will only purchase funding agreements which are in the top tier of ratings
by major rating agencies. The advantage to these agreements is that their yields
generally will be from ten to thirteen basis points (0.10% to 0.13%) higher than
those of commercial paper. We believe that their high quality and favorable
yield will be advantageous for use in the portfolio.
OUTLOOK FOR THE SECOND HALF
We expect interest rates on short-term investments to remain close to their
present levels for the coming months. We believe the Federal Reserve Open Market
Committee will be reluctant to raise rates because of the still-weak Asian
economies, but we feel that the U.S. economy remains too strong to allow rates
to go down. As usual, we will continue to monitor market conditions carefully,
and will remain ready to adjust portfolio holdings should economic conditions
warrant.
FIXED INCOME TEAM
The Security Cash Fund is neither insured nor guaranteed by the U.S. Government
and there is no assurance that the fund will be able to maintain a stable net
asset value of $1.00 per share.
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12
<PAGE> 14
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
June 30, 1998 (Unaudited)
Security Income Fund
Corporate Bond Series
<TABLE>
<CAPTION>
Principal
Amount or
Number Market
CORPORATE BONDS of Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
AUTOMOTIVE - 2.4%
Chrysler Corporation,
7.45% - 2027 .................................. $ 250,000 $ 250,625
Federal-Mogul Corporation,
7.875% - 2010 ................................. $1,200,000 1,324,500
----------
1,575,125
BANKS & CREDIT - 4.5%
Bank of New York, Inc.,
6.50% - 2003 .................................. $1,000,000 1,015,000
PNC Funding Corporation,
7.75% - 2004 .................................. $ 700,000 752,500
Washington Mutual Capital,
8.375% - 2002(1) .............................. $1,000,000 1,121,250
----------
2,888,750
BEVERAGE - 1.9%
Anheuser-Busch Companies,Inc.,
7.10% - 2007 .................................. $1,150,000 1,206,063
Brokerage - 3.7%
Morgan Stanley Group, Inc.,
7.25% - 2004 .................................. $1,050,000 1,089,375
SI Financing, Inc., 9.50% - 2026(1) .............. 48,000 1,293,000
----------
2,382,375
CAPITAL GOODS - BUILDING MACHINERY - 0.4%
AGCO Corporation,
8.5% - 2006 ................................... $ 250,000 257,188
CAPITAL GOODS - BUILDING MATERIALS - 0.4%
Titan Wheel International,
8.75% - 2007 .................................. $ 250,000 258,125
ENERGY - INDEPENDENT - 1.1%
Seagull Energy Corporation,
8.625% - 2005 ................................. $ 700,000 718,375
ENERGY - INTEGRATED - 2.4%
Occidental Petroleum,
6.24% - 2000 .................................. $ 500,000 501,875
Union Pacific Resources,
7.50% - 2026 .................................. $1,000,000 1,041,250
----------
1,543,125
ENERGY - OIL FIELD SERVICES - 1.8%
Transocean Offshore, Inc.,
8.00% - 2027 .................................. $1,000,000 1,155,000
ENTERTAINMENT - 1.5%
Paramount Communications,
7.50% - 2023 .................................. $1,000,000 971,250
<CAPTION>
PrincipaL
Amount or
Number Market
CORPORATE BONDS (continued) of Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
FINANCIAL COMPANIES - 6.5%
American RE Capital,
8.50% - 20251 ............................... 23,000 $ 595,125
Associates Corporation, N.A.,
7.55% - 2007 ................................ $1,100,000 1,189,375
CB Richard Ellis Service,
8.875% - 2006 ............................... $ 250,000 246,875
Countrywide Capital Industries, Inc.,
8.00% - 20261 ............................... $1,000,000 1,063,750
General Electric Capital Corporation,
8.625% - 2008 ............................... $ 950,000 1,125,750
----------
4,220,875
FOOD - 2.3%
Archer-Daniels-Midland,
8.875% - 2011 ............................... $1,000,000 1,223,750
Chiquita Brands International, Inc.,
10.25% - 2006 ............................... $ 250,000 271,250
----------
1,495,000
GAMING - 2.2%
Boyd Gaming Corporation,
9.50% - 2007 ................................ $ 250,000 261,250
MGM Grand, Inc., 6.95% - 2005 .................. $ 600,000 596,250
Mirage Resorts, Inc.,
6.625% - 2007 ............................... $ 600,000 595,500
----------
1,453,000
HOME CONSTRUCTION - 0.4%
MDC Holdings, 8.375% - 2008 .................... $ 125,000 125,000
Toll Corporation, 7.75% - 2008 ................. $ 125,000 123,125
----------
248,125
INSURANCE - 1.5%
Hartford Life, Inc., 7.10% - 2007 .............. $ 925,000 963,156
MEDIA - CABLE - 7.5%
Century Communications,
8.375% - 2007 ............................... $ 250,000 257,500
Comcast Corporation,
9.125% - 2006 ............................... $ 600,000 643,500
CSC Holdings, Inc., 7.875% - 2018 .............. $ 250,000 264,375
Jones Intercable, Inc.,
7.625% - 2008 ............................... $ 250,000 253,750
Lenfest Communications,
10.50% - 2006 ............................... $ 250,000 291,250
Rogers Cablesystems,
9.625% - 2002 ............................... $ 750,000 800,625
Rogers Communications, Inc.,
9.125% - 2006 ............................... $ 425,000 430,313
Time Warner Entertainment,
10.15% - 2012 ............................... $ 880,000 1,169,300
Westinghouse Electric Company,
8.375% - 2002 ............................... $ 700,000 729,750
----------
4,840,363
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
13
<PAGE> 15
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
June 30, 1998 (Unaudited)
Security Income Fund
Corporate Bond Series(continued)
<TABLE>
<CAPTION>
Principal Market
CORPORATE BONDS (continued) Amount Value
- --------------------------------------------------------------------------------
<S> <C> <C>
MEDIA - NON-CABLE - 2.2%
Big Flower Press Holdings, Inc.,
8.875% - 2007 ............................. $ 250,000 $ 254,375
KIII Communications Corporation,
10.25% - 2004 ............................. 300,000 322,875
Valassis Communications,
9.55% - 2003 .............................. 750,000 840,000
----------
1,417,250
METALS - 0.8%
AK Steel, 10.75% - 2004 ...................... 500,000 531,250
RETAILERS - 2.7%
Lowe's Companies, Inc.,
6.70% - 2007 .............................. 850,000 875,500
Sears & Roebuck Company,
6.41% - 2001 .............................. 500,000 503,750
Specialty Retailers, Inc.,
8.50% - 2005 .............................. 125,000 128,750
Zale's Corporation, 8.50% - 2007 ............. 250,000 255,625
----------
1,763,625
SERVICES - 0.9%
Loewen Group International, Inc.,
8.25% - 2003 .............................. 550,000 568,563
TECHNOLOGY - 0.8%
Dell Computer Corporation,
6.55% - 2008 .............................. 500,000 506,250
Telecommunications - 4.1%
Comcast Cellular Holdings, Inc.,
9.50% - 2007 .............................. 150,000 156,563
GTE Corporation, 6.46% - 2008 ................ 800,000 804,000
New Jersey Bell, 6.625% - 2008 ............... 1,000,000 1,006,250
Southwestern Bell,
6.625% - 2007 ............................. 675,000 697,781
----------
2,664,594
TRANSPORTATION - AIRLINES - 3.9%
Southwest Airlines Company,
7.875% - 2007 ............................. 1,075,000 1,190,563
United Airlines, 11.21% - 2014 ............... 950,000 1,344,250
----------
2,534,813
TRANSPORTATION - OTHER - 0.4%
Allied Holdings, Inc.,
8.625% - 2007 ............................. 250,000 255,625
UTILITIES - ELECTRIC - 0.8%
AES Corporation, 10.25% - 2006 ............... 500,000 543,750
UTILITIES - NATURAL GAS - 2.3%
MCN Investment Corporation,
6.23% - 2003 .............................. 50,000 49,938
Tennessee Gas Pipeline,
7.50% - 2017 .............................. 1,300,000 1,410,500
-----------
1,460,438
YANKEE - CORPORATE - 10.4%
ABN AMRO Bank NV,
7.55% - 2006 .............................. $ 1,000,000 $ 1,083,750
Abbey National PLC,
6.69% - 2005 .............................. 1,125,000 1,151,719
BCH Cayman Islands,
7.70% - 2006 .............................. 1,000,000 1,070,000
Panamerican Beverages, Inc.,
8.125% - 2003 ............................. 1,200,000 1,248,000
Petroleum Geo-Services,
7.50% - 2007 .............................. 1,150,000 1,223,313
Santander Financial Issuances, Ltd.,
7.00% - 2006 .............................. 900,000 934,875
-----------
6,711,657
YANKEE - CANADIAN - 1.8%
Quebecor Printing Capital,
7.25% - 2007 .............................. 1,100,000 1,153,625
-----------
Total corporate bonds - 71.6% ................ 46,287,335
MORTGAGE BACKED SECURITIES
U.S. GOVERNMENT AGENCIES - 9.4%
Federal Home Loan Mortgage Corporation,
FHR 112 H, 8.80% - 2020 CMO .................. 300,393 304,382
FHR 1311 J, 7.50% - 2021 CMO .................. 1,050,000 1,078,266
FHR 1930 AB, 7.50% - 2023 CMO ................. 1,143,582 1,160,233
Federal National Mortgage Association,
FNMA, 5.75% - 2008 ............................ 1,000,000 994,810
FNR 1994-79 B,
7.00% - 2019 CMO .......................... 1,100,000 1,117,831
FNR 1990-52 D,
9.30% - 2019 CMO .......................... 388,036 393,880
FNR 1990-108 G,
7.00% - 2020 CMO .......................... 1,000,000 1,009,610
---------
6,059,012
U.S. GOVERNMENT SECURITIES - 6.4%
Government National Mortgage Association,
GNMA 313107, 7% - 2022 ........................ 947,186 965,143
GNMA 352022, 7% - 2023 ........................ 906,505 920,510
GNMA 369303, 7% - 2023 ........................ 978,903 993,957
GNMAII 2445, 8% - 2027 ........................ 500,332 515,957
GNR 1997-10 B,
7.50% - 2019 CMO .......................... 750,000 763,380
---------
4,158,947
</TABLE>
- --------------------------------------------------------------------------------
14
<PAGE> 16
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
June 30, 1998 (Unaudited)
Security Income Fund
Corporate Bond Series(continued)
<TABLE>
<CAPTION>
MORTGAGE BACKED SECURITIES PRINCIPAL MARKET
(CONTINUED) AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
NON-AGENCY SECURITIES - 3.5%
Chase Capital Mortgage Securities
Company, 1997-1B,
7.37% - 2007 CMO ........................ $ 1,500,000 $ 1,597,969
General Electric Capital Mortgage
Services, Inc., 1992-7A,
7.45% -2006 ............................. 674,329 658,806
-----------
2,256,775
-----------
Total mortgage backed securities -19.3% ........ 12,474,734
GOVERNMENT SECURITIES
U.S. GOVERNMENT SECURITIES - 7.6%
U.S. Treasury Bond,
6.625% - 2027 ............................... 1,000,000 1,129,070
U.S. Treasury Note,
6.50% - 2006 ................................ 3,050,000 3,236,050
U.S. Department of Housing and
Urban Development,
6.93% - 2013 ............................ 490,000 518,309
-----------
Total government securities - 7.6% ............................. 4,883,429
-----------
Total investments - 98.5% ...................................... 63,645,498
Cash and other assets,
less liabilities - 1.5% ..................................... 964,151
-----------
Total net assets - 100.0% ...................................... $64,609,649
===========
SECURITY INCOME FUND
U.S. GOVERNMENT SERIES
U.S. Government & Government Agency Securities
- ----------------------------------------------
FEDERAL HOME LOAN MORTGAGE
CORPORATION - 5.8%
7.125% - 2001 ........................... $ 700,000 $ 709,394
8.29% - 2015 ............................ 150,000 187,157
----------
896,551
FEDERAL NATIONAL MORTGAGE
ASSOCIATION - 16.6%
7.40% - 2004 ............................ 600,000 649,950
7.49% - 2005 ............................ 285,000 312,610
7.65% - 2005 ............................ 250,000 276,190
7.875% - 2005 ........................... 500,000 558,240
8.10% - 2019 ............................ 100,000 126,068
8.28% - 2025 ............................ 500,000 656,895
----------
2,579,953
FINANCING CORPORATION - 4.6%
9.65% - 2018 ............................ 500,000 715,625
U.S. GOVERNMENT & GOVERNMENT PRINCIPAL MARKET
AGENCY SECURITIES (CONTINUED) AMOUNT VALUE
- --------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION - 25.6%
GNMA #1260 7.00% - 2023 ................. $ 209,869 $ 212,222
GNMA #328618 7.00% - 2023 ............... 209,869 248,645
GNMA #347017 7.00% - 2024 ............... 478,921 486,377
GNMA #371006 7.00% - 2024 ............... 270,105 274,267
GNMA #371012 7.00% - 2024 ............... 490,055 497,670
GNMA II #1849 8.50% - 2024 ............. 375,202 394,548
GNMA #411643 7.75% - 2025 ............... 551,546 568,749
GNMA II #2270 8.00% - 2026 ............. 566,902 584,402
GNMA II #9365 8.25% - 2026 ............. 199,688 208,700
GNMA #365608 7.50% - 2034 ............... 519,227 530,889
----------
4,006,469
PRIVATE EXPORT FUNDING CORPORATION - 3.1%
6.31% - 2004 ................................ 100,000 103,375
7.01% - 2004 ................................ 350,000 373,188
-----------
476,563
STUDENT LOAN MARKETING ASSOCIATION - 3.2%
9.25% - 2004 ................................ 420,000 493,038
U.S. TREASURY NOTES - 30.6%
5.50% - 2003 ................................ 900,000 899,370
6.50% - 2006 ................................ 3,650,000 3,872,650
-----------
4,772,020
U.S. TREASURY BONDS - 7.7%
8.75% - 2008 ................................ 600,000 684,714
6.00% - 2026 ................................ 500,000 520,390
-----------
1,205,104
-----------
Total investments - 97.2% ...................... 15,145,323
Cash and other assets,
less liabilities - 2.8% ..................... 435,924
-----------
Total net assets - 100.0% ...................... $15,581,247
===========
SECURITY INCOME FUND
LIMITED MATURITY BOND SERIES
CORPORATE BONDS
- ---------------
AUTOMOTIVE - 0.8%
Chrysler Corporation,
7.45% - 2027 ............................ $ 50,000 $ 55,187
BANKING - 3.3%
Bank of New York, Inc.,
6.50% - 2003 ............................ 100,000 101,500
First Union Corporation,
8.125% - 2002 ........................... 110,000 117,562
--------
219,062
</TABLE>
- --------------------------------------------------------------------------------
15
<PAGE> 17
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1998
SECURITY INCOME FUND
LIMITED MATURITY BOND SERIES (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
NUMBER MARKET
CORPORATE BONDS (CONTINUED) 0F SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
BEVERAGE - 1.5%
Anheuser-Busch Companies, Inc.,
7.10% - 2007 .................................... $100,000 $104,875
BROKERAGE - 3.4%
Morgan Stanley Group, Inc.,
7.25% - 2004 .................................... $100,000 103,750
SI Financing Inc., 9.50% - 2026(1) ................. 4,560 122,835
--------
226,585
CAPITAL GOODS - BUILDING MACHINERY - 0.8%
AGCO Corporation,
8.50% - 2006 .................................... $ 25,000 25,719
Columbus McKinnon Corporation,
8.50% - 2008 .................................... $ 25,000 24,625
--------
50,344
CAPITAL GOODS - BUILDING MATERIALS - 0.4%
International Comfort Products,
8.625% - 2008 ................................... $ 25,000 24,875
CONSUMER CYCLICALS - OTHER - 0.4%
American ECO Corporation,
9.625% - 2008 ................................... $ 25,000 25,125
CONSUMER PRODUCTS - 2.0%
Chattem, Inc., 8.875% - 2008 ....................... $ 25,000 24,875
Shop Vac Corporation,
10.625% - 2003 .................................. $ 100,000 109,500
--------
134,375
ENERGY - ELECTRIC - 2.3%
Consolidated Edison Corporation,
6.625% - 2002 ................................. $ 150,000 153,000
ENERGY - INDEPENDENT - 0.8%
Seagull Energy Corporation,
8.625% - 2005 ................................. $ 50,000 51,313
ENERGY - OTHER - 0.4%
P&L Coal Holdings Corporation,
8.875% - 2008 ................................. $ 25,000 25,719
FINANCIAL COMPANIES - 10.0%
American RE Capital,
8.50% - 2025(1) ............................... 3,900 100,913
Associates Corporation, N.A.,
7.55% - 2007 .................................. $ 100,000 108,125
CB Richard Ellis Service,
8.875% - 2006 ................................. $ 25,000 24,687
General Electric Capital Corporation,
8.625% - 2008 ................................. $ 100,000 118,500
Household Financial Corporation,
8.0% - 2004 ................................... $ 150,000 162,562
International Lease Finance Corporation,
8.25% - 2000 .................................. $ 150,000 155,250
--------
670,037
PRINCIPAL MARKET
CORPORATE BONDS (CONTINUED) AMOUNT VALUE
- -------------------------------------------------------------------------------
FINANCE - OTHER - 1.7%
B.F. Saul REIT, 9.75% - 2008 ....................... $ 13,000 $ 12,838
Equity Office Properties, Ltd., REIT,
6.625% - 2005 ................................... 100,000 100,375
--------
113,213
FOOD - 3.0%
Archer-Daniels-Midland Company,
8.875% - 2011 ................................... 100,000 122,375
Cargill Corporation,
6.15% - 2008 .................................... 75,000 74,719
--------
197,094
GAMING - 2.8%
Boyd Gaming Corporation,
9.50% - 2007 .................................... 25,000 26,125
Empress Entertainment,
8.125% - 2006 ................................... 25,000 25,062
MGM Grand, Inc., 6.95% - 2005 ...................... 75,000 74,531
Mirage Resorts, Inc.,6.625% - 2007 ................. 65,000 64,512
--------
190,230
HEALTH CARE - 0.4%
Tenet Healthcare, 8.125% - 2008 .................... 25,000 25,125
HOME CONSTRUCTION - 0.4%
MDC Holdings, 8.375% - 2008 ........................ 12,000 12,000
Toll Corporation,7.75% - 2008 ...................... 13,000 12,805
--------
24,805
INSURANCE - 1.5%
Hartford Life, Inc.,
7.10% - 2007 .................................... 100,000 104,125
MEDIA - CABLE - 5.7%
Adelphia Communications,
8.375% - 2008 ................................... 25,000 25,125
Century Communications,
8.375% - 2007 ................................... 25,000 25,750
Comcast Corporation, 9.125% - 2006 ................. 25,000 26,813
Jones Intercable, Inc.,
7.625% - 2008 ................................... 25,000 25,375
Lenfest Communications,
10.50% - 2006 ................................... 25,000 29,125
Rogers Communications, Inc.,
9.125% - 2006 ................................... 75,000 75,938
Time-Warner Entertainment
Corporation, 10.15% - 2012 ...................... 50,000 66,437
Westinghouse Electric Company,
8.375% - 2002 ................................... 100,000 104,250
--------
378,813
</TABLE>
- --------------------------------------------------------------------------------
16
<PAGE> 18
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1998
SECURITY INCOME FUND
LIMITED MATURITY BOND SERIES (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
CORPORATE BONDS (CONTINUED) AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
MEDIA - NON-CABLE - 4.0%
Big Flower Press Holdings, Inc.,
8.875% - 2007 ............................... $ 25,000 $ 25,438
Heritage Media Corporation,
8.75% - 2006 ................................ 100,000 106,750
KIII Communications Corporation,
10.25% - 2004 ............................... 75,000 80,719
Valassis Communications,
9.55% - 2003 ................................ 25,000 28,000
Viacom, Inc., 8.00% - 2006 ..................... 25,000 25,750
________
266,657
METALS - 0.7%
Ameristeel Corporation,
8.75% - 2008 ................................ 25,000 25,000
WHX Corporation, 8.5% - 2006 ................... 25,000 25,437
________
50,437
REFINING - 2.5%
Vastar Resources, Inc.,
8.75% - 2005 ................................ 150,000 168,750
RETAILERS - 5.7%
Lowe's Companies, Inc.,
6.70% - 2007 ................................ 100,000 103,000
Sears & Roebuck Company,
6.41% - 2001 ................................ 150,000 151,125
Specialty Retailers, Inc.,
8.50% - 2005 ................................ 25,000 25,750
Zale's Corporation, 8.50% - 2007 ............... 100,000 102,250
________
382,125
SERVICES - 0.8%
Loewen Group International, Inc.,
8.25% - 2003 ................................ 50,000 51,687
TELECOMMUNICATIONS - 5.3%
Centennial Cellular,
8.75% - 2001 ................................ 100,000 104,000
Comcast Cellular Holdings, Inc.,
9.50% - 2007 ................................ 25,000 26,094
Mastec, Inc., 7.75 - 2008 ...................... 25,000 23,875
New Jersey Bell, 6.625% - 2008 ................. 100,000 100,625
Southwestern Bell,
6.625% - 2007 ............................... 100,000 103,375
________
357,969
TEXTILES - 0.4%
Westpoint Steven,
7.875% - 2008 ............................. 25,000 24,937
TOBACCO PRODUCTS - 1.5%
Dimon, Inc., 8.875% - 2006 ................... 50,000 51,188
Standard Commercial Tobacco
Corporation, 8.875% - 2005 ................ 50,000 50,000
__________
101,188
TRANSPORTATION - AIRLINES - 3.2%
Southwest Airlines Company,
7.875% - 2007 ............................. $ 100,000 $ 110,750
United Airlines, 11.21% - 2014 ............... 75,000 106,125
__________
216,875
TRANSPORTATION - OTHER - 0.4%
Allied Holdings, Inc.,
8.625% - 2007 ............................. 25,000 25,563
UTILITIES - NATURAL GAS - 2.3%
MCN Investment Corporation,
6.23% - 2003 .............................. 150,000 149,812
YANKEE - CORPORATE - 4.8%
ABN AMRO Bank NV,
7.55% - 2006 .............................. 100,000 108,375
Den Danske Bank, 7.40% - 2010 ................ 100,000 106,625
Panamerican Beverages, Inc.,
8.125% - 2003 ............................. 100,000 104,000
__________
319,000
YANKEE - CANADIAN - 1.6%
Quebecor Printing Capital,
7.25% - 2007 .............................. 100,000 104,875
__________
Total corporate bonds - 74.8% ................ 4,993,777
MORTGAGE BACKED SECURITIES
U.S. GOVERNMENT AGENCIES - 10.7%
Federal Home Loan Mortgage Corporation,
FHR 1102 G, 8.00% - 2020 CMO .................... 82,432 81,109
FHR 1104 K, 8.50% - 2020 CMO .................... 32,041 32,300
FHR 1311 J, 7.50% - 2021 CMO .................... 100,000 102,692
FHR 1930 AB, 7.50% - 2023 CMO ................... 84,087 85,311
FHR 42 K, 8.00% - 2024 CMO ...................... 186,000 189,990
Federal National Mortgage Association,
FNR 1992-98 PJ,
7.50% - 2019 CMO ............................ 118,000 118,820
FNR 1992-143 J,
7.00% - 2020 CMO ............................ 100,000 99,933
_______
710,155
U.S. GOVERNMENT SECURITIES - 3.4%
Government National Mortgage Association,
GNMA 369303,
7.00% - 2023 ................................ 97,890 99,396
GNMA II 2445,
8.00% - 2027 ................................ 120,080 123,830
_______
223,226
</TABLE>
See accompanying notes
- --------------------------------------------------------------------------------
17
<PAGE> 19
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1998
SECURITY INCOME FUND
LIMITED MATURITY BOND SERIES (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
MORTGAGE BACKED SECURITIES (CONTINUED) AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
NON-AGENCY SECURITIES - 2.9%
General Electric Capital Mortgage
Services, Inc., 1992-7A A6
7.45% - 2006 ................................... $ 60,134 $ 61,201
Sears Mortgage Securities 1994-14 T3,
8.5% - 2022 CMO ................................. 82,821 85,239
Securitized Multiple Assets Rated
Trust 1998-1, 7.45% - 2006 ...................... 48,794 48,870
__________
195,310
__________
Total mortgage backed
securities - 17.0% .............................. 1,128,691
GOVERNMENT SECURITIES
U.S. GOVERNMENT SECURITIES - 2.3%
U.S. Treasury Note, 6.50% - 2006 ................... 100,000 106,100
U.S. Department of Housing and
Urban Development,
6.93% - 2013 .................................... 50,000 52,889
CANADIAN GOVERNMENT AGENCIES - 2.6%
Province of Quebec,
8.625% - 2005 ................................... 150,000 170,063
__________
Total government securities - 4.9% ................. 329,052
__________
Total investments - 96.7% .......................... 6,451,520
Cash and other assets, less
liabilities - 3.3% .............................. 222,481
__________
Total net assets - 100.0% .......................... $6,674,001
==========
SECURITY INCOME FUND
HIGH YIELD SERIES
CORPORATE BONDS
AEROSPACE/DEFENSE - 2.0%
Burke Industries, Inc., 10.0% - 2007 ............. $ 75,000 $ 75,937
Sequa Industries, Inc.,
9.375% - 2003 ................................. 100,000 104,125
________
180,062
AUTOMOTIVE - 2.5%
Breed Technologies, Inc.,
9.25% - 2008 .................................. 150,000 148,125
Federal-Mogul Corporation,
7.875% - 2010 ................................. 75,000 75,188
________
223,313
SECURITY INCOME FUND
HIGH YIELD SERIES
PRINCIPAL
AMOUNT OR
NUMBER MARKET
CORPORATE BONDS (CONTINUED) 0F SHARES VALUE
- --------------------------------------------------------------------------------
BANKING - 4.0%
Bay View Capital Corporation,
9.125% - 2007 ............................... $ 100,000 $102,750
FCB/NC Capital, 8.05% - 2028 ................... $ 100,000 103,750
Homeside, Inc., 11.25% - 2003 .................. $ 125,000 148,125
________
354,625
BEVERAGES - 1.2%
Delta Beverage Group,
9.75% - 2003 ................................ $ 100,000 104,750
BROKERAGE - 1.5%
SI Financing, 9.50% - 2026(1) .................. 5,000 134,687
BUILDING MATERIALS - 2.7%
International Comfort Products,
8.625% - 2008 ............................... $ 125,000 124,375
Knoll, Inc., 10.875% - 2006 .................... $ 100,000 113,750
________
238,125
CHEMICALS - 1.2%
Envirodyne Industries, Inc.,
12.0% - 2000 ................................ $ 100,000 106,250
CONSUMER CYCLICAL - OTHER - 1.4%
American ECO Corporation,
9.625% - 2008 ............................... $ 125,000 125,625
CONSUMER PRODUCTS - 3.7%
Chattem, Inc., 8.875% - 2008 ................... $ 125,000 124,375
Revlon Consumer Products,
8.125% - 2006 ............................... $ 100,000 99,375
Shop Vac Corporation,
10.625% - 2003 .............................. $ 100,000 109,500
________
333,250
CONSTRUCTION MACHINERY - 3.7%
AGCO Corporation,
8.50% - 2006 ................................ $ 100,000 102,875
Columbus McKinnon Corporation,
8.50% - 2008 ................................ $ 125,000 123,125
Titan Wheel International, Inc.,
8.75% - 2007 ................................ $ 100,000 103,250
________
329,250
ELECTRIC - 2.4%
AES Corporation, 10.25% - 2006 ................. $ 100,000 108,750
Cal Energy Company, Inc.,
9.50% - 2006 ................................ $ 100,000 108,125
________
216,875
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
18
<PAGE> 20
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1998
SECURITY INCOME FUND
HIGH YIELD SERIES
<TABLE>
<CAPTION>
PRINCIPAL MARKET
CORPORATE BONDS (CONTINUED) AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
ENERGY - INDEPENDENT - 3.8%
COHO Energy, Inc.,
8.875% - 2007 ................................. $150,000 $142,500
Seagull Energy Corporation,
8.625% - 2005 ................................. 75,000 76,968
Southwest Royalties, Inc.,
10.50% - 2004 ................................. 150,000 124,500
________
343,968
ENERGY - OTHER - 2.0%
AEI Holdings, 10.00% - 2007 ...................... 100,000 98,750
P & L Coal Holdings Corporation,
8.875% - 2008 ................................. 75,000 77,156
________
175,906
ENTERTAINMENT - 0.9%
Premier Parks, 9.75% - 2007 ...................... 75,000 81,563
FINANCE - OTHER - 0.8%
B.F. Saul REIT, 9.75% - 2008 ..................... 75,000 74,063
FINANCIAL COMPANIES - 1.2%
Dollar Financial Group, Inc.,
10.875% - 2006 ................................ 100,000 107,750
FOOD AND BEVERAGES - 4.4%
Carrols Corporation,
11.50% - 2003 ................................. 175,000 183,531
Chiquita Brands International, Inc.,
10.25% - 2006 ................................. 100,000 108,500
Nash Finch Company,
8.50% - 2008 .................................. 100,000 99,250
________
391,281
GAMING - 4.7%
Empress Entertainment,
8.125% - 2006 ................................. 100,000 100,250
Hard Rock Hotel, Inc.,
9.25% - 2005 .................................. 75,000 76,500
MGM Grand, Inc., 6.95% - 2005 .................... 125,000 124,219
Mirage Resorts, Inc.,
6.625% - 2005 ................................. 125,000 124,062
________
425,031
HEALTH CARE - 3.6%
Multicare Companies, Inc.,
9.0% - 2007 ................................... 75,000 73,688
Packard Bioscience Company,
9.375% - 2007 ................................. 80,000 78,000
Prime Medical Services,
8.75% - 2008 .................................. 75,000 73,406
Tenet Healthcare Corporation,
8.125% - 2008 ................................. 100,000 100,500
________
325,594
PRINCIPAL MARKET
CORPORATE BONDS (CONTINUED) AMOUNT VALUE
- --------------------------------------------------------------------------------
HOME CONSTRUCTION - 1.7%
Hovnanian Enterprise,
9.75% - 2005 .................................. $100,000 $ 99,000
Toll Corporation, 7.75% - 2007 ................... 50,000 49,250
________
148,250
MEDIA - CABLE - 8.5%
Adelphia Communications Corporation,
8.375% - 2008 ................................. 50,000 50,250
Century Communications,
8.375% - 2007 ................................. 75,000 77,250
Century Communications,
9.50% - 2005 .................................. 100,000 108,250
CSC Holdings, Inc.,
7.875% - 2018 ................................. 25,000 26,438
Diamond Cable U.S.,
9.125% - 2008 ................................. 100,000 104,000
Jones Intercable, Inc.,
7.625% - 2008 ................................. 100,000 101,500
Lenfest Communications,
10.50% - 2006 ................................. 100,000 116,500
Rogers Cablesystems,
9.625% - 2002 ................................. 100,000 106,750
Rogers Communications, Inc.,
9.125% - 2006 ................................. 70,000 70,875
________
761,813
MEDIA - NONCABLE - 4.7%
Allbritton Communications Company,
9.75% - 2007 .................................. 75,000 82,500
Big Flower Press Holdings, Inc.,
8.875% - 2007 ................................. 75,000 76,312
Golden Books Publishing, Inc.,
7.65% - 2002 .................................. 100,000 78,000
Heritage Media Corporation,
8.75% - 2006 .................................. 100,000 106,750
Hollinger International Publishing,
8.625% - 2005 ................................. 25,000 26,063
K-III Communications Corporation,
10.25% - 2004 ................................. 50,000 53,813
________
423,438
METALS - 3.7%
Ameristeel Corporation,
8.75% - 2008 .................................. 100,000 100,000
Simcala, Inc., 9.625% - 2006 ..................... 100,000 74,250
Wheeling Pittsburgh Corporation,
9.25% - 2007 .................................. 100,000 102,500
WHX Corporation, 10.50% - 2005 ................... 50,000 50,875
________
327,625
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
19
<PAGE> 21
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1998
SECURITY INCOME FUND
HIGH YIELD SERIES
<TABLE>
<CAPTION>
PRINCIPAL MARKET
CORPORATE BONDS (CONTINUED) AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
PACKAGING & CONTAINERS - 4.5%
Huntsman Packaging Corporation,
9.125% - 2007 ............................... $ 125,000 $124,375
Indesco International, Inc.,
9.75% - 2008 ................................ 150,000 147,750
Plastic Containers, Inc.,
10.0% - 2006 ................................ 125,000 134,375
________
406,500
REFINING - 3.1%
Crown Central Petroleum,
10.875% - 2005 .............................. 140,000 148,400
Giant Industries, Inc.,
9.0% - 2007 ................................. 125,000 127,812
________
276,212
RETAILERS - 3.5%
Cole National Group,
9.875% - 2006 ............................... 100,000 108,000
Specialty Retailers, Inc.,
8.50% - 2005 ................................ 100,000 103,000
Zale's Corporation,
8.50% - 2007 ................................ 100,000 102,250
________
313,250
SUPERMARKETS - 1.0%
Southland Corporation,
4.50% - 2004 ................................ 100,000 80,500
TELECOMMUNICATIONS - 9.6%
Centennial Cellular,
8.875% - 2001 ............................... 100,000 104,000
Comcast Cellular Holdings, Inc.,
9.50% - 2007 ................................ 125,000 130,469
Intermedia Communications,
8.50% - 2008 ................................ 125,000 125,000
Mcleodusa, Inc.,
8.375% - 2008 ............................... 150,000 150,375
MJD Communications, Inc.,
9.50% - 2008 ................................ 150,000 153,562
RCN Corporation,
10.0% - 2007 ................................ 100,000 102,750
Satelites Mexicanos, Inc.,
10.125% - 2004 .............................. 100,000 97,750
________
863,906
TEXTILES - 2.2%
Delta Mills, Inc., 9.625% - 2007 ............... 125,000 122,968
Westpoint Stevens, Inc.,
7.875% - 2008 ............................... 75,000 74,813
________
197,781
PRINCIPAL MARKET
CORPORATE BONDS (CONTINUED) AMOUNT VALUE
- --------------------------------------------------------------------------------
TOBACCO - 1.4%
Dimon, Inc., 8.875% - 2006 ..................... $ 50,000 $ 51,188
Standard Commerical Tobacco
Corporation, 8.875% - 2005 .................. $ 75,000 75,000
__________
126,188
TRANSPORTATION - OTHER - 2.4%
Allied Holdings, Inc.,
8.625% - 2007 ............................... $ 75,000 76,688
Teekay Shipping Corporation,
8.32% - 2008 ................................ $ 135,000 139,387
__________
216,075
__________
Total corporate bonds - 94.0% .................................. 8,413,506
PREFERRED STOCKS
BANKS AND CREDIT - 1.5%
California Federal Bank,
9.12% .......................................... 4,950 134,888
MEDIA - CABLE - 0.7%
CSC Holdings, Inc., ............................ 571 64,718
MEDIA - NONCABLE - 0.8%
Primedia Inc., 10.00% - 2008 ................... 700 73,850
__________
Total preferred stocks - 3.0% .................................. 273,456
__________
Total investments - 97.0% ...................................... 8,686,962
Cash and other assets,
less liabilities 3.0% .......................................... 278,105
__________
Total net assets - 100.0% ...................................... $8,965,067
==========
SECURITY MUNICPAL BOND FUND
MUNICIPAL BONDS
- --------------------------------------------------------------------------------
CALIFORNIA - 9.7%
Los Angeles County, California Metro
Authority, 5.625% - 2018 ...................... $ 1,000,000 $1,032,970
Los Angeles, California Wastewater
System Revenue, 6.00% - 2014 .................. 1,100,000 1,189,859
__________
2,222,829
GEORGIA - 6.9%
Fulton County, Georgia School District,
5.25% - 2021 .................................. 1,500,000 1,569,870
ILLINOIS - 9.0
Winnebago County,Illinois School
District No. 122, 0% - 2015 ................... 2,155,000 982,680
DuPage County,Illinois Stormwater
Project Refunding, 5.60% - 2021 ............... 1,000,000 1,066,470
__________
2,049,150
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
20
<PAGE> 22
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1998
SECURITY MUNICPAL BOND FUND - (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
MUNICIPAL BONDS (CONTINUED) AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
MISSOURI - 2.3%
Kansas City,Missouri Port Authority
Riverfront, 5.75% - 2005 ...................... $ 500,000 $ 535,080
NEVADA - 9.2%
Henderson Nevada Parks and
Recreation, 5.875% - 2004 ..................... 1,000,000 1,082,590
Clark County, Nevada School District,
Series A, 5.50% - 2016 ........................ 1,000,000 1,027,850
___________
2,110,440
NEW JERSEY - 4.9%
North Brunswick Township, New Jersey
Board of Education,
6.30% - 2013 .................................. 1,000,000 1,112,400
NEW YORK - 4.8%
New York State Environmental Facilities
Corporation Pollution Control
Revenue, 5.75% - 2009 ......................... 1,000,000 1,099,910
NORTH CAROLINA - 2.6%
North Carolina Medical Care
Community Healthcare,
variable rate - 2026 .......................... 600,000 600,000
OHIO - 9.3%
Orville, Ohio Electric System Revenue
Bond, 5.00% - 2010 ............................ 1,000,000 1,026,050
Ohio State Public Facilities Series II-B,
5.00% - 2012 .................................. 1,100,000 1,106,446
___________
2,132,496
PENNSYLVANIA - 9.1%
Allegheny County, Pennsylvania,
5.10% - 2006 .................................. 1,000,000 1,046,530
Pennsylvania State,
5.00% - 2006 .................................. 1,000,000 1,040,540
___________
2,087,070
RHODE ISLAND - 4.8%
Rhode Island General Obligation,
5.30% - 2008 .................................. 1,030,000 1,089,606
TEXAS - 13.6%
University of Texas,
4.80% - 2009 .................................. 1,000,000 1,016,800
Houston, Texas Water & Sewer
System Revenue, Series A,
6.20% - 2020 .................................. 1,000,000 1,120,910
Bell County, Texas Health Facilities
Development, 5.00% - 2017 ..................... 1,000,000 976,440
___________
3,114,150
PRINCIPAL MARKET
MUNICIPAL BONDS AMOUNT VALUE
- --------------------------------------------------------------------------------
VIRGINIA - 3.7%
Petersburg, Virginia Hospital Authority,
4.00% - 20174 ................................. $ 850,000 $ 850,000
WASHINGTON - 14.9%
Washington Public Power Supply
System Revenue Nuclear Project #2,
6.30% - 2012 .................................. 1,000,000 1,134,120
King County, Washington Sewer
Revenue, Series A,
6.25% - 2034 .................................. 1,000,000 1,092,940
Island County, Washington School
District South Whidbey,
6.75% - 2007 .................................. 1,000,000 1,173,670
___________
3,400,730
OTHER TERRITORIES - 4.8%
Puerto Rico Public Buildings Authority
Guaranteed Public Education and
Health Facilities, 5.70% - 2009 ............... 1,000,000 1,104,150
___________
Total investments - 109.6% ....................... 25,077,881
Liabilities, less cash and
other assets, - (9.6%) ........................ (2,203,110)
___________
Total net assets - 100.0% ........................ $22,874,771
===========
SECURITY CASH FUND
COMMERCIAL PAPER
- ----------------
AEROSPACE/DEFENSE - 0.6%
Rockwell International Corporation,
5.50%, 7-31-98 ................................ $ 440,000 $ 437,983
BROKERAGE - 9.9%
Bear Stearns Companies, Inc.,
5.50%, 9-10-98 ................................ 3,600,000 3,560,950
Merrill Lynch & Company, Inc., ................... 3,580,000
5.50%, 7-02-98 ................................ 249,962
5.53%, 9-23-98 ................................ 493,548
5.53%, 9-25-98 ................................ 325,641
5.52%, 10-30-98 ............................... 2,453,616
___________
7,083,717
BUSINESS SERVICES - 4.4%
General Electric Capital Corporation, ............ 3,146,000
5.53%, 7-30-98 ................................ 2,488,863
5.50%, 9-02-98 ................................ 639,782
___________
3,128,645
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
21
<PAGE> 23
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1998 (UNAUDITED)
SECURITY CASH FUND (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
COMMERCIAL PAPER (CONTINUED) AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
ELECTRIC UTILITIES - 18.3%
Carolina Power & Light Company, .............. $1,671,000
5.50%, 7-07-98 ............................ $ 470,568
5.51%, 8-28-98 ............................ 1,189,347
Florida Power Corporation, ................... 3,010,000
5.50%, 7-09-98 ............................ 2,037,507
5.52%, 8-11-98 ............................ 963,902
Georgia Power Company,
5.52%, 7-21-98 ............................ 1,224,000 1,220,246
Idaho Power Company,
5.50%, 7-10-98 ............................ 2,300,000 2,296,838
New England Power Company, ................... 1,269,000
5.52%, 7-17-98 ............................ 997,547
5.55%, 7-24-98 ............................ 268,046
Progress Capital Holdings, Inc., ............. 3,609,000
5.52%, 7-08-98 ............................ 2,996,780
5.52%, 7-16-98 ............................ 607,599
__________
13,048,380
ELECTRONICS - 5.2%
AVNET, Inc., ................................. 3,700,000
5.52%, 7-17-98 ............................ 2,493,867
5.52%, 8-14-98 ............................ 1,191,904
__________
3,685,771
FOOD PROCESSING - 2.8%
General Mills, 5.49%, 7-13-98 ................ 2,000,000 1,996,340
HARDWARE & TOOLS - 5.9%
Sherwin-Williams Company,
5.50%, 8-14-98 ............................ 1,000,000 993,278
Stanley Works, Inc.,
5.51%, 7-28-98 ............................ 3,230,000 3,216,652
__________
4,209,930
METALS & MINERALS - 2.9%
Aluminum Company of America,
5.52%, 8-27-98 .............................. 2,100,000 2,081,646
NATURAL GAS - 9.4%
Consolidated Natural Gas Company, .............. 3,640,000
5.50% 7-07-98 ............................... 2,637,581
5.53%, 7-16-98 .............................. 997,696
Questar Corporation ............................ 3,070,000
5.60%, 7-02-98 .............................. 2,549,603
5.62%, 8-04-98 .............................. 517,240
_________
6,702,120
PRINCIPAL MARKET
COMMERCIAL PAPER AMOUNT VALUE
- --------------------------------------------------------------------------------
NUCLEAR- 2.4%
Bayshore Fuel Company, ......................... $ 1,729,000
5.50%, 7-17-98 .............................. $ 1,050,426
5.55%, 8-27-98 .............................. 670,060
___________
1,720,486
PETROLEUM - 1.1%
Atlantic Richfield Company,
5.53%, 8-07-98 .............................. 800,000 795,453
PHOTOGRAPH/IMAGING - 5.5%
EastmanKodak Company ........................... 3,920,000
5.50%, 7-30-98 .............................. 2,887,151
5.51%, 8-03-98 .............................. 696,471
5.50%, 8-20-98 .............................. 317,556
___________
3,901,178
RECREATION - 2.8%
Carnival Corporation,
5.54%, 7-27-98 .............................. 2,000,000 1,991,998
RETAIL - GROCERY - 5.1%
Winn-Dixie Stores, Inc., ....................... 3,700,000
5.50%, 7-28-98 .............................. 1,400,194
5.51%, 7-28-98 .............................. 2,284,526
___________
3,684,720
TELECOMMUNICATIONS - 2.1%
Bell Atlantic Network Funding
Corporation, 5.50%, 7-07-98 ................. 1,500,000 1,498,625
TOYS & SPORTING GOODS - 4.0%
Toys 'R' Us, ................................... 2,850,000
5.51%, 7-06-98 .............................. 2,098,393
5.50%, 8-04-98 .............................. 746,104
___________
2,844,497
___________
Total commercial paper - 82.4% ................. 58,811,489
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
22
<PAGE> 24
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1998 (UNAUDITED)
SECURITY CASH FUND (CONTINUED)
<TABLE>
<CAPTION>
PRINCIPAL MARKET
U.S. GOVERNMENT & AGENCIES AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
FEDERAL FARM CREDIT BANKS - 2.8%
Federal Farm Credit Bank,
5.50%, 9-01-98 .............................. $ 2,000,000 $ 2,000,000
FEDERAL HOME LOAN BANKS - 8.4%
5.53%, 2-26-99 .............................. 2,000,000 2,000,000
5.625%, 3-12-99 ............................. 2,000,000 2,000,000
5.70%, 4-15-99 .............................. 2,000,000 2,000,000
___________
6,000,000
SMALL BUSINESS ASSOCIATION POOLS - 6.0%
#501927, 6.75%, 2017(2) ..................... 1,543,267 1,557,831
#502398, 6.125%, 2018(3) .................... 676,176 678,711
#503152, 6.125%, 2020(3) .................... 736,513 736,513
#503295, 6.00%, 2021(3) ..................... 627,512 627,905
#503303, 6.00%, 2021(3) ..................... 685,168 685,597
___________
4,286,557
___________
Total U.S. government & agencies -17.2% ........ 12,286,557
___________
Total investments - 99.6% ...................... 71,098,046
Cash and other assets,
less liabilities - 0.4% ..................... 306,283
___________
Total net assets - 100.0% ...................... $71,404,329
===========
</TABLE>
The identified cost of investments owned at June 30, 1998, was the same for
federal income tax and book purposes.
(1)Trust Preferred Securities - Securities issued by financial institutions to
augment their Tier 1 capital base. Issued on a subordinate basis relative to
senior notes or debentures. Institutions may defer cash payments for up to 10
pay periods.
(2)Variable rate security which may be reset the first of each month.
(3)Variable rate security which may be reset the first of each quarter.
(4)Variable rate security which may be reset daily.
See accompanying notes.
- --------------------------------------------------------------------------------
23
<PAGE> 25
BALANCE SHEETS
- --------------------------------------------------------------------------------
June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Security Income Fund
--------------------------------------------------------
U.S. Limited High Security Security
Corporate Government Maturity Yield Municipal Bond Cash
Bond Series Series Bond Series Series Fund Fund
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments, at value (identified cost
$61,576,582, $14,731,853, $6,331,729,
$8,528,333, $24,195,259, and
$12,286,557, respectively) ............ $ 63,645,498 $ 15,145,323 $ 6,451,520 $8,686,962 $25,077,881 $12,286,557
Commercial paper, at amortized cost which
approximates market value ............. - - - - - 58,811,489
Cash .................................... 105,378 230,016 105,577 101,546 67,482 239,973
Receivables:
Fund shares sold ...................... 8,214 867 92 36 255 159,670
Securities sold ....................... 40,200 - - - - 28,543
Interest .............................. 937,804 202,254 107,553 185,910 306,792 160,354
Prepaid expenses ........................ 15,837 29,226 20,411 1,556 12,679 61,123
------------- ------------ ----------- ---------- ----------- -----------
Total assets ................ $ 64,752,931 $ 15,607,686 $ 6,685,153 $8,976,010 $25,465,089 $71,747,709
============= ============ =========== ========== =========== ===========
LIABILITIES AND NET ASSETS
Liabilities:
Payable for:
Securities purchased .................. $ - $ - $ - $ - $ 2,568,015 $ -
Fund shares redeemed .................. 63,786 529 - - - 6,801
Other Liabilities:
Management fees ....................... 28,320 - - - 10,209 33,101
Custodian fees ........................ 1,161 627 1,873 151 - 1,542
Transfer and administration fees ...... 16,742 7,331 980 2,084 3,018 12,903
Professional fees ..................... 4,881 11,020 2,807 - 1,813 5,017
12b-1 distribution plan fees .......... 19,805 5,622 2,169 4,479 6,277 -
Miscellaneous fees .................... 8,587 1,310 3,323 4,229 986 284,016
------------- ------------ ----------- ---------- ----------- -----------
Total liabilities .................. 143,282 26,439 11,152 10,943 2,590,318 343,380
Net Assets:
Paid in capital .......................... 75,251,642 16,114,999 6,562,519 8,660,013 23,067,224 71,404,329
Undistributed net investment income ...... 66,220 1,803 1,881 9,293 26,061 -
Accumulated undistributed net realized
gain (loss) on sale of investments .... (12,777,129) (949,025) (10,190) 137,132 (1,101,136) -
Net unrealized appreciation
in value of investments, futures,
and foreign currency transactions ..... 2,068,916 413,470 119,791 158,629 882,622 -
------------- ------------ ----------- ---------- ----------- -----------
Net assets ...... 64,609,649 15,581,247 6,674,001 8,965,067 22,874,771 71,404,329
------------- ------------ ----------- ---------- ----------- -----------
Total liabilities and net assets $ 64,752,931 $ 15,607,686 $ 6,685,153 $8,976,010 $25,465,089 $71,747,709
============= ============ =========== ========== =========== ===========
CLASS "A" SHARES
Capital shares outstanding .............. 7,886,001 2,424,673 543,053 325,600 2,096,089 71,404,329
Net assets .............................. $ 55,900,364 $ 11,779,245 $ 5,605,847 $5,125,007 $21,127,548 $71,404,329
Net asset value per share (net assets
divided by shares outstanding) ... $ 7.09 $ 4.86 $ 10.32 $ 15.74 $ 10.08 $ 1.00
Add: Selling commission (4.75% of the
offering price) .................. 0.35 0.24 0.51 0.78 0.50 -
------------- ------------ ----------- ---------- ----------- -----------
Offering price per share (net asset value
divided by 95.25%) ................... $ 7.44 $ 5.10 $ 10.83 $ 16.52 $ 10.58 $ 1.00
============= ============ =========== ========== =========== ===========
CLASS "B" SHARES
Capital shares outstanding .......... 1,221,482 783,414 103,614 244,464 173,287 --
Net assets .......................... $ 8,709,285 $ 3,802,002 $ 1,068,154 $3,840,060 $ 1,747,223 --
Net asset value per share (net assets
divided by shares outstanding) ... $ 7.13 $ 4.85 $ 10.31 $ 15.71 $ 10.08 --
============= ============ =========== ========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
24
<PAGE> 26
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED
JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Security Income Fund
-----------------------------------------------------------
U.S. Limited High Security Security
Corporate Government Maturity Yield Municipal Bond Cash
Bond Series Series Bond Series Series Fund Fund
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment Income:
Interest ............................ $ 2,262,987 $ 336,294 $ 241,027 $ 401,711 $ 596,761 $ 1,842,661
Expenses:
Management fees ..................... 157,911 24,606 16,563 27,447 58,770 163,513
Custodian fees ...................... 1,526 1,008 3,375 4,897 545 3,191
Transfer/maintenance fees ........... 64,180 17,260 3,064 10,518 7,267 68,031
Administration fees ................. 28,424 4,429 2,982 4,117 10,579 14,716
Directors' fees ..................... 5,070 456 762 1,124 4,121 5,436
Professional fees ................... 6,006 8,647 2,431 3,299 1,646 2,329
Reports to shareholders ............. 3,406 758 2,209 26 1,805 1,500
Registration fees ................... 10,800 4,710 11,673 3,342 12,101 30,949
Other expenses ...................... 6,806 -- -- -- 1,423 --
12b-1 distribution plan fees ........ 106,706 18,290 12,249 26,244 18,093 --
___________ ___________ ___________ ___________ ___________ ___________
390,835 80,164 55,308 81,014 116,350 289,665
Less: Earnings credits applied ....... -- -- (1,436) -- (545) --
Reimbursement of expenses ...... (16,855) (24,606) (16,563) (27,447) (267) --
___________ ___________ ___________ ___________ ___________ ___________
Total expenses ................. 373,980 55,558 37,309 53,567 115,538 289,665
___________ ___________ ___________ ___________ ___________ ___________
Net investment income ......... 1,889,007 280,736 203,718 348,144 481,223 1,552,996
Net realized and unrealized gain (loss):
Net realized gain during the period on
investments ...................... 415,189 11,545 52,401 136,547 145,821 --
Net change in unrealized appreciation
(depreciation) during the period on
investments ...................... (102,593) 102,329 (33,302) (115,349) (161,717) --
___________ ___________ ___________ ___________ ___________ ___________
Net gain (loss) ............... 312,596 113,874 19,099 21,198 (15,896) --
___________ ___________ ___________ ___________ ___________ ___________
Net increase in net assets
resulting from operations ... $ 2,201,603 $ 394,610 $ 222,817 $ 369,342 $ 465,327 $ 1,552,996
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
25
<PAGE> 27
STATEMENT OF CHANGES IN NET ASSETS
................................................................................
FOR THE SIX MONTHS ENDED
JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Security Income Fund
-------------------------------------------------
U.S. Limited High Security
Corporate Government Maturity Yield Municipal Bond
Bond Series Series Bond Series Series Fund
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS FROM
OPERATIONS:
Net investment income .................. $ 1,889,007 $ 280,736 $ 203,718 $ 348,144 $ 481,223
Net realized gain .................... 415,189 11,545 52,401 136,547 145,821
Unrealized appreciation (depreciation)
during the period ................. (102,593) 102,329 (33,302) (115,349) (161,717)
------------- ------------- ------------- ------------- -------------
Net increase in net assets
resulting from operations ...... 2,201,603 394,610 222,817 369,342 465,327
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A ........................... (1,651,540) (245,005) (178,912) (201,873) (433,083)
Class B ........................... (193,451) (37,692) (27,022) (136,978) (25,031)
Net realized gain
Class A ........................... -- -- -- -- --
Class B ........................... -- -- -- 585 --
------------- ------------- ------------- ------------- -------------
Total distributions to
shareholders ............... (1,844,991) (282,697) (205,934) (338,266) (458,114)
CAPITAL SHARE TRANSACTIONS (A):
Proceeds from sale of shares
Class A ........................... 5,019,533 1,855,616 193,181 409,025 653,306
Class B ........................... 3,185,796 145,969 21,050 164,716 121,323
Dividends reinvested
Class A ........................... 1,210,341 4,251,225 161,469 201,217 252,133
Class B .............. 165,015 3,122,292 27,022 136,316 12,134
Shares redeemed
Class A ........................... (7,130,647) (2,066,588) (252,029) (678,720) (1,736,780)
Class B ........................... (1,176,931) (581,767) (37,749) (910,028) (731,870)
------------- ------------- ------------- ------------- -------------
Net increase (decrease)
from capital share
transactions ................... 1,273,107 6,726,747 112,944 (677,474) (1,429,754)
------------- ------------- ------------- ------------- -------------
Total increase (decrease)
in net assets ............... 1,629,719 6,838,660 129,827 (646,398) (1,422,541)
NET ASSETS:
Beginning of period .................. 62,979,930 8,742,587 6,544,174 9,611,465 24,297,312
------------- ------------- ------------- ------------- -------------
End of period ........................ $ 64,609,649 $ 15,581,247 $ 6,674,001 $ 8,965,067 $ 22,874,771
============= ============= ============= ============= =============
Undistributed net investment income
at end of period ..................... $ 66,220 $ 1,803 $ 1,881 $ 9,293 $ 26,061
============= ============= ============= ============= =============
(a) Shares issued and redeemed
Shares sold
Class A ....................... 709,590 1,215,968 18,675 25,717 64,730
Class B ....................... 447,800 669,189 2,043 10,401 12,029
Dividends reinvested
Class A ....................... 172,218 45,056 15,689 12,703 25,074
Class B ....................... 23,304 7,356 2,632 8,624 1,206
Shares redeemed
Class A ....................... (1,009,108) (426,543) (24,374) (42,502) (172,394)
Class B ....................... (165,323) (120,225) (3,669) (57,220) (72,603)
------------- ------------- ------------- ------------- -------------
Net increase (decrease) ........ 178,481 1,390,801 10,996 (42,277) (141,958)
============= ============= ============= ============= =============
<CAPTION>
Security
Cash
Fund
-------------
<S> <C>
INCREASE IN NET ASSETS FROM
OPERATIONS:
Net investment income .................. $ 1,552,996
Net realized gain .................... --
Unrealized appreciation (depreciation)
during the period ................. --
-------------
Net increase in net assets
resulting from operations ...... 1,552,996
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A ........................... (1,552,996)
Class B ........................... --
Net realized gain
Class A ........................... --
Class B ........................... --
-------------
Total distributions to
shareholders ............... (1,552,996)
CAPITAL SHARE TRANSACTIONS (A):
Proceeds from sale of shares
Class A ........................... 105,000,245
Class B ........................... --
Dividends reinvested
Class A ........................... 1,427,964
Class B ........................... --
Shares redeemed
Class A ........................... (92,464,665)
Class B ........................... --
-------------
Net increase (decrease)
from capital share
transactions ................... 13,963,544
-------------
Total increase (decrease)
in net assets ............... 13,963,544
NET ASSETS:
Beginning of period .................. 57,440,785
-------------
End of period ........................ $ 71,404,329
=============
Undistributed net investment income
at end of period ..................... $ --
=============
(a) Shares issued and redeemed
Shares sold
Class A ....................... 105,000,245
Class B ....................... --
Dividends reinvested
Class A ....................... 1,427,964
Class B ....................... --
Shares redeemed
Class A ....................... (92,464,665)
Class B ....................... --
-------------
Net increase (decrease) ........ 13,963,544
=============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
26
<PAGE> 28
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
...................................................................................................................................
FOR THE YEAR ENDED DECEMBER 31, 1997
Security Income Fund
---------------------------------------------------
U.S. Limited High Security Security
Corporate Government Maturity Yield Municipal Bond Cash
Bond Series Series Bond Series Series Fund Fund
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS:
Net investment income $ 4,348,326 $ 564,698 $ 428,582 $ 562,155 $ 974,901 $ 2,334,419
Net realized gain (loss) (819,146) 17,807 14,159 159,295 230,930 -
Unrealized appreciation (depreciation)
during the period 2,374,236 149,552 89,543 126,911 592,486 -
----------- ---------- ---------- ---------- ----------- -----------
Net increase in net assets
resulting from operations 5,903,416 732,057 532,284 848,361 1,798,317 2,334,419
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (3,949,944) (514,896) (368,619) (321,919) (930,144) (2,334,419)
Class B (403,170) (46,196) (56,487) (241,725) (47,364)
Net realized gain
Class A - - - (67,514) - -
Class B - - - (57,795) - -
----------- ---------- ---------- ---------- ----------- -----------
Total distributions to
shareholders (4,353,114) (561,092) (425,106) (688,953) (977,508) (2,334,419)
CAPITAL SHARE TRANSACTIONS (a):
Proceeds from sale of shares
Class A 7,162,943 1,566,140 1,371,189 2,272,583 2,482,623 234,698,276
Class B 4,821,878 684,955 399,599 1,441,420 1,198,639 -
Dividends reinvested
Class A 2,918,082 427,733 329,483 389,121 493,192 2,203,684
Class B 363,965 40,597 56,486 298,860 31,059 -
Shares redeemed
Class A (28,343,679) (2,531,194) (1,243,300) (358,981) (5,087,737) (224,791,899)
Class B (6,157,206) (314,008) (175,370) (90,052) (455,776) -
----------- ---------- ---------- ---------- ----------- -----------
Net increase (decrease)
from capital share
transactions (19,234,017) (125,777) 738,087 3,952,951 (1,338,000) 12,110,061
----------- ---------- ---------- ---------- ----------- -----------
Total increase (decrease)
in net assets (17,683,715) 45,188 845,265 4,112,359 (517,191) 12,110,061
NET ASSETS:
Beginning of period 80,663,645 8,697,399 5,698,909 5,499,106 24,814,503 45,330,724
----------- ---------- ---------- ---------- ----------- -----------
End of period $62,979,930 $8,742,587 $6,544,174 $9,611,465 $24,297,312 $57,440,785
=========== ========== ========== ========== =========== ===========
Undistributed net investment income
at end of period $ 22,204 $ 3,764 $ 4,097 $ - $ 2,952 $ -
=========== ========== ========== ========== =========== ===========
(a) Shares issued and redeemed
Shares sold
Class A 1,036,267 329,947 136,018 146,171 251,471 234,698,276
Class B 691,990 144,444 39,239 91,689 120,884 -
Dividends reinvested
Class A 425,158 90,953 32,458 24,910 49,419 2,203,684
Class B 52,774 8,630 5,576 19,160 3,160 -
Shares redeemed
Class A (4,129,146) (535,552) (122,325) (22,867) (519,951) (224,791,899)
Class B (886,785) (66,308) (17,298) (5,669) (46,659) -
----------- ---------- ---------- ---------- ----------- -----------
Net increase (decrease) (2,809,742) (27,886) 73,668 253,394 (141,676) 12,110,061
=========== ========== ========== ========== =========== ===========
</TABLE>
See accompanying notes.
------------------------------------------------------------------------------
27
<PAGE> 29
FINANCIAL HIGHLIGHTS
...............................................................................
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CORPORATE BOND SERIES (CLASS A)
<TABLE>
<CAPTION>
Fiscal Period Ended December 31
---------------------------------------------------------------------------------
1998 (d)(h) 1997(d) 1996(d)(f) 1995(d)(f) 1994 1993
----------- ------- ---------- ---------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD..... $7.05 $6.87 $7.39 $6.68 $7.81 $7.72
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income................... 0.21 0.45 0.47 0.47 0.49 0.52
Net Gain (Loss) on Securities
(realized & unrealized)............... 0.04 0.19 (0.52) 0.71 (1.13) 0.52
------ ------ ------ ------ ------ ------
Total from Investment Operations........ 0.25 0.64 (0.05) 1.18 (0.64) 1.04
LESS DISTRIBUTIONS
Dividends (from Net Investment Income).. (0.21) (0.46) (0.47) (0.47) (0.49) (0.53)
Distributions (from Capital Gains)...... - - - - - (0.42)
------ ------ ------ ------ ------ ------
Total Distributions................... (0.21) (0.46) (0.47) (0.47) (0.49) (0.95)
------ ------ ------ ------ ------ ------
NET ASSET VALUE END OF PERIOD........... $7.09 $7.05 $6.87 $7.39 $6.68 $7.81
------ ------ ------ ------ ------ ------
TOTAL RETURN (A)........................ 3.6% 9.7% (0.5%) 18.2% (8.3%) 13.4%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands).... $55,900 $56,487 $73,360 $93,701 $90,593 $118,433
Ratio of Expenses to Average Net Assets. 1.10% 1.07% 1.01% 1.02% 1.01% 1.02%
Ratio of Net Investment Income (Loss)
to Average Net Assets................. 6.07% 6.50% 6.54% 6.62% 6.91% 6.46%
Portfolio Turnover Rate................. 75% 120% 292% 200% 204% 157%
</TABLE>
CORPORATE BOND SERIES (CLASS B)
<TABLE>
<CAPTION>
Fiscal Period Ended December 31
---------------------------------------------------------------------------------
1998 (d)(h) 1997(c)(d) 1996(c)(d)(f) 1995(c)(d)(f) 1994(c) 1993(b)
----------- ---------- ------------- ------------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD..... $7.09 $6.90 $7.43 $ 6.71 $ 7.84 $8.59
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income................... 0.18 0.40 0.40 0.40 0.43 0.11
Net Gain (Loss) on Securities
(realized & unrealized)............... 0.04 0.19 (0.52) 0.73 (1.13) (0.32)
------ ------ ------ ------ ------ ------
Total from Investment Operations........ 0.22 0.59 (0.12) 1.13 (0.70) (0.21)
LESS DISTRIBUTIONS
Dividends (from Net Investment Income).. (0.18) (0.40) (0.41) (0.41) (0.43) (0.11)
Distributions (from Capital Gains)...... - - - - - (0.43)
------ ------ ------ ------ ------ ------
Total Distributions................... (0.18) (0.40) (0.41) (0.41) (0.43) (0.54)
------ ------ ------ ------ ------ ------
NET ASSET VALUE END OF PERIOD........... $7.13 $7.09 $6.90 $7.43 $6.71 $7.84
====== ====== ====== ====== ====== ======
TOTAL RETURN(A)......................... 3.2% 8.7% (1.4%) 17.3% (9.0%) (2.5%)
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands).... $8,709 $6,493 $7,303 $5,743 $3,878 $1,022
Ratio of Expenses to Average Net Assets. 1.85% 1.85% 1.85% 1.85% 1.85% 1.88%
Ratio of Net Investment Income (Loss)
to Average Net Assets................. 5.32% 5.72% 5.70% 5.80% 6.08% 5.16%
Portfolio Turnover Rate................. 75% 120% 292% 200% 204% 164%
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
28
<PAGE> 30
FINANCIAL HIGHLIGHTS
...............................................................................
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
U.S. GOVERNMENT SERIES (CLASS A)
<TABLE>
<CAPTION>
Fiscal Period Ended December 31
--------------------------------------------------------------------------------------------
1998 (c)(d)(f)(h) 1997(c)(d)(f) 1996(c)(d)(f) 1995(c)(d)(f) 1994(c) 1993(c)
----------------- ------------- ------------- ------------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD.... $4.81 $4.71 $4.97 $4.35 $4.97 $5.04
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income.................. 0.14 0.32 0.31 0.30 0.30 0.31
Net Gain (Loss) on Securities
(realized & unrealized).............. 0.05 0.10 (0.26) 0.62 (0.62) 0.27
------ ------ ------- ------ ------ ------
Total from Investment Operations....... 0.19 0.42 0.05 0.92 (0.32) 0.58
LESS DISTRIBUTIONS
Dividends (from Net Investment Income). (0.14) (0.32) (0.31) (0.30) (0.30) (0.31)
Distributions (from Capital Gains)..... - - - - - (0.34)
------ ------ ------- ------ ------ ------
Total Distributions.................. (0.14) (0.32) (0.31) (0.30) (0.30) (0.65)
------ ------ ------- ------ ------ ------
NET ASSET VALUE END OF PERIOD.......... $4.86 $4.81 $4.71 $4.97 $4.35 $4.97
====== ====== ======= ====== ====== ======
TOTAL RETURN (A)....................... 4.0% 9.2% 1.3% 21.9% (6.5%) 10.9%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands)... $11,779 $7,652 $8,036 $10,080 $8,309 $10,098
Ratio of Expenses to Average Net Assets 0.85% 0.60% 0.65% 1.11% 1.10% 1.10%
Ratio of Net Investment Income (Loss)
to Average Net Assets................ 5.01% 6.10% 6.44% 6.41% 6.47% 5.90%
Portfolio Turnover Rate................ 27% 39% 75% 81% 220% 153%
</TABLE>
U.S. GOVERNMENT SERIES (CLASS B)
<TABLE>
<CAPTION>
Fiscal Period Ended December 31
--------------------------------------------------------------------------------------------
1998 (c)(d)(h) 1997(c)(d) 1996(c)(d)(f) 1995(c)(d)(f) 1994(c) 1993(b)(c)
----------------- ------------- ------------- ------------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD.... $4.80 $4.71 $4.97 $4.35 $4.97 $5.51
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income.................. 0.14 0.26 0.25 0.26 0.26 0.04
Net Gain (Loss) on Securities
(realized & unrealized).............. 0.02 0.10 (0.25) 0.63 (0.62) (0.19)
------ ------ ------- ------ ------ ------
Total from Investment Operations....... 0.16 0.36 (0.00) 0.89 (0.36) (0.15)
LESS DISTRIBUTIONS
Dividends (from Net Investment Income). (0.11) (0.27) (0.26) (0.27) (0.26) (0.04)
Distributions (from Capital Gains)..... - - - - - (0.35)
------ ------ ------- ------ ------ ------
Total Distributions.................. (0.11) (0.27) (0.26) (0.27) (0.26) (0.39)
------ ------ ------- ------ ------ ------
NET ASSET VALUE END OF PERIOD.......... $4.85 $4.80 $4.71 $4.97 $4.35 $4.97
====== ====== ======= ====== ====== ======
TOTAL RETURN (A)....................... 3.4% 7.9% (0.02%) 20.9% (7.4%) (1.4%)
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands)... $3,802 $1,091 $661 $582 $321 $140
Ratio of Expenses to Average Net Assets 1.65% 1.68% 1.86% 1.87% 1.85% 1.61%
Ratio of Net Investment Income (Loss)
to Average Net Assets................ 4.40% 5.02% 5.23% 5.69% 5.76% 5.54%
Portfolio Turnover Rate................ 27% 39% 75% 81% 220% 114%
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
29
<PAGE> 31
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
................................................................................................................
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
LIMITED MATURITY BOND SERIES (CLASS A)
Fiscal Period Ended December 31
--------------------------------------------------------------------
1998 (c)(d)(f)(h) 1997 (c)(d)(f) 1996 (c)(d)(f) 1995 (c)(d)(e)(f)
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value Beginning of Period $ 10.30 $ 10.14 $ 10.66 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income......................... 0.31 0.72 0.72 0.62
Net Gain (Loss) on Securities
(realized & unrealized)..................... 0.03 0.16 (0.51) 0.65
------- ------- ------- -------
Total from Investment Operations.............. 0.34 0.88 0.21 1.27
LESS DISTRIBUTIONS
Dividends (from Net Investment Income)........ (0.32) (0.72) (0.72) (0.61)
Distributions (from Capital Gains) - - - -
Return of Capital............................. - - (0.01) -
------- ------- ------- -------
Total Distributions......................... (0.32) (0.72) (0.73) (0.61)
------- ------- ------- -------
NET ASSET VALUE END OF PERIOD................. $ 10.32 $ 10.30 $ 10.14 $ 10.66
======= ======= ======= =======
TOTAL RETURN (a).............................. 3.5% 9.0% 2.1% 13.0%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands).......... $ 5,606 $ 5,490 $ 4,938 $ 3,322
Ratio of Expenses to Average Net Assets....... 1.03% 0.55% 0.90% 0.84%
Ratio of Net Investment Income (Loss)
to Average Net Assets....................... 6.29% 7.10% 6.97% 5.97%
Portfolio Turnover Rate....................... 91% 76% 105% 4%
LIMITED MATURITY BOND SERIES (CLASS B)
Fiscal Period Ended December 31
--------------------------------------------------------------------
1998 (c)(d)(f)(h) 1997 (c)(d)(f) 1996 (c)(d)(f) 1995 (c)(d)(e)(f)
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value Beginning of Period........... $ 10.27 $ 10.14 $ 10.67 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income....................... 0.27 0.61 0.63 0.53
Net Gain (Loss) on Securities
(realized & unrealized).................. 0.03 0.14 (0.52) 0.66
------- ------- ------- -------
Total from Investment Operations............ 0.30 0.75 0.11 1.19
LESS DISTRIBUTIONS
Dividends (from Net Investment Income)........ (0.26) (0.62) (0.63) (0.52)
Distributions (from Capital Gains) - - - -
Return of Capital............................. - - (0.01) -
------- ------- ------- -------
Total Distributions........................... (0.26) (0.62) (0.64) (0.52)
------- ------- ------- -------
NET ASSET VALUE END OF PERIOD................. $ 10.31 $ 10.27 $ 10.14 $ 10.67
======= ======= ======= =======
TOTAL RETURN (a).............................. 3.0% 7.7% 1.1% 12.2%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands).......... $ 1,068 $ 1,054 $ 761 $ 752
Ratio of Expenses to Average Net Assets....... 1.89% 1.50% 1.88% 1.71%
Ratio of Net Investment Income (Loss)
to Average Net Assets........................ 5.43% 6.15% 5.99% 5.12%
Portfolio Turnover Rate....................... 91% 76% 105% 4%
</TABLE>
See accompanying notes.
- ------------------------------------------------------------------------------
30
<PAGE> 32
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
................................................................................................................
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
HIGH YIELD SERIES (CLASS A)
Fiscal Period Ended December 31
-------------------------------------------------
1998 (c)(d)(h) 1997(c)(d) 1996(c)(d)(g)
-------------------------------------------------
<S> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD........... $15.71 $15.32 $15.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income......................... 1.27 1.25 0.45
Net Gain (Loss) on Securities
(realized & unrealized)..................... (0.62) 0.60 0.32
------- ------- ------
Total from Investment Operations......... 0.65 1.85 0.77
LESS DISTRIBUTIONS
DIvidends (from Net Investment Income)........ (0.62) (1.25) (0.45)
Distributions (from Capital Gains)............ - (0.21) -
------- ------- ------
Total Distributions......................... (0.62) (1.46) (0.45)
------- ------- ------
NET ASSET VALUE END OF PERIOD................. $15.74 $15.71 $15.32
======= ======= ======
TOTAL RETURN (a).............................. 4.2% 12.6% 5.2%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands).......... $5,125 $5,179 $2,780
Ratio of Expenses to Average Net Assets....... 0.78% 0.87% 1.54%
Ratio of Net Investment Income (Loss)
to Average Net Assets........................ 8.00% 8.14% 7.47%
Portfolio Turnover Rate....................... 144% 87% 168%
HIGH YIELD SERIES (CLASS B)
Fiscal Period Ended December 31
-------------------------------------------------
1998 (c)(d)(h) 1997(c)(d) 1996(c)(d)(g)
-------------------------------------------------
<S> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD........... $15.68 $15.32 $15.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income......................... 1.12 1.10 0.41
Net Gain (Loss) on Securities
(realized & unrealized)..................... (0.54) 0.59 0.32
------- ------- ------
Total from Investment Operations.............. 0.58 1.69 0.73
LESS DISTRIBUTIONS
Dividends (from Net Investment Income)........ (0.55) (1.12) (0.41)
Distributions (from Capital Gains)............ - (0.21) -
------- ------- ------
Total Distributions......................... (0.55) (1.33) (0.41)
------- ------- ------
NET ASSET VALUE END OF PERIOD................. $15.71 $15.68 $15.32
======= ======= ======
TOTAL RETURN (A).............................. 3.8% 11.5% 4.9%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands).......... $3,840 $4,432 $2,719
Ratio of Expenses to Average Net Assets....... 1.68% 1.80% 2.26%
Ratio of Net Investment Income (Loss)
to Average Net Assets........................ 7.10% 7.21% 6.74%
Portfolio Turnover Rate....................... 144% 87% 168%
</TABLE>
See accompanying notes.
- -----------------------------------------------------------------------------
31
<PAGE> 33
FINANCIAL HIGHLIGHTS
................................................................................
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
SECURITY MUNICIPAL BOND FUND (CLASS A)
FISCAL PERIOD ENDED DECEMBER 31
-------------------------------------------------------------------------------------
1998 (c)(d)(f)(h) 1997 (c)(d) 1996 (c)(d)(f) 1995 (c)(d)(f) 1994 1993
----------------- ----------- -------------- -------------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD........... $10.08 $9.72 $9.94 $9.05 $10.37 $10.06
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income......................... 0.21 0.42 0.45 0.48 0.47 0.51
Net Gain (Loss) on Securities
(realized & unrealized)..................... (0.01) 0.36 (0.21) 0.89 (1.32) 0.70
------ ------ ----- ----- ----- ------
Total from Investment Operations.............. 0.20 0.78 0.24 1.37 (0.85) 1.21
LESS DISTRIBUTIONS
Dividends (from Net Investment Income)........ (0.20) (0.42) (0.46) (0.48) (0.47) (0.51)
Distributions (from Capital Gains)............ - - - - - (0.39)
------ ------ ----- ----- ----- ------
Total Distributions......................... (0.20) (0.42) (0.46) (0.48) (0.47) (0.90)
------ ------ ----- ----- ----- ------
NET ASSET VALUE END OF PERIOD................. $10.08 $10.08 $9.72 $9.94 $9.05 $10.37
====== ====== ===== ===== ===== ======
TOTAL RETURN (a).............................. 2.0% 8.3% 2.5% 15.5% (8.3%) 11.6%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands).......... $21,128 $21,953 $23,304 $25,026 $24,092 $32,115
Ratio of Expenses to Average Net Assets....... 0.90% 0.82% 0.78% 0.86% 0.82% 0.82%
Ratio of Net Investment Income (Loss)
to Average Net Assets....................... 4.18% 4.29% 4.67% 5.02% 4.74% 4.92%
Portfolio Turnover Rate....................... 84% 48% 54% 103% 88% 118%
</TABLE>
<TABLE>
<CAPTION>
SECURITY MUNICIPAL BOND FUND (CLASS B)
FISCAL PERIOD ENDED DECEMBER 31
-------------------------------------------------------------------------------------
1998 (c)(d)(f)(h) 1997 (c)(d) 1996 (c)(d)(f) 1995 (c)(d)(f) 1994 (c) 1993 (b)
----------------- ----------- -------------- -------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD........... $10.08 $9.73 $9.95 $9.05 $10.37 $10.88
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income......................... 0.14 0.29 0.33 0.37 0.35 0.10
Net Gain (Loss) on Securities
(realized & unrealized)..................... - 0.37 (0.21) 0.90 (1.32) (0.13)
------ ------ ----- ----- ----- ------
Total from Investment Operations.............. 0.14 0.66 0.12 1.27 (0.97) (0.03)
LESS DISTRIBUTIONS
Dividends (from Net Investment Income)........ (0.14) (0.31) (0.34) (0.37) (0.35) (0.09)
Distributions (from Capital Gains)............ - - - - - (0.39)
------ ------ ----- ----- ----- ------
Total Distributions......................... (0.14) (0.31) (0.34) (0.37) (0.35) (0.48)
------ ------ ----- ----- ----- ------
NET ASSET VALUE END OF PERIOD................. $10.08 $10.08 $9.73 $9.95 $9.05 $10.37
====== ====== ===== ===== ===== ======
TOTAL RETURN (a).............................. 1.4% 6.9% 1.2% 14.3% (9.5%) (0.2%)
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands).......... $1,747 $2,344 $1,510 $1,190 $760 $106
Ratio of Expenses to Average Net Assets....... 2.00% 2.00% 2.01% 2.00% 2.00% 2.89%
Ratio of Net Investment Income (Loss)
to Average Net Assets....................... 3.08% 3.11% 3.44% 3.90% 3.50% 2.71%
Portfolio Turnover Rate....................... 84% 48% 54% 103% 88% 90%
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
32
<PAGE> 34
FINANCIAL HIGHLIGHTS
................................................................................
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
SECURITY CASH FUND
FISCAL PERIOD ENDED DECEMBER 31
----------------------------------------------------------------------------------
1998 (d)(h) 1997 (d) 1996 (c)(d)(f) 1995 (c)(d)(f) 1994 1993 (c)
----------- -------- -------------- -------------- ---- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income............................. 0.02 0.05 0.05 0.05 0.03 0.02
Net Gain (Loss) on Securities
(realized & unrealized) - - - - - -
------- ------- ------- ------- ------- -------
Total from Investment Operations.................. 0.02 0.05 0.05 0.05 0.03 0.02
LESS DISTRIBUTIONS
Dividends (from Net Investment Income)............ (0.02) (0.05) (0.05) (0.05) (0.03) (0.02)
Distributions (from Capital Gains) - - - - - -
------- ------- ------- ------- ------- -------
Total Distributions............................. (0.02) (0.05) (0.05) (0.05) (0.03) (0.02)
------- ------- ------- ------- ------- -------
NET ASSET VALUE END OF PERIOD..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= =======
TOTAL RETURN (a).................................. 2.4% 4.9% 4.6% 5.0% 3.4% 2.4%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands).............. $71,404 $57,441 $45,331 $38,158 $58,102 $71,870
Ratio of Expenses to Average Net Assets........... 0.89% 0.90% 1.01% 1.00% 0.96% 1.00%
Ratio of Net Investment Income (Loss)
to Average Net Assets........................... 4.70% 4.80% 4.47% 5.00% 3.24% 2.28%
</TABLE>
(a) Total return information does not take into account any charges paid at
time of purchase or contingent deferred sales charges paid at time of
redemption.
(b) Class "B" shares were initially issued on October 19, 1993. Percentage
amounts for the period, except total return, have been annualized.
(c) Fund expenses were reduced by the Investment Manager and expense ratios
absent such reimbursement would have been as follows:
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Corporate Bond Series Class B -- 2.00% 2.19% 2.05% 2.10% 2.29%
U.S. Government Series Class A 1.20% 1.20% 1.22% 1.17% 1.06% 1.28%
Class B 1.75% 2.91% 3.70% 3.26% 2.14% 2.51%
Limited Maturity Class A -- -- 1.04% 1.40% 1.04% 1.53%
Bond Series Class B -- -- 2.12% 2.60% 1.99% 2.82%
High Yield Series Class A -- -- -- 2.11% 1.44% 1.38%
Class B -- -- -- 2.83% 2.37% 2.28%
Municipal Bond Fund Class A -- -- 0.86% 0.78% 0.83% 0.90%
Class B -- 2.32% 2.45% 2.19% 2.00% 2.04%
Cash Fund 1.03% -- 1.04% 1.01% -- --
</TABLE>
(d) Net investment income was computed using the average month-end shares
outstanding throughout the period.
(e) Security Limited Maturity Bond Series was initially capitalized on January
17, 1995, with a net asset value of $10 per share. Percentage amounts for
period have been annualized, except for total return.
(f) Expense ratios, including reimbursements, were calculated without the
reduction for custodian fees earnings credits beginning February 1, 1995.
Expense ratios with such reductions would have been as follows:
<TABLE>
<CAPTION>
1995 1996 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Corporate Bond Series Class A 1.02% 1.01% -- --
Class B 1.85% 1.85% -- --
U.S. Government Series Class A 1.10% 0.64% -- --
Class B 1.85% 1.85% -- --
Limited Maturity Class A 0.81% 0.87% 0.51% 0.99%
Bond Series Class B 1.65% 1.85% 1.46% 1.85%
Municipal Bond Fund Class A 0.85% 0.77% 0.83% 0.90%
Class B 2.00% 2.00% 2.00% 2.00%
Cash Fund 1.00% 1.00% 1.00% 0.89%
</TABLE>
(g) Security High Yield Series was initially capitalized on August 15, 1996,
with a net asset value of $15 per share. Percentage amounts for the period
have been annualized, except for total return.
(h) Unaudited figures for the six months ended June 30, 1998. Percentage
amounts for the period, except total return have been annualized.
See accompanying notes.
- --------------------------------------------------------------------------------
33
<PAGE> 35
NOTES TO FINANCIAL STATEMENTS
...............................................................................
June 30, 1998
(Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Security Income Fund, Security Municipal Bond Fund (formerly Security
Tax-Exempt Fund) and Security Cash Fund (the Funds) are registered under the
Investment Company Act of 1940, as amended, as diversified open-end
management investment companies. The shares of Security Income Fund are
currently issued in multiple series, with each series, in effect, representing
a separate Fund. The Income Fund is required to account for each series
separately and to allocate general expenses to each series based on the net
asset value of each series. 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. The Funds began offering an additional class of shares ("B"
shares) on October 19, 1993. The shares are offered without a front-end sales
charge but incur additional class-specific expenses. Redemptions of the shares
within five years of acquisition incur a contingent deferred sales charge.
The following is a summary of the significant accounting policies
followed by the Funds in the preparation of their financial statements. These
policies are in conformity with generally accepted accounting principles.
A. SECURITY VALUATION - Valuations of Income Funds' and Municipal Bond
Fund's securities are supplied by pricing services approved by the
Board of Directors. Securities listed or traded on a national securities
exchange are valued on the basis of the last sales price. If there are no
sales on a particular day, then the securities are valued at the last bid
price. Securities for which market quotations are not readily available are
valued by a pricing service considering securities with similar yields,
quality, type of issue, coupon, duration and rating. If there is no bid price
or if the bid price is deemed to be unsatisfactory by the Board of Directors or
by the Funds' investment manager, then the securities are valued in good
faith by such method as the Board of Directors determines will reflect the fair
value. The Funds' officers, under the general supervision of the Board of
Directors, regularly review procedures used by, and valuations provided by, the
pricing service.
Cash Fund, by approval of the Board of Directors, utilizes the amortized
cost method for valuing portfolio securities, whereby all investments are
valued by reference to their acquisition cost as adjusted for
amortization of premium or accretion of discount.
B. OPTIONS - The High Yield Series may purchase put and call options and
write such options on a covered basis on securities that are traded on
recognized securities exchanges and over-the-counter markets. Call and put
options on securities give the holder the right to purchase or sell,
respectively (and the writer the obligation to sell or purchase), a security
at a specified price, until a certain date. The primary risks associated
with the use of options are an imperfect correlation between the change in
market value of the securities held by the Series and the price of the option,
the possibility of an illiquid market, and the inability of the counter-party
to meet the terms of the contract.
The premium received for a written option is recorded as an asset, with an
equal liability which is marked to market based on the option's quoted daily
settlement price. Fluctuation in the value of such instruments are recorded
as unrealized appreciation (depreciation) until terminated, at which time
realized gains and losses are recognized.
C.SECURITY TRANSACTIONS AND INVESTMENT INCOME - Security transactions
are accounted for on the date the securities are purchased or sold. Realized
gains and losses are reported on an identified cost basis. Interest income is
recognized on the accrual basis. Premium and discounts (except original
issue discounts) on debt securities are not amortized, except Security
Tax-Exempt Fund which amortizes premiums.
D.DISTRIBUTIONS TO SHAREHOLDERS - Distributions to shareholders are
recorded on the ex-dividend date. The character of distributions made during
the year from net investment income or net realized gains may differ from their
ultimate characterization for federal income tax purposes. These
differences are primarily due to the recharacterization of foreign currency
gains and losses.
E.TAXES - The Funds complied with the requirements of the Internal
Revenue Code applicable to regulated investment companies and distributed all
of their taxable net income and net realized gains sufficient to relieve them
from all, or substantially all, federal income, excise and state income taxes.
Therefore, no provision for federal or state income tax is required.
F.EARNINGS CREDITS - Under the fee schedule with the custodian, the
Funds earn credits based on overnight custody cash balances. These credits
are utilized to reduce related custodial expenses. The custodian fees
disclosed in the statement of operations do not reflect the reduction in
expense from the related earnings credits.
2. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Management fees are payable to Security Management Company, LLC (SMC)
under investment advisory contracts at an annual rate of .50 of 1% of the
average net assets of each fund, except for the High Yield Series which fees
are .60 of 1% of the average net assets of the Series. The Investment
Manager pays Salomon Brothers Asset Management, Inc., an annual fee equal to
.22% of the average daily net assets of Security Municipal Bond Fund for
management services provided to the Fund. The investment advisory contract
for Income Fund provides that the total annual expenses of each Series of the
Fund (including management fees and custodian fees net of earnings credits,
but excluding interest, taxes, brokerage commissions, extraordinary expenses
and distribution fees paid under the Class B distribution plan) will not exceed
the level of expenses which Income Fund is permitted to bear under the most
restrictive expense limitation imposed by any state in which shares of the
Fund are then qualified for sale. For the six month period ended June 30, 1998,
SMC agreed to limit the total expenses of Corporate Bond Series, U.S.
Government Series and Limited Maturity Bond Series to an annual rate of 1.1%
of the average daily net asset value of Class A shares and 1.85% of Class B
shares of each respective Series. SMC also agreed to limit the total expenses
of the High Yield Series to 2.0% for Class A Shares and 2.75% for Class B
shares. In addition, SMC agreed to waive all of the management fees for the
U.S.
- --------------------------------------------------------------------------------
34
<PAGE> 36
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
................................................................................
Government Series, Limited Maturity Bond Series and the High Yield Series
until December 31, 1998. The investment advisory contract for Municipal Bond
and Cash Funds provides that the total annual expenses of the Funds net of
custodian fee earnings credits will not exceed an amount equal to an annual
rate of 1.0% of the average net assets of Class A shares and 2.0% of Class B
shares of the Municipal Bond Fund as calculated on a daily basis.
The Funds have entered into contracts with SMC for transfer agent
services and certain other administrative services which SMC provides to the
Funds. SMC is paid an annual fixed charge per account and shareholder and
dividend transaction fees.
As the administrative agent for the Funds, SMC performs administrative
functions, such as regulatory filings, bookkeeping, accounting and pricing
functions for the Funds. For this service SMC receives on an annual basis, a
fee of .09% of the average daily net assets of Corporate Bond Series, U.S.
Government Series, Limited Maturity Bond Series, High Yield Series, and
Municipal Bond Fund and .045% of the average daily net assets of Cash Fund
calculated daily and payable monthly.
Income and Municipal Bond Funds have adopted Distribution Plans related
to the offering of Class B shares pursuant to Rule 12b-1 of the Investment
Company Act of 1940. The Plans provide for payments at an annual rate of 1.0% of
the average net assets of Class B shares. Class A shares of Income Fund and
Municipal Bond Fund incur 12b-1 distribution fees at an annual rate of .25% of
the average net assets of each Series.
Security Distributors, Inc. (SDl), a wholly-owned subsidiary of Security
Benefit Group, Inc., a financial services holding company, is national
distributor for Income and Municipal Bond Funds. SDI received net
underwriting commissions on sales of Class A shares and contingent deferred
sales charges (CDSC) on redemptions occurring within 5 years of the date of
purchase of Class B shares, after allowances to brokers and dealers for the
six month period ended June 30, 1998, in the amounts presented below:
<TABLE>
<CAPTION>
Corporate U.S. Limited High Municipal
Bond Government Maturity Yield Bond
Series Series Series Series Fund
________ __________ ________ ______ _______
<S> <C> <C> <C> <C> <C>
SDI underwriting
(Class A) $ 3,118 $2,101 $ 371 $ 507 $2,291
CDSC (Class B) $ 9,715 $1,614 $ 124 $ (694) $4,926
Broker/Dealer
(Class A) $12,563 $9,197 $1,861 $2,175 $5,667
Broker/Dealer
(Class B) $14,712 $4,581 $ 846 $5,612 $3,682
</TABLE>
Certain officers and directors of the Funds are also officers and/or
directors of Security Benefit Life Insurance Company and its subsidiaries,
which include SMC and SDI.
3. INVESTMENT TRANSACTIONS
Investment transactions for the six month period ended June 30,1998,
(excluding overnight investments and short-term debt securities) were as
follows:
<TABLE>
<CAPTION>
Corporate U.S. Limited High Municipal
Bond Government Maturity Yield Bond
Series Series Series Series Fund
________ __________ ________ ______ _______
<S> <C> <C> <C> <C> <C>
Purchases $25,227,918 $7,727,945 $3,067,521 $6,473,973 $11,303,413
Proceeds from
sales $23,557,207 $1,299,703 $2,985,660 $7,015,378 $9,884,965
</TABLE>
4. FEDERAL INCOME TAX MATTERS
The amounts of unrealized appreciation (depreciation) as of June 30, 1998,
were as follows:
<TABLE>
<CAPTION>
Corporate U.S. Limited High Municipal
Bond Government Maturity Yield Bond
Series Series Series Series Fund
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Gross unrealized
appreciation $2,134,121 $419,240 $130,175 $223,224 $904,367
Gross unrealized
depreciation (65,205) (5,770) (10,384) (64,595) (21,745)
---------- -------- -------- -------- --------
Net unrealized
appreciation $2,068,916 $413,470 $119,791 $158,629 $882,622
</TABLE>
- --------------------------------------------------------------------------------
35
<PAGE> 37
This page left intentionally blank.
- --------------------------------------------------------------------------------
36
<PAGE> 38
THE SECURITY GROUP OF
MUTUAL FUNDS
Security Growth and Income Fund
Security Equity Fund
* Equity Series
* Global Series
* Asset Allocation Series
* Social Awareness Series
* Value Series
* Small Company Series
Security Ultra Fund
Security Income Fund
* Corporate Bond Series
* U.S. Government Series
* Limited Maturity Bond Series
* High Yield Series
Security Municipal Bond Fund
Security Cash Fund
This report is submitted for the general information of the shareholders
of the Funds. The report is not authorized for distribution to prospective
investors in the Funds unless preceded or accompanied by an effective prospectus
which contains details concerning the sales charges and other pertinent
information.
SECURITY FUNDS
OFFICERS AND DIRECTORS
DIRECTORS
Donald A. Chubb, Jr.
John D. Cleland
Penny A. Lumpkin
Mark L. Morris, Jr., D.V.M.
Maynard F. Oliverius
Maria Fiorini Ramirez (Income Fund only)
James R. Schmank
OFFICERS
John D. Cleland, President
James R. Schmank, Vice President
Mark E. Young, Vice President
Steven M. Bowser, Vice President
Michael A. Peterson, Vice President
Thomas A. Swank, Vice President
Amy J. Lee, Secretary
Christopher D. Swickard, Assistant Secretary
Brenda M. Harwood, Treasurer and Assistant Secretary
- ----------------------------------- -------------------
[logo] SECURITY DISTRIBUTORS, INC. BULK RATE
U.S. POSTAGE PAID
- ----------------------------------- PERMIT NO. 941
CHICAGO, IL
-------------------
700 SW Harrison St.
Topeka, KS 66636-0001
(785) 431-3127
(800) 888-2461
<PAGE> 39
MFR
SEMI-ANNUAL
REPORT
JUNE 30, 1998
[] MFR EMERGING
MARKETS TOTAL
RETURN SERIES
[] MFR GLOBAL
ASSET ALLOCATION
SERIES
[] MFR GLOBAL
HIGH YIELD
SERIES
[MFR Advisors, Inc. Logo]
[SECURITY DISTRIBUTORS, INC.
A Member of The Security Benefit
Group of Companies LOGO]
<PAGE> 40
MANAGER'S COMMENTARY
- -------------------------------------------------------------------------------
AUGUST 15, 1998
MFR EMERGING MARKETS TOTAL RETURN
To Our Shareholders:
The first half of 1998 in many emerging markets turned out to be as volatile
and tumultuous as the second half of 1997. As we stated in our last
shareholder letter, ... to properly allocate assets among countries will again
be the principal skill needed to outperform in 1998." MFR Advisors, Inc. uses
a top-down approach to investing in emerging markets, and it has served the
series well.
PERFORMANCE IN THE FIRST HALF
The high allocation to the emerging markets in Europe and extremely low
allocation to the Asian markets in the Emerging Markets Total Return Series has
been beneficial to the Series. For the six months ended June 30, 1998 the
Series had a positive total return of 9.08%(1). The peer group had an average
return of -15.60%. The significantly large differences between the total
returns of the MFR Emerging Markets Total Return portfolio and the widely
recognized International Finance Corporation (IFC) Emerging Markets Regional
Investable Index's return of negative 38.08% point out the importance of asset
allocation (and hence country allocation) when investing in emerging markets.
VOLATILITY IN ASIAN MARKETS
Emerging Asian stock markets, which have about a 40% weight in the IFC index
but which represent less than 5% of the Series assets at June 30, had a
tremendous amount of volatility in the first half of the year. Many of these
markets had a large bounce in January, only to fall or set new lows as we
reached June 30. The euphoria in January was related to the expectation that
these economies would be able to export their way out of their troubles. This
feeling was soon replaced with gloom, however, as investors realized that
financing was in short supply for exporters and manufacturers and that Japan's
domestic economic problems would not allow it to absorb increased imports from
these countries.
THE PORTFOLIO'S BEST PERFORMERS
The two countries in which the portfolio has its largest equity positions,
Greece (approximately 15%) and Portugal (about 12.5%), performed admirably.
These two countries represent only slightly over 4% of the IFC index. Greece
continued its drive to become a part of European Monetary Union (EMU) by (1)
joining the Exchange Rate Mechanism of the European Monetary System, (2)
stepping up the pace of privatizations, (3) cutting public spending, and (4)
fighting inflation with high short term interest rates. As a result, the Greek
stock market was up 60.7% for the first six months of the year.
1
<PAGE> 41
MANAGER'S COMMENTARY
- -------------------------------------------------------------------------------
AUGUST 15, 1998
MFR EMERGING MARKETS TOTAL RETURN
Portugal was rewarded for its prior fiscal and monetary policies by being named
a first round member of EMU. These factors combined with good economic
fundamentals and an expected drop in short term interest rates to propel
Portugal's stock market to all time highs and to return 43.1% for the first six
months of 1998.
WHAT'S AHEAD FOR THE SECOND HALF
We see the remainder of 1998 as one of the more challenging times that we will
face. The Series has significant investments in Central Europe and Latin
America to go along with the Greek and Portugese positions. We see good times
ahead for these regions and plan to continue holding them. The challenge is
knowing when Asia will become a "buy" again. A growing Japanese economy will be
among the first signals that this region may be nearing a turning point. We
look forward to such a turn, as those companies that survive and effectively
restructure should present greater upside potential than is currently available
anywhere else in the world.
Maria Fiorini Ramirez
President and Chief Executive Officer
MFR Advisors, Inc.
Bruce Jensen
Chief Investment Officer
MFR Advisors, Inc.
1 Performance figures are based on Class A shares and do not reflect deduction
of the sales charge. Fee waivers reduced expenses of the Fund and in the
absence of such waivers, the performance quoted would be reduced.
Investing in foreign countries may involve risks, such as currency fluctuations
and political instability, not associated with investing exclusively in the
U.S.
AVERAGE ANNUAL RETURNS
AS OF JUNE 30, 1998
Since Inception
1 year (5-19-97)
-------- ----------------
A Shares -4.23% -1.74%
B Shares -5.21% -1.73%
The performance data above represents past performance which is not predictive
of future results. For Class A shares these figures reflect deduction of the
maximum sales charge of 4.75%. For Class B shares the figures reflect deduction
of the maximum contingent deferred sales charge, ranging from 5% in the first
year to 0% in the sixth and following years. Fee waivers reduced expenses of
the Fund and in the absence of such waiver, the performance quoted would be
reduced. The investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
TOP 5 COUNTRIES
AS OF JUNE 30, 1998
Greece........................... 19%
Hungary.......................... 13%
Portugal......................... 13%
Brazil........................... 10%
Mexico........................... 8%
2
<PAGE> 42
MANAGER'S COMMENTARY (CONTINUED)
- --------------------------------------------------------------------------------
AUGUST 15, 1998
MFR
GLOBAL ASSET
ALLOCATION
To Our Shareholders:
The Global Asset Allocation Series had an excellent first six months of 1998.
During the period we increased the equity exposure of the Series from
approximately 65% at December 31, 1997 to approximately 74% at June 30, 1998.
The Series was well rewarded by this relatively high exposure to stocks, and in
particular to European stocks. In our year end letter we stated, "On the equity
side we continue to be more positive on European companies than on their U.S.
counterparts." We believe that this will continue to be true for the balance of
1998.
SERIES PERFORMANCE AND RETURNS IN OTHER COUNTRIES
MFR Global Asset Allocation Series returned 18.84% for the first six months of
1998, which outpaced the Standard & Poor's 500 Stock Index total return of
17.71%.1 Returns in most European stock markets also outperformed the U.S.
benchmark indexes. Returns for some of the countries in which the portfolio had
its largest equity investments were spectacular: Greece rose 60.8%, Spain
41.7%, Germany 38.3%, and Ireland 28.8%.
LOOKING AHEAD TO THE SECOND HALF
As we head into the second half of 1998 we expect Europe to continue to
outperform the U.S. as a result of expanding economic growth and the rapid
approach of European Monetary Union (EMU). On January 1, 1999, EMU becomes
effective. This means that the eleven member countries--Germany, France,
Belgium, the Netherlands, Finland, Italy, Spain, Portugal, Ireland, Austria and
Luxembourg--will each relinquish monetary policy to the European Central Bank
and the euro, the currency of EMU, will begin trading. Eventually the national
currencies of each member country will be phased out and replaced by the euro.
EMU is thought to be extraordinarily positive for European stocks and bonds.
First, member countries have committed to, and must remain committed to,
prudent fiscal policies, thereby creating a positive investment environment.
Nonmembers that look forward to eventual membership must also maintain diligent
fiscal and monetary policies. Thus, EMU is far-reaching across Europe. Second,
EMU and the euro bring a cross border business environment never before seen in
Europe. Trade and investment barriers are rapidly declining which fosters
efficiency, business expansion and business combinations. Last, capital markets
should deepen and broaden. Euro-denominated debt and equities will have broader
investment appeal as the euro joins the ranks of the U.S. dollar and the
Japanese yen as "the" international currencies.
3
<PAGE> 43
MANAGER'S COMMENTARY (CONTINUED)
- -------------------------------------------------------------------------------
AUGUST 15, 1998
MFR
GLOBAL ASSET
ALLOCATION
WHAT ABOUT JAPAN?
The wild card for global investors will be Japan. Eventually Japanese economic
growth should return as the banking problems are addressed and tax cuts are
implemented. When this occurs, Japan and all of Asia will present investment
opportunities not available elsewhere in the world. We will be diligently
evaluating the political players and their policies for early signs that Japan
is on the road to economic recovery.
Maria Fiorini Ramirez
President and Chief Executive Officer
MFR Advisors, Inc.
Bruce Jensen
Chief Investment Officer
MFR Advisors, Inc.
1 Performance figures are based on Class A shares and do not reflect deduction
of the sales charge. Fee waivers reduced expenses of the Fund and in the
absence of such waivers, the performance quoted would be reduced.
Investing in foreign countries may involve risks, such as currency fluctuations
and political instability, not associated with investing exclusively in the
U.S.
AVERAGE ANNUAL RETURNS
AS OF JUNE 30, 1998
Since Inception
1 year (5-19-97)
-------- -----------------
A Shares 8.61% 10.69%
B Shares 7.94% 11.06%
The performance data above represents past performance which is not predictive
of future results. For Class A shares these figures reflect deduction of the
maximum sales charge of 4.75%. For Class B shares the figures reflect deduction
of the maximum contingent deferred sales charge, ranging from 5% in the first
year to 0% in the sixth and following years. Fee waivers reduced expenses of
the Fund and in the absence of such waiver, the performance quoted would be
reduced. The investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
TOP 5 COUNTRIES
AS OF JUNE 30, 1998
United States.......................... 14%
Greece................................. 13%
Spain.................................. 10%
Canada................................. 7%
Ireland................................ 6%
4
<PAGE> 44
MANAGER'S COMMENTARY (CONTINUED)
- --------------------------------------------------------------------------------
AUGUST 15, 1998
MFR GLOBAL
HIGH YIELD
To Our Shareholders:
In general, the first six months of 1998 produced mediocre returns for global
bond funds. The Global Aggressive Bond Series returned 2.40%, comparing
favorably with its Lipper peer group average of 2.09%.1 However, the fund
underperformed the benchmark Lehman Global Bond Index, which returned 3.54%
over the period.
The difference in the Fund's relative performance versus the peer group and
versus the index is telling. Both the Fund and the majority of portfolios in
the peer group have substantially more invested in emerging market debt than
the index. With financial turmoil continuing in Asia and spreading to Russia,
most emerging market debt (even that of fundamentally sound countries)
performed poorly on a relative basis.
INTEREST RATES AROUND THE WORLD
Interest rates in developed countries continued their downward path, basically
declining a quarter to half a percent in ten-year maturities. Ten year rates
are now near historic lows in many developed countries and do not appear to
have a lot of room to move down further from current levels. Some examples of
ten year government bond levels at June 30, 1998 were:
United States 5.45% Germany 4.78%
United Kingdom 5.86% Japan 1.62%
Strong economic growth in many developed countries combined with declining
levels of unemployed workers, especially in the bellwether U.S., is enough to
keep many bond market participants nervous. However, the prevailing worldwide
low level of inflation remains a constant and allays much of the fear of the
need for higher interest rates.
EVENTS OF THE PAST SIX MONTHS
Looking back at our forecasts for the first half of 1998, we were correct on
two of three calls. First, we predicted that the U.S. dollar's rise against
non-Asian currencies was nearing an end. In fact, the dollar was basically
unchanged against continental European currencies. Second, we expected
inflation to continue at low levels due to the Asian crisis. This also proved
correct and is evidenced by the drop in many commodity prices during the past
six months. Unfortunately, our third prediction has not yet happened except on
a limited basis: we thought that the markets would begin to differentiate
"good" emerging market countries and companies from the "bad" ones.
5
<PAGE> 45
MANAGER'S COMMENTARY (CONTINUED)
- --------------------------------------------------------------------------------
AUGUST 15, 1998
MFR GLOBAL
HIGH YIELD
COUNTRY FAVORITES FOR THE MONTHS AHEAD
We believe that the best value in global bonds remains in fundamentally sound
emerging market countries and companies. Our favorites at this time are Poland,
Greece, and Hungary. While we are somewhat disappointed with our first half
performance, we believe that as emerging markets start to settle down our
performance for the full year will be rewarding.
Maria Fiorini Ramirez
President and Chief Executive Officer
MFR Advisors, Inc.
Bruce Jensen
Chief Investment Officer
MFR Advisors, Inc.
1 Performance figures are based on Class A shares and do not reflect deduction
of the sales charge. Fee waivers reduced expenses of the Fund and in the
absence of such waivers, the performance quoted would be reduced.
Investing in foreign countries may involve risks, such as currency fluctuations
and political instability, not associated with investing exclusively in the
U.S.
AVERAGE ANNUAL RETURNS
AS OF JUNE 30, 1998
Since Inception
1 year (6-1-95)
-------- ---------------
A Shares 1.66% 6.70%
B Shares -1.11% 6.64%
The performance data above represents past performance which is not predictive
of future results. For Class A shares these figures reflect deduction of the
maximum sales charge of 4.75%. For Class B shares the figures reflect deduction
of the maximum contingent deferred sales charge, ranging from 5% in the first
year to 0% in the sixth and following years. Fee waivers reduced expenses of
the Fund and in the absence of such waiver, the performance quoted would be
reduced. The investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
TOP 5 COUNTRIES
AS OF JUNE 30, 1998
United States...................... 14%
Denmark............................ 12%
Mexico............................. 11%
Greece............................. 11%
Poland............................. 7%
6
<PAGE> 46
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1998
(UNAUDITED)
MFR EMERGING MARKETS TOTAL RETURN SERIES
COMMON STOCKS & NUMBER MARKET
OTHER EQUITY INTERESTS OF SHARES VALUE
- ---------------------------------------------------------
ARGENTINA - 4.5%
Telefonica de Argentina
S.A. ADR............................ 800 $25,950
YPF Sociedad Anonima ADR.............. 800 24,050
---------
50,000
BRAZIL - 5.8%
CESP - Companhia Energetica de
Sao Paulo ADR*.................... 1,100 9,471
Telecom Brazileiras S.A. ADR........ 500 54,594
----------
64,065
CHILE - 1.5%
Maderas Y Sinteticos S.A. ADR....... 2,000 16,250
CZECH REPUBLIC - 1.3%
SPT Telecom S.A.*................... 1,000 13,835
GREECE - 14.9%
Bank of Piraeus..................... 3,680 92,302
Hellenic Tellecommunication
Organization S.A.................. 1,308 33,530
Titan Cement Company S.A............ 600 39,250
----------
165,082
HONG KONG - 0.7%
Glorious Sun Enterprises........... 42,000 7,697
HUNGARY - 8.4%
Danubius Hotel & Spa Rt.*............. 600 12,067
OTP Bank Rt........................... 600 29,482
Pick Szeged Rt........................ 400 23,384
Zalakermia Rt......................... 800 28,412
----------
93,345
MEXICO - 8.3%
Cemex S.A. de C.V. (CI. B).......... 9,150 40,322
Cifra S.A. ADR*..................... 3,000 43,260
Grupo Casa Autrey S.A. de C.V. ADR.. 1,200 7,800
-----------
91,382
PHILIPPINES - 2.7%
Ayala Land, Inc.................... 24,000 6,906
Bank of the Philippine Islands..... 7,000 14,269
Music Corporation*................. 96,000 8,518
-----------
29,693
POLAND - 5.8%
Exbud S.A........................... 2,500 $30,112
Elektrim Spolka Arcyjna S.A......... 2,800 34,126
-----------
64,238
PORTUGAL - 12.5%
Banco Commercial Portugues S.A.......1,300 36,913
Ibersol SGPS S.A.................... 600 25,038
Portugal Fund....................... 2,200 44,275
Portugal Telecom S.A................ 600 31,799
-----------
138,025
SINGAPORE - 0.7%
Want Want Holdings................. 10,800 7,992
SOUTH AFRICA - 3.2%
South African Breweries Ltd......... 1,700 35,212
----------
Total common stocks
& other equity interests - 70.3%.............. 776,816
GOVERNMENT OBLIGATIONS
- ----------------------------------
BRAZIL - 3.9%
Government of Brazil "C" Bond,
8.00% - 2014(4)................. $58,383 42,948
COSTA RICA - 4.6%
Banco Costa Rica, 6.25% - 2010.... $57,712 50,498
GREECE - 3.9%
Hellenic Republic,
11.00% - 2003(1)............. 13,000,000 43,211
HUNGARY - 4.3%
Government of Hungary,
23.00% - 1999(1)............. 10,000,000 47,824
PERU - 2.2%
Peru - PDI, 4.00% - 2017.......... $39,000 23,790
SOUTH AFRICA - 2.7%
Republic of South Africa,
12.00% - 2005(2)................ 200,000 29,597
UNITED STATES - 2.4%
U.S. Treasury Bond,
6.125% - 2027................... $25,000 26,788
-----------
Total government obligations - 24.0%............ 264,656
See accompanying notes.
7
<PAGE> 47
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1998
(UNAUDITED)
MFR EMERGING MARKETS TOTAL RETURN SERIES
(CONTINUED)
NUMBER MARKET
SHORT-TERM INVESTMENTS OF SHARES VALUE
- --------------------------------------------------------------------------------
MONEY MARKET FUND - 3.1%
Vista Treasury Plus
International Fund.............................. 34,109 $ 34,109
-----------
Total investments - 97.4%............................................ 1,075,581
Cash and other assets,
less liabilities - 2.6%.......................................... 29,103
-----------
Total net assets - 100.0% $1,104,684
===========
At June 30, 1998, MFR Emerging Markets Total Return Series'
investment concentration by industry was as follows:
Banks and Credit............................................. 15.7%
Brewery...................................................... 3.2%
Building Materials........................................... 11.2%
Building & Construction - Miscellaneous...................... 2.7%
Closed-End Funds............................................. 4.0%
Computer Systems............................................. 0.7%
Distribution - Food and Health............................... 0.7%
Electric Utilities........................................... 0.9%
Electronics.................................................. 3.1%
Food Processing.............................................. 2.8%
Foreign Government Bonds..................................... 24.0%
Hotel/Motel.................................................. 1.1%
Housing - (Home Building).................................... 0.6%
Oil and Gas Exploration...................................... 2.2%
Restaurants.................................................. 2.3%
Retail - General Merchandising............................... 3.9%
Telecommunications........................................... 12.1%
Telephone.................................................... 2.4%
Textiles..................................................... 0.7%
Cash, short-term investments,
and other assets, less liabilities....................... 5.7%
--------
Total net assets 100.0%
========
MFR GLOBAL ASSET ALLOCATION SERIES
COMMON STOCKS & NUMBER MARKET
OTHER EQUITY INTERESTS OF SHARES VALUE
- -------------------------------------------------------------------------------
AUSTRALIA - 2.3%
Foster's Brewing Group Ltd....................... 15,000 $35,297
AUSTRIA - 1.6%
Boehler-Uddeholm AG............................... 300 19,820
BRAZIL - 1.4%
Telecom Braxileiras S.A. ADR...................... 200 21,838
CANADA - 5.3%
Bombardier, Inc. (CI.B)........................... 1,000 27,201
Imax Corporation*................................. 2,350 53,854
---------
81,055
CZECH REPUBLIC - 0.9%
SPT Telecom A.S.*................................. 1,000 13,835
FRANCE - 4.1%
Alcatel Alsthom................................... 200 40,721
Sidel, S.A........................................ 300 21,832
---------
62,553
GERMANY - 4.7%
Sap AG............................................ 50 30,332
Volkswagen AG..................................... 43 41,332
---------
71,664
GREECE - 10.5%
Bank of Piraeus................................... 1,100 35,254
Ergo Bank S.A..................................... 600 51,278
Hellenic Tellecommunication
Organization S.A................................ 1,308 33,530
Titan Cement Company S.A.......................... 600 39,250
---------
159,312
HUNGARY - 0.5%
Danubius Hotel & Spa Rt.*......................... 400 8,045
IRELAND - 6.2%
Allied Irish Banks PLC............................ 2,630 37,968
CRH PLC........................................... 2,000 28,448
Independent Newspapers PLC........................ 5,000 26,905
----------
93,321
ITALY - 3.3%
World Equity Benchmark Shares - Italy............. 1,900 49,638
JAPAN - 4.0%
Fuji Photo Film................................... 1,000 34,802
Sony Corporation.................................. 300 25,831
----------
60,633
See accompanying notes.
8
<PAGE> 48
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1998
(UNAUDITED)
MFR GLOBAL ASSET ALLOCATION SERIES
(CONTINUED)
COMMON STOCK & NUMBER MARKET
OTHER EQUITY INTERESTS (CONTINUED) OF SHARES VALUE
- --------------------------------------------------------------------------------
MEXICO - 1.5%
Cemex S.A. de C.V. (CI.B)................... 5,150 $22,695
NETHERLANDS - 1.7%
Phillips Electronics N.V.................... 300 25,218
POLAND - 1.3%
Electrim Spolka Akcyjna S.A................. 1,600 19,501
PORTUGAL - 1.3%
Portugal Fund............................... 1,000 20,125
SINGAPORE - 0.5%
Want Want Holdings.......................... 10,800 7,992
SOUTH AFRICA - 0.9%
South African Breweries Ltd................. 700 14,499
SPAIN - 10.2%
Adolfo Dominguez S.A.*...................... 600 20,380
Banco Popular Espanol S.A................... 550 46,992
Tele Pizza, S.A.*........................... 4,000 42,459
World Equity Benchmark
Shares - Spain........................... 1,500 44,250
----------
154,081
SWEDEN - 2.3%
Skandinaviska Enskilda Banken............... 2,000 34,232
SWITZERLAND - 3.1%
Novartis AG................................. 10 16,640
Saurer AG................................... 30 30,656
---------
............................................ 47,296
UNITED STATES - 6.4%
International Business Machines
Corporation............................... 300 34,444
Northern Trust Corporation.................. 400 30,500
Royal Dutch Petroleum Company ADR........... 400 21,925
Summit Bancorp.............................. 200 9,500
---------
96,369
---------
Total common stocks
& other equity interests - 74.0%.................... 1,119,019
PRINCIPAL
AMOUNT OR
NUMBER MARKET
CORPORATE BONDS OF SHARES VALUE
- --------------------------------------------------------------------------------
CANADA - 1.8%
CHC Helicopter, 11.50% - 2002................ $25,000 $26,750
DENMARK - 2.8%
Nykredit, 7.00% - 2026(1).................... 291,000 43,288
UNITED STATES - 7.1%
Archibald Candy Corporation,
10.25% - 2004.............................. $50,000 53,125
Clark Materials Handling,
10.75% - 2006.............................. $50,000 54,000
----------
107,125
----------
Total corporate bonds - 11.7%.............................. 177,163
GOVERNMENT OBLIGATIONS
- ------------------------------
ARGENTINA - 2.4%
Republic of Argentina,
5.50% - 2023(3)......................... $50,000 37,188
BRAZIL - 2.8%
Government of Brazil "C" Bond,
8.00% - 2014(4)......................... $57,013 42,948
GREECE - 2.8%
Hellenic Republic,
11.00% - 2003(1)........................ 13,000,000 43,211
SOUTH AFRICA - 1.0%
Republic of South Africa,
12.00% - 2005(1)........................ 100,000 14,798
UNITED KINGDOM - 1.8%
United Kingdom Treasury Bond,
7.25% - 2007(1)......................... 15,000 27,483
---------
Total government obligations - 10.8%....................... 165,628
SHORT-TERM INVESTMENTS
- ----------------------------------------
MONEY MARKET FUND - 2.3%
Vista Treasury Plus International Fund...... 35,000 35,000
---------
Total investments - 98.8%............................... 1,496,810
See accompanying notes.
9
<PAGE> 49
SCHEDULE OF INVESTMENTS
- -------------------------------------------------------------------------------
JUNE 30, 1998
(UNAUDITED)
MFR GLOBAL ASSET ALLOCATION SERIES
(CONTINUED)
MARKET
WRITTEN OPTIONS VALUE
- -------------------------------------------------------------------------------
Call option on International Business
Machines Corporation, strike price $110,
July 1998 (Premium $1,173).......................... $ (1,800)
Call option on Royal Dutch Petroleum
Company ADR, strike price $60,
July 1998 (Premium $399)............................ (75)
-------------
Total written options.................................. (1,875)
Cash and other assets,
less liabilities - 1.2%............................ 18,857
--------------
Total net assets - 100.0% $1,513,792
==============
At June 30, 1998, MFR Global Asset Allocation Series'
investment concentration by industry was as follows:
Apparel ................................ 1.3%
Automobiles ............................ 2.7%
Banks and Credit ....................... 13.6%
Brewery ................................ 3.3%
Broadcast Media ........................ 1.8%
Building Materials ..................... 6.0%
Closed-End Funds ....................... 1.4%
Commercial Banks ....................... 2.6%
Computer Hardware ...................... 2.3%
Computer Software ...................... 2.0%
Consumer Noncyclical ................... 7.1%
Electronics ............................ 4.7%
Entertainment .......................... 3.5%
Financial .............................. 2.9%
Food Processing ........................ 0.5%
Foreign Government Bonds ............... 10.8%
Integrated Petroleum - International ... 1.4%
Hotel/Motel ............................ 0.5%
Machinery .............................. 5.3%
Metals and Minerals .................... 1.3%
Miscellaneous .......................... 6.2%
Pharmaceuticals ........................ 1.1%
Photo/Imaging .......................... 2.3%
Restaurants ............................ 2.8%
Telecommunications ..................... 7.3%
Transportation ......................... 1.8%
Cash, short-term investments,
and other assets, less liabilities .. 3.5%
--------
Total net assets............................. 100.0%
========
MFR GLOBAL HIGH YIELD SERIES
PRINCIPAL MARKET
GOVERNMENT OBLIGATIONS AMOUNT VALUE
- --------------------------------------------------------------------------------
BRAZIL - 4.7%
Government of Brazil C,
4.50% - 2014(3)............................ $290,053 $213,370
COSTA RICA - 5.8%
Banco Costa Rica, 6.25% - 2010................ $300,000 262,500
DOMINICAN REPUBLIC - 4.3%
Central Bank of Dominican
Republic, 6.625% - 2024(4)................. $250,000 192,500
ECUADOR - 4.6%
Republic of Ecuador,
6.6875% - 2025(4).......................... $300,000 206,511
GREECE - 11.1%
Hellenic Republic,
11.00% - 2003(1)........................... 120,000,000 398,869
Hellenic Republic,
8.80% - 2007(1)............................ 30,000,000 103,967
-----------
502,836
HUNGARY - 6.4%
Government of Hungary,
23.00% - 1999(1)........................... 30,000,000 143,473
Government of Hungary,
21.00% - 1999(1)........................... 30,000,000 144,323
------------
287,796
MEXICO - 4.6%
United Mexican States,
6.25% - 2019........................... $250,000 206,875
PHILIPPINES - 4.2%
Philippine Government Bond,
18.50% - 2000(1)....................... 8,000,000 189,179
POLAND - 7.0%
Government of Poland,
16.00% - 1998(1)....................... 1,120,000 314,992
SOUTH AFRICA - 6.2%
Electricity Supply Commission,
11.00% - 2008(1)....................... 1,000,000 131,996
Republic of South Africa,
12.00% - 2005(1)....................... 1,000,000 147,983
-----------
279,979
-----------
Total government obligations - 58.9%.......................... 2,656,538
See accompanying notes.
10
<PAGE> 50
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1998
(UNAUDITED)
MFR GLOBAL HIGH YIELD SERIES
(CONTINUED)
PRINCIPAL MARKET
CORPORATE BONDS AMOUNT VALUE
- --------------------------------------------------------------------------------
CANADA - 1.7%
Roger's Communication, Inc.,
10.50% - 2006................................ $100,000 $76,097
CZECH REPUBLIC - 1.6%
CEZ, a.s., 11.30% - 2005(1)..................... 2,500,000 73,807
DENMARK - 12.3%
Nykredit, 7.00% - 2026(1)....................... 1,444,000 214,804
Realkredit Danmark, 7.00% - 2026(1)............ 1,445,000 215,373
Unikredit Realkredit, 7.00% - 2026(1)........... 827,000 123,142
-----------
553,319
MEXICO - 6.5%
Cemex SA, 12.75% - 2006......................... $250,000 294,377
UNITED STATES - 13.6%
Archibald Candy Corporation,
10.25% - 2004................................ $250,000 265,625
Countrywide Home Loans,
7.50% - 2027................................. $197,744 166,690
Residential Asset Securitization
Trust, 7.25% - 2012.......................... $193,204 182,819
-----------
615,134
-----------
Total corporate bonds - 35.7%................................ 1,612,734
-----------
Total investments - 94.6%.................................... 4,269,272
Cash and other assets,
less liabilities - 5.4%................................... 244,032
-----------
Total net assets - 100.0%.................................... $4,513,304
===========
The identified cost of investments owned at June 30, 1998, was the same for
federal income tax and book purposes.
* Securities on which no cash dividend was paid during the preceding twelve
months.
ADR (American Depositary Receipt)
(1) Principal amount on foreign bond is reflected in local currency (e.g.
Japanese yen) while market value is reflected in U.S. dollars.
(2) MFR GLOBAL HIGH YIELD SERIESMFR GLOBAL HIGH YIELD SERIESMFR GLOBAL HIGH
YIELD SERIES Step-up rate security in which the interest rate will increase over
the life of the bond.
(3) Variable rate security which may be reset every two years.
(4) Floating rate security which may be reset as of the first of each
semi-annual payment.
See accompanying notes.
11
<PAGE> 51
BALANCE SHEETS
- --------------------------------------------------------------------------------
JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
MFR EMERGING MFR GLOBAL MFR GLOBAL
MARKETS ASSET HIGH
TOTAL RETURN ALLOCATION YIELD
SERIES SERIES SERIES
<S> <C> <C> <C>
ASSETS
Investments, at value (identified cost $1,164,812,
$1,311,591, and $4,619,592, respectively) ....... $1,075,581 $1,496,810 $4,269,272
Cash ............................................. -- 35,738 87,762
Receivables:
Fund shares sold ................................ -- -- 194
Securities sold ................................. 143,534 -- --
Interest ........................................ 7,680 9,955 155,939
Dividends ....................................... 2,316 1,712 --
MFR Advisors, Inc. .............................. 2,925 1,933 --
Foreign taxes recoverable ....................... 446 1,592 4,222
Forward foreign exchange contracts ................ -- 848 --
Prepaid expenses ................................. 13,852 14,037 16,341
---------- ---------- ----------
Total assets ................................. $1,246,334 $1,562,625 $4,533,730
========== ========== ==========
LIABILITIES AND NET ASSETS
Liabilities:
Payable for:
Fund shares redeemed ............................ $ -- $ -- $ 500
Securities purchased ............................ 137,724 43,166 --
Written call options outstanding ................ -- 1,875 --
Foreign tax expense ............................. 165 285 --
Other liabilities:
Custodian fees .................................. 915 489 2,477
Transfer and administration fees ................ 65 110 6,790
Professional fees ............................... 2,099 2,077 8,392
12b-1 distribution plan fees .................... 608 757 2,097
Miscellaneous fees .............................. 74 74 170
---------- ---------- ----------
Total liabilities ............................ 141,650 48,833 20,426
Net Assets:
Paid in capital .................................. 1,095,352 1,327,449 4,616,489
Undistributed net investment income .............. 16,942 10,701 196,692
Accumulated undistributed net realized gain
(loss) on sale of investments and
foreign currency transactions ................... 81,831 (9,871) 53,540
Net unrealized appreciation (depreciation) in
value of investments and translation of assets
and liabilities in foreign currency ............. (89,441) 185,513 (353,417)
---------- ---------- ----------
Net assets ................................... 1,104,684 1,513,792 4,513,304
---------- ---------- ----------
Total liabilities and net assets ............. $1,246,334 $1,562,625 $4,533,730
========== ========== ==========
CLASS "A" SHARES
Capital shares outstanding ....................... 54,413 71,740 293,348
Net assets ....................................... $ 549,067 $ 837,334 $2,869,884
Net asset value per share (net assets divided by
shares outstanding) ............................. $ 10.09 $ 11.67 $ 9.78
Add: Selling commission (4.75% of the
offering price) ................................. $ 0.50 $ 0.58 $ 0.49
---------- ---------- ----------
Offering price per share (net asset value
divided by 95.25%) .............................. $10.59 $ 12.25 $ 10.27
========== ========== ==========
CLASS "B" SHARES
Capital shares outstanding ....................... 55,273 58,241 167,367
Net assets ....................................... $ 555,617 $ 676,458 $1,643,420
Net asset value per share (net assets divided by
shares outstanding) ............................. $ 10.05 $ 11.61 $ 9.82
========== ========== ==========
</TABLE>
See accompanying notes.
12
<PAGE> 52
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
MFR EMERGING MFR GLOBAL MFR GLOBAL
MARKETS ASSET HIGH
TOTAL RETURN ALLOCATION YIELD
SERIES SERIES SERIES
INVESTMENT INCOME:
<S> <C> <C> <C>
Dividends ............................................ $ 7,460 $ 9,578 $ --
Interest ............................................. 23,067 15,460 376,529
---------- ---------- ----------
30,527 25,038 376,529
Less foreign tax expense ............................. (238) (910) (11,682)
---------- ---------- ----------
Total investment income ......................... 30,289 24,128 364,847
EXPENSES:
Management fees ..................................... 5,314 6,367 22,595
Custodian fees ...................................... 3,843 1,752 6,107
Transfer/maintenance fees ........................... 100 286 4,317
Administration fees ................................. 239 286 23,856
Directors' fees ..................................... 72 72 543
Professional fees ................................... 9,690 9,690 2,691
Reports to shareholders ............................. 191 198 678
Registration fees ................................... 10,132 10,132 5,967
Other expenses ...................................... 235 235 291
12b-1 distribution plan fees ........................ 3,317 3,851 13,665
---------- ---------- ----------
33,133 32,869 80,710
Less: Reimbursement of expenses ..................... (20,590) (18,482) (22,595)
---------- ---------- ----------
Total expenses .................................. 12,543 14,387 58,115
---------- ---------- ----------
Net investment income ............................ 17,746 9,741 306,732
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) during the period on:
Investments ......................................... 86,548 (26,312) 59,144
Foreign currency transactions ....................... (253) 14,892 (8,703)
---------- ---------- ----------
Net realized gain (loss) ......................... 86,295 (11,420) 50,441
Net change in unrealized appreciation
(depreciation) during the period on:
Investments ......................................... (15,033) 212,452 (114,197)
Translation of assets and liabilities
in foreign currencies ............................ (860) (2,743) (69,071)
---------- ---------- ----------
Net unrealized appreciation (depreciation) ....... (15,893) 209,709 (183,268)
---------- ---------- ----------
Net gain (loss) .................................. 70,402 198,289 (132,827)
---------- ---------- ----------
Net increase in net assets
resulting from operations ................... $ 88,148 $ 208,030 $ 173,905
========== ========== ==========
</TABLE>
See accompanying notes.
13
<PAGE> 53
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
MFR EMERGING MFR GLOBAL MFR GLOBAL
MARKETS ASSET HIGH
TOTAL RETURN ALLOCATION YIELD
SERIES SERIES SERIES
INCREASE IN NET ASSETS
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income .......................... $ 17,746 $ 9,741 $ 306,732
Net realized gain (loss) ....................... 86,295 (11,420) 50,441
Unrealized appreciation (depreciation) during
the period ................................... (15,893) 209,709 (183,268)
----------- ---------- ----------
Net increase in net assets
resulting from operations ................. 88,148 208,030 173,905
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A ...................................... -- -- (150,359)
Class B ...................................... -- -- (58,566)
Net realized gain
Class A ...................................... -- -- --
Class B ...................................... -- -- --
---------- ---------- ----------
Total distributions to shareholders .......... -- -- (208,925)
CAPITAL SHARE TRANSACTIONS (A):
Proceeds from sale of shares
Class A ...................................... 6,949 174,458 58,591
Class B ...................................... 15,000 67,500 26,407
Dividends reinvested
Class A ...................................... -- -- 145,138
Class B ...................................... -- -- 57,844
Shares redeemed
Class A ...................................... -- (16,195) (1,971,770)
Class B ...................................... -- -- (32,879)
---------- ---------- ----------
Net increase (decrease) from capital share
transactions .............................. 21,949 225,763 (1,716,669)
---------- ---------- ----------
Total increase (decrease) in net assets .. 110,097 433,793 (1,751,689)
NET ASSETS:
Beginning of period ............................ 994,587 1,079,999 6,264,993
---------- ---------- ----------
End of period .................................. $1,104,684 $1,513,792 $4,513,304
========== ========== ==========
Undistributed net investment income at
end of period ................................ $ 16,942 $ 10,701 $ 196,692
========== ========== ==========
(a) Shares issued and redeemed
Shares sold
Class A .................................... 660 15,477 5,779
Class B .................................... 1,540 6,043 2,623
Dividends reinvested
Class A .................................... -- -- 14,592
Class B .................................... -- -- 5,816
Shares redeemed
Class A .................................... -- (1,508) (194,662)
Class B .................................... -- -- (3,270)
---------- ---------- ----------
Net increase (decrease) ..................... 2,200 20,012 (169,122)
========== ========== ==========
</TABLE>
See accompanying notes.
14
<PAGE> 54
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MFR EMERGING MFR GLOBAL MFR GLOBAL
MARKETS ASSET HIGH
TOTAL RETURN ALLOCATION YIELD
SERIES* SERIES* SERIES
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
<S> <C> <C> <C>
Net investment income ....................... $ 19,195 $ 11,294 $ 503,399
Net realized gain (loss) .................... (8,260) (2,805) 78,614
Unrealized depreciation during
the period ................................ (73,548) (24,196) (314,637)
---------- ---------- ----------
Net increase (decrease) in net assets
resulting from operations .............. (62,613) (15,707) 267,376
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A ................................... (9,904) (4,471) (262,935)
Class B ................................... (7,619) (1,509) (82,758)
Net realized gain
Class A ................................... - - (112,766)
Class B ................................... - - (39,266)
---------- ---------- ----------
Total distributions to shareholders ....... (17,523) (5,980) (497,725)
CAPITAL SHARE TRANSACTIONS (a):
Proceeds from sale of shares
Class A ................................... 531,901 575,114 1,110,977
Class B ................................... 530,116 520,600 75,541
Dividends reinvested
Class A ................................... 9,879 4,463 366,619
Class B ................................... 7,619 1,509 119,908
Shares redeemed
Class A ................................... (4,792) - (173,066)
Class B ................................... - - (51,885)
---------- ---------- ----------
Net increase from capital share
transactions ........................... 1,074,723 1,101,686 1,448,094
---------- ---------- ----------
Total increase in net assets .......... 994,587 1,079,999 1,217,745
NET ASSETS:
Beginning of period ......................... - - 5,047,248
---------- ---------- ----------
End of period ............................... $ 994,587 $1,079,999 $6,264,993
========== ========== ==========
Undistributed net investment income (loss) at
end of period ............................. $ (804) $ 960 $ 98,885
========== ========== ==========
(a) Shares issued and redeemed
Shares sold
Class A ................................. 53,146 57,316 109,726
Class B ................................. 52,907 52,044 7,398
Dividends reinvested
Class A ................................. 1,070 455 36,294
Class B ................................. 826 154 11,830
Shares redeemed
Class A ................................. (463) - (16,985)
Class B ................................. - - (5,057)
---------- ---------- ----------
Net increase ............................. 107,486 109,969 143,206
========== ========== ==========
</TABLE>
* Period May 19, 1997 (inception) through December 31, 1997
See accompanying notes.
15
<PAGE> 55
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT
EACH PERIOD
MFR EMERGING MARKETS TOTAL RETURN SERIES (CLASS A)
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED
DECEMBER 31
_____________________________
1998(c)(e)(f) 1997(b)(c)(e)
------------- -------------
<S> <C> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING OF PERIOD $ 9.25 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income 0.19 0.21
Net Gain (Loss) on Securities (realized and unrealized) 0.65 (0.77)
------------- -------------
Total from Investment Operations 0.84 (0.56)
LESS DISTRIBUTIONS:
Dividends (from Net Investment Income) -- (0.19)
Distributions (from Capital Gains) -- --
------------- -------------
Total Distributions -- (0.19)
------------- -------------
NET ASSET VALUE END OF PERIOD $ 10.09 $ 9.25
============= =============
TOTAL RETURN (a) 9.1% (5.6%)
RATIOS/SUPPLEMENTAL DATA:
Net Assets End of Period (thousands) $ 549 $ 497
Ratio of Expenses to Average Net Assets 1.99% 2.00%
Ratio of Net Investment Income (Loss) to Average Net Assets 3.72% 3.38%
Portfolio Turnover Rate 123% 22%
</TABLE>
MFR EMERGING MARKETS TOTAL RETURN SERIES (CLASS B)
<TABLE>
<CAPTION>
Fiscal Period Ended
December 31
_____________________________
1998(c)(e)(f) 1997(b)(c)(e)
------------- -------------
<S> <C> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING OF PERIOD $ 9.25 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income 0.15 0.16
Net Gain (Loss) on Securities (realized and unrealized) 0.65 (0.77)
------------- -------------
Total from Investment Operations 0.80 (0.61)
LESS DISTRIBUTIONS:
Dividends (from Net Investment Income) -- (0.14)
Distributions (from Capital Gains) -- --
------------- -------------
Total Distributions -- (0.14)
------------- -------------
NET ASSET VALUE END OF PERIOD $ 10.05 $ 9.25
============= =============
TOTAL RETURN (a) 8.7% (6.1%)
RATIOS/SUPPLEMENTAL DATA:
Net Assets End of Period (thousands) $ 556 $ 497
Ratio of Expenses to Average Net Assets 2.75% 2.72%
Ratio of Net Investment Income (Loss) to Average Net Assets 2.96% 2.66%
Portfolio Turnover Rate 123% 22%
</TABLE>
See accompanying notes.
16
<PAGE> 56
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT
EACH PERIOD
MFR GLOBAL ASSET ALLOCATION SERIES (CLASS A)
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED
DECEMBER 31
_____________________________
1998(c)(e)(f) 1997(b)(c)(e)
____________ ____________
<S> <C> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING OF PERIOD .......................... $ 9.82 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income ........................................ 0.10 0.14
Net Gain (Loss) on Securities (realized and unrealized) ...... 1.65 (0.24)
------------- -------------
Total from Investment Operations ............................. 1.75 (0.10)
LESS DISTRIBUTIONS:
Dividends (from Net Investment Income) ....................... -- (0.08)
Distributions (from Capital Gains) ........................... -- --
------------- -------------
Total Distributions ......................................... -- (0.08)
------------- -------------
NET ASSET VALUE END OF PERIOD ................................ $ 11.67 $ 9.82
============= =============
TOTAL RETURN (a) ............................................. 18.8% (1.0%)
RATIOS/SUPPLEMENTAL DATA:
Net Assets End of Period (thousands) ......................... $ 837 $ 567
Ratio of Expenses to Average Net Assets ...................... 1.84% 1.85%
Ratio of Net Investment Income (Loss) to Average Net Assets .. 1.96% 2.24%
Portfolio Turnover Rate ...................................... 47% 28%
</TABLE>
MFR GLOBAL ASSET ALLOCATION SERIES (CLASS B)
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED
DECEMBER 31
____________________________
1998(c)(e)(f) 1997(b)(c)(e)
____________ ____________
<S> <C> <C>
PER SHARE DATA:
NET ASSET VALUE BEGINNING OF PERIOD .......................... $ 9.82 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income ........................................ 0.06 0.09
Net Gain (Loss) on Securities (realized and unrealized) ...... 1.73 (0.24)
------------- -------------
Total from Investment Operations ............................. 1.79 (0.15)
LESS DISTRIBUTIONS:
Dividends (from Net Investment Income) ....................... -- (0.03)
Distributions (from Capital Gains) ........................... -- --
------------- -------------
Total Distributions ......................................... -- (0.03)
------------- -------------
NET ASSET VALUE END OF PERIOD ................................ $ 11.61 $ 9.82
============= =============
TOTAL RETURN (a) ............................................. 18.2% (1.5%)
RATIOS/SUPPLEMENTAL DATA:
Net Assets End of Period (thousands) ......................... $ 676 $ 513
Ratio of Expenses to Average Net Assets ...................... 2.75 2.72%
Ratio of Net Investment Income (Loss) to Average Net Assets .. 1.05% 1.40%
Portfolio Turnover Rate ...................................... 47% 28%
</TABLE>
See accompanying notes.
17
<PAGE> 57
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH
PERIOD
MFR GLOBAL HIGH YIELD SERIES (CLASS A)
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED DECEMBER 31
------------------------------------------------------
PER SHARE DATA:.................................................... 1998(c)(e)(f) 1997(c)(e) 1996(c)(e) 1995(c)(d)(e)
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF PERIOD................................ $9.94 $10.36 $10.15 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income.............................................. 0.56 0.88 1.06 0.63
Net Gain (Loss) on Securities (realized and unrealized)............ (0.32) (0.42) .06 0.09
------------- ----------- ----------- -------------
Total from Investment Operations................................... 0.24 0.46 1.12 0.72
LESS DISTRIBUTIONS:
Dividends (from Net Investment Income)............................. (0.40) (0.63) (0.69) (0.55)
Distributions (from Capital Gains)................................. -- (0.25) (0.22) (0.02)
------------- ----------- ----------- -------------
Total Distributions................................................ (0.40) (0.88) (0.91) (0.57)
------------- ----------- ----------- -------------
NET ASSET VALUE END OF PERIOD...................................... $9.78 $9.94 $10.36 $10.15
============= =========== =========== =============
TOTAL RETURN (a)................................................... 2.4% 4.6% 11.6% 7.3%
RATIOS/SUPPLEMENTAL DATA:
Net Assets End of Period (thousands)............................... $2,870 $4,647 $3,507 $2,968
Ratio of Expenses to Average Net Assets............................ 1.70% 1.76% 1.98% 2.00%
Ratio of Net Investment Income (loss) to Average Net Assets........ 10.47% 8.77% 10.39% 11.04%
Portfolio Turnover Rate............................................ 50% 88% 96% 127%
</TABLE>
MFR GLOBAL HIGH YIELD SERIES (CLASS B)
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED DECEMBER 31
------------------------------------------------------
PER SHARE DATA:................................................... 1998(c)(e)(f) 1997(c)(e) 1996(c)(e) 1995(c)(d)(e)
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF PERIOD............................... $9.98 $10.41 $10.17 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income............................................. 0.47 0.85 0.98 0.56
Net Gain (Loss) on Securities (realized and unrealized)........... (0.27) (0.49) 0.06 0.12
------------- ----------- ----------- -------------
Total from Investment Operations.................................. 0.20 0.36 1.04 0.68
LESS DISTRIBUTIONS:
Dividends (from Net Investment Income)............................ (0.36) (0.54) (0.57) (0.49)
Distributions (from Capital Gains)................................ -- (0.25) (0.23) (0.02)
------------- ----------- ----------- -------------
Total Distributions............................................... (0.36) (0.79) (0.80) (0.51)
------------- ----------- ----------- -------------
NET ASSET VALUE END OF PERIOD..................................... $9.82 $9.98 $10.41 $10.17
============= =========== =========== =============
TOTAL RETURN (a).................................................. 2.0% 3.6% 10.7% 6.9%
RATIOS/SUPPLEMENTAL DATA:
Net Assets End of Period (thousands).............................. $1,643 $1,618 $1,541 $1,440
Ratio of Expenses to Average Net Assets........................... 2.56% 2.51% 2.75% 2.75%
Ratio of Net Investment Income (loss) to Average Net Assets....... 9.40% 8.02% 9.64% 10.24%
Portfolio Turnover Rate........................................... 50% 88% 96% 127%
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
18
<PAGE> 58
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH
PERIOD
(a) Total return information does not take into account any charges paid at
time of purchase or contingent deferred sales charges paid at time of
redemption.
(b) MFR Emerging Markets Total Return Series and MFR Global Asset Allocation
Series were initially capitalized on May 19, 1997, with a net asset value
of $10 per share. Percentage amounts for the period have been annualized,
except for total return.
(c) Fund expenses were reduced by the Investment Manager and expense ratios
absent such reimbursement would have been as follows:
1995 1996 1997 1998
MFR Emerging Markets Total Class A -- -- 5.88% 5.86%
Return Series Class B -- -- 6.60% 6.61%
MFR Global Asset Allocation Class A -- -- 5.67% 4.74%
Series Class B -- -- 6.54% 5.64%
MFR Global High Yield Class A 2.42% 2.73% 2.51% 2.44%
Series Class B 3.93% 3.75% 3.25% 3.31%
(d) MFR Global High Yield Series (formerly Global Aggressive Bond Series) was
initially capitalized on June 1, 1995, with a net asset value of $10
per share. Percentage amounts for the period have been annualized except
for total return.
(e) Net investment income per share has been calculated using the weighted
monthly average numbers of capital shares outstanding.
(f) Unaudited figures for the six months ended June 30, 1998. Percentage
amounts for the period, except total return, have been annualized.
See accompanying notes.
- -------------------------------------------------------------------------------
19
<PAGE> 59
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
JUNE 30, 1998
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
MFR Emerging Markets Total Return Series, MFR Global Asset Allocation
Series, and MFR Global High Yield Series (formerly Global Aggressive Bond
Series) (the Series) are diversified series of Security Income Fund, an open-end
investment management company registered under the Investment Company Act of
1940, as amended. Each Series is accounted for separately and general expenses
are allocated to each Series based on the net asset value of each Series. The
following is a summary of the significant accounting policies followed by the
Series in the preparation of their financial statements. These policies are in
conformity with generally accepted accounting principles.
A. SECURITY VALUATION -- Valuations of the Series' securities are supplied by
pricing services approved by the Board of Directors. Securities listed or
traded on a national securities exchange are valued on the basis of the last
sales price. If there are no sales on a particular day, then the securities are
valued at the last bid price. Securities for which market quotations are not
readily available are valued by a pricing service considering securities with
similar yields, quality, type of issue, coupon, duration, and rating. If there
is no bid price or if the bid price is deemed to be unsatisfactory by the Board
of Directors or by the Series' investment manager, then the securities are
valued in good faith by such method as the Board of Directors determines will
reflect the fair value. The Series' officers, under the general supervision of
the Board of Directors, regularly review procedures used by, and valuations
provided by, the pricing service.
Generally, trading in foreign securities markets is substantially completed
each day at various times prior to the close of the New York Stock Exchange. The
values of foreign securities are determined as of the close of such foreign
markets or the close of the New York Stock Exchange if earlier. All investments
quoted in foreign currency are valued in U.S. dollars on the basis of the
foreign currency exchange rate prevailing at the close of business. Investments
in foreign securities may involve risks not present in domestic investments.
Since foreign securities may be denominated in a foreign currency, involve
settlement and pay interest in foreign currencies, changes in the relationship
of these foreign currencies to the U.S. dollar can significantly affect the
value of the investments and earnings of the Series. Foreign investments may
also subject the Series to foreign government exchange restrictions,
expropriation, taxation or other political, social or economic developments, all
of which could affect the market and/or credit risk of the investments.
B. FOREIGN CURRENCY TRANSACTIONS -- The accounting records of the Series' are
maintained in U.S. dollars. All assets and liabilities initially expressed in
foreign currencies are converted into U.S. dollars at prevailing exchange rates.
Purchases and sales of investment securities, dividend and interests income, and
certain expenses are translated at the rates of exchange prevailing on the
respective dates of such transactions.
The Series isolate that portion of the results of operations resulting from
changes in foreign exchange rates on investments from the fluctuations arising
from changes in the market prices of securities held.
Net realized foreign exchange gains or losses arise from sales of portfolio
securities, sales of foreign currencies, and the difference between asset and
liability amounts initially stated in foreign currencies and the U.S. dollar
value of the amounts actually received or paid. Net unrealized foreign exchange
gains or losses arise from changes in the exchange rates which effect the value
of portfolio securities and other assets and liabilities at the end of the
reporting period.
C. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS -- The Series may enter into
forward foreign currency exchange contracts in order to manage against foreign
currency risk from purchase or sale of securities denominated in foreign
currency. The Series may also enter into such contracts to manage changes in
foreign currency exchange rates on portfolio positions. These contracts are
marked to market daily, by recognizing the difference between the contract
exchange rate and the current market rate as unrealized gains or losses.
Realized gains or losses are recognized when contracts are settled and are
reflected in the statement of operations. These contracts involve market risk
in excess of the amount reflected in the Balance Sheet. The face or contract
amount in U.S. dollars reflects the total exposure the Series has in that
particular currency contract. Losses may arise due to changes in the value of
the foreign currency or if the counterparty does not perform under the contract.
D. OPTIONS -- The Series may purchase put and call options and write such
options on a covered basis on securities that are traded on recognized
securities exchanges and over-the-counter markets. Call and put options on
securities give the holder the right to purchase or sell, respectively (and the
writer the obligation to sell or purchase), a security at a specified price, on
or until a certain date. The primary risks associated with the use of options
are an imperfect correlation between the change in market value of the
securities held by the Series and the price of the option, the possibility of an
illiquid market, and the inability of the counter-party to meet the terms of the
contract.
The premium received for a written option is recorded as an asset, with an
equal liability which is marked to market based on the option's quoted daily
settlement price. Fluctuation in the value of such instruments are recorded as
unrealized appreciation (depreciation) until terminated, at which time realized
gains and losses are recognized.
- -------------------------------------------------------------------------------
20
<PAGE> 60
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
E. SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the date the securities are purchased or sold. Realized gains
and losses are reported on an identified cost basis. Interest income is
recognized on the accrual basis. Premium and discounts on debt securities are
amortized.
F. DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders are recorded
on the ex-dividend date. The character of distributions made during the year
from net investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. These differences are
primarily due to the recharacterization of foreign currency gains and losses.
G. TAXES -- The Series complied with the requirements of the Internal Revenue
Code applicable to regulated investment companies and distributed all of their
taxable net income and net realized gains sufficient to relieve them from all,
or substantially all, federal income, excise and state income taxes. Therefore,
no provision for federal or state tax is required.
2. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Management fees are payable to MFR Advisors, Inc. (MFR) under investment
advisory contracts at an annual rate of .75 of 1% of the average net assets for
MFR Global High Yield Series and 1% of the average net assets for MFR Emerging
Markets Total Return Series and MFR Global Asset Allocation Series. MFR is
waiving all of the management fees for the Series until December 31, 1998. In
addition, for the six month period ended June 30, 1998, MFR agreed to limit the
total expenses of each Series to an annual rate of 2.0% of the average daily net
asset value of Class A shares and 2.75% of the average daily net asset value of
the Class B shares.
As compensation for the services provided to the MFR Global Asset
Allocation Series, MFR pays each of Lexington Management Corporation (Lexington)
and Security Management Company, LLC (SMC), as Sub-Advisors, on an annual basis,
a fee equal to .20 percent and .15 percent, respectively, of the average daily
net assets of the Series. With respect to the MFR Global High Yield Series and
MFR Emerging Markets Total Return Series, MFR pays Lexington, as Sub-Advisor, on
an annual basis, a fee equal to .20 percent of the average daily net assets of
each Series. Fees paid to the Sub-Advisors are calculated daily and payable
monthly.
The Series have entered into contracts with SMC for transfer agent services
and certain other administrative services which SMC provides to the Series. SMC
is paid an annual fixed charge per account and a shareholder and dividend
transaction fee.
As the administrative agent for the Series, SMC performs administrative
functions, such as regulatory filings, bookkeeping, accounting and pricing
functions for the Series. For this service, SMC receives on an annual basis .045
percent of the average daily net assets of the Series, plus an annual fee equal
to the greater of .10 percent of the average daily net assets of each Series,
calculated daily and payable monthly, or (i) $30,000 in the year ended May 31,
1998; (ii) $45,000 in the year ended May 31, 1999; or (iii) $60,000 thereafter,
for the MFR Global Asset Allocation Series and the MFR Emerging Markets Total
Return Series. For the MFR Global High Yield Series, this fee is equal to .10
percent of the average daily net assets or $60,000 annually. For the period
ended June 30, 1998, SMC has agreed to limit these fees to $15,000 for the MFR
Emerging Markets Total Return Series and the MFR Global Asset Allocation Series;
and $45,000 for the MFR Global High Yield Series.
The Series have adopted Distribution Plans related to the offering of Class
B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. The
Plans provide for payments at an annual rate of 1.0% of the average net assets
of Class B shares. Class A shares incur 12b-1 fees at an annual rate of .25% of
the average net assets of each Series.
Security Distributors, Inc. (SDI), a wholly-owned subsidiary of Security
Benefit Group, Inc., is national distributor for the Series. SDI received net
underwriting commissions on sales of Class A shares and contingent deferred
sales charges on redemptions occurring within 5 years of the date of purchase of
Class B shares, after allowances to brokers and dealers for the period ended
June 30, 1998, in the amounts presented below:
<TABLE>
<CAPTION>
MFR MFR MFR
Emerging Global Global
Markets Asset High
Total Return Allocation Yield
Series Series Series
__________ __________ __________
<S> <C> <C> <C>
SDI underwriting (Class A) $42 $581 $177
CDSC (Class B) $0 $0 $36
Broker/Dealer (Class A) $229 $2,279 $952
Broker/Dealer (Class B) $600 $4 $814
</TABLE>
Certain officers and directors of the Series are also officers and/or
directors of MFR Advisors, Inc. and Security Benefit Life Insurance Company and
its subsidiaries, which include SMC and SDI.
3. INVESTMENT TRANSACTIONS
Investment transactions for the six month period ended June 30, 1998,
(excluding overnight investments and short-term debt securities) were as
follows:
<TABLE>
<CAPTION>
MFR MFR MFR
Emerging Global Global
Markets Asset High
Total Return Allocation Yield
Series Series Series
__________ __________ __________
<S> <C> <C> <C>
Purchases $654,021 $562,042 $1,319,953
Proceeds from Sales $614,451 $297,608 $2,688,793
</TABLE>
- -------------------------------------------------------------------------------
21
<PAGE> 61
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
4. FEDERAL INCOME TAX MATTERS
The amounts of unrealized appreciation (depreciation) as of June 30, 1998,
were as follows:
<TABLE>
<CAPTION>
MFR MFR MFR
Emerging Global Global
Markets Asset High
Total Return Allocation Yield
Series Series Series
__________ __________ __________
<S> <C> <C> <C>
Gross Unrealized Appreciation $93,592 $240,398 $97,734
Gross Unrealized Depreciation $(183,033) $(56,058) $(451,151)
__________ __________ __________
Net Unrealized Appreciation
(Depreciation) $ (89,441) $185,513 $(353,417)
========== ========== ==========
</TABLE>
5. FORWARD FOREIGN EXCHANGE CONTRACTS
At June 30, 1998, the following Series had open forward foreign exchange
contracts to sell currency (excluding foreign currency contracts used for
purchase and sale settlements):
<TABLE>
<CAPTION>
Settlement Foreign U.S. Unrealized
Currency Type Date Amount Amount Gain
________________________________________________________________________________________
<S> <C> <C> <C> <C>
MFR GLOBAL ASSET ALLOCATION SERIES
Canadian Dollar Sell 7/13/98 100,000 68,076 $2,440
Canadian Dollar Buy 7/13/98 100,000 68,076 (1,592)
_______
$848
=======
</TABLE>
6. TRANSACTIONS IN WRITTEN CALL OPTIONS
Transactions in written covered call options were as follows:
MFR EMERGING MARKETS TOTAL RETURN SERIES
______________________________________
<TABLE>
<CAPTION>
Number of
Premiums Contracts
__________ __________
<S> <C> <C>
Balance at Dec. 31, 1997 $ -- --
Options written 3,022 407,784
Exercised (1,695) (157,784)
Expirations (1,327) (250,000)
_________ ___________
Balance at June 30, 1998 $ -- --
========= ===========
</TABLE>
MFR GLOBAL ASSET ALLOCATION SERIES
________________________________
<TABLE>
<CAPTION>
Number of
Premiums Contracts
__________ __________
<S> <C> <C>
Balance at Dec. 31, 1997 $ -- --
Options written 3,957 450,007
Exercised (600) (100,000)
Expirations (1,785) (350,000)
__________ ___________
Balance at June 30, 1998 $ 1,572 7
========== ===========
</TABLE>
MFR GLOBAL HIGH YIELD SERIES
___________________________
<TABLE>
<CAPTION>
Number of
Premiums Contracts
__________ __________
<S> <C> <C>
Balance at Dec. 31, 1997 $ 12,062 570,130
Options written 31,191 2,973,300
Exercised (22,165) (1,783,247)
Expirations (21,088) (1,760,183)
__________ ___________
Balance at June 30, 1998 $ -- --
========== ===========
</TABLE>
- -------------------------------------------------------------------------------
22
<PAGE> 62
THIS WILL BE THE INSIDE BACK COVER AND WILL NOT PRINT
LEAVE BLANK
23
<PAGE> 63
MFR FUNDS
- ------------------------
o Emerging Markets Total Return Series
o Global Asset Allocation Series
o Global High Yield Series
This report is submitted for the general information of the shareholders of the
Funds. The report is not authorized for distribution to prospective investors in
the Funds unless preceded or accompanied by an effective prospectus which
contains details concerning the sales charges and other pertinent information.
SECURITY FUNDS
OFFICERS AND DIRECTORS
- ------------------------
DIRECTORS
- ---------
Donald A. Chubb, Jr.
John D. Cleland
Penny A. Lumpkin
Mark L. Morris, Jr., D.V.M.
Maynard F. Oliverius
Maria Fiorini Ramirez (Income Fund only)
James R. Schmank
OFFICERS
- --------
John D. Cleland, President
James R. Schmank, Vice President
Mark E. Young, Vice President
Steven M. Bowser, Vice President, Income Fund
Michael A. Petersen, Vice President, Income Fund
Thomas A. Swank, Vice President, Income Fund
Amy J. Lee, Secretary
Christopher D. Swickard, Assistant Secretary
Brenda M. Harwood, Treasurer
[SECURITY DISTRIBUTORS LOGO]
SECURITY DISTRIBUTORS, INC. BULK RATE
A Member of The Security Benefit U.S. POSTAGE PAID
Group of Companies PERMIT NO. 941
700 SW Harrison St. CHICAGO, IL
Topeka,KS 66636-0001
(800) 643-8188
SDI 749 (R8-98) 46-07492-00
