SECURITY INCOME FUND /KS/, PRE 14A, 1999-08-20

SECURITY INCOME FUND /KS/
PRE 14A, 1999-08-20

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<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No.______)

Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]

Check the appropriate box:

[X] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12

SECURITY INCOME FUND
(Name of Registrant as Specified In Its Charter)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:

[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS OF
SECURITY INCOME FUND
TO BE HELD OCTOBER 29, 1999
700 SW HARRISON ST., TOPEKA, KANSAS 66636-0001
TELEPHONE 1-800-888-2461

TO THE STOCKHOLDERS OF
> SECURITY INCOME FUND
* CORPORATE BOND SERIES
* U.S. GOVERNMENT SERIES
* LIMITED MATURITY BOND SERIES
* HIGH YIELD SERIES
* CAPITAL PRESERVATION SERIES

Notice is hereby given that an annual meeting of the stockholders of Security
Income Fund (the "Fund"), a Kansas corporation, will be held at the offices of
Security Income Fund, Security Benefit Group Building, 700 SW Harrison Street,
Topeka, Kansas 66636-0001, on October 29, 1999 at 9:30 a.m. local time
("Meeting"), for the following purposes:

1. To elect six directors to serve on the Board of Directors of the Fund
until the next annual meeting, if any, or until their successors shall
have been duly elected and qualified.

2. To ratify or reject the selection of the firm of Ernst & Young LLP as
independent accountants for the Fund's current fiscal year.

3. a. To eliminate the Fund's fundamental investment limitation concerning
investment in companies with less than three years' operating
history.

b. To eliminate the Fund's fundamental investment limitation concerning
purchasing securities of an issuer in which the officers and
directors of the Fund, investment manager or underwriter own more
than 5% of the outstanding securities of such issuer.

c. To amend the Fund's fundamental investment limitation concerning
diversification.

d. To amend the Fund's fundamental investment limitation concerning
share ownership of any one issuer.

e. To eliminate the Fund's fundamental investment limitation concerning
investing for control of portfolio companies.

f. To amend the Fund's fundamental investment limitation concerning
underwriting.

g. To amend the Fund's fundamental investment limitation concerning
buying or selling real estate.

h. To amend the Fund's fundamental investment limitation concerning
commodities or commodities contracts.

i. To amend the Fund's fundamental investment limitation concerning
lending.

j. To eliminate the Fund's fundamental investment limitation concerning
investment in puts, call, straddles or spreads.

k. To eliminate the Fund's fundamental investment limitation concerning
investment in oil, gas, mineral leases or other mineral exploration
development programs.

l. To amend the Fund's fundamental investment limitation concerning
borrowing.

m. To eliminate the Fund's fundamental investment limitation concerning
investment in other investment companies.

n. To amend the Fund's fundamental investment limitation concerning
senior securities.

o. To eliminate the Fund's fundamental investment limitation concerning
restricted securities.

4. To approve or disapprove an arrangement and new investment advisory
contract that would permit Security Management Company, LLC, the Fund's
investment adviser, with Board approval, to enter into or amend
sub-advisory agreements without stockholder approval.

5. To transact such other business as may properly come before the Meeting
or any adjournments thereof, and to adjourn the Meeting from time to
time.

The Board of Directors of Security Income Fund has fixed the close of
business on August 31, 1999, as the record date for the determination of
stockholders of the Fund entitled to notice of and to vote at the Meeting.

THERE IS ENCLOSED A PROXY FORM SOLICITED BY THE BOARD OF DIRECTORS OF
SECURITY INCOME FUND. ANY FORM OF PROXY THAT IS EXECUTED AND RETURNED,
NEVERTHELESS MAY BE REVOKED PRIOR TO ITS USE. ALL SUCH PROXIES PROPERLY EXECUTED
AND RECEIVED IN TIME WILL BE VOTED AT THE MEETING.

By order of the Board of Directors of
Security Income Fund,
Topeka, Kansas AMY J. LEE
September __, 1999 Secretary
- --------------------------------------------------------------------------------
IMPORTANT: STOCKHOLDERS WHO DO NOT EXPECT TO BE PRESENT IN PERSON AT THE MEETING
ARE REQUESTED TO MARK, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) TO THE
FUND, OR OTHERWISE VOTE THEIR SHARES, AS EARLY AS POSSIBLE.
<PAGE>
SECURITY INCOME FUND
MEMBER OF THE SECURITY BENEFIT GROUP OF COMPANIES
700 SW HARRISON STREET, TOPEKA, KANSAS 66636-0001

ANNUAL MEETING OF STOCKHOLDERS, OCTOBER 29, 1999
PROXY STATEMENT
SOLICITATION AND REVOCATION OF PROXIES

The enclosed proxy is solicited by and on behalf of the Board of Directors of
Security Income Fund (the "Fund"). You may vote in person at the annual Meeting,
by telephone, by Internet, or by returning your completed proxy card in the
postage-paid envelope provided. Details can be found on the enclosed proxy
insert. Do not return your proxy card if you are voting by telephone or
Internet. You may revoke your proxy by submitting another proxy or a notice of
revocation of your proxy in proper form to the Secretary of the Fund, or by
voting the shares in person at the Meeting. A second proxy form may be obtained
from the Secretary of the Fund. The cost of soliciting proxies will be borne by
Security Management Company, LLC, 700 SW Harrison Street, Topeka, Kansas
66636-0001 ("SMC" or the "Investment Manager"), which will be reimbursed by the
Fund. SMC is the investment adviser and administrator of the Fund. In addition
to solicitations by mail, some of the Investment Manager's officers and
employees, without extra remuneration, may conduct additional solicitation by
telephone, telegraph and personal interviews. Proxies are expected to be mailed
on or about September __, 1999.

VOTING SECURITIES

Only Fund stockholders of record at the close of business on August 31, 1999,
are entitled to vote at the annual Meeting. On that date, the outstanding number
of voting securities of each Series of common stock of the Fund (each a "Series"
and collectively the "Series") was as follows:

---------------------------------------------------
SERIES OF COMMON STOCK SHARES OUTSTANDING
---------------------------------------------------
Corporate Bond Series
U.S. Government Series
Limited Maturity Bond Series
High Yield Series
Capital Preservation Series
---------------------------------------------------

- --------------------------------------------------------------------------------
THE FUND WILL FURNISH, WITHOUT CHARGE, A COPY OF THE ANNUAL REPORT CONTAINING
AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 AND A
COPY OF THE SEMI-ANNUAL REPORT CONTAINING UNAUDITED FINANCIAL STATEMENTS FOR THE
PERIOD ENDED JUNE 30, 1999, TO A STOCKHOLDER UPON REQUEST. SUCH REQUESTS SHOULD
BE DIRECTED TO THE FUND, BY WRITING THE FUND AT 700 SW HARRISON STREET, TOPEKA,
KANSAS 66636-0001, OR BY CALLING THE FUND'S TOLL-FREE TELEPHONE NUMBER
1-800-888-2461, EXTENSION 3127.
<PAGE>
Each Series of the Fund's common stock has a par value of $1.00 per share.
Each share is entitled to one vote and shares of the Series will be voted
together with respect to Proposal Nos. 1 and 2. Shares of each Series will be
voted separately with respect to Proposal Nos. 3 and 4, as set forth in the
table below.

<TABLE>
<CAPTION>
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PROPOSAL SERIES AFFECTED
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<S> <C>
1. To elect six (6) directors to the Board of Directors. All Series of the Fund
- ------------------------------------------------------------------------------------------------------------------------------------
2. To ratify or reject the selection of Ernst & Young LLP as independent All Series of the Fund
accountants of the Fund for fiscal year 1999
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3a. To eliminate the Fund's fundamental investment limitation concerning All Series of the Fund, except High Yield and
investment in companies with less than three years' operating history. Capital Preservation
- ------------------------------------------------------------------------------------------------------------------------------------
3b. To eliminate the Fund's fundamental investment limitation concerning All Series of the Fund, except Capital
purchasing securities of an issuer in which the officers and directors of Preservation
the Fund, investment manager or underwriter own more than 5% of the
outstanding securities of such issuer.
- ------------------------------------------------------------------------------------------------------------------------------------
3c. To amend the Fund's fundamental investment limitation concerning All Series of the Fund, except High Yield and
diversification. Capital Preservation
- ------------------------------------------------------------------------------------------------------------------------------------
3d. To amend the Fund's fundamental investment limitation concerning share All Series of the Fund, except Capital
ownership of any one issuer. Preservation
- ------------------------------------------------------------------------------------------------------------------------------------
3e. To eliminate the Fund's fundamental investment limitation concerning All Series of the Fund, except Capital
investing for control of portfolio companies. Preservation
- ------------------------------------------------------------------------------------------------------------------------------------
3f. To amend the Fund's fundamental investment limitation concerning All Series of the Fund, except Capital
underwriting. Preservation
- ------------------------------------------------------------------------------------------------------------------------------------
3g. To amend the Fund's fundamental investment limitation concerning buying or All Series of the Fund, except Capital
selling real estate. Preservation
- ------------------------------------------------------------------------------------------------------------------------------------
3h. To amend the Fund's fundamental investment limitation concerning All Series of the Fund, except Capital
commodities or commodities contracts. Preservation
- ------------------------------------------------------------------------------------------------------------------------------------
3i. To amend the Fund's fundamental investment limitation concerning lending. All Series of the Fund, except Capital
Preservation
- ------------------------------------------------------------------------------------------------------------------------------------
3j. To eliminate the Fund's fundamental investment limitation concerning All Series of the Fund, except High Yield and
investment in puts, calls, straddles or spreads. Capital Preservation
- ------------------------------------------------------------------------------------------------------------------------------------
3k. To eliminate the Fund's fundamental investment limitation concerning oil, All Series of the Fund, except Capital
gas, mineral leases or other mineral exploration development programs. Preservation
- ------------------------------------------------------------------------------------------------------------------------------------
3l. To amend the Fund's fundamental investment limitation concerning borrowing. All Series of the Fund, except Capital
Preservation
- ------------------------------------------------------------------------------------------------------------------------------------
3m. To eliminate the Fund's fundamental investment limitation concerning All Series of the Fund, except Capital
investment in other investment companies. Preservation
- ------------------------------------------------------------------------------------------------------------------------------------
3n. To amend the Fund's fundamental investment limitation concerning senior All Series of the Fund, except High Yield,
securities. Limited Maturity Bond and Capital Preservation
- ------------------------------------------------------------------------------------------------------------------------------------
3o. To eliminate the Fund's fundamental investment limitation concerning All Series of the Fund, except Capital
restricted securities. Preservation
- ------------------------------------------------------------------------------------------------------------------------------------
4. To approve or disapprove an arrangement and new investment advisory All Series of the Fund, except Capital
contract that would permit Security Management Company, LLC, the Fund's Preservation
investment adviser, with Board approval, to enter into or amend
sub-advisory agreements without stockholder approval.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The presence, in person or by proxy, of more than 50% of the outstanding
shares of the Fund will be sufficient to establish a quorum for the conduct of
business at the Meeting. Shares held by stockholders present in person or
represented by proxy at the Meeting will be counted both for the purpose of
determining the presence of a quorum and for calculating the votes cast on the
proposals before the Meeting. Shares represented by timely and properly executed
proxies will be voted as specified. Executed proxies that are unmarked will be
voted in favor of the proposals presented at the Meeting. An abstention on any
proposal, either by proxy or by vote in person at the Meeting, will be counted
for purposes of establishing a quorum, but has the same effect as a negative
vote.

In the event that a sufficient number of votes to approve a proposal is not
received, the persons named as proxies may propose one or more adjournments of
the Meeting to permit further solicitation of voting instructions, or for any
other purpose. A vote may be taken on any proposal prior to an adjournment if
sufficient votes have been received for approval. Any adjournment will require
the affirmative vote of a majority of those shares represented at the Meeting in
person or by proxy. Unless otherwise instructed, proxies will be voted in favor
of any adjournment. At any subsequent reconvening of the Meeting, proxies
(unless previously revoked) will be voted in the same manner as they would have
been voted at the Meeting.

PROPOSAL NO. 1
ELECTION OF DIRECTORS

The Board of Directors has proposed a slate of six persons for election as
directors of the Fund, each to hold office until the next annual meeting (if
any) or until his or her successor is duly elected and qualified. Each nominee
is currently a director of the Fund and has consented to his or her nomination
and agreed to serve if elected. Each director was elected by stockholders,
except James R. Schmank, who was elected by the other directors on February 10,
1999, and Maynard F. Oliverius, who was so elected on February 6, 1998. If any
of the nominees is not available for election, the persons named as proxies (or
their substitutes) may vote for other persons in their discretion. Management
has no reason to believe that any nominee will be unavailable for election.

The names of the nominees to the Fund's Board of Directors and their
respective offices and principal occupations are set forth below.

NOMINEES TO THE FUND'S BOARD OF DIRECTORS

<TABLE>
<CAPTION>
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FUND SHARES
BENEFICIALLY OWNED, ALL OTHER SECURITY
DIRECTLY OR FUNDS' SHARES OWNED DATE FIRST
NAME, AGE, ADDRESS, POSITION ON INDIRECTLY, AS OF DIRECTLY AS OF BECAME A
FUND BOARD AND PRINCIPAL OCCUPATIONS 8/31/99 8/31/99 DIRECTOR
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DONALD A. CHUBB, JR., 54,
2222 SW 29th Street, Topeka, Kansas 66611,
POSITION ON FUND BOARD: Director of the Fund 1994
PRINCIPAL OCCUPATIONS: Business broker, Griffith & Blair Realtors.
Prior to 1997, President, Neon Tube Light Company, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
JOHN D. CLELAND*, 63,
700 SW Harrison Street, Topeka, Kansas 66636-0001,
POSITION ON FUND BOARD: President and Director of the Fund
PRINCIPAL OCCUPATIONS: Senior Vice President and Managing Member 1990
Representative, Security Management Company, LLC; Senior Vice
President, Security Benefit Group, Inc. and Security Benefit Life
Insurance Company
- ------------------------------------------------------------------------------------------------------------------------------------
PENNY A. LUMPKIN, 60,
3616 Canterbury Town Road, Topeka, Kansas 66610,
POSITION ON FUND BOARD: Director of the Fund
PRINCIPAL OCCUPATIONS: President, Vivians (Corporate Sales); Vice 1993
President, Palmer Companies (Wholesalers, Retailers and Developers);
Vice President, Bellairre Shopping Center (Leasing and Shopping
Center Management)
- ------------------------------------------------------------------------------------------------------------------------------------
MARK L. MORRIS, JR., DVM, 65,
5500 SW 7th Street, Topeka, Kansas 66606,
POSITION ON FUND BOARD: Director of the Fund 1990
PRINCIPAL OCCUPATIONS: Retired. Former General Partner, Mark Morris
Associates (Veterinary Research and Education)
- ------------------------------------------------------------------------------------------------------------------------------------
MAYNARD F. OLIVERIUS, 57,
1500 SW 10th Avenue, Topeka, Kansas 66604,
POSITION ON FUND BOARD: Director of the Fund 1998
PRINCIPAL OCCUPATIONS: President and Chief Executive Officer,
Stormont-Vail Health Care
- ------------------------------------------------------------------------------------------------------------------------------------
JAMES R. SCHMANK*, 46,
700 SW Harrison Street, Topeka, Kansas 66636-0001,
POSITION ON FUND BOARD: Vice President and Director of the Fund 1999
PRINCIPAL OCCUPATIONS: President and Managing Member Representative
of Security Management Company, LLC; Senior Vice President, Security
Benefit Group, Inc. and Security Benefit Life Insurance Company
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
*Nominees who are considered "interested persons" of Security Management Company, LLC by reason of their respective positions with
Security Management Company, LLC, the Fund's investment adviser, and Security Distributors, Inc., the Fund's principal underwriter.
</FN>
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The directors are responsible for general oversight of the Fund's business
and for assuring that the Fund is managed in the best interests of its
stockholders. The Board of Directors held four meetings during fiscal year 1998,
and each director standing for reelection attended all of those meetings, except
Mr. Oliverius who attended three Board meetings subsequent to his election in
February 1998 and Mr. Schmank who was not elected until February 1999. The Board
of Directors has held four meetings so far during fiscal year 1999 and each
director standing for reelection has attended all of the meetings, except Mr.
Cleland who has attended three of the four meetings. The Board of Directors
currently has one committee, the Joint Audit Committee, which also serves as the
Nominating Committee.

The following directors are members of the Fund's Joint Audit Committee: Ms.
Lumpkin, Chairperson; Dr. Morris; and Mr. Chubb. The Joint Audit Committee holds
at least one regular meeting each year, at which time it meets with the Fund's
independent accountants to review: (1) the services provided; (2) the findings
of the most recent audit; (3) management's response to the findings of the most
recent audit; (4) the scope of the audit performed; and (5) any questions or
concerns about the Fund's operations. The Joint Audit Committee met once in 1998
and has met once so far in 1999. All members of the committee participated in
the meetings.

The Nominating Committee meets on an as-needed basis. The committee did not
meet in 1998 and has not met in 1999. The purpose of the committee is to review
and recommend to the full Board of Directors candidates for election as
independent directors to fill vacancies on the Fund's Board. The Nominating
Committee will consider written recommendations from stockholders for possible
nominees. Stockholders should submit their written recommendations to the
secretary of the Fund.

The Fund's directors, except Mr. Cleland and Mr. Schmank who are "interested
persons" of the Investment Manager, receive from the Fund an annual retainer of
$1,667 and a fee of $1,000 per meeting, plus reasonable travel costs, for each
meeting of the Board of Directors attended. In addition, those directors who are
members of the Fund's joint audit committee receive a fee of $1,000 per meeting
and reasonable travel costs for each meeting of the Fund's audit committee
attended. The meeting fee (including the audit committee meeting) and travel
costs are paid proportionately by each of the 35 funds to which the Adviser
provides investment advisory services (collectively, the "Security Fund
Complex") based on each fund's relative net assets.

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

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
PENSION OR RETIREMENT
AGGREGATE BENEFITS ACCRUED AS TOTAL COMPENSATION
COMPENSATION PART OF FUND EXPENSES ESTIMATED ANNUAL FROM THE SECURITY
NAME OF DIRECTOR ------------ --------------------- BENEFITS UPON FUND COMPLEX,
OF THE FUND INCOME FUND INCOME FUND RETIREMENT INCLUDING THE FUNDS
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Donald A. Chubb, Jr. $2,167 $0 $0 $26,000
John D. Cleland 0 0 0 0
Penny A. Lumpkin 2,167 0 0 26,000
Mark L. Morris, Jr. 2,172 0 0 26,294
Maynard Oliverius* 1,500 0 0 18,000
James R. Schmank 0 0 0 0
- --------------------------------------------------------------------------------------------------------
<FN>
*Mr. Oliverius was first elected to the Board of Directors by the other directors on February 6, 1998.
</FN>
- --------------------------------------------------------------------------------------------------------
</TABLE>

REQUIRED VOTE

In the election of directors, each stockholder is entitled to vote that
number of shares owned as of the record date multiplied by the number of
directors to be elected. A stockholder may cast all such votes for a single
director or distribute them among two or more directors. This method of voting
for the election of directors is commonly known as "cumulative voting."

A plurality of the combined votes cast at the meeting by the stockholders of
all Series of the Fund is sufficient to approve the election of a director. THE
BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR ALL OF THE NOMINEES TO
THE FUND'S BOARD OF DIRECTORS.

PROPOSAL NO. 2
SELECTION OF INDEPENDENT ACCOUNTANTS

The selection by the Fund's Board of Directors of the firm of Ernst & Young
LLP as the independent accountants for the Fund for the current fiscal year end
is to be submitted for ratification or rejection by stockholders at the annual
meeting. The firm of Ernst & Young LLP, including a predecessor firm, Arthur
Young and Company, has served the Fund as independent accountants since its
inception. The independent accountants have no direct or material indirect
financial interest in the Fund. Representatives of the firm of Ernst & Young LLP
are not expected to be present at the annual meeting. Approval of this Proposal
No. 2 requires an affirmative majority vote of the shares cast at the meeting of
the Fund in person or by proxy. A "majority vote" is defined as the lesser of
(a) a vote of 67% or more of the Fund shares whose holders are present or
represented by proxy at the meeting if the holders of more than 50% of all
outstanding Fund shares are present in person or represented by proxy at the
meeting, or (b) a vote of more than 50% of all outstanding Fund shares. THE
BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THIS PROPOSAL.

PROPOSAL NO. 3
TO APPROVE CHANGES TO THE FUNDAMENTAL INVESTMENT LIMITATIONS OF THE FUND

Certain investment limitations of the Fund are matters of fundamental policy
and may not be changed without the approval of the Fund's stockholders. The
Investment Manager has recommended to the Board of Directors that certain
fundamental investment limitations of the Fund be amended or eliminated as set
forth below. The Investment Manager believes that the proposed changes reflect
more modern investment practices and will more closely conform the investment
policies of the Fund to those of other mutual funds managed by the Investment
Manager. The changes will allow the Investment Manager to manage the Fund's
investments in a more streamlined and efficient manner. The Investment Manager
plans to make conforming changes to the fundamental investment policies and
limitations of the other funds under its management to further streamline its
investment and compliance processes. The Board of Directors believes that the
proposal is in the best interests of the Fund's stockholders.

The Investment Manager believes that increased standardization of fundamental
investment policies and limitations will promote operational efficiencies and
facilitate monitoring of compliance with fundamental policies. Adoption of the
revised limitations, in some cases, also will give the Fund the flexibility to
change its investment methods in the future without a stockholder vote, provided
that the Board of Directors approves any such change. Set forth below is each of
the proposed changes. Stockholders have the option to approve all, some or none
of the proposed changes.

PROPOSAL NO. 3(A)
TO ELIMINATE THE FUNDAMENTAL INVESTMENT LIMITATION CONCERNING
INVESTMENT IN COMPANIES WITH LESS THAN THREE YEARS' OPERATING HISTORY

Each Series of the Fund, except High Yield Series and Capital Preservation
Series, is currently subject to a fundamental investment limitation concerning
investment in companies having a record of less than three years' continuous
operation, and the Investment Manager recommends that stockholders approve the
elimination of this fundamental investment limitation. If the proposal is
approved, the Directors intend to replace the current fundamental investment
limitation with an operating policy that could be changed without a vote of
stockholders. The current fundamental investment limitation and proposed
operating policy are set forth below.

- --------------------------------------------------------------------------------
CURRENT PROPOSED
- --------------------------------------------------------------------------------
Not to invest in companies having a As an operating policy, the Series may
record of less than three years' not invest in securities of an issuer,
continuous operation, which may that together with any predecessor,
include the operations of predecessor has been in operation for less than
corporations. three years if, as a result, more than
5% of the total assets of a Series
would then be invested in such
securities.
- --------------------------------------------------------------------------------

Adoption of the proposed standardized operating policy would facilitate the
Investment Manager's compliance program and would enable the Fund to respond
more promptly if purchase of the securities of unseasoned issuers becomes more
desirable in the future. THE BOARD OF DIRECTORS THEREFORE UNANIMOUSLY RECOMMENDS
THAT STOCKHOLDERS VOTE FOR PROPOSAL NO. 3(A).

PROPOSAL NO. 3(B)
TO ELIMINATE THE FUNDAMENTAL INVESTMENT LIMITATION CONCERNING
PURCHASING SECURITIES OF AN ISSUER IN WHICH THE OFFICERS AND DIRECTORS
OWN MORE THAN 5% OF THE OUTSTANDING SECURITIES OF SUCH ISSUER

Each Series of the Fund, except Capital Preservation Series, is currently
subject to a fundamental investment limitation concerning purchasing the
securities of an issuer if the officers and directors of the Fund, Underwriter,
or Investment Manager own more than 1/2 of 1% of such securities, or if all such
persons together own more than 5% of such securities. The Investment Manager
recommends that stockholders approve the elimination of this fundamental
investment limitation.

This limitation was originally adopted to address state or "Blue Sky"
requirements in connection with the registration of shares of the Fund for sale.
The Fund is no longer subject to such requirements. The Investment Manager
recommends that this fundamental investment limitation be eliminated because,
while it has not precluded investments in the past, its elimination could
increase the Fund's flexibility when choosing investments in the future. THE
BOARD OF DIRECTORS THEREFORE UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
PROPOSAL NO. 3(B).

PROPOSAL NO. 3(C)
TO AMEND THE FUNDAMENTAL INVESTMENT LIMITATION CONCERNING DIVERSIFICATION

Each Series of the Fund, except the High Yield Series and the Capital
Preservation Series, is currently subject to a fundamental limitation concerning
the diversification of its assets among issuers, and the Investment Manager
recommends a change in the fundamental limitation. The current and proposed
fundamental investment limitations are set forth below (the proposed fundamental
limitation is currently in place for High Yield Series of the Fund).

- --------------------------------------------------------------------------------
CURRENT PROPOSED
- --------------------------------------------------------------------------------
Not to invest more than 5% of its Not to invest more than 5% of its
assets in the securities of any one total assets in the securities of any
issuer (other than securities of the one issuer (other than obligations of,
U.S. Government, its agencies or or guaranteed by, the U.S. Government,
instrumentalities). its agencies or instrumentalities);
provided that this limitation applies
only with respect to 75% of a Series'
total assets.
- --------------------------------------------------------------------------------

The proposed fundamental investment limitation would conform the Fund's
investment limitation to Section 5(b)(1) of the Investment Company Act of 1940
and would allow each Series of the Fund to invest a greater percentage of its
assets in a single issuer. If the proposed investment limitation were adopted, a
Series would be limited, with respect to 75% of its total assets, to investing
no more than 5% of its total assets in the securities of any one issuer. No such
limitation would apply, however, to the remaining 25% of the Fund's total
assets. The proposed fundamental investment limitation, if adopted, could
increase the risk to the Fund by permitting it to invest a greater percentage of
its assets in a single issuer and correspondingly to have greater exposure in
the event of adverse developments with respect to such an issuer.

The Fund interprets this proposed limitation to require that any positions in
a single issuer in excess of 5%, in total must not exceed 25%, of the Fund's
total assets. For example, the Fund would not invest 30% of its total assets in
the securities of a single issuer on the basis that 25% was allocated to the
non-diversified 25% of total assets and 5% was allocated to the diversified 75%
of total assets.

The Board of Directors believes that adoption of the amended limitation is in
the best interests of stockholders because a standardized fundamental investment
limitation will facilitate investment compliance efforts and will give the Fund
the flexibility to take a larger position in the securities of a single issuer
if the Investment Manager believes that such a position is advisable and is
consistent with the investment objective and policies of the Fund. THE BOARD OF
DIRECTORS THEREFORE UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL
NO. 3(C).

PROPOSAL NO. 3(D)
TO AMEND THE FUNDAMENTAL INVESTMENT LIMITATION
CONCERNING SHARE OWNERSHIP OF ANY ONE ISSUER

Each Series of the Fund currently is subject to a fundamental investment
limitation concerning limits on investment in the outstanding voting securities
of any one issuer, and the Investment Manager recommends a change in the
fundamental limitation. The current and proposed fundamental investment
limitations are set forth below (the proposed fundamental investment limitation
is currently in place for the Capital Preservation Series of the Fund).

- --------------------------------------------------------------------------------
CURRENT PROPOSED
- --------------------------------------------------------------------------------
Not to purchase more than 10% of the Not to purchase a security if, as a
outstanding voting securities (or of result, with respect to 75% of the
any one class of outstanding value of a Series' total assets, more
securities) of any one issuer (other than 10% of the outstanding voting
than securities of the U.S. securities of any issuer would be held
Government, its agencies or by the Series (other than obligations
instrumentalities). issued or guaranteed by the U.S.
Government, its agencies or
instrumentalities).
- --------------------------------------------------------------------------------

The proposed fundamental investment limitation would conform the Fund's
investment limitation to Section 5(b)(1) of the Investment Company Act of 1940
and would allow each Series of the Fund to invest a greater percentage of its
assets in a single issuer. If the proposed investment limitation were adopted, a
Series would be limited, with respect to 75% of its total assets, to purchasing
no more than 10% of the outstanding voting securities of any one issuer. No such
limitation would apply, however, to the remaining 25% of the Fund's total
assets. The proposed fundamental investment limitation, if adopted, could
increase the risk to the Fund by permitting it to invest a greater percentage of
its assets in a single issuer and correspondingly to have greater exposure in
the event of adverse developments with respect to such an issuer.

PROPOSAL NO. 3(E)
TO ELIMINATE THE FUNDAMENTAL INVESTMENT LIMITATION
CONCERNING INVESTING FOR CONTROL OF PORTFOLIO COMPANIES

Each Series of the Fund, except the Capital Preservation Series, currently is
subject to a fundamental investment limitation concerning investing for control
of portfolio companies. The Investment Manager recommends eliminating the
fundamental limitation and replacing it with an operating policy that may be
changed by the directors without a vote of stockholders. The current fundamental
limitation and proposed operating policy are set forth below.

- --------------------------------------------------------------------------------
CURRENT PROPOSED
- --------------------------------------------------------------------------------
Not to invest in companies for the As an operating policy, the Series may
purpose of exercising control of not invest in companies for the
management. purpose of exercising management or
control.
- --------------------------------------------------------------------------------

The Board of Directors believes that eliminating this fundamental limitation
and replacing it with an operating policy is in the best interests of
stockholders, because a standardized fundamental investment limitation will
facilitate investment compliance efforts. THE BOARD OF DIRECTORS THEREFORE
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL NO. 3(E).

PROPOSAL NO. 3(F)
TO AMEND THE FUNDAMENTAL INVESTMENT LIMITATION CONCERNING UNDERWRITING

Each Series of the Fund currently is subject to a fundamental investment
limitation concerning underwriting, and the Investment Manager recommends a
change in the fundamental limitation. The current and proposed fundamental
investment limitations are set forth below (the proposed fundamental investment
limitation is currently in place for the Capital Preservation Series of the
Fund).

- --------------------------------------------------------------------------------
CURRENT PROPOSED
- --------------------------------------------------------------------------------
Not to act as underwriter of Not to act as underwriter of
securities of other issuers. securities issued by others, except to
the extent that a Series may be
considered an underwriter within the
meaning of the Securities Act of 1933
in the disposition of restricted
securities.
- --------------------------------------------------------------------------------

The primary purpose of the proposed amendment is to clarify that the Fund is
not prohibited from selling restricted securities if, as a result of such sale,
the Fund is considered an underwriter under federal securities laws and to
revise the Fund's fundamental limitation on underwriting so that it conforms to
a limitation which is expected to become standard for all funds managed by the
Investment Manager. While the proposed change will have no current impact on the
Fund, adoption of the proposed standardized fundamental investment limitation
will advance the goals of standardization discussed above. THE BOARD OF
DIRECTORS THEREFORE UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL
NO. 3(F).

PROPOSAL NO. 3(G)
TO AMEND THE FUNDAMENTAL INVESTMENT LIMITATION
CONCERNING BUYING OR SELLING REAL ESTATE

Each Series of the Fund currently is subject to a fundamental investment
limitation concerning investment in real estate, and the Investment Manager
recommends a change in the fundamental investment limitation. The current and
proposed fundamental investment limitations are set forth below (a fundamental
investment limitation substantially similar to the proposed fundamental
investment limitation is currently in place for the Capital Preservation Series
of the Fund).

- --------------------------------------------------------------------------------
CURRENT PROPOSED
- --------------------------------------------------------------------------------
Not to purchase or sell real estate. Not to purchase or sell real estate
unless acquired as a result of
ownership of securities or other
instruments (but this shall not
prevent a Series from investment in
securities or other instruments backed
by real estate or securities of
companies engaged in the real estate
business).
- --------------------------------------------------------------------------------

The Fund has interpreted this fundamental investment limitation to allow the
purchase of securities or other instruments backed by real estate or securities
of companies engaged in the real estate business. The proposed investment
limitation makes explicit this interpretation and also specifically permits the
Fund to sell real estate acquired as a result of ownership of securities or
other instruments. The Investment Manager considers direct ownership of real
estate as a result of ownership of securities or other instruments to be a
remote possibility. THE BOARD OF DIRECTORS THEREFORE UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE FOR PROPOSAL NO. 3(G).

PROPOSAL NO. 3(H)
TO AMEND THE FUNDAMENTAL INVESTMENT LIMITATION
CONCERNING COMMODITIES OR COMMODITIES CONTRACTS

Each Series of the Fund currently is subject to a fundamental investment
limitation concerning investment in commodities or commodities contracts, and
the Investment Manager recommends a change in the fundamental investment
limitation. The current and proposed fundamental investment limitations are set
forth below (the proposed fundamental investment limitation is currently in
place for the Capital Preservation Series of the Fund).

- --------------------------------------------------------------------------------
CURRENT PROPOSED
- --------------------------------------------------------------------------------
Not to buy or sell commodities or Not to purchase or sell physical
commodity contracts. commodities, except that a Series may
enter into futures contracts and
options thereon.
- --------------------------------------------------------------------------------

The Fund has interpreted the fundamental policy limitation concerning
commodities to allow investment in financial futures contracts and options
thereon. The proposed amendment of this fundamental policy limitation modernizes
the language to reflect this interpretation but does not change the Fund's
approach to investing in commodities. The Fund does not intend to engage in the
buying or selling of physical commodities such as pork, corn and wheat futures
or related commodity contracts other than financial instruments. THE BOARD OF
DIRECTORS THEREFORE UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL
NO. 3(H).

PROPOSAL NO. 3(I)
TO AMEND THE FUNDAMENTAL INVESTMENT LIMITATION CONCERNING LENDING

Each Series of the Fund is currently subject to a fundamental investment
limitation concerning lending, and the Investment Manager recommends a change in
the fundamental investment limitation and adoption of an operating policy that
may be changed without a vote of stockholders. The current and proposed
fundamental investment limitations and proposed operating policy are set forth
below (a fundamental investment limitation substantially similar to the proposed
fundamental investment limitation is currently in place for the Capital
Preservation Series of the Fund).

- --------------------------------------------------------------------------------
CURRENT PROPOSED
- --------------------------------------------------------------------------------
Not to make loans to other persons Not to lend any security or make any
other than for the purchase of other loan if, as a result, more than
publicly distributed debt securities 33 1/3% of a Series' total assets
and U.S. Government obligations or by would be lent to other parties, except
entry into repurchase agreements. (i) through the purchase of a portion
of an issue of debt securities in
accordance with its investment
objective and policies, or (ii) by
engaging in repurchase agreements with
respect to portfolio securities.

As an operating policy, the Series do
not currently intend to lend assets
other than securities to other
parties. (This limitation does not
apply to purchases of debt securities
or to repurchase agreements.)
- --------------------------------------------------------------------------------

This proposal if adopted will affect the way in which the Fund is managed in
that it will allow the Fund to engage in securities lending. Securities loans
are made to broker-dealers or institutional investors or other persons, pursuant
to agreements requiring that the loans be continuously secured by collateral at
least equal at all times to the value of the securities lent marked to market on
a daily basis. The collateral received would consist of cash, U.S. government
securities, letters of credit or such other collateral as may be permitted under
the Fund's investment program. While the securities loans are outstanding, the
Fund would continue to receive the equivalent of the interest or dividends paid
by the issuer of the securities, as well as interest on the investment of the
collateral or a fee from the borrower. The Fund would have a right to call each
loan and obtain the securities within the period of time that coincides with the
normal settlement time period for purchases and sales of such securities in
their respective markets. The Fund would not have the right to vote securities
while they are being lent, but it would call a loan in anticipation of any
important vote.

The risks in lending portfolio securities, as with other extensions of
secured credit, consist of possible delay in receiving additional collateral or
in the recovery of the securities or possible loss of rights in the collateral
should the borrower fail financially. Loans would be made only to firms deemed
by the Investment Manager to be of good standing and would not be made unless,
in the judgment of the Investment Manager, the consideration to be earned from
such loans would justify the risk.

In addition to the potential benefits of securities lending, the adoption of
standardized investment policies as proposed will advance the goals of
investment limitation standardization. THE BOARD OF DIRECTORS THEREFORE
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL NO. 3(I).

PROPOSAL NO. 3(J)
TO ELIMINATE THE FUNDAMENTAL INVESTMENT LIMITATION
CONCERNING INVESTMENT IN PUTS, CALLS, STRADDLES OR SPREADS

Each Series of the Fund, except the High Yield Series and the Capital
Preservation Series, is currently subject to a fundamental investment limitation
concerning investment in puts, calls, straddles, spreads or a combination
thereof, and the Investment Manager recommends that stockholders approve the
elimination of this fundamental investment limitation. If the proposal is
approved, the directors intend to replace the current fundamental investment
limitation with an operating policy that could be changed without a vote of
stockholders. The current fundamental investment limitation and proposed
operating policy are set forth below.

- --------------------------------------------------------------------------------
CURRENT PROPOSED
- --------------------------------------------------------------------------------
Not to invest its assets in puts, As an operating policy, the Series may
calls, straddles, spreads, or any buy and sell exchange-traded and
combination thereof. over-the-counter put and call options,
including index options, securities
options, currency options and options
on futures, provided that a call or
put may be purchased only if after
such purchase, the value of all call
and put options held by a Series will
not exceed 5% of the Series' total
assets. The Series may write only
covered put and call options. The
Series do not currently intend to
engage in spread or straddle
transactions.
- --------------------------------------------------------------------------------

A call option on a security gives the purchaser of the option, in return for
a premium paid to the writer (seller), the right to buy the underlying security
at the exercise price at any time during the option period. Upon exercise by the
purchaser, the writer (seller) of a call option has the obligation to sell the
underlying security at the exercise price. When the Fund purchases a call
option, it will pay a premium to the party writing the option and a commission
to the broker selling the option. If the option is exercised by the Fund, the
amount of the premium and the commission paid may be greater than the amount of
the brokerage commission that would be charged if the security were to be
purchased directly. By writing a call option, the Fund assumes the risk that it
may be required to deliver the security having a market value higher than its
market value at the time the option was written. The Fund will write call
options in order to obtain a return on its investments from the premiums
received and will retain the premiums whether or not the options are exercised.
Any decline in the market value of the Fund's portfolio securities will be
offset to the extent of the premiums received (net of transaction costs). If an
option is exercised, the premium received on the option will effectively
increase the exercise price.

The Fund will write only covered call options. This means that the Fund will
own the security or currency subject to the option or an option to purchase the
same underlying security or currency, having an exercise price equal to or less
than the exercise price of the "covered" option, or will establish and maintain
with its custodian for the term of the option, an account consisting of cash or
liquid securities having a value equal to the fluctuating market value of the
optioned securities or currencies. During the option period, the writer of a
call option has given up the opportunity for capital appreciation above the
exercise price should the market price of the underlying security increase, but
has retained the risk of loss should the price of the underlying security
decline. Writing call options also involves the risk relating to the Fund's
ability to close out options it has written.

A put option on a security gives the purchaser of the option, in return for
premium paid to the writer (seller), the right to sell the underlying security
at the exercise price at any time during the option period. Upon exercise by the
purchaser, the writer of a put option has the obligation to purchase the
underlying security at the exercise price. The Fund will write only covered put
options, which means that the Fund will maintain in a segregated account cash or
liquid securities in an amount not less than the exercise price or the Fund will
own an option to sell the underlying security or currency subject to the option
having an exercise price equal to or greater than the exercise price of the
"covered" option at all times in which the put option is outstanding. By writing
a put option, the Fund will assume the risk that it may be required to purchase
the underlying security at a price in excess of its current market value.

Options can be highly volatile and could result in reduction of the Fund's
total return, and the Fund's attempt to use such investments for hedging
purposes may not be successful. Losses from options could be significant if the
Fund were unable to close out its position due to distortions in the market or
lack of liquidity.

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

The Board of Directors has considered the risks associated with investment in
options and believes that the use of options may be beneficial to the Fund under
certain circumstances. The Board of Directors further believes that adoption of
standardized operating policies will contribute to the overall objectives of
standardization. THE BOARD OF DIRECTORS THEREFORE UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE FOR PROPOSAL NO. 3(J).

PROPOSAL NO. 3(K)
TO ELIMINATE THE FUNDAMENTAL INVESTMENT LIMITATION
CONCERNING INVESTMENT IN OIL, GAS, MINERAL LEASES OR
OTHER MINERAL EXPLORATION DEVELOPMENT PROGRAMS

Each Series of the Fund currently is subject to a fundamental investment
limitation concerning investment in limited partnerships or similar interests in
oil, gas, mineral leases or mineral exploration or development programs, and the
Investment Manager recommends that stockholders approve the elimination of this
fundamental investment limitation. If the proposal is approved, the directors
intend to replace the current fundamental investment limitation with an
operating policy that could be changed without a vote of stockholders. The
current fundamental investment limitation and proposed operating policy are set
forth below.

- --------------------------------------------------------------------------------
CURRENT PROPOSED
- --------------------------------------------------------------------------------
Not to invest in limited partnerships As an operating policy, the Series do
or similar interests in oil, gas, not currently intend to invest in oil,
mineral lease, mineral exploration or gas, mineral leases or other mineral
development programs; provided, exploration or development programs.
however, that the Fund may invest in
the securities of other corporations
whose activities include such
exploration and development.
- --------------------------------------------------------------------------------

The proposed change would not currently affect the Fund. Adoption of a
standardized operating policy would, however, facilitate the Investment Manger's
compliance efforts and would enable the Fund to respond more promptly in the
future. THE BOARD OF DIRECTORS THEREFORE UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE FOR PROPOSAL NO. 3(K).

PROPOSAL NO. 3(L)
TO AMEND THE FUNDAMENTAL INVESTMENT LIMITATION CONCERNING BORROWING

Each Series of the Fund currently is subject to a fundamental investment
limitation concerning borrowing, and the Investment Manager recommends a change
in the fundamental investment limitation and adoption of an operating policy
that may be changed without a vote of stockholders. The current and proposed
fundamental investment limitations and proposed operating policy are set forth
below (a fundamental investment limitation substantially similar to the proposed
fundamental investment limitation is currently in place for the Capital
Preservation Series of the Fund).

- --------------------------------------------------------------------------------
CURRENT PROPOSED
- --------------------------------------------------------------------------------
With respect to Corporate Bond and Not to borrow in excess of 33 1/3% of
U.S. Government Series, not to borrow a Series' total assets.
money except for emergency purposes,
and then not in excess of 5% of its As an operating policy, the Series may
total assets at the time the loan is not borrow money or securities for any
made. With respect to Limited Maturity purposes except that borrowing up to
Bond Series, not to borrow money in 10% of a Series' total assets from
excess of 10% of its total assets at commercial banks is permitted for
the time the loan is made and then emergency or temporary purposes.
only as temporary measure for
emergency purposes, to facilitate
redemption requests, or for other
purposes consistent with its
investment objectives and policies.
With respect to High Yield Series, not
to borrow money, except that (a) the
Series may enter into certain futures
contracts and options related thereto;
(b) the Series may enter into
commitments to purchase securities in
accordance with the Series' investment
program, including delayed delivery
and when-issued securities and reverse
repurchase agreements; and (c) for
temporary emergency purposes, the
Series may borrow in amounts not
exceeding 33 1/3% of the value of the
Series' total assets at the time the
loan is made.
- --------------------------------------------------------------------------------

The primary purpose of the proposed change to the fundamental investment
limitation concerning borrowing is to conform it to a limitation that is
expected to become standard for all funds managed by the Investment Manager. If
the proposal is approved, the amended fundamental borrowing limitation cannot be
changed without a future vote of stockholders. The operating policy could be
changed upon the vote of the Board of Directors.

Adoption of the proposed amendment is not expected to affect the way the Fund
is managed, the investment performance of the Fund, or the securities or
instruments in which the Fund invests.

The increase in the permissible level of borrowing would allow the Board of
Directors to amend the operating policy in the future to allow the Fund to
engage in leveraging. Leveraging is a speculative investment technique which
consists of purchasing securities with borrowed funds. There are risks
associated with purchasing securities while borrowings are outstanding,
including a possible reduction of income and increased fluctuation of net asset
value per share. Interest on money borrowed is an expense the Fund would not
otherwise incur, so that it may have little or no net investment income during
periods of substantial borrowings. Borrowing for investment therefore increases
both investment opportunity and risk. While the Fund has no current intention to
purchase securities while borrowings equal to 5% of its total assets are
outstanding, the flexibility to do so may be beneficial to the Fund at a future
date.

The proposed change will have no current impact on the Fund. However,
adoption of a standardized fundamental investment policy will facilitate
investment compliance efforts and will enable the Fund to respond more promptly
if circumstances suggest such a change in the future. THE BOARD OF DIRECTORS
THEREFORE UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL NO. 3(L).

PROPOSAL NO. 3(M)
TO ELIMINATE THE FUNDAMENTAL INVESTMENT LIMITATION
CONCERNING INVESTMENT IN OTHER INVESTMENT COMPANIES

Each Series of the Fund, except the Capital Preservation Series, currently is
subject to a fundamental investment limitation concerning investment in
securities of other investment companies, and the Investment Manager recommends
that stockholders approve the elimination of this fundamental investment
limitation. If the proposal is approved, the Directors intend to replace the
current fundamental investment limitation with an operating policy which could
be changed without a vote of stockholders. The current fundamental investment
limitation and proposed operating policy are set forth below.

Elimination of the above fundamental limitation is not expected to have a
significant impact on the Fund's investment practices, because the Fund
currently does not expect to invest in shares of other investment companies.
However, investment in shares of money market mutual funds may from time to time
offer a convenient way to invest the Fund's idle cash. To the extent that the
Fund invests in shares of other investment companies, it will have the effect of
requiring stockholders to pay the operating expenses of two mutual funds. THE
BOARD OF DIRECTORS THEREFORE UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
PROPOSAL NO. 3(M).

PROPOSAL NO. 3(N)
TO AMEND THE FUNDAMENTAL INVESTMENT LIMITATION
CONCERNING SENIOR SECURITIES

Each Series of the Fund currently is subject to a fundamental investment
limitation concerning senior securities, and the Investment Manager recommends
that stockholders approve the amendment of this fundamental investment
limitation. The current and proposed fundamental investment limitations are set
forth below (the proposed fundamental investment limitation is currently in
place for the Limited Maturity Bond and High Yield Series of the Fund, and a
fundamental investment limitation substantially similar to the proposed
fundamental investment limitation is currently in place for the Capital
Preservation Series of the Fund).

- --------------------------------------------------------------------------------
CURRENT Proposed
- --------------------------------------------------------------------------------
Not to issue senior securities. Not to issue senior securities, except
as permitted under the Investment
Company Act of 1940.
- --------------------------------------------------------------------------------

The primary purpose of this proposed change is to revise the Fund's
fundamental investment limitation to conform to a limitation that is expected to
become standard for all funds managed by the Investment Manager. If the proposal
is adopted, the new limitation concerning senior securities could not be changed
without a vote of stockholders.

The proposed limitation allows the Fund to issue senior securities to the
full extent permitted under the Investment Company Act of 1940 (the "1940 Act").
Although the definition of "senior security" involves complex statutory and
regulatory concepts, a senior security is generally an obligation of a fund that
has claim to the fund's assets or earnings that takes precedence over the claims
of the fund's stockholders. The 1940 Act generally prohibits mutual funds from
issuing senior securities; however, mutual funds are permitted to engage in
certain types of transactions that might be considered "senior securities"
provided certain conditions are satisfied. For example, a transaction which
obligates a fund to pay money at a future date, such as the purchase of
securities to be settled on a date that is further in the future than the normal
settlement period, may be considered a "senior security." A mutual fund is
permitted to enter into this type of transaction if it maintains a segregated
account containing liquid securities in an amount equal to its obligation to pay
cash for the securities at a future date. The Fund utilizes transactions that
may be considered "senior securities" only in accordance with applicable
requirements under the 1940 Act.

Adoption of the proposed limitation on senior securities is not expected to
affect the way in which the Fund is managed, its investment performance or the
securities or instruments in which the Fund invests. The Board of Directors
believes, however, that adoption of a standardized fundamental investment
limitation is in the best interests of stockholders because it will facilitate
the Investment Manager's compliance efforts. In addition, the Board believes
that the proposed limitation will allow the Fund to respond to developments in
the mutual fund industry and the 1940 Act which may make the use of senior
securities advantageous. THE BOARD OF DIRECTORS THEREFORE UNANIMOUSLY RECOMMENDS
THAT STOCKHOLDERS VOTE FOR PROPOSAL NO. 3(N).

PROPOSAL NO. 3(O)
TO ELIMINATE THE FUNDAMENTAL INVESTMENT LIMITATION
CONCERNING RESTRICTED SECURITIES

Each Series of the Fund, except the Capital Preservation Series, currently is
subject to a fundamental investment limitation concerning restricted securities,
and the Investment Manager recommends that stockholders approve the elimination
of this fundamental investment limitation. If the proposal is approved, the
Directors intend to replace the current fundamental investment limitation with
an operating policy that could be changed without a vote of stockholders. The
current fundamental investment limitation and proposed operating policy are set
forth below.

The Fund's current fundamental limitation prohibits or limits investment in
restricted securities and, with respect to High Yield Series, limits investment
in illiquid securities to 15% of its total assets. An illiquid security is
generally any security that cannot be disposed of within seven days in the
ordinary course of business at approximately the amount at which the fund has
valued the instrument. Restricted securities, particularly those that are not
eligible for resale pursuant to Rule 144A, are often illiquid.

Restricted securities may be sold only in privately negotiated transactions
or in a public offering with respect to which a registration statement is in
effect under the 1933 Act. Where registration is required, the Fund may be
obligated to pay all or part of the registration expenses, and a considerable
period of time may elapse between the time of the decision to sell and the time
the Fund may be permitted to sell a security under an effective registration
statement. If, during such a period, adverse market conditions were to develop,
the Fund might obtain a less favorable price than prevailed when it decided to
sell.

The Board of Directors believes that the proposed operating policy is in the
best interests of stockholders because of the benefits of standardized
limitations and the flexibility to respond more promptly if increased investment
in restricted securities would be beneficial to the Fund in the future. The
limit on investment in illiquid securities would remain in place as an operating
policy that may be changed without the approval of stockholders. The SEC
currently limits a fund's investment in illiquid securities to 15% of its total
assets.

The Board of Directors proposes to limit investment in restricted securities
to 10% of its total assets, provided that there would be no limit on investment
in securities that are eligible for resale pursuant to Rule 144A. This rule
permits certain qualified institutional buyers, such as the Fund, to trade in
privately placed securities even though such securities are not registered under
the 1933 Act. The Investment Manager under the direction of the Board of
Directors would determine whether securities purchased under Rule 144A are
illiquid and therefore subject to the Fund's restriction of investing no more
than 15% of its net assets in illiquid securities. Increased investment in
restricted securities could have the effect of increasing the amount of the
Fund's assets invested in illiquid securities. THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR PROPOSAL NO. 3(O).

REQUIRED VOTE

Each of Proposal Nos. 3(a) through 3(o) will be adopted with respect to a
Series of the Fund if it is approved by the vote of a majority of outstanding
shares of that Series, as defined in the 1940 Act. A "majority vote" is defined
as the lesser of (a) a vote of 67% or more of the Series shares whose holders
are present or represented by proxy at the meeting if the holders of more than
50% of all outstanding Series shares are present in person or represented by
proxy at the meeting, or (b) a vote of more than 50% of all outstanding Series
shares.

Each change that is approved by stockholders will become effective upon the
conclusion of the Meeting and the investment limitations will be as described
above and set forth in Exhibit A. For any change that is not approved by a
majority vote of a Series shares, the Fund's current investment limitation, as
set forth in the applicable sub-portion of Proposal 3, would remain unchanged
with respect to that Series. The Board of Directors believes that all of the
proposed changes to the fundamental investment limitations of the Fund, as set
forth in Proposal No. 3, are in the best interests of stockholders. THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS VOTING FOR ALL OF THE CHANGES SET FORTH IN
PROPOSAL NO. 3.

PROPOSAL NO. 4
APPROVAL OF AN ARRANGEMENT AND NEW INVESTMENT ADVISORY
CONTRACT THAT WOULD PERMIT SECURITY MANAGEMENT COMPANY, LLC,
WITH BOARD APPROVAL, TO ENTER INTO OR AMEND SUB-ADVISORY
AGREEMENTS WITHOUT STOCKHOLDER APPROVAL

The Board of Directors of the Fund recommends the approval of an arrangement,
along with a new Investment Advisory Contract, that together would permit SMC,
subject to Board approval, to enter into and/or amend sub-advisory agreements
without obtaining the approval of Fund stockholders.

The Fund currently issues its shares in five separate series (each a
"Series"). At this time, none of the Series utilizes the services of a
sub-adviser and, currently, Capital Preservation Series does not utilize the
services of an investment adviser. The Capital Preservation Series seeks to
achieve its investment objective by investing all of its assets in the BT
PreservationPlus Income Portfolio, which is managed by Bankers Trust Company.
However, SMC may in the future wish to use one or more sub-advisers to manage
all or part of a Series' assets. If the proposal were approved, SMC on behalf of
the Fund, would be provided with greater flexibility in retaining the services
of one or more sub-advisers, replacing sub-advisers or materially amending the
terms of a sub-advisory contract.

Section 15(a) of the 1940 Act requires that all contracts pursuant to which
persons serve as investment advisers to investment companies be approved by
stockholders. As interpreted, this requirement would apply to the appointment of
sub-advisers to the Fund, should SMC and the Board determine to appoint one or
more sub-advisers in the future. In order to obtain stockholder approval in
accordance with Section 15(a) of the 1940 Act, the Fund would have to prepare
and distribute proxy materials and hold a special meeting of stockholders,
causing it to incur costs and delays in implementing contracts with
sub-advisers. The United States Securities and Exchange Commission (the "SEC"),
however, has granted conditional exemptions from the stockholder approval
requirements. SMC and the Fund have applied for such an exemption. If the
exemption is granted and the proposal is approved, any sub-advisory agreement
entered into would continue to require the approval of a majority of the Board,
including a majority of the Directors who are not "interested persons" of the
Fund or SMC (as defined in the 1940 Act). Thus, the Board could, if it
determined it to be in the best interests of the Fund and its investors,
authorize SMC to hire or replace one or more sub-advisers, or change the terms
of sub-advisory agreements. The Fund would not have to obtain approval of
stockholders, who would instead receive notice of the change, including the same
information they would receive in a proxy statement if their approval were
required.

The Board has approved the submission of an application to the SEC for an
order exempting the Fund from the requirement of the 1940 Act that stockholders
approve sub-advisory agreements or amendments thereto. On July 23, 1999, the
Board met to consider placing this proposal on the agenda for the stockholder
meeting. After consideration of information about the proposal that was provided
by SMC (including the information contained in the exemptive application), the
Board concluded that the proposal is reasonable, fair, and in the best interest
of the Fund and its stockholders. Accordingly, the Board unanimously approved
the proposal and voted to recommend its approval by stockholders. As noted
above, this proposal also involves the consideration of a new Investment
Advisory Contract between the Fund, with respect to all Series, except Capital
Preservation Series, and SMC. The new contract simply recognizes the fact that
SMC may in the future, with Board approval, retain the services of one or more
sub-advisers, replace sub-advisers or amend sub-advisory contracts as
contemplated in this proposal. The new Investment Advisory Contract does NOT
provide for any increase in the investment advisory fee paid to SMC. The
existing and new Investment Advisory Contracts are described in more detail
below under the headings "Existing Investment Advisory Contract" and "New
Investment Advisory Contract," respectively.

The Board now seeks the approval of Fund stockholders which would: (i)
authorize SMC on behalf of the Fund to enter into sub-advisory agreements or
amend such agreements without obtaining stockholder approval; and (ii) approve
the new Investment Advisory Contract between the Fund, with respect to all
Series, except Capital Preservation Series, and SMC. The Fund's use of the
authority that would be granted by this proposal is contingent upon the SEC's
issuance of an order permitting the Fund to do so.

BOARD CONSIDERATION OF PROPOSAL NO. 4

At its July 23, 1999 meeting, the Board considered various information
provided by SMC, including the information contained in the exemptive
application submitted to the SEC. Based on this information, the Board concluded
that approval of the proposal is in the best interests of the Fund and its
investors. Among the things considered by the Board in reaching this conclusion
was that (i) the proposal would permit the Fund to avoid the costs and
administrative burden that would be incurred if the Fund was compelled to
conduct a proxy solicitation each time SMC and the Board determine to hire a
sub-adviser or amend a sub-advisory agreement; (ii) to the extent that SMC
retains the services of a sub-adviser on behalf of the Fund, approval of the
related sub-advisory agreement tends to be less important to Fund stockholders
than such approval may be to stockholders which do not use the services of a
sub-adviser and (iii) the proposal would maintain important safeguards and
protections for Fund stockholders. The information considered by the Board is
discussed in greater detail below.

Currently, in order to approve a sub-advisory agreement (including the
requirement to re-approve a sub-advisory agreement that has been terminated as a
result of an "assignment"), to substitute one sub-adviser for another, or to
amend a sub-advisory agreement, the Fund must obtain the approval of
stockholders. Seeking this approval imposes costs and burdens on the Fund and,
indirectly, upon stockholders. Some of these costs include printing costs for
the proxy statements, proxy cards, and return envelopes; postage (including
return postage); tabulation of proxy cards; if necessary, solicitation and other
expenses incurred in order to obtain a quorum; and the costs of the meeting
itself. Accordingly, the Board considered that the proposal would permit the
Fund to minimize these expenses and administrative burdens if, in the future, a
sub-adviser was retained.

In addition, under the current arrangement, once SMC and the Board determine
that using the services of one or more sub-advisers (or replacing or eliminating
a sub-adviser, or amending a sub-advisory agreement once a sub-adviser is
retained) is in the best interest of stockholders, a delay may occur until the
Fund can obtain the necessary approval of stockholders. Typically, it requires
approximately three months to prepare a proxy solicitation, send it to
stockholders, receive and tabulate the result, and hold the meeting. During this
period, the Fund loses the benefit of the addition or replacement of the
sub-adviser, or the amendment to the sub-advisory agreement. Approval of the
proposal would permit the Board and SMC to reduce or eliminate this delay.

The second factor considered by the Board was the fact that, to the extent a
Fund uses the services of one or more sub-advisers, the sub-adviser plays a role
analogous to that of an individual portfolio manager employed by a typical
mutual fund's investment adviser, making approval of sub-advisory agreements
less important. In the case of a mutual fund that does not use a sub-adviser,
the fund's investment adviser provides corporate management and administrative
services, along with portfolio management services. Typically, the investment
adviser chooses an individual or individuals on its staff to perform the actual
day-to-day management of the portfolio. Although the investment adviser
discloses to stockholders the individual's identity, the company is not required
to, and does not, submit approval of the choice of individual to the
stockholders. Rather, accountability lies with the investment adviser itself,
which has the responsibility of monitoring the individual's investment
performance and replacing the individual if doing so is in the best interest of
stockholders.

Under a structure where sub-advisers are used, the sub-adviser takes the
place of the individual portfolio manager. The investment adviser has ultimate
accountability for the performance of the sub-advisers. The Board believes that,
should the Fund use the services of a sub-adviser, stockholders will expect SMC
to select and retain sub-advisers who successfully meet the Fund's objectives
and policies and replace those who do not. The Board further believes that, in
such cases, stockholders will determine to rely on SMC's ability to select,
monitor, and terminate sub-advisers just as stockholders have currently elected
to rely upon SMC to select individual portfolio managers and analysts on its
staff and supervise them accordingly.

The third factor considered by the Board was that the proposal preserves
certain protections and safeguards for the Fund and its stockholders. For
example, although the proposal would authorize SMC on behalf of the Fund to
enter into or amend sub-advisory agreements, any change in the investment
advisory contract between the Fund and SMC (or for Capital Preservation Series,
entering into an investment advisory contract with SMC), or the replacement of
SMC itself, would continue to require approval of Fund stockholders. In
addition, stockholders would receive the same information about sub-advisers as
they currently would. In the event SMC, with the approval of the Board,
determines to use the services of a sub-adviser or to make a material change in
a sub-advisory agreement, stockholders would receive, within ninety days of the
change, the same information about the sub-adviser and sub-advisory agreement
they would receive in a proxy statement if their approval were required.

APPROVAL BY SEC

As noted above, the Board has approved the submission of an application to
the SEC for an order of exemption from certain requirements of the 1940 Act in
order to permit the Fund to use the authority to enter into or amend
sub-advisory agreements as contemplated by this proposal. Any use of that
authority is contingent upon obtaining the requested order from the SEC. The
application for exemption contains conditions to which the order would be
subject. The conditions are set forth in Exhibit B. It is possible that the SEC
may require certain changes to the application or impose additional conditions
prior to granting the order. The Fund will agree to such changes if the Board
and SMC determine that it is in the best interests of the Fund and its
stockholders to do so. It is also possible that the SEC may refuse to grant the
order entirely, although the SEC has granted similar exemptions to other mutual
fund companies under similar circumstances in the past. In that case, the Board
will take what further actions it deems to be in the best interests of the Fund
and its stockholders.

REQUIRED VOTE

The proposal will be adopted with respect to a Series of the Fund if it is
approved by the vote of a majority of outstanding shares of that Series, as
defined in the 1940 Act, which is the lesser of (a) a vote of 67% or more of the
Series shares whose holders are present or represented by proxy at the meeting
if the holders of more than 50% of all outstanding Series shares are present in
person or represented by proxy at the meeting, or (b) a vote of more than 50% of
all outstanding Series shares.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR PROPOSAL NO. 4.

EXISTING INVESTMENT ADVISORY CONTRACT

SMC currently serves as the investment adviser to the Series of the Fund,
except Capital Preservation Series, pursuant to the terms of an Investment
Advisory Contract dated March 27, 1987, as amended (the "Existing Contract").
The Existing Contract was last approved by the Board of Directors of the Fund on
February 10, 1999 and was last approved by Fund stockholders on March 27, 1987.
The Existing Contract has not been submitted to stockholders for approval since
that date. Unless superseded by the proposed new Investment Advisory Contract,
the Existing Contract will continue in effect until May 1, 2000, and from year
to year thereafter providing such continuance is specifically approved by the
vote of a majority of the Board of Directors of the Fund (including a majority
of such directors who are not parties to the contract or interested persons of
any such party) cast in person at a meeting specifically called for voting on
such renewal.

Under the Existing Contract, SMC furnishes each Series of the Fund, except
Capital Preservation Series, with investment research and advice and an
investment program. In addition, SMC provides for the compilation and
maintenance of records relating to its duties as required by the rules and
regulations of the SEC. Under the terms of the Existing Contract, SMC is not
subject to any liability for any errors of judgment or mistake of law or for any
loss sustained by reason of the adoption of any investment policy so long as
such recommendation shall have been made with due care and in good faith.
Nothing in the Existing Contract, however, shall protect SMC against any
liability to the Fund or its shareholders by reason of willful misfeasance, bad
faith, or gross negligence in the performance of its duties or by reason of its
reckless disregard of its obligations and duties under the agreement.

SMC pays its expenses in connection with providing investment advisory
services to the Fund under the Existing Contract. SMC has also agreed that, if
the total annual expenses of any Series of the Fund, exclusive of interest,
taxes, distribution fees paid under the Fund's Class B distribution plan,
brokerage fees and extraordinary expenses, but inclusive of its own investment
advisory fee, exceeds any expense limitation imposed by state securities law or
regulation in any state in which shares are offered, SMC will contribute to such
Series such funds or waive such portion of its fee as may be necessary to insure
that the annual expenses of such Series will not exceed any such limitation.

For its services under the Existing Contract, SMC receives from the Fund, on
an annual basis, a fee equal to .50% of the average daily closing value of the
Corporate Bond, U.S. Government and Limited Maturity Bond Series of the Fund,
such fee computed daily and payable monthly. SMC receives with respect to the
High Yield Series, an annual fee of .60% of the average daily closing value of
the Series, computed daily and payable monthly. SMC received from the Fund
advisory fees of $312,369 with respect to the Corporate Bond Series, $60,492
with respect to the U.S. Government Series, $35,063 with respect to the Limited
Maturity Bond Series and $55,715 with respect to the High Yield Series. No
brokerage commissions were paid by the Fund to an affiliated broker for the year
ended December 31, 1998.

The Existing Contract may be terminated without penalty at any time upon
sixty days' notice by the Board of Directors of the Fund, by vote of the holders
of a majority of the outstanding voting securities of the Fund, or by SMC. The
Existing Contract is terminated automatically in the event of its assignment (as
such term is defined in the Investment Company Act of 1940).

SMC also serves as the Fund's administrative and transfer agent. SMC
received, in the aggregate from the Series of the Fund, $81,783 for
administrative services and $191,501 for transfer agency services during the
year ended December 31, 1998. The foregoing figures do not include amounts paid
by the Capital Preservation Series of the Fund as it did not begin operations
until May 3, 1999.

PROPOSED INVESTMENT ADVISORY CONTRACT

SMC proposes to enter into a new Investment Advisory Contract (the "New
Contract") with the Fund with respect to all Series of the Fund, except the
Capital Preservation Series which does not have an Investment Advisory Contract
as discussed above. The form of the New Contract is attached hereto as Exhibit
C. The form of the New Contract was proposed by SMC and was approved on July 23,
1999, by the Board of Directors of the Fund (including a majority of such
directors who are not parties to such contract or interested persons of any such
party). Other than the provisions relating to sub-advisory arrangements, there
are no material differences between the Existing Contract and the New Contract.
In particular, the New Contract does NOT provide for any increase in the
investment advisory fee paid to SMC. It is expected that the New Contract will
become effective on November 1, 1999, provided that on the Meeting date it is
approved by a majority vote of the holders of the outstanding voting securities
of the Fund.

In approving the New Contract, and in recommending that stockholders approve
the New Contract, the Board considered such factors as it deemed reasonably
necessary and appropriate, including (1) the nature, extent and quality of the
services expected to be provided to the Fund by SMC; (2) SMC's past investment
performance with respect to the Fund; (3) the costs of services to be provided
by SMC; (4) the fact that the compensation payable to SMC by the Fund is the
same under the New Contract as it is under the Existing Contract; (5) other
sources of revenue accruing to SMC and its affiliates as a result of its
relationship with the Fund, including any intangible benefits that accrue to SMC
and its affiliates; (6) the Fund's expenses compared to other funds; and (7)
such other factors as the Board deemed relevant. The Board gave equal weight to
each of the above factors when considering approval of the New Contract. Based
on the considerations above, the Board determined that the New Contract is in
the best interests of the Fund and its stockholders.

MORE INFORMATION ABOUT THE INVESTMENT MANAGER AND DISTRIBUTOR

Security Distributors, Inc. ("SDI"), 700 SW Harrison Street, Topeka, Kansas
66636-0001, is principal underwriter of the Fund. SDI is a wholly-owned
subsidiary of Security Benefit Group, Inc. ("SBG"), a holding company wholly
owned by Security Benefit Life Insurance Company ("SBL"). SMC is a limited
liability company owned by its members, SBL and SBG. SBL is wholly owned by
Security Benefit Corp. (except for shares held by the Directors of SBL as
required by Kansas law) and Security Benefit Corp. is wholly owned by Security
Benefit Mutual Holding Company. For the fiscal year ended December 31, 1998, the
Fund paid $9,510 in Class A sales commissions to SDI.

The principal occupations, and positions with SMC and the Fund, of the
principal executive officer and each officer and director of SMC are as follows:

EXECUTIVE OFFICERS OF THE FUND

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NAME, AGE AND ADDRESS* PRINCIPAL OCCUPATION POSITION WITH SMC POSITION WITH FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
James R. Schmank, 46** President and Managing Member Representative, SMC; President and Managing Vice President
Senior Vice President, Security Benefit Group, Member Representative and Director
Inc. and Security Benefit Life Insurance Company
- ------------------------------------------------------------------------------------------------------------------------------------
John D. Cleland, 63 Senior Vice President and Managing Member Senior Vice President President and Director
Representative, SMC; Senior Vice President, and Managing Member
Security Benefit Group, Inc. and Security Benefit Representative
Life Insurance Company
- ------------------------------------------------------------------------------------------------------------------------------------
Thomas A. Swank, 39 Senior Vice President and Portfolio Manager, SMC; Senior Vice President Vice President
Senior Vice President, Security Benefit Group, and Portfolio Manager
Inc. and Security Benefit Life Insurance Company
- ------------------------------------------------------------------------------------------------------------------------------------
Amy J. Lee, 38 Secretary, SMC; Vice President, Associate General Secretary Secretary
Counsel and Assistant Secretary, Security Benefit
Group, Inc. and Security Benefit Life Insurance
Company
- ------------------------------------------------------------------------------------------------------------------------------------
Steven M. Bowser, 39 Second Vice President and Portfolio Manager, SMC; Second Vice President Vice President
Second Vice President, Security Benefit Group, and Portfolio Manager
Inc. and Security Benefit Life Insurance Company
- ------------------------------------------------------------------------------------------------------------------------------------
David Eshnaur, 38 Assistant Vice President and Portfolio Manager, Assistant Vice Vice President
SMC; Assistant Vice President, Securty Benefit President and
Group, Inc. and Security Benefit Life Insurance Portfolio Manager
Company
- ------------------------------------------------------------------------------------------------------------------------------------
Brenda M. Harwood, 35 Assistant Vice President and Treasurer, SMC; Assistant Vice Treasurer
Assistant Vice President, Security Benefit Group, President and Treasurer
Inc. and Security Benefit Life Insurance Company
- ------------------------------------------------------------------------------------------------------------------------------------
Christopher D. Swickard, 33 Assistant Secretary, SMC; Assistant Vice President Assistant Secretary Assistant Secretary
and Assistant Counsel, Security Benefit Group,
Inc. and Security Benefit Life Insurance Company
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
*All located at 700 SW Harrison Street, Topeka, KS 66636-0001 unless otherwise noted.
**Principal executive officer
</FN>
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

SMC acts as investment adviser for certain other mutual funds with investment
objectives similar to the investment objectives of certain Series of the Fund.
Set forth below are the names of the applicable Series of the Fund, the name of
the other similar mutual fund, information concerning the similar funds' net
assets as of June 30, 1999 and the fees paid to SMC for its services to the
other mutual fund. SMC has not, pursuant to any applicable contract, waived or
reduced its compensation for any of the similar mutual funds identified below.

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
ANNUAL RATE OF
NET ASSETS OF COMPENSATION FOR
SERIES OF FUND NAME NAME OF SIMILAR FUND SIMILAR FUND SIMILAR FUND
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Security Income Fund, Corporate Bond Series SBL Fund, Series E $153,748,243 0.75% of net assets
Security Income Fund, High Yield Series SBL Fund, Series P 18,105,136 0.75% of net assets
- ---------------------------------------------------------------------------------------------------------
</TABLE>

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following chart shows the shares of common stock of the Fund beneficially
owned by directors and executive officers of the Fund.

- --------------------------------------------------------------------------------
NUMBER OF SHARES BENEFICIALLY
OWNED AS OF AUGUST 31, 1999
BY ALL DIRECTORS AND EXECUTIVE PERCENTAGE
SERIES OFFICERS AS A GROUP OF CLASS
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B
Corporate Bond
U.S. Government
Limited Maturity Bond
High Yield
Capital Preservation
- --------------------------------------------------------------------------------
*No director or "named executive officer" of the Fund beneficially owned any
shares of common stock of the Fund as of August 31, 1999, except as shown in
the above chart.
- --------------------------------------------------------------------------------

STOCKHOLDER PROPOSALS

Unless otherwise required under the Investment Company Act of 1940,
ordinarily it will not be necessary for the Fund to hold annual meetings of
stockholders. Stockholder proposals must be received at least 120 days prior to
the next meeting of stockholders, whenever held.

OTHER MATTERS

The audited financial statements of the Fund are found in the Annual Report
for the fiscal year ended December 31, 1998, which was mailed to stockholders on
or about March 1, 1999.

The Board of Directors of the Fund is not aware of any other matters to come
before the Meeting or any adjournments thereof other than those specified
herein. If any other matters should come before the Meeting, it is intended that
the persons named as proxies in the enclosed form(s) of proxy, or their
substitutes, will vote the proxy in accordance with their best judgment on such
matters.

By order of the Board of Directors of
Security Income Fund,
AMY J. LEE
Secretary
<PAGE>
EXHIBIT A
PROPOSED FUNDAMENTAL INVESTMENT LIMITATIONS FOR CORPORATE BOND,
U.S. GOVERNMENT, LIMITED MATURITY BOND AND HIGH YIELD SERIES

1. Not to invest more than 5% of its total assets in the securities of any one
issuer (other than obligations of, or guaranteed by, the U.S. Government,
its agencies or instrumentalities); provided that this limitation applies
only with respect to 75% of a Series' total assets.

2. Not to purchase a security if, as a result, with respect to 75% of the value
of the Series' total assets, more than 10 percent of the outstanding voting
securities of any one issuer would be held by the Series (other than
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities).

3. Not to act as underwriter of securities issued by others, except to the
extent that a Series may be considered an underwriter within the meaning of
the Securities Act of 1933 in the disposition of restricted securities.

4. Not to purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent a Series from
investment in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business).

5. Not to purchase or sell physical commodities, except that a Series may enter
into futures contracts and options thereon.

6. Not to lend any security or make any other loan if, as a result, more than
33 1/3% of a Series' total assets would be lent to other parties, except (i)
through the purchase of a portion of an issue of debt securities in
accordance with its investment objective and policies, or (ii) by engaging
in repurchase agreements with respect to portfolio securities.

7. Not to borrow in excess of 33 1/3% of its total assets.

8. Not to issue senior securities, except as permitted under the Investment
Company Act of 1940.

9. Not to invest in an amount equal to, or in excess of, 25% or more of the
Fund's total assets in a particular industry (other than securities of the
U.S. Government, its agencies or instrumentalities).
<PAGE>
EXHIBIT B
CONDITIONS PROPOSED BY THE FUND AND SMC TO THE SEC
AS PART OF THEIR APPLICATION FOR EXEMPTIVE RELIEF

1. SMC will not enter into a sub-advisory agreement with any Affiliated
Sub-adviser without such agreement, including the compensation to be paid
thereunder, being approved by the stockholders of the applicable Fund.

2. At all times, a majority of each Fund's Directors will be persons each of
whom is not an "interested person" of that Fund defined in Section 2(a)(19)
of the 1940 Act ("Disinterested Directors"), and the nomination of new or
additional Disinterested Directors will be placed within the discretion of
the then existing Disinterested Directors.

3. When a Sub-adviser change is proposed for a Fund with an Affiliated
Sub-adviser, the Fund's Directors, including a majority of the Disinterested
Directors, will make a separate finding, reflected in the Fund's board
minutes, that such change is in the best interests of the Fund and its
stockholders and does not involve a conflict of interest from which SMC or
the Affiliated Sub-adviser derives an inappropriate advantage.

4. With respect to a structure in which multiple Sub-advisers are used for a
single Fund, SMC will provide general management services to each such Fund,
including overall supervisory responsibility for the general management and
investment of such Fund's securities portfolios, and, subject to review and
approval by the applicable Fund's Board of Directors, will (i) set the
Funds' overall investment strategies; (ii) select Sub-advisers; (iii)
allocate and, when appropriate, reallocate a Fund's assets among SMC and one
or more Sub-advisers; (iv) monitor and evaluate the performance of the
Sub-advisers; and (v) implement procedures reasonably designed to ensure
that the Sub-advisers comply with the relevant Fund's investment objectives,
policies and restrictions.

5. Within 90 days of the hiring of any new Sub-adviser, SMC will furnish
stockholders all information about the new sub-adviser that would be
included in a proxy statement. Such information will include any change in
such disclosure caused by the addition of a new Sub-adviser. SMC will meet
this condition by providing stockholders with an information statement which
meets the requirements of Regulation 14C and Schedule 14C under the 1934
Act. The information statement will also meet the requirements of Item 22 of
Schedule 14A under the 1934 Act.

6. Each Fund will disclose in its respective Prospectus the existence,
substance, and effect of any order granted pursuant to the Application. In
addition, each Fund will hold itself out to the public as employing the
management structure described in the Application. The prospectus relating
to a Fund will prominently disclose that SMC has the ultimate responsibility
to oversee Sub-advisers and recommend their hiring, termination and
replacement.

7. Before a Fund may rely on the requested order, the operations of the Fund in
the manner described in the Application will have been or will be approved
by a majority of that Fund's outstanding voting securities, as defined in
the 1940 Act. In the case of a Fund whose stockholders purchase shares on
the basis of a prospectus containing the disclosure contemplated by
condition 6 above, such approval will be obtained from the sole initial
stockholder before offering shares of such Fund to the public.

8. No director or officer of the Funds or director or officer of SMC will own
directly or indirectly (other than through a pooled investment vehicle that
is not controlled by any such director or officer) any interest in a
Sub-adviser except for (i) ownership of interests in SMC or any entity that
controls, is controlled by or is under common control with SMC; or (ii)
ownership of less than 1% of the outstanding securities of any class of
equity or debt of a publicly-traded company that is either a Sub-adviser or
an entity that controls, is controlled by or is under common control with a
Sub-adviser.
<PAGE>
EXHIBIT C
INVESTMENT ADVISORY CONTRACT

THIS AGREEMENT, made this 1st day of November 1999, between SECURITY INCOME
FUND, a Kansas corporation (hereinafter referred to as the "Fund"), and SECURITY
MANAGEMENT COMPANY, LLC, a Kansas limited liability company (hereinafter
referred to as the "Management Company"),

WITNESSETH:

WHEREAS, the Fund is engaged in business as an open-end management investment
company registered under the Federal Investment Company Act of 1940; and

WHEREAS, the Fund is authorized to issue shares of capital stock in separate
Series, with each such Series representing interests in a separate portfolio of
securities and other assets; and

WHEREAS, the Fund currently offers shares in five separate series, including the
Corporate Bond Series, the U.S. Government Series, the High Yield Series, and
the Limited Maturity Bond Series, such series together with all other series
subsequently established by the Fund with respect to which the Fund desires to
retain the Management Company to render investment advisory services hereunder
and with respect to which the Management Company is willing so to do, being
herein collectively referred to as the "Series", and

WHEREAS, the Management Company is willing to provide investment research and
advice to the Fund on the terms and conditions hereinafter set forth;

NOW, THEREFORE, in consideration of the premises and mutual agreements made
herein, the parties hereto agree as follows:

1. EMPLOYMENT OF MANAGEMENT COMPANY. The Fund hereby employs the Management
Company to act as investment adviser to each Series of the Fund with respect
to the investment of its assets, and to supervise and arrange the purchase
of securities for and the sale of securities held in the portfolios of the
Series of the Fund, subject always to the supervision of the Board of
Directors of the Fund, during the period and upon and subject to the terms
and conditions herein set forth. The Management Company hereby accepts such
employment and agrees to perform the services required by this Agreement for
the compensation herein provided.

In the event the Fund establishes additional series with respect to which it
desires to retain the Management Company to render investment advisory
services hereunder, it shall notify the Management Company in writing. If
the Management Company is willing to render such services it shall notify
the Fund in writing, whereupon such series shall become a Series subject to
the terms and conditions hereunder, and to such amended or additional
provisions as shall be specifically agreed to by the Fund and the Management
Company in accordance with applicable law.

2. INVESTMENT ADVISORY DUTIES.

(a) The Management Company shall regularly provide each Series of the Fund
with investment research, advice and supervision, continuously furnish
an investment program and recommend that securities shall be purchased
and sold and what portion of the assets of each Series shall be held
uninvested and shall arrange for the purchase of securities and other
investments for and the sale of securities and other investments held
in the portfolio of each Series. All investment advice furnished by the
Management Company to each Series under this Section 2 shall at all
times conform to any requirements imposed by the provisions of the
Fund's Articles of Incorporation and Bylaws, the Investment Company Act
of 1940 and the rules and regulations promulgated thereunder, any other
applicable provisions of law, and the terms of the registration
statements of the Fund under the Securities Act of 1933 and the
Investment Company Act of 1940, all as from time to time amended. The
Management Company shall advise and assist the officers or other agents
of the Fund in taking such steps as are necessary or appropriate to
carry out the decisions of the Fund's Board of Directors (and any duly
appointed committee thereof) with regard to the foregoing matters and
the general conduct of the Fund's business.

(b) Subject to the provisions of the Investment Company Act of 1940 (the
"1940 Act") and any applicable exemptions thereto, the Management
Company is authorized, but is under no obligation, to enter into
sub-advisory agreements (the "Sub-Advisory Agreements") with one or
more sub-advisers (each a "Sub-adviser") to provide investment advisory
services to any Series of the Fund. Each Sub-adviser shall have
investment discretion with respect to the assets of the Series assigned
to that Sub-adviser by the Management Company. The Management Company
shall not be responsible or liable with respect to any investment
decision made by a Sub-adviser, whether such decision be to purchase,
sell or hold such investment. Consistent with the provisions of the
1940 Act and any applicable exemption thereto, the Investment Manager
may enter into Sub-Advisory Agreements or amend Sub-Advisory Agreements
without the approval of the shareholders of the affected Series.

3. PORTFOLIO TRANSACTIONS AND BROKERAGE.

(a) Transactions in portfolio securities shall be effected by the
Management Company, through brokers or otherwise, in the manner
permitted in this Section 3 and in such manner as the Management
Company shall deem to be in the best interests of the Fund after
consideration is given to all relevant factors.

(b) In reaching a judgment relative to the qualification of a broker to
obtain the best execution of a particular transaction, the Management
Company may take into account all relevant factors and circumstances,
including the size of any contemporaneous market in such securities;
the importance to the Fund of speed and efficiency of execution;
whether the particular transaction is part of a larger intended change
in portfolio position in the same securities; the execution
capabilities required by the circumstances of the particular
transaction; the capital required by the transaction; the overall
capital strength of the broker; the broker's apparent knowledge of or
familiarity with sources from or to whom such securities may be
purchased or sold; as well as the efficiency, reliability and
confidentiality with which the broker has handled the execution of
prior similar transactions.

(c) Subject to any statements concerning the allocation of brokerage
contained in the Fund's prospectus or statement of additional
information, the Management Company is authorized to direct the
execution of portfolio transactions for the Fund to brokers who furnish
investment information or research service to the Management Company.
Such allocation shall be in such amounts and proportions as the
Management Company may determine. If the transaction is directed to a
broker providing brokerage and research services to the Management
Company, the commission paid for such transaction may be in excess of
the commission another broker would have charged for effecting that
transaction, if the Management Company shall have determined in good
faith that the commission is reasonable in relation to the value of the
brokerage and research services provided, viewed in terms of either
that particular transaction or the overall responsibilities of the
Management Company with respect to all accounts as to which it now or
hereafter exercises investment discretion. For purposes of the
immediately preceding sentence, "providing brokerage and research
services" shall have the meaning generally given such terms or similar
terms under Section 28(e)(3) of the Securities Exchange Act of 1934, as
amended.

(d) In the selection of a broker for the execution of any transaction not
subject to fixed commission rates, the Management Company shall have no
duty or obligation to seek advance competitive bidding for the most
favorable negotiated commission rate to be applicable to such
transaction, or to select any broker solely on the basis of its
purported or "posted" commission rates.

(e) In connection with transactions on markets other than national or
regional securities exchanges, the Fund will deal directly with the
selling principal or market maker without incurring charges for the
services of a broker on its behalf unless, in the best judgment of the
Management Company, better price or execution can be obtained in
utilizing the services of a broker.

4. ALLOCATION OF EXPENSES AND CHARGES. The Management Company shall provide
investment advisory, statistical and research facilities and all clerical
services relating to research, statistical and investment work, and shall
provide for the compilation and maintenance of such records relating to
these functions as shall be required under applicable law and the rules and
regulations of the Securities and Exchange Commission. The Management
Company will also provide the Fund with a president, a chief financial
officer, and a secretary, subject to the approval of the Board of Directors,
and will pay the salaries and expenses of such officers of the Fund who are
also directors, officer or employees of the Management Company.

Other than as specifically indicated in the preceding sentences, the
Management Company shall not be required to pay any expenses of the Fund,
and in particular, but without limiting the generality of the foregoing, the
Management Company shall not be required to pay office rental or general
administrative expenses; Board of Directors' fees; legal, auditing and
accounting expenses; insurance premiums; broker's commissions; taxes and
governmental fees and any membership dues; fees of custodian, transfer
agent, registrar and dividend disbursing agent (if any); expenses of
obtaining quotations on the Fund's portfolio securities and pricing of the
Fund's shares; cost of stock certificates and any other expenses (including
clerical expenses) of issue, sale, repurchase or redemption of shares of the
Fund's capital stock; costs and expenses in connection with the registration
of the Fund's capital stock under the Securities Act of 1933 and
qualification of the Fund's capital stock under the Blue Sky laws of the
states where such stock is offered; costs and expenses in connection with
the registration of the Fund under the Investment Company Act of 1940 and
all periodic and other reports required thereunder; expenses of preparing,
printing and distributing reports, proxy statements, prospectuses,
statements or additional information, notices and distributions to
stockholders; costs of stationery; costs of stockholder and other meetings;
expenses of maintaining the Fund's corporate existence; and such
nonrecurring expenses as may arise including litigation affecting the Fund
and the legal obligations the Fund may have to indemnify its officers and
directors.

5. COMPENSATION OF MANAGEMENT COMPANY.

(a) As compensation for the services to be rendered by the Management
Company as provided for herein, for each of the years this Agreement is
in effect, the Fund shall pay the Management Company an annual fee
equal to .60 percent of the average daily closing value of the net
assets of High Yield Series of the Fund, and .50 percent of the average
daily closing value of the net assets of Corporate Bond Series, Limited
Maturity Bond Series, and U.S. Government Series of the Fund, computed
on a daily basis. Such fee shall be adjusted and payable monthly. If
this Agreement shall be effective for only a portion of a year, then
the Management Company's compensation for said year shall be prorated
for such portion. For purposes of this Section 5, the value of the net
assets of each such Series shall be computed in the same manner at the
end of the business day as the value of such net assets is computed in
connection with the determination of the net asset value of the Fund's
shares as described in the Fund's prospectus.

(b) For each of the Fund's full fiscal years this Agreement remains in
force, the Management Company agrees that if the total annual expenses
of each Series of the Fund, exclusive of interest and taxes,
extraordinary expenses (such as litigation), and distribution fees paid
under the Fund's Class B Distribution Plan, but inclusive of the
Management Company's compensation, exceed any expense limitation
imposed by state securities law or regulation in any state in which
shares of the Fund are then qualified for sale, as such regulations may
be amended from time to time, the Management Company will contribute to
such Series such funds or waive such portion of its fee, adjusted
monthly as may be requisite to insure that such annual expenses will
not exceed any such limitation. If this Contract shall be effective for
only a portion of one of the Series' fiscal years, then the maximum
annual expenses shall be prorated for such portion. Brokerage fees and
commissions incurred in connection with the purchase or sale of any
securities by a Series shall not be deemed to be expenses with the
meaning of this paragraph (b).

6. MANAGEMENT COMPANY NOT TO RECEIVE COMMISSIONS. In connection with the
purchase or sale of portfolio securities for the account of the Fund,
neither the Management Company nor any officer or director of the Management
Company shall act as principal or receive any compensation from the Fund
other than its compensation as provided for in Section 5 above. If the
Management Company, or any "affiliated person" (as defined in the Investment
Company Act of 1940) receives any cash, credits, commissions or tender fees
from any person in connection with transactions in the Fund's portfolio
securities (including but not limited to the tender or delivery of any
securities held in the Fund's portfolio), the Management company shall
immediately pay such amount to the Fund in cash or as a credit against any
then earned but unpaid management fees due by the Fund to the Management
Company.

7. LIMITATION OF LIABILITY OF MANAGEMENT COMPANY. So long as the Management
Company shall give the Fund the benefit of its best judgment and effort in
rendering services hereunder, the Management Company shall not be liable for
any errors of judgment or mistake of law, or for any loss sustained by
reason of the adoption of any investment policy or the purchase, sale or
retention of any security on its recommendation, whether or not such
recommendation shall have been based upon its own investigation and research
or upon investigation and research made by any other individual, firm or
corporation, if such recommendation shall have been made and such other
individual, firm or corporation shall have been selected with due care and
in good faith. Nothing herein contained shall, however, be construed to
protect the Management Company against any liability to the Fund or its
security holders by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under this Agreement. As used in
this Section 7, "Management Company" shall include directors, officers and
employees of the Management Company, as well as that corporation itself.

8. OTHER ACTIVITIES NOT RESTRICTED. Nothing in this Agreement shall prevent the
Management Company or any officer thereof from acting as investment adviser
for any other person, firm, or corporation, nor shall it in any way limit or
restrict the Management Company or any of its directors, officers,
stockholders or employees from buying, selling, or trading any securities
for its own accounts or for the accounts of others for whom it may be
acting; provided, however, that the Management Company expressly represents
that it will undertake no activities which, in its judgment, will conflict
with the performance of its obligations to the Fund under this Agreement.
The Fund acknowledges that the Management Company acts as investment adviser
to other investment companies, and it expressly consents to the Management
Company acting as such; provided, however, that if in the opinion of the
Management Company, particular securities are consistent with the investment
objectives of, and are desirable purchases or sales for the portfolios of
one or more Series and one or more of such other investment companies or
series of such companies at approximately the same time, such purchases or
sales will be made on a proportionate basis if feasible, and if not
feasible, then on a rotating or other equitable basis.

9. DURATION AND TERMINATION OF AGREEMENT. This Agreement shall become effective
on November 1, 1999, provided that on or before that date it has been
approved by the holders of a majority of the outstanding voting securities
of each Series of the Fund. This Agreement shall continue in force until
November 1, 2001, and for successive 12-month periods thereafter, unless
terminated, provided each such continuance is specifically approved at least
annually by (a) the vote of a majority of the entire Board of Directors of
the Fund, and the vote of a majority of the directors of the Fund who are
not parties to this Agreement or interested persons (as such terms are
defined in the Investment Company Act of 1940) of any such party cast in
person at a meeting of such directors called for the purpose of voting upon
such approval, or (b) by the vote of the holders of a majority of the
outstanding voting securities of each series of the Fund (as defined in the
Investment Company Act of 1940). In the event a majority of the outstanding
shares of one series vote for continuance of the Advisory Contract, it will
be continued for that series even though the Advisory Contract is not
approved by either a majority of the outstanding shares of any other series
or by a majority of outstanding shares of the Fund. Upon this Agreement
becoming effective, any previous agreement between the Fund and the
Management Company providing for investment advisory and management services
shall concurrently terminate, except that such termination shall not affect
fees accrued and guarantees of expenses with respect to any period prior to
termination.

This Agreement may be terminated at any time as to any series of the Fund,
without payment of any penalty, by vote of the Board of Directors of the
Fund or by vote of the holders of a majority of the outstanding voting
securities of that series of the Fund, or by the Management Company, upon 60
days' written notice to the other party.

This Agreement shall automatically terminate in the event of its
"assignment" (as defined in the Investment Company Act of 1940).

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective corporate officers thereto duly authorized on the
day, month and year first above written.

ATTEST: SECURITY INCOME FUND

By:
- -------------------------------------- --------------------------------
Title: Secretary President

ATTEST: SECURITY MANAGEMENT COMPANY, LLC

By:
- -------------------------------------- --------------------------------
Title: Secretary President
<PAGE>
[SBG LOGO]
The Security Benefit
Group of Companies
700 SW Harrison St.
Topeka, Kansas 66636-0001

CORPORATE BOND SERIES OF SECURITY INCOME FUND
Special Meeting of Stockholders
October 29, 1999

The undersigned hereby appoints John D. Cleland, Donald A. Chubb, Jr.,
and James R. Schmank, and each of them, with full power of
substitution, as proxies of the undersigned to vote at the
above-stated special meeting, and at all adjournments thereof, all
shares of

CORPORATE BOND SERIES OF SECURITY INCOME FUND

held by the undersigned at the Special Meeting of Stockholders of the
Fund to be held at 9:30 AM, local time, on October 29, 1999, at
Security Benefit Group Building, 700 Harrison Street, Topeka, Kansas
66636-0001, and at any adjournment thereof, in the manner directed
below with respect to the matters referred to in the proxy statement
for the meeting, receipt of which is hereby acknowledged, and in the
proxies' discretion, upon such other matters as may properly come
before the meeting or any adjournment thereof.

In order to avoid the additional expense of further solicitation to
your Fund, we strongly urge you to review, complete, and return your
ballot as soon as possible. Your vote is important regardless of the
number of shares you own. The Board of Directors recommends a vote for
each of the following proposals. These voting instructions will be
voted as specified and in the absence of specification will be treated
as granting authority to vote "FOR" each proposal.

TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: [X]

KEEP THIS PORTION FOR YOUR RECORDS
- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
DETACH AND RETURN THIS PORTION ONLY

THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.

- --------------------------------------------------------------------------------
CORPORATE BOND SERIES OF SECURITY INCOME FUND

NOTE: Please sign exactly as the name appears on this card. EACH joint owner
must sign the proxy. When signing as executor, administrator, attorney, trustee
or guardian, or as custodian for a minor, please give the FULL title of such. If
a corporation, please give the FULL corporate name and indicate the signer's
office. If a partner, please sign in the partnership name.

PLEASE EXECUTE, SIGN, DATE, AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.

VOTE ON PROPOSALS
FOR AGAINST ABSTAIN

1. To elect six directors to serve on the Board of
Directors of the Fund until the next annual
meeting, if any, or until their successors shall
have been duly elected and qualified. |_| |_| |_|

2. To ratify or reject the selection of the firm of
Ernst & Young LLP as independent accountants for
the Fund's current fiscal year. |_| |_| |_|

3. a. To eliminate the Fund's fundamental investment
limitation concerning investment in companies
with less than three years' operating history. |_| |_| |_|

3. b. To eliminate the Fund's fundamental investment
limitation concerning purchasing securities of
an issuer in which the officers and directors
of the Fund, investment manager or underwriter
own more than 5% of the outstanding securities
of such issuer. |_| |_| |_|

3. c. To amend the Fund's fundamental investment
limitation concerning diversification. |_| |_| |_|

3. d. To amend the Fund's fundamental investment
limitation concerning share ownership of any
one issuer. |_| |_| |_|

3. e. To eliminate the Fund's fundamental investment
limitation concerning investing for control of
portfolio companies. |_| |_| |_|

3. f. To amend the Fund's fundamental investment
limitation concerning underwriting. |_| |_| |_|

3. g. To amend the Fund's fundamental investment
limitation regarding buying or selling real
estate. |_| |_| |_|

3. h. To amend the Fund's fundamental investment
limitation regarding commodities or
commodities contracts. |_| |_| |_|

3. i. To amend the Fund's fundamental investment
limitation concerning lending. |_| |_| |_|

3. j. To eliminate the Fund's fundamental investment
limitation concerning investment in puts,
call, straddles or spreads. |_| |_| |_|

3. k. To eliminate the Fund's fundamental investment
limitation concerning investment in oil, gas,
mineral leases or other mineral exploration
development programs. |_| |_| |_|

3. l. To amend the Fund's fundamental investment
limitation concerning borrowing. |_| |_| |_|

3. m. To eliminate the Fund's fundamental investment
limitation concerning investment in other
investment companies. |_| |_| |_|

3. n. To amend the Fund's fundamental investment
limitation concerning senior securities. |_| |_| |_|

3. o. To eliminate the Fund's fundamental investment
limitation concerning restricted securities. |_| |_| |_|

4. To approve or disapprove an arrangement and new
investment advisory contract that would permit
Security Management Company, LLC, the Fund's
investment adviser, with Board approval, to enter
into or amend sub-advisory agreements without
stockholder approval. |_| |_| |_|

5. To transact such other business as may properly
come before the Meeting or any adjournments
thereof, and to adjourn the Meeting from time to
time. |_| |_| |_|

- ------------------------------------------- ---------------------------------
Signature (PLEASE SIGN WITHIN BOX) Date Signature (Joint Owners) Date

- --------------------------------------------------------------------------------
<PAGE>
[SBG LOGO]
The Security Benefit
Group of Companies
700 SW Harrison St.
Topeka, Kansas 66636-0001

U.S. GOVERNMENT SERIES OF SECURITY INCOME FUND
Special Meeting of Stockholders
October 29, 1999

U.S. GOVERNMENT SERIES OF SECURITY INCOME FUND

TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: [X]

KEEP THIS PORTION FOR YOUR RECORDS
- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
DETACH AND RETURN THIS PORTION ONLY

THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.

- --------------------------------------------------------------------------------
U.S. GOVERNMENT SERIES OF SECURITY INCOME FUND