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[GRAPHIC]
SECURITY
FUNDS
SEMI-ANNUAL
REPORT
JUNE 30, 2000
- SECURITY MUNICIPAL BOND
FUND
- SECURITY INCOME FUND
- DIVERSIFIED INCOME
SERIES
- HIGH YIELD SERIES
- SECURITY CASH FUND
SECURITY DISTRIBUTORS,
INC.
A Member of The
Security Benefit
Group of Companies
[SECURITY DISTRIBUTORS,
INC. LOGO]
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CHAIRMAN OF THE BOARD'S COMMENTARY
JUNE 30, 2000
[CLELAND PHOTO]
John Cleland
TO OUR SHAREHOLDERS:
The six month period ended June 30, 2000 was characterized by enormous interest
rate volatility which we believe is likely to continue as momentum investors
move large amounts of money into and out of fixed income asset classes and
maturity ranges. The volatility was heightened by an unusual element during the
period, the Treasury Department's announcement and implementation of a buy-back
program for long-term Treasury debt.
THE TREASURY DEPARTMENT BUYS BACK HIGH-INTEREST DEBT SECURITIES
Under the buy-back program the Treasury Department is purchasing outstanding
long-maturity government bonds in an effort to reduce the government's interest
expense burden. This program was made possible by the current budget surplus
which was a result of the country's strong economic growth. Treasury
Department's repurchase activity drove down interest rates on long-term
government securities as demand increased in the face of diminishing supply.
This decrease in long-term rates, coupled with the continued increases in
short-term interest rates put in place by the Federal Reserve Bank, resulted in
an inversion of the yield curve, increasing volatility in the markets.
THE FED MAY TAKE A "WAIT AND SEE" STANCE
After six successive rate increases by the Federal Reserve Bank's policy-making
Open Market Committee over the past year, the Committee's decision to leave
rates unchanged at their June 27 and 28, 2000 meeting acknowledged the
unmistakable signs of an economic slowdown. While the Federal Reserve is never
absent from the investment scene, we believe the possibility now exists that
they will make no further rate changes through the remainder of this year,
particularly in view of the upcoming election cycle. Instead, they could choose
to wait and see if evidence of an economic slowdown becomes more convincing.
If in fact the slowdown continues, it should offer bond investors the
opportunity to benefit from a corresponding decline in interest rates. We
believe fixed income investors may have an opportunity to generate superior
investment returns over the year as a whole for the first time in many years.
CONSOLIDATION OF FIXED INCOME PORTFOLIOS
Effective May 1, we merged the U.S. Government Series, the Limited Maturity
Series, and the Corporate Bond Series into one portfolio named the Diversified
Income Series. We believe this will offer investors the benefits of cost
effectiveness and a better diversified fixed income portfolio.
On the following pages our fixed income portfolio managers discuss their
portfolios' performances and the outlook for the months ahead. As always, we
welcome your questions and comments at any time.
Sincerely,
/s/ John Cleland
John Cleland, Chairman of the Board
The Security Funds
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MANAGER'S COMMENTARY
SECURITY MUNICIPAL BOND FUND
JUNE 30, 2000
[AMODEO PHOTO]
Robert Amodeo
TO OUR SHAREHOLDERS:
Security Municipal Bond Fund benefited from a rally in the municipal bond market
in the first half of this year. The Fund generated a total return of +4.50% over
the six months, comparing favorably with the +4.48% return of the benchmark
Lehman Brothers Municipal Bond Index.(1) The Fund also handily outperformed the
+3.95% average return of its Lipper peer group of funds.
HIGHLIGHTS OF THE MUNICIPAL MARKET IN THE FIRST HALF
An uneventful transition into the year 2000 despite the "Y2K" fears that
prevailed late last year, accompanied by strong demand for tax exempt
securities, helped municipal bonds post positive price returns during the first
half of this year. Performance was especially robust during the first three
months, outpacing most other fixed income asset classes. During April and May,
however, municipals experienced some difficulty but turned around yet again to
close the half on a positive note in June.
A significant decline in municipal new issue supply helped maintain the positive
tone in the markets. Overall, $92 billion of new municipal supply came to the
market, representing a 22% decline versus the similar period last year. The drop
in municipal supply was due primarily to a lack of refunding activity (refunding
refers to replacing existing bond issues through the sale of new bond issues,
usually to lower the interest rate being paid). In this year's higher interest
rate environment it was difficult for issuers of municipal debt to achieve a
present value cost savings great enough to warrant replacing existing debt with
new debt. At the end of June, refunding activity was down 69% year to date from
the same period a year ago, while funding for new projects was relatively
unchanged. We estimate that $175 billion in municipal debt will be issued during
this year overall.
CHARACTERISTICS OF THE PORTFOLIO
Our philosophy of focusing on long-term fundamentals, rigorous credit analysis
and sector selection remains the foundation for managing the Municipal Bond
Fund. At the end of June the portfolio consisted of twenty-nine issues in
thirteen different states. It had an average maturity of sixteen years, with a
duration of about 8.5 years. The portfolio's overall average credit quality
remains at a strong AA rating. Sector weightings are well-balanced with the
greatest emphasis in general obligation, water and sewer, and transportation
bonds.
OUR MARKET OUTLOOK
We expect the domestic economy to pull back from its torrid pace of growth seen
in the first half of the year. However, we remain concerned about inflation
levels and rising commodity prices. While some recent economic data indicate a
moderating economy, we also note that inflation is not declining as quickly as
the economic data.
Overall, we believe the U.S. economy will remain stable this year as low
unemployment and strong consumer confidence will likely support demand for
goods. Furthermore, we believe the Federal Reserve Bank will engineer a good
balance between strong economic growth and an acceptable rate of inflation.
Sincerely,
Robert Amodeo, Portfolio Manager
Salomon Brothers Asset Management Inc.
(1) Performance figures are based on Class A shares and do not reflect deduction
of the sales charge. Fee waivers and/or reimbursements reduced Fund expenses
and in the absence of such waivers, the performance quoted would be reduced.
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MANAGER'S COMMENTARY (CONTINUED)
SECURITY MUNICIPAL BOND FUND
JUNE 30, 2000
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MUNICIPAL BOND FUND
6/30/00
[BAR GRAPH]
MUNICIPAL BOND FUND
AVERAGE ANNUAL TOTAL RETURN
AS OF JUNE 30, 2000
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
<S> <C> <C> <C>
1 Year -1.68% 1 Year -2.53%
5 Years 3.92% 5 Years 3.50%
10 Years 5.29% Since Inception 2.37%
(10-19-93)
</TABLE>
The performance data above represents past performance which is not
predictive of future results. For Class A shares these figures reflect
deduction of the maximum sales charge of 4.75%. For Class B shares the
figures reflect deduction of the maximum contingent deferred sales charge,
ranging from 5% in the first year to 0% in the sixth and following years.
The investment return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than
their original cost.
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MANAGER'S COMMENTARY
SECURITY INCOME FUND DIVERSIFIED INCOME SERIES
JUNE 30, 2000
[BOWSER PHOTO] [PHALEN PHOTO]
Steven M. Bowser Christopher L. Phalen
TO OUR SHAREHOLDERS:
The new Diversified Income Series of Security Income Fund appears for the first
time in this report, the result of the merger of the Corporate Bond Series, U.S.
Government Series, and Limited Maturity Series portfolios. The Diversified
Income Series gained 2.75% over the six month period ended June 30, 2000.(1) The
benchmark Lehman Brothers U.S. Aggregate Bond Index gained 3.99% over the same
period.
AN UNUSUAL TREASURY BOND MARKET
Price movement this year in the longer maturities of the Treasury bond market
this year was governed by an unusual factor. On January 13 the Department of the
Treasury formally announced its plan to repurchase outstanding U.S. Treasury
securities, saying it would buy back as much as $30 billion of these securities
during the year 2000. The buybacks during the first half of this year focused
primarily on the longer maturity issues bearing high interest rates. Through
this process the Treasury Department plans to substantially reduce the Federal
government's annual interest expenses.
The result for fixed income markets was an outsized gain in the price of
long-maturity Treasury bonds while corporate bonds, which didn't benefit from
the "buyback" effect, have lagged in total return. Steps taken by the Federal
Reserve Bank to increase interest rates pushed up yields on most fixed
instruments, but Treasury issues subject to the buyback process escaped most of
this impact.
RESULTS OF MERGER AND STRUCTURE OF THE COMBINED PORTFOLIO
In the process of merging the three portfolios a number of investment grade and
high yield bonds were sold. While some losses were incurred in these sales, we
completed the restructuring with a portfolio which we believe will be a solid
performer during the second half of the year.
At the close of June the Diversified Income Series was comprised of 35%
mortgage-backed securities, 27% Federal agency issues, 16% investment grade and
Yankee corporate bonds, 17% U.S. Treasury securities, and 5% high yield
corporate bonds. We plan to bring this mixture more closely in line with that of
the benchmark index over the coming months. At this time the Lehman Aggregate
Bond Index consists of 23% investment grade corporates, 30% Treasuries, 10%
Federal agencies, and 37% mortgage-backed issues.
The focus in the corporate bond portion of the portfolio will continue to be on
quality investment-grade companies with maturities primarily in the ten year or
lower range. We will use Treasury and Federal agency securities to fill in the
longer part of the maturity range, since these issues are less subject to event
risk that sometimes occurs with an issue in the corporate market spectrum.
HIGH YIELD BONDS WERE WEAK IN THE FIRST HALF
Prior to the merger, the high yield bond portions of the various portfolios
reduced overall return. High yield bonds tend to follow price movements in the
stock markets as well as in the bond markets, and many stock indexes were
negative in the first half of the year. In January, high yield issues made up
about 14% of assets in the former Corporate Bond Series and about 20% of the old
Limited Maturity Series. Because of their continuing underperformance, we
reduced the high yield position in the newly combined Series to its current 5%
weighting and plan to keep it generally between 5% and 10% of assets.
OUTLOOK FOR FIXED INCOME MARKETS
We believe the Federal Reserve Bank is near the end of its cycle of interest
rate increases. Once the economy exhibits solid evidence of slowing, as the Fed
intends, bonds should enjoy a period of price recovery. Because corporate,
mortgage-backed, and Federal agency securities
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MANAGER'S COMMENTARY (CONTINUED)
SECURITY INCOME FUND DIVERSIFIED INCOME SERIES
JUNE 30, 2000
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have suffered more than Treasuries so far this year, when the recovery is
underway, they should outperform during the upward price moves. Interest rate
spreads on these categories of bonds currently stand at historically wide levels
over comparable-maturity Treasury bonds. These spreads are expected to narrow
sharply when bond prices begin to recover.
Sincerely,
Steven M. Bowser
Christopher L. Phalen
Portfolio Managers
(1) Performance figures are based on Class A shares and do not reflect deduction
of the sales charge. Fee waivers and/or reimbursements reduced Fund expenses
and in the absence of such waivers, the performance quoted would be reduced.
DIVERSIFIED INCOME SERIES
6/30/00
[BAR GRAPH]
DIVERSIFIED INCOME SERIES
AVERAGE ANNUAL TOTAL RETURN
AS OF JUNE 30, 2000
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
<S> <C> <C> <C> <C> <C>
1 Year -2.52% 1 Year -3.76% Since 0.35%
5 Years 4.38% 5 Years 3.94% Inception
10 Years 6.28% Since 3.32% (5-1-00)
Inception
(10-19-93)
</TABLE>
The performance data above represents past performance which is not
predictive of future results. For Class A shares these figures reflect
deduction of the maximum sales charge of 4.75%. For Class B shares the
figures reflect deduction of the maximum contingent deferred sales charge,
ranging from 5% in the first year to 0% in the sixth and following years.
For Class C shares the figures reflect deduction of the 1% contingent
deferred sales charge. Fee waivers reduced expenses of the Fund and in the
absence of such waiver, the performance quoted would be reduced. The
investment return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than
their original cost.
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MANAGER'S COMMENTARY
SECURITY INCOME FUND HIGH YIELD SERIES
JUNE 30, 2000
[TOUSSAINT PHOTO]
David G. Toussaint
TO OUR SHAREHOLDERS:
The High Yield Series of Security Income Fund generated a total return of -1.99%
during the first half of this year, compared to the -1.21% produced by the
benchmark Lehman Brothers Corporate High Yield Index.(1) As you know, high yield
bonds often track the stock markets more closely than the bond markets. In the
six months just completed, many stock market indexes produced negative results
as well.
A RECAP OF THE FIRST HALF
The high yield bond markets in general declined through most of the first five
months of 2000. June brought a reversal, with bond prices rising as investors
perceived that the Federal Reserve Bank was at or near the end of its cycle of
raising interest rates. After several months of outflows of cash from high yield
mutual funds, money started returning to these funds when yields became more
attractive on a historic basis.
When investor interest was rekindled and cash flows increased late in the first
half, many corporate treasurers moved quickly to the high yield markets with
offerings of new bond issues. These new issues were mostly from higher quality,
more established high yield companies and were very well received by investors.
This increase in supply, however, may dampen investors' enthusiasm in the coming
months if it keeps bond prices from improving as much as they would have in its
absence.
DEFAULT RATES HAVE RISEN
Throughout 1997 and 1998 high yield bond issuance was heavy, meeting the demands
of investors looking for yield. We now are seeing the darker side of this
abundant new issuance, with default rates among high yield companies rising in
recent months. Nursing home operators Genesis Health Ventures Inc. and Multicare
Companies Inc. both announced that they would be unable to meet regular coupon
interest payments that came due in March and April. Both companies were hurt by
federal legislation which cut their Medicare reimbursement payments.
Oakwood Homes Corporation, a producer of manufactured homes, reported a greater
than expected quarterly loss and a sharp decline in sales. Their increasing lack
of financial flexibility led to a downgrade in the company's securities.
American Eco Corporation, which outsources services to the energy and power
generation industries, said in its quarterly report released in April that it
was not in compliance with some of its credit covenants.
STRONG PERFORMANCE FROM ENERGY, GAMING, AND TECHNOLOGY
But there is much good news among our portfolio holdings as well. Energy-related
companies saw their bond prices rise substantially as the price of crude oil
climbed from $21 at the beginning of the year to $32 at the end of the first
half. Among these companies, we own securities issued by Ocean Energy
Corporation, Crown Central Petroleum Corporation, and Giant Industries, Inc.
In the leisure sector many gaming companies benefited from increased cash flows
attributed to the strong economy. We concentrated on the higher quality BB-rated
issues, and saw nice price gains in many of these names. Included in this group
are bonds issued by MGM Grand, Inc., Harrah's Entertainment, Inc., Park Place
Entertainment Corporation (which operates under the brand names Bally's,
Caesars, Flamingo, Grand, and Hilton), and Isle of Capri Casinos, Inc.
The third group which proved beneficial in the first half is technology. Amkor
Technology, Inc., provides semiconductor packaging and test services. Orius
Corporation operates in the telecommunications service arena, laying
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MANAGER'S COMMENTARY (CONTINUED)
SECURITY INCOME FUND HIGH YIELD SERIES
JUNE 30, 2000
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cable and installing premise wiring as well as providing outsourcing services.
HIGH YIELD MARKETS APPEAR TO HAVE STABILIZED
Our cash positions have been a bit higher than usual throughout the first half
of the year, reflecting our caution about investing in a somewhat shaky market.
In recent weeks, however, the high yield markets seem to be more stable,
particularly following the positive movements in the stock markets. We plan to
put the cash to work as appropriate opportunities arise, concentrating on BB
rated credits and better single-B rated names. We believe the Federal Reserve
Bank is near the conclusion of its cycle of interest rate increases, and high
yield bonds should perform well when interest rates begin declining.
Sincerely,
David G. Toussaint
Portfolio Manager
(1) Performance figures are based on Class A shares and do not reflect deduction
of the sales charge. Fee waivers and/or reimbursements reduced Fund expenses
and in the absence of such waivers, the performance quoted would be reduced.
HIGH YIELD SERIES
6/30/00
[BAR GRAPH]
HIGH YIELD SERIES
AVERAGE ANNUAL TOTAL RETURN
AS OF JUNE 30, 2000
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
<S> <C> <C> <C> <C> <C>
1 Year -7.74% 1 Year -8.71% Since -0.80%
Since Inception (8- 3.75% Since 3.49% Inception (5-
15-96) Inception (8- 1-00)
15-96)
</TABLE>
The performance data above represents past performance which is not
predictive of future results. For Class A shares these figures reflect
deduction of the maximum sales charge of 4.75%. For Class B shares the
figures reflect deduction of the maximum contingent deferred sales charge,
ranging from 5% in the first year to 0% in the sixth and following years.
For Class C shares the figures reflect deduction of the 1% contingent
deferred sales change. Fee waivers reduced expenses of the Fund and in the
absence of such waiver, the performance quoted would be reduced. The
investment return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than
their original cost.
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MANAGER'S COMMENTARY
SECURITY CASH FUND
JUNE 30, 2000
TO OUR SHAREHOLDERS:
During the first half of this year, as in the second half of 1999, money market
funds were the only fixed income sector to benefit from the Federal Reserve
Bank's series of interest rate increases. Higher interest rates increased the
return of the Fund without damaging your invested principal. The seven-day
annualized yield of the Fund at June 30 was 5.73%, up from 5.28% at the close of
last year. The total return for the six month period ended June 30, 2000 was
2.59%, close to the 2.66% average of its Lipper peer group of funds.(1)
SHORT TERM INTEREST RATES RISE WITH THE FED'S ACTIONS
When the Federal Reserve's policy-making Open Market Committee (FOMC) announces
increases in its target interest rates, it is referring to the Federal funds
rate, which is the rate at which banks lend money to each other on an overnight
basis. The FOMC often increases its discount rate as well; this is the rate at
which the Federal Reserve Bank lends funds to member banks. Both of these rates
are short term; consequently, the impact on money market instruments is
immediate. In fact, many times investors in money market instruments anticipate
the likelihood that the FOMC will increase rates and force up the rates on money
market instruments ahead of the actual announcement.
CHARACTERISTICS OF PORTFOLIO ASSETS
In periods when interest rates are rising, we believe it is prudent to keep the
average maturity of the securities in the portfolio shorter than usual in order
to more quickly take advantage of higher rates. The average maturity of the
holdings in Security Cash Fund at June 30, 2000 was 39.5 days, compared with the
52 day average maturity of the benchmark Money Fund Report.
The portfolio is currently made up of 53.5% commercial paper, 19.4% Federal
agency discount notes and securities, 4.9% SBA issues, 1.7% floating rate
government securities, 8.4% funding agreements, and 12.1% Sallie Mae floating
rate issues. A broadly diversified portfolio such as this gives us more
flexibility to adjust in a rising interest rate environment.
OUTLOOK FOR THE SECOND HALF OF 2000
We believe the Federal Reserve is at or near the end of its cycle of interest
rate increases. We are monitoring economic and market conditions carefully and
plan to lengthen our maturities a bit when rates begin to come down. By doing
this, we can retain the benefits of today's higher rates for a longer period of
time. As usual, we continue to compare rates paid on various money market
instruments in order to take advantage of the best offerings.
Sincerely,
Fixed Income Team
(1) An investment in the Security Cash Fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the Fund seeks to preserve the value of your investment at $1.00
per share, it is possible to lose money by investing in the Fund.
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SCHEDULE OF INVESTMENTS
JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
SECURITY MUNICIPAL BOND FUND
PRINCIPAL MARKET
MUNICIPAL BONDS AMOUNT VALUE
------------------------------------------------------------
<S> <C> <C>
CALIFORNIA - 15.0%
Los Angeles County, California
Metro Authority, 5.625% -
2018............................ $1,000,000 $ 1,004,530
Los Angeles, California Wastewater
System Revenue, 6.00% - 2014.... 1,100,000 1,145,133
Sacramento County Sanitation
Revenue, 5.875% - 2027.......... 550,000 551,920
-----------
2,701,583
ILLINOIS - 15.3%
Chicago, Illinois Board of
Education - General Obligation,
5.75% - 2027.................... 250,000 245,120
Chicago, Illinois Midway Airport
Revenue, 5.625% - 2029.......... 250,000 235,650
Cook County, Illinois General
Obligation, 5.625% - 2016....... 275,000 276,471
DuPage County, Illinois Stormwater
Project Refunding, 5.60% -
2021............................ 1,000,000 989,190
Winnebago County, Illinois School
District No. 122, 0.00% -
2014(3)......................... 2,155,000 1,003,648
-----------
2,750,079
KANSAS - 1.4%
Wyandotte County, Kansas City,
Kansas Government Utility
System, 5.75% - 2024............ 250,000 249,330
LOUISIANA - 3.6%
East Baton Rouge Louisiana Solid
Waste - Exxon Mobil Corporation,
4.60% - 2028(2)................. 650,000 650,000
MASSACHUSETTS - 1.9%
Massachusetts State Water
Pollution Abatement Trust, 5.75%
- 2029.......................... 350,000 345,597
MISSOURI - 2.9%
Kansas City, Missouri Port
Authority Riverfront Park, 5.75%
- 2005.......................... 500,000 511,070
NEVADA - 5.5%
Clark County, Nevada School
District, Series A, 5.50% -
2016............................ 1,000,000 995,770
NEW JERSEY - 5.9%
North Brunswick Township, New
Jersey Board of Education, 6.30%
- 2013.......................... 1,000,000 1,059,350
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
MUNICIPAL BONDS (CONTINUED) AMOUNT VALUE
------------------------------------------------------------
<S> <C> <C>
NEW YORK - 18.5%
New York City Municipal Water
Finance Authority, 5.50% -
2023............................ $ 250,000 $ 238,108
New York State Dorm Authority
Revenue North Shore, 5.50% -
2012............................ 1,000,000 1,026,990
New York State Dorm Authority,
5.50% - 2026.................... 200,000 189,438
New York State Local Government
Assistance Corporation, 6.00% -
2016............................ 205,000 210,232
New York State Mortgage Agency,
6.125% - 2030................... 500,000 498,030
New York State Urban Development,
5.375% -2025.................... 700,000 658,728
Triborough Bridge and Tunnel
Authority, New York,
5.50% - 2017.................... 250,000 250,477
Triborough Bridge and Tunnel
Authority, New York Series Y,
5.50% - 2017.................... 250,000 250,477
-----------
3,322,480
PENNSYLVANIA - 5.4%
Delaware Valley Pennsylvania
Regional Financial Authority,
5.50% - 2028.................... 1,000,000 965,850
TENNESSEE - 3.1%
Memphis-Shelby County, Tennessee
Airport Authority, 6.00% -
2024............................ 300,000 302,085
Tennessee Housing Development
Agency, 6.35% - 2031............ 250,000 252,485
-----------
554,570
TEXAS - 3.1%
Gulf Coast Waste Disposal
Authority Texas Environmental,
4.60% - 2030(2)................. 300,000 300,000
Lower Colorado River Authority
Texas Revenue, 6.00% - 2013..... 250,000 263,500
-----------
563,500
</TABLE>
See accompanying notes.
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SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
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<TABLE>
<CAPTION>
SECURITY MUNICIPAL BOND FUND
(CONTINUED)
PRINCIPAL
AMOUNT
OR NUMBER MARKET
MUNICIPAL BONDS (CONTINUED) OF SHARES VALUE
------------------------------------------------------------
<S> <C> <C>
WASHINGTON - 19.5%
Island County Washington School
District South Whidbey, 6.75% -
2007............................ $1,000,000 $ 1,109,280
King County, Washington General
Obligation, 6.25% - 2034........ $1,000,000 1,063,850
Seattle, Washington General
Obligation, 5.75% - 2028........ $ 250,000 246,577
Washington Public Power Supply
System Revenue Nuclear Project
#2, 6.30% - 2012................ $1,000,000 1,084,270
-----------
3,503,977
-----------
Total investments - 101.1%.................. 18,173,156
Liabilities, less cash and other assets -
(1.1%).................................... (202,614)
-----------
Total net assets - 100.0%................... $17,970,542
===========
<CAPTION>
SECURITY INCOME FUND -
DIVERSIFIED INCOME SERIES
CORPORATE BONDS
---------------
AUTOMOTIVE - 0.6%
Federal-Mogul Corporation, 7.875%
- 2010.......................... $ 275,000 $ 191,812
Mark IV Industries, 7.75% -
2006............................ $ 250,000 247,813
-----------
439,625
BANKING - 0.7%
Bank of New York Company, Inc.,
6.50% - 2003.................... $ 100,000 96,875
BF Saul Reit, 9.75% - 2008........ $ 13,000 11,213
First Union Corporation, 8.125% -
2002............................ $ 110,000 110,962
Golden State Holdings, 7.125% -
2005............................ $ 25,000 22,313
Washington Mutual Capital I,
8.375% - 2027(1)................ $ 300,000 267,000
-----------
508,363
BASIC INDUSTRY - OTHER - 0.7%
Pioneer Hi Bred International,
Inc., 5.75% - 2009.............. $ 575,000 521,813
BEVERAGE - 0.5%
Anheuser-Busch Companies, Inc.,
7.10% - 2007.................... $ 400,000 392,500
BROKERAGE - 1.8%
SI Financing, Inc., 9.50% -
2026(1)......................... 53,470 1,350,118
</TABLE>
<TABLE>
<S> <C> <C>
<CAPTION>
SECURITY INCOME FUND -
DIVERSIFIED INCOME SERIES (CONTINUED)
PRINCIPAL MARKET
CORPORATE BONDS (CONTINUED) AMOUNT VALUE
------------------------------------------------------------
<S> <C> <C>
BUILDING MATERIALS - 1.6%
LaFarge Corporation,
6.375% - 2005................... $ 650,000 $ 606,125
Vulcan Materials Company, 5.75% -
2004............................ 600,000 575,250
-----------
1,181,375
CONGLOMERATES - 0.7%
Honeywell International, 7.50% -
2010............................ 500,000 501,250
CONSTRUCTION MACHINERY - 0.6%
AGCO Corporation, 8.50% - 2006.... 275,000 252,656
Sequa Corporation, 9.00% - 2009... 175,000 168,000
-----------
420,656
CONSUMER CYCLICAL - OTHER - 0.0%
American Eco Corporation, 9.625% -
2008............................ 25,000 1,000
ENERGY - INDEPENDENT - 0.3%
Seagull Energy Corporation, 8.625%
- 2005.......................... 250,000 245,000
ENERGY - OTHER - 0.0%
P&L Coal Holdings Corporation,
8.875% - 2008................... 25,000 23,563
ENERGY - REFINING - 0.2%
Vastar Resources, Inc., 8.75% -
2005............................ 150,000 158,250
FINANCIAL COMPANIES - 1.7%
CB Richard Ellis Service, 8.875% -
2006............................ 175,000 148,750
Countrywide Capital, 8.00% -
2026............................ 300,000 248,250
Household Finance Corporation,
8.00% - 2004.................... 150,000 151,312
PNC Funding Corporation, 7.75% -
2004............................ 700,000 703,500
-----------
1,251,812
GAMING - 0.2%
Park Place Entertainment, 7.875% -
2005............................ 175,000 164,500
HEALTHCARE - 0.0%
Tenet Healthcare, 8.125% - 2008... 25,000 22,875
HOME CONSTRUCTION - 0.3%
MDC Holdings, 8.375% - 2008....... 137,000 121,245
Oakwood Homes Corporation, 8.125%
- 2009.......................... 250,000 86,250
-----------
207,495
</TABLE>
See accompanying notes.
--------------------------------------------------------------------------------
10
<PAGE> 12
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
c-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY INCOME FUND -
DIVERSIFIED INCOME SERIES (CONTINUED)
PRINCIPAL MARKET
CORPORATE BONDS (CONTINUED) AMOUNT VALUE
------------------------------------------------------------
<S> <C> <C>
INSURANCE - LIFE - 0.1%
Transamerica Capital II, 7.65% -
2026............................ $ 100,000 $ 90,125
LODGING - 0.2%
HMH Properties, 7.875% - 2008..... 200,000 179,500
MEDIA - CABLE - 1.6%
Adelphia Communications, 8.375% -
2008............................ 25,000 22,094
Century Communications, 8.375% -
2007............................ 275,000 244,062
Comcast Corporation, 9.125% -
2006............................ 100,000 105,000
Jones Intercable, Inc., 7.625% -
2008............................ 275,000 268,469
Lenfest Communications, Inc.,
10.50% - 2006................... 250,000 279,062
Rogers Cablesystems, Ltd., 9.625%
- 2002.......................... 175,000 175,875
Time Warner Entertainment, 10.15%
- 2012.......................... 110,000 127,875
-----------
1,222,437
MEDIA - NON-CABLE - 0.6%
KIII Communications Corporation,
10.25% - 2004................... 375,000 375,000
News America Holdings, 8.625% -
2003............................ 75,000 76,500
USA Networks, 6.75% - 2005........ 25,000 23,719
-----------
475,219
METALS - 0.1%
California Steel Industries, 8.50%
- 2009.......................... 25,000 22,875
WHX Corporation, 10.50% - 2005.... 25,000 19,500
-----------
42,375
OIL FIELD SERVICES - 0.4%
Transocean Offshore, Inc., 8.00% -
2027............................ 300,000 295,125
PACKAGING - 0.0%
Ball Corporation, 7.75% - 2006.... 25,000 23,500
RETAILERS - 0.9%
Sears & Roebuck Company, 6.41% -
2001............................ 150,000 148,875
Tandy Corporation, 6.95% - 2007... 400,000 382,500
Zale Corporation, 8.50% - 2007.... 125,000 117,500
-----------
648,875
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
CORPORATE BONDS (CONTINUED) AMOUNT VALUE
------------------------------------------------------------
------------------------------------------------------------
<S> <C> <C>
SUPERMARKETS - 0.1%
Safeway, Inc., 6.50% - 2008....... $ 100,000 $ 92,000
TECHNOLOGY - 0.6%
Electronic Data Systems, 7.125% -
2009............................ 500,000 486,250
TELECOMMUNICATIONS - 1.3%
AT&T Corporation, 7.00% - 2005.... 200,000 196,250
ALESTRA S.A., 12.625% - 2009...... 25,000 22,594
GTE Corporation, 7.51% - 2009..... 500,000 490,625
Mastec, Inc., 7.75% - 2008........ 150,000 138,000
New Jersey Bell Telephone, 6.625%
- 2008.......................... 150,000 143,062
-----------
990,531
TOBACCO - 0.1%
Dimon, Inc., 8.875% - 2006........ 50,000 45,187
TRANSPORTATION - AIRLINES - 0.6%
Southwest Airlines Company, 7.875%
- 2007.......................... 450,000 450,000
UTILITIES - ELECTRIC - 0.3%
CMS Energy Corporation, 6.75% -
2004............................ 25,000 23,156
Calpine Corporation, 8.75% -
2007............................ 25,000 24,281
Consolidated Edison Company,
6.625% - 2002................... 150,000 148,875
-----------
196,312
UTILITIES - NATURAL GAS - 0.3%
MCN Investment Corporation, 6.32%
- 2003.......................... 225,000 213,469
YANKEE - CANADIANS - 0.2%
Province of Quebec, 8.625% -
2005............................ 150,000 157,500
YANKEE - CORPORATE - 2.6%
ABN AMRO Bank N.V., 7.55% - 2006.. 600,000 597,000
Abbey National plc, 6.69% -
2005............................ 300,000 287,625
BCH Cayman Islands, Ltd., 7.70% -
2006............................ 300,000 295,125
Den Danske Bank, 7.40% - 2010..... 100,000 95,375
Vodafone Airtouch plc, 7.625% -
2005............................ 700,000 700,875
-----------
1,976,000
-----------
Total corporate bonds - 19.9%............... 14,974,600
</TABLE>
See accompanying notes.
--------------------------------------------------------------------------------
11
<PAGE> 13
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
c-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY INCOME FUND -
DIVERSIFIED INCOME SERIES (CONTINUED)
PRINCIPAL MARKET
MORTGAGE BACKED SECURITIES AMOUNT VALUE
------------------------------------------------------------
<S> <C> <C>
NON-AGENCY SECURITIES - 2.2%
Chase Commercial Mortgage
Securities Corporation, 1997-1
B, 7.37% - 2007 CMO............. $1,500,000 $ 1,484,356
Chase Commercial Mortgage
Securities Corporation, 1998-1
B, 6.56% - 2008 CMO............. 225,000 211,536
Global Rate Eligible Asset Trust
1998-A, 7.33% - 2006............ 44,203 9,725
-----------
Total mortgage backed securities - 2.2%....... 1,705,617
<CAPTION>
U.S. GOVERNMENT &
GOVERNMENT AGENCY SECURITIES
----------------------------
FEDERAL HOME LOAN BANKS - 3.2%
6.75% - 2002.................... 1,500,000 1,495,830
6.375% - 2006................... 800,000 772,984
8.29% - 2015.................... 150,000 164,401
-----------
2,433,215
FEDERAL HOME LOAN MORTGAGE CORPORATION - 6.2%
FHR #1311 J, 7.50% - 2021 CMO... 1,150,000 1,152,415
FHG #42 K, 8.00% - 2024 CMO..... 57,524 56,978
FHR #1930 AB, 7.50% - 2023 CMO.. 187,225 187,681
FHLMC, 5.75% - 2003............. 150,000 144,894
FHLMC, 7.00% - 2003............. 1,500,000 1,500,000
FHLMC, 6.25% - 2004............. 650,000 632,125
FHLMC, 6.625% - 2009............ 1,000,000 965,000
-----------
4,639,093
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 17.3%
FNR #1990-108 G, 7.00% - 2020
CMO........................... 479,487 467,183
FNMA, 6.53% - 2001(2)........... 1,000,000 999,460
FNMA, 5.45% - 2003.............. 100,000 95,433
FNMA, 6.50% - 2004.............. 1,250,000 1,225,750
FNMA, 7.40% - 2004.............. 600,000 607,212
FNMA, 7.49% - 2005.............. 285,000 289,908
FNMA, 7.65% - 2005.............. 250,000 256,047
FNMA, 7.875% - 2005............. 500,000 516,380
FNMA, 6.00% - 2008.............. 400,000 372,292
FNMA, 6.375% - 2009............. 1,500,000 1,421,490
FNMA, 6.625% - 2009............. 1,000,000 965,000
FNMA, 7.125% - 2030............. 2,250,000 2,255,557
FNMA, 7.25% - 2030.............. 1,500,000 1,526,250
FNMA, 8.00% - 2030.............. 2,000,100 2,008,974
-----------
13,006,936
FINANCING CORPORATION - 0.8%
FICO, 9.65% - 2018.............. 500,000 623,750
</TABLE>
<TABLE>
<S> <C> <C>
<CAPTION>
U.S. GOVERNMENT &
GOVERNMENT AGENCY SECURITIES PRINCIPAL MARKET
(CONTINUED) AMOUNT VALUE
------------------------------------------------------------
<S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -
25.5%
GNMA #313107, 7.00% - 2022...... $ 708,120 $ 697,215
GNMA #328618, 7.00% - 2022...... 201,131 197,432
GNMA #352022, 7.00% - 2023...... 644,578 626,852
GNMA #369303, 7.00% - 2023...... 710,491 698,363
GNMA #347017, 7.00% - 2024...... 348,986 342,177
GNMA #371006, 7.00% - 2024...... 193,169 189,688
GNMA #371012, 7.00% - 2024...... 359,646 352,698
GNMA #411643, 7.75% - 2025...... 241,199 241,551
GNMA #780454, 7.00% - 2026...... 719,830 700,481
GNMA #464356, 6.50% - 2028...... 723,408 688,041
GNMA #462680, 7.00% - 2028...... 916,174 893,783
GNMA #482668, 7.00% - 2028...... 1,159,239 1,130,687
GNMA #494109, 7.50% - 2029...... 1,512,787 1,502,076
GNMA #491492, 7.50% - 2029...... 949,018 942,422
GNMA #510704, 7.50% - 2029...... 1,379,578 1,369,756
GNMA #518436, 7.25% - 2029...... 992,303 975,018
GNMA #781079, 7.50% - 2029...... 580,080 576,356
GNMA #479229, 8.00% - 2030...... 997,781 1,008,377
GNMA #508342, 8.00% - 2030...... 1,498,807 1,514,725
GNMA #479232, 8.00% - 2033...... 992,993 1,003,529
GNMA #365608, 7.50% - 2034...... 513,574 510,420
GNMA II #1260, 7.00% - 2023..... 141,936 138,893
GNMA II #1849, 8.50% - 2024..... 133,288 136,331
GNMA II #2270, 8.00% - 2026..... 242,914 244,111
GNMA II #2320, 7.00% - 2026..... 306,204 298,680
GNMA II #2445, 8.00% - 2027..... 292,657 294,114
GNMA II #2616, 7.00% - 2028..... 452,950 440,082
GNMA II #2689, 6.50% - 2028..... 365,161 346,059
GNMA II #2909, 8.00% - 2030..... 997,315 1,002,610
GNMA II #9365, 8.25% - 2026..... 149,602 152,241
-----------
19,214,768
PRIVATE EXPORT FUNDING CORPORATION - 0.6%
7.01% - 2004.................... 350,000 349,563
6.31% - 2004.................... 100,000 97,375
-----------
446,938
STUDENT LOAN MARKETING ASSOCIATION - 0.6%
9.25% - 2004.................... 420,000 450,950
TENNESSEE VALLEY AUTHORITY - 1.2%
6.75% - 2025.................... 500,000 466,875
6.00% - 2013.................... 500,000 449,375
-----------
916,250
U.S. DEPARTMENT OF HOUSING AND URBAN
DEVELOPMENT - 1.7%
6.93% - 2013.................... 1,340,000 1,271,033
</TABLE>
See accompanying notes.
--------------------------------------------------------------------------------
12
<PAGE> 14
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
c-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY INCOME FUND -
DIVERSIFIED INCOME SERIES (CONTINUED)
PRINCIPAL
U.S. GOVERNMENT & AMOUNT
GOVERNMENT AGENCY SECURITIES OR NUMBER MARKET
(CONTINUED) OF SHARES VALUE
------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY BONDS - 4.0%
6.25% - 2023.................... $1,500,000 $ 1,509,375
6.125% - 2029................... $1,500,000 1,516,305
-----------
3,025,680
U.S. TREASURY NOTES - 11.8%
6.375% - 2001................... $1,000,000 998,750
6.375% - 2002................... $1,700,000 1,697,875
6.38% - 2002.................... $1,500,000 1,497,645
6.50% - 2002.................... $1,100,000 1,100,682
6.25% - 2003.................... $1,500,000 1,495,770
6.25% - 2007.................... $1,500,000 1,501,395
8.75% - 2008.................... $ 600,000 639,558
-----------
8,931,675
-----------
Total U.S. government & government agency
securities - 72.9%........................ 54,960,288
-----------
Total investments - 95.0%................... 71,640,505
Cash and other assets, less liabilities -
5.0%...................................... 3,747,584
-----------
Total net assets - 100.0%................... $75,388,089
===========
<CAPTION>
SECURITY INCOME FUND -
HIGH YIELD SERIES
CORPORATE BONDS
---------------
AEROSPACE/DEFENSE - 0.6%
Burke Industries, Inc., 10.00% -
2007............................ $ 175,000 $ 61,688
AUTOMOTIVE - 1.1%
Federal-Mogul Corporation, 7.50% -
2009............................ $ 75,000 51,469
7.875% - 2010................... $ 100,000 69,750
-----------
121,219
BANKING - 2.2%
BF SAUL REIT, 9.75% - 2008........ $ 75,000 64,688
FCB/NC Capital Trust I, 8.05% -
2028............................ $ 50,000 41,312
Homeside, Inc., 11.25% - 2003..... $ 125,000 135,312
-----------
241,312
BEVERAGES - 1.8%
Canandaigua Brands, 8.625% -
2006............................ $ 100,000 98,750
Delta Beverage Group, 9.75% -
2003............................ $ 100,000 94,375
-----------
193,125
BROKERAGE - 0.9%
S I Financing Trust I, 9.50% -
2026(1)......................... 4,000 101,000
</TABLE>
<TABLE>
<S> <C> <C>
<CAPTION>
SECURITY INCOME FUND -
HIGH YIELD SERIES (CONTINUED)
PRINCIPAL MARKET
CORPORATE BONDS (CONTINUED) AMOUNT VALUE
------------------------------------------------------------
<S> <C> <C>
BUILDING MATERIALS - 3.7%
American Plumbing & Mechanical,
Inc., 11.625% - 2008............ $ 200,000 $ 186,500
Knoll, Inc., 10.875% - 2006....... 100,000 100,000
Nortek, Inc., 8.875% - 2008....... 125,000.. 113,125
-----------
399,625
CONSTRUCTIONS MACHINERY - 4.2%
AGCO Corporation, 8.50% - 2006.... 100,000 91,875
Columbus McKinnon Corporation,
8.50% - 2008.................... 125,000 107,500
Navistar International, 8.00% -
2008............................ 75,000 68,812
Sequa Corporation, 9.00% - 2009... 125,000 120,000
Titan Wheel International, Inc.,
8.75% - 2007.................... 100,000 62,000
-----------
450,187
CONSUMER CYCLICAL - OTHER - 0.0%
American Eco Corporation, 9.625% -
2008*........................... 125,000 5,000
ELECTRIC - UTILITY - 3.7%
AES Corporation, 10.25% - 2006.... 100,000 99,750
Calpine
Corporation-Utility-Electric,
8.75% - 2007.................... 125,000 121,406
East Coast Power LLC,
6.737% - 2008................... 92,171 86,756
7.066% - 2012................... 100,000 92,000
-----------
399,912
ENERGY - INDEPENDENT - 0.7%
Seagull Energy Corporation, 8.625%
- 2005.......................... 75,000 73,500
ENERGY - OTHER - 0.7%
P & L Coal Holdings Corporation,
8.875% - 2008................... 75,000 70,688
ENERGY - REFINING - 2.2%
Crown Central Petroleum
Corporation, 10.875% - 2005..... 140,000 121,450
Giant Industries, Inc., 9.00% -
2007............................ 125,000 113,438
-----------
234,888
ENTERTAINMENT - 0.7%
Premier Parks, 9.75% - 2007....... 75,000 72,469
FINANCIAL COMPANIES - 1.5%
CB Richard Ellis Services, Inc.,
8.875% - 2006................... 75,000 63,750
Dollar Financial Group, Inc.,
10.875% - 2006.................. 100,000 97,000
-----------
160,750
</TABLE>
See accompanying notes.
--------------------------------------------------------------------------------
13
<PAGE> 15
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY INCOME FUND -
HIGH YIELD SERIES (CONTINUED)
PRINCIPAL MARKET
CORPORATE BONDS (CONTINUED) AMOUNT VALUE
------------------------------------------------------------
<S> <C> <C>
FOOD - 1.2%
Nash-Finch Company, 8.50% -
2008............................ $ 200,000 $ 130,000
GAMING - 8.2%
Circus Circus Enterprise, 6.75% -
2003............................ 100,000 91,750
9.25% - 2005.................... 75,000 72,375
Harrahs Operating Company, Inc.,
7.875% - 2005................... 150,000 141,000
Hollywood Park, Inc., 9.25% -
2007............................ 100,000 99,500
Isle of Capri Casinos, Inc., 8.75%
- 2009.......................... 100,000 92,500
MGM Grand, Inc., 6.95% - 2005..... 125,000 117,656
Mirage Resorts, Inc., 6.625% -
2005............................ 125,000 115,625
Park Place Entertainment
Corporation, 7.875% - 2005...... 175,000 164,500
-----------
894,906
HEALTH CARE - 2.6%
Genesis Health Ventures, Inc.,
9.875% - 2009*.................. 100,000 11,000
Multicare Companies, Inc., 9.00% -
2007*........................... 75,000 4,500
Packard BioScience Company, 9.375%
- 2007.......................... 80,000 72,800
Prime Medical Services, Inc.,
8.75% - 2008.................... 75,000 62,250
Rural/Metro Corporation, 7.875% -
2008............................ 100,000 42,000
Tenet Healthcare Corporation,
8.125% - 2008................... 100,000 91,500
-----------
284,050
HOME CONSTRUCTION - 2.9%
D.R. Horton, Inc., 8.375% -
2004............................ 75,000 70,875
Oakwood Homes Corporation, 8.125%
- 2009.......................... 200,000 69,000
Standard Pacific Corporation,
8.50% - 2009.................... 150,000 135,000
Toll Corporation, 7.75% - 2007.... 50,000 44,750
-----------
319,625
INSURANCE - 0.7%
GENAMERICA Capital, Inc., 8.525% -
2027............................ 75,000 74,438
LODGING - 3.2%
HMH Properties, 7.875% - 2008..... 175,000 157,062
Vail Resorts, Inc., 8.75% -
2009............................ 200,000 186,000
-----------
343,062
MEDIA - CABLE - 3.5%
Adelphia Communications
Corporation,
9.50% - 2004.................... $ 17,356 $ 16,749
8.375% - 2008................... 100,000 88,375
Century Communications
Corporation, 9.50% - 2005....... 100,000 96,500
8.375% - 2007................... 75,000 66,562
Diamond Holdings, 9.125% - 2008... 100,000 92,500
Rogers Cablesystems, 9.625% -
2002............................ 25,000 25,125
-----------
385,811
MEDIA - NONCABLE - 2.0%
Allbritton Communications Company,
9.75% - 2007.................... 75,000 72,000
Hollinger International
Publishing, 8.625% - 2005....... 25,000 24,719
K-III Communications Corporation,
10.25% - 2004................... 50,000 50,000
USA Networks, Inc., 6.75% -
2005............................ 75,000 71,156
-----------
217,875
METALS - 3.5%
AK Steel Corporation, 7.875% -
2009............................ 75,000 66,562
Bulong Operations, 12.50% -
2008*........................... 75,000 35,812
California Steel Industries, 8.50%
- 2009.......................... 175,000 160,125
Wheeling-Pittsburgh Corporation,
9.25% - 2007.................... 100,000 76,500
WHX Corporation, 10.50% - 2005.... 50,000 39,000
-----------
377,999
PACKAGING & CONTAINERS - 0.9%
Ball Corporation, 7.75% - 2006.... 100,000 94,000
RETAILERS - 3.7%
Ames Department Stores, Inc.,
10.00% - 2006................... 200,000 121,000
Musicland Group, Inc., 9.00% -
2003............................ 200,000 181,000
Zale Corporation, 8.50% - 2007.... 100,000 94,000
-----------
396,000
SERVICES - 2.3%
Loewen Group Inc-Pats, 6.70% -
2000*........................... 100,000 34,000
Protection One Alarm, 7.375% -
2005............................ 200,000 149,000
Unisys Corporation, 7.875% -
2008............................ 75,000 70,125
-----------
253,125
TECHNOLOGY - 1.8%
Amkor Technology, Inc., 9.25% -
2006............................ 200,000 197,250
TELECOMMUNICATIONS - 13.7%
Alestra SA, 12.625% - 2009........ 200,000 180,750
Call-Net Enterprises, Inc., 9.375%
- 2009.......................... 100,000 61,500
</TABLE>
See accompanying notes.
--------------------------------------------------------------------------------
14
<PAGE> 16
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
c-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY INCOME FUND -
HIGH YIELD SERIES (CONTINUED)
PRINCIPAL
AMOUNT
OR NUMBER MARKET
CORPORATE BONDS (CONTINUED) OF SHARES VALUE
------------------------------------------------------------
<S> <C> <C>
Crown Castle International
Corporation, 10.75% - 2011...... $ 100,000 $ 101,375
Exodus Communications, Inc.,
11.625% - 2010.................. $ 200,000 201,000
McLeodUSA, Inc., 8.375% - 2008.... $ 150,000 138,000
MJD Communications Inc., 9.50% -
2008............................ $ 150,000 133,500
Orius Capital Corporation, 12.75%
- 2010.......................... $ 200,000 206,000
Pac-West Telecom, Inc., 13.50% -
2009............................ $ 200,000 202,000
RCN Corporation, 10.00% - 2007.... $ 225,000 190,687
Satelites Mexicanos Inc., 10.125%
- 2004.......................... $ 100,000 67,000
-----------
1,481,812
TEXTILES - 0.5%
WestPoint Steven, Inc., 7.875% -
2008............................ $ 75,000 59,625
TOBACCO - 0.4%
DIMON, Inc., 8.875% - 2006........ $ 50,000 45,188
TRANSPORTATION - OTHER - 2.2%
Pegasus Aviation Lease
Securitization, 5.878% - 2029... $ 200,000 111,875
Teekay Shipping Corporation, 8.32%
- 2008.......................... $ 135,000 124,200
-----------
236,075
-----------
Total corporate bonds - 77.3%............... 8,376,204
<CAPTION>
PREFERRED STOCKS
----------------
BANKS AND CREDIT - 0.8%
California Federal Bank, 9.125%... 4,000 84,750
BROADCAST MEDIA - 1.3%
CSC Holdings Inc., 11.125%........ 707 74,426
Primedia, Inc. Series D, 10.00%,
2008,........................... 700 67,200
-----------
141,626
-----------
Total preferred stocks - 2.1%............... 226,376
<CAPTION>
COMMON STOCKS
-------------
<S> <C> <C>
BROADCAST MEDIA - 0.2%
Infinity Broadcasting
Corporation..................... 500 18,219
</TABLE>
<TABLE>
<S> <C> <C>
<CAPTION>
PRINCIPAL
AMOUNT
OR NUMBER MARKET
COMMON STOCKS (CONTINUED) OF SHARES VALUE
------------------------------------------------------------
ENTERTAINMENT - 0.0%
Golden Books Family Entertainment,
Inc.*........................... 2,833 $ 2,302
-----------
Total common stocks - 0.2%.................. 20,521
-----------
Total investments - 79.6%................... 8,623,101
Cash and other assets, less liabilities -
20.4%..................................... 2,216,499
-----------
Total net assets - 100.0%................... $10,839,600
===========
<CAPTION>
SECURITY CASH FUND
COMMERCIAL PAPER
----------------
<S> <C> <C>
<S> <C> <C>
ALCOHOLIC BEVERAGES - 2.5%
Anheuser-Busch Companies, Inc.,
6.20%, 10-07-00................. $1,500,000 $ 1,474,942
BEVERAGES - 2.7%
Coca-Cola Company,
6.11%, 07-06-00................. $1,100,000 1,099,067
6.44%, 07-11-00................. $ 500,000 499,106
-----------
1,598,173
BROKERAGE - 2.6%
Merrill Lynch & Company, Inc.,
6.63%, 08-09-00................. $ 300,000 297,845
6.53%, 08-11-00................. $ 286,000 283,873
6.25%, 10-10-00................. $1,000,000 982,465
-----------
1,564,183
BUSINESS SERVICES - 2.8%
General Electric Capital
Corporation, 6.02%, 08-03-00.... $1,700,000 1,690,619
CHEMICALS - BASIC - 2.8%
DuPont (E.I.) De Nemours &
Company, 6.61%, 08-28-00........ $1,700,000 1,681,896
COMBINATION GAS & ELECTRIC - 7.6%
Baltimore Gas & Electric Company,
6.62%, 07-11-00................. $1,400,000 1,397,426
Central Illinois Light Company,
6.78%, 07-27-00................. $ 800,000 796,083
6.88%, 09-20-00................. $ 475,000 467,647
Madison Gas & Electric Company,
6.62%, 07-31-00................. $ 700,000 696,138
South Carolina Electric & Gas
Company, 07-14-00............... $1,200,000 1,197,153
-----------
4,554,447
</TABLE>
See accompanying notes.
--------------------------------------------------------------------------------
15
<PAGE> 17
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
c-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY CASH FUND
(CONTINUED)
PRINCIPAL MARKET
COMMERCIAL PAPER (CONTINUED) AMOUNT VALUE
------------------------------------------------------------
<S> <C> <C>
COMPUTER SOFTWARE - 2.5%
Honeywell International, Inc.,
6.50%, 07-21-00................. $1,500,000 $ 1,494,583
COMPUTER SYSTEMS - 0.7%
International Business Machines
Corporation, 6.50%, 07-07-00.... 400,000 399,568
ELECTRIC UTILITIES - 6.4%
Duke Energy Corporation, 6.10%,
07-10-00........................ 1,400,000 1,397,865
Potomac Electric Power Company,
6.50%, 07-17-00................. 500,000 498,555
6.53%, 07-28-00................. 400,000 398,041
Southern California Edison
Company, 6.30%, 07-05-00........ 1,500,000 1,498,950
-----------
3,793,411
ENTERTAINMENT - 2.5%
Walt Disney Company, 6.42%,
07-21-00........................ 1,500,000 1,494,650
FOOD PROCESSING - 3.3%
General Mills, 6.51%, 07-19-00.... 900,000 897,071
McCormick & Company, Inc., 6.120%,
09-15-00........................ 1,100,000 1,085,602
-----------
1,982,673
INDUSTRIAL SERVICES - 0.5%
PPG Industries, Inc., 6.55%,
07-25-00........................ 300,000 298,690
PHARMACEUTICALS - 3.2%
Schering Corporation,
6.30%, 08-01-00................. 1,400,000 1,392,405
6.57%, 09-19-00................. 500,000 492,700
-----------
1,885,105
PHOTOGRAPH/IMAGING - 3.2%
Eastman Kodak Company,
6.54%, 08-29-00................. 1,300,000 1,286,066
6.58%, 09-01-00................. 600,000 593,201
-----------
1,879,267
PUBLISHING - 2.7%
McGraw-Hill Companies, Inc.,
6.51%, 07-17-00................. 1,340,000 1,336,123
6.52%, 08-16-00................. 300,000 297,501
-----------
1,633,624
RETAIL-DEPARTMENT STORES - 2.2%
May Department Stores, 6.51%,
07-11-00........................ 1,300,000 1,297,635
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL MARKET
COMMERCIAL PAPER (CONTINUED) AMOUNT VALUE
------------------------------------------------------------
------------------------------------------------------------
TELECOMMUNICATIONS - 5.1%
AT&T Corporation, 6.60%,
07-31-00........................ $1,500,000 $ 1,491,750
Bellsouth Telecommunications, Inc.
6.45%, 07-07-00................. 600,000 599,355
6.53%, 07-28-00................. 600,000 597,061
6.53%, 08-14-00................. 350,000 347,206
-----------
3,035,372
-----------
Total commercial paper - 53.3%.............. 31,758,838
<CAPTION>
U.S. GOVERNMENT & AGENCIES
--------------------------
<S> <C> <C>
<S> <C> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 17.1%
Federal National Mortgage
Association,
6.04%, 07-13-00................. 1,000,000 997,987
6.53%, 08-31-00................. 2,500,000 2,472,338
6.17%, 09-28-00................. 1,500,000 1,477,120
6.51%, 09-28-00................. 1,125,000 1,106,894
6.62%, 11-22-00................. 3,200,000 3,115,264
6.84%, 05-17-01(2).............. 1,000,000 1,000,000
-----------
10,169,603
FREDDIE MAC - 4.0%
Freddie Mac, 6.08%, 07-27-00...... 2,400,000 2,389,461
STUDENT LOAN MORTGAGE ASSOCIATION - 12.0%
Student Loan Mortgage Association,
5.52%, 07-25-04(2).............. 639,922 639,922
4.92%, 10-25-05(2).............. 1,282,256 1,276,246
5.15%, 10-28-06(2).............. 1,000,000 1,000,000
5.21%, 01-25-07(2).............. 1,407,242 1,404,383
5.33%, 04-25-08(2).............. 847,530 847,530
6.406%, 07-25-08(2)............. 2,000,000 2,000,000
-----------
7,168,081
SMALL BUSINESS ASSOCIATION POOLS - 4.8%
#503265, 7.000%, 07-25-17(2).... 487,335 486,117
#501927, 7.750%, 07-25-17(2).... 1,143,738 1,154,530
#503295, 6.500%, 09-25-18(2).... 275,124 275,296
#502398, 6.625%, 09-25-18(2).... 133,564 134,064
#503152, 5.875%, 11-25-20(2).... 444,953 444,953
#503303, 6.500%, 04-25-21(2).... 396,931 397,180
-----------
2,892,140
-----------
Total U.S. government & agencies - 37.9%.... 22,619,285
</TABLE>
See accompanying notes.
--------------------------------------------------------------------------------
16
<PAGE> 18
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 2000 (UNAUDITED)
c-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY CASH FUND (CONTINUED)
PRINCIPAL MARKET
MISCELLANEOUS ASSETS AMOUNT VALUE
------------------------------------------------------------
<S> <C> <C>
FUNDING AGREEMENTS - 8.4%
Security Life of Denver Insurance
Company, 6.50625%,
10-31-01(2)..................... $2,000,000 $ 2,000,000
Travelers Insurance Company,
6.49630%, 08-21-01(2)........... 3,000,000 3,000,000
-----------
5,000,000
-----------
Total investments - 99.6%................... 59,378,123
Cash and other assets, less liabilities -
0.4%...................................... 257,608
-----------
Total net assets - 100.0%................... $59,635,731
===========
</TABLE>
The identified cost of investments owned at June 30, 2000, was the same for
federal income tax and book purposes.
* Non-income producing.
(1) Trust Preferred Securities -- Securities issued by financial
institutions to augment their Tier 1 capital base. Issued on a
subordinate basis relative to senior notes or debentures. Institutions
may defer cash payments for up to 10 pay periods.
(2) Variable rate security.
(3) Original issue discount bond, under terms of initial offering.
See accompanying notes.
--------------------------------------------------------------------------------
17
<PAGE> 19
c-------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
SECURITY INCOME FUND
--------------------------
SECURITY DIVERSIFIED HIGH SECURITY
MUNICIPAL BOND INCOME YIELD CASH
FUND SERIES SERIES FUND
<S> <C> <C> <C> <C>
ASSETS
Investments, at value (identified cost: $18,046,193,
$73,753,509, $10,202,192, and $59,378,123 respectively)... $18,173,156 $ 71,640,505 $ 8,623,101 $59,378,123
Cash........................................................ 35,095 2,982,348 2,209,225 347,710
Receivables:
Securities sold........................................... -- -- -- 51,801
Interest.................................................. 286,592 1,049,869 215,968 164,489
Security Management Company................................. -- 43,936 5,260 --
Prepaid Expenses............................................ 19,634 16,382 19,567 18,871
----------- ------------ ----------- -----------
Total assets............................................ $18,514,477 $ 75,733,040 $11,073,121 $59,960,994
----------- ------------ ----------- -----------
LIABILITIES
Payable for:
Securities purchased...................................... $ 503,573 $ -- $ 200,000 $ --
Fund shares redeemed...................................... -- 95,076 -- --
Dividends payable to shareholders......................... -- -- -- 268,983
Management fees........................................... 7,341 25,145 5,259 25,228
Custodian fees............................................ -- 5,645 873 1,819
Transfer and administration fees.......................... 2,031 21,943 1,408 18,253
Professional fees......................................... 3,480 3,101 3,430 6,923
12b-1 distribution plan fees.............................. 21,569 178,475 21,936 --
Miscellaneous fees........................................ 5,941 15,566 615 4,057
----------- ------------ ----------- -----------
Total liabilities....................................... 543,935 344,951 233,521 325,263
----------- ------------ ----------- -----------
NET ASSETS.................................................. $17,970,542 $ 75,388,089 $10,839,600 $59,635,731
=========== ============ =========== ===========
NET ASSETS CONSIST OF:
Paid in capital............................................. $18,903,873 $ 94,475,537 $12,695,802 $59,635,731
Accumulated undistributed net investment income (loss)...... 2,901 31,313 (3,859) --
Accumulated undistributed net realized gain (loss) on sale
of investments............................................ (1,063,195) (17,005,757) (273,252) --
Net unrealized appreciation (depreciation) in value of
investments............................................... 126,963 (2,113,004) (1,579,091) --
----------- ------------ ----------- -----------
Total net assets........................................ $17,970,542 $ 75,388,089 $10,839,600 $59,635,731
=========== ============ =========== ===========
CLASS "A" SHARES
Capital shares outstanding.................................. 1,700,225 14,443,437 510,446 59,635,731
Net assets.................................................. $16,466,140 $ 65,023,266 $ 6,545,181 $59,635,731
----------- ------------ ----------- -----------
Net asset value per share................................... $ 9.68 $ 4.50 $ 12.82 $ 1.00
=========== ============ =========== ===========
Offering price per share (net asset value divided by
95.25%)................................................... $ 10.16 $ 4.72 $ 13.46 --
=========== ============ =========== ===========
CLASS "B" SHARES
Capital shares outstanding.................................. 154,991 2,278,344 335,431 --
Net assets.................................................. $ 1,504,402 $ 10,231,618 $ 4,291,428 --
Net asset value per share................................... $ 9.71 $ 4.49 $ 12.79 --
=========== ============ =========== ===========
CLASS "C" SHARES
Capital shares outstanding.................................. -- 29,670 233 --
Net assets.................................................. -- $ 133,205 $ 2,991 --
Net asset value per share................................... -- $ 4.49 $ 12.84 --
=========== ============ =========== ===========
</TABLE>
See accompanying notes.
--------------------------------------------------------------------------------
18
<PAGE> 20
c-------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
SECURITY INCOME FUND
------------------------
SECURITY DIVERSIFIED HIGH SECURITY
MUNICIPAL BOND INCOME YIELD CASH
FUND SERIES SERIES FUND
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends................................................. $ -- $ -- $ 4,662 $ --
Interest.................................................. 514,257 1,265,340 487,549 1,813,398
-------- ---------- --------- ----------
Total investment income................................. 514,257 1,265,340 492,211 1,813,398
EXPENSES:
Management fees........................................... 45,616 67,150 32,050 147,773
Custodian fees............................................ -- 5,650 1,116 3,097
Transfer/maintenance fees................................. 4,930 70,971 7,095 79,916
Administration fees....................................... 8,211 15,328 4,807 13,299
Directors' fees........................................... 7,344 2,236 526 5,968
Professional fees......................................... 3,480 5,559 3,480 6,923
Reports to shareholders................................... 3,128 1,641 970 13,264
Registration fees......................................... 10,605 72,034 9,142 29,891
Other expenses............................................ 555 813 228 1,461
12b-1 distribution plan fees.............................. 28,471 60,410 29,184 --
-------- ---------- --------- ----------
112,340 301,792 88,598 301,592
Less: Reimbursement of expenses............................. (15,463) (114,540) (32,050) --
-------- ---------- --------- ----------
Total expenses............................................ 96,877 187,252 56,548 301,592
-------- ---------- --------- ----------
Net investment income................................... 417,380 1,078,088 435,663 1,511,806
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) during the period on investments... 18,105 (1,137,220) (273,252) --
Net change in unrealized appreciation (depreciation) during
the period on investments................................. 363,912 1,281,199 (391,961) --
-------- ---------- --------- ----------
Net gain (loss)........................................... 382,017 143,979 (665,213) --
-------- ---------- --------- ----------
Net increase (decrease) in net assets resulting from
operations............................................ $799,397 $1,222,067 $(229,550) $1,511,806
======== ========== ========= ==========
</TABLE>
See accompanying notes.
--------------------------------------------------------------------------------
19
<PAGE> 21
c-------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
SECURITY INCOME FUND
--------------------------
SECURITY DIVERSIFIED HIGH SECURITY
MUNICIPAL BOND INCOME YIELD CASH
FUND SERIES SERIES FUND
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income.................................... $ 417,380 $ 1,078,088 $ 435,663 $ 1,511,806
Net realized gain (loss)................................. 18,105 (1,137,220) (273,252) --
Unrealized appreciation (depreciation) during the
period................................................. 363,912 1,281,199 (391,961) --
----------- ------------ ----------- -----------
Net increase (decrease) in net assets resulting from
operations............................................. 799,397 1,222,067 (229,550) 1,511,806
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A.............................................. (387,941) (924,878) (276,608) (1,511,806)
Class B.............................................. (28,027) (129,537) (164,738) --
Class C.............................................. -- (640) (38) --
----------- ------------ ----------- -----------
Total distributions to shareholders.................. (415,968) (1,055,055) (441,384) (1,511,806)
NET INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS:
(NOTE 5) .............................................. (1,703,549) 7,930,546 713,216 6,499,005
CORPORATE BOND & LIMITED MATURITY MERGER (COMPONENTS OF
NET ASSETS OF LIMITED MATURITY AND CORPORATE BOND AT
DATE OF EXCHANGE) (NOTE 6):
Accumulated undistributed net investment loss............ -- (2,803) -- --
Accumulated undistributed loss on sale of investments.... -- (14,503,702) -- --
Capital Stock............................................ -- 69,418,958 -- --
Net unrealized depreciation in value of investments...... -- (2,700,108) -- --
----------- ------------ ----------- -----------
-- 52,212,345 -- --
Total increase (decrease) in net assets.............. (1,320,120) 60,309,903 42,282 6,499,005
----------- ------------ ----------- -----------
NET ASSETS:
Beginning of period...................................... 19,290,662 15,078,186 10,797,318 53,136,726
----------- ------------ ----------- -----------
End of period............................................ $17,970,542 $ 75,388,089 $10,839,600 $59,635,731
=========== ============ =========== ===========
Accumulated undistributed net investment income (loss) at
end of period.......................................... $ 2,901 $ 11,949 $ (3,859) $ --
=========== ============ =========== ===========
</TABLE>
See accompanying notes.
--------------------------------------------------------------------------------
20
<PAGE> 22
c-------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
SECURITY INCOME FUND
-------------------------
SECURITY DIVERSIFIED HIGH SECURITY
MUNICIPAL BOND INCOME YIELD CASH
FUND SERIES SERIES FUND
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income.................................... $ 819,921 $1,018,123 $ 849,567 $ 2,872,195
Net realized gain (loss)................................. (106,719) (585,644) 114,180 --
Unrealized depreciation during the period................ (1,412,597) (1,172,192) (1,067,045) --
----------- ----------- ----------- -----------
Net increase (decrease) in net assets resulting
from operations........................................ (699,395) (739,713) (103,298) 2,872,195
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A.............................................. (759,817) (800,952) (521,137) (2,872,195)
Class B.............................................. (58,905) (212,143) (327,688) --
Net realized gain
Class A.............................................. -- -- (67,588) --
Class B.............................................. -- -- (47,813) --
----------- ----------- ----------- -----------
Total distributions to shareholders.................. (818,722) (1,013,095) (964,226) (2,872,195)
NET INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS:
(NOTE 5)............................................... 429,657 499,626 1,847,934 (8,690,857)
----------- ----------- ----------- -----------
Total increase (decrease) in net assets.............. (1,088,460) (1,253,182) 780,410 (8,690,857)
NET ASSETS:
Beginning of period...................................... 20,379,122 16,331,368 10,016,908 61,827,583
----------- ----------- ----------- -----------
End of period............................................ $19,290,662 $15,078,186 $10,797,318 $53,136,726
=========== =========== =========== ===========
Accumulated undistributed net investment income at end of
period................................................. $ 1,489 $ 11,083 $ 1,862 $ --
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
--------------------------------------------------------------------------------
21
<PAGE> 23
c-------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
SECURITY MUNICIPAL BOND FUND (CLASS A)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED DECEMBER 31
------------------------------------------------------------------------------------------------
2000(B)(C)(D)(H) 1999(B)(C)(D) 1998(B)(C)(D) 1997(B)(C)(D) 1996(B)(C)(D) 1995(B)(C)(D)
---------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF
PERIOD....................... $9.48 $10.24 $10.08 $9.72 $9.94 $9.05
INCOME FROM INVESTMENT
OPERATIONS:
Net Investment Income.......... 0.22 0.42 0.43 0.42 0.45 0.48
Net Gain (Loss) on Securities
(realized and unrealized).... 0.20 (0.76) 0.17 0.36 (0.21) 0.89
------- ------- ------- ------- ------- -------
Total from Investment
Operations................... 0.42 (0.34) 0.60 0.78 0.24 1.37
LESS DISTRIBUTIONS:
Dividends (from Net Investment
Income)...................... (0.22) (0.42) (0.44) (0.42) (0.46) (0.48)
Distributions (from Realized
Gains)....................... -- -- -- -- -- --
------- ------- ------- ------- ------- -------
Total Distributions.......... (0.22) (0.42) (0.44) (0.42) (0.46) (0.48)
------- ------- ------- ------- ------- -------
NET ASSET VALUE END OF
PERIOD....................... $9.68 $9.48 $10.24 $10.08 $9.72 $9.94
======= ======= ======= ======= ======= =======
TOTAL RETURN (A)............... 4.5% (3.5%) 6.1% 8.3% 2.5% 15.5%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period
(thousands).................. $16,466 $17,630 $19,012 $21,953 $23,304 $25,026
Ratio of Expenses to Average
Net Assets................... 1.00% 1.01% 0.82% 0.82% 0.78% 0.86%
Ratio of Net Income (Loss) to
Average Net Assets........... 4.64% 4.19% 4.23% 4.29% 4.67% 5.02%
Portfolio Turnover Rate........ 94% 108% 94% 48% 54% 103%
</TABLE>
--------------------------------------------------------------------------------
SECURITY MUNICIPAL BOND FUND (CLASS B)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED DECEMBER 31
------------------------------------------------------------------------------------------------
2000(B)(C)(D)(H) 1999(B)(C)(D) 1998(B)(C)(D) 1997(B)(C)(D) 1996(B)(C)(D) 1995(B)(C)(D)
---------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF
PERIOD....................... $9.50 $10.26 $10.08 $9.73 $9.95 $9.05
INCOME FROM INVESTMENT
OPERATIONS:
Net Investment Income.......... 0.19 0.34 0.31 0.29 0.33 0.37
Net Gain (Loss) on Securities
(realized and unrealized).... 0.20 (0.76) 0.17 0.37 (0.21) 0.90
------ ------ ------ ------- ------ ------
Total from Investment
Operations................... 0.39 (0.42) 0.48 0.66 0.12 1.27
LESS DISTRIBUTIONS:
Dividends (from Net Investment
Income)...................... (0.18) (0.34) (0.30) (0.31) (0.34) (0.37)
Distributions (from Realized
Gains)....................... -- -- -- -- -- --
------ ------ ------ ------- ------ ------
Total Distributions.......... (0.18) (0.34) (0.30) (0.31) (0.34) (0.37)
------ ------ ------ ------- ------ ------
NET ASSET VALUE END OF
PERIOD....................... $9.71 $9.50 $10.26 $10.08 $9.73 $9.95
====== ====== ====== ======= ====== ======
TOTAL RETURN (A)............... 4.1% (4.2%) 4.8% 6.9% 1.2% 14.3%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period
(thousands).................. $1,504 $1,661 $1,367 $2,344 $1,510 $1,190
Ratio of Expenses to Average
Net Assets................... 1.75% 1.76% 2.01% 2.00% 2.01% 2.00%
Ratio of Net Income (Loss) to
Average Net Assets........... 3.89% 3.45% 3.04% 3.11% 3.44% 3.90%
Portfolio Turnover Rate........ 94% 108% 94% 48% 54% 103%
</TABLE>
--------------------------------------------------------------------------------
22
<PAGE> 24
FINANCIAL HIGHLIGHTS (CONTINUED)
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
c-------------------------------------------------------------------------------
DIVERSIFIED INCOME SERIES (CLASS A)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED DECEMBER 31
---------------------------------------------------------------------------------------
2000(B)(C)(F)(H) 1999(B)(C) 1998(B)(C) 1997(B)(C) 1996(B)(C)(D) 1995(B)(C)(D)
---------------- ---------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD.... $ 4.52 $ 4.96 $ 4.81 $ 4.71 $ 4.97 $ 4.35
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income.................. 0.14 0.26 0.27 0.32 0.31 0.30
Net Gain (Loss) on Securities (realized
and unrealized)...................... (0.02) (0.44) 0.16 0.10 (0.26) 0.62
---------------- ---------- ---------- ---------- ------------- -------------
Total from Investment Operations....... 0.12 (0.18) 0.43 0.42 0.05 0.92
LESS DISTRIBUTIONS:
Dividends (from Net Investment
Income).............................. (0.14) (0.26) (0.28) (0.32) (0.31) (0.30)
Distributions (from Realized Gains).... -- -- -- -- -- --
---------------- ---------- ---------- ---------- ------------- -------------
Total Distributions.................. (0.14) (0.26) (0.28) (0.32) (0.31) (0.30)
---------------- ---------- ---------- ---------- ------------- -------------
NET ASSET VALUE END OF PERIOD.......... $ 4.50 $ 4.52 $ 4.96 $ 4.81 $ 4.71 $ 4.97
================ ========== ========== ========== ============= =============
TOTAL RETURN (A)....................... 2.8% (3.6%) 9.1% 9.2% 1.3% 21.9%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands)... $65,023 $12,723 $12,664 $7,652 $8,036 $10,080
Ratio of Expenses to Average Net
Assets............................... 0.99% 0.87% 0.93% 0.60% 0.65% 1.11%
Ratio of Net Income (Loss) to Average
Net Assets........................... 6.44% 5.58% 5.62% 6.10% 6.44% 6.41%
Portfolio Turnover Rate................ 122% 65% 78% 39% 75% 81%
</TABLE>
--------------------------------------------------------------------------------
DIVERSIFIED INCOME SERIES (CLASS B)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED DECEMBER 31
---------------------------------------------------------------------------------------
2000(B)(C)(F)(H) 1999(B)(C) 1998(B)(C) 1997(B)(C) 1996(B)(C)(D) 1995(B)(C)(D)
---------------- ---------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD.... $ 4.51 $ 4.95 $ 4.80 $ 4.71 $ 4.97 $ 4.35
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income.................. 0.11 0.22 0.22 0.26 0.25 0.26
Net Gain (Loss) on Securities (realized
and unrealized)...................... (0.01) (0.44) 0.16 0.10 (0.25) 0.63
---------------- ---------- ---------- ---------- ------------- -------------
Total from Investment Operations....... 0.10 (0.22) 0.38 0.36 (0.00) 0.89
LESS DISTRIBUTIONS:
Dividends (from Net Investment
Income).............................. (0.12) (0.22) (0.23) (0.27) (0.26) (0.27)
Distributions (from Realized Gains).... -- -- -- -- -- --
---------------- ---------- ---------- ---------- ------------- -------------
Total Distributions.................. (0.12) (0.22) (0.23) (0.27) (0.26) (0.27)
---------------- ---------- ---------- ---------- ------------- -------------
NET ASSET VALUE END OF PERIOD.......... $ 4.49 $ 4.51 $ 4.95 $ 4.80 $ 4.71 $ 4.97
================ ========== ========== ========== ============= =============
2.3% (4.6%) 8.0% 7.9% (0.2%) 20.9%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands)... $10,232 $2,356 $3,668 $1,091 $661 $582
Ratio of Expenses to Average Net
Assets............................... 1.75% 1.85% 1.85% 1.68% 1.86% 1.87%
Ratio of Net Income (Loss) to Average
Net Assets........................... 5.64% 4.55% 4.66% 5.02% 5.23% 5.69%
Portfolio Turnover Rate................ 122% 65% 78% 39% 75% 81%
</TABLE>
--------------------------------------------------------------------------------
23
<PAGE> 25
FINANCIAL HIGHLIGHTS (CONTINUED)
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
c-------------------------------------------------------------------------------
DIVERSIFIED INCOME SERIES (CLASS C)
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED
DECEMBER 31
-------------------
2000(B)(C)(F)(G)(H)
-------------------
<S> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD......................... $4.48
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income....................................... 0.03
Net Gain (Loss) on Securities (realized and unrealized)..... 0.02
--------
Total from Investment Operations............................ 0.05
LESS DISTRIBUTIONS:
Dividends (from Net Investment Income)...................... (0.04)
Distributions (from Realized Gains)......................... --
--------
Total Distributions....................................... (0.04)
--------
NET ASSET VALUE END OF PERIOD............................... $4.49
========
TOTAL RETURN (A)............................................ 1.4%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands)........................ $ 133
Ratio of Expenses to Average Net Assets..................... 1.70%
Ratio of Net Income (Loss) to Average Net Assets............ 6.56%
Portfolio Turnover Rate..................................... 161%
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
24
<PAGE> 26
FINANCIAL HIGHLIGHTS (CONTINUED)
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
c-------------------------------------------------------------------------------
HIGH YIELD BOND SERIES (CLASS A)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED DECEMBER 31
--------------------------------------------------------------------
2000(B)(C)(H) 1999(B)(C) 1998(B)(C) 1997(B)(C) 1996(B)(C)(E)
------------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD.................... $ 13.65 $ 15.05 $ 15.71 $ 15.32 $ 15.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income.................................. 0.55 1.25 1.22 1.25 0.45
Net Gain (Loss) on Securities (realized and
unrealized).......................................... (0.82) (1.32) (0.47) 0.60 0.32
------------- ---------- ---------- ---------- -------------
Total from Investment Operations....................... (0.27) (0.07) 0.75 1.85 0.77
LESS DISTRIBUTIONS:
Dividends (from Net Investment Income)................. (0.56) (1.18) (1.22) (1.25) (0.45)
Distributions (from Realized Gains).................... -- (0.15) (0.19) (0.21) --
------------- ---------- ---------- ---------- -------------
Total Distributions.................................. (0.56) (1.33) (1.41) (1.46) (0.45)
------------- ---------- ---------- ---------- -------------
NET ASSET VALUE END OF PERIOD.......................... $ 12.82 $ 13.65 $ 15.05 $ 15.71 $ 15.32
============= ========== ========== ========== =============
TOTAL RETURN (A)....................................... (2.0%) (0.5%) 5.0% 12.6% 5.2%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands)................... $6,545 $6,328 $5,781 $5,179 $2,780
Ratio of Expenses to Average Net Assets................ 0.74% 0.72% 0.76% 0.87% 1.54%
Ratio of Net Income (Loss) to Average Net Assets....... 8.47% 8.17% 7.96% 8.14% 7.47%
Portfolio Turnover Rate................................ 12% 36% 103% 87% 168%
</TABLE>
--------------------------------------------------------------------------------
HIGH YIELD BOND SERIES (CLASS B)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED DECEMBER 31
--------------------------------------------------------------------
2000(B)(C)(H) 1999(B)(C) 1998(B)(C) 1997(B)(C) 1996(B)(C)(E)
------------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD.................... $ 13.62 $ 15.02 $ 15.68 $ 15.32 $ 15.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income.................................. 0.50 1.06 1.10 1.10 0.41
Net Gain (Loss) on Securities (realized and
unrealized).......................................... (0.82) (1.25) (0.47) 0.59 0.32
------------- ---------- ---------- ---------- -------------
Total from Investment Operations....................... (0.32) (0.19) 0.63 1.69 0.73
LESS DISTRIBUTIONS:
Dividends (from Net Investment Income)................. (0.51) (1.06) (1.10) (1.12) (0.41)
Distributions (from Realized Gains).................... -- (0.15) (0.19) (0.21) --
------------- ---------- ---------- ---------- -------------
Total Distributions.................................. (0.51) (1.21) (1.29) (1.33) (0.41)
------------- ---------- ---------- ---------- -------------
NET ASSET VALUE END OF PERIOD.......................... $ 12.79 $ 13.62 $ 15.02 $ 15.68 $ 15.32
============= ========== ========== ========== =============
TOTAL RETURN (A)....................................... (2.4%) (1.3%) 4.2% 11.5% 4.9%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands)................... $4,291 $4,469 $4,236 $4,432 $2,719
Ratio of Expenses to Average Net Assets................ 1.54% 1.53% 1.53% 1.80% 2.26%
Ratio of Net Income (Loss) to Average Net Assets....... 7.67% 7.35% 7.17% 7.21% 6.74%
Portfolio Turnover Rate................................ 12% 36% 103% 87% 168%
</TABLE>
--------------------------------------------------------------------------------
25
<PAGE> 27
FINANCIAL HIGHLIGHTS (CONTINUED)
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
c-------------------------------------------------------------------------------
HIGH YIELD BOND SERIES (CLASS C)
<TABLE>
<CAPTION>
FISCAL PERIOD ENDED
DECEMBER 31
-------------------
2000(B)(C)(G)(H)
-------------------
<S> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD......................... $12.98
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income....................................... 0.15
Net Gain (Loss) on Securities (realized and unrealized)..... (0.12)
------
Total from Investment Operations............................ 0.03
LESS DISTRIBUTIONS:
Dividends (from Net Investment Income)...................... (0.17)
Distributions (from Realized Gains)......................... --
------
Total Distributions....................................... (0.17)
------
NET ASSET VALUE END OF PERIOD............................... $12.84
======
TOTAL RETURN (A)............................................ 0.2%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands)........................ $ 3
Ratio of Expenses to Average Net Assets..................... 1.34%
Ratio of Net Income (Loss) to Average Net Assets............ 7.80%
Portfolio Turnover Rate..................................... 21%
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
26
<PAGE> 28
c-------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
SECURITY CASH FUND
<TABLE>
<CAPTION>
FISCAL YEARS ENDED DECEMBER 31
---------------------------------------------------------------------------
2000(C)(H) 1999(C) 1998(C)(D) 1997(D) 1996(B)(C)(D) 1995(B)(C)(D)
---------- ------- ---------- ------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD............ $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income.......................... 0.03 0.04 0.05 0.05 0.05 0.05
Net Gain (Loss) on Securities (realized and
unrealized).................................. -- -- -- -- -- --
------- ------- ------- ------- ------- -------
Total from Investment Operations............... 0.03 0.04 0.05 0.05 0.05 0.05
LESS DISTRIBUTIONS
Dividends (from Net Investment Income)......... (0.03) (0.04) (0.05) (0.05) (0.05) (0.05)
Distributions (from Realized Gains)............ -- -- -- -- -- --
------- ------- ------- ------- ------- -------
Total Distributions.......................... (0.03) (0.04) (0.05) (0.05) (0.05) (0.05)
------- ------- ------- ------- ------- -------
NET ASSET VALUE END OF PERIOD.................. $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
======= ======= ======= ======= ======= =======
TOTAL RETURN (A)............................... 2.6% 4.4% 4.7% 4.9% 4.6% 5.0%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands)........... $59,636 $53,137 $61,828 $57,441 $45,331 $38,158
Ratio to Expenses to Average Net Assets........ 1.00% 0.86% 0.89% 0.90% 1.01% 1.00%
Ratio of Net Income (Loss) to Average Net
Assets....................................... 5.10% 4.30% 4.60% 4.80% 4.47% 5.00%
</TABLE>
(a) Total return information does not take into account any charges paid at
time of purchase or contingent deferred sales charges paid at time of
redemption.
(b) Fund expenses were reduced by reimbursement from the Investment Manager.
Expense ratios absent such reimbursement would have been as follows:
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Municipal Bond Fund Class A 0.86% 0.78% 0.83% 0.82% 1.14% 1.16%
Class B 2.45% 2.19% 2.00% 2.18% 2.19% 2.02%
Diversified Income
Series Class A 1.22% 1.17% 1.06% 1.43% 1.37% 1.66%
Class B 3.70% 3.26% 2.14% 3.03% 2.36% 2.46%
Class C -- -- -- -- -- 2.40%
High Yield Series Class A -- 2.11% 1.44% 1.36% 1.32% 1.34%
Class B -- 2.83% 2.37% 2.13% 2.13% 2.14%
Class C -- -- -- -- -- 2.01%
Cash Fund 1.04% 1.01% -- -- -- --
</TABLE>
(c) Net investment income was computed using the average month-end shares
outstanding throughout the period.
(d) Expense ratios, including reimbursements, were calculated without the
reduction for custodian fees earnings credits beginning February 1, 1995.
Expense ratios with such reductions would have been as follows:
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Municipal Bond Fund Class A 0.85% 0.77% 0.83% 0.82% 1.00%
Class B 2.00% 2.00% 2.00% 2.00% 1.75%
Diversified Income
Series Class A 1.10% 0.64% -- -- --
Class B 1.85% 1.85% -- -- --
Class C -- -- -- -- --
Cash Fund 1.00% 1.00% 1.00% 0.89% --
</TABLE>
(e) Security High Yield Series was initially capitalized on August 15, 1996,
with a net asset value of $15 per share. Percentage amounts for the period
have been annualized, except for total return.
(f) Portfolio turnover calculation excludes the portfolio investments in the
Limited Maturity Series and Corporate Bond Series merger.
(g) Class C shares were initially offered for sale on May 1, 2000 for Security
High Yield Series and Diversified Income Series. Percentage amounts for the
period, except for total return, have been annualized.
(h) Unaudited figures for the six months ended June 30, 2000. Percentage
amounts for the period, except total return, have been annualized.
--------------------------------------------------------------------------------
27
<PAGE> 29
c-------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
1. SIGNIFICANT ACCOUNTING POLICIES
Security Income Fund, Security Municipal Bond Fund and Security Cash Fund
(the Funds) are registered under the Investment Company Act of 1940, as amended,
as diversified open-end management investment companies. The shares of Security
Income Fund are currently issued in multiple series, with each series, in
effect, representing a separate Fund. The Income Fund is required to account for
each series separately and to allocate general expenses to each series based on
the net asset value of each series. Class A shares are sold with a sales charge
at the time of purchase. Class A shares are not subject to a sales charge when
they are redeemed, except that purchases of Class A shares of $1 million or more
sold without a front-end sales charge are subject to a contingent deferred sales
charge if redeemed within one year of purchase. Class B and Class C shares are
offered without a front-end sales charge but incur additional class-specific
expenses. Redemptions of the shares within five years of acquisition for Class B
and within one year of acquisition for Class C incur a contingent deferred sales
charge. The following is a summary of the significant accounting policies
followed by the Funds in the preparation of their financial statements.
A. SECURITY VALUATION -- Valuations of Security Income and Municipal Bond
Funds' securities are supplied by pricing services approved by the Board of
Directors. Securities listed or traded on a national securities exchange are
valued on the basis of the last sales price. If there are no sales on a
particular day, then the securities are valued at the last bid price. Securities
for which market quotations are not readily available are valued by a pricing
service considering securities with similar yields, quality, type of issue,
coupon, duration and rating. If there is no bid price or if the bid price is
deemed to be unsatisfactory by the Board of Directors or by the Funds'
investment manager, then the securities are valued in good faith by such method
as the Board of Directors determines will reflect the fair value. The Funds'
officers, under the general supervision of the Board of Directors, regularly
review procedures used by, and valuations provided by, the pricing service.
Cash Fund, by approval of the Board of Directors, utilizes the amortized
cost method for valuing portfolio securities, whereby all investments are valued
by reference to their acquisition cost as adjusted for amortization of premium
or accretion of discount.
B. OPTIONS -- Diversified Income Series and the High Yield Series may
purchase put and call options and write such options on a covered basis on
securities that are traded on recognized securities exchanges and
over-the-counter markets. Call and put options on securities give the holder the
right to purchase or sell, respectively (and the writer of the obligation to
sell or purchase), a security at a specified price, until a certain date. The
primary risks associated with the use of options are an imperfect correlation
between the change in market value of the securities held by the Series and the
price of the option, the possibility of an illiquid market, and the inability of
the counter-party to meet the terms of the contract.
The premium received for a written option is recorded as an asset, with an
equal liability which is marked to market based on the option's quoted daily
settlement price. Fluctuations in the value of such instruments are recorded as
unrealized appreciation (depreciation) until terminated, at which time realized
gains and losses are recognized.
C. SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security transactions are
accounted for on the date the securities are purchased or sold. Realized gains
and losses are reported on an identified cost basis. Interest income is
recognized on the accrual basis. Premiums and discounts (except original issue
discounts) on debt securities are not amortized, except Security Municipal Bond
Fund, which amortizes premiums.
D. DISTRIBUTIONS TO SHAREHOLDERS -- Distributions to shareholders are
recorded on the ex-dividend date. The character of distributions made during the
year from net investment income or net realized gains may differ from their
ultimate characterization for federal income tax purposes. These differences are
primarily due to the treatment of paydown gains and losses on mortgage-backed
securities.
E. TAXES -- The Funds complied with the requirements of the Internal Revenue
Code applicable to regulated investment companies and distributed all of their
taxable net income and net realized gains sufficient to relieve them from all,
or substantially all, federal income, excise and state income taxes. Therefore,
no provision for federal or state income tax is required.
F. EARNINGS CREDITS -- Under the fee schedule with the custodian, the Funds
earn credits based on overnight custody cash balances. These credits are
utilized to reduce related custodial expenses. The custodian fees disclosed in
the statement of operations do not reflect the reduction in expense from the
related earnings credits.
G. USE OF ESTIMATES -- The preparation of financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period. Actual
results could differ from those estimates.
2. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Management fees are payable to Security Management Company, LLC (SMC) under
investment advisory contracts at an annual rate of .50 of 1% of the average
daily net assets of Municipal Bond Fund and Cash Fund; .35 of 1% of the average
daily net assets for Diversified Income Series and .60% of 1% of the average
daily net assets of the High Yield Series. For the period 12/31/99 to 2/4/00,
management fees for the Diversified Income Series were .50 of 1% of the average
daily net assets. SMC pays Salomon Brothers Asset Management, Inc., an annual
fee equal to .22% of the average daily net assets of Security Municipal Bond
Fund for management services provided to the Fund. The investment advisory
contract for Security Income Fund provides that the total annual expenses of
--------------------------------------------------------------------------------
28
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000
c-------------------------------------------------------------------------------
each Series of the Fund (including management fees and custodian fees net of
earnings credits, but excluding interest, taxes, brokerage commissions,
extraordinary expenses and distribution fees paid under the Class B and Class C
distribution plans) will not exceed the level of expenses which Income Fund is
permitted to bear under the most restrictive expense limitation imposed by any
state in which shares of the Fund are qualified for sale. For the six months
ended June 30, 2000, SMC agreed to limit the total expenses of Diversified
Income Series to an annual rate of 0.95% of the average daily net asset value of
Class A shares and 1.70% of Class B shares and Class C shares. SMC also agreed
to limit the total expenses of the High Yield Series to 2.0% for Class A Shares
and 2.75% for Class B shares. The investment advisory contract for Municipal
Bond Fund provides that the total annual expenses of the Fund, exclusive of
interest, taxes, Rule 12b-1 fees, brokerage fees and commissions and
extraordinary expenses, will not exceed an amount equal to an annual rate of
1.0% of the average net assets of the Fund as calculated on a daily basis. The
investment advisory contract for Security Cash Fund provides that the total
annual expenses of the Fund, exclusive of interest, taxes, brokerage fees and
commissions and extraordinary expenses, will not exceed an amount equal to an
annual rate of 1% of the average net assets of the Fund as calculated on a daily
basis.
The Funds have entered into contracts with SMC for transfer agent services
and certain other administrative services which SMC provides to the Funds. SMC
is paid an annual fixed charge per account and shareholder and dividend
transaction fees.
As the administrative agent for the Funds, SMC performs administrative
functions, such as regulatory filings, bookkeeping, accounting and pricing
functions for the Funds. For this service SMC receives on an annual basis, a fee
of 0.9% of the average daily net assets of Diversified Income Series, High Yield
Series, and Municipal Bond Fund and .045% of the average daily net assets of
Cash Fund calculated daily and payable monthly.
Security Income and Municipal Bond Funds have adopted Distribution Plans
related to the offering of Class B shares and Security Income Fund has adopted a
Distribution Plan relating to the Offering of Class C shares, each such
Distribution Plan has been adopted pursuant to Rule 12b-1 of the Investment
Company Act of 1940. The Plans provide for payments at an annual rate of 1.0% of
the average daily net assets of Class B shares and Class C shares, respectively,
Class A shares of Security Income Fund and Security Municipal Bond Fund incur
12b-1 distribution fees at an annual rate of .25% of the average daily net
assets of each Series.
Security Distributors, Inc. (SDI), a wholly-owned subsidiary of Security
Benefit Group, Inc., a financial services holding company, is national
distributor for Security Income and Municipal Bond Funds. SDI received net
underwriting commissions on sales of Class A shares and contingent deferred
sales charges (CDSC) on redemptions occurring within 5 years of the date of
purchase of Class B shares and within one year of the date of purchase of Class
C shares, after allowances to brokers and dealers for the six months ended June
30, 2000, in the amounts presented below:
<TABLE>
<CAPTION>
MUNICIPAL DIVERSIFIED HIGH YIELD
BOND FUND INCOME SERIES SERIES
--------- ------------- ----------
<S> <C> <C> <C>
SDI underwriting (Class A).................................. $ 124 $ 536 $ 546
CDSC (Class B).............................................. $ 4,457 $18,801 $17,391
CDSC (Class C).............................................. N/A -- --
Broker/Dealer (Class A)..................................... $ 915 $25,941 $ 2,918
Broker/Dealer (Class B)..................................... $ (120) $10,179 $ 4,418
Broker/Dealer (Class C)..................................... N/A $ 8 $ 1,812
</TABLE>
3. FEDERAL INCOME TAX MATTERS
The amounts of unrealized appreciation (depreciation) for federal income tax
purposes as of June 30, 2000, were as follows:
<TABLE>
<CAPTION>
MUNICIPAL DIVERSIFIED HIGH YIELD
BOND SERIES INCOME SERIES SERIES
----------- ------------- ----------
<S> <C> <C> <C>
Gross unrealized appreciation............................... $388,335 $ 210,708 $ 68,597
Gross unrealized depreciation............................... (261,372) (2,323,712) (1,647,688)
-------- ----------- -----------
Net unrealized appreciation (depreciation).................. $126,963 $(2,113,004) $(1,579,091)
======== =========== ===========
</TABLE>
4. INVESTMENT TRANSACTIONS
Investment transactions for the period ended June 30, 2000, (excluding
overnight investments and short-term debt securities) were as follows:
<TABLE>
<CAPTION>
MUNICIPAL DIVERSIFIED HIGH YIELD
BOND SERIES INCOME SERIES SERIES
----------- ------------- ----------
<S> <C> <C> <C>
Purchases................................................... $8,404,098 $19,840,580 $ 571,653
Proceeds from sales......................................... $9,565,628 $18,717,803 $1,032,396
</TABLE>
--------------------------------------------------------------------------------
29
<PAGE> 31
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000
c-------------------------------------------------------------------------------
5. CAPITAL SHARE TRANSACTIONS
The Funds are authorized to issue an unlimited number of shares in an
unlimited number of classes. Transactions in the capital shares of the Funds
were as follows:
<TABLE>
<CAPTION>
2000 2000 2000 2000 2000 2000 2000
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT INCREASE/DECREASE
SOLD* SOLD** REINVESTED REINVESTED REDEEMED REDEEMED SHARES
------ ------ ---------- ---------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
MUNICIPAL BOND FUND
Class A shares......... 18,070 $ 174,103 24,376 $ 232,088 (201,003) $ (1,921,262) (158,557)
Class B shares......... 227 2,186 1,267 12,102 (21,316) (202,766) (19,822)
----------- ------------ --------- ---------- ----------- ------------ ----------
Total................ 18,297 $ 176,289 25,643 $ 244,190 (222,319) $ (2,124,028) (178,379)
DIVERSIFIED INCOME SERIES
Class A shares......... 12,415,373 $ 55,246,540 150,135 $ 671,422 (934,958) $ (4,199,144) 11,630,550
Class B shares......... 2,049,215 9,606,805 26,171 116,865 (319,490) (1,432,485) 1,755,896
Class C shares......... 29,527 132,248 143 640 -- -- 29,670
----------- ------------ --------- ---------- ----------- ------------ ----------
Total................ 14,494,115 $ 64,985,593 176,449 $ 788,927 (1,254,448) $ (5,631,629) 13,416,116
HIGH YIELD SERIES
Class A shares......... 71,414 $ 947,661 19,735 $ 258,035 (44,408) $ (585,497) 46,741
Class B shares......... 38,541 505,921 11,914 155,439 (43,156) (571,345) 7,299
Class C shares......... 230 2,964 3 38 -- -- 233
----------- ------------ --------- ---------- ----------- ------------ ----------
Total................ 110,185 $ 1,456,546 31,652 $ 413,512 (87,564) $ (1,156,842) 54,273
CASH FUND................ 100,310,875 $100,310,875 1,344,658 $1,344,658 (95,156,528) $(95,156,528) 6,499,005
<CAPTION>
2000
INCREASE/DECREASE
AMOUNT
-----------------
<S> <C>
MUNICIPAL BOND FUND
Class A shares......... $(1,515,071)
Class B shares......... (188,478)
-----------
Total................ $(1,703,549)
DIVERSIFIED INCOME SERIES
Class A shares......... $51,718,818
Class B shares......... 8,291,185
Class C shares......... 132,888
-----------
Total................ $60,142,891
HIGH YIELD SERIES
Class A shares......... $ 620,199
Class B shares......... 90,015
Class C shares......... 3,002
-----------
Total................ $ 713,216
CASH FUND................ $ 6,499,005
</TABLE>
* Includes 9,416,879 and 1,205,168 shares issued in exchange for Corporate Bond
Series' and Limited Maturity Series' shares Class A shares, respectively and
749,773 and 281,591 shares issued in exchange for Corporate Bond Series' and
Limited Maturity Series' Class B shares, respectively.
** Includes $42,200,581 and $5,399,808 received in exchange for Corporate Bond
Series' and Limited Maturity Series' assets for Class A shares, respectively
and $3,353,369 and $1,258,587 received in exchange for Corporate Bond Series'
and Limited Maturity Series' assets for Class B shares, respectively.
<TABLE>
<CAPTION>
1999 1999 1999 1999 1999 1999 1999
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT INCREASE/DECREASE
SOLD SOLD REINVESTED REINVESTED REDEEMED REDEEMED SHARES
------ ------ ---------- ---------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
MUNICIPAL BOND FUND
Class A shares...... 276,786 $ 2,707,060 49,534 $ 488,667 (323,371) $ (3,193,665) 2,949
Class B shares...... 64,561 649,552 2,964 29,292 (25,898) (251,249) 41,627
----------- ------------ --------- ---------- ------------ ------------- ----------
Total............. 341,347 $ 3,356,612 52,498 $ 517,959 (349,269) $ (3,444,914) 44,576
DIVERSIFIED INCOME SERIES
Class A shares...... 1,716,274 $ 8,156,070 147,671 $ 693,206 (1,605,175) $ (7,500,908) 258,770
Class B shares...... 908,677 4,373,730 43,049 202,125 (1,170,493) (5,424,597) (218,767)
----------- ------------ --------- ---------- ------------ ------------- ----------
Total............. 2,624,951 $ 12,529,800 190,720 $ 895,331 (2,775,668) $ (12,925,505) 40,003
HIGH YIELD BOND SERIES
Class A shares...... 108,545 $ 1,600,578 39,302 $ 562,642 (68,191) $ (986,560) 79,656
Class B shares...... 70,803 1,036,665 25,082 357,999 (49,757) (723,390) 46,128
----------- ------------ --------- ---------- ------------ ------------- ----------
Total............. 179,348 $ 2,637,243 64,384 $ 920,641 (117,948) $ (1,709,950) 125,784
CASH FUND............. 180,060,073 $180,060,073 2,577,911 $2,577,911 (191,328,841) $(191,328,841) (8,690,857)
<CAPTION>
1999
INCREASE/DECREASE
AMOUNT
-----------------
<S> <C>
MUNICIPAL BOND FUND
Class A shares...... $ 2,062
Class B shares...... 427,595
-----------
Total............. $ 429,657
DIVERSIFIED INCOME SERIES
Class A shares...... $ 1,348,368
Class B shares...... (848,742)
-----------
Total............. $ 499,626
HIGH YIELD BOND SERIES
Class A shares...... $ 1,176,660
Class B shares...... 671,274
-----------
Total............. $ 1,847,934
CASH FUND............. $(8,690,857)
</TABLE>
6. ACQUISITION OF SECURITY INCOME FUND -- CORPORATE BOND SERIES AND SECURITY
INCOME FUND -- LIMITED MATURITY BOND SERIES
Pursuant to a plan of reorganization approved by Security Income Fund
Corporate Bond Series and Security Income Fund Limited Maturity Bond Series
shareholders, Security Income Fund Diversified Income Series (formerly U.S.
Government Series) acquired all the net assets of Corporate Bond Series and
Limited Maturity Bond Series, which totalled $52,212,345 on the closing date of
the reorganization, April 30, 2000. In exchange for the assets of Corporate Bond
Series and Limited Maturity Bond Series, 11,653,411 shares of Diversified Income
were distributed pro rata to Corporate Bond and Limited Maturity Bond
shareholders of record as of immediately after the closing date. This exchange
qualified as a tax-free reorganization under Section 368(a)(1)(Cx) of the
Internal
--------------------------------------------------------------------------------
30
<PAGE> 32
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000
c-------------------------------------------------------------------------------
Revenue Code. Corporate Bond's net assets included $2,353,525 of unrealized
depreciation, $2,609 of undistributed net investment loss and $14,299,309 of
undistributed realized loss on sale of investments. Limited Maturity's net
assets included $346,583 of unrealized depreciation, $194 of undistributed net
investment loss and $204,393 of undistributed loss of sale of investments. The
aggregate net assets of Diversified Income Series immediately before the
acquisition totalled $20,367,555. Following the acquisition, the combined net
assets of Diversified Income Series totalled, $72,579,900.
--------------------------------------------------------------------------------
31
<PAGE> 33
c-------------------------------------------------------------------------------
SHAREHOLDER UPDATE
SPECIAL MEETING RESULTS
A special meeting of the stockholders of Corporate Bond Fund and Limited
Maturity Bond Fund of Security Income Fund was held on April 26, 2000. The
matters voted upon at that meeting, as well as the number of votes cast for,
against or withheld, and the number of abstentions with respect to such matters
are set forth below.
(1) The approval of a Plan or Reorganization providing for the acquisition of
all of the assets and liabilities of the Corporate Bond Fund by the Diversified
Income Fund of the Security Income Fund solely in exchange for shares of the
Diversified Income Fund, followed by the complete liquidation of the Corporate
Bond Fund.
<TABLE>
<CAPTION>
SERIES OF VOTES AGAINST/
SECURITY INCOME FUND VOTES FOR ABSTENTIONS
-------------------- --------- --------------
<S> <C> <C>
Corporate Bond 4,795,941 183,702
</TABLE>
(2) The approval of a Plan or Reorganization providing for the acquisition of
all of the assets and liabilities of the Limited Maturity Bond Fund by the
Diversified Income Fund of the Security Income Fund solely in exchange for
shares of the Diversified Income Fund, followed by the complete liquidation of
the Limited Maturity Bond Fund.
<TABLE>
<CAPTION>
SERIES OF VOTES AGAINST/
SECURITY INCOME FUND VOTES FOR ABSTENTIONS
-------------------- --------- --------------
<S> <C> <C>
Limited Maturity 549,141 2,224
</TABLE>
--------------------------------------------------------------------------------
32
<PAGE> 34
THE SECURITY GROUP
OF MUTUAL FUNDS
Security Growth and Income Fund
Security Equity Fund
- Equity Series
- Global Series
- Total Return Series
- Social Awareness Series
- Value Series
- Small Company Series
- Enhanced Index Series
- International Series
- Select 25 Series
- Large Cap Value Series
- Technology Series
Security Ultra Fund
Security Income Fund
- Diversified Income Series
- High Yield Series
- Capital Preservation Series
Security Municipal Bond Fund
Security Cash Fund
This report is submitted for the general information of the shareholders of the
Funds. The report is not authorized for distribution to prospective investors in
the Funds unless preceded or accompanied by an effective prospectus which
contains details concerning the sales charges and other pertinent information.
SECURITY FUNDS
OFFICERS AND DIRECTORS
DIRECTORS
Donald A. Chubb, Jr.
John D. Cleland
Penny A. Lumpkin
Mark L. Morris, Jr., D.V.M.
Maynard F. Oliverius
James R. Schmank
OFFICERS
John D. Cleland, Chairman of the Board
James R. Schmank, President
Steven M. Bowser, Vice President
Thomas A. Swank, Vice President
Amy J. Lee, Secretary
Christopher D. Swickard, Assistant Secretary
Brenda M. Harwood, Treasurer
[SECURITY DISTRIBUTORS, INC. LOGO]
PRESORTED
STANDARD
U.S. POSTAGE
PAID
CHICAGO, IL
PERMIT NO. 941
SD1 609A (6-00) 46-06090-01
