<PAGE>
File Nos. 811-1136
2-19458
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |_|
Post-Effective Amendment No. 73 |X|
------
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |_|
Amendment No. 73 |X|
------
(Check appropriate box or boxes)
SECURITY EQUITY FUND
(Exact Name of Registrant as Specified in Charter)
700 HARRISON STREET, TOPEKA, KANSAS 66636-0001
(Address of Principal Executive Offices/Zip Code)
Registrant's Telephone Number, including area code:
(913) 295-3127
Copies To:
John D. Cleland, President Amy J. Lee, Secretary
Security Equity Fund Security Equity Fund
700 Harrison Street 700 Harrison Street
Topeka, KS 66636-0001 Topeka, KS 66636-0001
(Name and address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
|_| immediately upon filing pursuant to paragraph (b)
|_| on December 1, 1995, pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph (a)(i)
|X| on December 1, 1995, pursuant to paragraph (a)(i)
|_| 75 days after filing pursuant to paragraph (a)(ii)
|_| on December 1, 1995, pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
|_| this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
--------------------
The Registrant has registered an indefinite amount of securities under the
Securities Act of 1933 pursuant to Section 24(f) under the Investment Company
Act of 1940; accordingly, no fee is payable herewith. The Registrant filed the
Notice required by 24f-2 on November 22, 1995.
<PAGE>
SECURITY EQUITY FUND
FORM N-1A
CROSS REFERENCE SHEET
Form N-1A
Item Number Caption
- ----------- -------
Part A PROSPECTUS
- ------ ----------
1. Cover Page
2. Not Applicable
2a. Transaction and Operating Expense Table
3. Financial Highlights; Performance
4. Investment Objective and Policies of the Funds
5. Management of the Funds; Trading Practices and Brokerage
6. General Information; Dividends and Taxes; Foreign Taxes
7. How to Purchase Shares; Determination of Net Asset Value;
Shareholder Services; Appendix A
8. How to Redeem Shares
9. Not Applicable
Part B STATEMENT OF ADDITIONAL INFORMATION
- ------ -----------------------------------
10. Cover Page
11. Table of Contents
12. Not Applicable
13. Investment Objective and Policies of the Funds; Investment
Policy Limitations
14. Officers and Directors
15. Remuneration of Directors and Others
16. Investment Management; Distributor; Custodian, Transfer Agent
and Dividend-Paying Agent
17. Allocation of Portfolio Brokerage
18. Organization
19. How to Purchase Shares; How Net Asset Value is Determined; How
to Redeem Shares; How to Exchange Shares; Systematic
Withdrawal Program; Accumulation Plan; Retirement Plans;
Individual Retirement Accounts (IRAs); Pension and Profit
Sharing Plans; 403(b) Retirement Plans; Simplified Employee
Pension Plans (SEPPs); Appendix B
20. Dividends and Taxes
21. Distributor
22. Performance Information
23. Financial Statements; Independent Auditors
<PAGE>
<PAGE>
SECURITY FUNDS
PROSPECTUS
SECURITY GROWTH AND INCOME FUND
SECURITY EQUITY FUND
EQUITY SERIES
GLOBAL SERIES
SECURITY ULTRA FUND
MEMBERS OF THE SECURITY BENEFIT GROUP OF COMPANIES
700 HARRISON, TOPEKA, KANSAS 66636-0001
PROSPECTUS
January 31, 1996
Security Growth and Income Fund, Security Equity Fund, Security Global Fund
and Security Ultra Fund are diversified, open-end management investment
companies, each of which has a different investment objective.
The investment objective of Security Growth and Income Fund ("Growth and
Income Fund") is long-term growth of capital with a secondary emphasis on
income. Growth and Income Fund seeks to achieve this objective through
investment in a diversified portfolio which will ordinarily consist principally
of common stocks but may also include other securities when deemed advisable.
Such other securities may include securities convertible into common stocks,
preferred stocks and U.S. and Canadian debt securities, which may include higher
yielding, higher risk securities ("junk bonds") ordinarily characteristic of
securities in the lower rating categories of the recognized rating services.
BECAUSE GROWTH AND INCOME FUND INVESTS IN SUCH JUNK BONDS, IT MAY NOT BE
SUITABLE FOR ALL INVESTORS. IN ADDITION TO OTHER RISKS, JUNK BONDS ARE SUBJECT
TO GREATER FLUCTUATIONS IN VALUE AND RISK OF LOSS OF INCOME AND PRINCIPAL DUE TO
DEFAULT BY THE ISSUER THAN ARE LOWER YIELDING, HIGHER RATED BONDS.
The investment objective of Security Equity Fund ("Equity Fund") is
long-term capital growth. Equity Fund seeks this objective primarily through
investment in equity securities, and emphasis is placed upon the selection of
those securities which, in the opinion of the Investment Manager, offer basic
value or above-average capital growth potential.
The investment objective of Security Global Fund ("Global Fund") is long-term
growth of capital. Global Fund seeks this objective primarily through investment
in common stocks and equivalents of companies domiciled in foreign countries and
the United States. Investments in foreign securities may involve risks not
present in domestic investments.
The investment objective of Security Ultra Fund ("Ultra Fund") is capital
appreciation. Ultra Fund seeks this objective primarily through investment in
equity securities. Ultra Fund will ordinarily invest in a diversified portfolio
of common stocks and securities convertible into common stocks, and the
portfolio may include the securities of smaller and less mature companies. ULTRA
FUND MAY ENGAGE IN SHORT-TERM TRADING WHICH MAY BE CONSIDERED SPECULATIVE, AND
INCREASES RISKS TO ULTRA FUND.
This Prospectus sets forth concisely the information that a prospective
investor should know about the Funds. It should be read and retained for future
reference. A "Statement of Additional Information" about the Funds, dated
January 31, 1996, which is incorporated by reference in this Prospectus, has
been filed with the Securities and Exchange Commission. It is available at no
charge by writing Security Distributors, Inc., 700 Harrison, Topeka, Kansas
66636-0001, or by calling (913) 295-3127 or (800) 888-2461.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
AN INVESTMENT IN THE FUNDS INVOLVES RISK, INCLUDING LOSS OF PRINCIPAL, AND IS
NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY, ANY BANK. THE
FUNDS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOAD OR ANY OTHER AGENCY.
<PAGE>
SECURITY FUNDS
CONTENTS
Page
Transaction and Operating Expense Table ................................... 1
Financial Highlights ...................................................... 2
Investment Objective and Policies of the Funds ............................ 4
Growth and Income Fund ............................................. 4
Equity Fund ........................................................ 6
Global Fund ........................................................ 7
Ultra Fund ......................................................... 10
American Depositary Receipts ....................................... 12
Management of the Funds ................................................... 13
Portfolio Management ............................................... 14
How to Purchase Shares .................................................... 15
Alternative Purchase Options ....................................... 15
Class A Shares ..................................................... 16
Class B Shares ..................................................... 17
Class B Distribution Plan .......................................... 18
Calculation and Waiver of Contingent Deferred Sales Charges ........ 18
Arrangements with Broker-Dealers and Others ........................ 19
Purchases at Net Asset Value ....................................... 20
How to Redeem Shares ...................................................... 20
Telephone Redemptions .............................................. 21
Dividends and Taxes ....................................................... 22
Foreign Taxes ...................................................... 23
Determination of Net Asset Value .......................................... 23
Trading Practices and Brokerage ........................................... 24
Performance ............................................................... 24
Shareholder Services ...................................................... 25
Accumulation Plan .................................................. 25
Systematic Withdrawal Program ...................................... 26
Exchange Privilege ................................................. 26
Retirement Plans ................................................... 27
General Information ....................................................... 27
Organization ....................................................... 27
Stockholder Inquiries .............................................. 28
Appendix A ................................................................ 29
Class A Shares Reduced Sales Charges ............................... 29
Rights of Accumulation ............................................. 29
Statement of Intention ............................................. 29
Reinstatement Privilege ............................................ 29
<PAGE>
SECURITY FUNDS
PROSPECTUS
TRANSACTION AND OPERATING EXPENSE TABLE
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES (ALL FUNDS) CLASS A SHARES CLASS B SHARES(1)
- -------------------------------------------- -------------- -----------------
<S> <C> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) 5.75% None
Maximum Sales Load Imposed on Reinvested Dividends None None
Deferred Sales Load (as a percentage of original purchase price
or redemption proceeds, whichever is lower) None(2) 5% during the first year,
decreasing to 0% in the
sixth and following years
</TABLE>
<TABLE>
<CAPTION>
GROWTH AND INCOME FUND EQUITY FUND GLOBAL FUND ULTRA FUND
Class A Class B Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets)
Management Fees(3) 1.31% 1.31% 1.05% 1.05% 2.00% 2.00% 1.32% 1.32%
12b-1 Fees(4) None 1.00% None 1.00% None 1.00% None 1.00%
Other Expenses None None None None None None None None
---- ---- ---- ---- ---- ---- ---- ----
Total Fund Operating Expenses 1.31% 2.31% 1.05% 2.05% 2.00% 3.00% 1.32% 2.32%
==== ==== ==== ==== ==== ==== ==== ====
EXAMPLE
You would pay the following 1 Year $ 70 $ 73 $ 68 $ 71 $ 77 $ 80 $ 70 $ 74
expenses on a $1,000 invest- 3 Years 97 102 89 94 117 123 97 102
ment, assuming (1) 5 percent 5 Years 125 144 112 130 159 178 126 144
annual return and (2) redemption 10 Years 206 265 178 238 277 332 207 266
at the end of each time period (5)
EXAMPLE
You would pay the following 1 Year $ 70 $ 23 $ 68 $ 21 $ 77 $ 30 $ 70 $ 24
expenses on a $1,000 invest- 3 Years 97 72 89 64 117 93 97 72
ment, assuming (1) 5 percent 5 Years 125 124 112 110 159 158 126 124
annual return and (2) no redemption 10 Years 206 265 178 238 277 332 207 266
</TABLE>
(1) Class B shares convert tax-free to Class A shares automatically after eight
years.
(2) Purchases of Class A shares in amounts of $1,000,000 or more are not
subject to an initial sales load; however, a contingent deferred sales
charge of 1% is imposed in the event of redemption within one year of
purchase. See "Class A Shares" on page 16.
(3) Many investment companies pay smaller management fees; however, most such
companies also pay certain of their own expenses while most of the Funds'
required services are provided as part of the management fee.
(4) Long-term holders of Class B shares may pay more than the equivalent of the
maximum front-end sales charge otherwise permitted by NASD Rules.
(5) This example does not reflect deduction of the contingent deferred sales
charge which is imposed upon redemption of Class A shares purchased in
amounts of $1,000,000 or more.
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AS ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. THE
ASSUMED FIVE PERCENT ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED
A REPRESENTATION OF PAST OR FUTURE ANNUAL RETURN. THE ACTUAL RETURN MAY BE
GREATER OR LESSER THAN THE ASSUMED AMOUNT.
The purpose of the foregoing fee table is to assist the investor in
understanding the various costs and expenses that an investor in Growth and
Income, Equity, Global and Ultra Funds will bear directly or indirectly. For a
more detailed discussion of the Funds' fees and expenses, see the discussion
under "Management of the Funds," page 13. See "How to Purchase Shares," page 15,
for more information concerning the sales load. Also, see Appendix A for a
discussion of "Rights of Accumulation" and "Statement of Intention," which
options may serve to reduce the front-end sales load on purchases of Class A
shares.
1
<PAGE>
SECURITY FUNDS
FINANCIAL HIGHLIGHTS
The following condensed financial information, including total returns, for
each of the years in the period ended September 30, 1995, has been audited by
Ernst & Young LLP. Such information for each of the five years in the period
ended September 30, 1995, should be read in conjunction with the financial
statements of the Funds and the report of Ernst & Young LLP, the Funds'
independent auditors, appearing in the September 30, 1995 Annual Report to
Stockholders which is incorporated by reference in this prospectus. The Funds'
Annual Report to stockholders also contains additional information about the
performance of the Funds and may be obtained without charge by calling Security
Distributors, Inc. at 1-800-888-2461. The information for each of the years in
the period ended September 30, 1990 is not covered by the report of Ernst &
Young LLP.
<TABLE>
<CAPTION>
Ratio
Net Net Total Dividends Ratio of of net
Fiscal asset gains from (from Distribu- Net Net expenses income
year value Net (losses on invest- net tions asset assets to (loss) to
ended begin- invest-securities ment invest- (from Return Total value end of average average Portfolio
Septem-ning of ment (realized & opera- ment capital of distri- end of Total period net net turnover
ber 30 period income unrealized) tions income) gains) capital butions period return(a) (thousands) assets assets rate
- ------------------------------------------------------------------------------------------------------------------------------------
SECURITY GROWTH AND INCOME FUND (Class A)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1986 $ 8.97 $ .52 $ .84 $ 1.36 $ (.56) $ (.16) $--- $ .72 $9.61 15.7% $103,957 .75% 5.42% 37%
1987 9.61 .51 (.87) (.36) (.50) (.42) --- .92 8.33 (4.7%) 84,493 .74% 5.02% 32%
1988 8.33 .54 .55 1.09 (.54) (.45) --- .99 8.43 13.8% 81,357 .78% 6.22% 47%
1989(b) 8.43 .44 1.114 1.554 (.537) (.387) --- (.924) 9.06 19.9% 84,964 1.10% 5.93% 49%
1990 9.06 .52 (.978) (.458) (.509) (.663) --- (1.172) 7.43 (5.8%) 70,588 1.28% 6.24% 66%
1991 7.43 .45 .992 1.442 (.474) (1.088) --- (1.562) 7.31 22.3% 77,418 1.28% 6.14% 103%
1992 7.31 .35 (.016) .334 (.343) (.171) --- (.514) 7.13 4.7% 75,436 1.27% 4.79% 74%
1993 7.13 .21 .876 1.086 (.218) (.158) --- (.376) 7.84 15.6% 81,982 1.26% 2.80% 135%
1994 7.84 .13 (.713) (.583) (.128) (.169) --- (.297) 6.96 (7.6%) 65,328 1.28% 1.70% 163%
1995(h) 6.96 .16 1.183 1.343 (.158) (.215) --- (.373) 7.93 20.25% 67,430 1.31% 2.21% 130%
SECURITY GROWTH AND INCOME FUND (Class B)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994(f) $ 7.83 $0.05 $(0.694) $(0.644)$(0.117) $(0.169) $--- $(0.286)$6.90 (8.00%) $ 668 2.27% 1.03% 178%
1995(h) 6.90 0.08 1.179 1.259 (0.094) (0.215) --- (0.309) 7.85 19.07% 1,130 2.31% 1.21% 130%
SECURITY EQUITY FUND
EQUITY SERIES (Class A)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1986 $ 5.50 $.17 $1.11 $ 1.28 $ (.22) $(1.17)(c)$--- $(1.39) $5.39 24.5% $235,166 .71% 3.07% 108%
1987 5.39 .14 1.88 2.02 (.14) (.32) --- (.46) 6.95 40.1% 288,431 .66% 2.15% 151%
1988 6.95 .14 (1.05) (.91) (.11) (1.19) --- (1.30) 4.74 (10.6%) 231,807 .72% 2.78% 142%
1989 4.74 .15 1.758 1.908 (.118) --- --- (.118) 6.53 41.2% 283,662 .99% 2.62% 86%
1990 6.53 .15 (1.115) (.965) (.166) (.579) --- (.745) 4.82 (15.9%) 226,186 1.08% 2.72% 97%
1991 4.82 .12 1.403 1.523 (.148) (.375) --- (.523) 5.82 34.2% 295,030 1.08% 2.34% 61%
1992 5.82 .09 .475 .565 (.132) (.393) --- (.525) 5.86 10.2% 313,582 1.06% 1.48% 83%
1993 5.86 .12 1.165 1.285 (.053) (.362) --- (.415) 6.73 22.7% 375,565 1.06% 1.95% 95%
1994 6.73 .05 .085 .135 (.120) (1.205) --- (1.325) 5.54 1.95% 358,237 1.06% .86% 79%
1995(h) 5.54 .04 1.377 1.417 --- (.407) --- (.407) 6.55 27.77% 440,339 1.05% .87% 95%
EQUITY SERIES (Class B)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994(f) $ 6.81 $0.01 $(0.005) $0.005 $(0.12) $(1.205) $--- $(1.325)$5.49 (0.15%) $ 7,452 2.07% (0.01%) 80%
1995(h) 5.49 (0.01) 1.357 1.347 --- (0.407) --- (0.407) 6.43 26.69% 19,228 2.05% (0.13%) 95%
</TABLE>
2
<PAGE>
SECURITY FUNDS
FINANCIAL HIGHLIGHTS (continued)
<TABLE>
<CAPTION>
Ratio
Net Net Total Dividends Ratio of of net
Fiscal asset gains from (from Distribu- Net Net expenses income
year value Net (losses on invest- net tions asset assets to (loss) to
ended begin- invest-securities ment invest- (from Return Total value end of average average Portfolio
Septem-ning of ment (realized & opera- ment capital of distri- end of Total period net net turnover
ber 30 period income unrealized) tions income) gains) capital butions period return(a) (thousands) assets assets rate
- ------------------------------------------------------------------------------------------------------------------------------------
GLOBAL SERIES (Class A)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994(g) $10.00 $(0.03) $.87 $0.84 $--- $--- $--- $--- $10.84 8.40% $20,128 2.00% (0.01%) 73%
1995(h) 10.84 (0.02) .31 0.29 --- (.19) --- (.19) 10.94 2.80% 16,261 2.00% (0.17%) 141%
GLOBAL SERIES (Class B)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994(f) $ 9.96 $(0.12) $.91 $0.79 $--- $--- $--- $--- $10.75 7.90% $3,960 3.00% (0.01%) 73%
(g)
1995(h) 10.75 (0.12) .30 0.18 --- (.19) --- (.19) 10.74 1.79% 5,433 3.00% (1.17%) 141%
SECURITY ULTRA FUND (Class A)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1986 $ 9.05 $.31 $1.10 $1.41 $(.26) $(.85) $--- $(1.11) $9.35 17.3% $100,360 .78% 3.22% 179%
1987 9.35 .13 (1.89) (1.76) (.35) (1.88) --- (2.23) 5.36 (24.1%) 62,246 .84% 1.45% 301%
1988(d) 5.36 (.02) 1.135 1.115 (.125) (.06) --- (.185) 6.29 21.4% 68,700 1.54% (.24%) 120%
1989(b) 6.29 (.12) 1.72 1.60 --- --- --- --- 7.89 25.4% 66,841 3.53% (1.66%) 89%
(d)
1990(d) 7.89 (.14) (2.845) (2.985) --- (.445) --- (.445) 4.46 (39.6%) 31,486 2.58% (1.82%) 96%
1991(d) 4.46 (.03) 2.525 2.495 --- (.235) --- (.235) 6.72 58.4% 65,449 1.61% (.51%) 163%
(e)
1992 6.72 (.09) (.202) (.292) --- (.172) --- (.172) 6.66 1.5% 57,128 1.32% (.46%) 142%
1993 6.66 (.028) 1.791 1.763 --- (.293) --- (.293) 8.13 26.8% 71,056 1.30% (.50%) 101%
1994 8.13 (.056) (.188) (.244) --- (1.066) --- (1.066) 6.82 (3.6%) 60,695 1.33% (.80%) 111%
1995(h) 6.82 (.02) 1.535 1.515 --- (.135) --- (.135) 8.20 22.69% 66,052 1.32% (.31%) 180%
SECURITY ULTRA FUND (Class B)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994(f) $ 8.30 $(0.103)$(0.321) $(0.424) $--- $(1.066) $--- $(1.066)$6.81 (5.7%) $1,254 2.36% (1.76%) 110%
1995(h) 6.81 (0.09) 1.525 1.435 --- (.135) --- (.135) 8.11 21.53% 5,428 2.32% (1.32%) 180%
</TABLE>
(a) Total return information does not take into account any sales charge at time
of purchase for Class A shares or upon redemption for Class B shares.
(b) Effective in 1989, the fiscal year ends of Growth and Income and Ultra Funds
were changed from November 30 and October 31, respectively, to September 30.
The information presented in the table above for the fiscal year ended
September 30, 1989, represents 10 months of performance for Growth and
Income Fund and 11 months of performance for Ultra Fund. The data for years
1986 through 1988 are for fiscal years ended November 30 for Growth and
Income Fund and October 31 for Ultra Fund. Percentage amounts for the period
have been annualized.
(c) Cash distribution of $.40 per share made in October, 1985. The remaining
$.77 per share was distributed in the form of Security Omni Fund shares,
which were spun-off to Equity Fund stockholders on April 30, 1986.
<TABLE>
<CAPTION>
(d) Weighted Weighted
Debt outstanding Average Average month- Average Interest
at end of debt outstanding end shares debt per expense
Year period during the period outstanding share per share
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Security Ultra Fund 1988 $ --- $ 4,217,187 11,834,629 $ .36 $.03
Security Ultra Fund 1989 17,742,849 13,322,428 9,374,183 1.42 .17
Security Ultra Fund 1990 8,207,425 5,948,569 7,713,750 .77 .08
Security Ultra Fund 1991 --- 970,096 8,817,652 .11 .01
</TABLE>
Borrowings and related interest, if any, were immaterial in 1992, 1993,
1994 and 1995.
(e) Portfolio turnover calculation excludes the portfolio investments acquired
in the Security Omni Fund merger. Per share data has been calculated using
the average month-end shares outstanding.
(f) Class "B" shares were initially issued on October 19, 1993. Percentage
amounts for the period, except total return, have been annualized. Per share
data has been calculated using the average month-end shares outstanding.
(g) Security Global Series was initially capitalized on October 1, 1993, with
net asset value of $10 per share.
(h) Net investment income (loss) was computed using average shares outstanding
throughout the period.
3
<PAGE>
SECURITY FUNDS
PROSPECTUS
INVESTMENT OBJECTIVE AND
POLICIES OF THE FUNDS
Security Growth and Income Fund, Security Equity Fund and Security Ultra Fund
are diversified, open-end management investment companies, which were organized
as Kansas corporations on February 2, 1944, November 27, 1961, and April 20,
1965, respectively. Each of Security Growth and Income Fund ("Growth and Income
Fund"), the Equity Series ("Equity Fund") and the Global Series ("Global Fund")
of Security Equity Fund and Security Ultra Fund ("Ultra Fund") (collectively,
the "Funds") has its own investment objective and policies which are described
below. There, of course, can be no assurance that such investment objectives
will be achieved. While there is no present intention to do so, each Fund's
investment objective and policies, unless otherwise noted, may be changed by its
Board of Directors without the approval of stockholders. If there is a change in
investment objective, stockholders should consider whether the Fund remains an
appropriate investment in light of their then current financial position and
needs. Each of the Funds is also subject to certain investment policy
limitations which may not be changed without stockholder approval. Among these
limitations, some of the more important ones are that each Fund will not invest
more than 5 percent of the value of its assets in any one issuer or purchase
more than 10 percent of the outstanding voting securities of any one issuer or
invest more than 25 percent of its total assets in any one industry. The full
text of the investment policy limitations of each Fund is set forth in the
Statement of Additional Information of the Funds.
GROWTH AND INCOME FUND
- ----------------------
The investment objective of Growth and Income Fund is long-term growth of
capital with a secondary emphasis on income. Growth and Income Fund seeks to
achieve this objective through investment in a diversified portfolio which will
ordinarily consist principally of common stocks, which may include American
Depositary Receipts ("ADRs"), but may also include other securities when deemed
advisable. (See the discussion of ADRs on page 12.) Such other securities may
include securities convertible into common stocks, preferred stocks and U.S. and
Canadian debt securities. In the selection of securities for investment, the
potential for appreciation and future dividends is given more weight than
current dividends.
With respect to Growth and Income Fund's investment in debt securities, there
is no percentage limitation on the amount of the Fund's assets that may be
invested in securities within any particular rating classification (see the
description of corporate bond ratings below), and the Fund may invest without
limit in unrated securities. Growth and Income Fund may invest in securities
rated Baa by Moody's Investors Service, Inc. or BBB by Standard & Poor's
Corporation. Baa securities are considered to be "medium grade" obligations by
Moody's and BBB is the lowest classification which is still considered an
"investment grade" rating by Standard & Poor's. Bonds rated Baa by Moody's or
BBB by Standard & Poor's have speculative characteristics and may be more
susceptible than higher grade bonds to adverse economic conditions or other
adverse circumstances which may result in a weakened capacity to make principal
and interest
- --------------------------------------------------------------------------------
No dealer, salesperson, or other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus and in the Funds' Statement of Additional Information, and if given
or made, such other information or representations must not be relied upon as
having been authorized by the Funds, the Investment Manager, or the Distributor.
- --------------------------------------------------------------------------------
4
<PAGE>
SECURITY FUNDS
PROSPECTUS
payments. In addition, the Fund may invest in higher yielding, longer-term debt
securities in the lower rating (higher risk) categories of the recognized rating
services (commonly referred to as "junk bonds"). These include securities rated
Ba or lower by Moody's or BB or lower by Standard & Poor's and are regarded as
predominantly speculative with respect to the ability of the issuer to meet
principal and interest payments. However, the Investment Manager will not rely
principally on the ratings assigned by the rating services. Because Growth and
Income Fund may invest in lower rated securities and unrated securities of
comparable quality, the achievement of the Fund's investment objective may be
more dependent on the Investment Manager's own credit analysis than would be
true if investing in higher rated securities.
Growth and Income Fund may purchase securities on a "when issued" or "delayed
delivery basis" in excess of customary settlement periods for the type of
security involved. Securities purchased on a when issued basis are subject to
market fluctuation and no interest or dividends accrue to the Fund prior to the
settlement date. Growth and Income Fund will establish a segregated account with
its custodian bank in which it will maintain cash, cash equivalents, U.S.
Government securities, or other appropriate liquid, high grade debt obligations
equal in value to commitments for such when issued securities.
From time to time, Growth and Income Fund may purchase government bonds or
commercial notes for temporary defensive purposes. The Fund may utilize
repurchase agreements on an overnight basis or bank demand accounts, pending
investment in securities or to meet potential redemptions or expenses.
SPECIAL RISKS OF HIGH YIELD INVESTING - Because Growth and Income Fund
invests in the high yield, high risk debt securities (commonly referred to as
"junk bonds") described above, its share price and yield are expected to
fluctuate more than the share price and yield of a fund investing in higher
quality, shorter-term securities. The market values of high yield securities
tend to reflect individual corporate developments to a greater extent than do
higher rated securities, which react primarily to fluctuations in the general
level of interest rates. High yield securities also tend to be more susceptible
to real or perceived adverse economic and competitive industry conditions than
investment grade bonds. A projection of an economic downturn, or higher interest
rates, for example, could cause a decline in high yield bond prices because an
advent of such events could lessen the ability of highly leveraged companies to
make principal and interest payments on their debt securities. In addition, the
secondary trading market for high yield bonds may be less liquid than the market
for higher grade bonds, which can adversely affect the ability of Growth and
Income Fund to dispose of its portfolio securities. Bonds for which there is
only a "thin" market can be more difficult to value inasmuch as objective
pricing data may be less available and judgment may play a greater role in the
valuation process. Many of the high yield securities traded in today's market
were issued relatively recently and have not endured a major business recession.
A long-term track record on default rates, such as that for investment grade
corporate bonds, does not exist for the high yield market. It may be that future
default rates on high yield securities will be higher than in the past,
especially during periods of deteriorating economic conditions.
5
<PAGE>
SECURITY FUNDS
PROSPECTUS
DESCRIPTION OF CORPORATE BOND RATINGS
MOODY'S STANDARD &
INVESTORS POOR'S
SERVICE, INC. CORPORATION DEFINITION
Aaa AAA Highest quality
Aa AA High quality
A A Upper medium grade
Baa BBB Medium grade
Ba BB Lower medium grade/
speculative elements
B B Speculative
Caa CCC More speculative/
possibly in or high
risk of default
-- D In default
Not rated Not rated Not rated
A more complete description of the corporate bond ratings is found in the
Appendix to the Funds` Statement of Additional Information.
During the year ended September 30, 1995, the dollar weighted average of
Growth and Income Fund's holdings (excluding equities) had the following credit
quality characteristics.
Percent of
Investment Net Assets
- ---------- ----------
U.S. Government Securities............... 0%
Cash and other Assets, Less Liabilities.. 0.90%
Rated Fixed Income Securities
A .................................... 0%
Baa/BBB............................... 0%
Ba/BB................................. 8.84%
B .................................... 8.02%
Caa/CCC .............................. 0%
Unrated Securities Comparable in Quality to
A .................................... 0%
Baa/BBB .............................. 0%
Ba/BB ................................ 0%
B .................................... 0%
Caa/CCC .............................. 0%
------
17.76%
The foregoing table is intended solely to provide disclosure about Growth and
Income Fund's asset composition during the year ended September 30, 1995. The
asset composition after this may or may not be approximately the same as shown
above.
EQUITY FUND
- -----------
Equity Fund's objective is to seek long-term capital growth, and emphasis is
placed upon the selection of those securities which, in the opinion of the
Investment Manager, offer basic value or above-average capital growth potential.
Income potential will be considered in the selection of securities, to the
extent doing so is consistent with the Fund's investment objective of long-term
capital growth.
Equity Fund will ordinarily have at least 90 percent of its total assets
invested in a broadly diversified portfolio of common stocks, which may include
ADRs, and securities convertible into common stocks, although it reserves the
right to invest in fixed income securities. (See the discussion of ADRs on page
12.) Equity Fund also reserves the right to invest its assets temporarily in
cash and money market instruments when, in the opinion of the Investment
Manager, it is advisable to do so on account of current or anticipated market
conditions. Except when in a temporary defensive position, Equity Fund will
maintain at least 65 percent of its assets invested in equity securities; the
remaining 35 percent of the Fund's assets may be invested in investment grade
debt securities (or unrated securities of comparable quality), which may include
commercial paper or other debt securities issued by U.S. corporations, and U.S.
Government securities. Equity Fund may utilize repurchase agreements on an
overnight basis or bank demand accounts, pending investment in securities or to
meet potential redemptions or expenses.
6
<PAGE>
SECURITY FUNDS
PROSPECTUS
GLOBAL FUND
- -----------
The investment objective of Global Fund is to seek long-term growth of
capital primarily through investment in securities of companies domiciled in
foreign countries and the United States. Global Fund will seek to achieve its
objective through investment in a diversified portfolio of securities which
under normal circumstances will consist primarily of various types of common
stocks and equivalents (the following constitute equivalents: convertible debt
securities, warrants and options). The Fund may also invest in preferred stocks,
bonds and other debt obligations, which include money market instruments of
foreign and domestic companies and the U.S. Government and foreign governments,
governmental agencies and international organizations.
Global Fund will at all times invest at least 65 percent or more of its
assets in at least three countries, one of which may be the United States. The
Fund is not required to maintain any particular geographic or currency mix of
its investments, nor is it required to maintain any particular proportion of
stocks, bonds or other securities in its portfolio. Global Fund may invest
substantially or primarily in foreign debt securities when it appears that the
capital appreciation available from investments in such securities will equal or
exceed the capital appreciation available from investments in equity securities.
Because the market value of debt obligations can be expected to vary inversely
to changes in prevailing interest rates, investing in debt obligations may
provide an opportunity for capital appreciation when interest rates are expected
to decline. When a defensive position is deemed advisable in the judgment of
Lexington Management Corporation (the "Sub-Adviser"), Global Fund may
temporarily invest up to 100 percent of its assets in debt obligations
consisting of repurchase agreements, and money market instruments of foreign or
domestic companies and the U.S. Government and foreign governments, governmental
and international organizations. The Fund will limit its investments in debt
securities to those obligations which are considered to be investment grade by
the Sub-Adviser. The Fund will be moved into a defensive position when, in the
judgment of the Sub-Adviser, conditions in the securities markets would make
pursuing the Fund's basic investment strategy inconsistent with the best
interests of the shareholders. Global Fund may utilize bank demand accounts,
pending investment in securities or to meet potential redemptions or expenses.
Global Fund is intended to provide investors with the opportunity to invest
in a portfolio of securities of companies and governments located throughout the
world. In making the allocation of assets among the various countries and
geographic regions, the Sub-Adviser ordinarily considers such factors as
prospects for relative economic growth between the U.S. and other countries;
expected levels of inflation and interest rates; government policies influencing
business conditions; the range of investment opportunities available to
international investors; and other pertinent financial, tax, social and national
factors--all in relation to the prevailing prices of the securities in each
country or region.
Investments may be made in companies based in (or governments of or within)
such areas and countries as the Sub-Adviser may determine from time to time.
Global Fund may invest in companies located in developing countries without
limitation. Such countries may have relatively unstable governments, economies
based on only a few industries, and securities markets which trade a small
number of companies. Prices on these exchanges tend to be volatile and in the
past these exchanges have offered greater potential for gain, as well as loss,
than exchanges
7
<PAGE>
SECURITY FUNDS
PROSPECTUS
in developed countries. While Global Fund invests only in countries that it
considers as having relatively stable and friendly governments, it is possible
that certain Fund investments could be subject to foreign expropriation or
exchange control restrictions. See "Risk Considerations."
Although the Fund does not intend to invest for the purpose of seeking
short-term profits, the Fund's investments may be changed whenever the
Sub-Adviser deems it appropriate to do so, without regard to the length of time
a particular security has been held.
CERTAIN INVESTMENT METHODS. Global Fund may from time to time engage in the
following investment practices:
SETTLEMENT TRANSACTIONS - Global Fund may, for a fixed amount of United
States dollars, enter into a forward foreign exchange contract for the purchase
or sale of the amount of foreign currency involved in the underlying securities
transaction. In so doing, the Fund will attempt to insulate itself against
possible losses and gains resulting from a change in the relationship between
the United States dollar and the foreign currency during the period between the
date a security is purchased or sold and the date on which payment is made or
received. This process is known as "transaction hedging."
To effect the translation of the amount of foreign currencies involved in the
purchase and sale of foreign securities and to effect the "transaction hedging"
described above, the Fund may purchase or sell foreign currencies on a "spot"
(i.e. cash) basis or on a forward basis whereby the Fund purchases or sells a
specific amount of foreign currency, at a price set at the time of the contract,
for receipt of delivery at a specified date which may be any fixed number of
days in the future.
Such spot and forward foreign exchange transactions may also be utilized to
reduce the risk inherent in fluctuations in the exchange rate between the United
States dollar and the relevant foreign currency when foreign securities are
purchased or sold for settlement beyond customary settlement time (as described
below). Neither type of foreign currency transaction will eliminate fluctuations
in the prices of the Fund's portfolio or securities or prevent loss if the price
of such securities should decline.
PORTFOLIO HEDGING - When, in the opinion of the Sub-Adviser, it is desirable
to limit or reduce exposure in a foreign currency in order to moderate potential
changes in the United States dollar value of the portfolio, Global Fund may
enter into a forward foreign currency exchange contract by which the United
States dollar value of the underlying foreign portfolio securities can be
approximately matched by an equivalent United States dollar liability. The Fund
may also enter into forward currency exchange contracts to increase its exposure
to a foreign currency that the Sub-Adviser expects to increase in value relative
to the United States dollar. The Fund will not attempt to hedge all of its
portfolio positions and will enter into such transactions only to the extent, if
any, deemed appropriate by the Sub-Adviser. Hedging against a decline in the
value of currency does not eliminate fluctuations in the prices of portfolio
securities or prevent losses if the prices of such securities decline. Global
Fund will not enter into forward foreign currency exchange transactions for
speculative purposes. The Fund intends to limit such transactions to not more
than 70 percent of its total assets.
FORWARD COMMITMENTS - Global Fund may make contracts to purchase securities
for a fixed price at a future date beyond customary settlement time ("forward
commitments") because new issues of securities are typically offered to
investors, such as Global Fund, on that basis. Forward commitments involve a
risk of loss if the
8
<PAGE>
SECURITY FUNDS
PROSPECTUS
value of the security to be purchased declines prior to the settlement date.
This risk is in addition to the risk of decline in value of the Fund's other
assets. Although the Fund will enter into such contracts with the intention of
acquiring the securities, it may dispose of a commitment prior to settlement if
the Sub-Adviser deems it appropriate to do so. The Fund may realize short-term
profits or losses upon the sale of forward commitments.
COVERED CALL OPTIONS - Global Fund may seek to preserve capital by writing
covered call options on securities which it owns. Such an option on an
underlying security would obligate the Fund to sell, and give the purchaser of
the option the right to buy, that security at a stated exercise price at any
time until a stated expiration date of the option.
REPURCHASE AGREEMENTS - A repurchase agreement is a contract under which
Global Fund would acquire a security for a relatively short period (usually not
more than 7 days) subject to the obligation of the seller to repurchase and the
Fund to resell such security at a fixed time and price (representing the Fund's
cost plus interest). Although the Fund may enter into repurchase agreements with
respect to any portfolio securities which it may acquire consistent with its
investment polices and restrictions, it is the Fund's present intention to enter
into repurchase agreements only with respect to obligations of the United States
Government or its agencies or instrumentalities to meet anticipated redemptions
or pending investment or reinvestment of Fund assets in portfolio securities.
The Fund will enter into repurchase agreements only with member banks of the
Federal Reserve System and with "primary dealers" in United States Government
securities. Repurchase agreements will be fully collateralized including
interest earned thereon during the entire term of the agreement. If the
institution defaults on the repurchase agreement, the Fund will retain
possession of the underlying securities. If bankruptcy proceedings are commenced
with respect to the seller, realization on the collateral by the Fund may be
delayed or limited and the Fund may incur additional costs. In such case, the
Fund will be subject to risks associated with changes in market value of the
collateral securities. The Fund intends to limit repurchase agreements to
institutions believed by the Sub-Adviser to present minimal credit risk. The
operating expenses of the Fund can be expected to be higher than those of an
investment company investing exclusively in United States securities.
RULE 144A SECURITIES - Global Fund may purchase securities that are
restricted as to disposition under the federal securities laws, provided that
such restricted securities are eligible for resale to qualified institutional
investors pursuant to Rule 144A under the Securities Act of 1933 and subject to
the Fund`s investment policy limitation that not more than 10 percent of its
total assets will be invested in restricted securities. The Investment Manager,
under procedures adopted by the Board of Directors, will determine whether
securities eligible for resale under Rule 144A are liquid or not.
RISK CONSIDERATIONS. Investments in foreign securities may involve risks and
considerations not present in domestic investments. Since foreign securities
generally are denominated and pay interest or dividends in foreign currencies,
the value of the assets of Global Fund as measured in United States dollars will
be affected favorably or unfavorably by changes in the relationship of the
United States dollar and other currency rates. Global Fund may incur costs in
connection with the conversion or transfer of foreign currencies. In addition,
there may be less publicly available information about foreign companies than
United
9
<PAGE>
SECURITY FUNDS
PROSPECTUS
States companies. Foreign companies may not be subject to accounting, auditing,
and financial reporting standards, practices and requirements comparable to
those applicable to United States companies. Foreign securities markets, while
growing in volume, have for the most part substantially less volume than United
States securities markets and securities of foreign companies are generally less
liquid and at times their prices may be more volatile than prices of comparable
United States companies. Foreign stock exchanges, brokers and listed companies
generally are subject to less government supervision and regulation than in the
United States. The customary settlement time for foreign securities may be
longer than the 3 day customary settlement time for United States securities.
Although the Fund will try to invest in companies and governments of countries
having stable political environments, there is the possibility of expropriation
or confiscatory taxation, seizure or nationalization or foreign government
restrictions or other adverse political, social or diplomatic developments that
could affect investment in these nations. Income from foreign securities held by
Global Fund may, and in some cases will be reduced by a withholding tax at the
source or other foreign taxes.
ULTRA FUND
- ----------
Ultra Fund's objective is to seek capital appreciation and emphasis is placed
upon the selection of those securities which, in the opinion of the Investment
Manager, offer the greatest potential for appreciation. Current income will not
be a factor in the selection of investments and any such income should be
considered incidental.
Ultra Fund will ordinarily invest in a diversified portfolio of common
stocks, which may include ADRs, and securities convertible into common stocks,
although it reserves the right to invest in fixed income securities. (See the
discussion of ADRs on page 12.) Ultra Fund also reserves the right to invest its
assets in cash and money market instruments when, in the opinion of the
Investment Manager, it is advisable to do so on account of current or
anticipated market conditions. Ultra Fund may utilize repurchase agreements on
an overnight basis or bank demand accounts, pending investment in securities or
to meet potential redemptions or expenses.
Stocks considered to have appreciation potential will often include
securities of smaller and less mature companies which often have a unique
proprietary product or profitable market niche and the potential to grow very
rapidly. Such companies may present greater opportunities for capital
appreciation because of high potential earnings growth, but may also involve
greater risks than investments in more established companies with demonstrated
earning power. Smaller companies may have limited product lines, markets or
financial resources and their securities may trade less frequently and in
limited volume. As a result, the securities of smaller companies may be subject
to more abrupt or erratic changes in value than securities of larger, more
established companies. In seeking capital appreciation, Ultra Fund may, during
certain periods, trade to a substantial degree in securities for the short term.
That is, Ultra Fund may be engaged essentially in trading operations based on
short-term market considerations, as distinct from long-term investments based
on fundamental evaluations of securities. This investment policy is speculative
and involves substantial risk.
Ultra Fund may make short sales if, at the time of such sale, it owns or has
the right to acquire an equal amount of such securities without payment of any
further consideration. Short sales will be used by Ultra Fund only for the
purpose of deferring recognition of gain or loss for federal
10
<PAGE>
SECURITY FUNDS
PROSPECTUS
income tax purposes. Ultra Fund may invest up to 5 percent of its assets in
companies having a record of less than three years continuous operation or in
warrants.
FUTURES CONTRACTS - Ultra Fund may buy and sell futures contracts to hedge all
or a portion of its portfolio, or as an efficient means of adjusting its
exposure to the stock market. The Fund will not use futures contracts for
leveraging purposes. The Fund will limit its use of futures contracts so that
initial margin deposits or premiums on such contracts used for non-hedging
purposes will not equal more than 5 percent of the Fund's net asset value. A
financial futures contract calls for the delivery of a particular security at a
certain time in the future. The seller of the contract agrees to make delivery
of the type of security called for in the contract and the buyer agrees to take
delivery at a specified future time.
Financial futures contracts may also include interest rate futures contracts
and stock index futures contracts. It is anticipated that Ultra Fund will only
enter into stock index futures contracts. A stock index assigns relative values
to common stocks included in the index and the index fluctuates with changes in
the market values of the common stocks included. A stock index futures contract
is a bilateral contract pursuant to which two parties agree to take or make
delivery of an amount of cash equal to a specified dollar amount times the
difference between the stock index value at the close of the last trading day of
the contract and the price at which the futures contract is originally struck.
REGULATORY MATTERS RELATED TO FUTURES In connection with its proposed futures
transactions, Ultra Fund filed with the CFTC a notice of eligibility for
exemption from the definition of (and therefore from CFTC regulation) a
"commodity pool operator" under the Commodity Exchange Act. The Fund represents
in its notice of eligibility that: (i) it will not purchase or sell futures
contracts or stock indices if as a result the sum of the initial margin deposits
on its existing futures contracts and premiums paid for stock indices would
exceed 5 percent of the Fund's assets and (ii) with respect to each futures
contract, the Fund will set aside in a segregated account cash or cash
equivalents in an amount equal to the market value of such contract less the
initial margin deposit.
The Staff of the Securities and Exchange Commission ("SEC") has taken the
position that the purchase and sale of futures contracts may involve senior
securities for the purposes of the restrictions contained in Section 18 of the
Investment Company Act of 1940 on investment companies' issuing senior
securities. However, the Staff has issued letters declaring that it will not
recommend enforcement action under Section 18 if an investment company: (i)
sells futures contracts to offset expected declines in the value of the
investment company's securities, provided the value of such futures contracts
does not exceed the total market value of those securities (plus such additional
amount as may be necessary because of differences in the volatility factor of
the securities vis-a-vis the futures contracts); and (ii) purchases futures
contracts, provided the investment company establishes a segregated account
("cash segregated account") consisting of cash or cash equivalents in an amount
equal to the total market value of such futures contracts less the initial
margin deposited therefor. The Fund will conduct its purchases and sales of any
futures contracts in accordance with the foregoing.
RISK FACTORS ASSOCIATED WITH FUTURES CONTRACTS - Futures contracts can be highly
volatile and could
11
<PAGE>
SECURITY FUNDS
PROSPECTUS
result in a reduction of Ultra Fund's total return, and the Fund's attempt to
use futures contracts for hedging purposes may not be successful. Successful
futures strategies require the ability to predict future movements in securities
prices, interest rates and other economic factors. The Fund's potential losses
from the use of futures extends beyond its initial investment in such contracts.
Also, losses from futures could be significant if the Fund is unable to close
out its position due to distortions in the market or lack of liquidity.
The use of futures involves risks and transaction costs to which the Fund
would not be subject absent the use of this strategy. If the Investment Manager
seeks to protect the Fund against potential adverse movements in the securities
markets using futures contracts, and the securities markets do not move in a
direction adverse to the Fund, the Fund could be left in a less favorable
position than if the futures strategy had not been used. Risk inherent in the
use of futures contracts include: (a) the risk that securities prices will not
move in the direction anticipated; (b) imperfect correlation between futures
contracts and movements in the prices of the securities being hedged; (c) the
fact that skills needed to use this strategy are different from those needed to
select portfolio securities; (d) the possible absence of a liquid secondary
market for futures contracts; (e) the possible need to defer closing out certain
hedged positions to avoid adverse tax consequences.
The use of futures involves the risk of imperfect correlation between
movements in futures prices and movements in the price of securities which are
subject to a hedge. Such correlation, particularly with respect to stock index
futures, is imperfect, and such risk increases as the composition of the Fund
diverges from the composition of the relevant index. The successful use of a
futures strategy also depends on the ability of the Investment Manager to
correctly forecast interest rate movements and general stock market price
movements.
AMERICAN DEPOSITARY RECEIPTS
- ----------------------------
Each of the Funds may purchase American Depositary Receipts ("ADRs") which
are dollar-denominated receipts issued generally by U.S. banks and which
represent the deposit with the bank of a foreign company's securities. ADRs are
publicly traded on exchanges or over-the-counter in the United States. Investors
should consider carefully the substantial risks involved in investing in
securities issued by companies of foreign nations, which are in addition to the
usual risks inherent in domestic investments. Although the Funds intend to
invest only in nations which are considered to have relatively stable and
friendly governments, there is the possibility of expropriation, nationalization
or confiscatory taxation, foreign exchange controls (which may include
suspension of the ability to transfer currency from a given country), political
or social instability or diplomatic developments which could affect investment
in securities of issuers in those nations. In addition, in many countries there
is less publicly available information about issuers than is available in
reports about companies in the United States. Foreign companies are not
generally subject to uniform accounting, auditing and financial reporting
standards, and auditing practices and requirements may not be comparable to
those applicable to U.S. companies. In many foreign countries, there is less
government supervision and regulation of business and industry practices, stock
exchanges, brokers and listed companies than in the United States. Foreign
investments may be subject to taxation abroad. In addition, the foreign
securities markets of many of the countries in which the
12
<PAGE>
SECURITY FUNDS
PROSPECTUS
Funds may invest may also be smaller, less liquid, and subject to greater price
volatility than those in the United States.
MANAGEMENT OF THE FUNDS
The management of the Funds' business and affairs is the responsibility of
the Board of Directors. Security Management Company (the "Investment Manager"),
700 Harrison Street, Topeka, Kansas, is responsible for selection and management
of the Funds' portfolio investments. The Investment Manager is an indirect
wholly-owned subsidiary of Security Benefit Life Insurance Company, a mutual
life insurance company with over $15 billion of insurance in force. The
Investment Manager also acts as investment adviser to Security Asset Allocation
Fund, Security Income Fund, Security Tax-Exempt Fund, Security Cash Fund and SBL
Fund. On September 30, 1995, the aggregate assets of all of the Funds under the
investment management of the Investment Manager were approximately $2.6 billion.
The Investment Manager has engaged Lexington Management Corporation (the
"Sub-Adviser"), Park 80 West, Plaza Two, Saddle Brook, New Jersey 07663, to
provide certain investment advisory services to Global Fund. The Sub-Adviser is
a wholly-owned subsidiary of Piedmont Management Company Inc., a diversified
financial services holding company which is organized as a Delaware corporation,
the majority of the common stock of which is owned by descendants of Lunsford
Richardson, Sr., their spouses, trusts and other related entities. The
Sub-Adviser was established in 1938 and currently manages over $3.5 billion in
assets.
Subject to the supervision and direction of the Funds' Board of Directors,
the Investment Manager manages the Funds' portfolios in accordance with each
Fund's stated investment objective and policies and makes all investment
decisions. As to Global Fund, the Investment Manager supervises the management
of this Fund's portfolio by the Sub-Adviser. The Investment Manager has agreed
that total annual expenses of the respective Funds (including for any fiscal
year, the management fee, but excluding interest, taxes, brokerage commissions,
extraordinary expenses and Class B distribution fees) shall not for each of the
Funds exceed the level of expenses which the Funds are permitted to bear under
the most restrictive expense limitation imposed by any state in which shares of
the Fund are then qualified for sale. The Investment Manager will contribute
such funds to the Funds or waive such portion of its compensation as may be
necessary to insure that such total annual expenses do not exceed any such
limitation.
The Investment Manager also acts as the administrative agent and transfer
agent and dividend disbursing agent for the Funds, and as such performs
administrative functions, transfer agency and dividend disbursing services, and
the bookkeeping, accounting and pricing functions for the Funds. The Investment
Manager has arranged for the Sub-Adviser to provide certain administrative
services to Global Fund, including performing certain accounting and pricing
functions.
For its services, the Investment Manager receives, with respect to Growth and
Income, Equity and Ultra Funds, on an annual basis, a fee of 2 percent of the
first $10 million of the average net assets, 1 1/2 percent of the next $20
million of the average net assets and 1 percent of the remaining average net
assets of these Funds, calculated daily and payable monthly. The Investment
Manager receives with respect to the Global Fund, on an annual basis, 2 percent
of the first $70 million of the average net assets and
13
<PAGE>
SECURITY FUNDS
PROSPECTUS
1 1/2 percent of the remaining average net assets of this Fund, calculated daily
and payable monthly. The Investment Manager pays the Sub-Adviser an amount equal
to .50 percent of the average net assets of Global Fund, calculated on a daily
basis and payable monthly.
For the year ended September 30, 1995, the total expenses, as a percentage of
average net assets, were 1.31 percent for Class A shares and 2.31 percent for
Class B shares of Growth and Income Fund; 1.05 percent for Class A and 2.05
percent for Class B shares of Equity Fund; 2.0 percent for Class A and 3.0
percent for Class B shares of Global Fund; and 1.32 percent for Class A and 2.32
percent for Class B shares of Ultra Fund.
Many investment companies pay smaller management fees. However, most such
companies also pay certain of their own expenses in addition to management fees
while most of the Funds' required services are included as part of the
management fee.
PORTFOLIO MANAGEMENT
- --------------------
The common stock portion of the GROWTH AND INCOME FUND portfolio is managed
by the Investment Manager's Large Capitalization Team consisting of John
Cleland, Chief Investment Strategist, Terry Milberger, and Chuck Lauber. Terry
Milberger, Senior Portfolio Manager, has had day-to-day responsibility for
managing this portion of the portfolio since 1995. The fixed income portion of
the Growth and Income Fund portfolio is managed by the Fixed Income Team of the
Investment Manager consisting of John Cleland, Chief Investment Strategist, Jane
Tedder, Tom Swank, Steve Bowser and Elaine Miller. Tom Swank, assistant Vice
President and Portfolio Manager of the Investment Manager, has had day-to-day
responsibility for managing the fixed income portion of the Growth and Income
Fund portfolio since 1994. EQUITY FUND is managed by the Large Capitalization
Team of the Investment Manager described above. Mr. Milberger has had day-to-day
responsibility for managing the Equity Fund since 1981. GLOBAL FUND is managed
by an investment management team of the Sub-Adviser. Alan Wapnick and Richard T.
Saler, the lead managers, have had day-to-day responsibility for managing Global
Fund since 1994. ULTRA FUND is managed by the Investment Manager's Small
Capitalization Team which consists of John Cleland, Chief Investment Strategist,
Cindy Shields, Larry Valencia and Frank Whitsell. Cindy Shields, Portfolio
Manager, has had day-to-day responsibility for managing the Fund since 1994.
MR. MILBERGER, Senior Portfolio Manager, has more than 20 years of investment
experience. He began his career as an investment analyst in the insurance
industry and from 1974 through 1978 he served as an assistant portfolio manager
for the Investment Manager. He was then employed as Vice President of Texas
Commerce Bank and managed its pension assets until he returned to the Investment
Manager in 1981. Mr. Milberger holds a bachelor's degree in business and a
Masters of Business Administration from the University of Kansas and is a
Chartered Financial Analyst. His investment philosophy is based on patience and
opportunity for the long-term investor.
MR. SALER is a Senior Vice President of the Sub-Adviser and is responsible
for international investment analysis and portfolio management. He has eight
years of investment experience. Mr. Saler has focused on international markets
since first joining the Sub-Adviser in 1986. Most recently he was a strategist
with Nomura Securities and rejoined the Sub-Adviser in 1992. Mr. Saler is a
graduate of New York University with a B.S. Degree in Marketing and an M.B.A. in
Finance from New York University's graduate School of Business Administration.
14
<PAGE>
SECURITY FUNDS
PROSPECTUS
MS. SHIELDS joined the Investment Manager in 1989. Ms. Shields graduated from
Washburn University with a Bachelor of Business Administration degree, majoring
in finance and economics. She is a Chartered Financial Analyst with six years of
investment experience.
MR. SWANK has nine years of experience in the investment field. Prior to
joining the Investment Manager in 1992, he was an Investment Underwriter and
Portfolio Manager for U.S. West Financial Services, Inc. from 1986 to 1992. From
1984 to 1986, he was a Commercial Credit Officer for United Bank of Denver. He
was employed as a Bank Holding Company Examiner for the Federal Reserve Bank of
Kansas City - Denver Branch. Mr. Swank graduated from Miami University in Ohio
with a Bachelor of Science degree in finance in 1982. He earned a Master of
Business Administration degree from the University of Colorado and is a
Chartered Financial Analyst.
MR. WAPNICK is a Senior Vice President of the Sub-Adviser and is responsible
for portfolio management. He has 25 years investment experience. Prior to
joining the Sub-Adviser in 1986, Mr. Wapnick was an equity analyst with Merrill
Lynch, J. & W. Seligman, Dean Witter and most recently Union Carbide
Corporation. Mr. Wapnick is a graduate of Dartmouth College and received a
Master's Degree in Business Administration from Columbia University.
HOW TO PURCHASE SHARES
Security Distributors, Inc. (the "Distributor"), 700 Harrison St., Topeka,
Kansas, a wholly-owned subsidiary of the Investment Manager, is principal
underwriter for the Funds. Shares of the Funds may be purchased through
authorized investment dealers. In addition, banks and other financial
institutions that have an agreement with the Distributor, may make shares of the
Funds available to their customers. The minimum initial purchase must be $100.
Subsequent purchases must be $100 unless made through an Accumulation Plan which
allows subsequent purchases of $20.
Orders for the purchase of shares of the Funds will be confirmed at an
offering price equal to the net asset value per share next determined after
receipt of the order in proper form by the Distributor (generally as of the
close of the New York Stock Exchange on that day) plus the sales charge in the
case of Class A shares. Orders received by dealers or other firms prior to the
close of the Exchange and received by the Distributor prior to the close of its
business day will be confirmed at the offering price effective as of the close
of the Exchange on that day.
Orders for shares received by broker-dealers prior to that day`s close of
trading on the New York Stock Exchange and transmitted to the Fund prior to its
close of business that day will receive the offering price equal to the net
asset value per share computed at the close of trading on the Exchange on the
same day plus, in the case of Class A shares, the sales charge. Orders received
by broker-dealers after that day`s close of trading on the Exchange and
transmitted to the Fund prior to the close of business on the next business day
will receive the next business day`s offering price.
The Funds reserve the right to withdraw all or any part of the offering made
by this prospectus and to reject purchase orders.
ALTERNATIVE PURCHASE OPTIONS
- ----------------------------
The Funds offer two classes of shares:
CLASS A SHARES - FRONT-END LOAD OPTION - Class A shares are sold with a sales
charge at the time of purchase. Class A shares are not subject to a sales charge
when they are redeemed (except that shares sold in an amount of $1,000,000 or
more without a front-end sales charge will be subject to
15
<PAGE>
SECURITY FUNDS
PROSPECTUS
a contingent deferred sales charge for one year). See Appendix A for a
discussion of "Rights of Accumulation" and "Statement of Intention," which
options may reduce the front-end sales charge on purchases of Class A shares.
CLASS B SHARES - BACK-END LOAD OPTION - Class B shares are sold without a sales
charge at the time of purchase, but are subject to a deferred sales charge if
they are redeemed within five years of the date of purchase. Class B shares will
automatically convert tax-free to Class A shares at the end of eight years after
purchase.
The decision as to which class is more beneficial to an investor depends on
the amount and intended length of the investment. Investors who would rather pay
the entire cost of distribution at the time of investment, rather than spreading
such cost over time, might consider Class A shares. Other investors might
consider Class B shares, in which case 100 percent of the purchase price is
invested immediately, depending on the amount of the purchase and the intended
length of investment. The Funds will not normally accept any purchase of Class B
shares in the amount of $500,000 or more.
Dealers or others may receive different levels of compensation depending on
which class of shares they sell.
CLASS A SHARES
- --------------
Class A shares are offered at net asset value plus an initial sales charge as
follows:
SALES CHARGE
-----------------------------------------------
AMOUNT OF PERCENTAGE PERCENTAGE OF PERCENTAGE
TRANSACTION AT OF OFFERING NET AMOUNT REALLOWABLE
OFFERING PRICE PRICE INVESTED TO DEALERS
- ---------------------------------------------------------------------
Less than $50,000 5.75% 6.10% 5.00%
$50,000 but less than
$100,000 4.75% 4.99% 4.00%
$100,000 but less than
$250,000 3.75% 3.90% 3.00%
$250,000 but less than
$500,000 2.75% 2.83% 2.25%
$500,000 but less than
$1,000,000 2.00% 2.04% 1.75%
$1,000,000 or more None None (See below)
Purchases of Class A shares in an amount of $1,000,000 or more are at net
asset value (without a sales charge), but are subject to a contingent deferred
sales charge of one percent in the event of redemption within one year following
purchase. For a discussion of the contingent deferred sales charge, see
"Calculation and Waiver of Contingent Deferred Sales Charges" on page 18.
The Distributor will pay a commission to dealers on Class A purchases of
$1,000,000 or more as follows: 1.00 percent on sales up to $5,000,000, plus .50
percent on sales of $5,000,000 or more up to $10,000,000 and .10 percent on any
amount of $10,000,000 or more.
The Investment Manager may, at its expense, pay a service fee to dealers who
satisfy certain criteria established by the Investment Manager from time to time
relating to the volume of their sales of Class A shares of the Funds and certain
other Security Funds during prior periods and certain other factors, including
providing certain services to their clients who are stockholders of the Funds.
Such services include assisting in
16
<PAGE>
SECURITY FUNDS
PROSPECTUS
maintaining records, processing purchase and redemption requests and
establishing stockholder accounts, assisting stockholders in changing account
options or enrolling in specific plans, and providing stockholders with
information regarding the Funds and related developments.
Currently, service fees are paid on the aggregate value of accounts opened
after July 31, 1990, in Security Equity, Ultra, Global, Growth and Income and
Tax-Exempt Funds at the following annual rates: .25 percent of aggregate net
asset value for amounts of $100,000 but less than $5,000,000 and .30 percent for
amounts of $5,000,000 or more.
Additional information may be obtained by referring to the Funds' Statement
of Additional Information.
CLASS B SHARES
- --------------
Class B shares are offered at net asset value, without an initial sales
charge. With certain exceptions, the Funds may impose a deferred sales charge on
shares redeemed within five years of the date of purchase. No deferred sales
charge is imposed on amounts redeemed thereafter. If imposed, the deferred sales
charge is deducted from the redemption proceeds otherwise payable to you. The
deferred sales charge is retained by the Distributor.
Whether a contingent deferred sales charge is imposed and the amount of the
charge will depend on the number of years since the investor made a purchase
payment from which an amount is being redeemed, according to the following
schedule:
Year Since Purchase Contingent Deferred
Payment Was Made Sales Charge
---------------- ------------
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth and following 0%
Class B shares (except shares purchased through the reinvestment of dividends
and other distributions paid with respect to Class B shares) will automatically
convert on the eighth anniversary of the date such shares were purchased to
Class A shares which are subject to a lower distribution fee. This automatic
conversion of Class B shares will take place without imposition of a front-end
sales charge or exchange fee. (Conversion of Class B shares represented by stock
certificates will require the return of the stock certificates to the Investment
Manager.) All shares purchased through reinvestment of dividends and other
distributions paid with respect to Class B shares ("reinvestment shares") will
be considered to be held in a separate subaccount. Each time any Class B shares
(other than those held in the subaccount) convert to Class A shares, a pro rata
portion of the reinvestment shares held in the subaccount will also convert to
Class A shares. Class B shares so converted will no longer be subject to the
higher expenses borne by Class B shares. Because the net asset value per share
of the Class A shares may be higher or lower than that of the Class B shares at
the time of conversion, although the dollar value will be the same, a
shareholder may receive more or less Class A shares than the number of Class B
shares converted. Under current law, it is the Funds` opinion that such a
conversion will not constitute a taxable event under federal income tax law. In
the event that this ceases to be the
17
<PAGE>
SECURITY FUNDS
PROSPECTUS
case, the Board of Directors will consider what action, if any, is appropriate
and in the best interests of the Class B stockholders.
CLASS B DISTRIBUTION PLAN
- -------------------------
Each Fund bears some of the costs of selling its Class B shares under a
Distribution Plan adopted with respect to its Class B shares ("Class B
Distribution Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940 ("1940 Act"). This Plan provides for payments at an annual rate of 1.00
percent of the average daily net asset value of Class B shares. Amounts paid by
the Funds are currently used to pay dealers and other firms that make Class B
shares available to their customers (1) a commission at the time of purchase
normally equal to 4.00 percent of the value of each share sold and (2) a service
fee payable for the first year, initially, and for each year thereafter,
quarterly, in an amount equal to .25 percent annually of the average daily net
asset value of Class B shares sold by such dealers and other firms and remaining
outstanding on the books of the Funds.
NASD Rules limit the aggregate amount that the Funds may pay annually in
distribution costs for the sale of its Class B shares to 6.25 percent of gross
sales of Class B shares since the inception of the Distribution Plan, plus
interest at the prime rate plus one percent on such amount (less any contingent
deferred sales charges paid by Class B shareholders to the Distributor). The
Distributor intends, but is not obligated, to continue to pay or accrue
distribution charges incurred in connection with the Class B Distribution Plan
which exceed current annual payments permitted to be received by the Distributor
from the Funds. The Distributor intends to seek full payment of such charges
from the Fund (together with annual interest thereon at the prime rate plus one
percent) at such time in the future as, and to the extent that, payment thereof
by the Funds would be within permitted limits.
Each Fund's Class B Distribution Plan may be terminated at any time by vote
of its directors who are not interested persons of the Fund as defined in the
1940 Act or by vote of a majority of the outstanding Class B shares. In the
event the Class B Distribution Plan is terminated by the Class B stockholders or
the Funds` Board of Directors, the payments made to the Distributor pursuant to
the Plan up to that time would be retained by the Distributor. Any expenses
incurred by the Distributor in excess of those payments would be absorbed by the
Distributor. The Funds make no payments in connection with the sale of their
shares other than the distribution fee paid to the Distributor.
CALCULATION AND WAIVER OF CONTINGENT DEFERRED SALES CHARGES
- -----------------------------------------------------------
Any contingent deferred sales charge imposed upon redemption of Class A
shares (purchased in an amount of $1,000,000 or more) and Class B shares is a
percentage of the lesser of (1) the net asset value of the shares redeemed or
(2) the net cost of such shares. No contingent deferred sales charge is imposed
upon redemption of amounts derived from (1) increases in the value above the net
cost of such shares due to increases in the net asset value per share of the
Fund; (2) shares acquired through reinvestment of income dividends and capital
gain distributions; or (3) Class A shares (purchased in an amount of $1,000,000
or more) held for more than one year or Class B shares held for more than five
years. Upon request for redemption, shares not subject to the contingent
deferred sales charge will be redeemed first. Thereafter, shares held the
longest will be the first to be redeemed.
The contingent deferred sales charge is waived (1) following the death of a
stockholder if
18
<PAGE>
SECURITY FUNDS
PROSPECTUS
redemption is made within one year after death; (2) upon the disability (as
defined in Section 72(m)(7) of the Internal Revenue Code) of a stockholder prior
to age 65 if redemption is made within one year after the disability, provided
such disability occurred after the stockholder opened the account; (3) in
connection with required minimum distributions in the case of an IRA, SAR-SEP or
Keogh or any other retirement plan qualified under section 401(a), 401(k) or
403(b) of the Code; and (4) in the case of distributions from retirement plans
qualified under section 401(a) or 401(k) of the Internal Revenue Code due to (i)
returns of excess contributions to the plan, (ii) retirement of a participant in
the plan, (iii) a loan from the plan (repayment of loans, however, will
constitute new sales for purposes of assessing the CDSC), (iv) "financial
hardship" of a participant in the plan, as that term is defined in Treasury
Regulation section 1.401(k)-1(d)(2), as amended from time to time, (v)
termination of employment of a participant in the plan, (vi) any other
permissible withdrawal under the terms of the plan. The contingent deferred
sales charge will also be waived in the case of redemptions of Class B shares of
the Funds pursuant to a systematic withdrawal program. See "Systematic
Withdrawal Program," page 26 for details.
ARRANGEMENTS WITH BROKER-DEALERS AND OTHERS
- -------------------------------------------
The Investment Manager or Distributor, from time to time, will provide
promotional incentives or pay a bonus, including reallowance of up to the entire
sales charge, to certain dealers whose representatives have sold or are expected
to sell significant amounts of the Funds and/or certain other funds managed by
the Investment Manager. Such promotional incentives will include payment for
attendance (including travel and lodging expenses) by qualifying registered
representatives (and members of their families) at sales seminars at luxury
resorts within or without the United States. The Distributor may also provide
financial assistance to dealers in connection with advertising. No compensation
will be offered to the extent it is prohibited by the laws of any state or
self-regulatory agency, such as the National Association of Securities Dealers,
Inc. ("NASD"). A dealer to whom substantially the entire sales charge of Class A
shares is reallowed may be deemed to be an "underwriter" under federal
securities laws.
The Distributor also may pay banks and other financial services firms that
facilitate transactions in shares of the funds for their clients a transaction
fee up to the level of the payments made allowable to dealers for the sale of
such shares as described above. Banks currently are prohibited under the
Glass-Steagall Act from providing certain underwriting or distribution services.
If banking firms were prohibited from acting in any capacity or providing any of
the described services, the Fund`s Board of Directors would consider what
action, if any, would be appropriate.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law. The
Investment Manager or Distributor also may pay a marketing allowance to dealers
who meet certain eligibility criteria. This allowance is paid with reference to
new sales of Fund shares in a calendar year. To be eligible for this allowance
in any given year, the dealer must sell a minimum of $5,000,000 of such shares
during that year. The marketing allowance ranges from .15 percent to .60 percent
of aggregate new sales depending upon the volume of shares sold and the level of
services provided by the Distributor to the dealer.
19
<PAGE>
SECURITY FUNDS
PROSPECTUS
PURCHASES AT NET ASSET VALUE
- ----------------------------
Class A shares of the Funds may be purchased at net asset value by (1)
directors, officers and employees of the Funds, the Funds' Investment Manager or
Distributor; directors, officers and employees of Security Benefit Life
Insurance Company and its subsidiaries; agents licensed with Security Benefit
Life Insurance Company; spouses or minor children of any such agents; as well as
the following relatives of any such directors, officers and employees (and their
spouses): spouses, grandparents, parents, children, grandchildren, siblings,
nieces and nephews; (2) any trust, pension, profit sharing or other benefit plan
established by any of the foregoing corporations for persons described above;
(3) retirement plans where third party administrators of such plans have entered
into certain arrangements with the Distributor or its affiliates provided that
no commission is paid to dealers; and (4) officers, directors, partners or
registered representatives (and their spouses and minor children) of
broker-dealers who have a selling agreement with the Distributor. Such sales are
made upon the written assurance of the purchaser that the purchase is made for
investment purposes and that the securities will not be transferred or resold
except through redemption or repurchase by or on behalf of the Funds.
Associated personnel of broker-dealers and life agents must obtain a special
application from their employer or from the Distributor in order to qualify for
such purchases.
Class A shares of the Funds may also be purchased at net asset value when the
purchase is made on the recommendation of (i) a registered investment adviser,
trustee or financial intermediary who has authority to make investment decisions
on behalf of the investor; or (ii) a certified financial planner or registered
broker-dealer who either charges periodic fees to its customers for financial
planning, investment advisory or asset management services, or provides such
services in connection with the establishment of an investment account for which
a comprehensive "wrap fee" is imposed. The Distributor must be notified when a
purchase is made that qualifies under this provision.
A stockholder of Equity Fund who formerly invested in the Bondstock
Investment Plans or Life Insurance Investors Investment Plans may purchase Class
A shares of Equity Fund at net asset value provided that such stockholder
maintains his or her Equity Fund account.
HOW TO REDEEM SHARES
A stockholder may redeem shares at the net asset value next determined after
the time when such shares are tendered for redemption.
Shares will be redeemed on request of the stockholder in proper order to the
Funds' Investment Manager, Security Management Company, 700 Harrison St.,
Topeka, Kansas 66636-0001, which serves as the Funds' transfer agent. A request
is made in proper order by submitting the following items to the Investment
Manager: (1) a written request for redemption signed by all registered owners
exactly as the account is registered, including fiduciary titles, if any, and
specifying the account number and the dollar amount or number of shares to be
redeemed; (2) a guarantee of all signatures on the written request or on the
share certificate or accompanying stock power; (3) any share certificates issued
for any of the shares to be redeemed; and (4) any additional documents which may
be required by the Investment Manager for redemption by corporations or other
organizations, executors, administrators, trustees, custodians or the like.
Transfers of shares are subject to the same requirements. The signature
20
<PAGE>
SECURITY FUNDS
PROSPECTUS
guarantee must be provided by an eligible guarantor institution, such as a bank,
broker, credit union, national securities exchange or savings association. A
signature guarantee is not required for redemptions of $10,000 or less,
requested by and payable to all stockholders of record for an account, to be
sent to the address of record. The Investment Manager reserves the right to
reject any signature guarantee pursuant to its written procedures which may be
revised in the future. To avoid delay in redemption or transfer, stockholders
having questions should contact the Investment Manager by calling
1-800-888-2461, extension 3127.
The redemption price will be the net asset value of the shares next computed
after the redemption request in proper order is received by the Investment
Manager. Payment of the amount due, less any applicable deferred sales charge,
will be made by check within seven days after receipt of the redemption request
in proper order. Payment may also be made by wire at the sole discretion of the
Investment Manager. If a wire transfer is requested, the Investment Manager must
be provided with the name and address of the stockholder's bank as well as the
account number to which payment is to be wired. Checks will be mailed to the
stockholder`s registered address (or as otherwise directed). Remittance by wire
(to a commercial bank account in the same name(s) as the shares are registered),
by certified or cashier's check, or by express mail, if requested, will be at a
charge of $15, which will be deducted from the redemption proceeds.
In addition to the foregoing redemption procedure, the Funds repurchase
shares from broker-dealers at the price determined as of the close of business
on the day such offer is confirmed. Dealers may charge a commission on the
repurchase of shares.
At various times, requests may be made to redeem shares for which good
payment has not yet been received. Accordingly, the mailing of a redemption
check may be delayed until such time as good payment has been collected for the
purchase of the shares in question, which may take up to 15 days.
Requests may also be made to redeem shares in an account for which the
stockholder's tax identification number has not been provided. To the extent
permitted by law, the redemption proceeds from such an account will be reduced
by $50 to reimburse for the penalty imposed by the Internal Revenue Service for
failure to report the tax identification number.
TELEPHONE REDEMPTIONS
- ---------------------
A stockholder may redeem uncertificated shares in amounts up to $10,000 by
telephone request, provided the stockholder has completed the Telephone
Redemption section of the application or a Telephone Redemption form which may
be obtained from the Investment Manager. The proceeds of a telephone redemption
will be sent to the stockholder at his or her address as set forth in the
application or in a subsequent written authorization with a signature guarantee.
Once authorization has been received by the Investment Manager, a stockholder
may redeem shares by calling the Funds at (800) 888-2461, extension 3127, on
weekdays (except holidays) between the hours of 7:00 a.m. and 6:00 p.m. Central
time. Redemption requests received by telephone after the close of the New York
Stock Exchange (normally 3 p.m. Central time) will be treated as if received on
the next business day. A stockholder who authorizes telephone redemptions
authorizes the Investment Manager to act upon the instructions of any person
identifying themselves as the owner of an account or the owner's broker. The
Investment Manager has established
21
<PAGE>
SECURITY FUNDS
PROSPECTUS
procedures to confirm that instructions communicated by telephone are genuine
and may be liable for any losses due to fraudulent or unauthorized instructions
if it fails to comply with its procedures. The Investment Manager`s procedures
require that any person requesting a telephone redemption provide the account
registration and number and the owner`s tax identification number, and such
instructions must be received on a recorded line. Neither the Fund, the
Investment Manager, nor the Distributor shall be liable for any loss, liability,
cost or expense arising out of any redemption request, provided the Investment
Manager complied with its procedures. Thus, a stockholder who authorizes
telephone redemptions may bear the risk of loss from a fraudulent or
unauthorized request. The telephone redemption privilege may be changed or
discontinued at any time by the Investment Manager or the Funds.
During periods of severe market or economic conditions, telephone redemptions
may be difficult to implement and stockholders should make redemptions by mail
as described under "How to Redeem Shares."
DIVIDENDS AND TAXES
It is each Fund's policy to distribute realized capital gains, if any, in
excess of any capital losses and capital loss carryovers, at least once a year
and to pay dividends from net investment income as the Funds` Board of Directors
may declare from time to time, except Growth and Income Fund which pays
dividends quarterly in March, June, September, and December. Because Class A
shares of the Funds bear most of the costs of distribution of such shares
through payment of a front-end sales charge, while Class B shares of the Funds
bear such costs through a higher distribution fee, expenses attributable to
Class B shares will generally be higher and, as a result, income distributions
paid by the Funds with respect to Class B shares generally will be lower than
those paid with respect to Class A shares. Any dividend payment or capital gain
distribution will result in a decrease of the net asset value of the shares in
an amount equal to the payment or distribution. All dividends and distributions
are automatically reinvested on the payable date in shares of the Funds at net
asset value as of the record date (reduced by an amount equal to the amount of
the dividend or distribution), unless the Investment Manager is previously
notified in writing by the stockholder that such dividends or distributions are
to be received in cash. A stockholder may request that such dividends or
distributions be directly deposited to the stockholder`s bank account. Dividends
or distributions paid with respect to Class A shares and received in cash may,
within 30 days of the payment date, be reinvested without a sales charge.
Each of the series of Security Equity Fund is to be treated separately in
determining the amounts of income and capital gains distributions, and for this
purpose, each series will reflect only the income and gains, net of losses, of
that series.
Certain requirements relating to the qualification of a Fund as a regulated
investment company may limit the extent to which a Fund will be able to engage
in certain investment practices, including transactions in futures contracts and
other types of derivative securities transactions. In addition, if a Fund were
unable to dispose of portfolio securities due to settlement problems relating to
foreign investments or due to the holding of illiquid securities, the Fund's
ability to qualify as a regulated investment company might be affected.
Each of the Funds intends to qualify as a "regulated investment company"
under the Internal Revenue Code. Such qualification
22
<PAGE>
SECURITY FUNDS
PROSPECTUS
generally removes the liability for federal income taxes from the Fund, and
generally makes federal income tax upon income and capital gains generated by
the Fund's investments, the sole responsibility of its stockholders provided the
Fund continues to so qualify and distributes all of its net investment income
and net realized capital gain to its stockholders. Furthermore, the Funds
generally will not be subject to excise taxes imposed on certain regulated
investment companies provided that each Fund distributes 98 percent of its
ordinary income and 98 percent of its net capital gain income each year.
Distributions of net investment income and realized net short-term capital
gain are taxable to stockholders as ordinary income whether received in cash or
reinvested in additional shares. Distributions (designated by the Funds as
"capital gain dividends") of the excess, if any, of net long-term capital gains
over net short-term capital losses are taxable to stockholders as long-term
capital gains regardless of how long a stockholder has held the Fund's shares
and regardless of whether received in cash or reinvested in additional shares.
Stockholders should consult their tax adviser to determine the federal, state
and local tax consequences to them from an investment in the Fund.
Certain dividends declared in October, November or December of a calendar
year are taxable to stockholders as though received on December 31 of that year
if paid to stockholders during January of the following calendar year.
Advice as to the tax status of each year's distributions will be mailed on or
before January 31, of the following year. The Funds are required by law to
withhold 31 percent of taxable dividends and distributions (including redemption
proceeds) to stockholders who do not furnish their correct taxpayer
identification numbers, or are otherwise subject to the backup withholding
provisions of the Internal Revenue Code.
FOREIGN TAXES
- -------------
Investment income received from sources within foreign countries may be
subject to foreign income taxes. In this regard, withholding tax rates in
countries with which the United States does not have a tax treaty are often as
high as 30 percent or more. The United States has entered into tax treaties with
many foreign countries which entitle certain investors (such as the Funds) to a
reduced tax rate (generally 10 to 15 percent) or to certain exemptions from tax.
The Funds will operate so as to qualify for such reduced tax rates or tax
redemptions whenever possible. While stockholders will bear the cost of any
foreign tax withholding, they will not be able to claim foreign tax credit or
deduction for taxes paid by the Fund.
DETERMINATION OF NET ASSET VALUE
The net asset value of each Fund is computed as of the close of regular
trading hours on the New York Stock Exchange (normally 3 p.m. Central time) on
days when the Exchange is open.
The net asset value per share is computed by adding the value of all
securities and other assets in the portfolio, deducting any liabilities and
dividing by the number of shares outstanding. In determining each Fund's total
net assets, securities listed or traded on a recognized securities exchange will
be valued on the basis of the last sale price. If there are no sales on a
particular day, then the securities are valued at the mean between the bid and
asked prices. If a mean cannot be determined, then the securities are valued at
the best available current bid price. If a security is traded on multiple
exchanges, its value will be based on prices from the principal exchange where
it is traded. All other securities for which market quotations are available are
23
<PAGE>
SECURITY FUNDS
PROSPECTUS
valued on the basis of the last current bid price. If there is no bid price, or
if the bid price is deemed unsatisfactory by the Board of Directors or by the
Investment Manager, then the securities are valued in good faith by such method
as the Board of Directors determines will reflect the fair market value.
Valuations of the Funds' securities are supplied by a pricing service approved
by the Funds' Board of Directors.
Because the expenses of distribution are borne by Class A shares through a
front-end sales charge and by Class B shares through an ongoing distribution
fee, the expenses attributable to each class of shares will differ, resulting in
different net asset values. The net asset value of Class B shares will generally
be lower than the net asset value of Class A shares as a result of the
distribution fee charged to Class B shares. It is expected, however, that the
net asset value per share will tend to converge immediately after the payment of
dividends which will differ in amount for Class A and B shares by approximately
the amount of the different distribution expenses attributable to Class A and B
shares.
TRADING PRACTICES AND BROKERAGE
The portfolio turnover rate for each of the Funds for the fiscal year ended
September 30, 1995, was Growth and Income Fund, Class A - 130 percent, and Class
B - 130 percent; Equity Fund, Class A - 95 percent and Class B - 95 percent;
Global Fund, Class A - 141 percent and Class B - 141 percent; Ultra Fund, Class
A - 180 percent and Class B - 180 percent. Higher portfolio turnover subjects a
Fund to increased brokerage costs and may, in some cases, have adverse tax
effects on the Fund or its stockholders. The annual portfolio turnover of Growth
and Income and Global Funds generally will be less than 100 percent, that of
Equity Fund generally will be in the area of 100 percent, and that of Ultra Fund
generally will be more than 100 percent.
Transactions in portfolio securities for each Fund are effected in the manner
deemed to be in the best interests of the Fund. In selecting a broker to execute
a specific transaction, all relevant factors will be considered. Portfolio
transactions may be directed to brokers who furnish investment information or
research services to the Investment Manager or who sell shares of the Funds. The
Investment Manager may, consistent with the NASD Rules of Fair Practice,
consider sales of Fund shares in the selection of a broker. Securities held by
the Funds may also be held by other investment advisory clients of the
Investment Manager, including other investment companies, and by the Investment
Manager`s parent company, Security Benefit Life Insurance Company ("SBL").
Purchases or sales of the same security occurring on the same day (which may
include orders from SBL) may be aggregated and executed as a single transaction,
subject to the Investment Manager's obligation to seek best execution.
Aggregated purchases or sales are generally effected at an average price and on
a pro-rata basis (transaction costs will also generally be shared on a pro rata
basis) in proportion to the amounts desired to be purchased or sold. See the
Funds` Statement of Additional Information for a more detailed description of
trading and brokerage practices.
PERFORMANCE
Each Fund may, from time to time, include quotations of its average annual
total return and aggregate total return in advertisements or reports to
stockholders or prospective investors.
Quotations of average annual total return will be expressed in terms of the
average annual compounded rate of return of a hypothetical investment in the
Fund over periods of 1, 5 and
24
<PAGE>
SECURITY FUNDS
PROSPECTUS
10 years (up to the life of the Fund). Such total return figures will reflect
the deduction of the maximum sales charge and a proportional share of Fund
expenses on an annual basis, and will assume that all dividends and
distributions are reinvested when paid.
Quotations of aggregate total return will be calculated for any specified
period by assuming a hypothetical investment in the Fund on the date of the
commencement of the period and assuming that all dividends and distributions are
reinvested when paid. The net increase or decrease in the value of the
investment over the period will be divided by its beginning value to arrive at
total return. Total return calculated in this manner reflects actual performance
over a stated period of time while average annual total return is a hypothetical
rate of return that, if achieved annually, would have produced the same
aggregate total return.
In addition, quotations of aggregate total return may also be calculated for
several consecutive one-year periods, expressing the total return as a
percentage increase or decrease in the value of the investment for each year
relative to the ending value for the previous year. The Funds may from time to
time quote total return that does not reflect deduction of any applicable sales
charge, which charges, if reflected, would reduce the total return quoted.
Quotations of average annual total return or aggregate total return reflect
only the performance of a hypothetical investment in the Fund during the
particular time period on which the calculations are based. Such quotations for
the Funds will vary based on changes in market conditions and the level of the
Fund's expenses, and no reported performance figure should be considered an
indication of performance which may be expected in the future.
In connection with communicating its average annual total return and
aggregate total return to current or prospective stockholders, each Fund also
may compare these figures to the performance of other mutual fund rating
services or to other unmanaged indexes which may assume reinvestment of
dividends, but generally do not reflect deductions for administrative and
management costs and expenses. Each Fund will include performance data for both
Class A and Class B shares of the Fund in any advertisement or report including
performance data of the Fund.
For a more detailed description of the methods used to calculate the average
annual total return and aggregate total return of the Funds, see the Funds'
Statement of Additional Information.
SHAREHOLDER SERVICES
ACCUMULATION PLAN
- -----------------
An investor may choose to invest in one of the Funds through a voluntary
Accumulation Plan. This allows for an initial investment of $100 minimum and
subsequent investments of $20 minimum at any time. An Accumulation Plan involves
no obligation to make periodic investments, and is terminable at will.
Payments are made by sending a check to the Distributor who (acting as an
agent for the dealer) will purchase whole and fractional shares of the Fund as
of the close of business on such day as the payment is received. The investor
will receive a confirmation and statement after each investment.
Investors may choose to use "Secur-O-Matic" (automatic bank draft) to make
their Fund purchases. There is no additional charge for choosing to use
Secur-O-Matic. An application for Secur-O-Matic may be obtained from the Funds.
25
<PAGE>
SECURITY FUNDS
PROSPECTUS
SYSTEMATIC WITHDRAWAL PROGRAM
- -----------------------------
Stockholders who wish to receive regular monthly, quarterly, semiannual, or
annual payments of $25 or more may establish a Systematic Withdrawal Program. A
stockholder may elect a payment that is a specified percentage of the initial or
current account value or a specified dollar amount. A Systematic Withdrawal
Program will be allowed only if shares with a current offering price of $5,000
or more are deposited with the Investment Manager, which will act as agent for
the stockholder under the Program. Shares are liquidated at net asset value. The
Program may be terminated on written notice, or it will terminate automatically
if all shares are liquidated or withdrawn from the account.
A stockholder may establish a Systematic Withdrawal Program with respect to
Class B shares without the imposition of any applicable contingent deferred
sales charge, provided that such withdrawals do not in any 12-month period,
beginning on the date the Program is established, exceed 10 percent of the value
of the account on that date ("Free Systematic Withdrawals"). Free Systematic
Withdrawals are not available if a Program established with respect to Class B
shares provides for withdrawals in excess of 10 percent of the value of the
account in any Program year and, as a result, all withdrawals under such a
Program would be subject to any applicable contingent deferred sales charge.
Free Systematic Withdrawals will be made first by redeeming those shares that
are not subject to the contingent deferred sales charge and then by redeeming
shares held the longest. The contingent deferred sales charge applicable to a
redemption of Class B shares requested while Free Systematic Withdrawals are
being made will be calculated as described under "Calculation and Waiver of
Contingent Deferred Sales Charges," page 18. A Systematic Withdrawal form may be
obtained from the Funds.
EXCHANGE PRIVILEGE
- ------------------
Stockholders who own shares of the Funds may exchange those shares for shares
of another of the Funds, Security Asset Allocation Fund, Security Income Fund,
Security Tax-Exempt Fund, or Security Cash Fund at net asset value. Exchanges
may be made only in those states where shares of the fund into which an exchange
is to be made are qualified for sale. No service fee is presently imposed on
such an exchange. Class A and Class B shares of the Funds may be exchanged for
Class A and Class B shares, respectively, of another fund or for shares of
Security Cash Fund, a money market fund that offers a single class of shares.
Any applicable contingent deferred sales charge will be imposed upon redemption
and calculated from the date of the initial purchase without regard to the time
shares were held in Security Cash Fund. For tax purposes, an exchange is a sale
of shares which may result in a taxable gain or loss. Special rules may apply to
determine the amount of gain or loss on an exchange occurring within ninety days
after the exchanged shares were acquired. Exchanges are made upon receipt of a
properly completed Exchange Authorization form. A current prospectus of the fund
into which an exchange is made will be given to each stockholder exercising this
privilege.
To exchange shares by telephone, a stockholder must hold shares in
non-certificate form and must either have completed the Telephone Exchange
section of the application or a Telephone Transfer Authorization form which may
be obtained from the Investment Manager. Once authorization has been received by
the Investment Manager, a stockholder may exchange shares by telephone by
calling the Funds at (800) 888 2461, extension
26
<PAGE>
SECURITY FUNDS
PROSPECTUS
3127, on weekdays (except holidays) between the hours of 7:00 a.m. and 6:00 p.m.
Central time. Exchange requests received by telephone after the close of the New
York Stock Exchange (normally 3 p.m. Central time) will be treated as if
received on the next business day. A stockholder who authorizes telephone
exchanges authorizes the Investment Manager to act upon the instructions of any
person by telephone to exchange shares between any identically registered
accounts with the Funds listed above. The Investment Manager has established
procedures to confirm that instructions communicated by telephone are genuine
and may be liable for any losses due to fraudulent or unauthorized instructions
if it fails to comply with its procedures. The Investment Manager's procedures
require that any person requesting an exchange by telephone provide the account
registration and number and the owner's tax identification number and such
instructions must be received on a recorded line. Neither the Fund, the
Investment Manager nor the Distributor shall be liable for any loss, liability,
cost or expense arising out of any request, including any fraudulent request,
provided the Investment Manager complied with its procedures. Thus, a
stockholder who authorizes telephone exchanges may bear the risk of loss from a
fraudulent or unauthorized request. The exchange privilege, including telephone
exchanges, may be changed or discontinued at any time by either the Investment
Manager or the Funds upon 60 days' notice to stockholders.
In periods of severe market or economic conditions, the telephone exchange of
shares may be difficult to implement and stockholders should make exchanges by
writing to Security Distributors, Inc., 700 Harrison, Topeka, Kansas 66636-0001.
RETIREMENT PLANS
- ----------------
The Funds have available tax-qualified retirement plans for individuals,
prototype plans for the self-employed, pension and profit sharing plans for
corporations and custodial accounts for employees of public school systems and
organizations meeting the requirements of Section 501(c)(3) of the Internal
Revenue Code. Further information concerning these plans is contained in the
Funds' Statement of Additional Information.
GENERAL INFORMATION
ORGANIZATION
- ------------
The Articles of Incorporation of each Fund provide for the issuance of shares
of common stock in one or more classes or series. Security Equity Fund has
authorized capital stock of 5,000,000,000 shares of $.25 par value and currently
issues its shares in three series, each of which has authority to issue such
shares as follows: Equity Fund - 2,000,000,000 shares, Global Fund -
1,000,000,000 shares and Asset Allocation Fund - 1,000,000,000 shares. The
remaining 1,000,000,000 shares has not been allocated to any series. The shares
of each series of Security Equity Fund represent a pro rata beneficial interest
in that series' net assets and in the earnings and profits or losses derived
from the investment of such assets. Growth and Income and Ultra Funds have not
issued shares in any additional series at the present time. Growth and Income
and Ultra Funds each have authorized capital stock of 1,000,000,000 shares of
$1.00 par value and $.50 par value, respectively.
Each of the Funds currently issues two classes of shares which participate
proportionately based on their relative net asset values in dividends and
distributions and have equal voting, liquidation and other rights except that
(i) expenses related to the distribution of each class of shares or other
27
<PAGE>
SECURITY FUNDS
PROSPECTUS
expenses that the Board of Directors may designate as class expenses from time
to time, are borne solely by each class; (ii) each class of shares has exclusive
voting rights with respect to any Distribution Plan adopted for that class;
(iii) each class has different exchange privileges; and (iv) each class has a
different designation. When issued and paid for, the shares will be fully paid
and nonassessable by the Funds. Shares may be exchanged as described above under
"Exchange Privilege," but will have no other preference, conversion, exchange or
preemptive rights. Shares are transferable, redeemable and assignable and have
cumulative voting privileges for the election of directors.
On certain matters, such as the election of directors, all shares of the
series of Security Equity Fund vote together, with each share having one vote.
On other matters affecting a particular series, such as the investment advisory
contract or the fundamental policies, only shares of that series are entitled to
vote, and a majority vote of the shares of that series is required for approval
of the proposal.
The Funds do not generally hold annual meetings of stockholders and will do
so only when required by law. Stockholders may remove directors from office by
vote cast in person or by proxy at a meeting of stockholders. Such a meeting
will be called at the written request of 10 percent of a Fund's outstanding
shares.
Although each Fund offers only its own shares, it is possible one Fund might
become liable for any misstatement, inaccuracy, or incomplete disclosure in this
prospectus relating to another of the Funds. The Funds' Board of Directors has
considered this risk and has approved the use of a combined prospectus.
STOCKHOLDER INQUIRIES
- ---------------------
Stockholders who have questions concerning their account or wish to obtain
additional information, may call the Funds (see back cover for address and
telephone numbers), or contact their securities dealer.
28
<PAGE>
SECURITY FUNDS
PROSPECTUS APPENDIX A
APPENDIX A
CLASS A SHARES
REDUCED SALES CHARGES
Initial sales charges may be reduced or eliminated for persons or
organizations purchasing Class A shares of the Funds alone or in combination
with Class A shares of other Security Funds.
For purposes of qualifying for reduced sales charges on purchases made
pursuant to Rights of Accumulation or a Statement of Intention, the term
"Purchaser" includes the following persons: an individual, his or her spouse and
children under the age of 21; a trustee or other fiduciary of a single trust
estate or single fiduciary account established for their benefit; an
organization exempt from federal income tax under Section 501(c)(3) or (13) of
the Internal Revenue Code; or a pension, profit-sharing or other employee
benefit plan whether or not qualified under Section 401 of the Internal Revenue
Code.
RIGHTS OF ACCUMULATION
- ----------------------
To reduce sales charges on purchases of Class A shares of a Fund, a Purchaser
may combine all previous purchases of the Funds with a contemplated current
purchase and receive the reduced applicable front-end sales charge. The
Distributor must be notified when a sale takes place which might qualify for the
reduced charge on the basis of previous purchases.
Rights of accumulation also apply to purchases representing a combination of
the Class A shares of the Funds, and other Security Funds, except Security Cash
Fund, in those states where shares of the fund being purchased are qualified for
sale.
STATEMENT OF INTENTION
- ----------------------
A Purchaser may choose to sign a Statement of Intention within 90 days after
the first purchase to be included thereunder, which will cover future purchases
of Class A shares of the Funds, and other Security Funds, except Security Cash
Fund. The amount of these future purchases shall be specified and must be made
within a 13-month period (or 36-month period for purchases of $1 million or
more) to become eligible for the reduced front-end sales charge applicable to
the actual amount purchased under the Statement. Five percent (5%) of the amount
specified in the Statement of Intention will be held in escrow shares until the
statement is completed or terminated. These shares may be redeemed by the Fund
if the Purchaser is required to pay additional sales charges.
A Statement of Intention may be revised during the 13-month period.
Additional Class A shares received from reinvestment of income dividends and
capital gains distributions are included in the total amount used to determine
reduced sales charges. A Statement of Intention may be obtained from the Funds.
REINSTATEMENT PRIVILEGE
- -----------------------
Stockholders who redeem their Class A shares of the Funds have a one-time
privilege (1) to reinstate their accounts by purchasing Class A shares without a
sales charge up to the dollar amount of the redemption proceeds; or (2) to the
extent the redeemed shares would have been eligible for the exchange privilege,
to purchase Class A shares of another of the Security Funds, without a sales
charge up to the dollar amount of the redemption proceeds. To exercise this
privilege, a stockholder must provide written notice and a check in the amount
of the reinvestment to the Fund within thirty days after the redemption request;
the reinstatement will be made at the net asset value on the date received by
the Fund.
29
<PAGE>
SECURITY FUNDS
APPLICATION
1. ACCOUNT REGISTRATION (SIGNATURE MUST APPEAR BELOW TO ESTABLISH AN
ACCOUNT.)
I hereby authorize the establishment of the account marked below and acknowledge
receipt of the Fund's current prospectus. Check is enclosed for
$ (minimum $100) payable to SECURITY DISTRIBUTORS, INC. as
------------------
an initial investment. I am of legal age in the state of my residence and wish
to purchase shares of the Fund indicated below. By the execution of this
application, the undersigned represents and warrants that the investor has full
right, power and authority to make this investment and the undersigned is duly
authorized to sign this application and to purchase or redeem shares of the Fund
on behalf of the investor. No stock certificate is to be issued unless I so
request. See the prospectus for information about an Accumulation Plan which
allows a minimum investment of $100 and subsequent investments of $20.
- -------------------------------------------------------------
Owner/Custodian/Trustee Name (Print)
- -------------------------------------------------------------
Social Security Number Date of Birth
- -------------------------------------------------------------
Joint Owner/Minor Name (Print) [ ] Check if UGMA/UTMA Account
- -------------------------------------------------------------
Social Security Number Date of Birth
2. ADDRESS AND TELEPHONE NUMBER
- -------------------------------------------------------------
Street Address (for first individual)
- -------------------------------------------------------------
Daytime Telephone
- -------------------------------------------------------------
City, State, Zip Code
Citizenship [ ] U.S. [ ] Other
---------------------
Indicate Country
3. INITIAL INVESTMENT
CLASS OF SHARES (MUST SELECT ONE ONLY) ( ) A SHARES ( ) B SHARES (IF NO CLASS IS
SELECTED, PURCHASE(S) WILL BE MADE OF A SHARES)
SECURITY EQUITY FUND $
------
SECURITY GLOBAL FUND $
------
SECURITY ASSET ALLOCATION FUND $
------
SECURITY GROWTH & INCOME FUND $
------
SECURITY ULTRA FUND $
------
SECURITY CASH FUND $
------
SECURITY CORPORATE BOND FUND $
------
SECURITY LIMITED MATURITY BOND FUND $
------
SECURITY U.S. GOVERNMENT FUND $
------
SECURITY GLOBAL AGGRESSIVE BOND FUND $
------
SECURITY TAX-EXEMPT FUND $
------
4. DIVIDEND OPTION (CHECK ONE ONLY)
(If no option is selected, distributions will be reinvested into the Fund that
pays them.)
[ ] Reinvest all dividends and capital gains
[ ] Reinvest only capital gains and pay dividends in cash
[ ] Cash payment of dividends and capital gains
[ ] Invest dividends and capital gains into another Security Fund account
(must be same class of shares; if new account, number will be assigned)
Fund Name Account Number
------------------------------------ ------------------
[ ] Send distributions to third party below
Account No. (if applicable)
----------------------------------------------------
Name
---------------------------------------------------------------------------
Address
------------------------------------------------------------------------
5. SYSTEMATIC WITHDRAWAL PROGRAM (FOR ACCOUNTS OF $5,000 OR MORE)
You are hereby authorized to send a check(s) beginning:
Month Day [ ] 11th or [ ] 26th 19
---------------- ----
(if no date is selected withdrawal will be made on the 26th)
Payable: [ ] monthly [ ] quarterly [ ] semi-annually [ ] annually
Fund Name Fund Name
----------------------------- ------------------------------
Account No. (if known) Account No. (if known)
---------------- ---------------
(if 3 or more funds, please send written instructions)
Level Payment $ ($25 minimum) Level Payment $ ($25 minimum)
-------- --------
Variable Payment based on fixed number Variable Payment based on fixed number
of shares or a percentage of account of shares or a percentage of account
value ($25 minimum) value ($25 minimum)
Number of shares: or Number of shares: or
----------- -----------
Percentage of account value: Percentage of account value:
--------- ---------
Note: For Class B shares, annual withdrawals in excess of 10% of value of
account at time program is established may be subject to a contingent deferred
sales charge.
Complete this section only if you want check payable and sent to another address
(please print):
Name Signature(s) of all registered owners required
----------------------------
Address Individual Signature
------------------------- -------------------------
City, State, Zip Code Joint Owner Signature
------------ ------------------------
6. SECUR-O-MATIC[Registration Mark] BANK DRAFT PLAN
I wish to make investments directly from my checking account. (Please attach a
voided check to this application.)
Fund Name Account Number (if known) Amount $
------------------ ------- -------
Fund Name Account Number (if known) Amount $
------------------ ------- -------
Date: [ ] 7th Day of Month [ ] 14th Day of Month [ ] 21st Day of Month
[ ] 28th Day of Month
(if no date is selected investment will be made on the 21st)
Mode: [] Monthly ($20 minimum) [] Bi-Monthly ($40 minimum)
[] Quarterly ($50 minimum) [] Semiannually ($100 minimum)
[] Annually ($200 minimum)
You should notify your bank that you are going to use this service to ensure
they accept preauthorized electronic drafts.
(continued on back)
<PAGE>
7. RIGHTS OF ACCUMULATION
I own shares in other Security Funds which may entitle this purchase to have a
reduced sales charge under the provisions in the Fund Prospectus.
- -------------------------------- --------------------------- -----------------
Current Account Registration Fund Name Account Number(s)
- -------------------------------- --------------------------- -----------------
- -------------------------------- --------------------------- -----------------
8. STATEMENT OF INTENTION
[ ] Please check here if you wish to receive a Statement of Intention. This form
allows you to purchase shares at reduced sales charges if you plan to invest
more than: (Please check one) [ ] $50,000 [ ] $100,000 [ ] $250,000 [ ] $500,000
[ ] $1,000,000 in installments during the next 13 months (36 months for
purchases of $1 million or more). See the current prospectus for more
information.
9. TELEPHONE EXCHANGE AND REDEMPTION PRIVILEGE
If you would like to have telephone exchange and/or redemption privileges,
please mark one or more of the boxes below:
Yes, I want [ ] telephone exchange [ ] telephone redemption privileges.
By checking the applicable box(es) and signing this Application, you authorize
the Investment Manager to honor any telephone request for the exchange and/or
redemption of Fund shares (maximum telephone redemption is $10,000), subject to
the terms of the Fund prospectus. The Investment Manager has established
reasonable procedures to confirm that instructions communicated by telephone are
genuine and may be liable for any losses due to fraudulent or unauthorized
instructions if it fails to comply with its procedures. The procedures require
that any person requesting a telephone redemption or exchange provide the
account registration and number and owner's tax identification number and such
request must be received on a recorded line. Neither the Fund, the Investment
Manager nor the Underwriter will be liable for any loss, liability, cost or
expense arising out of any telephone request, provided that the Investment
Manager complied with its procedures. Thus, a stockholder may bear the risk of
loss from a fraudulent or unauthorized request.
10. CERTIFICATION AND SIGNATURE
TAX IDENTIFICATION NUMBER CERTIFICATION
UNDER PENALTIES OF PERJURY I CERTIFY THAT:
1. The number shown on this form is my correct taxpayer identification number
(or I am waiting for a number to be issued to me); and
2. I am not subject to backup withholding because: (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue Service
(IRS) that I am subject to backup withholding as a result of a failure to
report all interest or dividends, or (c) the IRS has notified me that I am no
longer subject to backup withholding.
- --------------------------------------------------------------------------------
Signature of Owner Date
- --------------------------------------------------------------------------------
Signature of Joint Owner Date
In case of joint ownership, both must sign. If no form of ownership is indicated
then it will be assumed the ownership is as "joint tenants, with right of
survivorship" and not as "tenants in common."
CERTIFICATION INSTRUCTIONS - You must cross out item (2) to the left if you have
been notified by IRS that you are currently subject to backup withholding
because of underreporting interest or dividends on your tax return.
11. INVESTMENT DEALER
I (we) agree to act as dealer under this account in accordance with the
provisions of the Dealer Agreement and appoint Security Distributors, Inc. to
act as my (our) agent pursuant thereto. I (we) represent that the appropriate
prospectus was delivered to the above indicated owner(s).
- --------------------------------------------------------------------------------
Name of Firm (Print)
- --------------------------------------------------------------------------------
Business Address
- --------------------------------------------------------------------------------
City, State, Zip Code
- --------------------------------------------------------------------------------
Signature of Authorized Dealer
- ----------------------------------------------------- ------------------------
Representative's Name Account Executive Number
- --------------------------------------------------------------------------------
Business Address
- --------------------------------------------------------------------------------
City, State, Zip Code
- --------------------------------------------------------------------------------
Representative's Telephone Number
SEND COMPLETED APPLICATION TO SECURITY DISTRIBUTORS, INC., 700 SW HARRISON
ST., TOPEKA, KS 66636-0001
1-800-888-2461, EXT. 3127
Attach Voided Check Here
(Check must be preprinted with the bank account registration)
<PAGE>
SECURITY FUNDS
PROSPECTUS
Security Equity Fund
Asset Allocation Series
A Member of The Security Benefit Group of Companies
700 Harrison, Topeka, Kansas 66636-0001
Prospectus
January 31, 1996
Security Asset Allocation Fund (the "Fund") is a series of a diversified,
open-end management investment company.
The Fund seeks high total return, consisting of capital appreciation and current
income. The Fund seeks this objective by following an asset allocation strategy
that contemplates shifts among a wide range of investment categories and market
sectors. The Fund will invest in the following investment categories: equity
securities of domestic and foreign issuers, including common stocks, preferred
stocks, convertible securities and warrants; debt securities of domestic and
foreign issuers, including mortgage-related and other asset-backed securities;
exchange-traded real estate investment trusts (REITs); equity securities of
companies involved in the exploration, mining, development, production and
distribution of gold ("gold stocks"); and domestic money market instruments. An
investment in the Fund involves risk which is described more fully in the
Prospectus and the Fund's Statement of Additional Information.
This Prospectus sets forth concisely the information that a prospective investor
should know about the Fund. It should be read and retained for future reference.
A "Statement of Additional Information" about the Fund, dated January 31, 1996,
which is incorporated by reference in this Prospectus, has been filed with the
Securities and Exchange Commission. It is available at no charge by writing
Security Distributors, Inc., 700 Harrison, Topeka, Kansas 66636-0001, or by
calling (913) 295-3127 or (800) 888-2461.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
AN INVESTMENT IN THE FUND INVOLVES RISK, INCLUDING LOSS OF PRINCIPAL, AND IS NOT
A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY, ANY BANK. THE FUND IS
NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOAD OR ANY OTHER AGENCY.
- --------------------------------------------------------------------------------
<PAGE>
SECURITY FUNDS
CONTENTS
Page
Transaction and Operating Expense Table ................................... 1
Financial Highlights ...................................................... 2
Investment Objective and Policies of the Fund ............................. 3
Investment Methods and Risk Factors ....................................... 5
Management of the Fund .................................................... 14
Portfolio Management ............................................... 15
How to Purchase Shares .................................................... 15
Alternative Purchase Options ....................................... 16
Class A Shares ..................................................... 16
Class B Shares ..................................................... 17
Class B Distribution Plan .......................................... 18
Calculation and Waiver of Contingent Deferred Sales Charges ........ 18
Arrangements with Broker-Dealers and Others ........................ 19
Purchases at Net Asset Value ....................................... 20
How to Redeem Shares ...................................................... 20
Telephone Redemptions .............................................. 21
Dividends and Taxes ....................................................... 22
Foreign Taxes ...................................................... 23
Determination of Net Asset Value .......................................... 23
Trading Practices and Brokerage ........................................... 24
Performance ............................................................... 24
Shareholder Services ...................................................... 25
Accumulation Plan .................................................. 25
Systematic Withdrawal Program ...................................... 25
Exchange Privilege ................................................. 26
Retirement Plans ................................................... 27
General Information ....................................................... 27
Organization ....................................................... 27
Stockholder Inquiries .............................................. 28
Appendix A ................................................................ 29
Class A Shares Reduced Sales Charges ............................... 29
Rights of Accumulation ............................................. 29
Statement of Intention ............................................. 29
Reinstatement Privilege ............................................ 29
<PAGE>
SECURITY FUNDS
PROSPECTUS
<TABLE>
<CAPTION>
TRANSACTION AND OPERATING EXPENSE TABLE
- ------------------------------------------------------------------------------------------------------------------------------------
Shareholder Transaction Expenses Class A Shares Class B Shares(1)
- -------------------------------- -------------- ----------------
<S> <C> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) 5.75% None
Maximum Sales Load Imposed on Reinvested Dividends None None
Deferred Sales Load (as a percentage of original purchase price
or redemption proceeds, whichever is lower) None(2) 5% during the first year,
decreasing to 0% in the
sixth and following years
</TABLE>
<TABLE>
<CAPTION>
Class A Shares Class B Shares
-------------- --------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(as a percentage of net assets)
Management Fees 1.00% 1.00%
12b-1 Fees(3) None 1.00%
Other Expenses 1.00% 1.00%
----- -----
Total Fund Operating Expenses 2.00% 3.00%
===== =====
Example
You would pay the following expenses on a 1 Year $ 77 $ 80
$1,000 investment, assuming (1) 5 percent 3 Years 117 123
annual return and (2) redemption at the 5 Years 159 178
end of each time period(4) 10 Years 277 332
Example
You would pay the following expenses on a 1 Year $77 $ 30
$1,000 investment, assuming (1) 5 percent 3 Years 117 93
annual return and (2) no redemption 5 Years 159 158
10 Years 277 332
</TABLE>
1 Class B shares convert tax-free to Class A shares automatically after eight
years.
2 Purchases of Class A shares in amounts of $1,000,000 or more are not subject
to an initial sales load; however, a contingent deferred sales charge of 1%
is imposed in the event of redemption within one year of purchase. See "Class
A Shares" on page 16.
3 The 12b-1 fee of 1.00% consists of .75% for distribution expense and .25% for
service fees. Long-term holders of Class B shares may pay more than the
equivalent of the maximum front-end sales charge otherwise permitted by NASD
Rules.
4 This example does not reflect deduction of (i) the $15 wire transfer fee
discussed under "How to Redeem Shares" on page 20 or (ii) the contingent
deferred sales charge which is imposed upon redemption of Class A shares
purchased in amounts of $1,000,000 or more.
The above Examples should not be considered a representation of past or future
expenses as actual expenses may be greater or lesser than those shown. The
assumed five percent annual return is hypothetical and should not be considered
a representation of past or future annual return. The actual return may be
greater or lesser than the assumed amount.
The purpose of the foregoing fee table is to assist the investor in
understanding the various costs and expenses that an investor in the Fund will
bear directly or indirectly. For a more detailed discussion of the Fund's fees
and expenses, see the discussion under "Management of the Fund," page 13. See
"How to Purchase Shares," page 14, for more information concerning the sales
load. Also, see Appendix A for a discussion of "Rights of Accumulation" and
"Statement of Intention," which options may serve to reduce the front-end sales
load on purchases of Class A shares.
1
<PAGE>
SECURITY FUNDS
FINANCIAL HIGHLIGHTS
The following condensed financial information, including total returns, for
the period beginning June 1, 1995, (date of inception) and ended September 30,
1995, has been audited by Ernst & Young LLP. Such information should be read in
conjunction with the financial statements of the Fund and the report of Ernst &
Young LLP, the Fund's independent auditors, appearing in the September 30, 1995
Annual Report to Stockholders which is incorporated by reference in this
prospectus. The Fund's Annual Report to stockholders also contains additional
information about the performance of the Fund and may be obtained without charge
by calling Security Distributors, Inc. at 1-800-888-2461.
<TABLE>
<CAPTION>
Ratio
Net Net Total Dividends Ratio of of net
Fiscal asset gains from (from Distribu- Net Net expenses income
year value Net (losses on invest- net tions asset assets to (loss) to
ended begin- invest- securities ment invest- (from Total value end of average average Portfolio
Septem- ning of ment (realized & opera- ment capital distri- end of Total period net net turnover
ber 30 period income unrealized) tions income) gains) butions period return(a) (thousands) assets assets rate
- ------------------------------------------------------------------------------------------------------------------------------------
SECURITY ASSET ALLOCATION SERIES (Class A)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.00 $(0.04) $0.50 $0.54 $--- $--- $--- $10.54 5.4% $1,906 2.0% 1.33% 43%
(b,c)
SECURITY ASSET ALLOCATION SERIES (Class B)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $10.00 $(0.01) $0.49 $0.50 $--- $--- $--- $10.50 5.0% $1,529 3.0% .31% 43%
(b,c)
</TABLE>
(a) Total return information does not reflect deduction of any sales charges
imposed at the time of purchase for Class A shares or upon redemption for
Class B shares.
(b) Security Asset Allocation Series was initially capitalized on June 1, 1995,
with a net asset value of $10 per share. Percentage amounts for the period
have been annualized, except for total return.
(c) Fund expenses were reduced by the Investment Manager during the period and
expense ratios absent such reimbursement would have been as follows:
1995
---------------
Asset Allocation Fund Class A 3.6%
Class B 4.7%
2
<PAGE>
SECURITY FUNDS
PROSPECTUS
INVESTMENT OBJECTIVE AND
POLICIES OF THE FUND
Security Asset Allocation Fund (the "Fund") is a series of Security Equity
Fund, a diversified, open-end management investment company of the series type,
which was organized as a Kansas corporation on November 27, 1961. The Fund's
investment objective and policies are described below. There, of course, can be
no assurance that such investment objective will be achieved. While there is no
present intention to do so, the Fund's investment objective and policies, unless
otherwise noted, may be changed by its Board of Directors without the approval
of stockholders. If there is a change in investment objective, stockholders
should consider whether the Fund remains an appropriate investment in light of
their then current financial position and needs. The Fund is subject to certain
investment policy limitations which may not be changed without stockholder
approval. Among these limitations, some of the more important ones are that the
Fund will not, with respect to 75 percent of its total assets, invest more than
5 percent of the value of its assets in any one issuer or purchase more than 10
percent of the outstanding voting securities of any one issuer. In addition, the
Fund will not invest 25 percent or more of its total assets in any one industry.
The full text of the investment policy limitations of the Fund is set forth in
the Statement of Additional Information.
The investment objective of the Fund is to seek high total return, consisting
of capital appreciation and current income. The Fund seeks this objective by
following an asset allocation strategy that contemplates shifts among a wide
range of investment categories and market sectors. The Fund will invest in the
following investment categories: equity securities of domestic and foreign
issuers, including common stocks, preferred stocks, convertible securities and
warrants; debt securities of domestic and foreign issuers, including
mortgage-related and other asset-backed securities; exchange-traded real estate
investment trusts (REITs); equity securities of companies involved in the
exploration, mining, development, production and distribution of gold ("gold
stocks"); and domestic money market instruments. See "Investment Methods and
Risk Factors" for a discussion of the additional risks associated with
investment in foreign securities and REITs, and see the discussion of the risks
associated with investment in gold stocks below.
Investment in gold stocks presents risks, because the prices of gold have
fluctuated substantially over short periods of time. Prices may be affected by
unpredictable monetary and political policies, such as currency devaluations or
revaluations, economic and social conditions within an individual country, trade
imbalances, or trade or currency restrictions between countries. The unstable
political and social conditions in South Africa and unsettled political
conditions prevailing in neighboring countries may have disruptive effects on
the market prices of securities of South African companies.
The Fund is not required to maintain a portion of its assets in each of the
permitted investment categories. The Fund, however, under normal circumstances,
will maintain a minimum of 35 percent of its total assets in equity securities
and 10 percent in debt securities. The Fund will not invest more than 55 percent
of its total assets in
- --------------------------------------------------------------------------------
No dealer, salesperson, or other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus and in the Funds' Statement of Additional Information, and if given
or made, such other information or representations must not be relied upon as
having been authorized by the Funds, the Investment Manager, or the Distributor.
- --------------------------------------------------------------------------------
3
<PAGE>
SECURITY FUNDS
PROSPECTUS
money market instruments (except when in a temporary defensive position), more
than 80 percent of its total assets in foreign securities, nor more than 20
percent of its total assets in gold stocks. The Fund will not invest 25 percent
or more of its assets in the securities of any single country, other than the
United States.
The Investment Manager receives quantitative investment research from
Meridian Investment Management Corporation ("Meridian"), which research the
Investment Manager uses in strategically allocating the Fund's assets among the
investment categories identified above, primarily on the basis of a quantitative
asset allocation model. With respect to equity securities, the model analyzes a
large number of equity securities based on the following factors: current
earnings, earnings history, long-term earnings projections, current price, and
risk.
The Investment Manager then determines (based on the results of Meridian's
analysis) which sectors within an identified investment category are deemed to
be the most attractive relative to other sectors. For example, the model may
indicate that a portion of the Fund's assets should be invested in the domestic
equity category of the market and within this category that pharmaceutical
stocks represent a sector with an attractive total return potential. Although
the Investment Manager anticipates relying on much of the research provided by
Meridian, the Investment Manager has ultimate responsibility for the selection
of the investment categories and the sectors within those categories.
The Investment Manager identifies sectors of the domestic and international
economy (based on the research provided by Meridian) in which the Fund will
invest and then determines which equity securities to purchase within the
identified countries and/or sectors. The Investment Manager utilizes certain
analytical research provided by Templeton Quantitative Advisors, Inc.
("Templeton") in selecting equity securities, including gold stocks, for the
Fund. Templeton analyzes equity securities in the identified sectors and makes
recommendations based on computer models and financial data bases which it
maintains. It is contemplated that the Investment Manager will implement most of
the recommendations made by Templeton regarding equity securities; however, the
Investment Manager has ultimate responsibility for all buy and sell decisions of
the Fund and may determine not to execute specific recommendations made by
Templeton.
With respect to the selection of debt securities for the Fund, the asset
allocation model provided by Meridian analyzes the prices of commodities and
finished goods to arrive at an interest rate projection. The Investment Manager
will determine the portion of the portfolio to allocate to debt securities and
the duration of those securities based on the model's interest rate projections.
Gold stocks and REITs will be analyzed in a manner similar to that used for
equity securities. Money market instruments will be analyzed based on current
returns and the current yield curve. The asset allocation model and stock
selection techniques used by the Fund may evolve over time or be replaced by
other asset allocation models and/or stock selection techniques. There is no
assurance that the model will correctly predict market trends or enable the Fund
to achieve its investment objective.
The debt securities, including convertible securities, in which the Fund may
invest will, at the time of investment, consist of "investment grade" bonds,
which are bonds rated BBB or better by Standard & Poor's Corporation ("S&P") or
Baa or better by Moody's Investors Service, Inc. ("Moody's") or that are unrated
by S&P and Moody's but considered by the Investment
4
<PAGE>
SECURITY FUNDS
PROSPECTUS
Manager to be of equivalent credit quality. Securities rated BBB by S&P or Baa
by Moody's have speculative characteristics and may be more susceptible than
higher grade bonds to adverse economic conditions or other adverse circumstances
which may result in a weakened capacity to make principal and interest payments.
If the Fund holds a security whose rating drops below Baa or BBB, the Investment
Manager will reevaluate the credit risk of the security in light of then current
market conditions and determine whether to retain or dispose of the security.
The Fund will not retain securities rated below Baa or BBB in an amount that
exceeds 5 percent of its net assets.
The Fund may invest in investment grade mortgage-backed securities (MBSs),
including mortgage pass-through securities and collateralized mortgage
obligations (CMOs). The Fund will not invest in an MBS if, as a result of such
investment, 25 percent or more of its total assets would be invested in MBSs,
including CMOs and mortgage pass-through securities. For a discussion of MBSs
and the risks associated with such securities, see "Investment Methods and Risk
Factors" - "Mortgage-Backed Securities," below.
The Fund may invest up to 10 percent, at the time of investment, of its total
assets in restricted securities, that are eligible for resale pursuant to Rule
144A under the Securities Act of 1933. See "Investment Methods and Risk Factors"
for a discussion of restricted securities.
The Fund may write covered call options and purchase put options and may buy
and sell futures contracts (and options on such contracts). The Fund may
purchase a futures contract or option to hedge a position. It is the Fund's
operating policy that initial margin deposits and premiums on options used for
non-hedging purposes will not equal more than 5 percent of the Fund's net
assets. The total market value of securities against which the Fund has written
call options may not exceed 25 percent of its total assets. The Fund will not
commit more than 5 percent of its total assets to premiums when purchasing put
options. Futures contracts and options may not always be successful hedges and
their prices can be highly volatile. Using futures contracts and options could
lower the Fund's total return and the potential loss from the use of futures can
exceed the Fund's initial investment in such contracts. Futures contracts and
options and the risks associated with such derivative securities are described
in further detail under "Investment Methods and Risk Factors" below.
The Fund does not intend to lend any of its assets other than by purchase of
publicly distributed debt securities which are not considered loans, or be entry
into repurchase agreements.
INVESTMENT METHODS AND RISK FACTORS
Some of the risk factors related to certain securities, instruments and
techniques are described in the "Investment Objective and Policies" section of
this Prospectus and in the "Investment Objective and Policies" section of the
Fund's Statement of Additional Information. The following is a description of
certain additional risk factors related to various securities, instruments and
techniques. Also included is a general description of some of the investment
instruments, techniques and methods which may be used by the Fund. Although the
Fund may employ the techniques, instruments and methods described below,
consistent with its investment objective and policies and any applicable law, it
is not required to do so.
Investment Vehicles
Convertible Securities and Warrants - Convertible securities are debt or
preferred equity securities
5
<PAGE>
SECURITY FUNDS
PROSPECTUS
convertible into or exchangeable for equity securities. Traditionally,
convertible securities have paid dividends or interest at rates higher than
common stocks but lower than non-convertible securities. They generally
participate in the appreciation or depreciation of the underlying stock into
which they are convertible, but to a lesser degree. In recent years,
convertibles have been developed which combine higher or lower current income
with options and other features. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants (generally two or more years).
Mortgage-Backed Securities - Mortgage-backed securities (MBSs), including
mortgage pass-through securities and collateralized mortgage obligations (CMOs),
include certain securities issued or guaranteed by the United States government
or one of its agencies or instrumentalities, such as the Government National
Mortgage Association (GNMA), Federal National Mortgage Association (FNMA), or
Federal Home Loan Mortgage Corporation (FHLMC); securities issued by private
issuers that represent an interest in or are collateralized by mortgage-backed
securities issued or guaranteed by the U.S. government or one of its agencies or
instrumentalities; and securities issued by private issuers that represent an
interest in or are collateralized by mortgage loans. A mortgage pass-through
security is a pro rata interest in a pool of mortgages where the cash flow
generated from the mortgage collateral is passed through to the security holder.
CMOs are obligations fully collateralized by a portfolio of mortgages or
mortgage-related securities. The Fund will not invest in securities known as
"inverse floating obligations," "residual interest bonds," or "interest-only"
(IO) and "principal-only" (PO) bonds, the market values of which will generally
be more volatile than the market values of most MBSs. MBSs have been referred to
as "derivatives" because the performance of MBSs is dependent upon and derived
from underlying securities.
Investment in MBSs poses several risks, including prepayment, market and
credit risks. Prepayment risk reflects the chance that borrowers may prepay
their mortgages faster than expected, thereby affecting the investment's average
life and perhaps its yield. Borrowers are most likely to exercise their
prepayment options at a time when it is least advantageous to investors,
generally prepaying mortgages as interest rates fall, and slowing payments as
interest rates rise. Certain classes of CMOs may have priority over others with
respect to the receipt of prepayments on the mortgages and the Fund may invest
in CMOs which are subject to greater risk of prepayment. Market risk reflects
the chance that the price of the security may fluctuate over time. The price of
MBSs may be particularly sensitive to prevailing interest rates, the length of
time the security is expected to be outstanding and the liquidity of the issue.
In a period of unstable interest rates, there may be decreased demand for
certain types of MBSs, and a fund invested in such securities wishing to sell
them may find it difficult to find a buyer, which may in turn decrease the price
at which they may be sold. Credit risk reflects the chance that the Fund may not
receive all or part of its principal because the issuer or credit enhancer has
defaulted on its obligations. Obligations issued by U.S. Government-related
entities are guaranteed as to the payment of principal and interest by the
agency or instrumentality, and some, such as GNMA certificates, are supported by
the full faith and credit of the U.S. Treasury; others are supported by the
right of the issuer to borrow from the Treasury; others, such as those of the
FNMA, are
6
<PAGE>
SECURITY FUNDS
PROSPECTUS
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; still others, are supported only by the credit of the
instrumentality. Although securities issued by U.S. Government-related agencies
are guaranteed by the U.S. Government, its agencies or instrumentalities, shares
of the Fund are not so guaranteed in any way. The performance of private label
MBSs, issued by private institutions, is based on the financial health of those
institutions. There is no guarantee the Fund's investment in MBSs will be
successful, and the Fund's total return could be adversely affected as a result.
Asset-Backed Securities - Asset-backed securities represent a participation in,
or are secured by and payable from, a stream of payments generated by particular
assets, for example, automobile, credit card or trade receivables. Asset-backed
commercial paper, one type of asset-backed security, is issued by a special
purpose entity, organized solely to issue the commercial paper and to purchase
interests in the assets. The credit quality of these securities depends
primarily upon the quality of the underlying assets and the level of credit
support and/or enhancement provided.
The underlying assets (e.g. loans) are subject to prepayments which shorten
the securities' weighted average life and may lower their return. If the credit
support or enhancement is exhausted, losses or delays in payment may result if
the required payments of principal and interest are not made. The value of these
securities also may change because of changes in the market's perception of the
creditworthiness of the servicing agent for the pool, the originator of the
pool, or the financial institution providing the credit support or enhancement.
Real Estate Investment Trusts (REITs) - A REIT is a trust that invests in a
diversified portfolio of real estate holdings. Investment in Reits involves
certain special risks. Equity REITs may be affected by any changes in the value
of the underlying property owned by the trusts, while mortgage REITs may be
affected by the quality of any credit extended. Further, equity and mortgage
REITs are dependent upon management skill, are not diversified, and are
therefore subject to the risk of financing single or a limited number of
projects. Such trusts are also subject to heavy cash flow dependency, defaults
by borrowers, self liquidation, and the possibility of failing to qualify for
special tax treatment under Subchapter M of the Internal Revenue Code and to
maintain an exemption under the Investment Company Act of 1940. Finally, certain
REITs may be self-liquidating in that a specific term of existence is provided
for in the trust document. Such trusts run the risk of liquidating at an
economically inopportune time.
When-Issued and Forward Commitment Securities - Purchase or sale of securities
on a "forward commitment" basis may be used to hedge against anticipated changes
in interest rates and prices. The price, which is generally expressed in yield
terms, is fixed at the time the commitment is made, but delivery and payment for
the securities take place at a later date. When-issued securities and forward
commitments may be sold prior to the settlement date, but the Fund will enter
into when-issued and forward commitments only with the intention of actually
receiving or delivering the securities, as the case may be; however, the Fund
may dispose of a commitment prior to settlement if the Investment Manager deems
it appropriate to do so. No income accrues on securities which have been
purchased pursuant to a forward commitment or on a when-issued basis prior to
delivery of the securities. If the Fund disposes of the right to acquire a
when-issued security prior to its acquisition or disposes of its right to
deliver or receive against a forward
7
<PAGE>
SECURITY FUNDS
PROSPECTUS
commitment, it may incur a gain or loss. At the time the Fund enters into a
transaction on a when-issued or forward commitment basis, a segregated account
consisting of cash or high grade liquid debt securities equal to the value of
the when-issued or forward commitment securities will be established and
maintained with its custodian and will be marked to market daily. There is a
risk that the securities may not be delivered and that the Fund may incur a
loss.
Restricted Securities - Restricted securities are acquired through private
placement transactions, directly from the issuer or from security holders,
generally at higher yields or on terms more favorable to investors than
comparable publicly traded securities. However, the restrictions on resale of
such securities may make it difficult for the Fund to dispose of such securities
at the time considered most advantageous, and/or may involve expenses that would
not be incurred in the sale of securities that were freely marketable. The Fund
may purchase only restricted securities that are eligible for resale to
qualified institutional investors pursuant to Rule 144A under the Securities Act
of 1933. Trading restricted securities pursuant to Rule 144A may enable the Fund
to dispose of restricted securities at a time considered to be advantageous
and/or at a more favorable price than would be available if such securities were
not traded pursuant to Rule 144A. However, the Rule 144A market is relatively
new and liquidity of the Fund's investment in such market could be impaired if
trading does not develop or declines. Risks associated with restricted
securities include the potential obligation to pay all or part of the
registration expenses in order to sell certain restricted securities. A
considerable period of time may elapse between the time of the decision to sell
a security and the time the Fund may be permitted to sell it under an effective
registration statement. If, during a period, adverse conditions were to develop,
a Fund might obtain a less favorable price than prevailing when it decided to
sell.
The Board of Directors is responsible for developing and establishing
guidelines and procedures for determining the liquidity of Rule 144A securities.
As permitted by Rule 144A, the Board of Directors has delegated this
responsibility to the Investment Manager. In making the determination regarding
the liquidity of Rule 144A securities, the Investment Manager will consider
trading markets for the specific security taking into account the unregistered
nature of a Rule 144A security. In addition, the Investment Manager may
consider: 1) the frequency of trades and quotes; 2) the number of dealers and
potential purchasers; 3) dealer undertakings to make a market; and 4) the nature
of the security and of the market place trades (e.g. the time needed to dispose
of the security, the method of soliciting offers and the mechanics of transfer).
Investing in Rule 144A securities could have the effect of increasing the amount
of the Fund's assets invested in illiquid securities to the extent that
qualified institutional buyers become uninterested, for a time, in purchasing
these securities. It is the Fund's policy that not more than 15 percent of its
net assets will be invested in illiquid securities. Included in this category
are "restricted" securities deemed illiquid by the Investment Manager under
procedures adopted by the Board, and any other assets for which an active and
substantial market does not exist at the time of purchase or subsequent
valuation.
American Depositary Receipts (ADRs) - The ADRs in which the Fund invests are
dollar-denominated receipts sponsored by U.S. banks which represent the deposit
with the bank of a foreign company's securities. ADRs are publicly traded on
exchanges or over-the-counter in the United States. Investors should consider
carefully
8
<PAGE>
SECURITY FUNDS
PROSPECTUS
the substantial risks involved in investing in securities issued by companies of
foreign nations, which are in addition to the usual risks inherent in domestic
investments. See "Foreign Investment Risks," below.
Repurchase Agreements - A repurchase agreement is a contract under which the
Fund would acquire a security for a relatively short period (usually not more
than 7 days) subject to the obligation of the seller to repurchase and the Fund
to resell such security at a fixed time and price. The resale price is in excess
of the purchase price and reflects an agreed-upon market rate unrelated to the
coupon rate of the purchased security. Repurchase agreements will be fully
collateralized including interest earned thereon during the entire term of the
agreement. If the institution defaults on the repurchase agreement, the Fund
will retain possession of the underlying securities. If bankruptcy proceedings
are commenced with respect to the seller, realization on the collateral by the
Fund may be delayed or limited and the Fund may incur additional costs. In such
case, the Fund will be subject to risks associated with changes in market value
of the collateral securities. The Fund intends to limit repurchase agreements to
institutions believed by the Investment Manager to present minimal credit risk.
Management Practices
Cash Reserves - The Fund may establish and maintain reserves as the Investment
Manager believes is advisable to facilitate the Fund's cash flow needs (e.g.,
redemptions, expenses and, purchases of portfolio securities) or for temporary,
defensive purposes. Such reserves will be invested in domestic money market
instruments rated within the top two credit categories by a national rating
organization, or if unrated, the Investment Manager equivalent. The Fund may
also invest in certificates of deposit issued by banks and bank demand accounts.
Borrowing - The Fund can borrow money from banks as a temporary measure for
emergency purposes, to facilitate redemption requests, or for other purposes
consistent with the Fund's investment objective and policies. As a fundamental
policy which may not be changed without stockholder approval, the Fund's
borrowings may not exceed 33 1/3 percent of the Fund's total assets; the Fund,
however, does not expect borrowings to exceed 10 percent of total assets. To the
extent that the Fund purchases securities while it has outstanding borrowings,
it is using leverage, i.e. using borrowed funds for investment. Leveraging will
exaggerate the effect on net asset value of any increase or decrease in the
market value of the Fund's portfolio. Money borrowed for leveraging will be
subject to interest costs that may or may not be recovered by appreciation of
the securities purchased; in certain cases, interest costs may exceed the return
received on the securities purchased. The Fund also may be required to maintain
minimum average balances in connection with such borrowing or to pay a
commitment or other fee to maintain a line of credit; either of these
requirements would increase the cost of borrowing over the stated interest rate.
Forward Currency Transactions - In seeking to protect against currency exchange
rate or interest rate changes that are adverse to their present or prospective
positions, the Fund may employ certain risk management practices involving the
use of forward currency contracts and options contracts, futures contracts and
options on futures contracts on U.S. and foreign government securities and
currencies. There can be no assurance that such risk management practices will
succeed.
9
<PAGE>
SECURITY FUNDS
PROSPECTUS
To attempt to hedge against adverse movements in exchange rates between
currencies, the Fund may enter into forward currency contracts for the purchase
or sale of a specified currency at a specified future date. Such contracts may
involve the purchase or sale of a foreign currency against the U.S. dollar or
may involve two foreign currencies. The Fund may enter into forward currency
contracts either with respect to specific transactions or with respect to the
Fund's portfolio positions. For example, when the Fund anticipates making a
purchase or sale of a security, it may enter into a forward currency contract in
order to set the rate (either relative to the U.S. dollar or another currency)
at which a currency exchange transaction related to the purchase or sale will be
made. Further, if the Investment Manager believes that a particular currency may
decline compared to the U.S. dollar or another currency, the Fund may enter into
a forward contract to sell the currency the Investment Manager expects to
decline in an amount up to the value of the portfolio securities held by the
Fund denominated in a foreign currency.
The Fund's use of forward currency contracts or options and futures
transactions involve certain investment risks and transaction costs to which it
might not otherwise be subject. These risks include: dependence on the
Investment Manager's ability to predict movements in exchange rates; imperfect
correlation between movements in exchange rates and movements in the currency
hedged; and the fact that the skills needed to effectively hedge against the
Fund's currency risks are different from those needed to select the securities
in which the Fund invests. The Fund also may conduct foreign currency exchange
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market.
Options - The Fund may purchase put options and write covered call options on
securities that are traded on recognized securities exchanges and
over-the-counter ("OTC") markets. When the Fund writes a covered call option, it
gives the purchaser of the option the right, but not the obligation, to buy the
underlying security owned by the Fund at the agreed upon exercise price at any
time prior to the expiration of the contract, regardless of the market price of
the security during the option period. The purchase price (premium) paid to the
Fund is the consideration for undertaking the obligations of the option
contract. The Fund forgoes the opportunity to profit from an increase in the
market price of the underlying security above the exercise price so long as the
option remains open and covered, except insofar as the premium represents
profit. By writing a call option, the Fund assumes the risk that it may be
required to deliver the security having a market value higher than its market
value at the time the option was written. The Fund will write call options in
order to obtain a return on its investments from the premiums received and will
retain the premiums whether or not the options are exercised. Any decline in the
market value of the Fund's portfolio securities will be offset to the extent of
the premiums received (net of transaction costs).
The Fund may write only covered call options. This means that the Fund will
own the security or currency subject to the option or an option to purchase the
same underlying security or currency, having an exercise price equal to or less
than the exercise price of the "covered" option, or will establish and maintain
with its custodian for the term of the option, an account consisting of cash,
U.S. Government securities or other liquid, high-grade debt obligations having a
value equal to the fluctuating market value of the optioned securities or
currencies. During the option period,
10
<PAGE>
SECURITY FUNDS
PROSPECTUS
the writer of a call option has given up the opportunity for capital
appreciation above the exercise price should market price of the underlying
security increase, but has retained the risk of loss should the price of the
underlying security decline. Writing call options also involves the risk
relating to the Fund's ability to close out options it has written.
A put option gives the Fund the right, but not the obligation, to sell the
underlying security to the writer of the option at the exercise price at any
time prior to the expiration of the contract, regardless of the market price of
the security during the option period. The writer may be forced to purchase a
security from the Fund at a price much higher than the market price at the time
the option is exercised. The Fund in purchasing a put option risks the loss of
the entire purchase price (premium) of the option. The Fund may sell a put
option which it has previously purchased prior to sale of the underlying
security. Any such sale would result in a net gain or loss depending on whether
the amount received on the sale is more or less than the premium and other
transaction costs paid on the put which is sold.
Futures Contracts and Related Options - The Fund may buy and sell futures
contracts (and options on such contracts) to manage exposure to changes in
securities prices and foreign currencies and as an efficient means of adjusting
overall exposure to certain markets. A financial futures contract calls for
delivery of a particular security at a certain time in the future. The seller of
the contract agrees to make delivery of the type of security called for in the
contract and the buyer agrees to take delivery at a specified future time. The
Fund may also write call options and purchase put options on financial futures
contracts as a hedge to attempt to protect the Fund securities from a decrease
in value. When the Fund writes a call option on a futures contract, it is
undertaking the obligation of selling a futures contract at a fixed price at any
time during a specified period if the option is exercised. Conversely, the
purchaser of a put option on a futures contract is entitled (but not obligated)
to sell a futures contract at a fixed price during the life of the option.
Financial futures contracts include interest rate futures contracts and stock
index futures contracts. An interest rate futures contract obligates the seller
of the contract to deliver, and the purchaser to take delivery of, interest rate
securities called for in a contract at a specified future time at a specified
price. A stock index assigns relative values to common stocks included in the
index and the index fluctuates with changes in the market values of the common
stocks included. A stock index futures contract is a bilateral contract pursuant
to which two parties agree to take or make delivery of an amount of cash equal
to a specified dollar amount times the difference between the stock index value
at the close of the last trading day of the contract and the price at which the
futures contract is originally struck. An option on a financial futures contract
gives the purchaser the right to assume a position in the contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the period of the option.
Regulatory Matters Related to Futures and Options - In connection with its
proposed futures and options transactions, the Fund filed with the CFTC a notice
of eligibility for exemption from the definition of (and therefore from CFTC
regulation as) a "commodity pool operator" under the Commodity Exchange Act. The
Fund represents in its notice of eligibility that: (i) it will not purchase or
sell futures or options on futures contracts or stock indices if as a result the
sum of the initial
11
<PAGE>
SECURITY FUNDS
PROSPECTUS
margin deposits on its existing futures contracts and related options positions
and premiums paid for options on futures contracts or stock indices would exceed
5 percent of its assets; and (ii) with respect to each futures contract
purchased or long position in an option contract, the Fund will set aside in a
segregated account cash or cash equivalents in an amount equal to the market
value of such contract less the initial margin deposit.
The Staff of the Securities and Exchange Commission ("SEC") has taken the
position that the purchase and sale of futures contracts and the writing of
related options may involve senior securities for the purposes of the
restrictions contained in Section 18 of the Investment Company Act of 1940 on
investment companies' issuing senior securities. However, the Staff has issued
letters declaring that it will not recommend enforcement action under Section 18
if an investment company: (i) sells futures contracts to offset expected
declines in the value of the investment company's securities, provided the value
of such futures contracts does not exceed the total market value of those
securities (plus such additional amount as may be necessary because of
differences in the volatility factor of the securities vis-a-vis the futures
contracts); (ii) writes call options on futures contracts, stock indexes or
other securities, provided that such options are covered by the investment
company's holding of a corresponding long futures position, by its ownership of
securities which correlate with the underlying stock index, or otherwise; (iii)
purchases futures contracts, provided the investment company establishes a
segregated account ("cash segregated account") consisting of cash or cash
equivalents in an amount equal to the total market value of such futures
contracts less the initial margin deposited therefor; and (iv) writes put
options on futures contracts, stock indexes or other securities, provided that
such options are covered by the investment company's holding of a corresponding
short futures position, by establishing a cash segregated account in an amount
equal to the value of its obligation under the option, or otherwise.
The fund will conduct its purchases and sales of any futures contracts and
writing of related options transactions in accordance with the foregoing.
Risk Factors
General - The Fund's net asset value will fluctuate, reflecting fluctuations in
the market value of its portfolio positions and, if invested in foreign
securities, its net currency exposure. The value of fixed income securities
generally fluctuates inversely with interest rate movements. Longer term bonds
held by the Fund are subject to greater interest rate risk. There is no
assurance that the Fund will achieve its investment objective.
Futures and Options Risk - Futures contracts and options can be highly volatile
and could result in reduction of the Fund's total return, and the Fund's attempt
to use such investments for hedging purposes may not be successful. Successful
futures strategies require the ability to predict future movements in securities
prices, interest rates and other economic factors. The Fund's potential losses
from futures contracts extends beyond its initial investment in such contracts.
Also, losses from futures could be significant if the Fund is unable to close
out its position due to distortions in the market or lack of liquidity.
The use of futures and options involves investment risks and transaction
costs to which the Fund would not be subject absent the use of these strategies.
If the Investment Manager seeks
12
<PAGE>
SECURITY FUNDS
PROSPECTUS
to protect the Fund against potential adverse movements in the securities or
interest rate markets using these instruments and such markets do not move in a
direction adverse to the Fund, the Fund could be left in a less favorable
position than if such strategies had not been used. Risks inherent in the use of
futures and options include: (1) the risk that interest rates or securities
prices will not move in the directions anticipated; (2) imperfect correlation
between the price of futures and options and movements in the prices of the
securities being hedged; (3) the fact that skills needed to use these strategies
are different from those needed to select portfolio securities; (4) the possible
absence of a liquid secondary market for any particular instrument at any time;
and (5) the possible need to defer closing out certain hedged positions to avoid
adverse tax consequences. The Fund's ability to terminate option positions
established in the over-the-counter market may be more limited than in the case
of exchange-traded options and may also involve the risk that securities dealers
participating in such transactions would fail to meet their obligations to the
Fund. Certain provisions of the Internal Revenue Code of 1986, as amended
("Code"), limit the extent to which the Fund may enter into futures contracts or
engage in options transactions.
Foreign Investment Risks - Investment in foreign securities may involve risks
and considerations not present in domestic investments. Foreign companies
generally are not subject to uniform accounting, auditing and financial
reporting standards, practices and requirements comparable to those applicable
to U.S. companies. The securities of non-U.S. issuers generally are not
registered with the SEC, nor are the issuers thereof usually subject to the
SEC's reporting requirements. Accordingly, there may be less publicly available
information about foreign securities and issuers than is available with respect
to U.S. securities and issuers. The Fund's income and gains from foreign issuers
may be subject to non-U.S. withholding or other taxes, thereby reducing its
income and gains. In addition, with respect to some foreign countries, there is
the increased possibility of expropriation or confiscatory taxation, limitations
on the removal of funds or other assets of the Fund, political or social
instability, or diplomatic developments which could affect the investments of
the Fund in those countries. Moreover, individual foreign economies may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross national product, rate of inflation, rate of savings and capital
reinvestment, resource self-sufficiency and balance of payments positions.
Currency Risk - Because the Fund invests in securities denominated in currencies
other than the U.S. dollar and may hold foreign currencies, it will be affected
favorably or unfavorably by exchange control regulations or changes in the
exchange rates between such currencies and the U.S. dollar. Changes in currency
exchange rates will influence the value of the Fund's shares, and also may
affect the value of dividends and interest earned by the Fund and gains and
losses realized by the Fund. In addition, the Fund may incur costs in connection
with the conversion or transfer of foreign currencies. Currencies generally are
evaluated on the basis of fundamental economic criteria (e.g., relative
inflation and interest rate levels and trends, growth rate forecasts, balance of
payments status and economic policies) as well as technical and political data.
The exchange rates between the U.S. dollar and other currencies are determined
by supply and demand in the currency exchange markets, the international balance
of payments, governmental intervention, speculation and other economic and
political
13
<PAGE>
SECURITY FUNDS
PROSPECTUS
conditions. If the currency in which a security is denominated appreciates
against the U.S. dollar, the dollar value of the security will increase.
Conversely, a decline in the exchange rate of the currency would adversely
affect the value of the security expressed in U.S. dollars.
MANAGEMENT OF THE FUND
The management of the Fund's business and affairs is the responsibility of
the Board of Directors. Security Management Company (the "Investment Manager"),
700 Harrison Street, Topeka, Kansas, is responsible for selection and management
of the Fund's portfolio investments. The Investment Manager is an indirect
wholly-owned subsidiary of Security Benefit Life Insurance Company, a mutual
life insurance company with over $15 billion of insurance in force. The
Investment Manager also acts as investment adviser to Security Growth and Income
Fund, Security Ultra Fund, Security Income Fund, Security Tax-Exempt Fund,
Security Cash Fund and SBL Fund. On September 30, 1995, the aggregate assets of
all of the Funds under the investment management of the Investment Manager were
approximately $2.6 billion.
The Investment Manager has entered into a quantitative research agreement
with Meridian Investment Management Corporation, 12835 East Arapahoe Road, Tower
II, 7th Floor, Englewood, Colorado 80112 ("Meridian"). Meridian provides
research which the Investment Manager uses in strategically allocating the
assets of the Fund among investment categories and market sectors. The
Investment Manager pays Meridian an annual fee equal to .20 percent of the
average daily net assets of the Fund, calculated daily and payable quarterly.
Meridian is a wholly-owned subsidiary of Meridian Management & Research
Corporation.
The Investment Manager has entered into a consulting and analytical
research agreement with Templeton Quantitative Advisors, Inc., 31 West 52nd
Street, 10th Floor, New York, New York 10019 ("Templeton"). Templeton provides
research used by the Investment Manager in the selection of equity securities
for the Fund. The Investment Manager pays Templeton an annual fee equal to .30
percent of the average net assets of the Fund invested in equity securities.
Templeton is a wholly-owned subsidiary of Templeton Worldwide, Inc. which in
turn is a wholly-owned subsidiary of Franklin Resources, Inc.
Subject to the supervision and direction of the Fund's Board of Directors,
the Investment Manager manages the Fund's portfolio in accordance with the
Fund's stated investment objective and policies and makes all investment
decisions. The Investment Manager has agreed that total annual expenses of the
Fund (including for any fiscal year, the management fee, but excluding interest,
taxes, brokerage commissions, extraordinary expenses and Class B distribution
fees) shall not exceed the level of expenses which the Fund is permitted to bear
under the most restrictive expense limitation imposed by any state in which
shares of the Fund are then qualified for sale. The Investment Manager will
contribute such funds to the Fund or waive such portion of its compensation as
may be necessary to insure that such total annual expenses do not exceed any
such limitation.
The Investment Manager also acts as the administrative agent and transfer
agent for the Fund, and as such performs administrative functions, transfer
agency and dividend disbursing services, and the bookkeeping, accounting and
pricing functions for the Fund.
For its services, the Investment Manager receives, on an annual basis, an
investment
14
<PAGE>
SECURITY FUNDS
PROSPECTUS
advisory fee equal to 1.00 percent of the average daily net assets of the Fund,
calculated daily and payable monthly. The investment advisory fee of 1.00
percent is higher than the management fees paid by many similar funds. The
Investment Manager also receives, on an annual basis, an administrative fee
equal to .045 percent of the average daily net assets of the Fund plus the
greater of .10 percent of its average net assets or (i) $30,000 in the year
ending April 29, 1996; (ii) $45,000 in the year ending April 29, 1997; and (iii)
$60,000 thereafter.
For the period beginning June 1, 1995 (date of inception) and ended September
30, 1995, the total expenses of the Fund, as a percentage of average net assets,
were 2.0 percent for Class A shares and 3.0 percent for Class B shares.
Many investment companies pay smaller management fees. However, most such
companies also pay certain of their own expenses in addition to management fees
while most of the Fund's required services are included as a part of the
management fee.
Portfolio Management
The Fund is managed by an investment management team of Portfolio Managers
and Research Analysts of the Investment Manager. The team meets regularly to
review portfolio holdings and to discuss purchase and sale activity. The team is
responsible for the day-to-day management of the Fund's portfolio. Greg
Hamilton, Portfolio Manager, has day-to-day responsibility for managing the
fixed-income portion of the Fund's portfolio and for supervising the services
provided by Meridian and Templeton. He has had responsibility for the Fund since
its inception June 1, 1995.
Mr. Hamilton has been in the investment field since 1983. He received his
Bachelor of Arts degree in Business from Washburn University in 1984. Prior to
joining Security Management Company in January of 1993, he was First Vice
President, Treasurer and Portfolio Manager with Mercantile National Bank, Los
Angeles, California from 1990 to 1993. From 1986 to 1990, he was Managing
Director of Consulting Services for Sendero Corporation, Scottsdale, Arizona.
Prior to Sendero Corporation, he was employed as Fixed Income Research Analyst
at Peoples Heritage Savings and Loan from 1983 to 1986.
HOW TO PURCHASE SHARES
Security Distributors, Inc. (the "Distributor"), 700 Harrison St., Topeka,
Kansas, a wholly-owned subsidiary of the Investment Manager, is principal
underwriter of the Fund. Shares of the Fund may be purchased through authorized
investment dealers. In addition, banks and other financial institutions that
have an agreement with the Distributor, may make shares of the Fund available to
their customers. The minimum initial purchase must be $100. Subsequent purchases
must be $100 unless made through an Accumulation Plan which allows subsequent
purchases of $20.
Orders for the purchase of shares of the Fund will be confirmed at an
offering price equal to the net asset value per share next determined after
receipt of the order in proper form by the Distributor (generally as of the
close of the New York Stock Exchange on that day) plus the sales charge in the
case of Class A shares. Orders received by dealers or other firms prior to the
close of the Exchange and received by the Distributor prior to the close of its
business day will be confirmed at the offering price effective as of the close
of the Exchange on that day.
Orders for shares received by broker-dealers prior to that day`s close of
trading on the New York Stock Exchange and transmitted to the Fund prior to its
close of business that day will receive
15
<PAGE>
SECURITY FUNDS
PROSPECTUS
the offering price equal to the net asset value per share computed at the close
of trading on the Exchange on the same day plus, in the case of Class A shares,
the sales charge. Orders received by broker-dealers after that day`s close of
trading on the Exchange and transmitted to the Fund prior to the close of
business on the next business day will receive the next business day`s offering
price.
The Fund reserves the right to withdraw all or any part of the offering made
by this prospectus and to reject purchase orders.
Alternative Purchase Options
The Fund offers two classes of shares:
Class A Shares - Front-End Load Option - Class A shares are sold with a sales
charge at the time of purchase. Class A shares are not subject to a sales charge
when they are redeemed (except that shares sold in an amount of $1,000,000 or
more without a front-end sales charge will be subject to a contingent deferred
sales charge for one year). See Appendix A for a discussion of "Rights of
Accumulation" and "Statement of Intention," which options may reduce the
front-end sales charge on purchases of Class A shares.
Class B Shares - Back-End Load Option - Class B shares are sold without a sales
charge at the time of purchase, but are subject to a deferred sales charge if
they are redeemed within five years of the date of purchase. Class B shares will
automatically convert tax-free to Class A shares at the end of eight years after
purchase.
The decision as to which class is more beneficial to an investor depends on
the amount and intended length of the investment. Investors who would rather pay
the entire cost of distribution at the time of investment, rather than spreading
such cost over time, might consider Class A shares. Other investors might
consider Class B shares, in which case 100 percent of the purchase price is
invested immediately, depending on the amount of the purchase and the intended
length of investment. The Fund will not normally accept any purchase of Class B
shares in the amount of $500,000 or more.
Dealers or others may receive different levels of compensation depending on
which class of shares they sell.
Class A Shares
Class A shares are offered at net asset value plus an initial sales charge as
follows:
Sales Charge
- ---------------------------------------
Amount of Percentage Percentage of Percentage
Transaction at of Offering Net Amount Reallowable
Offering Price Price Invested to Dealers
- -------------------------------------------------------------------------
Less than $50,000 5.75% 6.10% 5.00%
$50,000 but less than
$100,000 4.75% 4.99% 4.00%
$100,000 but less than
$250,000 3.75% 3.90% 3.00%
$250,000 but less than
$500,000 2.75% 2.83% 2.25%
$500,000 but less than
$1,000,000 2.00% 2.04% 1.75%
$1,000,000 or more None None (See below)
Purchases of Class A shares in an amount of $1,000,000 or more are at net
asset value (without a sales charge), but are subject to a contingent deferred
sales charge of 1.00 percent in the event of redemption within one year
following purchase. For a discussion of the contingent deferred sales charge,
see "Calculation and Waiver of Contingent Deferred Sales Charges" on page 18.
The Distributor will pay a commission to dealers on Class A purchases of
$1,000,000 or more as follows: 1.00 percent on sales up to $5,000,000, plus .50
percent on sales of $5,000,000 or more up to $10,000,000 and .10 percent on any
amount of $10,000,000 or more.
The Investment Manager may, at its expense, pay a service fee to dealers who
satisfy certain
16
<PAGE>
SECURITY FUNDS
PROSPECTUS
criteria established by the Investment Manager from time to time relating to the
volume of their sales of Class A shares of the Fund and certain other Security
Funds during prior periods and certain other factors, including providing
certain services to their clients who are stockholders of the Fund. Such
services include assisting in maintaining records, processing purchase and
redemption requests and establishing stockholder accounts, assisting
stockholders in changing account options or enrolling in specific plans, and
providing stockholders with information regarding the Fund and related
developments.
Currently, service fees are paid at the following annual rates: .25 percent
of aggregate net asset value for amounts of $100,000 but less than $5,000,000
and .30 percent for amounts of $5,000,000 or more.
Additional information may be obtained by referring to the Fund's Statement
of Additional Information.
Class B Shares
Class B shares are offered at net asset value, without an initial sales
charge. With certain exceptions, the Fund may impose a deferred sales charge on
shares redeemed within five years of the date of purchase. No deferred sales
charge is imposed on amounts redeemed thereafter. If imposed, the deferred sales
charge is deducted from the redemption proceeds otherwise payable to you. The
deferred sales charge is retained by the Distributor.
Whether a contingent deferred sales charge is imposed and the amount of the
charge will depend on the number of years since the investor made a purchase
payment from which an amount is being redeemed, according to the following
schedule:
Year Since Purchase Contingent Deferred
Payment Was Made Sales Charge
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth and following 0%
Class B shares (except shares purchased through the reinvestment of dividends
and other distributions paid with respect to Class B shares) will automatically
convert on the eighth anniversary of the date such shares were purchased to
Class A shares which are subject to a lower distribution fee. This automatic
conversion of Class B shares will take place without imposition of a front-end
sales charge or exchange fee. (Conversion of Class B shares represented by stock
certificates will require the return of the stock certificates to the Investment
Manager.) All shares purchased through reinvestment of dividends and other
distributions paid with respect to Class B shares ("reinvestment shares") will
be considered to be held in a separate subaccount. Each time any Class B shares
(other than those held in the subaccount) convert to Class A shares, a pro rata
portion of the reinvestment shares held in the subaccount will also convert to
Class A shares. Class B shares so converted will no longer be subject to the
higher expenses borne by Class B shares. Because the net asset value per share
of the Class A shares may be higher or lower than that of the Class B shares at
the time of conversion, although the dollar value will be the same, a
shareholder may receive more or less Class A shares than the number of Class B
shares converted. Under current law, it is the Fund's opinion that such a
conversion will not constitute a taxable event under federal income tax law. In
the event that this ceases to be the
17
<PAGE>
SECURITY FUNDS
PROSPECTUS
case, the Board of Directors will consider what action, if any, is appropriate
and in the best interests of the Class B stockholders.
Class B Distribution Plan
The Fund bears some of the costs of selling its Class B shares under a
Distribution Plan adopted with respect to its Class B shares ("Class B
Distribution Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940 ("1940 Act"). This Plan provides for payments at an annual rate of 1.00
percent of the average daily net asset value of Class B shares. Amounts paid by
the Fund are currently used to pay dealers and other firms that make Class B
shares available to their customers (1) a commission at the time of purchase
normally equal to 4.00 percent of the value of each share sold and (2) a service
fee for account maintenance and personal service to shareholders payable for the
first year, initially, and for each year thereafter, quarterly, in an amount
equal to .25 percent annually of the average daily net asset value of Class B
shares sold by such dealers and other firms and remaining outstanding on the
books of the Fund. Amounts paid under the Fund's Class B Distribution Plan may
exceed actual distribution expenses.
NASD Rules limit the aggregate amount that the Fund may pay annually in
distribution costs for the sale of its Class B shares to 6.25 percent of gross
sales of Class B shares since the inception of the Distribution Plan, plus
interest at the prime rate plus one percent on such amount (less any contingent
deferred sales charges paid by Class B shareholders to the Distributor). The
Distributor intends, but is not obligated, to continue to pay or accrue
distribution charges incurred in connection with the Class B Distribution Plan
which exceed current annual payments permitted to be received by the Distributor
from the Fund. The Distributor intends to seek full payment of such charges from
the Fund (together with annual interest thereon at the prime rate plus one
percent) at such time in the future as, and to the extent that, payment thereof
by the Fund would be within permitted limits.
The Fund's Class B Distribution Plan may be terminated at any time by vote of
its directors who are not interested persons of the Fund as defined in the 1940
Act or by vote of a majority of the outstanding Class B shares. In the event the
Class B Distribution Plan is terminated by the Class B stockholders or the
Fund's Board of Directors, the payments made to the Distributor pursuant to the
Plan up to that time would be retained by the Distributor. Any expenses incurred
by the Distributor in excess of those payments would be absorbed by the
Distributor. The Fund makes no payments in connection with the sale of its
shares other than the distribution fee paid to the Distributor.
Calculation and Waiver of Contingent Deferred Sales Charges
Any contingent deferred sales charge imposed upon redemption of Class A
shares (purchased in an amount of $1,000,000 or more) and Class B shares is a
percentage of the lesser of (1) the net asset value of the shares redeemed or
(2) the net cost of such shares. No contingent deferred sales charge is imposed
upon redemption of amounts derived from (1) increases in the value above the net
cost of such shares due to increases in the net asset value per share of the
Fund; (2) shares acquired through reinvestment of income dividends and capital
gain distributions; or (3) Class A shares (purchased in an amount of $1,000,000
or more) held for more than one year or Class B shares held for more than five
years. Upon request for redemption, shares not subject to the contingent
deferred sales charge will be
18
<PAGE>
SECURITY FUNDS
PROSPECTUS
redeemed first. Thereafter, shares held the longest will be the first to be
redeemed.
The contingent deferred sales charge is waived (1) following the death of a
stockholder if redemption is made within one year after death; (2) upon the
disability (as defined in Section 72(m)(7) of the Internal Revenue Code) of a
stockholder prior to age 65 if redemption is made within one year after the
disability, provided such disability occurred after the stockholder opened the
account; (3) in connection with required minimum distributions in the case of an
IRA, SAR-SEP or Keogh or any other retirement plan qualified under section
401(a), 401(k) or 403(b) of the Code; and (4) in the case of distributions from
retirement plans qualified under section 401(a) or 401(k) of the Internal
Revenue Code due to (i) returns of excess contributions to the plan, (ii)
retirement of a participant in the plan, (iii) a loan from the plan (repayment
of loans, however, will constitute new sales for purposes of assessing the
CDSC), (iv) "financial hardship" of a participant in the plan, as that term is
defined in Treasury Regulation section 1.401(k)-1(d)(2), as amended from time to
time, (v) termination of employment of a participant in the plan, (vi) any other
permissible withdrawal under the terms of the plan. The contingent deferred
sales charge will also be waived in the case of redemptions of Class B shares of
the Fund pursuant to a systematic withdrawal program. See "Systematic Withdrawal
Program," page 24 for details.
Arrangements With Broker-Dealers and Others
The Investment Manager or Distributor, from time to time, will provide
promotional incentives or pay a bonus, including reallowance of up to the entire
sales charge, to certain dealers whose representatives have sold or are expected
to sell significant amounts of the Fund and/or certain other funds managed by
the Investment Manager. Such promotional incentives will include payment for
attendance (including travel and lodging expenses) by qualifying registered
representatives (and members of their families) at sales seminars at luxury
resorts within or without the United States. The Distributor may also provide
financial assistance to dealers in connection with advertising. No compensation
will be offered to the extent it is prohibited by the laws of any state or
self-regulatory agency, such as the National Association of Securities Dealers,
Inc. ("NASD"). A dealer to whom substantially the entire sales charge of Class A
shares is reallowed may be deemed to be an "underwriter" under federal
securities laws.
The Distributor also may pay banks and other financial services firms that
facilitate transactions in shares of the Fund for their clients a transaction
fee up to the level of the payments made allowable to dealers for the sale of
such shares as described above. Banks currently are prohibited under the
Glass-Steagall Act from providing certain underwriting or distribution services.
If banking firms were prohibited from acting in any capacity or providing any of
the described services, the Fund`s Board of Directors would consider what
action, if any, would be appropriate.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law. The
Investment Manager or Distributor also may pay a marketing allowance to dealers
who meet certain eligibility criteria. This allowance is paid with reference to
new sales of Fund shares in a calendar year. To be eligible for this allowance
in any given year, the dealer must sell a minimum of $5,000,000 of such shares
during that year. The marketing allowance ranges from .15 percent to .60 percent
of aggregate new
19
<PAGE>
SECURITY FUNDS
PROSPECTUS
sales depending upon the volume of shares sold and the level of services
provided by the Distributor to the dealer.
Purchases At Net Asset Value
Class A shares of the Fund may be purchased at net asset value by (1)
directors, officers and employees of the Fund, the Fund's Investment Manager or
Distributor; directors, officers and employees of Security Benefit Life
Insurance Company and its subsidiaries; agents licensed with Security Benefit
Life Insurance Company; spouses or minor children of any such agents; as well as
the following relatives of any such directors, officers and employees (and their
spouses): spouses, grandparents, parents, children, grandchildren, siblings,
nieces and nephews; (2) any trust, pension, profit sharing or other benefit plan
established by any of the foregoing corporations for persons described above;
(3) retirement plans where third party administrators of such plans have entered
into certain arrangements with the Distributor or its affiliates provided that
no commission is paid to dealers; and (4) officers, directors, partners or
registered representatives (and their spouses and minor children) of
broker-dealers who have a selling agreement with the Distributor. Such sales are
made upon the written assurance of the purchaser that the purchase is made for
investment purposes and that the securities will not be transferred or resold
except through redemption or repurchase by or on behalf of the Fund.
Class A shares of the Fund may also be purchased at net asset value when the
purchase is made on the recommendation of (i) a registered investment adviser,
trustee or financial intermediary who has authority to make investment decisions
on behalf of the investor; or (ii) a certified financial planner or registered
broker-dealer who either charges periodic fees to its customers for financial
planning, investment advisory or asset management services, or provides such
services in connection with the establishment of an investment account for which
a comprehensive "wrap fee" is imposed. The Distributor must be notified when a
purchase is made that qualifies under this provision.
HOW TO REDEEM SHARES
A stockholder may redeem shares at the net asset value next determined after
the time when such shares are tendered for redemption.
Shares will be redeemed on request of the stockholder in proper order to the
Fund's Investment Manager, Security Management Company, 700 Harrison St.,
Topeka, Kansas 66636-0001, which serves as the Fund's transfer agent. A request
is made in proper order by submitting the following items to the Investment
Manager: (1) a written request for redemption signed by all registered owners
exactly as the account is registered, including fiduciary titles, if any, and
specifying the account number and the dollar amount or number of shares to be
redeemed; (2) a guarantee of all signatures on the written request or on the
share certificate or accompanying stock power; (3) any share certificates issued
for any of the shares to be redeemed; and (4) any additional documents which may
be required by the Investment Manager for redemption by corporations or other
organizations, executors, administrators, trustees, custodians or the like.
Transfers of shares are subject to the same requirements. The signature
guarantee must be provided by an eligible guarantor institution, such as a bank,
broker, credit union, national securities exchange or savings association. A
signature guarantee is not required for redemptions of $10,000 or less,
requested by and payable to all stockholders of record for an account, to be
sent to the address of
20
<PAGE>
SECURITY FUNDS
PROSPECTUS
record. The Investment Manager reserves the right to reject any signature
guarantee pursuant to its written procedures which may be revised in the future.
To avoid delay in redemption or transfer, stockholders having questions should
contact the Investment Manager by calling 1-800-888-2461, extension 3127.
The redemption price will be the net asset value of the shares next computed
after the redemption request in proper order is received by the Investment
Manager. Payment of the amount due, less any applicable deferred sales charge,
will be made by check within seven days after receipt of the redemption request
in proper order. Payment may also be made by wire at the sole discretion of the
Investment Manager. If a wire transfer is requested, the Investment Manager must
be provided with the name and address of the stockholder's bank as well as the
account number to which payment is to be wired. Checks will be mailed to the
stockholder`s registered address (or as otherwise directed). Remittance by wire
(to a commercial bank account in the same name(s) as the shares are registered),
by certified or cashier's check, or by express mail, if requested, will be at a
charge of $15, which will be deducted from the redemption proceeds.
In addition to the foregoing redemption procedure, the Fund repurchases
shares from broker-dealers at the price determined as of the close of business
on the day such offer is confirmed. Dealers may charge a commission on the
repurchase of shares.
At various times, requests may be made to redeem shares for which good
payment has not yet been received. Accordingly, the mailing of a redemption
check may be delayed until such time as good payment has been collected for the
purchase of the shares in question, which may take up to 15 days from the date
of purchase.
Requests may also be made to redeem shares in an account for which the
stockholder's tax identification number has not been provided. To the extent
permitted by law, the redemption proceeds from such an account will be reduced
by $50 to reimburse for the penalty imposed by the Internal Revenue Service for
failure to report the tax identification number.
Telephone Redemptions
A stockholder may redeem uncertificated shares in amounts up to $10,000 by
telephone request, provided the stockholder has completed the Telephone
Redemption section of the application or a Telephone Redemption form which may
be obtained from the Investment Manager. The proceeds of a telephone redemption
will be sent to the stockholder at his or her address as set forth in the
application or in a subsequent written authorization with a signature guarantee.
Once authorization has been received by the Investment Manager, a stockholder
may redeem shares by calling the Fund at (800) 888-2461, extension 3127, on
weekdays (except holidays) between the hours of 7:00 a.m. and 6:00 p.m. Central
time. Redemption requests received by telephone after the close of the New York
Stock Exchange (normally 3 p.m. Central time) will be treated as if received on
the next business day. A stockholder who authorizes telephone redemptions
authorizes the Investment Manager to act upon the instructions of any person
identifying themselves as the owner of an account or the owner's broker. The
Investment Manager has established procedures to confirm that instructions
communicated by telephone are genuine and may be liable for any losses due to
fraudulent or unauthorized instructions if it fails to comply with its
procedures. The Investment Manager`s procedures require that any person
requesting a telephone redemption provide the account registration and number
and the owner`s tax
21
<PAGE>
SECURITY FUNDS
PROSPECTUS
identification number, and such instructions must be received on a recorded
line. Neither the Fund, the Investment Manager, nor the Distributor shall be
liable for any loss, liability, cost or expense arising out of any redemption
request, provided the Investment Manager complied with its procedures. Thus, a
stockholder who authorizes telephone redemptions may bear the risk of loss from
a fraudulent or unauthorized request. The telephone redemption privilege may be
changed or discontinued at any time by the Investment Manager or the Fund.
During periods of severe market or economic conditions, telephone redemptions
may be difficult to implement and stockholders should make redemptions by mail
as described under "How to Redeem Shares."
DIVIDENDS AND TAXES
It is the Fund's policy to distribute realized capital gains, if any, in
excess of any capital losses and capital loss carryovers, at least once a year
and to pay dividends from net investment income as the Fund's Board of Directors
may declare from time to time. Because Class A shares of the Fund bear most of
the costs of distribution of such shares through payment of a front-end sales
charge, while Class B shares of the Fund bear such costs through a higher
distribution fee, expenses attributable to Class B shares will generally be
higher and, as a result, income distributions paid by the Fund with respect to
Class B shares generally will be lower than those paid with respect to Class A
shares. Any dividend payment or capital gain distribution will result in a
decrease of the net asset value of the shares in an amount equal to the payment
or distribution. All dividends and distributions are automatically reinvested on
the payable date in shares of the Fund at net asset value as of the record date
(reduced by an amount equal to the amount of the dividend or distribution),
unless the Investment Manager is previously notified in writing by the
stockholder that such dividends or distributions are to be received in cash. A
stockholder may request that such dividends or distributions be directly
deposited to the stockholder`s bank account. Dividends or distributions paid
with respect to Class A shares and received in cash may, within 30 days of the
payment date, be reinvested without a sales charge.
The Fund is to be treated separately from the other series of Security Equity
Fund in determining the amounts of income and capital gains distributions, and
for this purpose, each series will reflect only the income and gains, net of
losses, of that series.
The Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code. Such qualification generally removes the liability for
federal income taxes from the Fund, and generally makes federal income tax upon
income and capital gains generated by the Fund's investments, the sole
responsibility of its stockholders provided the Fund continues to so qualify and
distributes all of its net investment income and net realized capital gain to
its stockholders. Furthermore, the Fund generally will not be subject to excise
taxes imposed on certain regulated investment companies provided that it
distributes 98 percent of its ordinary income and 98 percent of its net capital
gain income each year.
Distributions of net investment income and realized net short-term capital
gain are taxable to stockholders as ordinary income whether received in cash or
reinvested in additional shares. Distributions (designated by the Fund as
"capital gain dividends") of the excess, if any, of net long-term capital gains
over net short-term capital losses are taxable to stockholders as long-term
capital gains regardless of how long a stockholder
22
<PAGE>
SECURITY FUNDS
PROSPECTUS
has held the Fund's shares and regardless of whether received in cash or
reinvested in additional shares. Stockholders should consult their tax adviser
to determine the federal, state and local tax consequences to them from an
investment in the Fund.
Certain dividends declared in October, November or December of a calendar
year are taxable to stockholders as though received on December 31 of that year
if paid to stockholders during January of the following calendar year.
Advice as to the tax status of each year's distributions will be mailed on or
before January 31, of the following year. The Fund is required by law to
withhold 31 percent of taxable dividends and distributions (including redemption
proceeds) to stockholders who do not furnish their correct taxpayer
identification numbers, or are otherwise subject to the backup withholding
provisions of the Internal Revenue Code.
Foreign Taxes
Investment income and gains received from sources within foreign countries
may be subject to foreign income and other taxes. In this regard, withholding
tax rates in countries with which the United States does not have a tax treaty
are often as high as 30 percent or more. The United States has entered into tax
treaties with many foreign countries which entitle certain investors to a
reduced tax rate (generally 10 to 15 percent) or to certain exemptions from tax.
The Fund intends to operate so as to qualify for such reduced tax rates or tax
redemptions whenever possible. While stockholders will bear indirectly the cost
of any foreign tax withholding, they will not be able to claim foreign tax
credit or deduction for taxes paid by the Fund.
DETERMINATION OF NET ASSET VALUE
The net asset value of the Fund is computed as of the close of regular
trading hours on the New York Stock Exchange (normally 3 p.m. Central time) on
days when the Exchange is open.
The net asset value per share is computed by adding the value of all
securities and other assets in the portfolio, deducting any liabilities and
dividing by the number of shares outstanding. In determining the Fund's total
net assets, securities listed or traded on a recognized securities exchange will
be valued on the basis of the last sale price. If there are no sales on a
particular day, then the securities are valued at the mean between the bid and
asked prices. If a mean cannot be determined, then the securities are valued at
the best available current bid price. If a security is traded on multiple
exchanges, its value will be based on prices from the principal exchange where
it is traded. All other securities for which market quotations are available are
valued on the basis of the last current bid price. If there is no bid price, or
if the bid price is deemed unsatisfactory by the Board of Directors or by the
Investment Manager, then the securities are valued in good faith by such method
as the Board of Directors determines will reflect the fair market value.
Valuations of the Fund's securities are supplied by a pricing service approved
by the Fund's Board of Directors.
Because the expenses of distribution are borne by Class A shares through a
front-end sales charge and by Class B shares through an ongoing distribution
fee, the expenses attributable to each class of shares will differ, resulting in
different net asset values. The net asset value of Class B shares will generally
be lower than the net asset value of Class A shares as a result of the
distribution fee charged to Class B shares. It is expected, however, that the
net asset value per share will tend to converge immediately after the payment of
23
<PAGE>
SECURITY FUNDS
PROSPECTUS
dividends which will differ in amount for Class A and B shares by approximately
the amount of the different distribution expenses attributable to Class A and B
shares.
TRADING PRACTICES AND BROKERAGE
The portfolio turnover rate for each series of the Fund for the period
beginning June 1, 1995 (date of inception) and ending September 30, 1995, was
Class A - 43% and Class B - 43%. Higher portfolio turnover (over 100 percent)
subjects a Fund to increased brokerage costs and may, in some cases, have
adverse tax effects on the Fund or its stockholders. The annual portfolio
turnover of the Fund generally will be more than 100 percent but is not expected
to exceed 200 percent.
Transactions in portfolio securities for the Fund are effected in the manner
deemed to be in the best interests of the Fund. In selecting a broker to execute
a specific transaction, all relevant factors will be considered. Portfolio
transactions may be directed to brokers who furnish investment information or
research services to the Investment Manager or who sell shares of the Fund. The
Investment Manager may, consistent with the NASD Rules of Fair Practice,
consider sales of Fund shares in the selection of a broker. Securities held by
the Fund may also be held by other investment advisory clients of the Investment
Manager, including other investment companies, and by the Investment Manager`s
parent company, Security Benefit Life Insurance Company ("SBL"). Purchases or
sales of the same security occurring on the same day (which may include orders
from SBL) may be aggregated and executed as a single transaction, subject to the
Investment Manager's obligation to seek best execution. Aggregated purchases or
sales are generally effected at an average price and on a pro rata basis
(transaction costs will also be shared on a pro rata basis) in proportion to the
amounts desired to be purchased or sold. See the Fund's Statement of Additional
Information for a more detailed description of aggregated transactions.
PERFORMANCE
The Fund may, from time to time, include quotations of its average annual
total return and aggregate total return in advertisements or reports to
stockholders or prospective investors.
Quotations of average annual total return will be expressed in terms of the
average annual compounded rate of return of a hypothetical investment in the
Fund over periods of 1, 5 and 10 years (up to the life of the Fund). Such total
return figures will reflect the deduction of the maximum sales charge and a
proportional share of Fund expenses on an annual basis, and will assume that all
dividends and distributions are reinvested when paid.
Quotations of aggregate total return will be calculated for any specified
period by assuming a hypothetical investment in the Fund on the date of the
commencement of the period and assuming that all dividends and distributions are
reinvested when paid. The net increase or decrease in the value of the
investment over the period will be divided by its beginning value to arrive at
total return. Total return calculated in this manner reflects actual performance
over a stated period of time while average annual total return is a hypothetical
rate of return that, if achieved annually, would have produced the same
aggregate total return.
In addition, quotations of aggregate total return may also be calculated for
several consecutive one-year periods, expressing the total return as a
percentage increase or decrease in the value of the investment for each year
relative to the ending value for the previous year. The Fund may from time to
time quote total return that does not reflect
24
<PAGE>
SECURITY FUNDS
PROSPECTUS
deduction of any applicable sales charge, which charges, if reflected, would
reduce the total return quoted.
Quotations of average annual total return or aggregate total return reflect
only the performance of a hypothetical investment in the Fund during the
particular time period on which the calculations are based. Such quotations for
the Fund will vary based on changes in market conditions and the level of the
Fund's expenses, and no reported performance figure should be considered an
indication of performance which may be expected in the future.
In connection with communicating its average annual total return and
aggregate total return to current or prospective stockholders, the Fund also may
compare these figures to the performance of other mutual fund rating services or
to other unmanaged indexes which may assume reinvestment of dividends, but
generally do not reflect deductions for administrative and management costs and
expenses. The Fund will include performance data for both Class A and Class B
shares of the Fund in any advertisement or report including performance data of
the Fund.
For a more detailed description of the methods used to calculate the average
annual total return and aggregate total return of the Fund, see the Fund's
Statement of Additional Information.
SHAREHOLDER SERVICES
Accumulation Plan
An investor may choose to invest in the Fund through a voluntary Accumulation
Plan. This allows for an initial investment of $100 minimum and subsequent
investments of $20 minimum at any time. An Accumulation Plan involves no
obligation to make periodic investments, and is terminable at will.
Payments are made by sending a check to the Distributor who (acting as an
agent for the dealer) will purchase whole and fractional shares of the Fund as
of the close of business on such day as the payment is received. The investor
will receive a confirmation and statement after each investment.
Investors may choose to use "Secur-O-Matic" (automatic bank draft) to make
their Fund purchases. There is no additional charge for choosing to use
Secur-O-Matic. An application for Secur-O-Matic may be obtained from the Fund.
Systematic Withdrawal Program
Stockholders who wish to receive regular monthly, quarterly, semiannual, or
annual payments of $25 or more may establish a Systematic Withdrawal Program. A
stockholder may elect a payment that is a specified percentage of the initial or
current account value or a specified dollar amount. A Systematic Withdrawal
Program will be allowed only if shares with a current offering price of $5,000
or more are deposited with the Investment Manager, which will act as agent for
the stockholder under the Program. Shares are liquidated at net asset value. The
Program may be terminated on written notice, or it will terminate automatically
if all shares are liquidated or withdrawn from the account.
A stockholder may establish a Systematic Withdrawal Program with respect to
Class B shares without the imposition of any applicable contingent deferred
sales charge, provided that such withdrawals do not in any 12-month period,
beginning on the date the Program is established, exceed 10 percent of the value
of the account on that date ("Free Systematic Withdrawals"). Free Systematic
Withdrawals are not available if a Program established with respect to Class B
shares provides for withdrawals in excess of 10 percent of the value of the
account in any Program year
25
<PAGE>
SECURITY FUNDS
PROSPECTUS
and, as a result, all withdrawals under such a Program would be subject to any
applicable contingent deferred sales charge. Free Systematic Withdrawals will be
made first by redeeming those shares that are not subject to the contingent
deferred sales charge and then by redeeming shares held the longest. The
contingent deferred sales charge applicable to a redemption of Class B shares
requested while Free Systematic Withdrawals are being made will be calculated as
described under "Calculation and Waiver of Contingent Deferred Sales Charges,"
page 17. A Systematic Withdrawal form may be obtained from the Fund.
Exchange Privilege
Stockholders who own shares of the Fund may exchange those shares for shares
of another series of Security Equity Fund, Security Ultra Fund, Security Growth
and Income Fund, Security Income Fund, Security Tax-Exempt Fund, or Security
Cash Fund (the "Security Funds") at net asset value. Exchanges may be made only
in those states where shares of the fund into which an exchange is to be made
are qualified for sale. No service fee is presently imposed on such an exchange.
Class A and Class B shares of the Fund may be exchanged for Class A and Class B
shares, respectively, of another fund or for shares of Security Cash Fund, a
money market fund that offers a single class of shares. Any applicable
contingent deferred sales charge will be imposed upon redemption and calculated
from the date of the initial purchase without regard to the time shares were
held in Security Cash Fund. For tax purposes, an exchange is a sale of shares
which may result in a taxable gain or loss. Special rules may apply to determine
the amount of gain or loss on an exchange occurring within ninety days after the
exchanged shares were acquired. Exchanges are made upon receipt of a properly
completed Exchange Authorization form. A current prospectus of the fund into
which an exchange is made will be given to each stockholder exercising this
privilege.
To exchange shares by telephone, a stockholder must hold shares in
non-certificate form and must either have completed the Telephone Exchange
section of the application or a Telephone Transfer Authorization form which may
be obtained from the Investment Manager. Once authorization has been received by
the Investment Manager, a stockholder may exchange shares by telephone by
calling the Fund at (800) 888-2461, extension 3127, on weekdays (except
holidays) between the hours of 7:00 a.m. and 6:00 p.m. Central time. Exchange
requests received by telephone after the close of the New York Stock Exchange
(normally 3 p.m. Central time) will be treated as if received on the next
business day on which the Exchange is open. A stockholder who authorizes
telephone exchanges authorizes the Investment Manager to act upon the
instructions of any person by telephone to exchange shares between any
identically registered accounts with the Security Funds. The Investment Manager
has established procedures to confirm that instructions communicated by
telephone are genuine and may be liable for any losses due to fraudulent or
unauthorized instructions if it fails to comply with its procedures. The
Investment Manager's procedures require that any person requesting an exchange
by telephone provide the account registration and number and the owner's tax
identification number and such instructions must be received on a recorded line.
Neither the Fund, the Investment Manager nor the Distributor shall be liable for
any loss, liability, cost or expense arising out of any request, including any
fraudulent request, provided the Investment Manager complied with its
procedures. Thus, a stockholder who authorizes telephone exchanges
26
<PAGE>
SECURITY FUNDS
PROSPECTUS
may bear the risk of loss from a fraudulent or unauthorized request. The
exchange privilege, including telephone exchanges, may be changed or
discontinued at any time by either the Investment Manager or the Fund upon 60
days' notice to stockholders.
In periods of severe market or economic conditions, the telephone exchange of
shares may be difficult to implement and stockholders should make exchanges by
writing to Security Distributors, Inc., 700 Harrison, Topeka, Kansas 66636-0001.
Retirement Plans
The Fund has available tax-qualified retirement plans for individuals,
prototype plans for the self-employed, pension and profit sharing plans for
corporations and custodial accounts for employees of public school systems and
organizations meeting the requirements of Section 501(c)(3) of the Internal
Revenue Code. Further information concerning these plans is contained in the
Fund's Statement of Additional Information.
GENERAL INFORMATION
Organization
The Articles of Incorporation of Security Equity Fund provide for the
issuance of shares of common stock in one or more classes or series. Security
Equity Fund has authorized capital stock of 5,000,000,000 shares of $.25 par
value and currently issues its shares in three series, each of which has
authority to issue such shares as follows: Equity Fund - 2,000,000,000 shares,
Global Fund - 1,000,000,000 shares and Asset Allocation Fund - 1,000,000,000
shares. The remaining 1,000,000,000 shares has not been allocated to any series.
The shares of each series of Security Equity Fund represent a pro rata
beneficial interest in that series' net assets and in the earnings and profits
or losses derived from the investment of such assets.
The Fund currently issues two classes of shares which participate
proportionately based on their relative net asset values in dividends and
distributions and have equal voting, liquidation and other rights except that
(i) expenses related to the distribution of each class of shares or other
expenses that the Board of Directors may designate as class expenses from time
to time, are borne solely by that class; (ii) each class of shares has exclusive
voting rights with respect to any Distribution Plan adopted for that class;
(iii) each class has different exchange privileges; and (iv) each class has a
different designation. When issued and paid for, the shares will be fully paid
and nonassessable by the Fund. Shares may be exchanged as described above under
"Exchange Privilege," but will have no other preference, conversion, exchange or
preemptive rights. Shares are transferable, redeemable and assignable and have
cumulative voting privileges for the election of directors.
On certain matters, such as the election of directors, all shares of the
series of Security Equity Fund vote together, with each share having one vote.
On other matters affecting a particular series, such as the investment advisory
contract or the fundamental policies, only shares of that series are entitled to
vote, and a majority vote of the shares of that series is required for approval
of the proposal.
The Fund does not generally hold annual meetings of stockholders and will do
so only when required by law. Stockholders may remove directors from office by
vote cast in person or by proxy at a meeting of stockholders. Such a meeting
will be called at the written request of 10 percent of Security Equity Fund's
outstanding shares.
27
<PAGE>
SECURITY FUNDS
PROSPECTUS
Stockholder Inquiries
Stockholders who have questions concerning their account or wish to obtain
additional information, may call the Fund (see back cover for address and
telephone numbers), or contact their securities dealer.
<PAGE>
SECURITY FUNDS
PROSPECTUS APPENDIX A
APPENDIX A
CLASS A SHARES
REDUCED SALES CHARGES
Initial sales charges may be reduced or eliminated for persons or
organizations purchasing Class A shares of the Fund alone or in combination with
Class A shares of other Security Funds.
For purposes of qualifying for reduced sales charges on purchases made
pursuant to Rights of Accumulation or a Statement of Intention, the term
"Purchaser" includes the following persons: an individual, his or her spouse and
children under the age of 21; a trustee or other fiduciary of a single trust
estate or single fiduciary account established for their benefit; an
organization exempt from federal income tax under Section 501(c)(3) or (13) of
the Internal Revenue Code; or a pension, profit-sharing or other employee
benefit plan whether or not qualified under Section 401 of the Internal Revenue
Code.
Rights of Accumulation
To reduce sales charges on purchases of Class A shares of the Fund, a
Purchaser may combine all previous purchases of the Fund with a contemplated
current purchase and receive the reduced applicable front-end sales charge. The
Distributor must be notified when a sale takes place which might qualify for the
reduced charge on the basis of previous purchases.
Rights of accumulation also apply to purchases representing a combination of
the Class A shares of the Fund and other Security Funds, except Security Cash
Fund, in those states where shares of the fund being purchased are qualified for
sale.
Statement of Intention
A Purchaser may choose to sign a Statement of Intention within 90 days after
the first purchase to be included thereunder, which will cover future purchases
of Class A shares of the Fund and other Security Funds, except Security Cash
Fund. The amount of these future purchases shall be specified and must be made
within a 13-month period (or 36-month period for purchases of $1 million or
more) to become eligible for the reduced front-end sales charge applicable to
the actual amount purchased under the Statement. Five percent (5%) of the amount
specified in the Statement of Intention will be held in escrow shares until the
statement is completed or terminated. These shares may be redeemed by the Fund
if the Purchaser is required to pay additional sales charges.
A Statement of Intention may be revised during the 13-month period.
Additional Class A shares received from reinvestment of income dividends and
capital gains distributions are included in the total amount used to determine
reduced sales charges. A Statement of Intention may be obtained from the Fund.
Reinstatement Privilege
Stockholders who redeem their Class A shares of the Fund have a one-time
privilege (1) to reinstate their accounts by purchasing Class A shares without a
sales charge up to the dollar amount of the redemption proceeds; or (2) to the
extent the redeemed shares would have been eligible for the exchange privilege,
to purchase Class A shares of another of the Security Funds without a sales
charge up to the dollar amount of the redemption proceeds. To exercise this
privilege, a stockholder must provide written notice and a check in the amount
of the reinvestment to the Fund within thirty days after the redemption request;
the reinstatement will be made at the net asset value on the date received by
the Fund.
28
<PAGE>
SECURITY GROWTH AND INCOME FUND
(formerly Security Investment Fund)
SECURITY EQUITY FUND
o Equity Series
o Global Series
o Asset Allocation Series
SECURITY ULTRA FUND
Statement of Additional Information
January 31, 1996
RELATING TO THE PROSPECTUS DATED JANUARY 31, 1996
(913) 295-3127
(800) 888-2461
INVESTMENT MANAGER
Security Management Company
700 SW Harrison Street
Topeka, Kansas 66636-0001
UNDERWRITER
Security Distributors, Inc.
700 SW Harrison Street
Topeka, Kansas 66636-0001
CUSTODIAN
UMB Bank, n.a.
928 Grand Avenue
Kansas City, Missouri 64106
The Chase Manhattan Bank, N.A.
4 Chase MetroTech Center
Brooklyn, New York 11245
INDEPENDENT AUDITORS
Ernst & Young LLP
One Kansas City Place
1200 Main Street
Kansas City, Missouri 64105-2143
<PAGE>
Security Growth and Income Fund
(formerly Security Investment Fund)
Security Equity Fund
Security Ultra Fund
Members of The Security Benefit Group of Companies
700 SW Harrison, Topeka, Kansas 66636-0001
Statement of
Additional Information
January 31, 1996
(RELATING TO THE PROSPECTUS DATED JANUARY 31, 1996)
This Statement of Additional Information is not a Prospectus. It should be
read in conjunction with the Prospectus dated January 31, 1996. A Prospectus may
be obtained by writing or calling Security Distributors, Inc., 700 SW Harrison
Street, Topeka, Kansas 66636-0001, or by calling (913) 295-3127 or (800)
888-2461, ext. 3127.
TABLE OF CONTENTS
Page
General Information....................................... 1
Investment Objective and Policies of the Funds............ 2
Security Growth and Income Fund........................ 2
Security Equity Fund................................... 3
Equity Fund.......................................... 3
Global Fund.......................................... 4
Asset Allocation Fund................................ 5
Security Ultra Fund.................................... 7
Investment Methods and Risk Factors....................... 8
Investment Policy Limitations.............................17
Security Growth and Income Fund's Fundamental Policies.17
Security Equity Fund's Fundamental Policies............18
Security Ultra Fund's Fundamental Policies.............19
Officers and Directors....................................20
Remuneration of Directors and Others......................21
How to Purchase Shares....................................22
Alternative Purchase Options...........................22
Class A Shares.........................................23
Class B Shares.........................................23
Class B Distribution Plan..............................24
Calculation and Waiver of Contingent Deferred Sales
Charges..............................................25
Arrangements With Broker-Dealers and Others............25
Purchases at Net Asset Value...........................26
Accumulation Plan.........................................26
Systematic Withdrawal Program.............................26
Investment Management.....................................27
Portfolio Management...................................30
Code of Ethics.........................................31
Distributor...............................................31
Allocation of Portfolio Brokerage.........................31
How Net Asset Value is Determined.........................33
How to Redeem Shares......................................34
Telephone Redemptions..................................35
How to Exchange Shares....................................35
Exchange by Telephone..................................36
Dividends and Taxes.......................................36
Organization..............................................40
Legal Proceedings.........................................41
Custodian, Transfer Agent and Dividend-Paying Agent.......41
Independent Auditors......................................41
Performance Information...................................41
Retirement Plans..........................................42
Individual Retirement Accounts (IRAs).....................43
Pension and Profit-Sharing Plans..........................43
403(b) Retirement Plans...................................43
Simplified Employee Pension Plans (SEPPs).................44
Financial Statements......................................44
Appendix A................................................45
Appendix B................................................47
<PAGE>
GENERAL INFORMATION
Security Growth and Income Fund (formerly Security Investment Fund),
Security Equity Fund and Security Ultra Fund were organized as Kansas
corporations on February 2, 1944, November 27, 1961 and April 20, 1965,
respectively. The name of Security Growth and Income Fund (formerly Security
Investment Fund) was changed effective July 6, 1993. The Funds are registered
with the Securities and Exchange Commission ("SEC") as investment companies.
Such registration does not involve supervision by the SEC of the management or
policies of the Funds. The Funds are open-end investment companies that, upon
the demand of the investor, must redeem their shares and pay the investor the
current net asset value thereof. (See "How to Redeem Shares," page 34.)
Each of Security Growth and Income Fund ("Growth and Income Fund"), the
Equity Series ("Equity Fund"), Global Series ("Global Fund"), and Asset
Allocation Series ("Asset Allocation Fund") of Security Equity Fund, and
Security Ultra Fund ("Ultra Fund") (collectively, the "Funds") has its own
investment objective and policies which are described below. While there is no
present intention to do so, the investment objective and policies of each Fund,
unless otherwise noted, may be changed by its Board of Directors without the
approval of stockholders. Each of the Funds is also required to operate within
limitations imposed by its fundamental investment policies which may not be
changed without stockholder approval. These limitations are set forth below
under "Investment Policy Limitations," page 17. An investment in one of the
Funds does not constitute a complete investment program.
The value of the shares of each Fund fluctuates, reflecting fluctuations in
the value of the portfolio securities and, to the extent it is invested in
foreign securities, its net currency exposure. Each Fund may realize losses or
gains when it sells portfolio securities and will earn income to the extent that
it receives dividends or interest from its investments. (See "Dividends and
Taxes," page 36.)
The Funds' shares are sold to the public at net asset value, plus a sales
commission which is allocated between the principal underwriter and dealers who
sell the shares ("Class A Shares"), or at net asset value with a contingent
deferred sales charge ("Class B Shares"). (See "How to Purchase Shares," page
22.)
Professional investment advice is provided to each Fund by Security
Management Company (the "Investment Manager"). The Investment Manager has
appointed Lexington Management Corporation ("Lexington") to provide certain
investment advisory services to Global Fund. The Investment Manager has arranged
for Meridian Investment Management Corporation ("Meridian") to provide
quantitative investment research, and Templeton Quantitative Advisors, Inc.
("Templeton") to provide analytical research, to the Asset Allocation Fund.
The Funds receive investment advisory, administrative, accounting, and
transfer agency services from the Investment Manager for a fee. The fee for each
Fund, except Global and Asset Allocation Funds, on an annual basis, is 2% of the
first $10 million of the average net assets, 1 1/2% of the next $20 million of
the average net assets and 1% of the remaining average net assets of the
respective Funds, determined daily and payable monthly. The fee paid by Global
Fund, on an annual basis, is 2% of the first $70 million of the average net
assets, and 1 1/2% of the remaining average net assets, determined daily and
payable monthly.
Separate fees are paid by Asset Allocation Fund to the Investment Manager
for investment advisory, administrative and transfer agency services. The
investment advisory fee for Asset Allocation Fund on an annual basis is equal to
1% of the average daily net assets of the Fund, calculated daily and payable
monthly. The administrative fee for Asset Allocation Fund on an annual basis is
equal to .045% of the average daily net assets of the Fund plus the greater of
.10% of its average net assets or (i) $30,000 in the year ending April 29, 1996;
(ii) $45,000 in the year ending April 29, 1997, or (iii) $60,000 thereafter. The
transfer agency fee for the Asset Allocation Fund consists of an annual
maintenance fee of $8.00 per account, and a transaction fee of $1.00 per
transaction.
The Investment Manager bears all expenses of the Funds (except Asset
Allocation Fund) except for its fees and the expenses of brokerage commissions,
interest, taxes, Class B distribution fees, and extraordinary expenses approved
by the Board of Directors of the Funds. Asset Allocation Fund pays all of its
expenses not assumed by the Investment Manager or Security Distributors, Inc.
(the "Distributor") as described under "Investment Management," page 27.
The Investment Manager has agreed that the total annual expenses of any
class or Series of a Fund (including the management fee and its other fees, but
excluding interest, taxes, brokerage commissions, extraordinary expenses and
Class B distribution fees) will not exceed any expense limitation imposed by any
1
<PAGE>
state. See "Investment Management," page 27 for a discussion of the Investment
Manager and the Investment Management and Services Agreements.
Under Distribution Plans adopted with respect to the Class B shares of the
Funds, pursuant to Rule 12b-1 under the Investment Company Act of 1940, each
Fund is authorized to pay the Distributor an annual fee of 1.00% of the average
daily net assets of the Class B shares of the respective Funds to finance
various distribution-related activities. (See "Class B Distribution Plan," page
24.)
INVESTMENT OBJECTIVE AND POLICIES OF THE FUNDS
SECURITY GROWTH AND INCOME FUND
The investment objective of Growth and Income Fund is long-term growth of
capital with a secondary emphasis on income. The value of Growth and Income
Fund's shares will fluctuate with changes in the market value of the Fund's
investments. The investment objective and policies of Growth and Income Fund may
be altered by the Board of Directors without the approval of stockholders of the
Fund. There can be no assurance that the stated investment objective will be
achieved.
The policy of Growth and Income Fund is to invest in a diversified
portfolio which will ordinarily consist principally of common stocks (which may
include ADRs), but may also include other securities when deemed advisable. Such
other securities may include securities convertible into common stocks,
preferred stocks and U.S. and Canadian debt securities. The Fund may also invest
in warrants. However, such investment may not exceed 5% of its total assets
valued at the lower of cost or market. Included in that amount, but not to
exceed 2% of the value of the Fund's assets may be warrants which are not listed
on the New York or American Stock Exchange. Warrants acquired by the Fund in
units or attached to securities may be deemed to be without value. In the
selection of securities for investment, the potential for appreciation and
future dividends is given more weight than current dividends.
Except when in a temporary defensive position, Growth and Income Fund will
maintain at least 25% of its assets invested in securities selected for their
capital growth potential, principally common stocks, and at least another 25% of
its total assets invested in securities which provide income.
With respect to Growth and Income Fund's investment in debt securities,
there is no percentage limitation on the amount of the Fund's assets that may be
invested in securities within any particular rating classification (see Appendix
A for a more complete description of the corporate bond ratings), and the Fund
may invest without limit in unrated securities. Growth and Income Fund may
invest in securities rated Baa by Moody's Investors Service, Inc., or BBB by
Standard & Poor's Corporation. Baa securities are considered to be "medium
grade" obligations by Moody's and BBB is the lowest classification which is
still considered an "investment grade" rating by Standard & Poor's. Bonds rated
Baa by Moody's or BBB by Standard & Poor's have speculative characteristics and
may be more susceptible than higher grade bonds to adverse economic conditions
or other adverse circumstances which may result in a weakened capacity to make
principal and interest payments. In addition, the Fund may invest in higher
yielding, longer-term debt securities in the lower rating (higher risk)
categories of the recognized rating services (commonly referred to as "junk
bonds"). These include securities rated Ba or lower by Moody's or BB or lower by
Standard & Poor's and are regarded as predominantly speculative with respect to
the ability of the issuer to meet principal and interest payments. However, the
Investment Manager will not rely principally on the ratings assigned by the
rating services. Because Growth and Income Fund may invest in lower rated
securities and unrated securities of comparable quality, the achievement of the
Fund's investment objective may be more dependent on the Investment Manager's
own credit analysis than would be the case if investing in higher rated
securities.
Growth and Income Fund may purchase securities on a "when issued" or
"delayed delivery basis" in excess of customary settlement periods for the type
of security involved. Securities purchased on a when issued basis are subject to
market fluctuation and no interest or dividends accrue to the Fund prior to the
settlement date. Growth and Income Fund will establish a segregated account with
its custodian bank in which it will maintain cash, cash equivalents, U.S.
government securities or other appropriate liquid, high grade debt obligations
equal in value to commitments for such when issued securities.
2
<PAGE>
From time to time, Growth and Income Fund may purchase government bonds or
commercial notes for temporary defensive purposes. The Fund may also utilize
repurchase agreements on an overnight basis or bank demand accounts, pending
investment in securities or to meet potential redemptions or expenses.
Growth and Income Fund's policy is to diversify its investments among
various industries, but freedom of action is reserved (at times when deemed
appropriate for the attainment of its investment objectives) to invest up to 25%
of its assets in one industry. This is a fundamental policy of Growth and Income
Fund which cannot be changed without stockholder approval.
There is no restriction on Growth and Income Fund's portfolio turnover, but
it is the Fund's practice to invest its funds for long-term growth and
secondarily for income. The portfolio turnover rate of Class A shares for the
fiscal year ended September 30, 1995 was 130%. The portfolio turnover rate of
Class A shares for the fiscal years ended September 30, 1994 and 1993 was as
follows: 1994 - 163% and 1993 - 135%. The portfolio turnover rate of Class B
shares of Growth and Income Fund for the fiscal year ended September 30, 1995
was 130%. The portfolio turnover rate of Class B shares for the period October
19, 1993 to September 30, 1994 was 178%. Portfolio turnover is the percentage of
the lower of security sales or purchases to the average portfolio value and
would be 100% if all securities in the Fund were replaced within a period of one
year. The Fund will usually not trade securities for short-term profits.
Special Risks of High Yield Investing
Because Growth and Income Fund invests in the high yield, high risk debt
securities (commonly referred to as "junk bonds") described above, its share
price and yield are expected to fluctuate more than the share price and yield of
a fund investing in higher quality, shorter-term securities. High yield bonds
may be more susceptible to real or perceived adverse economic and competitive
industry conditions than investment grade bonds. A projection of an economic
downturn, or higher interest rates, for example, could cause a decline in high
yield bond prices because an advent of such events could lessen the ability of
highly leveraged companies to make principal and interest payments on its debt
securities. In addition, the secondary trading market for high yield bonds may
be less liquid than the market for higher grade bonds, which can adversely
affect the ability of Growth and Income Fund to dispose of its portfolio
securities. Bonds for which there is only a "thin" market can be more difficult
to value inasmuch as objective pricing data may be less available and judgment
may play a greater role in the valuation process.
SECURITY EQUITY FUND
Security Equity Fund currently issues its shares in three series--Equity
Series ("Equity Fund"), Global Series ("Global Fund") and Asset Allocation
Series ("Asset Allocation Fund"). The assets of each Series are held separate
from the assets of the other Series and each Series has an investment objective
which differs from that of the other Series. The investment objective and
policies of each Series are described below. There are risks inherent in the
ownership of any security and there can be no assurance that such investment
objective will be achieved.
Although there is no present intention to do so, the investment objective
of the Funds may be altered by the Board of Directors without the approval of
stockholders of the Fund.
Equity Fund
The investment objective of Equity Fund is to provide a medium for
investment in equity securities to complement fixed-obligation types of
investments, such as annuities and life insurance. Emphasis will be placed upon
selection of those securities which in the opinion of the Investment Manager
offer basic value and have the most long-term capital growth potential. Income
potential will be considered in selecting investments, to the extent doing so is
consistent with Equity Fund's investment objective of long-term capital growth.
Equity Fund ordinarily will have at least 90% of its total assets invested
in a broadly diversified selection of common stocks (which may include ADRs) and
of preferred stocks convertible into common stocks. However, the Fund reserves
the right to invest temporarily in fixed income securities or in cash and money
market instruments. Equity Fund may invest in certificates of deposit issued by
banks or other bank demand accounts, pending investment in other securities or
to meet potential redemptions or expenses. Equity Fund's investment policy, with
emphasis on investing in securities for potential capital enhancement
possibilities, may involve a more rapid portfolio turnover than other investment
companies.
3
<PAGE>
The portfolio turnover rate for Equity Fund, Class A shares, for the fiscal
year ended September 30, 1995 was 95%. The portfolio turnover rate of Class A
shares of Equity Fund for fiscal years ended September 30, 1994 and 1993 was as
follows: 1994 - 79% and 1993 - 95%. The portfolio turnover rate for Class B
shares of Equity Fund for the fiscal year ended September 30, 1995 was 95%. The
portfolio turnover rate of Class B shares for the period October 19, 1993 to
September 30, 1994 was 80%. Portfolio turnover is the percentage of the lower of
security sales or purchases to the average portfolio value and would be 100% if
all securities in the Fund were replaced within a period of one year.
It is not the policy of Equity Fund to purchase securities for trading
purposes. Nevertheless, securities may be disposed of without regard to the
length of time held if such sales are deemed advisable in order to meet the
Fund's investment objective. Equity Fund does not intend to purchase restricted
stock.
Global Fund
The investment objective of Global Fund is to seek long-term growth of
capital primarily through investment in securities of companies domiciled in
foreign countries and the United States. Global Fund will seek to achieve its
objective through investment in a diversified portfolio of securities which
under normal circumstances will consist primarily of various types of common
stocks and equivalents (the following constitute equivalents: convertible debt
securities, warrants and options). The Fund may also invest in preferred stocks,
bonds and other debt obligations, which include money market instruments of
foreign and domestic companies and the U.S. Government and foreign governments,
governmental agencies and international organizations. For a full description of
the Fund's investment objective and policies, see the Prospectus.
In seeking to achieve its investment objective, Global Fund may from time
to time engage in the following investment practices:
Settlement Transactions. Global Fund may, for a fixed amount of United
States dollars, enter into a forward foreign exchange contract for the purchase
or sale of the amount of foreign currency involved in the underlying securities
transactions. In so doing, the Fund will attempt to insulate itself against
possible losses and gains resulting from a change in the relationship between
the United States dollar and the foreign currency during the period between the
date a security is purchased or sold and the date on which payment is made or
received. This process is known as "transaction hedging."
To effect the translation of the amount of foreign currencies involved in
the purchase and sale of foreign securities and to effect the "transaction
hedging" described above, the Fund may purchase or sell foreign currencies on a
"spot" (i.e. cash) basis or on a forward basis whereby the Fund purchases or
sells a specific amount of foreign currency, at a price set at the time of the
contract, for receipt of delivery at a specified date which may be any fixed
number of days in the future.
Such spot and forward foreign exchange transactions may also be utilized to
reduce the risk inherent in fluctuations in the exchange rate between the United
States dollar and the relevant foreign currency when foreign securities are
purchased or sold for settlement beyond customary settlement time (as described
below). Neither type of foreign currency transaction will eliminate fluctuations
in the prices of the Fund's portfolio or securities or prevent loss if the price
of such securities should decline.
Portfolio Hedging. When, in the opinion of the Fund's Sub-Adviser,
Lexington Management Corporation ("Lexington"), it is desirable to limit or
reduce exposure in a foreign currency in order to moderate potential changes in
the United States dollar value of the portfolio, Global Fund may enter into a
forward foreign currency exchange contract by which the United States dollar
value of the underlying foreign portfolio securities can be approximately
matched by an equivalent United States dollar liability. The Fund may also enter
into forward currency exchange contracts to increase its exposure to a foreign
currency that Lexington expects to increase in value relative to the United
States dollar. The Fund will not attempt to hedge all of its portfolio positions
and will enter into such transactions only to the extent, if any, deemed
appropriate by Lexington. Hedging against a decline in the value of currency
does not eliminate fluctuations in the prices of portfolio securities or prevent
losses if the prices of such securities decline. The Fund intends to limit such
transactions to not more than 70% of its total assets.
Forward Commitments. Global Fund may make contracts to purchase securities
for a fixed price at a future date beyond customary settlement time ("forward
commitments") because new issues of securities are typically offered to
investors on that basis. Forward commitments involve a risk of loss if the value
of the security to be
4
<PAGE>
purchased declines prior to the settlement date. This risk is in addition to the
risk of decline in value of the Fund's other assets. Although the Fund will
enter into such contracts with the intention of acquiring the securities, it may
dispose of a commitment prior to settlement if Lexington deems it appropriate to
do so. The Fund may realize short-term profits or losses upon the sale of
forward commitments.
Covered Call Options. Global Fund may seek to preserve capital by writing
covered call options on securities which it owns. Such an option on an
underlying security would obligate the Fund to sell, and give the purchaser of
the option the right to buy, that security at a stated exercise price at any
time until a stated expiration date of the option.
Repurchase Agreements. A repurchase agreement is a contract under which
Global Fund would acquire a security for a relatively short period (usually not
more than 7 days) subject to the obligation of the seller to repurchase and the
Fund to resell such security at a fixed time and price (representing the Fund's
cost plus interest). Although the Fund may enter into repurchase agreements with
respect to any portfolio securities which it may acquire consistent with its
investment policies and restrictions, it is the Fund's present intention to
enter into repurchase agreements only with respect to obligations of the United
States Government or its agencies or instrumentalities to meet anticipated
redemptions or pending investment or reinvestment of Fund assets in portfolio
securities. The Fund will enter into repurchase agreements only with member
banks of the Federal Reserve System and with "primary dealers" in United States
Government securities. Repurchase agreements will be fully collateralized
including interest earned thereon during the entire term of the agreement. If
the institution defaults on the repurchase agreement, the Fund will retain
possession of the underlying securities. If bankruptcy proceedings are commenced
with respect to the seller, realization on the collateral by Global Fund may be
delayed or limited and the Fund may incur additional costs. In such case, the
Fund will be subject to risks associated with changes in market value of the
collateral securities. The Fund intends to limit repurchase agreements to
institutions believed by Lexington to present minimal credit risk. The operating
expenses of Global Fund can be expected to be higher than those of an investment
company investing exclusively in United States securities.
Rule 144A Securities. Global Fund may purchase securities that are
restricted as to disposition under the federal securities laws, provided that
such restricted securities are eligible for resale to qualified institutional
investors pursuant to Rule 144A under the Securities Act of 1933 and subject to
the Fund's investment policy limitation that not more than 10% of its total
assets will be invested in restricted securities. The Investment Manager, under
procedures adopted by the Board of Directors, will determine whether securities
eligible for resale under Rule 144A are liquid or not.
Portfolio turnover rates for Global Fund, Class A shares, for the fiscal
year ended September 30, 1995 was 141%. The portfolio turnover rate of Class A
shares for the period October 5, 1993 to September 30, 1994 was 73%. The
portfolio turnover rate for Global Fund, Class B shares, for the fiscal year
ended September 30, 1995 was 141%. The portfolio turnover rate of Class B shares
for the period October 19, 1993 to September 30, 1994 was 73%. Portfolio
turnover is the percentage of the lower of security sales or purchases to the
average portfolio value and would be 100% if all securities in the Fund were
replaced within a period of one year.
Asset Allocation Fund
The investment objective of Asset Allocation Fund is to seek high total
return, consisting of capital appreciation and current income. The Fund seeks
this objective by following an asset allocation strategy that contemplates
shifts among a wide range of investment categories and market sectors. The Fund
will invest in the following investment categories: equity securities of
domestic and foreign issuers, including common stocks, ADRs, preferred stocks,
convertible securities and warrants; debt securities of domestic and foreign
issuers, including mortgage-related and other asset-backed securities;
exchange-traded real estate investment trusts (REITs); equity securities of
companies involved in the exploration, mining, development, production and
distribution of gold ("gold stocks"); and domestic money market instruments. See
"Investment Methods and Risk Factors" in the Prospectus for a discussion of the
additional risks associated with investment in foreign securities, and see the
discussion of the risks associated with investment in gold stocks and REITs
below.
Investment in gold stocks presents risks, because the prices of gold have
fluctuated substantially over short periods of time. Prices may be affected by
unpredictable monetary and political policies, such as currency devaluations or
revaluations, economic and social conditions within an individual country, trade
imbalances, or
5
<PAGE>
trade or currency restrictions between countries. The unstable political and
social conditions in South Africa and unsettled political conditions prevailing
in neighboring countries may have disruptive effects on the market prices of
securities of South African companies.
Asset Allocation Fund may invest in real estate investment trusts
("REITs"). A REIT is a trust that invests in a diversified portfolio of real
estate holdings. Investment in REITs involves certain special risks. Equity
REITs may be affected by any changes in the value of the underlying property
owned by the trusts, while mortgage REITs may be affected by the quality of any
credit extended. Further, equity and mortgage REITs are dependent upon
management skill, are not diversified, and are therefore subject to the risk of
financing single or a limited number of projects. Such trusts are also subject
to heavy cash flow dependency, defaults by borrowers, self-liquidation, and the
possibility of failing to qualify for special tax treatment under Subchapter M
of the Internal Revenue Code and to maintain an exemption under the Investment
Company Act of 1940. Finally, certain REITs may be self-liquidating in that a
specific term of existence is provided for in the trust document. Such trusts
run the risk of liquidating at an economically inopportune time.
The Fund is not required to maintain a portion of its assets in each of the
permitted investment categories. The Fund, however, will maintain under normal
circumstances a minimum of 35% of its total assets in equity securities and 10%
in debt securities. The Fund will not invest more than 55% of its total assets
in money market instruments (except for temporary defensive purposes), more than
80% of its total assets in foreign securities, nor more than 20% of its total
assets in gold stocks. The Fund will not invest 25% or more of its assets in the
securities of any single country other than the United States.
The Investment Manager receives quantitative investment research from
Meridian Investment Management Corporation ("Meridian"), which research the
Investment Manager uses in strategically allocating the Fund's assets among the
investment categories identified above, primarily on the basis of a quantitative
asset allocation model. With respect to equity securities, the model analyzes a
large number of equity securities based on the following factors: current
earnings, earnings history, long-term earnings projections, current price, and
risk. The Investment Manager then determines (based on the results of Meridian's
analysis) which sectors within an identified investment category are deemed to
be the most attractive relative to other sectors. For example, the model may
indicate that a portion of the Fund's assets should be invested in the domestic
equity category of the market and within this category that pharmaceutical
stocks represent a sector with an attractive total return potential. Although
the Investment Manager anticipates relying on much of the research provided by
Meridian, the Investment Manager has ultimate responsibility for the selection
of the investment categories and the sectors within those categories.
The Investment Manager identifies sectors of the domestic and international
economy (based on the research provided by Meridian) in which the Fund will
invest and then determines which equity securities to purchase within the
identified sectors. The Investment Manager utilizes certain analytical research
provided by Templeton Quantitative Advisors, Inc. ("Templeton") in selecting
equity securities, including gold stocks, for Asset Allocation Fund. Templeton
analyzes equity securities in the identified sectors and makes recommendations
based on computer models and financial data bases which it maintains. It is
contemplated that the Investment Manager will implement most of the
recommendations made by Templeton regarding equity securities; however, the
Investment Manager has ultimate responsibility for all buy and sell decisions of
Asset Allocation Fund and may determine not to execute specific recommendations
made by Templeton.
With respect to the selection of debt securities for the Fund, the asset
allocation model provided by Meridian analyzes the prices of commodities and
finished goods to arrive at an interest rate projection. The Investment Manager
will determine the portion of the portfolio to allocate to debt securities and
the duration of those securities based on the model's interest rate projections.
Gold stocks and REITs will be analyzed in a manner similar to that used for
equity securities. Money market instruments will be analyzed based on current
returns and the current yield curve. The asset allocation model and stock
selection techniques used by the Fund may evolve over time or be replaced by
other asset allocation models and/or stock selection techniques. There is no
assurance that the model will correctly predict market trends or enable the Fund
to achieve its investment objective.
The debt securities, including convertible securities, in which the Fund
may invest will, at the time of investment, consist of "investment grade" bonds,
which are bonds rated BBB or better by S&P or Baa or better by Moody's or that
are unrated by S&P and Moody's but considered by the Investment Manager to be of
equivalent credit quality. If the Fund holds a security whose rating drops below
Baa or BBB, the Investment Manager will
6
<PAGE>
reevaluate the credit risk of the security in light of then current market
conditions and determine whether to retain or dispose of the security. The Fund
will not retain securities rated below Baa or BBB in an amount that exceeds 5%
of its net assets Securities rated BBB by S&P or Baa by Moody's have speculative
characteristics as described in Appendix A.
Asset Allocation Fund may invest in investment grade mortgage-backed
securities (MBSs), including mortgage pass-through securities and collateralized
mortgage obligations (CMOs). The Fund will not invest in an MBS if, as a result
of such investment, 25% or more of its total assets would be invested in MBSs,
including CMOs and mortgage pass-through securities. For a discussion of MBSs
and the risks associated with such securities, see "Investment Methods and Risk
Factors" - "Mortgage-Backed Securities" in the Prospectus.
The Fund may invest up to 10%, at the time of investment, of its total
assets in restricted securities, that are eligible for resale pursuant to Rule
144A under the Securities Act of 1933. See "Investment Methods and Risk Factors"
in the Prospectus for a discussion of restricted securities.
The Fund may write covered call options and purchase put options on
securities, financial indices and foreign currencies and may enter into futures
contracts. The Fund may buy and sell futures contracts (and options on such
contracts) to manage exposure to changes in securities prices and foreign
currencies and as an efficient means of adjusting overall exposure to certain
markets. It is the Fund's operating policy that initial margin deposits and
premiums on options used for non-hedging purposes will not equal more than 5% of
the Fund's net assets. The total market value of securities against which the
Fund has written call options may not exceed 25% of its total assets. The Fund
will not commit more than 5% of its total assets to premiums when purchasing put
options. Futures contracts and options may not always be successful hedges and
their prices can be highly volatile. Using futures contracts and options could
lower the Fund's total return and the potential loss from the use of futures can
exceed the Fund's initial investment in such contracts. Futures contracts and
options and the risks associated with such derivative securities are described
in further detail under "Investment Methods and Risk Factors" below.
The Fund may not purchase securities of unseasoned issuers, including their
predecessors, which have been in operation for less than three years, or equity
securities of issuers which are not readily marketable if, at the time of
investment, its aggregate investment in such securities will exceed 5% of its
total assets.
The Fund's investment in warrants may not exceed 5% of the value of the
Fund's net assets. Included in that amount, but not to exceed 2.0% of the value
of the Fund's net assets, may be warrants which are not listed on the New York
or American Stock Exchange. Warrants acquired by the Fund in units or attached
to securities are deemed to be without value.
The portfolio turnover rate for Asset Allocation Fund, Class A shares, for
the period June 1, 1995 to September 30, 1995 was 43%. The portfolio turnover
rate for Asset Allocation Fund, Class B shares, for the period June 1, 1995 to
September 30, 1995 was 43%. Portfolio turnover is the percentage of the lower of
security sales or purchases to the average portfolio value and would be 100% if
all securities in the Fund were replaced within a period of one year.
SECURITY ULTRA FUND
The investment objective of Ultra Fund is to seek capital appreciation.
Investment securities will be selected on the basis of their appreciation
possibilities. Current income will not be a factor in selecting investments and
any such income should be considered incidental.
There can be no assurance that the investment objective of Ultra Fund will
be achieved. Nevertheless, Ultra Fund hopes, by careful selection of individual
securities and by supervision of the investment portfolio, to increase the value
of the Fund's shares.
Stocks considered to have growth potential will include securities of
newer, unseasoned companies and may involve greater risks than investments in
companies with demonstrated earning power. At times Ultra Fund may invest in
warrants to purchase (or securities convertible into) common stocks or in other
classes of securities which the Investment Manager believes will contribute to
the attainment of its investment objective. Securities other than common stock
may be held, but Ultra Fund will not normally invest in fixed income securities
except for defensive purposes or to employ uncommitted cash balances. Ultra Fund
expects that it may invest in certificates of deposit issued by banks or other
bank demand accounts, pending investment in other securities or to meet
potential redemptions or expenses. Ultra Fund will not concentrate its
investments in a particular industry or group of industries. As a matter of
operating policy, Ultra Fund may not invest in illiquid securities in excess of
15% of its total assets.
7
<PAGE>
The Fund may enter into futures contracts to hedge all or a portion of its
portfolio, or as an efficient means of adjusting its exposure to the stock
market. The Fund will not use futures contracts for leveraging purposes. The
Fund will limit its use of futures contracts so that initial margin deposits or
premiums on such contracts used for non-hedging purposes will not equal more
than 5% of the Fund's net asset value. Futures contracts and the risks
associated with such instruments are described in further detail under
"Investment Methods and Risk Factors" below.
In seeking to obtain capital appreciation, Ultra Fund expects to trade to a
substantial degree in securities for the short term. That is, Ultra Fund will be
engaged essentially in trading operations based on short term market
considerations, as distinct from long-term investments, based upon fundamental
evaluation of securities. Investments for long-term profits are made when such
action is considered to be sound and helpful to Ultra Fund's overall objective.
This investment policy is very speculative and involves substantial risk. An
investor should not consider a purchase of Ultra Fund's shares as equivalent to
a complete investment program. Ultra Fund does not presently purchase letter or
restricted stock.
Since Ultra Fund will trade securities for the short term, the annual
portfolio turnover rate generally may be expected to be greater than 100%.
Portfolio turnover is the percentage of the lower of security sales or purchases
to the average portfolio value and would be 100% if all securities in Ultra Fund
were replaced within a period of one year. A 100% turnover rate is substantially
greater than that of most mutual funds. The portfolio turnover rate of Class A
shares of Ultra Fund for the fiscal year ended September 30, 1995 was 180%. The
portfolio turnover rate of Class A shares of Ultra Fund for the fiscal years
ended September 30, 1994 and 1993 was as follows: 1994 - 111% and 1993 - 101%.
The portfolio turnover rate of Class B shares of Ultra Fund for the fiscal year
ended September 30, 1995 was 180%. The portfolio turnover rate of Class B shares
for the period October 19, 1993 to December 30, 1994 was 110%.
Short-term investments increase portfolio turnover and brokerage costs to
Ultra Fund and thus to its stockholders. Moreover, to the extent short-term
transactions result in the realization of net gains in securities held less than
one year, Ultra Fund's stockholders will be taxed on any such gains at ordinary
income tax rates.
Ultra Fund will not make short sales of securities unless at the time of
such sales it owns or has the right to acquire, as a result of the ownership of
convertible or exchangeable securities and without the payment of further
consideration, an equal amount of such securities, and it will retain such
securities so long as it is in a short position as to them. Should such
securities be sold short, the underlying security will be valued at the asked
price. Such short sales will be used by Ultra Fund only for the purpose of
deferring recognition of gain or loss for federal income tax purposes.
The foregoing investment objective and policies of Ultra Fund may be
altered by the Board of Directors without the approval of stockholders.
INVESTMENT METHODS AND RISK FACTORS
Some of the risk factors related to certain securities, instruments and
techniques that may be used by one or more of the Funds are described in the
"Investment Objectives and Policies" and "Investment Methods and Risk Factors"
sections of the applicable Prospectus and in this Statement of Additional
Information. The following is a description of certain additional risk factors
related to various securities, instruments and techniques. The risks so
described only apply to those Funds which may invest in such securities and
instruments or which use such techniques. Also included is a general description
of some of the investment instruments, techniques and methods which may be used
by one or more of the Funds. The methods described only apply to those Funds
which may use such methods. Although a Fund may employ the techniques,
instruments and methods described below, consistent with its investment
objective and policies and any applicable law, no Fund will be required to do
so.
American Depositary Receipts. Each of the Funds may purchase American
Depositary Receipts ("ADRs") which are dollar-denominated receipts issued
generally by U.S. banks and which represent the deposit with the bank of a
foreign company's securities. ADRs are publicly traded on exchanges or
over-the-counter in the United States. Investors should consider carefully the
substantial risks involved in investing in securities issued by companies of
foreign nations, which are in addition to the usual risks inherent in domestic
investments. Although the Funds intend to invest only in nations which are
considered to have relatively stable and friendly governments, there is the
possibility of expropriation, nationalization or confiscatory taxation, foreign
exchange controls (which may include suspension of the ability to transfer
currency from a given country), political or social instability or
8
<PAGE>
diplomatic developments which could affect investment in securities of issuers
in those nations. In addition, in many countries there is less publicly
available information about issuers than is available in reports about companies
in the United States. Foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards, and auditing practices
and requirements may not be comparable to those applicable to U.S. companies. In
many foreign countries, there is less government supervision and regulation of
business and industry practices, stock exchanges, brokers and listed companies
than in the United States. Foreign investments may be subject to taxation
abroad. In addition, the foreign securities markets of many of the countries in
which the Funds may invest may also be smaller, less liquid, and subject to
greater price volatility than those in the United States.
Repurchase Agreements. Each of the Funds may utilize repurchase agreements
on an overnight basis (or with maturities of up to seven days in the case of
Global Fund) wherein the Fund acquires a debt instrument for the short period,
subject to the obligation of the seller to repurchase and the Fund to resell
such debt instrument at a fixed price. The Funds will enter into repurchase
agreements only with (i) banks which are members of the Federal Reserve System,
or (ii) securities dealers (if permitted to do so under the Investment Company
Act of 1940) who are members of a national securities exchange or market makers
in government securities--in either case, only where the debt instrument subject
to the repurchase agreement is a U.S. Treasury or agency obligation. Such
repurchase agreements may subject the Funds to the risks that (i) they may not
be able to liquidate the securities immediately upon the insolvency of the other
party, or (ii) that amounts received in closing out a repurchase transaction
might be deemed voidable preferences upon the bankruptcy of the other party. In
the opinion of the Investment Manager, such risks are not material.
Put and Call Options:
Writing (Selling) Covered Call Options. A call option gives the holder
(buyer) the "right to purchase" a security or currency at a specified price (the
exercise price) at any time until a certain date (the expiration date). So long
as the obligation of the writer of a call option continues, he may be assigned
an exercise notice by the broker-dealer through whom such option was sold,
requiring him to deliver the underlying security or currency against payment of
the exercise price. This obligation terminates upon the expiration of the call
option, or such earlier time at which the writer effects a closing purchase
transaction by repurchasing an option identical to that previously sold.
Certain Funds may write (sell) "covered" call options and purchase options
to close out options previously written by the Fund. In writing covered call
options, the Fund expects to generate additional premium income which should
serve to enhance the Fund's total return and reduce the effect of any price
decline of the security or currency involved in the option. Covered call options
will generally be written on securities or currencies which, in the opinion of
the Investment Manager or relevant Sub-Adviser, are not expected to have any
major price increases or moves in the near future but which, over the long term,
are deemed to be attractive investments for the Fund.
The Fund will write only covered call options. This means that the Fund
will own the security or currency subject to the option or an option to purchase
the same underlying security or currency, having an exercise price equal to or
less than the exercise price of the "covered" option, or will establish and
maintain with its custodian for the term of the option, an account consisting of
cash, U.S. Government securities or other liquid high-grade debt obligations
having a value equal to the fluctuating market value of the optioned securities
or currencies. In order to comply with the requirements of several states, the
Fund will not write a covered call option if, as a result, the aggregate market
value of all Fund securities or currencies covering call or put options exceeds
25% of the market value of the Fund's net assets. Should these state laws change
or should the Fund obtain a waiver of their application, the Fund reserves the
right to increase this percentage. In calculating the 25% limit, the Fund will
offset, against the value of assets covering written calls and puts, the value
of purchased calls and puts on identical securities or currencies with identical
maturity dates.
Fund securities or currencies on which call options may be written will be
purchased solely on the basis of investment considerations consistent with the
Fund's investment objectives. The writing of covered call options is a
conservative investment technique believed to involve relatively little risk (in
contrast to the writing of naked or uncovered options, which the Fund will not
do), but capable of enhancing the Fund's total return. When writing a covered
call option, the Fund, in return for the premium, gives up the opportunity for
profit from a price increase in the underlying security or currency above the
exercise price, but conversely, retains the risk of loss should the
9
<PAGE>
price of the security or currency decline. Unlike one who owns securities or
currencies not subject to an option, the Fund has no control over when it may be
required to sell the underlying securities or currencies, since it may be
assigned an exercise notice at any time prior to the expiration of its
obligations as a writer. If a call option which the Fund has written expires,
the Fund will realize a gain in the amount of the premium; however, such gain
may be offset by a decline in the market value of the underlying security or
currency during the option period. If the call option is exercised, the Fund
will realize a gain or loss from the sale of the underlying security or
currency.
Call options written by the Fund will normally have expiration dates of
less than nine months from the date written. The exercise price of the options
may be below, equal to, or above the current market values of the underlying
securities or currencies at the time the options are written. From time to time,
the Fund may purchase an underlying security or currency for delivery in
accordance with an exercise notice of a call option assigned to it, rather than
delivering such security or currency from its portfolio. In such cases,
additional costs may be incurred.
The premium received is the market value of an option. The premium the Fund
will receive from writing a call option will reflect, among other things, the
current market price of the underlying security or currency, the relationship of
the exercise price to such market price, the historical price volatility of the
underlying security or currency, and the length of the option period. Once the
decision to write a call option has been made, the Investment Manager or
relevant Sub-Adviser, in determining whether a particular call option should be
written on a particular security or currency, will consider the reasonableness
of the anticipated premium and the likelihood that a liquid secondary market
will exist for those options. The premium received by the Fund for writing
covered call options will be recorded as a liability of the Fund. This liability
will be adjusted daily to the option's current market value, which will be the
latest sale price at the time at which the net asset value per share of the Fund
is computed (close of the New York Stock Exchange), or, in the absence of such
sale, the latest asked price. The option will be terminated upon expiration of
the option, the purchase of an identical option in a closing transaction, or
delivery of the underlying security or currency upon the exercise of the option.
The Fund will realize a profit or loss from a closing purchase transaction
if the cost of the transaction is less or more than the premium received from
the writing of the option. Because increases in the market price of a call
option will generally reflect increases in the market price of the underlying
security or currency, any loss resulting from the repurchase of a call option is
likely to be offset in whole or in part by appreciation of the underlying
security or currency owned by the Fund.
Premium Received from Writing Call Options. A Fund will receive a premium
from writing a call option, which increases such Fund's return in the event the
option expires unexercised or is closed out at a profit. The amount of the
premium will reflect, among other things, the relationship of the market price
of the underlying security to the exercise price of the option, the term of the
option and the volatility of the market price of the underlying security. By
writing a call option, a Fund limits its opportunity to profit from any increase
in the market value of the underlying security above the exercise price of the
option.
Closing Transactions. Closing transactions may be effected in order to
realize a profit on an outstanding call option, to prevent an underlying
security or currency from being called, or, to permit the sale of the underlying
security or currency. A Fund may terminate an option that it has written prior
to its expiration by entering into a closing purchase transaction in which it
purchases an option having the same terms as the option written. A Fund will
realize a profit or loss from such transaction if the cost of such transaction
is less or more than the premium received from the writing of the option.
Because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from the purchase of a call option is likely to be offset in whole or in part by
unrealized appreciation of the underlying security owned by such Fund.
Furthermore, effecting a closing transaction will permit the Fund to write
another call option on the underlying security or currency with either a
different exercise price or expiration date or both. If the Fund desires to sell
a particular security or currency from its portfolio on which it has written a
call option, it will seek to effect a closing transaction prior to, or
concurrently with, the sale of the security or currency. There is, of course, no
assurance that the Series will be able to effect such closing transactions at a
favorable price. If the Fund cannot enter into such a transaction, it may be
required to hold a security or currency that it might otherwise have sold. When
the Fund writes a covered call option, it runs the risk of not being able to
participate in the appreciation of the underlying securities or currencies above
the exercise price, as well as the risk of being required to hold on to
securities or currencies that are depreciating in value. This could result in
higher transaction costs. The Fund will
10
<PAGE>
pay transaction costs in connection with the writing of options to close out
previously written options. Such transaction costs are normally higher than
those applicable to purchases and sales of portfolio securities.
Purchasing Put Options. Certain Funds may purchase put options. The Fund
may enter into closing sale transactions with respect to such options, exercise
them or permit them to expire. A Fund may purchase a put option on an underlying
security or currency (a "protective put") owned by the Fund as a defensive
technique in order to protect against an anticipated decline in the value of the
security or currency. Such hedge protection is provided only during the life of
the put option when the Fund, as the holder of the put option, is able to sell
the underlying security or currency at the put exercise price regardless of any
decline in the underlying security's market price or currency's exchange value.
The premium paid for the put option and any transaction costs would reduce any
capital gain otherwise available for distribution when the security or currency
is eventually sold.
A Fund may purchase put options at a time when the Fund does not own the
underlying security or currency. By purchasing put options on a security or
currency it does not own, the Fund seeks to benefit from a decline in the market
price of the underlying security or currency. If the put option is not sold when
it has remaining value, and if the market price of the underlying security or
currency remains equal to or greater than the exercise price during the life of
the put option, the Fund will lose its entire investment in the put option. In
order for the purchase of a put option to be profitable, the market price of the
underlying security or currency must decline sufficiently below the exercise
price to cover the premium and transaction costs, unless the put option is sold
in a closing sale transaction.
Dealer Options. Certain Funds may engage in transactions involving dealer
options. Certain risks are specific to dealer options. While the Fund would look
to a clearing corporation to exercise exchange-traded options, if the Fund were
to purchase a dealer option, it would rely on the dealer from whom it purchased
the option to perform if the option were exercised. Exchange-traded options
generally have a continuous liquid market while dealer options have none.
Consequently, the Fund will generally be able to realize the value of a dealer
option it has purchased only by exercising it or reselling it to the dealer who
issued it. Similarly, when the Fund writes a dealer option, it generally will be
able to close out the option prior to its expiration only by entering into a
closing purchase transaction with the dealer to which the Fund originally wrote
the option. While the Fund will seek to enter into dealer options only with
dealers who will agree to and which are expected to be capable of entering into
closing transactions with the Fund, there can be no assurance that the Fund will
be able to liquidate a dealer option at a favorable price at any time prior to
expiration. Failure by the dealer to do so would result in the loss of the
premium paid by the Fund as well as loss of the expected benefit of the
transaction. Until the Fund, as a covered dealer call option writer, is able to
effect a closing purchase transaction, it will not be able to liquidate
securities (or other assets) used as cover until the option expires or is
exercised. In the event of insolvency of the contra party, the Fund may be
unable to liquidate a dealer option. With respect to options written by the
Fund, the inability to enter into a closing transaction may result in material
losses to the Fund. For example, since the Fund must maintain a secured position
with respect to any call option on a security it writes, the Fund may not sell
the assets which it has segregated to secure the position while it is obligated
under the option. This requirement may impair the Fund's ability to sell
portfolio securities at a time when such sale might be advantageous.
The Staff of the SEC has taken the position that purchased dealer options
and the assets used to secure the written dealer options are illiquid
securities. The Fund may treat the cover used for written OTC options as liquid
if the dealer agrees that the Fund may repurchase the OTC option it has written
for a maximum price to be calculated by a predetermined formula. In such cases,
the OTC option would be considered illiquid only to the extent the maximum
repurchase price under the formula exceeds the intrinsic value of the option. To
this extent, the Fund will treat dealer options as subject to the Fund's
limitation on illiquid securities. If the SEC changes its position on the
liquidity of dealer options, the Fund will change its treatment of such
instrument accordingly.
Certain Risk Factors in Writing Call Options and in Purchasing Put Options:
During the option period, a Fund, as writer of a call option has, in return for
the premium received on the option, given up the opportunity for capital
appreciation above the exercise price should the market price of the underlying
security increase, but has retained the risk of loss should the price of the
underlying security decline. The writer has no control over the time when it may
be required to fulfill its obligation as a writer of the option. The risk of
purchasing a put option is that the Fund may lose the premium it paid plus
transaction costs. If the Fund does not exercise the option and is unable to
close out the position prior to expiration of the option, it will lose its
entire investment.
11
<PAGE>
An option position may be closed out only on an exchange which provides a
secondary market. There can be no assurance that a liquid secondary market will
exist for a particular option at a particular time and that the Fund, can close
out its position by effecting a closing transaction. If the Fund is unable to
effect a closing purchase transaction, it cannot sell the underlying security
until the option expires or the option is exercised. Accordingly, the Fund may
not be able to sell the underlying security at a time when it might otherwise be
advantageous to do so. Possible reasons for the absence of a liquid secondary
market include the following: (i) insufficient trading interest in certain
options; (ii) restrictions on transactions imposed by an exchange; (iii) trading
halts, suspensions or other restrictions imposed with respect to particular
classes or series of options or underlying securities; (iv) inadequacy of the
facilities of an exchange or the clearing corporation to handle trading volume;
and (v) a decision by one or more exchanges to discontinue the trading of
options or impose restrictions on orders. In addition, the hours of trading for
options may not conform to the hours during which the underlying securities are
traded. To the extent that the options markets close before the markets for the
underlying securities, significant price and rate movements can take place in
the underlying markets that cannot be reflected in the options markets. The
purchase of options is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary Fund
securities transactions.
Each exchange has established limitations governing the maximum number of
call options, whether or not covered, which may be written by a single investor
acting alone or in concert with others (regardless of whether such options are
written on the same or different exchanges or are held or written on one or more
accounts or through one or more brokers). An exchange may order the liquidation
of positions found to be in violation of these limits and it may impose other
sanctions or restrictions.
Options on Stock Indices. Options on stock indices are similar to options
on specific securities except that, rather than the right to take or make
delivery of the specific security at a specific price, an option on a stock
index gives the holder the right to receive, upon exercise of the option, an
amount of cash if the closing level of that stock index is greater than, in the
case of a call, or less than, in the case of a put, the exercise price of the
option. This amount of cash is equal to such difference between the closing
price of the index and the exercise price of the option expressed in dollars
multiplied by a specified multiple. The writer of the option is obligated, in
return for the premium received, to make delivery of this amount. Unlike options
on specific securities, all settlements of options on stock indices are in cash
and gain or loss depends on general movements in the stocks included in the
index rather than price movements in particular stocks. A stock index futures
contract is an agreement in which one party agrees to deliver to the other an
amount of cash equal to a specific amount multiplied by the difference between
the value of a specific stock index at the close of the last trading day of the
contract and the price at which the agreement is made. No physical delivery of
securities is made.
Risk Factors in Options on Indices. Because the value of an index option
depends upon the movements in the level of the index rather than upon movements
in the price of a particular security, whether the Fund will realize a gain or a
loss on the purchase or sale of an option on an index depends upon the movements
in the level of prices in the market generally or in an industry or market
segment rather than upon movements in the price of the individual security.
Accordingly, successful use of positions will depend upon the ability of the
Investment Manager or relevant Sub-Adviser to predict correctly movements in the
direction of the market generally or in the direction of a particular industry.
This requires different skills and techniques than predicting changes in the
prices of individual securities.
Index prices may be distorted if trading of securities included in the
index is interrupted. Trading in index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial number of
securities in the index. If this occurred, a Fund would not be able to close out
options which it had written or purchased and, if restrictions on exercise were
imposed, might be unable to exercise an option it purchased, which would result
in substantial losses.
Price movements in Fund securities will not correlate perfectly with
movements in the level of the index and therefore, a Fund bears the risk that
the price of the securities may not increase as much as the level of the index.
In this event, the Fund would bear a loss on the call which would not be
completely offset by movements in the prices of the securities. It is also
possible that the index may rise when the value of the Fund's securities does
not. If this occurred, a Fund would experience a loss on the call which would
not be offset by an increase in the value of its securities and might also
experience a loss in the market value of its securities.
12
<PAGE>
Unless a Fund has other liquid assets which are sufficient to satisfy the
exercise of a call on the index, the Fund will be required to liquidate
securities in order to satisfy the exercise.
When a Fund has written a call on an index, there is also the risk that the
market may decline between the time the Fund has the call exercised against it,
at a price which is fixed as of the closing level of the index on the date of
exercise, and the time the Fund is able to sell securities. As with options on
securities, the Investment Manager or relevant Sub-Adviser will not learn that a
call has been exercised until the day following the exercise date, but, unlike a
call on securities where the Fund would be able to deliver the underlying
security in settlement, the Fund may have to sell part of its securities in
order to make settlement in cash, and the price of such securities might decline
before they could be sold.
If a Fund exercises a put option on an index which it has purchased before
final determination of the closing index value for the day, it runs the risk
that the level of the underlying index may change before closing. If this change
causes the exercised option to fall "out-of-the-money" the Fund will be required
to pay the difference between the closing index value and the exercise price of
the option (multiplied by the applicable multiplier) to the assigned writer.
Although the Fund may be able to minimize this risk by withholding exercise
instructions until just before the daily cutoff time or by selling rather than
exercising an option when the index level is close to the exercise price, it may
not be possible to eliminate this risk entirely because the cutoff time for
index options may be earlier than those fixed for other types of options and may
occur before definitive closing index values are announced.
Trading in Futures. Certain Funds may enter into futures contracts,
including stock index, interest rate and currency futures ("futures" or "futures
contracts"). A futures contract provides for the future sale by one party and
purchase by another party of a specific financial instrument (e.g., units of a
stock index) for a specified price, date, time and place designated at the time
the contract is made. Brokerage fees are incurred when a futures contract is
bought or sold and margin deposits must be maintained. Entering into a contract
to buy is commonly referred to as buying or purchasing a contract or holding a
long position. Entering into a contract to sell is commonly referred to as
selling a contract or holding a short position.
An example of a stock index futures contract follows. The Standard & Poor's
500 Stock Index ("S&P 500 Index") is composed of 500 selected common stocks,
most of which are listed on the New York Stock Exchange. The S&P 500 Index
assigns relative weightings to the common stocks included in the Index, and the
Index fluctuates with changes in the market values of those common stocks. In
the case of the S&P 500 Index, contracts are to buy or sell 500 units. Thus, if
the value of the S&P 500 Index were $150, one contract would be worth $75,000
(500 units x $150). The stock index futures contract specifies that no delivery
of the actual stock making up the index will take place. Instead, settlement in
cash occurs. Over the life of the contract, the gain or loss realized by the
Fund will equal the difference between the purchase (or sale) price of the
contract and the price at which the contract is terminated. For example, if the
Fund enters into a futures contract to buy 500 units of the S&P 500 Index at a
specified future date at a contract price of $150 and the S&P 500 Index is at
$154 on that future date, the Fund will gain $2,000 (500 units x gain of $4). If
the Fund enters into a futures contract to sell 500 units of the stock index at
a specified future date at a contract price of $150 and the S&P 500 Index is at
$152 on that future date, the Fund will lose $1,000 (500 units x loss of $2).
Unlike when the Fund purchases or sells a security, no price would be paid
or received by the Fund upon the purchase or sale of a futures contract. Upon
entering into a futures contract, and to maintain the Fund's open positions in
futures contracts, the Fund would be required to deposit with its custodian in a
segregated account in the name of the futures broker an amount of cash or U.S.
Government securities, suitable money market instruments, or liquid, high-grade
debt obligations known as "initial margin." The margin required for a particular
futures contract is set by the exchange on which the contract is traded, and may
be significantly modified from time to time by the exchange during the term of
the contract. Futures contracts are customarily purchased and sold on margins
that may range upward from less than 5% of the value of the contract being
traded.
Margin is the amount of funds that must be deposited by the Fund with its
custodian in a segregated account in the name of the futures commission merchant
in order to initiate futures trading and to maintain the Fund's open position in
futures contracts. A margin deposit is intended to ensure the Fund's performance
of the futures contract. The margin required for a particular futures contract
is set by the exchange on which the futures contract is traded, and may be
significantly modified from time to time by the exchange during the term of the
futures contract.
13
<PAGE>
If the price of an open futures contract changes (by increase in the case
of a sale or by decrease in the case of a purchase) so that the loss on the
futures contract reaches a point at which the margin on deposit does not satisfy
margin requirements, the broker will require an increase in the margin. However,
if the value of a position increases because of favorable price changes in the
futures contract so that the margin deposit exceeds the required margin, the
broker will pay the excess to the Fund.
These subsequent payments, called "variation margin," to and from the
futures broker, are made on a daily basis as the price of the underlying assets
fluctuate making the long and short positions in the futures contract more or
less valuable, a process known as "marking to the market." The Fund expects to
earn interest income on its margin deposits.
Although certain futures contracts, by their terms, require actual future
delivery of and payment for the underlying instruments, in practice most futures
contracts are usually closed out before the delivery date. Closing out an open
futures contract sale or purchase is effected by entering into an offsetting
futures contract purchase or sale, respectively, for the same aggregate amount
of the identical securities and the same delivery date. If the offsetting
purchase price is less than the original sale price, the Fund realizes a gain;
if it is more, the Fund realizes a loss. Conversely, if the offsetting sale
price is more than the original purchase price, the Fund realizes a gain; if it
is less, the Fund realizes a loss. The transaction costs must also be included
in these calculations. There can be no assurance, however, that the Fund will be
able to enter into an offsetting transaction with respect to a particular
futures contract at a particular time. If the Fund is not able to enter into an
offsetting transaction, the Fund will continue to be required to maintain the
margin deposits on the futures contract.
Options on futures are similar to options on underlying instruments except
that options on futures give the purchaser the right, in return for the premium
paid, to assume a position in a futures contract (a long position if the option
is a call and a short position if the option is a put), rather than to purchase
or sell the futures contract, at a specified exercise price at any time during
the period of the option. Upon exercise of the option, the delivery of the
futures position by the writer of the option to the holder of the option will be
accompanied by the delivery of the accumulated balance in the writer's futures
margin account which represents the amount by which the market price of the
futures contract, at exercise, exceeds (in the case of a call) or is less than
(in the case of a put) the exercise price of the option on the futures contract.
Alternatively, settlement may be made totally in cash. Purchasers of options who
fail to exercise their options prior to the exercise date suffer a loss of the
premium paid.
The writer of an option on a futures contract is required to deposit margin
pursuant to requirements similar to those applicable to futures contracts. Upon
exercise of an option on a futures contract, the delivery of the futures
position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's margin
account. This amount will be equal to the amount by which the market price of
the futures contract at the time of exercise exceeds, in the case of a call, or
is less than, in the case of a put, the exercise price of the option on the
futures contract.
Commissions on financial futures contracts and related options transactions
may be higher than those which would apply to purchases and sales of securities
directly. From time to time, a single order to purchase or sell futures
contracts (or options thereon) may be made on behalf of the Fund and other
mutual funds or series of mutual funds for which the Investment Manager or
relevant Sub-Adviser serves as adviser or sub-adviser, respectively. Such
aggregated orders would be allocated among the Fund and such other mutual funds
or series of mutual funds in a fair and non-discriminatory manner.
A public market exists in interest rate futures contracts covering
primarily the following financial instruments: U.S. Treasury bonds; U.S.
Treasury notes; Government National Mortgage Association ("GNMA") modified
pass-through mortgage-backed securities; three-month U.S. Treasury bills; 90-day
commercial paper; bank certificates of deposit; and Eurodollar certificates of
deposit. It is expected that futures contracts trading in additional financial
instruments will be authorized. The standard contract size is generally $100,000
for futures contracts in U.S. Treasury bonds, U.S. Treasury notes, and GNMA
pass-through securities and $1,000,000 for the other designated futures
contracts. A public market exists in futures contracts covering a number of
indexes, including, but not limited to, the Standard & Poor's 500 index, the
Standard & Poor's 100 Index, the NASDAQ 100 Index, the Value Line Composite
Index and the New York Stock Exchange Composite Index.
Stock index futures contracts may be used to provide a hedge for a portion
of the Fund's portfolio, as a cash management tool, or as an efficient way for
the Investment Manager or relevant Sub-Adviser to implement either an increase
or decrease in portfolio market exposure in response to changing market
conditions. Stock index
14
<PAGE>
futures contacts are currently traded with respect to the S&P 500 Index and
other broad stock market indices, such as the New York Stock Exchange Composite
Stock Index and the Value Line Composite Stock Index. The Fund may, however,
purchase or sell futures contracts with respect to any stock index.
Nevertheless, to hedge the Fund's portfolio successfully, the Fund must sell
futures contracts with respect to indexes or subindexes whose movements will
have a significant correlation with movements in the prices of the Fund's
securities.
Interest rate or currency futures contracts may be used as a hedge against
changes in prevailing levels of interest rates or currency exchange rates in
order to establish more definitely the effective return on securities or
currencies held or intended to be acquired by the Fund. In this regard, the Fund
could sell interest rate or currency futures as an offset against the effect of
expected increases in interest rates or currency exchange rates and purchase
such futures as an offset against the effect of expected declines in interest
rates or currency exchange rates.
The Fund may enter into futures contracts which are traded on national or
foreign futures exchanges and are standardized as to maturity date and
underlying financial instrument. The principal financial futures exchanges in
the United States are the Board of Trade of the City of Chicago, the Chicago
Mercantile Exchange, the New York Futures Exchange, and the Kansas City Board of
Trade. Futures exchanges and trading in the United States are regulated under
the Commodity Exchange Act by the Commodity Futures Trading Commission ("CFTC").
Futures are traded in London at the London International Financial Futures
Exchange, in Paris at the MATIF and in Tokyo at the Tokyo Stock Exchange.
Although techniques other than the sale and purchase of futures contracts could
be used for the above-referenced purposes, futures contracts offer an effective
and relatively low cost means of implementing the Fund's objectives in these
areas.
Certain Risks Relating to Futures Contracts and Related Options. There are
special risks involved in futures transactions.
Special Risks of Transactions in Stock Index Futures Contracts
Volatility and Leverage. The prices of futures contracts are volatile and
are influenced, among other things, by actual and anticipated changes in the
market and interest rates, which in turn are affected by fiscal and monetary
policies and national and international policies and economic events.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of contract, no trades may
be made on that day at a price beyond that limit. The daily limit governs only
price movement during a particular trading day and therefore does not limit
potential losses, because the limit may prevent the liquidation of unfavorable
positions. Futures contract prices have occasionally moved to the daily limit
for several consecutive trading days with little or no trading, thereby
preventing prompt liquidation of futures positions and subjecting some futures
traders to substantial losses.
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss or
gain, to the investor. For example, if at the time of purchase, 10% of the value
of the futures contract is deposited as margin, a subsequent 10% decrease in the
value of the futures contract would result in a total loss of the margin
deposit, before any deduction for the transaction costs, if the account were
then closed out. A 15% decrease would result in a loss equal to 150% of the
original margin deposit, if the contract were closed out. Thus, a purchase or
sale of a futures contract may result in losses in excess of the amount invested
in the futures contract. However, the Fund would presumably have sustained
comparable losses if, instead of the futures contract, it had invested in the
underlying financial instrument and sold it after the decline. Furthermore, in
the case of a futures contract purchase, in order to be certain that the Fund
has sufficient assets to satisfy its obligations under a futures contract, the
Fund earmarks to the futures contract money market instruments equal in value to
the current value of the underlying instrument less the margin deposit.
Liquidity. The Fund may elect to close some or all of its futures positions
at any time prior to their expiration. The Fund would do so to reduce exposure
represented by long futures positions or increase exposure represented by short
futures positions. The Fund may close its positions by taking opposite positions
which would operate to terminate the Fund's position in the futures contracts.
Final determinations of variation margin would then be made, additional cash
would be required to be paid by or released to the Fund, and the Fund would
realize a loss or a gain.
15
<PAGE>
Futures contracts may be closed out only on the exchange or board of trade
where the contracts were initially traded. For example, stock index futures
contracts can currently be purchased or sold with respect to the S&P 500 Index
on the Chicago Mercantile Exchange, the New York Stock Exchange Composite Stock
Index on the New York Futures Exchange and the Value Line Composite Stock Index
on the Kansas City Board of Trade. Although the Fund intends to purchase or sell
futures contracts only on exchanges or boards of trade where there appears to be
an active market, there is no assurance that a liquid market on an exchange or
board of trade will exist for any particular contract at any particular time. In
such event, it might not be possible to close a futures contract, and in the
event of adverse price movements, the Fund would continue to be required to make
daily cash payments of variation margin. However, in the event futures contracts
have been used to hedge portfolio securities, the Fund would continue to hold
securities subject to the hedge until the futures contracts could be terminated.
In such circumstances, an increase in the price of the securities, if any, might
partially or completely offset losses on the futures contract. However, as
described below, there is no guarantee that the price of the securities will, in
fact, correlate with the price movements in the futures contract and thus
provide an offset to losses on a futures contract.
Hedging Risk. A decision of whether, when, and how to hedge involves skill
and judgment, and even a well-conceived hedge may be unsuccessful to some degree
because of unexpected market behavior or market trends. There are several risks
in connection with the use by the Fund of futures contracts as a hedging device.
One risk arises because of the imperfect correlation between movements in the
prices of the futures and movements in the prices of the underlying instruments
which are the subject of the hedge. The Investment Manager will, however,
attempt to reduce this risk by entering into futures contracts whose movements,
in its judgment, will have a significant correlation with movements in the
prices of the Fund's underlying instruments sought to be hedged.
Successful use of futures contracts by the Fund for hedging purposes is
also subject to the Investment Manager's ability to correctly predict movements
in the direction of the market. It is possible that, when the Fund has sold
futures to hedge its portfolio against a decline in the market, the index,
indices, or instruments underlying futures might advance and the value of the
underlying instruments held in the Fund's portfolio might decline. If this were
to occur, the Fund would lose money on the futures and also would experience a
decline in value in its underlying instruments. However, while this might occur
to a certain degree, the Investment Manager believes that over time the value of
the Fund's portfolio will tend to move in the same direction as the market
indices used to hedge the portfolio. It is also possible that if the Fund were
to hedge against the possibility of a decline in the market (adversely affecting
the underlying instruments held in its portfolio) and prices instead increased,
the Fund would lose part or all of the benefit of increased value of those
underlying instruments that it had hedged, because it would have offsetting
losses in its futures positions. In addition, in such situations, if the Fund
had insufficient cash, it might have to sell underlying instruments to meet
daily variation margin requirements. Such sales of underlying instruments might
be, but would not necessarily be, at increased prices (which would reflect the
rising market). The Fund might have to sell underlying instruments at a time
when it would be disadvantageous to do so.
In addition to the possibility that there might be an imperfect
correlation, or no correlation at all, between price movements in the futures
contracts and the portion of the portfolio being hedged, the price movements of
futures contracts might not correlate perfectly with price movements in the
underlying instruments due to certain market distortions. First, all
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors might close future contracts through offsetting transactions which
could distort the normal relationship between the underlying instruments and
futures markets. Second, the margin requirements in the futures market are less
onerous than margin requirements in the securities markets, and as a result the
futures market might attract more speculators than the securities markets do.
Increased participation by speculators in the futures market might also cause
temporary price distortions. Due to the possibility of price distortion in the
futures market and also because of the imperfect correlation between movements
in the underlying instruments and movements in the prices of futures contracts,
even a correct forecast of general market trends by the Investment Manager might
not result in a successful hedging transaction over a very short time period.
Certain Risks of Options on Futures Contracts. The Fund may seek to close
out an option position by writing or buying an offsetting option covering the
same index, underlying instruments, or contract and having the same exercise
price and expiration date. The ability to establish and close out positions on
such options will be subject to the maintenance of a liquid secondary market.
Reasons for the absence of a liquid secondary market
16
<PAGE>
on an exchange include the following: (i) there may be insufficient trading
interest in certain options; (ii) restrictions may be imposed by an exchange on
opening transactions or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options, or underlying instruments; (iv) unusual or
unforeseen circumstances may interrupt normal operations on an exchange; (v) the
facilities of an exchange or a clearing corporation may not at all times be
adequate to handle current trading volume; or (vi) one or more exchanges could,
for economic or other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class or series of options),
in which event the secondary market on that exchange (or in the class or series
of options) would cease to exist, although outstanding options on the exchange
that had been issued by a clearing corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms. There
is no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain of the facilities of any
of the clearing corporations inadequate, and thereby result in the institution
by an exchange of special procedures which may interfere with the timely
execution of customers' orders.
Regulatory Limitations. The Funds will engage in transactions in futures
contracts and options thereon only for bona fide hedging, yield enhancement and
risk management purposes, in each case in accordance with the rules and
regulations of the CFTC.
The Funds may not enter into futures contracts or options thereon if, with
respect to positions which do not qualify as bona fide hedging under applicable
CFTC rules, the sum of the amounts of initial margin deposits on the Fund's
existing futures and premiums paid for options on futures would exceed 5% of the
net asset value of the Funds after taking into account unrealized profits and
unrealized losses on any such contracts it has entered into; provided, however,
that in the case of an option that is in-the-money at the time of purchase, the
in-the-money amount may be excluded in calculating the 5% limitation.
The Funds' use of futures contracts will not result in leverage. Therefore,
to the extent necessary, in instances involving the purchase of futures
contracts or call options thereon or the writing of put options thereon by the
Fund, an amount of cash, U.S. Government securities or other liquid, high-grade
debt obligations, equal to the market value of the futures contracts and options
thereon (less any related margin deposits), will be identified in an account
with the Fund's custodian to cover the position, or alternative cover will be
employed.
In addition, CFTC regulations may impose limitations on the Funds' ability
to engage in certain yield enhancement and risk management strategies. If the
CFTC or other regulatory authorities adopt different (including less stringent)
or additional restrictions, the Funds would comply with such new restrictions.
INVESTMENT POLICY LIMITATIONS
Each of the Funds operates within certain fundamental investment policy
limitations which may not be changed without the approval of the lesser of (i)
67% or more of the voting securities present at a meeting if the holders of more
than 50% of the outstanding voting securities of the Fund are present or
represented by proxy, or (ii) more than 50% of the outstanding voting securities
of the Fund. Investments bound by the following limitations are adhered to at
the time of investment, but later increases or decreases in percentages
resulting from change in value or net assets will not result in violation of
such limitations.
Security Growth and Income Fund's Fundamental Policies
Growth and Income Fund's fundamental investment policy limitations are:
1. Not to invest more than 5% of its total assets in the securities of any one
issuer.
2. Not to purchase more than 10% of the outstanding voting securities of any
one issuer.
3. Not to purchase securities for the purpose of exercising control over the
issuers thereof.
4. Not to act as an underwriter, either directly or indirectly.
5. Not to borrow money or securities for any purpose except to the extent that
borrowing up to 5% of the Fund's total assets is permitted for emergency
purposes, provided such borrowing is made on a temporary basis from
commercial banks and is not used for investment purposes.
6. Not to lend money or securities to any person, corporation, securities
dealer, or bank, other than the purchase of publicly distributed debt
securities which are not considered loans, or by entry into repurchase
agreements.
7. Not to buy securities on margin or effect short sales of securities.
17
<PAGE>
8. Not to mortgage, pledge or hypothecate any securities or funds of the Fund
other than as might become necessary to furnish bond to governmental
agencies required for the conduct of the business of the Fund.
9. Not to purchase any security other than securities listed on a national
securities exchange registered under the Securities Exchange Act of 1934,
or actively traded over-the-counter.
10. Not to invest in companies having a record of less than three years'
continuous operation, which may include the operations of predecessor
companies.
11. Not to invest in the securities of an issuer if the officers and directors
of the Fund, Underwriter or Manager own more than 1/2 of 1% of such
securities, or if all such persons together own more than 5% of such
securities.
12. Not to invest in the securities of other investment companies except in the
open market at ordinary broker's commissions.
13. Not to allow officers or directors of the Fund, Underwriter or Manager to
purchase shares of the Fund except for investment at current net asset
value.
14. Not to own, buy or sell real estate, commodities or commodity contracts.
15. Not to invest in puts, calls, straddles, spreads or any combination
thereof.
16. Not to invest in limited partnerships or similar interests in oil, gas,
mineral leases, and other mineral exploration development programs;
provided, however, that the Fund may invest in the securities of other
corporations whose activities include such exploration and development.
Although Investment Limitation 16 is intended to apply only to certain oil,
gas and other mineral exploration development programs and not to securities
traded on national securities exchanges, the Board of Directors reviewed and
considered in 1986 the scope of this limitation. Prior to that time, the Fund
had made an investment, which incurred a loss, in an oil and gas company which
was organized as a limited partnership with its securities traded on the New
York Stock Exchange. The directors concluded that the limitation was not
intended to apply to such investments, but in order to avoid possible future
questions regarding the permissibility of such investments, have determined that
Growth and Income Fund will not purchase limited partnership securities of any
type in the future.
Security Equity Fund's Fundamental Policies
Security Equity Fund's fundamental policy limitations, which are applicable
to each of Equity Fund, Global Fund and Asset Allocation Fund, are:
1. Not to invest more than 5% of its total assets in the securities of any one
issuer; provided, however, that for Asset Allocation Fund this limitation
applies only with respect to 75% of its total assets.
2. Not to purchase more than 10% of the outstanding voting securities of any
one issuer; provided, however, that for Asset Allocation Fund this
limitation applies only with respect to 75% of its total assets.
3. Not to purchase securities for the purpose of exercising control over the
issuers thereof.
4. Not to underwrite securities of other issuers, provided that this policy
shall not be construed to prevent or limit in any manner the right of the
Fund to purchase securities for investment purposes.
5. With respect to Equity Fund and Global Fund, not to borrow money or
securities for any purpose except to the extent that borrowing up to 10% of
the Fund's total assets is permitted for emergency purposes on a temporary
basis from banks and will not be made for investment purposes. Asset
Allocation Fund may borrow up to 33 1/3% of its total assets and may borrow
for emergency, temporary or investment purposes from a variety of sources,
including banks. Each of the Funds may also obtain such short-term credits
as are necessary for the clearance of portfolio transactions.
6. Not to make loans to other persons other than the purchase of publicly
distributed debt securities which are not considered loans, or by entry
into repurchase agreements; provided, however, that this investment
limitation does not apply to Asset Allocation Fund.
7. Not to buy securities on margin or effect short sales of securities;
provided, however, that Asset Allocation Fund may make margin deposits in
connection with transactions in options, futures, and options on futures.
8. Not to issue senior securities; provided, however, that Asset Allocation
Fund may issue senior securities in compliance with the Investment Company
Act of 1940.
18
<PAGE>
9. Not to invest in the securities of other investment companies; provided,
however, that this investment limitation does not apply to Asset Allocation
Fund which may invest in the securities of other investment companies.
(Asset Allocation Fund does not presently intend to invest in the
securities of other investment companies.)
10. Not to invest in companies having a record of less than three years'
continuous operation, which may include the operations of predecessor
companies; provided, however, that this investment limitation does not
apply to Asset Allocation Fund.
11. Not to invest in the securities of an issuer if the officers and directors
of the Fund, the Underwriter or Investment Manager own more than1/2of 1% of
such securities, or if all such persons together own more than 5% of such
securities.
12. Not to allow officers or directors of the Fund, the Underwriter or
Investment Manager to purchase shares of the Fund except for investment at
current net asset value.
13. Not to invest 25% or more of the Fund's total assets in a particular
industry; provided, however, that this investment limitation does not apply
to Asset Allocation Fund.
14. Not to own, buy or sell real estate, commodities or commodity contracts;
provided, however, that the Funds may enter into forward currency contracts
and forward commitments, and transactions in futures, options, and options
on futures to the extent permitted by their investment policies which may
be amended without shareholder approval. (This policy shall not prevent any
of the Funds from investing in securities or other instruments backed by
real estate or in securities of companies engaged in the real estate
business.)
15. Not to invest in warrants unless acquired as a unit or attached to other
securities; provided, however, that this investment limitation does not
apply to Asset Allocation Fund.
16. Not to invest more than 10% of its total assets in restricted securities;
provided, however, that this investment limitation does not apply to Asset
Allocation Fund which may invest in restricted securities. (Restricted
securities are those securities for which an active and substantial market
does not exist at the time of purchase or upon subsequent valuation, or for
which there are legal or contractual restrictions as to disposition.)
17. Not to invest more than 2% of its total assets in puts, calls, straddles,
spreads, or any combination thereof; provided, however, that this
investment limitation does not apply to Asset Allocation Fund which may
invest in such instruments. (With respect to Equity Fund and Global Fund,
there is no present intention to invest any of the Fund's assets in puts,
calls, straddles, spreads, or any combination thereof.)
18. Not to invest in limited partnerships or similar interests in oil, gas,
mineral leases or other mineral exploration development programs; provided,
however, that the Funds may invest in the securities of other corporations
whose activities include such exploration and development.
The Fund interprets Fundamental Policy 14 to prohibit the purchase of real
estate limited partnerships.
Security Ultra Fund's Fundamental Policies
Ultra Fund's fundamental policy limitations are:
1. Not to invest more than 5% of its total assets in the securities of any one
issuer (other than the United States of America).
2. Not to purchase more than 10% of the outstanding voting securities (or of
any class of outstanding securities) of any one issuer.
3. Not to purchase securities for the purpose of exercising control over the
issuers thereof.
4. Not to underwrite securities of other issuers.
5. Not to purchase restricted securities.
6. Not to pledge any portion of its assets.
7. Not to make loans to other persons other than the purchase of publicly
distributed debt securities which are not considered loans, or by entry
into repurchase agreements.
8. Not to buy securities on margin but it may obtain such short-term credits
as may be necessary for the clearance of purchases and sales of securities.
19
<PAGE>
9. Not to issue senior securities, except that it may borrow money from banks
for temporary or emergency purposes in an amount up to 5% of the Fund's
total assets, provided that the Fund will not purchase portfolio securities
at any time it has outstanding borrowings.
10. Not to invest in the securities of other investment companies.
11. Not to make short sales of securities unless at the time it owns an equal
amount of such securities, or by virtue of ownership of convertible or
exchangeable securities, it has the right to obtain through the conversion
or exchange of such other securities an equal amount of securities sold
short.
12. Not to invest more than 25% of the Fund's total assets in a particular
industry.
13. Not to own, buy or sell real estate, commodities or commodity contracts.
14. Not to invest more than 5% of the value of the Fund's net assets in
warrants, valued at the lower of cost or market. Included within that
amount (but not to exceed 2% of the value of the Fund's net assets) may be
warrants which are not listed on the New York or American Stock Exchanges.
Warrants acquired by the Fund in units or attached to securities may be
deemed to be without value.
15. Not to invest more than 5% of its total assets in any issuer or issuers
having a record of less than three years continuous operation, which may
include the operations of predecessor companies.
16. Not to invest in puts, calls, straddles, spreads, or any combination
thereof.
17. Not to invest in limited partnerships or similar interests in oil, gas,
mineral leases, and other mineral exploration or development programs;
provided, however, that the Fund may invest in the securities of other
corporations whose activities include such exploration and development.
OFFICERS AND DIRECTORS
The officers and directors of the Funds and their principal occupations for
at least the last five years are as follows. Unless otherwise noted, the address
of each officer and director is 700 Harrison Street, Topeka, Kansas 66636-0001.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NAME, ADDRESS AND POSITIONS HELD WITH THE FUNDS PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
JEFFREY B. PANTAGES,* Director President, Chief Investment Officer and Director, Security
Management Company; Senior Vice President and Chief
Investment Officer, Security Benefit Life Insurance
Company. Prior to April 1992, Managing Director, Capital
Management Group of The Prudential
JOHN D. CLELAND,* President and Director Senior Vice President and Director, Security Management
Company
WILLIS A. ANTON, JR., Director Partner, Classic Awning & Design. Prior to October 1991,
3616 Yorkway President, Classic Awning & Design. Prior to July 1989,
Topeka, Kansas 66604 Vice President, Kansas Canvas Products
DONALD A. CHUBB, JR., Director President, Neon Tube Light, Inc.
605 SE 8th Street
Topeka, Kansas 66607
DONALD L. HARDESTY, Director President, Central Research Corporation
900 Bank IV Tower
Topeka, Kansas 66603
PENNY A. LUMPKIN,** Director Vice President, Palmer News, Inc. Prior to October 1991,
3616 Canterbury Town Road Secretary and Director, Palmer Companies, Inc. (Wholesale
Topeka, Kansas 66610 Periodicals)
MARK L. MORRIS, JR.,** Director President, Mark Morris Associates (Veterinary Research and
5500 SW 7th Street Education)
Topeka, Kansas 66606
HAROLD G. WORSWICK,** Director Chairman of the Board, Emeritus, Wolfe's Camera Shops,
3101 Burlingame Road Inc. Prior to October 1991, Chairman of the Board, Wolfe's
Topeka, Kansas 66611 Camera Shops, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
20
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
NAME, ADDRESS AND POSITIONS HELD WITH THE FUNDS PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
JAMES R. SCHMANK, Vice President and Treasurer Senior Vice President, Treasurer, Chief Fiscal Officer and
Director, Security Management Company; Vice President,
Security Benefit Group, Inc.
TERRY A. MILBERGER, Vice President Vice President and Senior Portfolio Manager, Security
(Equity Fund only) Management Company
CINDY L. SHIELDS, Assistant Vice President Assistant Vice President and Portfolio Manager, Security
(Ultra Fund only) Management Company. Prior to August 1994, Junior Portfolio
Manager, Research Analyst, Junior Research Analyst and
Portfolio Assistant, Security Management Company
MARK E. YOUNG, Vice President Vice President - Operations, Security Management Company
AMY J. LEE, Secretary Assistant Counsel, Security Benefit Group, Inc.
BRENDA M. LUTHI, Assistant Treasurer and Assistant Secretary Assistant Vice President, Assistant Treasurer and Assistant
Secretary, Security Management Company
GREGORY A. HAMILTON, Assistant Vice President Second Vice President and Portfolio Manager, Security
(Equity Fund only) Management Company. Prior to December 1992, First Vice
President and Manager of Investments Division, Mercantile
National Bank
- ------------------------------------------------------------------------------------------------------------------------------------
*These directors are deemed to be "interested persons" of the Funds under the Investment Company Act of 1940, as amended, by reason
of their positions with the Funds' Investment Manager and/or the parent of the Investment Manager.
**These directors serve on the Funds' joint audit committee, the purpose of which is to meet with the independent auditors, to
review the work of the auditors, and to oversee the handling by Security Management Company of the accounting functions for the
Funds.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The directors and officers of the Funds hold identical offices in the other
Funds managed by the Investment Manager, except Mr. Milberger, who is also Vice
President of SBL Fund, Ms. Shields who is Assistant Vice President of SBL Fund,
and Mr. Hamilton who is Assistant Vice President of SBL Fund and Security Income
Fund. (See the table under "Investment Management," on page 27, for positions
held by such persons with the Investment Manager.) Mr. Young and Ms. Lee hold
identical offices for the Funds' distributor, Security Distributors, Inc., and
Messrs. Cleland and Schmank serve as Vice President and Director, while Ms.
Luthi serves as Treasurer of the distributor.
REMUNERATION OF DIRECTORS AND OTHERS
The Funds' directors, except those directors who are "interested persons"
of the Funds, receive from each of Security Growth and Income Fund, Security
Equity Fund and Security Ultra Fund an annual retainer of $1,042 and a fee of
$100 per meeting, plus reasonable travel costs, for each meeting of the board
attended. In addition, certain directors who are members of the Funds' joint
audit committee receive a fee of $100 per hour with a minimum fee of $200 and
reasonable travel costs for each meeting of the Funds' audit committee attended.
Such fees and travel costs are paid by the Investment Manager for each Fund,
except Asset Allocation Fund, pursuant to its Investment Management and Services
Agreements with the Funds which provide that the Investment Manager will bear
all Fund expenses except for its fee and the expenses of brokerage commissions,
interest, taxes, extraordinary expenses approved by the Board of Directors and
Class B distribution fees. Asset Allocation Fund pays its share of directors'
fees and travel costs. (See page 27, "Investment Management.")
The Funds do not pay any fees to, or reimburse expenses of, Directors who
are considered "interested persons" of the Funds. The aggregate compensation
paid by the Funds to each of the Directors during the fiscal year ended
September 30, 1995, and the aggregate compensation paid to each of the Directors
during calendar year 1995 by all seven of the registered investment companies to
which the Investment Manager provides investment advisory services
(collectively, the "Security Fund Complex"), are set forth below. Each of the
Directors is a director of each of the other registered investment companies in
the Security Fund Complex.
21
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
PENSION OR RETIREMENT
BENEFITS ACCRUED
AGGREGATE COMPENSATION AS PART OF FUND EXPENSES TOTAL
--------------------------------- ---------------------------------- COMPENSATION
SECURITY SECURITY ESTIMATED FROM THE
GROWTH GROWTH ANNUAL SECURITY FUND
NAME OF DIRECTOR AND SECURITY SECURITY AND SECURITY SECURITY BENEFITS COMPLEX,
OF THE FUND INCOME EQUITY ULTRA INCOME EQUITY ULTRA UPON INCLUDING
FUND FUND FUND FUND FUND FUND RETIREMENT THE FUNDS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Willis A. Anton, Jr. $1,442 $1,442 $1,442 $ 0 $ 0 $ 0 $0 $17,300
Donald A. Chubb, Jr. 1,451 1,501 1,451 0 0 0 0 17,500
John D. Cleland 0 0 0 0 0 0 0 0
Jack H. Hamilton 1,095 1,116 1,095 0 0 0 0 13,275
Donald L. Hardesty 1,442 1,442 1,442 0 0 0 0 17,300
Penny A. Lumpkin 1,456 1,585 1,464 0 0 0 0 17,800
Mark L. Morris, Jr. 1,451 1,501 1,451 0 0 0 0 17,500
Jeffrey B. Pantages 0 0 0 0 0 0 0 0
Harold G. Worswick* 0 0 0 0 0 0 0 17,500
- ----------------------------------------------------------------------------------------------------------------------------------
*Each Fund has accrued deferred compensation in the amount of $1,451, $1,501 and $1,451 for Mr. Worswick as of September 30, 1995.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Investment Manager compensates its officers and directors who may also
serve as officers or directors of the Funds. On October 31, 1995, the Funds'
officers and directors (as a group) beneficially owned 16,508; 194,024; 20,046;
6,027; and 65,585 of Class A shares of Growth and Income Fund, Equity Fund,
Global Fund, Asset Allocation Fund and Ultra Fund, respectively, which
represented approximately .198%, .286%, 1.378%, .003% and .929% of the total
outstanding Class A shares of each Fund on that date.
HOW TO PURCHASE SHARES
Investors may purchase shares of the Funds through authorized dealers who
are members of the National Association of Securities Dealers, Inc. In addition,
banks and other financial institutions may make shares of the Funds available to
their customers. (Banks and other financial institutions that make shares of the
Funds available to their customers in Texas must be registered with that state
as securities dealers.) The minimum initial investment is $100. The minimum
subsequent investment is $100 unless made through an Accumulation Plan which
allows for subsequent investments of $20. (See "Accumulation Plan," page 26.) An
application may be obtained from the Investment Manager.
As a convenience to investors and to save operating expenses, the Funds do
not issue certificates for full shares except upon written request by the
investor or his or her investment dealer. Certificates will be issued at no cost
to the stockholder. No certificates will be issued for fractional shares and
fractional shares may be withdrawn only by redemption for cash.
Orders for the purchase of shares of the Funds will be confirmed at an
offering price equal to the net asset value per share next determined after
receipt of the order in proper form by Security Distributors, Inc. (the
"Distributor") (generally as of the close of the Exchange on that day) plus the
sales charge in the case of Class A shares. Orders received by dealers or other
firms prior to the close of the Exchange and received by the Distributor prior
to the close of its business day will be confirmed at the offering price
effective as of the close of the Exchange on that day. Dealers and other
financial services firms are obligated to transmit orders promptly.
The Funds reserve the right to withdraw all or any part of the offering
made by this prospectus and to reject purchase orders.
Alternative Purchase Options
The Funds offer two classes of shares:
Class A Shares - Front-End Load Option. Class A shares are sold with a
sales charge at the time of purchase. Class A shares are not subject to a sales
charge when they are redeemed (except that shares sold in an amount of
$1,000,000 or more without a front-end sales charge will be subject to a
contingent deferred sales charge for one year). See Appendix B for a discussion
of "Rights of Accumulation" and "Statement of Intention," which options may
serve to reduce the front-end sales charge.
22
<PAGE>
Class B Shares - Back-End Load Option. Class B shares are sold without a
sales charge at the time of purchase, but are subject to a deferred sales charge
if they are redeemed within five years of the date of purchase. Class B shares
will automatically convert to Class A shares at the end of eight years after
purchase.
The decision as to which class is more beneficial to an investor depends on
the amount and intended length of the investment. Investors who would rather pay
the entire cost of distribution at the time of investment, rather than spreading
such cost over time, might consider Class A shares. Other investors might
consider Class B shares, in which case 100% of the purchase price is invested
immediately, depending on the amount of the purchase and the intended length of
investment. The Funds will not normally accept any purchase of Class B shares in
the amount of $500,000 or more.
Dealers or others may receive different levels of compensation depending on
which class of shares they sell.
Class A Shares
Class A shares are offered at net asset value plus an initial sales charge
as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
SALES CHARGE
---------------------------------------------------------
PERCENTAGE
AMOUNT OF PURCHASE PERCENTAGE OF PERCENTAGE OF NET REALLOWABLE TO
AT OFFERING PRICE OFFERING PRICE AMOUNT INVESTED DEALERS
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 ................. 5.75% 6.10% 5.00%
$50,000 but less than $100,000 .... 4.75 4.99 4.00
$100, 000 but less than $250,000 .. 3.75 3.90 3.00
$250,000 but less than $500,000 ... 2.75 2.83 2.25
$500,000 but less than $1,000,000 . 2.00 2.04 1.75
$1,000,000 and over ............... None None (See below)
- ------------------------------------------------------------------------------------------------
</TABLE>
The Underwriter will pay a commission to dealers on purchases of $1,000,000 or
more as follows: 1.00% on sales up to $5,000,000, plus .50% on sales of
$5,000,000 or more up to $10,000,000, and .10% on any amount of $10,000,000 or
more.
The Investment Manager may, at its expense, pay a service fee to dealers
who satisfy certain criteria established by the Investment Manager from time to
time relating to the volume of their sales of Class A shares of the Funds and
certain other Security Funds during prior periods and certain other factors,
including providing to their clients who are stockholders of the Funds certain
services, which include assisting in maintaining records, processing purchase
and redemption requests and establishing shareholder accounts, assisting
shareholders in changing account options or enrolling in specific plans, and
providing shareholders with information regarding the Funds and related
developments. Service fees are paid quarterly and may be discontinued at any
time.
Class B Shares
Class B shares are offered at net asset value, without an initial sales
charge. With certain exceptions, the Funds may impose a deferred sales charge on
shares redeemed within five years of the date of purchase. No deferred sales
charge is imposed on amounts redeemed thereafter. If imposed, the deferred sales
charge is deducted from the redemption proceeds otherwise payable to you. The
deferred sales charge is retained by the Distributor.
23
<PAGE>
Whether a contingent deferred sales charge is imposed and the amount of the
charge will depend on the number of years since the investor made a purchase
payment from which an amount is being redeemed, according to the following
schedule:
Year Since Purchase Payment Was Made Contingent Deferred Sales Charge
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth and Following 0%
Class B shares (except shares purchased through the reinvestment of
dividends and other distributions paid with respect to Class B shares) will
automatically convert, on the eighth anniversary of the date such shares were
purchased, to Class A shares which are subject to a lower distribution fee. This
automatic conversion of Class B shares will take place without imposition of a
front-end sales charge or exchange fee. (Conversion of Class B shares
represented by stock certificates will require the return of the stock
certificates to the Investment Manager.) All shares purchased through
reinvestment of dividends and other distributions paid with respect to Class B
shares ("reinvestment shares") will be considered to be held in a separate
subaccount. Each time any Class B shares (other than those held in the
subaccount) convert to Class A shares, a pro rata portion of the reinvestment
shares held in the subaccount will also convert to Class A shares. Class B
shares so converted will no longer be subject to the higher expenses borne by
Class B shares. Because the net asset value per share of the Class A shares may
be higher or lower than that of the Class B shares at the time of conversion,
although the dollar value will be the same, a shareholder may receive more or
less Class A shares than the number of Class B shares converted. Under current
law, it is the Funds' opinion that such a conversion will not constitute a
taxable event under federal income tax law. In the event that this ceases to be
the case, the Board of Directors will consider what action, if any, is
appropriate and in the best interests of the Class B stockholders.
Class B Distribution Plan
Each Fund bears some of the costs of selling its Class B shares under a
Distribution Plan adopted with respect to its Class B shares ("Class B
Distribution Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940 ("1940 Act"). This Plan provides for payments at an annual rate of 1.00% of
the average daily net asset value of Class B shares. Amounts paid by the Funds
are currently used to pay dealers and other firms that make Class B shares
available to their customers (1) a commission at the time of purchase normally
equal to 4.00% of the value of each share sold and (2) a service fee for account
maintenance and personal service to shareholders payable for the first year,
initially, and for each year thereafter, quarterly, in an amount equal to .25%
annually of the average daily net asset value of Class B shares sold by such
dealers and other firms and remaining outstanding on the books of the Funds.
Rules of the National Association of Securities Dealers, Inc. ("NASD")
limit the aggregate amount that a Fund may pay annually in distribution costs
for the sale of its Class B shares to 6.25% of gross sales of Class B shares
since the inception of the Distribution Plan, plus interest at the prime rate
plus 1% on such amount (less any contingent deferred sales charges paid by Class
B shareholders to the Distributor). The Distributor intends, but is not
obligated, to continue to pay or accrue distribution charges incurred in
connection with the Class B Distribution Plan which exceed current annual
payments permitted to be received by the Distributor from the Funds. The
Distributor intends to seek full payment of such charges from the Fund (together
with annual interest thereon at the prime rate plus 1%) at such time in the
future as, and to the extent that, payment thereof by the Funds would be within
permitted limits.
Each Fund's Class B Distribution Plan may be terminated at any time by vote
of its directors who are not interested persons of the Fund as defined in the
1940 Act or by vote of a majority of the outstanding Class B shares. In the
event the Class B Distribution Plan is terminated by the Class B stockholders or
the Funds' Board of Directors, the payments made to the Distributor pursuant to
the Plan up to that time would be retained by the Distributor. Any expenses
incurred by the Distributor in excess of those payments would be absorbed by the
24
<PAGE>
Distributor. The Funds make no payments in connection with the sales of their
shares other than the distribution fee paid to the Distributor.
Calculation and Waiver of Contingent Deferred Sales Charges
Any contingent deferred sales charge imposed upon redemption of Class A
shares (purchased in amounts of $1,000,000 or more) and Class B shares is a
percentage of the lesser of (1) the net asset value of the shares redeemed or
(2) the net cost of such shares. No contingent deferred sales charge is imposed
upon redemption of amounts derived from (1) increases in the value above the net
cost of such shares due to increases in the net asset value per share of the
Fund; (2) shares acquired through reinvestment of income dividends and capital
gain distributions; or (3) Class A shares (purchased in amounts of $1,000,000 or
more) held for more than one year or Class B shares held for more than five
years. Upon request for redemption, shares not subject to the contingent
deferred sales charge will be redeemed first. Thereafter, shares held the
longest will be the first to be redeemed.
The contingent deferred sales charge is waived: (1) following the death of
a stockholder if redemption is made within one year after death; (2) upon the
disability (as defined in section 72(m)(7) of the Internal Revenue Code) of a
stockholder prior to age 65 if redemption is made within one year after the
disability, provided such disability occurred after the stockholder opened the
account; (3) in connection with required minimum distributions in the case of an
IRA, SAR-SEP or Keogh or any other retirement plan qualified under Section
401(a), 401(k) or 403(b) of the Code; and (4) in the case of distributions from
retirement plans qualified under Section 401(a) or 401(k) of the Internal
Revenue Code due to (i) returns of excess contributions to the plan, (ii)
retirement of a participant in the plan, (iii) a loan from the plan (repayment
of loans, however, will constitute new sales for purposes of assessing the
CDSC), (iv) "financial hardship" of a participant in the plan, as that term is
defined in Treasury Regulation Section 1.401(k)-1(d)(2), as amended from time to
time, (v) termination of employment of a participant in the plan, (vi) any other
permissible withdrawal under the terms of the plan. The contingent deferred
sales charge will also be waived in the case of certain redemptions of Class B
shares of the Funds pursuant to a systematic withdrawal program. (See
"Systematic Withdrawal Program," page 26.)
Arrangements With Broker-Dealers and Others
The Investment Manager or Distributor, from time to time, will provide
promotional incentives or pay a bonus, including reallowance of up to the entire
sales charge, to certain dealers whose representatives have sold or are expected
to sell significant amounts of the Funds and/or certain other funds managed by
the Investment Manager. Such promotional incentives will include payment for
attendance (including travel and lodging expenses) by qualifying registered
representatives (and members of their families) at sales seminars at luxury
resorts within or without the United States. The Distributor may also provide
financial assistance to dealers in connection with advertising. No compensation
will be offered to the extent it is prohibited by the laws of any state or
self-regulatory agency, such as the National Association of Securities Dealers,
Inc. ("NASD"). A dealer to whom substantially the entire sales charge of Class A
shares is reallowed may be deemed to be an "underwriter" under federal
securities laws.
The Distributor also may pay banks and other financial services firms that
facilitate transactions in shares of the Funds for their clients a transaction
fee up to the level of the payments made allowable to dealers for the sale of
such shares as described above. Banks currently are prohibited under the
Glass-Steagall Act from providing certain underwriting or distribution services.
If banking firms were prohibited from acting in any capacity or providing any of
the described services, the Fund's Board of Directors would consider what
action, if any, would be appropriate.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
The Investment Manager or Distributor also may pay a marketing allowance to
dealers who meet certain eligibility criteria. This allowance is paid with
reference to new sales of Fund shares in a calendar year and may be discontinued
at any time. To be eligible for this allowance in any given year, the dealer
must sell a minimum of $5,000,000 of such shares during that year. For aggregate
sales in excess of $5,000,000 but less than $10,000,000 the marketing allowance
will range from 0.15% to 0.60%. For the calendar year ended December 31, 1994,
Legend Equities Corporation and Financial Network Investment Corporation
received marketing allowances in the amounts of $29,383 and $2,991,
respectively.
25
<PAGE>
Purchases At Net Asset Value
Class A shares of the Funds may be purchased at net asset value by (1)
directors, officers and employees of the Funds, the Funds' Investment Manager or
Distributor; directors, officers and employees of Security Benefit Life
Insurance Company and its subsidiaries; agents licensed with Security Benefit
Life Insurance Company; spouses or minor children of any such agents; as well as
the following relatives of any such directors, officers and employees (and their
spouses): spouses, grandparents, parents, children, grandchildren, siblings,
nieces and nephews; (2) any trust, pension, profit sharing or other benefit plan
established by any of the foregoing corporations for persons described above;
(3) retirement plans where third party administrators of such plans have entered
into certain arrangements with the Distributor or its affiliates provided that
no commission is paid to dealers; and (4) officers, directors, partners or
registered representatives (and their spouses and minor children) of
broker-dealers who have a selling agreement with the Distributor. Such sales are
made upon the written assurance of the purchaser that the purchase is made for
investment purposes and that the securities will not be transferred or resold
except through redemption or repurchase by or on behalf of the Fund.
Class A shares of the Funds may also be purchased at net asset value when
the purchase is made on the recommendation of (i) a registered investment
adviser, trustee or financial intermediary who has authority to make investment
decisions on behalf of the investor; or (ii) a certified financial planner or
registered broker-dealer who either charges periodic fees to its customers for
financial planning, investment advisory or asset management services, or
provides such services in connection with the establishment of an investment
account for which a comprehensive "wrap fee" is imposed. The Distributor must be
notified when a purchase is made that qualifies under these provisions.
A stockholder of Equity Fund who formerly invested in the Bondstock
Investment Plans or Life Insurance Investors Investment Plans received Class A
shares of Equity Fund in liquidation of the Plans. Such a stockholder may
purchase Class A shares of Equity Fund at net asset value provided that such
stockholder maintains his or her Equity Fund account.
ACCUMULATION PLAN
Investors may purchase shares on a periodic basis under an Accumulation
Plan which provides for an initial investment of $100 minimum and subsequent
investments of $20 minimum at any time. An Accumulation Plan is a voluntary
program, involving no obligation to make periodic investments, and is terminable
at will. Payments are made by sending a check to the Distributor who (acting as
an agent for the dealer) will purchase whole and fractional shares of the Fund
as of the close of business on the day such payment is received. A confirmation
and statement of account will be sent to the investor following each investment.
Certificates for whole shares will be issued upon request. No certificates will
be issued for fractional shares which may be withdrawn only by redemption for
cash. Investors may choose to use "Secur-O-Matic" (automatic bank draft) to make
their Fund purchases. There is no additional charge for using Secur-O-Matic. An
application may be obtained from the Funds.
SYSTEMATIC WITHDRAWAL PROGRAM
A Systematic Withdrawal Program may be established by stockholders who wish
to receive regular monthly, quarterly, semiannual or annual payments of $25 or
more. A stockholder may elect a payment that is a specified percentage of the
initial or current account value or a specified dollar amount. The Program may
also be based upon the liquidation of a fixed or variable number of shares
provided that the amount withdrawn monthly is at least $25. However, the Funds
do not recommend this (or any other amount) as an appropriate monthly
withdrawal. Shares with a current aggregate offering price of $5,000 or more
must be deposited with the Investment Manager acting as agent for the
stockholder under the Program. There is no service charge on the Program.
Sufficient shares will be liquidated at net asset value to meet the
specified withdrawals. Liquidation of shares may deplete the investment,
particularly in the event of a market decline. Payments cannot be considered as
actual yield or income since part of such payments is a return of capital. Such
withdrawals constitute a taxable event to the stockholder. The maintenance of a
Withdrawal Program concurrently with purchases of additional shares of the Fund
would be disadvantageous because of the sales commission payable in respect to
such purchases. During the withdrawal period, no payments will be accepted under
an Accumulation Plan. Income
26
<PAGE>
dividends and capital gains distributions are automatically reinvested at net
asset value. If an investor has an Accumulation Plan in effect, it must be
terminated before a Systematic Withdrawal Program may be initiated.
A stockholder may establish a Systematic Withdrawal Program with respect to
Class B shares without the imposition of any applicable contingent deferred
sales charge, provided that such withdrawals do not in any 12-month period,
beginning on the date the Program is established, exceed 10% of the value of the
account on that date ("Free Systematic Withdrawals"). Free Systematic
Withdrawals are not available if a Program established with respect to Class B
shares provides for withdrawals in excess of 10% of the value of the account in
any Program year and, as a result, all withdrawals under such a Program are
subject to any applicable contingent deferred sales charge. Free Systematic
Withdrawals will be made first by redeeming those shares that are not subject to
the contingent deferred sales charge and then by redeeming shares held the
longest. The contingent deferred sales charge applicable to a redemption of
Class B shares requested while Free Systematic Withdrawals are being made will
be calculated as described under "Calculation and Waiver of Contingent Deferred
Sales Charges," page 25.
The stockholder receives confirmation of each transaction showing the
source of the payment and the share balance remaining in the Program. A Program
may be terminated on written notice by the stockholder or by the Fund, and it
will terminate automatically if all shares are liquidated or withdrawn from the
account.
INVESTMENT MANAGEMENT
Security Management Company (the "Investment Manager"), 700 SW Harrison
Street, Topeka, Kansas, has served as investment adviser to Security Growth and
Income Fund (formerly Security Investment Fund), Security Equity Fund, and
Security Ultra Fund, respectively, since April 1, 1964, January 1, 1964, and
April 22, 1965. The Investment Manager also acts as investment adviser to
Security Income Fund, Security Cash Fund, SBL Fund, and Security Tax-Exempt
Fund. Security Benefit Group, Inc. ("SBG") owns all of the stock of the
Investment Manager. SBG is an insurance and financial services holding company
wholly-owned by Security Benefit Life Insurance Company, 700 SW Harrison Street,
Topeka, Kansas 66636-0001. Security Benefit Life, a mutual life insurance
company with over $15 billion of insurance in force, is incorporated under the
laws of Kansas.
The Investment Manager serves as investment adviser to Security Growth and
Income Fund, Security Equity Fund and Security Ultra Fund, respectively, under
Investment Management and Services Agreements, which were approved by the
shareholders of the Funds on March 29, 1989, December 8, 1988 and December 30,
1988, and which became effective on March 31, 1989, January 31, 1989 and
February 28, 1989. Security Equity Fund's Agreement was amended by its Board of
Directors at a regular meeting held on July 23, 1993, to provide for the
Investment Manager to serve as investment adviser to Global Fund and on April 3,
1995, to provide for the Investment Manager to serve as investment adviser to
Asset Allocation Fund. The Agreements were last renewed by the Funds' Board of
Directors at a regular meeting held on November 3, 1995.
Pursuant to the Investment Management and Services Agreements, the
Investment Manager furnishes investment advisory, statistical and research
services to the Funds, supervises and arranges for the purchase and sale of
securities on behalf of the Funds, and provides for the compilation and
maintenance of records pertaining to the investment advisory function.
The Investment Manager has retained Lexington Management Corporation
("Lexington"), Park 80 West, Plaza Two, Saddle Brook, New Jersey 07662, to
furnish certain advisory services to Global Fund pursuant to a Sub-Advisory
Agreement, dated October 1, 1993. Pursuant to this agreement, Lexington
furnishes investment advisory, statistical and research facilities, supervises
and arranges for the purchase and sale of securities on behalf of Global Fund
and provides for the compilation and maintenance of records pertaining to such
investment advisory services, subject to the control and supervision of the
Funds' Board of Directors and the Investment Manager. For such services, the
Investment Manager pays Lexington an amount equal to .50% of the average net
assets of Global Fund, computed on a daily basis and payable monthly. The
Sub-Advisory Agreement may be terminated without penalty at any time by either
party on 60 days' written notice and is automatically terminated in the event of
its assignment or in the event that the Investment Advisory Contract between the
Investment Manager and the Fund is terminated, assigned or not renewed.
Lexington is a wholly-owned subsidiary of Piedmont Management Company Inc.,
a diversified financial services holding company which is organized as a
Delaware corporation, the majority of the common stock of
27
<PAGE>
which is owned by descendents of Lunsford Richardson, Sr. and their spouses,
trusts and other related entities. Lexington was established in 1938 and
currently manages over $3.5 billion in assets.
The Investment Manager has entered into a quantitative research agreement
with Meridian Investment Management Corporation ("Meridian"), 12835 East
Arapahoe Road, Tower II, 7th Floor, Englewood, Colorado 80112. Meridian provides
research which the Investment Manager uses in strategically allocating the
assets of Asset Allocation Fund among investment categories and market sectors.
The Investment Manager pays Meridian an annual fee equal to .20% of the average
daily net assets of Asset Allocation Fund, calculated daily and payable
quarterly. Meridian is a wholly-owned subsidiary of Meridian Management &
Research Corporation.
The Investment Manager has entered into an agreement with Templeton
Quantitative Advisors, Inc. ("Templeton"), 31 West 52nd Street, 10th Floor, New
York, New York 10019, to provide consulting and analytical research used by the
Investment Manager in the selection of equity securities for Asset Allocation
Fund. The Investment manager pays Templeton an annual fee equal to .30% of the
average net assets of Asset Allocation Fund invested in equity securities. The
Investment Manager pays Templeton an annual fee equal to .30% of the average net
assets of Asset Allocation Fund invested in equity securities, calculated daily
and payable monthly. Templeton is a wholly-owned subsidiary of Templeton
Worldwide, Inc., which in turn is a wholly-owned subsidiary of Franklin
Resources, Inc.
Pursuant to the Investment Management and Services Agreements, the
Investment Manager also performs administrative functions and the bookkeeping,
accounting and pricing functions for the Funds, and performs all shareholder
servicing functions, including transferring record ownership, processing
purchase and redemption transactions, answering inquiries, mailing shareholder
communications and acting as the dividend disbursing agent. The Investment
Manager has arranged for Lexington to provide certain administrative services to
Global Fund, including certain accounting and pricing functions.
The Investment Manager has also agreed to arrange for others (or itself) to
provide to the Funds, except Asset Allocation Fund, all other services,
including custodian and independent accounting services, required by the Funds.
The Investment Manager will when necessary engage the services of third parties
such as a custodian bank or independent auditors, in accordance with applicable
legal requirements, including approval by the Funds' Board of Directors. The
Investment Manager bears the expenses of providing the services it is required
to furnish under the Agreement for each Fund, except Asset Allocation Fund.
Thus, those Funds' expenses include only fees paid to the Investment Manager as
well as expenses of brokerage commissions, interest, taxes, extraordinary
expenses approved by the Board of Directors, and Class B distribution fees.
Asset Allocation Fund will pay all of its expenses not assumed by the
Investment Manager or the Distributor, including organization expenses;
directors' fees; fees of its custodian; taxes and governmental fees; interest
charges; any membership dues; brokerage commissions; expenses of preparing and
distributing reports to shareholders; costs of shareholder and other meetings;
Class B distribution fees; and legal, auditing and accounting expenses. This
Fund will also pay for the preparation and distribution of the prospectus to its
shareholders and all expenses in connection with registration under the
Investment Company Act of 1940 and the registration of its capital stock under
federal and state securities laws. Asset Allocation Fund will pay nonrecurring
expenses as may arise, including litigation expenses affecting it.
The Investment Manager has agreed to reimburse the Funds or waive a portion
of its management fee for any amount by which the total annual expenses of the
Funds (including management fees, but excluding interest, taxes, brokerage
commissions, extraordinary expenses and Class B distribution fees) for any
fiscal year that exceeds the level of expenses which the Funds are permitted to
bear under the most restrictive expense limitation imposed by any state in which
shares of the Funds are then qualified for sale.
The most restrictive expense limitation currently imposed by state
securities regulation, of which the Investment Manager is aware, provides that
the aggregate annual expenses of an investment company shall not exceed 2 1/2%
of the first $30 million of the average net assets, 2% of the next $70 million
of the average net assets, and 1 1/2% of the remaining average net assets of the
investment company for any fiscal year, determined at least monthly. For this
limitation, "aggregate annual expenses" include management fees, but exclude
interest, taxes, brokerage commissions, extraordinary expenses (such as
litigation) and Class B distribution fees.
As compensation for its services, the Investment Manager receives with
respect to Growth and Income, Equity and Ultra Funds, on an annual basis, 2% of
the first $10 million of the average net assets, 1 1/2% of the next $20 million
of the average net assets and 1% of the remaining average net assets of the
Funds, determined daily and
28
<PAGE>
payable monthly. The Investment Manager receives with respect to the Global
Fund, on an annual basis, 2% of the first $70 million of the average net assets
and 1 1/2% of the remaining average net assets, determined daily and payable
monthly.
Separate fees are paid by Asset Allocation Fund to the Investment Manager
for investment advisory, administrative and transfer agency services. The
Investment Manager receives, on an annual basis, an investment advisory fee
equal to 1% of the average daily net assets of the Asset Allocation Fund,
calculated daily and payable monthly. The Investment Manager also receives, on
an annual basis, an administrative fee equal to .045% of the average daily net
assets of the Asset Allocation Fund plus the greater of .10% of its average net
assets or (i) $30,000 in the year ending April 29, 1996; (ii) $45,000 in the
year ending April 29, 1997; and (iii) $60,000 thereafter. For transfer agency
services provided to Asset Allocation Fund, the Investment Manager receives an
annual maintenance fee of $8.00 per account, and a transaction fee of $1.00 per
transaction.
During the fiscal years ended September 30, 1995, 1994 and 1993, the Funds
paid the following amounts to the Investment Manger for its Services: 1995 -
$839,358, 1994 - $948,953 and 1993 - $974,857 for Growth and Income Fund; 1995 -
$4,185,144, 1994 - $3,926,084 and 1993 - $3,720,569 for Equity Fund; and 1995 -
$816,039, 1994 - $819,550 and 1993 - $856,685 for Ultra Fund. Global Fund paid
the Investment Manager for its services for fiscal year ended September 30, 1995
- - $457,489, and for the period October 5, 1993 to September 30, 1994 - $346,421.
Asset Allocation Fund paid $10,134 to the Investment Manager for its services
for the period June 1, 1995 to September 30, 1995.
The total expenses for Growth and Income Fund, Equity Fund, Global Fund and
Ultra Fund, respectively, for the fiscal year ended September 30, 1995 were
1.31%, 1.05%, 2.00% and 1.32% of the average net assets of each Fund's Class A
shares for the fiscal year. Total expenses of Asset Allocation Fund for the
period June 1, 1995 to September 30, 1995 was 2.00% of the average net assets of
Asset Allocation Fund's Class A shares. Total expenses of Class B shares for
Growth and Income Fund, Equity Fund, Global Fund and Ultra Fund, respectively,
for the fiscal year ended September 30, 1995 were 2.31%, 2.05%, 3.00% and 2.32%
of the average net assets of each Fund's Class B shares for the fiscal year.
Total expenses of Class B shares of Asset Allocation Fund for the period June 1,
1995 to September 30, 1995 was 3.00% of the average net assets of Asset
Allocation Fund's Class B shares.
The Funds' Investment Management and Services Agreements are renewable
annually by the Funds' Board of Directors or by a vote of a majority of the
individual Fund's outstanding securities and, in either event, by a majority of
the board who are not parties to the Agreement or interested persons of any such
party. The Agreements provide that they may be terminated without penalty at any
time by either party on 60 days' notice and are automatically terminated in the
event of assignment.
The following persons are affiliated with the Funds and also with the
Funds' investment adviser, Security Management Company, in these capacities:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
NAME POSITION(S) WITH THE FUNDS POSITION(S) WITH SECURITY MANAGEMENT COMPANY
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Jeffrey B. Pantages Director President, Chief Investment Officer and Director
John D. Cleland President and Director Senior Vice President and Director
James R. Schmank Vice President and Treasurer Senior Vice President, Treasurer,
Chief Fiscal Officer and Director
Terry A. Milberger Vice President (Equity Fund only) Vice President and Senior Portfolio Manager
Mark E. Young Vice President Vice President-Operations
Amy J. Lee Secretary Secretary
Brenda M. Luthi Assistant Treasurer and Assistant Secretary Assistant Vice President, Assistant Treasurer
and Assistant Secretary
Cindy L. Shields Assistant Vice President (Ultra Fund only) Assistant Vice President and Portfolio Manager
Gregory A. Hamilton Assistant Vice President (Equity Fund only) Second Vice President
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
Portfolio Management
The common stock portion of the Growth and Income Fund portfolio is managed
by the Investment Manager's Large Capitalizaiton Team consisting of John
Cleland, Chief Investment Strategist; Terry Milberger and Chuck Lauber. Terry
Milberger, Senior Portfolio Manager has had day-to-day responsibility for
managing this portion of the portfolio since 1995. The fixed income portion of
the Growth and Income Fund portfolio is managed by the Fixed Income Team of the
Investment Manager consisting of John Cleland, Chief Investment Strategist; Jane
Tedder, Tom Swank, Steve Bowser and Elaine Miller. Tom Swank, Assistant Vice
President and Portfolio Manager of the Investment Manager, has had day-to-day
responsibility for managing the fixed income portion of the Growth and Income
Fund portfolio since 1994. Equity Fund is managed by the Large Capitalization
Team of the Investment Manager described above. Mr. Milberger has had day-to-day
responsibility for managing hte Equity Fund since 1981. Global Fund is managed
by an investment management team of the Sub-Adviser. Alan Wapnick and Richard T.
Saler, the lead managers, have had day-to-day responsibility for managing Global
Fund since 1994. Asset Allocation Fund is managed by an investment management
team of Portfolio Managers and research analysts of the Investment Manager. The
team is responsible for day-to-day management of the Fund. Greg Hamilton,
Portfolio Manager, has day-to-day responsibility for managing the fixed-income
portion of the Fund's portfolio and for supervising the services provided by
Meridian and Templeton. He has had responsibility for the Fund since its
inception June 1, 1995. Ultra Fund is managed by the Investment Manager's Small
Capitalization Team which consists of John Cleland, Chief Investment Strategist;
Cindy Shields, Larry Valencia and Frank Whitsell. Cindy Shields, Portfolio
Manager, has had day-to-day responsibility for managing the Fund since 1994.
Greg Hamilton has been in the investment field since 1983. He received his
Bachelor of Arts degree in Business from Washburn University in 1984. Prior to
joining Security Management Company in January of 1993, he was First Vice
President, Treasurer and Portfolio Manager with Mercantile National Bank, Los
Angeles, California from 1990 to 1993. From 1986 to 1990, he was Managing
Director of Consulting Services for Sendero Corporation, Scottsdale, Arizona.
Prior to Sendero Corporation, he was employed as Fixed Income Research Analyst
at Peoples Heritage Savings and Loan from 1983 to 1986.
Terry A. Milberger is a Vice President and Senior Portfolio Manager of the
Investment Manager. Mr. Milberger has more than 20 years of investment
experience and has managed Equity Fund's portfolio since 1981. He began his
career as an investment analyst in the insurance industry and from 1974 through
1978 he served as an assistant portfolio manager for the Investment Manager. He
was then employed as Vice President of Texas Commerce Bank and managed its
pension fund assets until he returned to the Investment Manager in 1981. Mr.
Milberger holds a bachelor's degree in business and an M.B.A. from the
University of Kansas and is a Chartered Financial Analyst. His investment
philosophy is based on patience and opportunity for the long-term investor.
Cindy L. Shields is Portfolio Manager of the Investment Manager. She has
six years experience in the securities field and joined the Investment Manager
in 1989. Ms. Shields graduated from Washburn University with a Bachelor of
Business Administration degree, majoring in finance and economics. She is a
Chartered Financial Analyst.
Tom Swank has nine years of experience in the investment field. Prior to
joining the Investment Manager in 1992, he was an Investment Underwriter and
Portfolio Manager for U.S. West Financial Services, Inc. from 1986 to 1992. From
1984 to 1986, he was a Commercial Credit Officer for United Bank of Denver. He
was employed as a Bank Holding Company Examiner for the Federal Reserve Bank of
Kansas City - Denver Branch. Mr. Swank graduated from Miami University in Ohio
with a Bachelor of Science degree in finance in 1982. He earned a Master of
Business Administration degree from the University of Colorado and is a
Chartered Financial Analyst.
Global Fund is managed by an investment management team of Lexington. Alan
Wapnick and Richard T. Saler are the lead managers. Mr. Wapnick is a Senior Vice
President of Lexington and is responsible for portfolio management. He has 25
years investment experience. Prior to joining Lexington in 1986, Mr. Wapnick was
an equity analyst with Merrill Lynch, J. & W. Seligman, Dean Witter and most
recently Union Carbide Corporation. Mr. Wapnick is a graduate of Dartmouth
College and received a Master's degree in Business Administration from Columbia
University.
Mr. Saler is a Senior Vice President of Lexington and is responsible for
international investment analysis and portfolio management. He has eight years
of investment experience. Mr. Saler has focused on international
30
<PAGE>
markets since first joining Lexington in 1986. Most recently he was a strategist
with Nomura Securities and rejoined Lexington in 1992. Mr. Saler is a graduate
of New York University with a B.S. degree in Marketing and an M.B.A. in Finance
from New York University's Graduate School of Business Administration.
Code of Ethics
The Funds, the Investment Manager and the Distributor have a written Code
of Ethics which requires all access persons to obtain prior clearance before
engaging in any personal securities transactions. Access persons include
officers and directors of the Funds and Investment Manager and employees that
participate in, or obtain information regarding, the purchase or sale of
securities by the Funds or whose job relates to the making of any
recommendations with respect to such purchases or sales. All access persons must
report their personal securities transactions within ten days of the end of each
calendar quarter. Access persons will not be permitted to effect transactions in
a security if it: (a) is being considered for purchase or sale by the Funds; (b)
is being purchased or sold by the Funds; or (c) is being offered in an initial
public offering. In addition, portfolio managers are prohibited from purchasing
or selling a security within seven calendar days before or after a Fund that he
or she manages trades in that security. Any material violation of the Code of
Ethics is reported to the Board of the Funds. The Board also reviews the
administration of the Code of Ethics on an annual basis.
DISTRIBUTOR
Security Distributors, Inc. (the "Distributor"), a Kansas corporation and
wholly-owned subsidiary of the Investment Manager, serves as the principal
underwriter for shares of Growth and Income Fund, Equity Fund, Global Fund,
Asset Allocation Fund and Ultra Fund pursuant to Distribution Agreements with
the Funds. The Distributor also acts as principal underwriter for the following
investment companies: Security Income Fund, Security Tax-Exempt Fund, and The
Parkstone Advantage Fund.
The Distributor receives a maximum commission on sales of Class A shares of
5.75% and allows a maximum discount of 5% from the offering price to authorized
dealers on the Fund shares sold. The discount is the same for all dealers, but
the Distributor at its discretion may increase the discount for specific
periods. Salespersons employed by dealers may also be licensed to sell insurance
with Security Benefit Life.
For the fiscal years ended September 30, 1995, 1994 and 1993, the
Distributor received gross underwriting commissions on the sale of Class A
shares of the Funds as follows: 1995 - $30,840, 1994 - $80,457 and 1993 -
$152,633 for Growth and Income Fund; 1995 - $610,460, 1994 - $597,792 and 1993 -
$1,072,077 for Equity Fund; 1995 - $86,682, 1994 - $75,084 and 1993 - $128,552
for Ultra Fund. For these years, the Distributor retained net underwriting
commissions as follows: 1995 - $5,020, 1994 - $12,674 and 1993 - $25,818 for
Growth and Income Fund; 1995 - $96,169, 1994 - $98,610 and 1993 - $163,296 for
Equity Fund; and 1995 - $14,803, 1994 - $15,554 and 1993 - $27,883 for Ultra
Fund. For the fiscal year ended September 30, 1995 and the period October 5,
1993 through September 30, 1994, the Distributor received gross underwriting
commissions on the sale of Class A shares of $25,278 and $93,332, respectively,
for Global Fund and retained net underwriting commissions of $4,002 and $14,560,
respectively. Class A gross underwriting commissions in the amount of $819 were
paid by Asset Allocation Fund for the period June 1, 1995 through September 30,
1995, and the Distributor retained $198 in net underwriting commissions.
The Distributor, on behalf of the Funds, may act as a broker in the
purchase and sale of securities not effected on a securities exchange, provided
that any such transactions and any commissions shall comply with requirements of
the Investment Company Act of 1940 and all rules and regulations of the SEC. The
Distributor has not acted as a broker.
The Funds' Distribution Agreements are renewable annually either by the
Board of Directors or by the vote of a majority of the Fund's outstanding
securities, and, in either event, by a majority of the board who are not parties
to the contract or interested persons of any such party. The contract may be
terminated by either party upon 60 days' written notice.
ALLOCATION OF PORTFOLIO BROKERAGE
Transactions in portfolio securities shall be effected in such manner as
deemed to be in the best interests of the respective Funds. In reaching a
judgment relative to the qualifications of a broker-dealer ("broker") to obtain
the best execution of a particular transaction, all relevant factors and
circumstances will be taken into account by the Investment Manager or relevant
Sub-Adviser, including the overall reasonableness of commissions paid to a
31
<PAGE>
broker, the firm's general execution and operational capabilities, and its
reliability and financial condition. Subject to the foregoing considerations,
the execution of portfolio transactions may be directed to brokers who furnish
investment information or research services to the Investment Manager or
relevant Sub-Adviser. Such investment information and research services include
advice as to the value of securities, the advisability of investing in,
purchasing or selling securities, and the availability of securities and
purchasers or sellers of securities, and furnishing analyses and reports
concerning issues, industries, securities, economic factors and trends,
portfolio strategy and performance of accounts. Such investment information and
research services may be furnished by brokers in many ways, including: (1)
on-line data base systems, the equipment for which is provided by the broker,
that enable the Investment Manager to have real-time access to market
information, including quotations; (2) economic research services, such as
publications, chart services and advice from economists concerning macroeconomic
information; and (3) analytical investment information concerning particular
corporations. If a transaction is directed to a broker supplying such
information or services, the commission paid for such transaction may be in
excess of the commission another broker would have charged for effecting that
transaction provided that the Investment Manager or relevant Sub-Adviser shall
have determined in good faith that the commission is reasonable in relation to
the value of the investment information or the research services provided,
viewed in terms of either that particular transaction or the overall
responsibilities of the Investment Manager or relevant Sub-Adviser with respect
to all accounts as to which it exercises investment discretion. The Investment
Manager or relevant Sub-Adviser may use all, none, or some of such information
and services in providing investment advisory services to each of the mutual
funds under its management, including the Funds.
In addition, brokerage transactions may be placed with broker-dealers who
sell shares of the Funds managed by the Investment Manager and who may or may
not also provide investment information and research services. The Investment
Manager may, consistent with the NASD Rules of Fair Practice, consider sales of
shares of the Funds in the selection of a broker.
The Funds may also buy securities from, or sell securities to, dealers
acting as principals or market makers. The Investment Manager generally will not
purchase investment information or research services in connection with such
principal transactions.
Securities held by the Funds may also be held by other investment advisory
clients of the Investment Manager and/or relevant Sub-Adviser, including other
investment companies. In addition, the Investment Manager's parent company,
Security Benefit Life Insurance Company ("SBL"), may also hold some of the same
securities as the Funds. When selecting securities for purchase or sale for a
Fund, the Investment Manager or relevant Sub-Adviser may at the same time be
purchasing or selling the same securities for one or more of such other
accounts, subject to the Investment Manager's or relevant Sub-Adviser's
obligation to seek best execution, such purchases or sales may be executed
simultaneously or "bunched." It is the policy of the Investment Manager and
relevant Sub-Adviser not to favor one account over the other. Any purchase or
sale orders executed simultaneously (which may also include orders from SBL) are
allocated at the average price and as nearly as practicable on a pro rata basis
(transaction costs will also be shared on a pro rata basis) in proportion to the
amounts desired to be purchased or sold by each account. In those instances
where it is not practical to allocate purchase or sale orders on a pro rata
basis, then the allocation will be made on a rotating or other equitable basis.
While it is conceivable that in certain instances this procedure could adversely
affect the price or number of shares involved in the Fund's transaction, it is
believed that the procedure generally contributes to better overall execution of
the Fund's portfolio transactions. The Board of Directors of the Funds has
adopted guidelines governing this procedure and will monitor the procedure to
determine that the guidelines are being followed and that the procedure
continues to be in the best interest of the Fund and its stockholders. With
respect to the allocation of initial public offerings ("IPOs"), the Investment
Manager may determine not to purchase such offerings for certain of its clients
(including investment company clients) due to the limited number of shares
typically available to the Investment Manager in an IPO.
32
<PAGE>
The following table sets forth the brokerage fees paid by the Funds during
the last three fiscal years and certain other information:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
FUND TRANSACTIONS DIRECTED
TO AND COMMISSIONS PAID TO
FUND BROKERAGE BROKER-DEALERS WHO ALSO
COMMISSIONS PAID PERFORMED SERVICES
CLASS A SHARES FUND TO SECURITY ------------------------------
ANNUAL PORTFOLIO TOTAL BROKERAGE DISTRIBUTORS INC., BROKERAGE
YEAR TURNOVER RATE COMMISSIONS PAID THE UNDERWRITER TRANSACTIONS COMMISSIONS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Security Growth
and Income Fund
- ----------------------------------------------------------------------------------------------------------------
1995 130% $ 257,300 0 $ 33,932,170 $ 57,450
1994 163% 448,925 0 21,666,518 53,256
1993 135% 239,633 0 30,387,092 56,190
- ----------------------------------------------------------------------------------------------------------------
Security Equity Fund
Equity Series
- ----------------------------------------------------------------------------------------------------------------
1995 95% $1,234,947 0 $168,226,033 $327,825
1994 79% 1,073,763 0 74,497,202 182,980
1993 95% 1,309,963 0 109,889,802 189,736
- ----------------------------------------------------------------------------------------------------------------
Security Equity Fund
Global Series
- ----------------------------------------------------------------------------------------------------------------
1995 141% $ 193,540 0 $ 11,472,063 $ 32,292
1994 73% 186,281 0 7,774,273 16,685
- ----------------------------------------------------------------------------------------------------------------
Security Equity Fund
Asset Allocation
Series
- ----------------------------------------------------------------------------------------------------------------
1995* 43% $ 3,904 0 $ 0 $ 0
- ----------------------------------------------------------------------------------------------------------------
Security Ultra Fund
- ----------------------------------------------------------------------------------------------------------------
1995 180% $ 277,069 0 $ 24,047,026 $ 42,679
1994 111% 296,484 0 10,321,410 44,151
1993 101% 328,319 0 65,467,390 198,006
- ----------------------------------------------------------------------------------------------------------------
*Asset Allocation Fund's figures are based on the period June 1, 1995 (date of inception) to September 30, 1995.
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Class B shares' annual portfolio turnover rates for the fiscal year ended
September 30, 1995, were 130%, 95%, 141%, and 180% for Growth and Income Fund,
Equity Fund, Global Fund and Ultra Fund, respectively. Class B shares' annual
portfolio turnover rates for the period October 19, 1993 to September 30, 1994
were 178%, 80%, 73% and 110% for Growth and Income Fund, Equity Fund, Global
Fund and Ultra Fund, respectively. The annual portfolio turnover rate for the
period June 1, 1995 to September 30, 1995 was 43% for Asset Allocation Fund.
HOW NET ASSET VALUE IS DETERMINED
The per share net asset value of each Fund is determined by dividing the
total value of its securities and other assets, less liabilities, by the total
number of shares outstanding. The public offering price for each Fund is its net
asset value per share plus, in the case of Class A shares, the applicable sales
charge. The net asset value and offering price are computed once daily as of the
close of regular trading hours on the New York Stock Exchange (normally 3:00
p.m. Central time) on each day the Exchange is open for trading, which is Monday
through Friday, except for the following dates when the exchange is closed in
observance of federal holidays: New Year's Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The offering price determined at the close of business on the New York
Stock Exchange on each day on which the Exchange is open will be applicable to
all orders for the purchase of Fund shares received by the dealer prior to such
close of business and transmitted to the Funds prior to the close of their
business day (normally 5:00 p.m. Central time unless the Exchange closes early).
Orders accepted by the dealer after the close of business of the Exchange or on
a day when the Exchange is closed will be filled on the basis of the offering
price determined as of the close of business of the Exchange on the next day on
which the Exchange is open. It is the responsibility of the dealer to promptly
transmit orders to the Funds.
33
<PAGE>
In determining net asset value, securities listed or traded on a national
securities exchange are valued on the basis of the last sale price. If there are
no sales on a particular day, then the securities shall be valued at the mean
between the bid and asked prices. If a mean cannot be determined, then the
securities are valued at the best available current bid price. All other
securities for which market quotations are available are valued on the basis of
the last current bid price. If there is no bid price, or if the bid price is
deemed to be unsatisfactory by the Board of Directors or the Funds' Investment
Manager, then the securities shall be valued in good faith by such method as the
Board of Directors determines will reflect their fair market value.
Because the expenses of distribution are borne by Class A shares through a
front-end sales charge and by Class B shares through an ongoing distribution
fee, the expenses attributable to each class of shares will differ, resulting in
different net asset values. The net asset value of Class B shares will generally
be lower than the net asset value of Class A shares as a result of the
distribution fee charged to Class B shares. It is expected, however, that the
net asset value per share will tend to converge immediately after the payment of
dividends which will differ in amount for Class A and B shares by approximately
the amount of the different distribution expenses attributable to Class A and B
shares.
HOW TO REDEEM SHARES
Stockholders may turn in their shares directly to the Investment Manager
for redemption at net asset value (which may be more or less than the investor's
cost, depending upon the market value of the portfolio securities at the time of
redemption). The redemption price in cash will be the net asset value next
determined after the time when such shares are tendered for redemption.
Shares will be redeemed on request of the stockholder in proper order to
the Investment Manager, which serves as the Funds' transfer agent. A request is
made in proper order by submitting the following items to the Investment
Manager: (1) a written request for redemption signed by all registered owners
exactly as the account is registered, including fiduciary titles, if any, and
specifying the account number and the dollar amount or number of shares to be
redeemed; (2) a guarantee of all signatures on the written request or on the
share certificate or accompanying stock power; (3) any share certificates issued
for any of the shares to be redeemed; and (4) any additional documents which may
be required by the Investment Manager for redemption by corporations or other
organizations, executors, administrators, trustees, custodians or the like.
Transfers of shares are subject to the same requirements. A signature guarantee
is not required for redemptions of $10,000 or less, requested by and payable to
all stockholders of record for an account, to be sent to the address of record.
The signature guarantee must be provided by an eligible guarantor institution,
such as a bank, broker, credit union, national securities exchange or savings
association. The Investment Manager reserves the right to reject any signature
guarantee pursuant to its written procedures which may be revised in the future.
To avoid delay in redemption or transfer, stockholders having questions should
contact the Investment Manager.
The Articles of Incorporation of Security Equity Fund provide that the
Board of Directors, without the vote or consent of the stockholders, may adopt a
plan to redeem at net asset value all shares in any stockholder account in which
there has been no investment (other than the reinvestment of income dividends or
capital gains distributions) for the last six months and in which there are
fewer than 25 shares or such fewer number of shares as may be specified by the
Board of Directors. Any plan of involuntary redemption adopted by the Board of
Directors shall provide that the plan is in the economic best interests of the
Fund or is necessary to reduce disproportionately burdensome expenses in
servicing stockholder accounts. Such plan shall further provide that prior
notice of at least six months shall be given to a stockholder before involuntary
redemption, and that the stockholder will have at least six months from the date
of the notice to avoid redemption by increasing his or her account to at least
the minimum number of shares established in the Articles of Incorporation, or
such fewer shares as are specified in the plan.
When investing in the Funds, stockholders are required to furnish their tax
identification number and to state whether or not they are subject to
withholding for prior underreporting, certified under penalties of perjury as
prescribed by the Internal Revenue Code. To the extent permitted by law, the
redemption proceeds of stockholders who fail to furnish this information will be
reduced by $50 to reimburse for the IRS penalty imposed for failure to report
the tax identification number on information reports.
Payment in cash of the amount due on redemption, less any applicable
deferred sales charge, for shares redeemed will be made within seven days after
tender, except that the Funds may suspend the right of redemption
34
<PAGE>
during any period when trading on the New York Stock Exchange is restricted or
such Exchange is closed for other than weekends or holidays, or any emergency is
deemed to exist by the Securities and Exchange Commission. When a redemption
request is received, the redemption proceeds are deposited into a redemption
account established by the Distributor and the Distributor sends a check in the
amount of redemption proceeds to the stockholder. The Distributor earns interest
on the amounts maintained in the redemption account. Conversely, the Distributor
causes payments to be made to the Funds in the case of orders for purchase of
Fund shares before it actually receives federal funds.
The Funds have committed themselves to pay in cash all requests for
redemptions by any stockholder of record limited in amount during any 90-day
period to the lesser of $250,000 or 1% of the net asset value of the Fund at the
beginning of such period.
In addition to the foregoing redemption procedure, the Funds repurchase
shares from broker-dealers at the price determined as of the close of business
on the day such offer is confirmed. The Distributor has been authorized, as
agent, to make such repurchases for the Funds' account. Dealers may charge a
commission on the repurchase of shares.
The repurchase or redemption of shares held in a tax-qualified retirement
plan must be effected through the trustee of the plan and may result in adverse
tax consequences. (See "Retirement Plans," page 42.)
At various times the Funds may be requested to redeem shares for which they
have not yet received good payment. Accordingly, the Funds may delay the mailing
of a redemption check until such time as they have assured themselves that good
payment (e.g., cash or certified check on a U.S. bank) has been collected for
the purchase of such shares.
Telephone Redemptions
A stockholder may redeem uncertificated shares in amounts up to $10,000 by
telephone request, provided the stockholder has completed the Telephone
Redemption section of the application or a Telephone Redemption form which may
be obtained from the Investment Manager. The proceeds of a telephone redemption
will be sent to the stockholder at his or her address as set forth in the
application or in a subsequent written authorization with a signature guarantee.
Once authorization has been received by the Investment Manager, a stockholder
may redeem shares by calling the Funds at (800) 888-2461, extension 3127, on
weekdays (except holidays) between the hours of 7:00 a.m. and 6:00 p.m. Central
time. Redemption requests received by telephone after the close of the New York
Stock Exchange (normally 3:00 p.m. Central time) will be treated as if received
on the next business day. A stockholder who authorizes telephone redemptions
authorizes the Investment Manager to act upon the instructions of any person
identifying themselves as the owner of the account or the owner's broker. The
Investment Manager has established procedures to confirm that instructions
communicated by telephone are genuine and may be liable for any losses due to
fraudulent or unauthorized instructions if it fails to comply with its
procedures. The Investment Manager's procedures require that any person
requesting a redemption by telephone provide the account registration and
number, the owner's tax identification number, and the dollar amount or number
of shares to be redeemed, and such instructions must be received on a recorded
line. Neither the Fund, the Investment Manager, nor the Distributor will be
liable for any loss, liability, cost or expense arising out of any redemption
request provided that the Investment Manager complied with its procedures. Thus,
a stockholder who authorizes telephone redemptions may bear the risk of loss
from a fraudulent or unauthorized request. The telephone redemption privilege
may be changed or discontinued at any time by the Investment Manager or the
Funds.
During periods of severe market or economic conditions, telephone
redemptions may be difficult to implement and stockholders should make
redemptions by mail as described under "How to Redeem Shares" above.
HOW TO EXCHANGE SHARES
Pursuant to arrangements with the Distributor (which also acts as principal
underwriter for Security Income Fund and Security Tax-Exempt Fund) and with
Security Cash Fund, stockholders of the Funds may exchange their shares for
shares of another of the Funds, Security Income Fund, Security Tax-Exempt Fund
or Security Cash Fund at net asset value. Exchanges may be made only in those
states where shares of the fund into which an exchange is to be made are
qualified for sale.
35
<PAGE>
Class A and Class B shares of the Funds may be exchanged for Class A and
Class B shares, respectively, of another Fund or for shares of Security Cash
Fund, a money market fund that offers a single class of shares. Any applicable
contingent deferred sales charge will be imposed upon redemption and calculated
from the date of the initial purchase without regard to the time shares were
held in Security Cash Fund. Such transactions generally have the same tax
consequences as ordinary sales and purchases. No service fee is presently
imposed on such an exchange. They are not tax-free exchanges.
Exchanges are made promptly upon receipt of a properly completed Exchange
Authorization form and (if issued) share certificates in good order for
transfer. If the stockholder is a corporation, partnership, agent, fiduciary or
surviving joint owner, additional documentation of a customary nature, such as a
stock power and guaranteed signature, will be required. (See "How to Redeem
Shares," page 34.)
This privilege may be changed or discontinued at any time at the discretion
of the management of the Funds upon 60 days' notice to stockholders. It is
contemplated, however, that the privilege will be extended in the absence of
objection by regulatory authorities and provided shares of the respective
companies are available and may be legally sold in the jurisdiction in which the
stockholder resides. A current prospectus of the Fund into which an exchange is
made will be given each stockholder exercising this privilege.
Exchange By Telephone
To exchange shares by telephone, a shareholder must have completed either
the Telephone Exchange section of the application or a Telephone Transfer
Authorization form which may be obtained from the Investment Manager.
Authorization must be on file with the Investment Manager before exchanges may
be made by telephone. Once authorization has been received by the Investment
Manager, a stockholder may exchange shares by telephone by calling the Funds at
(800) 888-2461, extension 3127 on weekdays (except holidays) between the hours
of 7:00 a.m. and 6:00 p.m. Central time. Exchange requests received after the
close of the New York Stock Exchange (normally 3:00 p.m. Central time) will be
treated as if received on the next business day. Shares which are held in
certificate form may not be exchanged by telephone.
The telephone exchange privilege is only permitted between accounts with
identical registration. The Investment Manager has established procedures to
confirm that instructions communicated by telephone are genuine and may be
liable for any losses due to fraudulent or unauthorized instructions if it fails
to comply with its procedures. The Investment Manager's procedures require that
any person requesting an exchange by telephone provide the account registration
and number, the tax identification number, the dollar amount or number of shares
to be exchanged, and the names of the Security Funds from which and into which
the exchange is to be made, and such instructions must be received on a recorded
line. Neither the Funds, the Investment Manager nor the Distributor will be
liable for any loss, liability, cost or expense arising out of any request,
including any fraudulent request provided the Investment Manager complied with
its procedures. Thus, a stockholder who authorizes telephone exchanges may bear
the risk of loss in the event of a fraudulent or unauthorized request. This
telephone exchange privilege may be changed or discontinued at any time at the
discretion of the management of the Funds. In particular, the Funds may set
limits on the amount and frequency of such exchanges, in general or as to any
individual who abuses such privilege.
DIVIDENDS AND TAXES
It is each Fund's policy to pay dividends from net investment income as
from time to time declared by the Board of Directors, and to distribute realized
capital gains (if any) in excess of any capital losses and capital loss
carryovers, at least once a year. Because Class A shares of the Funds bear most
of the costs of distribution of such shares through payment of a front-end sales
charge, while Class B shares of the Funds bear such costs through a higher
distribution fee, expenses attributable to Class B shares, generally, will be
higher and as a result, income distributions paid by the Funds with respect to
Class B shares generally will be lower than those paid with respect to Class A
shares. Because the value of a share is based directly on the amount of the net
assets rather than on the principle of supply and demand, any distribution of
capital gains or payment of an income dividend will result in a decrease in the
value of a share equal to the amount paid. All such dividends and distributions
are automatically reinvested on the payable date in shares of the Funds at net
asset value as of the record date (reduced by an amount equal to the amount of
the dividend or distribution), unless the Investment Manager is previously
notified in writing by the stockholder that such dividends or distributions are
to be received in cash. A
36
<PAGE>
stockholder may request that such dividends or distributions be directly
deposited to the stockholder's bank account. A stockholder who elected not to
reinvest dividends or distributions paid with respect to Class A shares may, at
any time within 30 days after the payment date, reinvest a dividend check
without imposition of a sales charge.
For federal income tax purposes, dividends paid by the Funds from net
investment income may qualify for the corporate stockholder's dividends received
deduction to the extent the Funds designate the amount distributed as a
qualified dividend. The aggregate amount designated as a qualified dividend by
the Funds cannot exceed the aggregate amount of dividends received by the Funds
from domestic corporations for the taxable year. The corporate dividends
received deduction will be limited if the shares with respect to which the
dividends are received are treated as debt-financed or are deemed to have been
held less than 46 days. In addition, a corporate stockholder must hold Fund
shares for at least 46 days to be eligible to claim the dividends received
deduction. All dividends from net investment income, together with distributions
of any realized net short-term capital gains, whether paid direct to the
stockholder or reinvested in shares of the Funds, are taxable as ordinary
income.
Stockholders will report as long-term capital gains income any realized net
long-term capital gains in excess of any capital loss carryover which is
distributed to them and designated by the Fund as a capital gain dividend,
whether or not reinvested in the Fund, and regardless of the period of time such
shares have been owned by the stockholders. Advice as to the tax status of each
year's dividends and distributions will be mailed annually.
A purchase of shares shortly before payment of a dividend or distribution
is disadvantageous because the dividend or distribution to the purchaser has the
effect of reducing the per share net asset value of the shares by the amount of
the dividends or distributions. In addition, all or a portion of such dividends
or distributions (although in effect a return of capital) may be taxable.
Each Fund intends to qualify annually and to elect to be treated as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code").
To qualify as a regulated investment company, each Fund must, among other
things: (i) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to certain securities loans, and
gains from the sale or other disposition of stock, securities or foreign
currencies, or other income derived with respect to its business of investing in
such stock, securities, or currencies ("Qualifying Income Test"); (ii) derive in
each taxable year less than 30% of its gross income from the sale or other
disposition of certain assets held less than three months (namely (a) stock or
securities, (b) options, futures and forward contracts (other than those on
foreign currencies), and (c) foreign currencies (including options, futures, and
forward contracts on such currencies) not directly related to a Fund's principal
business of investing in stocks or securities (or options and futures with
respect to stocks and securities)); (iii) diversify its holdings so that, at the
end of each quarter of the taxable year, (a) at least 50% of the market value of
the Fund's assets is represented by cash, cash items, U.S. Government
securities, the securities of other regulated investment companies, and other
securities, with such other securities of any one issuer limited for the
purposes of this calculation to an amount not greater than 5% of the value of
the Fund's total assets and 10% of the outstanding voting securities of such
issuer, and (b) not more than 25% of the value of its total assets is invested
in the securities of any one issuer (other than U.S. Government securities or
the securities of other regulated investment companies), or of two or more
issuers which the Fund controls (as that term is defined in the relevant
provisions of the Code) and which are determined to be engaged in the same or
similar trades or businesses or related trades or businesses; and (iv)
distribute at least 90% of the sum of its investment company taxable income
(which includes, among other items, dividends, interest, and net short-term
capital gains in excess of any net long-term capital losses) and its net
tax-exempt interest each taxable year. The Treasury Department is authorized to
promulgate regulations under which foreign currency gains would constitute
qualifying income for purposes of the Qualifying Income Test only if such gains
are directly related to investing in securities (or options and futures with
respect to securities). To date, no such regulations have been issued.
Certain requirements relating to the qualification of a Fund as a regulated
investment company may limit the extent to which a Fund will be able to engage
in certain investment practices, including transactions in futures contracts and
other types of derivative securities transactions. In addition, if a Fund were
unable to dispose of portfolio securities due to settlement problems relating to
foreign investments or due to the holding of illiquid securities, the Fund's
ability to qualify as a regulated investment company might be affected.
37
<PAGE>
A Fund qualifying as a regulated investment company generally will not be
subject to U.S. federal income tax on its investment company taxable income and
net capital gains (any net long-term capital gains in excess of the net
short-term capital losses), if any, that it distributes to shareholders. Each
Fund intends to distribute to its shareholders, at least annually, substantially
all of its investment company taxable income and any net capital gains.
Generally, regulated investment companies, like the Fund, must distribute
amounts on a timely basis in accordance with a calendar year distribution
requirement in order to avoid a nondeductible 4% excise tax. Generally, to avoid
the tax, a regulated investment company must distribute during each calendar
year, (i) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year, (ii) at least 98% of its capital
gains in excess of its capital losses (adjusted for certain ordinary losses) for
the 12-month period ending on October 31 of the calendar year, and (iii) all
ordinary income and capital gains for previous years that were not distributed
during such years. To avoid application of the excise tax, each Fund intends to
make its distributions in accordance with the calendar year distribution
requirement. A distribution is treated as paid on December 31 of the calendar
year if it is declared by a Series in October, November or December of that year
to shareholders of record on a date in such a month and paid by the Fund during
January of the following calendar year. Such distributions are taxable to
shareholders in the calendar year in which the distributions are declared,
rather than the calendar year in which the distributions are received.
If, as a result of exchange controls or other foreign laws or restrictions
regarding repatriation of capital, a Fund were unable to distribute an amount
equal to substantially all of its investment company taxable income (as
determined for U.S. tax purposes) within applicable time periods, the Fund would
not qualify for the favorable federal income tax treatment afforded regulated
investment companies, or, even if it did so qualify, it might become liable for
federal taxes on undistributed income. In addition, the ability of a Fund to
obtain timely and accurate information relating to its investments is a
significant factor in complying with the requirements applicable to regulated
investment companies in making tax-related computations. Thus, if a Fund were
unable to obtain accurate information on a timely basis, it might be unable to
qualify as a regulated investment company, or its tax computations might be
subject to revisions (which could result in the imposition of taxes, interest
and penalties).
Generally, gain or loss realized upon the sale or redemption of shares
(including the exchange of shares for shares of another fund) will be capital
gain or loss if the shares are capital assets in the shareholder's hands, and
will be long-term capital gain or loss if the shares have been held for more
than one year. Investors should be aware that any loss realized upon the sale or
redemption of shares held for six months or less will be treated as a long-term
capital loss to the extent of any distribution of long-term capital gain to the
shareholder with respect to such shares. In addition, any loss realized on a
sale or exchange of shares will be disallowed to the extent the shares disposed
of are replaced within a period of 61 days, beginning 30 days before and ending
30 days after the date the shares are disposed of, such as pursuant to the
reinvestment of dividends. In such case, the basis of the shares acquired will
be adjusted to reflect the disallowed loss.
Under certain circumstances, the sales charge incurred in acquiring Class A
shares of the Funds may not be taken into account in determining the gain or
loss on the disposition of those shares. This rule applies in circumstances when
shares of the Fund are exchanged within 90 days after the date they were
purchased and new shares in a regulated investment company are acquired without
a sales charge or at a reduced sales charge. In that case, the gain or loss
recognized on the exchange will be determined by excluding from the tax basis of
the shares exchanged all or a portion of the sales charge incurred in acquiring
those shares. This exclusion applies to the extent that the otherwise applicable
sales charge with respect to the newly acquired shares is reduced as a result of
having incurred the sales charge initially. Instead, the portion of the sales
charge affected by this rule will be treated as an amount paid for the new
shares.
The Funds are required by law to withhold 31% of taxable dividends and
distributions to shareholders who do not furnish their correct taxpayer
identification numbers, or are otherwise subject to the backup withholding
provisions of the Internal Revenue Code.
Each series of Security Equity Fund will be treated separately in
determining the amounts of income and capital gains distributions. For this
purpose, each series will reflect only the income and gains, net of losses of
that series.
Passive Foreign Investment Companies. Some of the Funds may invest in
stocks of foreign companies that are classified under the Code as passive
foreign investment companies ("PFICs"). In general, a foreign
38
<PAGE>
company is classified as a PFIC if at least one half of its assets constitutes
investment-type assets or 75% or more of its gross income is investment-type
income. Under the PFIC rules, an "excess distribution" received with respect to
PFIC stock is treated as having been realized ratably over a period during which
the Fund held the PFIC stock. The Fund itself will be subject to tax on the
portion, if any, of the excess distribution that is allocated to the Fund's
holding period in prior taxable years (an interest factor will be added to the
tax, as if the tax had actually been payable in such prior taxable years) even
though the Fund distributes the corresponding income to shareholders. Excess
distributions include any gain from the sale of PFIC stock as well as certain
distributions from a PFIC. All excess distributions are taxable as ordinary
income.
A Fund may be able to elect alternative tax treatment with respect to PFIC
stock. Under an election that currently may be available, a Fund generally would
be required to include in its gross income its share of the earnings of a PFIC
on a current basis, regardless of whether any distributions are received from
the PFIC. If this election is made, the special rules, discussed above, relating
to the taxation of excess distributions, would not apply. In addition, another
election may be available that would involve marking to market a Fund's PFIC
stock at the end of each taxable year (and on certain other dates prescribed in
the Code), with the result that unrealized gains are treated as though they were
realized. If this election were made, tax at the Fund level under the PFIC rules
would be eliminated, but a Fund could, in limited circumstances, incur
nondeductible interest charges. A Fund's intention to qualify annually as a
regulated investment company may limit the Fund's elections with respect to PFIC
stock.
Because the application of the PFIC rules may affect, among other things,
the character of gains, the amount of gain or loss and the timing of the
recognition of income with respect to PFIC stock, as well as subject a Fund
itself to tax on certain income from PFIC stock, the amount that must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not invest in PFIC stock.
Options, Futures and Forward Contracts and Swap Agreements. Certain
options, futures contracts, and forward contracts in which a Fund may invest may
be "Section 1256 contracts." Gains or losses on Section 1256 contracts generally
are considered 60% long-term and 40% short-term capital gains or losses;
however, foreign currency gains or losses arising from certain Section 1256
contracts may be treated as ordinary income or loss. Also, Section 1256
contracts held by a Fund at the end of each taxable year (and at certain other
times as prescribed pursuant to the Code) are "marked to market" with the result
that unrealized gains or losses are treated as though they were realized.
Generally, the hedging transactions undertaken by a Fund may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by a Fund. In addition, losses
realized by a Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which such losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences of transactions in options, futures, forward
contracts, swap agreements and other financial contracts to a Fund are not
entirely clear. The transactions may increase the amount of short-term capital
gain realized by a Fund which is taxed as ordinary income when distributed to
shareholders.
A Fund may make one or more of the elections available under the Code which
are applicable to straddles. If a Fund makes any of the elections, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of gains
or losses, defer losses and/or accelerate the recognition of gains or losses
from the affected straddle positions, the amount which must be distributed to
shareholders, and which will be taxed to shareholders as ordinary income or
long-term capital gain, may be increased or decreased as compared to a fund that
did not engage in such hedging transactions.
Because only a few regulations regarding the treatment of swap agreements,
and related caps, floors and collars, have been implemented, the tax
consequences of such transactions are not entirely clear. The Fund intend to
account for such transactions in a manner deemed by them to be appropriate, but
the Internal Revenue Service might not necessarily accept such treatment. If it
did not, the status of a Fund as a regulated investment company might be
affected.
39
<PAGE>
The requirements applicable to a Fund's qualification as a regulated
investment company may limit the extent to which a Fund will be able to engage
in transactions in options, futures contracts, forward contracts, swap
agreements and other financial contracts.
Foreign Taxation. Income received by a Fund from sources within a foreign
country may be subject to withholding and other taxes imposed by that country.
Tax conventions between certain countries and the U.S. may reduce or eliminate
such taxes.
Foreign Currency Transactions. Under the Code, gains or losses attributable
to fluctuations in exchange rates which occur between the time a Fund accrues
income or other receivables or accrues expenses or other liabilities denominated
in a foreign currency and the time that Fund actually collects such receivables
or pays such liabilities generally are treated as ordinary income or ordinary
loss. Similarly, on disposition of debt securities denominated in a foreign
currency and on disposition of certain futures contracts, forward contracts and
options, gains or losses attributable to fluctuations in the value of foreign
currency between the date of acquisition of the security or contract and the
date of disposition also are treated as ordinary gain or loss. These gains or
losses, referred to under the Code as "Section 988" gains or losses, may
increase or decrease the amount of a Fund's investment company taxable income to
be distributed to its shareholders as ordinary income.
Other Taxes. The foregoing discussion is general in nature and is not
intended to provide an exhaustive presentation of the tax consequences of
investing in a Fund. Distributions may also be subject to additional state,
local and foreign taxes, depending on each shareholder's particular situation.
Depending upon the nature and extent of a Fund's contacts with a state or local
jurisdiction, the Fund may be subject to the tax laws of such jurisdiction if it
is regarded under applicable law as doing business in, or as having income
derived from, the jurisdiction. Shareholders are advised to consult their own
tax advisers with respect to the particular tax consequences to them of an
investment in a Fund.
ORGANIZATION
The Articles of Incorporation of each Fund provide for the issuance of
shares of common stock in one or more classes or series. Security Equity Fund
has authorized capital stock of 5,000,000,000 shares of $.25 par value and
currently issues its shares in three series, Equity Fund, Global Fund and Asset
Allocation Fund, each of which has authority to issue such shares as follows:
Equity Fund - 2,000,000,000 shares, Global Fund - 1,000,000,000 shares and Asset
Allocation Fund - 1,000,000,000 shares. The remaining 1,000,000,000 shares have
not been allocated to any series. The shares of each series of Security Equity
Fund represent a pro rata beneficial interest in that series' net assets and in
the earnings and profits or losses derived from the investment of such assets.
Growth and Income and Ultra Funds have not issued shares in any additional
series at the present time. Growth and Income and Ultra Funds each have
authorized capital stock of 1,000,000,000 shares of $1.00 par value and $.50 par
value, respectively.
Each of the Funds currently issues two classes of shares which participate
proportionately based on their relative net asset values in dividends and
distributions and have equal voting, liquidation and other rights except that
(i) expenses related to the distribution of each class of shares or other
expenses that the Board of Directors may designate as class expenses from time
to time, are borne solely by each class; (ii) each class of shares has exclusive
voting rights with respect to any Distribution Plan adopted for that class;
(iii) each class has different exchange privileges; and (iv) each class has a
different designation. When issued and paid for, the shares will be fully paid
and nonassessable by the Funds. Shares may be exchanged as described under "How
to Exchange Shares," page 35, but will have no other preference, conversion,
exchange or preemptive rights. Shares are transferable, redeemable and
assignable and have cumulative voting privileges for the election of directors.
On certain matters, such as the election of directors, all shares of the
Series of Security Equity Fund, Equity Fund, Global Fund and Asset Allocation
Fund, vote together, with each share having one vote. On other matters affecting
a particular series, such as the investment advisory contract or the fundamental
policies, only shares of that series are entitled to vote, and a majority vote
of the shares of that series is required for approval of the proposal.
The Funds do not generally hold annual meetings of stockholders and will do
so only when required by law. Stockholders may remove directors from office by
vote cast in person or by proxy at a meeting of stockholders. Such a meeting
will be called at the written request of 10% of a Fund's outstanding shares.
40
<PAGE>
LEGAL PROCEEDINGS
Ultra Fund has been named as a class defendant in an adversary proceeding
filed on March 14, 1995 in a pending bankruptcy, captioned In re: Integra Realty
Resources, Inc., Integra-a Hotel and Restaurant Company, and BHC of Denver,
Inc., United States Bankruptcy Court for the District of Colorado. The adversary
proceeding was brought by Jeffrey A. Weinman, as Trustee for the Integra
Unsecured Creditors against the principal defendant Fidelity Capital
Appreciation Fund and over 6,000 other class defendants, including the Ultra
Fund. The Trustee alleges that the defendants, former shareholders of Integra
Realty Resources, Inc., improperly received a distribution of Integra's assets
in December 1988 when Integra distributed all of the shares of its subsidiary,
ShowBiz Pizza Time, to its shareholders, leaving insufficient resources for
Integra to continue to operate to the detriment of the Integra Unsecured
Creditors. Ultra Fund has been advised that its maximum exposure in the lawsuit
should be less then $361,000.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND-PAYING AGENT
UMB Bank, N.A., 928 Grand Avenue, Kansas City, Missouri, acts as the
custodian for the portfolio securities of Growth and Income Fund, Equity Fund
and Ultra Fund. Chase Manhattan Bank, 4 Chase MetroTech Center, Brooklyn, New
York 11245 acts as custodian for the portfolio securities of Global and Asset
Allocation Funds, including those held by foreign banks and foreign securities
depositories which qualify as eligible foreign custodians under the rules
adopted by the SEC. Security Management Company acts as the Funds' transfer and
dividend-paying agent.
INDEPENDENT AUDITORS
The firm of Ernst & Young LLP, One Kansas City Place, 1200 Main Street,
Kansas City, Missouri, has been selected by the Funds' Board of Directors to
serve as the Funds' independent auditors, and as such, the firm will perform the
annual audit of the Funds' financial statements.
PERFORMANCE INFORMATION
The Funds may, from time to time, include performance information in
advertisements, sales literature or reports to shareholders or prospective
investors. Performance information in advertisements or sales literature may be
expressed as average annual total return or aggregate total return.
Quotations of average annual total return will be expressed in terms of the
average annual compounded rate of return of a hypothetical investment in the
Funds over periods of 1, 5 and 10 years (up to the life of the Fund), calculated
pursuant to the following formula:
P(1+T)n=ERV
(where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years, and ERV = the ending redeemable value of
a hypothetical $1,000 payment made at the beginning of the period). All total
return figures will reflect the deduction of the maximum initial sales load of
5.75% in the case of quotations of performance of Class A shares or the
applicable contingent deferred sales charge in the case of quotations of
performance of Class B shares and a proportional share of Fund expenses on an
annual basis, and assume that all dividends and distributions are reinvested
when paid.
For the 1-, 5- and 10-year periods ended September 30, 1995, respectively,
the average annual total return of Class A shares of Growth and Income Fund was
13.41%, 9.15% and 8.64%. For the 1-year period ended September 30, 1995, the
average annual total return of Class B shares of Growth and Income Fund was
14.07%. For the period October 19, 1993 (date of inception) to September 30,
1995, the average annual total return for Class B shares of Growth and Income
Fund was 2.82%.
For the 1-, 5- and 10-year periods ended September 30, 1995, respectively,
the average annual total return of Class A shares of Equity Fund was 20.38%,
17.41% and 15.22%. For the 1-year period ended September 30, 1995, the average
annual total return of Class B shares of Equity Fund was 21.69%. For the period
October 19, 1993 (date of inception) to September 30, 1995, the average annual
total return for Class B shares of Equity Fund was 10.96%.
For the 1-year period ended September 30, 1995, the average annual total
return of Class A shares of Global Fund was -3.10%. For the period October 5,
1993 (date of inception) to September 30, 1995, the average annual
41
<PAGE>
total return of Class A shares of Global Fund was 2.48%. For the 1-year period
ended September 30, 1995, the average annual total return of Class B shares of
Global Fund was -3.21%. For the period October 19, 1993 (date of inception) to
September 30, 1995, the average annual total return of Class B shares of Global
Fund was 2.96%.
For the 1-, 5- and 10-year periods ended September 30, 1995, respectively,
the average annual total return of Class A shares of Ultra Fund was 15.57%,
17.87% and 6.90%. For the 1-year period ended September 30, 1995, the average
annual total return of Class B shares of Ultra Fund was 16.53%. For the period
October 19, 1993 (date of inception) to September 30, 1995, the average annual
total return for Class B shares of Ultra Fund was 5.30%.
For the period June 1, 1995 (date of inception) through September 30, 1995,
the average annual total return of Class A and Class B shares of Asset
Allocation Fund was -.66% and 0%, respectively.
Quotations of aggregate total return will be calculated for any specified
period pursuant to the following formula:
ERV-P
----- = T
P
(where P = a hypothetical initial payment of $1,000, T = the total return, and
ERV = the ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period). All total return figures will assume that all
dividends and distributions are reinvested when paid. The Funds may, from time
to time, include quotations of aggregate total return that do not reflect
deduction of the sales load. The sales load, if reflected, would reduce the
total return.
The total return on an investment made in Class A shares of Growth and
Income Fund, Equity Fund and Ultra Fund calculated as described above for the
period from October 1, 1985 through September 30, 1995 was 142.81%, 337.69% and
106.74%, respectively. Total return on an investment made in Class A shares of
Global Fund calculated as described above for the period October 5, 1993 through
September 30, 1995 was 5.03%. Total return on an investment made in Class B
shares of Growth and Income, Equity, Global and Ultra Funds calculated as
described above for the period October 19, 1993 through September 30, 1995 was
7.90%, 26.3%, 7.92% and 10.92%, respectively. Total return made on an investment
made in Class A and Class B shares of Asset Allocation Fund calculated as
described above for the period June 1, 1995 through September 30, 1995 was -.66%
and 0%, respectively. These figures reflect deduction of the maximum sales load.
In addition, quotations of total return will also be calculated for several
consecutive one-year periods, expressing the total return as a percentage
increase or decrease in the value of the investment for each year relative to
the ending value for the previous year.
Quotations of average annual total return and aggregate total return will
reflect only the performance of a hypothetical investment in the Funds during
the particular time period shown. Such quotations for the Funds will vary based
on changes in market conditions and the level of the Funds' expenses, and no
reported performance figure should be considered an indication of performance
which may be expected in the future.
In connection with communicating its average annual total return or
aggregate total return to current or prospective shareholders, the Funds also
may compare these figures to the performance of other mutual funds tracked by
mutual fund rating services or to other unmanaged indexes which may assume
reinvestment of dividends but generally do not reflect deductions for
administrative and management costs. Each Fund will include performance data for
both Class A and Class B Shares of the Fund in any advertisement or report
including performance data of the Fund. Such mutual fund rating services include
the following: Lipper Analytical Services; Morningstar, Inc.; Investment Company
Data; Schabacker Investment Management; Wiesenberger Investment Companies
Service; Computer Directions Advisory (CDA); and Johnson's Charts. Such
unmanaged indexes include the following: S&P 500; the Dow Jones Industrial
Average; NASDAQ 100 and NASDAQ 200; Russell 2000 and Russell 2500; as well as
the Wilshire 1750 and Wilshire 4500. When comparing the Funds' performance with
that of other alternatives, investors should understand that shares of the Funds
may be subject to greater market risks than are certain other types of
investments.
RETIREMENT PLANS
The Funds offer tax-qualified retirement plans for individuals (Individual
Retirement Accounts, known as IRAs), several prototype retirement plans for the
self-employed (Keogh plans), pension and profit-sharing plans for
42
<PAGE>
corporations, and custodial account plans for employees of public school systems
and organizations meeting the requirements of Section 501(c)(3) of the Internal
Revenue Code. Actual documents and detailed materials about the plans will be
provided upon request to the Distributor.
Purchases of the Funds' shares under any of these plans are made at the
public offering price next determined after contributions are received by the
Distributor. The Funds' shares owned under any of the plans have full dividend,
voting and redemption privileges. Depending on the terms of the particular plan,
retirement benefits may be paid in a lump sum or in installment payments over a
specified period. There are possible penalties for premature distributions from
such plans.
Security Management Company is available to act as custodian for the plans
on a fee basis. For IRAs, Section 403(b) Retirement Plans, and Simplified
Employee Pension Plans (SEPPs), service fees for such custodial services
currently are: (1) $10 for annual maintenance of the account and (2) benefit
distribution fee of $5 per distribution. Service fees for other types of plans
will vary. These fees will be deducted from the plan assets. Optional
supplemental services are available from Security Benefit Life Insurance Company
for additional charges.
Retirement investment programs involve commitments covering future years.
It is important that the investment objectives and structure of the Funds be
considered by the investors for such plans. A brief description of the available
tax-qualified retirement plans is provided below. However the tax rules
applicable to such qualified plans vary according to the type of plan and the
terms and conditions of the plan itself. Therefore, no attempt is made to
provide more than general information about the various types of qualified
plans.
Investors are urged to consult their own attorneys or tax advisers when
considering the establishment and maintenance of any such plans.
INDIVIDUAL RETIREMENT ACCOUNTS (IRAs)
Individual Retirement Account Custodial Agreements are available to provide
investment in shares of the Funds or in other Funds in the Security Group. An
individual may initiate an IRA through the Underwriter by executing the
custodial agreement and making a minimum initial investment of at least $100
plus $15 to cover the fees for opening and maintaining the account for the first
year.
An individual may make a contribution to an IRA each year of up to the
lesser of $2,000 or 100% of earned income under current tax law. If
contributions are also made to an IRA of a nonworking spouse, the maximum is
raised to a total for the two accounts of $2,250; the taxpayers may choose how
to allocate the $2,250 between the accounts, as long as no more than $2,000 is
contributed to either account. If both husband and wife work, each may establish
his or her own IRA and contribute up to the maximum allowed for individuals.
Deductions for IRA contributions are limited for taxpayers who are covered
by an employer-sponsored retirement plan. However, these limitations do not
apply to a single taxpayer with adjusted gross income of $25,000 or less or
married taxpayers with adjusted gross income of $40,000 or less (if they file a
joint tax return). Taxpayers with adjusted gross income less than $10,000 in
excess of these amounts may deduct a portion of their IRA contributions. The
nondeductible portion is calculated by reference to the amount of the taxpayer's
income above $25,000 (single) or $40,000 (married) as a percentage of $10,000.
Contributions must be made in cash no later than April 15 following the
close of the tax year. No annual contribution is permitted for the year in which
the investor reaches age 70 1/2 or any year thereafter.
In addition to annual contributions, total distributions and certain
partial distributions from certain employer-sponsored retirement plans may be
eligible to be reinvested into an IRA if the reinvestment is made within 60 days
of receipt of the distribution by the taxpayer. Such rollover contributions are
not subject to the limitations on annual IRA contributions described above.
PENSION AND PROFIT-SHARING PLANS
Prototype corporate pension or profit-sharing plans meeting the
requirements of Internal Revenue Code Section 401(a) are available. Information
concerning these plans may be obtained from the Distributor.
403(b) RETIREMENT PLANS
Employees of public school systems and tax-exempt organizations meeting the
requirements of Internal Revenue Code Section 501(c)(3) may purchase shares of
the Funds or of the other Funds in the Security Group
43
<PAGE>
under a Section 403(b) Plan. Section 403(b) Plans are subject to numerous
restrictions on the amount that may be contributed, the persons who are eligible
to participate and on the time when distributions may commence.
SIMPLIFIED EMPLOYEE PENSION PLANS (SEPPs)
A prototype SEPP is available for corporations, partnerships or sole
proprietors desiring to adopt such a plan for purchases of IRAs for their
employees. Employers establishing a SEPP may contribute a maximum of $30,000 a
year to an IRA for each employee. This maximum is subject to a number of
limitations.
FINANCIAL STATEMENTS
The audited financial statements of the Funds, which are contained in the
Funds' September 30, 1995 Annual Report are incorporated herein by reference. A
copy of the Annual Report dated September 30, 1995, is provided to every person
requesting a Statement of Additional Information.
44
<PAGE>
APPENDIX A
DESCRIPTION OF CORPORATE BOND RATINGS
Moody's Investors Service, Inc.
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Standard & Poor's Corporation
AAA - Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
45
<PAGE>
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated categories.
BB, B, CCC, CC - Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominately speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
C - The rating C is reserved for income bonds on which no interest is being
paid.
D - Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
46
<PAGE>
APPENDIX B
REDUCED SALES CHARGES
Class A Shares
Initial sales charges may be reduced or eliminated for persons or
organizations purchasing Class A shares of the Funds alone or in combination
with Class A shares of certain other Security Funds.
For purposes of qualifying for reduced sales charges on purchases made
pursuant to Rights of Accumulation or a Statement of Intention (also referred to
as a "Letter of Intent"), the term "Purchaser" includes the following persons:
an individual, his or her spouse and children under the age 21; a trustee or
other fiduciary of a single trust estate or single fiduciary account established
for their benefit; an organization exempt from federal income tax under Section
501(c)(3) or (13) of the Internal Revenue Code; or a pension, profit-sharing or
other employee benefit plan whether or not qualified under Section 401 of the
Internal Revenue Code.
Rights of Accumulation
A Purchaser may combine all previous purchases with his or her contemplated
current purchases of Class A Shares of a Fund, for the purpose of determining
the sales charge applicable to the current purchase. For example, an investor
who already owns Class A shares of a Fund either worth $30,000 at the applicable
current offering price or purchased for $30,000 and who invests an additional
$25,000, is entitled to a reduced front-end sales charge of 4.75% on the latter
purchase. The Underwriter must be notified when a sale takes place which would
qualify for the reduced charge on the basis of previous purchases subject to
confirmation of the investor's holding through the Fund's records. Rights of
accumulation apply also to purchases representing a combination of the Class A
shares of the Funds, Security Income Fund or Security Tax-Exempt Fund in those
states where shares of the Fund being purchased are qualified for sale.
Statement of Intention
A Purchaser may sign a Statement of Intention, which may be signed within
90 days after the first purchase to be included thereunder, in the form provided
by the Underwriter covering purchases of Class A shares of the Funds, Security
Income Fund or Security Tax-Exempt Fund to be made within a period of 13 months
(or a 36-month period for purchases of $1 million or more) and thereby become
eligible for the reduced front-end sales charge applicable to the actual amount
purchased under the Statement. Five percent of the amount specified in the
Statement of Intention will be held in escrow shares until the Statement is
completed or terminated. The shares so held may be redeemed by the Funds if the
investor is required to pay additional sales charges which may be due if the
amount of purchases made by the Purchaser during the period the Statement is
effective is less than the total specified in the Statement of Intention.
A Statement of Intention may be revised during the 13-month period (or a
36-month period for purchases of $1 million or more). Additional Class A shares
received from reinvestment of income dividends and capital gains distributions
are included in the total amount used to determine reduced sales charges. The
Statement is not a binding obligation upon the investor to purchase or any Fund
to sell the full indicated amount. A Statement of Intention form may be obtained
from the Funds. An investor considering signing such an agreement should read
the Statement of Intention carefully.
Reinstatement Privilege
Stockholders who redeem their Class A shares of the Funds have a one-time
privilege (1) to reinstate their accounts by purchasing shares without a sales
charge up to the dollar amount of the redemption proceeds, or (2) to the extent
the redeemed shares would have been eligible for the exchange privilege, to
purchase Class A shares of another of the Funds, Security Income Fund and
Security Tax-Exempt Fund, without a sales charge up to the dollar amount of the
redemption proceeds. Written notice and a check in the amount of the
reinvestment from eligible stockholders wishing to exercise this reinstatement
privilege must be received by a fund within 30
47
<PAGE>
days after the redemption request was received (or such longer period as may be
permitted by rules and regulations promulgated under the Investment Company Act
of 1940). The reinstatement or exchange will be made at the net asset value next
determined after the reinvestment is received by the Fund. Stockholders making
use of the reinstatement privilege should note that any gains realized upon the
redemption will be taxable while any losses may be deferred under the "wash
sale" provision of the Internal Revenue Code.
48
<PAGE>
SECURITY
FUNDS
ANNUAL
REPORT
September 30, 1995
- - Security
Growth And
Income Fund
- - Security Equity
Fund
-Equity Series
-Global Series
-Asset
Allocation
Series
- - Security Ultra
Fund
[SDI LOGO]
<PAGE>
PRESIDENT'S COMMENTARY
NOVEMBER 15, 1995
SECURITY
FUNDS
To Our Shareholders:
What a difference a year makes! History shows that market fluctuations are
inevitable, and shareholders who remain committed and continue to invest
regardless of overall market levels stand to benefit over time.* And what better
argument for remaining invested than the 12-month period ending September 30,
1995?
The $68 billion that flowed into stock mutual funds in the first three
quarters of 1995 helped push stock prices to new highs, as evidenced by the Dow
Jones Industrial Average finally topping 4800 and the Standard & Poor's 500
stock index posting a record high of 583.61 in the third quarter. All stock
categories, regardless of capitalization, were up for the nine-month period
ending September 30, 1995. The S&P 500 posted nearly a 30% gain as of September
30, 1995, and the S&P 600 small-cap index finished the period up 29% as did the
S&P mid-cap index!
TECHNOLOGY STOCKS LED MARKET
Technology stocks of all sizes were the undisputed market leaders through the
third quarter. Demand reached a fever pitch during the second quarter,
surprising even seasoned investment professionals. Stock prices soared for
semiconductors, computers and software, and the group ended the third quarter up
nearly 100%. Companies were not able to ship products, from microchips to
personal computers, fast enough to keep up with demand. Although technology
stocks faltered somewhat late in the third quarter, this was mainly due to a
moderate sell-off from a group that had performed very well. In addition, money
managers attempting to reduce overweightings in their portfolios began selling
technology issues in the third quarter.
LARGE CAPS ENJOYED LENGTHY RUN
The general feeling early in 1995 was that the U.S. economy would slow due to
increases in interest rates initiated by the Federal Reserve in 1994. Perception
became reality as investors rushed to buy stocks of large capitalization
companies whose earnings tend to remain consistent regardless of economic
activity.
Aided by stronger-than-expected U.S. earnings growth, large cap stocks, as
represented by the Standard & Poor's returned 29.77% in the first three quarters
of 1995, nearly tripling its historical average annual return of 10%. Beating
the S&P's third-quarter return proved to be difficult. However, the Class A
shares of Security Equity Fund posted a third quarter September 30 return of
29.96%, even being underweighted compared to the technology sector of the index.
Also positive, Class A shares of the Security Growth and Income Fund posted a
September 30 return of 22.15%. The Security Ultra Fund, although not measured
against the S&P 500, closed the third quarter with a total return of 22.75% for
Class A shares.**
SMALL AND MID-CAP RESURGENCE
The strengthening U.S. dollar, which modestly impacted companies with
substantial foreign revenues, as well as the belief that large caps could not
sustain their superior first-half performance, led to increased interest in
small capitalization companies in the third quarter. The Standard & Poor's
600-stock index (small-cap stocks) trailed the S&P 500 by almost 6% at June 30,
1995. However, by September 30, it had pulled nearly neck to neck to close the
quarter with a 29% return.
GLOBAL MARKETS
Looking globally, foreign markets in 1995 demonstrated much of the volatility
that plagued the U.S. markets for much of 1994. At mid-year the story from Japan
wasn't particularly positive, but Japanese stocks did experience gains in the
third quarter. Europe was very much a stock-by-stock play, and Latin America
remained under the "tequila effect"-not yet having recovered from Mexico's
fiscal and monetary problems. However, we remain quite positive on the
international markets, especially the fixed income markets. We believe late 1995
and 1996 could be a good period for non-U.S. markets, due in part to reduced
volatility. Many foreign economies are growing faster than ours, and U.S.
companies doing significant business internationally, as well as international
markets themselves should benefit.
NEAR TERM OUTLOOK
Looking forward, we see the investment climate of slow growth with low
inflation as positive for financial assets. We will continue to seek out
companies whose 1996 earnings prospects look attractive. Investors should
remember that the average bull market lasts over 3.5 years and the average bear
market lasts only nine months. As always, we believe owners of financial assets
should be adequately diversified and remain invested regardless of market
conditions.
Over the next several pages, we review the factors influencing the
performance of each Fund for the 12-month period ending September 30, 1995. As
always, our goal is to provide you with positive investment results over time
along with the highest-quality service in the industry. We invite your questions
and comments. Please call our customer service center at 1-800-888-2461, ext.
3127.
Sincerely,
/s/ John D. Cleland
John D. Cleland
President-Security Funds
*Programs of regular investing do not assure profits or protect against loss
in a declining market.
**These performance figures do not reflect deduction of the maximum front-end
sales charge of 5.75%. If the sales charge were deducted, the performance
quoted would be reduced.
[upper right hand corner, picture of John Cleland]
JOHN CLELAND
1
<PAGE>
MANAGER'S COMMENTARY
NOVEMBER 15, 1995
SECURITY GROWTH AND
INCOME FUND
The Growth and Income Fund returned 20.25% for the 12-month period ending
September 30, 1995, compared to the 29.77% returned by the Standard & Poor's
500-stock index.* An underweight position relative to the index in technology,
telephones and banks was the main reason why the Fund's performance lagged the
S&P 500. The portfolio also has more of a value tilt than the S&P 500, and value
stocks as a group underperformed growth stocks through the third quarter of the
year.
Historically, the Growth and Income Fund has been under exposed to value
stocks. But because of price declines due to economic slowdown, we added some
value names to the traditional growth bias of the portfolio. Some of these value
names include Time Warner, Inc., Sara Lee Corporation and Dial Corporation
(The). As of September 30, 1995, approximately 60% of assets were in growth
issues and 20% were in value names. The remaining 20% of assets were in high
yield bonds and cash.
The portfolio lacked exposure to telephone and bank stocks and this hurt
performance. These stocks are not high growth issues, but they tend to do well
when interest rates decline. Economic slowdown, positive regulatory changes and
lower interest rates combined to produce a good environment for telephone stocks
throughout the period. Although we believed bank stock fundamentals were
deteriorating, i.e., loan growth was slowing, the sector got a boost from heavy
merger activity throughout the third quarter.
Positive contributors to the Fund's performance for the period included
classic growth stocks such as Duracell International and General Electric
Company. In addition, performance was favorably impacted by weightings in
pharmaceutical giants Merck & Company, Inc. and Bristol-Meyers Squibb Company.
And last, exposure to multinational companies such as McDonald's Corporation,
whose foreign sales resulted in strong earnings growth, positively influenced
the Fund's return.
The income component of the portfolio as of September 30, 1995, roughly
15.8%, was comprised of high yield bonds rated BB or B, one and two levels below
investment grade respectively. For the nine-month period, the income component
of the portfolio returned 16.21%, compared to the Lehman Brothers Single B Index
return of 13.97% and the Salomon Brothers Single B return of 13.95%.* The
returns on high yield bonds often behave more like equity returns. However,
because of the high yield and subsequent cash flow, they are normally less
volatile than equities. In fact, high yield bonds have historically delivered
the highest cumulative return for all categories of bonds over the ten-year
period ending December 31, 1994.**
Going forward, we anticipate the growth component of the portfolio will do
well as the economy continues to weaken. Concern about corporate profit growth
in 1996 has led us to structure the portfolio more defensively - a position we
believe to be better suited to that kind of market. The portfolio's asset
allocation will continue to focus on growth and value stocks on the equity side,
and high yield bonds on the income side.
*This performance figure is based on Class A share prices and does not
reflect deduction of the sales charge.
**Although high-yield bonds have delivered higher performance in the past
than other categories of bonds, they also present a greater risk that interest
and principal payments will not be made.
[upper right hand corner, picture of Chuck Lauber, Terry Milberger, Tom Swank,
John Cleland]
THE SECURITY MANAGEMENT GROWTH AND INCOME TEAM
CHUCK LAUBER, TERRY MILBERGER, TOM SWANK, JOHN CLELAND
2
<PAGE>
MANAGER'S COMMENTARY (CONTINUED)
NOVEMBER 15, 1995
SECURITY
GROWTH AND
INCOME FUND
PERFORMANCE
[LINE GRAPH WITH FOLLOWING INFORMATION CHARTED]
SECURITY GROWTH AND INCOME FUND
VS. S&P 500
Security Growth
S&P 500 and Income Fund
------- ---------------
September 1985 $10,000.00 $10,000.00
October 1985 10,447.00 9,594.30
November 1985 11,195.01 9,956.14
December 1985 11,717.81 10,057.44
January 1986 11,769.37 10,102.80
February 1986 12,665.02 10,692.40
March 1986 13,366.66 11,147.78
April 1986 13,200.91 11,067.25
May 1986 13,925.65 11,354.86
June 1986 14,156.81 11,505.74
July 1986 13,351.29 10,910.62
August 1986 14,349.96 11,470.74
September 1986 13,170.40 10,968.48
October 1986 13,902.67 11,276.46
November 1986 14,258.58 11,371.21
December 1986 13,882.15 11,221.63
January 1987 15,746.53 12,190.32
February 1987 16,396.86 12,605.47
March 1987 16,842.85 12,880.44
April 1987 16,694.64 12,587.71
May 1987 16,866.59 12,791.35
June 1987 17,708.23 13,337.58
July 1987 18,590.10 13,891.17
August 1987 19,305.82 14,110.03
September 1987 18,881.09 13,684.88
October 1987 14,817.88 11,302.06
November 1987 13,604.30 10,833.32
December 1987 14,608.30 11,321.00
January 1988 15,232.07 11,769.92
February 1988 15,947.98 12,148.69
March 1988 15,466.35 11,966.35
April 1988 15,633.38 12,065.95
May 1988 15,755.32 11,994.80
June 1988 16,486.37 12,364.12
July 1988 16,420.43 12,263.14
August 1988 15,876.91 11,873.60
September 1988 16,550.09 12,192.46
October 1988 17,001.91 12,426.65
November 1988 16,760.48 12,338.83
December 1988 17,063.85 12,534.97
January 1989 18,297.56 13,255.73
February 1989 17,841.95 13,193.06
March 1989 18,263.02 13,303.63
April 1989 19,205.40 13,828.14
May 1989 19,977.45 14,098.35
June 1989 19,869.57 14,127.96
July 1989 21,653.86 14,691.79
August 1989 22,071.78 14,852.88
September 1989 21,985.70 14,788.83
October 1989 21,473.43 14,674.57
November 1989 21,920.08 14,788.83
December 1989 22,437.40 15,095.63
January 1990 20,931.85 14,326.53
February 1990 21,201.87 14,380.20
March 1990 21,759.48 14,531.77
April 1990 21,222.02 14,023.16
May 1990 23,291.16 14,713.41
June 1990 23,128.13 14,623.41
July 1990 23,054.12 14,734.04
August 1990 20,972.33 14,107.07
September 1990 19,940.49 13,933.26
October 1990 19,866.71 13,952.01
November 1990 21,146.13 14,495.85
December 1990 21,725.53 14,643.29
January 1991 22,685.80 14,977.61
February 1991 24,310.10 15,713.12
March 1991 24,888.68 15,913.37
April 1991 24,958.37 16,049.38
May 1991 26,026.59 16,502.75
June 1991 24,837.17 16,162.40
July 1991 25,999.55 16,645.21
August 1991 26,610.54 17,036.04
September 1991 26,174.13 17,035.74
October 1991 26,524.86 17,338.70
November 1991 25,453.26 16,756.09
December 1991 28,362.57 17,844.78
January 1992 27,835.02 17,602.98
February 1992 28,191.31 17,602.98
March 1992 27,638.76 17,506.57
April 1992 28,443.05 17,433.02
May 1992 28,596.64 17,359.46
June 1992 28,181.99 17,335.44
July 1992 29,317.73 17,830.74
August 1992 28,725.51 17,781.21
September 1992 29,055.85 17,830.28
October 1992 29,160.45 17,830.28
November 1992 30,143.16 18,405.46
December 1992 30,538.03 18,703.42
January 1993 30,760.96 18,703.42
February 1993 31,176.23 18,884.00
March 1993 31,846.52 19,544.93
April 1993 31,066.28 18,869.19
May 1993 31,905.07 19,233.05
June 1993 32,010.36 19,722.16
July 1993 31,859.91 19,696.01
August 1993 33,073.77 20,428.39
September 1993 32,829.03 20,613.72
October 1993 33,495.46 20,508.55
November 1993 33,180.60 19,824.93
December 1993 33,588.72 20,232.27
January 1994 34,713.94 21,208.63
February 1994 33,776.67 20,856.07
March 1994 32,307.38 19,744.08
April 1994 32,727.38 19,390.05
May 1994 33,260.83 19,172.19
June 1994 32,439.29 18,504.66
July 1994 33,513.03 18,777.60
August 1994 34,877.01 19,432.62
September 1994 34,036.48 19,039.85
October 1994 34,815.91 19,012.49
November 1994 33,538.17 18,328.59
December 1994 34,027.83 18,642.65
January 1995 34,912.55 18,671.02
February 1995 36,267.16 19,210.16
March 1995 37,340.66 19,735.72
April 1995 38,427.28 20,364.07
May 1995 39,945.15 20,992.42
June 1995 40,883.87 21,602.11
July 1995 42,245.30 22,521.35
August 1995 42,359.36 22,262.82
September 1995 44,134.22 22,895.11
$10,000 OVER TEN YEARS
This chart assumes a $10,000 investment in Class A shares of Growth and
Income Fund on September 30, 1985, and reflects deduction of the 5.75% sales
load. On September 30, 1995, the value of your investment in Class A shares of
the fund (with dividends reinvested) would have grown to $22,895. By comparison,
the same $10,000 investment would have grown to $44,134 based on the S&P's
performance.
The performance illustrated above is based on the performance of Class A
shares. The performance of Class B shares, which were first offered on October
19, 1993, will be greater or less than the performance shown for Class A shares
as a result of the different loads and fees associated with an investment in
Class B shares.
TOP 5 HOLDINGS***
% of
net assets
----------
DSC Communications Corporation 2.20%
Ceridian Corporation 1.90%
Frontier Corporation 1.90%
PepsiCo, Inc. 1.90%
McDonnell Douglas Corporation 1.80%
***At September 30, 1995
AVERAGE ANNUAL RETURNS
As of September 30, 1995
1 year 5 years 10 years
------ ------- --------
A Shares 20.25% 10.44% 9.28%
A Shares with sales charge 13.41% 9.15% 8.64%
B Shares 19.07% 4.80% N/A
(10-19-93)
B Shares with CDSC 14.07% 2.82% N/A
(10-19-93)
The performance data above represents past performance which is not predictive
of future results. The investment return and principal value of an investment in
the fund will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. The figures above do not reflect
deduction of the maximum front end sales charge of 5.75% for Class A shares or
contingent deferred sales charge of 5% for Class B shares, as applicable, except
where noted. Such figures would be lower if the maximum sales charge were
deducted.
3
<PAGE>
MANAGER'S COMMENTARY
NOVEMBER 15, 1995
SECURITY EQUITY
FUND-
EQUITY SERIES
Economic slowdown and declining interest rates boosted stock prices and led
the U.S. stock market to superior performance in the first three quarters of
1995. Security Equity Series gained 29.96% for the nine-month period ending
September 30, 1995, besting the 29.77% return delivered by the Standard & Poor's
500-Stock Index for the same time period.* Beating the S&P 500 is difficult, and
Security Equity Series led the S&P throughout most of the year despite being
underweighted compared to the index in technology stocks, the index's
top-performing sector.
As of September 30, 1995, the portfolio included large capitalization
technology giants such as Microsoft Corporation, IBM and Xerox Corporation.
However, technology stocks of all sizes outperformed expectations throughout the
first seven months of 1995. Increased volatility in August and September was
primarily a result of the group's exceptional performance. A significant
third-quarter sell-off occurred due to investors taking profits, money managers
adjusting portfolio overweightings and the announcement by a few technology
companies that earnings would not meet expectations.
This pull back in technology hurt the portfolio's performance only slightly.
In addition, underexposure to certain other S&P 500 sectors that performed well
such as telephone stocks, utilities and banks, also dampened total return.
Increased exposure to these industries would have boosted the portfolio's total
return for the period.
Contributing to positive performance for the period were the stocks of
high-quality companies with consistent earnings growth in the healthcare sector
such as Baxter International, Inc., and Merck & Company, Inc. Consumer staples
giants such as Procter & Gamble Company also turned in very strong performances.
The portfolio's exposure to international markets through its multinational
holdings, U.S. companies with significant overseas presence, also contributed to
positive total return. Worldwide franchise companies such as McDonald's
Corporation and Procter & Gamble Company are experiencing dramatic international
growth as they benefit from increasing worldwide consumer demand.
Throughout the 12-month period ending September 30,1995, we remained
principally fully invested to capture the opportunity provided by the rising
market. As of September 30, 1995, approximately 80% of the portfolio's assets
were in growth names, 10% in value stocks, 5% in economically-sensitive
companies and 5% in interest-sensitive stocks.
Looking forward, we see an even greater shift away from
economically-sensitive issues and toward traditional growth stocks. Because we
anticipate an earnings slowdown in 1996, we have already positioned the
portfolio to focus on stable growth issues, such as financial services, consumer
products and healthcare, whose earnings tend to hold up regardless of economic
activity.
*This performance figure is based on Class A share prices and does not
reflect deduction of the sales charge.
[upper right hand corner, picture of John Cleland, Terry Milberger,
Chuck Lauber]
THE SECURITY MANAGEMENT LARGE CAP TEAM
JOHN CLELAND, TERRY MILBERGER, CHUCK LAUBER
4
<PAGE>
MANAGER'S COMMENTARY (CONTINUED)
NOVEMBER 15, 1995
SECURITY EQUITY
FUND-
EQUITY SERIES
PERFORMANCE
[LINE GRAPH WITH FOLLOWING INFORMATION CHARTED]
SECURITY EQUITY SERIES VS. S&P 500
S&P 500 Equity Series
------- -------------
September 1985 $10,000.00 $10,000.00
October 1985 10,447.00 9,823.81
November 1985 11,195.01 10,332.91
December 1985 11,717.81 10,766.60
January 1986 11,769.37 10,766.60
February 1986 12,665.02 11,633.96
March 1986 13,366.66 12,407.04
April 1986 13,200.91 12,269.89
May 1986 13,925.65 12,759.45
June 1986 14,156.81 12,998.95
July 1986 13,351.29 12,149.77
August 1986 14,349.96 12,802.98
September 1986 13,170.40 11,757.85
October 1986 13,902.67 12,534.83
November 1986 14,258.58 12,605.12
December 1986 13,882.15 12,253.67
January 1987 15,746.53 13,800.03
February 1987 16,396.86 14,456.06
March 1987 16,842.85 14,643.49
April 1987 16,694.64 14,623.54
May 1987 16,866.59 14,741.85
June 1987 17,708.23 15,262.43
July 1987 18,590.10 16,350.92
August 1987 19,305.82 16,611.21
September 1987 18,881.09 16,445.56
October 1987 14,817.88 12,351.92
November 1987 13,604.30 11,618.38
December 1987 14,608.30 12,773.76
January 1988 15,232.07 12,990.80
February 1988 15,947.98 13,827.92
March 1988 15,466.35 13,641.89
April 1988 15,633.38 13,765.90
May 1988 15,755.32 13,672.89
June 1988 16,486.37 14,137.96
July 1988 16,420.43 14,199.97
August 1988 15,876.91 14,044.94
September 1988 16,550.09 14,665.03
October 1988 17,001.91 15,037.07
November 1988 16,760.48 14,913.06
December 1988 17,063.85 15,221.56
January 1989 18,297.56 16,206.68
February 1989 17,841.95 15,825.34
March 1989 18,263.02 16,492.68
April 1989 19,205.40 17,446.00
May 1989 19,977.45 18,399.34
June 1989 19,869.57 18,145.11
July 1989 21,653.86 20,115.34
August 1989 22,071.78 20,306.00
September 1989 21,985.70 20,750.90
October 1989 21,473.43 19,734.00
November 1989 21,920.08 19,956.45
December 1989 22,437.40 19,904.83
January 1990 20,931.85 18,529.58
February 1990 21,201.87 19,036.25
March 1990 21,759.48 19,361.97
April 1990 21,222.02 18,855.29
May 1990 23,291.16 20,664.82
June 1990 23,128.13 20,592.44
July 1990 23,054.12 20,266.73
August 1990 20,972.33 18,384.82
September 1990 19,940.49 17,443.86
October 1990 19,866.71 17,262.91
November 1990 21,146.13 18,421.00
December 1990 21,725.53 18,983.98
January 1991 22,685.80 20,230.81
February 1991 24,310.10 21,759.18
March 1991 24,888.68 22,241.82
April 1991 24,958.37 22,322.25
May 1991 26,026.59 23,569.09
June 1991 24,837.17 22,282.04
July 1991 25,999.55 23,488.65
August 1991 26,610.54 24,011.50
September 1991 26,174.13 23,408.21
October 1991 26,524.86 23,931.07
November 1991 25,453.26 22,724.46
December 1991 28,362.57 25,672.52
January 1992 27,835.02 25,584.45
February 1992 28,191.31 26,333.04
March 1992 27,638.76 25,980.76
April 1992 28,443.05 26,200.94
May 1992 28,596.64 26,421.11
June 1992 28,181.99 25,628.48
July 1992 29,317.73 26,509.19
August 1992 28,725.51 25,672.52
September 1992 29,055.85 25,804.62
October 1992 29,160.45 26,509.19
November 1992 30,143.16 28,006.38
December 1992 30,538.03 28,423.21
January 1993 30,760.96 28,752.62
February 1993 31,176.23 28,846.74
March 1993 31,846.52 30,164.36
April 1993 31,066.28 29,317.31
May 1993 31,905.07 29,599.67
June 1993 32,010.36 29,929.07
July 1993 31,859.91 30,164.36
August 1993 33,073.77 31,293.77
September 1993 32,829.03 31,670.23
October 1993 33,495.46 32,281.99
November 1993 33,180.60 31,434.94
December 1993 33,588.72 32,580.13
January 1994 34,713.94 33,629.23
February 1994 33,776.67 33,162.96
March 1994 32,307.38 31,414.47
April 1994 32,727.38 31,705.89
May 1994 33,260.83 31,764.17
June 1994 32,439.29 30,889.93
July 1994 33,513.03 31,589.32
August 1994 34,877.01 32,813.27
September 1994 34,036.48 32,288.72
October 1994 34,815.91 32,580.13
November 1994 33,538.17 31,181.34
December 1994 34,027.83 31,745.29
January 1995 34,912.55 32,501.14
February 1995 36,267.16 33,823.85
March 1995 37,340.66 34,831.64
April 1995 38,427.28 36,028.39
May 1995 39,945.15 37,288.13
June 1995 40,883.87 38,295.90
July 1995 42,245.30 40,059.53
August 1995 42,359.36 39,870.57
September 1995 44,134.22 41,256.28
$10,000 OVER TEN YEARS
This chart assumes a $10,000 investment in Class A shares of Equity Series on
September 30, 1985, and reflects deduction of the 5.75% sales load. On September
30, 1995, the value of your investment in Class A shares of the Series (with
dividends reinvested) would have grown to $41,256. By comparison, the same
$10,000 investment would have grown to $44,134 based on the S&P's performance.
The performance illustrated above is based on the performance of Class A
shares. The performance of Class B shares, which were first offered on October
19, 1993, will be greater or less than the performance shown for Class A shares
as a result of the different loads and fees associated with an investment in
Class B shares.
TOP 5 HOLDINGS**
% of
net assets
----------
Frontier Corporation 1.90%
Hercules, Inc. 1.80%
Monsanto Company 1.80%
Amgen, Inc. 1.70%
Loral Corporation 1.70%
**At September 30, 1995
AVERAGE ANNUAL RETURNS
As of September 30, 1995
1 year 5 years 10 years
------ ------- --------
A Shares 27.77% 18.79% 15.91%
A Shares with sales charge 20.38% 17.41% 15.22%
B Shares 26.69% 12.80% N/A
(10-19-93)
B Shares with CDSC 21.69% 10.96% N/A
(10-19-93)
The performance data above represents past performance which is not
predictive of future results. The investment return and principal value of an
investment in the fund will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost. The figures above
do not reflect deduction of the maximum front end sales charge of 5.75% for
Class A shares or contingent deferred sales charge of 5% for Class B shares, as
applicable, except where noted. Such figures would be lower if the maximum sales
charge were deducted.
5
<PAGE>
MANAGER'S COMMENTARY
NOVEMBER 15, 1995
SECURITY
EQUITY FUND-
GLOBAL SERIES
[LEXINGTON LOGO] SUBADVISOR - LEXINGTON
MANAGEMENT CORPORATION
The Global Series, subadvised by Lexington Management Corporation, returned
2.80% for the 12-month period ending September 30, 1995, underperforming the
12.42% returned by the Morgan Stanley Capital International World Index (MSCI)
for the same period.* However, the Series returned 5.6% for the third-quarter of
1995, virtually even with the MSCI's 5.7% return for the same period.
Underexposure to the U.S. equity market, specifically the technology sectors,
as well as an overweight position in Japan during the fourth quarter of 1994 and
early in 1995 were the primary reasons the Series underperformed its benchmark
index. We increased our U.S. weighting during the second and third quarters of
the year, but the lack of exposure to the technology sectors severely dampened
the portfolio's U.S. returns. Recently, we have decreased our U.S. exposure and
we anticipate investors will benefit from increased weighting in foreign
securities. We believe earnings in the U.S. have peaked and there is better
relative value and earnings momentum to be found overseas.
As with every investment made outside the U.S., we had to be aware of the
currency fluctuation between the U.S. dollar and in this case, the Japanese Yen.
Because we believed the U.S. dollar was going to increase in value relative to
the Yen, we purchased forward currency contracts to preserve the gains which we
expected to recognize as the Japanese market rebounded. This technique worked
well and resulted in a nice gain for the portfolio. Although Japan still has
significant structural problems, the recently strengthening Yen versus the
dollar enhances the competitiveness and profitability of many Japanese
companies.
Going forward, we will continue our bottom up search for good companies
internationally. One area that looks appealing is non-U.S. technology companies,
such as the share prices of non-U.S. technology companies have not had the
spectacular run enjoyed by the U.S. firms. We will also continue to monitor
certain companies in emerging markets as we have recently been quite successful
investing in selected companies in Israel and Southeast Asia.
PERFORMANCE
[LINE GRAPH WITH FOLLOWING INFORMATION CHARTED]
SECURITY GLOBAL SERIES VS. MORGAN STANLEY
CAPITAL INTERNATIONAL WORLD INDEX
MSCI Global Series
---- -------------
September 1993 $10,000.00
October 1993 10,277.20 $10,000.00
November 1993 9,697.46 9,084.91
December 1993 10,173.64 9,745.28
January 1994 10,846.34 10,283.02
February 1994 10,707.72 10,264.15
March 1994 10,247.89 9,773.58
April 1994 10,566.48 9,971.70
May 1994 10,595.49 10,066.04
June 1994 10,567.93 10,009.43
July 1994 10,770.71 10,132.08
August 1994 11,096.94 10,518.87
September 1994 10,807.30 10,226.42
October 1994 11,116.69 10,443.40
November 1994 10,636.52 9,943.40
December 1994 10,741.51 9,869.12
January 1995 10,582.24 9,436.69
February 1995 10,738.57 9,407.86
March 1995 11,258.35 9,744.20
April 1995 11,652.94 9,926.78
May 1995 11,754.85 10,042.10
June 1995 11,753.51 9,955.61
July 1995 12,343.90 10,561.01
August 1995 12,071.11 10,436.09
September 1995 12,424.79 10,512.97
This chart assumes a $10,000 investment in Class A shares of Global Series on
October 1, 1993, and reflects deduction of the 5.75% sales load. On September
30, 1995, the value of your investment in Class A shares of the Series (with
dividends reinvested) would have grown to $10,513. By comparison, the same
$10,000 investment would have grown to $12,425 based on the MSCI's performance.
The performance illustrated above is based on the performance of Class A
shares. The performance of Class B shares, which were first offered on October
19, 1993, will be greater or less than the performance shown for Class A shares
as a result of the different loads and fees associated with an investment in
Class B shares.
AVERAGE ANNUAL RETURNS
As of September 30, 1995
1 Year Since Inception 10-1-93
A Shares 2.80% 5.56%
A Shares with sales charge -3.10% 2.48%
1 Year Since Inception 10-19-93
B Shares 1.79% 4.94%
B Shares with CDSC -3.21% 2.96%
The performance data above represents past performance which is not
predictive of future results. The investment return and principal value of an
investment in the Series will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost. The figures above
do not reflect deduction of the maximum front end sales charge of 5.75% for
Class A shares or contingent deferred sales charge of 5% for Class B shares, as
applicable, except where noted.
*This performance figure is based on Class A share prices and does not
reflect deduction of the sales charge.
6
<PAGE>
MANAGER'S COMMENTARY
NOVEMBER 15, 1995
SECURITY
EQUITY FUND -
ASSET ALLOCATION
SERIES
[MERIDIAN INVESTMENT MANAGEMENT LOGO, TEMPLETON LOGO, SBG LOGO]
MANAGED BY SECURITY MANAGEMENT COMPANY
RESEARCH PROVIDED BY MERIDIAN INVESTMENT
MANAGEMENT CORPORATION
AND TEMPLETON QUANTITATIVE ADVISORS, INC.
Pursuing high total return through capital appreciation and current income,
our unique new Asset Allocation Series became available to shareholders June 1,
1995. The Series employs an aggressive asset allocation strategy that attempts
to identify undervalued sectors and countries with the potential to become
future market leaders, both domestically and internationally. Unlike most asset
allocation models that simply rotate between stocks and bonds, this Series may
invest in seven different general asset classes: domestic stocks and bonds,
international stocks and bonds, gold stocks, real estate (through
exchange-traded real estate investment trusts or REITS) and cash.* In addition,
the Fund attempts to identify undervalued opportunities by their respective
sector groups, such as computers, chemicals or electrical equipment; or
countries, such as Belgium, United Kingdom, Japan, etc.
For the four-month period from inception through September 30, 1995, the
Series returned 5.40%.** This compares favorably to the 5.60% return for the
Morgan Stanley Capital International World Index and the 5.65% average return
for Lipper Global Flexible Funds category, the Series' peer group. Contributing
heavily to the Series' positive performance was its U.S. exposure, as both stock
and bond markets enjoyed good runs. Specifically, the portfolio's top-performing
U.S. sector was electronics. Other strong performers included real estate and
international equities, as international markets were firm and Japan was up
nicely up for much of the period.
As of September 30, 1995, the Series' asset allocation was 40% in domestic
stocks - with weightings in appliances, auto parts, building materials, basic
chemicals, computers, electrical equipment, electronics, housing, machinery, and
metals and mining (not including gold). Another 35% of assets were allocated to
international investments including futures contracts on country-specific
indices and individual stocks, with concentrations in Hong Kong, Germany, Japan,
Belgium, and the United Kingdom. The Series also had approximately 15% allocated
to domestic bonds and 10% allocated to REITS.
PORTFOLIO DISTRIBUTION***
% of
net assets
----------
International Stocks - Futures Contracts 35.6%
Domestic Stocks 39.7%
U.S. Government 14.6%
Real Estate 10.0%
Cash & equivalents 0.1%
***At September 30, 1995
AVERAGE ANNUAL RETURNS
From inception June 1, 1995 to September 30, 1995
A Shares 5.40%
A Shares with sales charge -0.66%
B Shares 5.00%
B Shares with CDSC 0.00%
The percentage amounts are from inception and are not annualized.
The performance data above represents past performance which is not
predictive of future results. The investment return and principal value of an
investment in the fund will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost. The figures above
do not reflect deduction of the maximum front end sales charge of 5.75% for
Class A shares or contingent deferred sales charge of 5% for Class B shares, as
applicable, except where noted. Such figures would be lower if the maximum sales
charge were deducted.
*Investment in foreign securities involves risks, such as currency
fluctuations and political instability, not associated with investment in U.S.
securities.
**This performance figure is based on Class A share prices and does not
reflect deduction of the sales charge.
7
<PAGE>
MANAGER'S COMMENTARY
NOVEMBER 15, 1995
SECURITY
ULTRA
FUND
For the 12-month period ending September 30, 1995, the Ultra Fund returned
22.69%* to shareholders as compared to the Standard & Poor's 400 Mid Cap Growth
Index's gain of 26.97%. Underexposure to technology stocks in the first half of
1995 was the main reason the Fund underperformed its benchmark index.
We gradually increased our technology exposure to finish the 12-month period
in line with our index at 27.6%. Focusing on stocks of companies in the range of
$200 million to $2 billion in market capitalization, stocks we bought included
small and mid-cap technology companies, such as PC manufacturers Dell Computer
Corporation and Gateway 2000. The portfolio also included Autodesk, Inc. and
Symantec Corporation, computer software manufacturers.
The whole communications explosion includes growing demand for newer, faster,
more powerful PCs on both the consumer and business side, as well as pagers,
cellular phones and other electronic devices. All of this combined to fuel the
technology sector's performance, up as a group nearly 100% by the end of the
third quarter of the year.
Semiconductor stocks were in great demand as were stocks of the companies
that manufacture the equipment used to make the chips such as Kulicke & Soffa
Industries, Inc., and Teradyne, Inc. Considering the supply/demand imbalance of
semiconductors in addition to the demand for upgrades of computing equipment,
companies like these offer great long-term potential.
Although not a full correction, technology pulled back briefly in September.
This pull back was prompted in part by the August 24th rollout of Microsoft's
newest operating software, Windows 95. The occurrence was truly a case of the
market buying on rumor and selling on news. Fueled by pent-up demand and great
expectations, the market believed Windows 95 would trigger a huge rush to
upgrade PCs. However, after the initial burst, Windows 95 sales slowed to more
normal levels and the media declared consumer reception disappointing. In
reality, Windows 95 sales actually exceeded Microsoft's internal third-quarter
sales goals. Believing technology is in a multi-year cycle, we viewed the
shortlived pull back as a buying opportunity and took advantage of temporarily
lower prices.
The portfolio weighting in healthcare stocks was in line with its index at
September 30, 1995. HMOs are experiencing increased costs and shrinking profits
due to an increase in healthcare utilization. For the portfolio's healthcare
weighting, we concentrated on the device side of healthcare by owning companies
such as St. Jude Medical, Inc., manufacturers of heart valves and catheters.
Financial services companies also delivered strong, consistent performance
for the 12-month period. The portfolio included interest-sensitive specialty
financial service companies such as automobile financers Credit Acceptance
Corporation, Mercury Finance Company and WFS Financial, Inc. We found these
stocks' valuations to be more attractive and the growth rates higher than those
of banks. We were also pleased with the performance of credit card issuers such
as First USA, Inc.
The current small capitalization cycle that actually began in 1990 is still
intact. Because mid capitalization stocks typically benefit from increased
buying during small cap cycles, we believe valuations remain attractive. Given
the slowing economy, and the fact that small companies are more nimble than
larger companies at cutting costs, we anticipate the earnings outlook will
remain positive for small and mid-cap companies. Looking forward, we expect
growth stocks to continue to outperform as investors focus on earnings
stability. And because small and mid-cap stocks typically have limited foreign
currency risk as they have little international exposure, we anticipate earnings
to remain strong.
*This performance figure is based on Class A share prices and does not
reflect deduction of the sales charge.
[upper right hand corner, photo of Larry Valencia, Frank Whitsell, Cindy
Shields, John Cleland]
THE SECURITY MANAGEMENT SMALL CAP TEAM
LARRY VALENCIA, FRANK WHITSELL, CINDY SHIELDS, JOHN CLELAND
8
<PAGE>
MANAGER'S COMMENTARY (CONTINUED)
NOVEMBER 15, 1995
SECURITY
ULTRA
FUND
PERFORMANCE
[LINE GRAPH WITH FOLLOWING INFORMATION CHARTED]
SECURITY ULTRA FUND VS. S&P
MIDCAP AND RUSSELL 2000
S&P Midcap Russell 2000 Ultra Fund
---------- ------------ ----------
September 1985 $10,000.00 $10,000.00 $10,000.00
October 1985 10,554.60 10,380.30 9,858.39
November 1985 11,210.57 11,127.16 10,215.84
December 1985 11,765.60 11,616.65 10,438.46
January 1986 11,961.74 11,800.31 10,735.29
February 1986 12,843.44 12,647.57 11,192.91
March 1986 13,462.49 13,261.35 11,798.93
April 1986 13,563.19 13,456.56 11,761.83
May 1986 14,096.76 13,921.49 12,083.38
June 1986 14,472.73 13,904.08 12,293.64
July 1986 13,757.48 12,603.50 11,502.10
August 1986 14,509.33 13,004.03 11,662.88
September 1986 13,363.82 12,201.56 11,069.22
October 1986 13,924.03 12,685.23 11,563.94
November 1986 13,918.60 12,641.84 11,344.93
December 1986 13,672.80 12,276.75 10,984.77
January 1987 15,432.90 13,705.76 12,016.13
February 1987 16,151.91 14,860.74 12,916.52
March 1987 16,532.78 15,261.83 13,014.74
April 1987 15,984.71 14,824.43 12,900.15
May 1987 15,821.35 14,775.81 12,736.44
June 1987 16,392.66 15,153.77 13,014.74
July 1987 16,853.29 15,625.51 13,407.65
August 1987 17,464.39 16,084.74 13,947.88
September 1987 17,127.16 15,788.30 13,489.49
October 1987 13,078.98 10,954.71 8,774.72
November 1987 12,433.40 10,366.88 8,021.67
December 1987 13,394.75 11,200.17 8,993.07
January 1988 14,008.23 11,686.93 8,942.45
February 1988 14,897.34 12,738.52 9,937.93
March 1988 15,139.42 13,336.34 10,207.89
April 1988 15,215.87 13,638.54 10,241.63
May 1988 14,898.01 13,268.39 9,954.81
June 1988 15,971.56 14,215.36 11,152.75
July 1988 15,542.41 14,079.17 10,781.56
August 1988 15,181.67 13,718.89 10,258.51
September 1988 15,762.37 14,081.48 10,663.45
October 1988 15,870.97 13,925.03 10,654.53
November 1988 15,561.80 13,461.19 10,485.15
December 1988 16,190.03 13,988.33 11,061.07
January 1989 17,293.06 14,612.07 11,298.21
February 1989 17,349.95 14,719.61 11,196.58
March 1989 17,735.30 15,065.97 11,484.53
April 1989 18,694.95 15,722.84 11,857.19
May 1989 19,597.36 16,399.08 12,433.11
June 1989 19,510.15 16,025.18 11,958.82
July 1989 20,669.05 16,648.72 12,754.95
August 1989 21,403.22 17,053.29 13,313.93
September 1989 21,639.30 17,106.49 13,364.75
October 1989 20,729.36 16,092.59 11,908.01
November 1989 21,187.28 16,195.26 12,331.48
December 1989 21,944.09 16,259.88 12,382.42
January 1990 20,088.27 14,839.74 11,278.13
February 1990 20,809.84 15,300.22 11,947.95
March 1990 21,259.75 15,900.30 12,328.11
April 1990 20,434.45 15,380.67 12,074.67
May 1990 22,429.26 16,470.09 13,866.86
June 1990 22,521.45 16,513.57 13,722.03
July 1990 22,006.61 15,789.61 12,491.03
August 1990 19,725.40 13,677.59 9,775.58
September 1990 18,517.42 12,461.52 8,073.92
October 1990 17,953.38 11,700.74 7,567.04
November 1990 19,678.88 12,593.39 8,327.36
December 1990 20,821.23 13,087.94 8,985.44
January 1991 22,466.11 14,267.16 10,413.21
February 1991 24,483.34 15,867.22 11,079.50
March 1991 25,600.27 16,979.99 12,278.83
April 1991 25,593.87 16,936.18 12,145.57
May 1991 26,773.50 17,742.85 12,754.75
June 1991 25,412.33 16,716.78 11,688.69
July 1991 26,941.65 17,301.70 12,088.46
August 1991 27,922.59 17,939.79 12,564.39
September 1991 27,832.40 18,079.72 12,792.83
October 1991 28,922.87 18,557.75 13,668.53
November 1991 27,948.17 17,698.90 13,344.90
December 1991 31,251.93 19,115.16 14,353.06
January 1992 31,804.77 20,665.40 15,074.62
February 1992 32,310.79 21,268.62 15,562.16
March 1992 31,093.96 20,548.89 14,489.57
April 1992 30,722.70 19,827.42 13,377.99
May 1992 31,013.65 20,091.13 13,612.02
June 1992 30,126.65 19,147.04 12,461.42
July 1992 31,622.44 19,812.60 12,812.45
August 1992 30,866.03 19,252.30 12,539.43
September 1992 31,297.85 19,695.68 12,987.96
October 1992 32,048.37 20,317.27 13,573.00
November 1992 33,839.24 21,873.17 14,918.60
December 1992 34,974.54 22,634.35 15,459.56
January 1993 35,411.72 23,399.85 16,128.18
February 1993 34,915.96 22,860.25 15,317.72
March 1993 36,120.56 23,601.83 15,581.13
April 1993 35,175.29 22,953.02 14,953.03
May 1993 36,779.28 23,968.23 15,520.35
June 1993 36,963.17 24,117.07 15,520.35
July 1993 36,892.94 24,450.13 15,338.00
August 1993 38,416.62 25,505.89 15,824.27
September 1993 38,823.84 26,225.66 16,472.64
October 1993 38,951.96 26,900.97 16,938.64
November 1993 38,091.12 26,024.54 16,553.69
December 1993 39,858.55 26,913.80 16,994.87
January 1994 40,787.25 27,757.01 17,483.77
February 1994 40,208.07 27,656.25 17,227.67
March 1994 38,346.44 26,199.60 16,063.64
April 1994 38,631.74 26,354.96 15,667.87
May 1994 38,265.89 26,058.47 15,365.23
June 1994 36,949.55 25,179.25 14,620.25
July 1994 38,201.40 25,593.20 15,062.58
August 1994 40,202.01 27,018.74 15,830.84
September 1994 39,451.84 26,927.15 15,877.40
October 1994 39,883.04 26,818.36 16,017.08
November 1994 38,084.32 25,734.63 15,411.79
December 1994 38,433.93 26,423.55 15,869.31
January 1995 38,834.03 26,089.82 15,774.29
February 1995 40,869.71 27,175.94 16,225.65
March 1995 41,578.80 27,641.73 16,415.70
April 1995 42,413.70 28,255.93 16,391.95
May 1995 43,437.14 28,741.65 16,368.20
June 1995 45,205.47 30,232.77 17,508.50
July 1995 47,563.84 31,974.18 18,720.08
August 1995 48,443.30 32,635.72 18,957.65
September 1995 49,617.56 33,218.60 19,480.29
$10,000 OVER TEN YEARS
This chart references a change in the Ultra Fund's benchmark index. The
Fund's new benchmark index is the Standard & Poor's Midcap 400 - stock index. We
believe the capitalization of the stocks in the S&P Midcap more closely reflect
the securities the Ultra Fund purchases.
This chart assumes a $10,000 investment in Class A shares of Ultra Fund on
September 30, 1985, and reflects deduction of the 5.75% sales load. On September
30, 1995, the value of your investment in Class A shares of the fund (with
dividends reinvested) would have grown to $19,480. In comparison, the same
$10,000 investment would have grown to $33,219 based on the performance of the
Russell 2000. Also in comparison, the same $10,000 investment would have grown
to $49,618 based on the S&P's performance.
The performance illustrated above is based on the performance of Class A
shares. The performance of Class B shares, which were first offered on October
19, 1993, will be greater or less than the performance shown for Class A shares
as a result of the different loads and fees associated with an investment in
Class B shares.
TOP 5 HOLDINGS**
% of
net assets
----------
Sunglass Hut International, Inc. 2.30%
Dell Computer Systems Corporation 2.10%
Research Industries Corporation 2.10%
DSC Communications Corporation 2.10%
Symantec Corporation 2.10%
**At September 30, 1995
AVERAGE ANNUAL RETURNS
As of September 30,1995
1 year 5 years 10 years
------ ------- --------
A Shares 22.69% 19.26% 7.53%
A Shares with sales charge 15.57% 17.87% 6.90%
B Shares 21.53% 7.23% N/A
(10-19-93)
B Shares with CDSC 16.53% 5.30% N/A
(10-19-93)
The performance data above represents past performance which is not
predictive of future results. The investment return and principal value of an
investment in the fund will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost. The figures above
do not reflect deduction of the maximum front end sales charge of 5.75% for
Class A shares or contingent deferred sales charge of 5% for Class B shares, as
applicable, except where noted. Such figures would be lower if the maximum sales
charge were deducted.
9
<PAGE>
STATEMENTS OF NET ASSETS
SEPTEMBER 30, 1995
SECURITY GROWTH AND INCOME FUND
Principal Market
Amount CORPORATE BONDS Value
- --------------------------------------------------------------------------------
COMMUNICATIONS - 4.5%
$1,000,000 Century Communications,
9.50% - 2005 ................................... $1,003,750
1,000,000 Continental Cablevision, Inc.,
8.875% - 2005 .................................. 1,026,250
1,000,000 Rogers Communications, Inc.,
10.875% - 2004 ................................. 1,042,500
----------
3,072,500
CONSUMER GOODS & SERVICES - 0.8%
1,000,000 International Semi-Tech,
0% - 2003(1) ................................... 518,750
DIVERSIFIED - 1.3%
1,000,000 Sequa Corporation,
9.375% - 2003 .................................. 900,000
FINANCE - 1.4%
500,000 Home Holdings,
7.75% - 1998 ................................... 453,750
500,000 Keystone Group, Inc.,
9.75% - 2003 ................................... 496,250
----------
950,000
FOOD & BEVERAGES - 0.7%
500,000 Cott Corporation,
9.375% - 2005 .................................. 510,000
GROCERY STORES - 1.4%
1,000,000 Penn Traffic Company,
10.65% - 2004 .................................. 987,500
HOTELS - 1.3%
900,000 Harrahs Entertainment,
8.75% - 2000 ................................... 904,500
MEDICAL & HEALTH SERVICES - 1.5%
1,000,000 Healthsouth Rehabilitation,
Corporation, 9.50% - 2001 ...................... 1,040,000
PUBLISHING & PRINTING - 0.5%
500,000 Marvel Holdings,
0% - 1998 ...................................... 362,500
STEEL AND METAL PRODUCTS - 0.8%
500,000 Weirton Steel Corporation,
11.50% - 1998 .................................. 512,500
----------
Total corporate bonds -
(Cost $9,523,433) - 14.2% ...................... 9,758,250
Number of Market
Shares PREFERRED STOCK Value
- --------------------------------------------------------------------------------
BANKING & CREDIT - 1.6%
10,000 First Nationwide Bank ............................ $1,110,000
----------
Total preferred stock -
(Cost $1,051,250) - 1.6% ....................... 1,110,000
COMMON STOCKS
-------------
ADVERTISING - 1.4%
15,000 Omnicom Group, Inc. .............................. 978,750
AEROSPACE & DEFENSE - 5.3%
15,000 Allied Signal, Inc. .............................. 661,875
15,000 Lockheed Martin Corporation ...................... 1,006,875
15,000 McDonnell Douglas
Corporation .................................... 1,241,250
15,000 Rockwell International
Corporation .................................... 708,750
----------
3,618,750
AMUSEMENT & RECREATIONAL SERVICES - 2.7%
40,000 Carnival Cruise Lines, Inc. ...................... 960,000
15,000 Disney (Walt) Company ............................ 860,625
----------
1,820,625
BANKING - 1.3%
15,000 Chemical Banking Corporation ..................... 913,125
BROADCASTING - 1.5%
20,000 Viacom, Inc. (Cl.B)* ............................. 995,000
BUSINESS SERVICES - 1.8%
10,000 ITT Corporation .................................. 1,240,000
CASINOS - 1.0%
20,000 Mirage Resorts, Inc.* ............................ 657,500
CHEMICALS - 5.8%
15,000 Great Lakes Chemical Corporation ................. 1,014,375
20,000 Hercules, Inc. ................................... 1,160,000
10,000 Monsanto Company ................................. 1,007,500
30,000 Praxair,Inc ...................................... 802,500
----------
3,984,375
COMPUTER SERVICES - 2.9%
30,000 Ceridian Corporation* ............................ 1,331,250
15,000 General Motors Corporation, (Cl.E) ............... 682,500
----------
2,013,750
COMPUTER SYSTEMS - 1.4%
10,000 International Business
Machines Corporation ........................... 943,750
See accompanying notes.
10
<PAGE>
STATEMENTS OF NET ASSETS
SEPTEMBER 30, 1995
SECURITY GROWTH AND INCOME FUND
(CONTINUED)
Number of Market
Shares COMMON STOCKS (continued) Value
- --------------------------------------------------------------------------------
CONSUMER GOODS & SERVICES - 2.0%
20,000 Duracell International, Inc. ..................... $ 897,500
20,000 Newell Company ................................... 495,000
----------
1,392,500
ELECTRIC COMPANIES & SYSTEMS - 1.8%
25,000 Phillips Electronics, N.V. ....................... 1,218,750
ELECTRICAL MACHINERY &
ELECTRONIC COMPONENTS - 7.9%
25,000 DSC Communications Corporation* .................. 1,481,250
15,000 General Electric Company ......................... 956,250
20,000 Loral Corporation ................................ 1,140,000
10,000 Motorola, Inc. ................................... 763,750
20,000 Varian Associates, Inc. .......................... 1,060,000
----------
5,401,250
ENVIRONMENTAL SERVICES - 1.1%
25,000 Browning Ferris Industry, Inc. ................... 759,375
FOOD & BEVERAGES - 5.5%
15,000 CPC International, Inc. .......................... 990,000
20,000 Heinz (H.J.) Company ............................. 915,000
25,000 PepsiCo, Inc. .................................... 1,275,000
20,000 Sara Lee Corporation ............................. 595,000
----------
3,775,000
HOUSEHOLD PRODUCTS - 1.1%
10,000 Procter & Gamble Company ......................... 770,000
INSURANCE - 2.1%
20,000 American General
Corporation .................................... 747,500
10,000 MBIA, Inc. ....................................... 705,000
----------
1,452,500
MANUFACTURING - 1.0%
30,000 Pall Corporation ................................. 697,500
MEDICAL & HEALTH CARE - 1.4%
20,000 Columbia Healthcare
Corporation .................................... 972,500
MEDICAL INSTRUMENTS & SUPPLIES - 1.2%
20,000 Baxter International, Inc. ....................... 822,500
PAPER PRODUCTS - 1.2%
15,000 Champion International
Corporation .................................... 808,125
PERSONAL SERVICES - 1.1%
30,000 Dial Corporation (The) ........................... 742,500
Principal
Amount or
Number of Market
Shares COMMON STOCKS (continued) Value
- --------------------------------------------------------------------------------
PETROLEUM REFINING - 2.6%
20,000 Anadarko Petroleum Corporation ................... 947,500
25,000 Coastal Corporation (The) ........................ 840,625
----------
1,788,125
PHARMACEUTICALS - 5.4%
10,000 American Home Products Corporation ............... 848,750
10,000 Bristol-Meyers Squibb Company .................... 728,750
20,000 Merck & Company, Inc. ............................ 1,120,000
20,000 Smithkline Beecham PLC ........................... 1,012,500
----------
3,710,000
PHOTOGRAPHIC EQUIPMENT & SUPPLIES - 1.0%
5,000 Xerox Corporation ................................ 671,875
PUBLISHING & PRINTING - 2.1%
30,000 News Corporation Ltd.
(The) ADR ...................................... 660,000
20,000 Time-Warner, Inc. ................................ 795,000
----------
1,455,000
RESTAURANTS & FOOD SERVICE - 2.4%
20,000 McDonald's Corporation ........................... 765,000
40,000 Wendy's International, Inc. ...................... 845,000
----------
1,610,000
RETAIL TRADE - 3.8%
30,000 Federated Department Stores* ..................... 851,250
20,000 Home Depot, Inc. ................................. 797,500
40,000 Leggett & Platt, Inc. ............................ 985,000
----------
2,633,750
TRANSPORTATION - 1.1%
10,000 Burlington Northern, Inc. ........................ 725,000
UTILITIES - 1.9%
50,000 Frontier Corporation ............................. 1,331,250
----------
Total common stocks -
(Cost $40,547,682) - 72.8% ..................... 49,903,125
COMMERCIAL PAPER
----------------
AIR TRANSPORTATION - 1.4%
$ 935,000 Harper Group, Inc., (The)
5.74%, 10-10-95 ................................ 933,509
ALCOHOLIC & MALT BEVERAGES - 0.7%
$ 500,000 Anheuser-Busch Companies,Inc.,
5.735%, 10-20-95 ............................... 498,407
DISCOUNT STORES - 1.5%
$1,000,000 Wal-Mart Stores, Inc.,
5.70%, 10-16-95 ................................ 997,467
See accompanying notes.
11
<PAGE>
STATEMENTS OF NET ASSETS
SEPTEMBER 30, 1995
SECURITY GROWTH AND INCOME FUND
(CONTINUED)
Principal
Amount or
Number of Market
Shares COMMERCIAL PAPER (continued) Value
- --------------------------------------------------------------------------------
ELECTRIC COMPANIES & SYSTEMS - 0.6%
$ 425,000 New England Power Company,
5.77%, 10-06-95 ................................ $ 424,591
GAS COMPANIES & SYSTEMS - 2.9%
$2,000,000 Consolidated Natural Gas Company,
5.70%, 10-03-95 ................................ 1,999,050
LEASING COMPANIES - 2.2%
$1,500,000 International Lease Finance Corporation,
5.80%, 10-13-95 ................................ 1,496,858
TOY STORES - 1.0%
$ 700,000 Toys "R" Us, Inc.,
5.705%, 10-06-95 ............................... 699,335
------------
Total commercial paper -
(cost $7,049,217) - 10.3% ...................... 7,049,217
------------
Total investments -
(cost $58,171,582) - 98.9% ..................... 67,820,592
Cash and other assets,
less liabilities - 1.1% ........................ 739,001
------------
Total net assets - 100.0% ........................ $68,559,593
============
SECURITY EQUITY FUND - EQUITY SERIES
COMMON STOCKS
-------------
ADVERTISING - 1.4%
100,000 Omnicom Group, Inc. .............................. $6,525,000
AEROSPACE & DEFENSE - 9.1%
160,000 Allied-Signal, Inc. .............................. 7,060,000
100,000 Lockheed Martin Corporation ...................... 6,712,500
135,000 Loral Corporation ................................ 7,695,000
90,000 McDonnell Douglas Corporation .................... 7,447,500
70,000 Raytheon Company ................................. 5,950,000
150,000 Rockwell International Corporation ............... 7,087,500
----------
41,952,500
AMUSEMENT & RECREATIONAL
SERVICES - 2.3%
240,000 Carnival Cruise Lines, Inc. ...................... 5,760,000
80,000 Disney (Walt) Company ............................ 4,590,000
----------
10,350,000
BANKING - 1.6%
120,000 Chemical Banking Corporation* .................... 7,305,000
BROADCASTING - 1.3%
125,000 Viacom, Inc. (Cl.B)* ............................. 6,218,750
BUSINESS SERVICES - 1.3%
50,000 ITT Corporation .................................. $6,200,000
CASINOS - 1.1%
150,000 Mirage Resorts, Inc.* ............................ 4,931,250
CHEMICALS - 7.2%
79,000 Great Lakes Chemical Corporation ................. 5,342,375
140,000 Hercules, Inc. ................................... 8,120,000
80,000 Monsanto Company ................................. 8,060,000
200,000 Praxair,Inc ...................................... 5,350,000
400,000 US Industries* ................................... 6,200,000
----------
33,072,375
COMPUTER SERVICES - 4.3%
150,000 Ceridian Corporation* ............................ 6,656,250
100,000 Computer Sciences
Corporation* ................................... 6,437,500
150,000 General Motors Corporation,
(Cl.E) ......................................... 6,825,000
-----------
19,918,750
COMPUTER SOFTWARE - 1.3%
65,000 Microsoft Corporation* ........................... 5,882,500
COMPUTER SYSTEMS - 1.4%
70,000 International Business
Machines Corporation ........................... 6,606,250
CONSUMER GOODS & SERVICES - 1.7%
100,000 Duracell International, Inc. ..................... 4,487,500
140,000 Newell Company ................................... 3,465,000
----------
7,952,500
ELECTRIC COMPANIES & SYSTEMS - 1.6%
150,000 Phillips Electronics N.V. ........................ 7,312,500
ELECTRICAL MACHINERY &
ELECTRONIC COMPONENTS - 5.9%
100,000 DSC Communications Corporation* .................. 5,925,000
120,000 General Electric Company ......................... 7,650,000
80,000 Motorola, Inc. ................................... 6,110,000
140,000 Varian Associates, Inc. .......................... 7,420,000
----------
27,105,000
ENVIRONMENTAL SERVICES - 0.9%
130,000 Browning-Ferris Industries, Inc. ................. 3,948,750
FERTILIZER - 0.8%
59,000 Potash Corporation of
Saskatchewan, Inc. ............................. 3,672,750
See accompanying notes.
12
<PAGE>
STATEMENTS OF NET ASSETS
SEPTEMBER 30, 1995
SECURITY EQUITY FUND - EQUITY SERIES
(CONTINUED)
Number of Market
Shares COMMON STOCKS (continued) Value
- --------------------------------------------------------------------------------
FINANCE - 1.1%
50,000 Federal National Mortgage
Association .................................... $ 5,175,000
FOOD & BEVERAGES - 5.0%
100,000 CPC International, Inc. .......................... 6,600,000
65,000 Heinz (H.J.) Company ............................. 2,973,750
150,000 PepsiCo, Inc. .................................... 7,650,000
200,000 Sara Lee Corporation ............................. 5,950,000
----------
23,173,750
HOUSEHOLD PRODUCTS - 1.3%
75,000 Procter & Gamble Company ......................... 5,775,000
INSURANCE - 5.9%
180,000 American General Corporation ..................... 6,727,500
90,000 American International Group, Inc. ............... 7,650,000
85,000 Jefferson Pilot Corporation ...................... 5,461,250
100,000 MBIA, Inc. ....................................... 7,050,000
-----------
26,888,750
MANUFACTURING - 1.0%
200,000 Pall Corporation ................................. 4,650,000
MEDICAL & HEALTH CARE - 1.3%
125,000 Columbia Healthcare Corporation .................. 6,078,125
MEDICAL INSTRUMENTS - 1.6%
180,000 Baxter International, Inc. ....................... 7,402,500
PAINT & ALLIED PRODUCTS - 1.3%
175,000 Sherwin-Williams Company ......................... 6,125,000
PAPER PRODUCTS - 1.1%
90,000 Champion International Corporation ............... 4,848,750
PERSONAL SERVICES - 0.7%
130,000 Dial Corporation (The) ........................... 3,217,500
PETROLEUM REFINING - 5.3%
120,000 Anadarko Petroleum Corporation ................... 5,685,000
170,000 Coastal Corporation (The) ........................ 5,716,250
70,000 Mobil Corporation ................................ 6,973,750
50,000 Royal Dutch Petroleum
Company ADR .................................... 6,137,500
-----------
24,512,500
PHARMACEUTICALS - 8.7%
80,000 American Home Products
Corporation .................................... $ 6,790,000
160,000 Amgen, Inc.* ..................................... 7,980,000
100,000 Bristol-Meyers Squibb Company .................... 7,287,500
130,000 Merck & Company, Inc. ............................ 7,280,000
110,000 Schering Plough Corporation ...................... 5,665,000
100,000 Smithkline Beecham PLC ADR ....................... 5,062,500
----------
40,065,000
PHOTOGRAPHIC EQUIPMENT & SUPPLIES - 1.5%
50,000 Xerox Corporation ................................ 6,718,750
PUBLISHING & PRINTING - 2.7%
250,000 News Corporation, Ltd.
(The) ADR ...................................... 5,500,000
170,000 Time-Warner, Inc. ................................ 6,757,500
----------
12,257,500
RESTAURANTS & FOOD SERVICE - 3.1%
200,000 McDonald's Corporation ........................... 7,650,000
305,000 Wendy's International, Inc. ...................... 6,443,125
-----------
14,093,125
RETAIL TRADE - 5.0%
250,000 Federated Department Stores, Inc.* ............... 7,093,750
100,000 Home Depot, Inc. ................................. 3,987,500
135,000 Safeway, Inc.* ................................... 5,636,250
220,000 Walgreen Company ................................. 6,160,000
----------
22,877,500
TRANSPORTATION - 3.9%
85,000 Burlington Northern, Inc. ........................ 6,162,500
135,000 Illinois Central Corporation ..................... 5,281,875
100,000 Union Pacific Corporation ........................ 6,625,000
-----------
18,069,375
UTILITIES - 1.9%
320,000 Frontier Corporation ............................. 8,520,000
----------
Total common stocks -
(Cost $325,734,845) - 95.6% 439,402,000
COMMERCIAL PAPER
----------------
ALCOHOLIC & MALT BEVERAGES - 0.6%
$2,700,000 Anheuser Busch Companies, Inc.
5.70%, 10-04-95 ................................ 1,499,050
5.70%, 10-05-95 ................................ 1,199,050
----------
2,698,100
AUTOMOBILES - 0.4%
$2,000,000 Toyota Motor Credit Corporation,
6.01%, 10-06-95 ................................ 1,997,997
See accompanying notes.
13
<PAGE>
STATEMENTS OF NET ASSETS
SEPTEMBER 30, 1995
SECURITY EQUITY FUND - EQUITY SERIES
(CONTINUED)
Principal
Amount or
Number of Market
Shares COMMERCIAL PAPER (continued) Value
- --------------------------------------------------------------------------------
GAS COMPANIES & SYSTEMS - 0.4%
$1,800,000 Consolidated Natural Gas Company,
5.70%, 10-03-95 ................................ $ 1,799,145
INSURANCE - 0.2%
$1,000,000 AIG Funding, Inc.,
5.68%, 10-11-95 ................................ 998,264
LEASING COMPANIES - 1.3%
$5,900,000 International Lease Finance Corporation,
5.80%, 10-13-95 ................................ 3,492,669
5.71%, 10-17-95 ................................ 2,393,529
----------
5,886,198
TELEPHONE & TELEGRAPH - 0.6%
$3,000,000 GTE North, Inc.,
5.73%, 10-12-95 ................................ 2,994,270
TOY STORES - 0.1%
$ 300,000 Toys "R" Us,
5.70%, 10-06-95 ................................ 299,715
------------
Total commercial paper -
(cost $16,673,689) - 3.6% ...................... 16,673,689
------------
Total investments -
(cost $342,408,534) - 99.2% .................... 456,075,689
Cash and other assets,
less liabilities - 0.8% ........................ 3,550,808
------------
Total net assets - 100.0% ........................ $459,626,497
============
SECURITY EQUITY FUND - GLOBAL SERIES
COMMON STOCKS
-------------
AUSTRALIA - 2.2%
38,900 QBE Insurance Group Ltd. ......................... $ 165,569
45,800 TABcorp Holdings, Ltd. ........................... 119,461
7,300 TABcorp Holdings ADR ............................. 187,975
-----------
473,005
CANADA - 0.9%
8,800 Canadian Pacific, Ltd. ........................... 140,989
49,900 Markborough Properties Inc. ...................... 64,332
-----------
205,321
CHILE - 1.0%
13,900 Banco Osorno y La Union ADR ...................... 215,450
DENMARK - 0.9%
1,760 Novo-Nordisk A.S ................................. 213,437
FINLAND - 0.7%
4,600 Huhtamaki Group "I" .............................. 158,425
FRANCE - 6.9%
3,420 Banque Nationale de Paris ........................ 134,050
1,631 Cetelem .......................................... 253,395
1,080 Ecco S.A ......................................... 187,750
70 Grand Optical Photoservice ....................... 6,976
1,450 Havas ............................................ 108,485
2,900 Groupe SEB S.A ................................... 353,371
360 Sidel S.A ........................................ 114,936
7,300 Valeo S.A ........................................ 343,657
-----------
1,502,620
GERMANY - 5.8%
340 Ava Allgemeine Handelsgelesschaft
der Verbraucher AG ............................. 129,569
18,800 Continental AG ................................... 266,432
3,300 Deutsche Bank AG ................................. 157,267
1,650 G.M. Pfaff AG .................................... 165,294
830 Siemens AG ....................................... 419,395
228 Sto AG ........................................... 122,984
-----------
1,260,941
HONG KONG - 1.6%
23,000 Johnson Electric Holdings Ltd. ................... 45,816
103,600 Peregrine Investments Holdings Ltd. .............. 155,447
100,000 Semi-Tech (Global) Ltd. .......................... 150,692
-----------
351,955
INDONESIA - 0.8%
86,500 PT Kawasan Industri Jababeka ..................... 166,126
IRELAND - 0.8%
34,900 Allied Irish Banks Plc ........................... 173,707
ISRAEL - 2.5%
100 Africa-Israel Investments Ltd. ................... 142,030
17,000 Clal Industries Ltd. ............................. 101,300
3,160 Koor Industries Ltd. ............................. 292,692
-----------
536,022
ITALY - 1.0%
11,300 Alleanza Assicurazioni ........................... 102,843
4,900 Assicurazioni Generali ........................... 113,457
-----------
216,300
See accompanying notes.
14
<PAGE>
STATEMENTS OF NET ASSETS
SEPTEMBER 30, 1995
SECURITY EQUITY FUND - GLOBAL SERIES
(CONTINUED)
Number of Market
Shares COMMON STOCKS (continued) Value
- --------------------------------------------------------------------------------
JAPAN - 22.8%
23,000 Japan Vilene Company, Ltd. ....................... $ 138,903
17,000 Joshin Denki Company, Ltd. ....................... 205,345
75,000 Kawasaki Kisen Kaisha Ltd. ....................... 226,472
103,000 Kawasaki Steel ................................... 369,079
7,000 Komatsu Fork Lift Company, Ltd. .................. 45,093
9,000 Makino Milling Machine
Company, Ltd. .................................. 69,753
15,000 Matsushita Electric Industrial
Company, Ltd. .................................. 229,492
14,000 Matsushita Refrigeration
Company, Ltd. .................................. 96,115
29,000 Mitsubishi Estate Company, Ltd. .................. 324,006
60,000 Mitsui Engineering and Shipbuild ................. 143,734
7,000 Mori Seiki Company, Ltd. ......................... 138,802
15,000 NGK Spark Plug ................................... 202,315
25,000 Nippon Chemi-Con Corporation ..................... 175,893
8,000 Nippon Electric Glass Company, Ltd. .............. 151,384
95,000 Nippon Steel Corporation ......................... 330,851
4,000 Nissen Company, Ltd. ............................. 110,317
19,000 NOK Corporation .................................. 132,531
14,000 Nomura Securities Corporation .................... 273,377
12,000 Okasan Securities Company, Ltd. .................. 53,387
7,000 Royal Company, Ltd. .............................. 106,392
25,000 Sansui Electric Company, Ltd. .................... 51,334
20,000 Sanyo Denki ...................................... 182,184
10,000 Sharp ............................................ 139,909
33,000 Shinmaywa Industries Ltd. ........................ 280,674
8,000 Shinobu Foods Product
Company, Ltd. .................................. 61,600
3,100 Sony Corporation ................................. 160,382
32,000 Sumitomo Realty and Development .................. 223,855
5,000 Tokyo Electron Ltd. .............................. 216,910
12,000 Yamato Kogyo Company, Ltd. ....................... 95,420
----------
4,935,509
MALAYSIA - 1.1%
25,000 Commerce Asset Holdings Bhd ...................... 131,239
42,000 Land & General Holdings Bhd ...................... 110,241
----------
241,480
MEXICO - 0.8%
29,400 Tubos de Acero
de Mexico S.A. ADR ............................. 176,400
NETHERLANDS - 1.2%
20,600 Elsevier N.V. .................................... 263,958
NEW ZEALAND - 2.2%
183,200 Brierley Investments Ltd. ........................ 139,769
23,000 Ceramco Corporation Ltd. ......................... 34,036
60,900 Fisher & Paykel Industries Ltd. .................. 188,253
36,300 Independent Newspapers Ltd. ...................... 105,048
----------
467,106
NORWAY - 0.9%
15,500 Saga Petroleum A.S. .............................. 200,099
PHILIPPINES - 2.2%
355,100 C & P Homes ...................................... 221,597
374,500 Filinvest Land Inc. .............................. 120,806
286,800 Universal Robina Corporation ..................... 137,674
-----------
480,077
POLAND - 0.3%
4,034 Debica S.A. ...................................... 58,079
PORTUGAL - 0.7%
7,900 Portugal Telecom S.A. ............................ 151,204
SINGAPORE - 1.3%
101,000 Comfort Group Ltd. ............................... 90,112
22,000 United Overseas Bank Ltd. ........................ 190,095
----------
280,207
SOUTH AFRICA - 0.5%
4,500 Rustenburg Platinum
Holdings, Ltd. ADR ............................. 97,979
SPAIN - 1.8%
1,500 Corporacion Mapfre ............................... 77,545
5,500 Repsol S.A. ...................................... 173,128
10,800 Telefonica de Espana ............................. 148,760
----------
399,433
SWEDEN - 1.2%
15,300 Atlas Copco AB ................................... 254,893
SWITZERLAND - 2.5%
150 Nestle S.A. ...................................... 153,570
215 Union Bank of Switzerland ........................ 220,308
270 Winterthur Schiveizerische
Versicherungs-Gesellschaft ..................... 176,183
----------
550,061
THAILAND - 0.3%
12,100 Total Access Communication
Public Company Ltd. ............................ 75,625
15
<PAGE>
STATEMENTS OF NET ASSETS
SEPTEMBER 30, 1995
SECURITY EQUITY FUND - GLOBAL SERIES
(CONTINUED)
Number of Market
Shares COMMON STOCKS (continued) Value
- --------------------------------------------------------------------------------
UNITED KINGDOM - 4.6%
157,500 Aegis Group Plc .................................. $ 91,386
14,000 Antofagasta Holdings Plc ......................... 74,813
20,100 BAT Industries Plc ............................... 168,106
26,300 D.F.S. Furniture Company Plc ..................... 133,473
15,200 RTZ Corporation Plc .............................. 222,774
32,100 Takare Plc ....................................... 112,666
50,600 Tomkins Plc ...................................... 201,597
----------
1,004,815
UNITED STATES - 26.7%
2,900 Air Products and Chemicals Inc. .................. 151,165
12,800 Albemarle Corporation ............................ 240,000
3,000 Boatmen's Bancshares, Inc. ....................... 111,375
2,100 Boeing Company ................................... 143,325
10,300 Borders Group, Inc. .............................. 176,388
2,500 Burlington Northern, Inc. ........................ 181,250
800 CSX Corporation .................................. 67,300
5,400 Capital One Financial
Corporation .................................... 158,625
4,100 Centex Corporation ............................... 118,900
1,100 Colgate-Palmolive Company ........................ 73,288
2,100 Columbia/HCA Healthcare
Corporation .................................... 102,113
4,300 Compaq Computer Corporation ...................... 208,013
2,300 Deere & Company .................................. 187,163
1,700 Du Pont (E.I.) de Nemours
& Company ...................................... 116,875
4,600 Duracell International, Inc. ..................... 206,435
4,600 Firstar Corporation .............................. 170,775
4,000 Fluor Corporation ................................ 224,000
2,400 General Electric Company ......................... 153,000
2,400 Halliburton Company .............................. 100,200
2,800 Illinois Tool Works, Inc. ........................ 164,850
3,300 Ingersoll-Rand Company ........................... 123,750
1,900 Integra Financial Corporation .................... 110,443
7,200 Jetform Corporation .............................. 95,400
8,000 Kaufman & Broad Home
Corporation .................................... 101,000
5,200 Limited, Inc. .................................... 98,800
2,700 May Department Stores
Company ........................................ 118,125
1,300 McGraw-Hill Companies, Inc. ...................... 106,280
9,200 Nabisco Holdings Corporation* .................... 272,550
2,300 PepsiCo, Inc. .................................... 117,300
2,400 Pioneer Hi-Bred International, Inc. .............. 110,700
1,200 Procter & Gamble Company ......................... 92,400
4,900 Pulte Corporation ................................ 139,038
7,200 Ryland Group, Inc. ............................... 111,600
3,300 Schlumberger, Ltd. ............................... 215,325
4,600 Signet Banking Corporation ....................... 120,750
2,100 Texaco, Inc. ..................................... 135,713
5,100 Toys "R" Us, Inc. ................................ 137,700
4,400 Trinity Industries, Inc. ......................... 136,400
4,800 UJB Financial Corporation ........................ 153,600
4,200 Wal-Mart Stores, Inc. ............................ 104,475
800 Xerox Corporation ................................ 107,500
------------
5,763,889
------------
Total investments -
(cost $20,196,635) - 96.2% ..................... 20,874,123
Cash and other assets
less liabilities - 3.8% ........................ 820,253
------------
Total net assets - 100.0% ........................ $21,694,376
============
INVESTMENT CONCENTRATION
- ------------------------
At September 30, 1995, Global Series' investment concentration, by industry, was
as follows:
Banking ............................................... 9.4%
Capital Equipment ..................................... 16.5%
Consumer Durables ..................................... 10.8%
Consumer Nondurables .................................. 9.9%
Electrical and Electronics ............................ 1.7%
Energy ................................................ 1.1%
Energy Sources ........................................ 3.0%
Financial Services .................................... 6.5%
Healthcare ............................................ 1.5%
Materials ............................................. 9.5%
Merchandising ......................................... 4.4%
Multi-Industry ........................................ 5.9%
Real Estate ........................................... 3.3%
Services .............................................. 9.9%
Telecommunications .................................... 1.7%
Transportation ........................................ 1.1%
Cash and other assets, less liabilities ............... 3.8%
----------
Total net assets ...................................... 100.0%
==========
See accompanying notes.
16
<PAGE>
STATEMENTS OF NET ASSETS
SEPTEMBER 30, 1995
SECURITY EQUITY FUND
- ASSET ALLOCATION SERIES
Number of Market
Shares COMMON STOCKS Value
- --------------------------------------------------------------------------------
APPLIANCES - 2.6%
900 Black & Decker Corporation ....................... $ 30,712
1,700 Maytag Corporation ............................... 29,750
900 Toro Company ..................................... 28,350
-----------
88,812
AUTO PARTS & SUPPLIES - 2.6%
700 Dana Corporation ................................. 20,212
400 Eaton Corporation ................................ 21,200
600 Modine Manufacturing Company ..................... 17,100
1,500 Simpson Industries ............................... 14,813
800 Walbro Corporation ............................... 16,000
-----------
89,325
BUILDING MATERIALS - 3.6%
400 Ameron, Inc. ..................................... 14,550
1,100 Apogee Enterprises, Inc. ......................... 16,500
300 Armstrong World Industries, Inc. ................. 16,650
750 Butler Manufacturing Company ..................... 21,000
400 Crane Company .................................... 13,800
400 Owens-Corning Fiberglass
Corporation* ................................... 17,850
1,200 Ply Gem Industries ............................... 22,800
-----------
123,150
CHEMICALS - 2.8%
300 Arco Chemical Company ............................ 14,625
200 Dow Chemicals .................................... 14,900
300 DuPont (EI)
de Nemours & Company ........................... 20,625
400 Lyondell Petrochemical Company ................... 10,350
300 Olin Corporation ................................. 20,625
400 Union Carbide Corporation ........................ 15,900
----------
97,025
COMPUTER SYSTEMS - 4.5%
500 Apple Computer, Inc. ............................. 18,625
300 Compaq Computer Corporation* ..................... 14,513
200 Dell Computer Corporation* ....................... 17,000
200 Hewett-Packard Company ........................... 16,675
200 International Business
Machines Corporation ........................... 18,875
500 Quantum Corporation* ............................. 10,937
500 SCI Systems, Inc.* ............................... 17,250
600 Sequent Computer Systems, Inc.* .................. 11,925
300 Sun Microsystems, Inc.* .......................... 18,900
700 Tandem Computers, Inc.* .......................... 8,575
-------
153,275
ELECTRICAL EQUIPMENT - 2.2%
600 Baldor Electric Company .......................... 15,075
189 Cooper Cameron Corporation* ...................... 4,890
416 Cooper Industries Inc. ........................... 14,664
200 General Electric Company ......................... 12,750
200 Johnson Controls, Inc. ........................... 12,650
500 Measurex Corporation ............................. 17,125
------
77,154
ELECTRONICS - 3.9%
300 Amp, Inc. ........................................ 11,550
200 Arrow Electronics, Inc.* ......................... 10,875
600 Augat, Inc. ...................................... 11,325
300 Avnet, Inc. ...................................... 15,488
1,000 Core Industries, Inc. ............................ 11,750
200 Fluke (John) Manufacturing
Company ........................................ 7,600
400 Harris Corporation ............................... 21,950
600 Pioneer Standard Electronics, Inc. ............... 10,500
300 Varian Associates, Inc. .......................... 15,900
400 Wyle Electronics ................................. 17,950
-------
134,888
HOUSING - HOME BUILDING - 2.6%
600 Clayton Homes, Inc. .............................. 14,250
700 Fleetwood Enterprises, Inc. ...................... 13,912
1,200 Hechinger Company ................................ 5,400
500 Hughes Supply, Inc. .............................. 12,000
400 Lowes Companies, Inc. ............................ 12,000
400 Oakwood Homes Corporation ........................ 14,100
400 PPG Industries, Inc. ............................. 18,600
------
90,262
MACHINERY - 3.9%
1500 Baldwin Technology Company, Inc.* ................ 9,562
600 Bearings, Inc. ................................... 20,325
300 Briggs & Stratton Corporation .................... 12,075
700 Commercial Intertech Corporation ................. 13,387
400 Dover Corporation ................................ 15,300
300 GATX Corporation ................................. 15,525
400 Graco, Inc. ...................................... 13,650
400 Parker-Hannifin Corporation ...................... 15,200
600 Trinova Corporation .............................. 20,250
-----------
135,274
MINING & METALS - 2.4%
300 Alcan Aluminum, Ltd. ............................. 9,716
200 Aluminum Company America ......................... 10,575
300 Asarco, Inc. ..................................... 9,450
300 Ashland Coal, Inc. ............................... 9,037
700 Magma Copper Company* ............................ 13,125
200 Phelps Dodge Corporation ......................... 12,525
300 Reynolds Metals Company .......................... 17,325
-----------
81,753
See accompanying notes.
17
<PAGE>
STATEMENTS OF NET ASSETS
SEPTEMBER 30, 1995
SECURITY EQUITY FUND
- ASSET ALLOCATION SERIES (CONTINUED)
Principal
Amount or
Number of Market
Shares COMMON STOCKS (continued) Value
- --------------------------------------------------------------------------------
RECREATION - 3.9%
1,000 Brunswick Corporation ............................ $ 20,250
1,300 CPI Corporation .................................. 28,762
400 Disney (Walt) Company ............................ 22,950
500 Harcourt General, Inc. ........................... 20,938
800 Harley Davidson, Inc. ............................ 19,500
600 King World Productions, Inc.* .................... 21,975
-----------
134,375
SHOES - 2.5%
2,000 J Baker, Inc. .................................... 16,250
500 Brown Group, Inc. ................................ 9,188
200 Nike, Inc. ....................................... 22,225
500 Reebok International, Ltd. ....................... 17,187
800 Wolverine Worldwide, Inc. ........................ 21,900
-----------
86,750
STEEL - 2.2%
500 Birmingham Steel Corporation ..................... 8,750
400 Carpenter Technology ............................. 15,650
200 Cleveland Cliffs, Inc. ........................... 8,225
400 Commercial Metals Company ........................ 10,800
300 Lukens Steel Company ............................. 8,737
400 Quanex Corporation ............................... 8,650
1,000 Steel Technologies, Inc. ......................... 10,000
----------
70,812
----------
Total common stocks -
(cost $1,282,259) - 39.7% ...................... 1,362,855
U.S. GOVERNMENT & AGENCIES
--------------------------
FEDERAL HOME LOAN
MORTGAGE CORPORATION - 4.3%
$100,000 FHLMC Series 1250 CL:H
7.0%, 2020 ..................................... 100,231
$ 50,000 FHLMC 7.0%, 2021 ................................. 48,878
------------
149,109
FICO - 0.8%
$ 75,000 0%, 2010 ....................................... 26,413
----------
26,413
FEDERAL NATIONAL MORTGAGE
ASSOCIATION - 9.5%
$ 50,000 6.5%, 2018 ...................................... 48,730
$130,000 6.95%, 2020 ..................................... 127,097
$ 40,000 7.5%, 2020 ...................................... 40,369
$100,000 8.8%, 2025 ...................................... 108,469
------------
324,665
U.S. TREASURY BILL - 28.8%
$990,000 U.S. Treasury Bill,
5.28% - 5.45%, 10-5-95(2) ...................... $ 989,158
------------
989,158
------------
Total U.S. government & agencies
(cost $1,479,608) - 43.4% ...................... 1,489,345
REAL ESTATE INVESTMENT TRUSTS
-----------------------------
1,000 BRE Properties, Inc. ............................. 33,500
3,400 Cambridge Shopping Centres, Ltd. ................. 32,815
1,300 Federal Realty Investment Trust .................. 30,387
3,100 First Union Real Estate
Investment Trust ............................... 22,863
1,700 HRE Properties ................................... 23,800
1,600 MGI Properties, Inc. ............................. 24,800
1,200 New Plan Realty Trust ............................ 26,550
1,100 Pennsylvania Real Estate
Investment Trust ............................... 23,925
2,000 Santa Anita Realty Enterprises, Inc. ............. 27,000
1,300 Security Capital Pacific Trust ................... 24,700
1,700 United Realty Trust Dominion ..................... 24,225
1,600 Washington Real Estate
Investment Trust ............................... 24,400
700 Weingarten Realty Investors ...................... 24,763
-----------
Total real estate investment trusts -
(cost $337,461) - 10.0% ........................ 343,728
FOREIGN STOCKS
--------------
BELGIUM - 6.7%
100 Cementbedrijven Cimenteries ...................... 40,541
500 Delhaize - Le Lion ............................... 21,245
100 Electrabel ....................................... 21,998
200 Fortis AG ........................................ 21,245
250 Gevaert Photo Productions ........................ 14,198
100 Petrofina SA ..................................... 31,132
150 Royale Belgium ................................... 26,223
100 Solvay ........................................... 53,455
-----------
Total foreign stocks -
(cost $236,619) - 6.7% ......................... 230,037
TEMPORARY CASH INVESTMENTS
--------------------------
4,000 Chase Master Note Program ........................ 4,000
------------
Total temporary cash investments -
(cost $4,000) - 0.1% ........................... 4,000
------------
Total investments -
(cost $3,339,947) - 99.9% ...................... 3,429,965
Cash and other assets, less
liabilities - 0.1% ............................. 4,927
------------
Total net assets - 100.0% ........................ $3,434,892
============
See accompanying notes.
18
<PAGE>
STATEMENTS OF NET ASSETS
SEPTEMBER 30, 1995
SECURITY ULTRA FUND
Number of Market
Shares COMMON STOCKS Value
- --------------------------------------------------------------------------------
BROADCASTING - 0.1%
2,750 TCA Cable TV ..................................... $ 79,063
BUSINESS SERVICES - 3.9%
41,100 Alternative Resources Corporation* ............... 1,315,200
31,500 Paychex, Inc. .................................... 1,456,875
-----------
2,772,075
CHEMICALS - 2.7%
36,500 Praxair, Inc. .................................... 976,375
20,000 Sigma Aldrich Corporation ........................ 970,000
-----------
1,946,375
COMMUNICATIONS - 1.0%
24,000 Commnet Cellular* ................................ 696,000
COMMUNICATION EQUIPMENT - 6.6%
42,500 Aspect Telecommunications* ....................... 1,147,500
28,000 Cidco, Inc.* ..................................... 987,000
16,000 Cisco Systems, Inc.* ............................. 1,104,000
25,000 DSC Communications Corporation* .................. 1,481,250
---------
4,719,750
COMPUTER NETWORKING - 2.0%
32,000 3Com Corporation* ................................ 1,456,000
COMPUTER SOFTWARE - 9.5%
23,500 Autodesk, Inc. ................................... 1,028,125
36,400 Bisys Group, Inc.* ............................... 928,200
12,000 First Financial Management
Corporation .................................... 1,171,500
18,500 HBO & Company .................................... 1,156,250
30,500 SCI Systems, Inc.* ............................... 1,052,250
49,000 Symantec Corporation* ............................ 1,470,000
-----------
6,806,325
COMPUTER SYSTEMS - 3.8%
18,000 Dell Computer Corporation* ......................... 1,530,000
40,000 Gateway 2000* ...................................... 1,225,000
-----------
2,755,000
CONSUMER PRODUCTS - 1.5%
30,000 CUC International* ............................... 1,046,250
ELECTRICAL MACHINERY &
ELECTRONIC COMPONENTS - 7.5%
38,000 Atmel Corporation* ............................... 1,282,500
20,500 Gasonics International
Corporation* ................................... 763,625
13,300 Kulicke & Soffa Industries, Inc.* ................ 485,450
24,000 Teradyne, Inc.* .................................. 864,000
18,000 Ultratech Stepper, Inc.* ......................... 760,500
28,764 Vishay Intertechnology, Inc.* .................... 1,208,088
-----------
5,364,163
FERTILIZER - 3.2%
20,000 IMC Global, Inc. ................................. 1,267,500
24,500 Vigoro Corporation (The) ......................... 1,035,125
-----------
2,302,625
FINANCIAL SERVICES - 8.2%
44,500 Credit Acceptance Corporation* ................... 1,201,500
26,500 Finova Group ..................................... 1,179,250
21,500 First USA, Inc. .................................. 1,166,375
54,000 Mercury Finance Company .......................... 1,316,250
45,000 WFS Financial, Inc.* ............................. 1,023,750
-----------
5,887,125
FOOD & BEVERAGES - 1.8%
23,500 I.B.P., Inc. ..................................... 1,254,313
HEALTH CARE - HMO'S - 1.6%
15,500 Oxford Health Plans* ............................. 1,127,625
HOSPITAL MANAGEMENT - 1.6%
27,500 Community Health Systems* ........................ 1,110,313
HOTEL MANAGEMENT - 1.4%
35,500 LaQuinta Inns .................................... 994,000
INSURANCE - 2.6%
14,500 Jefferson-Pilot Corporation ...................... 931,625
13,500 MBIA, Inc. ....................................... 951,750
-----------
1,883,375
MANUFACTURING - 3.1%
18,000 Illinois Tool Works, Inc. ........................ 1,059,750
31,500 Millipore ........................................ 1,181,250
-----------
2,241,000
MEDICAL INSTRUMENTS & SUPPLIES - 6.9%
20,500 Cardinal Health, Inc. ............................ 1,135,188
51,000 Research Industries Corporation* ................. 1,485,375
20,500 St. Jude Medical, Inc.* .......................... 1,296,625
22,000 Summit Technology, Inc.* ......................... 1,006,500
-----------
4,923,688
NATURAL GAS PIPELINES - 1.4%
30,500 Sonat, Inc. ...................................... 976,000
PAPER PRODUCTS - 1.5%
23,500 Bowater .......................................... 1,095,688
See accompanying notes.
19
<PAGE>
STATEMENTS OF NET ASSETS
SEPTEMBER 30, 1995
SECURITY ULTRA FUND (CONTINUED)
Principal
Amount or
Number Market
of Shares COMMON STOCKS (continued) Value
- --------------------------------------------------------------------------------
PHARMACEUTICALS - 3.4%
26,000 Amgen, Inc.* ..................................... $ 1,296,750
37,500 Dura Pharmaceuticals, Inc.* ...................... 1,115,625
-----------
2,412,375
PUBLISHING & PRINTING - 1.2%
18,000 Houghton Mifflin Company ......................... 837,000
RESTAURANTS - 2.9%
35,000 Applebees International .......................... 953,750
43,000 Boston Chicken* .................................. 1,123,375
-----------
2,077,125
RETAIL TRADE - 10.5%
60,000 Casey's General Stores, Inc. ..................... 1,357,500
23,000 Department 56* ................................... 1,075,250
38,500 Hollywood Entertainment* ......................... 825,344
51,400 Leggett & Platt, Inc. ............................ 1,265,725
47,250 Staples, Inc.* ................................... 1,334,813
33,000 Sunglass Hut International, Inc.* ................ 1,650,000
-----------
7,508,632
TEXTILES - 1.2%
16,500 VF Corporation ................................... 841,500
TRANSPORTATION - 2.9%
26,000 Illinois Central Corporation ..................... 1,017,250
41,000 Southwest Airlines Company ....................... 1,035,250
-----------
2,052,500
-----------
Total common stock -
(Cost $52,339,243) - 94.0% ..................... 67,165,885
COMMERCIAL PAPER
----------------
ALCOHOLIC & MALT BEVERAGES - 1.4%
$1,000,000 Anheuser Busch Companies, Inc.,
5.76%, 10-05-95 ................................ 999,200
BEVERAGES - 2.8%
$2,000,000 PepsiCo, Inc.,
6.01%, 10-05-95 ................................ 1,998,331
GAS COMPANIES & SYSTEMS - 2.8%
$2,000,000 Consolidated Natural Gas Company,
6.01%, 10-03-95 ................................ 1,998,998
LEASING COMPANIES - 2.8%
$2,000,000 International Lease Finance Corporation,
5.80%, 10-13-95 ................................ 1,995,811
----------
Total commercial paper -
(cost $6,992,340) - 9.8% ....................... $ 6,992,340
----------
Total investments -
(cost $59,331,583) - 103.8% .................... 74,158,225
Cash and other assets,
less liabilities - (3.8%) ...................... (2,677,869)
-----------
Total net assets - 100.0% ........................ $71,480,356
===========
The identified cost of investments owned at September 30, 1995, was the same for
federal income tax and financial statement purposes, except for Security Global
Series for which the identified cost of investments for federal income tax
purposes was $20,207,995.
*Securities on which no cash dividend was paid during the preceding twelve
months.
ADR (American Depositary Receipt)
(1)Deferred interest obligation; currently zero coupon under terms of initial
offering.
(2)This security has been segregated with the custodian to cover margin
requirements for the following open long financial futures contracts traded
on foreign exchanges as indicated below:
Unrealized
Type Contracts Gain (Loss)
- ---- --------- ----------
Financial Index - DAX (12/95) 2 $(14,758)
Financial Index - TOPIX (12/95) 2 3,649
Financial Index - HangSeng (10/95) 4 155
Financial Index - FTSE (12/95) 1 (2,591)
---------
$(13,545)
=========
See accompanying notes.
20
<PAGE>
BALANCE SHEETS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
SECURITY EQUITY FUND
--------------------
SECURITY ASSET SECURITY
GROWTH AND EQUITY GLOBAL ALLOCATION ULTRA
INCOME FUND SERIES SERIES SERIES FUND
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments, at value (identified cost $51,122,365,
$325,734,845, $20,196,635, $3,339,947 and
$52,339,243, respectively)..................... $60,771,375 $439,402,000 $20,874,123 $3,429,965 $67,165,885
Commercial paper, at amortized cost which
approximates market value ..................... 7,049,217 16,673,689 -- -- 6,992,340
Cash .............................................. 371,653 1,496,327 677,456 841 690,973
Receivables:
Fund shares sold ................................ 10,012 97,970 14,718 -- 108,987
Securities sold ................................. 135,950 1,891,114 501,681 -- 2,580,646
Foreign forward exchange contracts .............. -- -- 253,580 -- --
Dividends ....................................... 78,248 731,887 53,202 3,272 35,248
Prepaid expenses ................................ -- 2,472 -- 15,021 --
Interest ........................................ 218,768 914 -- 3,330 1,004
Foreign taxes recoverable ....................... -- -- 32,939 -- --
Miscellaneous receivables ....................... -- -- 10,003 -- --
Security Management Company ..................... 2,776 5,021 -- -- 4,558
Variation Margin ................................ -- -- -- 4,163 --
----------- ------------ ----------- ---------- -----------
Total assets ............................. $68,637,999 $460,301,394 $22,417,702 $3,456,592 $77,579,641
=========== ============ =========== ========== ===========
LIABILITIES AND NET ASSETS
Liabilities:
Payable for:
Fund shares redeemed .......................... $ 6,761 $ 278,615 $ 15,109 $ -- $ 7,923
Securities purchased .......................... -- -- 669,434 -- 6,014,939
Other Liabilities:
Management fees ............................... 70,181 378,265 34,493 2,738 71,979
Custodian fees ................................ -- -- -- 5,456 --
Transfer and administration fees .............. -- -- -- 2,890 --
12b-1 distribution plan fees .................. 885 15,553 4,290 1,209 3,554
Miscellaneous fees ............................ 579 2,464 -- 9,407 890
----------- ------------ ----------- ---------- -----------
Total liabilities ........................ 78,406 674,897 723,326 21,700 6,099,285
Net Assets:
Paid in capital ................................. 56,924,690 316,087,985 20,425,440 3,282,863 51,734,371
Undistributed net investment income (loss) ...... 17,267 3,304,987 135,605 13,792 --
Accumulated undistributed net realized gain on sale
of investments, futures and foreign
currency transactions ......................... 1,968,626 26,566,370 202,161 61,764 4,919,343
Net unrealized appreciation in value of
investments, futures and translation of assets
and liabilities in foreign currencies ......... 9,649,010 113,667,155 931,170 76,473 14,826,642
----------- ------------ ----------- ---------- -----------
Net assets ............................... 68,559,593 459,626,497 21,694,376 3,434,892 71,480,356
----------- ------------ ----------- ---------- -----------
Total liabilities and net assets ..... $68,637,999 $460,301,394 $22,417,702 $3,456,592 $77,579,641
=========== ============ =========== ========== ===========
CLASS "A" SHARES
Capital shares outstanding ...................... 8,501,968 67,234,950 1,486,010 180,841 8,053,762
Net assets ...................................... $67,429,969 $440,338,877 $16,261,115 $1,905,502 $66,052,333
Net assets value per share (net assets divided by
shares outstanding) .......................... $7.93 $6.55 $10.94 $10.54 $8.20
Add: Selling commission (5.75% of the
offering price) .............................. 0.48 0.40 0.67 0.64 0.50
----------- ------------ ----------- ---------- -----------
Offering price per share (net asset value
divided by 94.25%) ........................... $8.41 $6.95 $11.61 $11.18 $8.70
=========== ============ =========== ========== ===========
CLASS "B" SHARES
Capital shares outstanding ...................... 143,980 3,000,473 505,707 145,615 669,345
Net assets ...................................... $1,129,624 $19,287,620 $5,433,261 $1,529,390 $5,428,023
Net asset value per share
(net assets divided by shares outstanding) ... $7.85 $6.43 $10.74 $10.50 $8.11
=========== ============ =========== ========== ===========
</TABLE>
See accompanying notes.
21
<PAGE>
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
SECURITY EQUITY FUND
--------------------
SECURITY ASSET SECURITY
GROWTH AND EQUITY GLOBAL ALLOCATION ULTRA
INCOME FUND SERIES SERIES SERIES FUND
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest ....................................... $ 1,307,131 $ 1,404,690 $ 10,916 $ 31,915 $ 299,604
Dividends ....................................... 948,094 6,221,156 445,444 6,632 322,235
----------- ------------ ----------- ---------- -----------
2,255,225 7,625,846 456,360 38,547 621,839
Less foreign tax expense ..................... -- -- (38,840) -- --
----------- ------------ ----------- ---------- -----------
Total investment income .................... 2,255,225 7,625,846 417,520 38,547 621,839
EXPENSES:
Management fees ................................. 839,358 4,185,144 457,489 10,134 816,039
Custodian fees .................................. -- -- -- 5,456 --
Transfer/maintenance fees ....................... -- -- -- 790 --
Administration fees ............................. -- -- -- 10,456 --
Directors' fees ................................. -- -- -- 17 --
Professional fees ............................... -- -- -- 1,500 --
Reports to shareholders ......................... -- -- -- 69 --
Registration fees ............................... -- -- -- 7,044 --
Other expenses .................................. -- -- -- 1,405 --
12b-1 distribution plan fees (Class B) .......... 8,580 134,026 51,089 4,499 28,752
Interest ........................................ -- 1,689 -- -- 63
Reimbursement of expenses ....................... -- -- -- (16,615) --
----------- ------------ ----------- ---------- -----------
Total expenses ............................. 847,938 4,320,859 508,578 24,755 844,854
----------- ------------ ----------- ---------- -----------
Net investment income (loss) ............. 1,407,287 3,304,987 (91,058) 13,792 (223,015)
NET REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) during the period on:
Investments ................................... 1,984,078 27,972,416 222,579 (9,371) 4,989,643
Foreign currency transactions ................. -- -- 196,681 (4,800) --
Futures contracts ............................. -- -- -- 75,935 --
----------- ------------ ----------- ---------- -----------
Net realized gains ....................... 1,984,078 27,972,416 419,260 61,764 4,989,643
Net change in unrealized appreciation
(depreciation) during the period on:
Investments ................................... 8,482,309 69,736,879 (198,611) 90,018 8,466,565
Translation of assets and liabilities in
foreign currencies ............................ -- -- 294,606 -- --
Futures contracts ............................. -- -- -- (13,545) --
----------- ------------ ----------- ---------- -----------
Net unrealized appreciation .............. 8,482,309 69,736,879 95,995 76,473 8,466,565
----------- ------------ ----------- ---------- -----------
Net gain .............................. 10,466,387 97,709,295 515,255 138,237 13,456,208
----------- ------------ ----------- ---------- -----------
Net increase in net assets
resulting from operations ..... $11,873,674 $101,014,282 $424,197 $152,029 $13,233,193
=========== ============ =========== ========== ===========
</TABLE>
*Period June 1, 1995 (inception) through September 30 ,1995.
See accompanying notes.
22
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
SECURITY EQUITY FUND
--------------------
SECURITY ASSET SECURITY
GROWTH AND EQUITY GLOBAL ALLOCATION ULTRA
INCOME FUND SERIES SERIES SERIES FUND
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss) .................... $ 1,407,287 $ 3,304,987 $ (91,058) $ 13,792 $ (223,015)
Net realized gain ............................... 1,984,078 27,972,416 419,260 61,764 4,989,643
Unrealized appreciation
during the period ............................ 8,482,309 69,736,879 95,995 76,473 8,466,565
------------ ------------ ------------ ----------- ------------
Net increase in net assets resulting
from operations ........................... 11,873,674 101,014,282 424,197 152,029 13,233,193
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A .................................. (1,378,072) -- -- -- --
Class B .................................. (11,951) -- -- -- --
Net realized gain
Class A .................................. (1,912,997) (26,300,092) (347,497) -- (1,149,264)
Class B .................................. (23,632) (690,558) (84,333) -- (28,504)
------------ ------------ ------------ ----------- ------------
Total distributions to shareholders ...... (3,326,652) (26,990,650) (431,830) -- (1,177,768)
CAPITAL SHARE TRANSACTIONS (A):
Proceeds from sale of shares
Class A .................................. 2,681,709 159,433,767 4,130,645 1,846,588 97,988,749
Class B .................................. 635,799 36,310,779 3,765,671 1,469,193 10,247,969
Dividends reinvested
Class A .................................. 2,965,256 24,498,993 340,567 -- 1,088,376
Class B .................................. 34,468 690,184 84,001 -- 28,502
Shares redeemed
Class A .................................. (11,959,939) (172,929,497) (8,249,891) (28,739) (105,077,941)
Class B .................................. (340,406) (28,090,274) (2,457,097) (4,179) (6,799,714)
------------ ------------ ------------ ----------- ------------
Net increase (decrease) from capital share
transactions ........................... (5,983,113) 19,913,952 (2,386,104) 3,282,863 (2,524,059)
------------ ------------ ------------ ----------- ------------
Total increase (decrease) in net assets 2,563,909 93,937,584 (2,393,737) 3,434,892 9,531,366
NET ASSETS:
Beginning of period ............................. 65,995,684 365,688,913 24,088,113 -- 61,948,990
------------ ------------ ------------ ----------- ------------
End of period ................................... $68,559,593 $459,626,497 $21,694,376 $3,434,892 $71,480,356
============ ============ ============ =========== ============
Undistributed net investment income (loss)
at end of period ................................ $17,267 $3,304,987 $135,605 $13,792 $ --
============ ============ =========== =========== ============
(a) Shares issued and redeemed
Shares sold
Class A .................................. 380,257 27,957,351 395,288 183,574 13,881,834
Class B .................................. 91,007 6,432,534 366,335 146,016 1,427,321
Dividends reinvested
Class A .................................. 434,705 4,858,020 33,389 -- 164,781
Class B .................................. 5,126 138,507 8,325 -- 4,328
Shares redeemed
Class A .................................. (1,697,766) (30,292,120) (799,467) (2,733) (14,892,245)
Class B .................................. (48,979) (4,927,928) (237,369) (401) (946,401)
------------ ------------ ------------ ----------- ------------
Net increase (decrease) ............... (835,650) 4,166,364 (233,499) 326,456 (360,382)
============ ============ ============ =========== ============
</TABLE>
*Period June 1, 1995 (inception) through September 30, 1995.
See accompanying notes.
23
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
SECURITY EQUITY FUND
--------------------
SECURITY SECURITY
GROWTH AND EQUITY GLOBAL ULTRA
INCOME FUND SERIES SERIES FUND
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS:
Net investment income (loss) ..................... $ 1,261,142 $ 3,165,837 $ (63,054) $ (492,428)
Net realized gain on sale of investments ......... 2,952,894 28,999,838 502,173 2,698,928
Unrealized appreciation (depreciation)
during the year ................................ (10,068,384) (25,585,163) 835,690 (4,046,772)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting
from operations .............................. (5,854,348) 6,580,512 1,274,809 (1,840,272)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A ...................................... (1,282,878) (6,495,995) -- --
Class B ...................................... (4,016) (3,001) -- --
Net realized gain
Class A ...................................... (1,709,797) (65,230,492) -- (8,147,095)
Class B ...................................... (1,855) (30,137) -- (4,565)
------------ ------------ ------------ ------------
Total distributions to shareholders .......... (2,998,546) (71,759,625) -- (8,151,660)
CAPITAL SHARE TRANSACTIONS (A):
Proceeds from sale of shares
Class A ...................................... 7,680,929 173,504,752 24,256,624 59,208,377
Class B ...................................... 1,401,417 13,572,886 4,059,395 2,182,716
Dividends reinvested
Class A ...................................... 2,687,871 66,562,965 -- 7,719,477
Class B ...................................... 5,609 32,937 -- 3,114
Shares redeemed
Class A ...................................... (18,206,699) (192,197,708) (5,344,170) (67,279,953)
Class B ...................................... (702,391) (6,172,823) (158,545) (949,360)
------------ ------------ ------------ ------------
Net increase (decrease) from capital share
transactions .............................. (7,133,264) 55,303,009 22,813,304 884,371
------------ ------------ ------------ ------------
Total increase (decrease) in net assets .. (15,986,158) (9,876,104) 24,088,113 (9,107,561)
NET ASSETS:
Beginning of year................................. 81,981,842 375,565,017 -- 71,056,551
------------ ------------ ------------ ------------
End of year....................................... $65,995,684 $365,688,913 $ 24,088,113 $61,948,990
============ ============ ============ ============
Undistributed net investment income at end of year.. $87,422 $3,852,320 $ -- $ --
============ ============ ============ ============
(a) Shares issued and redeemed
Shares sold
Class A...................................... 1,028,902 30,498,096 2,354,656 8,545,741
Class B...................................... 196,294 2,488,139 383,242 326,136
Dividends reinvested
Class A...................................... 363,018 11,982,532 -- 1,079,043
Class B...................................... 789 5,929 -- 436
Shares redeemed
Class A...................................... (2,465,336) (33,603,067) (497,856) (9,467,423)
Class B...................................... (100,257) (1,136,708) (14,826) (142,475)
------------ ------------ ------------ ------------
Net increase (decrease)...................... (976,590) (10,234,921) 2,225,216 341,458
============ ============ ============ ============
</TABLE>
See accompanying notes.
24
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Net Total Ratio of
Fiscal asset Net Net gains from Dividends Distribu- net
year value invest-or losses on invest-(from net tions Net asset Net assets Ratio of income
ended begin- ment securities ment invest- (from Total value end of expenses (loss) to Portfolio
Septem ning of income (realized & opera- ment in- realized distri- end of Total period to average average turnover
- -ber 30 period (loss) (unrealized) tions come) gains) butions period return(a) (thousands) net assets net assets rate
- ------------------------------------------------------------------------------------------------------------------------------------
SECURITY GROWTH AND INCOME FUND (CLASS A)(b)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1991 $7.43 $0.45 $0.992 $1.442 $(0.474) $(1.088) $(1.562) $7.31 22.30% $77,418 1.28% 6.14% 103%
1992 7.31 0.35 (0.016) 0.334 (0.343) (0.171) (0.514) 7.13 4.70% 75,436 1.27% 4.79% 74%
1993 7.13 0.21 0.876 1.086 (0.218) (0.158) (0.376) 7.84 15.60% 81,982 1.26% 2.80% 135%
1994
(e) 7.84 0.13 (0.713) (0.583) (0.128) (0.169) (0.297) 6.96 (7.60)% 65,328 1.28% 1.70% 163%
1995
(i) 6.96 0.16 1.183 1.343 (0.158) (0.215) (0.373) 7.93 20.25% 67,430 1.31% 2.21% 130%
SECURITY GROWTH AND INCOME FUND (CLASS B)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994
(e) $7.83 $0.05 $(0.694) $(0.644)$(0.117) $(0.169) $(0.286) $6.90 (8.00%) $ 668 2.27% 1.03% 178%
1995
(i) 6.90 0.08 1.179 1.259 (0.094) (0.215) (0.309) 7.85 19.07% 1,130 2.31% 1.21% 130%
SECURITY EQUITY SERIES (CLASS A)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1991 $4.82 $0.12 $1.403 $1.523 $(0.148) $(0.375) $(0.523) $5.82 34.20% $295,030 1.08% 2.34% 61%
1992 5.82 0.09 .475 0.565 (0.132) (0.393) (0.525) 5.86 10.20% 313,582 1.06% 1.48% 83%
1993 5.86 0.12 1.165 1.285 (0.053) (0.362) (0.415) 6.73 22.70% 375,565 1.06% 1.95% 95%
1994
(e) 6.73 0.05 0.085 0.135 (0.120) (1.205) (1.325) 5.54 1.95% 358,237 1.06% 0.86% 79%
1995
(i) 5.54 0.04 1.377 1.417 --- (0.407) (0.407) 6.55 27.77% 440,339 1.05% 0.87% 95%
SECURITY EQUITY SERIES (CLASS B)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994
(e) $6.81 $0.01 $(0.005) $0.005 $(0.12) $(1.205) $(1.325) $5.49 (0.15%) $7,452 2.07% (0.01%) 80%
1995
(i) 5.49 (0.01) 1.357 1.347 --- (0.407) (0.407) 6.43 26.69% 19,288 2.05% (0.13%) 95%
SECURITY GLOBAL SERIES (CLASS A)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994
(e)(f) $10.00 $(0.03) $0.87 $0.84 $ --- $ --- $ --- $10.84 8.40% $20,128 2.0% (0.01%) 73%
1995
(i) 10.84 (0.02) 0.31 0.29 --- (0.19) (0.19) 10.94 2.80% 16,261 2.0% (0.17%) 141%
SECURITY GLOBAL SERIES (CLASS B)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994
(e)(f) $9.96 $(0.12) $0.91 $0.79 $ --- $ --- $ --- $10.75 7.90% $ 3,960 3.0% (0.01%) 73%
1995
(i) 10.75 (0.12) 0.30 0.18 --- (0.19) (0.19) 10.74 1.79% 5,433 3.0% (1.17%) 141%
SECURITY ASSET ALLOCATION SERIES (CLASS A)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995
(g)(h)(i)$10.00 $0.04 $0.50 $0.54 $ --- $ --- $ --- $10.54 5.40% $ 1,906 2.0% 1.33% 43%
SECURITY ASSET ALLOCATION SERIES (CLASS B)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995
(g)(h)(i)$10.00 $0.01 $0.49 $0.50 $ --- $ --- $ --- $10.50 5.00% $ 1,529 3.0% .31% 43%
</TABLE>
See accompanying notes.
25
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Net Total Ratio of
Fiscal asset Net Net gains from Dividends Distribu- net
year value invest-or losses on invest-(from net tions Net asset Net assets Ratio of income
ended begin- ment securities ment invest- (from Total value end of expenses (loss) to Portfolio
Septem ning of income (realized & opera- ment in- capital distri- end of Total period to average average turnover
- -ber 30 period (loss) (unrealized) tions come) gains) butions period return(a) (thousands) net assets net assets rate
- ------------------------------------------------------------------------------------------------------------------------------------
SECURITY ULTRA FUND (CLASS A)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1991
(c)(d) $4.46 $(0.030) $2.525 $2.495 $ --- $(0.235) $(0.235) $6.72 58.40% $65,449 1.61% (0.51%) 163%
1992 6.72 (0.090) (0.202) (0.292) --- (0.172) (0.172) 6.66 1.50% 57,128 1.32% (0.46%) 142%
1993 6.66 (0.028) 1.791 1.763 --- (0.293) (0.293) 8.13 26.80% 71,056 1.30% (0.50%) 101%
1994
(e) 8.13 (0.056) (0.188) (0.244) --- (1.066) (1.066) 6.82 (3.60)% 60,695 1.33% (0.80%) 111%
1995
(i) 6.82 (0.02) 1.535 1.515 --- (0.135) (0.135) 8.20 22.69% 66,052 1.32% (0.31%) 180%
SECURITY ULTRA FUND (CLASS B)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994
(e) $8.30 $(0.103) $(0.321) $(0.424)$ --- $(1.066) $(1.066) $6.81 (5.70%) $1,254 2.36% (1.76%) 110%
1995
(i) 6.81 (0.09) 1.525 1.435 --- (0.135) (0.135) 8.11 21.53% 5,428 2.32% (1.32%) 180%
</TABLE>
(a) Total return information does not reflect deduction of any sales charges
imposed at the time of purchase for Class A shares or upon redemption for
Class B shares.
(b) Effective July 6, 1993, Security Growth and Income Fund changed its
investment objective frorm investing for income with secondary emphasis on
long-term capital growth to long-term capital growth with secondary
emphasis on income. Effective the same date the fund changed its name from
Security Investment Fund to Security Growth and Income Fund.
<TABLE>
<CAPTION>
(c) Debt outstanding Weighted average debt Weighted average month- Average debt Average debt
Year at end of period outstanding during the period end shares outstanding per share per share
---- ---------------- ----------------------------- ---------------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Security Ultra Fund 1991 --- 970,096 8,817,652 .11 .01
</TABLE>
Borrowings and related interest, if any, were immaterial in 1992, 1993,
1994, and 1995.
(d) Portfolio turnover calculation excludes the portfolio investments acquired
in the Omni Fund merger. Per share data has been calculated using the
average month-end shares outstanding.
(e) Class "B" Shares were initially capitalized on October 19, 1993. Percentage
amounts for the period, except total return, have been annualized. Per
share data has been calculated using the average month-end shares
outstanding.
(f) Security Global Series was initially capitalized on October 1, 1993, with a
net asset value of $10 per share.
(g) Security Asset Allocation Series was initially capitalized on June 1, 1995,
with a net asset value of $10 per share. Percentage amounts for the period
have been annualized, except for total return.
(h) Fund expenses were reduced by the Investment Manager during the period and
expense ratios absent such reimbursement would have been as follows:
1995
-----------------------
Asset Allocation Series Class A 3.6%
Class B 4.7%
(i) Net investment income (loss) was computed using average shares outstanding
throughout the period.
See accompanying notes.
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
Security Growth and Income, Equity and Ultra Funds (the Funds) are registered
under the Investment Company Act of 1940, as amended, as diversified open-end
management investment companies. The shares of Security Equity Fund are
currently issued in three Series, the Equity Series, the Global Series, and the
Asset Allocation Series with each Series, in effect representing a separate
Fund. The Funds began offering an additional class of shares ("B" shares) to the
public on October 19, 1993. The shares are offered without a front-end sales
charge but incur additional class - specific expenses. Redemptions of the shares
within five years of acquisition incur a contingent deferred sales charge. The
following is a summary of the significant accounting policies followed by the
Funds in the preparation of their financial statements. These policies are in
conformity with generally accepted accounting principles.
A. SECURITY VALUATION - Valuations of the Funds' securities are supplied by a
pricing service 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 mean between the bid and the asked prices. If a mean cannot be determined
then the securities are valued at the best available current bid price. All
other securities for which market quotations are available are valued on the
basis of the current bid price. If there is no bid price or if the bid price is
deemed to be unsatisfactory by the Board of Directors or 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 market value. The Funds
generally will value short-term debt securities at prices based on market
quotations for securities of similar type, yield, quality and duration, except
that securities purchased with 60 days or less to maturity are valued on the
basis of the amortized cost which approximates market value.
Generally, trading in foreign securities markets is substantially completed
each day at various times prior to the close of the New York Stock Exchange. The
values of foreign securities are determined as of the close of such foreign
markets or the close of the New York Stock Exchange if earlier. All investments
quoted in foreign currency are valued in U.S. dollars on the basis of the
foreign currency exchange rates prevailing at the close of business. The Global
Series and Asset Allocation Series investments in foreign securities may involve
risks not present in domestic investments. Since foreign securities may be
denominated in a foreign currency and involve settlement and pay interest or
dividends in foreign currencies, changes in the relationship of these foreign
currencies to the U.S. dollar can significantly affect the value of the
investments and earnings of the Funds. Foreign investments may also subject the
Global Series and Asset Allocation Series to foreign government exchange
restrictions, expropriation, taxation or other political, social or economic
developments, all of which could affect the market and/or credit risk of the
investments.
B. FOREIGN CURRENCY TRANSACTIONS - The accounting records of the Funds are
maintained in U.S. dollars. All assets and liabilities initially expressed in
foreign currencies are converted into U.S. dollars at prevailing exchange rates.
Purchases and sales of investment securities, dividend and interest income, and
certain expenses are translated at the rates of exchange prevailing on the
respective dates of such transactions.
The Funds do not isolate that portion of the results of operations resulting
from changes in the foreign exchange rates on investments from the fluctuations
arising from changes in the market prices of securities held. Such fluctuations
are included with the net realized and unrealized gain or loss on investments.
Net realized foreign exchange gains or losses arise from sales of portfolio
securities, sales of foreign currencies, and the difference between asset and
liability amounts initially stated in foreign currencies and the U.S. dollar
value of the amounts actually received or paid. Net unrealized foreign exchange
gains or losses arise from changes in the value of portfolio securities and
other assets and liabilities at the end of the reporting period, resulting from
changes in the exchange rates.
C. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS - Global Series and Asset
Allocation Series may enter into forward foreign exchange contracts in order to
manage against foreign currency risk from purchase or sale of securities
denominated in foreign currency. Global Series and Asset Allocation Series may
also enter into such contracts to manage changes in foreign currency exchange
rates on portfolio positions. These contracts are marked to market daily, by
recognizing the difference between the contract exchange rate and the current
market rate as unrealized gains or losses. Realized gains or losses are
recognized when contracts are settled and are reflected in the statement of
operations. These contracts involve market risk in excess of the amount
reflected in the Balance Sheet. The face or contract amount in U.S. dollars
reflects the total exposure the Global Series and Asset Allocation Series have
in that particular currency contract. Losses may arise due to changes in the
value of the foreign currency or if the counterparty does not perform under the
contract.
D. FUTURES - Asset Allocation Series utilizes futures contracts to a limited
extent, with the objectives of maintaining full exposure to the underlying stock
markets, enhancing returns, maintaining liquidity, and minimizing transaction
costs. Asset Allocation Series may purchase futures contracts to immediately
position incoming cash in the market, thereby simulating a fully invested
position in the underlying index while maintaining a cash balance for liquidity.
In the event of redemptions, the Asset Allocation Series may pay departing
shareholders from their cash balances and reduce their futures positions
accordingly. Returns may be enhanced by purchasing futures contracts instead of
the underlying securites when futures are believed to be priced more
attractively than the underlying securities. The primary risks associated with
the use of futures contracts are imperfect correlation between changes in market
values of stocks contained in the indexes and the prices of futures contracts,
and the possibility of an illiquid market. Futures contracts are valued based
upon their quoted daily settlement prices. Upon entering into a futures
contract, the Series is required to deposit either cash or securities,
representing the initial margin, equal to a certain percentage of the contract
value. Subsequent changes in the value of the contract, or variation margin, are
recorded as unrealized gains or losses. The variation margin is paid or received
in cash daily by the Series. The Series realizes a gain or loss when the
contract is closed or expires.
27
<PAGE>
NOTES TO FINANCIAL STATEMENTS
E. SECURITY TRANSACTIONS AND INVESTMENT INCOME - Security transactions are
accounted for on the date the securities are purchased or sold. Realized gains
and losses are reported on an identified cost basis. Dividend income less
foreign taxes withheld (if any) are recorded on the ex-dividend date. Interest
income is recognized on the accrual basis. Premium and discounts (except
original issue discounts) on debt securities are not amortized.
F. DISTRIBUTIONS TO SHAREHOLDERS - Distributions to shareholders are recorded
on the ex-dividend date. The character of distributions made during the year
from net investment income or net realized gains may differ from their ultimate
characterization for federal income tax purposes. These differences are
primarily due to differing treatments for tax equalization debits, expiration of
net operating losses and recharacterization of foreign currency gains and
losses.
G. 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.
2. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Under terms of the investment advisory contract, Security Management Company
(SMC) agrees to provide, or arrange for others to provide, all the services
required by the Funds for a single fee (except for the Asset Allocation Series
of Security Equity Fund), including investment advisory services, transfer agent
services and certain other administrative services. For Growth and Income Fund,
Equity Series and Ultra Fund this fee is equal to 2% of the first $10 million of
the average daily closing value of each Fund's net assets, 1 1/2% of the next
$20 million, and 1% of the remaining net asset value of the Fund for the fiscal
year. For Global Series this fee is equal to 2% of the first $70 million of the
average daily closing value of the Series net assets and 1 1/2% of the remaining
average net assets of the Series, for the fiscal year. Additionally, SMC agrees
to assume all of the Funds' expenses, except for its fee and the expenses of
interest, taxes, brokerage commissions and extraordinary items and Class B
distribution fees. SMC also serves as Investment Advisor to the Asset Allocation
Series, and accordingly receives a fee equal to 1% of the average net assets of
this Series.
SMC also acts as the administrative agent and transfer agent for the Asset
Allocation Series, and as such performs administrative functions, transfer
agency and dividend disbursing services, and the bookkeeping, accounting and
pricing functions for the Series. For these services, the Investment Manager
receives an administrative fee equal to .045% of the average daily net assets of
the Series plus the greater of .10% of its average net assets or (i) $30,000 in
the year ending June 1, 1996; (ii) $45,000 in the year ending June 1, 1997; and
(iii) $60,000 thereafter. For transfer agent services, SMC is paid an annual
fixed charge per account as well as a transaction fee for all shareholder and
dividend payments.
SMC pays a Sub-Advisor, Lexington Management Corporation (LMC), an annual fee
in an amount equal to .50% of the average daily net assets of Global Series, for
investment advisory and certain administrative services provided to the Global
Series. SMC pays Templeton Quantitative Advisors for research provided to the
Asset Allocation Series, an annual fee equal to .30% of the first $50,000,000 of
the average net assets of the Asset Allocation Series invested in equity
securities and .25% of the average equity security assets in excess of
$50,000,000. SMC also pays Meridian Management Corporation for research provided
to the Asset Allocation Series, an annual fee equal to .20% of the average net
assets of that Series. SMC has agreed to limit the total expenses of the Asset
Allocation Series to 2% of the average net assets, excluding 12b-1 fees.
The Funds have adopted Distribution Plans related to the offering of Class B
shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. The
Plans provide for payments at an annual rate of 1.0% of the average net assets
of each Fund's Class B shares.
Security Distributors, Inc. (SDl), a wholly-owned subsidiary of SMC and the
national distributor for the Funds, received net underwriting commissions after
allowances to brokers and dealers in the amounts presented in the following
table:
Asset
Growth And Equity Global Allocation Ultra
Income Fund Series Series Series Fund
----------- ------ ------ ------ ----
SDI underwriting $ 5,020 $96,169 $ 4,002 $198 $14,803
Broker/Dealer $25,820 $514,291 $21,276 $621 $71,879
Certain officers and directors of the Funds are also officers and/or
directors of Security Benefit Life Insurance Company and its subsidiaries, which
include SMC and SDI.
3. FEDERAL INCOME TAX MATTERS
For federal income tax purposes, the amounts of unrealized appreciation
(depreciation) at September 30, 1995, were as follows:
Asset
Growth And Equity Global Allocation Ultra
Income Fund Series Series Series Fund
----------- ------ ------ ------ ----
Gross unrealized
appreciation $9,791,095 $114,295,267 $1,796,270 $147,833 $15,561,308
Gross unrealized
depreciation (142,085) (628,112) (876,460) (71,360) (734,666)
------------------------------------------------------------
Net unrealized
appreciation $9,649,010 $113,667,155 $ 919,810 $76,473 $14,826,642
============================================================
The Growth and Income Fund, Equity Series, Global Series and Ultra Fund hereby
respectively designate $968,758, $20,717,586, $18,239, and $4,956,836 as capital
gain dividends attributable to the fiscal year ended September 30, 1995, for the
purpose of the dividends paid deduction on each Fund's federal income tax
return. Asset Allocation Series has a capital loss carryover of $9,371 for
federal income tax purposes which will expire in 2003.
28
<PAGE>
NOTES TO FINANCIAL STATEMENTS
4. INVESTMENT TRANSACTIONS
Investment transactions for the period ended September 30, 1995, (excluding
overnight investments and short-term commercial paper) are as follows:
Asset
Growth And Equity Global Allocation Ultra
Income Fund Series Series Series Fund
----------- ------ ------ ------ ----
Purchases $76,688,330 $368,157,730 $29,541,921 $3,615,370 $102,020,220
Proceeds from
sales $87,952,729 $359,818,550 $30,781,283 $1,256,749 $104,199,978
5. FORWARD FOREIGN EXCHANGE CONTRACTS
At September 30, 1995, Global Series had the following open forward foreign
exchange contracts to sell currency (excluding foreign currency contracts used
for purchase and sale settlements):
Settlement Contract Contract Current Unrealized Gain
Currency Date Amount Rate Rate (Loss)
- -------- ---- ------ ---- ---- ------
French Franc 11-24-95 1,607,190 5.011 4.9272 $ (5,455)
Japanese Yen 11-15-95 62,757,012 83.263 98.6581 117,614
Japanese Yen 01-31-96 43,145,815 86.15 97.5267 58,422
Japanese Yen 02-14-96 71,091,550 90.42 97.3715 56,131
Japanese Yen 02-20-96 42,629,075 94.29 97.2842 13,915
Japanese Yen 02-20-96 10,596,499 95.36 97.2842 2,198
Japanese Yen 02-20-96 51,041,970 95.33 97.2842 10,755
---------
$253,580
=========
6. FEDERAL TAX STATUS OF DIVIDENDS
The income dividends paid by the Funds are taxable as ordinary income on the
shareholder's tax return. The portion of ordinary income of dividends (including
net short-term capital gains) attributed to fiscal year ended September 30,
1995, that qualified for the dividends received deduction for corporate
shareholders was 37%, 55%, 17%, 8% and 0% of the amount taxable as ordinary
income for Growth and Income Fund, Equity Series, Global Series, Asset
Allocation Series and Ultra Fund respectively, in accordance with the provisions
of the Internal Revenue Code.
7. FOREIGN TAX CREDIT INFORMATION
For purposes of the foreign tax credit designation requirements, Security
Global Series paid foreign taxes of $38,840 and had foreign source gross income
of $315,643.
29
<PAGE>
REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
To the Shareholders and Boards of Directors
Security Growth and Income Fund, Security Equity Fund, and Security Ultra Fund
We have audited the accompanying balance sheets and statements of net assets
of Security Growth and Income Fund, Security Equity Fund (comprised of the
Equity, Global and Asset Allocation Series), and Security Ultra Fund (the Funds)
as of September 30, 1995, the related statements of operations for the year then
ended, and changes in net assets for each of the two years in the period then
ended of Security Growth and Income Fund, Security Equity Series, Security
Equity Global Series, and Security Ultra Fund and the related statements of
operations and changes in net assets for the period June 1, 1995 (commencement
of operations) to September 30, 1995 of Security Equity Asset Allocation Series
and the financial highlights for each of the five years in the period then
ended. These financial statements and the financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
September 30, 1995, by correspondence with the custodian. As to securities
relating to uncompleted transactions, we performed other auditing procedures. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Funds at September 30, 1995, and the results of their operations, changes in
their net assets and the financial highlights for the periods indicated above in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Kansas City, Missouri
October 27, 1995
30
<PAGE>
THE SECURITY GROUP OF
MUTUAL FUNDS
- ---------------------
Security Growth and Income Fund
Security Equity Fund
- Equity Series
- Global Series
- Asset Allocation Series
Security Ultra Fund
Security Income Fund
- Corporate Bond Series
- U.S. Government Series
- Limited Maturity Bond Series
- Global Aggressive Bond Series
Security Tax-Exempt 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
- ---------
Willis A. Anton
Donald A. Chubb, Jr.
John D. Cleland
Donald L. Hardesty
Penny A. Lumpkin
Mark L. Morris, Jr., D.V.M.
Jeffrey B. Pantages
Harold G. Worswick
OFFICERS
- --------
John D. Cleland, President
James R. Schmank, Vice President and Treasurer
Mark E. Young, Vice President
Terry A. Milberger, Vice President, Equity Fund
Greg A. Hamilton, Assistant Vice President
Cindy L. Shields, Assistant Vice President
Amy J. Lee, Secretary
Brenda M. Luthi, Assistant Treasurer and Assistant Secretary
[SDI LOGO]
700 SW Harrison St.
Topeka, KS 66636-0001
(913) 295-3127
(800) 888-2461
BULK RATE
U.S. POSTAGE PAID
TOPEKA, KS
PERMIT NO. 385
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
- -------- ---------------------------------
a. Financial Statements
Included in Part A of this Registration Statement:
Per Share Income and Capital Changes
Included in Part B of this Registration Statement:
The audited financial statements contained in the most
recent Annual Report of Security Equity Fund are incorporated
by reference in Part B of this Registration Statement.
b. Exhibits:
(1) Articles of Incorporation.(a)
(2) Corporate Bylaws of Registrant.(b)
(3) Not applicable.
(4) Specimen copy of share certificates for Registrant's
shares of capital stock.(a)
(5) (a) Investment Management and Services Agreement.
(b) Sub-Advisory Contract.(b)
(c) Quantitative Research Agreement.
(d) Consulting and Analytical Research Agreement.
(6) (a) Distribution Agreement.(b)
(b) Class B Distribution Agreement.(b)
(7) Form of Non-Qualified Deferred Compensation Plan(b)
(8) (a) Custodian Agreement - UMB Bank.(b)
(b) Custodian Agreement - Chase Manhattan Bank (Global)
(c) Custodian Agreement - Chase Manhattan Bank (Asset
Allocation)
(9) Not applicable.
(10) Opinion of counsel as to the legality of the securities
offered.(a)
(11) Consent of Independent Auditors.
(12) Not applicable.
(13) Not applicable.
(14) Not applicable.
(15) Distribution Plan.(b)
(16) Schedule of Computation of Performance.
(17) Financial Data Schedules.
(18) Multiple Class Plan.
(a) Incorporated herein by reference to the Exhibits filed with the
Registrant's Post-Effective Amendment No. 71 to Registration Statement
2-19458 (June 1, 1995).
(b) Incorporated herein by reference to the Exhibits filed with the
Registrant's Post-Effective Amendment No. 72 to Registration Statement
2-19458 (June 1, 1995).
<PAGE>
Item 25. Persons Controlled by or Under Common Control with Registrant.
- -------- --------------------------------------------------------------
Not applicable.
Item 26. Number of Holders of Securities as of November 13, 1995.
- -------- --------------------------------------------------------
<TABLE>
<CAPTION>
(1) (2)
Number of Record
Title of Class Shareholders
<S> <C>
Shares of Common Stock 24,948 Class A - Equity Series
1,789 Class B - Equity Series
1,783 Class A - Global Series
801 Class B - Global Series
151 Class A - Asset Allocation Series
41 Class B - Asset Allocation Series
</TABLE>
Item 27. Indemnification.
- -------- ----------------
A policy of insurance covering Security Management Company, its
subsidiaries, including Security Distributors, Inc., and all of
the registered investment companies advised by Security Management
Company insures the Registrant's directors and officers against
liability arising by reason of an alleged breach of duty caused by
any negligent act, error or accidental omission in the scope of
their duties.
Article Tenth of Registrant's Articles of Incorporation provides
in relevant part as follows:
"(5) Each director and officer (and his heirs, executors and
administrators) shall be indemnified by the Corporation
against reasonable costs and expenses incurred by him in
connection with any action, suit or proceeding to which he is
made a party by reason of his being or having been a director
or officer of the Corporation, except in relation to any
action, suit or proceeding in which he has been adjudged
liable because of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in
the conduct of his office. In the absence of an adjudication
which expressly absolves the director or officer of liability
to the Corporation or its stockholders for willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his
office, or in the event of a settlement, each director and
officer (and his heirs, executors and administrators) shall
be indemnified by the Corporation against payment made,
including reasonable costs and expenses, provided that such
indemnity shall be conditioned upon a written opinion of
independent counsel that the director or officer has no
liability by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in
the conduct of his office. The indemnity provided herein
shall, in the event of settlement of any such action, suit or
proceeding, not exceed the cost and expenses (including
attorneys' fees) which would reasonably have been incurred if
such action, suit or proceeding had been
<PAGE>
litigated to a final conclusion. Such a determination by
independent counsel and the payment of amounts by the
Corporation on the basis thereof shall not prevent a
stockholder from challenging such indemnification by
appropriate legal proceedings on the grounds that the officer
or director was liable because of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office. The foregoing rights
and indemnification shall not be exclusive of any other
rights to which the officers and directors may be entitled
according to law."
Article Sixteenth of Registrant's Articles of Incorporation, as
amended December 10, 1987, provides as follows:
"A director shall not be personally liable to the corporation or
to its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that this sentence shall not
eliminate nor limit the liability of a director:
A. for any breach of his or her duty of loyalty to the
corporation or to its stockholders;
B. for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
C. for an unlawful dividend, stock purchase or redemption under
the provisions of Kansas Statutes Annotated (K.S.A.) 17-6424
and amendments thereto; or
D. for any transaction from which the director derived an
improper personal benefit."
Item Thirty of Registrant's Bylaws, dated February 3, 1995,
provides, in relevant part, as follows:
"Each person who is or was a Director or officer of the
Corporation or is or was serving at the request of the Corporation
as a Director or officer of another corporation (including the
heirs, executors, administrators and estate of such person) shall
be indemnified by the Corporation as of right to the full extent
permitted or authorized by the laws of the State of Kansas, as now
in effect and is hereafter amended, against any liability,
judgment, fine, amount paid in settlement, cost and expense
(including attorneys' fees) asserted or threatened against and
incurred by such person in his/her capacity as or arising out of
his/her status as a Director or officer of the Corporation or, if
serving at the request of the Corporation, as a Director or
officer of another corporation. The indemnification provided by
this bylaw provision shall not be exclusive of any other rights to
which those indemnified may be entitled under the Articles of
Incorporation, under any other bylaw or under any agreement, vote
of stockholders or disinterested directors or otherwise, and shall
not limit in any way any right which the Corporation may have to
make different or further indemnification with respect to the same
or different persons or classes of persons.
<PAGE>
No person shall be liable to the Corporation for any loss, damage,
liability or expense suffered by it on account of any action taken
or omitted to be taken by him/her as a Director or officer of the
Corporation or of any other corporation which he/she serves as a
Director or officer at the request of the Corporation, if such
person (a) exercised the same degree of care and skill as a
prudent man would have exercised under the circumstances in the
conduct of his/her own affairs, or (b) took or omitted to take
such action in reliance upon advice of counsel for the
Corporation, or for such other corporation, or upon statement made
or information furnished by Directors, officers, employees or
agents of the Corporation, or of such other corporation, which
he/she had no reasonable grounds to disbelieve.
In the event any provision of this section 30 shall be in
violation of the Investment Company Act of 1940, as amended, or of
the rules and regulations promulgated thereunder, such provisions
shall be void to the extent of such violations."
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 28. Business or Other Connections of Investment Adviser
- -------- -----------------------------------------------------
Security Management Company also acts as investment manager to SBL
Fund, Security Cash Fund, Security Income Fund, Security Growth
and Income Fund, Security Tax-Exempt Fund, and Security Ultra Fund
and as administrator to The Parkstone Advantage Fund.
<PAGE>
<TABLE>
<CAPTION>
Business* and Other Connections of the Executive
Name Officers and Directors of Registrant's Adviser
---- ------------------------------------------------
<S> <C>
Jeffrey B. Pantages President, Chief Investment Officer and Director
Security Management Company
Director
Security Cash Fund, Security Income Fund, Security
Tax-Exempt Fund, SBL Fund, Security Growth and Income
Fund, Security Equity Fund, Security Ultra Fund
Senior Vice President and Chief Investment Officer
Security Benefit Life Insurance Company
Security Benefit Group, Inc.
Director
Mulvane Art Museum, Topeka, Kansas
United Way of Greater Topeka, Topeka, Kansas
John D. Cleland Senior Vice President and Director
Security Management Company
President and Director
Security Cash Fund, Security Income Fund, Security
Tax-Exempt Fund, SBL Fund, Security Growth and Income
Fund, Security Equity Fund, Security Ultra Fund
Senior Vice President
Security Benefit Life Insurance Company
Security Benefit Group, Inc.
Vice President and Director
Security Distributors, Inc.
Trustee and Treasurer
Mount Hope Cemetery Corporation, Topeka, Kansas
Past President
Top of the Tower Club, Topeka, Kansas
Trustee
Topeka Community Foundation Topeka, Kansas
James W. Lammers Senior Vice President and Director
Security Management Company
National Sales Manager, Senior Vice President and Director
Security Distributors, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Business* and Other Connections of the Executive
Name Officers and Directors of Registrant's Adviser
---- ------------------------------------------------
<S> <C>
James R. Schmank Senior Vice President, Treasurer, Chief Fiscal Officer and
Director
Security Management Company
Chairman of the Board, President and Trustee
The Parkstone Advantage Fund
Vice President and Director
Security Distributors, Inc.
Vice President
Security Benefit Group, Inc.
Security Benefit Life Insurance Company
Vice President and Treasurer
Security Growth and Income Fund, Security Income Fund,
Security Cash Fund, Security Tax-Exempt Fund, Security
Ultra Fund, Security Equity Fund, SBL Fund
Donald E. Caum Director
Security Management Company
Senior Vice President
Security Benefit Life Insurance Company
Security Benefit Group
Director
YMCA Metro, Topeka, Kansas
Executive Director
Jayhawk Area Council Boy Scouts of America,
Topeka, Kansas
Metropolitan Ballet, Topeka, Kansas
James L. Woods Senior Vice President
Security Management Company
Security Benefit Life Insurance Company
Security Benefit Group, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Business* and Other Connections of the Executive
Name Officers and Directors of Registrant's Adviser
---- ------------------------------------------------
<S> <C>
Mark E. Young Vice President - Operations
Security Management Company
Vice President
Security Growth and Income Fund, Security
Income Fund, Security Cash Fund, Security
Tax-Exempt Fund, Security Ultra Fund, Security
Equity Fund, SBL Fund, Security Distributors,
Inc., First Security Benefit Life Insurance and
Annuity Company of New York
Assistant Vice President
Security Benefit Life Insurance Company
Security Benefit Group, Inc.
Trustee
Topeka Zoological Foundation, Topeka, Kansas
Terry A. Milberger Senior Portfolio Manager and Vice President
Security Management Company
Vice President
Security Equity Fund, SBL Fund
Jane A. Tedder Vice President and Senior Portfolio Manager
Security Management Company
Vice President
Security Cash Fund, Security Income Fund,
Security Tax-Exempt Fund, SBL Fund
Gregory A. Hamilton Second Vice President
Security Management Company
Assistant Vice President
Security Equity Fund
Security Income Fund
SBL Fund
Director
Downtown Topeka, Inc., Topeka, Kansas
Topeka Active 20/30 Club, Topeka, Kansas
Trustee
Kansas State University Foundation,
Manhattan, Kansas
Nominating Committee
Western Hills Baptist Church, Topeka, Kansas
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Business* and Other Connections of the Executive
Name Officers and Directors of Registrant's Adviser
---- ------------------------------------------------
<S> <C>
Amy J. Lee Second Vice President and Associate Counsel
Security Benefit Group, Inc.
Security Benefit Life Insurance Company
Secretary
Security Management Company, Security
Distributors, Inc., Security Cash Fund, Security
Equity Fund, Security Tax-Exempt Fund,
Security Ultra Fund, SBL Fund, Security Growth
and Income Fund, Security Income Fund
Vice President, Assistant Secretary and Assistant
Treasurer
The Parkstone Advantage Fund
Director
Everywoman's Resource Center, Topeka, Kansas
Brenda M. Luthi Assistant Vice President, Assistant Treasurer and
Assistant Secretary
Security Management Company
Assistant Treasurer and Assistant Secretary
Security Equity Fund, Security Ultra Fund,
Security Growth and Income Fund, Security
Income Fund, Security Cash Fund, SBL Fund,
Security Tax-Exempt Fund
Treasurer
Security Distributors, Inc.
Trustee, Vice President, Treasurer and Secretary
The Parkstone Advantage Fund
Steven M. Bowser Assistant Vice President and Portfolio Manager
Security Management Company
Assistant Vice President
Security Benefit Life Insurance Company
Security Benefit Group, Inc.
Thomas A. Swank Assistant Vice President and Portfolio Manager
Security Management Company
Assistant Vice President
Security Benefit Life Insurance Company
Security Benefit Group, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Business* and Other Connections of the Executive
Name Officers and Directors of Registrant's Adviser
---- ------------------------------------------------
<S> <C>
Barbara J. Davison Assistant Vice President
Security Management Company
Security Benefit Life Insurance Company
Security Benefit Group, Inc.
President
Topeka Chapter International
Institute of Internal Auditors, Topeka, Kansas
Executive Mentor
ASSIST Catholic Social Services,
Topeka, Kansas
Cindy L. Shields Assistant Vice President and Portfolio Manager
Security Management Company
Assistant Vice President
Security Ultra Fund, SBL Fund
Larry L. Valencia Assistant Vice President and Senior Research Analyst
Security Management Company
James Schier Assistant Vice President and Senior Research Analyst
Security Management Company
</TABLE>
*Located at 700 Harrison, Topeka, Kansas 66636-0001.
LEXINGTON MANAGEMENT CORPORATION:
Lexington Management Corporation, sub-adviser to Global Series,
acts as investment adviser, sub-adviser and/or sponsor to 15
investment companies other than Registrant.
<PAGE>
<TABLE>
<CAPTION>
Business* and Other Connections of the Executive
Name Officers and Directors of Registrant's Adviser
---- ------------------------------------------------
<S> <C>
Robert M. DeMichele President and Director
Piedmont Management Company, Inc.,
New York, NY
Lexington Group of Mutual Funds
Chairman and Chief Executive Officer
Lexington Management Corporation
Lexington Funds Distributor, Inc.
Director
Reinsurance Corporation of New York
The Navigator's Group, Inc., New York, NY
Vanguard Cellular Systems, Inc., New York, NY
LCM Financial Services, Inc., Gold River, CA
Chairman
Market Systems Research, Inc., New York, NY
Market Systems Research Advisors, Inc.,
New York, NY
Lexington Capital Management, Inc.,
Gold River, CA
Richard M. Hisey Chief Financial Officer, Managing Director and
Director
Lexington Management Corporation
Chief Financial Officer and Director
Lexington Funds Distributor, Inc.
Vice President and Treasurer
Lexington Group of Mutual Funds
Chief Financial Officer and Vice President
Market Systems Research Advisors, Inc.,
New York, NY
Lawrence Kantor Executive Vice President, Managing Director and
Director
Lexington Management Corporation
Executive Vice President and Director
Lexington Funds Distributor, Inc.
Vice President and Director
Lexington Group of Mutual Funds
James H. O'Leary Managing Director and Director
Lexington Management Corporation
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Business* and Other Connections of the Executive
Name Officers and Directors of Registrant's Adviser
---- ------------------------------------------------
<S> <C>
Peter Palenzona Director
Lexington Management Corporation
Senior Vice President, Secretary and Treasurer
Piedmont Management Company, Inc.,
New York, NY
Stuart S. Richardson Director
Lexington Management Corporation
Vice Chairman
Piedmont Management Company, Inc.,
New York, NY
Chairman
Vanguard Cellular Communications,
New York, NY
John B. Waymire Vice President and Director
Lexington Management Corporation
President and Director
Lexington Capital Management, Inc., Gold
River, CA
LCM Financial Services, Inc., Gold River, CA
Lexington Plan Administrators, Inc.,
Gold River, CA
Lisa A. Curcio Compliance Officer, Vice President and Secretary
Lexington Management Corporation
Lexington Funds Distributors, Inc.
Compliance Officer and Secretary
Lexington Group of Mutual Funds
Carolyn M. Croney Vice President - Trading
Lexington Management Corporation
Marc T. Halperin Vice President and Securities Analyst
Lexington Management Corporation
Denis P. Jamison Senior Vice President and Portfolio Manager
Lexington Management Corporation
Vice President and Portfolio Manager
Lexington (Fixed Income) Mutual Funds
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Business* and Other Connections of the Executive
Name Officers and Directors of Registrant's Adviser
---- ------------------------------------------------
<S> <C>
Richard T. Saler Senior Vice President and Portfolio Manager
Lexington Management Corporation
Vice President and Portfolio Manager
Lexington (International Equity) Mutual Funds
Alan H. Wapnick Senior Vice President and Portfolio Manager
Lexington Management Corporation
Vice President and Portfolio Manager
Lexington Growth and Income Fund, Inc.
Thomas M. Seay Vice President and Portfolio Manager
Lexington Management Corporation
</TABLE>
* Located at P.O. Box 1515, Saddlebrook, New Jersey 07662, except
for Messrs. Palenzona and Richardson whose address is 80 Maiden
Lane, New York, New York 10038 and Mr. Waymire whose address is
2339 Gold Meadow Way, Gold River, California 95670.
<PAGE>
TEMPLETON QUANTITATIVE ADVISORS, INC.
Templeton Quantitative Advisors, Inc. ("TQA") (aka The DAIS
Group), provides consulting and analytical research services to
the Registrant's Asset Allocation Series. TQA serves as adviser to
two investment companies other than the Registrant.
<TABLE>
<CAPTION>
Business* and Other Connections of the Executive
Name Officers and Directors of Registrant's Adviser
---- ------------------------------------------------
<S> <C>
Robert E. Butman Director, President and Chief Executive Officer
Templeton Quantitative Advisors, Inc.
Charles E. Johnson Director
Templeton Quantitative Advisors, Inc.
Martin L. Flanagan Director
Templeton Quantitative Advisors, Inc.
Howard J. Leonard Director
Templeton Quantitative Advisors, Inc.
Gregory E. McGowan Director
Templeton Quantitative Advisors, Inc.
Jean W. Thomas Secretary and Director of Corporate Operations
Templeton Quantitative Advisors, Inc.
Bartholomew C. Tesoriero Chief Financial Officer
Templeton Quantitative Advisors, Inc.
Suzanne V. Montemurro Treasurer
Templeton Quantitative Advisors, Inc.
George J. Esser Senior Vice President
Templeton Quantitative Advisors, Inc.
Hans L. Erickson Senior Vice President
Templeton Quantitative Advisors, Inc.
</TABLE>
*Located at 31 W. 52nd Street, Suite 10, New York, New York 10019
<PAGE>
MERIDIAN INVESTMENT MANAGEMENT CORPORATION
Meridian Investment Management Corporation provides quantitative
research services to the Registrant's Asset Allocation Series.
<TABLE>
<CAPTION>
Business* and Other Connections of the Executive
Name Officers and Directors of Registrant's Adviser
---- ------------------------------------------------
<S> <C>
Michael J. Hart President
Meridian Investment Management Corporation
Meridian Clearing Corporation
Meridian Management and Research Corporation
Craig T. Callahan Chief Investment Officer
Meridian Management and Research Corporation
Chief Investment Advisor
Meridian Investment Management Corporation
Vice President
Meridian Clearing Corporation
Deborah L. Zele Compliance Officer
Meridian Investment Management Corporation
Financial and Operations Principal
Meridian Clearing Corporation
</TABLE>
*Located at 12835 East Arapahoe Road, TWR II - 7th Floor,
Englewood, Colorado 80112.
Item 29. Principal Underwriters
- -------- ----------------------
Security Ultra Fund
Security Income Fund
Security Tax-Exempt Fund
Variflex Variable Annuity Account
Varilife Variable Annuity Account
Parkstone Variable Annuity Account
The Parkstone Advantage Fund
Security Varilife Separate Account
Variflex LS Variable Annuity Account
T. Rowe Price Variable Annuity Account
T. Rowe Price Variable Annuity Account of First Security
Benefit Life Insurance and Annuity Company of New York
<PAGE>
(b)
<TABLE>
<CAPTION>
(1) (2) (3)
Name and Principal Position and Offices Position and Offices
Business Address* with Underwriter with Registrant
------------------ -------------------- --------------------
<S> <C> <C>
Richard K Ryan President and Director None
John D. Cleland Vice President President and Director
and Director
James W. Lammers National Sales Manager, None
Senior Vice President and
Director
James R. Schmank Vice President and Vice President
Director and Treasurer
Louis R. Jicha Vice President and None
Director
Mark E. Young Vice President Vice President
Amy J. Lee Secretary Secretary
Brenda M. Luthi Treasurer Assistant Secretary and
Assistant Treasurer
Daniel J. McNichol Vice President None
Steven D. Eklund Regional Vice President None
Steven S. Doerrer Regional Vice President None
Anthony L. Hammock Regional Vice President None
Douglas J. Ikenberry Regional Vice President None
Robert L. Kirchner Regional Vice President None
Daniel L. Murphy Regional Vice President None
Ronald V. Vermillion Regional Vice President None
Jennifer A. Zaat Regional Vice President None
Kent N. Spillman Regional Vice President None
Carla D. Griffin Regional Vice President None
</TABLE>
*700 Harrison, Topeka, Kansas 66636-0001
(c) Not applicable.
<PAGE>
Item 30. Location of Accounts and Records.
- -------- ---------------------------------
Certain accounts, books and other documents required to be
maintained by Section 31(a) of the 1940 Act and the rules
promulgated thereunder are maintained by Security Management
Company, 700 Harrison, Topeka, Kansas 66636-0001. Records relating
to the duties of the Registrant's custodian are maintained by UMB
Bank, N.A., 928 Grand Avenue, Kansas City, Missouri 64106 and
Chase Manhattan Bank, N.A., 4 Chase MetroTech Center, Brooklyn,
New York 11245.
Item 31. Management Services.
- -------- --------------------
Not applicable.
Item 32. Undertakings.
- -------- -------------
(a) Not applicable.
(b) Not applicable.
(c) Upon the inclusion of Item 5A's required performance
information in the Registrant's annual report, the
Registrant hereby undertakes to furnish each person, to whom
a prospectus is delivered, a copy of the Registrant's latest
report to shareholders upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Topeka, and State of Kansas on the 3rd day of November, 1995.
SECURITY EQUITY FUND
(The Registrant)
By: John D. Cleland, President
-----------------------------------
John D. Cleland, President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the date indicated:
Date: November 3, 1995
---------------------------------
Willis A. Anton, Jr. Director
- -----------------------------------
Willis A. Anton, Jr.
Donald A. Chubb, Jr. Director
- -----------------------------------
Donald A. Chubb, Jr.
John D. Cleland President and Director
- -----------------------------------
John D. Cleland
Donald L. Hardesty Director
- -----------------------------------
Donald L. Hardesty
Penny A. Lumpkin Director
- -----------------------------------
Penny A. Lumpkin
Mark L. Morris, Jr. Director
- -----------------------------------
Mark L. Morris, Jr.
Jeffrey B. Pantages Director
- -----------------------------------
Jeffrey B. Pantages
Harold G. Worswick Director
- -----------------------------------
Harold G. Worswick
<PAGE>
EXHIBIT INDEX
-------------
(1) None
(2) None
(3) None
(4) None
(5) (a) Investment Management and Services Agreement
(b) None
(c) Quantitative Research Agreement
(d) Consulting and Analytical Research Agreement
(6) None
(7) None
(8) (a) None
(b) Custodian Agreement - Chase Manhattan Bank (Global)
(c) Custodian Agreement - Chase Manhattan Bank (Asset Allocation)
(9) None
(10) None
(11) Consent of Independent Auditors
(12) None
(13) None
(14) None
(15) None
(16) Schedule of Computation of Performance
(17) Financial Data Schedules
(18) Multiple Class Plan
<PAGE>
INVESTMENT MANAGEMENT AND SERVICES AGREEMENT
This Agreement, made and entered into this 8th day of December, 1988, by
and between SECURITY EQUITY FUND, a Kansas corporation (hereinafter referred to
as the "Fund"), and SECURITY MANAGEMENT COMPANY, a Kansas corporation
(hereinafter referred to as "SMC");
WITNESSETH:
WHEREAS, the Fund is engaged in business as an open-end, management
investment company registered under the Investment Company Act of 1940 ("1940
Act"); and
WHERE, SMC is willing to provide investment research and advice, general
administrative, fund accounting, transfer agency, and dividend disbursing
services to the Fund on the terms and conditions hereinafter set forth and to
arrange for the provision of all other services (except for those services
specifically excluded in this Agreement) required by the Fund, including
custodial, legal, auditing and printing;
NOW, THEREFORE, in consideration of the premises and mutual agreements made
herein, the parties agree as follows:
1. Employment of SMC. The Fund hereby employs SMC to (a) act as investment
adviser to the Fund with respect to the investment of its assets and to
supervise and arrange the purchase of securities for the Fund and the sale
of securities held in the portfolio of the Fund, subject always to the
supervision of the Board of Directors of the Fund (or a duly appointed
committee thereof), during the period and upon and subject to the terms and
conditions described herein; (b) to provide the Fund with general
administrative, fund accounting, transfer agency, and dividend disbursing
services described and set forth in Schedule A attached hereto and made a
part of this Agreement by reference; and (c) to arrange for, monitor, and
bear the expense of, the provision to the Fund of all other services
required by the Fund, including but not limited to services of independent
accountants, legal counsel, custodial services and printing. SMC may, in
accordance with all applicable legal requirements, engage the services of
other persons or entities, regardless of any affiliation with SMC, to
provide services to the Fund under this Agreement. SMC agrees to maintain
sufficient trained personnel and equipment and supplies to perform its
responsibilities under this Agreement and in conformity with the current
Prospectus of the Fund and such other reasonable standards of performance
as the Fund may from time to time specify and shall use reasonable care in
selecting and monitoring the performance of third parties, who perform
services for the Fund. SMC shall not guarantee the performance of such
persons.
SMC hereby accepts such employment and agrees to perform the services
required by this Agreement for the compensation herein provided.
<PAGE>
2. Allocation of Expenses and Charges.
(a) Expenses of SMC. SMC shall pay all expenses in connection with the
performance of its services under this Agreement, including all fees
and charges of third parties providing services to the Fund, whether
or not such expenses are billed to SMC or the Fund, except as
otherwise provided herein.
(b) Expenses of the Fund. Anything in this Agreement to the contrary
notwithstanding, the Fund shall pay, or reimburse SMC for the payment
of, the following described expenses of the Fund whether or not billed
to the Fund, SMC or any related entity;
(i) brokerage fees and commissions;
(ii) taxes;
(iii) interest expenses; and
(iv) any extraordinary expenses approved by the Board of Directors of
the Fund.
3. Compensation of SMC.
(a) In consideration of the services to be rendered by SMC pursuant to
this Agreement, the Fund shall pay SMC an annual fee equal to 2% of
the first $10 million of the average net assets of the Fund, and 1
1/2% of the next $20 million of the average net assets, and 1% of the
remaining average net assets of the Fund for any fiscal year,
determined and payable monthly. If this Agreement shall be effective
for only a portion of a year in which a fee is owed, then SMC's
compensation for the year shall be prorated for such portion. For
purposes of this Section 3, the value of the net assets of the Fund
shall be computed in the same manner as the value of such net assets
is computed in connection with the determination of the net asset
value of the shares of the Fund as described in the Fund's Prospectus
and Statement of Additional Information.
(b) For each of the Fund's full fiscal years during which this Agreement
remains in force, SMC agrees that if the total annual expenses of the
Fund, exclusive of those expenses listed in paragraph 2(b) of this
Agreement, but inclusive of SMC's compensation, exceed any expense
limitation imposed by state securities law or regulation in any state
in which shares of the Fund are then qualified for sale, as such
regulations may be amended from time to time, SMC will contribute to
the Fund such funds or waive that portion of its fee on a monthly
basis as may be necessary to insure that its total expenses will not
exceed any state limitation. If this paragraph of the Agreement shall
be effective for only a portion of one of the Fund's fiscal years,
then the maximum annual expenses shall be prorated for such portion.
4. Investment Advisory Duties.
(a) Investment Advice. SMC shall regularly provide the Fund with
investment research, advice and supervision, continuously furnish an
investment program, recommend which securities shall be purchased and
sold and what portion of the assets of the Fund shall be held
uninvested and arrange for the purchase of securities
<PAGE>
and other investments for the Fund and the sale of securities and
other investments held in the portfolio of the Fund. All investment
advice furnished by SMC to the Fund under this paragraph 4 shall at
all times conform to any requirements imposed by the provisions of the
Fund's Articles of Incorporation and Bylaws, the 1940 Act, the
Investment Advisors Act of 1940 and the rules and regulations
promulgated thereunder, and other applicable provisions of law, and
the terms of the registration statements of the Fund under the
Securities Act of 1933 ("1933 Act") and/or the 1940 Act, as may be
applicable at the time, all as from time to time amended. SMC shall
advise and assist the officers or other agents of the Fund in taking
such steps as are necessary or appropriate to carry out the decisions
of the Board of Directors of the Fund (and any duly appointed
committee thereof) with regard to the foregoing matters and the
general account of the Fund's business.
(b) Portfolio Transactions and Brokerage.
(i) Transactions in portfolio securities shall be effected by SMC,
through brokers or otherwise, in the manner permitted in this
paragraph 4 and in such manner as SMC shall deem to be in the
best interests of the Fund after consideration is given to all
relevant factors.
(ii) In reaching a judgment relative to the qualification of a broker
to obtain the best execution of a particular transaction, SMC
may take into account all relevant factors and circumstances,
including the size of any contemporaneous market in such
securities; the importance to the Fund of speed and efficiency
of execution; whether the particular transaction is part of a
larger intended change of portfolio position in the same
securities; the execution capabilities required by the
circumstances of the particular transaction; the capital
required by the transaction; the overall capital strength of the
broker; the broker's apparent knowledge of or familiarity with
sources from or to whom such securities may be purchased or
sold; as well as the efficiency, reliability and confidentiality
with which the broker has handled the execution of prior similar
transactions.
(iii) Subject to any statements concerning the allocation of brokerage
contained in the Fund's Prospectus or Statement of Additional
Information, SMC is authorized to direct the execution of
portfolio transactions for the Fund to brokers who furnish
investment information or research service to the SMC. Such
allocations shall be in such amounts and proportions as SMC may
determine. If the transaction is directed to a broker providing
brokerage and research services to SMC, the commission paid for
such transactions may be in excess of the commission another
broker would have charged for effecting that transaction, if SMC
shall have determined in good faith that the commission is
reasonable in relation to the value of the brokerage and
research services provided, viewed in terms of either that
particular transaction or the overall responsibilities of SMC
with respect to all accounts as to which it now or hereafter
exercises investment discretion. For purposes of the immediately
preceding sentence, "providing brokerage and research services"
shall have the
<PAGE>
meaning generally given such terms or similar terms under
Section 28(e)(3) of the Securities Exchange Act of 1934, as
amended.
(iv) In the selection of a broker for the execution of any
transaction not subject to fixed commission rates, SMC shall
have no duty or obligation to seek advance competitive bidding
for the most favorable negotiated commission rate to be
applicable to such transaction, or to select any broker solely
on the basis of its purported or "posted" commission rates.
(v) In connection with transactions on markets other than national
or regional securities exchanges, the Fund will deal directly
with the selling principal or market maker without incurring
charges for the services of a broker on its behalf unless, in
the best judgment of SMC, better price or execution can be
obtained by utilizing the services of a broker.
(c) SMC Not To Receive Commissions. In connection with the purchase or
sale of portfolio securities for the account of the Fund, neither SMC
nor any officer or director of SMC shall act as principal or receive
any compensation from the Fund other than its compensation as provided
for in Section 3 above. If SMC, or any "affiliated person" (as defined
in the 1940 Act) receives any cash, credits, commissions or tender
fees from any person in connection with transactions in portfolio
securities of the Fund (including but not limited to the tender or
delivery of any securities held in such portfolio), SMC shall
immediately pay such amount to the Fund in cash or as a credit against
any then earned but unpaid management fees due by the Fund to SMC.
(d) Limitation of Liability of SMC with Respect to Rendering Investment
Advisory Services. So long as SMC shall give the Fund the benefit of
its best judgment and effort in rendering investment advisory services
hereunder, SMC shall not be liable for any errors of judgment or
mistake of law, or for any loss sustained by reason of the adoption of
any investment policy or the purchase, sale or retention of any
security on its recommendation shall have been based upon its own
investigation and research or upon investigation and research made by
any other individual, firm or corporation, if such recommendation
shall have been made and such other individual, firm or corporation
shall have been selected with due care and in good faith. Nothing
herein contained shall, however, be construed to protect SMC against
any liability to the Fund or its shareholders by reason of willful
misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations and
duties under this paragraph 4. As used in this paragraph 4, "SMC"
shall include directors, officers and employees of SMC, as well as
that corporation itself.
5. Administrative and Transfer Agency Services.
(a) Responsibilities of SMC. SMC will provide the Fund with general
administrative, fund accounting, transfer agency, and dividend
disbursing services described and set
<PAGE>
forth in Schedule A attached hereto and made a part of this Agreement
by reference. SMC agrees to maintain sufficient trained personnel and
equipment and supplies to perform such services in conformity with the
current Prospectus of the Fund and such other reasonable standards of
performance as the Fund may from time to time specify, and otherwise
perform such services in an accurate, timely, and efficient manner.
(b) Insurance. The Fund and SMC agree to procure and maintain, separately
or as joint insureds with themselves, their directors, employees,
agents and others, and other investment companies for which SMC acts
as investment adviser and transfer agent, a policy or policies of
insurance against loss arising from breaches of trust, errors and
omissions, and a fidelity bond meeting the requirements of the 1940
Act, in the amounts and with such deductibles as may be agreed upon
from time to time. SMC shall be solely responsible for the payment of
premiums due for such policies.
(c) Registration and Compliance.
(i) SMC represents that as of the date of this Agreement it is
registered as a transfer agent with the Securities and Exchange
Commission ("SEC") pursuant to Subsection 17A of the Securities
and Exchange Act of 1934 and the rules and regulations
thereunder, and agrees to maintain said registration and comply
with all of the requirements of said Act, rules and regulations
so long as this Agreement remains in force.
(ii) The Fund represents that it is a diversified management
investment company registered with the SEC in accordance with
the 1940 Act and the rules and regulations thereunder, and
authorized to sell its shares pursuant to said Act, the 1933 Act
and the rules and regulations thereunder.
(d) Liability and Indemnification with Respect to Rendering Administrative
and Transfer Agency Services. SMC shall be liable for any actual
losses, claims, damages or expenses (including any reasonable counsel
fees and expenses) resulting from SMC's bad faith, willful
misfeasance, reckless disregard of its obligations and duties,
negligence or failure to properly perform any of its responsibilities
or duties under this Section 5. SMC shall not be liable and shall be
indemnified and held harmless by the Fund, for any claim, demand or
action brought against it arising out of or in connection with:
(i) The bad faith, willful misfeasance, reckless disregard of its
duties or negligence by the Board of Directors of the Fund, or
SMC's acting upon any instructions properly executed or and
authorized by the Board of Directors of the Fund;
(ii) SMC acting in reliance upon advice given by independent counsel
retained by the Board of Directors of the Fund.
<PAGE>
In the event that SMC requests the Fund to indemnify or hold it
harmless hereunder, SMC shall use its best efforts to inform the Fund
of the relevant facts concerning the matter in question. SMC shall use
reasonable care to identify and promptly notify the Fund concerning
any matter which presents, or appears likely to present, a claim for
indemnification against the Fund.
The Fund shall have the election of defending SMC against any claim
which may be the subject of indemnification hereunder. In the event
the Fund so elects, it will so notify SMC and thereupon the Fund shall
take over defenses of the claim, and if so requested by the Fund, SMC
shall incur no further legal or other claims related thereto for which
it would be entitled to indemnity hereunder provided, however, that
nothing herein contained shall prevent SMC from retaining, at its own
expense, counsel to defend any claim. Except with the Fund's prior
consent, SMC shall in no event confess any claim or make any
compromise in any matter in which the Fund will be asked to indemnify
or hold SMC harmless hereunder.
Punitive Damages. SMC shall not be liable to the Fund, or any
third party, for punitive, exemplary, indirect, special or
consequential damages (even if SMC has been advised of the
possibility of such damage) arising from its obligations and the
services provided under this paragraph 5, including but not
limited to loss of profits, loss of use of the shareholder
accounting system, cost of capital and expenses of substitute
facilities, programs or services.
Force Majeure. Anything in this paragraph 5 to the contrary
notwithstanding, SMC shall not be liable for delays or errors
occurring by reason of circumstances beyond its control,
including but not limited to acts of civil or military authority,
national emergencies, work stoppages, fire, flood, catastrophe,
earthquake, acts of God, insurrection, war, riot, failure of
communication or interruption.
(e) Delegation of Duties. SMC may, at its discretion, delegate, assign, or
subcontract any of the duties, responsibilities and services governed
by this paragraph 5, to its parent company, Security Benefit Group,
Inc. or any of its affiliates, whether or not by formal written
agreement. SMC shall, however, retain ultimate responsibility to the
Fund, and shall implement such reasonable procedures as may be
necessary, for assuring that any duties, responsibilities or services
so assigned, subcontracted or delegated are performed in conformity
with the terms and conditions of this Agreement.
6. Other Activities Not Restricted. Nothing in this Agreement shall prevent
SMC or any officer thereof from acting as investment adviser, administrator
or transfer agent for any other person, firm or corporation, nor shall it
in any way limit or restrict SMC or any of its directors, officers,
stockholders or employees from buying, selling, or trading any securities
for its own accounts or for the accounts of other for whom it may be
acting; provided, however, that SMC expressly represents that it will
undertake no activities
<PAGE>
which, in its judgment, will conflict with the performance of its
obligations to the Fund under this Agreement. The Fund acknowledges that
SMC acts as investment adviser, administrator and transfer agent to other
investment companies, and it expressly consents to SMC acting as such;
provided, however, that if in the opinion of SMC, particular securities are
consistent with the investment objectives of, and desirable purchases or
sales for the portfolios of one or more of such other investment companies
or series of such companies at approximately the same time, such purchases
or sales will be made on a proportionate basis if feasible, and if not
feasible, then on a rotating or other equitable basis.
7. Amendment. This Agreement and the schedules forming a part hereof may be
amended at any time, without shareholder approval to the extent permitted
by applicable law, by a writing signed by each of the parties hereto. Any
change in the Fund's registration statements or other documents of
compliance or in the forms relating to any plan, program or service offered
by its current Prospectus which would require a change in SMC's obligations
hereunder shall be subject to SMC's approval, which shall not be
unreasonably withheld.
8. Duration and Termination of Agreement. This Agreement shall become
effective on January 31, 1989, provided that on December 8, 1988, it is
approved by a majority of the holders of the outstanding voting securities
of the Fund. This Agreement shall continue in effect until January 1, 1990,
and for successive 12-month periods thereafter, unless terminated, provided
that each such continuance is specifically approved at least annually by
(a) the vote of a majority of the entire Board of Directors of the Fund,
and the vote of the majority of those directors who are not parties to this
Agreement or interested persons (as such terms are defined in the 1940 Act)
of any such party cast in person at a meeting called for the purpose of
voting on such approval, or (b) by the vote of a majority of the
outstanding voting securities of the Fund (as defined in the 1940 Act).
Upon this Agreement becoming effective, any previous Agreement between the
Fund and SMC providing for investment advisory, administrative or transfer
agency services shall concurrently terminate, except that such termination
shall not affect any fees accrued and guarantees of expenses with respect
to any period prior to termination.
This Agreement may be terminated at any time without payment of any
penalty, by the Fund upon the vote of a majority of the Fund's Board of
Directors or, by a majority of the outstanding voting securities of the
Fund, or by SMC, in each case on sixty (60) days' written notice to the
other party. This Agreement shall automatically terminate in the event of
its assignment (as such term is defined in the 1940 Act).
9. Severability. If any clause or provision of this Agreement is determined to
be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, then such clause or provision shall be considered
severed herefrom and the remainder of this Agreement shall continue in full
force and effect.
<PAGE>
10. Applicable Law. This Agreement shall be subject to and construed in
accordance with the laws of the State of Kansas.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers thereto duly authorized on the day,
month and year first above written.
SECURITY EQUITY FUND
By Michael J. Provines
President
(Corporate Seal)
ATTEST:
Amy J. Lee
Secretary
SECURITY MANAGEMENT COMPANY
By Michael J. Provines
President
(Corporate Seal)
ATTEST:
Amy J. Lee
Secretary
<PAGE>
SCHEDULE A
INVESTMENT ADVISORY, ADMINISTRATIVE SERVICES
AND TRANSFER AGENCY AGREEMENT
Schedule of Administrative and Fund Accounting Facilities and Services
Security Management Company agrees to provide the Fund the following
administrative facilities and services.
1. Fund and Portfolio Accounting
a. Maintenance of Fund General Ledger and Journal.
b. Preparing and recording disbursements for direct Fund expenses.
c. Preparing daily money transfers.
d. Reconciliation of all Fund bank and custodian accounts.
e. Assisting Fund independent auditors as appropriate.
f. Prepare daily projection of available cash balances.
g. Record trading activity for purposes of determining net asset values
and daily dividend.
h. Prepare daily portfolio evaluation report to value portfolio
securities and determine daily accrued income.
i. Determine the daily net asset value per share.
j. Determine the daily, monthly, quarterly, semiannual or annual dividend
per share.
k. Prepare monthly, quarterly, semiannual and annual financial
statements.
l. Provide financial information for reports to the Securities and
Exchange Commission in compliance with the provisions of the
Investment Company Act of 1940 and the Securities Act of 1933, the
Internal Revenue Service and any other regulatory agencies as
required.
m. Provide financial, yield, net asset value, etc. information to NASD
and other survey and statistical agencies as instructed by the Fund.
n. Reports to the Audit Committee of the Board of Directors, if
applicable.
2. Legal
a. Provide registration and other administrative services necessary to
qualify the shares of the Fund for sale in those jurisdictions
determined from time to time by the Fund's Board of Directors
(commonly known as "Blue Sky Registration").
b. Provide registration with and reports to the Securities and Exchange
Commission in compliance with the provisions of the Investment Company
Act of 1940 and the Securities Act of 1933.
c. Prepare and review Fund Prospectus and Statement of Additional
Information.
<PAGE>
d. Prepare proxy statements and oversee proxy tabulation for annual
meetings.
e. Prepare Board materials and maintain minutes of the Board meetings.
f. Draft, review and maintain contractual agreements between Fund and
Investment Adviser, Custodian, Distributor and Transfer Agent.
g. Oversee printing of proxy statements, financial reports to
shareholders, prospectus and Statements of Additional Information.
h. Provide legal advice and oversight regarding shareholder transactions,
administrative services, compliance with contractual agreements and
the provisions of the 1940 and 1933 Acts.
SCHEDULE OF SHARE TRANSFER AND DIVIDEND DISBURSING SERVICES
Security Management Company agrees to provide the Fund the following
transfer agency and dividend disbursing service.
1. Maintenance of shareholder accounts, including processing of new accounts.
2. Posting address changes and other file maintenance for shareholder
accounts.
3. Posting all transactions to the shareholder file, including:
a. Direct purchases.
b. Wire order purchases.
c. Direct redemptions.
d. Wire order redemptions.
e. Draft redemptions.
f. Direct exchanges.
g. Transfers.
h. Certificate issuances.
i. Certificate deposits.
<PAGE>
4. Monitor fiduciary processing, insuring accuracy and deduction of fees.
5. Prepare daily reconciliation's of shareholder processing to money movement
instructions.
6. Handle bounced check collections. Immediately liquidate shares purchased
and return to the shareholder the check and confirmation of the
transaction.
7. Issuing all checks and stopping and replacing lost checks.
8. Draft clearing services.
a. Maintenance of signature cards and appropriate corporate resolutions.
b. Comparison of the signature on the check to the signatures on the
signature card for the purpose of paying the face amount of the check
only.
c. Receiving checks presented for payment and liquidating shares after
verifying account balance.
d. Ordering checks in quantity specified by the Fund for the shareholder.
9. Mailing confirmations, checks and/or certificates resulting from
transaction requests to shareholders.
10. Performing all of the Fund's other mailings, including:
a. Dividend and capital gain distributions.
b. Semiannual and annual reports.
c. 1099/year-end shareholder reporting.
d. Systematic withdrawal plan payments.
e. Daily confirmations.
11. Answering all service related telephone inquiries from shareholders and
others, including:
a. General and policy inquiries (research and resolve problems).
b. Fund yield inquiries.
c. Taking shareholder processing requests and account maintenance changes
by telephone as described above.
<PAGE>
d. Submit pending requests to correspondence.
e. Monitor on-line statistical performance of unit.
f. Develop reports on telephone activity.
12. Respond to written inquiries (research and resolve problems), including:
a. Initiate shareholder account reconciliation proceeding when
appropriate.
b. Notify shareholder of bounced investment checks.
c. Respond to financial institutions regarding verification of deposit.
d. Initiate proceedings regarding lost certificates.
e. Respond to complaints and log activities.
f. Correspondence control.
13. Maintaining and retrieving all required past history for shareholders and
provide research capabilities as follows:
a. Daily monitoring of all processing activity to verify back-up
documentation.
b. Provide exception reports.
c. Microfilming.
d. Storage, retrieval and archive.
14. Prepare materials for annual meetings.
a. Address and mail annual proxy and related material.
b. Prepare and submit to Fund an affidavit of mailing.
c. Furnish certified list of shareholders (hard copy or microfilm) and
inspectors of elections.
15. Report and remit as necessary for state escheat requirements.
Approved: Fund M. J. Provines SMC M. J. Provines
<PAGE>
AMENDMENT TO INVESTMENT MANAGEMENT AND SERVICES AGREEMENT
WHEREAS, Security Equity Fund (the "Fund") and Security Management Company
("SMC") are parties to an Investment Management and Services Agreement dated
December 8, 1988 (the "Agreement"), under which SMC agrees to provide investment
research and advice, general administrative, fund accounting, transfer agency
and dividend disbursing services to the Fund in return for the compensation
specified in the Agreement;
WHEREAS, on July 23, 1993, the Board of Directors of the Fund authorized the
Fund to offer shares of the Fund in two separate series, the Equity Series and
the Global Series, with each series representing separate interests in a
separate portfolio of securities and other assets;
WHEREAS, on July 23, 1993, the Board of Directors of the Fund further authorized
the Fund to offer its shares in two classes, Class A shares and Class B shares;
WHEREAS, the Fund had previously issued shares, now designated as Class A shares
of the Equity Series, with respect to which SMC had previously provided the
services set forth in this Agreement;
WHEREAS, on July 23, 1993, the Board of Directors of the Fund voted to amend
this Agreement to provide that SMC would provide services to the Global Series
of the Fund pursuant to this Agreement;
WHEREAS, the Fund has adopted a Distribution Plan with respect to its Class B
shares and, as a result, such shares are subject to distribution fees to which
Class A shares are not subject;
WHEREAS, the distribution fees associated with Class B shares require the
amendment of the Agreement relative to that class of shares;
WHEREAS, the changes to the Agreement which are contemplated by this Amendment
do not affect the interests of Class A shareholders of the Equity Series; and
WHEREAS, on October 1, 1993, the initial shareholder of Class B shares of the
Equity Series and Class A and Class B shares of the Global Series approved such
amendment to this Agreement;
NOW, THEREFORE, the Fund and SMC hereby amend the Investment Management and
Services Agreement, dated December 8, 1988, effective October 1, 1993, as
follows:
A. SMC agrees to provide investment research and advice, general
administrative, fund accounting, transfer agency and dividend disbursing
services to the Global Series of the Fund pursuant to the terms and
conditions set forth in the Agreement, as amended in sections B and C
below.
<PAGE>
B. Paragraph 2(b) shall be deleted in its entirety and the following paragraph
inserted in lieu thereof:
(b) Expenses of the Fund. Anything in this Agreement to the contrary
notwithstanding, the Fund shall pay, or reimburse SMC for the payment
of, the following described expenses of the Fund whether or not billed
to the Fund, SMC or any related entity;
(i) brokerage fees and commissions;
(ii) taxes;
(iii) interest expenses;
(iv) any extraordinary expenses approved by the Board of Directors of
the Fund; and
(v) distribution fees paid under the Fund's Class B Distribution
Plan.
C. Paragraph 3(a) and (b) shall be deleted in their entirety and the following
paragraphs inserted in lieu thereof:
3. Compensation of SMC
(a) As compensation for the services to be rendered by SMC as
provided for herein, for each of the years this Agreement is in
effect, the Fund shall pay SMC an annual fee equal to 2 percent
of the first $10 million of the average net assets, 1 1/2percent
of the next $20 million of the average net assets, and 1 percent
of the remaining average net assets of the Equity Series of the
Fund for any fiscal year, and 2 percent of the first $70 million
of the average net assets and 1 1/2 percent of the remaining
average net assets of the Global Series of the Fund for any
fiscal year. Such fees shall be determined and payable monthly.
If this Agreement shall be effective for only a portion of a
year, then SMC's compensation for said year shall be prorated
for such portion. For purposes of this Section 3, the value of
the net assets of each such Series shall be computed in the same
manner at the end of the business day as the value of such net
assets is computed in connection with the determination of the
net asset value of the Fund's shares as described in the Fund's
prospectus.
(b) For each of the Fund's fiscal years this Agreement remains in
force, SMC agrees that if total annual expenses of any Series of
the Fund, exclusive of interest and taxes, extraordinary
expenses (such as litigation) and distribution fees paid under
the Fund's Class B Distribution Plan, but inclusive of SMC's
compensation, exceed any expense limitation imposed by state
securities law or regulation in any state in which shares of
such Series of the Fund are then qualified for sale, as such
regulations may be amended from time to time, SMC will
contribute to such Series such funds or waive such portion of
its fee, adjusted monthly, as may be requisite to insure that
such annual expenses will not exceed any such limitation. If
this Agreement shall be effective for only a portion of any
Series' fiscal years, then the maximum annual expenses shall be
prorated for such
<PAGE>
portion. Brokerage fees and commissions incurred in connection
with the purchase or sale of any securities by a Series shall
not be deemed to be expenses within the meaning of this
paragraph (b).
D. Paragraph 5(e) shall be deleted in its entirety and the following inserted
in lieu thereof:
5. (e) Delegation of Duties
SMC may, at its discretion, delegate, assign or subcontract any of
the duties, responsibilities and services governed by this
agreement, to its parent company, Security Benefit Group, Inc.,
whether or not by formal written agreement, or to any third party,
provided that such arrangement with a third party has been
approved by the Board of Directors of the Fund. SMC shall,
however, retain ultimate responsibility to the Fund and shall
implement such reasonable procedures as may be necessary for
assuring that any duties, responsibilities or services so
assigned, subcontracted or delegated are performed in conformity
with the terms and conditions of this agreement.
IN WITNESS WHEREOF, the parties hereto have made this Amendment to the
Investment Management and Services Agreement this 1st day of October 1993.
SECURITY EQUITY FUND
By: M. J. Provines
ATTEST:
Amy J. Lee, Secretary
SECURITY MANAGEMENT COMPANY
By: M. J. Provines
ATTEST:
Amy J. Lee, Secretary
<PAGE>
AMENDMENT TO
INVESTMENT MANAGEMENT AND SERVICES AGREEMENT
WHEREAS, Security Equity Fund (the "Fund") and Security Management Company
("SMC") are parties to an Investment Management and Services Agreement, dated
December 8, 1988, as amended (the "Agreement"), under which SMC agrees to
provide investment research and advice, general administrative, fund accounting,
transfer agency and dividend disbursing services to the Fund in return for the
compensation specified in the Agreement;
WHEREAS, on April 3, 1995, the Board of Directors of the Fund authorized the
Fund to offer its common stock in a new series designated as the Asset
Allocation Series, in addition to its presently offered series of common stock
of Equity Series and Global Series, with each series representing separate
interests in a separate portfolio of securities and other assets;
WHEREAS, on April 3, 1995, the Board of Directors of the Fund further authorized
the Fund to offer shares of the Asset Allocation Series in two classes,
designated Class A shares and Class B shares;
WHEREAS, on April 3, 1995, the Board of Directors of the Fund approved the
amendment of the Agreement to provide that SMC would provide investment advisory
and business management services to each class of common stock of the Asset
Allocation Series of the Fund under the terms and conditions of the Agreement;
and
WHEREAS, on April 18, 1995, the initial shareholder of the Asset Allocation
Series approved such amendment to the Agreement;
<PAGE>
NOW, THEREFORE BE IT RESOLVED, that the Fund and SMC hereby amend the Agreement,
effective June 1, 1995, to provide that SMC shall provide all investment
advisory services, general administrative, fund accounting, transfer agency and
dividend disbursing services to the Asset Allocation Series of the Fund pursuant
to the terms set forth in the Agreement, as amended on October 1, 1993 and as
follows.
Paragraph 1 is deleted in its entirety and the following paragraph inserted in
lieu thereof:
1. Employment of SMC.
The Fund hereby employs SMC to (a) act as investment adviser to the Fund
with respect to the investment of its assets and to supervise and arrange
the purchase of securities for the Fund and the sales of securities held in
the portfolio of the Fund, subject always to the supervision of the Board
of Directors of the Fund (or a duly appointed committee thereof), during
the period and upon and subject to the terms and conditions described
herein; (b) to provide the Fund with general administrative, fund
accounting, transfer agency, and dividend disbursing services described and
set forth in Schedule A attached hereto and made a part of this Agreement
by reference; and (c) to arrange for, and monitor, the provision to the
Fund of all other services required by the Fund, including but not limited
to services of independent accountants, legal counsel, custodial services
and printing. SMC may, in accordance with all applicable legal
requirements, engage the services of other persons or entities, regardless
of any affiliation with SMC, to provide services to the Fund under this
Agreement. SMC shall bear the expense of providing such other services to
the Equity and Global Series. Asset Allocation Series shall bear the
expense of such other services and all other expenses of the Series. SMC
agrees to maintain sufficient trained personnel and equipment and supplies
to perform its responsibilities under this Agreement and in conformity with
the current Prospectus of the Fund and such other reasonable standards of
performance as the Fund may from time to time specify and shall use
reasonable care in
<PAGE>
selecting and monitoring the performance of third parties, who perform
services for the Fund. SMC shall not guarantee the performance of such
persons.
Paragraphs 2(a) and (b) shall be deleted in their entirety and the following
paragraphs shall be inserted in lieu thereof:
(a) Expenses of SMC. SMC shall pay all expenses in connection with the
performance of its services under this Agreement, including with
respect to the Equity and Global Series, all fees and charges of third
parties providing services to the Fund, whether or not such expenses
are billed to SMC or the Fund, except as provided otherwise herein.
(b) Expenses of the Fund. Anything in this Agreement to the contrary
notwithstanding, the Fund shall pay or reimburse SMC for the payment
of the following described expenses of the Fund whether or not billed
to the Fund, SMC or any related entity:
(i) brokerage fees and commissions;
(ii) taxes;
(iii) interest expenses;
(iv) any extraordinary expenses approved by the Board of
Directors of the Fund; and
(v) distribution fees paid under the Fund's Class B Distribution
Plan;
and, in addition to those expenses set forth above, Asset Allocation
Series shall pay all expenses of the Series whether or not billed to
the Fund, SMC or any related entity, including, but not limited to the
following: Board of Directors' fees; legal, auditing and accounting
expenses; insurance premiums; broker's commissions; taxes and
governmental fees and any
<PAGE>
membership dues; fees of custodian; expenses of obtaining quotations
on the Fund's portfolio securities and pricing of the Fund's shares;
costs and expenses in connection with the registration of the Fund's
capital stock under the Securities Act of 1933 and qualification of
the Fund's capital stock under the Blue Sky laws of the states where
such stock is offered; costs and expenses in connection with the
registration of the Fund under the Investment Company Act of 1940 and
all periodic and other reports required thereunder; expenses of
preparing, printing and distributing reports, proxy statements,
prospectuses, statements of additional information, notices and
distributions to stockholders; costs of stockholder and other
meetings; and expenses of maintaining the Fund's corporate existence.
Paragraph 3(a) shall be deleted in its entirety and the following paragraph
inserted in lieu thereof:
3. Compensation of SMC.
(a) As compensation for the services to be rendered by SMC to Equity
Series and Global Series as provided for herein, for each of the years
this Agreement is in effect, the Fund shall pay SMC an annual fee
equal to (1) 2 percent of the first $10 million of the average daily
net assets, 1 1/2 percent of the next $20 million of the average daily
net assets, and 1 percent of the remaining average daily net assets of
the Equity Series of the Fund for any fiscal year, and (2) 2 percent
of the first $70 million of the average daily net assets and 1 1/2
percent of the remaining average daily net assets of the Global Series
of the Fund for any fiscal year. Such fees shall be determined daily
and payable monthly. As compensation for the investment advisory
services to be rendered by SMC to Asset Allocation
<PAGE>
Series, for each of the years this agreement is in effect, the Asset
Allocation Series shall pay SMC an annual fee equal to 1% of the
average daily net assets of the Asset Allocation Series. As
compensation for the administrative services to be rendered by SMC to
Asset Allocation Series, the Asset Allocation Series shall pay SMC an
annual fee equal to .045% of the average daily net assets of Asset
Allocation Series, plus the greater of .10% of its average daily net
assets or (i) $30,000 in the year ending April 29, 1996; (ii) $45,000
in the year ending April 29, 1997, and (iii) $60,000 thereafter. Such
fees shall be calculated daily and payable monthly. If this Agreement
shall be effective for only a portion of a year, then SMC's
compensation for said year shall be prorated for such portion. For
purposes of this Section 3, the value of the net assets of each Series
shall be computed in the same manner at the end of the business day as
the value of such net assets is computed in connection with the
determination of the net asset value of the Fund's shares as described
in the Fund's prospectus.
For transfer agency services provided by SMC to Asset Allocation
Series, Asset Allocation Series shall pay a Maintenance Fee of $8.00
per account, a Transaction Fee of $1.00 per account and a Dividend Fee
of $1.00 per account.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the
Investment Management and Services Agreement this 28th day of April, 1995.
SECURITY EQUITY FUND
By: John D. Cleland
-----------------------------------
John D. Cleland, President
ATTEST:
Amy J. Lee
- -----------------------------------
Amy J. Lee, Secretary
SECURITY MANAGEMENT COMPANY
By: Jeffrey B. Pantages
-----------------------------------
Jeffrey B. Pantages, President
ATTEST:
Amy J. Lee
- -----------------------------------
Amy J. Lee, Secretary
<PAGE>
QUANTITATIVE RESEARCH AGREEMENT
THIS AGREEMENT is made this 1st day of May, 1995, by and between SECURITY
MANAGEMENT COMPANY, a Kansas Corporation (the "Adviser"), and Meridian
Investment Management Corporation, a Colorado corporation ("Meridian").
WITNESSETH:
WHEREAS, the Adviser is a registered investment adviser under the Investment
Advisers Act of 1940, as amended, and engages in the business of acting as an
investment adviser;
WHEREAS, Meridian is a registered investment adviser under the Investment
Advisers Act of 1940, as amended, and engages in the business of acting as an
investment adviser;
WHEREAS, the Adviser is the investment adviser for the Security Equity Fund (the
"Fund"), and provides investment advisory services to the Fund on the terms and
conditions set forth in an investment advisory contract;
WHEREAS, the Fund is registered as a diversified, open-end investment company
under the Investment Company Act of 1940, as amended, (the "1940 Act"), and the
rules and regulations promulgated thereunder;
WHEREAS, the Fund is authorized to issue shares in separate series, with each
such series representing interests in a separate portfolio of securities and
other assets; and
WHEREAS, the Adviser desires to retain Meridian as the Adviser's agent to
furnish certain research services for the benefit of the Asset Allocation Series
of the Fund (the "Series"), on the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual convenants herein contained and
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. Appointment.
The Adviser hereby appoints Meridian to provide certain quantitative
research services to the Adviser on behalf of the Series for the period and
on the terms set forth in this Agreement. Meridian accepts such appointment
and agrees to furnish the services herein set forth for the compensation
herein provided.
2. Quantitative Research.
(a) Meridian agrees to provide the Adviser with an asset allocation
strategy whose objective is to maximize total return through a quantitative
investment process, within the restrictions on investment category
concentrations and any other investment restrictions set forth in the
Series prospectus and statement of additional information. The strategy
will indicate where, and in what percentage (in Meridian's opinion) assets
should be allocated among the following investment categories in order to
achieve this objective.
<PAGE>
1. Sectors within the domestic equity market, consisting of
sub-categories of the general domestic equity market where companies
are grouped by the type of business in which they engage (e.g.
pharmaceuticals, biotechnology, hotels, etc.) as identified by the S&P
500.
2. Domestic fixed income securities.
3. International equity securities, to include the specific countries to
which assets are to be allocated. The countries eligible for
recommendation under this section are those countries followed by the
Morgan Stanley Capital International World Index (the "MSCI").
4. International fixed income securities, to include the specific
countries to which assets are to be allocated.
5. Gold stocks.
6. Real estate investments made through exchange traded real estate
investment trusts.
7. Cash.
In addition to providing allocations among the identified investment
categories, Meridian shall also provide the Adviser with the underlying
analytical research which supports the recommendations made with respect to
each investment category. Other investment categories may be added by the
mutual agreement of the parties.
(b) An initial asset allocation strategy portfolio will be provided to the
Adviser, and/or its designee, simultaneous with the execution of this
Agreement. Thereafter, Meridian shall continuously review the strategy
established for the Series and continuously update said strategy. Changes
in the strategy will be provided to the Adviser, and/or its designee, at
such times as Meridian's research indicates that changes are necessary in
order to achieve the objective set forth above. However, regardless of
whether there are changes in the strategy or not, Meridian will report at
least weekly to the Adviser in order to discuss the performance of the
strategy and any recommended changes thereto.
Meridian will give the Adviser the benefit of its best judgment, efforts
and facilities in rendering its services under this Agreement.
3. Records.
Meridian hereby agrees to maintain all records relating to its activities
and obligations under this Agreement which are required to be maintained by
Rule 31a-1 under the 1940 Act and/or Rule 204-2 under the Investment
Advisers Act of 1940 (the "Advisers Act") and agrees to preserve such
records for the periods prescribed by Rule 31a-2 under the 1940 Act and/or
Rule 204-2 under the Advisers Act, as applicable.
<PAGE>
4. Expenses.
The expenses connected with the services provided hereunder shall be borne
by Meridian as follows:
(a) Meridian shall pay any expenses associated with carrying out its
obligation under paragraph 2 hereof and in preparing reports to the Adviser
and the expenses of any reasonable travel in connection with its
participation in Board meetings of the Fund or in delivering reports to the
Adviser.
(b) Meridian shall pay any expenses that it may incur in communicating with
the Adviser in connection with its obligations under this Agreement,
including the expenses of telephone calls, special mail services and
telecopier charges.
5. Compensation.
For the services to be rendered and the facilities furnished hereunder, the
Adviser shall pay Meridian an annual fee equal to .20% of the average daily
closing value of the net assets of the Series, computed on a daily basis,
payable quarterly for the preceding quarter on or before the 25th day after
the end of each calendar quarter. If this Agreement shall be effective for
only a portion of a year, then Meridian's compensation for said year shall
be prorated for such portion. For purposes of this paragraph 5, the value
of the net assets of the Series shall be computed in the same manner at the
end of the business day as the value of such net assets is computed in
connection with the determination of the net asset value of the Series'
shares as described in the Fund's prospectus and statement of additional
information.
6. Non-Exclusivity.
The services of Meridian to the Adviser are not to be deemed to be
exclusive, and Meridian shall be free to render research or other services
to others (including other investment Advisers) and to engage in other
activities, so long as its services under the Agreement are not impaired
thereby.
7. Non-Disclosure.
The asset allocation strategy and all information and services relating
thereto which are provided by Meridian to the Adviser shall be used only in
connection with the management and distribution of the Series. The strategy
and information and services shall not be sold or offered for sale by the
Adviser to any other registered investment adviser, regulated investment
company or broker/dealer. However, nothing herein shall be deemed to
restrict the Adviser, or any of its affiliates, from discussing the asset
allocation strategy, or specific recommendations made by Meridian, in
connection with (i) the management and distribution of the Series, and (ii)
the education of registered representatives of broker/dealers who sell
interests in the Series, or as may otherwise be required by law.
<PAGE>
8. Term.
This Agreement shall become effective at the close of business on the date
first shown above. It shall remain in force and effect, subject to
paragraph 9 hereof for one year from the date hereof.
9. Renewal.
Following the expiration of its initial year term, this Agreement shall
continue in force and effect from year to year, provided that such
continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or (ii) by the vote of a majority
of the Series' outstanding voting securities (as defined in Section
2(a)(42) of the 1940 Act), and
(b) by the affirmative vote of a majority of the directors who are not
parties to this Agreement or interested persons of a party to this
Agreement (other than as a director of the Fund), by votes cast in person
at a meeting specifically called for such purpose.
10. Termination.
This Agreement may be terminated at any time, without the payment of any
penalty, by vote of the Fund's Board of Directors or by vote of a majority
of the Series' outstanding voting securities (as defined in Section 2
(a)(42) of the 1940 Act), or by the Adviser or by Meridian on sixty (60)
days' written notice to the other party. This Agreement shall automatically
terminate in the event of its "assignment" as that term is defined in
Section 2 (a)(4) of the 1940 Act. This Agreement shall automatically
terminate in the event that the investment advisory contract between the
Adviser and the Fund is terminated, assigned or not renewed.
11. Liability of Meridian.
In the absence of willful misfeasance, bad faith or gross negligence on the
part of Meridian or its officers, directors or employees, or reckless
disregard by Meridian of its duties under this Agreement, Meridian shall
not be liable to the Adviser, the Fund or to any shareholder of the Fund
for any act or omission in the course of, or connected with, rendering
services hereunder.
12. Indemnification.
The Adviser and Meridian each agree to indemnify the other against any
claim against, loss or liability to, such other party (including reasonable
attorneys' fees) arising out of any action on the part of the indemnifying
party which constitutes willful misfeasance, bad faith or gross negligence.
<PAGE>
13. Representations and Warranties of Meridian.
Meridian represents and warrants that: (i) it is registered as an
investment adviser under the Advisers Act and will continue to be so
registered for so long as this Agreement remains in effect; and (ii) it is
not prohibited by the 1940 Act or the Advisers Act from performing the
services contemplated by this Agreement.
14. Right to Use Name.
During the term of this Agreement, the Adviser (or any of its subsidiaries
or affiliates) shall be entitled to use the Meridian Investment Management
Corporation name in all prospectuses, proxy statements, reports to
shareholders, sales literature or other material prepared for distribution
to shareholders of the Fund.
15. Miscellaneous.
A. Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Kansas. To the extent that the applicable
laws of the State of Kansas conflict with the applicable provisions of
the 1940 Act, and/or the Advisers Act, the latter two shall control.
B. Captions. The captions contained in this Agreement are included for
convenience of reference only and in no way define or delimit any of
the provisions hereof or otherwise affect their construction.
C. Entire Agreement. This Agreement represents the entire agreement and
understanding of the parties hereto and shall supersede any prior
agreements between the parties relating to the subject matter hereof,
and all such prior agreements shall be deemed terminated upon the
effectiveness of this Agreement.
16. Notices.
Any notices under this Agreement shall be in writing, addressed and
delivered or mailed postage-paid to the other party at such address as such
other party may designate for the receipt of such notice. Until further
notice to the other party, it is agreed that the address of Meridian for
this purpose shall be 12835 East Arapahoe Road, Tower II, 7th Floor,
Englewood, Colorado 80012 and the address of the Adviser for this purpose
shall be 700 Harrison Street, Topeka, Kansas 66636-0001.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in duplicate by their respective officers on the day and year first above
written.
ATTEST:
SECURITY MANAGEMENT COMPANY
Amy J. Lee
- -----------------------------------
Title: Secretary
By James R. Schmank
----------------------------------
Senior Vice President
ATTEST:
MERIDIAN INVESTMENT MANAGEMENT
CORPORATION
Craig T. Callahan
- -----------------------------------
Title: Secretary
By Michael J. Hart
----------------------------------
President
<PAGE>
CONSULTING AND ANALYTICAL RESEARCH AGREEMENT
AGREEMENT, made as of the 1st day of May, 1995, between Templeton
Quantitative Advisors, Inc. ("Investment Analytics Provider" or "IPA") and
(Security Management Company)("Adviser").
WHEREAS, Templeton Quantitative Advisors, Inc., is a wholly owned
subsidiary of Templeton Worldwide, Inc., which in turn is a wholly owned
subsidiary of Franklin Resources, Inc.;
WHEREAS, The Investment Analytics Provider is a technology based investment
advisory firm which specializes in structured investment strategies;
WHEREAS, the Adviser is a registered investment adviser under the
Investment Advisers Act of 1940, as amended, and engages in the business of
acting as an investment adviser;
WHEREAS, the Adviser is the investment adviser for the Security Equity Fund
(the "Fund") and provides investment advisory services to the Fund on the terms
and conditions set forth in an investment advisory contract;
WHEREAS, the Fund is authorized to issue shares in separate series, with
each series representing interests in a separate portfolio of securities and
other assets;
WHEREAS, the Adviser's responsibilities with respect to the Asset
Allocation Series of the Fund (the "Series") includes determining the sectors of
the domestic and international economy in which to invest the Series' assets;
WHEREAS, the Adviser desires to retain the services of Investment Analytics
Provider to provide certain consulting and analytical research services to the
Adviser with respect to its responsibilities to the Series.
NOW THEREFORE, in consideration of the mutual agreements herein contained,
Investment Analytics Provider and the Adviser agree as follows:
1. The Investment Analytics Provider, agrees to provide the Adviser with
research and data on domestic and international equity securities
("Turn-Key Portfolio Plan") consistent with the investment policies
set forth in the prospectus and statement of additional information of
the Fund. The Adviser, or its designee, will identify for IPA (i) the
Sectors of the domestic equity market for which it seeks research and
(ii) the countries in the international equity market for which it
seeks research.
With respect to each particular sector or country identified by the
Adviser or its designee, IPA will (i) determine which equity
securities shall be represented in the Series' portfolio and regularly
report thereon to the Fund's Board of Directors and the Adviser;
(ii)
<PAGE>
formulate and implement continuing programs for the purchase and sale
of such equity securities; (iii) continuously review the Series'
equity security holdings and the investment program and the investment
policies of the Series; and (iv) take, on behalf of the Series, all
actions which appear necessary to carry into effect such purchase and
sale programs, including the placement of orders for the purchase and
sale of equity securities for the Series. IPA shall send the Adviser a
daily list of all recommended purchases and sales for the Series
2. With respect to the recommendations made by IPA, IPA is hereby
authorized to select broker/dealers for execution of the trades and to
negotiate brokerage commissions in connection therewith. IPA's primary
consideration in effecting a security transaction will be execution at
the most favorable price. In selecting a broker/dealer to execute each
particular transaction, IPA will take the following into
consideration; the best net price available; the reliability,
integrity and financial condition of the broker/dealer; the size of
and difficulty in executing the order; and the value of the expected
contribution of the broker/dealer to the investment performance of the
Series on a continuing basis. Accordingly, the price to the Series in
any transaction may be less favorable than that available from another
broker/dealer if the difference is reasonably justified by other
aspects of the portfolio execution services offered.
Subject to such policies as the Board of Directors may determine, IPA
shall not be deemed to have acted unlawfully or to have breached any
duty created by this Agreement, or otherwise, solely by reason of its
having caused the Series to pay a broker for effective portfolio
investment transactions in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction if
IPA determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of either
that particular transaction or IPA's overall responsibilities with
respect to the Series and to its other clients as to which it
exercises investment discretion. IPA is further authorized to place
and/or to effect orders with such brokers and dealers who may provide
research or statistical material or other services to the Series or to
IPA. Such allocation shall be in such amounts and proportions as IPA
shall determine and IPA will report on said allocations regularly to
the Board of Directors of the Fund and the Adviser indicating the
broker to whom such allocations have been made and the basis therefor.
Notwithstanding the foregoing, IPA will execute all portfolio
transactions on behalf of the Series in accordance with the Series'
brokerage policies as set forth in its registrations statement, as
amended from time to time (a copy of which shall be provided by the
Adviser to IPA, including any amendments thereto).
3. As compensation for the services rendered to the Adviser, the Adviser
agrees to pay IPA a Turn-Key portfolio research fee of .30%, on an
annual basis of the first $50 million of the Series average daily net
equity securities assets, and .25%, on an annual basis of the Series
average daily net equity securities assets in excess of $50 million.
Such fee shall be calculated daily and payable monthly.
<PAGE>
4. It is understood that the services provided by the Investment
Analytics Provider are not to be deemed exclusive and nothing in this
Agreement shall preclude the Investment Analytics Provider from
providing similar services to banking institutions, investment
companies, insurance companies and other clients, including clients
which may invest in the same type of securities as the Fund, so long
as its services under this Agreement are not impaired thereby.
Nothing in this Agreement shall be deemed to impose upon IPA any
obligation to purchase or sell for the Series' account any security or
related instrument which IPA may purchase for itself for its own
accounts or the account of any other client, if in the sole discretion
of IPA such transaction or investment appears unsuitable,
unpracticable or undesirable, or is inconsistent with the policies
referred to in Section 2 above.
5. During the term of this Agreement, the Investment Analytics Provider
will pay all expenses incurred by it, its staff and their activities,
in connection with the services to be provided by it under this
Agreement.
6. Nothing herein shall be construed as constituting the Investment
Analytics Provider or the Adviser as agent of the other.
7. During the term of this Agreement, the Adviser (or any of its
subsidiaries or affiliates) shall be entitled to use the Templeton
Quantitative Advisors, Inc., name in all prospectuses, proxy
statements, reports to shareholders, sales literature or other
material prepared for distribution to shareholders of the Fund.
8. IPA represents and warrants to the Adviser that (i) it is a validly
existing corporation under the laws of the State of Delaware; (ii) no
provision of any contract, agreement or understanding to which IPA, or
any of its subsidiaries or affiliates is a party, prevents it from
providing the services contemplated by this Agreement; (iii) it has
full power and authority to enter into and perform the services
contemplated by this Agreement; and (iv) it will meet (and will
continue to meet for the duration of this Agreement) all applicable
federal or state requirements, or the applicable requirements of any
self regulatory organization, necessary to be met in order to perform
the services contemplated by this Agreement.
The Adviser represents and warrants to IPA that (i) it is a validly
existing corporation under the laws of the State of Kansas; (ii) no
provision of any contract, agreement or understanding to which the
Adviser, or any of its subsidiaries or affiliates is a party, prevents
it from providing the services contemplated by this Agreement; (iii)
it has full power and authority (including authorization from the
Fund) to enter into and perform the services contemplated by this
Agreement; and (iv) it will meet (and will continue to meet for the
duration of this Agreement) all applicable federal or state
requirements, or the applicable requirements of any self regulatory
organization, necessary to be met in order to perform the services
contemplated by this Agreement.
<PAGE>
9. IPA agrees to maintain all records relating to its activities and
obligations under this Agreement which are required to be maintained
by Rule 31a-1 under the 1940 Act and agrees to preserve such records
for the periods prescribed by Rule 31a-2 under the Act. IPA further
agrees that all such records are the property of the Fund and agrees
to surrender promptly to the Fund any such records upon the Fund's
request.
10. This Agreement shall become effective on May 1, 1995, and shall
continue in effect for one year from that date. If not sooner
terminated, this Agreement shall continue in effect for successive
periods of 12 months each thereafter, provided that each such renewal
shall be specifically approved annually by the vote of a majority of
the Fund's Board of Directors who are not parties to this Agreement or
"interested persons" as defined in the 1940 Act of any such party,
cast in person at a meeting called for the purpose of voting on such
approval, and either the vote of (a) a majority of the outstanding
voting securities of the Fund, as defined in the 1940 Act, or (b) a
majority of the Fund's Board of Directors as a whole.
11. Notwithstanding the foregoing, this Agreement may be terminated by
either party at any time, without the payment of any penalty, on sixty
(60) days' written notice to the other party. In addition, this
Agreement may be terminated by the Fund on sixty (60) days' written
notice to the Investment Analytics Provider, provided that such
termination by the Fund is approved by the vote of a majority of the
Fund's Board of Directors in office at the time or by vote of a
majority of the outstanding voting securities of the Fund, as defined
in the 1940 Act. This Agreement shall automatically terminate in the
event that the investment advisory contracts between the Advisers and
the Fund is terminated, assigned or not renewed.
12. This Agreement will terminate automatically in the event of its
assignment (as that term is defined in the 1940 Act).
13. This Agreement shall be construed in accordance with the laws of the
State of New York without regard to principles of conflicts of laws.
14. IPA may rely on information reasonably believed by it to be accurate
and reliable. The Investment Analytics Provider nor its officers,
directors, employees or agents shall be subject to any liability for
an error of judgment, mistake of law, or any loss arising out of any
investment or other act or omission in the performance by the
Investment Analytics Provider of its duties under this Agreement or
for any loss or damage resulting from the imposition by any government
or exchange control restrictions which might affect the liquidity of
the Fund's assets, or from acts or omissions of custodians or
securities depositories, or from any war or political act of any
foreign government to which such assets might be exposed, except for
any liability, loss or damage resulting from willful misfeasance, bad
faith or gross negligence on the part or by reason of IPA's reckless
disregard of its duties under this Agreement.
<PAGE>
15. The Adviser and IPA each agree to indemnify the other against any
claim, against loss, or liability to, such other party (including
reasonable attorney's fees) arising out of any action on the part of
the indemnifying party which constitutes willful misfeasance, bad
faith, or gross negligence.
16. Notice required to be given under this Agreement by either party shall
be in writing by personal delivery or certified mail, return receipt
requested or by confirmed telecopy. Notice shall be to the addresses
set forth on the signature page hereto.
17. This Agreement sets forth the entire Agreement between the parties
with respect to the subject matter hereof and supersedes all prior
agreements between the parties concerning such subject matter. This
Agreement may not be amended except by a writing signed by the parties
hereto.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized corporate officers as
of the day and year first above written.
TEMPLETON QUANTITATIVE ADVISORS, INC.
By Robert E. Butman
------------------------------------------
Robert E Butman
President
Address: 31 West 52nd Street, 10th Floor
New York, New York 10019
Attest:
Jean W. Thomas
- ------------------------------
Jean W. Thomas
Secretary
SECURITY MANAGEMENT COMPANY
By James R. Schmank
------------------------------------------
James R. Schmank
Senior Vice President
Address: 700 Harrison Street
Topeka, Kansas 66636
Attest:
Amy J. Lee
- ------------------------------
Amy J. Lee
Secretary
<PAGE>
GLOBAL CUSTODY AGREEMENT
This AGREEMENT is effective May 30, 1995, and is between THE CHASE MANHATTAN
BANK, N.A. (the "Bank") and Security Equity Fund - Global Series (the
"Customer").
1. Customer Accounts.
The Bank agrees to establish and maintain the following accounts
("Accounts"):
(a) A custody account in the name of the Customer ("Custody Account") for
any and all stocks, shares, bonds, debentures, notes, mortgages or
other obligations for the payment of money, bullion, coin and any
certificates, receipts, warrants or other instruments representing
rights to receive, purchase or subscribe for the same or evidencing or
representing any other rights or interests therein and other similar
property whether certificated or uncertificated as may be received by
the Bank or its Subcustodian (as defined in Section 3) for the account
of the Customer ("Securities"); and
(b) A deposit account in the name of the Customer ("Deposit Account") for
any and all cash in any currency received by the Bank or its
Subcustodian for the account of the Customer, which cash shall not be
subject to withdrawal by draft or check.
The Customer warrants its authority to: 1) deposit the cash and Securities
("Assets") received in the Accounts and 2) give Instructions (as defined in
Section 11) concerning the Accounts. The Bank may deliver securities of the
same class in place of those deposited in the Custody Account.
Upon written agreement between the Bank and the Customer, additional
Accounts may be established and separately accounted for as additional
Accounts under the terms of this Agreement.
2. Maintenance of Securities and Cash at Bank and Subcustodian Locations.
Unless Instructions specifically require another location acceptable to the
Bank:
(a) Securities will be held in the country or other jurisdiction in which
the principal trading market for such Securities is located, where
such Securities are to be presented for payment or where such
Securities are acquired; and
(b) Cash will be credited to an account in a country or other jurisdiction
in which such cash may be legally deposited or is the legal currency
for the payment of public or private debts.
<PAGE>
Cash may be held pursuant to Instructions in either interest or
non-interest bearing accounts as may be available for the particular
currency. To the extent Instructions are issued and the Bank can comply
with such Instructions, the Bank is authorized to maintain cash balances on
deposit for the Customer with itself or one of its affiliates at such
reasonable rates of interest as may from time to time be paid on such
accounts, or in non-interest bearing accounts as the Customer may direct,
if acceptable to the Bank.
If the Customer wishes to have any of its Assets held in the custody of an
institution other than the established Subcustodians as defined in Section
3 (or their securities depositories), such arrangement must be authorized
by a written agreement, signed by the Bank and the Customer.
3. Subcustodians and Securities Depositories.
The Bank may act under this Agreement through the subcustodians listed in
Schedule A of this Agreement with which the Bank has entered into
subcustodial agreements ("Subcustodians"). The Customer authorizes the Bank
to hold Assets in the Accounts in accounts which the Bank has established
with one or more of its branches or Subcustodians.
The Bank and Subcustodians are authorized to hold any of the Securities in
their account with any securities depository in which they participate.
The Bank reserves the right to add new, replace or remove Subcustodians.
The Customer will be given reasonable notice by the Bank of any amendment
to Schedule A. Upon request by the Customer, the Bank will identify the
name, address and principal place of business of any Subcustodian of the
Customer's Assets and the name and address of the governmental agency or
other regulatory authority that supervises or regulates such Subcustodian.
4. Use of Subcustodian.
(a) The Bank will identify such Assets on its books as belonging to the
Customer.
(b) A Subcustodian will hold such Assets together with assets belonging to
other customers of the Bank in accounts identified on such
Subcustodian's books as special custody accounts for the exclusive
benefit of customers of the Bank.
(c) Any Assets in the Accounts held by a Subcustodian will be subject only
to the instructions of the Bank or its agent. Any Securities held in a
securities depository for the account of a Subcustodian will be
subject only to the instructions of such Subcustodian.
(d) Any agreement the Bank enters into with a Subcustodian for holding its
customer's assets shall provide that such assets will not be subject
to any right, charge, security interest, lien or claim of any kind in
favor of such Subcustodian except for safe
<PAGE>
custody or administration, and that the beneficial ownership of such
assets will be freely transferable without the payment of money or
value other than for safe custody or administration. The foregoing
shall not apply to the extent of any special agreement or arrangement
made by the Customer with any particular Subcustodian.
5. Deposit Account Transactions.
(a) The Bank or its Subcustodians will make payments from the Deposit
Account upon receipt of Instructions which include all information
required by the Bank.
(b) In the event that any payment to be made under this Section 5 exceeds
the funds available in the Deposit Account, the Bank, in its
discretion, may advance the Customer such excess amount which shall be
deemed a loan payable on demand, bearing interest at the rate
customarily charged by the Bank on similar loans.
(c) If the Bank credits the Deposit Account on a payable date, or at any
time prior to actual collection and reconciliation to the Deposit
Account, with interest, dividends, redemptions or any other amount
due, the Customer will promptly return any such amount upon oral or
written notification: (i) that such amount has not been received in
the ordinary course of business or (ii) that such amount was
incorrectly credited. If the Customer does not promptly return any
amount upon such notification, the Bank shall be entitled, upon oral
or written notification to the Customer, to reverse such credit by
debiting the Deposit Account for the amount previously credited. The
Bank or its Subcustodian shall have no duty or obligation to institute
legal proceedings, file a claim or a proof of claim in any insolvency
proceeding or take any other action with respect to the collection of
such amount, but may act for the Customer upon Instructions after
consultation with the Customer.
6. Custody Account Transactions.
(a) Securities will be transferred, exchanged or delivered by the Bank or
its Subcustodian upon receipt by the Bank of Instructions which
include all information required by the Bank. Settlement and payment
for Securities received for, and delivery of Securities out of, the
Custody Account may be made in accordance with the customary or
established securities trading or securities processing practices and
procedures in the jurisdiction or market in which the transaction
occurs, including, without limitation, delivery of Securities to a
purchaser, dealer or their agents against a receipt with the
expectation of receiving later payment and free delivery. Delivery of
Securities out of the Custody Account may also be made in any manner
specifically required by Instructions acceptable to the Bank.
(b) The Bank, in its discretion, may credit or debit the Accounts on a
contractual settlement date with cash or Securities with respect to
any sale, exchange or purchase of Securities. Otherwise, such
transactions will be credited or debited to the Accounts
<PAGE>
on the date cash or Securities are actually received by the Bank and
reconciled to the Account.
(i) The Bank may reverse credits or debits made to the Accounts
in its discretion if the related transaction fails to settle
within a reasonable period, determined by the Bank in its
discretion, after the contractual settlement date for the
related transaction.
(ii) If any Securities delivered pursuant to this Section 6 are
returned by the recipient thereof, the Bank may reverse the
credits and debits of the particular transaction at any
time.
7. Actions of the Bank.
The Bank shall follow Instructions received regarding assets held in the
Accounts. However, until it receives Instructions to the contrary, the Bank
will perform the following functions:
(a) Present for payment any Securities which are called, redeemed or
retired or otherwise become payable and all coupons and other income
items which call for payment upon presentation, to the extent that the
Bank or Subcustodian is actually aware of such opportunities.
(b) Execute in the name of the Customer such ownership and other
certificates as may be required to obtain payments in respect of
Securities.
(c) Exchange interim receipts or temporary Securities for definitive
Securities.
(d) Appoint brokers and agents for any transaction involving the
Securities, including, without limitation, affiliates of the Bank or
any Subcustodian.
(e) Issue statements to the Customer, at times mutually agreed upon,
identifying the Assets in the Accounts.
The Bank will send the Customer an advice or notification of any transfers
of Assets to or from the Accounts. Such statements, advices or
notifications shall indicate the identity of the entity having custody of
the Assets. Unless the Customer sends the Bank a written exception or
objection to any Bank statement within sixty (60) days of receipt, the
Customer shall be deemed to have approved such statement. In such event, or
where the Customer has otherwise approved any such statement, the Bank
shall, to the extent permitted by law, be released, relieved and discharged
with respect to all matters set forth in such statement or reasonably
implied therefrom as though it had been settled by the decree of a court of
competent jurisdiction in an action where the Customer and all persons
having or claiming an interest in the Customer or the Customer's Accounts
were parties.
<PAGE>
All collections of funds or other property paid or distributed in respect
of Securities in the Custody Account shall be made at the risk of the
Customer. The Bank shall have no liability for any loss occasioned by delay
in the actual receipt of notice by the Bank or by its Subcustodians of any
payment, redemption or other transaction regarding Securities in the
Custody Account in respect of which the Bank has agreed to take any action
under this Agreement.
8. Corporate Actions; Proxies.
Whenever the Bank receives information concerning the Securities which
requires discretionary action by the beneficial owner of the Securities
(other than a proxy), such as subscription rights, bonus issues, stock
repurchase plans and rights offerings, or legal notices or other material
intended to be transmitted to securities holders ("Corporate Actions"), the
Bank will give the Customer notice of such Corporate Actions to the extent
that the Bank's central corporate actions department has actual knowledge
of a Corporate Action in time to notify its customers.
When a rights entitlement or a fractional interest resulting from a rights
issue, stock dividend, stock split or similar Corporate Action is received
which bears an expiration date, the Bank will endeavor to obtain
Instructions from the Customer or its Authorized Person, as defined in
Section 10, but if Instructions are not received in time for the Bank to
take timely action, or actual notice of such Corporate Action was received
too late to seek Instructions, the Bank is authorized to sell such rights
entitlement or fractional interest and to credit the Deposit Account with
the proceeds or take any other action it deems, in good faith, to be
appropriate in which case it shall be held harmless for any such action.
The Bank will deliver proxies to the Customer or its designated agent
pursuant to special arrangements which may have been agreed to in writing.
Such proxies shall be executed in the appropriate nominee name relating to
Securities in the Custody Account registered in the name of such nominee,
but without indicating the manner in which such proxies are to be voted;
and where bearer Securities are involved, proxies will be delivered in
accordance with Instructions.
9. Nominees.
Securities which are ordinarily held in registered form may be registered
in a nominee name of the Bank, Subcustodian or securities depository, as
the case may be. The Bank may without notice to the Customer cause any such
Securities to cease to be registered in the name of any such nominee and to
be registered in the name of the Customer. In the event that any Securities
registered in a nominee name are called for partial redemption by the
issuer, the Bank may allot the called portion to the respective beneficial
holders of such class of security in any manner the Bank deems to be fair
and equitable. The Customer agrees to hold the Bank, Subcustodians, and
their respective nominees harmless from any liability arising directly or
indirectly from their status as a mere record holder of Securities in the
Custody Account.
<PAGE>
10. Authorized Persons.
As used in this Agreement, the term "Authorized Person" means employees or
agents including investment managers as have been designated by written
notice from the Customer or its designated agent to act on behalf of the
Customer under this Agreement. Such persons shall continue to be Authorized
Persons until such time as the Bank receives Instructions from the Customer
or its designated agent that any such employee or agent is no longer an
Authorized Person.
11. Instructions.
The term "Instructions" means instructions of any Authorized Person
received by the Bank, via telephone, telex, TWX, facsimile transmission,
bank wire or other teleprocess or electronic instruction or trade
information system acceptable to the Bank which the Bank believes in good
faith to have been given by Authorized Persons or which are transmitted
with proper testing or authentication pursuant to terms and conditions
which the Bank may specify. Unless otherwise expressly provided, all
Instructions shall continue in full force and effect until canceled or
superseded.
Any Instructions delivered to the Bank by telephone shall promptly
thereafter be confirmed in writing by an Authorized Person (which
confirmation may bear the facsimile signature of such Person), but the
Customer will hold the Bank harmless for the failure of an Authorized
Person to send such confirmation in writing, the failure of such
confirmation to conform to the telephone instructions received or the
Bank's failure to produce such confirmation at any subsequent time. The
Bank may electronically record any Instructions given by telephone, and any
other telephone discussions with respect to the Custody Account. The
Customer shall be responsible for safeguarding any testkeys, identification
codes or other security devices which the Bank shall make available to the
Customer or its Authorized Persons.
12. Standard of Care; Liabilities.
(a) The Bank shall be responsible for the performance of only such duties
as are set forth in this Agreement or expressly contained in
Instructions which are consistent with the provisions of this
Agreement as follows:
(i) The Bank will use reasonable care with respect to its
obligations under this Agreement and the safekeeping of
Assets. The Bank shall be liable to the Customer for any
loss which shall occur as the result of the failure of a
Subcustodian to exercise reasonable care with respect to the
safekeeping of such Assets to the same extent that the Bank
would be liable to the Customer if the Bank were holding
such Assets in New York. In the event of any loss to the
Customer by reason of the failure of the Bank or its
Subcustodian to utilize reasonable care, the Bank shall be
liable to the Customer only to the extent of the Customer's
direct damages, to be determined based on the market value
of the
<PAGE>
property which is the subject of the loss at the date of
discovery of such loss and without reference to any special
conditions or circumstances.
(ii) The Bank will not be responsible for any act, omission,
default or for the solvency of any broker or agent which it
or a Subcustodian appoints unless such appointment was made
negligently or in bad faith.
(iii) The Bank shall be indemnified by, and without liability to
the Customer for any action taken or omitted by the Bank
whether pursuant to Instructions or otherwise within the
scope of this Agreement if such act or omission was in good
faith, without negligence. In performing its obligations
under this Agreement, the Bank may rely on the genuineness
of any document which it believes in good faith to have been
validly executed.
(iv) The Customer agrees to pay for and hold the Bank harmless
from any liability or loss resulting from the imposition or
assessment of any taxes or other governmental charges, and
any related expenses with respect to income from or Assets
in the Accounts.
(v) The Bank shall be entitled to rely, and may act, upon the
advice of counsel (who may be counsel for the Customer) on
all matters and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
(vi) The Bank need not maintain any insurance for the benefit of
the Customer.
(vii) Without limiting the foregoing, the Bank shall not be liable
for any loss which results from: 1) the general risk of
investing, or 2) investing or holding Assets in a particular
country including, but not limited to, losses resulting from
nationalization, expropriation or other governmental
actions; regulation of the banking or securities industry;
currency restrictions, devaluations or fluctuations; and
market conditions which prevent the orderly execution of
securities transactions or affect the value of Assets.
(viii) Neither party shall be liable to the other for any loss due
to forces beyond their control including, but not limited to
strikes or work stoppages, acts of war or terrorism,
insurrection, revolution, nuclear fusion, fission or
radiation, or acts of God.
(b) Consistent with and without limiting the first paragraph of this
Section 12, it is specifically acknowledged that the Bank shall have
no duty or responsibility to:
(i) question Instructions or make any suggestions to the
Customer or an Authorized Person regarding such
Instructions;
<PAGE>
(ii) supervise or make recommendations with respect to
investments or the retention of Securities;
(iii) advise the Customer or an Authorized Person regarding any
default in the payment of principal or income of any
security other than as provided in Section 5(c) of this
Agreement;
(iv) evaluate or report to the Customer or an Authorized Person
regarding the financial condition of any broker, agent or
other party to which Securities are delivered or payments
are made pursuant to this Agreement;
(v) review or reconcile trade confirmations received from
brokers. The Customer or its Authorized Persons (as defined
in Section 10) issuing Instructions shall bear any
responsibility to review such confirmations against
Instructions issued to and statements issued by the Bank.
(c) The Customer authorizes the Bank to act under this Agreement
notwithstanding that the Bank or any of its divisions or affiliates
may have a material interest in a transaction, or circumstances are
such that the Bank may have a potential conflict of duty or interest
including the fact that the Bank or any of its affiliates may provide
brokerage services to other customers, act as financial advisor to the
issuer of Securities, act as a lender to the issuer of Securities, act
in the same transaction as agent for more than one customer, have a
material interest in the issue of Securities, or earn profits from any
of the activities listed herein.
13. Fees and Expenses.
The Customer agrees to pay the Bank for its services under this Agreement
such amount as may be agreed upon in writing, together with the Bank's
reasonable out-of-pocket or incidental expenses, including, but not limited
to, legal fees. The Bank shall have a lien on and is authorized to charge
any Accounts of the Customer for any amount owing to the Bank under any
provision of this Agreement.
14. Miscellaneous.
(a) Foreign Exchange Transactions. To facilitate the administration of the
Customer's trading and investment activity, the Bank is authorized to
enter into spot or forward foreign exchange contracts with the
Customer or an Authorized Person for the Customer and may also provide
foreign exchange through its subsidiaries, affiliates or
Subcustodians. Instructions, including standing instructions, may be
issued with respect to such contracts but the Bank may establish rules
or limitations concerning any foreign exchange facility made
available. In all cases where the Bank, its subsidiaries, affiliates
or Subcustodians enter into a foreign exchange contract related to
Accounts, the terms and conditions of the then current foreign
exchange contract of
<PAGE>
the Bank, its subsidiary, affiliate or Subcustodian and, to the extent
not inconsistent, this Agreement shall apply to such transaction.
(b) Certification of Residency, etc. The Customer certifies that it is a
resident of the United States and agrees to notify the Bank of any
changes in residency. The Bank may rely upon this certification or the
certification of such other facts as may be required to administer the
Bank's obligations under this Agreement. The Customer will indemnify
the Bank against all losses, liability, claims or demands arising
directly or indirectly from any such certifications.
(c) Access to Records. The Bank shall allow the Customer's independent
public accountant reasonable access to the records of the Bank
relating to the Assets as is required in connection with their
examination of books and records pertaining to the Customer's affairs.
Subject to restrictions under applicable law, the Bank shall also
obtain an undertaking to permit the Customer's independent public
accountants reasonable access to the records of any Subcustodian which
has physical possession of any Assets as may be required in connection
with the examination of the Customer's books and records.
(d) Governing Law: Successors and Assigns. This Agreement shall be
governed by the laws of the State of New York and shall not be
assignable by either party, but shall bind the successors in interest
of the Customer and the Bank.
(e) Entire Agreement: Application Riders. Customer represents that the
Assets deposited in the Accounts are (Check one):
Employee Benefit Plan or other assets subject to the
-------- Employee Retirement Income Security Act of 1974, as
amended ("ERISA");
X Mutual Fund assets subject to certain Securities and
-------- Exchange Commission ("SEC") rules and regulations;
-------- Neither of the above.
This Agreement consists exclusively of this document together with
Schedule A, Exhibits I - __________ and the following Rider(s) [Check
applicable rider(s)]:
-------- ERISA
X MUTUAL FUND
--------
-------- SPECIAL TERMS AND CONDITIONS
<PAGE>
There are no other provisions of this Agreement and this Agreement
supersedes any other agreements, whether written or oral, between the
parties. Any amendment to this Agreement must be in writing, executed by
both parties.
(f) Severability. In the event that one or more provisions of this
Agreement are held invalid, illegal or enforceable in any respect on
the basis of any particular circumstances or in any jurisdiction, the
validity, legality and enforceability of such provision or provisions
under other circumstances or in other jurisdictions and of the
remaining provisions will not in any way be affected or impaired.
(g) Waiver. Except as otherwise provided in this Agreement, no failure or
delay on the part of either party in exercising any power or right
under this Agreement operates as a waiver, nor does any single or
partial exercise of any power or right preclude any other or further
exercise, or the exercise of any other power or right. No waiver by a
party of any provision of this Agreement, or waiver of any breach or
default, is effective unless in writing and signed by the party
against whom the waiver is to be enforced.
(h) Notices. All notices under this Agreement shall be effective when
actually received. Any notices or other communications which may be
required under this Agreement are to be sent to the parties at the
following addresses or such other addresses as may subsequently be
given to the other party in writing:
Bank: The Chase Manhattan Bank, N.A.
Chase MetroTech Center
Brooklyn, NY 11245
Attention: Global Custody Division
or telex: __________________________
Customer: Security Equity Fund - Global Series
700 Harrison Street
Topeka, Kansas 66636 0001
Attention: James R. Schmank
or telex: (913) 295-3080
(i) Termination. This Agreement may be terminated by the Customer or the
Bank by giving sixty (60) days written notice to the other, provided
that such notice to the Bank shall specify the names of the persons to
whom the Bank shall deliver the Assets in the Accounts. If notice of
termination is given by the Bank, the Customer shall, within sixty
(60) days following receipt of the notice, deliver to the Bank
Instructions specifying the names of the persons to whom the Bank
shall deliver the Assets. In either case, the Bank will deliver the
Assets to the persons so specified after deducting any amounts which
the Bank determines in good faith to be owed to it under Section 13.
If within sixty (60) days following receipt of a notice of termination
by the
<PAGE>
Bank, the Bank does not receive Instructions from the Customer
specifying the names of the persons to whom the Bank shall deliver the
Assets, the Bank, at its election, may deliver the Assets to a bank or
trust company doing business in the State of New York to be held and
disposed of pursuant to the provisions of this Agreement, or to
Authorized Persons, or may continue to hold the Assets until
Instructions are provided to the Bank.
SECURITY EQUITY FUND - GLOBAL SERIES
By: Brenda M. Luthi
------------------------------------
Title
Brenda M. Luthi, Assistant Treasurer
THE CHASE MANHATTAN BANK, N.A.
By: Matthew Goad
------------------------------------
Title
M. Goad, Second Vice President
<PAGE>
STATE OF KANSAS )
: ss.
COUNTY OF SHAWNEE)
On this 15th day of May, 1995, before me personally came Brenda M. Luthi, to me
known, who being by me duly sworn, did depose and say that he/she resides in
Kansas at 4920 NW Valencia, Silver Lake; that he/she is Assistant Treasurer of
Security Equity Fund - Global Series, the entity described in and which executed
the foregoing instrument; that he/she knows the seal of said entity, that the
seal affixed to said instrument is such seal, that it was so affixed by order of
said entity, and that he/she signed his/her name thereto by like order.
-----------------------------------
Sworn to before me this 15th day of May, 1995.
Peggy S. Avey
- -----------------------------------
Peggy S. Avey, Notary
My Commission Expires: November 21, 1996
<PAGE>
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK)
On this 15th day of May, 1995, before me personally came Matthew Goad, to me
known, who being by me duly sworn, did depose and say that he/she resides in
Brooklyn, New York at 433 Pacific Street; that he/she is a Second Vice President
of THE CHASE MANHATTAN BANK, (National Association), the corporation described
in and which executed the foregoing instrument; that he/she knows the seal of
said corporation, that the seal affixed to said instrument is such corporate
seal, that it was so affixed by order of the Board of Directors of said
corporation, and that he/she signed his/her name thereto by like order.
Matthew Goad
----------------------------------
Sworn to before me this 15th day of May, 1995.
Laiyee Ng
- -----------------------------------
Notary
<PAGE>
Mutual Fund Rider to Global Custody Agreement
Between The Chase Manhattan Bank, N.A. and
Security Equity Fund - Global Series
effective May 30, 1995
Customer represents that the Assets being placed in the Bank's custody are
subject to the Investment Company Act of 1940 (the Act), as the same may be
amended from time to time.
Except to the extent that the Bank has specifically agreed to comply with a
condition of a rule, regulation, interpretation promulgated by or under the
authority of the SEC or the Exemptive Order applicable to accounts of this
nature issued to the Bank (Investment Company Act of 1940, Release No. 12053,
November 20, 1981), as amended, or unless the Bank has otherwise specifically
agreed, the Customer shall be solely responsible to assure that the maintenance
of Assets under this Agreement complies with such rules, regulations,
interpretations or interpretations or exemptive order promulgated by or under
the authority of the Securities Exchange Commission.
The following modifications are made to the Agreement:
Section 3. Subcustodians and Securities Depositories.
Add the following language to the end of Section 3:
The terms Subcustodian and securities depositories as used in this
Agreement shall mean a branch of a qualified U.S. bank, an eligible foreign
custodian or an eligible foreign securities depository, which are further
defined as follows:
(a) "qualified U.S. Bank" shall mean a qualified U.S. bank as defined in
Rule 17f-5 under the Investment Company Act of 1940;
(b) "eligible foreign custodian" shall mean (i) a banking institution or
trust company incorporated or organized under the laws of a country
other than the United States that is regulated as such by that
country's government or an agency thereof and that has shareholders'
equity in excess of $200 million in U.S. currency (or a foreign
currency equivalent thereof), (ii) a majority owned direct or indirect
subsidiary of a qualified U.S. bank or bank holding company that is
incorporated or organized under the laws of a country other than the
United States and that has shareholders' equity in excess of $100
million in U.S. currency (or a foreign currency equivalent thereof),
(iii) a banking institution or trust company incorporated or organized
under the laws of a country other than the United States or a majority
owned direct or indirect subsidiary of a qualified U.S. bank or bank
holding company that is incorporated or organized under the laws of a
country other than the United States which has such other
qualifications as shall be specified in Instructions and approved by
the Bank; or
<PAGE>
(iv) any other entity that shall have been so qualified by exemptive
order, rule or other appropriate action of the SEC; and
(c) "eligible foreign securities depository" shall mean a securities
depository or clearing agency, incorporated or organized under the
laws of a country other than the United States, which operates (i) the
central system for handling securities or equivalent book-entries in
that country, or (ii) a transnational system for the central handling
of securities or equivalent book-entries.
The Customer represents that its Board of Directors has approved each of
the Subcustodians listed in Schedule A to this Agreement and the terms of
the subcustody agreements between the Bank and each Subcustodian, which are
attached as Exhibits I through _____ of Schedule A, and further represents
that its Board has determined that the use of each Subcustodian and the
terms of each subcustody agreement are consistent with the best interests
of the Fund(s) and its (their) shareholders. The Bank will supply the
Customer with any amendment to Schedule A for approval. The Customer has
supplied or will supply the Bank with certified copies of its Board of
Directors resolution(s) with respect to the foregoing prior to placing
Assets with any Subcustodian so approved.
Section 11. Instructions.
Add the following language to the end of Section 11:
Deposit Account Payments and Custody Account Transactions made pursuant to
Section 5 and 6 of this Agreement may be made only for the purposes listed
below. Instructions must specify the purpose for which any transaction is
to be made and Customer shall be solely responsible to assure that
Instructions are in accord with any limitations or restrictions applicable
to the Customer by law or as may be set forth in its prospectus.
(a) In connection with the purchase or sale of Securities at prices as
confirmed by Instructions;
(b) When Securities are called, redeemed or retired, or otherwise become
payable;
(c) In exchange for or upon conversion into other securities alone or
other securities and cash pursuant to any plan or merger,
consolidation, reorganization, recapitalization or readjustment;
(d) Upon conversion of Securities pursuant to their terms into other
securities;
(e) Upon exercise of subscription, purchase or other similar rights
represented by Securities;
(f) For the payment of interest, taxes, management or supervisory fees,
distributions or operating expenses;
<PAGE>
(g) In connection with any borrowings by the Customer requiring a pledge
of Securities, but only against receipt of amounts borrowed;
(h) In connection with any loans, but only against receipt of adequate
collateral as specified in Instructions which shall reflect any
restrictions applicable to the Customer;
(i) For the purpose of redeeming shares of the capital stock of the
Customer and the delivery to, or the crediting to the account of, the
Bank, its Subcustodian or the Customer's transfer agent, such shares
to be purchased or redeemed;
(j) For the purpose of redeeming in kind shares of the Customer against
delivery to the Bank, its Subcustodian or the Customer's transfer
agent of such shares to be so redeemed;
(k) For delivery in accordance with the provisions of any agreement among
the Customer, the Bank and a broker-dealer registered under the
Securities Exchange Act of 1934 (the "Exchange Act") and a member of
The National Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange, or of
any similar organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Customer;
(l) For release of Securities to designated brokers under covered call
options, provided, however, that such Securities shall be released
only upon payment to the Bank of monies for the premium due and a
receipt for the Securities which are to be held in escrow. Upon
exercise of the option, or at expiration, the Bank will receive from
brokers the Securities previously deposited. The Bank will act
strictly in accordance with Instructions in the delivery of Securities
to be held in escrow and will have no responsibility or liability for
any such Securities which are not returned promptly when due other
than to make proper request for such return;
(m) For spot or forward foreign exchange transactions to facilitate
security trading, receipt of income from Securities or related
transactions;
(n) For other proper purposes as may be specified in Instructions issued
by an officer of the Customer which shall include a statement of the
purpose for which the delivery or payment is to be made, the amount of
the payment or specific Securities to be delivered, the name of the
person or persons to whom delivery or payment is to be made, and a
certification that the purpose is a proper purpose under the
instruments governing the Customer; and
(o) Upon the termination of this Agreement as set forth in Section 14(i).
<PAGE>
Section 12. Standard of Care: Liabilities.
Add the following subsection (c) to Section 12:
(c) The Bank hereby warrants to the Customer that in its opinion, after
due inquiry, the established procedures to be followed by each of its
branches, each branch of a qualified U.S. bank, each eligible foreign
custodian and each eligible foreign securities depository holding the
Customer's Securities pursuant to this Agreement afford protection for
such Securities at least equal to that afforded by the Bank's
established procedures with respect to similar securities held by the
Bank and its securities depositories in New York.
Section 14. Access to Records.
Add the following language to the end of Section 14(c):
Upon reasonable request from the Customer, the Bank shall furnish the
Customer such reports (or portions thereof) of the Bank's system of
internal accounting controls applicable to the Bank's duties under this
Agreement. The Bank shall endeavor to obtain and furnish the Customer with
such similar reports as it may reasonably request with respect to each
Subcustodian and securities depository holding the Customer's assets.
<PAGE>
THE CHASE MANHATTAN BANK, N.A.
Fee Schedule
for
Security Equity Fund - Global Series; SBL Fund, Series D; SBL Fund, Series K;
Security Income Fund - Global Aggressive Bond Series
I. Domestic Custody
(Market value fees and transaction charges to be applied on a fund by fund
basis)
Market Value Fees
$0 - $300MM 1.00bp
$300MM - $600MM 0.75bp
Over $600MM 0.50bp
Transactions
Book Entry $ 8.00
Physical $15.00
II. Global Custody
Country Safekeeping and Transaction Fees (To be applied on a fund by fund
basis)
Basis Point Transactions
Band A 3.0 $ 30
Band B 5.0 $ 40
Band C 6.0 $ 60
Band D 9.0 $ 60
Band E 11.0 $ 80
Band F 26.0 $120
Band G 41.0 $120
<PAGE>
III. Miscellaneous Fees
Out of pocket expenses (i.e., scrip fees, As incurred
stamp taxes, transaction costs, etc.)
Transfer to successor custodian Refer to country bands
Security Equity Fund - Global Series
SBL Fund, Series D
SBL Fund, Series K
The Chase Manhattan Bank, N.A. Security Income fund - Global Aggressive
Bond Series
Matthew Goad 6/22/95 James R. Schmank
- ------------------------------ ----------------------------------------
(effective as of 1/1/95, i.e. for all activity in the above accounts from 1/1/95
onwards)
<PAGE>
Country Band Schedule
Band A Band B Band C
- ------ ------ ------
Japan Canada Australia
Cedel Germany Belgium
Euroclear Netherlands Denmark
Switzerland France
New Zealand
Norway
Sweden
United Kingdom
Band D Band E Band F
- ------ ------ ------
Austria Mexico Argentina
Finland Portugal Brazil
Hong Kong Spain Chile
Ireland Thailand Colombia
Italy Greece
Luxembourg Indonesia
Malaysia Jordan
Singapore Pakistan
South Africa Philippines
South Korea
Turkey
Venezuela
Band G
------
Bangladesh India
Botswana Mauritius
China (Shenzhen & Shanghai) Morocco
Czech Republic Peru
Ghana Poland
Hungary Slovakia
Israel Sri Lanka
Taiwan
<PAGE>
GLOBAL CUSTODY AGREEMENT
This AGREEMENT is effective May 15, 1995, and is between THE CHASE MANHATTAN
BANK, N.A. (the "Bank") and Security Equity Fund - Asset Allocation Series (the
"Customer").
1. Customer Accounts.
The Bank agrees to establish and maintain the following accounts
("Accounts"):
(a) A custody account in the name of the Customer ("Custody Account") for
any and all stocks, shares, bonds, debentures, notes, mortgages or
other obligations for the payment of money, bullion, coin and any
certificates, receipts, warrants or other instruments representing
rights to receive, purchase or subscribe for the same or evidencing or
representing any other rights or interests therein and other similar
property whether certificated or uncertificated as may be received by
the Bank or its Subcustodian (as defined in Section 3) for the account
of the Customer ("Securities"); and
(b) A deposit account in the name of the Customer ("Deposit Account") for
any and all cash in any currency received by the Bank or its
Subcustodian for the account of the Customer, which cash shall not be
subject to withdrawal by draft or check.
The Customer warrants its authority to: 1) deposit the cash and Securities
("Assets") received in the Accounts and 2) give Instructions (as defined in
Section 11) concerning the Accounts. The Bank may deliver securities of the
same class in place of those deposited in the Custody Account.
Upon written agreement between the Bank and the Customer, additional
Accounts may be established and separately accounted for as additional
Accounts under the terms of this Agreement.
2. Maintenance of Securities and Cash at Bank and Subcustodian Locations.
Unless Instructions specifically require another location acceptable to the
Bank:
(a) Securities will be held in the country or other jurisdiction in which
the principal trading market for such Securities is located, where
such Securities are to be presented for payment or where such
Securities are acquired; and
(b) Cash will be credited to an account in a country or other jurisdiction
in which such cash may be legally deposited or is the legal currency
for the payment of public or private debts.
<PAGE>
Cash may be held pursuant to Instructions in either interest or
non-interest bearing accounts as may be available for the particular
currency. To the extent Instructions are issued and the Bank can comply
with such Instructions, the Bank is authorized to maintain cash balances on
deposit for the Customer with itself or one of its affiliates at such
reasonable rates of interest as may from time to time be paid on such
accounts, or in non-interest bearing accounts as the Customer may direct,
if acceptable to the Bank.
If the Customer wishes to have any of its Assets held in the custody of an
institution other than the established Subcustodians as defined in Section
3 (or their securities depositories), such arrangement must be authorized
by a written agreement, signed by the Bank and the Customer.
3. Subcustodians and Securities Depositories.
The Bank may act under this Agreement through the subcustodians listed in
Schedule A of this Agreement with which the Bank has entered into
subcustodial agreements ("Subcustodians"). The Customer authorizes the Bank
to hold Assets in the Accounts in accounts which the Bank has established
with one or more of its branches or Subcustodians.
The Bank and Subcustodians are authorized to hold any of the Securities in
their account with any securities depository in which they participate.
The Bank reserves the right to add new, replace or remove Subcustodians.
The Customer will be given reasonable notice by the Bank of any amendment
to Schedule A. Upon request by the Customer, the Bank will identify the
name, address and principal place of business of any Subcustodian of the
Customer's Assets and the name and address of the governmental agency or
other regulatory authority that supervises or regulates such Subcustodian.
4. Use of Subcustodian.
(a) The Bank will identify such Assets on its books as belonging to the
Customer.
(b) A Subcustodian will hold such Assets together with assets belonging to
other customers of the Bank in accounts identified on such
Subcustodian's books as special custody accounts for the exclusive
benefit of customers of the Bank.
(c) Any Assets in the Accounts held by a Subcustodian will be subject only
to the instructions of the Bank or its agent. Any Securities held in a
securities depository for the account of a Subcustodian will be
subject only to the instructions of such Subcustodian.
(d) Any agreement the Bank enters into with a Subcustodian for holding its
customer's assets shall provide that such assets will not be subject
to any right, charge, security interest, lien or claim of any kind in
favor of such Subcustodian except for safe
<PAGE>
custody or administration, and that the beneficial ownership of such
assets will be freely transferable without the payment of money or
value other than for safe custody or administration. The foregoing
shall not apply to the extent of any special agreement or arrangement
made by the Customer with any particular Subcustodian.
5. Deposit Account Transactions.
(a) The Bank or its Subcustodians will make payments from the Deposit
Account upon receipt of Instructions which include all information
required by the Bank.
(b) In the event that any payment to be made under this Section 5 exceeds
the funds available in the Deposit Account, the Bank, in its
discretion, may advance the Customer such excess amount which shall be
deemed a loan payable on demand, bearing interest at the rate
customarily charged by the Bank on similar loans.
(c) If the Bank credits the Deposit Account on a payable date, or at any
time prior to actual collection and reconciliation to the Deposit
Account, with interest, dividends, redemptions or any other amount
due, the Customer will promptly return any such amount upon oral or
written notification: (i) that such amount has not been received in
the ordinary course of business or (ii) that such amount was
incorrectly credited. If the Customer does not promptly return any
amount upon such notification, the Bank shall be entitled, upon oral
or written notification to the Customer, to reverse such credit by
debiting the Deposit Account for the amount previously credited. The
Bank or its Subcustodian shall have no duty or obligation to institute
legal proceedings, file a claim or a proof of claim in any insolvency
proceeding or take any other action with respect to the collection of
such amount, but may act for the Customer upon Instructions after
consultation with the Customer.
6. Custody Account Transactions.
(a) Securities will be transferred, exchanged or delivered by the Bank or
its Subcustodian upon receipt by the Bank of Instructions which
include all information required by the Bank. Settlement and payment
for Securities received for, and delivery of Securities out of, the
Custody Account may be made in accordance with the customary or
established securities trading or securities processing practices and
procedures in the jurisdiction or market in which the transaction
occurs, including, without limitation, delivery of Securities to a
purchaser, dealer or their agents against a receipt with the
expectation of receiving later payment and free delivery. Delivery of
Securities out of the Custody Account may also be made in any manner
specifically required by Instructions acceptable to the Bank.
(b) The Bank, in its discretion, may credit or debit the Accounts on a
contractual settlement date with cash or Securities with respect to
any sale, exchange or purchase of Securities. Otherwise, such
transactions will be credited or debited to the Accounts
<PAGE>
on the date cash or Securities are actually received by the Bank and
reconciled to the Account.
(i) The Bank may reverse credits or debits made to the Accounts
in its discretion if the related transaction fails to settle
within a reasonable period, determined by the Bank in its
discretion, after the contractual settlement date for the
related transaction.
(ii) If any Securities delivered pursuant to this Section 6 are
returned by the recipient thereof, the Bank may reverse the
credits and debits of the particular transaction at any
time.
7. Actions of the Bank.
The Bank shall follow Instructions received regarding assets held in the
Accounts. However, until it receives Instructions to the contrary, the Bank
will perform the following functions:
(a) Present for payment any Securities which are called, redeemed or
retired or otherwise become payable and all coupons and other income
items which call for payment upon presentation, to the extent that the
Bank or Subcustodian is actually aware of such opportunities.
(b) Execute in the name of the Customer such ownership and other
certificates as may be required to obtain payments in respect of
Securities.
(c) Exchange interim receipts or temporary Securities for definitive
Securities.
(d) Appoint brokers and agents for any transaction involving the
Securities, including, without limitation, affiliates of the Bank or
any Subcustodian.
(e) Issue statements to the Customer, at times mutually agreed upon,
identifying the Assets in the Accounts.
The Bank will send the Customer an advice or notification of any transfers
of Assets to or from the Accounts. Such statements, advices or
notifications shall indicate the identity of the entity having custody of
the Assets. Unless the Customer sends the Bank a written exception or
objection to any Bank statement within sixty (60) days of receipt, the
Customer shall be deemed to have approved such statement. In such event, or
where the Customer has otherwise approved any such statement, the Bank
shall, to the extent permitted by law, be released, relieved and discharged
with respect to all matters set forth in such statement or reasonably
implied therefrom as though it had been settled by the decree of a court of
competent jurisdiction in an action where the Customer and all persons
having or claiming an interest in the Customer or the Customer's Accounts
were parties.
<PAGE>
All collections of funds or other property paid or distributed in respect
of Securities in the Custody Account shall be made at the risk of the
Customer. The Bank shall have no liability for any loss occasioned by delay
in the actual receipt of notice by the Bank or by its Subcustodians of any
payment, redemption or other transaction regarding Securities in the
Custody Account in respect of which the Bank has agreed to take any action
under this Agreement.
8. Corporate Actions; Proxies.
Whenever the Bank receives information concerning the Securities which
requires discretionary action by the beneficial owner of the Securities
(other than a proxy), such as subscription rights, bonus issues, stock
repurchase plans and rights offerings, or legal notices or other material
intended to be transmitted to securities holders ("Corporate Actions"), the
Bank will give the Customer notice of such Corporate Actions to the extent
that the Bank's central corporate actions department has actual knowledge
of a Corporate Action in time to notify its customers.
When a rights entitlement or a fractional interest resulting from a rights
issue, stock dividend, stock split or similar Corporate Action is received
which bears an expiration date, the Bank will endeavor to obtain
Instructions from the Customer or its Authorized Person, as defined in
Section 10, but if Instructions are not received in time for the Bank to
take timely action, or actual notice of such Corporate Action was received
too late to seek Instructions, the Bank is authorized to sell such rights
entitlement or fractional interest and to credit the Deposit Account with
the proceeds or take any other action it deems, in good faith, to be
appropriate in which case it shall be held harmless for any such action.
The Bank will deliver proxies to the Customer or its designated agent
pursuant to special arrangements which may have been agreed to in writing.
Such proxies shall be executed in the appropriate nominee name relating to
Securities in the Custody Account registered in the name of such nominee,
but without indicating the manner in which such proxies are to be voted;
and where bearer Securities are involved, proxies will be delivered in
accordance with Instructions.
9. Nominees.
Securities which are ordinarily held in registered form may be registered
in a nominee name of the Bank, Subcustodian or securities depository, as
the case may be. The Bank may without notice to the Customer cause any such
Securities to cease to be registered in the name of any such nominee and to
be registered in the name of the Customer. In the event that any Securities
registered in a nominee name are called for partial redemption by the
issuer, the Bank may allot the called portion to the respective beneficial
holders of such class of security in any manner the Bank deems to be fair
and equitable. The Customer agrees to hold the Bank, Subcustodians, and
their respective nominees harmless from any liability arising directly or
indirectly from their status as a mere record holder of Securities in the
Custody Account.
<PAGE>
10. Authorized Persons.
As used in this Agreement, the term "Authorized Person" means employees or
agents including investment managers as have been designated by written
notice from the Customer or its designated agent to act on behalf of the
Customer under this Agreement. Such persons shall continue to be Authorized
Persons until such time as the Bank receives Instructions from the Customer
or its designated agent that any such employee or agent is no longer an
Authorized Person.
11. Instructions.
The term "Instructions" means instructions of any Authorized Person
received by the Bank, via telephone, telex, TWX, facsimile transmission,
bank wire or other teleprocess or electronic instruction or trade
information system acceptable to the Bank which the Bank believes in good
faith to have been given by Authorized Persons or which are transmitted
with proper testing or authentication pursuant to terms and conditions
which the Bank may specify. Unless otherwise expressly provided, all
Instructions shall continue in full force and effect until canceled or
superseded.
Any Instructions delivered to the Bank by telephone shall promptly
thereafter be confirmed in writing by an Authorized Person (which
confirmation may bear the facsimile signature of such Person), but the
Customer will hold the Bank harmless for the failure of an Authorized
Person to send such confirmation in writing, the failure of such
confirmation to conform to the telephone instructions received or the
Bank's failure to produce such confirmation at any subsequent time. The
Bank may electronically record any Instructions given by telephone, and any
other telephone discussions with respect to the Custody Account. The
Customer shall be responsible for safeguarding any testkeys, identification
codes or other security devices which the Bank shall make available to the
Customer or its Authorized Persons.
12. Standard of Care; Liabilities.
(a) The Bank shall be responsible for the performance of only such duties
as are set forth in this Agreement or expressly contained in
Instructions which are consistent with the provisions of this
Agreement as follows:
(i) The Bank will use reasonable care with respect to its
obligations under this Agreement and the safekeeping of
Assets. The Bank shall be liable to the Customer for any
loss which shall occur as the result of the failure of a
Subcustodian to exercise reasonable care with respect to the
safekeeping of such Assets to the same extent that the Bank
would be liable to the Customer if the Bank were holding
such Assets in New York. In the event of any loss to the
Customer by reason of the failure of the Bank or its
Subcustodian to utilize reasonable care, the Bank shall be
liable to the Customer only to the extent of the Customer's
direct damages, to be determined based on the market value
of the
<PAGE>
property which is the subject of the loss at the date of
discovery of such loss and without reference to any special
conditions or circumstances.
(ii) The Bank will not be responsible for any act, omission,
default or for the solvency of any broker or agent which it
or a Subcustodian appoints unless such appointment was made
negligently or in bad faith.
(iii) The Bank shall be indemnified by, and without liability to
the Customer for any action taken or omitted by the Bank
whether pursuant to Instructions or otherwise within the
scope of this Agreement if such act or omission was in good
faith, without negligence. In performing its obligations
under this Agreement, the Bank may rely on the genuineness
of any document which it believes in good faith to have been
validly executed.
(iv) The Customer agrees to pay for and hold the Bank harmless
from any liability or loss resulting from the imposition or
assessment of any taxes or other governmental charges, and
any related expenses with respect to income from or Assets
in the Accounts.
(v) The Bank shall be entitled to rely, and may act, upon the
advice of counsel (who may be counsel for the Customer) on
all matters and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
(vi) The Bank need not maintain any insurance for the benefit of
the Customer.
(vii) Without limiting the foregoing, the Bank shall not be liable
for any loss which results from: 1) the general risk of
investing, or 2) investing or holding Assets in a particular
country including, but not limited to, losses resulting from
nationalization, expropriation or other governmental
actions; regulation of the banking or securities industry;
currency restrictions, devaluations or fluctuations; and
market conditions which prevent the orderly execution of
securities transactions or affect the value of Assets.
(viii) Neither party shall be liable to the other for any loss due
to forces beyond their control including, but not limited to
strikes or work stoppages, acts of war or terrorism,
insurrection, revolution, nuclear fusion, fission or
radiation, or acts of God.
(b) Consistent with and without limiting the first paragraph of this
Section 12, it is specifically acknowledged that the Bank shall have
no duty or responsibility to:
(i) question Instructions or make any suggestions to the
Customer or an Authorized Person regarding such
Instructions;
<PAGE>
(ii) supervise or make recommendations with respect to
investments or the retention of Securities;
(iii) advise the Customer or an Authorized Person regarding any
default in the payment of principal or income of any
security other than as provided in Section 5(c) of this
Agreement;
(iv) evaluate or report to the Customer or an Authorized Person
regarding the financial condition of any broker, agent or
other party to which Securities are delivered or payments
are made pursuant to this Agreement;
(v) review or reconcile trade confirmations received from
brokers. The Customer or its Authorized Persons (as defined
in Section 10) issuing Instructions shall bear any
responsibility to review such confirmations against
Instructions issued to and statements issued by the Bank.
(c) The Customer authorizes the Bank to act under this Agreement
notwithstanding that the Bank or any of its divisions or affiliates
may have a material interest in a transaction, or circumstances are
such that the Bank may have a potential conflict of duty or interest
including the fact that the Bank or any of its affiliates may provide
brokerage services to other customers, act as financial advisor to the
issuer of Securities, act as a lender to the issuer of Securities, act
in the same transaction as agent for more than one customer, have a
material interest in the issue of Securities, or earn profits from any
of the activities listed herein.
13. Fees and Expenses.
The Customer agrees to pay the Bank for its services under this Agreement
such amount as may be agreed upon in writing, together with the Bank's
reasonable out-of-pocket or incidental expenses, including, but not limited
to, legal fees. The Bank shall have a lien on and is authorized to charge
any Accounts of the Customer for any amount owing to the Bank under any
provision of this Agreement.
14. Miscellaneous.
(a) Foreign Exchange Transactions. To facilitate the administration of the
Customer's trading and investment activity, the Bank is authorized to
enter into spot or forward foreign exchange contracts with the
Customer or an Authorized Person for the Customer and may also provide
foreign exchange through its subsidiaries, affiliates or
Subcustodians. Instructions, including standing instructions, may be
issued with respect to such contracts but the Bank may establish rules
or limitations concerning any foreign exchange facility made
available. In all cases where the Bank, its subsidiaries, affiliates
or Subcustodians enter into a foreign exchange contract related to
Accounts, the terms and conditions of the then current foreign
exchange contract of
<PAGE>
the Bank, its subsidiary, affiliate or Subcustodian and, to the extent
not inconsistent, this Agreement shall apply to such transaction.
(b) Certification of Residency, etc. The Customer certifies that it is a
resident of the United States and agrees to notify the Bank of any
changes in residency. The Bank may rely upon this certification or the
certification of such other facts as may be required to administer the
Bank's obligations under this Agreement. The Customer will indemnify
the Bank against all losses, liability, claims or demands arising
directly or indirectly from any such certifications.
(c) Access to Records. The Bank shall allow the Customer's independent
public accountant reasonable access to the records of the Bank
relating to the Assets as is required in connection with their
examination of books and records pertaining to the Customer's affairs.
Subject to restrictions under applicable law, the Bank shall also
obtain an undertaking to permit the Customer's independent public
accountants reasonable access to the records of any Subcustodian which
has physical possession of any Assets as may be required in connection
with the examination of the Customer's books and records.
(d) Governing Law: Successors and Assigns. This Agreement shall be
governed by the laws of the State of New York and shall not be
assignable by either party, but shall bind the successors in interest
of the Customer and the Bank.
(e) Entire Agreement: Application Riders. Customer represents that the
Assets deposited in the Accounts are (Check one):
Employee Benefit Plan or other assets subject to the
-------- Employee Retirement Income Security Act of 1974, as
amended ("ERISA");
X Mutual Fund assets subject to certain Securities and
-------- Exchange Commission ("SEC") rules and regulations;
-------- Neither of the above.
This Agreement consists exclusively of this document together with
Schedule A, Exhibits I - __________ and the following Rider(s) [Check
applicable rider(s)]:
-------- ERISA
X MUTUAL FUND
--------
-------- SPECIAL TERMS AND CONDITIONS
<PAGE>
There are no other provisions of this Agreement and this Agreement
supersedes any other agreements, whether written or oral, between the
parties. Any amendment to this Agreement must be in writing, executed by
both parties.
(f) Severability. In the event that one or more provisions of this
Agreement are held invalid, illegal or enforceable in any respect on
the basis of any particular circumstances or in any jurisdiction, the
validity, legality and enforceability of such provision or provisions
under other circumstances or in other jurisdictions and of the
remaining provisions will not in any way be affected or impaired.
(g) Waiver. Except as otherwise provided in this Agreement, no failure or
delay on the part of either party in exercising any power or right
under this Agreement operates as a waiver, nor does any single or
partial exercise of any power or right preclude any other or further
exercise, or the exercise of any other power or right. No waiver by a
party of any provision of this Agreement, or waiver of any breach or
default, is effective unless in writing and signed by the party
against whom the waiver is to be enforced.
(h) Notices. All notices under this Agreement shall be effective when
actually received. Any notices or other communications which may be
required under this Agreement are to be sent to the parties at the
following addresses or such other addresses as may subsequently be
given to the other party in writing:
Bank: The Chase Manhattan Bank, N.A.
Chase MetroTech Center
Brooklyn, NY 11245
Attention: Global Custody Division
or telex: __________________________
Customer: Security Equity Fund
Asset Allocation Series
700 Harrison Street
Topeka, Kansas 66636 0001
Attention: James R. Schmank
or telex: (913) 295-3080
(i) Termination. This Agreement may be terminated by the Customer or the
Bank by giving sixty (60) days written notice to the other, provided
that such notice to the Bank shall specify the names of the persons to
whom the Bank shall deliver the Assets in the Accounts. If notice of
termination is given by the Bank, the Customer shall, within sixty
(60) days following receipt of the notice, deliver to the Bank
Instructions specifying the names of the persons to whom the Bank
shall deliver the Assets. In either case, the Bank will deliver the
Assets to the persons so specified after deducting any amounts which
the Bank determines in good faith to be owed to it under
<PAGE>
Section 13. If within sixty (60) days following receipt of a notice of
termination by the Bank, the Bank does not receive Instructions from
the Customer specifying the names of the persons to whom the Bank
shall deliver the Assets, the Bank, at its election, may deliver the
Assets to a bank or trust company doing business in the State of New
York to be held and disposed of pursuant to the provisions of this
Agreement, or to Authorized Persons, or may continue to hold the
Assets until Instructions are provided to the Bank.
SECURITY EQUITY FUND -
ASSET ALLOCATION SERIES
By: Brenda M. Luthi
------------------------------------
Title
Brenda M. Luthi, Assistant Treasurer
THE CHASE MANHATTAN BANK, N.A.
By: Matthew Goad
-------------------------------------
Title
M. Goad, Second Vice President
<PAGE>
STATE OF KANSAS )
: ss.
COUNTY OF SHAWNEE)
On this 15th day of May, 1995, before me personally came Brenda M. Luthi, to me
known, who being by me duly sworn, did depose and say that he/she resides in
Kansas at 4920 NW Valencia, Silver Lake; that he/she is Assistant Treasurer of
Security Equity Fund - Asset Allocation Series, the entity described in and
which executed the foregoing instrument; that he/she knows the seal of said
entity, that the seal affixed to said instrument is such seal, that it was so
affixed by order of said entity, and that he/she signed his/her name thereto by
like order.
---------------------------------
Sworn to before me this 15th day of May, 1995.
Peggy S. Avey
- --------------------------------
Peggy S. Avey, Notary
My Commission Expires: November 21, 1996
<PAGE>
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK)
On this 15th day of May, 1995, before me personally came Matthew Goad, to me
known, who being by me duly sworn, did depose and say that he/she resides in
Brooklyn, New York at 433 Pacific Street; that he/she is a Second Vice President
of THE CHASE MANHATTAN BANK, (National Association), the corporation described
in and which executed the foregoing instrument; that he/she knows the seal of
said corporation, that the seal affixed to said instrument is such corporate
seal, that it was so affixed by order of the Board of Directors of said
corporation, and that he/she signed his/her name thereto by like order.
Matthew Goad
-----------------------------------
Sworn to before me this 15th day of May, 1995.
Laiyee Ng
- -----------------------------------
Notary
<PAGE>
Mutual Fund Rider to Global Custody Agreement
Between The Chase Manhattan Bank, N.A. and
Security Equity Fund - Asset Allocation Series
effective May 15, 1995
Customer represents that the Assets being placed in the Bank's custody are
subject to the Investment Company Act of 1940 (the Act), as the same may be
amended from time to time.
Except to the extent that the Bank has specifically agreed to comply with a
condition of a rule, regulation, interpretation promulgated by or under the
authority of the SEC or the Exemptive Order applicable to accounts of this
nature issued to the Bank (Investment Company Act of 1940, Release No. 12053,
November 20, 1981), as amended, or unless the Bank has otherwise specifically
agreed, the Customer shall be solely responsible to assure that the maintenance
of Assets under this Agreement complies with such rules, regulations,
interpretations or interpretations or exemptive order promulgated by or under
the authority of the Securities Exchange Commission.
The following modifications are made to the Agreement:
Section 3. Subcustodians and Securities Depositories.
Add the following language to the end of Section 3:
The terms Subcustodian and securities depositories as used in this
Agreement shall mean a branch of a qualified U.S. bank, an eligible foreign
custodian or an eligible foreign securities depository, which are further
defined as follows:
(a) "qualified U.S. Bank" shall mean a qualified U.S. bank as defined in
Rule 17f-5 under the Investment Company Act of 1940;
(b) "eligible foreign custodian" shall mean (i) a banking institution or
trust company incorporated or organized under the laws of a country
other than the United States that is regulated as such by that
country's government or an agency thereof and that has shareholders'
equity in excess of $200 million in U.S. currency (or a foreign
currency equivalent thereof), (ii) a majority owned direct or indirect
subsidiary of a qualified U.S. bank or bank holding company that is
incorporated or organized under the laws of a country other than the
United States and that has shareholders' equity in excess of $100
million in U.S. currency (or a foreign currency equivalent thereof),
(iii) a banking institution or trust company incorporated or organized
under the laws of a country other than the United States or a majority
owned direct or indirect subsidiary of a qualified U.S. bank or bank
holding company that is incorporated or organized under the laws of a
country other than the United States which has such other
qualifications as shall be specified in Instructions and approved by
the Bank; or
<PAGE>
(iv) any other entity that shall have been so qualified by exemptive
order, rule or other appropriate action of the SEC; and
(c) "eligible foreign securities depository" shall mean a securities
depository or clearing agency, incorporated or organized under the
laws of a country other than the United States, which operates (i) the
central system for handling securities or equivalent book-entries in
that country, or (ii) a transnational system for the central handling
of securities or equivalent book-entries.
The Customer represents that its Board of Directors has approved each of
the Subcustodians listed in Schedule A to this Agreement and the terms of
the subcustody agreements between the Bank and each Subcustodian, which are
attached as Exhibits I through _____ of Schedule A, and further represents
that its Board has determined that the use of each Subcustodian and the
terms of each subcustody agreement are consistent with the best interests
of the Fund(s) and its (their) shareholders. The Bank will supply the
Customer with any amendment to Schedule A for approval. The Customer has
supplied or will supply the Bank with certified copies of its Board of
Directors resolution(s) with respect to the foregoing prior to placing
Assets with any Subcustodian so approved.
Section 11. Instructions.
Add the following language to the end of Section 11:
Deposit Account Payments and Custody Account Transactions made pursuant to
Section 5 and 6 of this Agreement may be made only for the purposes listed
below. Instructions must specify the purpose for which any transaction is
to be made and Customer shall be solely responsible to assure that
Instructions are in accord with any limitations or restrictions applicable
to the Customer by law or as may be set forth in its prospectus.
(a) In connection with the purchase or sale of Securities at prices as
confirmed by Instructions;
(b) When Securities are called, redeemed or retired, or otherwise become
payable;
(c) In exchange for or upon conversion into other securities alone or
other securities and cash pursuant to any plan or merger,
consolidation, reorganization, recapitalization or readjustment;
(d) Upon conversion of Securities pursuant to their terms into other
securities;
(e) Upon exercise of subscription, purchase or other similar rights
represented by Securities;
(f) For the payment of interest, taxes, management or supervisory fees,
distributions or operating expenses;
<PAGE>
(g) In connection with any borrowings by the Customer requiring a pledge
of Securities, but only against receipt of amounts borrowed;
(h) In connection with any loans, but only against receipt of adequate
collateral as specified in Instructions which shall reflect any
restrictions applicable to the Customer;
(i) For the purpose of redeeming shares of the capital stock of the
Customer and the delivery to, or the crediting to the account of, the
Bank, its Subcustodian or the Customer's transfer agent, such shares
to be purchased or redeemed;
(j) For the purpose of redeeming in kind shares of the Customer against
delivery to the Bank, its Subcustodian or the Customer's transfer
agent of such shares to be so redeemed;
(k) For delivery in accordance with the provisions of any agreement among
the Customer, the Bank and a broker-dealer registered under the
Securities Exchange Act of 1934 (the "Exchange Act") and a member of
The National Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange, or of
any similar organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Customer;
(l) For release of Securities to designated brokers under covered call
options, provided, however, that such Securities shall be released
only upon payment to the Bank of monies for the premium due and a
receipt for the Securities which are to be held in escrow. Upon
exercise of the option, or at expiration, the Bank will receive from
brokers the Securities previously deposited. The Bank will act
strictly in accordance with Instructions in the delivery of Securities
to be held in escrow and will have no responsibility or liability for
any such Securities which are not returned promptly when due other
than to make proper request for such return;
(m) For spot or forward foreign exchange transactions to facilitate
security trading, receipt of income from Securities or related
transactions;
(n) For other proper purposes as may be specified in Instructions issued
by an officer of the Customer which shall include a statement of the
purpose for which the delivery or payment is to be made, the amount of
the payment or specific Securities to be delivered, the name of the
person or persons to whom delivery or payment is to be made, and a
certification that the purpose is a proper purpose under the
instruments governing the Customer; and
(o) Upon the termination of this Agreement as set forth in Section 14(i).
<PAGE>
Section 12. Standard of Care: Liabilities.
Add the following subsection (c) to Section 12:
(c) The Bank hereby warrants to the Customer that in its opinion, after
due inquiry, the established procedures to be followed by each of its
branches, each branch of a qualified U.S. bank, each eligible foreign
custodian and each eligible foreign securities depository holding the
Customer's Securities pursuant to this Agreement afford protection for
such Securities at least equal to that afforded by the Bank's
established procedures with respect to similar securities held by the
Bank and its securities depositories in New York.
Section 14. Access to Records.
Add the following language to the end of Section 14(c):
Upon reasonable request from the Customer, the Bank shall furnish the
Customer such reports (or portions thereof) of the Bank's system of
internal accounting controls applicable to the Bank's duties under this
Agreement. The Bank shall endeavor to obtain and furnish the Customer with
such similar reports as it may reasonably request with respect to each
Subcustodian and securities depository holding the Customer's assets.
<PAGE>
THE CHASE MANHATTAN BANK, N.A.
Fee Schedule
for
SBL Fund - Series M; SBL Fund - Series N; SBL Fund - Series O;
Security Equity Fund - Asset Allocation Series
I. Domestic Custody
(Market value fees and transaction charges to be applied on a fund by fund
basis)
Market Value Fees
$0 - $300MM 1.00bp
$300MM - $600MM 0.75bp
Over $600MM 0.50bp
Transactions
Book Entry $ 8.00
Physical $15.00
II. Global Custody
Country Safekeeping and Transaction Fees
(To be applied on a fund by fund basis)
Basis Point Transactions
----------- ------------
Band A 3.0 $ 30
Band B 5.0 $ 40
Band C 6.0 $ 60
Band D 9.0 $ 60
Band E 11.0 $ 80
Band F 26.0 $120
Band G 41.0 $120
<PAGE>
III. Miscellaneous Fees
Out of pocket expenses (i.e., scrip fees, As incurred
stamp taxes, transaction costs, etc.)
Transfer to successor custodian Refer to country bands
(1) Domestic Market Value Fees would be capped at a maximum amount of $5,000 for
the first year and then at $10,000 for the second year. After two years the cap
would be lifted. Market Value Fees for each of the funds would be added together
for purposes of applying the cap amount.
The Chase Manhattan Bank, N.A. SBL Fund - Series M
SBL Fund, Series N
SBL Fund, Series O
Security Equity Fund - Asset Allocation Series
Matthew Goad 6/27/95 James R. Schmank
- ------------------------------ ----------------------------------------------
<PAGE>
Country Band Schedule
Band A Band B Band C
- ------ ------ ------
Japan Canada Australia
Cedel Germany Belgium
Euroclear Netherlands Denmark
Switzerland France
New Zealand
Norway
Sweden
United Kingdom
Band D Band E Band F
- ------ ------ ------
Austria Mexico Argentina
Finland Portugal Brazil
Hong Kong Spain Chile
Ireland Thailand Colombia
Italy Greece
Luxembourg Indonesia
Malaysia Jordan
Singapore Pakistan
South Africa Philippines
South Korea
Turkey
Venezuela
Band G
------
Bangladesh India
Botswana Mauritius
China (Shenzhen & Shanghai) Morocco
Czech Republic Peru
Ghana Poland
Hungary Sri Lanka
Israel Taiwan
<PAGE>
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Financial
Highlights" and "Independent Auditors" in the Registration Statement (Form N-1A)
and related prospectus of Security Equity Fund and to the incorporation by
reference of our report dated October 27, 1995, with respect to the financial
statements of Security Equity Fund included in its Annual Report to Shareholders
for the year ended September 30, 1995.
Ernst & Young LLP
Ernst & Young LLP
Kansas City, Missouri
December 1, 1995
Item 24.b. Exhibit (16)
SECURITY EQUITY FUND
--------------------
EQUITY SERIES
A Shares
- --------
Total Return from October 1, 1985, to September 30, 1995. Assuming Initial
Investment of $1,000 at offering price at the beginning of period $1,000 / 5.84
= 171.2329 shares.
Ending value of initial investment at September 30, 1995, NAV price = 171.2329
shares x 6.55 = $1,121.58.
Ending value of shares received from reinvestment of all dividends at NAV =
458.0858 shares x 6.55 = $3,000.46.
Total ending redeemable value: 1,121.58
+3,000.46
--------
4,122.04
Total Return: 4,122.04 - 1,000 = 3,122.04
3,122.04 / 1,000 = 312.20%
-----------------------------------------------
Calendar 1994 % change from previous year
= value at end of year............... 6,952
less value at beginning.............. 7,134
-----
182
Change 182
----
Beginning Value 7,134 = -2.6%
<PAGE>
Item 24.b. Exhibit (16)
EQUITY SERIES
B Shares
- --------
Total Return from October 19, 1993, to September 30, 1995. Assuming Initial
Investment of $1,000 at offering price at the beginning of period $1,000 / 6.81
= 146.8429 shares.
Ending value of initial investment at September 30, 1995, NAV price = 146.8429
shares x 6.43 = $944.20.
Ending value of shares received from reinvestment of all dividends at NAV =
49.8801 shares x 6.43 = $320.73.
Contingent deferred sales charge = 1,000 x .04 = $40.00.
Total ending redeemable value: 944.20
320.73
(40.00)
------
1,224.93
Total Return: 1,224.93 - 1,000 = 224.93
224.93 / 1,000 = 22.49%
-----------------------------------------------
Calendar 1994 % change
= value at end of year............... 982
less value at beginning.............. 1,015
-----
-33
Change -33
-----
Beginning Value 1,015 = -3.3%
<PAGE>
Item 24.b. Exhibit (16)
Average Annual Total Return
For Security Equity Fund, Equity Series
Total Return of Security Equity Fund, Equity Series, as of September 30, 1995,
(according to the Form N-1A calculation).
A Shares
- --------
1. Average total return for 1 year = +20.38%
=====
1000 (1+T)1 = 1,203.85
(1+T)1 = 1.20385
1+T = 1.20385
T = +.20385
2. Average total return for 5 years = +17.41%
=====
1000 (1+T)5 = 2,230.87
(1+T)5 = 2.23087
((1+T)5) 1/5 = (2.23087) 1/5
1+T = 1.1741
T = +.1741
3. Average total return for 10 years = +15.22%
====
1000 (1+T)10 = 4,122.04
(1+T)10 = 4.12204
((1+T)10) 1/10 = (4.12204) 1/10
1+T = 1.1522
T = +.1522
B Shares
- --------
1. Average annual return for 1 year = +21.69%
1000 (1+T)1 = 1,216.88
(1+T)1 = (1.21688)
1+T = 1.21688
T = -.21688
2. Average total return since October 19, 1993 (inception) with CDSC
= +10.96%
1000 (1+T)1 19/20 = 1,224.93
((1+T)1 19/20) 20/39 = 1.22493 20/39
1+T = 1.1096
T = +.1096
<PAGE>
Item 24.b. Exhibit (16)
SECURITY EQUITY FUND
--------------------
GLOBAL SERIES
A Shares
- --------
Total Return from October 5, 1993, to September 30, 1995. Assuming Initial
Investment of $1,000 at offering price at the beginning of period $1,000 / 10.61
= 94.2507 shares.
Ending value of initial investment at September 30, 1995, NAV price = 94.2507
shares x 10.94 = $1,031.10.
Ending redeemable value of shares received from reinvestment of all dividends at
NAV = 1.7556 x 10.94 = 19.21
Total ending redeemable value: 1,031.10
19.21
----------
1,050.31
Total Return: 1,050.31 - 1,000 = 50.31
50.31 / 1,000 = 5.03%
-----------------------------------------------
Calendar 1994 % change from previous year
= value at end of year............... 1,046
less value at beginning.............. 1,033
-----
13
Change 13
----
Beginning Value 1,033 = +1.26%
<PAGE>
Item 24.b. Exhibit (16)
GLOBAL SERIES
B Shares
- --------
Total Return from October 19, 1993, to September 30, 1995. Assuming Initial
Investment of $1,000 at offering price at the beginning of period $1,000 / 9.96
= 100.402 shares.
Ending value of initial investment at September 30, 1995, NAV price = 100.402
shares x 10.74 = $1,078.32.
Ending value of shares received from reinvestment of all dividends at NAV =
1.8906 x 10.74 = $20.31.
Contingent deferred sales charge = 1,000 x .04 = $40.
Total ending redeemable value: 1,078.32
20.31
+ (40.00)
--------
1,058.63
Total Return: 1,058.63 - 1,000 = 58.63
58.63 / 1,000 = 5.86%
-----------------------------------------------
Calendar 1994 % change
= value at end of year............... 1,002.00
less value at beginning.............. 1,000.00
--------
2.00
Change 2.00
-----
Beginning Value 1,000 = +0.2%
<PAGE>
Item 24.b. Exhibit (16)
Average Annual Total Return
For Security Equity Fund, Global Series
Total Return of Security Equity Fund, Global Series, as of September 30, 1995,
(according to the Form N-1A calculation).
A Shares
- --------
1. Average total return for 1 year = -3.10%
=====
1000 (1+T)1 = 969.02
(1+T)1 = .96902
1+T = .96902
T = -.0310
2. Average total return since October 10, 1993 (inception) with CDSC
= +2.48%
====
1000 (1+T)2 = 1050.30
(1+T)2 = 1.05030
((1+T)2) 1/2 = (1.05030) 1/2
1+T = 1.0248
T = +.0248
B Shares
- --------
1. Average annual return for 1 year = -3.21%
1000 (1+T)1 = 967.88
(1+T)1 = .96788
1+T = .96788
T = -.0321
2. Average total return since October 10, 1993 (inception) with CDSC
= +2.96%
1000 (1+T)1 19/20 = 1,058.62
((1+T)1 19/20) 20/39 = (1.05862) 20/39
1+T = 1.0296
T = +.0296
<PAGE>
Item 24.b. Exhibit (16)
SECURITY EQUITY FUND
--------------------
ASSET ALLOCATION SERIES
A Shares
- --------
Total Return from June 1, 1995, to September 30, 1995. Assuming Initial
Investment of $1,000 at offering price at the beginning of period $1,000 / 10.61
= 94.2507 shares.
Ending value of initial investment at September 30, 1995, NAV price = 94.2507
shares x 10.54 = $993.40.
Total ending redeemable value: 993.40
Total Return: 993.40 - 1,000 = (6.60)
(6.60) / 1,000 = -.66%
-----------------------------------------------
<PAGE>
Item 24.b. Exhibit (16)
ASSET ALLOCATION SERIES
B Shares
- --------
Total Return from June 1, 1995, to September 30, 1995. Assuming Initial
Investment of $1,000 at offering price at the beginning of period $1,000 / 10.00
= 100 shares.
Ending value of initial investment at September 30, 1995, NAV price = 100 shares
x 10.50 = $1,050.00.
Contingent deferred sales charge = 1,000 x .05 = $50.
Total ending redeemable value: 1,050.00
+ (50.00)
--------
1,000.00
Total Return: 1,000.00 - 1,000 = 0
0 / 1,000 = 0%
-----------------------------------------------
<PAGE>
Item 24.b. Exhibit (16)
Average Annual Total Return
For Security Equity Fund, Asset Allocation Series
Total Return of Security Equity Fund, Asset Allocation Series, as of September
30, 1995, (according to the Form N-1A calculation).
A Shares
- --------
1. Average total return since June 1, 1995 (inception) = -1.99%
=====
1000 (1+T)33/100 = 993.40
((1+T)33/100) 100/33 = (.99340) 100/33
1+T = .980134
T = -1.987
B Shares
- --------
1. Average annual return since June 1, 1995 (inception) with CDSC
= 0%
1000 (1+T)33/100 = 1,000
((1+T)33/100) 100/33 = (1.000) 100/33
1+T = 1.000
T = +.000
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000088525
<NAME> SECURITY EQUITY FUND
<SERIES>
<NUMBER> 1
<NAME> SERIES FUND - EQUITY SERIES CLASS A
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 342,409
<INVESTMENTS-AT-VALUE> 456,076
<RECEIVABLES> 2,729
<ASSETS-OTHER> 1,496
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 460,301
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 675
<TOTAL-LIABILITIES> 675
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 316,088
<SHARES-COMMON-STOCK> 67,235
<SHARES-COMMON-PRIOR> 64,712
<ACCUMULATED-NII-CURRENT> 3,305
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 26,566
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 113,667
<NET-ASSETS> 459,626
<DIVIDEND-INCOME> 6,221
<INTEREST-INCOME> 1,405
<OTHER-INCOME> 0
<EXPENSES-NET> 4,321
<NET-INVESTMENT-INCOME> 3,305
<REALIZED-GAINS-CURRENT> 27,972
<APPREC-INCREASE-CURRENT> 69,737
<NET-CHANGE-FROM-OPS> 101,014
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 26,300
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 27,957
<NUMBER-OF-SHARES-REDEEMED> 30,292
<SHARES-REINVESTED> 4,858
<NET-CHANGE-IN-ASSETS> 82,102
<ACCUMULATED-NII-PRIOR> 3,852
<ACCUMULATED-GAINS-PRIOR> 21,454
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,185
<INTEREST-EXPENSE> 2
<GROSS-EXPENSE> 4,321
<AVERAGE-NET-ASSETS> 398,569
<PER-SHARE-NAV-BEGIN> 5.54
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> 1.377
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .407
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.55
<EXPENSE-RATIO> 1.05
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000088525
<NAME> SECURITY EQUITY FUND
<SERIES>
<NUMBER> 2
<NAME> SERIES FUND - EQUITY SERIES CLASS B
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 342,409
<INVESTMENTS-AT-VALUE> 456,076
<RECEIVABLES> 2,729
<ASSETS-OTHER> 1,496
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 460,301
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 675
<TOTAL-LIABILITIES> 675
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 316,088
<SHARES-COMMON-STOCK> 3,000
<SHARES-COMMON-PRIOR> 1,357
<ACCUMULATED-NII-CURRENT> 3,305
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 26,566
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 0
<DIVIDEND-INCOME> 6,221
<INTEREST-INCOME> 1,405
<OTHER-INCOME> 0
<EXPENSES-NET> 4,321
<NET-INVESTMENT-INCOME> 3,305
<REALIZED-GAINS-CURRENT> 27,972
<APPREC-INCREASE-CURRENT> 69,737
<NET-CHANGE-FROM-OPS> 101,014
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 691
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,433
<NUMBER-OF-SHARES-REDEEMED> 4,928
<SHARES-REINVESTED> 138
<NET-CHANGE-IN-ASSETS> 11,836
<ACCUMULATED-NII-PRIOR> 3,852
<ACCUMULATED-GAINS-PRIOR> 21,454
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,185
<INTEREST-EXPENSE> 2
<GROSS-EXPENSE> 4,321
<AVERAGE-NET-ASSETS> 398,569
<PER-SHARE-NAV-BEGIN> 5.49
<PER-SHARE-NII> (.01)
<PER-SHARE-GAIN-APPREC> 1.357
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .407
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.43
<EXPENSE-RATIO> 2.05
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000088525
<NAME> SECURITY EQUITY FUND
<SERIES>
<NUMBER> 3
<NAME> SERIES FUND - GLOBAL SERIES CLASS A
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 20,197
<INVESTMENTS-AT-VALUE> 20,874
<RECEIVABLES> 866
<ASSETS-OTHER> 678
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 22,418
<PAYABLE-FOR-SECURITIES> 669
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 54
<TOTAL-LIABILITIES> 723
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 20,425
<SHARES-COMMON-STOCK> 1,486
<SHARES-COMMON-PRIOR> 1,857
<ACCUMULATED-NII-CURRENT> 136
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 202
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 931
<NET-ASSETS> 21,694
<DIVIDEND-INCOME> 446
<INTEREST-INCOME> 11
<OTHER-INCOME> (39)
<EXPENSES-NET> 509
<NET-INVESTMENT-INCOME> (91)
<REALIZED-GAINS-CURRENT> 419
<APPREC-INCREASE-CURRENT> 96
<NET-CHANGE-FROM-OPS> 424
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 347
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 395
<NUMBER-OF-SHARES-REDEEMED> 799
<SHARES-REINVESTED> 33
<NET-CHANGE-IN-ASSETS> (3,867)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 502
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 457
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 509
<AVERAGE-NET-ASSETS> 22,938
<PER-SHARE-NAV-BEGIN> 10.84
<PER-SHARE-NII> (.02)
<PER-SHARE-GAIN-APPREC> .31
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .19
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.94
<EXPENSE-RATIO> 2.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000088525
<NAME> SECURITY EQUITY FUND
<SERIES>
<NUMBER> 4
<NAME> SERIES FUND - GLOBAL SERIES CLASS B
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 20,197
<INVESTMENTS-AT-VALUE> 20,874
<RECEIVABLES> 866
<ASSETS-OTHER> 678
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 22,418
<PAYABLE-FOR-SECURITIES> 669
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 54
<TOTAL-LIABILITIES> 723
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 20,425
<SHARES-COMMON-STOCK> 506
<SHARES-COMMON-PRIOR> 368
<ACCUMULATED-NII-CURRENT> 136
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 202
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 931
<NET-ASSETS> 21,694
<DIVIDEND-INCOME> 446
<INTEREST-INCOME> 11
<OTHER-INCOME> (39)
<EXPENSES-NET> 509
<NET-INVESTMENT-INCOME> (91)
<REALIZED-GAINS-CURRENT> 419
<APPREC-INCREASE-CURRENT> 96
<NET-CHANGE-FROM-OPS> 424
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 84
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 367
<NUMBER-OF-SHARES-REDEEMED> 237
<SHARES-REINVESTED> 8
<NET-CHANGE-IN-ASSETS> 1,473
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 502
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 457
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 509
<AVERAGE-NET-ASSETS> 22,938
<PER-SHARE-NAV-BEGIN> 10.75
<PER-SHARE-NII> (.12)
<PER-SHARE-GAIN-APPREC> .30
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .19
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.74
<EXPENSE-RATIO> 3.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000088525
<NAME> SECURITY EQUITY FUND
<SERIES>
<NUMBER> 5
<NAME> ASSET ALLOCATION SERIES CLASS A
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 3,340
<INVESTMENTS-AT-VALUE> 3,430
<RECEIVABLES> 26
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,457
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 22
<TOTAL-LIABILITIES> 22
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,283
<SHARES-COMMON-STOCK> 181
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 14
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 62
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 76
<NET-ASSETS> 3,435
<DIVIDEND-INCOME> 7
<INTEREST-INCOME> 32
<OTHER-INCOME> 0
<EXPENSES-NET> 25
<NET-INVESTMENT-INCOME> 14
<REALIZED-GAINS-CURRENT> 62
<APPREC-INCREASE-CURRENT> 76
<NET-CHANGE-FROM-OPS> 152
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 184
<NUMBER-OF-SHARES-REDEEMED> 3
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,906
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 10
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 25
<AVERAGE-NET-ASSETS> 3,057
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> .50
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.54
<EXPENSE-RATIO> 2.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000088525
<NAME> SECURITY EQUITY FUND
<SERIES>
<NUMBER> 6
<NAME> ASSET ALLOCATION SERIES CLASS B
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 3,340
<INVESTMENTS-AT-VALUE> 3,430
<RECEIVABLES> 26
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,457
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 22
<TOTAL-LIABILITIES> 22
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,283
<SHARES-COMMON-STOCK> 146
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 14
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 62
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 76
<NET-ASSETS> 3,435
<DIVIDEND-INCOME> 7
<INTEREST-INCOME> 32
<OTHER-INCOME> 0
<EXPENSES-NET> 25
<NET-INVESTMENT-INCOME> 14
<REALIZED-GAINS-CURRENT> 62
<APPREC-INCREASE-CURRENT> 76
<NET-CHANGE-FROM-OPS> 152
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 184
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,529
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 10
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 25
<AVERAGE-NET-ASSETS> 3,057
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> .49
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.50
<EXPENSE-RATIO> 3.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EXHIBIT 18
MULTIPLE CLASS DISTRIBUTION PLAN
SECURITY EQUITY, GROWTH AND INCOME, ULTRA, INCOME
AND TAX-EXEMPT FUNDS
BACKGROUND
The Securities and Exchange Commission ("SEC") granted an exemptive order on
October 19, 1993 and an amended order on June 15, 1994, permitting Security
Equity, Growth and Income, Ultra, Income and Tax-Exempt Funds to implement a
multiple-class distribution system and impose a contingent deferred sales charge
("CDSC"). In 1995, the SEC adopted Rule 18f-3 under the Investment Company Act
of 1940 (the "Act"), which permits mutual funds to issue multiple classes of
voting stock representing interests in the same portfolio and eliminates the
need for mutual funds to apply for exemptive orders. Rule 18f-3 further allows
mutual funds that are currently relying on exemptive orders to elect to operate
under the new rule rather than continuing to rely on their exemptive order.
Any payments made pursuant to Rule 18f-3(d) shall be made in accordance to a
written plan setting forth the separate arrangement and expense allocation of
each class, and any related conversion features or exchange privileges. This
Plan is intended to comply with the requirements of Rule 18f-3.
DUTIES AND RESPONSIBILITIES OF BOARD OF DIRECTORS
1. Review and approve the initial offering of different classes of shares of
the Fund ("Distribution System"), and any subsequent material amendments to
the plan, prior to its implementation. The approval will include a majority
of the non-interested Directors.
2. On an ongoing basis, a Fund's Directors, pursuant to their fiduciary
responsibilities under the Act and otherwise, will monitor the Fund for the
existence of any material conflicts among the interests of the classes of
shares. The Directors, including a majority of the non-interested
Directors, shall take such action as is reasonably necessary to eliminate
any such conflicts that may develop.
3. The initial determination of the class expenses that will be allocated to a
particular class and any subsequent changes thereto will be reviewed and
approved by a vote of the relevant Fund's Directors, including a majority
of the non-interested Directors.
4. Review at least quarterly, SMC's written report of class expenses which
lists the amounts expended and the purposes for which such expenditures
were made.
5. Any Shareholder Services Plan will be adopted and operated in accordance
with the procedures set forth in Rule 12b-1(b) through (f) as if the
expenditures made thereunder were subject to Rule 12b-1, except that
shareholders will not enjoy the voting rights specified in Rule 12b-1.
<PAGE>
6. Each Fund's Directors will receive quarterly and annual statements
concerning 12b-1 Plan and Shareholder Services Plan expenditures complying
with Rule 12b-1(b)(3)(ii), as it may be amended from time to time. In the
statements, only expenditures properly attributable to the sale or
servicing of a particular class will be used to justify any fee charged to
that class. Expenditures not related to the sale or servicing of a
particular class will not be approved by the Directors to justify any fee
charged to that class. The statements, including the allocations upon which
they are based, will be subject to the review and approval of the
non-interested Directors in the exercise of their fiduciary duties.
7. With regard to those Funds that offer Class B shares that automatically
convert to Class A shares, if a Fund implements by any amendment to its
12b-1 Plan (or, if presented to shareholders, adopts or implements any
amendment of a Shareholder Services Plan) that would increase materially
the amount that may be borne by the Class A shares under the plan, existing
Class B shares will stop converting into Class A shares unless the Class B
shareholders, voting separately as a class, approve the proposal. The
Directors shall take such action as is necessary to ensure that existing
Class B shares are exchanged or converted into a new class of shares ("New
Class A"), identical in all material respects to Class A as it existed
prior to implementation of the proposal, no later than the date such shares
previously were scheduled to convert into Class A shares. If deemed
advisable by the Directors to implement the foregoing, such action may
include the exchange of all existing Class B shares for a new class of
shares ("New Class B"), identical to existing Class B shares in all
material respects except that New Class B shares will convert into New
Class A shares. A New Class A or New Class B may be formed without further
exemptive relief. Exchanges or conversions described in this condition
shall be effected in a manner that the Directors reasonably believe will
not be subject to Federal taxation. Any additional cost associated with the
creation, exchange or conversion of New Class A shares or New Class B
shares shall be borne solely by the Adviser and the Distributor. Class B
shares sold after the implementation of the proposal may convert into Class
A shares subject to the higher maximum payment, provided that the material
features of the Class A plan and the relationship of such plan to the Class
B shares are disclosed in an effective registration statement.
DUTIES AND RESPONSIBILITIES OF INDEPENDENT ACCOUNTANTS
8. On an ongoing basis, the Funds' independent accountants, (the "Expert"), or
an appropriate substitute Expert, will monitor the manner in which the
calculations and allocations are being made.
9. Applicants must have adequate facilities in place to ensure implementation
of the methodology and procedures for calculating the net asset value and
dividend/distributions of the various classes and the proper allocation of
expenses among the classes. This representation must be concurred with by
the Expert. Applicants will take immediate corrective action if the Expert,
or appropriate substitute Expert, does not so concur in the ongoing
reports.
<PAGE>
DUTIES AND RESPONSIBILITIES OF SECURITY MANAGEMENT COMPANY AND SECURITY
DISTRIBUTORS, INC.
10. The classes will each represent interests in the same portfolio of
investments of a Fund (or Series thereof), and be identical in all
respects, except for certain differences related to: (i) the method of
financing certain Class Expenses; (ii) expenses assessed to a class
pursuant to a 12b-1 Plan or Shareholder Services Plan; (iii) the related
voting rights as to matters exclusively affecting one class of shares; (iv)
the requirement that only certain Class B shares will have a conversion
feature providing for automatic conversion to Class A shares a stated
number of years after issuance; (v) exchange privileges; and (vi) class
designation differences.
11. The investment adviser, sub-investment adviser (if any), administrator (if
separate) and distributor of the Fund will be responsible for reporting any
potential or existing conflicts to the Directors. If a conflict arises,
such entities at their own cost will remedy such conflict up to and
including establishing a new registered management investment company.
12. Any person authorized to direct the allocation and disposition of monies
paid or payable by a Fund to meet Class Expenses shall provide to such
Fund's Directors, at least quarterly, a written report of the amounts so
expended and the purposes for which such expenditures were made.
13. Each Fund's distributor will adopt compliance standards as to when each
class of shares may be sold to particular investors. Applicants will
require all persons selling Fund shares to agree to conform to such
standards.
14. Any Shareholder Services Plan will be adopted and operated in accordance
with the procedures set forth in Rule 12b-1(b) through (f) as if the
expenditures made thereunder were subject to Rule 12b-1, except that
shareholders will not enjoy the voting rights specified in Rule 12b-1.
15. Submit to each Fund's Directors quarterly and annual statements concerning
12b-1 Plan and Shareholder Services Plan expenditures complying with Rule
12b-1(b)(3)(ii), as it may be amended from time to time. In the statements,
only expenditures properly attributable to the sale or servicing of a
particular class will be used to justify any fee charged to that class.
Expenditures not related to the sale or servicing of a particular class
will not be presented to the Directors to justify any fee charged to that
class.
16. Dividends paid by a Fund with respect to a class of shares will be
calculated in the same manner, at the same time, on the same day, and will
be paid at the same dividend rate as dividends paid by the Fund with
respect to each other class of shares of the same Fund, except that Class
Expenses and payments made pursuant to a 12b-1 Plan or Shareholder Services
Plan will be borne exclusively by the affected class.
<PAGE>
17. Applicants will take immediate corrective action if the Expert, or
appropriate substitute Expert, does not concur with SMC in their ongoing
reports regarding adequate facilities to calculate the net asset value and
dividend/distributions of the various classes, and proper allocation of
expenses among the classes.
18. Each prospectus will contain a statement to the effect that any person
entitled to receive any compensation for selling or servicing Fund shares
may receive different levels of compensation with respect to one particular
class of shares over another in the Fund.
19. The duties and responsibilities of the Directors of each Fund with respect
to the multi-class distribution system described in this Plan will be set
forth in guidelines which will be furnished to each Fund's Directors.
20. Each Fund will disclose in each of its prospectuses the respective
expenses, performance data, distribution arrangements, services, fees,
initial sales loads, CDSCs, conversion features and exchange privileges
applicable to each class of shares, regardless of whether all such classes
of shares are offered through such prospectus. Each Fund will disclose the
respective expenses and performance data applicable to all classes of
shares in every shareholder report pertaining to such Fund. The shareholder
reports will contain, in the statement of assets and liabilities and
statement of operations, information related to the Fund as a whole
generally and not on a per class basis. Each Fund's per share data,
however, will be prepared on a per class basis with respect to all classes
of shares of such Fund. To the extent any advertisement or sales literature
describes the expenses or performance data applicable to any class of
shares of a Fund, it will also disclose the respective expenses and/or
performance data applicable to all classes of shares of such Fund. The
information provided by Applicants for publication in any newspaper or
similar listing of a Fund's net asset value and public offering price will
present each class of shares separately.
21. Class B shares will convert to Class A shares on the basis of the relative
net asset values of the two classes without the imposition of any sales
load, fee or other charge.
22. With regard to those Funds that offer Class B shares that automatically
convert to Class A shares, if a Fund implements by any amendment to its
12b-1 Plan (or, if presented to shareholders, adopts or implements any
amendment of a Shareholder Services Plan) that would increase materially
the amount that may be borne by the Class A shares under the plan, existing
Class B shares will stop converting into Class A shares unless the Class B
shareholders, voting separately as a class, approve the proposal. The
Directors shall take such action as is necessary to ensure that existing
Class B shares are exchanged or converted into a new class of shares ("New
Class A"), identical in all material respects to the Class A as it existed
prior to implementation of the proposal, no later than the date such shares
previously were scheduled to convert into Class A shares. If deemed
advisable by the Directors to implement the foregoing, such action may
include the exchange of all existing Class B shares for a new class of
shares ("New Class B"), identical to existing Class B shares in all
material respects except that New Class B shares will convert into New
Class A shares. A New Class A or New Class B may be formed without further
exemptive relief. Exchanges or conversions described in this condition
shall be effected in
<PAGE>
a manner that the Directors reasonably believe will not be subject to
Federal taxation. Any additional cost associated with the creation,
exchange or conversion of New Class A shares or New Class B shares shall be
borne solely by the Adviser and the Distributor. Class B shares sold after
the implementation of the proposal may convert into Class A shares subject
to the higher maximum payment, provided that the material features of the
Class A plan and the relationship of such plan to the Class B shares are
disclosed in an effective registration statement.
Dated this 27th day of November, 1995 AMY J. LEE
Amy J. Lee, Secretary
Security Mutual Funds
